The Optimal Energy Mix in Power Generation and the Contribution from Natural Gas in Reducing Carbon Emissions to 2030 and Beyond

47 Pages Posted: 16 Oct 2013 Last revised: 10 Jan 2014

See all articles by Carlo Carraro

Carlo Carraro

Fondazione Eni Enrico Mattei (FEEM); Ca' Foscari University of Venice; CMCC - Euro Mediterranean Centre for Climate Change (Climate Policy Division); IPCC; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Centre for European Policy Studies, Brussels; Green Growth Knowledge Platform; International Center for Climate Governance

Massimo Tavoni

Fondazione Eni Enrico Mattei (FEEM); Princeton University - Princeton Environmental Institute

Thomas Longden

Macquarie University, Macquarie Business School; CMCC - Centro Euro-Mediterraneo sui Cambiamenti Climatici

Giacomo Marangoni

Fondazione Eni Enrico Mattei

Multiple version iconThere are 3 versions of this paper

Date Written: October 15, 2013

Abstract

This paper analyzes a set of new scenarios for energy markets in Europe to evaluate the consistency of economic incentives and climate objectives. It focuses in particular on the role of natural gas across a range of climate policy scenarios (including the Copenhagen Pledges and the EU Roadmap) to identify whether current trends and policies are leading to an economically efficient and, at the same time, climate friendly, energy mix. Economic costs and environmental objectives are balanced to identify the welfare-maximizing development path, the related investment strategies in the energy sector, and the resulting optimal energy mix. Policy measures to support this balanced economic development are identified. A specific sensitivity analysis upon the role of the 2020 renewable targets and increased energy efficiency improvements is also carried out. We conclude that a suitable and sustained carbon price needs to be implemented to move energy markets in Europe closer to the optimal energy mix. We also highlight that an appropriate carbon pricing is sufficient to achieve both the emission target and the renewable target, without incurring in high economic costs if climate policy is not too ambitious and/or it is internationally coordinated. Finally, our results show that natural gas is the key transitional fuel within the cost-effective achievement of a range of climate policy targets.

Keywords: EU Climate Policy, Energy Markets, Gas Share, Carbon Pricing, Renewables Target

JEL Classification: O33, O41, Q43, Q48, Q54

Suggested Citation

Carraro, Carlo and Tavoni, Massimo and Longden, Thomas and Marangoni, Giacomo, The Optimal Energy Mix in Power Generation and the Contribution from Natural Gas in Reducing Carbon Emissions to 2030 and Beyond (October 15, 2013). FEEM Working Paper No. 86.2013; CMCC Research Paper No. RP0187. Available at SSRN: https://ssrn.com/abstract=2340509 or http://dx.doi.org/10.2139/ssrn.2340509

Carlo Carraro

Fondazione Eni Enrico Mattei (FEEM) ( email )

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CMCC - Euro Mediterranean Centre for Climate Change (Climate Policy Division) ( email )

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Centre for Economic Policy Research (CEPR)

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CESifo (Center for Economic Studies and Ifo Institute)

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Green Growth Knowledge Platform ( email )

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International Center for Climate Governance ( email )

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Massimo Tavoni

Fondazione Eni Enrico Mattei (FEEM) ( email )

Corso Magenta 63
20123 Milan
Italy

Princeton University - Princeton Environmental Institute

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Princeton, NJ 08544-0708
United States

Thomas Longden (Contact Author)

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

CMCC - Centro Euro-Mediterraneo sui Cambiamenti Climatici ( email )

via Augusto Imperatore, 16
Lecce, I-73100
Italy

Giacomo Marangoni

Fondazione Eni Enrico Mattei ( email )

C.so Magenta 63
Milano, 20123
Italy

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