More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

More Gas, Less Coal, and Less CO2?

�

Unilateral CO2 Redu tion Poli y with More

than One Carbon Energy Sour e

Julien Daubanes (UNIGE, UCPH, and CESifo),

Fanny Henriet (PSE)

and

Katheline S hubert (PSE, and CESifo)

Frontiers in Climate Change E onomi s

UCPH 2018

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

Gas Promotion Strategy

Natural gas releases less CO2 than regular fuels

Now more than ever, hope large repla ement of very arbon

intensive fuels by shale gas will help gas-produ ing regions

mitigate CO2 emissions

Example: US, Russia, China, Japan

Manifest in the power generation se tor: Steam oal vs natural gas

2 important on erns:

1 Methane emissions at gas produ tion stage: spe i� regulatory

hallenges

2 This paper: international oal leakage

Unlike gas� onsumed where produ ed� oal high leakage

potential; more gas releases tradable oal

1/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

US Example

US 2nd biggest CO2 emitter

2nd biggest oal produ er and oal onsumer, top oal reserve

holder

Top (shale) gas produ er

CO2 emissions regulation by the 2011 Clean Air A t

Paris Climate Agreement US ommitment, at least until next

Administration: 26% redu tion target over 2005-2025

So far, gas- oal substitution strategy

The US "position as the top natural gas produ er ... not only an

provide ... heap power, but it an also help redu e [US℄ arbon

emissions." (President Obama, June 25, 2013)

Ele tri ity se tor: 2015 Clean Power Plan

2/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

US Example: Substitution at Work

E�e tive substitution of steam oal by natural gas in US ele tri ity

se tor, hand in hand with development and poli y promotion of gas

0

5000

10000

15000

20000

25000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Figure: Coal and gas onsumption by the US power generation se tor in

million MMBtu (EIA)

3/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

US Example: Redu tion in Domesti CO2

Emissions

Given large CO2 ontribution of the se tor, the oal-gas

substitution has ontributed to the redu tion of the US CO2

emissions (Feng et al 2015, Kot hen & Mansur 2016)

4600

4800

5000

5200

5400

5600

5800

6000

6200

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Figure: CO2 emissions (million metri tons) from energy onsumption

in the US (EIA)

4/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

US Example: Coal Leakage

However, the gas boom and its poli y promotion have aused large

amounts of oal to meet a foreign demand

Rise in net US oal exports on omitant with oal-gas substitution

0

5

10

15

20

25

30

35

40

Q12000

Q32000

Q12001

Q32001

Q12002

Q32002

Q12003

Q32003

Q12004

Q32004

Q12005

Q32005

Q12006

Q32006

Q12007

Q32007

Q12008

Q32008

Q12009

Q32009

Q12010

Q32010

Q12011

Q32011

Q12012

Q32012

Q12013

Q32013

Q12014

Q32014

Q12015

Q32015

Q12016

Q32016

Q12017

Q32017

Figure: Net exports of oal (short tons) from the US to the rest of the

world (EIA)

5/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

US Example: Perspe tives

Those developments are likely to persist, irrespe tive of the

ultimate US de ision on the Paris agreement

1 Pressure towards CO2 redu tion to be ontinued by US states and

orporations (eg The E onomist June 5 2017)

2 Rise of gas still to be publi ly supported (President Trump, June

29, 2017)

3 Exports of oal likely to ontinue in reasing

a Gas to release amounts of tradable oal (eg Wolak 2013)

b Coal export terminals to re eive a favorable regulatory treatment

The rise of US oal exports has be ome a poli y obje tive in itself

(President Trump, June 29, 2017)

6/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

The Problem

Two main reasons why this deserves attention in urrent ontext

1 Paris Climate Agreement: Governments will have to rely on

unilateral initiatives

2 The rise of gas as an intermediate (less arbon intensive) energy

sour e fundamentally modi�es the analysis of unilateral poli ies

Standard analysis with a single CO2 energy sour e: Unilateral

redu tion entails CO2 leakage but < 100%With more than one CO2 sour e, we show that leakage may be

≥ 100%, so that unilateral poli y may be ounter-produ tive

However, no study of unilateral CO2 redu tion in presen e of more

than one CO2 energy sour e examining this possibility

7/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

This Paper

We do applied theory to examine onsequen es of unilateral

strategy to rely on gas as an intermediate�less CO2

intensive�energy sour e

We examine an open e onomy that relies on two substitutable

CO2 inputs to produ e ele tri ity:

Coal (more CO2 intensive)

Gas (less so)

Question: Can the domesti promotion of gas help redu e

domesti and world CO2 emissions?

8/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

Outline

1 Simplest version of the model, with minimal ingredients involved

Stati representation of energy markets (eg Hoel 1994, Harstad 2012)

Coal tradable, unlike gas

Perfe t substitution, as is the ase in a su� iently long run

2 Appli ation to the US

3 Dis ussion on extensions to other aspe ts

9/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

Interse tion of 2 Strands of Applied-Theory

Literature

1 Leakage e�e t limiting e�e tiveness of unilateral limate poli ies

Eg Ei hner & Pethig 2011, Ritter & S hopf 2013

Extension to more than one energy sour e, giving rise to possibility of

> 100% leakage, thus of poli y ounter-e�e tiveness

Leakage ounterpart of the "green paradox"

2 Resour e e onomi s with multiple polluting energy sour es

Eg Chakravorty, Moreaux & Tidball 2008

Extension to open e onomy and unilateral poli y

⇒ At the interse tion, Fis her & Salant 2017, but possibility of

> 100% leakage remains overlooked

10/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

Literature on US Climate Poli y

Con erns over rising US oal exports (eg Fowlie 2014, Knittel et al

2016, NGOs)

Existing studies mostly fo used on hanges within US e onomy

(Burtraw et al 2014, Knittel et al 2015, Cullen & Mansur 2017)

Ex eption: Re ent simulations by Wolak 2016 with global oal

market

Assuming perfe tly-inelasti oal demand, as in the short run

(Knittel et al 2017)

Our addition:

New insights as to CO2 leakage with gas intermediate energy sour e

In a longer-run perspe tive, we do away with the assumption of zero

oal demand elasti ity (eg Burke & Liao 2015)

Results indi ate�and appli ation illustrates�that this is riti al

Call for reexamining Wolak's poli y on lusions

11/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

Basi 2-Country-2-Good Model

2 ountries / regions

H : Home, ountry of interest

F : Rest of the World

2 perfe tly substitutable energies

Coal c, tradable, produ ed in H and F

sHc = SHc (pc)

sFc = SFc (pc)

where pc is Coal produ er pri eGas g, produ ed in H only, and only onsumed lo ally

sHg = SHg (pg)

where pg is Gas produ er pri e

12/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

Basi 2-Country-2-Good Model

2 ountries / regions

H : Home, ountry of interest

F : Rest of the World

2 perfe tly substitutable energies

Coal c, tradable, produ ed in H and F

sHc = SHc (pc)

sFc = SFc (pc)

where pc is Coal produ er pri eGas g, produ ed in H only, and only onsumed lo ally

sHg = SHg (pg)

where pg is Gas produ er pri e

12/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

Basi 2-Country-2-Good Model

2 ountries / regions

H : Home, ountry of interest

F : Rest of the World

2 perfe tly substitutable energies

Coal c, tradable, produ ed in H and F

sHc = SHc (pc)

sFc = SFc (pc)

where pc is Coal produ er pri eGas g, produ ed in H only, and only onsumed lo ally

sHg = SHg (pg)

where pg is Gas produ er pri e

12/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

Energy Demand and Trade

F only relies on Coal

xFc = DF (pc)

H relies not only on Coal but also on domesti Gas

xH = DH(p) = xHc

︸︷︷︸

Coal

+ sHg︸︷︷︸

Gas

where p is �nal energy pri e (Coal and Gas)

When Home uses Coal and Gas at the same time, no arbitrage

p = pc = pg

In laissez-faire, p balan es supply and demand at world level:

DH(p) +DF (p) = SHc (p) + SF

c (p) + SHg (p)

13/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

Energy Demand and Trade

F only relies on Coal

xFc = DF (pc)

H relies not only on Coal but also on domesti Gas

xH = DH(p) = xHc

︸︷︷︸

Coal

+ sHg︸︷︷︸

Gas

where p is �nal energy pri e (Coal and Gas)

When Home uses Coal and Gas at the same time, no arbitrage

p = pc = pg

In laissez-faire, p balan es supply and demand at world level:

DH(p) +DF (p) = SHc (p) + SF

c (p) + SHg (p)

13/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

Energy Demand and Trade

F only relies on Coal

xFc = DF (pc)

H relies not only on Coal but also on domesti Gas

xH = DH(p) = xHc

︸︷︷︸

Coal

+ sHg︸︷︷︸

Gas

where p is �nal energy pri e (Coal and Gas)

When Home uses Coal and Gas at the same time, no arbitrage

p = pc = pg

In laissez-faire, p balan es supply and demand at world level:

DH(p) +DF (p) = SHc (p) + SF

c (p) + SHg (p)

13/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

Domesti CO2 Commitment

CO2 intensities of Coal and Gas:

θc ≥ θg ≥ 0

Domesti emission limit, assumed binding:

θcxHc + θgs

Hg = eH

However it is implemented, similar to a CO2 penalty; assume it is

an expli it CO2 pri e (eg arbon tax or permits pri e)

τH ≥ 0

Equilibrium no-arbitrage ondition be omes

p = pc + θcτH = pg + θg τ

H

and produ er pri es

{pc = p− θcτ

H

pg = p− θg τH

14/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

Equilibrium with Domesti CO2 Commitment

Final energy pri e p balan es energy market

DH(p) +DF (

pc

︷ ︸︸ ︷

p− θcτH)

= (1)

SHc (p− θcτ

H

︸ ︷︷ ︸

pc

) + SFc (p− θcτ

H

︸ ︷︷ ︸

pc

) + SHg (p− θg τ

H

︸ ︷︷ ︸

pg

)

Domesti arbon pri e τH must satisfy CO2 ommitment

θc[DH(p)− SH

g (p− θg τH)

]

︸ ︷︷ ︸

xHc

+θg SHg (p− θg τ

H)︸ ︷︷ ︸

sHg

= eH (2)

Proposition 0 (Equilibrium)

System (1)-(2) uniquely determines the �nal energy pri e p and

the arbon pri e τH

15/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

Domesti CO2 Redu tion and Gas Produ tion

E�e t of redu tion deH < 0 on Gas produ tion?

Coal penalized as the most polluting energy sour e: dpc < 0

In ontrast, e�e t on Gas is ambiguous: dpg?

Proposition 1 (E�e t of domesti CO2 redu tion on Gas)

Less CO2 in H warrants more Gas i� Gas su� iently less CO2

intensive:

θc − θgθg

> r0 ≡ξDH

xFc

xH ξDF + scxH ξSc

(3)

Testable ondition involving elasti ities, market shares, and rate

(θc − θg)/θg of pollution in rease from Gas to Coal

Polar ases:

Never satis�ed if θc = θg, as if single energy sour e

Always if θg 7→ 0: Penalize oal, only arbon energy sour e

In general, ambiguous: For example, more likely when H small

energy- onsuming ountry

16/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

Domesti CO2 Redu tion, Coal Exports, and

Emissions in Rest of the World

E�e t of redu tion deH < 0 on world emissions?

As far as Coal is on erned, standard logi of leakage:

Coal penalized as the most polluting energy sour e: dpc < 0Rise in Coal use in rest of the world: dxF

c > 0Despite ontra tion of oal supply: dsHc , dsFc < 0Central role of Coal exports from H: d

(

sFc − xFc

)

> 0

Domesti CO2 redu tion (at least partly) ompensated by CO2

in rease in rest of the world:

deW = deH︸︷︷︸

<0

+ θcdxFc

︸ ︷︷ ︸

>0

However, in presen e of Gas, the leakage rate

deF

−deHmay ex eed 100%

17/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

Domesti CO2 Redu tion and World Emissions

E�e t on world emissions ambiguous: deW ?

Proposition 2 (E�e t of domesti CO2 redu tion on

leakage and world CO2)

Less CO2 in H leads to less CO2 in the world (leakage < 100%) i�

θc − θgθg

<ξDH

xFc

xH ξDF + scxH ξSc

︸ ︷︷ ︸

r0

1 +θcθg

ξSc

θcθg

sHgscξSg

+

θc−θgθg

xH

scξDH

︸ ︷︷ ︸

>1

(4)

(4) may be violated only if (3) is satis�ed: Leakage > 100% only

if more Gas

In polar ases, (4) always satis�ed:

θg = θc, as if single arbon energy sour e

θg 7→ 0, as when only oal ontains arbon

With realisti intermediate values 0 < θg < θc, need to be veri�ed

18/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

Domesti CO2 Redu tion: Summary

Criti al role of rate of pollution in rease (θc − θg)/θg(4) satis�ed if U-shape fun tion takes positive values

PSfrag repla ements

θc−θgθg

Less Gas

0

More Gas

Less CO2

Less CO2

More CO2

xe

o(N)

No

xo

r0 r ˜r

Figure: Domesti CO2 redu tion poli y, o urren e of gas boom and

in rease in world CO2 emissions

19/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

Appli ation to US: Empiri al Values

Relative CO2 intensities

IPCC 2014, Howarth et al 2011

Standard θc/θg = 2, ie (θc − θg)/θg = 1, but ontroversial

Market shares

EIA

sc + sHg = 8; sc = 7; xH = 2; xHc = 1; xH

g = 1

US ele tri ity demand elasti ity

Bernstein & Gri�n 2006, Paul et al 2009, Deryugina et al 2017

Intermediate value of ξDH = 0.2

Non-US oal demand elasti ity

Burke & Liao 2015, Chakravorty et al 2015

Intermediate value of ξDF = 0.5

Coal and Gas supply elasti ities

Light et al 1999, Brown & Krupni k 2010, Truby & Paulus 2012

Average values of ξSc = ξSg = 1, despite large dispersion

20/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

Appli ation to US: Results with Most Realisti

Values

With the apparently most realisti parameter values

Proposition 1: Gas promotion justi�ed to redu e US emissions

r0 = 0.04 << 1 =θc − θg

θg

Proposition 2: US CO2 redu tion e�e tively ontributes to redu e

world CO2 emissions

deF

−deH= 41% < 100%

However, omitting gas as an intermediate energy sour e leads to

largely underestimate the leakage rate; assuming a single arbon

energy sour e as in the standard leakage analysis would yield

deF

−deH= 27% < 41%

21/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

Appli ation to US: Sensitivity

Robust to realisti variations in CO2 intensities

However, highly sensitive to variations in supply elasti ities:

Figure: Curves of iso-leakage-rate and supply elasti ities

Admissible values of ξSc= 0.1 and ξSg

= 1 imply > 100% leakage!

Call for more empiri al resear h on the medium/long-run elasti ity

of gas and oal supply

22/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

CO2 Commitment in Rest of the World

Sensible to onsider CO2 ommitment in rest of the world

Assume F ommitment not to use more Coal:

θcxFc ≤ eF

Implemented with CO2 pri e τF > 0

E�e t of domesti CO2 redu tion in H deH < 0 in this ontext?

Same e�e ts as above, ex ept that emissions in F will not

in rease, but CO2 pri e τF will

Proposition 3 (E�e t of domesti CO2 redu tion on

poli y in rest of the world)

Less CO2 in H requires an in rease in CO2 penalty in F:

dτF

dτH=

ξDH +(

θc−θgθc

)xHg

xH ξSg

ξDH + scxH ξSc +

xHg

xH ξSg

> 0 (5)

Appli ation to the US: A US unilateral CO2 pri e rise by $10 alls

for a CO2 pri e rise in the rest of the world by $1.723/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

Dynami Coal and Gas Supplies

In fa t, Coal and Gas are fossil fuels produ ed over time

Extension:

Costless extra tion over time by Hotelling-type se tors

Endogenous reserve development (Gaudet & Lasserre 1988)

Formulation in terms of umulative quantities isomorphi to stati

model

The extension highlights that relevant notion of supply elasti ity is

long-run (reserve) produ tion elasti ity

24/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

International Gas Trade

Very hallenging but progressively be oming reality (eg US)

If Coal and Gas also perfe tly substitutable in rest of the world

If some Gas is used in H: same analysis

Otherwise, reinterpret Gas supply as residual supply: same analysis

In general, a CO2 intermediate energy sour e like Gas modi�es the

qualitative and quantitative analysis of unilateral limate poli y

and international CO2 leakage

25/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

Te hni al Progress in the Produ tion of Gas and

Other Alternative Energy Sour es

Te hni al improvement on omitant to the unilateral CO2

redu tion in H may a�e t our results

1 Te hni al progress in the produ tion of Gas substantiates the

on ern that a CO2 redu tion in H may be ounter-produ tive

Redu tion in domesti CO2 emissions under the same ondition as in

Proposition 1

Rise in world CO2 emissions for intermediate values of (θc − θg)/θg

2 Te hni al progress in alternative energy sour es obviously redu es

world CO2 emissions

26/27

More Gas, Less

Coal, and Less

CO2?

�

Unilateral CO2

Redu tion Poli y

with More than

One Carbon

Energy Sour e

Julien Daubanes,

Fanny Henriet,

and Katheline

S hubert

Introdu tion

Model

Domesti CO2

Redu tion

CO2 Leakage

Appli ation to the

US

Extensions

CO2 Poli y in Rest of

the World

Dynami Energy

Supply

International Gas

Trade

Te hni al Progress

Con lusion

Con lusion

Now more than ever, gas used as an intermediate energy sour e to

redu e CO2 emissions

Possibility that ambitious unilateral poli y be ounter-produ tive,

unlike standard leakage analysis

Analysis needed

New results, important, espe ially in the aftermath of the Paris

agreement

Formulas an be used to roughly evaluate limate poli y in any gas

ri h e onomy

Illustrative appli ation to the US:

US urrent poli y e�e tive

Highly sensitive to supply elasti ities: More empiri al resear h needed

Call for more stringent CO2 penalties in rest of the world

However, model too stylized to draw de�nitive on lusion and

poli y pres ription

Call for reexamining existing poli y analysis of Wolak 2016

27/27