Can the European electricity sector continue delivering emission reductions beyond 2020 and 2030?
The European electricity sector accounts for about 40 percent of emissions in a ‘business-as-usual’ scenario, and provides 70 percent of the emission reductions by 2020. Political feasibility plays an important role when policies are chosen which suppress prices both for emissions and on electricity. Europe may consider addressing the resulting weaknesses, one of which is that low rates of technological change hamper the extension of early emission reductions to other world regions, and beyond 2020.
The European Commission has launched its goal to reduce greenhouse gas (GHG) emissions by 20 % by 2020. The electricity sector is central to any strategy trying to mitigate climate change, such as its role in emissions and its potential for emission reductions.
A fundamental question is how policy instruments can be shaped so that growth and development objectives are reconciled with low greenhouse gas emissions. Textbook economics would suggest that one policy instrument would suffice to achieve this goal, but the reality shows a combination of instruments, such as a quota based emissions trading scheme and support schemes for energy efficiency (e.g. standards and subsidies), renewables (e.g. feed-in tariffs and green certificates) and R&D. The appraisal approach used in the case study focuses on political feasibility to form a descriptive perspective on policy combinations.
In analysing the rather low costs of emission reductions in Europe by 2020, and the big role played by the electricity sector, the study emphasises four types of responses that have limited scope in terms of technological change:
1. Greater efficiency in use of electricity and energy in general;
2. Fossil fuel substitution at the final energy level, particularly towards natural gas and renewables;
3. Deployment of known carbon free or low-carbon technologies, like wind power, nuclear energy, biomass such as wood and CCS thereafter;
4. Reduced output (or relative slow growth) in sectors with energy-intensive products like steel, primary aluminium, fertilizers, cement, pulp and paper, glass and ceramics.
These responses represent valued and important ways to reduce energy demand and related emissions, and need to play a role. However, they may limit the transition towards more far-reaching technological change, for instance development of yet unknown or currently very costly power production options.
The study, using quantitative models as well as other tools, argues that Europe may consider several reasons to deviate from the indicated policy path:
* Emphasis on energy security may lead to limits on the role played by natural gas;
* Emphasis on political economy, carbon leakage and technological change may lead to lower output reductions in energy-intensive manufacturing;
* Emphasis on future reductions, both in Europe and in other regions, may lead to stronger emphasis on research and development of new technologies, including through using public investments.
All of these considerations would lead to higher rates of far-reaching technological change, in part through higher prices on emissions and on electricity. Other issues that need to be considered when climate-proofing electricity policies are adaptation to climate change in the electricity sector’s demand and supply systems, the role of market power and the role of political institutions.
For further information see Work Package P3c
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