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The EU Energy and Climate Policy and Its Macroeconomic Impacts on the EU Economy

The EU Energy and Climate Policy and Its Macroeconomic Impacts on the EU Economy. Symposium on Options for Energy Environmental Policy in Japan July 6, 2013. Unnada Chewpreecha, Cambridge Econometrics. 06/07/2011. Disclaimer.

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The EU Energy and Climate Policy and Its Macroeconomic Impacts on the EU Economy

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  1. The EU Energy and Climate Policy and Its Macroeconomic Impacts on the EU Economy Symposium on Options for Energy Environmental Policy in Japan July 6, 2013 Unnada Chewpreecha, Cambridge Econometrics 06/07/2011

  2. Disclaimer • This presentation does not necessarily represent the views of the European Commission (EC) or any collaborating institution

  3. Overview • The EU Energy and Climate policy • Assessing macroeconomic impacts using E3ME and E3MG • Headline results

  4. Overview • The EU Energy and Climate policy • Assessing macroeconomic impacts using E3ME and E3MG • Headline results

  5. The EU Energy and Climate Policy • Headline 20-20-20 energy and climate change targets for 2020

  6. The EU Climate and Energy Package • A set of binding legislation which aims to ensure the 20-20-20 targets are met • Separate Energy Efficiency Plan and the Energy Efficiency Directive

  7. 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

  8. 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 biocropsleads 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)

  9. Examples of Energy and Climate Policies in the EU • Circulators Regulation 2009/641/EC • TVs (+labeling) Regulation 2009/642/EC key • MBI • Regulations • Electric motors Regulation 2009/640/EC • Freezers/refrigerators (+labeling) Regulation 2009/643/EC • GHG Effort Sharing Decision 2009/406/EC* • EU-ETS • RES directive 2009/28/EC (Transport)) • Recast of the EPBD 2010/31/EU9 • Regulation Euro VI for heavy duty vehicles 2009/595/EC • RES directive 2009/28/EC (Power Generation) • Labelling regulation for tyres 2009/1222/EC • GHG Effort Sharing Decision 2009/406/EC*

  10. 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.

  11. EU Policies Beyond 2020 source(s): 2050 Roadmap, DG Climate Action, European Commission

  12. Overview • The EU Energy and Climate policy • Assessing macroeconomic impacts using E3ME and E3MG • Headline results

  13. 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

  14. Modelling Structure – E3 Model ECONOMY as in national accounts e.g. industrial emissions of SF6 funding R&D TECHNOLOGY specifications & costs pollution- abatement equipment prices and activity investment fuel use fuel use fuel prices and costs ENVIRONMENTAL EMISSIONS as in environmental statistics ENERGY as in energy statistics fuel use

  15. 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

  16. Studies Using E3ME/E3MG

  17. Studies Using E3ME/E3MG (cont)

  18. Overview • The EU Energy and Climate policy • Assessing macroeconomic impacts using E3ME and E3MG • Headline results

  19. 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

  20. 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

  21. Headline Results: Impacts on GDP Ref + Energy efficiency target is also met Ref: 20% Renewable + GHG targets met (mix MBIs & regulations) Ref: through MBIs Ref+ 30% GHG targets met (mix MBIs & regulations) Ref: through regulations

  22. Headline Results: Impacts on Employment

  23. 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)

  24. 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

  25. Sensitivity: Revenue Recycling

  26. 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

  27. 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

  28. 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

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