Transcript Slide 1

Integrated Assessment Models:
Modeling Mitigation (Abatement)
Economics 331b
Spring 2010
Week of April 5
1
Agenda
This week (Monday and Wednesday):
- Review on term paper
- How to calculate SCC
- Mitigation
Monday: Add last module to your little model: mitigation.
2
How to estimate SCC
1. Numerical derivative:
- Calculate PV income
- Recalculate PV income with 1 additional unit of E
- Take difference
2. Analytical:
- Have Damage=D=f(T); T = g(RF); RF=h(C); C=z(E).
- Therefore D’(E)=f’ g’ h’ z’
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Model estimate
4
Price of carbon emissions
The basic analytical structure
Marginal Cost
Pcarbon*
Social cost of carbon
0
Abatement*
Abatement
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Mitigation (abatement)
• We have examined the damage side.
• For a full cost-benefit analysis, we need the cost side.
• “Mitigation” involves analyses of the policies involving the
reduction of emissions CO2 and other GHGs
• There are four major issues involved:
1. Projecting the emissions
2. Estimating the costs of emissions reductions
3. Designing policies to reduce emissions
4. Encouraging low-carbon technological change
• This set of tasks is generally much easier that impacts because we
have extensive information on impacts of energy taxes, regulations,
etc.
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1. Projecting emissions
For this we need an integrated assessment model.
As an example, the following shows the projected
emissions to 2105 in the Yale-RICE model and in several
other models examined in EMF-22.
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Projections CO2 emissions various models
(with no emissions reductions policies)
40
CO2 emissions (10^9 tons C per year)
35
30
ETSAP-TIAM
FUND
GTEM
IMAGE
MERGE-O
MESSAGE
Minicam
POLES
SGM
RICE
25
20
15
10
5
0
2000
2010
2020
2030
EMF-22 and Yale-RICE model
2040
2050
2060
2070
2080
2090
2100
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2. Estimating Costs of Reducing Emissions
Analysts use different strategies to model abatement:
–
Some use econometric analysis (“top-down”)
–
Some use engineering/mathematical programming
estimates (“bottom up”)
Econometric: Look for some kind of “experiment” in
which energy or carbon prices vary. Then estimate
impact of higher prices on carbon emissions:
- Some examples of CO2 taxes or European Trading
System.
- More useful are energy taxes.
- Some rely on production functions and simulations.
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Example from McKinzey Study
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Example of econometric (“top-down”)
approach to mitigation
[Numbers are calibrated to
Actual US data.]
Carbon price (MC reduction)
Assume that the demand for gasoline is
Q = Bp-λ
Supply of gasoline is perfectly elastic with tax τ:
p=q+ τ
CO2 emissions are proportional to consumption:
E = kQ
250
So we have:
200
E = kB -λ (q + τ)-λ =c (q + τ)-λ
150
100
50
0
0
2
4
6
8
10
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Percentage reduction
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Survey of multiple models from IPCC FAR
Source: IPCC, AR4, Mitigation.
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Summary of estimates
Source: IPCC, AR4, Mitigation, p. 77.
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Summary from IPCC
Carbon price (MC reduction)
100
Top down
80
Bottom up
60
40
20
0
-20
0
10
20
30
40
Percentage reduction
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Further discussion
There has been a great deal of controversy about the
McKinsey study. The idea of “negative cost” emissions
reduction raises major conceptual and policy issues.
For the DICE/RICE models, we have generally relied on
more micro and engineering studies.
The next set of slides shows estimates based on the IPCC
Fourth Assessment Report survey of mitigation costs.
The bottom line is that the cost using the top-down
approaches are generally higher than bottom-up.
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What are your views on top down v. bottom up?
There is a very lively controversy about the role of
"negative cost" mitigation. The McKinsey report
(Reducing US Greenhouse Emissions, p. xiii) has a
very substantial number of such mitigation
possibilities. Other modelers are sharply critical of
the MK report and believe that (aside from
external costs) there are very few negative cost
options. You should take a specific example from
the report. Make a case for whether the negative
cost finding is correct or not. I will call on some of
you at the beginning of class for a short report.
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Nordhaus house survey
***
***
***
***
Feature
Air Sealup Seal air leaks
Duct Sealing Seal ducts
Insulation storage
Floor Insulation - Laundry Insulate to R 30
Floor Insulation - Rear Crawl
Duct pipe insulation
Door insulation (3)
13 Medium Window(s) Replace with double-pane, low-e
20 Small Window(s) Replace with double-pane, low-e
Attic insulation -- storage
Attic insulation -- original
Basement window panels
Stair window panels
Downstairs windows -- high e
ALL PROPOSED
Cost
Savings
$979
$360
$987
$349
$391
$113
$421
$117
$514
$111
$836
$175
$300
$35
$4,576
$394
$5,500
$350
$541
$32
$605
$31
$250
$10
$550
$8
$15,000
$150
$31,450
$2,235
Rate of return
37%
35%
29%
28%
22%
21%
12%
9%
6%
6%
5%
4%
1%
1%
7%
Nordhaus house survey
*** recommended by contractor
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Derivation of mitigation cost function in RICE model
Start with a reduced-form cost function:
(1)
C = Qλμ
where C = mitigation cost, Q = GDP, μ = emissions control rate,
λ,  are parameters.
Take the derivative w.r.t. emissions and substitute σ = E0 /Q
(2)
dC/dE = MC emissions reductions
= Qλβμ-1[dμ/dE] = λβμ-1/σ
Note that MC(0) = 0; MC(1) = λβ/σ = price of backstop
technology*; and C/Q = λ with zero emissions.
*”Backstop technology” is technology at which get 100 emissions
reduction (say solar/nuclear/fusion/wind for everything).
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The 2 °C target
• Current policy has focused on a target of 2 °C rise from
pre-industrial times.
• Copenhagen Accord of December 2009, which
“recognized … the scientific view that the increase in
global temperature should be below 2 degrees Celsius.”
• Sources of “scientific view”:
– Climate history over long run
– Possible tipping points in climate system
– Thresholds for ecosystems
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