Graphic of an electricity pylon

Energy sector economic analysis

People’s well-being, industrial competitiveness and the overall functioning of society are dependent on safe, secure, sustainable and affordable energy. The energy sector, covering extraction, production and distribution directly employs in the EU about 1.6 million people and generates an added €250 billion to the economy, corresponding to 4% of value added of the non-financial EU business economy.

In the framework of the EU Sustainable Development Strategy, the European Commission has developed energy security of supply and climate change policies and adopted a number of regulatory measures aiming at introducing low-carbon innovative technologies, which will ultimately impact the market structure of the sector. The EU has also endorsed ambitious greenhouse gas (GHG) emission reduction targets and accompanying targets for the decarbonisation of the energy sectors.

In this complex policy context, the JRC supports relevant Commission services in designing policies to meet those targets. This is done through the analysis of a wide range of impacts of various policy options and of the most appropriate pathways to achieve the energy and climate change objectives in an economically efficient manner. To this end, the JRC develops, maintains, updates and applies a quantitative toolset consisting of models of distinct scopes and levels of details, which are then exploited in impact analysis for the European Commission.

Impact analysis studies

The JRC provides EU policymakers with a consistent set of scenarios and the resulting analysis of possible developments of the energy sectors under a number of distinct assumptions, illustrating a portfolio of policy options. These scenarios can take into account possible contributions of (innovative) low-carbon energy resources and energy conversion schemes, both on the supply and demand sides. Furthermore, specific attention may be needed to some energy-intensive industries.

Those scenarios form the basis of an analysis of the European energy sector that can hint at the impact of combined or single policy and/or technology options on reducing the primary energy external dependency of the EU, decarbonising the energy sectors, and fulfilling the EU international obligations on environmental protection, including compliance with the Kyoto Protocol and longer term goals to reduce greenhouse gas emissions.

Besides the analysis of energy and climate policy options at EU-level, the JRC has tools that allow studying similar questions at global level. These are the cornerstone of the JRC's support concerning international climate protection negotiations that require that the Commission develops its own know-how in projecting carbon and other greenhouse gas emissions at world level.

JRC also assists the Directorate-General for Climate Action with the participation on workshops, conferences, and debates aimed at conceiving, implementing/monitoring environmental policies (climate change) at international, national and sectoral level.

Within this area the JRC also

  • Analyses future emission reduction pathways, the policy instruments to attain them and an estimation of the mitigation costs, in view of the post-2012 United Nations Framework Convention on Climate Change (UNFCCC) negotiation rounds.
  • Supports the definition of the climate policies of EU Member States via the European Taskforce on Modelling and Analysis (ETMA) of the EU Expert Group on Further Action (EGFA), studying and assessing different emission reduction scenarios.
  • Supports the implementation of the EU SET-Plan by contributing to the SET-Plan Information System (SETIS) with the requested European energy scenarios.
  • Carries out the studies and analysis of emissions from non-Emissions Trading System (ETS) sectors (residential and transport) required by the Directorates-General for Climate Action and Energy for policy assessment purposes
  • Assesses the impacts and market uptake of new technologies (e.g. renewables) relevant to the energy sector

Modelling and reference data

The JRC develops and manages models to support the energy sector impact assessments and prepare evidence for political decision-makers on the advantages and disadvantages of possible policy options and scenarios.

JRC modelling capacity is used for sectoral models in key areas such as energy. The work also focuses in producing high-quality data needed for the modelling activities. Building a strong base of modelling capacity permits to interface sectoral models and respond to high-level policy challenges. 

Some examples of models developed and maintain at JRC are:

  • Model E: a series of partial and general equilibrium models targeted to address issues related to carbon-intensive sectors.
  • GEM-E3: an applied general equilibrium model that covers the interactions between the Economy, the Energy system and the Environment. It is well suited to evaluate climate and energy policies, as well as fiscal issues.
  • The POLES model: a simulation model for the development of long-term (2050) energy supply and demand scenarios for the different regions of the world. The development of the model and of the corresponding scenario studies intends to fulfil five main objectives: detailed world energy system scenarios, strategic areas for emission control policies, analysis of technologies development, assessment of Marginal Abatement Costs for CO2 emissions and simulation of emission trading systems, and impacts on international markets and price feedback.
  • The JRC-EU-TIMES is a linear optimisation bottom-up technology energy system model. It covers the EU28 energy system plus Norway, Switzerland, Iceland and the Balkan countries from 2005 to 2050, modelling technology uptake and deployment and its interaction with the energy infrastructure. The model considers both energy supply and demand and includes the following seven sectors: primary energy supply, electricity generation, industry, the residential sector, the commercial sector, agriculture and transport. The model is designed for analysing the role of energy technologies and their innovation for meeting Europe's energy and climate change related policy objectives. It models technology market uptake and their interaction with the energy infrastructure including storage options in an energy systems perspective. It is a relevant tool to support impact assessment studies in the energy policy field that require quantitative modelling at an energy system level with a high technology detail.
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