Are green goals too optimistic?

Exploring the impacts of renewable energy on the Portuguese economy using an hybrid modelling approach

66th IEA ETSAP Workshop Patrícia Fortes

EU: “Renewable energy will play a key role in the transition towards a competitive, secure and sustainable energy system”

RES can increase economic growth, especially in regions with a high dependence in fossil fuels, leading to job creation.

Some authors underline that RES promotion can be counterproductive for economic development and employment due to their financial costs.

Are green goals too optimistic?

Exploring the impacts of renewable energy on the Portuguese economy

CONTEXT & OBJECTIVE

HYBTEP HYBRID TECHNOLOGICAL ECONOMIC PLATFORM

Detailed technological information of the BU TIMES_PT;

Explicit representation of economy and its factors (production, consumption, labour) from the Computable General Equilibrium model GEM-E3_PT.

Assess the real impact of RES policies in the economy and the most cost-efficient technology portfolio to achieve it

Tech

no

logy

e

xplic

itn

ess

TIMES_PT

GEM-E3_PT

Behavioural realism

HYBTEP HYBTEP → soft-link between TIMES_PT and GEM-E3_PT

HYBTEP HYBRID TECHNOLOGICAL ECONOMIC PLATFORM

TIMES_PT

Demand Generator

Energy Link

GEM-E3_PT

• Economic evolution • Energy services demand

• Energy consumption in monetary units • Energy prices evolution • Technical progress on energy • Policy monetary values (CO2 price, energy

subsidies, energy taxes…)

• Energy consumption in physical units

• Energy prices • Policy monetary values (CO2 price, energy

subsidies, energy taxes…)

Common scenario assumptions • Fossil fuel import prices • Discount rate • Energy constraints • Policy assumptions

Step I Step II

Step III Step IV

HYBTEP HYBRID TECHNOLOGICAL ECONOMIC PLATFORM

Energy Rest of the economy

Doubling the 2010 share of renewable energy by 2030 in line with SE4ALL initiative and IRENA REmap 2030

POLICY SCENARIO – DOUBLING RES TARGET

0%

10%

20%

30%

40%

50%

60%

2010 2020 2030

RES

TFE

C

Portugal RES directive target: 31%

TIMES policy instrument 2030-2050

GEM-E3 recycling scheme (fixed

government’s deficit)

- Mandatory target: 49% RES Recycling of revenues:

- Lump-sum transfers - Social-security contributions

- RES consumption subsidy: 55€/MWh

49 %

0%

20%

40%

60%

80%

100%

2010 2020 2030 2050

% R

ES

RES CONSUMPTION

0%

20%

40%

60%

80%

100%

2010 2020 2030 2050

% R

ES

RES-E RES-H RES-T RES

0%

20%

40%

60%

80%

100%

2010 2020 2030 2050

% R

ES

No policy Target

Subsidy

The cost-effective RES target is already high in no policy scenario: 39%

Power sector has highest RES share

Constant subsidy will contribute to an increase of RES beyond 2030

39%

49%

49% 49%

54%

39%

ECONOMIC IMPACTS

2030 2050

Target Subsidy Target Subsidy

LS SS LS SS LS SS LS SS

Gross Domestic Product -1.4 -2.4 0.1 -1.0 -0.6 -1.7 -0.4 -1.4

Employment -0.2 -0.8 0.1 -0.7 -0.1 -0.4 0.0 -0.5

Private Consumption 0.1 1.1 0.5 1.5 -0.4 0.7 0.6 1.4

Exports -4.5 -8.8 -0.5 -5.0 -0.6 -4.2 -2.1 -4.8

Imports 0.3 1.7 0.3 1.6 -0.2 1.7 0.6 2.3

Domestic Production in Volume -1.2 -1.8 0.1 -0.6 -0.6 -0.9 -0.3 -0.6

Most of the scenarios do not show a positive economic feedback of doubling the RES target

The impact on employment is almost negligible

The decrease of exports is due to an increase of production prices driving economic evolution

% change from No

policy scenario

Revenue Recycling Scheme: Social-security contributions

SENSITIVITY ANALYSIS

RES value Total RES consumption

share Economic Impact

Base: 55 €/MWh 49% GDP: -1.0% Employment: -0.7% Domestic Production: -0.6%

82.5 €/MWh 51% GDP: -0.2% Employment: -0.3% Domestic Production: -0.2%

Higher RES support may lead to lower economic impacts

110 €/MWh in 2030: GEM-E3 does not achieve equilibrium

2030 Values

The revenue recycling scheme affects the economic impacts of doubling the RES target – However very small differences

Compared with the no policy scenario doubling RES has a small effort, not enough to lead to positive economic impacts

Previous work showed positive economic impacts in 2050 with a RES subsidy more than 90 €/MWh

The results are due to the balance between the financial instrument modeled and the revenue recycling scheme translated in:

Lump-sum: balance between energy cost and households available income

Social Security: balance between energy and labor costs.

INSIGHTS

10

FURTHER WORK

B C O NG E 06 07 … 18

B

C

O

NG

E

06

07

…

18

LA

Energy

Consumption

Intermediate

consumption in

other sectors

Coal

Natural gas

Oil

Electricity

σELFU = 0

Leontief

Production

Capital (K) Labour-Energy-Materials (LEM)

Energy (ELFU) Labour (L) Materials (M)

CES

CES

σKLEM

σLEM

Biomass

Agriculture Land Transport

Iron& Steel

... Other Market Services

σM

HYBTEP – Economic structure

TIMES outputs

GEM-E3 calculation based on historic elasticities

FURTHER WORK: HYBTEP – NEW ECONOMIC STRUCTURE

• RES technologies have higher labour intensity than fossil energy technologies

• New power technologies may be associated with other economic sectors

B C O NG E 06 07 … 18

B

C

O

NG

E

06

07

…

18

LA

Energy

Consumption

Intermediate

consumption in

other sectors

TIMES outputs

GEM-E3_PT: Electricity CES function

HYBTEP

Correspondence between technology costs with sector intermediate consumption

Introduction of labour commodity in TIMES??? Or alternatively do it ex-post in GEM-E3_PT

13

FURTHER WORK: HYBTEP – NEW ECONOMIC STRUCTURE

Coal

Natural gas

Oil

Electricity

σELFU = 0

Leontief

Production

Capital (K) Labour-Energy-Materials (LEM)

CESσKLEM

Biomass

Agriculture

Iron & Steel

Construction...

Market Services

Labour

HYBTEP development was financed by the Portuguese Science Foundation (FCT) (PEst-OE/AMB/UI4085/2013; PTDC/AAC-CLI/105164/2008) .

Coal

Natural gas

Oil

Electricity

σELFU = 0

Leontief

Production

Capital (K) Labour-Energy-Materials (LEM)

Energy (ELFU) Labour (L) Materials (M)

CES

CES

σKLEM

σLEM

Biomass

Agriculture Land Transport

Iron& Steel

... Other Market Services

σM

Standard

HYBTEP

15

HYBTEP: GEM-E3_PT CHANGES

Production

Capital (K) Labour-Energy-Materials (LEM)

Energy (ELFU) Labour (L) Materials (M)

Fossil Fuels (FU)

Natural gasOil

Electricity (EL) Agriculture Land Transport

Iron& Steel

... Other Market Services

CES

CES

CESCES

CES

σKLEM

σLEM

σELFU σM

σFU

Coal

i. Energy consumption and fuel mix defined exogenously;

ii. New energy commodity: biomass;

iii. Energy prices evolution defined exogenously;