CENTRO EURO-MEDITERRANEO PER I CAMBIAMENTI CLIMATICI

Transcription

1 The EU Move Toward a 3020 Target: Economic Implications Under a Copenhagen/Cancun Setting* Francesco Bosello, University of Milan CMCC - FEEM Lorenza Campagnolo, University of Venice CMCC FEEM Fabio Eboli, University of Venice CMCC FEEM Ramiro Parrado, University of Venice CMCC - FEEM Elisa Portale, CMCC - FEEM International Workshop: General Equilibrium Modelling of Climate and Energy Impacts and Policies: Recent Developments IEFE, Milan, (*) Financial support by ENEL Incarico n is gratefully acknowledged

2 Overview Background The model The baseline and policy scenarios Results Conclusions 2

3 Background EC COM (2007) 1 and 2 set the target of EU climate policy for 2020: a 20% greenhouse gas emission reduction by 20% compared to 1990 a 20% share of renewable energy consumption over total a 20% increase in energy efficiency compared to 2020 BAU trends Since June 2009 (EU Council adoption ) the Package is mandatory However EU emission reduction targets could become even more ambitious (-30%) if other countries implement and participate to the abatement effort. This is the apparent exit of Copenhagen COP 15 3

4 Indeed, the Copenhagen Pledges Low end of pledges High end of pledges EU27-20% CO2 w.r.t % CO2 w.r.t.1990 US -17% CO2 w.r.t % CO2 w.r.t Russia -15% CO2 w.r.t % CO2 w.r.t.1990 RoA1-29% CO2 w.r.t % CO2 w.r.t.2005 China -40% CO2/GDP in % CO2/GDP in 2020 India -20% C/GDP -25% C/GDP Brazil -5.3% CO2 w.r.t. BAU -9.4% CO2 w.r.t. BAU More ambitous mitigation effort could be justifiable

5 Existing assessments There are many: e.g. Boehringer et al. (2009) CGE, Durand Lasserve et al. (2010) Dynamic opt model, periodic observatory by Deutsche Bank (Lewis and Curien, 2008,2010), Hohne et al (2011) MAC The Institutional ones : - SEC (2008) 85-20%, EU country detail, EU alone - SEC (2010) %, Copenhagen framework, revised economic and emission baseline (effect of the 2008 economic crisis). However macroeconomic results just for the aggregate EU In addition, the baseline issue : in both studies it is a current policy one. Perform our assessment constructing a no-policy baseline and highlighting country specificity

6 The ICES (Intertemporal Computable Equilibrium System) model Top-down, recursive-dynamic, computable general equilbrium model for policy evaluation Calibrated in 2004 (GTAP-7 database) 113 regions 57 sectors. This version 26 regions, 17 sectors. Depicts international trade with capital mobility Growth driven by endogenous investment decisions building capital stock interperiodally Production-side detail improved including nuclear, hydro, wind, solar Emissions of CO2 and carbon market 6

7 Regional and sectoral detail of the model Regions Sectors Austria USA Agriculture Belgium Russia Coal CzechRep RoA1 (Rest of Annex 1) Oil Denmark China Gas Finland India Oil_Pcts France Brazil Nuclear Germany NonA1_T (Non Annex 1 with pledges) Solar Greece RoW (Rest of the World) Wind Hungary Hydro Ireland OthEly (Electricity from fossil source) Italy Paper Netherlands Minerals Poland Chemicals Portugal Iron_Steel Spain Transport Sweden Oth_ind (Manufacturing ) UnitKingdom Services RoEU (Rest of Europe 27)

8 Policy Scenarios Low Low High EU27 20% GHG emission reduction in 2020 w.r.t % rt only CO2 20% RES over total final energy consumption 30% GHG emission reduction in 2020 w.r.t. - 23% rt only CO2 20% RES over total final energy consumption 20% GHG emission reduction in 2020 w.r.t % RES over total final energy consumption 30% GHG emission reduction in 2020 w.r.t % RES over total final energy consumption 30% GHG emission reduction in 2020 w.r.t % RES over total final energy consumption NON EU Business as Usual Business as Usual Low pledges Low pledges High pledges

9 The Baseline Assumptions EU GDP Trillion EU27 Italy Population in 2020 (Millions) Trillion Average yearly growth rate ICES Benchmark GDP Average yearly growth rate Average yearly growth rate Trillion Italy GDP Non EU GDP from WEO (2009) and FMI ICES Benchmark Sources: EC (2010): Economic Forecasts EC (2010): Ageing Report 2009

10 10 The Baseline Assumptions US$ (2008) / boe ICES Benchmark ICES Benchmark US$ (2008) / boe US$ (2008) / boe 2020 Coal Prices Oil Prices Natural Gas Prices ICES Benchmark Source: Eurelectric (2010)

11 The Baseline Assumptions 4100 Mtons CO ICES Benchmark EU CO2 Emissions EU CO2 Emiss. Ren. Share over total en. cons EU Italy Mil Tons CO % ch. wrt ,14 8,53 % ch wrt ,40-5,76 % ,9 6,5 % ,6 12, SEC (2008) 85 SEC (2010) 650 Mtons CO Ren. Share over total en. cons ,5% 14,8% Italy CO2 Emissions 11 Benchmark ICES

12 EU and 30-20: results Macroeconomic costs: % GDP changes wrt 2020 baseline Var % rt UE27 (ICES) UE 27 GEM E3 SEC (2008) UE27 PRIMES SEC (2008) UE27 PRIMES SEC (2010) NB: PRIMES is a bottom-up model Costs are direct costs investment needed Italia ICES Germania ICES UK ICES Spagna ICES Non UE27 ICES Very strong carbon leakage : %; 30-20: % Non EU emissions => 70% EU mitigation effort nullified

13 EU and 30-20: results CO2 price /t in /ton CO Gemini-E3* Dart* ICES Pace* SMERGE** ICES Models/studies A subsidy to RES is also needed: 34.7 /MgH (20-20), 13.7 /MgH (30-20). Without subsidy RES share would be 13.8% (20-20) and 17% (30-20). Nonetheless when 20% RES share is reached GDP costs do not increase.

14 EU and 30-20: results Emission reduction on ETS according to EC Decision 406/2009/EC and efficient (opt) Non ETS opt Non ETS EC % riuzione rispetto al 2005 Austria Belgium CzechRep Denmark Finland France Germany Greece Hungary Ireland Italy Netherlands Poland Portugal Spain Sweden UnitKingdom RoEU EU Efficiency (on CO2 only) => -14% ETS and -10.6% Non ETS The EC burden sharing (on all GHG) => -21% ETS and Non ETS => Excessive burden on ETS

15 EU and 30-20: results Optimal mitigation burden sharing per country (wrt 2020 baseline) Austria Belgium -45 CzechRep Denmark Finland France Germany Greece Hungary Ireland Italy Netherlands Poland Portugal Spain Sweden UnitKingdom RoEU Var.% r. 2020

16 EU and 30-20: results PIL PI Agriculture Coal Oil Gas Oil_Pcts Solar Wind Hydro OthEly Paper Minerals Chemicals Iron_Steel Transport Oth_ind Services Var. % r. baseline Services Agriculture Coal Oil Gas Oil_Pcts Nuclear Biofuels Solar Wind Hydro OthEly Paper Minerals Chemicals Iron_Steel Transport Oth_ind Sectoral output: % ch. wrt 2020 baseline Sectoral prices: % ch. wrt 2020 baseline Var. % r. baseline

17 EU and summary The net macroeconomic cost of the EU policy is manageable (if full efficiency can be exploited). However its burden is non negligible for energy intensive sectors. Environmental effectiveness is low (very high carbon leakage). The additional goal on RES share does not seem to impose addtional costs to the policy. Moving to doubles the costs.

18 EU and 30-20: grandfathering and BTA 0 Var. % r. baseline Auct+Tax Grdf BTA Sectoral output % ch. wrt 2020 baseline ELY ETS (excl. ELY) NonETS Var. % r. baseline Auct + tax Grdf BTA Sectoral prices % ch. wrt 2020 baseline ELY ETS (excl. ELY) NonETS

19 EU and 30-20: grandfathering and BTA Auctioning ETS Tax Non ETS Grandfath. ETS Auction. Elect. Tax Non ETS Auctioning ETS Tax Non ETS & BTA GDP (% ch. wrt baseline 2020) CO2 Price ( /t) RES Subsidy ( /MgH % 2020) RES share over total final energy consumption in 2020 Macroeconomic Indicators Carbon Leakage: granfathering 60%; BTA 65%

20 Grandfathering and BTA summary Grandfathering and BTA do reduce the burden of the policy on energy intensive sectors However the burden of the policy is shifted towards non energy intensive sectors. The net effect is negative (more GDP costs) By which mechanisms? BTA through higher energy (but not only) prices, grandfathering through loss of revenues supporting household demand.

21 EU mitigation within the Copenhagen Accord EU GDP: % ch. wrt 2020 baseline ICES ICES ICES Low ICES Low ICES Low Gdf ETS ICES high ICES full trade Non EU GDP: % ch. wrt 2020 baseline ICES ICES ICES ICES ICES CENTRO Low EURO-MEDITERRANEO Low Low Gdf ETS -1.3 ICES high ICES full trade

22 EU mitigation within the Copenhagen Accord CO2 price ( /t in 2020) ICES ICES ICES Low ICES Low ICES Low Gdf ETS ICES high ICES full trade

23 EU mitigation within the Copenhagen Accord Var. % r. baseline Low Low High Sectoral output % ch. wrt 2020 baseline ELY ETS (excl. ELY) NonETS Var. % r. baseline Low Low High Sectoral prices % ch. wrt 2020 baseline ELY ETS (excl. ELY) NonETS

24 30-20 Low and full emission trading GDP impacts % change wrt 2020 baseline Countries with targets/pledges Total Domestic Action Full Trade EU Total Italy Germany UK Spain USA Russia RoA China India Brazil NonA1_T RoW PER 2.24 I CAMBIAMENTI 1.65 CLIMATICI Gt CO USA Russia Emission buyers and sellers RoA China India Brazil NonA1_T Emission trading clearly benefits buyers of permits EU 0.57 Emissioni allocate Emissioni prodotte Imp/Exp permessi

25 EU mitigation and Copenhagen summary Pledges in non EU regions considerably lowers the EU policy costs. The positive competitiveness effect prevails on the aggregated demand effect (20-20 Low => GDP gains for the EU) Low is anyway costly especially for energy intensive sectors (more or less like the 20-20) In terms of GDP costs BTA superior to grandfathering however both instruments increase the total policy costs (Not surprisingy) the most powerful mean to reduce these costs is the establishment of/ access to an international carbon market (the EU net buyer can even gain wrt baseline) There is however an issue of profitabiliy for non EU regions. They would be better off by non participating to the carbon market

26 THANK YOU!

27 ICES: the supply side Representative cost minimizing firm Representative Firm - cost minimizing Output Leontief TOP Level V.A. + Energy CES σ VAE Other Inputs σ D 1 Level 2 Level Natural Resources Land Labour Capital Capital + Energy CES σ KE Energy Domestic Region 1 Foreign Region... σ M Region n 3 Level 4 Level 5 Level Other fuel Non Nuclear CES σ=0.5 CES σ=0.5 Non Electric Coal Nuclear CES σ=1 Hydro Non Intermittent CES σ=0.5 Other Ely Electric CES σ=2 Solar Intermittent CES σ=2 Wind 6 Level CES σ=1 Oilgas Non Oilgas 7 Level CES σ=1 Crude Oil Gas Petroleum Prod CES σ=0.5 Biofuel 27

28 ICES: the demand side Representative utility maximizing household Utility Utility Cobb-Douglas Private Consumption Public Consumption Savings Item 1 Item Item m Item 1 Item Item m Domestic Foreign Domestic Foreign Region 1 Region n Region 1 Region n Region... Region... 28