Energy Security, air pollution, and climate change: an integrated cost-benefit approach

Cost-benefit analysis to stimulate the goals of energy policy

This report presents the findings of an integrated cost-benefit analysis of options to increase energy security, reduce local air pollution, and mitigate global climate change. Although energy security is commonly recognised as an important issue, it is less clear how damaging a lack of energy security is to the economy. Moreover, it is unclear how to successfully improve on energy security in a world with scarce resources. The analysis aims to stimulate the process of the development of clear, policy targets for energy security in relation to other policy objectives to avoid air pollution and impacts of climate change.

Integrated energy policies may lead to substantial medium term CO₂ emission reductions in Europe

This report explores the consequences of introducing mathematical equations, describing the supply of energy security, in the integrated energy-economy model MERGE. First the abstract notion of energy security is quantified, followed by the implementation of the quantified energy security function in MERGE. A set of simulations is then conducted to explore the impact of the application of this function. These simulations tentatively indicate that concerns for energy security cause a delay in the global demand for oil, in scenarios without explicit climate change and air pollution policy. Even so, in this case oil resources will eventually be completely depleted. With additional climate change policy, the oil resources might not be depleted, and when complemented by air pollution policy, reserves of oil will ultimately remain larger. In these environmental policy scenarios, energy security policy is shown to reduce the cumulative demand for oil (over the next 150 years) by 20%, compared to the baseline without any policies. Between 2020-2030, substantial CO2 emission reductions will be achieved in Europe. This is induced by energy exporters, expanding on the combustion of their own abundant (and cheaper) gas and oil resources. In turn, this implies that energy importing regions will increase their CO₂ emission reductions, thus minimizing the damages, caused by climate change.