Understanding the optimal timing and the social benefits of energy efficiency measures for designing an effective climate policy

Panel: 2. What's next in energy policy?

Authors:
CHRYSO SOTIRIOU, Cyprus University of Technology, Cyprus
Theodoros Zachariadis, Cyprus University of Technology, Cyprus
Apostolos Michopoulos, Cyprus University of Technology, Cyprus

Abstract

Governments around the world are facing strict energy- and climate-related targets, and decision makers need to decide an appropriate set of policies and measures for this purpose. In this paper we explore the contribution of energy efficiency measures to the formulation of policies designed to simultaneously achieve decarbonisation targets in both the medium and the long term.

We develop a multi-objective constrained optimization model to examine least-cost greenhouse gas (GHG) emission abatement pathways, taking into account:

a) emission reduction objectives for two years: 2030 and 2050;

b) the potential speed of implementation of each measure, which expresses technical and behavioural inertia in the deployment of a measure; and c) environmental side-benefits of these measures expressed in monetary terms, i.e. the avoided damage costs because of lower emissions of GHG and air pollutants NOx and SO2.

We focus on economic sectors that are not subject to the EU Emissions Trading System, analysing measures such as energy renovations in residential and commercial buildings, promotion of public transport, switch to fully electric cars and CNG-powered trucks, and co-generation.

We perform two types of optimisation runs with our model. One is a 'joint optimization' for both target years 2030 and 2050. In other words, the model is forced to solve the dynamic abatement problem satisfying both emission constraints. This enables policymakers to design a decarbonization policy that meets the 2030 objective as well as the 2050 commitment. In the second type of run, which we call ‘split optimization’, the model is initially solved for the period 2021-2030, with the 2030 emissions target as the only constraint; then at a second stage, the model solves for annual abatement in the period 2031-2050, taking into account the solution of 2021-2030 and having as a constraint the 2050 emissions target. We derive relationships between 2030 abatement targets of varying ambition and the possibility for a country to achieve a strong 2050 decarbonization target.

Our results demonstrate the importance of taking into account long-term energy and climate targets even when formulating a medium-term decarbonisation strategy, in order to avoid lock-in effects.Our simulations offer evidence that, if the 2030 objective is unambitious, the decarbonization target of 2050 can only be met if a policymaker deciding in 2020 solves jointly the optimization problem for both 2030 and 2050. Conversely, if a policymaker designs a strategy in 2020 keeping in mind only the 2030 target, deep decarbonization of year 2050 cannot be achieved.

Our findings also highlight the substantial social benefits of most energy efficiency measures, which can change the priorities of policy makers if properly quantified in monetary terms. If air pollution costs are taken into account, strong decarbonization by 2050 has lower social costs than less ambitious policies. Although this study is conducted for the economy of Cyprus, a Mediterranean EU member state, its methodology and results are relevant for any country seeking appropriate decarbonisation strategies.