Symposium on Options for Energy
Environmental Policy in Japan
July 6, 2013
The EU Energy and Climate Policy
and Its Macroeconomic Impacts on
the EU Economy
Unnada Chewpreecha, Cambridge Econometrics
06/07/2011
Disclaimer
• This presentation does not necessarily represent
the views of the European Commission (EC) or
any collaborating institution
Overview
• The EU Energy and Climate policy
• Assessing macroeconomic impacts using
E3ME and E3MG
• Headline results
Overview
• The EU Energy and Climate policy
• Assessing macroeconomic impacts using
E3ME and E3MG
• Headline results
The EU Energy and Climate Policy
• Headline 20-20-20 energy and climate change
targets for 2020
20% cut in GHG
emissions (from
1990 levels)
20% improvement
in energy
efficiency (from
2005)
20% share of
renewable energy
The EU Climate and Energy Package
• A set of binding legislation which aims to ensure
the 20-20-20 targets are met
EU ETS
Effort sharing
at national
level
RES targets
at national
level
CCS
framework
• Separate Energy Efficiency Plan and the Energy
Efficiency Directive
Complexity and Interaction with Other
EU Targets and Policies
• The 20-20-20 targets are overlapped
– e.g. RES target could undermined the EU-ETS
• But one target alone will not necessary lead to
other targets being met
– market failure e.g. pricing mechanism alone may not lead to
RES and or energy-efficiency targets being met
• Complexity in designing national targets to
achieve one single EU target
• Other factors undermining EU-ETS
– recent economic crisis
– EU ETS allowance prices collapse, structural reform of ETS
– no incentive for industries to invest in low carbon
technologies
Complexity and Interaction with Other
EU Targets and Policies
• Link to other EU 2020 Targets such as
employment and R&D and other EU policies
such as resource efficiencies
– need careful policy considerations to avoid contradictions
– examples:
• increase in biocrops leads to higher food price
• material tax increase costs of investment goods
• EU ETS and competitiveness
– negative impacts can be avoided/mitigated through measures
such as Environmental Tax Reform (ETR)
Examples of Energy and Climate
Policies in the EU
key
TVs
(+labeling)
Regulation
2009/642/EC
GHG Effort
Sharing
Decision
2009/406/EC*
Circulators
Regulation
2009/641/EC
EU-ETS
RES
directive
2009/28/EC
(Transport))
Recast of
the EPBD
2010/31/EU9
RES
directive
2009/28/EC
(Power
Generation)
Regulations
Electric
motors
Regulation
2009/640/EC
Freezers/
refrigerators
(+labeling)
Regulation
2009/643/EC
GHG Effort
Sharing
Decision
2009/406/EC*
Regulation
Euro VI for
heavy duty
vehicles
2009/595/EC
MBI
Labelling
regulation
for tyres
2009/1222/E
C
EU Policies Beyond 2020
• 2030 framework and 2050 roadmap
• Continue the momentum of 2020 targets and
taking account of long-term climate goal (2°C
degree)
• Build on the experience of, and lessons learnt
from, the 2020 framework and identify where
improvements can be made.
EU Policies Beyond 2020
GHG Reduction (%) Compared to 1990
-100
-80
-60
-40
-20
0
20
40
Total
Power (CO2)
Industry (CO2)
2005
Transport (incl. CO2 aviation, excl.
maritime)
Residential and services (CO2)
Agriculture (Non-CO2)
Other Non-CO2 emissions
source(s): 2050 Roadmap, DG Climate Action, European Commission
2030
2050
Overview
• The EU Energy and Climate policy
• Assessing macroeconomic impacts using
E3ME and E3MG
• Headline results
Assessing Macroeconomic Impacts using
E3ME and E3MG
• E3ME (Europe) and E3MG (world) models are:
–
–
–
–
computer-based econometric models…
covering economy, energy and emissions…
with detailed sectors (linked by IO tables) and regions (Japan)…
and endogenous technological progress
• They can be used for forecasting but are typically
used for policy analysis
• They are versatile tools that can be used for economic
and economy/environment analysis
• They have often been used to support the official
European Commission policy impact assessments
Modelling Structure – E3 Model
ECONOMY
as in national
accounts
prices
and
activity
e.g. industrial emissions of SF6
funding R&D
investment
fuel use
TECHNOLOGY
specifications &
costs
pollutionabatement
equipment
fuel use
ENERGY
as in energy
statistics
fuel prices
and costs
fuel use
ENVIRONMENTAL
EMISSIONS
as in environmental
statistics
How Energy and Environment Taxes
are Modelled in E3ME/E3MG
Increase in energy prices
Reduction in energy consumption
Reduction in emissions
Households
Industry
Loss of real income
Loss of competitiveness
Loss of jobs
Worsening trade
balance
Lower spending
Loss of output
Studies Using E3ME/E3MG
Topics
E3ME/E3MG was used to..
EU ETS
assess the economic impacts of different mechanisms for allocating ETS
allowances
The Energy Taxation
Directive
model the Europe-wide economic and environmental impacts of different
energy taxation regimes
Environmental Tax Reform
provide European economic and environmental impacts of different ETR
regimes,
Energy Efficiency
provide input to the proposed Energy Efficiency Directive by providing a
quantitative assessment of the measures proposed to reduce energy
demand.
Moving Beyond 20%
provide input for DG CLIMA’s communication on changing the 2020 GHG
target to 30% by assessing the economic impacts of a 30% target
Green Jobs
model labour market implications of the EU climate and energy policies
Copenhagen targets
analyse global economic impacts of the agreed Copenhagen targets
Studies Using E3ME/E3MG (cont)
Topics
E3ME/E3MG was used to..
Non-CO2 trading scheme
assessing the impacts of introducing an EU SO2/NOx trading scheme
Resource efficiency
model EU resource efficiency policies through the E3ME material submodel which covers physical resources such as food, feed, wood, metals,
minerals,
Carbon leakage
examine the extend of carbon leakage for EU industries as a result of EU
climate policies
REDD
provide an assessment of the two-way linkages between REDD and global
carbon markets. E3MG was expanded to incorporate marginal abatement
cost curves specific to the forestry sector
Global 2c scenario
investigate global economic implications of reaching the 2c target in 2050
Environmental harmful
subsidies
investigate the implications of removing environmental harmful subsidies in
the EU
other non-environmental
applications
carry out analysis on trade, labour market, sector study, R&D and
investment multipliers, commodity prices and government policies
Overview
• The EU Energy and Climate policy
• Assessing macroeconomic impacts using
E3ME and E3MG
• Headline results
Headline Results
• Results taken from CE work done for DG
Employment “Studies on Sustainability Issues
– Green Jobs; Trade and Labour”, 2011
• E3ME was used to estimate macroeconomic
and labour market impacts of the EU energy
and climate policies
Scenarios Summary
• Reference case where 20% renewables and
GHG targets are met through mixture of MBIs
and regulations
• Two scenarios where target is met differently
• Two scenarios with additional targets (30%
GHG and 20% energy efficiency target)
• Revenues from MBIs recycled via income tax
Headline Results: Impacts on GDP
EU27 GDP
% difference from
baseline
Ref + Energy efficiency target is also met
0.5%
S6
0.4%
Ref: 20% Renewable + GHG targets met
(mix MBIs & regulations)
0.3%
Ref: through MBIs
0.2%
Ref+ 30% GHG targets met
(mix MBIs & regulations)
S4
0.1%
0.0%
2005
2010
2015
-0.1%
2020
S5
ref
2025
Ref: through regulations
S3
-0.2%
Source(s):
E3ME, Cambridge Econometrics.
Headline Results: Impacts on Employment
Results Summary
• Positive GDP and employment results are
driven by investment in renewables
• MBIs generate revenues to be recycled while
regulations increase costs but no revenues
• Large amount of investment requires to meet
energy efficiency target (IEA 2010 estimates for every
1% reduction in energy consumption, the EU buildings sector
must invest €31.4bn a year)
Revenue Recycling and Investment
Increase in energy prices
Reduction in energy consumption
Reduction in emissions
Households
Industry
Revenue recycling:
lower income tax
Investment
Loss of real income
Loss of competitiveness
Loss of jobs
Worsening trade
balance
Lower spending
Loss of output
Sensitivity: Revenue Recycling
Different Revenue Recycling Methods
% difference from
baseline
1.0
0.8
0.6
0.4
GDP
Employment
0.2
0.0
-0.2
S4 income
tax
1/4
1/4
1/4
1/4
all
Transport machinery renewables Buildings investment
3/4 income 3/4 income 3/4 income 3/4 income
tax
tax
tax
tax
social
benfits
Employers
social
security
Important Notes
• E3ME/E3MG modelling results form part of
wider impact assessments
• Complement other analysis such as
–
–
–
–
–
other model types (CGEs)
quantitative analysis (e.g. CBA, input-output)
qualitative study, literature reviews
sector specific studies
survey and consultations
• All above need to be taken into account when
carry out an impact assessment
Overview- Summary
• The EU Energy and Climate policy
– 20-20-20 targets and beyond
– issues and complexities
• Assessing macroeconomic impacts using
E3ME and E3MG
– overview of the models
– model applications
• Headline results
– macroeconomic impacts from EU energy and environmental
policies
– implications of various revenue recycling methods
Thank you for your attention!
• The DG CLIMA web pages contain further
information, including the full EC communication
– http://ec.europa.eu/clima/policies/brief/eu/index_en.htm
• For full E3ME and E3MG projects and
published papers as well as the model manual
– www.e3me.com
– www.e3mgmodel.com
• For further information on the modelling:
– Unnada Chewpreecha, uc@camecon.com or
– Hector Pollitt, hp@camecon.com