Understanding green good specialisation in EU countries: new facts from new data

Filippo Bontadini and Francesco Vona outline their findings from constructing and analysing a new dataset identifying green production in the EU, important information for understanding how the European Green Deal can succeed in transitioning the Union to climate-neutrality by 2050.

In December 2019 the European Commission announced the European Green Deal, a policy initiative setting out the roadmap to achieving carbon-neutrality by 2050. Achieving this milestone will require a significant reduction in Europe’s carbon footprint and policies to foster specialisation in green technologies and products. Since then, of course, COVID-19 has hit. Reflecting a growing interest around green policies for a post-pandemic recovery, funding for the Green Deal will be expanded in the context of the COVID-19 plans within the Recovery Plan for Europe. Similar proposals have been made by the head of the International Monetary Fund, the International Energy Agency and the UK government.

The Green Deal’s aim is to reconcile economic, social and climate goals. It is therefore crucial to understand which countries and industries will benefit the most from Green Deal policies. New statistics are required to monitor the progress of the programme as well as its capacity to reinforce EU countries’ specialisation in key strategic sectors, such as wind and solar, batteries and transport equipment. To aid this process, we have constructed a new dataset that identifies green production in detailed manufacturing sectors across Europe – and our analysis reveals a number of structural features of green production.

A new database to improve the study of ‘green’ production

Identifying ‘environmentally friendly’ or ‘green’ products presents several challenges. For a start, product and industry classifications are not designed to distinguish economic activities based on their environmental impact. More importantly, however, there is no agreed conceptual definition of what a green product is. Two key approaches have so far emerged: the ‘process-based’ approach defines greenness as the inverse of the pollution that is directly and indirectly generated during production. In contrast, the ‘output-based’ approach identifies green products based on their potential to combat climate change and reduce the emissions intensity of production processes in other industries.

These two approaches can lead to rather different conclusions when assessing the greenness of a product. To give an example of this we can think of wind turbines. This product clearly has a strong potential for reducing the environmental impact of electricity production and the output-based approach would consider it green. From a process point of view, however, wind turbines could hardly be considered green because their manufacture requires highly pollution-intensive inputs such as steel.

In a recent paper we build what is, to the best of our knowledge, the first dataset on the production of green goods across European countries and sectors, which enables comparison of the process- and output-based approaches. We use a dataset on manufacturing production across Europe from Eurostat for the years 1995 to 2015. By carefully reviewing products’ descriptions in lists developed by international organisations, we isolate those products that are most likely to only have environmental uses to build our own list of green products. We then calculate a greenness measure for each country and industry: this is the total production of green products as a share of the industry’s total production. We complement this output-based measure with emissions intensity data to obtain measures of greenness based on the process approach from an additional data source.

Findings on green production in the EU

Using our dataset, we can highlight the following five findings.

1. Green production is highly concentrated in a few high-tech industries

Our analysis shows that green production is extremely concentrated in a few high-tech, high-value-added industries specialised in capital goods that are not directly exposed to pollution taxes or standards. Out of 119 manufacturing industries, 13 industries account for nearly 95 per cent of total green production across Europe. These include the production of machinery (such as wind turbines), computer and electronic equipment (of which solar panels are a green example), electrical equipment (including for the control and distribution of electricity) and railway stocks.

2. Only a few countries have successfully specialised in green production

There is no significant overlap between industries that produce green goods and those that are more intensive in polluting production and this is also true in terms of countries’ specialisation trajectories. The few countries that have successfully specialised in green production include Denmark, Germany, Sweden and Austria. These findings suggest that the Green Deal is likely to favour a set of countries and industries that have specialised in green production, while it will negatively impact a different set of countries and industries that have higher pollution intensity. As a consequence, the Green Deal is likely to have ‘distributional’ effects, i.e. reallocating resources away from polluting industries and countries and towards those that specialise in green production.

3. Stringent environmental policies are associated with green specialisation

Over the years in question, countries that have implemented the most stringent environmental policies are those where there has been more green specialisation. We find a strong correlation between green specialisation and a high rating in the OECD index for environmental policy stringency – but the evidence is descriptive and does not suggest any causality. It is in fact possible that policymakers may be aware that their country already has a green advantage, and that more stringent policies will strengthen this further. Also, green industries in such countries may successfully lobby policymakers in adopting environmental policies that will favour them. As a result, countries that already had green advantage may be more likely to pass more stringent environmental regulation, reversing the direction of causality.

4. This green comparative advantage is very persistent

As we have described, only a few countries have successfully specialised in green production and this is the case over the duration of the 20-year period in question. Focusing on the years 2005–2015, we find that the same pattern of green specialisation that was happening at the start of the period was present at the end (this was true also when controlling for country and sector factors). This indicates that green industrial policies may not be sufficient to create new green industries and jobs in countries that were initially lagging behind.

5. Green and non-green capabilities can be complementary and this offers a different road to green specialisation

Our analysis also reveals a correlation between green and non-green production capabilities, within the same sector. Countries that have successfully specialised in non-green production within otherwise green industries may be able to recombine their productive capabilities towards green production. For example, countries that have developed capabilities in the production of semiconductor devices have a head start over those that have not in redeploying these capabilities to produce the photosensitive semiconductors that are a cornerstone of solar energy technology.

Implications for Europe’s Green Deal

While more research is needed to identify the key drivers of green specialisation, we can highlight some implications from our analysis for policies for a green and fair transition in Europe. First, and in line with findings for the United States, countries that have already developed a critical mass of know-how in green industries stand to benefit the most from a green fiscal push. Second, countries that have specialised in polluting production will bear the brunt of the costs associated with the green transition. Hopefully, the addition of Just Transition funds to proposed Green Deals will help regions lagging behind. The US experience shows that investments in green skills are critical for those regions. Finally, policies should take into account that non-green capabilities may be recombined to facilitate the transition towards the production of green products.

Filippo Bontadini is Research Fellow at LUISS Guido Carli University, Affiliate Researcher at the French Economic Observatory of Sciences-Po and Associate Fellow at the Science Policy Research Unit – University of Sussex. Francesco Vona is a senior economist at the French Economic Observatory of Sciences-Po, Research Fellow at SKEMA Business School and the CMCC and a Visiting Fellow to the Grantham Research Institute.

Where does the money come from? Sources of finance for the European energy transition

We analyse supply of and demand for finance in major scenarios for the European energy transition until 2050, and contrast this to the available sources of such finance. The good news is that sufficient private money is – in principle – available. However, the bad news is that it is not (yet) available in the forms that the European energy sector would need. Changing the situation requires action from both the private and the public sector in the coming years (Polzin and Sanders, 2019).

We know how much we need

Many studies highlight the large amounts of investment in the energy system that is required, ranging between 2310 and 2625 USDbn for Europe until 2050. An innovation-led sustainability transition requires investments in both invention and innovation, as well as diffusion, in a diversified financial system (Polzin et al., 2017). Many of the scenario-based analyses explicitly or implicitly neglect the sources of finance rather focusing on aggregate investment needs. For example McCollum et al. (2018, p. 591) state that ‘[…] given the nature of these models, we expressly address the question of ‘Where are the investment needs?’, not ‘Who pays for them?’’.

The money is available, but…

Our analysis further shows, on the one hand, that the volumes are available in the order of magnitude needed for a successful energy transition, especially when it comes to institutional investors. On the other hand, the numbers also reveal a qualitative mismatch what type is available and what is required. There is ample capacity to invest in scaling mature technologies such as onshore and offshore wind. But there are shortages in (upstream) innovation finance, especially research, development and demonstration (RD&D) as well as venture capital and private equity to finance for example power-to-X technologies. There the amounts are smaller, but the downstream impacts are not. However these types of finance which are suitable for funding experimentation are not scalable and require specialized knowledge. Hence they are not so easy to mobilize in Europe’s highly institutionalized, bank-based and regulated financial sector (Elert et al., 2019).

Who can do what?

In the later stages of technology lifecycle (see Figure 1) for example when the risks involved are comparably low, even within the current composition of equities, bond and alternative investments, institutional investors could finance large-scale (low-risk) renewable energy projects (Röttgers et al., 2018). An effective reform of regulation and governance to allow these investors to engage more in unlisted long-term equity and debt will make ample funding available to scale the necessary technologies. These could be realised through intermediate channels such as green bonds or YieldCos but institutional investors also heavily engage in public equity markets another underutilized source (La Monaca et al., 2018).

In the earlier stages of the technology lifecycle (with considerable risks) the problem is more urgent. Here only hardly scalable solutions such as small and distributed finance and venture capital are available (see Figure 1). Larger ticket sizes and higher risks can only be handled by (state) investment banks and some private equity funds. State investment banks have the potential to scale-up their investments significantly. However, their main role would be in mobilising private finance through co-investments, signalling and education (Geddes et al., 2018).

Figure 1: Sources of finance for the energy transition (framework adapted from (Criscuolo and Menon, 2015)).

Unlocking the potential

Our review yields three major ways of unlocking the potential of different sources of finance. First, initiatives promoting socially responsible investments from within the sector (such as pension funds and sovereign wealth funds) that base their investments also on ESG criteria could be scaled up (G20 Green Finance Study Group, 2016) An innovation-led energy transition needs risk-carrying capital in smaller tickets (Owen et al., 2018; Polzin et al., 2018). That needs freeing equity from individual retail investors or institutional funding from pension funds, insurance companies or sovereign wealth funds (Polzin et al., 2017). Finally, a recurring recommendation is the urgent development of expertise with technologies, investment vehicles and transition paths.


Criscuolo, C., Menon, C., 2015. Environmental policies and risk finance in the green sector: Cross-country evidence. Energy Policy 83, 38–56. https://doi.org/10.1016/j.enpol.2015.03.023

Elert, N., Henrekson, M., Sanders, M., 2019. Savings, Finance, and Capital for Entrepreneurial Ventures, in: Elert, N., Henrekson, M., Sanders, M. (Eds.), The Entrepreneurial Society: A Reform Strategy for the European Union, International Studies in Entrepreneurship. Springer, Berlin, Heidelberg, pp. 53–72. https://doi.org/10.1007/978-3-662-59586-2_4

G20 Green Finance Study Group, 2016. G20 green finance synthesis report. UNEP Inquiry.

Geddes, A., Schmidt, T.S., Steffen, B., 2018. The multiple roles of state investment banks in low-carbon energy finance: An analysis of Australia, the UK and Germany. Energy Policy 115, 158–170. https://doi.org/10.1016/j.enpol.2018.01.009

La Monaca, S., Assereto, M., Byrne, J., 2018. Clean energy investing in public capital markets: Portfolio benefits of yieldcos. Energy Policy 121, 383–393. https://doi.org/10.1016/j.enpol.2018.06.028

McCollum, D.L., Zhou, W., Bertram, C., Boer, H.-S. de, Bosetti, V., Busch, S., Després, J., Drouet, L., Emmerling, J., Fay, M., Fricko, O., Fujimori, S., Gidden, M., Harmsen, M., Huppmann, D., Iyer, G., Krey, V., Kriegler, E., Nicolas, C., Pachauri, S., Parkinson, S., Poblete-Cazenave, M., Rafaj, P., Rao, N., Rozenberg, J., Schmitz, A., Schoepp, W., Vuuren, D. van, Riahi, K., 2018. Energy investment needs for fulfilling the Paris Agreement and achieving the Sustainable Development Goals. Nature Energy 3, 589–599. https://doi.org/10.1038/s41560-018-0179-z

Owen, R., Brennan, G., Lyon, F., 2018. Enabling investment for the transition to a low carbon economy: government policy to finance early stage green innovation. Current Opinion in Environmental Sustainability, Sustainability governance and transformation 2018 31, 137–145. https://doi.org/10.1016/j.cosust.2018.03.004

Polzin, F., Sanders, M., 2019. How to fill the ‘financing gap’ for the transition to low-carbon energy in Europe? USE Discussion paper series 19. Available at: https://www.uu.nl/en/files/rebousewp20191918pdf

Polzin, F., Sanders, M., Stavlöt, U., 2018. Mobilizing Early-Stage Investments for an Innovation-Led Sustainability Transition, in: Designing a Sustainable Financial System, Palgrave Studies in Sustainable Business In Association with Future Earth. Palgrave Macmillan, Cham, pp. 347–381. https://doi.org/10.1007/978-3-319-66387-6_13

Polzin, F., Sanders, M., Täube, F., 2017. A diverse and resilient financial system for investments in the energy transition. Current Opinion in Environmental Sustainability 28, 24–32. https://doi.org/10.1016/j.cosust.2017.07.004

Röttgers, D., Tandon, A., Kaminker, C., 2018. OECD Progress Update on Approaches to Mobilising Institutional Investment for Sustainable Infrastructure. https://doi.org/10.1787/45426991-en


Friedemann Polzin is Assistant Professor of Sustainable Entrepreneurship and Innovation at Utrecht University School of Economics (U.S.E.) and associated researcher at the Sustainable Finance Lab (SFL) | https://www.uu.nl/staff/FHJPolzin | https://twitter.com/friedemann_p Mark Sanders is Associate Professor Economics of Transition and Sustainability at Utrecht University School of Economics (U.S.E.) and member of the Sustainable Finance Lab (SFL) | https://www.uu.nl/staff/MWJLSanders | https://twitter.com/mwjlsanders

Green stimulus, jobs and the post-pandemic green recovery

This blog was first published on VoxEU & CEPR

Many governments worldwide are currently considering fiscal recovery packages to address the Covid-19 crisis. This column analyses the impact of past green fiscal stimulus on employment. Focusing on the American Recovery and Reinvestment Act after the Global Crisis, it finds that that the green stimulus was particularly effective in creating jobs in the long run, but not in the short run. Hence, while green stimulus packages are useful to reorient the economy and direct it onto a green trajectory in the longer run, they are less effective in restarting the economy quickly.

The many proposals for the COVID-19 recovery also include calls for green stimulus packages. Such packages are thought to both restart the economy as well as help it transition to a cleaner, more sustainable path (e.g. Helm 2020, Agrawala et al. 2020). Lockdown policies have had adverse impacts on labour markets and economic growth (Bick and Blandin 2020) and governments may be tempted to use green fiscal packages to stimulate short-run activity and create jobs, while at the same time preserving environmental goals. Green stimulus packages, just as the ones implemented during the 2008 Global Crisis, typically include government spending on building retrofits, green infrastructure programs as well as large-scale support for clean R&D. We summarize recent evidence on the impact of the 2008 American Recovery and Reinvestment Act (ARRA) green fiscal stimulus and discuss policy implications for a post-pandemic green recovery.

No evidence for short-term employment gains

How effective is a green stimulus at jumpstarting the economy? In a recent study (Popp et al. 2020), we conduct an ex-post evaluation of the employment impact of the green stimulus under the ARRA implemented during the Global Crisis. Green investments, which constituted approximately 17% of all direct government spending in ARRA, included spending on renewable energy, public transport and clean vehicles, energy efficiency, building retrofitting, and modernizing the electric grid (Aldy 2013). We analyse how local US labour markets benefited from green and non-green ARRA funding and carefully address endogeneity issues that may arise in the distribution of spending.

Figure 1 illustrates the main finding of the impact of green ARRA investments on total employment. While green ARRA investments had a large positive effect on job creation, there is little evidence of significant employment gains in the short-run.  Instead, nearly all the jobs created were created in the long-run during the post ARRA 2013-2017 period. The employment effect during this period amounts to approximately 15 jobs created per $1 million of green ARRA spending. These results suggest that the green ARRA worked more slowly than other stimulus programs, such as construction and highway infrastructure, which had significant effects on short-run job creation (e.g. Wilson 2012, Garin 2019). Hence, green stimulus investments may be less suited as a tool for an immediate restart of the economy.

Reshaping the economy in the long-run

Rather than boosting overall economic activity in the short-run, green ARRA investments were more successful at reshaping the economy towards green sectors by increasing the local demand for green skills. We find that the ARRA green stimulus appeared to be most effective in communities which had workers who already possessed the skills required for green jobs. These skills are mostly technical and engineering skills needed to operate, maintain and develop green technologies (Vona et al. 2018). We find that in such communities, ARRA created jobs in both the short- and the long-run, where nearly all of the new jobs were manual labour positions.

Implications for policymakers

For policymakers in countries committed to reducing emissions, these results imply that green investments may be particularly effective at reorienting the economy and directing it onto a green path during the post-pandemic recovery. The key challenge is a careful selection of the types of technological and infrastructure investments that can bring both job creation and environmental benefits in the medium to long-run. For instance, investments in green R&D are not a useful policy tool to boost job growth immediately, but transport electrification, recycling equipment and power sector infrastructures may have a faster while still only middle-term impact.

For policymakers in countries not yet on a green path, the role of green investments for reshaping the economy must not be ignored either. While the focus of a first round of stimulus spending will be on investments best able to restart each country’s economy quickly, subsequent investment rounds can be used as an opportunity to invest in resilient infrastructure. It would not make sense to massively invest in dirty assets, which run the risk of becoming ‘stranded’ due to technological, market or policy changes (van der Ploeg 2016). The Covid-19 crisis may trigger long-term structural transformations in the economy that are largely unpredictable now. For instance, demand for fossil fuels might fall as business travellers realize the potential of replacing face-to-face gatherings with video conferencing.  This implies that creating a ‘just transition’ fund to retrain workers for the green economy should remain a high priority in an ambitious green Covid-19 stimulus package. Bringing workers back to jobs in industries soon to become obsolete is not a good long-term investment. 

Aligning incentives with complementary carbon pricing measures

Green stimulus programs may have larger environmental benefits when complemented with carbon pricing policies, such as carbon taxes or cap-and-trade systems. Agrawal et al. (2020) summarize the concerns over the environmental effects of past green stimulus packages and highlight that ambitious carbon pricing policies were a missing ingredient of the US green ARRA package. Carbon pricing mechanisms create demand for new clean technologies, such as electric vehicles powered in part by a charging infrastructure developed using green stimulus funds. Strong carbon pricing signals also help mitigate the rebound effects of energy-efficient investments. In other words, accompanying green stimulus packages with carbon pricing can contribute to a better alignment of incentives for a post-pandemic green recovery.

Just as carbon pricing can enhance green stimulus investments, a green stimulus will enhance the prospects of carbon pricing.  While the net effect of carbon pricing on employment may be small (Yamzaki 2017, Metcalf and Stock 2020), new studies suggest that carbon pricing may reduce jobs in specific sectors, particularly for lower skilled manual labour (Marin and Vona 2019, Yip 2019).  The good news is that jobs created by green investments often employ workers who are left behind by carbon pricing. Moreover, carbon pricing schemes generate revenues for governments which help finance recovery plans with minimal distortions to the economy as a whole (Benassy-Quéré and Weder di Mauro 2020). Part of these revenues can also be returned to households as direct lump-sum transfers, which can help mitigate the impact of the economic crisis, especially for low-income households (Goulder et al. 2019).

Written by David Popp, Francesco Vona and Joëlle Noailly 

You can read the original blog here.


Agrawala, S, D Dussaux and N Monti (2020), “What policies for greening the crisis response and economic recovery?: Lessons learned from past green stimulus measures and implications for the COVID-19 crisis”, OECD Environment Working Papers No. 164.

Aldy, J E (2013), “Policy Monitor: A Preliminary Assessment of the American Recovery and Reinvestment Act’s Clean Energy Package”, Review of Environmental Economics and Policy 7(1): 136-155.

Benassy-Quéré, A, and B Weder di Mauro (2020), “Europe in the time of Covid-19: A new crash test and a new opportunity”, VoxEU.org, 26 May.

Bick, A and A Blandin (2020), “Real-time labour market estimates during the 2020 coronavirus outbreak”, VoxEU.org, 6 May.

Garin, A (2019), “Putting America to work, where? Evidence on the effectiveness of infrastructure construction as a locally targeted employment policy”, Journal of Urban Economics  111(C): 108-131.

Goulder, L H, M A C Hafstead, G Kim and X Long (2019), “Impacts of a carbon tax across US household income groups: What are the equity-efficiency trade-offs?”, Journal of Public Economics 175: 44–64.

Helm, D (2020), “The Environmental Impacts of the Coronoavirus”, Environmental and Resource Economics 76: 21-38.

Marin, G and F Vona (2019), “Climate policies and skill-biased employment dynamics: Evidence from EU countries”, Journal of Environmental Economics and Management 98: 102-253.

Metcalf, G E and J H Stock (2020), “Measuring the Macroeconomic Impact of Carbon Taxes”, AEA Papers and Proceedings 110: 101–106.

Popp, D, F Vona, G Marin and Z Chen (2020), “The Employment Impact of Green Fiscal Push: Evidence from the American Recovery Act”, NBER working paper No w27321.

van der Ploeg, F (2016), “Fossil fuel producers under threat”, Oxford Review of Economic Policy 32(2): 206–222.

Vona, F, G Marin, D Consoli, D Popp (2018), “Environmental Regulation and Green Skills: an empirical exploration”, Journal of the Association of Environmental and Resource Economists 5(4): 713–753.

Yamazaki, A (2017), “Jobs and climate policy: Evidence from British Columbia’s revenue-neutral carbon tax”, Journal of Environmental Economics and Management 83: 197-216.

Yip, C M (2018), “On the labor market consequences of environmental taxes”, Journal of Environmental Economics and Management 89: 136-152.

Wilson, D J (2012), “Fiscal spending jobs multipliers: Evidence from the 2009 American Recovery and Reinvestment Act”, American Economic Journal: Economic Policy 4(3): 251-82.

Photo by Allen Lee on Unsplash

Large impact of efficient technologies and behaviours on energy demand in buildings

The energy-consuming activities carried out in buildings are extremely diverse. Examples spread from boiling water for a cup of tea in the UK and working on a computer in an American bank to using an air conditioner in India or cooking with traditional biomass in Africa. Due to this diversity, there will be no one-size-fits-all solution to decrease energy demand in buildings. Instead, reducing energy demand requires a flurry of solutions to be explored, mixing both technological and behavioural approaches. In a recent study, we analyse the manifold opportunities that buildings offer to reduce energy demand, and compute their potential at the global level.

Reducing demand for space heating and space cooling can take many forms. Improved insulation and the use of efficient air conditioners or heat pumps have the greatest potential to reduce energy consumption for these purposes. Currently, only a small proportion of buildings are properly insulated and the standard materials used to improve building shells are much less efficient than state-of-the-art materials. Similarly with air conditioners and heat pumps: these appliances remain far from their theoretical maximum efficiency. By using best-practice insulation practices and improving the efficiency of heating and cooling technologies, a lot can be achieved. Additionally, by reducing the indoor temperature in cold climates or increasing it in hot climates, energy consumption can significantly fall. Decreasing the demand for floorspace also has an impact, but it remains modest in comparison to the other factors.

Figure 1 The figure shows three scenarios for global energy demand in buildings and their outcome in 2050 and 2100 (grey columns). In the Low and Very Low energy demand scenarios, we assumed ambitious measures to decrease energy demand. The coloured area attributes the reductions to individual actions. The red line shows the level of global demand in 2015.

Hot water plays an important role in our daily tasks, be it for personal hygiene or washing clothes and dishes. By reducing the number and length of showers, our energy requirements can be lowered notably. Hot water needs can also be reduced by using efficient showerheads with a flow of only 2.8 L/min compared to the current US standard of 9.5 L/min. Other ways of reducing hot water needs include using more efficient washing machines and wearing the same clothes more often before washing them.

Overall, we show that energy demand could be halved in the long term by taking advantage of the numerous opportunities to cut down the need for energy in buildings. Because of the ambitious measures assumed in this study, we consider this potential to be close to its maximum.

The future might be bright for energy efficiency in buildings, but there are also important reasons for concern. Some of the measures mentioned above require new technologies to break efficiency thresholds: for instance aerogels or vacuum-insulation panels are very promising materials for insulation, but they are currently at development stage in laboratories. A huge effort in research is needed to bring very efficient technologies onto the markets, and supporting schemes will be necessary to raise their market shares and reduce their costs. Unfortunately, the construction sector is not famous for its propensity to innovate; it is one the most conservative sectors in the economy, investing a very low share of its revenues in research and development. Considering top companies alone, the construction sector spends around 1% of its gross turnover on R&D, only a tenth of what companies in pharmaceutics and information technologies invest.

Changes in behaviours and practices also bear their level of challenges. It is difficult to think of policies that could have a significant and sustainable effect on people’s preferences and habits. For instance, experiments have been conducted to measure the impact of alternative energy bills on electricity consumption, but the effect was modest and not sustained in time. Furthermore, these policies touch on sensitive ethical issues: to what extent should decision-makers try to influence citizens’ preferences?

Despite these caveats, the potential for energy demand reduction is large and concerns many activities carried out in buildings. There is a lot of freedom in the way people arrange their energy practices, combining technologies and behaviours, and individuals as well as policy makers should make use of it.

Levesque A., Pietzcker R. C., Luderer G. (2019), Halving energy demand from buildings: the impact of low consumption practices, Technological Forecasting and Social Change

Central banking and the energy transition

Continuous renewable energy deployment may be less certain than previously thought. If interest rates rise, the cost of renewable energy is disproportionately affected compared to fossil fuel alternatives. Thermostatic policies can help ensuring renewable energy deployment in such environments.

Image above: Continuous deployment of wind farms may be less certain than previously thought. Aerial take from a wind farm. Photo by Thomas Richter on Unsplash

Unfortunately, no rooftop bar in Singapore and no conference dinner in the foothills of Tuscany mark the beginning of this research project. Instead, the development of this paper demonstrates the gradual nature of research. Over the last two years, we spent an awful lot of time discussing the role of finance in the energy transition as part of the EU Horizon 2020 research project INNOPATHS. We met with investors to try to understand their behaviour, we interviewed policymakers to figure out what their intentions and constraints were in designing policy and we collaborated with academics to find out what exactly we already know about the enabling role of finance in energy transitions.

In this process, we discovered the pivotal role of experience in the financial sector, which led to a paper in Nature Energy (free read-only) demonstrating that decreasing financing costs contributed a large share to making renewable energy cost competitive with fossil fuel alternatives. In fact we discovered not only the importance of experience, but even more so the decisive role that general interest rates play in determining the competitiveness of renewable energy. Our analysis showed that lower general interest rates decreased the levelised cost of electricity (LCOE) by 4% to 20% for utility-scale German solar photovoltaics and onshore wind respectively between the period of 2000-2005 and 2017. Soon we asked ourselves; to what extent does large-scale renewable energy deployment depend on extremely expansive monetary policy as we have seen it in the aftermath of the 2008/09 financial crisis?

So we set off to find out. In a new paper in Nature Sustainability (free read-only), we looked at the same two technologies, onshore wind and solar PV, in Germany and developed three scenarios. A flat scenario, where interest rates stay at the current record-low levels. A moderate scenario, where interest rates recover with the same speed as they declined after the financial crisis. And an extreme scenario, where interest rates rise to pre-crisis levels at twice the speed they declined before. In the extreme scenario, LCOEs for the two technologies increase by 11% (solar photovoltaics) and 25% (onshore wind) over just five years (2018 to 2023). Even in the moderate scenario, the higher financing costs outweigh the expected decreases of hardware cost for onshore wind (LCOE +9%) and almost entirely eat up these technology cost reductions due to learning (LCOE -2%) for solar photovoltaics. As a result, we show that adding new renewable energy capacity becomes economically unviable compared to hard coal power plants takes a severe hit if interest rates rise again.

In light of the recent EU decision to scrap binding renewable energy deployment targets for member states these results may announce difficult times for renewable electricity deployment and hence climate targets. However, one may ask, are these scenarios realistic? The temptation is to respond with a sounding no. Just this month, the European Central Bank confirmed record-low interest rates, its president Mario Draghi openly speaks of evaluating new ideas, such as venturing more into fiscal domains using the Modern Monetary Theory, and there is an ongoing debate about expanding the toolkit of central banks to provide cheap liquidity. In the United States, the central bank acted differently: it steadily increased interest rates since December 2015, until it changed course in August 2019 and lowered the interest rate twice. Some commentators see more structural factors (e.g., aging population, low immigration, few investment opportunities) behind the ongoing struggle to unleash economic growth and judge expansionary monetary policy as the wrong remedy for the curse. Proponents of the secular stagnation, like Larry Summers, would favour rising interest rates in combination with rising government spending in education and infrastructure and potentially more liberal immigration laws.

Image 2: The decision hub for European monetary policy – and renewable energy policy too? Night shot of the European Central Bank’s headquarters in Frankfurt. Photo by Paul Fiedler on Unsplash

In sum, the discussions around appropriate monetary policy and hence future interest rate levels are far from being resolved. While interest rates currently remain low in the European context, it is far from certain that this will be the case in the future too. Consequently, climate policy and renewable energy policy in particular need to keep an eye on interest rate developments. Ideally, thermostatic policies would be in place that automatically adjust given the current interest rate environment. In the short run, renewable energy auctions fulfil this criteria and counter potential cost hits on renewables due to interest rate increases. In the longer run however, a transition away from renewable specific support policies seems likely. In such a case, existing emission trading schemes, such as the EU or the Californian ETS, could be equipped with a price floor to ensure renewable energy deployment even in high interest rates environments.

Unfortunately, even countries such as Germany, which used to be known for progressive renewable energy policies, remain rather far from this ideal. For example, to reach its Paris target, Germany would need to install about 5 new wind turbines a day, but only connected 35 to the grid so far this year. A natural next step for research would hence be to investigate, how significant interest groups can be formed to support thermostatic policies and how these policies can be designed in order to survive government changes after elections. Comparing the results of our paper with reality, we circle back to the start and find the next exciting research question… Perhaps we should have a kick-off meeting at a fancy place this time!

Originally published on the Nature Sustainability Research Community page, Wednesday 25th September 2019.

Unheard voices across the lifecycle of digital technologies and low-carbon transitions

Lived experiences of cobalt miners in the DRC and e-waste workers in Ghana

We are living in a society that relies heavily on digital technology, and these technologies have become so engrained in our everyday lives that we rarely question where they come from, whose labour contributes to their existence and what happens after we dispose of it. Some technologies, such as electric vehicles, solar panels, and heat pumps, also rely on both degrees of digitization and many of the same metals, minerals, and components as digital technologies.

How many of us have thought about purchasing an electric vehicle, or installing solar panels on our home? Or, perhaps more commonly, how many of us have found ourselves automatically agreeing to an “upgrade” with our phone network provider after our smartphone stopped working shortly after the end of a two-year contract?  

A transition to a more sustainable economy will require joint efforts from corporations and governments to work towards a circular economy, to decrease the impact of products on our planet across their lifecycle, starting from what raw materials we use to how waste is handled. But how will this impact people working at different stages of the product’s lifecycle—especially the front end (mining and extractive industries) and back end (recycling and waste management)— in parts of the world with weak governance structures and lack of policy enforcement and accountability?

A set of two recent twin studies have looked at cobalt mining in the Democratic Republic of Congo, and toxic electronic waste  (e-waste) processing in Ghana. These two studies set out to humanise the challenges of both these sectors by revealing the lived experiences of cobalt miners and e-waste workers.

Cobalt miners and scrapyard workers in the DRC and Ghana, 2019

The photo on the left shows an artisanal cobalt mining team near Kolwezi, mining on the Kasulu concession in the Democratic Republic of the Congo. Note the young age of most of the miners, the use of manual tools as well as the lack of any women present. The photo on the right shows a scrapyard worker at Agbogbloshie, near Accra, Ghana, using fire to melt down electronic and digital appliances so that copper can be extracted. Note the lack of any protective equipment as well as the thick black smoke.

Giving a voice to people whose experiences are rarely considered in decision-making processes put the impact of our addiction to digital technologies into stark light.

The Democratic Republic of Congo produces roughly 60% of the global supply of cobalt, which is used in our phones and computers, as well as other technologies such as electric vehicles, wind turbines and solar panels. Despite having vast natural resources, 63% of Congolese citizens live below the national poverty line of less than $1 per day.

In the DRC, corporate firms and mining associations operate with perhaps as much power as government actors, with miners finding themselves at the bottom of the hierarchy of interests. Many of these miners work in conditions that harms their health and even endangers their life. In many cases they have no protective equipment or tools to work with, so they have to dig by hand. There are no trade unions to protect their interests or cooperatives that could fight for improved conditions.

The situation is similar with toxic e-waste workers in Ghana. Negative health impacts among scrapyard residents and workers, child labour and environmental pollution are ubiquitous.

Unheard voices can also help highlight the other side of the story. People trapped in poverty in areas with almost no opportunities for formal employment have lower expectations when it comes to working conditions. Cobalt mining in the DRG and work on the scrapyard in Agbogbloshie, Accra have provided a route out of poverty for the community. When you are offered two and a half times above the average income of informal economic workers in the country and you have a family to feed, you don’t think about the health impacts.

Many workers we spoke as part of our research showed pride in their work, which has become a key part of their cultural identity. One of our expert interviewees in Ghana explained

“We call it e-waste, but people on the ground do not call it that … Scrap dealers do not identify as waste managers, they instead see themselves as harvesting commodities as part of a lively value chain. They are community stewards”.

Discontinuing cobalt mining or e-waste processing in these countries without thinking about the people who will be impacted on the ground will have disastrous consequences. We don’t have to look too far to see, how, phasing out certain industries without thinking about providing alternative employment opportunities can destroy a community.  

A thoughtful response to a challenging situation is needed. Our research explores what policy makers can do at a global as well as national level to tackle the challenges arising. One thing is key: when thinking about a sustainable future, we need to remember the unheard voices, lives sacrificed at the altar of consumerism. Solutions need to consider their future and how we can shift away from harmful practices while also offering alternative pathways out of poverty in a way that preserves the community’s pride and identity.

Finally, you might ask, what we can do as consumers. We can remember that our phones and EVs don’t come from nowhere and don’t just go away. The “away” is a very real, living, breathing, suffering “place”). But also, it is a place with pride.

The research summarized here is published in the following two studies, both peer-reviewed academic journals, and both a part of the INNOPATHS project:

Sovacool, BK. “The precarious political economy of cobalt: Balancing prosperity, poverty, and brutality in artisanal and industrial mining in the Democratic Republic of the Congo,” Extractive Industries & Society 6(3) (July, 2019), pp. 915-939.  Available at https://authors.elsevier.com/a/1ZjZH_,52Irqxfa

Sovacool, BK. “Toxic transitions in the lifecycle externalities of a digital society: The complex afterlives of electronic waste in Ghana,” Resources Policy 64 (December, 2019), 101459, pp-1-21.  Available at https://authors.elsevier.com/a/1ZrGM14YFwvkMb

Political acceptability of climate policies: do we need a “just transition” or simply less unequal societies?

This blog post is partly based on the policy paper “Job Losses and the Political Acceptability of Climate Policies: why the job killing argument is so persistent and how to overturn it.”

Concerns for a “just transition” towards a low-carbon economy are now part of mainstream political debates as well as of international negotiations on climate change. Key political concerns centre on the distributional impacts of climate policies. On the one hand, the “job killing” argument has been repeatedly used to undermine the political acceptability of climate policy and to ensure generous exemptions to polluting industries in most countries. On the other hand, the rising populist parties point to carbon taxes as another enhancer of socio-economic inequalities. For instance, the Gilets Jaunes (Yellow vest) movement in France is a classic example of the perceived tension between social justice and environmental sustainability. 

Demand for a fairer distribution of carbon-related fuel taxes and of subsidies for electric vehicles mirrors the political demand for income compensation to ‘brown sector’ workers displaced by climate policies. Such increased demand for redistribution depends on the fact that main winners of climate policies (e.g. those with the right set of skills to perform emerging green jobs or with enough income to consider buying a subsidized electric car) are fundamentally different from the main losers (e.g. those who work in polluting industries and drive long distances with diesel cars). Importantly, the identity of the winners and losers coincides with that of the winners and losers of other, more pervasive, structural transformations, such as automation and globalization. Indeed, the winners are wealthier, more educated and living in nicer neighbourhoods than the losers. The spatial sorting of winners and losers polarizes not only the perception of the costs and benefits of climate policies, but leads also to the emergence of apparently irrational behaviour. In several cases such as Taranto in Italy or Dunkirk in France, employees in polluting activities, whose families are the first to be exposed to such pollution, are willing to accept health risks to preserve their jobs.

Absurd as it may appear, such opposition against ambitious climate policies from the left-behind is the tip of the iceberg of more fundamental problems of our societies, namely, the enormous increase in income inequality. For both the left-behind and an increasingly fragile middle class, it may be more important to satisfy basic needs such as “work”, “food”, “shelter”, “communicating” than eating organic food or supporting climate policies. For a given level of income per capita, citizens’ support for green policies is likely to be significantly lower the more unequal the society because the median voter’s income may be just enough to satisfy the basic needs mentioned above. Likewise, a lower level support for climate policies is concentrated in regions that depend more on carbon-intensive industries.

Fortunately, there are well-known solutions to restore the right support to an ambitious plan to fight climate change. Politicians can easily identify the right amount of subsidies to neutralize the distributional effects of climate policies either on displaced workers, or on most affected consumers. Several solutions have been discussed and implemented ranging from direct transfers of the revenues of a carbon tax to recycling schemes to reduce taxes on labour and capital. In its operational definition, the just transition is thus a policy package whose aim is to mitigate the negative distributional effects of climate policies for those at the bottom of the income distribution.

There is, however, a powerful ethical argument that undermines the viability of these well-known solutions. Why should a worker displaced by a carbon tax have more rights than a worker displaced by a robot? The ethical bases to justify the special status of any policies inspired by the just transition are at best weak, and special policy solutions for brown sector workers may fuel the resentment of those left behind by automation and globalization. An alternative and far more radical solution appears to be to think at the high level of inequality of our societies as a main constraint to fight climate change. The threat posed by growing tension between inequality and environmental sustainability should thus push reforms of our welfare and fiscal systems that protect the workers left behind by trade, globalization and climate policies, thus weakening one of the main constraints to ensure a broad political support to the low-carbon transition.

Low-carbon transition in European carbon-intensive regions: mission impossible or indispensability?

The role of carbon-intensive regions in the EU

Coal production has been in decline in the EU in recent years; production decreased by over 30% between 2000 and 2015. However, unlike renewables, solid fossil fuel production is not evenly distributed on the continent. Coal is mined in more than 40 EU regions across 12 Member States and it is burnt in over 200 power plants. Approximately a quarter of a million Europeans are directly employed in the coal mining and coal power sector. In terms of employment, Silesia – located in southern Poland – is the largest coal-based region in the EU.

The coal path of Silesia – widening the road or striving for a cul-de-sac

Poland is the largest European coal-based economy with hard coal being the main energy resource, although its share has been decreasing. The latest governmental draft on “Energy Policy for Poland till 2040” assumes a 60% share of coal in the energy mix in 2040 as well as an increase in energy generation from offshore wind farms and the replacement of lignite by nuclear energy after 2030. It is crystal clear that in the next two decades, coal will still be a major source of energy although its consumption by the power sector is to decline by nearly 20%. For years, Silesia has been the region with the second highest contribution to the national GDP, exceeded only by the Masovia Voivodeship with Warsaw – the capital city of Poland. Nevertheless, the importance of Silesia for the Polish economy has been gradually decreasing. Similar to other carbon-intensive regions, a low-carbon transition entails more risks than opportunities according to regional stakeholders. Limited technical potential to deploy renewable power plants, poor air quality, regional dependence on traditional industries as well as limited financial resources pose significant challenges to the low-carbon transition in this Polish region. Let us not forget big politics behind the screen and politicians who have always played a key role in favouring or depreciating Polish mining and to whom coal is alternatively ‘black gold’, or ‘not everything that glitters is gold’. At present, Polish authorities seem to be a guardian angel of Polish coal as they perceive it as a natural and strategic resource and a guarantor of the Polish national interest. Perhaps, it is only a political gambit to hush down Polish miners’ discontent and their worrying about losing employment or benefits (after all promises to keep Polish mining safe and sound were made in 2015 during the election campaign). Yet, isn’t it a bit symptomatic that the Polish President stated adamantly that he will not allow the decline (actually, he used the verb “murder”) of Polish mining, and this statement is being made at the very same time COP24 in Katowice is being held?

So is a low-carbon transition of carbon-intensive regions feasible?

At first glance, the answer to the above question is affirmative, but it will take time to make it happen. From the very beginning reforms in the energy sector should be an essential part of a sustainable transition of coal-dependent regions where the costs may be high, especially in the short-term perspective. The reforms must be wide-ranging, based on a left-to-right political consensus and not biased against the coal sector. To have success in this bold and long-awaited endeavour, the future energy mix and corresponding technologies should be carefully designed, matched and should remain stable in the long-term. At the same time, the right incentives for the energy transition should be clear and acceptable for all stakeholders.

Looking at the future (because there must be one…)

The multi-stakeholder approach is widely promoted by the Paris Agreement and the European Union. The implementation of this policy line is supported by numerous international measures aimed at helping the countries to meet their obligations. These include mainly financing instruments targeted at the activities streamlining the low-carbon transition and the ones to relieve financial barriers of the process and to bring benefits to the society. According to the European Commission, the transition to clean energy in the European Union will require €177 billion in additional investment per year from 2021 onwards. If the right investments are not stimulated now, there is a risk of locked-in high-carbon infrastructure and stranded assets. Moreover, the cost of delaying this transition may be much higher that the costs of the transition itself.

How to step this path to success?

The path to success in the field of decarbonizing European regions deeply laced with coal seems to be bumpy with all its uncertainties and question marks, with dos and don’ts, with negotiations and settlements. The experience and mistakes made by many countries have proved that the energy mix and the technological transition should be designed and implemented on the basis of transparent and well-thought-out schemes and it should remain stable for long time. It is crucial to gain the willingness of the whole coal-based industry to actively participate in the transition with a prerequisite for success being a full political and social consensus over a coal-based regional transition. However, no matter how painful or backbreaking the process turns out to be, we owe this to young and future generations, to people like 16-year old Greta Thunberg, a worldwide known Swedish activist, who in one of her thought-provoking speeches on climate change and the detrimental influence of coal to the environment states that we (“we” read as adults, policy-makers, lobbyists, governments) are stealing our children’s future in front of these children’s eyes and it is a crisis which, if unsolvable on the basis of the existing system, should be managed and overcome by new rules embedded in a new system. Don’t we see that Greta has just thrown down a gauntlet? Should we feel chided or embarrassed by this young and climate-conscious person? The former may not be Greta’s intention but the latter for us to feel is definitely right. Once our cheeks lose the redness of embarrassment, we should stand up, pick up the gauntlet and act. Perhaps, no one will feel like a thief any more.

No simple answer to carbon complexity

“These are the times that try men’s soul” wrote Thomas Paine in his famous pamphlet American Crisis in the heat of the American Revolution. These words well describe the present time too – in their broadest meaning. The political systems in the western world are under unprecedented pressure not witnessed since the dark times of the 1930’s.

But we also see the raise of a quite new kind of awareness among people and businesses on climate change. The public discourse on emissions has jumped to another level compared to just a few years ago. Our leaders are being challenged to move from just talking about the issue, to undertaking stronger measures to cut carbon emissions quickly.

At the same time, bottom-up popular movements are entering the political arena reflecting our political systems’ inability to adequately reflect on timely issues. However, they also reflect the failure of our politicians to equip the people with the tools and skills required to handle with wicked problems such as climate change.

The climate change movement is obviously getting stronger in several member states of the EU, and also resonated in the recent European Parliament elections. It may, however, still be too early to claim a coming leapfrog in climate policies due to the shifting political landscape in Europe, though all scientific evidence univocally speaks for its urgency.

But let’s make a ‘gedankenexperiment’ by assuming that in spite of all the uncertainties, Europe would soon make a shift towards a stricter climate policy. Instruments for emission cuts are in place (e.g. the price of emission allowances in ETS could be better regulated, among others). Scenario tools such as those used in the Horizon 2020 INNOPATHS project can help to construct least-cost technology trajectories to reach a zero-carbon energy sector in Europe. From a techno-economic point-of-view, we could well find a feasible deep decarbonization solution for Europe.

But would society be prepared for such a quick energy transition?  Deep decarbonization equates in practice to a huge technology disruption similar to the industrial revolution. It goes beyond the techno-economic realm. It involves profound social issues. It is essentially a social-technical transition in which institutions and business models supporting present technologies need to be changed to enable adoption of new clean technologies and practices.

Consumers also need to adapt and engage in new ways. How to deal with distributional effects? A change involves winners and losers. For example, a high carbon tax may sound like a perfect tool for cutting emissions as it forces those who pollute to pay and it could motivate the polluters to change their behaviours. But from a justice point of view, it could also legitimize those who can afford to pay to pollute (even more) and not to change their lifestyles, whereas those who cannot pay or afford non-polluting solutions, could face large challenges in their everyday lives. A just climate legislation would therefore strive for measures which treat each of us equally in relation to our capabilities.

There are multiple ways to frame the energy and climate problem1. Importantly, the way we frame it would also prioritize the values and factors against which we make our decisions, which in turn will shape the solutions. Personally, I would prefer to see the more fundamental factors being prioritized in any type of climate framing, namely the Science (laws of nature), the Planet (planetary boundaries), and the Ethics (universal values).

Though a lot of research has already been done on policy and social dimensions, also within the INNOPATHS project, the complexity of the issues involved is so profound that this would call for much stronger efforts for this area of research in the coming Horizon Europe R&D programme.

Thomas Paine ended his pamphlet with the words “…the harder the conflict, the more glorious the triumph”. For me his inspirational words sound in today’s terms more like where there’s a will, there’s a way – also in the quest of solving the carbon question.

1 Sun-Jin Yun, John Byrne, Lucy Baker, Patrick Bond, Goetz Kaufmann, Hans-Jochen Luhmann, Peter Lund, Joan Martinez-Alier, and Fuqiang Yang. 2018. Energy and Climate Change. In: Rethinking Environmentalism: Linking Justice, Sustainability, and Diversity, ed. S. Lele, E. S. Brondizio, J. Byrne, G. M. Mace, and J. Martinez-Alier. Strüngmann Forum Reports, vol. 23, J. Lupp, series editor. Cambridge, MA: MIT Press, 2018 ISBN 9780262038966.

Modelling the EU’s Long-Term Strategy towards a carbon-neutral energy system

The COP21 UNFCCC conference in Paris in December 2015 flagged a new era for energy and climate policy. Climate change mitigation turned from being the wish of a few, to the reality of almost all nations around the globe. The signed agreement has invited all parties to submit, by 2020, mid-century low-emission strategies compatible with the goal of limiting the rise in average global temperatures to well below 2oC above pre-industrial levels and pursuing efforts to limit it to 1.5oC.

The aim of a low carbon economy has been on the EU policy agenda since the release of its “Low carbon economy roadmap” in 2011 that introduced an 80% GHG emission reduction target for the year 2050 relative to 1990 levels. However, pursuing the 1.5oC temperature increase limit requires boosting even more the ambitious climate target and aiming at a carbon-neutral economy by mid-century. Given the new climate policy regime, the discussions around low, zero, or even negative carbon policy options have been intensified in the years following the Paris milestone; new quantitative analysis, in the form of detailed policy scenarios, strategies and quantitative pathways, is necessary to assist EU policy makers in assessing the available options from both a technological and economic perspective, while also considering societal and governance issues. Many research discussions, debates and synergies in the modelling communities, have been triggered after the COP21 conference, as new innovative concepts need to be introduced and enrich existing modelling frameworks, in order for the latter to be able to perform the appropriate deep decarbonisation scenarios and provide sound input to impact assessment studies.

Certain key policy elements and technologies are considered pillars of the low-carbon transition and are treated as “no-regret” options in all recent EU climate and energy policy discussions. Such policy options are the strong electrification of final energy demand sectors, accelerated energy efficiency mainly via the renovation of the existing buildings’ stock, advanced appliances, heat recovery in the industrial sector and intelligent transportation, and the strong push of variable renewable energy sources (RES) in the power system. From a modelling point of view, their assessment is well established in the literature, and does not pose any considerable, unpresented difficulties. However, the modelling of disruptive technologies and policy instruments that could be proven essential for the transition towards a carbon-neutral EU economy (a case that requires GHG emission reductions beyond the 80% target) is far from being considered as mature in the existing literature or academic research. Modelling a power sector with renewables above 80% is a challenge as it requires representing variability in some detail along with the various balancing resources including cross-border trade. Modelling strong energy efficiency in buildings implies representing the decision of individuals about renovating the buildings deeply; this is also a challenging modelling task give the large variety of building cases and idiosyncrasies of the individuals in decision making. Electrifying heat and mobility in market segments where this is cost-efficient is among the no-regrets option. Modelling the pace of transition and the role of policy drivers from internal combustion engines to electric cars and from boilers to heat pumps are also challenging tasks due to the large heterogeneity of circumstances that the modelling will have to capture. So, the amplitude of the three main no-regrets options is challenging the modelling despite the significant experience accumulated so far. 

The carbon-neutrality target poses considerable additional challenges for the modelling. The no-regrets options are not sufficient to deliver carbon-neutrality by mid-century. Mobility, heating, high-temperature industrial uses and the industrial processes would emit significant amounts of CO2 by 2050 if conventional wisdom policies and measures only apply. To abate the remaining emissions in these sectors, disruptive changes are necessary, regarding the origin of primary energy and the way energy is used and distributed. The disruptive options are surrounded by high uncertainty due to the low technology readiness levels of the technologies involved. The disruptive options are antagonistic to each other because they require large funding resources to achieve industrial maturity and economies of scale of the yet immature technologies. Such concentration of resources requires long-term visibility for the investors and infrastructure investment, which both require clear strategic choices among the disruptive options.

We consider the “disruptive” options grouped in stylised categories, as shown below. The modelling has to include assumptions regarding the future evolution of costs and performance of a plethora of technologies and options for alternative sets of disruptive changes had to represent. Each stylized category of disruptive changes has its own challenges in terms of modelling considerations, as presented below:

  1. Extreme Efficiency and Circularity: The aim of the options included in this category is to push energy efficiency savings close to its maximum potential, introducing circularity aspects and further improving material efficiency in the EU economy, increasing the intelligence of the transport system, sharing of vehicles, achieving near-zero energy building stock, etc. Even though these concepts are present in the literature, introducing them in a large-scale applied modelling framework poses significant difficulties as, for instance, estimating the maximum industrial output reductions that can be realised at a sectoral level. It also required estimating the upper boundaries of the impact of behavioural and restructuring changes in the transport sector in reducing transport activity. Similarly, modelling a near-zero energy building stock involves great difficulties regarding the driving policies and the idiosyncratic behaviours of individuals. Almost all options included in this category are associated with non-linearly increasing costs, beyond a certain level of deployment that needs to be captured in the quantitative assessment. Some of the options might also create so-called “disutility” to the consumers, as they alter their behaviour to an eventually less “comfortable” patterns. Not capturing such effects, would underestimate the difficulty in the introduction of such policy options.
  1. Extreme Electrification: Strong electrification is a “no-regret” option, but extreme electrification is a relative newly established concept. This category adopts electricity as the single energy vector in all sectors in the long-term, with bioenergy complementing electricity only in sectors where full electrification is not technically feasible with currently known technologies, such as aviation and maritime. From a modelling perspective, deep electrification requires to studying the technoeconomic of innovative technological options such as full-electric long-distance road freight vehicles, electric aircrafts for short-haul flights and high temperature heat pumps. Using electricity as the only vector for the heating of buildings will broaden the seasonal demand gap between the summer and winter seasons for many regions, requiring either significant investments in power storage solutions or in power capacity that will have low utilisation. Capturing this in the modelling requires establishing electricity load patterns that differ by scenario at an appropriate time resolution.
  1. Hydrogen as a carrier: This category assumes that hydrogen production and distribution infrastructure will develop allowing hydrogen to become a universal energy commodity, covering all end-uses including transport and high-temperature industrial uses. Hydrogen can also provide a versatile electricity storage service with daily up to seasonal storage cycles. Hydrogen is assumed to replace distributed gas after an extensive overhaul of the pipeline system and gas storage facilities. From a modelling perspective it requires identifying the industrial processes that can be decarbonised using hydrogen-based solutions (and the relative boundary conditions), assessing the techno-economics of a variety of carbon-free hydrogen production facilities (for both blue and green hydrogen) and the costs associated with the upgrade of the gas distribution and storage system. All the above, should be established in a modelling framework that is available to co-optimise the operation of the power system and the hydrogen production facilities, enhancing in this way energy storage and coupling various sectors of the energy system and the economy.
  1. GHG-neutral hydrocarbons (liquid and gaseous): In this case, the paradigm of using and distributing energy commodities, along with the respective infrastructure, is maintained. The nature and origin of the hydrocarbon molecules is modified in order to ensure carbon neutrality from a lifecycle emissions perspective, using synthetic molecules rather than fossil ones. The production of synthetic methane and liquid fuels requires carbon-free hydrogen production and an appropriate carbon dioxide (CO2) feedstock source. The last element hints at the emergence of CO2 as a commodity, therefore it is important that energy-economy models are modified in order to treat CO2 not only as a by-product of fossil fuel combustion, as it was done till recently, but as a product that can be used for different purposes (e.g. apart from producing GHG-neutral fuels, creating carbon sinks and inducing net negative emissions via embodying it in materials or storing it underground). The origin of CO2 can either “from air” via using Direct Air Capture (DAC) technologies or by biogenic sources; both of them have uncertainties related to its learning potential and maximum availability potential, respectively. For the production of hydrogen, similar modelling considerations as in the previous case apply. A model able to represent effectively this strategy should have a rich technology database that explicitly includes the major pathways for the production of synthetic fuels; in turn populating such a database is a difficult and time-consuming exercise given the uncertainty regarding the learning potential of the various technologies. Ideally, a model should be in a position to optimise of the location of clean-fuel production facilities in Europe or elsewhere, as it is more likely that such commodities will be traded extensively.

The analytical assessment, which has provided input to the “Clean Planet for All” strategy by the European Commission in November 2018, has confirmed that a carbon-neutral EU economy by mid-century (2050) is viable both from a technological but also an economic perspective, should a number of key technologies evolve as anticipated. The analysis should be perceived as the first step of a complex assessment procedure to bolster the decision-making process regarding the definition of the EU’s long term energy and climate strategy.

Next steps should focus on the assessment of several uncertainties associated with the various pathways studied. For instance, emphasis should be given to identifying the appropriate policy instruments that could be used to materialise the emergence of technologies and energy carriers as long-term visibility of future markets is crucial for their deployment. The characteristics and costs of several disruptive technologies are also worthy of further research with emphasis on the potential of learning and economies of scale. The modelling and data improvements to be realised in INNOPATHS will enhance the model representation of disruptive options and sectoral transformation, and will enable further improvement of the design of deep decarbonisation pathways.

For more information on the analytical work behind the “Clean Planet for All” communications, please click here.