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Prepress Content: The following article is a preprint of a scientific paper that has completed the peer-review process and been accepted for publication within Economics of Energy & Environmental Policy.
While the International Association for Energy Economics (IAEE) makes every effort to ensure the veracity of the material and the accuracy of the data therein, IAEE is not responsible for the citing of this content until the article is actually printed in a final version of Economics of Energy & Environmental Policy. For example, preprinted articles are often moved from issue to issue affecting page numbers, and actual volume and issue numbers. Care should be given when citing Economics of Energy & Environmental Policy preprint articles.

Economics of Energy & Environmental Policy
Volume 9, Number 1



Long-term Energy and Climate Scenarios - An Introduction

Christian von Hirschhausen

DOI: 10.5547/2160-5890.9.1.chir
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Abstract:
This EEEP-symposium on �Long-term energy and climate scenarios� provides comprehensive coverage of the theory and practice of scenarios on energy and climate futures. The objective of this symposium is to contribute to the debate with a discussion of both, political economy aspects of scenario making, either positive and/or normative, but also on concrete scenarios on the longer-term energy and climate futures. The core event leading to this symposium was the 40th International IAEE conference in Groningen (Netherlands), in June 2018. This introduction explains the structure of the symposium and the individual papers, organized in four sections: An introductory paper with a controversy, three papers on global scenarios, three papers on regional scenarios, and a conceptual interdisciplinary paper as outro.




Use and Abuse of Energy and Climate Scenarios—A Week of Controversy on Scenarios

Christian Breyer and Michael Jefferson

DOI: 10.5547/2160-5890.9.1.mjef
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Abstract:
Energy and climate scenarios, and all other scenarios, are controversial, because they touch strategic issues, and also affect very basic operational discussion, such as the choice of the fuel mix, or the degree of trading between companies and nations. This article documents a controversial exchange of ideas via email between the two opponents, about energy and climate scenarios, following the Plenary Session on �Long-term Energy Scenarios� at the 41st International IAEE conference in Groningen (June 12, 2018), concretely between June 16 and 22, 2018 (with the panel organizers and IAEE staff always kept in cc). One of the opponents, Michael Jefferson, contributed to the first scenario exercises by Shell, the World Energy Council, and others; the other opponent, Christian Breyer, is Professor of Solar Economy at LUT University, and focusses on scenarios with 100% renewable energies. In addition to the lively and open debate, the controversy also contains a wealth of important references to scenario analysis.




Energy Outlooks Compared: Global and Regional Insights

Dawud Ansari, Franziska Holz, and Hashem Al-Kuhlani

DOI: 10.5547/2160-5890.9.1.dans
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Abstract:
We compare prominent global energy scenarios of organizations and companies. We supplement the analysis with four own scenarios, which were derived from structured analytic techniques in combination with a numerical global energy and resource market model (Multimod). Our paper provides three central contributions: (i) a compact survey of selected outlooks with meta characteristics (conceptual nature, numerical framework, qualitative elaboration) and quantitative energy system indicators at the global and regional (Europe, Asia-Pacific region, North America) level; (ii) numerous observations from a verbal analysis intended to stimulate future research; and (iii) the discussion of our own outlook. We find that scenarios essentially carrying forward current policies and/or trends lead to future worlds that do not meet the 2°C target of the Paris Agreement. Interestingly, there are both normative and exploratory scenarios reaching the Paris Agreement, and there is no consensus between outlooks on how to attain low-emission futures towards 2050. Some scenarios rely on a very strong role of renewables, others on a substantial role of negative emission technologies with fossil fuel use, yet others on assuming decreasing energy demand. There is a strong variation between outlooks with respect to transparency on scenario generation, modelling approach, and data. We argue that, in addition to transparency, the actual inclusion of a qualitative analysis of drivers and storylines helps ensure the political, social and technological feasibility of scenarios.




Projecting Energy and Climate for the 21st Century

Sergey Paltsev

DOI: 10.5547/2160-5890.9.1.spal
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Abstract:
The growing evidence of severe climate change impacts on human life and the global economy has created the increasing need for an assessment of low-carbon pathways. While the ultimate goal of zero- or near-zero global emissions is clear, the timing and trajectory to achieve low-carbon economic system is not. Projecting energy and climate is getting more challenging because the current energy and emission policies diverge further and further from the stated long-term policy goals. We provide a discussion of descriptive and prescriptive approaches to energy and climate forecasts. While the fundamental uncertainties are unavoidable, a group of scenarios that project the entire range of plausible developments provides better guidance for decision-making than any (or several) individual scenario(s). We offer an example of an integrated approach from the MIT Joint Program Outlook that can be used for a quantitative analysis of decision-making risks associated with different energy pathways. Despite the broad variety of scenarios, the article finds some robust findings for the energy system.




The gravity of status quo: A review of IEA’s World Energy Outlook

Klaus Mohn

DOI: 10.5547/2160-5890.8.2.kmoh
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Abstract:
This paper reviews the methodology and methods behind IEA's World Energy Outlook (WEO) and offers a critical assessment of key assumptions and projections, focusing in particular on energy and the macro economy, technological change, and investment in new renewable energy. I argue that IEA's World Energy Outlook suffers from a status quo bias in favor of fossil fuels. This bias could be accidental, arising from professional conservatism, long-term vintage capital formation, and/or high adjustment costs. However, such a bias may also be also consistent with IEA's stakeholder interests of member nations, oil-prone governance systems, and close connections to the oil and fossil fuel industry.




On the Techno-economic Benefits of a Global Energy Interconnection

Christian Breyer, Dmitrii Bogdanov, Arman Aghahosseini, Ashish Gulagi, and Mahdi Fasihi

DOI: 10.5547/2160-5890.9.1.cbre
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Abstract:
The discussion about the benefits of a global energy interconnection is gaining momentum in recent years. The techno-economic benefits of this integration are broadly discussed for the major regions around the world. While there has not been substantial research on the techno-economic benefits, however, some initial results of the global energy interconnection are presented in this paper. Benefits achieved on the global scale are lower than the interconnections within the national and sub-national level. The world is divided into 9 major regions and the major regions comprise of 23 regions. When all the considered regions are interconnected globally, the overall estimated levelized cost of electricity is 52.5 �/MWh for year 2030 assumptions, which is 4% lower than an isolated global energy system. Further, the required installed capacities decrease by 4% for the fully interconnected system. Nevertheless, a more holistic view on the entire energy system will progress research on global energy interconnection as, synthetic power-to-X fuels and chemicals emerge as an important feature of the future sustainable global energy system with strong interactions of the power system not only to the supply, in energy fuel and chemicals trading globally, but also to the demand side. Global energy interconnection will be part of the solution to achieve the targets of the Paris Agreement and more research will help to better understand its impact and additional value.




Lessons from Modeling 100% Renewable Scenarios Using GENeSYS-MOD

Pao-Yu Oei, Thorsten Burandt, Karlo Hainsch, Konstantin Löffler and Claudia Kemfert

DOI: 10.5547/2160-5890.9.1.poei
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Abstract:
The main aim of models has never been to provide numbers, but insights. Still, challenges prevail for modelers to use the best configuration of their models to provide helpful insights. In the case of energy system modelling, this becomes even more complicated due to increasing complexity of the energy system transition through the potential and need for sector coupling. This paper therefore showcases specific characteristics and challenges for energy system modelling of 100% renewable scenarios. The findings are based on various applications and modifications of the framework GENeSYS-MOD examining different regional characteristics for high renewable configurations in the world, China, India, South-Africa, Mexico, Europe, Germany, and Colombia. The paper elaborates on our experiences of the last years of choosing the best, yet still computable, configuration of GENeSYS-MOD with respect to spatial and time resolution as well as sufficient detailed description of the energy system transition effects. The aim of this paper is therefore twofold, to better understand and interpret existing models as well as to improve future modeling exercises.




Energy Transition Pathways to a low-carbon Europe in 2050: the degree of cooperation and the level of decentralization

Pedro Crespo del Granado, Gustav Resch, Franziska Holz, Marijke Welisch, Jasper Geipel, Michael Hartner, Sebastian Forthuber, Frank Sensfuss, Luis Olmos, Christiane Bernath, Sara Lumbreras, Lukas Kranzl, Andreas Müller, Stephanie Heitel, Andrea Herbst, Charlie Wilson and Andres Ramose

DOI: 10.5547/2160-5890.9.1.pcre
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Abstract:
In the framework of the Paris Agreement, the European Union (EU) will have to firmly set decarbonization targets to 2050. However, the viability on these targets is an ongoing discussion. The European Commission has made several propositions for energy and climate "roadmaps". In this regard, this paper contributes by analyzing alternative pathways derived in a unique modelling process. As part of the SET-Nav project, we defined four pathways to a clean, secure and efficient energy system-taking different routes. Two key uncertainties shape the SET-Nav pathways: the level of cooperation (i.e. cooperation versus entrenchment) and the level of decentralization (i.e. decentralization versus path dependency). All four pathways achieve an 85-95% emissions reduction by 2050. We include a broad portfolio of options under distinct framework conditions by comprehensively analyzing all energy-consuming and energy-providing sectors as well as the general economic conditions. We do this by applying a unique suite of linked models developed in the SET-Nav project. By linking more than ten models, we overcome the traditional limitation of models that cover one single sector while at the same time having access to detail sectoral data and expertise. In this paper, we focus on the implications for the energy demand sectors (buildings, transport, and industry) and the electricity supply mix in Europe and compare our insights of the electricity sector to the scenarios of the recent European Commission (2018a) report "A clean Planet for all".






Polar Vortexes in New England: Missing Money, Missing Markets, or Missing Regulation?

Jeff D. Makholm and Laura T.W. Olive

DOI: 10.5547/2160-5890.8.2.jmak
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Abstract:
The 2014 and 2017-18 "polar vortex" events in New England served as virtual controlled experiments on how competitive natural gas and electricity markets coexist uneasily almost two decades after different kinds of regulatory restructuring initiatives freed different kinds of competitive forces to support the supply infrastructure in each energy market. As a region with no indigenous fossil fuels that relies on interstate pipelines to feed its fast-growing fleet of competitive combined-cycle natural gas turbine (CCGT) generation plants, New England shows where the interface of regulation and competition in those two different energy markets fails to serve the region's energy consumers in the face of a predictably recurring weather patterns. We chart the polar vortex problems in New England, describe the energy markets that supply the region, describe how each market deals with the risk of committing capital to serve a region with such extreme weather patterns and explain the institutional problem that makes useful solutions difficult.




Competitiveness of Energy-Intensive Industries in Europe: The Crisis of the Oil Refining Sector between 2008 and 2013

Robert Marschinski, Jesus Barreiro-Hurle, and Ruslan Lukach

DOI: 10.5547/2160-5890.8.2.rmar
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Abstract:
After the so-called 'golden age' of refining between the years 2005 and 2008, total or partial closures of 13 EU oil refineries from 2009 to 2013 reduced the EU's total refining capacity by about 10%. This paper analyses the drivers behind this crisis, using industry data on performance and cost structure collected at the refinery level and covering the years 2000 to 2012. During this period EU refiners lost ground in terms of net margins, which fell from above to below the average of their non-EU competitors. Our results show that up to 90% of this loss was driven by refineries' energy costs, which grew almost twice as much in Europe than in other global refining regions. Further analysis indicates that this was not the result of increased energy intensity but of increasing unit energy costs. The remaining 10% of the total competitiveness loss can be explained by the relative worsening of EU refineries' utilization rates, reflecting the decline in demand for oil products-in particular gasoline-that occurred in the EU. Environmental and energy policies have likely contributed to this demand side effect, but its competitiveness impact remains of minor importance compared to the energy cost surge.




Natural Gas markets in the European Union: Testing Resilience

Henry Bartelet and Machiel Mulder

DOI: 10.5547/2160-5890.8.2.hbar
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Abstract:
The liberalization and integration of natural gas markets in Europe have resulted in gas-to-gas competition on a European scale with closely related natural gas prices in the various markets. More recently, the European Union aims to become a resilient energy union which may call for additional policy measures. In this paper we discuss the need for such additional measures on top of the existing measures to liberalize and integrate markets. We test the hypothesis that the European natural gas market is resilient to adequately deal with external shocks by analyzing the five most dramatic supply disturbances in the European natural gas markets over the past decade. We find that the natural gas markets were able to trigger responses by market parties which prevented forced supply of gas to consumers in almost all cases. In one case, infrastructure bottlenecks prevented market players to adequately respond to a shock. Hence, we conclude that the best policy to create a resilient energy union is to further integrate European markets and to further remove barriers for market participants.




The Value of Saving Oil in Saudi Arabia

Jorge Blazquez, Lester C. Hunt, Baltasar Manzano, and Axel Pierru

DOI: 10.5547/2160-5890.8.2.jbla
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Abstract:
Saudi Arabia has one of the highest levels of per capita oil consumption in the world, but attempts are now being made by Saudi policymakers to significantly reduce this. Thus, a relevant policy question is what is the value of saving a barrel of oil in Saudi Arabia? The instinctive answer is that the value saved is the difference between the international market price and the domestic price. However, for Saudi Arabia, this answer is insufficient for several reasons. First, the current administered domestic price of oil is set below international market levels, which leaves room for improved economic efficiency. Second, Saudi Arabia is not a marginal producer of oil but a critical player in the international oil market; a shift in Saudi exports affects international oil prices and consequently the country's revenue from oil exports. Third, there are different ways to reduce the domestic consumption of oil. This paper explores policies that reduce the domestic consumption of oil in Saudi Arabia, increasing the amount of oil that would ultimately be exported and assesses the impact on welfare and carbon emissions (however, given the long-run perspective adopted here, it does not address the optimal timing to export the oil that is saved). Among the various methodologies to do this, we opt for a general equilibrium model. Our results suggest that oil-saving policies would lead to positive welfare gains and a reduction in domestic carbon emissions. The most relevant insight for policymakers is that a barrel of oil saved in the Saudi economy leads to an increase in welfare ranging between $6 to $56 for an international oil price of $52.9 per barrel, depending on the policy, and a decrease in domestic CO2 emissions from 150 kg to 368 kg.




The Environmental Footprint of Natural Gas Transportation: LNG vs. Pipeline

Katerina Shaton, Arild Hervik, and Harald M. Hjelle

DOI: 10.5547/2160-5890.8.2.ksha
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Abstract:
Emissions to air from the production and transportation of natural gas is an important aspect of the decision making regarding the new infrastructure development in the offshore natural gas sector. In this study, we estimate the emissions of CO2, NOx, nmVOC and CH4 from extraction, processing and transportation of a unit of dry natural gas from the continental shelf of Norway to consumer markets; and compare the resulting emission intensities of the pipeline value chains, where natural gas is transported in gaseous form, with the LNG (liquefied natural gas) chains, where natural gas is liquefied and shipped by LNG carriers. The analysis substantiates the environmental superiority of pipeline chains over LNG-based chains. However, the comparative analysis of ten pipeline chains highlights the variability of the environmental performance of different chain configurations. The isolated analysis of the transportation segment of the value chains also confirms the superiority of the pipeline transportation over LNG.




Levelized Cost of Consumed Electricity

Tunc Durmaz and Aude Pommeret

DOI: 10.5547/2160-5890.9.1.tdur
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Abstract:
Current calculations to evaluate the profitability of the various energy generating units ignore intermittency as well as complementary technologies, such as battery storage and smart meters. Therefore, we propose a new assessment of the cost of solar energy that takes into account smart grids. In doing this, we use data from a low energy dwelling in South Wales UK as well as data from a high-rise apartment in Hong Kong, calibrate our model in this regard, and calculate a levelized cost of consumed electricity (LCOCE). Our proposed cost measure can be of use when determining the feasibility of smart systems, and accordingly, assist policymakers when deciding on the financial support for home renewable energy systems.Keywords: LCOE, LCOCE, Distributed generation, Solar energy, Energy Storage