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GTAP Resource #1217

"Climate Change Policies and Energy Security: Trade-offs for the European Union in the Longer Term"
by Kuik, Onno

Energy policy in the European Union faces two major challenges. The first challenge is posed by EUs commitment to reduce greenhouse gas emissions to the atmosphere in the context of the international agreement on climate change. The second challenge is to keep ensuring European security of energy supply, while its dependency on external sources of energy is projected to increase. In this paper, two long-term alternative climate change policy scenarios for Europe are examined. In the first scenario, EU reduces CO2 emission by domestic measures; in the second scenario EU maximizes cooperation with the countries of the former Soviet Union. Impacts on carbon flows between the EU and FSU and on the external energy dependency of the EU are assessed with an applied general equilibrium model, GTAP-E, whose set of energy commodities is expanded with combustible biomass as a renewable and carbon-neutral energy commodity. Data on biomass production, consumption and trade have been taken from the International Energy Agency. The data have been integrated in the GTAP-5E database in a way which preserves its consistency.
We find that the design of Europe's future climate change policies has major impacts on a number of policy variables. Without additional climate change policy measures, the external energy dependency of the enlarged EU, EU28, would rise from about 40 per cent in 1997 to almost 70 per cent in 2030. FSU remains a major import source of gas and oil. European climate change policies can affect carbon flows between EU28 and FSU and Europe's overall external energy dependency. If EU28 pursues major reductions of its CO2 emission by domestic measures alone, the carbon flow from FSU would diminish. A domestic EU system of emissions trading would have a larger effect on gas imports than on oil imports, because of its relatively high initial taxation of oil products. EU28 could marginally reduce its external energy dependency by subsidizing the domestic production of renewable energy sources, such as combustible biomass. Our simulations suggest, however, that this may be a costly policy.
A pan-European system of emission trading, including FSU, would dramatically reduce CO2 permit prices and the overall welfare costs of climate change policies. However, EU28s external energy dependency would increase. If the definition of energy dependency were expanded to take into account the flow of intangible carbon in the form of emission allowances, Europe's external carbon dependency would rise to almost 90 per cent. Its dependency on FSU for primary energy commodities and CO2 emission permits would rise to more than 40 per cent
In the final analysis, the preference of FSU for cooperation in climate change policies seems unambiguous. For EU28, the preference for cooperation seems undisputable from an economic perspective. However, the analysis suggests that efficient climate change policies increase energy dependency and, especially, carbon dependency. Hence, energy security is not necessarily improved by climate change policy and this needs to be taken into account in the formulation of such policies.

Keywords: climate change policy, emissions trading, energy security, biomass

Resource Details (Export Citation) GTAP Keywords
Category: GTAP Application
2003 Conference Paper
Status: Published
By/In: Presented at the 6th Annual Conference on Global Economic Analysis, The Hague, The Netherlands
Date: 2003
Created: Kuik, O. (4/22/2003)
Updated: Bacou, M. (9/22/2003)
Visits: 3,272
- Climate change policy
- European Union

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