In Paris, delegates from the 196 UN parties met in December 2015 to negotiate a global climate agreement. Countries accounting for roughly a quarter of global emissions met the March deadline to provide targets for Curbing Greenhouse Gas Emissions (GHG) while at the same time some of the leading economies have missed the deadline, including Canada, Australia and notably China, lowering expectations for a universal climate agreement by December.
However, China signed an agreement with the USA on coordinating climate mitigation strategy. In contrast, the EU submitted ambitious emission reduction goals for 2030 well within a decarbonisation pathway.
The stakes are high, as the world is at present on a path to possible above 4°C global warming by 2100. Hitherto preventive action – including efforts to build a carbon market or to subsidise renewables – has been confined to the developed world and is largely insufficient. The European Union is clearly a frontrunner but many question the macroeconomic and industrial adverse effects of unilateral action.
E3-Modelling, based on modelling services to clients such as European Commission, Governments and business stakeholders, published research showing that in contrast with scepticism the EU’s economic and industrial benefits can be effectively reaped from pioneering climate action.
Abatement of GHG emissions & carbon leakage
As stated on numerous occasions by the President of E3-Modelling Prof. P. Capros, “the basis for the deep decarbonisation of the global economy rests in efficient and equitable effort sharing. Lack of consensus on an international agreement for reducing Greenhouse Gas Emissions eventually leads to asymmetric climate policies which not only increase the cost of reducing emissions but also dent the effectiveness of climate policy, through carbon leakage1.” In particular, studies performed by E3-Modelling staff conclude that an international concerted action to reduce GHG emissions at safe levels by 2050, would require 1.5% of global GDP. In the case where only OECD countries embark in GHG mitigation, the carbon leakage rate is estimated to be close to 25%. If China participates to the abatement effort of OECD countries then carbon leakage rate can be reduced to 3%, underlying the importance of allying developed and emerging economies in pursuing GHG emission reduction policies.
EU as a first mover
Europe has long been a leader in pursuing a global climate deal and has early outlined – with support from our economic and energy modelling research (PRIMES and GEM-E3 models) – a robust set of targets for drastically curbing the region’s emissions by 2030. Indeed, the Conference of Parties (COP21) submission of EU countries’ targets has formally put forward a binding, economy-wide target of cutting the region’s GHG emissions by at least 40% below 1990 levels by 2030. The EU COP21 submission has been largely based on modelling work undertaken by E3-Modelling staff, with the use of two highly sophisticated and well established in the European context models: the PRIMES energy market model and the GEM-E3 computable General Equilibrium Model.
The EU can be considered as a first mover in global GHG mitigation. The net impact on EU economy is uncertain as early movers incur costs, but may also benefit from gaining a cost comparative advantage on producing low carbon technologies; the costs depend on the loss in competitiveness that leads to a decrease of their shares in global markets. A recent study performed by E3-Modelling shows that the net potential gain to EU from undertaking a first mover action can be up to 0.54% of its GDP.
Modelling tools operated by E3-Modelling
The main energy-environmental economic modelling work of E3-Modelling rests upon a series of highly sophisticated in-house models: PRIMES, a workhorse energy market model developed and maintained for all individual European countries and the internal electricity and gas markets is a sophisticated market-oriented engineering-economic model with modular structure by sector, with high sectorial resolution including for transport sector. The model has been extensively used in assessing the 20- 20-20 energy and climate policy package, the EU’s decarbonisation Roadmaps and the recent climate and energy policies for 2030.
In contrast with optimisation models, PRIMES is an agent and market-oriented model aiming at representing the reality of actors’ behaviours and their interplay in markets, for energy commodities and for the emission allowances (EU ETS). PRIMES is rich in engineering information and includes a detailed representation of energy and transport infrastructure. Its sub-models cover power market operation in high resolution, investment and design, gas market strategic analysis, energy efficiency in houses and buildings, industrial energy use and cogeneration, district heating, biomass/waste sector and new technologies including bio-energy, renewables, smart grids, power-to-gas, power-to-liquid and synthetic fuels, as well as storage. The Energy Roadmap publications and the Eurelectric Power Choices scenarios, carried out using PRIMES illustrate the capabilities of the model in simulating deep restructuring of energy systems in demand and supply sectors, the dynamics of investment and equipment turnover in all sectors, while projecting impacts on markets (incl. EU ETS), commodity prices and costs by agent.
The GEM-E3 general equilibrium macroeconomic model is a sophisticated multi-sector and multi-country model used for economic impact assessment and macroeconomic studies. GEM-E3 fully linked with the energy model PRIMES analyse closed-loop energy economy- environment assessments.
The world energy projections, with focus on hydrocarbon world markets, is handled by E3-Modelling using the PROMETHEUS stochastic world energy model. GEM-E3 has been the model of choice for numerous country-specific macro-economic studies for a variety of cases, including Romania, Switzerland, North Africa countries, and others.
Modelling of Energy Economy and Environment
The researchers of E3-Modelling have provided scientific support and policy advice for the European Commission on many occasions including most recently the 2030 Energy and Climate Communication (January 2014), but have also provided support to the German Ministry of Economic Affairs and Energy in the run-up to the agreement. They also regularly provide support to the Belgian Government, as well as to numerous non-governmental groups such as Eurelectric, AEGPL, EUROGAS. E3- Modelling participates in international cooperative projects such as the EMF and partners with renowned world institutes such as MIT, IIASA, PIK, FEEM, etc. in order to validate and enhance its modelling tools and regularly publishes its findings in international peer-reviewed journals.
At E3-Modelling, our aim is to communicate to policymakers and stakeholders around the world the quality output of leading scientific research in the areas of energy and the environment, helping them make informed decisions when formulating their optimal pathways towards a low carbon economy. E3-Modelling is a spin-off company based on research activities performed at the National Technical University of Athens.
More information about E3-Modelling can be found at www.e3modelling.gr
1 The part of emissions reductions in abating countries that may be offset by an increase of the emissions in non-abating countries
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