Energy systems in Europe are becoming more harmonised and the European Union is working to establish a single market for energy. In this thesis, it is therefore regarded as a system failing to consider a separate and isolated Swedish energy system. Extending the system boundaries enables increased resource efficiency. System failings involve a discrepancy between institutional conditions and the motives for economy, when rationality for the individual actors is not rational to society.

It is important to reduce the anthropogenic emissions of climate gases, carbon dioxide in particular. Climate changes with severe negative consequences can be expected unless radical measures are taken to reduce emissions.

The aim of this thesis is to examine the possibilities to reduce carbon emissions in a harmonised EU energy market, and to identify system failings. In the thesis, it is shown how combined heat and power (CHP) generation in Sweden is able to reduce the global emissions of carbon dioxide and improve resource utilisation. Because combustion of biofuels is not considered to release any net amounts of carbon dioxide to the atmosphere, using biofuels in combined generation can displace carbon emissions from other power generation.

In Sweden, where electric power supply is dominated by hydropower and nuclear power, increased use of electricity may cause emissions of carbon dioxide in another country. Inversely, decreased use of electricity can reduce total carbon emissions. Accordingly, electricity conservation measures undertaken in Sweden can reduce global carbon emissions. This occurs when the export of electricity from Sweden displaces power production involving fossil fuels, for example coal condensing power generation. Analogously, when decreased import of electricity to Sweden reduces fossil fuel generation in for example Denmark, total carbon emissions will decrease.

System failings illustrated in the thesis include pricing of district heating that is not based on the marginal costs of the producer, but rather on the customers' willingness to pay. Another example of a system failing is the absence of prices for various kinds of environmental pollution, which could be introduced through, for example, uniform taxation schemes.