Vincenzo Cuomo, CNR-IMAA, Italy S. Kypreos, PSI, Switzerland

1. Energy scenarios for the future and policy implications New Energy Externalities Development for Sustainability Final Conference "External costs of energy technologies" Vincenzo Cuomo, CNR-IMAA, Italy S. Kypreos, PSI, Switzerland RS2a “Modelling Pan European Policy scenarios” Brussels, February 16-th, 2009

2. Main objectives • Developing a new modelling framework for the EU as a whole, especially its multi-country aspect with trade exchanges among countries • Contributing to policy evaluation through • Integration of different objectives in one global modelling environment, allowing to evaluate their mutual interactions • Evaluation of the optimal mix of options to reach severe energy-environmental targets • Assessment of the role of external costs in the definition of policy strategies • Assessment of the structural changes in the energy system and the role of technologies in different boundary conditions • Scenario analysis for the evaluation of key EU targets

3. The TIMES models generator • Partial Equilibrium model • Maximisation of the consumer/producer surplus • Supply and demand quantities equilibrate through prices changes • Perfect foresight • Long term time horizon, to support the definition of long term strategies, taking into account different standards of energy devices, technology development and policy targets • High technological detail in energy supply and end-use sectors (both existing and future technologies), potential of fossil and renewable resources by country, resulting in a data intensive model • Approach based on full energy costs along the life-time of technologies and within the time horizon, i.e. including LCA components and external costs • Normative perspective, focused on the development needed under a policy scenario

4. A common integrated structure NEEDS Project The NEEDS modelling platform LCAof the most relevant power supply options • Based on the TIMES multi-period linear optimization models generator • Common structure of country models (RES-Reference Energy System) • Common sources for the main data (energy balances, material flows, air emissions) Energy system models of 30 EU countries (EU27, CH, IS, NO) TechnologyDatabase (inv cost, oper cost, efficiency, ...) Pan European Model • Externalitiesof technologies for the production, transport, transformation and consumption of energy The NEEDS TIMES PEM represents the reference modelling platform for several outreach projects/proposals supported by the EC

5. Modelling Pan European Energy Scenarios • Policy objectives: • Stabilization of CO2 concentrations • Security of energy supply • Improvement of environmental quality • Scenario analysis: • Long term post-Kyoto strategies • Enhancements of EU endogenous resources • Effects of the internalisation of external cost of local air pollutants • Modelling platform: • A multi-region integrated Pan-European model including the full range of information and data from LCA and ExternE Key aspects: Main EU Directives Stakeholder preferences Country level detail …

6. Stream RS2a The country models • Country models based on a common structure (RES): • Residential and Commercial: • All end use demand • Industry: • Energy intensive industry • Other industries • Transport: • Different transport modes • Supply: • Reserves, resources, exploration and conversion • Country specific renewable potential and availability • Electricity and Heat production: • Public electricity plants • CHP plants and heating plants • Geographical coverage: • 30 European countries (EU 27 + Iceland, Norway and Switzerland) • Time horizon: • 2000-2050 • Energy carriers included: • (Eurostat, 2005) energy balances, with some aggregations • Materials explicitly modelled: • Only those flows whose production requires much more energy or which are important for the production processes (e.g. scrap steel). • Pollutants included: • GHG (CO2,CH4,N2O,SF6); • LAP (SO2,NOx,CO,NMVOC,PM2.5,PM10) The Iron and Steel industry RES

7. Cyprus The Pan European TIMES model It is more than the sum of the 30 national models: • A multi-region approach at Pan EU level integrates the single EU countries’ energy models • representation of the main energy exchanges between EU countries and also with non EU countries, • Electricity trades are modeled via trade technologies • it allows to reflect links and to impose constraints at the European level, reflecting the coordination of policies across borders and, consequently, the harmonisation of the underlying country models features and assumptions. The NEEDS-TIMES modelling platform allows to performing a more effective policy analyses both on country level and in a EU wide perspective enabling the definition of cross country constraints.

8. Objective of the scenario analysis The policy scenarios analysed in the NEEDS project were designed to address key policy issues at EU level: • Environmental issues linked to energy: climate policy and local pollution linked to energy • A Post Kyoto climate policy with a 2050 target for the EU compatible with the long term EU target of 2°temperature • A local pollution policy The objective is to evaluate the impact of the internalisation of the external cost linked to local pollutant (SO2, NOx, PM, NMVOC). • Energy issues: • Improving the energy securityby limiting the import dependency with a general constraint on imports of crude oil and petroleum products (-30%) and natural gas gas (-30%). • Oil price: the oil price is increased to 100$2000/barrel from 2010 onward and the gas price is following this increase, • Enhancement of the domestic resourcesby imposing the renewable target of 20% for 2020 on final energy consumption, as defined in the EC climate and energy package (2008), this policy is also meant to contribute to energy security.

9. New frontiers opened by the NEEDS modelling platform The NEEDS modelling platform constitutes an integrated tool for the analysis of the EU as well as national energy systems, evaluating the effectiveness of different policy instruments and their long term impact in terms of energy and technology mix, emissions and costs. A tool for supporting stakeholders’ decisions, in order to evaluating: • The impact of targeted air quality EU policies (emissions standards) on emissions, costs and climate change • The full costs and benefits of EU Directives that have an impact on the energy system • The impact of different Post Kyoto strategies on the future of energy technologies • The impact of alternative internalisation policies and their contribution to sustainability • The technologies and policies that exhibit the most robustbehaviour in an overall sustainability perspective

10. Source: R. Loulou (KANLO) New frontiers opened by the NEEDS modelling platform The set up of the NEEDS TIMES models pave the way for the development of a wide range of possible applications and have fostered a number of outreach initiatives among which: • Contribution to EU and national policy analysis (e.g. IEA/ETO ETP2008 report, Ministry of Environment of in Estonia – GHG reporting Template) • New research projects (IEE, VII FP) • RES2020:2007-2009: Focus on renewable energy for EU at horizon 2020 and beyond • PLANETS: 2008-2010: Focus on advances on how to deal with uncertainty in global and EU Climate Policies • REACCESS:2008-2010; Focus on Security of Energy Supply for EU at horizon 2050 • REALISEGRID: 2008-2010: Focus on Intra-EU (+ Balkans) Electricity Exchanges and Infrastructure

11. Highlights from scenario analysisare presented by • Socrates Kypreos • (Paul Scherrer Institut)

12. The Modeling Objectives are met • The TIMES NEEDS Pan EU model allows to study policies across the EU borders and to exploit synergies and trade-offs for climate, local environments and energy systems • The model gives already now good policy insights • I will first explain why, continuing with policy conclusions about Climate Change and Security of Energy Supplies to finish with the Internalization of Externalities

13. Post-Kyoto climate policy (450ppm) • An overall EU reduction target of -71% emissions by 2050 compared to 1990, is imposed • A scenario variant (450ppm_oil100) is analysed with oil prices going above USA$ 100/bb • Security of energy supply (OLGA and OLGA_NUC) • Imports of fossil fuels are constrained to foster the use of renewables, efficiency standards and new nuclear (-30 % Oil, -40% Gas below baseline imports in 2010) • A scenario variance is analyzed (OLGA_NUC)where nuclear reactors are free options to mitigate climate change

14. Carbon Emissions in Mt CO2/yr

15. GHGs Burden Sharing for a 20% reduction EC 2020 proposal Versus TIMES-PEM results

16. CO2 Prices and Avoidance Costs

17. Scenario Comparison, EU27: Net Electricity Production In BAU technology shares are based on fossil fuels and moderate levels of NUC and RES In 450ppm electricity substitutes for fuels in final energy markets and … Is dominated by GAS-CCS, (NUC and RES) In OLGA the system switches to more Coal-CCS but also RES and NUC While only with OLGA-NUC production is again more balanced with less COAL and more RES Thus: Technology penetration is strongly influenced by policies

18. Electricity prices

19. CHP (15.2%) CCS CON CCS 4% 7% Fossil Switch Renewables Efficiency increase 0% 6% Enduse Efficiency 8% 2% Fossil Switch 19% End use CCS 52% 13% Renewable 17% Electricity and Heat 7% Renewable 9% Nuclear 6% Efficiency Fossil Switch 0% 2% Attributes of CO2 emissions reductions in the EU27 in Mt CO2/yr Scenario – 450 ppm in the year 2050 Power plants (33.2%)

20. Final Energy in Transport sector Advanced Technologies in 450 ppm cases: > 10% Biodiesel Plug-in Hybrids H2 Fuel-Cell 1%. - 10% Hybrid Electric battery, Gas, Ethanol, etc.

21. The RES-COM sectors • Technologies in 450ppm • More than 10% Market shares: • Savings in space heating • Savings space cooling • Gas heat-pump • Compression chiller • Solar Collectors • Advanced electric appliances • Between 1% to 10% • Oil/gas condensing boilers • Air /ground water heat pumps • Absorption chiller • Biomass boilers

22. The Discounted Energy System Cost

23. Conclusions - IER • Technology penetration and structural changes in the energy system of the EU27 are influenced by policies and less by their cost (i.e., policy that enforces internalization of externalities) • A strong reduction of the import-dependence on oil and gas is only possible if the technology development will be successful in all parts of the energy system • In the 450ppm case with a Nuclear Phase-out, systems like renewables, CCS , fossil fuel switch and use of devices based on electricity in the final energy sectors are key options • Efficiency improvement is in competition with renewables and CSS till 2030. Only in case of security of supply efficiency improvement takes up an additional part • The cases with an oil price scenario approaching values above 100$/barrel, are similar to the cases with enhanced endogenous production (OLGA)

24. Internalisation of external cost of local pollution in TIMESi.e., with or w/o climate scenario and with or w/o renewable target • The external cost associated with local pollution (damage per emission from RS1b) computed in TIMES are explicitly included in the system cost and internalized in the optimisation process • With internalisation, synergies between policy targets (climate and air quality) are fully exploited in the choices of reduction measures • Caveat: Neither the climate benefits due to reduction of CO2 emissions nor all end-of-pipe abatement options are fully modeled in TIMES-PEM such that the benefits of policy scenarios are underestimated

25. CO2 secondary benefits are not significant in the first decades • Thus, we need explicit LAP internalization policies is the first decades to control pollution

26. Costs of Policies • The reduction of damages due to internalization of LAP externalities compensates for both the Carbon and LAP emission control and are sustainable from the environment and the social point of view. • Overall control cost remains limited given assumptions of the model (optimisation, perfect foresight, no adjustment cost)

27. Conclusions – KU Leuven • A Mix of options helps to reach stringent energy/climate targets like: • Decrease in demand of energy services (price effect) • Better efficiency and shift to low carbon energy systems at start • Renewables, CCS, and end-use technologies (i.e., Heat pumps, HFC) at higher target • Climate policies brings also ancillary benefits by reducing local pollutant damages (SO2, NOx, PM,VOC) but • Climate policy alone is not sufficient to improve air quality as it starts at moderate control levels • Policy aiming directly at better air quality is more effective in the first decades • Climate policy alone is almost sufficient for the renewable-20 target • But Renewable policy or LAP internalisation are insufficient for the climate target

28. Overall Conclusions • Climate policy, security of supply, renewable support policy and policies concerning local pollution measures needs integrated assessment models like the TIMES-PEM • The model gives already now policy insights but if applied in new studies for policy analyses it needs • continues database improvements, • peer review by country modellers and EU authorities • explicit specification of policies in question. • Explicit policies could be the assessment of burden sharing, extensions of ETS to other sectors, green and white certificates, R&D and learning subsidies for advanced technology and infra-structures, energy savings, distributed networks and storage systems, etc.