1. 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 0327652) Jürgen Blazejczak, Frauke Braun, Dietmar Edler, Wolf-Peter Schill DIW Berlin 34 th IAEE International Conference Stockholm, June 20, 2011

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 20.06.201134 th IAEE International Conference 2

3. 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 20.06.201134 th IAEE International Conference 3

4. Renewables in Germany Substantial growth in: –Renewable shares of energy consumption –Investments and turnover in renewable industries –Employment in renewable industries 20.06.201134 th IAEE International Conference 4 (BMU, 2011) (BMU, 2011 and own calculations)

5. 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? 20.06.201134 th IAEE International Conference 5 + - ?

6. 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 20.06.201134 th IAEE International Conference 6

7. Modelling strategy 20.06.201134 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

8. 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) 20.06.201134 th IAEE International Conference 8

9. NiGEM – a multi-country model 20.06.201199 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

10. 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

11. 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 20.06.201134 th IAEE International Conference 11 Renewable energy industries (14 sectors) Renewable energy industries (14 sectors)

12. 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 20.06.201134 th IAEE International Conference 12

13. 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: 2000-2030 –Historic data for RES expansion and exports until 2008 20.06.201134 th IAEE International Conference 13

14. 20.06.201134 th IAEE International Conference 14 Expansion scenario 2000-2030: Real prices (2000), billion Euro 2000201020202030 Additional costs Investments in RES facilities, operation and maintenance, demand for biomass Diminished conventional investments Diminished imports of fossil fuels -30 -20 -10 0 10 20 30 40 Exports of components Exports of facilities Scenario inputs: economic impulses

15. Macroeconomic results 15 201020202030 GDP1.72.62.9 Private consumption1.02.33.5 Private investments9.18.96.7 Exports0.91.20.9 Imports1.0 Productivity1.72.62.9 Employment0.10.0 Employment (1000 persons)22153 Differences EXP-NULL in %  Increase of GDP and productivity  Small (positive) net employment effects

16. Sensitivity analysis “Decreasing competitiveness” 16 EXPDecreasing competitiveness 0,0 0,5 1,0 1,5 2,0 2,5 3,0 201020202030 201020202030 201020202030 GDPExportsImports Differences to NULL in %  Increased unit costs decrease international competitiveness of German economy  Lower exports, higher imports, slower GDP growth

17. Sensitivity analysis “Flexible labour market” 17 EXPFlexible labour market 0,0 0,5 1,0 1,5 2,0 2,5 3,0 201020202030201020202030201020202030 22 98 15 166 3 270 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

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

19. 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 20.06.201134 th IAEE International Conference 19

20. 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. 20.06.201134 th IAEE International Conference 20

21. Backup 20.06.201134 th IAEE International Conference 21

22. 20.06.201134 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% 201020202030 Agriculture, Forestry, Fishery Manufacturing industry Building sector Services Total

23. 23 „Moderate export success“  Slightly lower GDP growth 201020202030 BasisvarianteModerate Exporterfolge 201020202030 22 15 11 32 GDPProductivityEmployment 0,0 0,5 1,0 1,5 2,0 2,5 3,0 201020202030 Differences to NULL in %

24. 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 20.06.201134 th IAEE International Conference 24