Linking household investment behaviour, energy systems and the economy

Individual investment decisions on energy efficiency technologies do not only influence our long-term energy demand, but also the growth and structure of our economy, and this is the level of analysis for the macro level in BRISKEE. At the macro level analysis, BRISKEE ties together the understanding of consumer investment behaviour and risk preference from the micro level investigation and the demand scenarios in the meso-level analysis with an overall analysis of effects on the economy as a whole.

The impacts of energy efficiency policy on GDP, employment and exports have received increasing interest from policy makers, consumers and the scientific community in recent years. Especially in times of economic recession, it is essential to assess the effects of energy efficiency policy on economic output, employment as well impacts on the sector level.

BRISKEE explores the long-term macro-economic impacts of changes in micro-economic decision-making and of energy efficiency policy on employment, GDP and exports in the EU up to 2030. Our innovative modelling approach in BRISKEE linked a macro-economic model (ASTRA-EC) with the energy systems models.

The BRISKEE results are less optimistic on possible outcomes than other simulations regarding, for instance, employment. However, the results should be interpreted as a robust outcome, which shows that increased investments in energy efficiency still will have at least modest positive economic impacts for the EU. When looking at the macro-economic implications of investments in energy efficient technologies, structural shifts are observable which – at first – lead to relatively modest increases in GDP and employment when moving on to the new actor-related measures scenario. The reason for this lies in the compensating impulses that reduce positive impacts on economic growth and employment on the short term. It is therefore important to look at the long-term dynamicimpacts (in particular beyond 2030) that would arise after investments are paid off. Future research could focus on the question whether the survey findings have implications for example for the compensating impulses, i.e. the investment behaviour.

The structural effects of positive and negative demand impulses induce further macro-economic effects, and contribute to a change in the structural composition of the economy. Additionally, the reduction of energy demand lowers the dependence on imported fossil fuels, which has a positive impact on national trade balances. The effects are summarised in the table below.

Effects resulting from investments (positive impulses)

Energy efficiency investments increase demand in sectors providing energy efficiency technologies and services, leading to increased production and employment in these sectors and the upstream sectors related to them. Furthermore, they enhance the chances of domestic producers to increase their technology exports.

Effects resulting from energy cost reductions (negative impulses)

Energy savings reduce spending on energy, leading to reduced production and employment in these sectors, and the upstream sectors related to them.

Effects resulting from compensation of impulse differentials

The differences between investment increases (positive impulses) and energy cost reductions (negative impulses) may affect disposable income and thus consumption in economic sectors not related to energy efficiency. In a neoclassical tradition, it can be assumed that the sum of positive and negative impulses equals zero.

Macro-economic income effects

Changes in production of investment and consumption goods lead to changes in income, which induce further multiplier effects. The impact of these macro-economic effects on sectors differ, and add to changes in the structural composition of the economy induced by the positive and negative impulses.

Effects resulting from changes in the structural composition

The economic sectors differ with regard to import shares and labour intensity. Thus, macro-level changes in the sectorial composition of the economy lead to changes in overall import and labour intensity of an economy.

Taken together, the macro-economic impacts of the scenarios show characteristics of an investment into a modernization process: Investments into energy efficiency technologies have to be offset temporarily by a reduction in consumption. However, the investments drive a structural change, which increases overall macro-economic productivity. This is not mainly due to productivity increases in the investing sector, but via a structural change towards sectors, i.e. the building sector, which is less labour intensive than the service sector. With the push for additional investments ebbing off, and induced energy costs savings lagging behind, consumption is able to pick up in the long run.

There are various caveats which have to be taken into account in interpreting these results. First, the positive effects of energy costs reductions cannot fully be accounted for within the time framework chosen (i.e. up to 2030), because they are lagging behind the investments.
Second, the results depend on the results of the energy demand modelling, and especially on the order of magnitude of investments in relation to energy cost reductions.

Third, as mentioned above, the results are influenced by our assumption that crowding out of private consumption is prevailing in the compensation of positive impulses exceeding negative ones. This is a rather cautious, neoclassical assumption. If a more Keynesian situation were assumed, in which underutilized capacity and idle capital can accommodate additional investments, the assumption of a strong crowding out of consumption by investment would not hold anymore. Under such assumptions, the additional investments lead to increase in a final demand impulse, which leads via multiplier effects to a higher increase in employment and GDP than is depicted in our model run. Taken together, this means that our results are not on the optimistic side of possible outcomes. They should be interpreted as a robust outcome, which shows that investments in energy efficiency will have at least modest positive economic impacts for the EU.