EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

The purpose of this study is to present a consistent EU energy

and energy related emissions outlook for the period to 2020. The Total primary energy consumption is likely to increase by an average
derivation of the results and conclusions, which are presented annual growth rate of 2% in the 1990-2020 period and the energy
here in the context of the Shared Analysis Project, has been intensity of the world economy is expected to decline by 1.4% pa
based on quantitative analysis and on a process of communication in the period to 2010 and by slightly less than 1% after that.
with and feedback from a number of energy experts and organisations.
The global energy system will continue to be dominated by fossil
KEY ASSUMPTIONS fuels over the next 25 years. The dependence on fossil fuels is likely
to be close to 90% by 2020.
World population is likely to increase by almost 2.5 billion people
in the period to 2020 but its rate of growth is projected to slow down Gas is expected to grow quite rapidly in the Asian region. European
to just over 1% per annum (pa) in the latter part of the projection importers of gas from parts of Russia and Central Asia could face
period. EU population is projected to increase by only 12 million competitive pressures from Asian consuming regions.
people in the period 1995-2010 and to be effectively stable after
that. Given the projections for growth in primary energy demand and
the continued dominance of fossil fuels, global emissions are
The world economy is expected to grow by slightly more than 3% expected to grow quite rapidly. For the period 1990-2020, China
pa throughout the projection period. All OECD regions are projected and South Asia account for almost 50% of the increase in global
to slow down to a growth rate slightly below 2% pa in the longer CO2 emissions.
term while most non-OECD regions continue to experience average
annual growth rates of more than 3.5% after 2010. The baseline projects that global energy markets will remain well
supplied at relatively modest cost throughout the projection period.
Economic growth in the EU is expected to be just under 3% pa in Crude oil prices (at the EU border) by 2020 are projected to be
the short run but it is assumed that, despite the generally favourable close to roughly 25 Euro98/bbl, which is less than their level of
overall international context, the EU growth rate after 2000 will 1990 (in real terms) but above their level in recent years. Gas prices
decelerate to levels that are consistent with long run historical trends. in Europe are assumed to rise significantly faster, mostly in the
In the period 2000-10, the annual economic expansion is projected medium to longer term. The price of hard coal imported in the EU
to be around 2.3% while, in the period after 2010, it is limited to less is expected to remain relatively stable.
than 1.8%.
EU PRIMARY ENERGY SUPPLY AND DEMAND
The long established trend of restructuring of EU economies away
from the primary and secondary sectors and towards services and Production of fossil primary energy within the EU is expected to
high value-added products (less material and energy-intensive continue to decline throughout the period to 2020, after peaking in
products) is assumed to continue, although the pace of change is the period 2000-2005. Renewable sources of energy are likely to
expected to decelerate in the long run. receive a significant boost as a result of policy and technology
progress. The decline of EU indigenous solids and oil is especially
The baseline scenario is based on the assumption that EU policies noticeable.
currently in place will be continued. These include the further
integration and liberalisation of electricity and gas markets in the Despite the evidence of some saturation for some energy uses in
EU, further improvement of energy technologies in both the demand the EU, energy demand is expected to continue to grow throughout
and supply sides, the continuation of support for renewables and the outlook period even though at rates significantly smaller than
co-generation, the extension of natural gas supply infrastructure, in history. The growth rate of primary energy consumption is expected
the extension of the lifetime of nuclear plants to 40 years, and to continue to be close to 1% pa over the period to 2010 and then
stringent regulation of acid rain pollutants. The baseline scenario to decelerate to just 0.4 % pa until 2020.
does not include any policies that specifically address the climate
change issue. The implied energy intensity improvement is gradually expected to
WORLD ENERGY BASELINE PROJECTION increase and to reach an annual rate of more than 1.5 % towards

12 European Union Energy Outlook to 2020

 EXECUTIVE SUMMARY

the end of the projection period. Structural change in the demand towards services. The modest growth in residential energy demand
side mainly explains this change. The role of energy technology is reflects the lack of growth in EU population and the small increase
also important. in the number of households. By 2020, transportation accounts for
almost a third of EU final energy consumption, followed by industry
The EU energy system remains dominated by fossil fuels over the and the residential sector, which account for about 26% of consumption
next 25 years and their share rises marginally from its level of just each.
under 80% in 1995. Nearly two thirds of overall energy requirements
in the EU will be imported by 2020, compared to less than half in Oil becomes almost exclusively a fuel for transportation and
1995. Import dependency will gradually increase for all fossil fuels petrochemicals. The increase in transportation energy demand is
and is likely to reach very high values in the longer run. actually greater than the increase in the demand for liquid fuels over
the 1995-2020, implying a decline in the overall oil consumption in
The use of solid fuels is expected to continue to decline until 2010 other sectors.
both in absolute terms and as a proportion of total energy demand.
Beyond 2015, however, due to the power generation problems that POWER GENERATION IN THE EU
will ensue from the decommissioning of a number of nuclear plants,
and the partial loss of competitiveness of gas based generation, Under baseline assumptions, the technology of electricity and steam
due to higher natural gas import prices, the demand for solid fuels generation improves leading to higher thermal efficiency, lower
is projected to increase modestly. capital costs and greater market availability of new generation
technologies. The assumed improvement, however, is not spectacular
Spurred by its very rapid penetration in new power generation plant and no technological breakthrough occurs during the projection
and co-generation, gas is by far the fastest growing primary fuel. period in the baseline scenario.
Its share in primary energy consumption is projected to increase
from 20% in 1995 to 26% in 2010. The baseline projection shows, The use of electricity is expected to expand by 1.7% pa over the
however, only a modest further increase beyond 2010. projection period and its growth is expected to be especially rapid
in the tertiary and in the transportation sector. Steam demand is
The share of oil in primary consumption is projected to be relatively projected to grow by 1.2% pa in the period to 2020. The industrial
stable over the period to 2020 and its annual growth rate is projected sector is projected to remain the dominant user of steam.
to decelerate from 1% in the period to 2010 to 0.1% during 2010-
20. Total power capacity requirements for the EU increase by some
300 GW in the 1995-2020 period and a similar amount of new
Under baseline technology assumptions, novel energy forms, such capacity will be required for the replacement of decommissioned
as hydrogen and methanol, do not make significant inroads, primarily plants. Thus the EU is projected to build 594 GW of new plants over
due to cost considerations. the 1995-2020 period in order to cover its growing needs and replace
the decommissioned plants.
FINAL ENERGY DEMAND IN THE EU
The use of traditional coal and oil plants declines very rapidly. Due
Final energy demand is expected to grow marginally faster than to the decommissioning of older plants, there is a modest decline
primary energy (because of improved rates of conversion efficiency in the capacity of nuclear plants while nearly half of the thermal
in power generation), rising annually by 1.2% and 0.5% in the 1995- plant currently utilised by independent producers is also expected
2010 and 2010-20 periods respectively. There are few changes in to be scrapped. These declines in capacity are more than made up
fuel shares over the next 25 years. The only notable change are the from the dramatic increase in gas turbine combine cycle plants and
increase by nearly 5 percent points in the share of electricity and small gas turbines. These increase by nearly 10 times over the
the continued decline in solid fuels, which nearly disappear as a projection period to exceed 380 GW or almost 45% of the total
final demand fuel by 2020. However, even by 2020, electricity installed capacity by 2020.
continues to account for less than a quarter of final energy consumption.
Energy demand in the tertiary sector is the fastest growing segment Growth in hydroelectricity and other renewable forms of generation
of final demand reflecting the expected restructuring of the economy is projected to be modest but at more than 50 GW of new capacity,

European Union Energy Outlook to 2020 13

 EXECUTIVE SUMMARY

the increase in these capacities will make a significant contribution. capital investment.
The additions mostly concern wind power. Significant growth in
generation by clean coal plants and biomass generation is also The structure of the financial requirements of the power and steam
expected to occur over the next 20 years, in particular towards the generation sector will change as the relative importance of capital
end of the projection period. requirements decline quite significantly while that of fuel spending
increases. This is almost exclusively due to the penetration of GTCC
Technological advances and changes in market structure will reduce and small gas units whose capital cost is significantly lower than
the dominance of utilities in electricity generation. This trend is that of conventional technologies.
clearly related to the widespread use of gas turbines since with this
form of generation economies of scale are very limited above a Because of technological progress, throughout the energy system
rather modest size of a turbine. The use of gas turbines in combined the cost of energy for the consumer stabilises and in some case
cycle mode will also greatly encourage the more widespread use decreases, despite the continuous rises of imported oil and gas
of steam, especially by independent producers. Small-scale producers prices. Also, facilitated by liberalisation, the average electricity tariff
are projected to get close to a fifth of the electricity market by 2020. is projected to decrease in 2010-2020 in average by 15% below the
current level. The share of energy costs in total production costs (for
A significant improvement is expected to occur in the efficiency of firms) or in total income (for households) continuously decreases.
power generation. The efficiency of the overall power and steam
generation system is expected to increase by around 12 percentage ENVIRONMENTAL IMPLICATIONS
points and to reach 66% by 2020. This is the combined effect of
adopting more efficient technologies (like GTCC) and co-generation The rising share of fossil fuels will lead to an increase in the carbon
of heat and power. The efficiency of generation of electricity excluding intensity of the EU energy system. Together with the modest increase
steam improves from 34 to 45% between 1995 and 2020. in energy demand, this will lead to an increase in CO2, which are
projected to increase annually by 0.6% pa in the 1995-2020 period.
The use of coal and lignite declines quite dramatically between 1995 In view of the relative size of the increase in emissions from developing
and 2010 but after 2015 it recovers to reach, and marginally exceed countries it is clear that any action to reduce emissions from the
(after 2020), its 1990 level. This is due to the increased decommissioning EU alone will only have a limited impact on long-run CO2 concentrations.
after 2015 of nuclear plants and the progressive rise of relative price
of natural gas. In absolute terms, the increase in emissions originated from combustion
of natural gas more than make up for the sharp decline in emissions
ECONOMIC IMPLICATIONS that results from the decline in the use of solid fuels. Energy intensity
improvements act in favour of moderating the rise of CO2 emissions.
The above energy trends have significant implications for the financial The carbon intensity does not improve.
requirements of the EU energy system. At the primary supply level,
the significant growth in the demand for gas in EU will make necessary In the period to 2010, the sectors with the fastest increase in emissions
the importation of gas from a number of distant fields in Russia and are those where energy demand is expected to grow fastest, namely
other countries. This will require the financing of a number of new the tertiary and transportation sectors. However, in terms of their
expensive gas pipeline projects. absolute contribution to the increase in emissions, it is the transportation
sector, which accounts for nearly two thirds of the overall increase
The further lightening of the consumed barrel of oil products, together in emissions between 1995 and 2010. Beyond 2010, it is the electricity
with the required cleaning of a number of oil products, may require and steam generation that is almost solely responsible for the
significant investments for the upgrading of the refining system of increase in CO2 emissions.
the EU or increased heavy product trading with the US.
Emissions of SO2 and NOX from the whole energy system and
The power generation sector will continue to be one of the most especially from the power generation system are expected to decline
important investment outlets in the EU economies. However, due quite rapidly over the outlook period as a result of stringent standards
to the relative slow growth in electricity demand, the sectors financial for abating acid rain pollution and the fuel switching from solid fuels
requirements will decline significantly as a share in gross fixed to natural gas.

14 European Union Energy Outlook to 2020

 EXECUTIVE SUMMARY

of CO2 (Scenario S0). Under the assumptions of the most severe

LONGER RUN TRENDS scenario examined, labelled S6, CO2 emissions by 2010 amount
to 2883 Mt, representing a reduction of 6% from the level of emissions
While the analysis carried out formally covers only the period to in 1990 and a reduction of 406 Mt, when compared to the baseline
2020, a number of trends and issues that are important for policy emissions in 2010. The other scenario, labelled S3, involves a
analysis become apparent for the period beyond 2020. The significance reduction of CO2 emissions by 3% from their level in 1990, or 312
of discussing these emerging longer-term trends lies in that, often, Mt from their baseline level in 2010.
energy policy must adopt a very long horizon in order for its
effectiveness and economic efficiency to be optimised. The selection of the range of emissions in the above scenarios
spans the likely requirement set out in the Kyoto protocol for cost
Energy import dependency problems will become very acute in the effective reduction measures of energy-related CO2 emissions,
period beyond 2020 in the absence of breakthroughs in supply taking into account cost-effective reductions of other greenhouse
technologies or of new and unexpected large discoveries of oil and gases included in the Kyoto protocol. The use of flexibility mechanisms
gas. The latter is not considered very likely. according to the articles of the Kyoto protocol and the contribution
of sinks would also alter the actual domestic reduction requirement
Imports of gas will have to take place from increasingly distant to be accomplished within the EU energy system. The CO2 stabilisation
places in Russia and the Middle East with potentially negative cost case (S0) is further motivated by the commitment of the EU to
implications. Following the decommissioning of a large number of stabilise CO2 emissions by the year 2000, and beyond, at their 1990
nuclear plants in the period around 2020, there is much uncertainty level.
on the means through which these plants will be replaced.
The analysis assumes full flexibility adjustment within the European
The potential of new technological breakthroughs becomes very Union member-states. The carbon constraints have been applied
large both for alleviating the import dependency of the EU and for as global constraints treating the EU energy system as one economic
tackling emissions problems. This is particularly challenging for the system without any a priori allocation of emissions reductions to
power generation sector, which, beyond 2020, will face major any sector, fuel or country.
strategic technology and fuel choice dilemmas, affecting the overall
energy policy and European geopolitics. Carbon constraints were imposed globally on the EU energy system
without any limits on the amount of emissions reduction that would
A key uncertainty for the period beyond 2020 is the means by which originate from one country or one sector. The only criterion used
the large number of decommissioned nuclear plants will be replaced. was that of economic efficiency.
More than 110 GW of nuclear capacity will be retired between 2015
and 2030. Whether this capacity is replaced by nuclear plants or The imposition of the above carbon constraints for 2010 resulted
by plants using fossil fuels will make a significant difference to both in an annual marginal abatement cost that varied from 50 (stabilisation
the emissions and energy outlook of the EU. case) to 102 (S6 case) Euro of 1990 per ton of carbon avoided. In
order to restrict carbon emissions beyond 2010 to their level in 2010
EMISSION REDUCTION SCENARIOS within the corresponding scenario, the carbon constraint induces
an annual marginal abatement cost ranging from 59 Eur90 per ton
DEFINITION of carbon avoided (stabilisation case) to 115 Euro90 (S6 case) in
2020.
Three CO2 emission reduction scenarios have been ran with the
PRIMES model in order to estimate the likely degree of difficulty ENERGY SYSTEM IMPACTS
and possible energy system impacts of imposing restrictions on
the amount of CO2 emissions that the EU energy system will be The economic system can respond to the imposition of the carbon
allowed to emit in 2010 and beyond. constraint by reducing its energy intensity and/or by changing the
The scenarios represent increasingly severe carbon constraints, fuel-mix to reduce the carbon intensity of its energy system. For the
starting from stabilisation of emissions in 2010 at their level in 1990, period to 2010, in all three scenarios under consideration nearly
which implies a reduction of baseline emissions in 2010 by 222 Mt half of the overall reduction in emissions is achieved through a

European Union Energy Outlook to 2020 15

 EXECUTIVE SUMMARY

reduction in energy consumption, i.e., in energy intensity, but this The bulk of the change in carbon intensity of the EU energy system
effect declines somewhat in 2020. This effectively means that as is due to the electricity and steam generation system. For the period
we move further into the future the economic system finds substitution to 2010, nearly 60% of the overall required reduction in emissions
among fuels (i.e. reducing the carbon intensity) more cost effective is achieved through adjustments in the power and steam generation
than reducing overall energy use (i.e. reducing the energy intensity). sector. By 2020 this proportion rises to more than 70%.

By far the most significant effect in terms of primary energy fuels is Thus, the power and steam generation system of the EU appears
the decline of solid fuel consumption, which falls not only because to be the sector that can adjust in the most cost-effective way to
of the overall decrease in energy consumption but also because emission reductions. It is partly because the power and steam
their use is replaced by less carbon intensive fuels. The reverse generation system is more flexible in the reduction of emissions
effect operates on gas and renewables, both of which increase in that its output does not decline as sharply as that of other forms of
2010 and 2020, compared to their consumption level under baseline final energy. On average, for every one per cent reduction in generation
assumptions. output there is a multiple decline in CO2 emissions.

Substitution at the primary level is rather easier to achieve than at One of the reasons for the growing scope of relatively cost effective
the level of final energy demand. As the carbon constraint increases, substitution in the power and steam sector after 2010 is that, under
final demand accounts for an increasing share in the reduction of baseline assumptions, a large come back of solids was projected
emissions from their baseline levels. Structural changes and to take place. This was due to the rising prices of gas and to the
behavioural effects in the demand side contribute by 20% to total gap in capacity that would be left from the decommissioning of
emission reduction. nuclear plants. Under the carbon constraint scenarios, the impact
of the increased relative price of gas is negated by the implicit cost
In industry most of emission reduction comes from restructuring of of carbon, which results in a significant increase of the relative price
industrial processes (e.g. more electric arc processing, more recycling of solids. Consequently, the power and steam generations system
of materials, etc.). Improved electrical technologies and heat pumps continues along its path to 2010, which involved that the bulk of
seem to be attractive and cost-effective options for reducing emissions. new generation capacity would use gas as a fuel.
In general, the degree of flexibility available to industry for reducing
emissions is limited. Renewable energies and nuclear also expand as a result of the
imposition of the carbon constraints. The use of nuclear expands
The tertiary and household sectors seem to have large possibilities substantially while the effect of renewables is more limited. Similarly,
for emission reduction both through adopting more efficient electric the improvement in efficiency of generation in the three scenarios
appliances and through reducing their thermal needs by improving only accounts for a modest part of the reduction in emissions while
buildings. the share of co-generated electricity from thermal plants increases
modestly.
The most noticeable changes in the transport sector concern trains
and aircraft. In both cases the average efficiency progresses, but While the role of the electricity and steam sector remains dominant
trains gain market share while air transports lose. The effects in the in meeting the carbon constraint, there are indications that the
road sector mainly concern behavioural changes in car purchasing relative difficulties increase, as the constraint becomes tighter.
and use rather than in car technology itself. High emission reduction Effectively, at low levels of the carbon constraint the flexibility of the
constraints are necessary to enable significant technology change generation system and the available fuel switch options make it a
in the transport sector. convenient and cost effective means to achieve emission reductions.
As the constraint gets tighter, in any given time period, the options
In general, the rate of adoption of best available technologies is within the generation system become relatively more difficult and
low, in the emission reduction scenarios examined. Sensitivity final demand is required to make a more substantial contribution.
analysis, on the other hand, shows much potential from greater ECONOMIC IMPLICATIONS
adoption of best available technologies. Consequently, there may
be large scope for policy to promote best available technologies. The imposition of emission reduction targets results in an increase

16 European Union Energy Outlook to 2020

 EXECUTIVE SUMMARY

of energy system costs. The additional costs implied by a CO2 in the output cost of non-energy intensive sectors ranges from 0.1%
emission reduction target is conveyed to the energy system through to 1%. In particular, the increase in the cost of energy for industry
the carbon value, which represents the marginal abatement cost is higher, ranging from 14% to 30% in energy intensive sectors, and
incurred by the system in avoiding the last ton of CO2 that is necessary from 9% to 21% in non energy intensive ones.
in order to meet the reduction target.
The energy cost for the service sectors increases from 3.5%
Partial estimates (with an energy system model such as PRIMES) (stabilisation) to 9% (-6% case), however implying a small increase
indicate that the total welfare loss of reaching the emission targets in total cost of the sector. Spending by households on energy fuel
under the three scenarios for the EU in 2010 is between 0.02 and purchases and energy-using equipment increases by roughly 3%
0.07 of one percentage point of GDP. The net additional welfare (stabilisation) to 10% (-6% case). The energy costs in the transports
losses for the rest of the economy have not been evaluated in this sector also rise, ranging from 5% (stabilisation) to 10% (-6% case).
study. They are expected to be higher according to general equilibrium However, the cost of transportation increases less, ranging from
evaluations with the model GEM-E3, which has shown that the 0.5% to 2% for passengers and from 1% to 4% for freight.
emission reduction constraints do lead to a net loss of economic
welfare and GDP. However, there are economic policies that may The costs incurred by the power and steam generation sector relate
partly alleviate the losses. to higher capital expenditures (more expensive plant technology),
the costs induced from stranded capital, and the high fuel costs
The total energy system cost increases from baseline levels as a needed for fuel switching. The average power and steam generation
result of the imposition of the carbon constraints by between 25 cost increases from 9% (stabilisation) to 18% (-6% case). The
and 55 billion Euro per year, including all extra costs induced by investment expenditures for power and steam generation also rise
the carbon constraints. This increase in energy system costs reflects to maximum of 8%. Electricity tariffs increase from 6 to 22 %.
the increase in the sectors investment requirements, increased
tariffs etc. It is by no means a pure economic cost since most of All the above costs are slightly higher in 2020 reflecting the higher
the additional funds will be recycled within the overall economy. carbon values needed in 2020 compared with 2010.

The energy system cost of CO2 emission reduction differs substantially UNCERTAINTIES
across the EU member-states. This is because there are large
differences among member-states in the structure of power and The outlook for nuclear power is one of the key uncertainties of this
steam generation, in the process of industrial restructuring, in the outlook. Nuclear can play a very significant role in reducing emissions
fuel mix and technology choices, as well as in base year emissions. beyond 2010. Its impact will depend on whether the massive amount
Sensitivity analysis has shown that for the same reasons the marginal of nuclear plants that are due to be decommissioned between 2015
abatement costs also differ across the EU member-states. At this and 2030 will be replaced by nuclear plants or by fossil fuel plants.
point, it should be recalled that the definition of the emission reduction Despite the restrictions imposed on the expansion of nuclear power,
scenarios (equality of carbon values) presupposes reaching emission it was shown, under the high oil and gas price sensitivity, that the
targets at least cost. These assumptions significantly moderate the role of nuclear power could be significant.
cost for the European Union economy for reaching the Kyoto targets.
The costs could be higher in reality as a result of implementing In the nuclear sensitivity it was shown that under an emissions
carbon abatement measures in a non-optimal way. constraint and without any restrictions on the scope of nuclear power
within the countries that use this form of energy, nuclear capacity
The various economic sectors are affected differently by the imposition is projected to increase to 181 GW by 2020 and to 212 GW by 2030.
of the carbon constraint in 2010. The costs differ among sectors This is quite a dramatic expansion of nuclear power and is only
depending on their energy intensity. comparable with the nuclear capacity expansion that took place
In energy-intensive industrial sectors the increase in the average between 1960 and 1990. In terms of new capacity under the
cost of sectoral output (industrial product) ranges from 3% (stabilisation) assumptions of the high nuclear sensitivity almost 200 GW of new
1
to 7% (-6% case) in 2010, compared to baseline. The same increase nuclear capacity will have to be built between 2015 and 2030 to

1
In terms of total sectoral output the cost increases are rather low because important cost components (e.g. wages) do not change.

European Union Energy Outlook to 2020 17

 EXECUTIVE SUMMARY

expand the nuclear capacity and replace the units to be decommissioned. number of measures, other than the imposition of a global restriction
The impact of this sensitivity on the EU energy and emissions is on CO2 emissions, can also be effective. However, many of these
substantial. affect mostly the period beyond 2010. The one significant effect
examined that is relevant for the Kyoto period is the potential
Under the assumptions of the high oil and gas sensitivity, it was contribution to emissions reduction from improvements in the
shown that an increase in the (relative to other fuels) cost of gas in efficiency of transportation. It was seen that the implementation of
the longer term is sufficient to increase the use of solids significantly. the 1998 voluntary agreement between the EU and the auto
This leads to an increase in CO2 emissions despite the decline in manufacturers association could result in more than 80 Mt of CO2
energy demand that is caused by the increase in oil and gas prices. reduction by 2010, a very significant contribution.

The role of transportation is critical for the future increase in oil The decrease of demand for energy, the fuel mix shifts towards gas
import dependency and significant for the future growth in and the changes in power and steam generation in favour of non-fossil
emissions. Under a sensitivity which included the implementation fuels, contribute to considerable reductions of the emission of acid
of a recent voluntary agreement between the EU and the auto rain pollutants, under the three additional scenarios examined.
manufacturers association (ACEA), it was shown that 2010 oil
demand is reduced by 28 Mtoe (or more than half a million barrels One of the major conclusions to emerge from this volume is the
per day) in the EU, which is equivalent to more than 4% of EU oil crucial role that the electricity and steam generation may be called
demand. The 2020 impact on oil demand is about double that of 2010 to play in reducing emissions. It is important to recall that the
and 2020 CO2 emissions in the EU decline by 4.6% when compared reduction in emissions from the sector are not only due to market forces,
to the baseline. such as the relative price of gas and coal, but also to a number of other
factors many of which are influenced by policy. These include any
There is a great deal of uncertainty surrounding the future long-term non-fossil fuel obligations, subsidies for renewables (or other
structural changes that are likely to take place in the EU. Sensitivity measures in support of renewables), difficulties of insurance for
analysis for Germany and France suggests that alternative economic nuclear plants, fair tariffs for co-generation, R&D support for
structures than those assumed in the baseline could have significant promising generation technologies etc. Thus, the task of the regulator
impacts on future energy demand and emissions. becomes even more important in monitoring and ensuring the
implementation of a number of potential policy initiatives related to
POLICY IMPLICATIONS the sector. Orchestrating this role may prove quite difficult in the
circumstances of liberalised, mostly privately owned and competitive
It was shown that under reasonable assumption for the period to markets.
2010 (the baseline scenario), it is unlikely that the EU will meet its
Kyoto undertakings, at least through energy related CO2 emissions. EU long-term security of supply improves for the EU under the
Instead of the 8% reduction in emissions a 7% increase is projected carbon constraint scenarios, as well as under the nuclear and high
for 2010 when compared to the level of CO2 emissions in 1990. price sensitivities, but it remains a potential concern.
Depending on the outlook and policy measures for non-CO 2
greenhouse gases, a number of additional policy initiatives may The imposition of carbon constraints does indeed lead to a further
have to be undertaken for the abatement of energy related emissions. penetration of renewables. This is due to their relative price becoming
more attractive once fossil fuels have to carry the cost implied by
Using as sole criterion that of economic efficiency, the impacts that the carbon value. However, their share in total primary energy
were discussed under scenarios S0, S3 and S6 were based on what remains below 8.4% even under the S6 scenario for 2020. In general,
would be cost effective irrespectively of any national or industrial the current EU target for renewables seems very difficult to reach.
political considerations. Under the three scenarios CO2 emissions The cost gap between renewables and fossil fuels remains large
would decline by between 222 and 406 Mt of CO2 from their baseline even by the end of the projection period. The reductions in the costs
level in 2010. Whether these reductions are sufficient for the EU to of renewables needs to be much more substantial than those
meet its target will clearly depend on what measures are taken for suggested by the alternative scenarios examined here. Alternatively,
emissions reductions from non-energy sectors. technological progress must be much more rapid than assumed
The sensitivity analysis that was carried out earlier showed that a here.

18 European Union Energy Outlook to 2020