Fuelling Europe’s Future: How the transition from oil strengthens the economy

Cambridge Econometrics and Element Energy were commissioned by the European Climate Foundation (ECF) to assess the likely economic impacts and the transitional challenges associated with decarbonising the European car fleet in the medium term (to 2030) and the long term (to 2050).

A scenario approach was developed to envisage various possible vehicle technology futures and then economic modelling was applied to assess impacts.

The integrated modelling framework involved (i) application of a vehicle stock model to assess the impact of alternative low-carbon vehicle sales mix on energy demand and emissions, vehicle prices, technology costs and the total vehicle cost of ownership and (ii) application of the E3ME model to assess the wider socio-economic effects of the low-carbon vehicle transition.

How E3ME was used?

Some of the outputs from the vehicle stock model (including fuel demand and vehicle prices) were used as inputs to E3ME, which has full representation of the linkages between the energy system, environment and economy at a global level.

The high regional and sectoral disaggregation (including explicit coverage of every EU Member State) allows modelling of scenarios specific to Europe (and allows the disaggregation of results down to Member State level, although for this analysis we report only two aggregated European regions) and detailed analysis of sectors and trade relationships in key supply chains (for the automotive and petroleum refining industries).

E3ME was used to assess how the transition to low carbon vehicles affects household incomes, trade in oil and petroleum, consumption, GDP, employment, CO2, NOx and particulates.

Key findings:

  • Jobs are created by increased spending on vehicle technology, but more importantly by a shift in spending away from imported fossil fuels and back towards other areas of the European economy.
  • In scenarios in which the Internal Combustion Engine is either optimized or hybridized, the yearly cost of running and replacing the EU car and van fleet is reduced by €36 billion and EU-wide employment increases by 500,000 to 660,000 in 2030. This takes account of jobs lost in the transition, such as in refining.
  • In scenarios in which Europe moves rapidly to a fleet of advanced hybrid, battery-electric and fuel-cell vehicles, EU-wide employment increases by 850,000 to 1.1 million in 2030. By 2050, jobs increase by 1.9 million to 2.3 million in all low-carbon scenarios examined.
  • The fuel bill for Europe’s car and van fleet is reduced by €58 – 83 billion in 2030 by a shift to low-carbon vehicles, and by €115 – 180 billion in 2050. (excluding taxes and duties)
  • While jobs are created and spending on oil imports is reduced in all low-carbon scenarios, CO2 is also cut by between 64 per cent and 97 per cent in 2050. Air quality is significantly improved, with emissions of health-damaging particulates down by 73 – 95 per cent by 2050.
  • Demand is reduced for a small fraction of auto sector professions, and some skill shortages also emerge during the transition. The pace of change is likely to allow time for the development of the relevant new skills in Europe, if industry, governments and academic institutions start planning now.

Recent applications of E3ME include:

  • assessing the economic impact of renewables for IRENA
  • contributing to the EU’s Impact Assessment of its 2030 climate and energy package
  • evaluating the economic impact of removing fossil fuel subsidies in India and Indonesia
  • analysing future energy systems, environmental tax reform and trade deals in East Asia
  • assessing the potential for green jobs in Europe
  • evaluating the economic aspects of the Energy Efficiency Directive as part of an EU impact assessment