PRESENTATION TO THE 37 TH ANNUAL IAEE INTERNATIONAL CONFERENCE, NEW - PowerPoint PPT Presentation

PRESENTATION TO THE 37 TH ANNUAL IAEE INTERNATIONAL CONFERENCE, NEW YORK CITY, MONDAY 16 JUNE 2014 Karen Turner, Centre for Energy, Resource and Environmental Studies (CERES), Heriot-Watt University, Edinburgh, Scotland (K.Turner@hw.ac.uk) Co-authored with Simon Koesler (ZEW, Mannheim, Germany) and Kim Swales (University of Strathclyde, Glasgow, Scotland)

� Potential for ‘rebound effects’ from increased energy efficiency to erode potential/expected energy savings subject of much academic debate and policy concern � Increased efficiency in industrial/productive energy use? Rebound trigger: lowers marginal cost of energy services � Encouraging increased use of energy service in question � Lowering output price, boosting economic productivity and competitiveness � Both in sector where efficiency improves and downstream � Process of productivity-led economic growth, extent of which is determined by conditions in economy in question � Economy-wide rebound studies, mainly using CGE techniques (and focusing on efficiency in productive energy use) have tended to have a national focus � What if we extend focus to the global economy? � Important where have policy frameworks such as EU 20-20-20 – can we assume that energy efficiency changes in one country and energy use in others are independent? � Will rebound grow as expand boundaries of the economy? � We calculate rebound (%) as 1+(AES/PES).100, where reflect share of total energy use affected by efficiency improvement through parameter attached to PES

� Concerned with international spillover effects � Don’t get clear signals from trade theory – 2x2x2 models don’t consider intermediates (focus on final goods/services) or changes in efficiency in use of intermediates � So need a numerical model to experiment with � Here, global CGE – Germany, other EU27 (aggregated to one region in results) and ‘rest of the world’ � 8 sectors per region, including 2 produced energy supply (electricity and gas, E, and coke, refined petroleum and nuclear, CPN) � Restrictive assumptions for first step – fixed non-produced factors at national level, no investment or excess labour supply, just mobility across sectors in response to changing returns � Model exogenous and costless increase in energy-augmenting technological progress in KLEM production function at KE nest � Get some surprising results to try to explain: � Key – rebound doesn’t rise as expand boundaries of the economy � Falls – due to combination of relative competitiveness and energy supply effects

Table 5 Changes in sectoral price, output and energy use Scenario 2: 10% increase in energy efficiency in German manufacturing Scenario 2 Price Output Energy use Positive supply shock giving • GER boost to demand for German E 0.2732% -0.9322% -0.9261% manufacturing – more SER 0.3186% 0.0675% 0.0612% competitive TRN 0.2820% -0.2761% -0.1814% But negative demand shock to • CON 0.2368% 0.1145% 0.0690% energy supply in Germany – MAN -0.0833% 0.4328% -4.3559% reduced intermediate demand CPN 0.1741% -0.7427% -0.7105% FOB 0.2479% -0.5512% -0.5910% Positive multiplier effects in • other sectors but also crowding PRI 0.2628% -0.6743% -0.6907% out because increased factor REU prices E 0.0065% 0.0073% 0.0053% SER 0.0044% 0.0059% 0.0044% Replacement with output by • TRN 0.0059% 0.0292% 0.0296% external sectors (where smaller CON 0.0026% 0.0032% 0.0018% increase in factor and output MAN -0.0003% -0.0719% -0.0780% prices) CPN 0.0057% -0.0172% -0.0247% Only negative external impacts FOB 0.0059% 0.0872% 0.0842% • in (1) ROW electricity and gas PRI 0.0062% 0.0403% 0.0395% (Russia) as direct supplier to ROW German manufacturing; (2) E 0.0000% -0.0008% -0.0010% REU and ROW manufacturing SER 0.0002% 0.0014% 0.0019% (only small net boost to global TRN 0.0005% 0.0087% 0.0085% sector in value terms) CON 0.0000% 0.0002% 0.0001% MAN -0.0004% -0.0183% -0.0194% CPN 0.0001% 0.0003% -0.0002% FOB 0.0005% 0.0113% 0.0115% PRI 0.0001% 0.0027% 0.0025%

General equilibrium rebound • Table 6 effects at all levels General equilibrium rebound effects In own-sector, not restricted to Scenario 2: 10% increase in energy efficiency in German manufacturing • direct rebound Own-sector R i Own-country Own-country Global Net decrease total industrial • production R p total R d EU R g World energy use all regions, R g reflecting crowding out, and also negative demand shock in Rebound [%] 56.44 47.63 51.31 50.22 48.11 case of energy Change [percentage points] -8.81 3.68 -1.09 -2.11 Increased returns to labour and • capital boost household energy use in Germany (and also slightly in REU) Table 3 Other scenario – 10% increase • General equilibrium rebound effects energy efficiency in ALL Scenario 1: 10% increase in energy efficiency in all German sectors German production sectors Similar pattern of results • Own-country Own-country Global production R p total R d EU R g World R g But energy supply effects much • Rebound [%] 46.60 50.18 47.28 46.58 more important…. Change [percentage points] 3.58 -2.90 -0.70

2.00% 1.00% 0.00% E SER TRN CON MAN CPN FOB PRI -1.00% -2.00% -3.00% -4.00% -5.00% INCOME EFFECTS -6.00% -7.00% • Positive supply shock in Germany so -8.00% that, produce more, enable more Price Output Energy use consumption Figure 3: Changes in sectoral price, output and energy use in Germany (Scenario 1) • Spreads to REU and ROW through increased imports to intermediate and 0.10% final demands 0.00% E SER TRN CON MAN CPN FOB PRI But also PRICE EFFECTS -0.10% • Fixed factors – increased returns -0.20% • Enabling increased household -0.30% consumption -0.40% • But also putting upward pressure on Price Output Energy use prices at home and abroad Figure 4: Changes in sectoral price, output and energy use in the rest of Europe (Scenario 1) • In Germany, partly mitigated by lower 0.02% input costs through energy efficiency increase 0.01% 0.00% • But in REU and ROW, further E SER TRN CON MAN CPN FOB PRI -0.01% negative impact on relative -0.02% competitiveness – net crowding out in FOB and PRI -0.03% -0.04% -0.05% Price Output Energy use Figure 5: Changes in sectoral price, output and energy use in the rest of the World (Scenario 1)

2.00% 1.00% 0.00% E SER TRN CON MAN CPN FOB PRI -1.00% -2.00% -3.00% -4.00% -5.00% ENERGY SUPPLY EFFECTS • -6.00% -7.00% General increase in efficiency also • -8.00% applies to German energy supply Price Output Energy use so substitution in favour of domestic energy Figure 3: Changes in sectoral price, output and energy use in Germany (Scenario 1) But, reduced demand for energy • 0.10% from all German production sectors (efficiency and crowding 0.00% E SER TRN CON MAN CPN FOB PRI out) -0.10% Coupled with decreased demand • -0.20% in contracting external sectors -0.30% Despite increased household • energy use -0.40% Price Output Energy use Net impact – contraction in global • Figure 4: Changes in sectoral price, output and energy use in the rest of Europe (Scenario 1) energy supply 0.02% In short-run, excess capacity may • 0.01% push energy supply prices down, 0.00% exacerbating rebound E SER TRN CON MAN CPN FOB PRI -0.01% But here (longer run outcome) • -0.02% capital drawn away from energy, -0.03% limiting price decrease and -0.04% dampening rebound internally and -0.05% externally Price Output Energy use Figure 5: Changes in sectoral price, output and energy use in the rest of the World (Scenario 1)

1. Previous work for Scotland and UK – importance of energy supply response with ‘negative multiplier’ and ‘disinvestment’ effects dampening rebound over time � We’ve also found to be important in case of increased efficiency in household energy use 2. General importance of supply responses – investment in capital, wage setting and labour supply, international mobility etc. � Very simplistic treatments here in traditional neo-classical global model - priority areas for international analyses 3. Source and nature of energy efficiency improvements – e.g. linking energy use to capital goods that embody efficiency improvements in ‘production of energy services’ 4. General issue of how we model energy supply – how are capacity and price decisions made? 5. But also continued numerical experiments (with sensitivity analyses targeting key elements of model specification) for efficiency improvements in different sectors � Here, difference in relative importance of energy supply and competitiveness/price effects in determining contractions in rebound as expand boundaries � E.g. what if focus on increased general efficiency in energy supply itself?

� � � � � � = �1 + � � � � 100, (1) � � = �1 + � � ��� 100, (2) −� −� �� = ∆� � � � = ∆� � + ∆� � � + ∆� � = � � , (3) �� � �� � �� � −� � � = � � + �∆� � � 100. (4) �� � � � = � � + �∆� � � 100. (5) �� � � � − d ∆ E + � g � R = R 100 (6) g d � � γ E � � i