• Energy Research

In a climate constrained future, hybrid energy-economy model coupling gives additional insight into interregional competition, trade, industrial delocalisation and overall macroeconomic consequences of decarbonising the energy system. Decarbonising the energy system is critical in mitigating climate change. This chapter summarises modelling methodologies developed in the ETSAP community to assess economic impacts of decarbonising energy systems at a national level. The preceding chapter focuses on a global perspective. The modelling studies outlined here show that burden sharing rules and national revenue recycling schemes for carbon tax are critical for the long-term viability of economic growth and equitable engagement on combating climate change. Traditional computable general equilibrium models and energy systems models solved in isolation can misrepresent the long run carbon cost and underestimate the demand response caused by technological paradigm shifts in a decarbonised energy system. The approaches outlined within have guided the first evidence based decarbonisation legislation and continue to provide additional insights as increased sectoral disaggregation in hybrid modelling approaches is achieved.

This paper uses the model GEMINI-E3 to simulate and assess the transition scenario to 2020 framed by the European Union in its “Energy–Climate” Directive, and it raises several issues in this connection. After a brief description of the model, the paper presents the results of the scenarios, mainly the values of the major indicators of carbon price — both in the ETS and in non-ETS sectors — and the welfare cost of the EU policy under the various configurations considered. While it is independent of the scenario in the ETS sector, in the non-ETS sector the value of carbon is very sensitive to the provisions of the Directive and in particular the option of resorting to the flexibility mechanisms. The welfare cost also varies significantly according to scenarios, and its value for the entire EU is more than double in the scenario closest to the Directive as compared to the least-cost one. The paper also addresses the very sensitive issue of carbon leakage and argues in favor of a new concept of “net leakage.” The analysis shows that while carbon leakage may affect some specific sectors, at the aggregate level it does not represent a real concern, with a magnitude of at most a few percent of GHG abatement by Annex B countries.

Some commentators claim that the oil market has achieved within a few months what international bureaucrats have struggled to obtain in a decade of international climate negotiations. The fallacy of the oil price argument is that substitutions and income effects that would result from higher oil prices are not considered. Using a computable general equilibrium model, we show that high oil prices cannot serve as substitutes for effective climate policies.

This dataset contains the underlying data (Redistribution of CBAM) for the journal article by Perdana and Vielle, 2022 published in Energy Policy in September 2022.

In a climate constrained future, hybrid energy-economy model coupling gives additional insight into interregional competition, trade, industrial delocalisation and overall macroeconomic consequences of decarbonising the energy system. Decarbonising the energy system is critical in mitigating climate change. This chapter summarises modelling methodologies developed in the ETSAP community to assess economic impacts of decarbonising energy systems at a global level. The next chapter of this book focuses on a national perspective. The range of economic impacts is regionally dependent upon the stage of economic development, the level of industrialisation, energy intensity of exports, and competition effects due to rates of relative decarbonisation. Developed nation's decarbonisation targets are estimated to result in a manageable GDP loss in the region of 2 % by 2050. Energy intensive export driven developing countries such as China and India, and fossil fuel exporting nations can expect significantly higher GDP loss of up to 5 % GDP per year by mid-century.

Current technological improvements are yet to put the world on track to net-zero, which will require the uptake of transformative low-carbon innovations to supplement mitigation efforts. However, the role of such innovations is not yet fully understood; some of these ‘miracles’ are considered indispensable to Paris Agreement-compliant mitigation, but their limitations, availability, and potential remain a source of debate. We evaluate such potentially game-changing innovations from the experts' perspective, aiming to support the design of realistic decarbonisation scenarios and better-informed net-zero policy strategies. In a worldwide survey, 260 climate and energy experts assessed transformative innovations against their mitigation potential, at-scale availability and/or widescale adoption, and risk of delayed diffusion. Hierarchical clustering and multi-criteria decision-making revealed differences in perceptions of core technological innovations, with next-generation energy storage, alternative building materials, iron-ore electrolysis, and hydrogen in steelmaking emerging as top priorities. Instead, technologies highly represented in well-below-2°C scenarios seemingly feature considerable and impactful delays, hinting at the need to re-evaluate their role in future pathways. Experts' assessments appear to converge more on the potential role of other disruptive innovations, including lifestyle shifts and alternative economic models, indicating the importance of scenarios including non-technological and demand-side innovations. To provide insights for expert elicitation processes, we finally note caveats related to the level of representativeness among the 260 engaged experts, the level of their expertise that may have varied across the examined innovations, and the potential for subjective interpretation to which the employed linguistic scales may be prone to.

In this paper, we evaluate the recent developments of European climate policy from the perspective of the 2050 European commitments with regards to GHG emissions reduction. We use a non-cooperative meta-game approach for assessing European burden-sharing issues. We analyze the European Effort Sharing Decision proposed in July 2016 and evaluate its cost per member states. We simulate several other policy options regarding this sharing decision with the aim to stress the main policy implications of the new proposal. Considering the Brexit referendum that took place June 23, 2016 in the United Kingdom, we analyze different possible scenarios of British participation in European climate policy. We show that Brexit could have a significant negative impact on the United Kingdom’s climate-policy cost and a relatively positive effect on the remaining twenty-seven EU member states.