A fair low-emission transition of the power market (FAIRPOWER)

This project aims to assess how an accelerating low-emission transition ahead may have undesired distributional impacts. A key challenge is to design compensatory policies that do not set the transition nor other energy policy goals at risk. The project seeks to advance the knowledge base relevant to this policy dilemma for Norway through 3 integrated Work Packages: In Work Package 1 we model economic scenarios for how the power markets may respond to low-emission strategies. The scenarios will capture direct and indirect impacts on the power markets of changes taking place in relevant Norwegian sectors and across borders. For many Norwegian sectors, a key element in the transition will be switching from fossil fuels to renewable electricity. Scenario analysis is a method for investigating key uncertainties, inter alia, depending on how Norway coordinates its climate policies and integrates its markets internationally, not least with Europe. With the scenarios as a backdrop, Work Package 2 will investigate how the low-emission transition will affect the welfare of different household groups. The households will be distinguished by a variety of attributes, like income, where they live and work and their available technologies and energy sources for heating and transportation. For this purpose, we are building a new household model that can be linked to the economic scenarios. This work is somewhat delayed by unexpectedly slow access to data from the last Household Expenditure Survey. In Work Package 3, the results from the previous steps will be used to analyse compensatory schemes. Under this task we are surveying recent years’ implementation of compensatory policies and compare the driving forces behind their design and how they perform in terms of fairness concerns, total economic costs and key energy and climate policy goals.

The recent energy price peaks have called attention to how an accelerating low-emission transition ahead may have undesired distributional impacts. A key challenge is to design compensatory policies that do not set the transition nor other energy policy goals at risk. FAIRPOWER seeks to advance the scientific knowledge base relevant to this policy dilemma through 3 research steps. Main outcomes of Work Package (WP) 1 will be scenarios for how the power markets respond to low-emission strategies. The case is Norway, who aims to substantially electrify the economy. The use of a multisectoral, multiregional macroeconomic model system will capture interrelated adaptations across all sectors, indirect power market feedbacks and Norway’s dependency on the EU’s low-emission strategy, given their partly integrated power markets and common climate policies. The scenarios will reflect the uncertainty about how these international political and economic relations will evolve. WP2 will investigate distributional impacts of the low-emission transition, both across income groups and across households distinguished by a variety of attributes within income groups, incl. region, job sector and heating equipment, household composition and residential characteristics. The research will methodologically go beyond state-of-the-art by building a microsimulation model with better data, more details and simultaneity. With the consistent macroeconomic scenarios as a backdrop, we will study distributional impacts of simultaneous changes affecting households through consumer prices, investment costs and income elements. WP3 will use the results from WP1 and WP2 to analyse compensatory schemes. First, we will survey and analyse European recent compensatory policies. Based on this insight we will investigate how various designs can balance fairness concerns against the low-emission transition and other energy and climate policy goals in the Norwegian setting and under different scenarios.