Workshop 4: Clean Energy
What Does Europe Pay for Clean Energy? –
Review of Macroeconomic Simulation Studies
Tim Mennel, Astrid Dannenberg, Centre for European Economic Research (ZEW), Germany
In line with economic theory of externalities, several environmental policy measures try to reduce emissions from energy consumption by influencing energy prices. The most important environmental policies in European energy markets are the European emissions trading scheme (EU ETS), energy taxes, subsidies for renewable energy sources, and instruments
specifically targeted at the transport sector. A price increase of energy as an input increases production costs. This reduces the domestic and foreign demand for goods and services and, therefore, creates macroeconomic costs. Our paper presents a survey on selected studies on macroeconomic costs of environmental regulation in European energy markets.
The analysed studies show that the environmental regulation affects the European economy, particularly the energy intensive industries and the industries that produce internationally tradable goods. From a macroeconomic point of view, however, the costs appear to be relatively small. The reason for that is that some sectors benefit from the regulation. Not surprisingly, macroeconomic costs tend to be higher for more ambitious environmental targets. In this case, also the efficiency of the regulation becomes a more important issue.
Considering the EU ETS, the costs depend not only on the assignment of reduction obligation to the sectors participating in the EU ETS but also on the optimal allocation of emission permits between the sectors participating in the ETS and the rest of the economy. The resulting GDP losses are typically around 0.4% as compared to business-as-usual (BAU), but lower than emissions reductions without the EU ETS. In the case of energy taxes, particularly the recycling of revenues and tax exemptions influence the amount of macroeconomic costs. Many studies conclude that the use of revenues for reductions in labour costs and tax exemptions for energy intensive industries can limit GDP losses to well below 0.1% or even lead to slight rises in GDP. Studies on clean energy policy in the transport sector cover a wide portfolio of instruments from fuel taxes or road charges to efficiency standards. Potential impact on GDP is found to be substantial, up to 1% by 2020, indicating that emission reductions in the transport sector are relatively expensive. Macroeconomic model simulation results for increasing the share of the EU renewable electricity production to 30% in 2020 surveyed in this paper range from roughly 0.1 to 1% as compared to BAU.
An evaluation of the Fiscal Mechanism for fostering Solar Energy in Australia
Anna Mortimore, Griffith University, Australia
Why is Australia not using its abundance of solar energy to cut its greenhouse gases? The Australian Conservation Foundation estimates that the solar energy Australia receives in one day of summer sun is equivalent to what the whole world would use in half a year. Could it be that Australia’s environmental fiscal instruments, low mandatory renewable target of 2%, low energy costs from use of coal, no emissions trading scheme and the misconceptions on the use of solar energy, provide disincentives and prohibit the successful development of solar technology in Australia? While Australia grapples with its environmental policy, and preoccupies itself with clean coal and uranium as its answer to cutting back greenhouse gases, some of the important solar technology developed in Australia and its talented people have left Australia to other countries keen to develop and invest in this technology. Economically this has meant future export income and employment opportunities forgone.
However, Australia is experiencing a dramatic change of attitude by the Australian Government, fuelled by public dissent and concern over climate change felt by the country. Even the rhetoric of the Prime Minister has changed from ‘the jury is out as to whether carbon emissions causes climate change’ to the need to reduce carbon emissions. There can no longer be denial. The country faces a crisis in 2007, with sustained drought and serious water shortages in major capital cities. Some States of Australia are cutting production of electricity from coal-fuelled power station to preserve the cities dwindling water supply
Could there be an imminent change in environmental policy with respect to renewable energy? The Prime Minister appointed a Task Group to investigate and report on an Emissions Trading Scheme (ETS) for Australia by 31 May 2007. The low cost of energy has been a major deterrent for investment in renewable energy. There appears strong support for ETS from energy suppliers and large business. Energy supplies are calling on the Government to impose a cost on greenhouse gases, otherwise their greenhouse emissions will grow by 74 per cent by 2030. In a recent survey by Pricewaterhouse Coopers, 60 per cent of Australian business leaders believe that a meaningful reduction in emissions requires emissions trading.
Even so, when considering the future of solar energy in Australia, the Australian Government does not provide equivalent investment in the development of technology in solar energy compared to clean coal technology, carbon capture and the probable use of uranium. They claim that solar energy costs five to six times more coal, but other protagonists refuted their claims. What is the real story? The paper considers whether Solar Energy will continue to be a minor player in Australia’s quest to reduce carbon emissions by reviewing the impact of the fiscal instruments, compared to other countries and identifying whether fiscal instruments are the answer to supporting the successful development and use of Solar Energy by business and consumers.
Stimulating the Use of Renewable Energy in the Residential Sector in Canada
with Economic Instruments
Amy Taylor, Director of Ecological Fiscal Reform, Pembina Institute, Canada;
Dr. Nathalie Chalifour, University of Ottawa, Canada
Small-scale renewable energy technologies have great potential for delivering heat and electricity to residences in Canada. While the focus in Canada has been on large-scale renewable energy technologies, little attention has been paid to the development of markets for smaller scale projects. This paper examines the role of economic instruments to accelerate the deployment of small-scale renewable energy technologies in the residential sector in Canada. The paper analyzes legal and policy issues arising from the use of economic instruments in this context.
The paper provides an overview of small-scale renewable energy technologies, their costs, and the potential for their uptake in the Canadian residential sector. A discussion of the regulatory, economic, capacity and other barriers limiting the adoption of these technologies is included. The paper reviews key past and existing programs at the federal and provincial levels in Canada. Select case studies of current and past programs highlight the factors that have contributed or are contributing to the success or failure of current and past programs in Canada. Next, the paper evaluates a number of economic incentives that could encourage the deployment of these technologies in the residential sector. The paper provides a list of criterion assessing the potential measures, and a detailed analysis of the following legal and policy considerations which arise in applying these criteria to select and design the instruments: (1) the jurisdictional authority under the Canadian Constitution of the federal and provincial governments to implement the proposed measures; (2) instrument choice, including how to determine whether to deliver the measures inside or outside of the tax system; and, (3) issues of regional distributional impact and fairness.
The scope of the research is defined according to building type, technologies and instruments. The analysis is limited to single-family detached and attached row housing. Solar water heating, solar photo-voltaics, ground source heat pumps and small wind turbines are the technologies examined. The paper focuses on economic incentives, including sales tax incentives, income tax credits, capital cost buy-downs, production incentives, mixed buy-down production incentives, and reduced interest rate loans.
Several methodologies are employed in this research. The paper relies upon reviews of secondary literature from a variety of sources, including policy documents and scholarly articles, and contact with experts. The discussion of technology potential is informed by RETScreen evaluations, which provide key technical and financial viability assessments for a number of renewable energy technologies. In addition to literature and contact with experts, the policy assessment relies on experience in other jurisdictions. Legal analysis based on constitutional and tax law doctrine and jurisprudence is used in the policy discussion.
A paradigm shift is necessary – decentralisation stategies for the energy economy
Prof. Wolf Schluchter, Brandenburg Technical University Cottbus, Germany
The lecture deals with the issue of sustainable energy use by presenting the concept "Virtual Power Station" which seeks to bring together and coordinate the various forms of energy generation, thereby leading to a substantive increase in energy effi-ciency. This would ultimately require a new "energy culture" between producers and users, based upon regionally created value as well as on consumer sovereignty.
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