Camecon_Energy transition and inflation_Dec23_final

An analysis by the European Central Bank on ‘energy price developments in and out of the pandemic’ suggests that countries that relied more on renewable energy sources or domestic energy production were less exposed to the fluctuations of global energy markets, and that increasing decarbonisation of the energy system and increasing energy efficiency could reduce consumer energy prices in the long. [...] A variant of the 1.5°C scenario with the same shocks to oil and gas prices (see below) The oil and gas price shock simulated in the model is derived from historical data on global commodity prices of crude oil and natural gas during the 1970s crisis, from The Energy Institute’s Statistical Review of World Energy Data6 and the US Energy Information Administration (EIA)7. [...] The model produces a range of macroeconomic indicators to evaluate the projected impacts of the price shocks: GDP – a measure of the size of the economy in monetary terms, defined as the sum of household consumption expenditures, capital investment, government final spending and net trade. [...] The model projects negative economic impacts from the prices shocks: In the STEPS scenario without accelerated climate action, the most severe GDP impacts of a global oil and gas shock are observed at the peak of the assumed gas price trajectory, with a -10% difference from baseline around 2035, and a -8% difference by 2040. [...] The high prices of oil and gas are projected to lead to a substitution by coal in the STEPS scenario, whereas in the 1.5°C scenario the substitution towards coal is only expected in the medium term and there is a much bigger move towards renewables.