Just E-volution 2030: The study’s ten key findings

A new joint research by Italian think-tank The European House Ambrosetti (TEHA) and Enel, with the scientific contribution of Enel Foundation, examines the socio-economic impacts of the energy transition in Europe. Here are the 10 key findings of the study:

1. Global, European and national institutions are in the front lines in supporting the pathway toward transformation of the global energy sector from fossil-based to zero-carbon.

The energy sector is currently in the midst of a profound change where technology is revolutionizing the way energy is produced, distributed and consumed and it is opening the door to business models which, only a few years ago, were unimaginable. Global, European and national institutions are aware of this deep change and set targets going in the direction of decarbonizing the economy, including the energy sector. At the international level, the ambitious target set by the COP21 in Paris is setting in motion policy makers worldwide, who are working on policies and measures able to “hold the increase in the global average temperature to well below 2 °C above pre-industrial levels” pursuing efforts to limit the temperature increase to 1.5 °C. At the European level, targets for decarbonization by 2030 call for a reduction of 40% of GHG emissions compared to 1990 levels, a 32% share of renewable energy sources in final energy consumption and a 32.5% improvement in energy efficiency. With the EU targets in mind, each Member State is setting its own national targets in their National Energy and Climate Plans.

2. Beyond policy targets, citizens are more and more concerned about sustainability and resilience, thus creating a favorable economic and societal context for the energy transition.

Beyond policy targets set at international, European and national level, there are seven socio-economic trends, spurring the energy transition:

• New lifestyles: visible negative impacts of non-decarbonized and not-sustainable          economies (climate change, pollution-related diseases, impacts of air pollution on flora and fauna, etc.) are raising concerns among citizens, bringing them to behave in a more sustainable way.
• Green Generation: younger generations are the most sensitive to the urgency of energy transition. They strongly believe that protecting the environment and fighting climate change should be a priority for the European Union in the years to come (67% of respondents to a survey made by the European Commission put this issue in the first place of policymaker’s agenda).
• Digitalization: it is changing the way energy is generated, transported and consumed, making it more connected, intelligent, efficient, resilient and sustainable.
• Reduction of technological cost: technological progress in the energy sector can be considered the first technological enabling condition to put in place actions aimed at reaching policy targets. The decreasing cost of technologies can significantly accelerate the energy transition.
• Increasing attention to Corporate Social Responsibility: over the last years, also companies’ approach towards sustainability has changed in order not only to meet targets set by national and international institutions and company duties but also to reap all the benefits stemming from sustainability practices (i.e. gaining competitive advantage and increasing productivity). Istat (the Italian National Institute of Statistic) recently realized a survey among Italian companies about their orientation towards sustainability. The results of the survey allowed to group companies in four categories (unsustainable, low-sustainable, medium-sustainable and high-sustainable companies), according to the number of activities undertaken to promote sustainable development. Then, the study shows that medium-sustainable companies have a productivity 7.9% higher than unsustainable companies. The percentage increases to 10.2% when considering the cluster of high-sustainable companies.
• Green investment: green investment assets are steadily increasing globally, with some regions demonstrating stronger growth than others, setting a favourable context also towards a zero-carbon economy (the largest increase was in Japan, where sustainably managed assets grew more than 300 times over the period 2014-2018).
• Circular Economy: it entails the rethinking of energy production and supply systems by using local resources that otherwise would be wasted (e.g. use of domestic and industrial organic waste to produce heat and electricity).

3. There are seven features that make the electric carrier pivotal for energy transition.

There are seven reasons why the electric carrier is pivotal for the energy transition, while favouring the achievement of European and national policy targets:

•  It allows to reduce CO2 emissions when electricity is generated through an energy mix integrating a significant share of renewables and it enables the reduction of pollutant emissions improving air quality, in particular in urban areas.
•  It reduces noise pollution, limiting annoyance, stress and sleep disturbance with their consequent risk of hypertension and cardiovascular disease, thus improving the quality of life in urban areas.
•  It offers several opportunities to improve the resilience and security of supply of the energy system, thanks to its versatility, flexibility and integration of renewable energy sources.
•  It provides higher level of energy efficiency, reducing the energy demand and the GHG emissions; if compared with traditional thermal technologies, the electric ones perform better in terms of energy efficiency.
•  It can be easily integrated with digitalization, enabling more effective management and higher efficiency of the energy system.
•  It stimulates innovation and sustainability in lifesyles and industrial processes.
•  It can play an important role in favouring and supporting the Circular Economy, thanks to the innovation in renewable energy production, energy storage and structural changes in the system (shift from a centralized to a decentralized electricity system).

4. An innovative assessment model has been devised to evaluate the socioeconomic impacts of the energy transition at 2030 in the EU28 and in Italy, Spain and Romania.

The quantitative assessment of the socio-economic impacts of the energy transition is pivotal to guide policymakers’ agendas in order to ensure a transition “just for all”. With this purpose in mind, an innovative assessment model has been devised, aimed at evaluating the socio-economic impacts of the energy transition enabled by electrification at 2030. The model focuses on the European Union as a whole and three countries of interest, Italy, Spain and Romania, providing outcomes in terms of production value and employment. The time-frame of reference is 2030. From a methodological point of view, the model combines a micro and macro approach, dealing with the analysis of all 3,745 products and technologies that characterize European industrial production, combined with a deep analysis of the existing literature, desk analysis and interviews with the expert panel.

5. The net effect of the energy transition on existing technology value chains will be increasingly positive at 2030 in the European Union, Italy, Spain and Romania.

In the first part of the analytical assessment model, only the extended value chains have been considered, specifically the Research & Development, Manufacturing and Distribution, Sales and Aftermarket. The production values and employment of electric, thermal and neutral technologies at 2030 have been derived according to the evolution of final energy demand in three different scenarios (EU Reference Scenario, EUCO3232.5 Scenario and Eurelectric Scenario), implying a different growth of electrification with an ad hoc algorithm for some electrification bundles leading the transition (solar panels, heat pumps, electric motors, electrical storage systems – batteries, LED lamps, power electronics, wind turbines). The production value of electric technologies will increase at 2030 in all economies considered:

• European Union: from +118 billion (in the EU Reference Scenario) to +199 billion Euros (in the Eurelectric scenario) between 2017 and 2030.
• Italy: from +11 billion (in the EU Reference Scenario) to +25 billion Euros (in the Eurelectric Scenario) between 2017 and 2030.
• Spain: from +7 billion (in the EU Reference Scenario) to+12 billion Euros (in the Eurelectric Scenario) between 2017 and 2030.
• Romania: from +1 billion (in the EU Reference Scenario) to +3 billion Euros (in the Eurelectric Scenario) between 2017 and 2030.
  
  

These increases more than outweigh the expected decrease in production value for thermal technologies in all economies considered at 2030:

• European Union: from -71 billion (in the EU Reference Scenario) to -119 billion Euros (in the Eurelectric Scenario) between 2017 and 2030.
• Italy: from -3 billion (in the EU Reference Scenario) to -8 billion Euros (in the Eurelectric Scenario) between 2017 and 2030.
• Spain: from -5 billion (in the EU Reference Scenario) to -9 billion Euros (in the Eurelectric Scenario) between 2017 and 2030.
• Romania: ~1 billion Euro in the three selected scenarios between 2017 and 2030.

The production value for neutral technologies has been estimated to experience a growth at 2030 spanning from +207 billion Euros to +330 billion Euros in the European Union, from +25 billion Euros to +48 billion Euros in Italy, from +17 billion to +28 billion Euros in Spain and from +1 billion Euro to +8 billion Euros in Romania.

6. The energy transition is enabling the creation of new digital services.

Digital services will have a crucial role in fostering the energy transition currently underway. A few services related to energy transition are progressively being deployed today and are characterized by a high potential in the upcoming years thanks to technological and digital progress. Among these, the following services have been identified:

• Power system energy storage technologies.
• Smart network management.
• Demand Response.
• Sharing platform.
• Home to Grid.
• Vehicle-Grid Integration.
• Domotics.
• Sensor systems.

The quantification of the additional value generated by the digital services activated at 2030 has moved from the estimation of the additional revenues in the transport sector at global level. In particular, the model considered the following digital services within the transport sector: electric batteries technologies, vehicle to grid, vehicle to vehicle, vehicle to home, mobility sharing platform and vehicle sensor systems, whose overall value is equal to 250 billion Euros at 2030.

The hypothesized scenarios for the European Union, Italy, Spain and Romania have been derived by rescaling the global estimates, using the share of value added generated by digital services in each single country on the basis of their value added in 2017. The production value at 2030 of these additional services that could be created in the near future (marketed in the next 3 to 5 years) amounts to 65 billion Euros in European Union, 6 billion Euros in Italy, 4 billion Euros in Spain and 1 billion Euros in Romania. The fact that some digital services are still in a preliminary phase of development and the literature on this topic is limited might lead to an overall underestimation of the value of digital services at 2030.

7. The overall net effect of the energy transition will be increasingly positive at 2030 both in terms of industrial production and employment in the European Union, Italy, Spain and Romania.

The final net effects on production value range between +113 billion Euros and +145 billion Euros for the whole European Union at 2030. In Italy, the net effects of the energy transition on production value have been assessed to be in the range of +14 billion Euros/+23 billion Euros, while in Spain the differential impacts span from +7 billion Euros to +8 billion Euros at 2030. Finally, in Romania the final net effects are estimated to be +2 billion Euros/ +3 billion Euros.

The final net impacts on employment show an overall positive effect for the European Union and Italy, Spain and Romania. In the European Union, energy transition generates a final net impact ranging from +997,000 employees to +1.4 million employees at 2030. In the three selected scenarios, in Italy, the net employment gain accounts from more than +98,000 employess to +173,000 employees at 2030, while in Spain the effect ranges from +73,000 to +97,000 employees. Finally, in Romania the net effect spans from +30,000 to more than +52,000.

8. The energy transition through electrification will improve air quality, which in turn positively affects human health and socioeconomic costs.

The electric carrier enables the reduction of pollutant emissions improving air quality, in particular in urban areas. The impact of the energy transition on air quality has been assessed for the European Union, Italy, Spain and Romania by considering emissions from transport and residential sectors, which together account for more than 50% of the EU total emissions. In particular, the substitution of thermal technologies with electric ones in transport (electric vehicles) and residential sectors (heat pumps) is able to reduce premature deaths in the European Union, Italy, Spain and Romania, respectively by 5,000, 1,000, 500 and 170 units at 2030. Moreover, costs related to air pollution in European Union could be reduced from a minimum of 1 billion Euros to a maximum of 2.9 billion Euros at 2030.

9. In order to reap the benefits associated to the energy transition in the medium-long run, policymakers have to face two key challenges: preserve European industrial competitiveness and avoid negative distributive effects.

On the one hand, energy transition has to preserve European industrial competitiveness, while creating the condition for enhancing industrial competitiveness in the global scenario. It means managing the reduction of industrial production related to thermal technologies and sustaining the conversion of existing value chains towards electric technologies, by guaranteeing adequate investment levels and facing skills mismatch. On the other hand, it has to avoid negative distributive effects across different socio-economic dimensions, preventing an unfair distribution of costs and guaranteeing equal access to the benefits generated by the energy transition among different areas (e.g. cities and rural areas) and population segments.

10. Four policy matters have been identified in order to effectively tackle the challenges related to energy transition and redistribute its benefits by ensuring a transition “just for all”.

1. Supporting the deployment of electric technologies by promoting an effective value chains conversion towards electric technologies. Some target actions to achieve these objectives consist in introducing energy transition investment bonds, innovative financial schemes for mature technologies along the overall electricity value chain, promoting campaigns to raise awareness of the advantages associated to electric technologies and enhancing, at country-level, National Energy Clusters with a specific focus on electrification technologies.
2.  Managing job losses and increasing job opportunities and addressing the issues of re-skilling and up-skilling. This could be done through social measures for workers in sectors with higher risk of substitution, a European Energy Transition Fund, new educational programs identifying and anticipating the skills needed for energy transition, exchange programs focused on energy transition and awareness campaigns.
3. Addressing the issue of energy poverty, introducing an official composite index for measuring energy poverty in Member States, as a premise for national policy frameworks to address it, enhancing a target program to retrofit existing buildings to a high efficiency standard, promoting measures to inform consumers and fostering social tariffs or energy subsidies for low-income households.
4. Promoting a fair redistribution of costs associated to the energy transition, revising cost items within electricity bills and discharging them from unproper taxes and levies.

A final recommendation is to identify best practices put in place at the international level to effectively manage the transition period and transposing them at EU28 level and its Member States.