technological development and economic...

Inaugural Ministerial Meeting of the Asia Pacifi c Partnership on Clean Development and Climate

Sydney, 11–13 January

abare research report 06.1

Brian S. Fisher, Melanie Ford, Guy Jakeman, Andrew Gurney, Jammie Penm, Anna Matysek and Don Gunasekera

January 2006

abare

technological development and economic growth

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© Commonwealth of Australia 2006

This work is copyright. The Copyright Act 1968 permits fair dealing for study, research, news reporting, criticism or review. Selected passages, tables or diagrams may be repro-duced for such purposes provided acknowledgment of the source is included. Major extracts or the entire document may not be reproduced by any process without the written permission of the Executive Director, ABARE.

ISSN 1037-8286ISBN 1 920925 47 3

Fisher, B.S., Ford, M., Jakeman, G., Gurney, A., Penm, J., Matysek, A. and Gunasekera, D. 2006, Technological Development and Economic Growth, ABARE Research Report 06.1, Prepared for the Inaugural Ministerial Meeting of the Asia Pacifi c Partnership on Clean Development and Climate, Sydney, 11–13 January, ABARE, Canberra.

Australian Bureau of Agricultural and Resource EconomicsGPO Box 1563 Canberra 2601

Telephone +61 2 6272 2000 Facsimile +61 2 6272 2001Internet www.abareconomics.com

ABARE is a professionally independent government economic research agency.

ABARE project 2916

DisclaimerThe analysis reported here represents the results of ABARE research and does not necessarily represent the views of partnership economies.

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forewordAlmost all countries across the world aspire to continually improve their economic growth and development. For developing countries, in particular, to progress toward this goal, their energy use will need to grow. With that, greenhouse gas emissions are also likely to increase over time.

Growing global demand for energy means that technology must play a critical role in any signifi cant reduction in global greenhouse gas emissions. In this context, the Asia Pacifi c Partnership on Clean Development and Climate, formed between Australia, China, India, Japan, the Republic of Korea and the United States, will play a strategically important role in the development, deployment and transfer of more energy effi cient and cleaner technologies to curb emissions while at the same time enhancing the growth prospects of economies.

The purpose in this study is to assess the potential economic, environmental and energy consumption effects of possible action on the development and deploy-ment of clean technologies under the partnership. The results of the study indicate that potential use of such technologies in the electricity, transport and industry sectors could provide substantial opportunities to curb greenhouse gas emissions in the medium to long term, without hindering the development aspirations of developing countries.

Brian S. FisherExecutive Director

January 2006

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acknowledgmentsThis report was prepared in ABARE’s International Branch under the management of Don Gunasekera. The authors wish to thank Helal Ahammad and Hom Pant for modeling advice.

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contents

summary 1

1 introduction 5

2 energy and emissions profi les 7economic growth, labor supply and productivity growth 7population 11energy consumption 12emissions growth 14

3 role of technology and associated challenges 17current incentives for technology deployment 18encouraging research and development 19encouraging technology development, diffusion and transfer 23international collaboration on new technology 23challenges for moving forward 24

4 assessing alternative action 27description of alternative enhanced technology scenarios 27results 29

5 concluding comments 39

appendixesA demographics of partnership economies 41B sectoral emissions growth in partnership economies 45C technology options 50

references 62

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fi gures1 population projections for partnership economies 122 energy consumption in partnership economies 123 contribution to global emissions – partnership economies and

rest of world 144 reference case emissions and possible atmospheric carbon

dioxide stabilisation pathways 155 government expenditure on energy R&D 206 composition of energy R&D in 2002 217 electricity demand in partnership economies 298 electricity fuel mix in partnership economies 309 change in electricity capacity, 2001–50 3110 energy consumption by partnership economies, 2050 3211 change in oil consumption in partnership economies, 2050 3312 global emissions 3413 sources of emissions abatement in partnership economies 3514 change in emissions of sulfur dioxide and nitrogen oxides in

partnership economies, 2050 3615 change in sectoral emissions in partnership economies, 2050 3716 age structure of the population in each partnership economy 4217 sectoral composition of greenhouse emissions in partnership

economies 4518 contributions to emissions from electricity generation – partnership

economies and rest of world 4619 electricity fuel mix in partnership economies 4720 contribution to transport emissions – partnership economies and

rest of world 4821 contribution to key industry emissions – partnership economies

and rest of world 49

tables1 average annual growth in gross domestic product 82 contribution of fuels to energy consumption in partnership

economies 133 population projections for partnership economies 414 projected age dependencies for partnership economies 445 best practice thermal effi ciencies of electricity generation

technologies 53

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The Asia Pacifi c Partnership on Clean Development and Climate consists of Australia, China, India, Japan, the Republic of Korea and the United States. The key focus of the partnership is on the development, deployment and transfer of existing and emerging clean technologies.

The partnership offers substantial potential for continuing economic growth and development, poverty alleviation and energy access, while helping to achieve signifi cant reductions in future greenhouse gas emissions growth.

Partnership economies account for 54 per cent of global economic output, 45 per cent of global population, 48 per cent of global energy use and 50 per cent of global greenhouse gas emis-sions. Under current policy settings, the strong growth in energy demand is projected to increase the partner-ship economies’ share of global energy demand to about 55 per cent by 2050. Much of this growth will be driven by population growth in the partnership economies as a whole (fi gure A) and by the strongly growing affl uence in these countries.

summary

population projections for partnership economies

fig A

200120302050

million

200

400

600

800

1000

1200

1400

Australia KoreaJapan UnitedStates

IndiaChina

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Future global greenhouse gas and particulate emissions are infl uenced by the level of energy use, the energy fuel mix and the effi ciency of current and future energy technologies adopted by individual economies. Technology is an essential component of any strategy that aims to ease the pressure of escalating energy demand and to substantially cut emissions, while allowing economies to pursue their development aspirations.

enhanced technology scenariosIn this study, three illustrative enhanced technology scenarios are examined using ABARE’s global trade and environment model:

■ scenario 1: partnership technology Collaborative partnership action on technology is assumed to increase the

energy effi ciency and uptake of advanced technologies in electricity, transport and key energy intensive industries (aluminium, cement, mining, iron and steel, and wood, pulp and paper products).

■ scenario 2: partnership technology + CCS The same technology developments and transfer rates for electricity, transport

and key industry sectors are assumed as in scenario 1. In addition, carbon capture and storage (CCS) technologies are assumed to be used in all new coal and gas fi red electricity generation plant from 2015 in the United States, Australia and Japan and from 2020 in China, India and Korea.

■ scenario 3: global technology and partnership CCS The development and availability of more energy effi cient technologies in the

electricity, transport and key energy intensive industry sectors are assumed to be diffused throughout the world; carbon capture and storage technologies are assumed to be adopted only in partnership economies under the same assumptions as in scenario 2.

modeling resultsThe results of this study indicate that widespread adoption of advanced, energy effi cient technologies among partnership economies could potentially reduce the

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overall importance, in the medium to long term, of oil, coal and gas in energy consumption and the electricity fuel mix, while increasing the importance of nuclear power and nonhydro renewables. For example, by 2050, oil consumption in part-nership economies could be 23–24 per cent lower than would otherwise have been the case, through the adoption of more energy effi cient technologies. Such a change could make a big contribution toward further energy security.

The partnership could also result in a signifi cant reduction in global greenhouse gas emissions in the medium to long term. The results of the study show that the actions of partnership economies on energy effi cient technologies in electricity, transport and key energy intensive industries and the diffusion of the technologies to other regions could reduce global emissions by about 23 per cent in 2050 compared with what would otherwise have been the case. This is equivalent to a global cumulative emissions saving of over 90 gigatonnes of carbon equivalent between 2006 and 2050. The adoption of carbon capture and storage tech-nologies across the world would lead to substantial further reductions in global emissions.

The sources of emissions abatement for partnership economies are illustrated in fi gures B and C.

The adoption and diffusion of advanced technologies also have the potential to substantially reduce pollution in partnership economies. The projected reductions

sources of emissions abatement – global

fig C

1

2

3

4

Gt C-e

20102000 2020 2030 2040 2050

other industrykey industrytransportelectricity – fuel switching and efficiencyelectricity – carbon capture and storage

global technology + partnership ccs scenario

sources of emissions abatement– partnership economies

fig B

20102000 2020 2030 2040 2050

Gt C-e

1

2

3

partnership technology + ccs scenario other industrykey industrytransportelectricity – fuel switching and efficiencyelectricity – carbon capture and storage


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in emissions of the oxides of sulfur and nitrogen (compared with what they would otherwise have been) are shown in fi gure D.

The enhanced development, adoption, diffusion and transfer of energy effi cient technologies and carbon capture and storage technologies will require govern-ment involvement. Possible technology ‘push’ policy measures to achieve such action include collaborative, well focused efforts on research and development, the introduction of industry technology standards and efforts to increase capacity building and technology transfer between countries.

Research and development efforts aimed at cleaner and more energy effi cient technologies should seek to identify barriers to technology development, adop-tion and transfer and fi nd solutions to improve their performance, cost, safety and environmental acceptability. Both technology ‘push’ (for example, research and development policies) and ‘pull’ (for example, emissions trading) will be required in the long term. However, it will be important to ensure that suffi cient funding and support policies are provided to reinvigorate energy research in both the public and private sectors and that the necessary technologies to substantially reduce emissions actually exist and are capable of deployment before technology ‘pull’ policies are adopted.

change in emissions of sulfur dioxide and nitrogen oxides in partnership economies, 2050

fig Drelative to the reference case

partnershipeconomies

Australia KoreaIndia JapanChina UnitedStates

–25

–20

–30

–15

–10

–5

% nitrogen oxidessulfur dioxide


5

Population pressure and expanding economic activity are projected to lead to rapid increases in the demand for energy over the next half century, particularly in developing countries. Much of this is expected to be driven by increases in demand for electricity and transport services in both the residential and industrial sectors.

Given the correlation between economic growth and energy consumption, regional or global initiatives and agreements encouraging the widespread devel-opment and transfer of low emission technologies will be essential to allow coun-tries to pursue their development aspirations while simultaneously achieving envi-ronmental outcomes, such as reducing global greenhouse gas emissions and air pollutants at the regional level.

The recently agreed Asia Pacifi c Partnership on Clean Development and Climate offers considerable potential to achieve signifi cant cuts in future emissions growth, while taking into account the growth and energy access priorities of its members. The partnership consists of Australia, China, India, Japan, the Republic of Korea and the United States, which together accounted for about 48 per cent of global energy consumption, 50 per cent of global greenhouse gas emissions and about 54 per cent of global gross domestic product in 2001.

In this report, medium and long term drivers and projections of energy demand and emissions in the six partnership economies are discussed. In particular, the long run profi les of seven key sectors — electricity, transport, cement, iron and

1. introduction


6


steel, aluminium, wood, pulp and paper products, and mining — are highlighted. Key drivers of technological development and transfer are also discussed.

The environmental and economic impacts of three alternative scenarios, refl ecting enhanced technological development and transfer under the partnership agree-ment, are considered using ABARE’s global trade and environment model (GTEM). Detailed information on GTEM is provided in Pant (2002) and on ABARE’s web site (www.abareconomics.com).


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Projected increases in population and economic activity, particularly in developing countries, are expected to lead to an expansion in global energy demand in the coming decades. Associated with this will be a range of challenges affecting economic development, energy security, society, poverty alleviation and the envi-ronment. The main drivers of energy use in the six partnership economies are dealt with fi rst.

economic growth, labor supply and productivity growthAs economies grow and per person gross domestic product rises, demand for energy intensive goods and services, such as electricity, transport, construction and manufactured goods, increases.

In the modeling using GTEM, growth in gross domestic product (GDP) is based on historical data for 2001–03, International Monetary Fund (2004) forecasts and ABARE macroeconomic assumptions to 2009. Beyond this period, regional GDP growth rates are based on projections of productivity and labor supply growth.

Country and regional population and labor supply growth rates are determined within GTEM, based on detailed population dynamics that capture the notion that as countries develop and per person incomes increase, fertility and mortality rates follow a typical pattern. Estimates of the dependence of fertility and mortality rates on income and an estimated migratory pattern are used to project age and

1. summary2. energy and emissions profi les


8


gender specifi c population changes. The average annual GDP growth projections for the partnership economies for the case where current and announced policies are assumed to be maintained (the reference case) are shown in table 1.

australiaEconomic growth in Australia averaged around 3.3 per cent a year between 1990 and 2001. The strong economic growth was underpinned by relatively high annual productivity growth of around 2.8 per cent (Australian Bureau of Statistics 2004). Competition policy and other microeconomic reforms played a key role in Australia’s productivity increases.

While growth in labor supply is expected to ease toward 2030, productivity growth in Australia is projected to remain relatively high toward 2030 (around 2.5 per cent a year on average). The projected productivity growth mainly refl ects continued efforts in economic restructuring. Economic growth in Australia is projected to average 3.0 per cent between 2010 and 2030.

Beyond 2030, economic growth in Australia is assumed to ease to an average rate of 2.4 per cent a year toward 2050. This assumed moderation in Australia’s economic growth refl ects both a projected decline in labor supply growth and an expected gradual easing of productivity growth over that period.

1 average annual growth in gross domestic productreference case

1990 2001 2010 2030 2001 –2001 –10 –30 –50 –50

% % % % %

Australia 3.3 3.4 3.0 2.4 2.8China 9.9 7.8 6.4 5.3 6.2India 5.4 6.0 5.7 5.2 5.6Japan 1.3 1.3 1.2 1.1 1.1Korea, Rep. of 5.9 4.4 3.5 2.6 3.3United States 3.0 3.2 2.9 2.3 2.7


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china

Over the past decade or so, China has achieved strong economic growth (aver-aging 9.9 per cent a year). Underpinning this strong economic performance has been productivity growth of around 8.6 per cent a year, supported by signifi cant increases in foreign direct investment and the relocation of manufacturing from developed countries.

Looking forward, economic growth in China is projected to ease gradually toward 2050. Between 2010 and 2030, economic growth in China is projected to average around 6.4 per cent a year. While growth in labor supply is projected to slow gradually, strong productivity growth is projected to continue. Economic growth is projected to ease further to an annual average rate of 5.3 per cent in the period 2030–50. While relatively high productivity growth (5.7 per cent a year on average) is projected over this period, an aging population is expected to lead to a small annual decline in labor supply.

indiaEconomic growth in India averaged 5.4 per cent a year between 1990 and 2001, with productivity growth estimated at 4.0 per cent a year (OECD 2005).

Economic growth in India is projected to average around 5.7 per cent a year over the period 2010–30. While productivity growth is projected to be maintained at a relatively high level (4.4 per cent a year on average), growth in labor supply is projected to increase by 1.3 per cent a year on average. Continued growth in both labor productivity and labor supply is expected to provide support for sustained economic growth.

Beyond 2030, growth in labor supply in India is projected to slow. In contrast, productivity growth is projected to strengthen toward 2050. With a relatively large labor force and low labor costs, India has a comparative advantage in manufacturing production, especially in relatively high labor intensive products. Toward 2050, India can be expected to increase its importance in world markets as a destination for foreign investment and a base for manufacturing. Economic growth in India is assumed to average 5.2 per cent a year between 2030 and 2050.


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japan

Economic growth in Japan is projected to average around 1.2 per cent a year between 2010 and 2030 and 1.1 per cent a year between 2030 and 2050. The main factor underlying the assumed modest economic growth is a projected decline in labor supply, primarily as a result of an aging population. Toward 2050, Japan’s source of economic growth will rely on productivity growth, which is dependent on the process of economic restructuring.

In manufacturing, fi rms are making progress with restructuring, with a number of large Japanese enterprises among the most productive in the world. However, the lack of competition has discouraged and slowed reforms in domestically oriented businesses. Most industries in the nontraded goods sector have recorded lower productivity growth than in other OECD countries (OECD 2004).

As economic restructuring proceeds, it is projected that productivity growth will increase gradually toward 2050. Productivity growth is projected to average around 2.0 per cent a year between 2010 and 2030 and around 2.3 per cent a year between 2030 and 2050, compared with an estimated 1.3 per cent a year between 1990 and 2001.

koreaEconomic growth in the Republic of Korea is projected to average around 3.5 per cent a year between 2010 and 2030, before easing to 2.6 per cent a year between 2030 and 2050. This compares with an average of 5.9 per cent between 1990 and 2001.

Productivity growth in Korea has been strong, averaging around 4.3 per cent a year between 1990 and 2001. Strong productivity growth is projected to continue toward 2050. Labor supply, however, is projected to gradually decline as a result of an aging population. This is expected to adversely affect economic growth toward 2050.


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united states

Economic growth in the United States is projected to average around 2.9 per cent a year between 2010 and 2030, before easing to an annual average of 2.3 per cent in the period 2030–50. This compares with average annual growth of 3.0 per cent between 1990 and 2001.

The projected economic growth toward 2030 is underpinned by expected labor productivity growth (averaging around 2.5 per cent a year over the period 2010–30). Growth in US productivity is estimated to have increased from around 1.5 per cent a year between 1974 and 1995 to 3.1 per cent a year between 1995 and 2004 (Jorgenson, Ho and Stirob 2004). The production and use of informa-tion technology were found to have accounted for a large share of the gains in productivity growth. Jorgenson et al. (2004) project that growth in US productivity will average around 2.6 per cent a year over the next decade. Continued produc-tivity growth will provide support for sustained economic growth.

Between 2030 and 2050, productivity growth is projected to ease to an annual average of around 1.9 per cent and is expected to contribute to an easing of economic growth in the United States over that period.

populationPopulation growth is a signifi cant determinant of total energy consumption through its relationship to economic growth and development. In 2001 the partnership economies accounted for over 45 per cent of global population and include the three most populous countries in the world — China, India and the United States.

Although the fertility rate in all partnership countries is expected to trend toward or fall below replacement level (2.1 children per woman) over the period to 2050, the total population of partnership countries is expected to increase (fi gure 1). This refl ects the population growth momentum in key countries such as India, which has a historically high fertility rate and therefore a demographic bias toward a relatively young population age structure.

India’s population is projected to increase from over 1 billion in 2001 to about 1.6 billion in 2050.


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China’s population is projected to stabi-lise at about 1.5 billion by 2050.

Japan is projected to experience an absolute decline in population over the projection period as a result of low fertility rates. Both Korea and Japan are expected to experience signifi cant population aging, while the United States, China and Australia are also expected to experience increases in the ratio of older age groups to the working population. These trends are illustrated in more detail in appendix A.

energy consumptionGlobal energy consumption is projected to grow signifi cantly over the projection period from just under 9 billion tonnes of oil equivalent (Gtoe) in 2001 to about 21 Gtoe in 2050. Partnership economies accounted for about 48 per cent of global energy consumption in 2001.

Strong growth in energy demand in China, India and the United States is projected to increase the partnership economies’ share of world energy demand to about 55 per cent by 2050 (fi gure 2). China is projected to over-take the United States as the largest consumer of energy in the world by around 2040.

In all partnership economies, the fuel mix to 2050 is expected to be domi-nated by fossil fuels, given current policy settings (table 2). For example, in 2001, coal accounted for about

population projections for partnership economies

fig 1

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IndiaChina

energy consumption in partnership economies

fig 2

2001201020302050

Mtoe

1000

2000

3000

4000


IndiaChina


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69 per cent of China’s total energy consumption, refl ecting that country’s large reserves of relatively cheap domestic coal. However, China is expected to switch more toward gas and nuclear energy at the expense of coal in the future, partly in response to health concerns about local pollution caused by the ineffi cient burning of low quality coal and in response to energy security concerns.

In the United States and Japan, oil is the largest contributor to total energy con-sumption primarily because of the importance of the transport sector in those economies.

The share of low emission fuels such as nuclear and nonhydro renewables is expected to grow moderately to strongly in most partnership economies. However, since the initial share of nonhydro renewables is currently low, their share in total energy consumption is expected to remain low in all partnership economies over the projection period. The use of hydropower for electricity is assumed to be limited in most developed countries by environmental and economic constraints.

2 contribution of fuels to energy consumption in partnership economies

Nonhydro Coal Oil Gas Nuclear Hydro renewables

% % % % % %

Australia 2001 47 32 20 0 1 – 2050 40 36 20 0 1 3

China 2001 69 25 3 – 3 – 2050 52 27 10 9 2 1

India 2001 54 36 7 2 2 – 2050 37 38 7 16 1 1

Japan 2001 19 49 13 16 2 – 2050 14 47 13 23 2 1

Korea 2001 22 52 10 15 – – 2050 17 48 13 22 – –

United States 2001 24 41 24 9 1 – 2050 20 43 25 10 1 2

– less than 0.5 per cent.


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emissions growth

Although considerable uncertainty exists about projected future levels of green-house gas emissions, the bulk of scientifi c opinion indicates that rising atmospheric greenhouse gas concentrations have the potential to induce climatic changes, with associated environmental, economic, health and social impacts (Zillman 2005).

The level of energy consumption, the energy fuel mix and the effi ciency of current and future energy technologies are key determinants of projections of global emis-sions. In turn, the fuel sources favored by countries is infl uenced by a range of factors, including current and expected prices, industry composition, domestic fuel reserves, existing infrastructure and energy security and environmental consider-ations.

Global greenhouse gas emissions are projected to almost triple between 2001 and 2050. In 2001, partnership economies accounted for about 50 per cent of global greenhouse gas emissions. By 2050, strong growth in emissions in China and India will raise this contribution to just under 55 per cent (fi gure 3).

The emissions intensity of output (measured as carbon dioxide equivalent emis-sions per dollar of output) is projected to be lower in all regions in 2050 than it was in 2001. This decline in projected emissions intensity is expected to be driven primarily by improvements in energy effi ciency stemming from productivity enhancements and technological advances, as well as by fuel switching toward lower emissions intensive fuels such as gas and renewable energy. Changes in

contribution to global emissions – partnership economies and rest of world

fig 3

2001 2050

rest of world 50.5%

rest of world 45.3%

Australia 1.6%

Korea 1.6%

India 5.4%

Japan 4.0%

China 15.0% China 26.9%

United States 22.0%

Australia 1.1%

Korea 1.3%

India 9.4% Japan 1.6%

United States 15.5%


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the structural composition of economies from energy intensive industry to service oriented activities will also reduce emissions intensities in some regions.

Projections of emissions growth for key sectors, including electricity, transport and industry, are discussed in appendix B.

As indicated by the foregoing discussion, energy demand in both partnership economies and the rest of the world is expected to escalate rapidly in the future. Figure 4 provides an indication of the trajectory for assumed emissions under the GTEM reference case as well as under alternative stabilisation pathways and the Intergovernmental Panel on Climate Change Special Report on Emis-sions Scenarios (SRES) trajectories (IPCC 2000). It illustrates that the widespread deployment of clean technologies will be essential in order to move away from the assumed reference case pathway. The type of technologies required will depend on the stabilisation pathway of choice.

It should be noted that the emissions stabilisation pathways shown in fi gure 4 are illustrative only. There is an infi nite number of possible pathways that are consistent with stabilisation at a given level of atmospheric concentration of greenhouse gases. However, the closer the emissions pathway trends toward the reference case emission projections in the early part of the projection period, the larger the emissions reductions required in later years to achieve stabilisation at any given level shown on the graph.

reference case emissions and possible atmospheric carbon dioxide stabilisation pathways

fig 4

Gt C

5

10

20

15

25

2000 2020 2040 2060 2080 2100

SRES B2

SRES A1FI

450 ppm stabilisation path




reference case

Note: Concentration levels calculated using the MERGE 4.6 box model. For consistency with other emission projections in this report, all projections in this fi gure exclude land use change emissions. Reference case emissions after 2050 have been extrapolated based on the continuation of trends in population, GDP and energy consumption.


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The development of an environmentally effective and economically effi cient long term policy will need to include all major emitters and the widespread deploy-ment of cleaner, less emissions intensive technologies. Technology is an essential component of any strategy that aims to ease the pressure on escalating energy demands and signifi cantly curb emissions while allowing countries to simultane-ously pursue their development aspirations.

A range of commercial and demonstration technologies exist that could help in achieving these goals. However, there are considerable challenges in achieving widespread development and deployment of these technologies. In the short to medium term, however, meaningful mitigation of energy demands and green-house gas emissions growth may be achieved if at least some of the major emitters agree to actions that promote development of cleaner technologies (for example, see Buchner and Carraro 2005).

The primary aim of the Asia Pacifi c Partnership on Clean Development and Climate is to create and promote an enabling environment for the development, deployment, diffusion and transfer of existing technologies as well as emerging cost effective, cleaner technologies.

A number of technologies that could be considered useful options for collaboration under the partnership within the electricity, transport, and key industries sectors are described in appendix C.

3. role of technology and associated challenges


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current incentives for technology deployment

A range of technologies — including nuclear, renewables, more energy effi cient production and end use technologies, and carbon capture and storage — provide opportunities for energy effi ciency improvements and emissions abatement in the short to medium term. Although some of these technologies involve higher costs of production than carbon intensive technologies, others may provide a cost advan-tage in the longer term over higher emission technologies.

However, given that advanced low emission technologies are often less price competitive because of the relative abundance of carbon-rich fossil fuel resources, private incentives to adopt these technologies may be limited in the short term. Nevertheless, there are rationales and incentives to promote their development, deployment and diffusion from an economywide perspective. This is especially true if the cost of the development, deployment and diffusion is less than the combined economic, environmental and social costs of maintaining existing higher emission technologies.

As it is often diffi cult to make a precise assessment of environmental and social costs, technology that is cost effective from an economywide perspective may not be developed or adopted because of insuffi cient information or a failure to fully account for externalities. Delaying deployment of these technologies until more effi cient technologies become price competitive must be weighed against the possible risks associated with increases in the atmospheric concentration of greenhouse gases.

Increasing levels of urbanisation and industrialisation have led to severe air pollu-tion problems and associated adverse health effects in the urban areas of many major cities across the world. Since many of the local pollutants are associated with the burning of fossil fuels, efforts to improve local air quality by using cleaner technologies may also have climate co-benefi ts. If such co-benefi ts were suffi cient to offset the additional costs of new technology, there would be an incentive for countries with air quality problems to promote the development and adoption of cleaner technologies that reduce emissions of oxides of sulfur and nitrogen and particulates.

Cleaner energy technologies may also help many countries to address energy security issues. As discussed earlier, global energy consumption is projected to


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increase substantially in the future, placing increasing pressure on domestic energy reserves and heightening the import dependence of many countries including the United States, Japan and China. For example, total energy consumption in China is projected, in the reference case, to rise by an annual average of 3.3 per cent to 2050, leading to China’s oil consumption rising fi vefold between 2001 and 2050.

Sustained economic growth depends on a reliable supply of energy. Continued geopolitical tensions and strong volatility in world oil prices have led to increased concern in oil importing countries about rising energy costs and import depen-dence. Policies that promote the development and adoption of more effi cient or diverse technologies could help to reduce the dependence on fossil fuel imports through improvements in the effi ciency of energy consumption, while simultane-ously contributing to greenhouse gas mitigation. This has important implications for many developing countries that are dependent on imported fossil fuels, as access to energy is a key consideration for economic development and poverty alleviation.

encouraging research and developmentWhile currently available technologies have a role to play in improving energy effi ciency and reducing emissions in the short term, more substantial reductions in the long term will result from further improvements in these technologies and the development of new technologies. Energy research and development thus has a primary role to play in creating these long term abatement opportunities.

Research and development (R&D) can be undertaken by both the private and public sectors. Government based R&D tends to focus on basic research and the long term development of new technologies, while private sector research is typi-cally skewed toward the further development and deployment of existing technolo-gies in the short to medium term. In an historical context, public sector budgets for energy related R&D have been declining over time in many OECD countries (Dooley and Runci 1999).

Using the IEA energy statistics database, fi gure 5 indicates that spending on public sector energy R&D in the United States has generally declined since the early 1980s. This decline since the peaks associated with the 1970s oil price shocks


20


is probably a result of a more optimistic energy outlook during that period and a possible decline in the importance of energy R&D relative to other social priorities (Dooley and Runci 1999). Public sector spending on energy R&D in Japan has remained relatively stable since the 1980s.

The American Association for the Ad-vancement of Science (2004) projects that US federal government spending on energy R&D will decline further in real terms toward 2009. In an era where both the economy and environ-ment require substantial improvements in energy technology, suffi cient funding and supportive policies are essential to reinvigorate energy research in both the public and private sectors.

Although data on private sector R&D expenditure are limited, owing to commercial sensitivities, it is thought that energy R&D in the private sector also declined over the past several decades (Dooley and Runci 1999).

The majority of public sector energy R&D is performed in a limited number of OECD economies, including Japan and the United States. As a result, the long term direction of the energy sector is being heavily infl uenced by the absolute level of energy R&D in these countries and the composition of their energy mix. The expansion of energy R&D in developing countries such as China and India will also play a key role in developing and expanding the capacity of these countries to deploy technological advances developed elsewhere, and to innovate success-fully in their own right.

The composition of energy R&D in selected partnership economies is presented in fi gure 6 (using IEA statistics). The importance of different fi elds in energy related R&D differs signifi cantly between countries, and is a refl ection of differences in current and projected energy mixes. For example, public sector energy R&D in Japan and Australia focuses primarily on nuclear and fossil fuels respectively. In the United States the importance of other energy technologies such as hydrogen

government expenditure on energy R&D

fig 5

1974 1984 1994 2004

US$b2004

2

4

6United States

Japan


21


and fossil fuels has grown signifi cantly in recent times. However, there are also other energy fi elds that represent areas with signifi cant opportunities for further collaboration among partnership economies.

Given the gap between the private and social returns of R&D and the positive spillovers associated with R&D, it is generally accepted that governments have a role to play in encouraging private sector R&D and also in providing public sector R&D in areas underrepre-sented in the private sector.

A range of policies have been proposed to encourage private sector R&D, including the following.

market based mechanismsCarbon taxes and emissions trading programs may be used to address environ-mental externalities. However, their effectiveness in providing additional incentives to innovate that could lead to the development and diffusion of cleaner tech-nologies is debatable. The possibility of market based mechanisms encouraging research and development among fi rms depends on the long term credibility of the policy, including the potential to overcome possible dynamic inconsistencies associated with sovereign risk (Montgomery and Smith 2006). This is because a market based mechanism must be perceived to be stable over the long term in the signal it conveys for it to provide investors with a basis for assessing the rate of return and long term economic viability of their investments in R&D.

Montgomery and Smith (2006) assert that it is not feasible to use a carbon tax to promote research and development because a market based mechanism cannot send a credible and effective signal that would induce the funding required to develop the technologies necessary for achieving deep emissions cuts. However, they claim that low taxes may be justifi able in the short term if they are able to induce near term emissions reduction at a lower cost than the discounted cost

composition of energy R&D in 2002

fig 6

%

20

40

60

80


other

power andstorage

nuclear

renewables

fossil fuels

conservation


22


of the same emissions reduction in the future. Such price signals may also be warranted if they can encourage adoption of affordable low emission technolo-gies that assist in averting high emission technological ‘lock-in’.

intellectual property rightsIntellectual property rights include patents, trademarks and copyright and are de-signed to provide a level of protection to the returns of the inventor in a good or service by restricting access to, or use of, the product for a specifi ed period. In effect, intellectual property rights temporarily assign private good characteristics to knowledge that is generally considered a public good. This maintains the incen-tive to invest in intellectual or knowledge building activities and allows the holder of the rights to transfer technology and appropriate the returns from their investment in large markets. However, the value of the rights will be determined in part by the extent to which government policy strengthens the right and the price difference between more emissions intensive and less emissions intensive technologies.

grants, subsidies and tax incentivesGrants, subsidies or tax incentives can encourage R&D expenditure by providing a level of compensation to the provider of R&D. However, such policies should be designed to focus taxpayer funded R&D on identifying barriers to technology development and diffusion and fi nd solutions to improve performance, cost, safety and environmental acceptability, and not to subsidise currently uneconomic tech-nologies (Flannery and Kheshgi 2004). Incentives may also be used to promote the use of existing effi cient technologies or to encourage the earlier retirement of less effi cient technologies (Flannery and Kheshegi 2004).

prizesPrizes for the successful development of an appropriate technology encourage R&D among competing fi rms. However, the dissemination of the prize must be credible.

R&D consortiums Appropriate incentives for R&D can exist among parties with a common interest in maintaining the value of assets that may be subject to a future price increase.


23


The role of the private sector may be signifi cant here — multinational companies may have strategic reasons to play key roles in R&D and in developing commer-cial opportunities and enabling frameworks (Flannery and Kheshgi 2004). For example, CoalFleet for Tomorrow is an R&D consortium between a range of coal industry stakeholders, including power generators and coal fi rms, that aims to accelerate the deployment and commercialisation of clean, effi cient, advanced coal power systems, in order to preserve coal as a vital component in the energy mix. The Global Climate and Energy Project at Stanford University is a collabora-tive project between a number of private companies and research institutions that aims to develop low emission, cost effective clean technologies that support envi-ronmentally benign energy development.

encouraging technology development, diffusion and transferDevelopment, deployment and diffusion of new energy technologies will require a broad range of government involvement, including support for research and development, setting technology and performance standards and removing distor-tions and subsidies to higher emitting energy technologies. Philibert (2003) and Matysek et al. (2005) provide examples of measures that will promote develop-ment and adoption of new technologies.

It is also noteworthy that the role of government in realising the potential benefi ts of advanced technologies extends to policy settings for macroeconomic manage-ment. For example, macroeconomic instability and policies restricting investment fl ows and international trade will hinder movement of international capital and act as impediments to technology development and transfer (Matysek et al. 2005).

international collaboration on new technologyInternational collaboration will greatly enhance the effectiveness of policies to promote the development, deployment and diffusion of new energy technologies. New technologies have many characteristics of public goods, especially when positive externalities associated with enhanced environmental outcomes are not refl ected in their prices. For the same reasons that justify government fi nancing of research and development, international collaboration and cooperation could generate signifi cant benefi ts (for detail, see Philibert 2004a).


24


There are two dimensions of collaboration worthy of distinction — collaboration among developed countries and collaboration between developed and devel-oping countries. The former is likely to focus on technology development through international partnerships and cost sharing. The latter could place more emphasis on technology deployment and transfer, while task and cost sharing remains an option.

Technology development can be encouraged through international partnerships. To achieve signifi cant advances in technology, large investment on research and development will be needed. Research and development in projects with rela-tively long payback periods can be best undertaken cooperatively. Within an international agreement, countries are likely to provide more support than they would in isolation (Philibert 2003, 2004a). In many cases, international collabo-ration avoids duplication of effort and facilitates information exchange for further improvement.

Under an international agreement involving both developed and developing countries, collaboration will provide developing countries with the opportunity to access advanced technology for capacity building. While task and cost sharing is an option, international partnerships will also provide developed countries with links to local dissemination systems in developing countries for technology deploy-ment and diffusion.

International collaboration on technology deployment can assist in creating the necessary market transformation for diffusion of new technologies and help to engage more countries in actions to mitigate greenhouse gas emissions (Philibert 2004b). International collaboration can play a key role in helping countries to harness the private sector for conducting research and development and to disseminate new technologies internationally. There may also be scope for collab-orative policy initiatives to enlarge markets in which private fi rms can cooperate and reduce operating costs, such as those for biosafety approval and intellectual property transactions between participating countries.

challenges for moving forwardTotal world energy consumption is projected, in the GTEM reference case, to increase by more than 140 per cent between 2001 and 2050, with developing


25


countries expected to account for around 75 per cent of this growth and over 81 per cent of the projected growth in global greenhouse gas emissions.

To have a substantial effect on global emissions growth, large investments in research and development will be needed and effective policy measures for deployment and diffusion of appropriate technologies will be required. A key challenge is how to design arrangements for international collaboration that will provide the basis for signifi cant technology advances and effective technology deployment and diffusion. In particular, the challenge is to design arrangements that take into account the uncertainties about possible climate impacts while simul-taneously recognising the development aspirations of participating nations.

International technology collaboration will need to overcome some signifi cant barriers. These barriers include existing investments in old technology and the pref-erences, if any, to continue using higher emitting technologies (Murphy, Van Ham and Drexhange 2005). Other potential barriers include high risks, inadequate returns to investment, substantial transaction costs and weak protection of intellec-tual property rights in some developing countries.

The development, deployment and diffusion of technologies are long term pro-cesses that require both signifi cant ‘pull’ and ‘push’ policies. The key to success will be to sequence these policies correctly. Technology ‘pull’ policies refer to those that stimulate the adoption of new technology by altering the demand for fi nal products in order to increase the profi tability of the new technologies. Examples include taxation on emissions, tradable emission permits and support for emissions abatement.

‘Push’ policies include support for research and development in new technologies, strengthening patent protections and setting government technology and perfor-mance standards. An example of setting government technology and performance standards is the mandate in California that, by 2030, 10 per cent of the cars sold by the seven largest automobile manufacturers in that state must be zero emission or near zero emission vehicles, such as electric and hybrid vehicles or conven-tional vehicles with certain additional emission controls (Goulder 2004).

To achieve effective outcomes, it will also be important for international collabo-ration to include the creation of incentives for developed countries to share tech-nology by encouraging market expansion and supporting commercial benefi ts.


26


For developing countries, provisions will be needed for assistance in capacity building and diffusion, especially for those that are unable to pay the full costs or that lack technical knowledge.

The effectiveness of international collaboration for reducing emissions growth also depends on participants’ abilities to assess and select technologies and subse-quently adapt them to prevailing local climatic and socioeconomic conditions (IPCC 2002). Paying suffi cient attention to adapting new technology to local conditions will increase the likelihood of successful technology deployment and diffusion (Worrell and Levine 2002).


27

To assess the possible impacts of collaborative action under the partnership, a number of alternative scenarios for development and transfer of more energy effi -cient technologies in key sectors are evaluated using GTEM. Results from these scenarios are presented as percentage changes from reference case levels.

The reference case is a set of projections of key economic, energy and technology variables over the period to 2050, assuming the continuation of current or already announced future government policies. A moderate level of technological change is assumed in the reference case across all industries in line with forecasts by the International Energy Agency, the US Energy Information Administration and various other government and peer reviewed literature sources.

A description of the modeling methodology and database used for this report is available at www.abareconomics.com.

description of alternative enhanced technology scenariosThe impacts of possible collaborative actions under the partnership are analysed by considering three key scenarios in which the development and transfer of advanced energy effi cient technologies occurs at an accelerated rate compared with the reference case.

4. assessing alternative action


28


scenario 1: partnership technology

In this scenario, the effect of collaborative action on technology taken by part-nership economies from 2006 is assumed to lead to an increase in the energy effi ciency and uptake of advanced technologies in electricity, transport and key industry sectors (aluminium, cement, mining, iron and steel, and wood, pulp and paper products). Moderate improvements in energy effi ciency in other sectors within partnership economies are also assumed, to refl ect positive technological spillovers associated with technology development in the focus sectors.

The gap between the energy effi ciency levels of the most and least effi cient economies is assumed to narrow in all sectors throughout the projection period. However, as a result of differences in access to capital, other inputs and skilled labor, complete convergence does not occur. In appendix C potential technolog-ical developments in the focus sectors are discussed, as are the energy effi ciency assumptions for the reference case and enhanced technology scenarios.

Possible opportunities for action under the partnership that could lead to increases in energy effi ciency include increased R&D expenditure, the introduction of minimum technology effi ciency standards, efforts to increase technology transfer and capacity building among partnership economies, collaboration to increase the effectiveness of existing programs and technology oriented goal setting.

The technological development and diffusion goals identifi ed in this scenario are assumed to be confi ned to partnership economies, to allow the impact of partner-ship action alone to be identifi ed. This is a modeling assumption implemented for the purposes of illustration as it is likely that other regions will enjoy positive technological spillovers from technological advances in partnership economies through a range of mechanisms, including trade, foreign direct investment and aid associated with relevant technologies, and mobility in capital and labor markets.

scenario 2: partnership technology + ccsIn this scenario, the same technology developments and transfer rates for elec-tricity, transport and key industry sectors are assumed as in the partnership tech-nology scenario. In addition, carbon capture and storage (CCS) technologies are assumed to be used in all new coal and gas fi red electricity generation plant from 2015 in the United States, Australia and Japan and from 2020 in China, India


29


and Korea. The utilisation of carbon capture and storage technologies is assumed in order to provide an indication of the potential carbon dioxide emission reduc-tions that might be possible under a CCS focused technology deployment. This scenario should be interpreted as illustrative rather than policy prescriptive.

The cost of nonhydro renewable electricity technologies are also assumed to de-cline over the projection period in this scenario as a result of collaborative action by partnership economies on R&D and benefi cial ‘learning by doing’ effects. As a result of these assumptions, the cost of nonhydro renewable electricity generation is assumed to be 20 per cent lower in 2050 relative to reference case levels.

scenario 3: global technology and partnership ccsIn this scenario, the development and availability of more energy effi cient technol-ogies in the electricity, transport and key industries sectors are assumed to diffuse throughout the world. However, as a result of the cost premium associated with CCS, such technology is assumed to be adopted only in partnership economies under the same assumptions as in scenario 2.

results

impact on electricity generationElectricity demand continues to in-crease over the projection period in the enhanced technology scenarios as a result of continuing economic and pop-ulation growth in partnership econo-mies. The development and uptake of more energy effi cient technologies by industry leads to a reduction in elec-tricity demand in partnership economies in the enhanced technology scenarios, relative to the reference case (fi gure 7).

By 2050, electricity demand in the partnership economies in the partner-

electricity demand in partnership economies

fig 7

2010 2020 2030 2040 2050

‘000TWh

5

10

15

20

partnership technology + ccs

partnership technology

reference case


30


ship technology scenario is about 7 per cent below reference case levels. In the partnership technology + CCS scenario there is a further reduction in electricity demand in response to an increase in the electricity price caused by the cost of introducing CCS technologies.

electricity fuel mixUnder the partnership technology + CCS scenario, fossil fuels remain dominant to 2050 (fi gure 8). However, by 2050, the use of coal fi red and gas fi red electricity generation in partnership economies is reduced by about 34 per cent and 25 per cent respectively relative to reference case levels. This decline is primarily a result of an increase in the price of electricity generated from these fuels following the introduction of CCS technologies.

Under the assumptions used here, coal fi red CCS electricity generation would account for about 60 per cent of total coal fi red electricity generation in partner-ship economies by 2050, refl ecting the assumption that 60 per cent of coal fi red plant will either be renewed or additions to capacity by 2050. The smaller relative price increase for gas fi red electricity with CCS (relative to the average electricity price) and the rapid introduction of new gas fi red capacity leads to

electricity fuel mix in partnership economies fig 8

2010 2020 2030 2040 2050

‘000TWh

5

10

15

20

2010 2020 2030 2040 2050

‘000TWh

5

10

15

20

reference case partnership technology + ccs scenario other renewables hydronucleargas with ccs gas without ccs oilcoal with ccs coal without ccs

other renewableshydronucleargasoilcoal


31


gas fi red electricity with CCS accounting for over 70 per cent of total gas fi red electricity generation in 2050.

The increase in the cost of production of electricity from coal fi red and gas fi red sources resulting from the introduction of CCS technologies, and the decline in the cost of production of electricity generation from nonhydro renewable energy in response to increased R&D and ‘learning by doing’ effects leads to a signifi cant increase in nonhydro renewable electricity generation throughout the projection period. By 2050, nonhydro renewable electricity generation is about 70 per cent higher than in the reference case.

The higher cost of electricity generation associated with the deployment of CCS technologies on coal and gas fi red electricity plant also induces moderate switching to nuclear power in some partnership economies. By 2050, there is about 25 per cent more nuclear powered generation than in the reference case.

impact on electricity capacityThe reduction in electricity consumption over the projection period under the enhanced technology scenarios reduces the overall demand for new electricity capacity in partnership economies relative to the reference case. The larger decline in electricity consumption, relative to the reference case, in the partnership tech-nology + CCS scenario (compared with the partnership technology scenario) is also associated with a concurrent larger decrease in required electricity capacity in this scenario.

For example, in the partnership tech-nology + CCS scenario, the demand for coal fi red and gas fi red electricity generation capacity additions in part-nership economies is reduced by about 647 gigawatts and 290 gigawatts respectively over the projection period, relative to the reference case (fi gure 9). Assuming an average plant size of 1000 megawatts for new coal and 750 megawatts for new gas, this trans-lates to a reduction in new coal and

change in electricity capacity,2001– 50

fig 9

partnership technology + ccspartnership technology

–700

–600

–500

–400

–300

–200

–100

GW

100

200

relative to the reference case

total

nonhydro

renewables

hydro

nuclear

gas

oilcoal


32


gas plant requirements of about 645 and 390 plants respectively over the projec-tion period.

The transition to renewables and nuclear power leads to an increase in the demand for renewables and nuclear power capacity over the projection period. In the partnership technology + CCS scenario, demand for renewables and nuclear power increases by about 285 gigawatts and 162 gigawatts respectively over the projection period, relative to the reference case. Assuming a nuclear plant size of 1500 megawatts, this implies that an additional 110 nuclear plants are needed in partnership economies in the partnership technology + CCS scenario relative to the reference case.

electricity costUnder the partnership technology scenario, the price of electricity generation is assumed to be equal to the reference case. In the partnership technology + CCS technology scenario, the average price of electricity in partnership economies increases as a result of additional cost of the uptake of CCS technologies. In 2050 the average electricity price in partnership economies under this scenario is about 17 per cent higher than in the reference case.

impact on energy demandThe adoption of more energy effi cient technologies in the enhanced technol-ogy scenarios reduces total energy con-sumption in partnership economies rela-tive to the reference case (fi gure 10).

In the partnership technology + CCS scenario, consumption of coal, gas and oil is lower relative to the reference case as a result of assumed increases in energy effi ciency and also in response to the higher cost of electricity following adoption of CCS technologies. The consumption of nuclear and nonhydro renewables increases under the part-

energy consumption by partnership economies, 2050

fig 10

partnership technology + ccs

partnership technologyreference case

’000Mtoe

1

2

3

4

nonhydro

renewables

hydronucleargasoilcoal


33


nership technology + CCS scenario relative to the reference case, as electricity producers switch toward these fuels in response to higher electricity generation prices for coal and gas fi tted with CCS technologies.

impact on oil consumptionThe reduction in oil and other fossil fuel consumption by partnership economies in the enhanced technology scenarios relative to the reference case and the transi-tion to nuclear and domestically supplied renewables has important implications for energy security. For example, partnership oil consumption falls by about 24 per cent in the partnership technology scenario and 23 per cent in the partnership technology + CCS scenarios in 2050, relative to the reference case.

The reduction in oil consumption in the enhanced technology scenarios, rela-tive to reference case, differs moderately between partnership economies as a result of differences in the energy effi ciency assumptions and degree of substitut-ability between fuel sources (fi gure 11). For example, in India, the reduction in oil consumption in the partnership technology scenario is about 25 per cent below reference case levels in 2050, refl ecting strong effi ciency improvements in the focus areas.

The reduction in oil consumption in the partnership technology + CCS scenario in 2050, relative to the reference case, is slightly less than that achieved in the part-

change in oil consumption in partnership economies, fig 11

partnership technology + ccspartnership technology2050 relative to the reference case



–25

–20

–15

–10

–5

%


34


nership technology scenario, refl ecting the moderate switching away from coal fi red and gas fi red electricity toward oil in response to the increased electricity price after the assumed uptake of CCS technologies.

impact on emissionsGlobal greenhouse gas emissions continue to rise throughout the projection period (fi gure 12). However, collaborative action by partnership economies on technology development, diffusion and transfer as assumed in this modeling would lead to a signifi cant reduction in global emissions over the projection period, compared with the reference case. Under the part-nership technology scenario, global emissions could be reduced by about 11 per cent in 2050 compared with the reference case. The introduction of CCS technologies in coal and gas fi red electricity generation in partnership economies results in a further decline in global emissions to a total of 17 per cent below 2050 reference case levels.

The diffusion and transfer of more energy effi cient technologies throughout the world is projected to lead to the most signifi cant reduction in global emissions of the scenarios modeled here. By 2050, global emissions would be about 23 per cent lower compared with reference case levels if the energy effi ciency improvements achieved by part-nership economies were deployed globally. This is equivalent to a global cumula-tive emissions saving of over 90 Gt C-e over the period 2006–50, relative to the reference case.

sources of abatementIn the partnership technology + CCS scenario, the assumptions about increased development and diffusion of advanced technologies in the electricity, transport and industrial sectors in partnership economies could reduce cumulative emissions

global emissions fig 12

2010 2020 2030 2040 2050

GT C-e

5

10

15

20


global technology + partnership ccs

reference case


35


from these economies by about 67 Gt C-e over the projection period, relative to the reference case.

CCS technologies would provide the single largest source of abatement over the period where the fi rst CCS technolo-gies were implemented in 2015 (fi gure 13). In 2050 the uptake of CCS tech-nologies (as assumed in this scenario) would provide over 30 per cent of emission abatement from partnership economies.

The development and uptake of more advanced electricity generation tech-nologies, such as IGCC (integrated gasifi cation combined cycle) and NGCC (natural gas combined cycle), and a signifi cant transition to other electricity sources, such as nuclear and nonhydro renewables, in response to the increased price of electricity associated with CCS technologies, could also provide substan-tial abatement potential.

Fuel switching in electricity generation and the assumed improvements in genera-tion effi ciency would provide about 28 per cent of total abatement by 2050. The increased uptake of more energy effi cient vehicles, such as advanced internal combustion engines and hybrid vehicles, would contribute about 21 per cent of abatement from partnership economies in 2050 and reduce cumulative emissions from these economies by over 13 Gt C-e over the projection period, relative to the reference case.

Improvements in energy effi ciency in key industry sectors and efforts to reduce fugitive emissions from mining are assumed to contribute about 12 per cent to total emission abatement from partnership economies in 2050. Improvements in energy effi ciency in other industry sectors accounts for about 6 per cent of abate-ment in 2050.

sources of emissions abatement in partnership economies

fig 13

20102000 2020 2030 2040 2050

Gt C-e

1

2

3

partnership technology + ccs scenario other industrykey industrytransportelectricity – fuel switching and efficiencyelectricity – carbon capture and storage


36


impact on emissions of sulfur dioxide and nitrogen oxides

Emissions of sulfur dioxide and nitrogen oxides are a major source of pollution in urban areas of many cities throughout the world. The uptake and diffusion of more energy effi cient technologies, and moderate switching from coal toward less emissions intensive sources in the partnership technology scenario is expected to reduce emissions of nitrogen oxides and sulfur dioxide relative to reference case levels. Figure 14 illustrates the reduction in emissions of sulfur dioxide and nitrogen oxides from fuel combustion for partnership economies in 2050, relative to the reference case.

impact on sectoral emissionsThe impact of the development and diffusion of advanced energy effi cient tech-nologies on sectoral emissions differs between sectors depending on assumptions made, including the degree to which each sector is currently near their techno-logical frontier; the extent to which each sector can shift toward and meet the technological frontier; and the degree of structural change occurring within each economy.

Under the partnership technology scenario, partnership economies could reduce their total greenhouse gas emissions by about 17 per cent in 2050, relative to the

change in emissions of sulfur dioxide and nitrogen oxides in partnership economies, 2050

fig 14relative to the reference case



–25

–20

–30

–15

–10

–5

% nitrogen oxidessulfur dioxide

RR06_1_ClimateAsiaPacific_[0333]36 36RR06_1_ClimateAsiaPacific_[0333]36 36 12/1/06 10:07:56 AM12/1/06 10:07:56 AM

37


reference case (fi gure 15). If CCS deployment is assumed, emissions from partner-ship economies could be reduced by about 31 per cent in 2050.

In the electricity sector, the reduction in emissions at 2050 relative to the refer-ence case is highest for the partnership technology + CCS scenario owing to the assumed utilisation of CCS technologies. In most other sectors, the emissions reduction is lower under the partnership technology + CCS scenario owing to a moderate contraction in each sector in response to the increase in electricity prices associated with the use of CCS technologies. In fi gure 15, only fugitive emissions from aluminium are presented. Fugitive emissions from aluminium are assumed to be reduced to almost zero in 2050 as a result of the uptake of non carbon inert anodes and PFC management.

change in sectoral emissions in partnership economies, 2050fig 15 relative to the reference case

%

totalminingwood,pulp and paper

aluminiumcementiron and steel

transportelectricity


–100

–80

–60

–40

–20


38



39

The contribution of partnership economies to global population, wealth and energy consumption is such that actions undertaken by these economies on technological solutions alone could lead to a curbing of global energy demand growth and signifi -cant reductions in global emissions relative to what would otherwise have occurred. The transfer and adoption of more energy effi cient technologies at a global scale holds additional opportunities for energy consumption and emissions reductions.

The enhanced development, transfer and diffusion of energy effi cient technologies in the electricity, transport and key industries sectors of partnership economies would signifi cantly reduce total energy consumption and greenhouse gas emis-sions relative to the reference case. Substantial additional opportunities also exist to reduce emissions through the accelerated deployment of CCS technologies in the electricity generation sector.

To achieve a reduction in the growth of emissions while simultaneously achieving economic and social development goals, the enhanced development, adoption, diffusion and transfer of energy effi cient technologies and CCS opportunities will require government involvement. Possible technology ‘push’ policy measures to achieve such action include collaborative, focused efforts on research and devel-opment, the introduction of industry technology standards and efforts to increase capacity building and technology transfer between countries.

Research and development efforts should be made to identify barriers to techno-logical development, adoption and transfer and fi nd solutions to improve perfor-

5. concluding comments


40


mance, cost, safety and environmental acceptability. Both technology ‘push’ and ‘pull’ will be required. However, it will be important to ensure that suffi cient funding and support policies are provided to reinvigorate energy research in both the public and private sectors and that the necessary technologies to substantially reduce emissions actually exist and are capable of deployment before technology ‘pull’ policies are adopted.


41

appendix A: demographics of partnership economiesThe demographic profi le of partnership economies differs between countries, refl ecting their level of economic growth, fertility and mortality rates and level of net migration. For example, India’s population is projected to grow steadily throughout the projection period, refl ecting high fertility levels (table 3).

In fi gure 16, demographic charts for the partnership economies illustrate the age and gender structure of populations over time. The shift toward an older age struc-ture and a decline in population over time in a country such as Japan is expected to be associated with structural changes within the economy.

The aged dependencies for partnership economies presented in table 4 are calcu-lated as the ratio of retired workers relative to the working age population. Despite a small increase in the retirement age over the projection period, the aged depen-dency ratio for most partnership economies is projected to increase signifi cantly over time as mortality rates decline. The level of aged dependency has important implications for labor supply, productivity, economic growth and fi scal spending.

3 population projections for partnership economies

2001 2010 2020 2030 2040 2050

million million million million million million

Australia 19 21 23 24 26 27China 1 292 1 379 1 469 1 521 1 539 1 545India 1 033 1 176 1 318 1 432 1 512 1 556Japan 127 129 127 121 115 108Korea, Rep. of 47 50 51 51 50 48United States 288 315 342 367 387 401

Total for partnership economies 2 807 3 070 3 330 3 517 3 628 3 684


42


age structure of the population in each partnership economy fig 16

Australia1980 2000

2030 2050

80–100100+

70–7960–6950–5940–4930–3920–2910–19

0–9

80–100100+

70–7960–6950–5940–4930–3920–2910–19

0–9

55 1010 1515 55 1010 1515

55 1010 1515 55 1010 1515

x 100 000 x 100 000

x 100 000 x 100 000

male female

China1980 2000

2030 2050

80–100100+

70–7960–6950–5940–4930–3920–2910–190–9

80–100100+

70–7960–6950–5940–4930–3920–2910–190–9

80–100100+

70–7960–6950–5940–4930–3920–2910–190–9

44 22 66 88 1010 44 22 66 88 1010

44 22 66 88 1010 44 22 66 88 1010

x 10 000 000 x 10 000 000

x 10 000 000 x 10 000 000India1980 2000

2030 205080–100100+

70–7960–6950–5940–4930–3920–2910–19

0–9

44 22 66 88 1010 44 22 66 88 1010

44 22 66 88 1010 44 22 66 88 1010

x 10 000 000 x 10 000 000

x 10 000 000 x 10 000 000


43


age structure of the population in each partnership economy fig 16

1980 2000

2030 2050

80–100100+

70–7960–6950–5940–4930–3920–2910–19

0–9

80–100100+

70–7960–6950–5940–4930–3920–2910–19

0–9

male female

1980 2000

2030 2050

80–100100+

70–7960–6950–5940–4930–3920–2910–190–9

80–100100+

70–7960–6950–5940–4930–3920–2910–190–9

80–100100+

70–7960–6950–5940–4930–3920–2910–190–9

1980 2000

2030 205080–100100+

70–7960–6950–5940–4930–3920–2910–19

0–9

Japan

44 22 66 88 10 1010 44 22 66 8810

44 22 66 88 1010 44 22 66 8810 10

x 1 000 000 x 1 000 000

44 22 66 88 10 1010 44 22 66 8810x 1 000 000 x 1 000 000

Korea

1010 2020 3030 4040 1010 2020 3030 4040

1010 2020 3030 4040 1010 2020 3030 4040

x 100 000 x 100 000

x 100 000 x 100 000

United States

55 1010 1515 2020 2525 55 1010 1515 2020 2525

55 1010 1515 2020 2525 55 1010 1515 2020 2525

x 1 000 000 x 1 000 000

x 1 000 000 x 1 000 000


44


4 Projected aged dependencies for partnership economies Ratio of retired age population relative to the working age population

2001 2010 2020 2030 2040 2050

% % % % % %

Australia 22 26 33 40 45 47China 13 15 22 32 43 48India 11 11 13 17 21 26Japan 31 40 53 55 62 68Korea 13 18 26 41 57 64United States 22 25 33 43 44 43


45

appendix B: sectoral emissions growth in partnership economiesKey sectors for emissions growth over the coming decades are electricity, transport and industry. Within the emissions intensive industrial sector, aluminium, cement, wood, pulp and paper products, mining, and iron and steel are projected to be important contributors to emissions of greenhouse gases. Throughout this report these activities are referred to as ‘key industries’.

In 2001, electricity, transport and key industries contributed about 34 per cent, 18 per cent and 12 per cent of partnership economies’ greenhouse gas emissions respectively (fi gure 17). The ‘other’ category includes emissions from petroleum products; chemicals, rubber and plastics; manufacturing; forestry and fi sheries; food; services; wastes; government consumption; industrial gases; and private households (excluding petroleum emissions which are included in transport). The sectoral contributions to emissions of greenhouse gases vary between countries as a result of differences in economic and sectoral development and organisation, resource endowments and the composition of production processes and technolo-gies.

sectoral composition of greenhouse gas emissions in partnership economies

fig 17

%

10

20

30

40


IndiaChina Australia KoreaJapan UnitedStates

IndiaChina

otherkey industrytransportelectricity2001 2050

Note: Electricity emissions have not been allocated to end users.


46


The sectoral composition of emissions is projected to change over time. For example, the contribution of transport sector emissions to total emissions is projected to increase to 2050 in all partnership economies, refl ecting the growing demand for transport services by both private households and industry.

electricity generationIn 2001 around 40 per cent of global carbon dioxide emissions were generated by the electricity sector. Emissions from electricity generation in partnership econo-mies accounted for about 17 per cent of global greenhouse gas emissions and about 22 per cent of global carbon dioxide emissions. The contribution of part-nership economies to global greenhouse gas emissions from electricity generation increases from about 55 per cent in 2001 to just under 60 per cent in 2050 in the reference case. The distribution of these emissions across partnership economies is also expected to change over time.

Individual countries’ contributions to global emissions from electricity generation refl ect differences in electricity demand and the emissions intensity of electricity production, which in turn is infl uenced by fuel mix and the effi ciency of electricity generation technologies. In 2001 the United States was the world’s largest emitter of greenhouse gases from electricity generation, contributing about 26 per cent of global electricity emissions (fi gure 18) in the reference case. However, strong growth in electricity demand in China is expected to ensure that it becomes the world’s largest contributor to emissions from electricity before 2025.

contribution to emissions from electricity generation – partnership economies and rest of world

fig 18

2001 2050

rest of world 44.4%

rest of world 40.7%

Australia 2.0%

Korea 1.6%

India 6.2%

Japan 4.5%

China 15.5% China 26.5%

United States 25.9%

Australia 1.6%

Korea 1.1%

India 10.3% Japan 1.6%

United States 18.3%


47


India, which is projected to have the second fastest average annual growth rate (after China) in emissions from electricity generation within partnership economies, is also expected to increase its demand for electricity signifi cantly and by around 2040 is projected to be the world’s third largest emitter of greenhouse gas emis-sions from electricity generation.

Fossil fuels are expected to remain the dominant fuels in electricity generation throughout the projection period in partnership economies (fi gure 19). While the consumption of coal is projected to increase in absolute terms, its relative impor-tance is expected to decline as countries increase investment in other energy sources such as natural gas, nuclear and renewables in response to a range of factors including economic, envi-ronmental, health and energy security concerns.

The electricity fuel mix differs between countries as a result of variations in rela-tive capital and fuel prices, access to capital and domestic reserves of fossil fuels, the extent of electricity market reform, the level of economic develop-ment, and energy security and environ-mental policies. For example, in 2001, while coal was the feedstock for about 78 per cent of electricity generation in Australia (based on abundant and rela-tive cheap domestic supplies of coal), Japan’s use of coal for electricity generation was much lower at around 25 per cent.

The type of technologies used to generate electricity has a crucial impact on emis-sions, and tends to vary signifi cantly between countries. Even the average effi -ciency of a given technology may differ across countries as a result of differences in access to capital and advanced materials, maintenance and repair routines and the quality and type of feedstock used. Effi ciencies of electricity generation technologies generally tend to be lower in developing and transition economies than in developed countries (IEA 2004).

electricity fuel mix inpartnership economies

fig 19

’000TWh

nonhydro

renewables

hydro andgeothermal

nucleargasoilcoal

2

4

6

8

10 2001201020302050


48


However, the difference between the average effi ciencies of the power genera-tion sectors in developed and developing countries is assumed to narrow over time as developing countries experience signifi cant growth in electricity demand and an associated increase in technology investments. As such, improvements in average generation effi ciencies and fuel switching to less emissions intensive fuels result in a decline in the emissions intensity of electricity and heat generation from 654 g CO2/kWh to 405 g CO2/kWh across the partnership economies over the period 2001–50 in the reference case.

transportEmissions of carbon dioxide and nitrous oxide in partnership economies are expected to increase along with demand for transport services. Rising incomes, population growth and infrastructure development, particularly in developing coun-tries, are expected to increase transport emissions from partnership economies from around 43 per cent of global transport emissions (excluding international bunkers) in 2001 to about 47 per cent in 2050.

Emissions from transport in partnership economies are projected to more than triple over the period 2001–50. The strongest growth is projected in China and India (fi gure 20). However, the United States is expected to remain the largest emitter of greenhouse gases from transport over the period to 2050.

contribution to transport emissions – partnership economies and rest of world

fig 20

2001 2050

rest of world 50.5% rest of world

48.3%

Australia 1.1%

Korea 1.5%

India 2.5%Japan 4.2%

China 4.0%

China 13.5%

United States 25.2%

Australia 0.9%

Korea 1.2%


United States17.4%

international bunkers 8.6%

international bunkers 11.0%


49


key industries

Production of aluminium, cement, iron and steel, wood, pulp and paper products, and mining are some of the most emissions intensive industrial activities. Emis-sions from these activities are a combination of combustion and noncombustion emissions. For example, when alumina is refi ned using carbon anodes, carbon is oxidised and noncombustion carbon dioxide released. The aluminium smelting process is also energy intensive, which has implications for emissions where elec-tricity has been generated using fossil fuels.

Partnership economies account for about 48 per cent of global key industry emis-sions, which are projected to more than double by 2050. Growth in industrial emissions is expected to be slower in developed countries than in developing countries, owing to a contraction in such industries in Japan and Korea and a concurrent expansion in industrial activities in China and India. Strong growth in cement and aluminium production in China and India is projected to result in part-nership economies increasing their share of global emissions from key industries to about 57 per cent by 2050 (fi gure 21).

contribution to key industry emissions – partnership economies and rest of world

fig 21

2001 2050

rest of world 52.9%

rest of world 42.6%

Australia 1.3%

Korea 1.9%


China 24.3%China 36.3%

United States 13.0%

Australia 1.0%

Korea 1.3%


United States 8.2%


50


appendix C: technology options

energy effi ciency improvements in the enhanced technology scenariosIn the enhanced technology scenarios, collaborative partnership action is assumed to result in the increased development and uptake of more energy effi cient tech-nologies, relative to the reference case, in the electricity, transport and key industry sectors where key industry consists of: iron and steel, wood, pulp and paper products, aluminium, cement and mining.

Energy effi ciency improvements additional to those in the reference case are also assumed to occur in the enhanced technology scenarios in other industries, to account for positive technological spillovers between industries. However, these improvements are assumed to occur at a more moderate rate than in the sectors identifi ed as fruitful areas for partnership collaboration.

In the sections below, potential technologies available in the electricity, transport and industry sectors are discussed.

electricity sectorEmissions from the electricity sector can be reduced through improving generation effi ciencies, using carbon capture and storage technologies and increasing the use of low emissions electricity generation from nuclear and renewable sources.

improvements in electricity generation effi ciency in the reference caseIn the electricity sector in ABARE’s general equilibrium model GTEM, four fossil fuel technologies are available: brown coal, black coal, oil and natural gas. The energy effi ciencies of these technologies are assumed to differ between regions and change over time through the introduction of new capacity and the deprecia-tion and retrofi tting of old capacity.


51


The effi ciencies of new capacity additions to 2030 are informed by IEA World Energy Outlook data (on capacity projections, input demand and generation by technology), other literature sources and expert opinion. New capacity generation effi ciencies are determined for projected capacity additions for both conventional and advanced technologies. For example, coal technologies are assumed to be either pulverised coal or integrated gasifi cation combined cycle (IGCC). Effi cien-cies for each technology (advanced and conventional) are informed by IEA data to 2030 for both developed and developing regions. Beyond 2030, genera-tion effi ciencies in all regions are assumed to converge toward best practice as informed by the literature on likely best practice effi ciencies in 2050.

Pulverised coal systems are currently the most widespread coal fi red technology in the world electricity market, accounting for more than 90 per cent of coal fi red electricity generation capacity worldwide (IEA Clean Coal Centre 2002). Current systems can generally achieve combustion effi ciencies of around 35–45 per cent, depending largely on the quality of coal used and specifi c technology design (IEA Clean Coal Centre 2002).

Pulverised coal plants can be disaggregated into subcritical, supercritical and ultra supercritical plants. The dominant installed technology for coal fi red power generation is currently pulverised coal fi ring with a subcritical boiler. However, in some developed regions, supercritical power plants are now the standard for new generation equipment and can achieve effi ciencies of around 45 per cent, compared with an average of around 36 per cent for subcritical units (AGO 2000; IEA Clean Coal Centre 2002). Ultra supercritical (USCPC) units, which can operate at even higher effi ciencies of up to 55 per cent LHV (lower heating value), are being developed in Europe, the United States and Japan (for a detailed description of coal fi red electricity generation technologies see Heaney et al. 2005).

Advanced IGCC power generation plants are also a relatively new type of technology for power generation, although the technology has been success-fully demonstrated in some developed regions. Currently the thermal effi ciency of IGCC power generation plants is only around 43–47 per cent; however, they have the potential to reach effi ciencies of 55 per cent LHV (IEA 2003). In addi-tion to their high energy effi ciency potential, IGCC plants are also capable of capturing carbon dioxide at a lower cost than conventional pulverised coal fi red power stations (Heaney et al. 2005).


52


Despite the potential advantages of IGCC, its current capital cost remains around 20 per cent higher than other coal technologies (McKamey 2005). However, IGCC is projected to become the cheapest coal fi red electricity technology alter-native as the technology matures (McKamey 2005). Refl ecting the uncertainty about capital cost, the uptake of IGCC remains fairly conservative in the reference case to 2030.

Of new capacity additions, IGCC and/or ultra supercritical plants are assumed to contribute to the majority of coal fi red additions only in Europe and Japan in the period to 2030. However, it is assumed that by 2050 the technology will have reached maturity and become the cheapest and most effi cient coal technology, achieving new capacity effi ciencies of 55 per cent for black coal and 50 per cent for brown coal in all regions. By 2050 it is assumed that the majority of new coal capacity additions in all regions will have effi ciency characteristics of IGCC and/or ultra supercritical plant.

Natural gas technologies may be divided into simple cycle gas turbine plants or combined cycle plants (NGCC) — for a detailed description of gas fi red elec-tricity technologies see Heaney et al. (2005). In an NGCC power generation plant, electricity is produced from both a gas turbine shaft and steam turbine, enabling an overall effi ciency of about 50 per cent LHV. This compares favorably with the typical generation effi ciencies of simple cycle gas turbines of 30–35 per cent LHV.

NGCC plants are already an established technology. However improvements in gas turbine design are expected to raise potential effi ciencies over the projection period (IEA 2002). Increases in gas prices have resulted in a dramatic increase in the share of NGCC in gas fi red electricity generation, relative to simple cycle gas, in recent years. It is assumed that the share of NGCC is 80 per cent of new gas fi red capacity additions in all regions in 2005. Between 2015 and 2050 it is assumed that the share of NGCC increases to 95 per cent of new gas fi red plant capacity, assuming that natural gas prices remain relatively high compared with historical levels.


53


Improvements in electricity generation effi ciency in the enhanced technology scenarios

Additional improvements in the effi ciency of coal and gas fi red electricity genera-tion plant are assumed relative to the reference case and are informed by the US Department of Energy’s Vision 21 Program. The aim of this program is to increase the thermal effi ciency of coal and gas fi red plants to around 66 per cent and 75 per cent LHV respectively, with commercialisation of the fi rst plants beginning in 2020. The stated effi ciencies require the development of a range of new technolo-gies including hybrid systems, which involve the integration of gasifi cation with fuel cells.

It is assumed that all new capacity will achieve Vision 21 effi ciency targets by the end of the projection period. However, the benefi ts of technology R&D and invest-ment will be translated into energy effi ciency improvements before that time. For natural gas it is assumed that all new installed capacity achieve Vision 21 target effi ciencies of around 73–75 per cent LHV by 2040 in developed regions and by 2045 in developing regions. For new installed coal capacity it is assumed that the Vision 21 target of 66 per cent LHV is achieved by 2050.

In the advanced technology scenarios it is assumed that IGCC technology develops at a faster rate than in the reference case, leading to greater uptake earlier in the projection period.

The assumed thermal effi ciencies of best practice technologies are presented in table 5.

5 best practice thermal effi ciencies of electricity generation technologies

Enhanced technology Reference case scenarios

2001 2030 2050 2050

% LHV % LHV % LHV % LHV

Brown steaming coal 35.6 45.0 50.0 60.9Black steaming coal 40.5 50.1 54.0 65.9Gas 48.3 61.4 64.0 74.1


54


renewables

Currently, the average costs of nonhydro renewables are not generally competi-tive with fossil fuel based wholesale electricity generation. However, a number of renewables such as wind, biomass and geothermal offer cost competitive generation in specifi c applications and regions. Signifi cant declines in the cost of nonhydro renewables are expected in the future as capacity increases and public environmental concerns encourage the adoption of low emission electricity generation.

In the partnership technology + CCS scenario, it is assumed that collaborative partnership action on R&D results in a signifi cant decline in the cost of nonhydro renewables. By 2050, the cost of nonhydro renewables is assumed to be 20 per cent lower than in the reference case.

nuclear powerNuclear power also presents an opportunity to achieve large cuts in emissions. However, its potential is constrained in many OECD countries by public aversion to nuclear technology and political considerations. Nuclear costs are assumed to remain unchanged relative to the reference case.

carbon capture and storageThe capture and subsequent storage of carbon dioxide emissions from power plants allow low emissions electricity generation. Carbon capture facilities can be retrofi tted to existing plants or included in new installations.

In the partnership technology + CCS scenario, it is assumed that all new coal and gas fi red electricity generation plants installed after 2015 in the United States, Australia and Japan, and after 2020 in other partnership economies use CCS technologies. A depreciation and/or retrofi tting rate of 2 per cent for existing plant is assumed. It is also assumed that 90 per cent of carbon dioxide emissions from a given plant are captured by plants using CCS technologies.

Capture costs are initially assumed to be US$25 and US$30 a tonne of carbon dioxide captured from coal fi red and gas fi red electricity generation plants respec-tively (in 2001 US dollars) (Matysek et al. 2005). Carbon transport and storage


55


costs and storage potentials have been adapted from Hendriks, Graus and van Bergen (2004), who provides estimates of the regional costs and storage poten-tials.

Energy penalties of 14.5 per cent and 10.7 per cent are assumed for every unit of electricity generated using coal fi red and gas fi red CCS technology, respectively. That is, installation of CCS technology by coal fi red generation plants decreases the quantity of electricity generated from a unit of coal by 14.5 per cent (alterna-tively, 17 per cent more coal is required to produce a unit of electricity).

transportIn GTEM, the transport sector is divided into three modes: air transport, water transport and other transport. The ‘other transport’ sector is further disaggregated into rail and four road transport technologies.

energy effi ciency improvements in air, water and rail transportAdditional improvements in energy effi ciency, relative to the reference case, are assumed in the enhanced technology scenarios in the air, water and rail transport sectors. Improvements in the energy effi ciency of air transport could be achieved through the use of airborne fuel cells and other alternative fueled air vehicles in combination with advanced aerodynamic structures. Potential opportunities for energy effi ciency improvements in the water transport sector include the use of more advanced diesel propulsion systems and the introduction of fuel cells. Opportunities to increase the energy effi ciency of the rail sector include the further transition to electric and high speed trains. Increasing the travel intensity of passen-gers and freight rail can also result in fuel economy improvements per passenger-kilometre or tonne-kilometre.

energy effi ciency improvements in road transportImprovements in the energy effi ciency of different road vehicle technologies (internal combustion engine vehicles, advanced internal combustion vehicles, hybrid vehicles and non fossil fuel vehicles) are assumed to be the same in both the reference and enhanced technology scenarios.


56


The overall improvement in road transport effi ciency between the enhanced technology policies and the reference case is achieved via assumptions on the increased uptake of advanced technologies. As the road transport sector consists of both light duty vehicles (LDVs) and freight trucks, an aggregate shock for fuel effi ciency was developed using information on potential improvements in the fuel effi ciency of both LDVs and freight vehicles.

conventional internal combustion engine (ICE) vehiclesThe average fuel effi ciency of gasoline, diesel and compressed natural gas cars and two and three wheelers was determined using the IEA/Sustainable Mobility Project transport model (Fulton and Eads 2004) for all regions over the period 2001–50. This average fuel effi ciency was used as a proxy for the fuel effi ciency of conventional internal combustion engine cars.

The fuel economy of ‘average’ vehicles refl ects a variety of trends between different countries. For example, the improvement in the fuel economy of north American vehicles is assumed to be slower than in some other developed regions as a result of consumer preferences toward larger vehicles that include more onboard services. The fuel effi ciency of the average vehicle in China declines over the projection period, refl ecting a transition away from motorbikes and trikes to cars. In most regions, however, the average effi ciency of conventional ICE vehicles increases over time as a result of advanced technology adoption and/or changes in fuel use.

The average fuel effi ciency of gasoline and diesel medium and heavy trucks was determined using the IEA/Sustainable Mobility Project transport spreadsheet model (Fulton and Eads 2004) for all regions over the period 2001 to 2050. This average fuel effi ciency was used as a proxy for the fuel effi ciency of conventional internal combustion engine freight vehicles.

hybrid vehiclesCurrent hybrid light duty and freight vehicles are assumed to be 35 per cent and 20 per cent more energy effi cient respectively than the average conventional vehicle in its class in each region in 2001. This fi gure was derived from the Inter-national Energy Agency, the US Energy Information Administration (EIA) and other sources in the literature. The degree to which hybrid engines might improve the fuel


57


economy of freight vehicles is considered to be lower than for light duty vehicles as a result of the bulk of freight trucks and their need for substantial pulling power.

advanced internal combustion engine vehiclesAdvanced conventional vehicles are defi ned as internal combustion engine vehi-cles that are 17.5 per cent and 10 per cent more effi cient respectively than the average light duty and freight conventional vehicle in each region in 2001. Their additional fuel economy compared with conventional vehicles is assumed to be the result of the use of more advanced and lighter materials and advanced vehicle and engine design.

non fossil fuel vehiclesNon fossil fuel vehicles include full electric and fuel cell vehicles. The improvement in fuel effi ciency in non fossil fuel vehicles is assumed to occur at a faster rate than the improvement in the fuel effi ciency of conventional vehicles, refl ecting the more mature status of conventional vehicle technologies and the large potential improve-ments that are possible for non fossil fuel vehicles.

technology shares in the reference case for road transportThe shares of road vehicle technologies (conventional ICE, advanced ICE, hybrids, and non fossil fuel vehicles) in the reference and enhanced technology scenarios are changed exogenously over time in GTEM. The changes are based on information from IEA and the US EIA modeling exercises and other sources in the literature. In the reference case, conventional ICE vehicles are projected to remain the dominant vehicle technology throughout the projection period. By 2050, advanced ICE vehicles account for between 4 and 15 per cent of road vehicles in all regions. While the growth in hybrids over the projection period is signifi cant, their share in the total transport fl eet is assumed to remain below 7 per cent in all regions by 2050.

technology shares in the enhanced technology scenarios for road transportActions designed to encourage more fuel effi cient vehicles are assumed to be implemented from 2006. The uptake of advanced technologies is confi ned to


58


partnership economies only under the enhanced technology scenarios. Under the global technology and partnership CCS scenario, all regions are assumed to have the same shares as assumed in the partnership technology scenario.

In the enhanced technology scenarios, there is assumed to be a signifi cant transi-tion to hybrids and advanced ICE vehicles by the end of the projection period, particularly in developed countries. By 2050, advanced and hybrid vehicles account for between 22–62 and 25–70 per cent respectively of vehicles on a regional basis. The uptake of hybrids is favored in developed countries, while developing countries are assumed to favor advanced ICE vehicles as they offer both a fuel effi ciency advantage over conventional vehicles and a cost advantage over hybrids. These assumptions should be interpreted as illustrative.

It is assumed that there is only limited uptake of non fossil fuel vehicles in the latter part of the projection period primarily as a result of the high effi ciency of other vehicle technologies and the high capital cost of non fossil fuel vehicles. Although the enhanced technology scenario shares are not based on any direct literature they are illustrative of the potential improvement in transport sector fuel economy and emissions that might be reasonably possible assuming signifi cant uptake of highly effi cient advanced transport technologies.

key industry sectorsCombustion emissions can be reduced in key industrial sectors by increasing the energy effi ciency of production processes. Noncombustion emissions can be reduced by improvements in management practices or industrial processes. Poten-tial measures to reduce emissions in key industries are presented below.

miningLiterature sources indicate that the potential for improvement in energy effi ciency in mining is low, although small improvements can be achieved in grinding tech-nologies and the increased implementation of control based management prac-tices. As a result, no improvement in the energy effi ciency of the mining sector is assumed. However, there is signifi cant potential to reduce fugitive based mining emissions.

59


fugitive mining emissions

Fugitive methane emissions from mining can be reduced by capturing the methane stream and using it for electricity production or injecting it into natural gas pipe-lines. Improvements in the effi ciency level of output based emissions, relative to the reference case, are implemented using the emissions response function in GTEM (see Matysek et al. 2005 for a description). Only mining presented signifi cant low cost (US$10–20/t C-e abated) opportunities to abate output emissions. Limited abatement opportunities for gas output based emissions were identifi ed for costs below US$70/t C-e, so it was assumed that gas production has no additional output based abatement potential under the enhanced technology scenarios, rela-tive to the reference case.

iron and steelEnergy effi ciency improvements in the iron and steel sector are assumed for each region for two production processes: electric arc and blast furnace. Energy effi ciency is assumed to improve through the introduction of new capacity and retrofi tting and depreciation of existing capacity. Forecasts for energy effi ciency improvements are based on those contained in the US Energy Information Administration’s National Energy Modeling System (NEMS), which underlies its Annual Energy Outlook.

Energy effi ciency improvements are considerable in the iron and steel sector, based on the assumption that advanced technologies such as single vessel smelt reduction and thin strip casting are successfully commercialised early in the projection period. The potential for energy effi ciency improvements are greatest for electric arc, as rolling and casting account for a greater share of total energy consumption. For a detailed description of iron and steel technologies see Heaney et al. (2005).

nonmetallic mineralsThe nonmetallic minerals industry is primarily made up of concrete production and cement. In the cement industry, signifi cant opportunities currently exist to improve energy effi ciency. Technology options include the continued switch away from wet kilns to dry kilns, the use of alternative inputs and blended cements, and using high pressure and horizontal roller mills. Advanced technologies such as fl uidised bed kilns also have the potential to further reduce energy use if they can become commercially feasible.


60


aluminium and nonferrous metals

The nonferrous metals sector is a highly aggregated sector that includes aluminium, nickel, copper, lead and gold. In the aluminium sector, energy effi ciency improve-ments are assumed to vary signifi cantly between regions. The main determinant of energy effi ciency improvements is assumed to be increases in the use of scrap aluminium rather than technological development. The production of aluminium from scrap requires only about 6 per cent of the energy used to produce primary aluminium (Choate et al. 2003).

In the fi rst decades of the projection period the United States is expected to shut down most of its primary aluminium smelting plants and produce aluminium solely from scrap. This is assumed to result in signifi cant effi ciency improvements, as currently only about 50 per cent of US aluminium comes from scrap. Major exporting regions, such as Australia, are assumed to have little scrap available and the scrap share in production remains small in these regions throughout the reference period. Consequently, their energy effi ciency improvements are assumed to be signifi cantly less than those in the United States. The forecast share of scrap is assumed to remain unchanged between the reference case and enhanced tech-nology scenarios; so in the case of aluminium, the majority of energy effi ciency improvements occur in the reference case.

However, energy effi ciency improvements also occur in the enhanced technology scenarios through improvements in electrode effi ciencies. The commercialisa-tion of inert anodes and wetted cathodes are also assumed to improve energy effi ciency by enabling carbon based anodes to be eliminated from electrolysis thereby reducing energy requirements by up to 25 per cent. More importantly, inert anodes eliminate fugitive emissions of carbon dioxide associated with the consumption of carbon based anodes. Perfl uorocarbon (PFC) emissions manage-ment is assumed to continue to improve; the 80 per cent per unit reduction objective from 1990 levels by 2010 voluntarily introduced by the International Aluminium Institute demonstrates the industry’s commitment. Australian smelters have already achieved reductions beyond this level.

Thin strip casting technology is also assumed to lower energy intensity by removing the pre-heating step conventionally used in the casting process. Greater uptake of continuous smelting technologies for the treatment of nickel and copper and greater uptake of direct smelting for primary lead production are also assumed


61


to generate energy effi ciency improvements, relative to the reference case, in the enhanced technology scenarios.

wood, pulp and paperA number of technology advancements and measures currently exist that, with greater uptake, could signifi cantly lower the energy intensity of this industry. These include the introduction of heat and chemical recovery processes such as the gasifi cation of black liquor that is currently being used in advanced plants in some OECD regions. Fluidised bed combustion technology also provides an opportu-nity to replace fossil fuels, as it can accommodate a wide range of fuels including woodchips, sludge and other wastes. High intensity drying technologies exist that could dramatically lower the drying time and save up to 15 per cent of energy use compared with conventional paper machines. Increased levels of paper recycling are also assumed to reduce the energy intensity of the industry since recycling waste paper is less energy intensive than production processes that use woodchip inputs.


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research funding: ABARE relies on fi nancial support from external organ isations to complete its research program. As at the date of this publication, the following organi-sations had provided fi nancial support for ABARE’s research program in 2004-05 and 2005-06. We gratefully acknowledge this assistance.

Agricultural Production Systems Research UnitAsia Pacifi c Economic Cooperation SecretariatAusAidAustralian Centre for International Agricultural ResearchAustralian Gas AssociationAustralian Greenhouse Offi ceAustralian Plague Locust CommissionAustralian Quarantine and Inspection ServiceAustralian Wool Innovation LimitedBatelle Pacifi c NWCanegrowersChevron TexacoCommonwealth Grants CommissionCommonwealth Secretariat, LondonCSIRO (Commonwealth Scientifi c and Industrial Research Organisation)Dairy AustraliaDepartment of Agriculture, Fisheries and ForestryDepartment of Business, Industry and Resource Development, Northern TerritoryDepartment of the Environment and HeritageDepartment of Foreign Affairs and TradeDepartment of Health and AgeingDepartment of Industry, Tourism and ResourcesDepartment of Infrastructure, VictoriaDepartment of Natural Resources and Mines, QueenslandDepartment of Primary Industries, QueenslandDepartment of Primary Industries, VictoriaDepartment of Prime Minister and CabinetDepartment of Transport and Regional ServicesDeutsche BankEast Gippsland Horticultural GroupExxonFisheries Research and Development CorporationFisheries Resources Research FundFood and Agriculture Organisation of the United NationsForest and Wood Products Research and Develop- ment Corporation Grains Research and Development Corporation

Grape and Wine Research and Development CorporationGHD ServicesHorticulture AustraliaIndependent Pricing and Regulatory TribunalInstitute of National Affairs, Papua New GuineaInternational Food Policy Research InstituteITS GlobalLand and Water AustraliaMeat and Livestock AustraliaMelbourne Development InstituteMinerals Council of AustraliaMinisterial Council on EnergyNational Land and Water Resources AuditNational Landcare ProgramNational Oceans Offi ceNatural Heritage TrustNewcastle Port CorporationNew South Wales Department of Primary IndustriesNew Zealand Ministry for the EnvironmentNew Zealand Ministry of Foreign Affairs and TradeNew Zealand Ministry of Prime Minister and CabinetNSW SugarOffi ce of Resource Development, Northern TerritoryOrganisation for Economic Cooperation and DevelopmentPlant Health AustraliaPratt WaterPrimary Industries, VictoriaRio TintoRural Industries Research and Development CorporationSnowy Mountains Engineering CorporationTerrapin AustraliaUniversity of QueenslandUS Environmental Protection AgencyWA Global Ocean Observing SystemWheat Export AuthorityWoodside EnergyWoolmark Company


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