integrated assessment models: modeling mitigation (abatement)

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Integrated Assessment Models: Modeling Mitigation (Abatement). Economics 331b Spring 2010 Week of April 5. Agenda. This week (Monday and Wednesday): - Review on term paper - How to calculate SCC - Mitigation Monday: Add last module to your little model: mitigation. - PowerPoint PPT Presentation

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1Economics 331bSpring 2010Week of April 5

Integrated Assessment Models:Modeling Mitigation (Abatement)1AgendaThis week (Monday and Wednesday):

- Review on term paper- How to calculate SCC- Mitigation

Monday: Add last module to your little model: mitigation.22How to estimate SCCNumerical 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 z33Model estimate4

45Fossil fuel usegenerates CO2emissionsCarbon cycle: redistributes around atmosphere, oceans, etc.Climate system:change in radiation warming,precip, ocean currents, etc..Impacts on ecosystems,agriculture, diseases,skiing, golfing, Measures to controlemissions (limits, taxes, subsidies, )The emissions-climate-impacts-policy nexus56Price of carbon emissionsSocial cost of carbonThe basic analytical structureAbatementPcarbon*Marginal Cost0Abatement*6Mitigation (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 GHGsThere are four major issues involved:1. Projecting the emissions 2. Estimating the costs of emissions reductions3. Designing policies to reduce emissions4. Encouraging low-carbon technological changeThis set of tasks is generally much easier that impacts because we have extensive information on impacts of energy taxes, regulations, etc.771. Projecting emissionsFor 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.

88Projections CO2 emissions various models (with no emissions reductions policies)9EMF-22 and Yale-RICE model

92. Estimating Costs of Reducing EmissionsAnalysts 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.

101011

Example from McKinzey Study11Example of econometric (top-down) approach to mitigationAssume that the demand for gasoline isQ = Bp-Supply of gasoline is perfectly elastic with tax : p = q + CO2 emissions are proportional to consumption:E = kQSo we have:E = kB - (q + )- =c (q + )-

[Numbers are calibrated toActual US data.]

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12Survey of multiple models from IPCC FAR13

Source: IPCC, AR4, Mitigation. 13Summary of estimates14

Source: IPCC, AR4, Mitigation, p. 77. 14Summary from IPCC15

1516Further 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.

16What are your views on top down v. bottom up?17There 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.17Nordhaus house survey18

18Derivation of mitigation cost function in RICE modelStart with a reduced-form cost function:(1) C = Qwhere C = mitigation cost, Q = GDP, = emissions control rate, , are parameters. Take the derivative w.r.t. emissions and substitute = E0 /Q dC/dE = MC emissions reductions = Q-1[d/dE] = -1/ Note that MC(0) = 0; MC(1) = / = price of backstop technology*; and C/Q = with zero emissions.

*Backstop technology is technology at which get 100 emissions reduction (say solar/nuclear/fusion/wind for everything). 1919The 2 C targetCurrent 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 runPossible tipping points in climate systemThresholds for ecosystems2020