C.C. Koopmans, D.W. te Velde r Energy Economics 23 2001 57]75 71
. new-built houses, subsidies for energy-saving investments are not included in these
predictions; they may have increased observed energy efficiency improvements. On the whole, the second set of simulations with increased trends appear to
describe energy efficiency reasonably well over the period 1970]1990. This suggests that the pace at which new technologies become available after 1990 is lower than
in the 1970s and 1980s. Therefore, it may not be adequate to extrapolate historical trends of energy efficiency improvements into the future.
6. Policy analysis
One of the main examples showing a clear need for NEMO is the analysis of policy changes using scenario analysis. Until recently, energy scenarios were based
either on bottom-up information, such as contained in ICARUS, or based on top-down econometric models. However, we have shown that both cases are
insufficient to analyze the precise impact of, say, changes in energy taxes. For instance, bottom-up information does not include a proper vintage structure.
Comparing situations of partial penetration now and full penetration in the future it is easy to overstate the economic energy savings potential. Furthermore, bottom-
up information is likely to introduce lumpiness into the analysis. Measures are of a discrete nature and a small change of the energy price or other conditions may
have the consequence that the whole sector switches techniques. In reality, the process is much more gradual. Top-down analyses, on the other hand, are based on
past behavior and are no more than an extrapolation of past trends into the future.
NEMO does not suffer from these disadvantages. It includes a vintage structure enabling it to compare two situations of partial penetration. It avoids lumpiness by
constructing continuous elasticities from concrete measures. Furthermore, it does not extrapolate past trends as it explicity bases its trends on estimates by scientists
and engineers. The following example shows the use of NEMO.
In the Netherlands, shifting taxes from labor and capital to energy and other Ž
. ‘environmental’ tax bases ‘greening’ the tax system is being used as an instrument
of environmental policy. We analyzed two proposals for increases in energy taxes: one in which existing energy taxes are doubled for all users except energy-intensive
Ž .
industries variant 1 and one in which an existing tax is tripled for very small Ž
. Ž
. Ž energy users mainly private households only variant 2
Vermeend and Van der .
Vaart, 1998 . These proposals increase energy prices for private households by 15 and 30, respectively. For industrial sectors and transport, the price increase is
Ž .
3]4 in variant 1 and zero in variant 2. For other sectors services and agriculture prices go up by approximately 15 in variant 1 and 0]3 in variant 2. The
Ž .
additional tax revenue is 3.4 billion guilders per year approx. 0.6 of 1997 GDP in both variants.
Table 3 shows the effects of these tax increases on energy use, computed with NEMO. The table shows that both variants lead to a 2 reduction of energy use,
compared to a base-line scenario for 2010 and 2020. Variant 1 leads to extra energy
C.C. Koopmans, D.W. te Velde r Energy Economics 23 2001 57]75 72
Table 3 Effects of increasing energy taxes on energy use in the Netherlands
Energy consumption Level
Variant 1 Variant 2
1995 2010
2020 2010
2020 PJ
difference to baseline Households
Fuel 397
y 4.4
y 4.0
y 7.1
y 6.5
Electricity 71
y 5.1
y 5.5
y 9.2
y 10.5
Ž .
Industry Fuel incl. feedstock
933 y
0.6 y
0.6 0.0
0.0 Electricity
107 y
0.6 y
0.6 0.0
0.0 Transport
Fuel 421
y 0.6
y 1.0
0.0 0.0
Other Fuel
415 y
2.7 y
3.3 y
1.1 y
1.4 Electricity
84 y
3.0 y
3.5 0.0
0.0 Conversion
Fuel 586
y 0.7
y 2.0
y 1.0
y 2.2
Total domestic consumption 3015
y 2.2
y 2.1
y 2.1
y 2.0
savings in all sectors of the economy. In variant 2 price changes and therefore additional energy saving are mainly computed for private households.
We also calculated macroeconomic effects of the energy tax increases using a sectoral model of the Netherlands economy. Because of NEMOs top-down nature,
its results with respect to energy savings and energy use are less difficult to use as input for such sectoral models than results from bottom-up analyses. The
macroeconomic effects appear to be very small, mainly because the additional tax revenues are used to lower other taxes. GDP is 0.1 lower than in the base-line in
2010 and 2020, private consumption is 0.2]0.3 lower, and the effect on total employment is 0.0.
Because of NEMOs bottom-up roots, the results are more or less compatible with bottom-up models. This enabled bottom-up scientists to develop a ‘subvariant’
in which 15 of the tax revenue is used to subsidize specific technologies. These ‘positive incentives’ would increase the effect of the taxes on energy use from
y 2 to approximately y3.
In 1998, the Netherlands government decided to implement a mix of the two Ž
. variants including ‘positive incentives’ between 1999 and 2001, as part of a major
tax reform.
7. Conclusions
