Are green goals too optimistic? Exploring the impacts of renewable energy on the Portuguese economy using an hybrid modelling approach

1. Are green goals too optimistic?
Exploring the impacts of renewable energy on the
Portuguese economy using an hybrid modelling approach
66th IEA ETSAP Workshop Patrícia Fortes

2.  EU: “Renewable energy will play a key role in the transition towards a
competitive, secure and sustainable energy system”
 RES can increase economic growth, especially in regions with a high
dependence in fossil fuels, leading to job creation.
 Some authors underline that RES promotion can be counterproductive
for economic development and employment due to their financial
costs.
Are green goals too optimistic?
Exploring the impacts of renewable energy on the Portuguese
economy
CONTEXT & OBJECTIVE

3. HYBTEP
HYBRID TECHNOLOGICAL ECONOMIC PLATFORM
 Detailed technological information of the BU
TIMES_PT;
 Explicit representation of economy and its
factors (production, consumption, labour)
from the Computable General Equilibrium
model GEM-E3_PT.
Assess the real impact of RES policies in the economy and the most cost-
efficient technology portfolio to achieve it Technology
explicitness
TIMES_PT
GEM-E3_PT
Behavioural realism
HYBTEP
HYBTEP → soft-link between TIMES_PT and GEM-E3_PT

4. HYBTEP
HYBRID TECHNOLOGICAL ECONOMIC PLATFORM

5. TIMES_PT
Demand
Generator
Energy Link
GEM-E3_PT
• Economic evolution • Energy services demand
• Energy consumption in monetary units
• Energy prices evolution
• Technical progress on energy
• Policy monetary values (CO2 price, energy
subsidies, energy taxes…)
• Energy consumption in physical units
• Energy prices
• Policy monetary values (CO2 price, energy
subsidies, energy taxes…)
Common scenario assumptions
• Fossil fuel import prices
• Discount rate
• Energy constraints
• Policy assumptions
Step I Step II
Step IIIStep IV
HYBTEP
HYBRID TECHNOLOGICAL ECONOMIC PLATFORM
EnergyRest of the economy

6.  Doubling the 2010 share of renewable energy
by 2030 in line with SE4ALL initiative and
IRENA REmap 2030
POLICY SCENARIO – DOUBLING RES TARGET
0%
10%
20%
30%
40%
50%
60%
2010 2020 2030
RESTFEC
Portugal RES
directive
target: 31%
TIMES policy
instrument
2030-2050
GEM-E3 recycling
scheme (fixed
government’s deficit)
- Mandatory target:
49% RES Recycling of revenues:
- Lump-sum transfers
- Social-security
contributions
- RES consumption
subsidy: 55€/MWh
49 %

7. 0%
20%
40%
60%
80%
100%
2010 2020 2030 2050
%RES
RES CONSUMPTION
0%
20%
40%
60%
80%
100%
2010 2020 2030 2050
%RES
RES-E RES-H RES-T RES
0%
20%
40%
60%
80%
100%
2010 2020 2030 2050
%RES
No policy Target
Subsidy
 The cost-effective RES target is already
high in no policy scenario: 39%
 Power sector has highest RES share
 Constant subsidy will contribute to an
increase of RES beyond 2030
39%
49%
49% 49%
54%
39%

8. ECONOMIC IMPACTS
2030 2050
Target Subsidy Target Subsidy
LS SS LS SS LS SS LS SS
Gross Domestic Product -1.4 -2.4 0.1 -1.0 -0.6 -1.7 -0.4 -1.4
Employment -0.2 -0.8 0.1 -0.7 -0.1 -0.4 0.0 -0.5
Private Consumption 0.1 1.1 0.5 1.5 -0.4 0.7 0.6 1.4
Exports -4.5 -8.8 -0.5 -5.0 -0.6 -4.2 -2.1 -4.8
Imports 0.3 1.7 0.3 1.6 -0.2 1.7 0.6 2.3
Domestic Production in Volume -1.2 -1.8 0.1 -0.6 -0.6 -0.9 -0.3 -0.6
 Most of the scenarios do not show a positive economic feedback of doubling
the RES target
 The impact on employment is almost negligible
 The decrease of exports is due to an increase of production prices driving
economic evolution
% change from No
policy scenario

9.  Revenue Recycling Scheme: Social-security contributions
SENSITIVITY ANALYSIS
RES value
Total RES consumption
share
Economic Impact
Base: 55 €/MWh 49%
GDP: -1.0%
Employment: -0.7%
Domestic Production: -0.6%
82.5 €/MWh 51%
GDP: -0.2%
Employment: -0.3%
Domestic Production: -0.2%
 Higher RES support may lead to lower economic impacts
 110 €/MWh in 2030: GEM-E3 does not achieve equilibrium
2030 Values

10.  The revenue recycling scheme affects the economic impacts of doubling the
RES target – However very small differences
 Compared with the no policy scenario doubling RES has a small effort, not
enough to lead to positive economic impacts
 Previous work showed positive economic impacts in 2050 with a RES subsidy
more than 90 €/MWh
 The results are due to the balance between the financial instrument
modeled and the revenue recycling scheme translated in:
 Lump-sum: balance between energy cost and households available income
 Social Security: balance between energy and labor costs.
INSIGHTS
10

11. FURTHER WORK
B C O NG E 06 07 … 18
B
C
O
NG
E
06
07
…
18
LA
Energy
Consumption
Intermediate
consumption in
other sectors
Coal
Natural gas
Oil
Electricity
σELFU = 0
Leontief
Production
Capital (K) Labour-Energy-Materials (LEM)
Energy (ELFU) Labour (L) Materials (M)
CES
CES
σKLEM
σLEM
Biomass
Agriculture Land
Transport
Iron
& Steel
... Other Market
Services
σM
HYBTEP – Economic
structure
TIMES outputs
GEM-E3 calculation based on
historic elasticities

12. FURTHER WORK:
HYBTEP – NEW ECONOMIC STRUCTURE
• RES technologies
have higher labour
intensity than fossil
energy technologies
• New power
technologies may be
associated with
other economic
sectors
B C O NG E 06 07 … 18
B
C
O
NG
E
06
07
…
18
LA
Energy
Consumption
Intermediate
consumption in
other sectors
TIMES outputs

13.  GEM-E3_PT: Electricity CES
function
 HYBTEP
 Correspondence between
technology costs with sector
intermediate consumption
 Introduction of labour
commodity in TIMES??? Or
alternatively do it ex-post in
GEM-E3_PT
13
FURTHER WORK:
HYBTEP – NEW ECONOMIC STRUCTURE
Coal
Natural gas
Oil
Electricity
σELFU = 0
Leontief
Production
Capital (K) Labour-Energy-Materials (LEM)
CESσKLEM
Biomass
Agriculture
Iron & Steel
Construction
...
Market Services
Labour


14. HYBTEP development was financed by the Portuguese Science Foundation (FCT) (PEst-
OE/AMB/UI4085/2013; PTDC/AAC-CLI/105164/2008)
.

15. Coal
Natural gas
Oil
Electricity
σELFU = 0
Leontief
Production
Capital (K) Labour-Energy-Materials (LEM)
Energy (ELFU) Labour (L) Materials (M)
CES
CES
σKLEM
σLEM
Biomass
Agriculture Land
Transport
Iron
& Steel
... Other Market
Services
σM
 Standard
 HYBTEP
15
HYBTEP: GEM-E3_PT CHANGES
Production
Capital (K) Labour-Energy-Materials (LEM)
Energy (ELFU) Labour (L) Materials (M)
Fossil Fuels (FU)
Natural gasOil
Electricity (EL) Agriculture Land
Transport
Iron
& Steel
... Other Market
Services
CES
CES
CES
CES
CES
σKLEM
σLEM
σELFU σM
σFU
Coal
i. Energy consumption
and fuel mix defined
exogenously;
ii. New energy
commodity:
biomass;
iii. Energy prices
evolution defined
exogenously;