First-mover advantages of the European Union's climate change mitigation strategy

Abstract

SUMMARYThis paper assesses the costs and benefits for the European Union (EU) as a first mover in climate change mitigation. Scenarios of EU and global climate action to 2050 are quantified using the GEME3-RD model, a global multi-sectoral computable general equilibrium model with endogenous technology progress and detailed representation of the clean energy technologies. The model includes two-factor learning curves (stock and research and development funding) for clean energy technologies, such as electric vehicles, carbon capture and storage, and renewable and efficient appliances. Funding of research and development is endogenously derived as a production factor enabling productivity improvement. The scenarios compare stylised climate strategies, which are asymmetric by world region and have different emission reduction profiles over time. Assuming that strong climate mitigation action will be undertaken only after 2030, the scenarios compare two main strategies for the EU: pursuing strong emission reduction unilaterally until 2030 versus deferring action for the period after 2030. Asymmetric climate action by region enables asymmetric innovation and manufacturing of clean energy technologies. The macroeconomic assessment of the climate action strategies does not only depend on costs of clean technologies but also on induced technology progress implying asymmetric effects on manufacturing and trade by region, taking into account spillovers. The model-based projections show clear advantages for the EU as a first mover in climate change mitigation compared with a delaying of climate action until 2030. Delayed climate action until 2030 implies higher gross domestic product losses for the EU compared with unilateral action until 2030. The model finds benefits of early action by the EU driven by activity and progress related to clean energy technologies as the EU can achieve competitive advantages over other world regions pursuing climate action later.

Analyzing the Macro-Economic and Employment Implications of Ambitious Mitigation Pathways and Carbon Pricing

“…Depending on lowcarbon technology costs, this process may be costly in the shortterm, thus increasing the average price of energy services, but in the long-term the transformation may bring positive externalities driven by technology progress and industrial maturity dynamics as well as environmental benefits (e.g., reduced climate damages and air pollution). These elements can result in socio-economic benefits, at least for some sectors and countries, especially if the size of the clean energy market is sufficiently large (to achieve economies of scale and allow innovators to recover their high upfront costs) and there is adequate, low-cost availability of finance (Karkatsoulis et al, 2016), given that lowcarbon investments are more capital intensive relative to fossil fuels (Polzin et al, 2021). As financing of new products and technologies is not available at uniform interest rates, the supply of finance depends on the risks of new technologies (i.e., limited financial resources for high risk capital).…”

“…The interlinkages between energy system decarbonization and macro-economic structural change are complex; they include risks and opportunities for economic activity (Antosiewicz et al, 2020;Probst et al, 2020), employment , industrial competitiveness (Karkatsoulis et al, 2016), trade patterns (Paroussos et al, 2015), embedded emissions (Meng et al, 2018), and low-carbon innovation (Mercure et al, 2019;Fragkiadakis et al, 2020). On the one hand, low carbon finance and technological innovation can lead to the emergence of new economic sectors, productivity growth and enhanced competitiveness as well as reduced energy imports.…”

A Regional Economy-Energy-Transport Model of the EU for Assessing Decarbonization in Transport

“…The same model was also extended to formulate, in detail, the energy sector. The aim of the extended model is to study the economic impacts of decarbonization policies, similarly to References [49][50][51].…”

Economic, Trade and Employment Implications from EVs Deployment and Policies to Support Domestic Battery Manufacturing in the EU

“…The rapid penetration of EVs in car markets coupled with a gradual retirement of conventional ICE vehicles implies that a new ‘trade ecosystem’ will be created characterized by different features (move from OPEX to CAPEX) and supply chains relative to the current paradigm. In particular, a key component of the electric vehicles (EVs) is the batteries that are quite employment intensive (IEA, 2018) and constitute an essential element of EVs that can act as a driver for establishing comparative advantages and increasing EVs market shares (Karkatsoulis, Capros, Fragkos, Paroussos, & Tsani, 2016). The objective of our study focuses on the size of the future global and EU specific market for EVs and batteries that can be established within global energy system decarbonization scenarios and investigates the economic, trade and employment implications, taking into account the production chain of EVs (i.e., the regional production of batteries).…”