Pathways to a cost-efficient decarbonization of the energy system

Author: Simon Pichlmaier, FfE, Forschungsstelle für Energiewirtschaft e.V., Munich (as of December 2019)

In a comprehensive study, FfE and TU Munich show ways to a cost-efficient decarbonization of the energy system. With the help of the developed multi-stage assessment methodology and model landscape, the savings potential and cost-effectiveness of climate protection measures are evaluated, taking into account the interactions with the energy system. The derived 95% scenario "fuEL" describes a cross-sector transformation path. The study was developed as part of the "Dynamis" project, which was funded by the German Federal Ministry for Economic Affairs and Energy (FKZ: funding code: 03ET4037A) and supported by 14 corporate partners. The study is available on the project page Dynamis free download.

Objectives and methodology

In the Dynamis project, therefore, a multi-stage assessment methodology and a model landscape were developed that enable the savings potential and cost efficiency of individual measures and combinations of measures to be compared, taking into account the interactions with the energy system. This assessment methodology goes beyond the classical static approach of CO2 abatement cost curves and considers effects in the final energy sectors as well as interactions with the supply sector. The stepwise, dynamic approach provides a deeper understanding of the feedback effects of a measure implementation in the energy system. Based on a static assessment (step 1) of the CO2 abatement costs of individual measures, which serve as an indicator of their cost-effectiveness, the developed sector models are added in the course of the sector-dynamic assessment (step 2). These allow the concept of static, technology-specific abatement costs to be extended to include sector-specific features and cause-effect relationships. These include transformation speeds, displacement mechanisms and path dependencies. While transformation speeds are derived from the age and useful life of buildings and technologies, sector-specific displacement mechanisms take into account the actual structure of, for example, vehicle classes, building types and industrial sectors. In addition to the effects on the displacement of reference technologies, the implementation of a measure also influences the potential of other measures. Path dependencies are taken into account by considering cumulative emissions and costs. In addition, it is assumed that a measure is replaced by the same technology at the end of its useful life, which changes the system in the long term.

Results of the dynamic assessment of climate change mitigation measures

In the system dynamic assessment, the feedback effects of individual measures on the expansion and deployment of plants in the supply sector are modeled and included in the calculation of CO2 mitigation costs. Compared to the sector dynamic assessment, efficiency measures in the system dynamic assessment lead to increasing and electrification measures to decreasing emission reductions. Thus, the latter must always be flanked by strategies to implement CO2 mitigation measures in the supply sector to fully realize their decarbonization potential. The absolute level and shares of photovoltaic, wind, and other technologies in excess or shortfall electricity generation are highly measure-dependent. For example, the shares of photovoltaic and wind energy plants in additional electricity generation are lowest for the measure "Battery Electric Light Commercial Vehicles" at 35% and highest for the "Process Route Change Steel" at 91%. The different shares of renewable generation technologies in excess or shortfall electricity generation can be explained by the respective load and generation characteristics.

Focus on existing buildings

The results of the dynamic assessment make clear that measure implementation in residential buildings is very sluggish. This means that measures that are to be effective in 2050 must be planned and implemented today. The focus of action should be on the building stock. In transport, electrification is the most cost-effective measure in large parts of the passenger car fleet, while fuel cell cars or gas vehicles should be used in a complementary way. Green Fuels, on the other hand, must be used primarily in those applications for which no economic alternatives exist. In the industrial sector, a mix of measures including energy efficiency, electrification, green fuels, and CO2 capture is required to achieve the goal of 95% greenhouse gas reduction in the overall system by 2050 (compared to 1990). On the supply side, on the other hand, the expansion of renewable energies represents the decisive CO2 reduction measure, because without a massive acceleration of the expansion rates within the next few years, considerable additional costs are to be expected.

The 95% scenario "fuEL"

Building on the multi-stage, explorative evaluation of measures and bundles of measures, the 95 % scenario "fuEL" is finally drawn up. On the supply side, this scenario is characterized by a cost-optimal provision of energy sources and, on the application side, takes into account the technology- and sector-specific boundary conditions and restrictions. The expansion of renewable energies is the most important measure in the fuEL scenario. To achieve the climate target, the renewable plant capacity installed today must be more than quadrupled by 2050. On the side of the final energy sectors, electric demand technologies lead to the most favorable CO2 reduction costs in most cases. Green Fuels will increasingly be used from 2040 onwards in applications that can only be electrified at considerable expense.

Domestic Power to X technologies increase the available flexibility in the power system due to the good storage capability of Green Fuels. However, importing is more cost effective, especially in the area of liquid hydrocarbons. However, due to the early stage of development, the actual cost development and the associated economic deployment of these supply technologies is subject to great uncertainties at the current time and can only be estimated to a limited extent.

In order to stimulate the large-scale implementation of CO2 reduction measures in the final energy sectors, which is necessary to achieve the climate targets, in a timely manner, a prompt CO2 pricing with rapidly increasing price signals is necessary. In addition, complementary instruments for advisory services, promotion and financing are needed to address further barriers to implementation such as high initial investments and to take account of the sometimes slow transformation speeds of the final energy sectors.