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. It is a Collaborative project to meet societal and industry-related challenges It involves national and international researchers, as well as user partners from relevant ministries and public agencies; the NGO Norwegian Society for the Conservation of Nature is also a user partner. The partners meet several times a year for workshops and information exchange, where both researchers and user partners prepare presentations and contribute to discussions on the research. The work in Fairpower is organised in 3 integrated work packages: In Work Package 1 we model economic scenarios for how the future power markets may respond to low-emission strategies. The power markets will be directly affected and indirectly, via other markets nationally and internationally. Key elements in the transition will be switching from fossil fuels to renewable electricity and improved energy efficiency. To illustrate that the development is uncertain and depending on how Norway coordinates its climate policies and integrates its markets internationally, scenario analysis is performed. Drafts on the energy market scenarios are in process, they are presented at conferences and workshops, and one is already submitted to a journal with peer-review. In Work Package 2, we analyze how different household groups are affected by the energy transition, with particular emphasis on the distributional impacts of rising energy prices. The effects vary depending on household income, place of residence and work, as well as the technologies and energy sources used for heating and transport. The analyses draw on register data from automatic electricity meters for all Norwegian households, linked with register data on income, household composition, and housing conditions. We exploit geographical variation in electricity price increases to estimate causal relationships between price changes and electricity consumption across different household groups. These estimates feed into a new household model that can be linked to the economic scenarios. In Work Package 3, the results from the previous steps are used to analyse compensatory schemes. Under this task we are surveying recent years’ implementation of compensatory policies and comparing the driving forces behind their design, how they perform in terms of fairness concerns, their total economic costs and key energy and climate policy goals. One of the tasks has involved a survey-experiment to examine attitudes towards different designs of electricity support schemes, as well as misperceptions about the distributional impacts of the schemes and what incentives the schemes create for energy conservation. The results are published in a peer reviewed journal article. In another task, we use the household model developed in Work Package 2 to simulate effects of alternative support schemes to compensate households for higher electricity prices. We analyse distributional impacts within and across income groups and explore how different designs can balance the aim of protecting vulnerable households against high electricity prices with the aim of maintaining incentives for energy conservation. The study is published in a journal with peer-review. A paper draft is ready that describes the demand response estimations, the household model and simulations of compensation schemes. It is accepted for presentation at a forthcoming scientific conference. We have also finalised an in-depth study of the compensatory policy-making process in Norway, which is submitted to a journal with peer review. In addition, we are working on a comparative study of the processes in Norway and Sweden.

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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.