Modelling Economic Effects of the Renewable Energy Expansion – The German Case – Funded by the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (FKZ ) Jürgen Blazejczak, Frauke Braun, Dietmar Edler, Wolf-Peter Schill DIW Berlin 34 th IAEE International Conference Stockholm, June 20, 2011

Outline 1.Introduction Renewables in Germany Research questions 2.The model Core model (NiGEM) RES-specific extension (SEEEM) 3.Model application Two scenarios Macroeconomic and sectoral results 4.Conclusions th IAEE International Conference 2

Outline 1.Introduction Renewables in Germany Research questions 2.The model Core model (NiGEM) RES-specific extension (SEEEM) 3.Model application Two scenarios Macroeconomic and sectoral results 4.Conclusions th IAEE International Conference 3

Renewables in Germany Substantial growth in: –Renewable shares of energy consumption –Investments and turnover in renewable industries –Employment in renewable industries th IAEE International Conference 4 (BMU, 2011) (BMU, 2011 and own calculations)

Motivation and research questions Positive economic impacts: –Investment and jobs in renewable industries –Exports of RES technologies, diminished imports Negative impacts: –Additional costs compared to conventional energy supply –Substituted conventional investments Research questions: –Economic net effects of renewable energy expansion in Germany? –Sectoral implications? th IAEE International Conference ?

Outline 1.Introduction Renewables in Germany Research questions 2.The model Core model (NiGEM) RES-specific extension (SEEEM) 3.Model application Two scenarios Macroeconomic and sectoral results 4.Conclusions th IAEE International Conference 6

Modelling strategy th IAEE International Conference 7 Exogenous impulses Macroeconomic and sectoral effects The model Interrelated mechanisms Assumptions and conditions Investment effects Substitution effects Trade effects Budget effects Endogenous dynamic effects Demand for RES facilities, maintenance, biomass Exports of facilities and components Diminished imports of fossil fuels Diminished conventional investments Additional costs Monetary and fiscal policy Exchange rates Expectations of economic agents Economic growth Income and consumption Employment Macroeconomic and sectoral dimensions

Core model (NiGEM) Strategy: Extension of NiGEM model –Developed by the National Institute of Economic and Social Research –Well-established econometric model of the world economy –Multi-country model with > 5000 variables –Empirically estimated behavioural equations –Forward-looking expectations of agents (exchange rates, prices, wages) th IAEE International Conference 8

NiGEM – a multi-country model U.S. Japan Germany UK Latin America other world regions other world regions OPEC-Countries Interrelations: World trade Capital flows other OECD countries other OECD countries

Input-Output module Sectoral and RES-specific extensions (SEEEM) 10 NiGEM Germany NiGEM Germany Transfer module for final demand Standard industry structure (71 sectors) Standard industry structure (71 sectors) Renewable energy industries (14 sectors) Renewable energy industries (14 sectors) ~ 3000 sectoral variables Domestic production only Final demand Sectoral gross value added  Employment ~ 170 macro variables

Modelling of renewable sectors Seven renewable technologies –Wind –Photovoltaic –Solar thermal –Hydro power –Biomass –Biogas –Geothermal Two sectors for each technology: –Production of facilities –Operation and maintenance of facilities  14 additional sectors in Input-Output structure th IAEE International Conference 11 Renewable energy industries (14 sectors) Renewable energy industries (14 sectors)

Outline 1.Introduction Renewables in Germany Research questions 2.The model Core model (NiGEM) RES-specific extension (SEEEM) 3.Model application Two scenarios Macroeconomic and sectoral results 4.Conclusions th IAEE International Conference 12

Two Scenarios Renewable expansion scenario for Germany (EXP) –Reflects official “Lead Study“ 2009 (BMU) –Projection of RES exports Counterfactual NULL scenario –No renewable expansion in Germany –No RES exports Sensitivity analyses –“Decreasing competitiveness” –“Flexible labour market“ Scope of analysis: –Historic data for RES expansion and exports until th IAEE International Conference 13

th IAEE International Conference 14 Expansion scenario : Real prices (2000), billion Euro Additional costs Investments in RES facilities, operation and maintenance, demand for biomass Diminished conventional investments Diminished imports of fossil fuels Exports of components Exports of facilities Scenario inputs: economic impulses

Macroeconomic results GDP Private consumption Private investments Exports Imports1.0 Productivity Employment Employment (1000 persons)22153 Differences EXP-NULL in %  Increase of GDP and productivity  Small (positive) net employment effects

Sensitivity analysis “Decreasing competitiveness” 16 EXPDecreasing competitiveness 0,0 0,5 1,0 1,5 2,0 2,5 3, GDPExportsImports Differences to NULL in %  Increased unit costs decrease international competitiveness of German economy  Lower exports, higher imports, slower GDP growth

Sensitivity analysis “Flexible labour market” 17 EXPFlexible labour market 0,0 0,5 1,0 1,5 2,0 2,5 3, GDPProductivityEmployment Differences to NULL in %  Econometric model equations imply high natural unemployment (instead, strong productivity growth)  More flexible labour market: GDP growth leads to increased employment

An exemplary sectoral outcome 18  Manufacturing industry is the main winner

Outline 1.Introduction Renewables in Germany Research questions 2.The model Core model (NiGEM) RES-specific extension (SEEEM) 3.Model application Two scenarios Macroeconomic and sectoral results 4.Conclusions th IAEE International Conference 19

Conclusions Development and application of a flexible economic model Case study: German RES expansion has positive net effects on economic growth Net employment effects tend to be small, but positive; depend on labour market conditions Identification of winning and losing sectors Model could be further expanded to cover energy efficiency measures, electric vehicles etc th IAEE International Conference 20

Backup th IAEE International Conference 21

th IAEE International Conference 22 Development of shares of imported intermediates at gross production in EXP 0% 5% 10% 15% 20% 25% 30% 35% 40% Agriculture, Forestry, Fishery Manufacturing industry Building sector Services Total

23 „Moderate export success“  Slightly lower GDP growth BasisvarianteModerate Exporterfolge GDPProductivityEmployment 0,0 0,5 1,0 1,5 2,0 2,5 3, Differences to NULL in %

Core model (NiGEM) Strategy: Extension of National Institute’s NiGEM model –Well-established econometric model of the world economy –Multi-country model with > 5000 variables –Empirically estimated behavioural equations –Error-correction specification  long-term equilibria –Forward-looking expectations of agents (exchange rates, prices, wages) Causal relationships modelled: –Multiplier effect and accelerator effect –Price-wage mechanism –Adjustments of exchange rates, balance of payments th IAEE International Conference 24