1 Achieving the 2ºC target in the Copenhagen Accord: an assessment using a global model E3MG Terry Barker Presentation to the Institute for Sustainable Energy and the Environment (I-SEE) at the University of Bath, 9 March 2010 ADaptation And Mitigation (ADAM) strategies for climate change was funded by the EU under FP6
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1 Achieving the 2ºC target in the Copenhagen Accord: an assessment using a global model E3MG Terry Barker Presentation to the Institute for Sustainable.
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Achieving the 2ºC target in the Copenhagen Accord:
an assessment using a global model E3MG
Terry BarkerPresentation to the Institute for Sustainable Energy and
the Environment (I-SEE) at the University of Bath, 9 March 2010
ADaptation And Mitigation (ADAM) strategies for climate change was
funded by the EU under FP6
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Outline
• The Copenhagen Accord• Implications for GHG reductions
and carbon prices from IPCC AR4• Global policy implications• Use of E3MG to assess feasibility
and costs of rapid decarbonisation
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Key Features of the Copenhagen Accord,
December 2009• Maintains the twin-track progress
under the UNFCCC: – long-term cooperative action– further commitments of Annex I parties
under the Kyoto Protocol• Agreed by the largest countries
contributing to GHG emissions: US, China,
• Political, non-legally-binding statement• Recognizes “the scientific view that
the increase in global temperatures should be below 2 degrees Celsius”
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Policy outcomes of the Copenhagen Accord, December
2009• Annex I (developed countries)
– quantified GHG emission reduction targets for 2020 to be reported by 31/1/2010
– US$30bn 2010-2012 and $100bn by 2020 to support adaptation and mitigation in non-Annex I countries
– accounting of targets and finance to be “rigorous, robust and transparent”
• Non-Annex I (developing countries)– nationally appropriate mitigation actions to be
reported by 31/1/2010– supported actions to be subject to “international
measurement, reporting and verification”
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Implications for GHG reductions and carbon prices from IPCC AR4
• IPCC AR4 assessed climate modelling literature and synthesised the results
• Ultimate target is to avoid dangerous climate change, but this can be converted to– global temperature rise– GHG concentrations by 2100– GHG emission reductions below 1990 or
2005 levels
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Figure 2: Average global temperatures, GHG concentrations and emissions 2000-2100
• “dangerous” is an ethical and political issue• Target of 2ºC above pre-industrial is very stringent and requires
stabilisation below 450ppm CO2eq to have a 50% probability of being met– stabilisation below 400ppm CO2e is more likely to achieve less than
2˚C
• Stern, p. 284: “The current evidence suggests aiming for stabilisation somewhere within the range 450 - 550ppm CO2e. Anything higher would substantially increase risks of very harmful impacts..” – but costs of <450 are unreliable and may be small
• Most modelling scenarios have been for targets c 650ppm CO2eq (EMF19, EMF21). Innovation Modelling Comparison Project (IMCP) had one scenario around 550 CO2eq (450 CO2
only)– ADAM project assessed the 400ppm CO2e target (4 models)
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Implications for avoiding dangerous climate change
• To have a good probability of achieving <2ºC rise – CO2-eq concentrations have to be <450ppm CO2 eq (c/f c430
now)– global GHG emissions have to fall by >70% below baseline by
2050– technologies have to be developed to capture CO2
• Fossil-fuel GHG stocks cause damages and industrialized countries are responsible for most of current stocks– hence reduction in OECD of c90% below BAU/1990 by 2050
• Risks are asymmetric– so precaution suggests a zero-carbon economy as soon as
possible (without excessive costs)
• Eventually all countries & sectors have to decarbonize– not “How much?” but “When?” for each business and government – with a policy portfolio that is effective, efficient, equitable and
flexible
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Policies for global decarbonisation
• Policy portfolios (market-based, regulation, voluntary) suited to national conditions could be effective, efficient, equitable and flexible
• Market economies respond to price signals, hence the need for a global carbon price that will achieve net zero GHG emissions by an agreed date (2050?)
• Market and political forces will encourage wider cap-and-trade
• Technological standards and agreements support low-cost deployment of low-GHG processes and products
• Gains from co-ordination– +sum game and room for negotiation– climate change threatens long-term growth, so funding of mitigation
benefits all as well as being equitable– substantial demand-side low-GHG investment can utilise resources
otherwise wasted (construction downturn)
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What are the macro-economic costs by 2030 for different
stabilization levels? Stabilization
levels (ppm CO2-eq)
MedianGDP
reduction[1](%)
Range of GDP reduction [2]
(%)
Reduction of average annual
GDP growth rates [3]
(percentage points)
590-710 0.2 -0.6 – 1.2 < 0.06
535-590 0.6 0.2 – 2.5 <0.1
445-535[4] Not available
< 3 < 0.12
[1] This is global GDP based market exchange rates.[2] The median and the 10th and 90th percentile range of the analyzed data are given.[3] The calculation of the reduction of the annual growth rate is based on the average reduction during the period till 2030 that would result in the indicated GDP decrease in 2030.[4] The number of studies that report GDP results is relatively small and they generally use low baselines.
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3% maximum global cost by 2030
Most studies for stringent stabilization (categories A1 and A2) show costs less than 3%
Source: IPCC AR4, WG III Report 2007, Chapter 3, Figure 3.25 (a)
3% cost
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Illustration of the maximum 3% cost number
GDP without mitigation
GDP with stringent
mitigation e.g. 2ºC target
GDP
Time
80%
current
77%
~1 year2007 2030
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Summary: the costs of achieving the 2º C targetKey conclusion from IPCC AR4: not enough
studies on stringent mitigation have been done!Extrapolating from current studies: The macro-economic costs of the 2ºC target appear
to be negligible (even beneficial) for global GDP and welfare, provided policies are “well-
designed”• Equilibrium models (providing nearly all the cost
estimates) assume that mitigation will be costly, despite evidence from econometric models and business
• Low-cost, low-GHG technologies are likely to be developed both directly and through rising carbon prices
• But this requires international co-operation on allocation of burdens and benefits
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Conclusions for policy• 450ppmv CO2-eq is not stringent enough to avoid
dangerous climate change• A rising real carbon price is required of about
$100/tCO2 by 2020 (rising thereafter) to be on the safe side, e.g. by a trading scheme– the price should be guaranteed by government so as to
reduce the risks of investing in low-GHG technologies– a portfolio of supporting policies (regulation, ecotax
reform, information) reduces costs and accelerate change
• A zero-carbon economy appears feasible at negligible (but uncertain) macroeconomic costs, with high carbon prices and strong regulation– costs critically depend on international co-ordination
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Summary of IPCC AR4 on stringent climate change
mitigation• Latest CBA studies suggest that damages at the current stock of GHGs are unbounded (ethical discount rates and unlimited escalating damages and risks)
• AR4: there is not enough evidence from modelling studies for reliable costs of targets more stringent than 445-550 ppmv CO2-eq
• AR4 Literature suggests that global GHG reduction targets are required of at least 30% by 2020 and at least 80% by 2050 for 400-450ppmv CO2-eq by 2100
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Lack of studies of stringent mitigation (below 450ppmv CO2 eq by
2100) GDP cost by 2030
Results of studies for
445-535ppmv CO2eq
stabilization (categories A1 and A2)
Source: IPCC AR4, WG III Report 2007, Chapter 3, Figure 3.25 (a)
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The E3MG approach and the treatment of costs and benefits of
• Contribution to ADAM FP6 project (ADaptation And Mitigation strategies for climate change)
• Combines mitigation and technology policies for both carbon pricing and regulation
• Designed to give rise to economies of scale & economies of specialisation in the deployment of low C technologies
• Implemented in a cumulative manner (each component includes additional measures to the previous one)
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Measures implemented in E3MG for achieving 400ppm
CO2e (1)1)Carbon prices • auctioning for the energy sector & carbon taxes for
non-energy sectors• revenue recycling through reduction in indirect
taxes, and investment incentives for low-GHG measures in all main sectors
2)Subsidising low-C electricity technologies ($/kWh)• using part of the revenue from 100% auctioning• evenly spread across renewables and CCS• 40% from 2011 to 2030, dropping to 20% by 2040
and to 0% by 2050 3)Accelerated diffusion of CCS and electric plug-
in vehicles through technological agreements and regulations• all new coal-based power plants after 2020 to be fitted with
CCS• 30% of vehicle fleets to be electric by 2020
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Measures implemented in E3MG for achieving 400ppm CO2e (2)
4) Incentives for conversion to low-GHG production methods in energy-intensive sectors
5) Incentives for energy-efficiency investments in households
• 15% of the revenue recycled from the carbon tax
• improving efficiencies of existing domestic dwellings & appliances
• introducing new low-C dwellings & appliances
6) Accelerated increase in carbon prices
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E3MG: E3 Links
ECONOMYas in national
accounts
TECHNOLOGYspecifications &
costs
ENVIRONMENTALEMISSIONS
as in environmentalstatistics
ENERGYas in energy
statistics
damage to health and buildings
e.g. industrial emissions of SF6
funding R&D
pricesandactivity
investment
fuel usefuel prices and costs
fuel use
pollution-abatementequipment
fuel use
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Emission reductions pathways: baseline, 550ppm and 400ppm to
Source: Terry Barker and Şerban Scrieciu (2010) “Modelling Low Climate Stabilisation with E3MG: Towards a ‘New Economics’ Approach to Simulating Energy-Environment-Economy System Dynamics” Energy Journal, 31(1).
Global GDP Base Global GDP 550ppm Global GDP 400ppm
Global Investment Base Global Investment 550ppm Global Investment 400ppm
C price: 100 US$ 2000 / tCO2 in 2020 and then staying constant in real terms
C price: 295 US$ 2000 / tCO2 in 2020 and then staying constant in real terms
Source: Terry Barker and Şerban Scrieciu (2010) “Modelling Low Climate Stabilisation with E3MG: Towards a ‘New Economics’ Approach to Simulating Energy-Environment-Economy System Dynamics” Energy Journal, 31(1).
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Annual changes in global GDP and investment cycles, 2000-
2100:550ppm and 400ppm stabilisation
scenarios
-6.50
-5.50
-4.50
-3.50
-2.50
-1.50
-0.50
0.50
1.50
2.50
3.50
4.50
5.50
6.50
2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
% annual change from Baseline
-6.50
-5.50
-4.50
-3.50
-2.50
-1.50
-0.50
0.50
1.50
2.50
3.50
4.50
5.50
6.50
% annual change from Baseline
% annual change in Global GDP from Base 550ppm
% annual change in Global GDP from Base 400ppm
% annual change in Global Investment from Base 550ppm
% annual change in Global Investment from Base 400ppm
Source: Terry Barker and Şerban Scrieciu (2010) “Modelling Low Climate Stabilisation with E3MG: Towards a ‘New Economics’ Approach to Simulating Energy-Environment-Economy System Dynamics” Energy Journal, 31(1).
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The importance of regulation and recycling in achieving the 400ppm
CO2-e target (by excluding electric cars or extra incentives for low-
Copenhagen’s 25% cut in per capita CO2 emissions by 2005 below 1990
levels• “Every citizen has reduced his input to
global warming from 7 tons to 4.9 tons, by 2.1 tons in fact compared to the 1990 figures.” … despite remarkable growth in the city … due to connecting the district heating system and generating stations to cleaner fuels, especially …natural gas.”
• “So, we dare to set an ambitious new goal of reducing CO2 emissions by a further 20% by 2015 compared to today (2005 figures). This means that by 2015 we will have reduced emissions by 40% compared to 1990.”
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US study of accelerated reductions in CO2 emissions
2010 2020number of years to adjust: 3 to 4 13
trade in emission permits: none Annex I noneAnnex I
CO2 change (%) -30.6 -18.4 -35.1 -23.9
GDP cost (incl co-benefits) (%) -1.2 -0.7 0.1 0.0
US Administration EIA study (1998) for Congress on effects of ratifying the Kyoto Protocol on the US economy, assuming action from 2006
Note: GDP cost allows for co-benefits not included in original study.Sources: US Energy Information Administration (EIA) (1998). Impacts of the Kyoto Protocol on U.S. Energy Markets and Economic Activity. Washington DC. Barker, T., Ekins, P. (2004) ‘The costs of Kyoto for the US economy’, The Energy Journal, Vol. 25 No. 3, 2004, pp.53-71.
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Conclusion (1): A portfolio of policies is needed for low-cost
mitigation• Both carbon prices and regulation is
required for 400ppmv CO2e by 2100 to be feasible at low cost
• Carbon pricing via emission trading and carbon taxes leads markets to choose low-cost options
• Regulation via carbon-efficiency standards for vehicles and power stations leads to increased investment in low-carbon technologies and reductions in costs
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Conclusion (2): Climate policy if well-designed leads to GDP gains
• Climate policies can lead to higher, more efficient and more productive investment– low-carbon technologies are more capital intensive
than fossil fuel technologies– potential for learning by doing is greater– market failures, as in “no regrets” options for
energy-saving in buildings, can be addressed
• Higher investment leads to multiplier effects, especially in times of recession, higher output and lower unemployment
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Conclusion (3): More stringent policies accelerate change and reduce costs
further• Decarbonisation of the global economy is
required over the next 50-70 years to make the achievement of the 2°C target likely
• All sectors will eventually have to become based on clean electricity or solar power
• The new technologies can develop with substantial economies of specialization and scale across the global economy with international cooperation of R&D and standards
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Thank you
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Memo: Relationship between $50/tCO2 and US fuel prices
2005base
Added costof $50/tCO2
$ $ %
Crude Oil ($/bbl) 60 22.4 37%
Regular Gasoline ($/gal) 2.39 0.48 20%
Heating Oil ($/gal) 2.34 0.53 23%
Wellhead Natural gas ($/tcf) 10.17 2.73 27%
Residential Natural gas ($/tcf) 15.3 2.75 18%
Utility Coal ($/short ton) 32.6 101.4 311%
Electricity (c/kWh) 9.6 3.23 34%
Source: Derived from Table ES.5, US CCSP, 2006, sourced in turn from Bradley et al. 1991, updated with U.S. average prices for the 4th quarter of 2005 as reported in DOE, 2006.Note: This table does not include any adjustments in producer prices due to changes in energy demands under stabilization.