Cutting the Cable CGE Analysis (Böhringer Kriström 2026)

Reference: Böhringer, C. and Kriström, B. (2026). Soaring Electricity Prices: Is Cutting the Cable a Good Idea? A Computable General Equilibrium Analysis for Sweden. CESifo Working Paper No. 12765, June 2026. ISSN 2364-1428.

Summary

A computable general equilibrium (CGE) study quantifying the economy-wide costs and benefits of restricting Swedish electricity exports to protect domestic electricity- and export-intensive (EEI) industries — iron and steel, non-ferrous metals, pulp and paper — from rising international electricity prices. The authors colloquially call export restriction “cutting the cable”, explicitly generalizing it beyond formal export quotas to cover interconnector-capacity restrictions more broadly (halting new interconnector builds, reducing transfer capacity, imposing emergency limits) — citing Sweden’s 2024 rejection of the Hansa PowerBridge cable to Germany as a real-world instance (see Svk Transmission Grid Planning › HVDC interconnectors — three projects paused (May 2026)).

Model: multi-sector CGE model of the Swedish economy calibrated to 2020 JRC/GTAP input-output data (23 sectors, 8 power generation technologies: coal, oil, gas, nuclear, biomass, hydro, wind, PV). Hydro (~40%) and nuclear (~28%) dominate Swedish generation; both are treated as supply-inelastic (capacity fixed at benchmark level) for political/physical reasons, so only wind, biomass, and solar can expand output in response to higher prices. Sweden was a net exporter in the 2020 base year: 23 TWh net exports out of 164 TWh total generation (~14% net export share).

Scenarios (all relative to a BMK 2020 benchmark, under simulated international electricity price shocks from +10% to +100%):

• REF — laissez-faire / free trade
• CTC (“cutting the cable”) — export quota fixing net electricity exports at the benchmark (pre-shock) level; the representative agent receives the resulting quota rents
• SOY — uniform output subsidy to EEI sectors, calibrated to match CTC’s aggregate EEI output
• SIL — uniform employment subsidy to EEI sectors, calibrated to match CTC’s aggregate EEI employment

Key findings

• EEI industries are structurally tiny. The three EEI sectors together account for only ~4% of Swedish production and ~2.5% of value-added/wages, even though they contribute >10% of exports. This asymmetry is the paper’s central mechanism: because EEI industries are a small share of the economy, subsidizing them to match CTC’s protective effect is cheap, while restricting all electricity exports to protect them is not.
• Export restriction protects EEI output/employment but at large welfare cost. For a doubling of international electricity prices, REF (free trade) delivers a >3.5% gain in real consumption (Hicksian equivalent variation) for the representative Swedish household; CTC (export quota) cuts that gain to <1%.
• Targeted subsidies (SOY/SIL) are far more cost-effective than export quotas. Both nearly replicate CTC’s EEI output/employment protection while preserving almost all of REF’s welfare gain — because the required subsidy payments stay small (EEI’s small economic footprint again).
• Free trade redistributes factor income sharply toward power-generation rents. Rising international electricity prices shift Swedish factor earnings away from mobile labor and capital and toward technology-specific rents in electricity generation — especially hydro and nuclear, since their supply is capacity-capped and cannot expand to capture the higher price through volume. Under CTC, factor earnings stay close to benchmark levels instead, with the representative agent capturing a modest quota rent.
• This distributional shift is the paper’s stated case for export restriction. If the labor/capital → generation-rent redistribution is judged undesirable (e.g., on inequality grounds) and cannot be corrected cheaply (e.g., via lump-sum transfers), the authors argue “cutting the cable” could be justified on equity grounds despite its efficiency cost — this is explicitly conditional, not a recommendation.
• Explicit real-world framing: the CTC scenario is described as “less dramatic than its name suggests” — it could just as well mean denying a new interconnector as literally cutting an existing one. The paper cites the Swedish government’s 2024 denial of the Hansa Power Bridge as an actual instance (route and capacity details come from the wiki’s own coverage, not the paper).
• Modelling caveats: Sweden is a price taker (foreign prices exogenous); hydro, nuclear and fossil generation are held at base-year levels (supply elasticity zero) while wind, biomass and solar use an assumed uniform elasticity of 0.5; the paper reports its sensitivity analysis leaves the key findings unchanged, though quantitative results shift. The authors frame the protective policies as temporary adjustment measures rather than permanent industrial policy, and note both quotas and industry subsidies may conflict with EU internal market rules.
• Stated limitations: the model uses a single representative household, so it does not capture the regressive distributional effects of higher electricity prices on the expenditure side across heterogeneous households — a different (and separately real) equity concern from the factor-income redistribution the model does capture. It also does not address the possibility that rents from technologies such as hydro, biomass, solar or wind accrue partly to foreign owners, which would lower the domestic welfare gains from free trade.
• Literature gap claimed: the authors state this is the first economy-wide (as opposed to energy-system-only) study of Swedish electricity export restriction. The closest prior Swedish study cited, Diczfalusy and Hellner (2023) for the Expert Group on Public Economics (ESO), used the TIMES-NORDIC energy-system model and found export restrictions keep domestic prices lower but raise system costs — a partial-equilibrium finding this paper extends to a full economy-wide welfare framework.

Relevance to wiki