1. IHS 1 Austrian Hybrid Dynamic Model E3 The Enhanced Use of Wood-Biomass Macroeconomic, Sectoral and Environmental Impacts Todor Balabanov - I H S Presentation at the Parallel Session 7: Renewable Energy 3, IEW 2009 11.30 - 13.00, 19 June 2009, Sala Barbantini

2. IHS 2 Introduction From the experience of the last decades it became clear that national energy systems are highly interdependent in that a variety of energy forms can be employed to satisfy many end uses. Secondly Alternative production modes compete for many of the same resources. Thirdly physical and technological limitations can restrict the supply or potential uses of energy. Fourthly environment effects or other externalities can alter the permissible production and use patterns, and that eventually new technologies can rapidly transform the options available

3. IHS 3 Inroduction To study these complexities the modelling system used for our study consists of combination of two different models: a quantitative forest-sector specific (FOHOW) and a computable general equilibrium macroeconomic model (ATCEM-E3) and therefore addresses the complex system interaction between macroeconomics, the main economic sectors, including the forest sector, and the environment

4. IHS 4 The main aim of this combination is quantification of demand, supply, trade and prices of wood products (including wood for energy - further denoted as fuel wood) and their macroeconomic and sectoral impacts. The price system is the primary mechanism for developing an efficient allocation of any economic good, including energy. Changes in prices can affect the demand and supply for energy and the resulting structure of the energy use. As of mid September 2008 there was almost four times difference between the prices of fuel oil and of the wood briquettes and the electricity tariffs are rending electrical heating 2,5 times more expensive than that using fuel oil. Resource limitations can inhibit the increase in the potential fuel wood-for-energy supply. To that end Forest Sector Simulation Model (FOHOW has taken care of detailed modelling of the prospects of the forest sector. Wood-for-energy, or fuel wood, is a connotation for natural and processed wood burnable, e.g., wood briquettes, wood pellets, cut wood, chopped wood, chopped wood, etc.

5. IHS 5 A primary externality of the energy system is the interaction with the rest of the economy. The ATCEM-E3 model provides a basis for evaluating economic impacts of the chosen fuel-wood-for-energy policies both at macroeconomic and at the sectoral level – indicating the effects of the economic environment on energy decisions. ATCEM-E3 is a Static General Equilibrium Model SAM with 25 production sectors and 3 consumption destinations: Households; Government; External trade and nested KLEM production function but Sketchy representation of the energy technologies

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7. IHS 7 Price sensitivity and Resource limitations As seen from the graph below the differential between the prices of fuel oil and of the wood briquettes is almost four times and the electricity tariffs are rending electrical heating up to 2,5 times more expensive than fuel oil. According to Statistik Austria (2007) more than 955,000 Austrian Flats/Residences are being heated by natural gas, around 876,300 are being heated by oil, 590,000 households use Biomass and around 254,500 use electricity. Thus 1,150,000 Households are heated by Oil and Electricity, so that the potential of switching to fuel wood can be estimated to be around 100 PJ.

8. IHS 8 Market prices for selected final energy carriers

9. IHS 9 by 2020 there will be up to 25 million m 3 (193 PJ ) indigenous roundwood available at the market with relative modest prices increases. The figures for fuelwood for 2020 are 15 million m 3 or 116 PJ.

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11. IHS 11 Final energy Use (in TJ) for the Fuelwood-for-energy scenario (PIFWS) 20002020 in TJ or percent 2020 Share of Renewables Coal64.78723.5002,3% Oil, Motive fuels& Feedstock369.687320.20531,5% Natural Gas174.148228.70022,5% Electricity181.875230.86722,7%Hydro share of the electricity - 65% Fuel Wood105.015135.00013,3% District Heating42.07560.1715,9% Wind & Heat Pumps6.81919.6131,9% Total944.4061.018.089100 %Renewable 15.1% +Hydro 14.73% Source: for 2000 Energiebilanzen Ö sterreich 1970 – 2006; (2007); Own assumptions

12. IHS 12 Externalities We are assuming that in 2020 CO 2 certificates will be traded within the spread of their Marginal Abatement Costs levels estimated by the EU´s “Impact Assessment of the EU's objectives on climate change and renewable energy for 2020” (EC, 2008) to be between € 40 and € 90/t CO 2. To explore the full effects of the CO 2 trade for our scenarios we have chosen thee taxation levels - namely, € 0/t CO 2 or no taxation (PIFWS0 ), € 60/t CO 2 (PIFWS60) and € 80/t CO 2.. ( PIFWS80).

13. IHS 13 alternative scenarios

14. IHS 14 All graphs are compared to a benchmark GDP growth rate of 2 percent/ year from 2000 to 2020, that is an overall increase of 48.59% for the whole period, corresponding to an index value of 1.

15. IHS 15 The three cases for the low scenario

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19. IHS 19 Conclusions: Under the presumptions of the PIFW scenarios the Austrian economy can afford the enhanced use of renewables and a sustained economic growth and can so to speak benefit from the double dividend - sustained economic growth and fulfilment of EU targets on renewables and CO 2 reduction. GDP growth is slightly higher than in the business as usual case but this gain is diminishing with increased CO 2 taxation. Households’ consumption is way above that of GDP growth and aggregated energy consumption is far below the growth of GDP. These favourable developments of the main aggregates therefore seem to support the double dividend view, namely, that by enhancing the use of renewables for the generation of energy, Austria benefits from a slightly higher economic growth that is also sustainable

20. IHS 20 Work in Progress: ToDo-BoUp-E3 Formulated by Rutherford/Boehringer as a mixed complementarity problem permits an energy- economy model to combine technological details of an energy system (bottom-up ) with a characterization of the market equilibrium (top- down).

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22. IHS 22 ToDo-BoUp-E3 : applications impacts of scenarios on country´s economic variables, e.g., changes of the main real economic indicators, in the consumption of the households, in the sectoral employment levels, in the energy consumption, of the emission levels, the energy price indices, subsidies, etc. for applied energy and environmental policy analysis, e.g., the impacts of the Green Quotas and the Environmental Tax Reform.

23. IHS 23 Country level Top-Down/Bottom -up Dynamic Model (ToDo-BoUp-E3) Is to be methodologically based on the a hybrid modelling concept, i.e. the direct combination of bottom-up energy system model and top-down equilibrium model of the broader economy solved in a complementarity format. ToDo-BoUp-E3 is to be programmed in GAMS/MPSGE environment and calibrated to a base year data set comprising a SAM and data set for present and future energy and environmental technologies.

24. IHS 24 ToDo-BoUp-E3 : applications impacts of scenarios on country´s economic variables, e.g., changes of the main real economic indicators, in the consumption of the households, in the sectoral employment levels, in the energy consumption, of the emission levels, the energy price indices, etc. for applied energy and environmental policy analysis, e.g., the impacts of the Green Quotas and the Environmental Tax Reform.

25. IHS 25 Thank you for your attention!! Todor Balabanov ( I H S ) EM: balabano@ihs.ac.at