Comparing hard-linking (TIMES-MSA) and soft-linking (TIMES-HERMES) methodologies for quantifying economic impacts of mitigation

Maurizio Gargiulo a,b, John Curtis c, James Glynn b, JohnFitzgerald c, Brian Ó’Gallachóir b

a E4SMA Srl, Turin, Italy.

B Environmental Research Institute, University College Cork, Cork, Ireland.

C Economic and Social Research Institute, Dublin, Ireland.

Outline

• Introduction

• Methodological approach

• Results

• Conclusions

• Next steps

2

3

Introduction

• Assess and develop possible linkages between energy and economycomparing different approaches for quantifying the economicimpacts of mitigation.

• The two models are IrishTIMES and HERMES model.

• The analysis takes as a starting point the non-ETS emissionsreduction results (22% below 2005 levels by 2030) for Ireland fromthe EU 2030 Climate and Energy Policy Framework.

• HERMES is a complete structural model of the Irish economy firstdeveloped in the late 1980s – Irish sub-model of EC HERMES project.• Firms minimise their cost of production/maximise profits• Households maximise their utility• World economy exogenous via NIESR’s NiGEM model• More Info: http://www.esri.ie/pubs/WP460.pdf

4

Methodological approach

HERMES Reference Scenario Macroeconomic outputs

IrishTIMES

Energy Service Demand projection

Scenario runs: NETS22 NETS22-ED NETS22-MSA

NETS22 outputs: CO2 prices Investments

NETS22 HERMES scenario New Macroeconomic outputs

New Energy Service Demand projection

HERMES

IrishTIMES

Scenario NETS22-H22

Results Comparison

5

CO2 emissions

CO2 emissions by sector and period for each scenario

6

CO2 emissions

Difference in percentage of CO2 emissions in NETS22 vs NETS22-ED,NETS22-H22 and NETS22-MSA in 2020 by sector

7

CO2 emissions

Difference in percentage of CO2 emissions in NETS22 vs NETS22-ED,NETS22-H22 and NETS22-MSA in 2030 by sector

8

Energy service demand indexes

Overall energy service demand index. This is a weighted (on consumption) normalised indexon 2010 of each demand

Normalised index on 2010 energy servicedemand sum of residential, agriculture, serviceand other industries demands

Normalised index on 2010 energy servicedemand of goods transport.

9

Energy system pathway changes

Final energy consumption by sector

10

Energy system pathway changes

Difference of final energy

consumption in percentage by

sector in 2020

NETS22 vs NETS22-ED, NETS-MSA and NETS-H22.

Difference of final energy

consumption in percentage by

sector in 2030

11

Energy system pathway changes

Renewable shares in transport (RES-T), heating (RES-H) and electricity (RES-S) sectors by scenario and period – Gross Final Consumption

2010 2020 NETS22 2030 NETS22

Renewable

Share

ED H22 MSA ED H22 MSA

Heat (RES-H) 2% 7% 5% 7% 5% 13% 19% 20% 19%

Electricity (RES-E) 3% 6% 6% 6% 6% 12% 14% 14% 13%

Transport (RES-T) 1% 10% 8% 10% 6% 4% 9% 13% 8%

Total RES 6% 22% 18% 23% 17% 29% 41% 45% 40%

Renewable shares in transport (RES-T), heating (RES-H) and electricity (RES-S) sectors by scenario and period – Gross Electricity Consumption

2010 2020 NETS22 2030 NETS22

Renewable MODAL

Shares

ED H22 MSA ED H22 MSA

Heat (RES-H) 4% 18% 12% 18% 13% 35% 32% 36% 30%

Electricity (RES-E) 17% 26% 27% 29% 28% 46% 47% 49% 45%

Transport (RES-T) 3% 24% 19% 25% 15% 17% 15% 19% 15%

12

Energy system pathway changes

System electrification - electricity consumption by sector and scenario

13

Energy system pathway changes

System gasification – gas consumption by sector and scenario

14

Economic implications

• GDP MSA Ref is the expected GDP;

• GDP NETS22 MSA is the real GDP due to the NETS22 target;

• GDP Loss (in the last row) compared to the expected GDP.

The GDP HERMES Ref is the GDP from the HERMES reference scenarioused to project the energy service demand for IrishTIMES in step 1.

The GDP HERMES NETS22 is the GDP from the HERMES NETS22scenario based on the IrishTIMES outputs in step 1.

IrishTIMES-MSA vs HERMES 2010 2020 2030

(GDP MSA Ref - GDP HERMES Ref) / GDP HERMES Ref 0.00% 0.00% 0.00%

(GDP HERMES NETS22 – GDP HERMES Ref)/ GDP

HERMES Ref0.03% 2.47% 2.58%

(GDP NETS22 MSA – GDP MSA Ref)/GDP MSA Ref -0.57% -0.60% -0.56%

15

Economic implications

Undiscounted system costs over GDP

2010 2020 NETS22 2030 NETS22

ED H22 MSA ED H22 MSA

Other Costs / GDP 5.6% 1.9% 1.8% 1.9% 1.7% 1.9% 1.8% 1.9% 1.8%

Investments / GDP 2.1% 4.1% 3.9% 4.2% 3.8% 4.1% 3.9% 4.2% 3.8%

Fuel / GDP 3.5% 3.8% 3.4% 3.8% 3.3% 3.0% 3.0% 3.1% 3.0%

Total costs / GDP 11% 9.8% 9.1% 9.9% 8.9% 9.1% 8.7% 9.2% 8.6%

CO2 Marginal abatement costs

Conclusions

• The results presented show energy service demands areaffected by: Price response - Irish TIMES-ED and

Full macroeconomic feedback - Irish TIMES-MSA and IrishTIMES-HERMES.

• The results show the different impacts on GDP generatedby Irish TIMES-MSA and Irish TIMES-HERMES.

In particular: Irish TIMES-MSA models a GDP contraction associated

with mitigation,

Irish TIMES-HERMES models a GDP growth due economicstimulus provided by revenue recycling of the carbon taxto reduce labour taxes.

16

Next Steps

• The next Steps will include new runs with HERMES model

variants (e.g. labour tax offset).

• Better understanding of MSA results VS HERMES/COSMOS

Ireland has low energy intensity per Gross value added in

both industry and services relative to other EU countries.

A structural model (like HERMES/COSMO) may give

greater insight that a production function model (MSA) ??

17

Thank You

www.ucc.ie/energypolicy

18

E4SMA S.r.l., www.e4sma.com

www.linkedin.com/company/e4sma https://twitter.com/E4SMAsrl