Distributional Effects of Energy Transition: Impacts of Renewable Electricity Support in Germany

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Bartholomew Morgan
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1 Centre d'économie industrielle Cerna, Mines ParisTech Distributional Effects of Energy Transition: Impacts of Renewable Electricity Support in Germany Karsten Neuhoff Paris,

2 1 The energy challenge of decarbonisation 3 Historic average: 1.3%/yr Decarbonisation (CO2/Energy MtCO2/Mtoe) 2,5 2 1,5 1 0, Global emissions reduction below 1990 level % by 50% by 2050 Historical Decarbonisation/Energy Productivity Combination needed for percentage emissions reduction Possible future paths 0 0 2,5 5 7, , ,5 Energy Productivity (GDP/Energy bn$2000/mtoe) Source: Grubb, Hourcade & Neuhoff (2014): Planetary Economics, Energy, Climate Change and the three domains of sustainable development. Routledge.

& evolution of complex systems Economic Output / Consumption Source: Grubb, Hourcade & Neuhoff

3 1 Three domains of policies Satisficing behaviour Optimising behaviour Transforming behaviour Resource Use / Energy & Emissions Real world individual and organisational decisionmaking Innovation & evolution of complex systems Economic Output / Consumption Source: Grubb, Hourcade & Neuhoff (2014): Planetary Economics, Energy, Climate Change and the three domains of sustainable development. Routledge.

4 2 The annuitized costs of new Renewable Investments compared to fossil fuel import bills Illustration excluding system cost! Assumptions: 2% Inflation, Fossil conversion losses 50% 66% of energy from on-shore Wind and 33% Solar Source: Neuhoff et al. (2014): Staying with the Leaders: Europe s path to a low carbon economy. DIW Berlin Calculations based on REN 21, 2013; EPIA, 2014; Clean Energy Regulator, 2014.

5 2 A leading group of countries facilitates investments in renewable energy Example: Feed in tariffs DIW Berlin Calculations based on REN 21, 2013.

2 A leading group of countries is modernizing energy provision and use: Annual construction of photovoltaic 2009 2013. In 2013 70% of solar deployment was outside of Europe.

6 2 A leading group of countries is modernizing energy provision and use: Annual construction of photovoltaic In % of solar deployment was outside of Europe. Source: Neuhoff et al. (2014): Staying with the Leaders: Europe s path to a low carbon economy. DIW Berlin Calculations based on REN 21, 2013; EPIA, 2014; Clean Energy Regulator, 2014.

7 3 The price of electricity: Development of wholesale price /MWh Germany United Kingdom France Spain US East Coast California Source: Neuhoff et al. (2014): Staying with the Leaders: Europe s path to a low carbon economy. DIW Berlin Calculations based on REN 21, 2013; EPIA, 2014; Clean Energy Regulator, Karsten Neuhoff,

8 Development of the Electricity Price for Households cents per kilowatt hour at 2011 prices 3 8 Karsten Neuhoff,

9 3 Electricity Consumption and share of Consumer Spending 9 Karsten Neuhoff,

10 3 Electricity s Share of Consumer Spending / Income Group 10 Karsten Neuhoff,

11 4 Policy option I: Adjusting social transfers Structure of Households by Household Types and Income 11 Karsten Neuhoff,

12 4 Option 2: Basic Tax Free Allowance for Electricity Tax Treshhold of (electricity tax) free power 500 KWh/a 1000 KWh/a 1500 KWh/A Compensate increase due to feed in Foregone electricity tax 404 Mio (von 2,7 Mrd ) 792 Mio 1,14 Mrd Compensation 1st Dezile 21,7 % (47,5 Mio ) 41,7 % (91,2 Mio ) 57,7 % (126,3 Mio ) Compensate increase due to feed in + Adjustment of Means tested benefits Foregone electricity tax + extra costs Compensation 1st Dezile 608,9 Mio 953 Mio 1,26 Mrd 65,1 % (142,4 Mio ) 74,1 % (162,1 Mio ) 81,2 % (177,7 Mio ) VAT Additional income on feed-in tariff: Mio. Euro (BMF auf Kleine Anfrage der Linken) 12 Karsten Neuhoff,

13 4 Option 3: Supporting HH in Using Electricity Efficiently Energy advice 16% savings Support poor HH with fridge replacement with A++ ¼ older than 9 years > 70% power savings, 64 Euro/year ¼ 5 9 years > savings, 40 Euro/year 300 Euro investment costs pay back in 5 and 8 years With 150 grant pay back in 2.5 and 4 years One off public expenditure of 560 Mio E (½ of 7.6 Mio HH) 13 Karsten Neuhoff,

14 4 Electricity constitutes less than 1/3 of energy bill for HH Energieeffizienz Anteil Energiekosten an Haushaltsausgaben 8% 7% 6% 5% 4% 3% 2% 1% 0% 1985 Berechnung für Brennstoffe aufbauend auf: AG Energiebilanz, IEA Energy Prices and Taxes, BMWi Energiestatistik, Stat. Bundesamt Karsten Neuhoff 14

15 5 Share of energy cost in turn over of manufacturiung (2011) 30 Share of energy cost in turn over (%) ,5 Share of GDP (in %) Karsten Neuhoff,

by energy carrier Sectors with energy costs above 6% account for

16 5 Discussion needs to differ between very energy intensive and other activities Illustration: Energy cost as share of turnover by energy carrier Sectors with energy costs above 6% account for less than 2% of German GVA. Source: DIW calculations basd on Destatis.

17 6 Implied costs foregone efficiency improvements 1,400 Durchschnittlicher Energiepreis ($ 1995/Tonne Oil Equivalent) 1,200 1, Germany Switzerland Portugal 600 France Spain Netherlands Greece United Kingdom Denmark Japan Norway Austria Italy Luxembourg Belgium Sweden Finland New Zealand United States Turkey Australia Mexico Canada Hungary Korea Geschätzte Preiselastizität -1 Slovakia Czech Republic Poland Durchschnittliche Energieintensität (kg Oil Equivalent/$1995 GDP) Source Newbery Karsten Neuhoff,

18 6 Foregone efficiency savings ct/kwh Increased price for energy service provided 18 Karsten Neuhoff,

19 7 Distributional Effects of Energy Transition: Changing course requires a sustained package the key is to integrate and synergise across all three domains Standards & Engagement POLICY PILLARS Markets & Prices Strategic Investment Values, pull & preferences Manage bills, increase responsiveness Revenues, revealed costs, strategic value Attention, products & finance Technology options & competitiveness Education, access & control Source: Grubb, Hourcade & Neuhoff (2014): Planetary Economics, Energy, Climate Change and the three domains of sustainable development. Routledge.

20 EPRG WINTER RESEARCH SEMINAR Distributional Effects of Energy Transition: Impacts of Renewable Electricity Support in Germany Karsten Neuhoff Cambridge

Strong focus on market and policy analysis

Strong focus on market and policy analysis OECD/IEA - 2015 Founded in 1974 OECD agency 29 member countries 1 new applicant - Mexico 3 associate countries: China, Indonesia, Thailand 240 staff in Paris secretariat The European Commission also participates