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

45 Pages Posted: 8 Nov 2013

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

Thomas Longden

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

Giacomo Marangoni

Fondazione Eni Enrico Mattei

Massimo Tavoni

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

Multiple version iconThere are 3 versions of this paper

Date Written: November 2013

Abstract

This paper analyses 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 trend 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-maximising 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: Carbon Pricing, Energy Markets, EU Climate Policy, Gas Share, Renewables Target

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

Suggested Citation

Carraro, Carlo and Longden, Thomas and Marangoni, Giacomo and Tavoni, Massimo, The Optimal Energy Mix in Power Generation and the Contribution from Natural Gas in Reducing Carbon Emissions to 2030 and Beyond (November 2013). CEPR Discussion Paper No. DP9715. Available at SSRN: https://ssrn.com/abstract=2351322

Carlo Carraro (Contact Author)

Fondazione Eni Enrico Mattei (FEEM) ( email )

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Green Growth Knowledge Platform ( email )

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International Center for Climate Governance ( email )

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Thomas Longden

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

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

via Augusto Imperatore, 16
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Giacomo Marangoni

Fondazione Eni Enrico Mattei ( email )

C.so Magenta 63
Milano, 20123
Italy

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

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