Fuel savings will pay for higher up-front costs of renewable energy, say consultants EY
By Gerard Wynn
Low carbon energy coupled with efficiency saves money compared with burning fossil fuels, especially in the longer run, a study by Ernst and Young said on Tuesday.
EU commitment to cut carbon emissions has faltered in the aftermath of a financial crisis which has focused concerns over lower energy prices in the United States and China.
Staying the course would benefit the bloc, however, in the medium and long-run, said Tuesday’s report, “Macroeconomic impacts of the low carbon transition”.
Renewable energy technologies typically have higher up-front capital costs than fossil fuels. Zero fuel costs generate savings which pay back the initial investment over time.
Investment in renewable energy could save the EU more than half a trillion euros annually in avoided fossil fuel imports by 2050, Tuesday’s report said, quoting European Commission estimates.
Those savings could drive alternative consumption, and so boost the rest of the economy, and cut energy costs over time.
“Beyond 2020, prices are expected to stabilise, and even slightly decrease by 2050, as fuel cost savings materialise,” the report said.
Business as usual
Regardless of a low-carbon transition, the EU must upgrade ageing energy infrastructure including power and other energy production and transmission.
Such costs would rise from around 800 billion euros per annum over the period 2010-2020 to 1,000 billion euros per annum over the period 2040-2050.
The EU faced a choice between investing in relatively more or less fewer fossil fuels compared with renewable energy and efficiency.
If the EU continued along its present, business as usual (BAU), energy path, it could face an enormous and growing bill for fossil fuel imports, the report argued.
Because of falling domestic oil and gas production as well as rising prices, that bill would rise to 600 billion euros annually in 2050, according to European Commission estimates, from around 330 billion euros now.
According to one study, by Cambridge Econometrics, fossil fuel import bill for the transport sector alone would rise to 705 billion euros annually by 2050, as a result of rising prices.
“These challenges illustrate that BAU differs from a mere “comfortable” continuation of the current situation, and will present difficult economic challenges,” said the report.
Low carbon
Investing in renewable energy would drive fuel savings.
“The Commission’s Energy Roadmap 2050 predicts that in 2050, compared to BAU the EU could save between 518 billion and 550 billion euros annually by taking a strong decarbonisation pathway. This can be achieved through a combination of energy efficiency and the promotion of a diverse portfolio of low-carbon generation technologies across Europe, including wind, solar, hydro, geothermal, biomass and other promising options.”
The report quoted research estimating consumer fuel savings of up to 180 billion euros annually in the personal transport sector, from a shift to more efficient and electric vehicles, and up to 474 billion euros cumulatively through 2050, as a result of more efficient homes.
Such savings would boost the economy, by allowing alternative consumption.
On the down side, energy costs may be higher in the near term.
“European Commission modelling predicts that under decarbonisation, electricity costs (as with overall energy costs) increase slightly higher than under BAU in the 2030 horizon, but that in the longer term they would follow a more desirable course than under BAU.”
The report quizzed the reliability of such estimates.
Solar power costs have consistently falling faster than government and EU estimates, for example, while investment in energy efficiency could help offset rising energy prices.
Meanwhile, wider benefits would help offset up-front energy costs.
So-called co-benefits included improved air quality from burning fewer fossil fuels, cutting pollutants including ozone, sulphur dioxide and smoke.
Other, benefits which were hard to monetise included avoided climate damage, for example from fewer droughts, floods and storms, and greater security of energy supply.