Policy assessment with GEM-E3 using the model developments realised in SIMPATIC

By , Head of E3MLab at ICCS

The EU leads the global effort towards reduction of GHG emissions and penetration of clean energy sources in energy mix. The most important climate policies already decided by the EU-28 include the adoption of the target to reduce its GHG emissions by 20% relative to the 1990 levels until 2020 as part of its Energy and Climate package [17], the establishment of the worlds’ largest emissions trading system (EU -ETS) and the implementation of a number of additional climate policies at national level with the objectives to reduce GHG emissions, increase energy efficiency and RES deployment and ensure security of energy supply. The
European Commission in 2013 has adopted the Green Paper on “A 2030 framework for climate and energy policies” [18] with the aim to extend to 2030 the current legislative 2020 framework and to set specific climate targets for 2030, which are in line with the EU longterm decarbonisation target as set out in the Energy Roadmap 2050 [19]. On the other hand, emission pledges and climate policies adopted by non-EU regions (including major carbon emitting economies like USA, China and India) are not ambitious and not binding and even if achieved they would not lead to the necessary GHG concentrations that are consistent with limiting the global temperature increase to 2°C compared to pre-industrial levels, as defined by the IPCC Fourth Assessment Report [20].
In the current global climate policy landscape, a central concern for the EU policy makers is what would be the macro-economic implications for the EU in case that it unilaterally adopts strong decarbonisation policies in line with the Roadmap targets without an international GHG mitigation agreement in place. The objective of the current study is to explore whether the European economy can get first mover advantages by pursuing ambitious emission reduction policies earlier than other regions or whether it would be preferable that the EU waits until 2030 to synchronize GHG mitigation actions with the rest of the world. The study presents a model based evaluation conducted within the SIMPATIC project of the impacts of incomplete regional participation in the global climate change mitigation effort and aims to quantify the First Mover Advantages that the EU economy can get in the context of fragmented international carbon markets.
The key research question of the model-based analysis concerns the economic risks and benefits faced by the EU-28 region in case that it unilaterally adopts a stringent pioneering decarbonisation policy in line with the EU Roadmap emission reduction targets [19]. The objective of the study is to examine the conditions under which the EU can get First Mover Advantage (in terms of positive GDP growth, employment and additional exports) by pursuing ambitious pioneering climate action earlier than other regions. Such key conditions refer to the potential for technology-driven productivity gains and cost reduction, technological learning through R&D investments, the treatment of intellectual innovation rights, the engagement of world regions to the global mitigation objective and the
possibility for spillover effects (global diffusion of innovation).
For this purpose, the GEME3-RD model has quantified a series of scenarios that assume lack of international cooperation for GHG mitigation and first mover climate action for the EU. The model is well-suited to perform this type of analysis as it represents comprehensively the sectoral structure of the economy and accounts for the complex interactions between the energy system and the overall economy. The new enhanced version of the GEME3-RD model with bottom-up representation of the energy, power generation and transport sectors and endogenous learning mechanisms for clean energy technologies (both learning by doing and learning by R&D) has been used for the development of the Reference scenario for the SIMPATIC project, which is presented in [4]. The enhanced version of
GEME3-RD is described in detail in [3], while the properties of the model are evaluated in a series of diagnostic shock simulations in [1]. And the standard version of GEME3 is described in detail in [2].
The remainder of the report is structured as follows: Section two gives a brief description of the GEME3-RD model version used for the current study. Section three analyses the series of scenarios examined, with a focus on socioeconomic developments, climate policies and production of clean energy technologies. In sections four and five, an analytical comparison of the alternative scenarios is presented especially with regard to their impacts on the evolution of the energy system, carbon emissions, the production of clean energy sectors and macro-economic developments in the GEME3-RD model. Section six concludes.