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Economic Modeling for Climate-Energy Policy

Final Report Summary - ECOCEP (Economic Modeling for Climate-Energy Policy)

Climate change is one of the biggest challenges to the economy. From the Kyoto Protocol of 1997 to the Paris Agreement of 2016, several countries around the world agreed on the reduction of the emissions of greenhouse gas. The European Union (EU) adopted policies to deal with greenhouse gas emissions in its 20-20-20 targets. Some policies focus on mitigating the causes of climate change. They phase-out of fossil fuels, support the transition towards renewable energy, and promote energy efficiency. Other policies provide measures to adapt societies to the effects of climate change. Among other, they respond to environmental risks, food production threats, and health issues. All climate and energy policies do have economic consequences, just as much as climate change.
As a response to this challenge, the project Economic Modeling for Climate-Energy Policy (ECOCEP) carried research on the economics of climate change and energy. More precisely, it structured its analysis on the EU 20-20-20 targets and other climate and energy policies around the world. Hence, the researchers have estimated the economic value of the effects of climate change. And they have developed models to assess the impact of climate policies on the economy. All aspects of risks, vulnerabilities, and adaptations of societies have been considered. Models have been developed or improved along with an integrated approach and advanced economic tools. The project drove four great sets of results.
The first set of results are models on the effects of greenhouse gases mitigation and adaptation policies. A primary example of a contribution is the research work on the economics of air quality in Europe. Another one is on the impact of carbon pricing, brown coal availability, and the cost of gas. Besides, other results improved the key parameters of economic models. In particular, they delivered new econometric estimations on modelling the biofuel market, which can play a role in the mitigation effort of climate change. On the effects of climate change, the research analysed relevant policy mitigation measures that address the depletion of water reservoirs and the risks of flooding of infrastructures.
The second set of results is on the energy transition, to increase the share of renewable energy in order to mitigate climate change. Several results deal with the electricity sector, as it is the primary carrier of renewables. For example, one result is about the impact of the German Energiewende on electricity transmission lines. In addition to electricity, bioenergy has a high potential as an instrument of climate change mitigation. With ECOCEP's results, we have now a better understanding of the price transmission between biofuels, fuels, and food commodities. Another key result is that the prices of ethanol and biodiesel are responsive to their production factors. Finally, as fossil fuels remain in use, the research took them into consideration. Among the results, we have improved models of the prices of oil and electricity, and the general determinants of the price of energy.
The third set of results examined the economic aspects of household behaviour in consuming energy, as well as their preferences for renewables, and measures for energy efficiency. For example, the research work investigated how households have adopted energy efficient behaviour by adjusting to the price of the electricity and by the availability subsidies for energy efficiency. Households do make energy choices in transportation, too. One finding reveals that purchasers of new cars change their preferences when they are informed on the effects of carbon dioxide on the environment. Another part of the research work on energy efficiency has dealt with the strategic interactions of firms on energy markets and the contribution of the energy sector to economic growth in general.
The fourth set of results bundle the themes on non-market effects, risks, and equity of climate policies. Ecosystems, which are threatened by climate change, are critical for human well-being as well as for economic development across the globe. Hence, the research work included estimates of non-market impacts of climate change on ecosystems. For example, one result deals with the valuation of non-market services provided by forest ecosystems. Another one is on the effect of wildlife resources on community welfare. Besides, there are increasing risks that are attributable to the ancillary effects of climate change. Examples of research results about the quantification, in monetary terms, of the damages caused by energy generation. Finally, some results deal with the distribution of wealth and economic inequalities brought about by energy policies.
Jointly with the creation of these scientific results, ECOCEP achieved its main objective to create and reinforce scientific networks for joint research, high-level of training, and knowledge exchange in the climate change and energy economics. For the deployment of the networks, it has reinforced the scientific relations between the world-leading institutions and well-suited individuals on the topic of the project. State-of-the-art knowledge has been transferred along two geographical axes. A first axis was between beneficiary institutions of the EU and the top academic institutions in Australia, Canada, New Zealand, Russia, and the United States. A second axis was between the world-leading institutions from developed countries in America, Australasia, and Western Europe and the post-transition Eastern European countries and Africa.
From 2014 to 2017, ECOCEP provided the most beneficial support for the training and transfer of scientific knowledge among the participating institutions and their researchers. Examples of knowledge transfers include the collaborative production of peer-reviewed journal articles, working papers, scientific conferences, and seminars. Examples of training are lectures that some participants gave to the staff on secondment at host institutions and new lectures on the theme of the project that others created. Finally, PhD students who had been seconded received excellent advice and training from the experts they met abroad. Several workshops, sessions, and conferences had been organised to enrich the knowledge exchanges amongst the participants.
In practice, the project coordinated the secondments of selected staff-members of seventeen research institutions in the EU on the one side (Czech Republic, France, Great Britain, and Italy) and from the rest of the world on the other side (Australia, Canada, New Zealand, Russia, South Africa, and the United States). The staff on secondment acted as the key-intermediaries of the knowledge transfer activities. The project was financed by the International Research Staff Exchange Scheme of the Marie Skłodowska-Curie Actions of the European Union's Seventh Framework Programme. ECOCEP leave a legacy for future research on the economics of climate and energy, as well as relevant advice and recommendations for policymakers to take up the economic challenge of climate change.