To better understand the links between energy use and macroeconomic aggregates, such as economic growth, employment and household income, and estimate its impact, the Commission initiated a project in 2019 and its deliverables were published in November 2022 and are described here below.
With the aid of 2 macroeconomic models – GEM-E3-FIT and E3ME – it analyses the connection between economic activity and energy use, as well as the interactions with other trends in the economy. The modelling activities are complemented by case studies and analysis of the scientific literature. The project is divided in 7 tasks
Task 1: Macroeconomic representation of the clean energy transition
This task focuses on: i) identifying the channels and mechanisms through which energy historically has contributed to economic growth, ii) examining current trends and how the energy transition currently impacts economic growth iii) further developing already existing models to account for new theoretical findings on energy induced macroeconomic growth.
- Macroeconomic representation of the clean energy transition
- The impact of the clean energy transition on the determinants of economic growth
- The links between the energy transition and economic growth
Task 2: Macroeconomic representation of megatrends
This task identifies other “megatrends” which are expected to take place (or continue) in Europe in the same timeframe as the Energy Union transition, and will interact with the energy transition and the European economy more broadly. Four megatrends are taken into consideration: technological change, globalisation, demographical change and resource use. The aim of this is work is to produce quantitative assessments of the impact of these megatrends, including an analysis of how they interact with each other and the shift to a low-carbon energy system.
Task 3: The fiscal implications of the energy transition
The objective of this task is to analyse the fiscal and para-fiscal implications of the clean energy transition. That is to analyse the interaction of energy-related trends with government budgets, energy taxation revenues and expenditures, including any actions taken by European governments to steer the clean energy transition.
Task 4: Representation and implications of the financing challenge
The clean energy transition involves investments in electricity generation, energy storage, grid interconnections, smart grids, bio-energy, equipment promoting energy efficiency, transport infrastructure and vehicles, and buildings. The financing of the clean energy transition is primarily a task for the private sector, but governments and the EU also have a critical role to play in creating a supportive policy. The objective of this task is to review and analyse the existing quantitative approaches used to capture the financing challenges of the clean energy transition and to improve the representation of the financial sector in macro-economic models.
Task 5: The social dimension of the clean energy transition
The clean energy transition involves systemic changes and as such may entail winners and losers within and across EU countries. The transition will require the substitution of fossil fuel use by means of more efficient equipment, changing the labour skills required; consumption and production patterns and affecting trade flows. The benefits and losses of the transition will not be evenly distributed across countries, regions and households. The main objective of this task is to identify how the clean energy transition will impact income inequality and energy poverty within and between EU countries. Changes in income inequality are calculated by estimating the changes in the distribution of income across different skill types and household types. Focus is also given to the impact of energy transition on energy poverty and its alleviation, but also on the quantity and quality of jobs lost and created as well as on the societal challenges related to labour market shifts.
Task 6: Regional and sectoral aspects of the clean energy transition
This task provide additional detail about the impact of the Energy Union transition, by adding an explicit consideration of the regional and sectoral implications. This Task analyses the fact that the regions of Europe will face different impacts from the transition; on the one hand, because of their economic structure (for example, a region which has an established coal mining sector is likely to experience negative socioeconomic outcomes from the transition), and on the other, because of their natural resource endowment (including characteristics such as physical location, topography, access to rivers, etc.). This affects the regions ability to prosper as technology shifts from fossil fuel based generation to renewables.
- Case study analysis of regions in transition
- The macroeconomic implications of the clean energy transition at regional and sectoral level
Task 7: Transition scenarios with the extended versions of the models
This task brings together all the work done in the previous tasks, to model a number of transition scenarios using the fully expanded versions of the macroeconomic models, E3ME and GEM-E3-FIT.