THE ENVIRONMENTAL IMPACT OF CLEAN ENERGY INVESTMENTS ON THE GREEK ECONOMY: AN INPUT-OUTPUT ANALYSIS ( )

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1 Proceedings of the 13 th International Conference on Environmental Science and Technology Athens, Greece, 5-7 September 2013 THE ENVIRONMENTAL IMPACT OF CLEAN ENERGY INVESTMENTS ON THE GREEK ECONOMY: AN INPUT-OUTPUT ANALYSIS ( ) M. MARKAKI *, S. MIRASGEDIS **, A. BELEGRI-ROBOLI * and Y. SARAFIDIS ** * Laboratory of Theoretical and Applied Economics, Faculty of Applied Mathematics and Physics, National Technical University of Athens, Zografou Campus, Athens ** Institute for Environmental Research & Sustainable Development, National Observatory of Athens, Lofos Nimfon, Thission, Athens, Greece address of corresponding author: maniamarkaki@gmail.com ABSTRACT The aim of this paper is twofold: first, to calculate the green energy investments, that Greece would need in order to satisfy a number of energy and environmental targets adopted in the context of the European Commission's energy and climate change package; and second, to calculate the environmental impacts of these "green" investments. In this analysis we focus on CO 2 emissions associated with various economic activities in Greece and estimate the potential implications on the carbon footprint of the average Greek household on the basis of the CO 2 emissions i) attributed to fuel consumption for heating and personal vehicle use ii) embedded in goods and services purchased by households. To this end, the input-output analysis and the NAMEA tables have been exploited. Our findings show that the required investments would reach the amount of 47.9 billion, over the period The utilisation of renewable and energy conservation technologies, during the upcoming decade, are expected to have significant effects on the environment improving the CO 2 emissions intensity of the Greek economy. Thus, the carbon footprint of the Greek households will be reduced from to t CO 2 / household. KEYWORDS: clean energy technologies; input-output analysis; carbon footprint of households 1. INTRODUCTION It is widely recognized that climate change will affect, to one extent or another, every country in the world causing unprecedented damages to the environment, economy and society. Combating the negative effects of climate change constitutes one of the most significant challenges faced by the global economy. In this context, European Commission (EC) adopted a legislative package on energy and climate change (codenamed by 2020 ), setting a series of ambitious targets for GHG emissions reduction, renewable energy sources (RES) penetration and energy efficiency promotion, which are gradually specialized per Member-State. Promotion of RES and energy efficiency are the two main pillars of the European policy to tackle climate change and to build in the long-run a low-carbon economy. The aim of this paper is to investigate to what extent the planned investments for development of RES and promotion of energy savings in the Greek energy system by 2020 will result in improving the environmental performance of Greek economy and reducing the carbon footprint of Greek households. More specifically, in the context of this study we have estimated the CO 2 emissions per household for two scenarios: before and after the implementation of the RES and energy conservation initiatives planned. The estimations involve not only the direct emissions per household, but also, the indirect ones, embedded in goods and services purchased by households. Input Output Analysis (IOA) and National Accounting Matrix including Environmental Accounts (NAMEA) datasets are used to assess the impact on CO 2 emissions (both direct and indirect) of the planned investments in all (i.e. 35) sectors of the Greek economy.

2 The paper is organized as follows: section 2 presents the EU energy package in the Greek economy, section 3 describes, briefly, the methodological approach, section 4 presents the data used and their sources, in section 5 the empirical results are analyzed and section 6 summarizes the main findings and the conclusions of the study. 2. THE EU ENERGY PACKAGE IN GREECE In the context of the EU energy and climate package, Greece has specific, ambitious and interrelated energy and environmental objectives for 2020, namely: (i) a binding 18% target for RES in final energy consumption (with Law 3851/2010 this target has been increased to 20%); (ii) a binding target to reduce GHG emissions in the non-trading sectors by 4% in 2020 relative to 2005 levels; (iii) implementation of the amended (by Directive 2009/28/EC) Directive 2003/87/EC on emissions trading with unified rules across EU, aiming at strengthening, expanding and improving the functioning of emission trading system in the 3rd trading period of ; (iv) a binding target of 10% use of biofuels on the total motor gasoline and diesel oil consumption for road transport; and (v) substantial improvement of energy efficiency compared to a baseline scenario. These binding targets have put in place a new framework for energy markets that is conducive to investing in RES and energy-saving technologies. It is clear that significant investments are necessary to achieve the objectives and meet the targets set. To this end, the Greek Government adopted the National Renewable Energy Action Plan in the Scope of Directive 2009/28/EC (MEECC 2010) as well the Energy Efficiency Action Plan (MD 2008; MEECC 2011), which comprise specific policies and measures for the promotion of renewables and energy-saving technologies in the Greek energy system. The present study focuses on the most important measures included in these two plans and analyses the environmental implications on the national economy associated with their implementation. Table 1: Green investments analyzed in the context of this study. Measures Penetration for the period Power generation P.1 Wind farms 6,137 MW P.2 Off-shore Wind farms 300 MW P.3 Photovoltaics/Solar thermal units 2,470 MW P.4 Small hydro 250 MW P.5 Pumped-storage hydro 880 MW P.6 Geothermal units 120 MW P.7 Biomass units 207 MW P.8 Interconnection of the autonomous power systems in the islands with the interconnected system in the mainland The following islands are covered: Lesvos, Chios, Ikaria, Samos, Limnos, Ios, Thira, Crete, Cyclades Buildings B.1 Insulation of buildings cell 1,000,000 households B.2 Replacement of old boilers ~700,000 households B.3 Solar collectors for hot water and central heating ~3,700,000 m 2 B.4 Use of low-energy bulbs and appliances 100% penetration of efficient lighting B.5 Implementation of smart metering systems 7,500,000 systems B.6 Co-generation / District heating 150 MW Transport T.1 Renewal program for passenger cars and heavy weight vehicles 23,100 heavy weight vehicles & 357,000 passenger cars T.2 Promotion of bio-fuels Domestic production of 1,5 million klt biodiesel and 0,6 million klt bioethanol T.3 Development of infrastructure for rail transport Various upgrades and extensions in the line Patra- Athens-Thessaloniki- Eyzonoi and in the sub-urban raliways of Athens and Thessaloniki T.4 Development of infrastructure for enhancement of public means Various upgrades of transport Industry I.1 Development of infrastructure in industrial areas Major interventions in 13 industrial areas & development of waste management systems

3 Table 1 presents in detail the interventions analyzed in the context of this study (hereafter referred to as green investments ) and their penetration levels into the Greek energy system in 2020, based on the estimates included in the National Renewable Energy Action Plan, the Energy Efficiency Action Plan and other relative supporting documents. They concern four basic energy sectors, namely power generation, buildings, transport and industry, and cover a wide area of activities such as the promotion of various RES technologies both in the power and final demand sectors, the enhancement of energy efficiency in the building and transport sectors and the development of infrastructure in order to support renewables penetration, public transport means and environmental improvements. For the period total spending for the implementation of these green investments will reach 47.9 billion. 3. METHODOLOGICAL FRAMEWORK: CARBON FOOTPRINT AND INPUT- OUTPUT ANALYSIS In our study, in order to present a specific policy perspective of the EU energy package, we estimate the carbon footprint of Greek households, which includes the CO 2 emissions due to households consumption expenditures. According to Wiedmann and Minx (2008), The carbon footprint is a measure of the exclusive total amount of carbon dioxide emissions that is directly and indirectly caused by an activity or is accumulated over the life stages of a product." It is important to note that we do not take into account CO 2 emissions associated with imported goods and services 1. Specifically, the households carbon footprint includes CO 2 emissions i) due to fuel consumption for heating and personal transport, and ii) embedded in goods and services purchased by households. Assuming that the Greek economy is divided in n economic sectors, the above relation can by expressed by a vector with n+2 elements. Each element of this vector shows the emission of a specific sector. The first element of the vector (C 1) corresponds to the emissions associated with fuel consumption for heating in households, the second element (C 2) describes the emissions associated with fuel consumption for personal transports, while the rest elements (C 3, C 4 C n+2) are showing the emissions released by all economic sectors (the number of sectors is n) that sell goods and services to households. The green investments in question will affect the carbon footprint of households (i) directly through reduced consumption of fuels and exploitation of alternative energy sources for heating and transport and (ii) indirectly through reduced demand for electricity and substitution of fossil-fueled electricity by RES (also affecting all the other economic sectors to the extent they use electricity). Therefore, the first and the second elements of the above mentioned vector as well as the element corresponding to the power generation sector can by estimated by the assumptions made for the implementation of the energy package. The rest of the elements of the vector are estimated using the tools of IOA. Input-Output analysis, due to its economy-wide approach, is able to allocate different types of impacts (economic, employment, environmental etc) along the production and supply chain to each sector. The selection of this approach provides a valid comparison of environmental performance indicators, since it captures the relations between sectors and uses them to track how an initial increase in demand travels throughout the productive structure of the economy (Miller & Blair; 2009, Markaki et al: 2013). The connection of Input-Output Analysis with environmental issues and the extension of Input-Output tables with environmental accounts were at first proposed by a seminal paper of Leontief (1970). Since then, several studies use the input-output framework for estimating the total emission coefficient per unit of production in each sector of economic 1 In the literature, for a number of studies, the carbon footprint of households contains, also, the CO2 emissions associated with the flow of goods and services produced abroad to meet the intermediate and final demand of the examined country (Druckman and Jackson: 2009).

4 activity (i.e Wier; 1998, Ostblom; 1998, Wilting et al; 1999, Braibant; 2002, Miller and Blair; 2009). In the present paper, the input-output approach is used in order to calculate the carbon embedded in goods and services consumed by households, before and after the implementation of the EU energy and climate package. The methodology is built as follows: The production of each sector is equal to the sum of its sales to other industries (intermediate demand) and to final consumers (final demand): X = ID + Y, (1) where X i the vector of gross output, ID is the vector of intermediate demand and Y vector of the final demands (all vectors have the same dimensions, nx1, where n the number of the examined economic sectors). Alternatively, ID can be expressed by matrix Z (matrix of intermediate transactions, with dimensions nxn) which analytically expresses the origin and the destination of intermediate demand among the different sectors. In this case, since Z is a part of the total output, it can be expressed as: Z=AX, where A is the matrix of technological coefficients Z (with dimensions nxn). Then, the economic system can be described by the balance equation: X = AX + Y (2) Solving the balance equation for X, we obtain: X = (I A) 1 Y (3) where (I A) -1, denotes the Leontief inverse matrix, representing the total output each industry produces in order to satisfy an one-unit change of final demand. In our case, for the estimation of the environmental impacts of green investments, first, we define a vector expressing the direct coefficient of CO 2 emissions (vector e, with dimension nx1). Vector e expresses the CO 2 emissions per unit of gross output: e = E X 1 (4) where E is the vector of CO 2 emissions by sector of economic activity. Finally, we define the vector of the total CO 2 emissions (C) due to households consumption as: C = e(i A) 1 F (5) where F is the final demand expenditures by households. From the last equation, we can estimate the amount of CO 2 embedded in goods and services purchased by households as a vector with n elements, expressing n sectors of economic activity. Finally, if we create a new vector with n+2 elements, i.e. C 1, C 2 and the n elements of vector C, we have the carbon footprint of households. 4. DATA AND SOURCES For the application of the methodology and the comparison of households carbon footprint before and after the implementation of the EU energy and climate package, we use two sets of data. The first set includes macroeconomic and CO 2 emissions data for a year before the beginning of the investments implementation (year 2009) and the second set contains estimated data for the CO 2 emissions and final demand reduction after the completion of the investments. Input-Output Table and CO 2 emissions data, for 2009, comes from World Input-Output Database 2 (WIOD), which are referring to 35 sectors of economic activity. For the year of the investments completion, we make the assumption that the production technology is unchanged, so, we also use the 2009 s Input-Output Table. But, we take into account four types of changes caused by the investments: The reduction of CO 2 emissions attributed to the power generation sector (in our classification sector 17: Electricity, Gas and Water Supply) after the realization of the above mentioned interventions. This is causing a reduction in the direct coefficient of the sector (element e 17 of vector e) and in turn, a reduction in the CO 2 emissions coefficients 2

5 of all other sectors, as a result of the power generator sector s intersectoral linkages. For the estimation of the CO 2 emissions coefficient in sector 17 after the implementation of the green investments in question we took into account the productivity of each RES technology and we assumed that the generated electricity will substitute an equal amount of fossil-fueled electricity (lignite 66% and natural gas 34%). Then the sectoral emissions reduction was estimated on the basis of the CO 2 emissions factor of the corresponding fuels included in the National Inventory. The reduction of CO 2 emissions caused by the households demand for fuels (both for heating and transport) as a result of the promotion of energy efficiency and alternative energy sources in buildings and vehicles. This effect was estimated taking into account the reduction of fossil fuels consumption achieved (for heating and transport) and the corresponding CO 2 emission factors included in the National Inventory. The reduced demand for oil products, expressed in monetary values, affects also the final demand of sector s 8 -Coke. Refined Petroleum etc- products (element F 8 of vector F). The reduction of CO 2 emissions associated with electricity generation, as a result of energy conservation interventions in buildings. This change is expressed in monetary values by a reduction of households demand for electricity affecting the final demand of sector 17 (element F 17 of vector F). Analytically, after the completion of the energy package we expect: 1. A reduction of CO 2 emissions: in the energy sector as a result of the extended exploitation of RES in power generation estimated at19,710 kt per year in households due to the reduced demand of fuels for heating, estimated at 2,413 kt per year in households due to the exploitation of biofuels and more efficient vehicles for transport, estimated at 860 kt per year 2. A reduction of households final demand from: sector 8 (demand for fuels) up to 1,038 M per year sector 17 (demand for electricity) up to 469 M per year For a comparative presentation of the household s footprint we divide the results by the number of households in the Greek economy. For a more vivid presentation of the examined impacts the methodology is also applied in aggregated data, where the economy is expressed in 4 sectors of economic activities: primary, secondary, power and tertiary sector. 5. EMPIRICAL RESULTS The results of the study are presented in Tables 2 and 3. Table 2: Carbon Footprint of Households (in tones CO2 / household) disaggregated in 6 main activities. Carbon Footprint before the Energy Package Carbon Footprint after the Energy Package Change Heating 1,936 1,290-33,35% Transports 3,766 3,536-6,11% Purchases from: Primary Sector 1,914 1,845-3,61% Secondary Sector 2,752 2,741-0,41% Electricity 9,792 5,692-41,87% Tertiary Sector 1,930 1,929-0,05% Sum 22,090 17,033-22,90%

6 The carbon footprint of the Greek households was estimated at t CO 2 / household taking into account the current (i.e. as for 2009) consumer and energy behaviors. The implementation of green investments in question results in a reduction of the carbon footprint of households by 22.9%, which is now estimated at t CO 2 / household, an improvement of CO 2 emissions associated with direct electricity consumption by households constitute the 44% of their total carbon footprint in As more than 50% of the green investments in question aims at reducing electricity consumption in buildings and promoting RES in the power generation sector, this part of the carbon footprint of households can be significantly reduced. Specifically, it was estimated that after the implementation of the examined measures, the CO 2 emissions attributed to electricity consumption in an average household will be reduced by 42% from 9.8 t CO 2 / household to 5.7 t CO 2 / household. The contribution of private transports to the total carbon footprint of households was estimated at 3.8 t CO 2 per household before the implementation of the green investments under consideration and at 3.5 t CO 2 per household afterwards. The reduction of CO 2 emissions associated with personal vehicle use (about 6.1%), is mainly attributed to measures improving the efficiency of the existing stock of vehicles and enhancing the penetration of biofuels to road transport. CO 2 emissions associated with the production of goods from manufacturing sectors is the 3 rd most significant contributor to the carbon footprint of households amounting to 2.75 t CO 2 per household. The implementation of the green investments in question only marginally reduces this part of the carbon footprint of households, mainly through the reduced emission factor of electricity used as input for the production of goods. A further reduction of this part of the carbon footprint of households requires additional measures in the manufacturing sectors aiming at improving their energy and emissions intensities. Furthermore, it must be noted here that the importance of manufacturing sectors to the composition of the households carbon footprint is not the result of direct purchases. The main households transactions involve the tertiary sector (73% of total demand in 2009). The importance of the manufacturing sectors that appears here is the result of the high rate of its interconnections to the rest of the economy, i.e. a result of its significance to the other sectors intermediate demand. The contribution of space heating of buildings to the carbon footprint of households was estimated at 1.9 t CO 2 per household in 2009 and reduced to 1.3 t CO 2 per household (i.e. a reduction of 33%) as a result of the promotion of energy efficiency measures in buildings. Carbon emissions associated with purchases of services from households were estimated at 1.93 t CO 2 per household and remained practically unchanged after the implementation of the measures under consideration. This is due to the fact that the energy intensities of these sectors are relatively low while the energy needs are mainly covered by electricity. Finally, the contribution of the primary sector to the carbon footprint of households was estimated at 1.91 t CO 2 per household before the implementation of the green investments considered and 1.85 t CO 2 per household afterwards. Although the participation of the primary sector to the carbon footprint of households is relatively low, the estimated reduction of the corresponding emissions is relatively important (3.6%)due to the high interconnection of the mining and quarrying sector (sector 4) with the power generation sector. From Table 3, where the carbon footprint of households is presented in 37 sectors analysis, we can notice that, besides households heating and transports and power generation sector, the sectors with important participation to the carbon footprint of households are: Food, Beverages and Tobacco (3), Mining and Quarrying (2), Inland Transport (23), Agriculture, Hunting, Forestry and Fishing (1), Air Transport (25), Coke, Refined Petroleum and Nuclear Fuel (8) and Other Non-Metallic Mineral (11). The reduction caused by the investments plan is important only for sectors Mining and

7 Quarrying (6.13%) and Coke, Refined Petroleum and Nuclear Fuel (5.48%), two sectors direct involved to fuel demand by households. Table 3: Carbon Footprint of Households (in tones/household) disaggregated in 37 economic activities No. Carbon Footprint before Carbon Footprint after the Classification the Energy Package Energy Package Change A Households Heating 1,936 1,29-33,35% B Households Transports 3,766 3,536-6,11% 1 Agriculture, Hunting, Forestry and Fishing 0,785 0,785 0,00% 2 Mining and Quarrying 1,129 1,06-6,13% 3 Food, Beverages and Tobacco 2,134 2,134 0,00% 4 Textiles and Textile Products 0,005 0,005-0,01% 5 Leather, Leather and Footwear 0,005 0,005 0,00% 6 Wood and Products of Wood and Cork 0,006 0,006-0,03% 7 Pulp, Paper, Paper, Printing and Publishing 0,039 0,039-0,03% 8 Coke, Refined Petroleum and Nuclear Fuel 0,197 0,187-5,48% 9 Chemicals and Chemical Products 0,025 0,025-0,04% 10 Rubber and Plastics 0,018 0,018-0,03% 11 Other Non-Metallic Mineral 0,157 0,157-0,06% 12 Basic Metals and Fabricated Metal 0,069 0,069-0,09% 13 Machinery, Nec 0,01 0,01-0,44% 14 Electrical and Optical Equipment 0,019 0,019-0,44% 15 Transport Equipment 0,052 0,052-0,02% 16 Manufacturing, Nec; Recycling 0,01 0,01-0,01% 17 Electricity, Gas and Water Supply 9,792 5,692-41,87% 18 Construction 0,006 0,006-0,16% 19 Sale, Maintenance and Repair of Motor Vehicles 0,044 0,044-0,08% 20 Wholesale Trade and Commission Trade 0,027 0,027-0,10% 21 Retail Trade 0,021 0,021-0,10% 22 Hotels and Restaurants 0,016 0,016 0,00% 23 Inland Transport 0,789 0,788-0,06% 24 Water Transport 0 0-0,04% 25 Air Transport 0,771 0,771-0,02% 26 Other Supporting and Auxiliary Transport Activities 0,004 0,004-0,01% 27 Post and Telecommunications 0,005 0,005-0,14% 28 Financial Intermediation 0,029 0,029-0,23% 29 Real Estate Activities 0,06 0,06-0,02% 30 Renting of M&Eq and Other Business Activities 0,101 0,101-0,20% 31 Public Admin and Defense 0,001 0,001-0,03% 32 Education 0,01 0,01 0,00% 33 Health and Social Work 0,026 0,026 0,00% 34 Other Community, Social and Personal Services 0,023 0,023-0,02% 35 Private Households with Employed Persons 0,003 0,003 0,00% No. Sum 22,09 17,033-22,90% 6. CONCLUDING REMARKS The present paper explores in quantitative terms the improvements in environmental performance of households in Greece associated with an ambitious development of RES and energy efficiency technologies scheduled for the Greek energy system in the shortand medium-run. To this end, the input-output methodological framework has been used. The results of the analysis show that the implementation of the green investments in question will reduce the carbon footprint of Greek households by 22.9% from t CO 2/household to t CO 2/household. Decarbonization of power generation sector as well as promotion of energy efficiency measures in buildings are the key parameters resulting in this improvement. Further improvement of the carbon footprint of households could be achieved through (i) additional penetration of RES in the power generation

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