Green energy in Europe: What's new in 2001?

This column discusses developments and policy regarding the supply and use of green energy. It is a co-operation between Refocus and www.greenprices.com. In each issue key information will be presented on green energy in Europe and abroad. In this issue some observations are made on green energy pricing and market developments in Europe up to the first quarter of 2001.     

Electricity wholesale market prices in Europe: Convergence?

This paper tests the hypothesis that the ongoing restructuring process in the European electricity sector has led to a common European market for electricity. Based on a Principal Component Analysis (PCA) of wholesale electricity prices in 2002–2006, we reject the assumption of full market integration. For several pairs of countries, the weaker hypothesis of (bilateral) convergence is accepted based on unit root tests (KPSS and ADF) and a convergence test based on filtered pairwise price relations. This indicates that the efforts to develop a single European market for electricity were so far only partially successful. We show that the daily auction prices of scarce cross-border transmission capacities are insufficient to explain the persistence of international price differentials. Empirically, our findings confirm the insufficiency of explicit capacity auctions as stated in the theoretical literature.     

Will hydrogen be competitive in Europe without tax favours?

Hydrogen is one of the alternative transport fuels expected to replace conventional oil based fuels. The paper finds that it is possible for non-fossil-based hydrogen to become the lowest cost fuel without favourable tax treatment. The order of per kilometre cost depends on performance in hydrogen production, the international oil price, and fuel taxes. At low oil prices, the highest per kilometre costs were found for non-fossil power-based hydrogen, the second highest for natural gas-based hydrogen, and the lowest for conventional fuels. At high oil prices, this ranking is reversed and non-fossil power-based hydrogen becomes the most cost competitive fuel. General fuel taxes lower the threshold at which the international oil price reverses this competitiveness order. The highest fuel tax rates applied in Europe lowers this threshold oil price considerably, whereas the lowest fuel taxes may be insufficient to make hydrogen competitive without tax favours. Alternative adjustments of the EU minimum fuel tax rates with a view to energy efficiency and CO₂-emissions are discussed.     

Coal consumption in China: How to bend down the curve?

Noting the recent decline in the coal consumption in China, a variety of prior literature studies the peak of coal consumption and finds mixed results. This paper systematically studies the historical rules, the driving mechanism, as well as the future trend of coal consumption in China. First, through comparative analysis and breakpoint regression, we find that there are three consecutive inverted U-shapes between China's coal consumption and economic development from 1965 to 2016, and they reach inflection points in 1980, 1998, and 2013, respectively. Second, the LMDI decomposition analysis of coal consumption reveals that output effects and intensity effects jointly determine the overall trend of each inverted U, and structural effects play a key role in the formation of each inverted U-shaped inflection point. Finally, the forecast shows that coal consumption will decline at an average annual rate of 0.4% from 2017 to 2030, and by then it will be basically in a plateau period. There is a big gap between the consumption trend and the inverted U scenario. In order to bend the coal consumption curve downward and ensure that 2013 will become a long-term peak, the government should accelerate the optimization of the industrial structure and energy consumption structure, and improve coal consumption efficiency continuously through a mix of policies.     

Energy security and renewable electricity trade—Will Desertec make Europe vulnerable to the “energy weapon”?

Solar power imports to Europe from the deserts of North Africa, as foreseen in the Desertec concept, is one possible way to help decarbonising the European power sector by 2050. However, this approach raises questions of threats to European energy security in such an import scenario, particularly in the light of increasing import dependency and Russia's use of the “energy weapon” in recent years. In this paper we investigate the threat of North African countries using the Desertec electricity exports as an “energy weapon”. We develop and use a new model to assess the interdependence – the bargaining power symmetry, operationalised as costs – of a disruption in a future renewable electricity trade between North Africa and Europe. If Europe maintains current capacity buffers, some demand-response capability and does not import much more than what is described in the Desertec scenario, it is susceptible to extortion and political pressure only if all five exporter countries unite in using the energy weapon. Europe is not vulnerable to extortion by an export cut from only one country, as the European capacity buffers are sufficient to restore the power supply: no single exporter country would have sustained bargaining power over Europe.     

Emissions trading in China: A conceptual ‘leapfrog’ approach?

China is well aware of the advantages of quantity-based economic instruments (i.e., emissions trading) for domestic pollution control, but pilot studies and experimental programs in Taiyuan, Hong Kong/Guangdong, and other locations have not been successful. This paper proposes a very different type of emissions trading program, designed with Chinese implementation concerns in mind. It has three component parts: (1) a real-time intermittent control system (ICS) strategy designed to address public health concerns in the near term; (2) software-oriented Predictive emissions monitoring systems (PEMS) targeting process parameter (rather than emission) reporting from individual emission sources; and (3) real-time emissions markets responding to the ICS constraint. The technical and political difficulties associated with implementing such a system are recognized as daunting. However, such an approach would ‘leapfrog’ over existing systems, allowing the country to develop a comprehensive air pollution control strategy as economic growth occurs, continuously improving air quality in a cost efficient manner, utilizing both advanced technology and market-based control approaches in a manner consistent with China's unique environmental needs. It would also lay the groundwork for the eventual pricing of CO₂ and other greenhouse gases within China.     

Hinkley point C: A new chance for nuclear power plant construction in central Europe?

This text focuses on the decision of the European Commission on the admissibility of state support for the expansion of Hinkley Point C, a British nuclear power plant. The European Commission not only influenced the development of energy sector in the UK with its decision, but also sent a strong signal that it is possible to use state aid for new nuclear power plants in the EU. The example of the Czech Republic shows the way this signal may be perceived by governments and energy stakeholders and how it can influence the national debates about the construction of new nuclear power plants, even before the detailed information about the whole case of state aid for Hinkley Point C has been published.     

What happens to the relationship between EU allowances prices and stock market indices in Europe?

The stock market may reflect the economic conditions of an economy and a positive economic situation is expected to improve the companies' profits, which makes company shares more attractive since the expected dividends to shareholders will be larger. Theoretically, higher economic activity leads to higher energy demand and, consequently, higher carbon emissions, which give rise to higher EU allowances (EUA) prices. Therefore, the stock market and EUA prices seem to be connected, with causality going from the stock markets to EUA prices. This paper formally tests for it, showing that the causality effectively runs from the stock market to the European Climate Exchange market. Furthermore, the paper studies the effects of the evolution of European stock markets on the EUA spot prices.     

Solar Thermal Energy in Europe: An Assessment Study†

This paper provides a summary of the recently completed Assessment Study on Solar Thermal Energy in Europe. It begins by stating the aims and objectives of the study before going on lo summarise its findings in the following areas; the context for Solar R & D, the current state of the technology, applications and assessment of potential energy savings, and a profile of the developing solar industry. Finally the main conclusions of the study are presented.     

Food–energy nexus in Europe: Price volatility approach

The literature on food–biofuel price volatility spillovers is growing. Published articles so far have widely ignored nonlinearities and the influence of exogenous variables on volatility patterns. This article allows for these issues when characterizing EU biodiesel industry price dynamics. While Brazilian and US ethanol markets have been thoroughly investigated, less attention has been paid to EU biodiesel markets. Pure EU biodiesel and rapeseed oil prices are the object of our research. Two different methods are applied to model these data: a parametric approach and Long et al.'s (2011) semiparametric approach. Empirical results suggest significant asymmetries in volatility spillovers between pure biodiesel and rapeseed oil prices. Rapeseed stock levels and euro/dollar exchange rates are found to play a significant role in reducing food and biofuel price volatilities.     

Is information assimilated at announcements in the European carbon market?

We examine the high frequency new information impact on prices, volatility, trading volume and illiquidity at scheduled macroeconomic and verified emissions announcements for the European carbon futures market. Verified emissions, United States non-farm payroll and German new factory order macroeconomic announcements impact carbon prices swiftly, within 5 min. We show that a one standard deviation surprise increase in verified emission announcements is associated with an approximate ten percentage point (9.96%) increase in carbon futures returns. A wait-and-see stylized trading behavior is evident at announcements in volatility and trading volumes. Market illiquidity increases at announcements in relation to United States non-farm payroll, albeit there is no evidence of an increase in illiquidity prior to announcements. The development of new information impact, over time, occurs mainly in the at-announcement 5-minute time interval.     

Dazzled by diesel? The impact on carbon dioxide emissions of the shift to diesels in Europe through 2009

This paper identifies trends in new gasoline and diesel passenger car characteristics in the European Union between 1995 and 2009. By 2009 diesels had captured over 55% of the new vehicle market. While the diesel version of a given car model may have as much as 35% lower fuel use/km and 25% lower CO₂ emissions than its gasoline equivalent, diesel buyers have chosen increasingly large and more powerful cars than the gasoline market. As a result, new diesels bought in 2009 had only 2% lower average CO₂ emissions than new gasoline cars, a smaller advantage than in 1995. A Laspeyres decomposition investigates which factors were important contributors to the observed emission reductions and which factors offset savings in other areas. More than 95% of the reduction in CO₂ emissions per km from new vehicles arose because both diesel and gasoline new vehicle emissions/km fell, and only 5% arose because of the shift from gasoline to diesel technology. Increases in vehicle mass and power for both gasoline and diesel absorbed much of the technological efficiency improvements offered by both technologies. We also observe changes in the gasoline and diesel fleets in eight EU countries and find changes in fuel and emissions intensities consistent with the changes in new vehicles reported. While diesel cars continue to be driven far farther than gasoline cars, we attribute only some of this difference to a “rebound effect”. We conclude that while diesel technology has permitted significant fuel savings, the switch from gasoline to diesel in the new vehicle market contributed little itself to the observed reductions in CO₂ emissions from new vehicles.     

Which factors drive CO<Subscript>2</Subscript> emissions in EU-15? Decomposition and innovative accounting

This study breaks down carbon emissions into six effects within the 15 European Union countries group (EU-15) and analyses their evolution in four distinct periods: 1995–2000 (before European directive 2001/77/EC), 2001–2004 (after European directive 2001/77/EC and before Kyoto), 2005–2007 (after Kyoto implementation), and 2008–2010 (after Kyoto first stage), to determine which of them had more impact in the intensity of emissions. The complete decomposition technique was used to examine the carbon dioxide (CO₂) emissions and its components: carbon intensity (CI effect); changes in fossil fuels consumption towards total energy consumption (EM effect); changes in energy intensity effect (EG effect); the average renewable capacity productivity (GC effect); the change in capacity of renewable energy per capita (CP effect); and the change in population (P effect). It is shown that in the post Kyoto period there is an even greater differential in the negative changes in CO₂ emissions, which were caused by the negative contribution of the intensity variations of the effects EM, GC, CP and P that exceeded the positive changes occurred in CI and EG effects. It is also important to stress the fluctuations in CO₂ variations before and after Kyoto, turning positive changes to negative changes, especially in France, Italy and Spain, revealing the presence of heterogeneity. Moreover, the positive effect of renewable capacity per capita and the negative effect of renewable capacity productivity are the main factors influencing the reduction in CO₂ emissions during the Kyoto first stage. It is possible to infer from the results that one of the ways to reduce emissions intensity will be by increasing the renewable capacity and the productivity in energy generation and consequently through the reduction of the share of the consumption of fossil fuels.     

Stuck between a ROC and a hard place? Barriers to the take up of green energy in the UK

This paper examines the UK mechanisms for ensuring future investment in renewable energy through consumer adoption of green energy tariffs and the Renewable Obligation Certificate (ROC) system. Using a national survey and focus groups the stated willingness by UK customers to pay a premium for renewable or green energy and actual take up of such tariffs is assessed. Substantial differences between willingness to pay for and the adoption of green energy tariffs are reported. This disparity is linked to a range of factors including consumer confusion, lack of supply, complexities of constructing ‘green source’ tariffs under the ROC system and a lack of customer trust. It is concluded that the re-definition of the green energy market in favour of ‘green source’ tariffs, greater direct compliance with the Renewable Obligation by addressing supply constraints, and efforts in providing clearer information and choices for consumers via a compulsory green energy accreditation scheme are required if willing consumers’ are to contribute to investment in renewable energy.     

Can remote green hydrogen production play a key role in decarbonizing Europe in the future? A cradle-to-gate LCA of hydrogen production in Austria,Belgium, and Iceland

Hydrogen can play a key role in decarbonizing industrial and transportation processes. As the European demand for hydrogen rises, several EU member states have been looking into ways to import remotely-produced hydrogen (H₂) to fulfill their local needs. This cradle-to-gate LCA study assesses the H₂ production in Iceland using local renewable energy sources, including the transport to potential gates in Austria and Belgium and compares it with locally produced H₂ at the European sites. Our results indicate that the Global Warming Potential (GWP) of H₂ production depends primarily on the energy mix, while transportation of H₂ generates a minor impact. Furthermore, in its current state, H₂ production in Iceland through Polymer electrolyte membrane electrolysis (PEM-EC) yields over 13- and 21 times lower GHG emissions compared respectively to Austria and Belgium. Based on these results, we conclude that remotely produced hydrogen can play an important part in decarbonizing European carbon-intensive industries.     

How does coal price drive up inflation? Reexamining the relationship between coal price and general price level in China

Due to the coal-dominated energy structure, China is currently facing significant economic uncertainties brought forward by instability of coal price. By separating the asymmetric effects that how upward and downward coal price changes pass through to the economy, this paper reexamines the relationship between coal price and general price level in China. The asymmetric effects are investigated via vector autoregression models, Granger Causality tests, and impulse response function analyses using the monthly time series data from Jun-98 to Sep-14. Results show negative coal price change presents more significant impact on inflation than positive one. The inflation responses very abruptly to coal price shock in the short run, but the impact regresses rapidly along time. Accumulatively, a 1% increase of coal price will push CPI and PPI up by 0.04% and 0.12%, while a 1% decrease of coal price will pull them down by 0.08% and 0.17%, respectively. The linkage among coal price change, PPI, and CPI is demonstrated as the main transmission channel of price shock. The inflationary effect is strong in the initial stage, but will be weakened in the later stage since the pass through effect from PPI to CPI is tiny, which confirms PPI is more responsive than CPI to coal price change. For policy implications, how to avoid extreme volatility in general price level is a major concern of recent agendas such as reforming energy market and building green fiscal system.     

Understanding ‘local’ opposition to wind development in the UK: How big is a backyard?

In recognition of the environmental and economic threats posed by climate change; decisive steps are now being taken to stabilise greenhouse gas emissions. One sector receiving particular attention within the UK is that of electricity generation. As such, the government has introduced ambitious targets for increasing renewable generating capacity within the country. Wind turbines are expected to play a significant role in meeting these targets; however, despite high levels of support for the technology in principle, specific projects are often delayed or rejected on account of local opposition. This study aimed to establish how attitudes towards development might vary with respect to increasing distance from the identified sites. Participants were required to register their opinion towards development at a number of on- and off-shore locations in the UK. The results indicated that participants were most favourable to offshore development and least favourable to development at the identified sites. Attitudes to onshore development indicated that so long as a proposed location was anticipated to be ‘out of sight’ it was considered in relatively general terms. The results are discussed with reference to site visibility and landscape concerns and clearly support calls for a shift towards community-focussed development strategies.