Europe Can Reap Sizable Energy Security Rewards by Scaling Up Climate Action
IMF Blog, May 28, 2024
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Bibliographic details
- Authors: Geoffroy Dolphin, Romain Duval, Galen Sher, Hugo Rojas-Romagosa
- Published: May 28, 2024
Background
- Russia’s invasion of Ukraine triggered Europe’s worst energy crisis since the 1970s and put energy security back at the top of the policy agenda.
- Policymakers responded by securing alternative natural gas supplies, improving energy efficiency, and expanding renewables.
- Debate: whether stronger climate action strengthens or weakens energy security.
Methodology
- Analysis uses a global economic model with many countries and sectors.
- Evaluates impacts of emission-reduction policies on two energy security measures:
- Security of supply: combines import dependence for energy consumption with diversification of energy imports.
- Economic resilience to an energy disruption: measured by the share of gross domestic product spent on energy.
Key findings
- Europe’s energy security deteriorated in the decades before Russia’s invasion of Ukraine as countries relied increasingly on imports from ever fewer suppliers.
- Higher carbon prices, stronger sector-specific energy efficiency regulations, and accelerated permitting for renewables all improve Europe’s energy security along the two key metrics.
- Differences across policy types:
- Carbon pricing:
- Cuts emissions at the lowest output cost to the economy.
- May take time to improve energy security in some energy- and emission-intensive economies in Central and Eastern Europe if used alone, partly because these countries would phase out domestic coal sooner than otherwise.
- Stronger energy-efficiency regulations for transport and buildings:
- Less efficient than carbon pricing in cutting emissions.
- Deliver larger energy security co-benefits and spread benefits more evenly across countries.
- Lower consumption of energy and tend to reduce the price of energy, thereby lowering overall energy expenditures more.
- Combining such regulations with support to poorer households (for purchases of more energy-efficient vehicles and domestic heating systems) would speed up implementation.
- Accelerated permitting for renewables:
- Improves energy security widely across Europe by expanding domestic energy supply.
- Policy package outcomes:
- A climate policy package that includes carbon pricing, stronger efficiency regulations, and accelerated permitting is the most promising approach because it combines economic efficiency with larger and more evenly shared energy security benefits.
- An illustrative policy package that cuts emissions by 55 percent compared to 1990 levels would improve the two energy security metrics by close to 8 percent by 2030 for Europe as a whole.
- For the European Union, this package (consistent with the “Fit-for-55” agenda) would:
- Reverse 13 years of deterioration in economic resilience to energy disruptions.
- Reverse eight years of reduction in security of energy supply.
- As Europe ramps up climate policy action beyond 2030, these gains would increase.
Policy implications and recommendations
- Package climate policies to combine:
- Carbon pricing (economic efficiency).
- Stronger sector-specific energy-efficiency regulations (larger, more evenly distributed energy security benefits).
- Accelerated permitting for renewables (expand domestic supply).
- Provide targeted support to poorer households to increase acceptability and speed of implementation for efficiency measures (e.g., purchases of energy-efficient vehicles and heating systems).
- Recognize that efficiency investments reduce demand and renewables deployment raises supply—both lower energy prices, offsetting higher carbon pricing costs.
Multilateral cooperation
- Strong multilateral cooperation within Europe is supported by simulations because countries differ in energy security gains and emission reduction costs due to factors such as current energy intensity, energy mix, and renewable potential.
- A common facility to pool resources and coordinate green investments at the EU level could:
- Accelerate the green transition at low cost.
- Distribute gains more evenly, including by tapping cheap abatement options in emerging EU member countries.
- Completing the EU’s energy union strategy (better connecting national grids) would lower costs and help countries import electricity from member countries in the event of domestic disruptions, improving energy security for all.
Conclusion
- Ramping up individual emission reduction policies and strengthening cooperation would:
- Help Europe remain on the path toward net zero emissions by 2050.
- Secure abundant and safe energy supply to power economies into the future.
- At a time when momentum behind climate action may fade, policymakers should consider the full benefits of strengthened climate action for energy security.
Source: IMF blog post "Europe Can Reap Sizable Energy Security Rewards by Scaling Up Climate Action" (May 28, 2024).