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Economics of Energy & Environmental Policy
Volume 3, Number 2

The German “Energiewende”—An Introduction

Christian von Hirschhausen

DOI: http://dx.doi.org/10.5547/2160-5890.3.2.chir
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The German government's multi-decade effort to transition to a low-carbon, renew-ables-based energy economy is now commonly known as "energiewende" ("energy transition"). The transition has four major objectives: increasing the share of renewables to at least 80% (in electricity) and 60% for total final energy consumption, reducing greenhouse gas emissions by 80-95% (basis: 1990), phasing out nuclear energy by 2022, and increasing energy efficiency significantly; the government also encourages broad public participation in energy policy discussions and profit sharing. This paper reviews the major events leading to the decision to go "energiewende" in 2010/11 and the ensuing developments in the electricity sector. We survey the rapidly growing body of literature on the German energiewende and place the other core papers of this Special Section of EEEP in perspective.

Germany’s Nuclear Phase Out - A Survey of the Impact since 2011 and Outlook to 2023

Friedrich Kunz and Hannes Weigt

DOI: http://dx.doi.org/10.5547/2160-5890.3.2.fkun
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In this paper we analyze the effects of the German nuclear phase out, focusing on the seven nuclear power plants affected by the March 2011 moratorium, and continuing through the final phase out of the last plant in 2022. We provide an ex-post assessment of model analyses on the impact of the nuclear moratorium presented by the modelling community, in 2011 or shortly after. These are then compared with the real-world developments over 2011-2013. Amongst others, modelers were right to forecast a modest effect on electricity prices, a reduction of the net export surplus, and a slight increase of fossil and renewable electricity generation. Overall, the impacts were modest, and the phase out has proceeded gently, without any major disturbance. We also provide recent modelling results on the final phase out of all German nuclear power plants by 2023. Given the expected conventional expansions and a continuous rise in renewable electricity generation, we expect the nuclear phase out to proceed smoothly, and no capacity shortages to occur.

Power System Transformation toward Renewables: Investment Scenarios for Germany

Jonas Egerer and Wolf-Peter Schill

DOI: http://dx.doi.org/10.5547/2160-5890.3.2.jege
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We analyze distinctive investment scenarios for the integration of fluctuating renewables in the German power system. Using a combined model for dispatch, transmission, and investment, three different investment options are considered, including gas-fired power plants, pumped hydro storage, and transmission lines. We find that geographically optimized power plant investments dominate in the reference scenarios for 2024 and 2034. In scenarios with decreased renewable curtailment, storage and transmission requirements significantly increase. In an alternative scenario with larger investments into storage, system costs are only slightly higher compared to the reference; thus, considering potential system values of pumped hydro storage facilities that are not included in the optimization, a moderate expansion of storage capacities appears to be a no-regret strategy from a system perspective. Additional transmission and storage investments may not only foster renewable integration, but also increase the utilization of emission-intensive plants. A comparison of results for 2024 and 2034 indicates that this is only a temporary effect. In the long run, infrastructure investments gain importance in the context of an ongoing energy transition from coal to renewables. Because of long lead times, planning and administrative procedures for large-scale projects should start early.

Regional Cooperation Potentials in the European Context: Survey and Case Study Evidence from the Alpine Region

Clemens Gerbaulet, Casimir Lorenz, Julia Rechlitz, and Tim Hainbach

DOI: http://dx.doi.org/10.5547/2160-5890.3.2.cger
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The energiewende ("Energy Turnaround") in Germany will occur within the context of setting up Europe's internal electricity market. An important initial step will be to intensify regional cooperation between neighboring countries. We assert that the full benefits of regional cooperation will be realized by integrating Europe's market segments, e.g., real-time, day ahead, reserve markets and backup capacities, and coordinating grid expansion. This paper examines three existing regional schemes, the Pentalateral Forum, the North Sea Countries Offshore Grid Initiative and the Baltic Energy Market Interconnection Plan. The results of two case studies of the Alpine Region comprising Austria, France, Germany, Italy and Switzerland indicate that cross-border cooperation is possible even when involving only the operation of existing assets, and that the necessary capital-intensive investments in generation, renewables and transmission will be major challenges, but also potentially benefit the participating countries. We conclude that expanded regional cooperation is an essential element of Europe's decarbonization initiative and Germany's energiewende.

How Should Different Countries Tax Fuels to Correct Environmental Externalities?

Ian Parry, Dirk Heine, Shanjun Li, and Eliza Lis

DOI: http://dx.doi.org/10.5547/2160-5890.3.2.ipar
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This essay discusses (based on a recent IMF study) how developed and developing countries alike might put into practice the principle of 'getting prices right' to address the major externalities from energy. The efficient set of taxes includes charges on fuel use for carbon and local pollution (with credits for emissions capture during combustion) and additional charges on motor fuels for road congestion and accidents (though the latter should transition to distance-based charges). Techniques and data sources for measuring the externalities and corrective taxes by country are discussed. In general, heavy taxes on coal and motor fuels are warranted (though there is substantial cross-country variation in corrective tax rates). For most countries, tax reform could yield considerable fiscal, health, and carbon benefits.

Optionality and Policymaking in Re-Transforming the British Power Market

Michail Chronopoulos, Derek Bunn, and Afzal Siddiqui

DOI: http://dx.doi.org/10.5547/2160-5890.3.2.mchr
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Conventional models to support policymaking for the energy sector have been largely based on deterministic or static settings that focus on planning welfare- maximising investment pathways. But, in a liberalised market, since investments are made by competitive, profit-maximising companies, the increased intervention of government policy in the trading arrangements creates uncertain responses to incentives. Industry may perceive policy risks to be high, and major companies may choose to act more cautiously than governments expect. This presents a modelling challenge, and we propose an extension to the use of real options in this context. We model several features of the low-carbon investment context, viz., irreversibility, delay, and competition, which impinge upon the radical policy imperatives for structural change in electricity markets to meet ambitious sustainability targets.

Macroeconomic Impacts of the California Global Warming Solutions Act on the Southern California Economy

Dan Wei and Adam Rose

DOI: http://dx.doi.org/10.5547/2160-5890.3.1.dwei
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We evaluate the potential regional macroeconomic impacts of a set of ten greenhouse gas mitigation policy options intended to enable the Southern California Association of Governments to comply with the State's greenhouse gas reduction targets. The Regional Economic Models, Inc. Policy Insight Plus Model, was applied in the analysis by carefully linking technical and microeconomic aspects of each mitigation option to the workings of the regional economy. We took into account key considerations, such as how investment in mitigation options would displace ordinary private business investment and the time-phasing of renewable electricity generation. Our results indicate that the combined ten mitigation policy options could create an annual average employment gain of 21 thousand jobs over the entire planning period from now to 2035, but could also have a negative net present value impact of $17 billion in regional GDP. In the paper, we explain this and other anomalies. Sensitivity analyses of key assumptions and parameters for the Renewable Portfolio Standard indicate that the results are robust. They also provide policy-makers with insights into how to improve the macroeconomic impact of this major policy option.

Evaluation of Environmental Taxation on Multiple Air Pollutants in the Electricity Generation Sector - Evidence from New South Wales, Australia

Zaida Contreras, Tihomir Ancev, and Regina Betz

DOI: http://dx.doi.org/10.5547/2160-5890.3.2.zcon
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This paper investigates the effects of environmental taxes on the emissions intensity (measured as mass per TWh) of Nitrogen Oxides (NOx), Sulfur Oxides (SOx), Coarse Particulate Matter (CPM) and Fine Particulate Matter (FPM) from electricity generators in New South Wales (NSW), Australia. Electricity generators in NSW are subject to environmental taxation on air pollution through the Load Based Licensing (LBL) scheme. This paper evaluates whether this environmental policy, after ten years of operation, has led to a reduction in the emissions intensity of these air pollutants. The econometric estimation, based on a Seemingly Unrelated Regression (SUR) model with fixed effects, shows that except for SOx, there is no evidence of emissions reduction that can be attributed to the LBL in NSW. In terms of enabling low-cost abatement through specific monitoring methods, there is no evidence of reduction in NOx or SOx emission intensities due to generators implementing continuous monitoring. By contrast, generators using periodic monitoring methods have lower emission intensities of CPM and FPM. The findings suggest that environmental taxes in NSW have been too low compared with marginal abatement cost estimates and so, they have not created sufficient incentives for generators to reduce their emission intensities across air pollutants.

Climate policy, interconnection and carbon leakage: The effect of unilateral UK policy on electricity and GHG emissions in Ireland

John Curtis, Valeria Di Cosmo, and Paul Deane

DOI: http://dx.doi.org/10.5547/2160-5890.3.2.jcur
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This paper examines the effect of the UK's unilateral policy to implement a carbon price floor in Great Britain for fossil-fuel based electricity generation on the adjoining electricity market in Ireland. We find that, subject to efficient use of interconnectors between the two markets and constant imports from France and the Netherlands, a carbon price floor will lead to carbon leakage, with associated emissions in the Republic of Ireland increasing by 8% and electricity prices increasing by 2.4%. However, across the combined Irish and British electricity markets total emissions decline: high carbon prices drive decarbonisation in electricity generation. The UK's now implemented policy, which is a mechanism to directly manage carbon prices, substantially differs with the yet to be agreed EU policy response to postpone auctions of Emissions Trading Scheme allowances with the intention of indirectly increasing the price of carbon. The analysis suggests that the EU proposal will have only negligible additional effect on emissions from the combined Irish and UK electricity sectors.

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