Livrables
A new and expanded version of the Energy/Environment module of NEMESIS has been developed. More specifically a more detailed module for the electricity generating sectors has been constructed with the view of representing in considerable analytical depth technology/fuel choices and non-CO2 greenhouse gases in different energy demand and supply sectors have been incorporated by representing both their drivers and the abatement options. Moreover, the NEMESIS energy module database has been revised and the model has been calibrated to updated EUROSTAT energy balances.
The interaction of the Energy/Environment Module with the NEMESIS Economic model has been developed and has enabled to examine the impact of R&D policies on technology deployment. The advanced module synthesises structural, technical and cost changes to produce new detailed energy equilibrium.
This work package (WP 8) is strictly related to the WP 6 and to WP 7. WP 8 researches the policy instruments studied under WP 7. Among the instruments analysed were taxes and/or tradable permits (all teams), subsidies and niche markets (VU-IVM and ECN), technology transfers (FEEM), and technology standards (UNI-HH). The purpose of WP 8 was to draw further policy lessons, given the findings from WP 7. Of course, central also to the activities under WP 8 was the analysis of how to render the energy system, and the world economy at large, more sustainable: also in WP 8 therefore the scenarios developed all had as central theme the long-term means to achieve sustainable development. In addition to these goals, common with WP 7 and WP 6, WP 8 specifically focused on providing recommendations to policy makers. These recommendations are reported in the papers produced by the four participants to WP 8. Indeed, as agreed, in WP 8 three scientific papers were produced, each one using a specific model fit to derive policy lessons, based on the role of policy instruments as analysed previously.
The first paper, by Valentina Bosetti, Marzio Galeotti and Alessandro Lanza (FEEM), states that choosing long-term goals is the key issue in the climate policy agenda. Targets should be easily measurable and feasible, but also effective in damage control. Once goals are set globally, given the uncertainty affecting long-term strategies and region-specific preferences for different policy instruments, policies will be better represented by a diversified portfolio to be revised over time, rather than once and forever decisions. It therefore becomes crucial to understand to what extent different strategies (or policy portfolios) are consistent with long-term targets, that is, when they imply emission paths that do not irreversibly diverge from globally set goals. Comparative analysis is performed using a newly developed version of the FEEM-RICE model, a regional economy-climate model of optimal economic growth.
The second paper, by Katrin Rehdanz and Richard Tol, observes that economic analysis of emission permit markets, and particularly of the initial permit allocation, has concentrated largely on static approaches. This paper analyses the dynamic aspects of allocating greenhouse gas emission rights for different approaches using multi-player/two-period models. It is shown that different future allocation approaches create different strategic incentives at present, and that the permit market may partially or completely offset these incentives. It is also demonstrated under what circumstances dynamic allocation rules create incentives to (lobby for) accelerating or decelerating emission reduction paths. Allowing for intertemporal transfer of abatement activities (banking and borrowing), the net present costs can be reduced. However, whether banking or borrowing is beneficial for a company depends not only on their own abatement costs and that of other companies trading permits on the market, but also on the allocation mechanism implemented.
The third paper, by Bob van der Zwaan and Reyer Gerlagh, analyses the policy relevance of the dominant uncertainties in our current scientific understanding of the terrestrial climate system, and provides further evidence for the need to radically transform - this century - our global infrastructure of energy supply, given the global average temperature increase as a result of anthropogenic carbon dioxide emissions. Because of the sizeable uncertainties that dominate so many of the scientific results in the field of climatic change studies, and the relevance of these uncertainties for effective and efficient global warming policy-making, the subject of uncertainty analysis has recently been receiving increased attention. This article explores the relation between climate sensitivity uncertainties and the necessity to transform world energy supply. The effect is investigated on required CO2 emission reduction efforts, both in terms of how much and when, of our uncertain knowledge today of the climate sensitivity to a doubling in the atmospheric CO2 concentration. Also the roles of carbon-free energy and energy savings, and their evolutions over time, are researched, as well as their dependence on some of our characteristic modelling features. A top-down model is used in which there are two competing energy sources, fossil and non-fossil. Technological change is represented endogenously through learning curves, and modest but non-zero demand exists for the relatively expensive carbon-free energy resource.
Insights gained in this work package have been used in many papers, workshops, conferences and meetings with policy makers, but the follow up has not been coordinated within this project. The researchers will be happy to share the produced knowledge with those interested concerning the implications for climate policy of endogenous technological change.
The NEMESIS model provides baseline scenario describing national and sectoral trends for European countries (the 15 European members plus Norway) on 2005-2030, and thus highlights main challenges that Europe should meet in the next 25 year.
The European growth does not exceed the 2% on the whole period (In 2030, GDP growth is 1.56%). Ireland gets the strongest economic growth (2.5% in average), Italy the weakest (1.23% on average)
A first European challenge is to catch foreign demand, given that economic growth in some non-European areas, especially in BRIC is high and could offset the weak internal demand in Europe. In the baseline scenario, before all, sources of growth come from foreign trade. European exports grow much more than the other GDP components, 3.1% on annual average.
However, actual gains from outside market will depend on European countries ability to create niches of products, while staking on differentiation of goods in particular thanks to an increasing effort in Research and Development.
Europe Growth and employment is lowered by downtrend population and labour supply.
With a fall in total European population by 0.16% on average annual growth rate (United Nations medium forecasts), European consumption growth is restricted (1.68% in 2010 to 1.3% in 2030), even weighting on consumption per capita (1.47% in 2030), and slows down investment (of which growth rate is 1.27% in 2030 against 2.06% in 2010). Some specific sectors suffer more than the others, as for construction of which production growth clearly decreases, 1.42% in 2010 against 0.43% in 2030.
As from 2010, Europe knocks against drop in working population, -0.3% per year on the 2010-2030 period, despite a slight increase in labour participation rate. The labour force scarcity creates wage inflationary pressures (4.4%in 2030). Facing low working population and rise in their production costs, European firms rely less on labour. Employment growth rate drops from 0.2% in 2005 to about -0.5% in 2030 and households, less employed and whose real wage are at a stand-still since 2025, restrain their expenditure.
Scarcity of labour occurs in a context of sectoral tendency to specialization (in favour of equipment goods and services, in particular communications and services of renting and business activities), and therefore the issue of the level of formation and skills of workers poses more crucially.
Besides, Europe faces more and more persistent problem of dependence; from a situation with three working people for one more than 65 years old people in 2005, Europe reaches less than two working people for one more than 65 years old people in 2030, what poses the problem about rise in expenditure as those of health and more pressingly, of how financing retirements.
European economies should face sustained oil price (69$ in 2030). But, this context should not weaken a lot European economies, since inflation rate, higher at the beginning of period with a price rise of 3% remains more restrained than in outside. This restricted impact is explained by the fact that firms reduce their production costs while exploiting factors productivity and also by taxation weight, which limits effect of energy price rise. However, some sectors are more touched as Inland transport services (with production growth of 1.5% on average).
Nemesis simulations The scenario about the Barcelona objective (3% of R&D intensity in 2010, 4% for national intensities in 2050) highlights the following results: -From 2002 to 2010, the increase in R&D expenditure engenders rise in GDP (1,7% in 2010) with a spreading of deficits. Total factors productivity rises only by 0,8%and employment increases by 1,4 %. The rise of real disposable income, by 3%, boosts consumption (up to 2,4%). Total investment is also improved by growth (1,8%).
However, because firms finance almost the whole of the R&D expenditure, prices tend to raise and to weigh on European competitiveness. This inflationary effect combined with increased internal demand leads to a deterioration of external deficit (imports up by 1.7%, exports - 0.2% in 2010). - From 2010, research efforts yield an acceleration of total factors productivity gains (up to 5 % in 2030) and an improvement of products quality (up to 11 % in 2030). The growth benefits from increased demand due to the decrease in prices, induced by costs drop, and by the rise in quality.
It is also reinforced by effects of gains of price competitiveness and structural competitiveness on the external balance. In 2030, the increase in GDP is 12,1%, attributed to growth of consumption by 15,5%, of total investment by 6,9%, of extra-European exports by 13,7% and to decline in extra-European imports by 3,2%. In spite of improvement in labour productivity by 8,1%, employment rises by 4,9 %. 10 million jobs are so created in Europe between 2002 and 2030, 3,1 million of which are linked to research. - GDP gains in 2030 vary from 3,67% in Sweden to 7,06 % in France, up to 49,8% in Greece. Job creation benefits more to low R&D intensive countries in 2002 (in terms of the proportion of active population in the trend-based count) than to their partners that are more advanced in research domain. - The growth of GDP by 12,1 % in 2030 yields an increase in CO2 emissions of 0,58%. CO2 emissions rise more than the average in many of the Northern European countries and slowdown in some Southern European countries despite their high GDP growth. - In the scenario whith public-sector orders, GDP grows by 15,8% in 2030, producing an increase in emissions by 6,8%. The low elasticity of economic performance with respect to knowledge stock assumption yields a lesser GDP growth, by 10,9% in 2030, and an emissions reduction of 3,9%. An intermediate result is obtained when we assume that productivity gains are totally passed on into salaries: GDP increases by 11,1% and emissions by 1,31% in 2030. - Environmental impact of economic growth is very sensitive to industrial dynamic in European Union. Transport, electricity and intermediate goods sectors and other R&D-intensive sectors benefit from high improvement of productivity and products quality and win the largest market shares. Intermediate goods sectors see their contribution to European growth be smaller.
The decoupling between the growth of GDP and CO2 emissions is more pronounced in the scenario with public-sector orders and least significant in the scenario with low and constant elasticity to knowledge. The assessments of Kyoto policies (in 2010, -4.4% the CO2 emissions reduction target for Europe) provide the following results on employment: - For Europe, amongst five scenarios proposed, Scenario 2 (Common European tax rate, with revenue recycling) and Scenario 5 (Tradable permits for firms, taxation of households, with revenue recycling) show a positive net impact on employment, transitory in the first case, more durable in the second case. The positive employment impact in Scenario 2 could be more durable if the environmental policy were accompanied by wage moderation. - Countries with baseline emissions in 2010 below their burden sharing commitments achieve the best employment impacts through a tradable permits policy (Scenario 3), for the countries with baseline emissions in 2010 above their burden sharing commitment, it is in taxation with recycling scenario. - In the Scenario 3, countries with baseline emissions in 2010 below their burden sharing commitments use their advantage to increase their competitiveness relative to other European countries. Inversely, Scenario 2, in which the burden sharing agreement does not matter, favours countries that must reduce more. - Scenario 5, combining tradable permits and taxation, seems better for Europe as a whole: it incorporates the substitution effects favouring employment in Scenario 2 with the less inflationary effects of the tradable permits policy in Scenario 3. -Taxation recycled though reductions in employers social contribution causes energy-intensive sectors to decrease their employment, while employment increases in labour-intensive sectors (consumption goods and services except transports), as well as in Tradable permits policies case, but, in the last scenario, differences in sectoral employment are more limited.
The scenario about the Barcelona objective (3% of R&D intensity in 2010, 4% for national intensities in 2050) highlights the following results:
-From 2002 to 2010, the increase in R&D expenditure engenders rise in GDP (1,7% in 2010) with a spreading of deficits. Total factors productivity rises only by 0,8%and employment increases by 1,4 %. The rise of real disposable income, by 3 %, boosts consumption (up to 2,4%). Total investment is also improved by growth (1,8 %). However, because firms finance almost the whole of the R&D expenditure, prices tend to raise and to weigh on European competitiveness. This inflationary effect combined with increased internal demand leads to a deterioration of external deficit (imports up by 1.7 %, exports - 0.2% in 2010).
- From 2010, research efforts yield an acceleration of total factors productivity gains (up to 5% in 2030) and an improvement of products quality (up to 11% in 2030). The growth benefits from increased demand due to the decrease in prices, induced by costs drop, and by the rise in quality. It is also reinforced by effects of gains of price competitiveness and structural competitiveness on the external balance. In 2030, the increase in GDP is 12,1%, attributed to growth of consumption by 15,5%, of total investment by 6,9%, of extra-European exports by 13,7% and to decline in extra-European imports by 3,2%. In spite of improvement in labour productivity by 8,1%, employment rises by 4,9%. 10 million jobs are so created in Europe between 2002 and 2030, 3,1 million of which are linked to research.
- GDP gains in 2030 vary from 3,67% in Sweden to 7,06% in France, up to 49,8% in Greece. Job creation benefits more to low R&D intensive countries in 2002 (in terms of the proportion of active population in the trend-based count) than to their partners that are more advanced in research domain.
- The growth of GDP by 12,1% in 2030 yields an increase in CO2 emissions of 0,58%. CO2 emissions rise more than the average in many of the Northern European countries and slowdown in some Southern European countries despite their high GDP growth.
- In the scenario whith public-sector orders, GDP grows by 15,8% in 2030, producing an increase in emissions by 6,8%. The low elasticity of economic performance with respect to knowledge stock assumption yields a lesser GDP growth, by 10,9% in 2030, and an emissions reduction of 3,9%. An intermediate result is obtained when we assume that productivity gains are totally passed on into salaries: GDP increases by 11,1% and emissions by 1,31% in 2030.
- Environmental impact of economic growth is very sensitive to industrial dynamic in European Union. Transport, electricity and intermediate goods sectors and other R&D-intensive sectors benefit from high improvement of productivity and products quality and win the largest market shares. Intermediate goods sectors see their contribution to European growth be smaller. The decoupling between the growth of GDP and CO2 emissions is more pronounced in the scenario with public-sector orders and least significant in the scenario with low and constant elasticity to knowledge.
The assessments of Kyoto policies (in 2010, -4.4% the CO2 emissions reduction target for Europe) provide the following results on employment:
- For Europe, amongst five scenarios proposed, Scenario 2 (Common European tax rate, with revenue recycling) and Scenario 5 (Tradable permits for firms, taxation of households, with revenue recycling) show a positive net impact on employment, transitory in the first case, more durable in the second case. The positive employment impact in Scenario 2 could be more durable if the environmental policy were accompanied by wage moderation.
- Countries with baseline emissions in 2010 below their burden sharing commitments achieve the best employment impacts through a tradable permits policy (Scenario 3), for the countries with baseline emissions in 2010 above their burden sharing commitment, it is in taxation with recycling scenario.
- In the Scenario 3, countries with baseline emissions in 2010 below their burden sharing commitments use their advantage to increase their competitiveness relative to other European countries. Inversely, Scenario 2, in which the burden sharing agreement does not matter, favours countries that must reduce more.
- Scenario 5, combining tradable permits and taxation, seems better for Europe as a whole: it incorporates the substitution effects favouring employment in Scenario 2 with the less inflationary effects of the tradable permits policy in Scenario 3.
-Taxation recycled though reductions in employers social contribution causes energy-intensive sectors to decrease their employment, while employment increases in labour-intensive sectors (consumption goods and services except transports), as well as in Tradable permits policies case, but, in the last scenario, differences in sectoral employment are more limited.
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