Economic analysis of the energy sector


The well-being of people, industrial competitiveness and the overall functioning of society depend on safe, secure, sustainable and affordable energy. The energy sector, which covers extraction, production and distribution, directly employs around 1.6 million people in the EU and generates an additional €250 billion in the economy, which corresponds to 4 % of value added of the EU non-financial business economy.

As part of the EU’s sustainable development strategy, the European Commission has developed policies for the security of energy supply and the fight against climate change and has adopted a number of regulatory measures aimed at introducing innovative technologies low-carbon emissions, which will ultimately impact the market structure of the sector. The EU has also endorsed ambitious targets for reducing greenhouse gas (GHG) emissions and related targets for the decarbonisation of energy sectors.

In this complex political context, the JRC assists the relevant Commission services in designing policies to achieve these objectives. This is done by analyzing a wide range of impacts of various policy options and the most appropriate pathways to achieve energy and climate change goals in a cost-effective manner. To this end, the JRC develops, maintains, updates and applies a set of quantitative tools consisting of models of distinct scopes and levels of detail, which are then used in the impact analysis for the European Commission.

Impact analysis studies

The CFR provides EU policy makers with a coherent set of scenarios and the resulting analysis of possible developments in the energy sectors under a number of distinct assumptions, illustrating a portfolio of policy options. These scenarios can take into account the possible contributions of (innovative) low-carbon energy resources and energy conversion schemes, both on the supply and demand side. Also, special attention may be needed for some energy-intensive industries.

These scenarios form the basis of an analysis of the European energy sector which may refer to the impact of combined or single policy and/or technological options on reducing the EU’s external dependence for primary energy, decarbonisation of energy sectors and compliance with EU international commitments. environmental protection obligations, including compliance with the Kyoto Protocol and longer-term targets for reducing greenhouse gas emissions.

In addition to analyzing energy and climate policy options at EU level, the JRC has tools to explore similar issues at global level. This is the cornerstone of the JRC’s support for international negotiations on climate protection which require the Commission to develop its own expertise in projecting carbon and other greenhouse gas emissions global level.

The JRC also assists the Directorate General for Climate Action by participating in workshops, conferences and debates aimed at designing, implementing/monitoring environmental policies (climate change) at international, national and sectoral levels.

In this area, the JRC has also

  • Analyzes future emission reduction trajectories, policy instruments to achieve them and an estimate of mitigation costs, in view of the post-2012 rounds of negotiations of the United Nations Framework Convention on Climate Change (UNFCCC).
  • Supports the definition of EU Member States’ climate policies via the European Working Group on Modeling and Analysis (ETMA) of the EU Expert Group on Further Action (EGFA), by studying and evaluating different emission reduction scenarios.
  • Supports the implementation of the EU SET Plan by contributing to the SET Plan Information System (SETIS) with requested European energy scenarios.
  • Carries out the studies and analyzes of emissions from sectors outside the emissions trading system (residential and transport) required by the directorates-general for climate action and energy for the purpose of assessing the policies
  • Assesses the impacts and market uptake of new technologies (e.g. renewable energy) relevant to the energy sector

Modeling and reference data

The JRC develops and manages models to support energy sector impact assessments and prepare evidence for policy makers on the pros and cons of possible policy options and scenarios.

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The JRC’s modeling capacity is used for sector models in key areas such as energy. The work also focuses on producing high quality data needed for modeling activities. Building a solid base of modeling capacity helps to interface sectoral models and respond to high-level policy challenges.

Here are some examples of models developed and maintained at the JRC:

  • GEM-E3: an applied general equilibrium model that covers the interactions between the Economy, the Energy System and the Environment. It is well suited to assess climate and energy policies, as well as fiscal issues.
  • POLES model: a simulation model for the development of long-term (2050) energy supply and demand scenarios for the different regions of the world. The development of the model and the corresponding scenario studies aims to fulfill five main objectives: detailed scenarios of the global energy system, strategic areas for emission control policies, analysis of the development of technologies, evaluation of the marginal costs of CO2 emissions and simulation of emissions trading systems, and impacts on international markets and price feedback.
  • The JRC-EU-TIMES is a linearly optimized bottom-up energy system model. It covers the EU energy system plus the UK, Norway, Switzerland, Iceland and the Balkan countries from 2005 to 2050, modeling the adoption and deployment of technology and its interaction with the energy infrastructure. The model considers both energy supply and demand and includes the following seven sectors: primary energy supply, electricity generation, industry, residential sector, commercial sector, agriculture and transport. The model is designed to analyze the role of energy technologies and their innovation in achieving European policy goals related to energy and climate change. It models market adoption of technologies and their interaction with energy infrastructure, including storage options from an energy systems perspective. It is a relevant tool to support impact assessment studies in the field of energy policy that require quantitative modeling at the energy system level with a high-tech level of detail.

Graphic of an electricity pylon

Economic analysis of the energy sector

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