Economics I - Economic Growth, Technology and GHG Emissions (HJ)

Growth, Technology & Emissions • The reference or BAU projection: its uses – Understand the climate problem, its magnitude – Basis for analyzing mitigation measures • Methods & puzzles in construction – “Horses for courses” – Underlying assumptions • How the analysis is done – – – – Simple growth models, myopic & fw’d-looking Add an energy sector, and multiple regions Multiple goods and energy types Multiple regions & trade in goods & permits • Sample results from a 3-model study Emissions Projections (Say, CO2 to 2020) • For MIT – – – • For the USA – – – Top-down vs. bottomup analysis The Origin of CO2 Emissions (An accounting identity) CO2 = Pop ∗ GDP/Pop ∗ E/GDP ∗ CO2/E Population Per-capita standard of living Energy efficiency of production Carbon intensity of energy Main Non-CO2 Human Emissions • CH4 – Coal, gas and oil production – Landfills, livestock, rice production • N2 O – Agricultural soils, chemical production • Industrial gases – HFCs (air conditioning, foam blowing, solvents) – PFCs (semiconductor production, aluminum) – SF6 (Insulator in electrical switchgear) • Black carbon (aerosols) – Diesel engines, biomass burning • Sox (aerosol precursor) – Coal burning Cutting Grass: a Functional Form KL L Scissors 2 1 KL Ht = a t (bKK ρ + bLLρ ) Push Mower Power Mower Riding Mower K 1 KL ρ How Flexible Is the Economy? Constant Elasticity of Substitution X X K σ>0 X X t = α t (aK K σ KL = 1 1− ρ L K K L CES: σ=0 X KL ρ KL ρ KL + aL L L 1 ) ρ KL Extensions to the Production Function Other Input Factors to Production: q = f (K, L, E, M, FF) Capital Technical Change: Output Labor Energy Materials Fixed Factor Multi-factor Productivity: q = a(t) f (K, L, E, M) q = f (K, a(t)L, E, M) Labor Productivity: Energy Efficiency: q = f(K, L, a(t)E, M) Endog. Tech. Change: q = f(K, L, a(t, PE)E, M) A Simple “Top-Down” Model (How it is constructed) • Simplifications – – – – – One output good (X) One country (no trade) “Parameterized” energy sector No government (no taxes or transfers) Recursive-dynamic (myopic): economic agents don’t anticipate future prices – CO2 only • Relax these as we go forward How to Do It (the pieces) • Represent the production process • Drivers of growth – Population – Productivity change – Growth in the capital stock • Economic decisions (e.g., savings rate, consumer choice) • Carbon emissions – Energy use – Carbon content of energy • Calibrate to base year data Here combined for simplicity A Simple Myopic Growth Model X t = at ( bK K ρ KL Lt = L0( 1 + γ ) ρ KL + bLL t ) 1 ρ KL Production function Labor force growth at = (1 + g ) Productivity change K t = (1 − δ )K t −1 + I t Capital accumulation X t = Ct + St Accounting Identity St = I t Saving/investm’t equilibrium t St = sYt E t = f (X t , t ) (Y ≡ X ) Savings behavior Carbon emissions A Forward-Looking Model X t = at ( bK K ρKL ρ KL + bLL Lt = POP0( 1 + γ ) t ) 1 ρ KL Production function Labor force growth at = (1 + g ) Technical change K t = (1 − δ )K t −1 + I t Capital accumulation X t = Ct + St Accounting Identity St = I t Saving/invest equilibrium t f ( Ct ) Max(W ) = ∑t t (1 + r ) E t = f (X t ,t ) Maximize welfare (W) Carbon emissions Computable General Equilibrium Multiple Sectors and Regions • Production Sectors – Nested CES • Consumption – Budget constraint – Max. utility C1 Yt ≥ St + ∑ Cicons ,t max (U t ) = f (Cicons ,t ) i U • Multiple regions C2 – Model for each region – Trade in goods, energy, emissions permits – Available goods = Xi + Im - Ex Transactions In a Simple Economy Factor Inputs Labor, capital, land Factor Incomes ($) Producing Units Individuals Purchases ($) Final Goods and Services Output or Production Sample Production Structure VAt = at ( bK K ρ KL ρ KL + bLL Estimate σVA Calibration of a’s ) 1 ρ KL The Base-Year Data Social Accounting Matrix (SAM) Industries Final Demands Row j d Total n 1 Cons. Inv. Gov't Exp. Imp. 1 Yl X Commodities i Factors f G n Yn Labour VL Capital VK V VF Resources Net Taxes Column Total τ τ Yl Yn GC GI GG GX GM MIT Integrated Global System Model (IGSM) Version 2 Sectoral Aggregation EPPA Model (v4) Production Sectors Non-Energy For special Agriculture studies Energy Intensive Other Industry Crude & Services Product Transport Slate Energy Crude & Refined oil Shale oil Coal Natural gas Synthetic gas (from coal) Electricity Household Sectors Own & purchased transport Other goods & services For special studies Crops Livestock Forestry Technologies Included Fossil (oil, gas & coal) IGCC with capture NGCC with capture NGCC without capture Nuclear Hydro Wind and solar Biomass Multi-Regions & Trade HSE P’N HSE P’N -Goods & services HSE P’N -Emissions permits Regional Aggregation EPPA Model Annex B USA Europe Canada Mexico Japan Aus. & N.Z. FSU E. Europe For special studies: Finland France Germany Britain Italy Holland Spain Sweden Hungary Poland Other Non-Annex B China India Persian Gulf Indonesia Africa Latin America East Asia Rest of World U.S. Climate Change Science Program Science and Assessment products 2.1a Product 2.1: Updating scenarios of greenhouse gas emissions and concentrations, in collaboration with the CCTP. Review of integrated scenario development and application. Global Population 12 10 Billion 8 6 4 EPPA_REF MERGE_REF 2 MINICAM_REF 0 2000 2020 2040 2060 Year 2080 2100 Energy Prices: Reference Scenario Index 2000=1 5.0 4.5 Minemouth Coal Price 4.0 Gas Producer Price 3.5 World Oil Price 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2000 2020 2040 2060 Year 2080 2100 200 Global Primary Energy per Capita Gigajoules/Capita 160 120 80 EPPA_REF MERGE_REF 40 MINICAM_REF 0 2000 2020 2040 2060 Year 2080 2100 1 U.S. Primary Energy Intensity (Per GDP) Index 0.8 0.6 0.4 EPPA_REF 0.2 MERGE_REF MINICAM_REF 0 2000 2020 2040 2060 Year 2080 2100 CO2 Emissions Per Primary Energy 0.025 GTC/Exajoule 0.020 0.015 0.010 0.005 EPPA_REF MINICAM_REF MERGE_REF 0.000 2000 2020 2040 2060 Year 2080 2100 Global Industrial CO2 Emissions 30 EPPA_REF 25 GTC/Year 20 MERGE_REF MINICAM_REF 15 10 5 0 2000 2020 2040 2060 Year 2080 2100 Global CH4 Emissions 800 700 MTonnes/Year 600 500 400 300 200 IGSM_REF MERGE_REF 100 MINICAM_REF 0 2000 2020 2040 2060 Year 2080 2100 Relation of Carbon Price to Percentage Abatement Price vs Percentage Abatement 2050 $2,000 Price vs Percentage Abatement 2100 $2,000 EPPA 2100 EPPA 2050 MINICAM 2050 MERGE 2050 $1,200 $800 MERGE 2100 $1,200 $800 $400 $400 $0 $0 0% 20% 40% 60% 80% Percentage Abatement MINICAM 2100 $1,600 Price ($/tonne C) Price ($/tonne C) $1,600 100% 0% 20% 40% 60% Percentage Abatement 80% 100% Global Primary Energy: Reference 1,600 1,400 Exajoules/Year 1,200 1,000 Non-Biomass Renewables Nuclear Commercial Biomass Coal Natural Gas Oil 800 600 400 200 0 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 Year Global Electricity Production 500 450 Non-Biomass Renewables Nuclear Exajoules/Year 400 Commercial Biomass 350 Coal 300 Natural Gas 250 Oil 200 150 100 50 0 2000 2020 2040 Year 2060 2080 2100