Assessment of the macroeconomic and sectoral effects of higher electricity and gas prices in the EU: A general equilibrium modeling approach

• We assess the effects of higher EU electricity/gas prices compared to the non-EU.
• Simulation with GEM-E3. EU prices result of energy policies and market structures.
• Lower non-EU prices from exploitation of non-conventional sources or subsidization.
• Higher EU electricity/gas prices hurt EU long-term competitiveness and growth.
• Options on policies that affect EU prices impact on the magnitude of the results.

The macroeconomic and sectoral effects of differentials in energy prices between the EU and the non-EU countries in the horizon to 2050 are assessed with the use of GEM-E3, a Computable General Equilibrium model. Alternative scenario variants are quantified: In the first case EU policies and market structures regarding taxation, penetration of RES in power generation and higher market power of EU energy producers lead to higher EU energy prices compared to those recorded in the non-EU countries. In the second variant developments in non-EU countries lead to lower energy prices as compared to those in the EU. Simulation results show that higher EU energy prices lower EU GDP compared to the baseline case. The impact ranges in magnitude between 0.02 and 0.41%, cumulatively over 2015–2050, depending on the drivers of price differentials and on the use of the additional tax revenues generated. Taxation and power generation mix policies are found to have the largest impact on economic activity. The results indicate the challenges of electricity and gas price developments that EU policy making needs to address in the following years so as to ensure long-term competitiveness and growth.