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Climate change and energy security: the dilemma or opportunity of the century?

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Abstract

This paper investigates the connection between climate change and energy security in Europe and provides empirical evidence that these issues are the two faces of the same coin. Using a panel of 39 European countries during the period 1980–2020, the empirical analysis presented in this paper indicates that increasing the share of nuclear, renewables, and other nonhydrocarbon energy and improving energy efficiency could lead to a significant reduction in carbon emissions and improve energy security throughout Europe. Accordingly, policies and reforms aimed at shifting away from hydrocarbons and increasing energy efficiency in distribution and consumption are key to mitigating climate change, reducing energy dependence, and minimizing exposure to energy price volatility.

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Data availability

The data that support the findings of this study are available at the IMF’s International Financial Statistics and World Economic Outlook databases, the World Bank’s World Development Indicators database, the U.S. Energy Information Administration, and the International Country Risk Guide.

Notes

  1. CO2 emissions represent more than 80 percent of greenhouse gas emissions in Europe.

  2. While energy intensity measures the quantity of energy required per unit output at the aggregate level, energy efficiency measures the amount of energy used at the disaggregated level in individual activities. In this paper, I use these terms interchangeably to capture the amount of energy used to produce a unit of real GDP in a panel of countries. As presented in the charts in Fig. 3, a lower reading of energy consumption per unit of real GDP implies a higher level of energy efficiency (or intensity).

  3. Even EU governments provided €112 billion in subsidies to the production and consumption of fossil fuels in 2021 (Nowag et al. 2021).

  4. Across the world, only 17 percent of emissions are covered by a carbon price, which remains at an average of US$3 per metric ton of CO2 emissions.

  5. The CPAT provides country-specific projections of fuel use and CO2 emissions by the energy, industrial, transportation (excluding international aviation and maritime), and residential sectors. The CPAT model is parameterized using data compiled from the International Energy Agency (IEA) on recent fuel use by country and sector. Real GDP projections are from the latest IMF forecasts. The data on energy taxes, subsidies, and prices by energy product and country is compiled from publicly available and IMF sources, with inputs from proprietary and third-party sources. International energy prices are projected forward using an average of IEA and IMF projections for coal, oil, and natural gas prices. Assumptions for fuel price responsiveness are chosen to be broadly consistent with empirical evidence and results from energy models.

  6. The Baltics participate in the EU Emissions Trading System (ETS), which covers only about 30 percent of national CO2 emissions.

  7. I also estimate the models with the square of real GDP per capita to capture nonlinear effects. These results, presented in Appendix Table A2 6 , are consistent with baseline results.

  8. The estimated coefficients on control variables have the expected signs and some are also statistically significant.

  9. There are also studies showing that increasing the share of renewable sources of energy has a positive effect on economic growth (Narayan and Doytch 2017; Doytch and Narayan 2021).

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Acknowledgements

The author would like to thank the co-editor, Isamu Matsukawa, and an anonymous referee for helpful comments and suggestions that led to marked improvements in the paper. An earlier version of this article benefited from comments by Borja Gracia, Gee Hee Hong, Ian Parry, Hugo Rojas-Romagosa, and the participants of seminars at the Bank of Lithuania and the European Department of the International Monetary Fund (IMF). The author also thanks Sabiha Mohona and Sadhna Naik for excellent research assistance. The views expressed in this paper are those of the author and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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    Serhan Cevik

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Appendix

Appendix

Appendix Table A1 (See Table 5 )

Appendix Table A2 (See Table 6)

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Cevik, S. Climate change and energy security: the dilemma or opportunity of the century?. Environ Econ Policy Stud (2024). https://doi.org/10.1007/s10018-023-00391-z

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