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21. Just Transitions: A Review of How to Decarbonise Energy Systems While Addressing Poverty and Inequality Reduction

Author:
Daniele Malerba
Publication Date:
01-2022
Content Type:
Working Paper
Institution:
German Institute of Development and Sustainability (IDOS)
Abstract:
Germany promotes “just transition” as a guiding principle for the global transition to a socially and environmentally sustainable economy that incorporates the necessary climate, environmental and energy policy measures. This includes the urgent transformation of economies to become emission neutral while ensuring a process whereby poverty and inequality are reduced, and no one is left behind. The German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE), the World Bank and the German Federal Ministry for Economic Cooperation and Development (BMZ) worked together to explore ways to implement the concept of just transition in German development cooperation. The two papers that have resulted from this process outline approaches to a “just transition for all” and highlight its potential to reduce poverty and inequality (SDG 1 and SDG 10). In recent decades, the interdependencies between social and ecological development have become clear: negative effects of climate change particularly affect vulnerable and marginalised groups living in poverty. At the same time, social inequalities contribute to an exacerbation of climate change. A just transition must effectively address the consequences at the international, national, regional and local levels. Both papers provide an overview of existing approaches and challenges to foster a “just transition for all”. They offer different but complementary perspectives on an increasingly important complex of topics. This first paper, by DIE, takes a broad perspective by considering the decarbonisation of the energy sector as a whole, outlining the connections between just transition, poverty and inequality, and exploring how to ensure a just transition (for both workers and consumers) through the use of different social protection mechanisms. It argues that it is possible to make energy transitions just, but that properly designed combinations of socio-economic and climate policies are needed. A second paper, by the World Bank, zooms in on the transition away from coal. It lays out key social and community impacts resulting from the decommissioning of coal assets, based on experience gained from World Bank operations and from industrialised countries, and articulates an enhanced approach to supporting the coal transition. Both provide practical recommendations for international development cooperation in general, and for German development cooperation in particular.
Topic:
Development, Poverty, Inequality, Economy, and Decarbonization
Political Geography:
Europe and Germany

22. Decarbonisation of the energy system

Author:
Georg Zachmann, Alexander Roth, Ben McWilliams, Franziska Holz, Robin Sogalla, Frank Meissner, and Claudia Kemfert
Publication Date:
01-2022
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Three quarters of the European Union’s greenhouse gas emissions stem from burning coal, oil and natural gas to produce energy services, including heating for buildings, transportation and operation of machinery. The transition to climate neutrality means these services must be provided without associated emissions. It is not possible today to determine tomorrow’s optimal clean energy system, largely because the cost, limitations and capability developments of competing technologies cannot be predicted. Energy systems with widely diverging shares of ‘green fuels’, in the form of electricity, hydrogen and synthetic hydrocarbons, remain conceivable. We find the overall cost of these systems to be of the same order of magnitude, but they involve larger investments at different stages of value chains. A large share of synthetic hydrocarbons would require more investment outside the EU, but less in domestic infrastructure and demand-side appliances, while electrification requires large investment in domestic infrastructure and appliances. Current projections show an overall cost advantage for direct electrification, but projections will evolve and critical players may push hard for alternative fuels. Policy will thus play a major role in shaping this balance. Political decisions should, first, push out carbon-emitting technology, primarily through carbon pricing. The more credible and predictable this strategy is over the coming decades, the smoother will be both divestment from brown technologies and investment in green technologies. Second, policy needs to help ensure that enough climate-neutral alternatives are available in time. Clear public support should be given to three system decisions about which we are sufficiently confident: the massive roll-out of renewable electricity generation; the electrification of significant shares of final energy consumption; and rapid phase-out of coal from electricity generation. For energy services where no dominant system has yet emerged, policy should forcefully explore different solutions by supporting technological and regulatory experimentation. Given the size and urgency of the transition, the current knowledge infrastructure in Europe is insufficient. Data on the current and projected state of the energy system remains inconsistent, either published in different places or not at all. This impedes the societal discussion. The transition to climate neutrality in Europe and elsewhere will be unnecessarily expensive without a knowledge infrastructure that allows society to learn which technologies, systems, and polices work best under which circumstances.
Topic:
Climate Change, European Union, Carbon Emissions, Decarbonization, and Energy
Political Geography:
Europe

23. Walking out of the Woods: EU Industrial Policy between the Energy Crisis and Decarbonisation

Author:
Pier Paolo Raimondi
Publication Date:
12-2022
Content Type:
Commentary and Analysis
Institution:
Istituto Affari Internazionali
Abstract:
Europe is in the midst of a profound and complex energy crisis. This is not limited to the gas sector as a result of Russia’s invasion of Ukraine but involves all energy sources. French nuclear generation, for example, has fallen to a thirty-year low over the past year due to maintenance works and corrosion.[1] Due to extreme heat over summer, unprecedented drought has reduced hydropower generation as well as the possibility to import coal by river.[2] Oil has not been immune to turbulences either. The EU embargo on Russian crude oil finally began on 5 December 2022, coupled with a price cap at 60 US dollars/barrel generating uncertainty over future supply and prices. In February 2023, the second step of the embargo, on refined products, will kick in, with diesel potentially becoming the next chapter of the European energy crisis.[3]
Topic:
Politics, European Union, Institutions, Industry, Decarbonization, and Energy Crisis
Political Geography:
Europe

24. Commercialisation contracts: European support for low-carbon technology deployment

Author:
Ben McWilliams and Georg Zachmann
Publication Date:
07-2021
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Many of the technologies that can help the European Union become a net-zero emissions economy by 2050 have been shown to work but are not yet commercially competitive with incumbent fossil-fuel technologies. There is not enough private investment to drive the deployment of new low-carbon alternatives. This is primarily because carbon prices are neither high enough nor stable. There are a number of benefits from the deployment of low-carbon technologies that private firms do not factor in. These include the benefits of decreasing industry-wide costs over time, and the global climate benefits from the development of low-carbon technologies within the EU that can subsequently be exported. The result is an investment level below the socially optimal value in the EU. Commercialisation contracts could be implemented as a temporary measure to remove the risk associated with uncertain carbon prices for ambitious low-carbon projects. The aim of the contracts would be to increase private investment to the socially optimal level. Contracts would be allocated through auctions in which fixed prices for abated emissions over a fixed duration would be agreed on a project-by-project basis. On an annual basis, public subsidies amounting to the difference between the agreed carbon price and the actual EU carbon price would be provided to investors, depending on the total carbon emissions abated. As long as EU carbon prices are low, investors would receive larger subsidies to ensure their competitiveness. Contracts would be auctioned at EU level. This would generate increased competition compared to national auctions, leading to more efficient outcomes and preventing fragmentation of the single market. From about €3 billion to €6 billion would be provided to the main industrial emitting sectors annually, with the amount reducing as the EU carbon price rises and low-carbon technologies become competitive without subsidy.
Topic:
Climate Change, Energy Policy, Science and Technology, Investment, Trade, Carbon Emissions, and Decarbonization
Political Geography:
Europe

25. Navigating through hydrogen

Author:
Ben McWilliams and Georg Zachmann
Publication Date:
04-2021
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Hydrogen is seen as a means to decarbonise sectors with greenhouse gas emissions that are hard to reduce, as a medium for energy storage, and as a fallback in case halted fossil-fuel imports lead to energy shortages. Hydrogen is likely to play at least some role in the European Union’s achievement by 2050 of a net-zero greenhouse gas emissions target. However, production of hydrogen in the EU is currently emissions intensive. Hydrogen supply could be decarbonised if produced via electrolysis based on electricity from renewable sources, or produced from natural gas with carbon, capture, and storage. The theoretical production potential of low-carbon hydrogen is virtually unlimited and production volumes will thus depend only on demand and supply cost. Estimates of final hydrogen demand in 2050 range from levels similar to today’s in a low-demand scenario, to ten times today’s level in a high-demand scenario. Hydrogen is used as either a chemical feedstock or an energy source. A base level of 2050 demand can be derived from looking at sectors that already consume hydrogen and others that are likely to adopt hydrogen. The use of hydrogen in many sectors has been demonstrated. Whether use will increase depends on the complex interplay between competing energy supplies, public policy, technological and systems innovation, and consumer preferences. Policymakers must address the need to displace carbon-intensive hydrogen with low-carbon hydrogen, and incentivise the uptake of hydrogen as a means to decarbonise sectors with hard-to-reduce emissions. Certain key principles can be followed without regret: driving down supply costs of low-carbon hydrogen production; accelerating initial deployment with public support to test the economic viability and enable learning; and continued strengthening of climate policies such as the EU emissions trading system to stimulate the growth of hydrogen-based solutions in the areas for which hydrogen is most suitable.
Topic:
Climate Change, Energy Policy, European Union, Carbon Emissions, Decarbonization, and Hydrogen
Political Geography:
Europe and Global Focus

26. Russia Meets Climate Change: The Domestic Politicization of Environmental Issues and External Pressure to Decarbonize

Author:
Jussi Lassila and Marco Siddi
Publication Date:
03-2021
Content Type:
Policy Brief
Institution:
Finnish Institute of International Affairs (FIIA)
Abstract:
Russia’s role in international climate policy is central. Russia is the fourth largest emitter of carbon dioxide and has vast potential for developing renewable energy. However, its fossil fuel-based economy and the legitimacy it creates for the Kremlin make climate action inherently difficult. Thanks to the growing politicization of environmental issues, the relevance of climate change may increase in the Russian public debate. The effects of climate change, such as melting permafrost and the Siberian forest fires, could catalyze this process. Climate-sceptical populism may sometimes feature in the rhetoric of the political elite, but its proliferation in society is unlikely. Most Russians are concerned about climate change, even if less so than Western Europeans. However, Russia’s decision-making on climate policy is highly centralized, with little or no input from civil society actors. The energy transition in Europe can eventually deprive Russia of its main market for fossil fuel exports, but it also creates new prospects for cooperation in green energy development.
Topic:
Civil Society, Climate Change, Environment, Carbon Emissions, and Decarbonization
Political Geography:
Russia and Europe

27. The perspectives of the Czech automotive industry's decarbonization

Author:
Michal Hrubý
Publication Date:
06-2021
Content Type:
Policy Brief
Institution:
Europeum Institute for European Policy
Abstract:
Our Research Fellow Michal Hrubý examines the current state of the Czech automotive industry and its possible decarbonisation in connection with emissions. He divides his recommendations into five points - bolster green investments, financial incentives are the change-drivers, boost charging infrastructure, support the corporate BEVs fleet market and a ban on ICEVs is not the solution per se.
Topic:
Climate Change, Manufacturing, Carbon Emissions, Decarbonization, and Automotive Industry
Political Geography:
Europe and Czech Republic

28. Denmark: A Case Study for a Climate-Neutral Europe

Author:
Thibault Menu
Publication Date:
04-2021
Content Type:
Special Report
Institution:
Institut français des relations internationales (IFRI)
Abstract:
In recent years, Denmark has steadily emerged as a leader and role model in the global green energy transition. Its greenhouse gas (GHG) emissions since 2010 have been reduced at greater pace than those of the European Union (EU) average. This transformation is all the more impressive, given that the country used to be a significant oil and gas producer which also relied heavily on coal for power generation. From its highly publicized success in offshore wind, to its ambitious goal of cutting GHG emissions by 70% by 2030 - which would put Denmark as a European and global frontrunner, with only Finland being more ambitious and planning to be climate neutral already by 2035 – as well as its pioneering green energy policies, the country has transformed itself into a beacon for low carbon technologies and public policies. The country has a record high share of renewable energy sources in power generation, with wind in the lead. Given the recent announcements and climate goals set by the Von der Leyen Commission, Denmark serves as an interesting case study for other European and world nations alike on how to embark on their own energy transitions. This paper assesses whether the country is really successful in accelerating even more than its European peers in its decarbonization process. And if so, what is so special about Denmark and what can be learned from its transformation? Policies range from well-publicized successes, such as the country’s ability to nearly rid itself from coal in its power mix in less than thirty years by increasingly developing its wind power potential, in leading the offshore wind segment and championing repowering, but also its lesser-known achievements, such as the diffusion of combined heat and power (CHP) and district heating across the country. Another success point of the country’s strategy relies in promoting energy efficiency in the industrial sector as well as its use of energy taxation for enhanced decarbonization, even in challenging sectors such as transportation. Questions remain open, especially concerning the sustainability credentials of biomass, a fuel which is a key component of the country’s energy mix, but also the future role of natural gas, which has an important balancing role in power generation, given the country decision to rid itself of oil and gas (O&G) production by the middle of the century. To a large extent, the Danish success story so far can be linked to a combination of socio-political factors including: a high level of stability and predictability in energy policy stemming from Denmark’s long historical tradition of broad energy agreements, a cross-sectoral and holistic approach to developing the nation’s energy policy involving a high level of participation from various public and private actors, a willingness to back innovative technologies, combined with generous public policy schemes in order to bring them to market-level competitiveness. Next frontiers will consist of large-scale carbon capture and sequestration projects, as well as low carbon energy islands. However, it would be somewhat reductive to simply equate Denmark’s success story to these previously mentioned factors. Indeed, the Scandinavian nation also benefits from certain geographical dispositions which are great assets for its path to decarbonization. For one, the country is ideally placed to develop variable renewable energy sources, most notably wind power given its topography and its strong wind resources. On top of this, Denmark also benefits from an incredibly reliable and interconnected power grid thereby making renewable energy integration into the wide energy system all the easier. In addition, the fact that its power grid is one of the most interconnected in Europe entails that excess renewable energy production can quickly be exported when the wind blows, just as imports can hastily be called upon when wind is found to be lacking. Finally, from a more socio-political perspective, the relatively flat social structure of Danish society as well as the country’s high level of institutional trust, makes policymaking and policy implementation simpler as well as more effective than in other European states. As such, although this paper identifies important lessons to be learnt from Denmark’s decarbonization strategies, the context as well as the particular characteristics of the country in which these were implemented should nevertheless be considered when seeking to establish similarly successful carbon reduction policies. In any case, Denmark is still far from coming close to achieving its objectives and will have to accelerate its decarbonization on all fronts: the country’s current total primary energy supply still relies for 60% on fossil fuels.
Topic:
Climate Change, Energy Policy, Decarbonization, and Green Deal
Political Geography:
Europe and Denmark

29. Understanding the European Union’s regional potential in low-carbon technologies

Author:
Enrico Bergamini and Georg Zachmann
Publication Date:
11-2020
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
This research identifies existing and potential specialisation in green technologies in European Union regions, and proposes an approach to identify policies that can help to realise this potential. Using the Organisation for Economic Cooperation and Development’s REGPAT database for regionalised patent data, we estimate the potential advantage European NUTS2 regions could have in 14 green technologies. We use network proximity between technologies and between regions to understand technological/regional clusters, and build the regressors for estimating potential regional advantage in specific technologies via zero-inflated beta regressions. We construct a dataset of lagged potentials and labour market, economic and demographic variables, and perform an elastic net regularisation to understand the association with current revealed advantages. Our approach indicates an association between technological advantage in green technologies in EU regions and participation rates in labour markets, sectoral employment in science and technology, general higher education, duration of employment, percentage of GDP spent on research and development (public and private), and other expenditure on R&D. If confirmed by causality tests, the established associations could help in designing horizontal economic policies to enable specific regions to realise their specialisation potential in specific green technologies.
Topic:
Climate Change, Energy Policy, Industrial Policy, European Union, Green Technology, and Decarbonization
Political Geography:
Europe

30. Financing the European Union: New Context, New Responses

Author:
Clemens Fuest and Jean Pisani-Ferry
Publication Date:
09-2020
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Roughly two thirds of the European Union’s budget is financed out of member states’ national tax revenues. These resources, based on gross national incomes, are transparent, fair and in line with the principle of subsidiarity but they lead to political debates that emphasise the cost of EU spending rather than the benefits, and add to the perception of the EU budget in terms of net balances, rather than value added. The financing of the EU budget must be reassessed in the light of the July 2020 decision to launch the Next Generation EU programme. Budget resources could include a plastics charge, a carbon border adjustment mechanism, a digital tax, revenues from emissions trading and a financial transactions tax. We evaluate these options against four criteria: whether the origin of the revenue can be assigned to a particular member state; whether the revenue can be raised in isolation or requires pan-European tax coordination; whether the new resource can help reduce tax distortions in the EU; and whether the resource is related to EU policies. Revenues from emissions allowances fit these criteria best. Carbon emissions do not primarily cause damage only where they occur. Taking the EU cap on emissions as a given, additional emissions in a particular member state should be regarded as a negative externality on other member states. Emission reduction objectives are set at EU level. Whoever auctions off an allowance, wherever the corresponding emission occurs in the EU, and wherever the resulting good or service is consumed, the impact on common policy outcomes is the same. In this regard, proceeds from the sale of emissions trading system allowances are not that different from customs duties. Compared to the ETS, the other candidates for EU own resources are less convincing. Carbon border adjustments are intended to limit international competitive distortions rather than to generate revenue. Digital taxes and minimum corporate taxes are best left to the process underway in the Organisation for Economic Co-operation and Development. On a financial transactions tax there is no agreement within the EU. Total ETS revenues up to 2050 would approach €800 billion in a realistic scenario and possibly even €1.5 trillion assuming the scope of the ETS and the share of auctioned permits are increased. ETS revenues therefore would be largely sufficient to repay the Next Generation EU debt. However they would generate distributional effects, and so part of the revenues should finance grandfathered rights that would accrue to the member states. The EU can tackle the distributional issues involved in the reform of own resources.
Topic:
Budget, European Union, Finance, Tax Systems, COVID-19, Decarbonization, and Digitalization
Political Geography:
Europe