• Energy Research

Lack of consensus on an international agreement for reducing Greenhouse Gas Emissions (GHG) emissions eventually leads to asymmetric climate policies which not only increase the cost of reducing emissions but also decrease the effectiveness of the climate policy, through carbon leakage. We calculate the carbon leakage rate when EU undertakes a unilateral climate policy and we assess the importance of the competitiveness channel on carbon leakage. Our analysis is global and mirrors energy and climate policies and commitments that are currently announced at country level. The effectiveness of possible measures to mitigate carbon leakage is also evaluated and the results emphasize on the importance of the size of the group of countries participating in the GHG mitigation effort. The analysis is based on the results obtained using the GEM-E3 model, a global multi-sector and multi-country computable general equilibrium model. It is found that total carbon leakage is around 28%, over the 2015–2050 period, when the EU acts alone with moderate Armington trade substitution elasticity values; leakage rates are found to increase when assuming higher trade elasticities. The size and composition, in terms of GHG and energy intensities, of the group of regions undertaking emission reductions matter for carbon leakage. The paper finds that the leakage is significantly reduced when China joins the mitigation effort. If the USA joins the EU effort, the leakage rate drops only to 25% and if alternatively China joins the EU the leakage rate drops to 3% over the 2015–2050 period. This is attributed to both the market size of China and to the energy intensity features of its production. Chemicals and metals are industries prone to higher leakage rates.

Research and Innovation (R&I) are a key part of the EU strategy towards stronger growth and the creation of more and better jobs while respecting social and climate objectives. In the last decades, improvements in costs and performance of low-carbon technologies triggered by R&I expenditures and learning-by-doing effects have increased their competitiveness compared to fossil fuel options. So, in the context of ambitious climate policies as described in the EU Green Deal, increased R&I expenditures can increase productivity and boost EU economic growth and competitiveness, especially in countries with large innovation and low-carbon manufacturing base. The analysis captures the different nature of public and private R&I, with the latter having more positive economic implications and higher efficiency as it is closer to industrial activities. Public R&D commonly focuses on immature highly uncertain technologies, which are also needed to achieve the climate neutrality target of the EU. The model-based assessment shows that a policy portfolio using part of carbon revenues for public and private R&D and development of the required skills can effectively alleviate decarbonisation costs, while promoting high value-added products and exports (e.g., low-carbon technologies), creating more high-quality jobs and contributing to climate change mitigation.

India���s energy sector has grown rapidly in recent years with buildings playing a major role as they constitute about 40% of India���s final energy demand. This paper provides a quantitative model-based assessment of the evolution of India���s building sector in terms of both energy systems transition and its macroeconomic implications. The coupling of a bottom-up technology-rich energy system model with a macroeconomic computable general equilibrium (CGE) model provides an innovative approach for the in-depth robust analysis of the energy transition in India���s building stock and the induced macroeconomic and employment impacts on the Indian economy. Two main scenarios are explored, namely: the business-as-usual (BAU) and the advanced nationally determined contribution (Adv. NDC) scenarios. The investigation shows that efficiency improvements are vital to counteract the upward pressure on energy demand in the building sector. Energy demand in the building sector results in an increase of CO2 emissions by 27% between 2015 and 2030 due to the technology transition from inefficient solid fuels (traditional biomass) to cleaner energy (liquefied petroleum gas (LPG), piped natural gas (PNG)) before shifting to electricity. The Adv. NDC scenario also leads to a shift in employment from agriculture and towards sectors that benefit from the implementation of Adv. NDC, especially in the construction sectors, electricity and manufacturing sectors.

Abstract This study describes the models employed, the main scenario constraints and the energy and climate policy assumptions for a companion study on “European decarbonisation pathways under alternative technological and policy choices: A multi-model analysis”. We describe the main characteristics, the coverage and applications of seven large-scale energy-economy EU models used in the aforementioned study (PRIMES, GEM-E3, TIMES-PanEu, NEMESIS, WorldScan, Green-X and GAINS). The alternative scenarios modelled and the underlying assumptions and constraints are also specified. The main European energy and climate policies assumed to be implemented in the Reference scenario are outlined. We explain the formula used for the decomposition of carbon emissions reduction achieved in the basic decarbonisation scenario relative to the reference. Detailed model results for the power generation mix and RES deployment in the basic decarbonisation scenario in the EU are also presented. We conclude the description of our modelling approach with a brief comparison of the strengths and weaknesses of the models used.

Carbon leakage features prominently in the climate policy debate in economies implementing climate policies, especially in the EU. The imposition of carbon pricing impacts negatively the competitiveness of energy-intensive industries, inducing their relocation to countries with weaker environmental regulation. Unilateral climate policy may complement domestic emissions pricing with border carbon adjustment to reduce leakage and protect the competitiveness of domestic manufacturing. Here, we use an enhanced version of GEM-E3-FIT model to assess the macro-economic impacts when the EU unilaterally implements the EU Green Deal goals, leading to a leakage of 25% over 2020–2050. The size and composition, in terms of GHG and energy intensities, of the countries undertaking emission reductions matter for carbon leakage, which is significantly reduced when China joins the mitigation effort, as a result of its large market size and the high carbon intensity of its production. Chemicals and metals face the stronger risks for relocation to non-abating countries. The Border Carbon Adjustment can largely reduce leakage and the negative activity impacts on energy-intensive and trade-exposed industries of regulating countries, by shifting the emission reduction to non-abating countries through implicit changes in product prices.

Abstract The macroeconomic and sectoral effects of differentials in energy prices between the EU and the non-EU countries in the horizon to 2050 are assessed with the use of GEM-E3, a Computable General Equilibrium model. Alternative scenario variants are quantified: In the first case EU policies and market structures regarding taxation, penetration of RES in power generation and higher market power of EU energy producers lead to higher EU energy prices compared to those recorded in the non-EU countries. In the second variant developments in non-EU countries lead to lower energy prices as compared to those in the EU. Simulation results show that higher EU energy prices lower EU GDP compared to the baseline case. The impact ranges in magnitude between 0.02 and 0.41%, cumulatively over 2015–2050, depending on the drivers of price differentials and on the use of the additional tax revenues generated. Taxation and power generation mix policies are found to have the largest impact on economic activity. The results indicate the challenges of electricity and gas price developments that EU policy making needs to address in the following years so as to ensure long-term competitiveness and growth.

Abstract The implementation of determined or ambitious environmental policies may lead to regressive distributional impacts, disproportionately affecting low income population groups. The imposition of additional taxes on energy products affects negatively low-income households that face funding scarcity, increasing the risk of energy poverty. In this study, the state-of-the-art general equilibrium model GEM-E3-FIT is significantly expanded to represent ten income classes in all EU Member States. Each income class is differentiated by income sources, savings, and consumption patterns. We use the new modelling capabilities of GEM-E3-FIT to quantify the distributional impacts of European Union's ambitious emission reduction targets, in particular exploring their effects on income by skill and on energy-related expenditure by income class. The analysis shows that the transition to climate neutrality may increase modestly inequality across income classes, with low-income households facing the most negative effects. However, using carbon tax revenues as lump-sum transfers to support household income and as reduced social security contributions will increase employment and reduce income inequality across households in EU countries.