Climate Action
Economic analysis

Economic analysis

Just as the best available science grounds the goals of EU climate policies, the best available technological and economic evidence is needed to shape these policies.

DG Climate Action uses a wide range of mathematical models, tools and methods to evaluate the potential economic, social and environmental consequences of its policy proposals (impact assessment).

EU Reference Scenario

The EU Reference Scenario is a projection of economic activity and energy, transport and emissions trends in the EU and its Member States, assuming current policies and trends.

It describes, in a detailed and consistent way, a possible future path our economy can take, given certain assumptions.

Such assumptions are made – on the basis of expert judgment, other modelling exercises and scientific peer review – about

  • macroeconomic trends
  • fossil fuel import prices
  • technological development.

Because the Reference Scenario assumes current policies are continued, it can be used as a benchmark to assess the impacts of policy changes.

EU Reference Scenario 2016 – examples

  • Decarbonisation of the energy system progresses under current policies, but falls short of agreed longer term climate objectives. Total GHG emissions are projected to be 26% below 1990 levels in 2020, 35% below by 2030 and 48% by 2050
  • Non-CO2 emissions decrease until 2030 even more strongly than CO2 emissions, by 29% below 2005 levels in 2030 (-46% compared to 1990 levels)
  • The net sink provided by the land use, land use change and forestry sector declines to -288 Mt CO2-eq in 2030. This is due mainly due to the decrease of the sink in existing forests, but partly compensated by other activities such as afforestation
  • Energy-related investment expenditures increase substantially until 2020, driven by RES and energy efficiency developments
  • The cost of our energy system relative to our income will rise in the short to medium term, but drop again in the longer term

Reference Scenario 2016 - Full Report

Reference Scenario 2016 - European Commission Summary

More information

Former Reference Scenario 2013 used for the 2030 framework

Economic modelling

Economic modelling can be used to assess what different targets mean or what consequences policy other changes have. It can also analyse a cost-effective pathway towards a long-term objective and thus help inform strategic decisions on policy.

Such an analysis was carried out for the 2050 low-carbon roadmap. The robustness of the Commission's analysis was confirmed for instance by the AMPERE project (2011-14), which evaluated assessment models used to explore climate change mitigation pathways and their associated costs.

Modelling for the 2030 framework

Detailed economic and environmental modelling covered

  • various scenarios for emissions reduction targets, renewables and efficiency policies
  • costs and benefits for the EU, member countries and different economic sectors
  • environmental impacts
  • impacts on energy dependence.
  • Effects on competitiveness, growth and jobs

The analysis showed that:

  • reducing domestic greenhouse gas emissions by at least 40% by 2030 is affordable, but would require large investments
  • consequences for industrial competitiveness can be dealt with
  • cost-effective emissions reductions across the economy would be -43% for the ETS sectors and -30% for the non-ETS sectors (compared to 2005)
  • EU wide cost-effective policies could lead to relatively higher costs and investments compared to GDP in lower-income Member States.

These findings informed policy decisions on emissions reduction targets and ways to ensure fairness between countries as detailed in the European Council conclusions (e.g. modernisation fund for investments in lower-income countries) and address potential competitiveness impacts (e.g. free allocation of allowances in the EU ETS).

Modelling tools for EU analysis

The EU reference scenario and impact assessment for the 2030 framework are based on a suite of mathematical models, which cover

  • all greenhouse gas emissions
  • greenhouse gas removals
  • possible ways to cut emissions.

The models are linked with each other to ensure consistency in the building of scenarios (see illustration below).