Analysis of Co-benefits of Integrated Policies to Mitigate ... fileAbstract . 2 . Our study develops the economic method to evaluate the co-benefit for Asia and to represent this co-benefit

Asuka, J., Institute for Global Environmental Strategies, IGES Lu, X., Tohoku University

Feb. 18th, 2013 IGES, Hayama

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Analysis of Co-benefits of Integrated Policies to Mitigate both Global Climate

Change and Local Air Pollution

Abstract

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Our study develops the economic method to evaluate the co-benefit for Asia and to represent this co-benefit quantitatively from macroeconomic view point. Our model focuses on co-benefit of GCC and LAP policy in Asia. We setup different policy scenarios for reducing end-of-pipe emissions of GHG and LAP. Asia MERGE model emphasizes cost-benefit mode to show different effects of different policy scenarios. Model also merits advantage of GAINS model in LAP analyses and introduces some GAINS results directly.

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Human behavior

Air Pollution Climate Change

Scientists: Find and confirm this relationship. Give technical suggestions of reducing emission.

Policy maker: selection between economic growth and environment

Economists: Damage cost Abatement cost

Policies Evaluate benefit of difference policy scenarios

Policy suggestions

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About the co-benefit Other environmental goals could be achieved by global climate change policy (such as GHG abatement), or vise versa.

WHO, 2011

Significant benefits of carbon mitigation on human health, mainly because they also reduce other airborne emissions (SO2, NOx and PM)

IPCC, 2007

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Case studies about co-benefit of GCC and LAP

Co-benefit of LAP policy：

Durban, South Africa, Air Quality Management Plan (AQMP)、Thambriran and Diab 2011

Seoul, Korea, Special Act on Seoul Metropolitan Air Quality Management (SAQMP)、Chae 2010

Co-benefit of GCC policy in an industry：

Cement industry in China、Lei, Zhang et al. 2011

As the NEAA (Netherlands Environmental Assessment Agency), we expand MERGE model which set up by Manne and Richels of Harvard University in early 90s. Our model focuses on co-benefit of GHG and LAP policy in Aaia.

Development of Asia MERGE model

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Features of Asia MERGE model 1. Each region's domestic economy is viewed as a

Ramsey-Solow model of optimal long-term economic growth. Intertemporal choices are strongly influenced by the choice of a "utility" discount rate.

2. Price-responsiveness introduced through a top-down production function. Output depends upon the inputs of capital, labor and energy. Energy-related emissions (both GCC and LAP) are projected through a bottom-up perspective.

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Features of Asia MERGE model (cont’d)

3. Each period's emissions are translated into global concentrations and in turn to the impacts on mean global indicators such as temperature change.

4. Model’s results may be operated in a "cost- effective" mode - supposing that international negotiations lead to a time path of emissions that satisfies a constraint on concentrations or on temperature change.

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Framework of Asia MERGE model

Energy Industry

Macro-economy

Exhaustible Resources

Electric and Nonelectric

Energy Conversion

Technologies Energy Costs

Electric, Nonelectric

Energy

LAP GHG Emission Capital

Social Welfare

Environment cost

Labor

Co-benefit

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Policy Scenario_ Tax on EOP emissions

GCC:only GHG emission tax

LAP:only LAP emission tax

GCC+LAP

Regions and Countries in Asia MERGE model

Else of East Asia

Global

Asia

EU 27

East Asia

China Japan Korea

Thailand Else of Asia

Else of the world

USA

India

The region which will be considered in next step

10 The time period is set as 2005 – 2050.

( ), , , ,logr t r t r t r t rr t

n e E C F − ∑ ∑

Welfare function (r-region, t-year) and Economic constrains

Negishi Weight

Time discounter of

utility

GCC index function

(GCC damage)

Consumption LAP function (LAPdamage)

, , , , , , ,t r t r t r t r t r t r t rY C I J K D X= + + + + +Budget constrains

GDP (2005 $)

Saving for investment

Energy Cost LAP cost

(costs of PM abatement)

GCC cost Net export

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( )( ), , ,1 t r t r t rGCCDamage E C F= − −

Two kinds of cost in MERGE model

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Damage cost and abatement cost Damage cost of LAP: calculate directly by the damage of GDP(F). Damage cost of GCC: the share of GDP lost calculate by GCC index (E), that is

Abatement cost of LAP (K) and abatement cost of GCC (C).

GAINS model does not calculate damage cost in their model. This is one of reasons we choose MERGE model

To evaluate the damage for world warming (GCC index function)

( )2

1rh

rcat

TE TT

∆ ∆ = − ∆

Damage index

Temperature rises respect 2005

Catastrophic temperature change limit

(set as 2℃)

Development index (the highest is the country with high income, and it is set as 1)

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LAP function considering air pollution (LAP damage cost)

, , ,t r t r t rF N VSL=

Damage Cost by LAP

Premature deaths (PM2.5)

Value of Statistics Life (in EU this index is EU1.06million＄) In Asia MERGE model we set this value with reference of WHO

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As energy sector(market) is the key industry in MERGE model, model designed a complex energy technology system to react with LAP and GCC policy, abatement of end-of pipe emission (both LAP and GCC) will be reflected to the change of energy market.

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CO2 emission from Asia MERGE model under GCC+LAP scenario

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

2000 2005 2010 2020 2030 2040 2050

BAUAM

China

0

200

400

600

800

1000

1200

1400

2000 2005 2010 2020 2030 2040 2050

Japan

AM is optimal outcome of Asia MERGE model under the GCC+LAP scenario.

Mt/year

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Cost and benefit of climate policy under GCC scenario

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

2005 2010 2020 2030 2040 2050

-8

-6

-4

-2

0

2

4

6

2005 2010 2020 2030 2040 2050

GCC cost

Benefit fromGCC

Benefit fromLAP (co-benefit)Totalrevenue

Impact (% GDP) Impact (% GDP)

Japan China

Total benefit=Benefit from GCC + Benefit from LAP(co-benefit) - GCC cost 20

benefit

-8

-6

-4

-2

0

2

4

6

8

10

2005 2010 2020 2030 2040 2050

-8

-6

-4

-2

0

2

4

6

8

10

2005 2010 2020 2030 2040 2050

Cost of(GCC+LAP)

benefit of GCC

benefit of GCC

Total revenue

Cost and benefit of GCC+LAP scenario

Impact (% GDP) Impact (% GDP)

Japan China

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-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

0

0.5

1

1.5

2

2.5

3

3.5

4

2005 2010 2020 2030 2040 2050

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

0

0.5

1

1.5

2

2.5

3

3.5

4

2005 2010 2020 2030 2040 2050

BAU

AM

Reduce ratio

Premature deaths of the GCC+LAP scenario

millions millions

Japan China 24

Conclusion from GCC+LAP scenario

1. Total cost in this integrated scenario is larger than GCC or LAP scenario, respectively. But the total benefit’s increase is over than this added cost, therefore, we can expect a greater benefit from this integrated policy both regional and global.

2. China have to take a longer time lag than Japan to get positive benefit from GCC+LAP scenario.

3. As Japan has a higher VSL (Value of Statistics Life), reducing premature deaths can make high benefit of GDP, therefore reduction rate of premature deaths (from 2005 to 2050) is higher than China.

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0

200

400

600

800

1000

1200

1400

1600

1800

2000

2005 BAU GCC LAP GCC+LAP

Japan

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

2005 BAU GCC LAP GCC+LAP

China

CO2 emission in 2005 and in 2050 correspond to different scenarios

Mt/year Mt/year

GCC+LAP scenario illustrated the effect of co-benefit

-1

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

4

GCC LAP GCC+LAP

-1

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

4

GCC LAP GCC+LAP

LAP Benefit

GCC Benefit

Cost

Costs, benefits change comparing with BAU scenario under 3 scenarios

The data expressed the consumption change ratio in comparison to BAU scenario.

% %

Japan China

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CO2 price and PM2.5 price under different Scenarios

CO2 price PM2.5 price

$/(µg/m3PM2.5)

0

10

20

30

40

50

60

Japan China Korea EU-27

GCC

GCC+LAP

0

50

100

150

200

250

300

350

Japan China Korea EU-27

LAP

GCC+LAP

$/t-CO2

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Analyses about optimal price

1. Although total cost is the highest under GCC+LAP scenario (ref. result 5), CO2 price is lower than GCC scenario. The same conclusion can be obtained for PM2.5 price.

2. China can decrease its CO2 price greatly under GCC+LAP scenario comparing with GCC policy only scenario.

Alternative air policy: in the GCC policy scenario, we can obtain a LAP benefit caused by co-benefit. To get the same LAP benefit, a regional can pursue it optimum air policy, the difference of the GDP benefit under this air policy and GCC policy is defined as incentive power. This designed policy is called alternative air policy.

Alternative climate policy: in the LAP policy scenario, we can obtain a GCC benefit caused by co-benefit. To get the same GCC benefit, a regional can pursue it optimum climate policy, the difference of the GDP benefit under this climate policy and LAP policy is defined as incentive power. This designed policy is called alternative climate policy.

Definition of the incentive power

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GCC scenario and its incentive power

Global Japan China S. Korea EU 27

GCC Scenario

CO2eq mitigation(%) 75.66 52.88 79.65 68.78 76.24

PM-death reduction(%) 46.37 30.97 50.37 40.27 35.01

GDP (%) -3.07 -1.45 -6.87 -2.98 -1.88

GCC benefits (% GDP) 0.19 0.38 0.02 0.10 0.35

LAP benefits(% GDP) 1.80 1.40 4.60 2.89 1.67

co-benefits–GDP loss (% GDP) -1.08 0.33 -2.25 0.01 0.14

alternative air policy

benefits–GDP loss (% GDP) 1.00 0.81 3.27 1.33 0.95

incentive power

Climate policy – alternative air policy (% GDP) -2.08 -0.48 -5.52 -1.32 -0.81

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1. In the GCC scenario, China has the most weak incentive power in our model. Because, if China want to get same LAP benefit from this GCC scenario, by the object of minimum cost, without considering of CO2 emission, they can reduce policy cost greatly. Based on this great difference, we can find that China will have poor incentive for GCC policy compare with their regional LAP policy.

2. With the same method (minimum cost), Japan can not obtain greater benefit comparing with GCC scenario, which means that its incentive power for GCC policy is the biggest among all regions.

Discussion on incentive power

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Conclusion

1.Co-benefit is very important for the global

GCC policy, without including co-benefit,

GCC policy can not get positive benefit even

for developed country like Japan. Therefore,

co-benefit should be emphasized more

generally among GCC negotiations.

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Conclusion (cont’d)

2. Integrated policy scenario like GCC+LAP scenario in this model can get the best economic benefit, that means all regions should consider GCC policy and LAP policy simultaneously.

3. Different region has different incentive power, these will impact their incentive of attending global GCC policy.

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