Comparing hard-linking (TIMES-MSA) and soft-linking (TIMES-HERMES) methodologies for quantifying economic impacts of mitigation
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This document compares two methodologies - TIMES-MSA (hard-linking) and TIMES-HERMES (soft-linking) - for quantifying the economic impacts of climate mitigation strategies in Ireland. It presents results from modeling an emissions reduction scenario in 2030 using these two approaches. TIMES-MSA models a GDP contraction while TIMES-HERMES models GDP growth due to carbon tax revenue recycling. Next steps include further runs comparing HERMES variants and better understanding differences between structural and production function modeling for Ireland's economy.
Comparing hard-linking (TIMES-MSA) and soft-linking (TIMES-HERMES) methodologies for quantifying economic impacts of mitigation
- 1. Comparing hard-linking (TIMES-MSA) and soft- linking (TIMES-HERMES) methodologies for quantifying economic impacts of mitigation Maurizio Gargiulo a,b, John Curtis c, James Glynn b, John Fitzgerald c, Brian Ó’Gallachóir b a E4SMA Srl, Turin, Italy. B Environmental Research Institute, University College Cork, Cork, Ireland. C Economic and Social Research Institute, Dublin, Ireland.
- 2. Outline • Introduction • Methodological approach • Results • Conclusions • Next steps 2
- 3. 3 Introduction • Assess and develop possible linkages between energy and economy comparing different approaches for quantifying the economic impacts of mitigation. • The two models are IrishTIMES and HERMES model. • The analysis takes as a starting point the non-ETS emissions reduction results (22% below 2005 levels by 2030) for Ireland from the EU 2030 Climate and Energy Policy Framework. • HERMES is a complete structural model of the Irish economy first developed in the late 1980s – Irish sub-model of EC HERMES project. • Firms minimise their cost of production/maximise profits • Households maximise their utility • World economy exogenous via NIESR’s NiGEM model • More Info: http://www.esri.ie/pubs/WP460.pdf
- 4. 4 Methodological approach HERMES Reference Scenario Macroeconomic outputs IrishTIMES Energy Service Demand projection Scenario runs: NETS22 NETS22-ED NETS22-MSA NETS22 outputs: CO2 prices Investments NETS22 HERMES scenario New Macroeconomic outputs New Energy Service Demand projection HERMES IrishTIMES Scenario NETS22-H22 Results Comparison
- 5. 5 CO2 emissions CO2 emissions by sector and period for each scenario
- 6. 6 CO2 emissions Difference in percentage of CO2 emissions in NETS22 vs NETS22-ED, NETS22-H22 and NETS22-MSA in 2020 by sector
- 7. 7 CO2 emissions Difference in percentage of CO2 emissions in NETS22 vs NETS22-ED, NETS22-H22 and NETS22-MSA in 2030 by sector
- 8. 8 Energy service demand indexes Overall energy service demand index. This is a weighted (on consumption) normalised index on 2010 of each demand Normalised index on 2010 energy service demand sum of residential, agriculture, service and other industries demands Normalised index on 2010 energy service demand of goods transport.
- 9. 9 Energy system pathway changes Final energy consumption by sector
- 10. 10 Energy system pathway changes Difference of final energy consumption in percentage by sector in 2020 NETS22 vs NETS22-ED, NETS-MSA and NETS-H22. Difference of final energy consumption in percentage by sector in 2030
- 11. 11 Energy system pathway changes Renewable shares in transport (RES-T), heating (RES-H) and electricity (RES-S) sectors by scenario and period – Gross Final Consumption 2010 2020 NETS22 2030 NETS22 Renewable Share ED H22 MSA ED H22 MSA Heat (RES-H) 2% 7% 5% 7% 5% 13% 19% 20% 19% Electricity (RES-E) 3% 6% 6% 6% 6% 12% 14% 14% 13% Transport (RES-T) 1% 10% 8% 10% 6% 4% 9% 13% 8% Total RES 6% 22% 18% 23% 17% 29% 41% 45% 40% Renewable shares in transport (RES-T), heating (RES-H) and electricity (RES-S) sectors by scenario and period – Gross Electricity Consumption 2010 2020 NETS22 2030 NETS22 Renewable MODAL Shares ED H22 MSA ED H22 MSA Heat (RES-H) 4% 18% 12% 18% 13% 35% 32% 36% 30% Electricity (RES-E) 17% 26% 27% 29% 28% 46% 47% 49% 45% Transport (RES-T) 3% 24% 19% 25% 15% 17% 15% 19% 15%
- 12. 12 Energy system pathway changes System electrification - electricity consumption by sector and scenario
- 13. 13 Energy system pathway changes System gasification – gas consumption by sector and scenario
- 14. 14 Economic implications • GDP MSA Ref is the expected GDP; • GDP NETS22 MSA is the real GDP due to the NETS22 target; • GDP Loss (in the last row) compared to the expected GDP. The GDP HERMES Ref is the GDP from the HERMES reference scenario used to project the energy service demand for IrishTIMES in step 1. The GDP HERMES NETS22 is the GDP from the HERMES NETS22 scenario based on the IrishTIMES outputs in step 1. IrishTIMES-MSA vs HERMES 2010 2020 2030 (GDP MSA Ref - GDP HERMES Ref) / GDP HERMES Ref 0.00% 0.00% 0.00% (GDP HERMES NETS22 – GDP HERMES Ref)/ GDP HERMES Ref 0.03% 2.47% 2.58% (GDP NETS22 MSA – GDP MSA Ref)/GDP MSA Ref -0.57% -0.60% -0.56%
- 15. 15 Economic implications Undiscounted system costs over GDP 2010 2020 NETS22 2030 NETS22 ED H22 MSA ED H22 MSA Other Costs / GDP 5.6% 1.9% 1.8% 1.9% 1.7% 1.9% 1.8% 1.9% 1.8% Investments / GDP 2.1% 4.1% 3.9% 4.2% 3.8% 4.1% 3.9% 4.2% 3.8% Fuel / GDP 3.5% 3.8% 3.4% 3.8% 3.3% 3.0% 3.0% 3.1% 3.0% Total costs / GDP 11% 9.8% 9.1% 9.9% 8.9% 9.1% 8.7% 9.2% 8.6% CO2 Marginal abatement costs
- 16. Conclusions • The results presented show energy service demands are affected by: Price response - Irish TIMES-ED and Full macroeconomic feedback - Irish TIMES-MSA and Irish TIMES-HERMES. • The results show the different impacts on GDP generated by Irish TIMES-MSA and Irish TIMES-HERMES. In particular: Irish TIMES-MSA models a GDP contraction associated with mitigation, Irish TIMES-HERMES models a GDP growth due economic stimulus provided by revenue recycling of the carbon tax to reduce labour taxes. 16
- 17. Next Steps • The next Steps will include new runs with HERMES model variants (e.g. labour tax offset). • Better understanding of MSA results VS HERMES/COSMOS Ireland has low energy intensity per Gross value added in both industry and services relative to other EU countries. A structural model (like HERMES/COSMO) may give greater insight that a production function model (MSA) ?? 17
- 18. Thank You www.ucc.ie/energypolicy 18 E4SMA S.r.l., www.e4sma.com www.linkedin.com/company/e4sma https://twitter.com/E4SMAsrl