ABSTRACT
This chapter evaluates two scenarios of European decarbonization policies: one based at improving energy efficiency and the other on increasing the renewable electricity share. No explicit policy instruments (such as C02 pricing) are analyzed, but it is assumed that – via suitable instruments – fossil energy flows are substituted by capital. The production of these capital goods is accompanied by indirect emissions. The modeling approach applied in this chapter not only quantifies indirect emissions from intermediate demand induced by the production of these capital goods but also from (i) private consumption induced, (ii) other endogenous final demand induced and (iii) negative feedback effects induced by price effects. The Dynamic New Keynesian (DYNK) input-out model used describes the inter-linkages between 59 industries as well as the consumption of five household income groups by 47 consumption categories for the EU 27. Private consumption, investment and exports are endogenous and exhibit domestic and imported indirect C02eq emissions.
The policies analysed (improving energy efficiency, increasing the renewable share in power generation) are suitable for significant C02 emissions reductions in the EU 27. The policies increase demand, GDP and employment and increase top incomes more than those at the bottom. Indirect emissions are partly much less reduced (imported indirect emissions) or even significantly increased (domestic indirect emissions) due to the higher capital demand (scrappage policies and investment in renewable capacities). One important and dominant source of indirect emission reduction is the electricity sector, where production decreases considerably (improving energy efficiency) or is decarbonized (increasing the renewable share). The overall result for emissions is in both scenarios almost fully determined by the emission reduction in the electricity sector.
