Modelling Efficient and Equitable Scenarios for a

Modelling Efficient and Equitable Scenarios for a Carbon Constrained World with TIAM-MACRO Socrates Kypreos, James Glynn, Antti Lehtila, Brian Ó Gallachóir Our Common Future under Climate Change UNESCO, Paris | 7th -10th June 2015

Question: How to solve efficiently the mitigation problem and equitably distribute the induced economic burden?

• First we define economic and environmental efficiency maximizing the global welfare under the REQB of e.g., 1400 GtCO2e for the 2DS. • Then, we allocate equitably capital transfers via trade of emissions permits such that less developed countries are engaged to invest in the most efficient GHG mitigation pathway already in 2020.

ROW IND EU28

USA CHI

GLOBAL ETSAP-TIAM model • Linear programming bottom-up energy system model of IEA-ETSAP • Integrated model of the entire energy system • Prospective analysis on medium to long term horizon (2100) • • • •

• Demand driven by exogenous energy service demands

Partial and dynamic equilibrium (perfect market) Optimal technology selection Minimizes the total system cost Environmental constraints • Integrated Climate Model

• 15 Region Global Model • Price-elastic demands in the TIMES-ED version • Macro Stand Alone

• Single-sector, multi-regional, inter-temporal general equilibrium model which maximises regional utility. • The utility is a logarithmic function of the consumption of a single generic consumer. • Production inputs are labour, capital and energy. • Energy demand from ETSAP-TIAM model. • MSA Re-estimates Energy Service Demands based on energy cost

The ETSAP’s IAM TIAM-MACRO with 15 World Regions is Calibrated and Solved Iteratively by Decomposition to an LP (TIAM) and a NLP Part

WEU

CAN

EEU

USA

CHI

MEA MEX

AFR

IND

SKO

ODA

CSA AUS

JPN

ETSAP-TIAM Reference Energy System

Source: Loulou, R., Labriet, M., 2008. ETSAP-TIAM: the TIMES integrated assessment model Part I: Model structure. Comput. Manag. Sci. 5, 7–40. doi:10.1007/s10287-007-0046-z

TIMES-Model Generator Primary energy prices, Resource availability

∑ (1 + d Primary energy

Domestic sources

Crude Oil Raw Gas Coal

r =1 y∈YEARS

Imports

r,y

) REFYR− y ⋅ ANNCOST (r , y )

Transformation Refinery, Power Plants, Gas Network, Briquetting...

𝑇𝑇

𝑀𝑀𝑀𝑀𝑀𝑀 𝑈𝑈 = � � 𝑛𝑛𝑛𝑛𝑛𝑛𝑟𝑟 . 𝑝𝑝𝑝𝑝𝑝𝑝𝑡𝑡 . 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑟𝑟,𝑡𝑡 . 𝑙𝑙𝑙𝑙 𝐶𝐶𝑟𝑟,𝑡𝑡 𝑡𝑡=1 𝑟𝑟

Labour

Capital

Final energy Gasoline Natural Gas Electrcity

R

Min NPV = ∑

GDP, Population, Industrial Activity

Consumption Industry, Services, Transport, Residential...

Service Demands Heat Light Motion

Res Heat Ind Heat Person Km Freight Km…

Energy Costs MACRO Stand Alone (MSA) General Equilibrium Macroeconomic Demand Model Response Consumption Investment

ETSAP-TIAM MSA (TMSA)

Macro Stand Alone R

Min NPV = ∑ 𝑇𝑇

∑

(1 + d r , y ) REFYR− y ⋅ ANNCOST (r , y )

(TIAM OBJz)

r =1 y∈YEARS

(1) (MSA OBJz)

𝑀𝑀𝑀𝑀𝑀𝑀 𝑈𝑈 = � � 𝑛𝑛𝑛𝑛𝑛𝑛𝑟𝑟 . 𝑝𝑝𝑝𝑝𝑝𝑝𝑡𝑡 . 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑟𝑟,𝑡𝑡 . 𝑙𝑙𝑙𝑙 𝐶𝐶𝑟𝑟,𝑡𝑡 𝑡𝑡=1 𝑟𝑟

𝑌𝑌𝑟𝑟,𝑡𝑡 = 𝐶𝐶𝑟𝑟,𝑡𝑡 + 𝐼𝐼𝐼𝐼𝐼𝐼𝑟𝑟,𝑡𝑡 + 𝐸𝐸𝐸𝐸𝑟𝑟,𝑡𝑡 + 𝑁𝑁𝑁𝑁𝑁𝑁(𝑛𝑛𝑛𝑛𝑛𝑛)𝑟𝑟,𝑡𝑡 𝑘𝑘𝑘𝑘𝑘𝑘𝑘𝑘𝑟𝑟 ∙𝜌𝜌𝑟𝑟

𝑌𝑌𝑟𝑟,𝑡𝑡 = 𝑎𝑎𝑎𝑎𝑎𝑎𝑟𝑟 ∙ 𝐾𝐾𝑟𝑟,𝑡𝑡

(1−𝑘𝑘𝑘𝑘𝑘𝑘𝑘𝑘𝑟𝑟 )𝜌𝜌𝑟𝑟

∙ 𝑙𝑙𝑟𝑟,𝑡𝑡

• nwt – Negishi Weights

• pwt – weight Multiplier

(2) 𝜌𝜌

𝑟𝑟 + � 𝑏𝑏𝑟𝑟,𝑘𝑘 ∙ 𝐷𝐷𝐷𝐷𝐷𝐷𝑟𝑟,𝑡𝑡,𝑘𝑘

𝑘𝑘

1 𝜌𝜌𝑟𝑟

(3)

• akl – production fn constant • K – Capital

• dfact – utility discount factor

• kpvs – capital value share

• C - Consumption

• l - Labour annual growth

• INV – Investment

• p – elasticity of substitution

• EC – Energy Cost

• DEM - Energy Demands

• Y – Production

• NTX – Net exports

• b – Demand coefficient

Scenario Outline • BASE

• Assumes rational optimising choices: not equal to business as usual

• 2DS – Remaining CO2e Emission Quota Budget

• BASE with a cumulative on CO2 emissions constraint of 1400Gt CO2e 2020 – 2100 to achieve the target 2°C (with a probability between 50% to 66%)

• Burden Sharing Rules

• Rule 1 (R1) – Equalitarian Emissions Per Capita after 2050 • Rule 2 (R2) – Equal relative Energy Systems costs per region • Rule 3 (R3) – Compensated Non-Annex-I Countries for energy cost losses from Annex I plus China

AR5 CO2 Emissions Database

1150 emission pathways from the IPCC Fifth Assessment Report’s analyses are shown

Data Source: AR5 Emissions Database https://secure.iiasa.ac.at/web-apps/ene/AR5DB/

Global Energy Balance - 2012

Data:

IEA Energy Balances of OECD Countries, IEA Energy Balance of Non-OECD Countries

Final Energy- Base 2100

Final Energy - 2DS 2100

Net CO2 Emissions & CO2 Price WEU USA

60 50

MEA IND FSU CSA

30

CHI

20 10

AFR

0 -10

BASE 2DS BASE 2DS BASE 2DS BASE 2DS BASE 2DS BASE 2DS BASE 2DS BASE 2DS BASE 2DS BASE 2DS 2010

2020

2030

2040

2050

2060

2070

2080

2090

2100 $3,277

$3,500 $3,000 $2,500

$/tCo2

Gt CO2

40

$2,012

$2,000 $1,235

$1,500 $1,000 $500

$108

$175

$286

$465

$66 2020

2030

2040

2050

2060

$758

$2070

2080

2090

2100

WEU USA SKO ODA MEX MEA JPN IND FSU EEU CSA CHI CAN AUS AFR

5000

4000

3000

Gt CO2

70

2000

1000

0

-1000

BASE

2DS

Cumulative 20202100

%GDP Loss 2030, 2050, 2100 Developing Countries

Developed Countries GDP Loss

-

AFR

AUS

CAN

CHI

CSA

EEU

FSU

IND

JPN

(5.00) (10.00) (15.00) (20.00) (25.00)

Energy Exporting Countries 2030

2050

2100

MEA MEX ODA SKO

USA WEU

Rule 1 (R1) – Equalitarian

Grandfathering to 2050 then equal emissions/capita 20

CAN

15

SKO, AUS JPN, WEU, FSU MEA, EEU, CHI CSA, MEX ODA, IND, AFR

GtCO2/Capita

USA

10

5

0

-5

2020

2030

2040

2050

2060

2070

2080

2090

2100

Permits Balance

(R1) GtC/yr – Imports Negative, Exports Positive 2

1.5

ODA

Permit Transfers GtC/Yr

FSU

IND

1

0.5

CSA WEU AUS

AFR

0

-0.5

-1

-1.5

-2 AFR

FSU

CHI IND MEA

MEA

ODA

CHI

WEU 2020 AUS

2030 CAN

2040 CHI

CSA

2050 EEU

FSU

2060 IND

2070 JPN

MEA

2080 MEX

ODA

2090 SKO

2100 USA

WEU

Capital Transfers – Billion US $/yr (R1) Equalitarian $20,000

USA $15,000

FSU

Permit Transfers -Billion US $

$10,000

CSA WEU AUS

$5,000

$0

-$5,000

CHI IND

-$10,000

MEA

-$15,000

ODA

-$20,000

2020 AFR

AUS

2030 CAN

2040 CHI

CSA

2050 EEU

FSU

2060 IND

JPN

2070 MEA

MEX

2080 ODA

SKO

2090 USA

WEU

2100

R2 – Equal Relative Energy Cost

Permit Trade GtC/yr & Capital Transfer bn$/yr 2 1.5

GtC/yr

1 0.5 0 -0.5 -1 -1.5 -2

2020 AFR

2030 AUS

CAN

2040 CHI

CSA

2050 EEU

FSU

2060 IND

2070 JPN

2080

MEA

MEX

2090

ODA

SKO

2100 USA

WEU

Transfers - Billion US $

$10,000 $8,000 $6,000 $4,000 $2,000 $0 -$2,000 -$4,000 -$6,000 -$8,000 -$10,000 AFR

2020 AUS

2030 CAN

CHI

2040 CSA

EEU

2050 FSU

IND

2060 JPN

MEA

2070 MEX

ODA

2080 SKO

2090 USA

WEU

2100

Rule 3 Permits Trade GtC/yr & Transfers in billion US $/yr

Non-Annex-I regions: Full Compensation for EC $1,500

0.15

IND

GtC/yr

0.05

CSA

IND

AFR

0

-0.05

-0.1

CHI

CHI

USA WEU

MEA WEU

ODA $1,000

Permit Transfers - Billion US $

ODA

0.1

WEU USA SKO ODA MEX MEA JPN IND FSU EEU CSA CHI CAN AUS

$500

IND CSA AFR

$0

CHI -$500

MEA -$1,000

WEU -0.15

2020

2030

2040

2050

2060

2070

2080

2090

2100

-$1,500

2020 2030 2040 2050 2060 2070 2080 2090 2100

Cumulative GDP Change % 5

0

-5

-10

-15

-20 AFR AUS CAN CHI CSA EEU FSU IND

Compensated for Losses – i.e. Net Zero Losses

Compensated for Losses – i.e. Net Zero Losses

Compensated for Losses – i.e. Net Zero Losses

Compensated for Losses – i.e. Net Zero Losses

Cumulative GDP Change

Rule 3 – Non-Annex I with full EC compensation

20

15

10

JPN MEA MEX ODA

Eff

Rule l

Rule II

Rule III

SKO USA WEU World

Cumulative GDP Change 3 Burden Sharing Rules 20

15

Cumulative GDP Change %

10

5 Eff Rule l

0

Rule II Rule III

-5

-10

-15

-20

AFR

AUS

CAN

CHI

CSA

EEU

FSU

IND

JPN

MEA

MEX

ODA

SKO

USA

WEU

World

Conclusions • The 2 Degree goal is barely technically feasible and comes with prohibitively expensive marginal abatement costs. New Technology, New Behaviour & New Politics required The Model is on its limits

• The efficient global cumulative cost of the 2 DS goal is 5% GDP on aggregate with regional variations of between 2.5% and 11% of the regional GDP relative to BaU. • There is no silver bullet as either best technology or BS rule; SPV, Wind, and BECCS with biomass are a must when negative emissions is the goal. Clearly back-stop technologies below $500/tCO2e abated must be invented!

(Direct Air Capture ?)

• Burden sharing requires high capital transfers of trillions US $ (undiscounted) per year in the second half of the century and rule 2 is the most desirable from an equity perspective with same relative energy cost change and the smaller Capital Transfers required

Thank You

www.ucc.ie/energypolicy