Frank Oliver Konga

Which economic aspects would have thegreatest impact in the European Union forswitching from traditional to renewable energy?
Subtitle

Helsinki Metropolia University of Applied Sciences
European Management
Bachelor of Business Administration
25 April 2018

Abstract

Author(s)Title
Number of Pages
Date

Frank Oliver Konga
Which economic aspects would have the greatest impact in theEuropean Union for switching from traditional to renewable energy?
40 pages + 1 appendice
25 April 2018

DegreeBachelor of Business Administration

Degree Programme

European Management

Specialisation option

Finance and Banking

Instructor

Kevin McIntire, Senior Lecturer

Keywords

Renewable, Energy, Economic

Contents

1

Introduction

1

2

Methodology

2

3

Climate Change

3

4

Traditional Energy “Fossil Fuels”

4

4.1

Coal

5

4.2

Oil

6

4.3

Natural Gas

7

Renewable energy

7

5.1

Solar

9

5.2

Wind

9

5.3

Hydroelectricity

10

5.4

Geothermal

11

5.5

Biomass

11

6

Peak Oil theory

12

7

Biogenic vs Abiogenic Petroleum

14

8Electric Vehicles

159Europe 2020

16

9.1

Progress

17

Economic aspects

18

5

10

11

10.1 Renewable Energy Price Competitiveness18

10.2 Stranded Assets

22

10.3 Carbon Leakage

24

Conclusion

27

References

29

Appendices
Appendix 1. Empirical Studies Provide Limited Evidence of Carbon Leakage

List of figures
Figure 1. World oil demand estimation comparison (BP, 2018)
Figure 2. Global EV Outlook 2017, International Energy Agency, 2017. (IEA, 2017)
Figure 3. Global levelized cost of electricity from utility-scale renewable power generation technologies, 2010-2017 (IRENA, 2017)
Figure 4. Net electricity generation, EU28, 2015. (Eurostat, 2017)
Figure 5. World total primary energy supply (TPES) by fuel, 2015 (IEA, 2017b)

1

1

Introduction

Climate change is the most crucial challenge the humankind currently faces and thetransition from traditional to renewable energy is seen as the solution. This thesis aims
to bring attention to what the author believes to be the most important economic aspects to consider in the European Union regarding the shift towards a renewable energy future.
Firstly, the methodology of the thesis will be discussed, allowing the reader to understand the technique for testing the points brought forward by the author. The hypothesis proposed by the author is that renewable energy price competitiveness, stranded
assets and carbon leakage are ultimate aspects to consider when switching to a fully
renewable energy system in the European Union.
Following the methodology will be the literature review, where the first topic of climatechange will be investigated. Interesting data and facts will be uncovered and the importance of the need for a low carbon economy will be brought forward. Ensuing thorough description of the current traditional sources of fossil fuel-based energy will be
introduced and dissected, providing the reader an overview of the pros and cons of ourcurrent coal, oil and natural gas resources. Renewable energy and its various forms
will be next, allowing a glimpse of our future energy system and bringing up valuable
background knowledge about the advantages and limitations of each. Controversial
Peak Oil theory will be examined, presenting the reader with a rift in current understanding of the full availability of petroleum resources. Rather niche and upcoming topic of the origin and potential renewability of fossil fuels will be quickly brought to light,
followed by a more popular and recent topic of electric vehicles and the pressure theybring on the current transportation and energy sector. Finally, the Europe 2020 strategy
will tie up the previous topics and concentrate the reader’s attention back on our own
member states and their progress in adapting to the change.
Analysis of the three proposed economic aspects is left in the end of the thesis, validating the previous review of literature, challenging the hypothesis and bringing the topic
to a resolve. Customarily, outcome and findings are presented in the conclusion, guiding the reader once more through the discussion and presenting any possible discoveries.

2

2

Methodology

Based on qualitative research, this thesis aims to answer the research question proposed by the author: Which economic aspects would have the greatest impact in theEuropean Union for switching from traditional to renewable energy?

Consists primarily of secondary data collected from a range of studies, books, research
papers, online sources and academic journals to grant a complete outlook on the subject. Various relevant resources were found that support the topic and provide an unbiased and complete view of the literature review. Slight risk of choosing mainly secondary data for conducting the analysis is obvious, however, the author has considerably
reduced it by providing a broad collection of reference material from different sources
and backgrounds, therefore diminishing any possible error.

3

3

Climate Change

Since climate change has been the main underlying cause for switching from traditionalenergy sources to renewable energy, the author has decided it to be a crucial component of this thesis.

Scientific consensus holds that manmade climate change, also known as global warming, is affecting all of us at an alarming rate (NASA, 2018). Global warming, as thename implies, is the gradual increase of temperature of the globe and is caused by anoccurrence called the greenhouse effect. Gases such as carbon dioxide (CO2) methane (CH4), ozone and nitrous oxide (N2O) are the primary greenhouse gases(GHGs). Solar radiation emitted from the sun hits the earth’s surface, causing heat andradiation to bounce back towards space. Fortunately for life on earth, just enough ofthis heat gets trapped by the atmosphere and provides us with the climate and living
conditions we have today. However, greenhouse gases obstruct the so-called escapeof radiation, trapping the heat close to earth and increasing the overall temperature of
the planet. To put the increase of GHGs in perspective, from 800 thousand years ago
till the beginning of the industrial revolution, the amount of CO2 particles in the atmosphere was around 280 parts per million (ppm). Nowadays, the amount is around 400
ppm. Such an increase is clearly not natural and can be attributed to the rising temperatures of our oceans and the environment in general (Pappas, 2017). Second prevalent
GHG is methane, which is over 20 time more potent than carbon dioxide. Although,methane is a naturally occurring greenhouse gas such as CO2 and N20, human activity has influenced its concentration in the atmosphere considerably (EPA, 2014).

The effects of global warming are not limited to the rise in temperatures, which is why
scientists and researchers nowadays find it more suitable to call it climate change.
Though temperatures are rising around the planet, the change causes adverse effects
such as massive snow storms and hurricanes. Climate change is continuing to melt ice
caps, increasing the size of already enormous dry and barren areas such as the
Sahara Desert and acidifying the oceans. Most noticeable result is the decrease inpolar ice caps and glaciers which have already been in slow decline since the last Ice
Age, yet another natural process artificially accelerated by humans (Pappas, 2017).

Additionally, further indications of man made climate change is presented by theCopernicus Climate Change Service, showing how 2017 was the second year, after42016, to break global temperature records (Doyle, 2018). One major contributor to themassive increase in carbon dioxide levels that are agreed to be the main culprit, is theway we produce electricity (NRDC, 2016).

4

Traditional Energy “Fossil Fuels”

Traditional energy sources, also referred to as fossil fuels, are sources of energy thathave been most commonly used throughout the human history. These sources ofenergy are non-renewable, meaning that the amount available is finite and thereplenishment of said fuels extremely slow. As the name implies, fossil fuels are madeup of ancient fossilised animal and plant matter decomposed and collected overmillions of years. These organisms used a process called photosynthesis, throughwhich they stored energy collected from the sun. Once dead, the organic matter
retained some energy captured and fell to the ground or sunk to the bottom of swamps
and peat bogs, causing them to pile up and get covered over time. Decomposed andconstantly covered over millions of years, the matter was subject to various heat andpressure, over time, causing it to develop into different types and forms of fossil fuels;
coal, petroleum (oil) and natural gas. Despite the growing support for renewables,
supporters of fossil fuels argue that it is neither reasonable nor intelligent to expect an
immediate retreat from current traditional energy sources, stating the unreliability, costand inefficiency of renewable. Defendants of fossil energy point to growing energy
demands that according to the International Energy Outlook 2017 report by the UnitedStates Energy Information Administration will rise 28% by 2030 (EIA, 2017a).
Additional information regarding population growth demonstrates that with the global
total population predicted to increase from the current 7.6 billion in 2017 to 9.5 billion
by 2050 (UN, 2017) is a clear indication of the necessity of fossils and our short tomedium term dependence on tradition energy sources.

Recent predictions by BP, the sixth largest oil and gas producer in the world, state thattraditional energy sources such as coal, oil and natural gas will provide 75% of the totalenergy consumption in 2035, despite the surge in renewable energy. Total yearly
increase in CO2 emissions is projected to slow to 0.6% compared to the 2.1%
currently, which still results in a 13% increase by 2035 compared to present levels(IER, 2017).

5

Fossil fuels have been the staple, inexpensive, accessible and preferred way of energy
production for the past half century, mined and extracted from vast reserves foundthroughout the globe. Value of the fuel has been generally affordable because ofabundance, low cost of extraction, transportation and government subsidies, therefore,
providing humanity with an inexpensive way to generate energy and provide services.
Producing energy from fossil fuels is achieved by burning the fuel and causing heat,
which is either utilised directly with furnaces or pushed through a turbine to produce
electricity. Heat energy of fuels is often measured in British thermal units (Btu) with one
Btu regarded as the heat needed for the temperature for one pound of water toincrease one-degree Fahrenheit (AGA, 2018).

4.1

Coal

Coal is a widely established type of fossil fuel, generally made up of carbon andhydrogen, with a small amount of sulphur and heavy metals present. Coal is most often
used in electricity generation through combustion. Abundance and energy density has
promoted coal to become the most commonly used fossil fuel in the world. Due to thenature of its components, it is considered the largest contributor of carbon dioxide
emissions in the world.

Not all coal is created equal. The different types of coal include; peat, lignite, subbituminous, bituminous, anthracite and graphite. Such distinctive categories are due tothe energy density of each material and carry various benefits and attributes to its use.
Lowest energy density is seen in peat, the source material of coal, and is used as lowgrade fuel in district heating and home furnaces. Generally, the deeper coal is found,the more pressure, time and temperature it has endured, resulting in better combustion
capability. Peat being mostly decomposed plant matter found in wet environments
close to the surface, with minimum 30% of deceased organic matter and withheld fromoxygen, is not very energy dense.

Since it requires temperatures high enough todecompose, yet low enough to do it over a long-time span, it is most often found in theNordic hemisphere (IPS, 2018). Second lowest by quality is lignite, sometimes referred
to as brown coal, which is soft and crumbly material situated closer to the surface as
the higher quality coal. Due to its low quality and extremely polluting properties, lignite
is most often used in generating electricity close to its extraction points and rarelytransported further (Lyons, 2017). Better quality source of energy such as subbituminous coal is more often used in energy production, specifically to produce steam

6

for various steam powered engines and turbines. Sub-bituminous coal is also referred
to as black lignite, since it has similar characteristics with slightly older formation andhigher energy density. Although less polluting due to its lower levels of sulphur, subbituminous is of less energy dense and available than bituminous coal, which accounts
over 50% of reserves worldwide. (Kay, 2017). Bituminous coal derives its name fromthe presence of a high level of bitumen contained within the rock and provides two
specific applications for its use; thermal coal which is used for energy production
through steam engines and metallurgical coal, also known as coking coal, that is usedin iron and steel production. Besides graphite which is mostly used in pencils anddifficult to ignite, anthracite has the most optimal energy density and low emission
value when it comes to coal (EIA, 2018a). Coal is extracted either thorough mining thesurface layer by layer till the coal seam or going underground and excavating it throughdeep mines.

4.2

Oil

Petroleum, also known as oil or crude oil, is a fossil fuel that is found deep
underground in vast reservoirs, located both under the ocean and below ground.
Colour and density of petroleum can range from thick to thin, transparent to pitch black
all depending on the conditions it encountered over the millions of years (Micu, 2017).
Crude oil can be refined into various petroleum products such as gasoline, diesel fuel,heating oil, jet fuel, lubricating oils and asphalt to name a few. Historically, humans
have utilised oil for thousands of years and a multitude of purposes (NOIA, 2018).
Although, it was the ancient Chinese, back in 600 BCE that were first recorded using oil
for lighting purposes and transporting it through pipes made from bamboo, the big
breakthrough on a global scale happened in 1859 when an American by the name of
Edwin Drake successfully extracted it in Titusville, Pennsylvania (EKT, 2018). In thepast, lamps ran on whale oil which was highly dependent on the whale population thatwas being over consumed and alternatives such as coal oil were quite expensive.
Therefore, the popularity and adaptability of oil was greatly welcomed as kerosene
refined from crude oil was much cheaper and more convenient compared to whale oilthat had to be hunted and gathered through a laborious process and in limited
quantities. Kerosene was used and available before the discovery in 1859, although, it
was found mostly from tiny leaks that caused oil to seep to the ground or rise on top of
bodies of water in meagre quantities. By-products from the drilled crude were initiallydiscarded as there was little known use for them at the time. With the popularisation of

7

automobiles and increasing appetite for electricity, oil has become a staple in theworldwide energy mix. Nowadays, petroleum and its derivatives are extremely common
and are used for a number of purposes around the world. Oil remains the most usedfuel in the world and providing 32.9% of global energy consumption (WEC, 2016).

4.3

Natural Gas

Natural gas according to biogenic theory, along with coal and petroleum, developed
hundreds of millions of years ago from buried organic matter. As the name implies,
natural gas was formed in the form of gas instead of solid or liquid such as coal andpetroleum. Contrary to popular belief, the gas itself is transparent and odourless,however, mixed with chemicals that give it a rotten egg smell to warn and detect of any
leaks in the pipeline (EIA, 2018b). Natural gas flowing out of the drill sites is primarily
made up of methane, a highly potent greenhouse gas, as well as small amounts ofliquids and other gases that are later separated into valuable products such as
propane, butane, ethane and pentane (C2ES, 2018).

Discovery of natural gas dates to ancient times when people encountered flames
gushing out of the ground, often using these as sites of worship due to its mystical
grandeur. Practical use for the gas was first recorded in ancient oriental cultures, where
people used pipes to transport and burn the gas in salt production. Natura gas isgaining popularity in energy production, emitting half as much CO2 as burning coal andone third of that from petroleum. Natural gas use is gaining traction as emission
standards and climate change worries pressure industries to seek low emitting sourcesof energy. Replacing gasoline and diesel in heavy transport vehicles and making use of
combined heat and power (CHP) technology or cogeneration are just some of themany effective uses of natural gas (EERE, 2018). Common ways to transport natural
gas include pipelines and liquification where the gas is cooled to form liquid NaturalGas (LNG), which can then be easily shipped around the world (AGA, 2018).

5

Renewable energy

Renewables are considered a clean and “green” source of sustainable energy that canbe harnessed from natural sources such as wind, sun, water, plants and the earths

8own heat. Nowadays, viewed as the answer to climbing rates of greenhouse gases andpollution, renewable energy is gaining immense popularity and political support.
Offering a wide range of harnessing methods, it is suitable and useful technicallyeverywhere in the world. With costs of renewable technologies falling year after year,
the renewable counted for nearly two-thirds of net new power capacity installed in 2016
(IEA, 2018). With global energy needs rising by 30% by 2040, renewable energy isseen as the biggest push for a solution. Political support for renewables was cemented
in 2015 at the World Climate Summit in Paris, where the Paris Agreement was signedby 194 countries. The agreement is planned to begin 2020 and organises anunprecedented worldwide effort to combat rising emission and global temperaturelevels, work towards a low carbon economy and encourage vital innovation in finance,energy and technology sectors.

According to the new report published by the International Renewable Energy Agency(IRENA), titled Global Energy Transformation: A Roadmap to 2050, for the 195
members of the Paris Agreement to reach their climate goals of keeping the global
increase in temperature below 2 degrees Celsius by 2100 compared to 1990 levels, a
600% boost in renewable energy adoption needs to be achieved. The report states anincrease of investment towards better energy systems from the current $93 trillion to a
whopping $120 trillion is required, with additional $18 trillion suggested for power gridand energy flexibility projects. Such investments, according to the report, would not
only serve to fulfil the requirements of the Paris Agreement but generate a further 11
million new job opportunities in the energy sector, a net positive when considered thelosses of fossil fuel related employment. Another aspect of the IRENE report torecognise is the case for stranded assets, already invested money in fossil fuel related
energy generation, that are predicted to amount to $11 trillion of losses by 2050, withpossibility of doubling should the transformation of the energy mix be prolonged (Hill,
2018).

Besides the clear environmental benefits of renewables and the geopoliticaladvantages of domestic energy production, renewable energy is also economicallyattractive (Acciona, 2018). Estimations predict that should the share of renewables in
the global energy supply double by 2030, it would result in $1.3 trillion or 1.1% increasein global gross domestic product. Additionally, the total amount of people employed by
the renewable energy industry would be close to 24.4 million by 2030 (IRENA, 2016).

9

Worthy mention; China is leading the charge in renewable energy growth, accounting
for over 40% of capacity installed annually and firmly defending its place as the market
leader in hydro and bioenergy. Due to the immense influence on renewables, China isviewed as the biggest player on the market, deserving of special attention andencouragement as they navigate their way from a production to a service-based
economy all while leading the world through another energy revolution (IEA, 2017a)

5.1

Solar

Main types of renewable energy being harnessed nowadays include; solar, wind,hydroelectric, geothermal and various biofuels. All renewable technology is either
directly or indirectly influenced by the sun, specifically by its rays. The sun has beenaround long before we as humans set foot on this planet, warming, nurturing andlighting all life on earth. Knowledge of solar energy has been known since ancientcivilisations, where people positioned their houses and camps according to the path of
the sun, as a result, gaining valuable warmth during the cold winter months and shelter
from the rays during hot summers. Solar can be used either through passive means
such as taking advantage of energy efficiency gains from the position of the sun andthe material it reaches, or by photovoltaic (PV) technology such as the solar panel togenerate electricity and heat water. Photovoltaic technology has been used in space
exploration vehicles for its virtually endless supply of energy and relatively low-cost
maintenance. Collection of solar energy is generally achieved through a three-stepprocess, starting with a module that collects and transfers the sun rays into electricity,
an inverter that converts it into an alternating current suitable for domestic use andpossibly a battery to store excess energy. Solar technology has improved so
considerably that it is now possible to integrate solar panels inside windows, walls andeven roof tiles of the house (NRAL, 2001). Currently solar is the fastest and mostpromising form of renewable energy, representing the greatest share of new renewableenergy5.2

capacitytobeinstalled

for

the

cominghalfadecade.

Wind

Another classical representation of renewable energy is wind power, especially theimage of gracious white pack of turbines calmly rotating on vast fields and grasslands.
The basic technology behind wind power is rather old, dating back to the first sail boats

10close to 5000 BCE and the elementary wind mill designs used in ancient China andMiddle East (WEF, 2018). Using a rather straightforward system, power is generated
by wind rotating long blades connected a generator and monitored by a computer. As
the wind direction changes, necessary adjustments to the turbine are made to maintainmaximum efficiency. Wind turbines come in different shapes and sizes, together withvarious purposes ranging from grinding grain and pumping water for the livestock to
supplying electricity for whole households. Main wind turbine designs include thehorizontal axis and vertical axis variety, built both on- and offshore. Bigger turbines arealso more efficient, usually clustered together in assembles called wind farms. Albeit
the symbol of renewable energy, wind power carries certain surprising, yet obvious
limitations. Reliability of wind currents means that turbines commonly run below peakefficiency rates and leave the turbine operator fully exposed to weather risk (EREE,2018). Installation costs can be expensive, considering that the turbine needs to betransported often to remote wind plenty locations, possibly connected to the generalelectricity grid and granted various safety and municipal permits (Rinkesh, 2018).
Typically mentioned drawback of specifically larger sized turbines is the threat to local
bird population, as birds have died by being struck by the high-speed blades.
Regardless of these disadvantages, wind power is considered net positive for theenvironment and thus continues to gain momentum both in technological advancement
and popularity (Bratley, 2017).

5.3

Hydroelectricity

Most productive renewable energy source currently available is hydroelectricity, or
simply hydro, which accounts for 18.4% of global electricity production (CIA, 2018).
Typical hydropower plants require dams and large water reservoirs to be collected,
which means flooding sizable amount of land to store the water. Captured water is thendirected through the dam and past turbines that use such kinetic energy to run agenerator (Robinson, 2018). Applying a dam is considered damaging to the rivers
ecosystem and biodiversity (UCS, 2018) by restricting the natural movement of fish andminerals, which is why run-of-river, commonly referred to as damless hydropower
plants, are gaining popularity all over the world. This system works by redirecting,rather than storing, part of the river and using the force of gravity to power turbines(Turbulent, 2018). With over 3700 new hydropower dams planned to open in the next
10-20 years, over 700 gigawatts of capacity is predicted to hit the market, ensuring aconsiderable effort towards renewable energy (MIT, 2016).

11

5.4

Geothermal

Geothermal is perhaps the most promising type of renewable energy, converting heat
deep below the earths surface into steam that runs generators or simply directing hot
water to nearby households.
“The amount of heat within 10,000m of Earth’s surface contains 50,000 times more energy than
all the oil and natural gas resources in the world (UCS, 2018).

Such a natural resource is extremely lucrative for satisfying future energy demand anddivesting from our current fossil fuel backed economy. Geothermal energy does notnecessarily need to be harnessed close to volcanoes or cracks in the tectonic plates,
milder heat can also be accessed by heat pumps three meters below ground virtually
anywhere in the world. Such milder heat is useful for regulating the temperature athomes or offices and general direct heating purposes (UCS, 2018). Geothermal energy
also provides great supplementary baseload energy source to other renewables suchas wind and solar that rarely run at 100% capacity. For example, Iceland gets 66% of
their primary energy needs from geothermal and 19% from other renewables (NEA,
2018).

5.5

Biomass

Biomass, accounting for 15% of global energy supply (Altenergy, 2018), is dedicated toutilising various organic material that is otherwise simply discarded or left to rot. Food,plant and agricultural waste as well as algae and a wide range of organic waste
products can be reused after their life has come to an end (EIA, 2018c). For example,
leftover sticks, branches and pulp from the forestry industry can be used as fuel andtransferred into energy. Methane, or biogas, collected as the by-product of anaerobic
digestion at landfills can be refined and used as fertiliser, vehicle fuel or fed straight
into the natural gas pipeline. Major downside to biomass is the area it takes to growenergy crops such as corn and wheat, and as such should not be used as the main
source of energy but to complement and diversify other renewables and “recycle”
waste (Gasum, 2018).

12

6

Peak Oil theory

Peak Oil is a theory proposing the concept of peak, or max, supply of oil and theensuing irrevocable decline in production. First proposed in 1956 by an American
geologist and geophysicist called Marion King Hubbert, the theory predicted that theUnited States oil production would reach a tipping point in 1970, after which it would
start its slow decline till the resource was fully depleted. Hubbert also predicted that the
global oil supply would reach its peak close to 2010, which due to advances in oil
exploration and extraction technology, such as fracking, never materialised (Towler,2014).

Conventional drilling techniques took advantage of huge collected reservoirs of oil andgas captured by dense and nonporous rock formations, drilling vertically to reach thecore. Unconventional drilling, also known as hydraulic fracturing or simply fracking,allows access to deposits of much denser oil that is contained within shales and tightrock pores (MNGD, 2018). Fracking is exercised by pumping various chemicals andlubricants accompanied by water into these tight deposits and increasing the pressure,which as a result breaks open the tight pores and cracks allowing the mixture to bepumped back on land and refined. Since early 2000s, fracking has been exceptionallyeffective at allowing access to previously inaccessible oil and gas reserves, although,the environmental hazards such as chemical leakage, contamination of ground water
purifiers and escaping potent greenhouse gases such as methane cause it to be a very
controversial mode of drilling (Conca, 2017).

According to BP, growth of electric vehicle popularity, lowering of emissions intransportation sector, increased energy efficiency, rising demand for increase in air
quality and reduction in greenhouse gas emissions are all reducing the demand for oil
faster than the supply can deplete and thus, current focus should be directed towards
peak oil demand and diversification of the market rather than peak oil supply and its
eventual conclusion. BP also acknowledges that slight disparity in GDP growth
expectations and effectiveness in energy consumption in the transportation sector cancause significant deviation of the predicted timing of a peak in oil demand (BP, 2018).

13

Demonstrated by Figure 1 below, different predictions of peak oil demand can varyconsiderably and thus, must be viewed critically.

Figure 1. World oil demand estimation comparison (BP, 2018)

Although the supply has recently broken predictions of Hubbert’s theory of peak oil(Cooper, 2018), prices of oil currently do not follow traditional supply and demandprinciples and are artificially manipulated by the Organization of Petroleum ExportingCountries (OPEC), which tighten or loosen supply in their favour. Controlling the priceof oil is exercised with caution, as too low of a price results in diminished profits forexporters while too high of a price forces people to seek alternatives, further weakening
potential gains from exports (DiLallo, 2016).

The fact that oil supplies are finite and will eventually run out is for the most part agreed
upon, predictions of the date at which such an event happens, due to undiscovered
reserves and technology, is however highly speculative and vulnerable tomiscalculation.

14

7

Biogenic vs Abiogenic Petroleum

Consensus on the creation and origin of petroleum currently held by western science
points to ancient microorganisms, plant matter and their subsequent burial over millionsof years after which immense pressure and temperature caused by the material
collecting on top of them resulted in transformation of solid, liquid and gas formations
known as coal, oil and natural gas. This type of theory is referred to as biogenic orWestern theory on the creation and origin of oil (Summers, 2015).

However, there is a growing number of scientists and researchers challenging such atheory, indicating that organic compounds are extremely common in space rock andatmospheres of other planets in our solar system (Bansal, 2015), suggesting that thesecompounds must be abiogenic in origin rather than biogenic. The opposing group of
abiogenic theory supporters, also called Russian-Ukrainian group explain inorganic
origin of oil because of chemical reactions of minerals rather than by decay of organic
matter, further deducting that oil is a renewable resource found in immense quantities
in presently unreachable depths (Ragheb, 2018). Hydrocarbons are a chemicalcompound consisting of a combination of hydrogen and carbon atoms, together ingreat

quantities

makingup

thecomposition

of

oil

(EIA,

2017b).

Popularity of biogenic theory can be attributed to the 17th and 18th century scientificunderstanding of carbon-based compounds and importance of life in their creation(Summers, 2015). Additionally, different types of organic matter and residue was foundin various depths and layers of rock formations deep underground, which combinedwith extreme pressure, temperature and other factors could have resulted in hugeconcentrated stores of oil, as extraction of oil from fossilised organic matter is provedtrue (Heinberg, 2018).

Although it is widely supported fact that oil can be retrieved from fossilised organisms(Penner, 2018) and is conjointly backed by decades of data and technologicaldevelopment, some newer research has proven that part of the chemistry suggested by
the abiogenic theory supporters to be surprisingly valid and worth investigating.

However, majority of evidence supports the biogenic explanation, the one true cause
for the origin of oil might be difficult to conclude, while a more beneficial approach to
tackle the question could be a balance of valuable data from both sides of the debate.

158Electric Vehicles

Popularity of electric vehicles (EV) has grown tremendously, however, widespread
application has not been accomplished, as of 2015, almost 1 out of roughly 700 cars in
Europe was electric (EEA, 2016a). Sale of electric vehicles is growing year by year as
shown on Figure 2 below, with record 750 thousand cars sold globally in 2016.
Percentage of EV in total car sales is still relatively low with member states such as
Norway and the Netherlands leading the union in 2013 with 6.2% and 4%, respectively.

Figure 2. Global EV Outlook 2017, International Energy Agency, 2017. (IEA, 2017)

Predictions indicate a quick rise in EV in the upcoming years, with some researchshowing a range of 7-32% share of the total vehicles in the EU market (Asmelash &Cerdan, 2017).
According to the optimistic Bloomberg’s Electric Vehicle Outlook 2017 report, EV could
amount to 54% of new car sales by 2040 and become cheaper than common
combustion engine vehicles due to reduced battery prices which is currently the single
most expensive component inside them (Bloomberg, 2017). Serious shift in thetransportation sector results in the direct increase of demand in electricity as vehicles
switch from internal combustion engines to electric equivalents, further highlighting theimportance of lowering emissions in the energy sector in the future (Stockton, 2018).
Transportation sector is the second largest global GHG emitters, preceded only bypower generation, continuing to be greatly dependant on fossil fuels, although with the16rise in electric vehicles that is slowly starting to change (C2ES, 2017). Transport sector
is culpable of close to 25% of the total GHG emissions of the European Union,
additionally, while other sectors have achieved to substantially lower their GHG
emissions compared to 1990 levels, transportation as of 2016 is a whole 25% higher(European Commission, 2018).

Higher concentration of electric vehicles means a greater need for innovation anddevelopment of the power grid systems currently in place, requiring importantinvestments and certain restructuring (Stockton, 2018). Batteries inside electricvehicles could potentially be used to conserve and deliver energy; known as “vehicleto-grid” system, owners of stationary EV would be compensated for allowing the energy
grid to use the batteries of their plugged-in vehicle in adjusting electricity flow acrossthe grid (Cenex, 2018). Due to the variable nature of renewables such as wind andsolar (IRENA, 2018), vehicle-to-grid systems could balance the supply and demand ofelectricity and store electricity during off time and release it during peak hours tomanage a sort of baseload power supply (Douris, 2017).

9Europe 2020

Europe 2020 is a ten-year strategic plan set forth by the European Union with the goalof promoting and advancing employment and the overall economy. Europe 2020 was
first proposed by the European Commission in 3rd of March 2010 and intends to provide a general unified direction for the 28-member states. The initiative was meant to
fix the flaws and shortcomings of the previous plan, the Lisbon strategy active from2000 – 2010 (EFESME, 2018).

It emphasises smart, sustainable and inclusive growth as a way to overcome the structural weaknesses in Europe’s economy, improve its competitiveness and productivity and underpin a sustainable social market
economy. (European Commission, 2018b)
This objective is solidified by eight targets in areas such as employment, research anddevelopment (R&D), climate change and energy, education, poverty and social exclusion. Each target is given measurable and quantifiable specifications that define a clear
direction for national governments. Goal for employment was identified as 75% of people ages 20-64 in active employment, while 3% of the EU’s gross domestic productwas to be invested in research and development to cover the R&D target. Previously

17

mentioned climate change and energy objectives included reducing greenhouse gas(GHG) emissions by at least 20% compared with 1990 levels, increasing the share of
renewable energy in final energy consumption to 20% and finally, moving towards a
20% increase in energy efficiency. Education targets were defined as rates of earlyschool withdrawal below 10% and minimum 40% of people 30-34 years of age to haveacquired higher education. Last, but not least, minimum 20mln less people at risk ofpoverty and/or social exclusion (European Commission, 2018b).

Purpose of the targets is to provide a clear outlook of acceptable results that the European Union should achieve by the year 2020. Overall targets are set EU wide, while
the details of completion are left to national governments to allow freedom to decide
the best course of action by each individual member state. Burden is not shared between members of the union as every state is responsible for their own progress andcontribution to the 2020 strategy. Europe 2020 targets are complementary, for example, increasing the share of renewable energy will positively affect the employment targets and an increase in employment will in turn improve poverty and competitivenessof the whole EU (European Commission, 2018b).
9.1

Progress

Responsibility of reporting on the progress of targets is left to individual member states,
which publish annual progress reports. Monitoring of said progress reports is conducted by Eurostat, European Union’s statistics agency. Latest review of the strategy was
conducted in 2015 when the European Commission, based on the positive progress
reports, decided to continue the Europe 2020 strategy for the remaining five years. The
Commission also stated that the European Union has made great progress in certain
targets, while clearly lagging in others. The global financial crisis of 2008 has hinderedsome of the results significantly, especially in the areas of research and development,
employment and poverty reduction. The greatest improvement has been made in the
climate and energy targets, especially regarding share of renewable energy and reduction of problematic greenhouse gas emissions (EEA, 2016b).

According to the Europe 2020 headline indicators, employment targets took a major hit
after the financial crisis, which dragged down the total employment rate of 20-64-year
olds from 70.3% in 2008 to 68.6% in 2011, respectively. In the years following, the percentage of employed gradually increased and sits currently at a solid 71.7% as of 2016
(Eurostat, 2018).

18

10 Economic aspects
Various aspects need to be considered when discussing the future of renewable energy production in Europe and the switch from fossil fuel to a renewable future in the energy sector. Economic aspects to be focused on include analysis of renewable energy
price competitiveness, stranded assets and carbon leakage.
10.1 Renewable Energy Price CompetitivenessSwitch from traditional to renewable energy in Europe and its consequence on theprice of electricity is a hot topic. Therefore, electricity price competitiveness was chosen to be discussed, to provide a clear view of the current situation and benchmark
pricing.

Eurostat (2017), the agency in charge of official EU statistics, data presented on Figure
4 below shows that 48.1% of net electricity generated in 2015 derived from fossil fuels
and 26.4% from nuclear energy, while 25.3% of the total mix was renewable. According
to Eurostat, the share of renewable energy in the EU grew from 13.4% in 2005 to
25.3% in 2015, signifying a considerable growth trend hopefully matched and exceeded in the future.

Figure 4. Net electricity generation, EU28, 2015. (Eurostat, 2017)

Such renewable growth was supplemented with the decline in fossil fuel and nuclear
share, from 56.4% to 48.1% and 30% to 26.4% respectively.

19

European Union data compared to the global total primary energy supply in 2015
shown below in Figure 5, indicates a relatively positive situation regarding renewableenergy share in EU compare to the rest of the world.

Figure 5. World total primary energy supply (TPES) by fuel, 2015 (IEA, 2017b)

As evident, fossil fuels represented 81.4% share of the total energy supply in 2015
compared to the nearly half 48.1% in the EU. Meanwhile, global renewables brought a
total 13.7% of electricity compared to 25.4% in the union. Clearly the difference ismostly made up of nuclear energy and less of renewable supply (IEA, 2017c).

Power prices are determined by supply and demand of electricity. Supply is defined by
the output of various power generation methods such as fossil fuels and renewableenergy, which in turn can have specific factors affecting them such as availability renewable power due to weather or various fossil fuel prices. The wellbeing and status of
power stations and the overall electrical grid can also be a factor determining the end
price of electricity, as power outages and maintenance can disturb the system andcause delays. Demand is mostly affected by time of day, public holidays and general
consumer behaviour due to weather or preference (RWE, 2018).

Size of power plants is usually measured by the amount of electricity they can generate, unit of measurement is in Megawatts (MW) (Enrlich 2017: 6), however, price ofelectricity for consumers is often measured in the local currency per kilo Watt hour e.g.

20€/kWh, Watt being named after Scottish inventor of the steam engine called James
Watt (Energy Lens, 2018).

Findings from the latest International Renewable Energy Agency (IRENE) report, Renewable Power Generation Costs in 2017 state that renewable energy prices havebeen decreasing steadily over the years, as shown in Figure 3 below, and will continue
to become increasingly cost competitive against traditional fossil fuels in countries allover the world. Fall of electricity price from solar photovoltaic generated projects is particularly impressive, driven mainly by their 81% drop in module prices since 2009.
Clearly, Figure 3 shows solar power in general to have dropped the most in price/kWhcompared to other renewable energy sources. Electric vehicle batteries have also become 73% cheaper between the years 2010 – 2016, further improving storage capability of intermittent renewables.

Figure 3. Global levelized cost of electricity from utility-scale renewable power generation technologies,
2010-2017 (IRENA, 2017)

Current prices of fossil fuel generated power in G20 countries ranges from $0.05 $0.17 per kWh with slight decrease expected over the years as technology improves
extraction efficiency and supply. The report highlights important economic aspects toconsider for Europe when switching to renewable energy, as the remarkable fall in solar and wind prices shows a clear trend of renewables setting new benchmarks incheap energy. During 2017 the global weighted average price for solar and onshore21

wind ranged between $0.06 - $0.10/kWh, which proves that the renewable energy isalready an economical alternative to traditional fossil fuels and should be fully utilised
as such. Solar photovoltaic prices have reached an astonishing $0.03 per kWh in countries with abundant sun such as Mexico, Chile and Dubai to name a few. Main drivers
for the decrease in renewable energy costs are identified as technology, competition
among governments regarding bidding for contracts and abundance of experienced
project developers (Dudley, 2018).

Cost of CO2 through systems such as the European Union Emissions Trading Scheme(EU ETS), largest emissions trading scheme in the world, has certain effects on theprice of electricity. Such cap-and-trade programmes are put in place to set a cost to
CO2 emissions created from generating electricity or other high emitting activities. The
purpose is to incentivise the lowering of emissions by making emitting an expense.
Participants are required to compensate for each ton of CO2 with one EU allowance(EUA), that must be purchased from government auctions (primary market) or throughenvironmental commodity exchanges or traders (secondary market). Free allowances
are also distributed to each participant and the number given is reduced annually.
Naturally, such a system grants extra expenses to electricity producers as they need to
now pay for each ton of CO2 emitted, thus, putting a strain on their revenue and theprice of electricity they can sell for. Renewable energy producers gain an edge since
they have the added benefit of not having to pay extra for generating CO2 free electricity. By design, the system is set to make sure that low emitters would be incentivised
not to raise their emissions and in turn, large emitters would find ways to reduce theiremissions to cut costs (Parmesano & Kury 2010: 27-36). EU ETS is currently in phase
three, after testing the scheme in phase one where EUA prices hit zero due to oversupply of free allowances and phase two where they learned from the mistakes andlowered the cap, increased extent and penalties (Carbontrust, 2018).

Europe, along with the global power sector, is witnessing a shift towards a sustainable
future in energy production, however, looking at the final electricity market report analysis of the European Commission (2017) we can notice that although the decrease inprofitability of fossil fuel as electricity generation in the majority of European energy
markets was solid, it had less of an impact in Southern European member states where
profitability was healthy because of high wholesale prices. Another important and often
mentioned aspect of the transformation to a complete renewable energy system is thecurrent requirement for baseload electricity that would support the system regardless of

22

the intermittent renewable production. Therefore, the Commission states that although
the prices for fossil fuels might not be optimal at times, the system requires the use of
traditional sources to safeguard the general structure. Such a fact clearly restricts theimpact of falling renewable energy prices until a sufficient supply of baseload power or
considerable advancement in energy storage capability is figured out.

Because of this baseload necessity, the value of wind and solar energy, according to a
study by Leon Hirth (2013), would decrease considerably as they gain a greater shareof the total electricity supply. Such a finding highlights the importance of discussing
electricity prices during the transition to renewables, as they clearly come with certain
challenging consequences. The intermittent nature of wind and solar causes EU member states such as Germany and Denmark to reimburse neighbouring countries to taketheir excess variable renewable energy at times. Such an effect naturally gets written
into the price of electricity, causing the gains from renewables to be cannibalised by the
extra costs from time to time. Another interesting fact is that the electricity price in the
EU is most expensive in Germany and Denmark, showing a correlation between highamounts of renewable wind and solar to increased prices. Latest data shows that 53%
of Danish and 26% of German electricity originated from wind and solar (Shellenberger, 2018).

10.2 Stranded Assets
Stranded assets are nowadays commonly understood to be assets that have lost value
and faced massive devaluation, caused by various environment related risks. Previous
examples of stranded assets included the tobacco industry divestment, where, for example, the World Health Organisation in 1980s concluded that tobacco products contradict their objectives and thus decided to divest from the industry. Another example isthe South African apartheid where banks felt increasing pressure from the public, divested and refrained from providing further loans. Nowadays, stranded assets are understood to be referring to the fossil fuel industry and their assets losing value due toglobal climate change goals and the subsequent divestment. This phenomenon is also
referred to as a carbon bubble when the fossil fuel reserves and other assets are overvalued and remain untapped due to the shift towards a low carbon future (Ansar et al.
2013: 9-18).

23

Research has shown that to avoid global surface temperature rise below two degrees
Celsius and commit to the framework set and agreed under the Paris Agreement, theworld is required to refrain from tapping into most of the known fossil fuel reserves currently available (Carrington, 2015). There are several reports from different sourcessuggesting the risk of fossil fuel assets losing value or being “stranded” should the Paris Agreement goals be fully enforced.

According to the Wasted capital and Stranded Assets report by Carbon Tracker (2013),
an independent financial think tank, together with the London School of Economics
found that between 60% - 80% of known fossil fuel reserves of publicly listed companies should remain untapped to limit the rise in temperature below two degrees. The
total amount of CO2 represented by the potential fossil fuel reserves adds up to 762
gigatons of CO2, compared to the carbon budget estimates. If the world is to keep
warming below the goals set in the Paris Agreement, then only around 125 – 225 gigatons of CO2 can be emitted to have an 80% chance of successfully containing the risein temperature.

Study with a more European Union focus called The Price of Doing Too Little Too Late,by the Greens/EFA group of the European Parliament (2014) has found that the carbon
exposure to the 43 top EU banks and pension funds exceeds a massive €1 trillion
worth of assets. The breakdown of exposure is the following: €260 – €300 billion forpension funds, €460 – €480 billion for banks and €300 – €400 billion for insurancecompanies with total asset exposure reaching 5%, 4% and 1.4% respectively. These
considerable amounts clearly bring the issue of stranded assets at the forefront of discussion in the EU when undergoing the transition from traditional to renewable energy.
Taking into account the data published in the report, the annual capital expenditure(CAPEX) of these massive fossil fuel companies reaches around a considerable €500
billion, which is approximately one sixth of the total market capitalisation of said firms.
Three different possible scenarios were proposed in the study: first the “Low carbon
breakthrough”, where the shift to renewables is quick, second being the “Uncertain
Transition” with a sluggish and unclear effort eventually leading to a low carbon systemand third scenario of “Carbon Renaissance” where rise in fossil fuel demand and failed
climate policy result in massive negative global consequences in forms of extreme
weather. According to the study, the first and best-case scenario would already result
in combined €350 - €400 billion worth of losses to banks, pension funds and insurancecompanies. Second scenario would be even more damaging, as if the firms would con-

24

tinue their yearly €500 billion CAPEX behaviour which would eventually collapse. Ultimately, should the global climate effort be inefficient in reaching its goals, extreme
damage will be suffered by economies around the globe and massive losses for insurers would be common. Although, the report does admit that the consequences of acarbon bubble bursting and the resulting aftermath would not pose a critical threat tothe discussed EU banking, pension fund and insurance sectors.

What basically becomes evident is two potential scenarios, first being the quick yet
painful loss in value of fossil fuel assets with full compliance towards climate goals andsecond, possibility of overshooting the climate goals while minimising loss in value andfacing the broad environmental consequences. Both scenarios demonstrate the importance and impact of stranded assets.

Criticism on the notions that fossil fuels will be stranded assets or that the carbon bubble scenarios are legitimate has been countered with arguments such as the improbability that the world is capable to completely overhaul their dependence on traditionalenergy sources (McGarrity, 2014). Some critics disagree by stating that although thecompanies are considered large, the total market capitalisation of fossil fuel companies
is relatively low, which in the case of a total loss of value should not impact the global
economy much (Tol, 2013). Large oil firm, ConocoPhillips, chief economist Marianne
Kah was also of the opinion that the carbon bubble might be a scare tactic used todrive investors away from fossil fuel assets. She points out that oil companies are valued based on their proven reserves and those would run out in six to seven years,
making the longer-term bubble uncertain. Further investigation of the International Energy Agency’s World Energy Outlook (2017c), proves that oil demand despite its slightdecline will continue its growth together with natural gas use which will increase 45%
by 2040, signalling that the so-called carbon bubble might not be as urgent as predicted.
10.3 Carbon Leakage
Climate policies and environmental legislation incur added costs to emitters, whenthose costs become too much to bare, the emitter, hypothetically, might relocate theirproduction and escape, thus increasing their total emissions in a looser legislative environment and cause loss of jobs/business in the EU. Such a situation is referred to ascarbon leakage and under the European Union Emissions Trading System, companies
and installations regarded as sensitive to carbon leakage are under Phase 3 given ex-

25

tra free allowances to incentivise them to remain (European Commission, 2018c). For
example, aluminium producers in Europe must compensate the CO2 emitted in the
production of their products due to the EU ETS, whereas Chinese aluminium producers
do not, thus creating an asymmetric situation and possibility for carbon leakage. Carbon leakage is the result of competitiveness, as it is competition that retains profits andcaptures market share. In the case of European aluminium producers, the extra costs
would cause them to be less competitive price wise than their Chinese counterparts,
therefore costing the Europeans in both profit and market share. According to the Climate Policy and Carbon Leakage report by Julia Reinaud (2008) on behalf of the IEA,
states that the European smelting industry has lost its advantage regardless of theadded cost of carbon, mostly due to peaked domestic production capacity, higher electricity prices and differences in labour cost.

Solid criticism of the importance of a carbon leakage problem in the EU can be found in
the Carbon Leakage Myth Buster policy briefing by the Carbon Market Watch (2015), a
non-profit organisation dedicated to ensuring effective and just climate legislation. According to the briefing, during 2013 – 2020, exactly 6.6 billion free allowances will be
granted to companies deemed at risk of carbon leakage. That amount of free allowances very roughly translate to nearly 80 billion euros of value that can be gained fromselling them to the market. However, this amount is obviously a crude estimate basedon an average price of €12/allowance during the period 2013 – 2020 and provided forcontext, should in no way be considered completely accurate due to the volatility of the
carbon market and the uncertainty of the future price. Yet, such a huge free allowancesubsidy, according to Carbon Market Watch, is providing industries with windfall profitsand hindering the transformation to a low carbon economy.

Study ordered by the European Commission in 2013 came up with no conclusive evidence that the EU ETS caused any carbon leakage between 2005 – 2012, furthermore,
the increase or decrease in industries was a result of global demand development rather than climate policies of the EU (Bolscher et al. 2013).

Future risk of carbon leakage was also said to be weak according to a study called
Asymmetric Industrial Energy Prices and International Trade, published by the London
School of Economics in 2015, that found how a hike of carbon price from €7 - €65/tonwould equal to a 30% increase in energy prices with only a 0.5% fall in exports and
0.07% increase in imports. According to the paper, risk of carbon leakage has been

26

overstated and should not stand in the way of efforts to curb emissions and tackle climate change (Sato & Dechezleprêtre, 2015).

Latest data on the worldwide ETS situation by the shows that emission trading systems, with the introduction of China, now cover nearly half of the global GDP and 15%of global emissions. Such numbers backup the criticism that the risk of businesses relocating their production to escape climate policy is overstated (ICAP, 2017). Additionally, table presented in Appendix 1 shows multiple studies conducted by various authors and institutions finding weak evidence of carbon leakage.

Finally, the Institutional Investors Group on Climate Change (IIGCC) in Europe, which
speaks on behalf of 85 insurance companies, asset managers and pension funds
managing a staggering €7.5 trillion in assets, assured to then president of the European Commission José Manuel Barroso, that as shareholders in energy intensive industries they heard of no issues regarding competitiveness arising from the EU ETS(IIGCC, 2014). When the industries considered to be most affected by the price on carbon voice their opinion that it does not negatively affect competition, free allowancesand carbon leakage lose its argument in the EU.

27

11 Conclusion
The goal of this thesis was to understand the crucial economic aspect that the European Union should consider for switching from traditional to renewable energy, subsequently transforming their whole energy system and the surrounding economy. The
author in his hypothesis chose to focus on the importance of the three main economic
aspects the EU should consider: electricity price competitiveness, stranded assets andcarbon leakage.

Literature review revealed important details regarding the urgency behind the switchfrom fossil fuels to renewable energy and demonstrated it by providing research fromvarious sources and authorities. Current climate change situation was closely observedwith important statistics clearly magnifying the need for change. After the underlying
challenge was demonstrated, a closer look at fossil fuels ensured the reader is up todate on the current source of global energy production. Important distinction was madebetween the different types of fossil fuels and both the pros and cons brought to attention. What followed was the introduction to various renewable energy sources, including both advantages and disadvantages of each technology. Peak oil theory and its
criticism was pointed out next, showcasing the debate regarding the availability andlimit of current reserves, leading to the theory of the origin of fossil fuels. Emergence ofdata supporting the notion that oil could possibly be a slowly replenishing yet renewable energy source was discussed in the biogenic vs abiogenic section of this thesis.
After such specifics were brought up and examined, the author redirected the attention
back on renewable energy related topics such as the emergence of electric vehicles
and the consequences they have on our current energy system and climate effort. Finally, the Europe 2020 strategy and its current progress allowed the reader to focus
precisely on the European Union, which brought a smooth end to the literature review
and opened the analysis of the hypothesis.

Electricity price competitiveness was the first aspect, which according to the analysis
proved to be quite important. Impressive growth in renewable energy capacity and reduction in instalment and maintenance costs proved the emergence of renewable energy as a serious electricity provider. Report by IRENE demonstrated the already competitive situation of energy prices by solar photovoltaic and wind energy. However, theadded costs due to the variable nature of wind and solar proved to be considerable,
marking the importance of their spot in the hypothesis.

28

Stranded assets were an aspect found to be crucial as the report by Carbon Tracker
pointed out how 60% - 80% of known fossil fuel reserves of publicly listed companies
should remain untapped to keep the maximum two degrees Celsius temperature rise
limit agreed under the Paris Agreement. Exposure for the EU, specifically showed in
the report by the Greens/EFA group of the European Parliament, stated how over €1trillion worth of assets in the European Union are at risk of becoming stranded, once
again validating the importance of the aspect. However, the urgency of the issue wasslightly less than expected as the projections by the International Energy Agency
showed oil and natural gas demand grow till 2040.

Carbon leakage and its importance in the transition from traditional to renewable energy in the EU turned out to be insignificant. This was proven by a study ordered by theEuropean Commission in 2013 that came up with no conclusive evidence that the EU
ETS caused any carbon leakage between 2005 – 2012. Another study by the London
School of Economics concluded that risk of carbon leakage has been overstated andshould not stand in the way of efforts to curb emissions and tackle climate change.
Additionally, the table presented in Appendix 1 showing multiple studies conducted byvarious authors and institutions finding weak evidence of carbon leakage, coupled with
the IIGCC letter to then president of the European Commission José Manuel Barroso
stating that as shareholders in energy intensive industries they heard of no issues regarding competitiveness arising from the EU ETS, concludes that the aspect of carbon
leakage is not of crucial importance despite the hypothesis.

In conclusion, the author was correct with two of the three aspects suggested in the
hypothesis and provided necessary information regarding all of them in an organised
and efficient manner.

29

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Appendix 1

Empirical Studies Provide Limited Evidence of Carbon Leakage

Table 1. Studies regarding carbon leakage (Ward et al. 2015)