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close this bookThe Global Greenhouse Regime. Who Pays? (UNU, 1993, 382 p.)
close this folderPart III National greenhouse gas reduction cost curves
close this folder12 Carbon abatement in Central and Eastern Europe and the Commonwealth of Independent States
View the document(introduction...)
View the documentEnergy-environment nexus
View the documentScenarios for the future
View the documentCountry results
View the documentPolicy implications
View the documentConclusion
View the documentReferences

Policy implications

The behavioural changes simulated in the base case scenario were designed assuming that the allocation of investment funds in the countries of Eastern Europe will change from the practices of forty years of central planning. The asymmetrical development of Eastern Europe has severely retarded the region's economic well-being, standards of living, and environmental stability. A direct consequence of the uneven economic infrastructure is high energy demand with a plethora of consequences. It is in the region's own interest to reduce its high energy intensity through a gradual change in investment allocation. This shift will occur naturally if those economies become open and market-oriented. The base case assumes that these economies will become fully integrated into the European market and that external economic developments - and basic dynamics of supply and demand in market economies - will influence how these countries produce their wealth.

Policy mechanisms for energy efficiency have been simulated in two separate ways, and were measured against the projected energy demand and carbon dioxide emission levels in the year 2025, that is against the base case. First, I assumed that investments - particularly in the buildings and transportation sectors - and energy efficiency standards were put in place to reduce the intensity of energy services to levels of efficiency deemed cost-effective. For example, automobile fuel usage should not exceed 5 litres per 100 km. Such analysis can readily be implemented in the EPA model for all economic sectors and subsectors.

Second, I assumed that economic reforms will cause energy prices to escalate from their current subsidized levels to equilibrium levels - that is, to world prices. Electricity and heat prices are still subsidized to most consumers. The EPA model calculates energy demand with an annual increase in real energy prices of between 1.0 and 2.5 per cent for different fuels and electricity. This method assumes that prices matter to enterprises, as well as to residential and commercial building consumers, and that energy users respond to prices as in the West.

In a sensitivity test, energy price elasticities were increased to -0.6. In this case, the necessary price increase required to simulate the entire energy conservation potential for Eastern Europe would have to be only half as steep. Interestingly, the results from the price reform case resembled those from the regulatory case through the next two decades. The price elasticity of demand was assumed to be only -0.3, exceedingly low for long-term elasticities by Western standards. The reader should note here that either the regulatory or the price reform cases may be simulated independently or conditionally in the EPA energy end-use model. Simulating one or the other case, or both, can serve to ascertain the necessary measures needed to achieve a level of energy efficiency in the national economy deemed cost-effective. In the real world, both energy prices and regulatory policies will have to be used as tools for reducing energy intensity.

Considering the results of the model runs for the price reform case and the regulatory case, it appears that the East European countries have a lot of flexibility in using price reform and regulatory policy to achieve their energy efficiency potential. The fact that energy prices in the region will eventually equal world market prices is virtually certain so long as these countries move toward the free market. What is yet to be ascertained is their resolve to make careful use of market regulation to balance their national interests and free market capitalism.