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Modelling Economic Effects of the Renewable Energy Expansion – The German Case –

Modelling Economic Effects of the Renewable Energy Expansion – The German Case –. Funded by the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety ( FKZ 0327652) Jürgen Blazejczak , Frauke Braun , Dietmar Edler, Wolf-Peter Schill DIW Berlin

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Modelling Economic Effects of the Renewable Energy Expansion – The German Case –

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  1. Modelling Economic Effects of the Renewable Energy Expansion– The German Case – Funded by the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (FKZ 0327652) Jürgen Blazejczak, Frauke Braun, Dietmar Edler, Wolf-Peter Schill DIW Berlin 34th IAEE International Conference Stockholm, June 20, 2011

  2. Outline • Introduction • Renewables in Germany • Research questions • The model • Core model (NiGEM) • RES-specific extension (SEEEM) • Model application • Two scenarios • Macroeconomic and sectoral results • Conclusions 34th IAEE International Conference

  3. Outline • Introduction • Renewables in Germany • Research questions • The model • Core model (NiGEM) • RES-specific extension (SEEEM) • Model application • Two scenarios • Macroeconomic and sectoral results • Conclusions 34th IAEE International Conference

  4. Renewables in Germany • Substantial growth in: • Renewable shares of energy consumption • Investments and turnover in renewable industries • Employment in renewable industries • (BMU, 2011) • (BMU, 2011 and own calculations) 34th IAEE International Conference

  5. Motivation andresearchquestions • Positive economic impacts: • Investment and jobs in renewable industries • Exports of RES technologies, diminished imports • Negative impacts: • Additional costs compared to conventional energy supply • Substituted conventional investments • Research questions: • Economic net effects of renewable energy expansion in Germany? • Sectoral implications? + - ? 34th IAEE International Conference

  6. Outline • Introduction • Renewables in Germany • Research questions • The model • Core model (NiGEM) • RES-specific extension (SEEEM) • Model application • Two scenarios • Macroeconomic and sectoral results • Conclusions 34th IAEE International Conference

  7. Demand for RES facilities, maintenance, biomass • Exports of facilities and components • Diminished imports of fossil fuels • Diminished conventional investments • Additional costs Modellingstrategy Exogenousimpulses • Monetary and fiscal policy • Exchange rates • Expectations of economic agents • Investment effects • Substitution effects • Trade effects • Budget effects • Endogenous dynamic effects Interrelated mechanisms Assumptions and conditions The model • Economic growth • Income and consumption • Employment • Macroeconomic and sectoral dimensions Macroeconomicand sectoral effects 34th IAEE International Conference

  8. Core model (NiGEM) • Strategy: Extension of NiGEMmodel • Developed by the National Institute of Economic and Social Research • Well-established econometric model of the world economy • Multi-country model with > 5000 variables • Empirically estimated behavioural equations • Forward-looking expectations of agents (exchange rates, prices, wages) 34th IAEE International Conference

  9. NiGEM – a multi-country model U.S. Germany UK • Interrelations: • World trade • Capital flows Japan other OECD countries LatinAmerica other world regions OPEC-Countries 9

  10. Sectoral and RES-specific extensions (SEEEM) ~ 170 macro variables Final demand NiGEM Germany ~ 3000 sectoral variables • Domesticproductiononly Transfer modulefor final demand Input-Output module Standard industry structure (71 sectors) Renewable energy industries (14 sectors) Sectoral grossvalueadded Employment

  11. Modelling of renewable sectors • Seven renewable technologies • Wind • Photovoltaic • Solar thermal • Hydro power • Biomass • Biogas • Geothermal • Two sectors for each technology: • Production of facilities • Operation and maintenance of facilities  14 additional sectors in Input-Output structure Renewable energy industries (14 sectors) 34th IAEE International Conference

  12. Outline • Introduction • Renewables in Germany • Research questions • The model • Core model (NiGEM) • RES-specific extension (SEEEM) • Model application • Two scenarios • Macroeconomic and sectoral results • Conclusions 34th IAEE International Conference

  13. Two Scenarios • Renewable expansion scenario for Germany (EXP) • Reflects official “Lead Study“ 2009 (BMU) • Projection of RES exports • Counterfactual NULL scenario • No renewable expansion in Germany • No RES exports • Sensitivity analyses • “Decreasing competitiveness” • “Flexible labour market“ • Scope of analysis: 2000-2030 • Historic data for RES expansion and exports until 2008 34th IAEE International Conference

  14. 40 30 Investments in RES facilities,operation and maintenance, demand for biomass 20 Exports ofcomponents 10 Exports of facilities 0 Diminishedconventionalinvestments -10 Additional costs Diminishedimportsof fossil fuels -20 -30 2000 2010 2020 2030 Scenario inputs: economic impulses Expansion scenario 2000-2030: Real prices (2000), billion Euro 34th IAEE International Conference

  15. Macroeconomicresults Differences EXP-NULL in %  Increase of GDP and productivity  Small (positive) net employment effects

  16. GDP Exports Imports 3,0 2,5 2,0 1,5 1,0 0,5 0,0 2010 2020 2030 2010 2020 2030 2010 2020 2030 EXP Decreasingcompetitiveness Sensitivityanalysis“Decreasing competitiveness” Differencesto NULL in %  Increased unit costs decrease international competitiveness of German economy  Lower exports, higher imports, slower GDP growth

  17. GDP Productivity Employment 3,0 2,5 2,0 1,5 1,0 270 0,5 166 98 0,0 22 15 3 2010 2020 2030 2010 2020 2030 2010 2020 2030 EXP Flexible labourmarket Sensitivity analysis “Flexible labour market” Differencesto NULL in %  Econometric model equations imply high natural unemployment (instead, strong productivity growth)  More flexible labour market: GDP growth leads to increased employment

  18. An exemplary sectoral outcome  Manufacturing industry is the main winner

  19. Outline • Introduction • Renewables in Germany • Research questions • The model • Core model (NiGEM) • RES-specific extension (SEEEM) • Model application • Two scenarios • Macroeconomic and sectoral results • Conclusions 34th IAEE International Conference

  20. Conclusions • Development and application of a flexible economic model • Case study: German RES expansion has positive net effects on economic growth • Net employment effects tend to be small, but positive; depend on labour market conditions • Identification of winning and losing sectors • Model could be further expanded to cover energy efficiency measures, electric vehicles etc. 34th IAEE International Conference

  21. Backup 34th IAEE International Conference

  22. Development ofsharesofimported intermediates atgrossproduction in EXP 40% Manufacturing industry 35% 30% 25% Total 20% 15% Agriculture, Forestry, Fishery 10% Buildingsector 5% Services 0% 2010 2020 2030 34th IAEE International Conference

  23. 3,0 2,5 2,0 1,5 1,0 0,5 22 15 15 3 2 11 0,0 2010 2020 2030 2010 2020 2030 2010 2020 2030 Basisvariante Moderate Exporterfolge „Moderate exportsuccess“ Differencesto NULL in % GDP Productivity Employment  Slightlylower GDP growth

  24. Core model (NiGEM) • Strategy: Extension of National Institute’s NiGEM model • Well-established econometric model of the world economy • Multi-country model with > 5000 variables • Empirically estimated behavioural equations • Error-correction specification  long-term equilibria • Forward-looking expectations of agents (exchange rates, prices, wages) • Causal relationships modelled: • Multiplier effect and accelerator effect • Price-wage mechanism • Adjustments of exchange rates, balance of payments 34th IAEE International Conference

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