Mar 2020 – Briskee,

[6.2 Scientific working paper on macroeconomic effects of energy efficiency policy]

Matthias Pfaff, Rainer Walz
Fraunhofer ISI
Reviewed by: Émile Chappin
Delft University of Technology

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Accelerating the adoption of energy efficiency technologies in households within the EU28 inevitably affects the overall economy. This working paper presents the results of the macroeconomic analysis within the CHEETAH project.

Estimating the macroeconomic effects of energy efficiency policy requires a detailed understanding of how the policy measures act on the micro level. The methodological approach applied in this analysis creates a coupling between the detailed bottom-up energy demand models Invert/EE-Lab (for buildings) and FORECAST (for appliances) with the macroeconomic system dynamics model ASTRA-EC. The coupling approach combines technology-based engineering knowledge in the relevant energy-using sectors with a macroeconomic perspective by taking advantage of the detailed data on technologies in the energy demand models, and of the dynamic input-output structure in the macroeconomic model.

The macroeconomic effects of the energy efficiency policy scenarios are analysed using a three- step methodology. In the first step, the investments and energy cost reductions induced in the scenarios are calculated using a detailed bottom up modelling approach. In a second step, the investments and savings are allocated to the affected economic sectors. In a third step, the macroeconomic impacts are calculated using the dynamic input-output based macroeconomic model ASTRA-EC.

The overall effect on GDP and employment on the European level is relatively small in both scenarios. Over the entire simulation period, average EU 28 GDP is 0.03% above the current- policies scenario in the individual policy instrument scenario (S1), and 0.05% above the current- policies scenario in the policy-package scenario (S2). The effects on employment are smaller with an increase of 0.01 % in both scenarios. In absolute terms, these changes equate to 5 billion € of additional EU 28 GDP per year in the S1 scenario and 8 billion € additional yearly GDP in the S2 scenario. The yearly changes in European employment are approximately 19.000 additional jobs in FTE in both scenarios.

On a sectoral level, it can be observed that manufacturing generally benefits from the investments in appliances and building technologies. The biggest accrue to the electronics sector. In contrast, the energy and minerals sectors (which also include fossil fuels) experience a small decline in value added and employment relative to the baseline scenario. The macroeconomic effects are also negative in some service sectors, due to the negative impulse on final consumption in the case of higher investment costs than energy savings.

The distribution of the macroeconomic effects are relatively uniform among different socioeconomic groups. Using disposable income as an indicator of different impacts per quintile, it can be shown that all quintiles experience a small relative increase in disposable income. This indicates that the efficiency measures portrayed in the modelling do not appear to have negative redistributive effects.

Taken together, the macroeconomic impacts of the scenarios show characteristics of an investment process, which one the one hand strengthens manufacturing industries but comes at the cost of temporarily reduced aggregate consumption. At the same time, the fiscal position of households is strengthened through energy savings that extend beyond the investment period.

The macroeconomic analysis has some caveats, including the types of impulses considered, the modelling time horizon and the assumptions regarding the crowding out of investments. Therefore, the results should be interpreted as a constituting a lower boundary of possible macroeconomic effects. In line with the literature, it can however be concluded that investments in energy efficiency are likely to have at least moderate positive macroeconomic impacts for the EU.

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