Who pays for climate change mitigation:Integrated assessment of equitable emissions budgets in ETSAP-TIAM-MACRO

James Glynn, Socrates Kypreos, Antti Lehtila, Maurizio Gargiulo, Brian Ó’Gallachóir

68th ETSAP Workshop

Sophia Antipolis, FRANCE | 23rd October 2015

Acknowledgements

• ETSAP TIAM Project Group

• MSA Developers Socrates Kypreos (PSI) & AnttiLehtila (VTT)

Outline

• Overview of ETSAP-TIAM Macro Stand Alone (MSA)

• 2°C Cumulative CO2 Budget Scenario

• Regional Macroeconomic losses

• Post Optimisation Analysis (POA)

• Equitable Efficient Burden Sharing

• Appropriate capital transfers?

• Contract & Convergence Grandfathering to equal/Cap

• Compensation rules

• Fund technology transfer to LDCs

• Equity based on historical emissions

GLOBAL ETSAP-TIAM model

Built with the TIMES model generator

• The Integrated MARKAL-EFOM System of IEA-ETSAP

• Linear programming bottom-up energy system model

• Integrated model of the entire energy system

• Prospective analysis on medium to long term horizon (2100)• Demand driven by exogenous energy service demands

• Partial and dynamic equilibrium (perfect market)• Hybrid General Equilibrium using MSA

• Optimal technology selection

• Minimizes the total system cost

• Environmental constraints• Integrated Climate Model

• 15 Region Global Model

• Price-elastic demands in the TIMES-ED version• Not included in Macro-Stand-Alone runs

ETSAP-TIAM 15 Regions

AFR

CAN

USA

MEX

CSA

WEU

EEU

MEA

IND

CHISKO

JPN

AUS

ODA

Res Heat

Ind Heat

Person Km

Freight Km…

Transformation

Refinery,

Power Plants,

Gas Network,

Briquetting...

Primary energy prices,

Resource availability

Primary energy Final energy Service Demands

GDP, Population,

Industrial Activity

TIMES-MACRO

Domestic

sources

Imports

Consumption

Industry,

Services,

Transport,

Residential...

MACRO Stand Alone (MSA)

General Equilibrium

Macroeconomic Model

Energy Costs

Labour

ConsumptionInvestmentCapital

Demand

Response

Cru

de O

il

Raw

Gas

Gaso

lin

e

Natu

ral G

as

Ele

ctr

cit

y𝑀𝑎𝑥 𝑈 =

𝑡=1

𝑇

𝑟

𝑛𝑤𝑡𝑟 . 𝑝𝑤𝑡𝑡 . 𝑑𝑓𝑎𝑐𝑡𝑟,𝑡. 𝑙𝑛 𝐶𝑟,𝑡

R

r YEARSy

yREFYR

yr yrANNCOSTdNPVMin1

, ),()1(C

oal

Heat

Light

Motion

Partial Equilibrium

Scenario Outline

• BASE

• Reference energy system, least cost optimal without policy constraints

• Assumes rational optimising choices: not equal to business as usual

• 2DS – Remaining CO2 Emission Quota Budget

• BASE with a cumulative on CO2 emissions constraint to achieve the target 2°C (50% probability) set in Friedlingston et al.

• 1400Gt CO2e 2020 – 2100

• No Significant policy action to 2020

• Macro Stand Alone (MSA) active to re-estimate energy service demands relative to available capital & investment

Global Energy Balance - 2012

Data: IEA Energy Balances of OECD Countries, IEA Energy Balance of Non-OECD Countries

Final Energy - 2DS 2100

Net CO2 Emissions & CO2 Price

-10

0

10

20

30

40

50

60

70

BASE 2DS BASE 2DS BASE 2DS BASE 2DS BASE 2DS BASE 2DS BASE 2DS BASE 2DS BASE 2DS BASE 2DS

2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

Gt

CO

2

WEU

USA

SKO

ODA

MEX

MEA

JPN

IND

FSU

EEU

CSA

CHI

CAN

AUS

AFR

CSA

AFR

USA

CHI

IND

MEA

WEU

FSU

$66 $108 $175 $286 $465 $758

$1,235

$2,012

$3,277

$-

$1,000

$2,000

$3,000

$4,000

2020 2030 2040 2050 2060 2070 2080 2090 2100

$/t

Co

2

Post Optimisation Analysis –Burden Sharing Rules

• Efficiency [Eff]

• Least Cost Optimal Energy System with Maximised Discounted Utility under cumulative emission quota of 1,400GtCO2e

• TIAM-MSA Result without Post Optimisation Analysis

• Rule 1 – Equalitarian Emissions Per Capita

• Rule 2 – Equalise GDP loss per region

• Rule 3 – Compensate Developing countries for any increases in energy costs

• Rule 4 – Compensate Developing Countries for GDP loss

• Rule 6 – Equalise cumulative emissions per capita

• Rule 7 – Budget of future emissions inversely based on historical cumulative emissions per capita

Rule 1 (R1) – EqualitarianGrandfathering to 2050 then equal emission/capita

CAN

USA

SKO, AUS

JPN, WEU, FSU

MEA, EEU, CHI

CSA, MEX

ODA, IND, AFR

-5

0

5

10

15

20

2020 2030 2040 2050 2060 2070 2080 2090 2100

GtC

O2/Capita

Rule 1 - Equalitarian

-6

-4

-2

-

2

4

6

20

20

20

30

20

40

20

50

20

60

20

70

20

80

20

90

21

00

GtC

O2

/yr

Carbon Traded

$-20

$-15

$-10

$-5

$-

$5

$10

$15

$20

20

20

20

30

20

40

20

50

20

60

20

70

20

80

20

90

21

00

Tn U

SD

Capital Transfers WEU

USA

SKO

ODA

MEX

MEA

JPN

IND

FSU

EEU

CSA

CHI

CAN

AUS

AFR

-20.0% 0.0% 20.0%

GDP Change

-20.0%

-10.0%

0.0%

10.0%

20.0%

AFR AUS CAN CHI CSA EEU FSU IND JPN MEA MEX ODA SKO USA WEU World

% G

DP

Ch

ange

Efficient Rule 1

Rule 3/4 – Compensate Developing

countries for increased energy costs or GDP Loss

-0.5

-0.4

-0.3

-0.2

-0.1

-

0.1

0.2

0.3

0.4

0.5

20

20

20

30

20

40

20

50

20

60

20

70

20

80

20

90

21

00

GtC

O2

/yr

Rule 3 - Carbon Traded

-$2

-$1

-$1

$-

$1

$1

$2

20

20

20

30

20

40

20

50

20

60

20

70

20

80

20

90

21

00

Tn U

SD

Rule 3 - Capital Transfers WEU

USA

SKO

ODA

MEX

MEA

JPN

IND

FSU

EEU

CSA

CHI

CAN

AUS

AFR

-8

-6

-4

-2

0

2

4

6

8

20

20

20

30

20

40

20

50

20

60

20

70

20

80

20

90

21

00

GtC

O2

/yr

Rule 4 - Carbon Traded

$-10

$-8

$-6

$-4

$-2

$-

$2

$4

$6

$8

$102

020

20

30

20

40

20

50

20

60

20

70

20

80

20

90

21

00

Tn U

SD

Rule 4 – Capital TransfersWEU

USA

SKO

ODA

MEX

MEA

JPN

IND

FSU

EEU

CSA

CHI

CAN

AUS

AFR

-20.0% 0.0% 20.0%

% GDP Change

-20.0% 0.0% 20.0%

Interpreting the Brazilian Proposal Historical and Future emissionsWhat is an equitable budget allocation?

-100.0

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

AFR AUS CAN CHI CSA EEU FSU IND JPN MEA MEX ODA SKO USA WEU

Carb

on D

ioxid

e E

mis

sio

ns (

GtC

O2)

Historical Emissions (1751-2010) Future 2D CO2 Emissions

Equal CO2 Budget Population Weighted CO2 Budget

Cumulative regional CO2 emissions budgets for efficient, regional equalisation of cumulative emissions, and regional per capitaequalisation of cumulative emissions (Historical Data source: Carbon Dioxide Information Analysis Center http://cdiac.ornl.gov/).

Rule 6 & Rule 7 explained

• Rule 6• Allocates future emissions permits on a cumulative equal budget

per capita between 1790 and 2100. Regions that emit more than their allocated CO2 budget must purchase permits from those that have not broken their budget in any given time step. Regions that have already spent their cumulative CO2 budget pay into a clean development mechanism (CDM), which distributes their carbon debt equally per time step at the given marginal cost of carbon at that time step.

• Rule 7• Interprets the Brazil proposal as a combination of an

interpolation grandfathering rule from the current emissions per capita regionally to allocation of future emissions based on population intensity per cumulative emissions. This balances historical cumulative emissions responsibility and population growth. This allows developing countries a larger share of future emission based on low historical emissions, but become bound by an increasing share of a declining global emission budget per year.

What is an Equitable Rule?Brazilian Rule 6 & 7

-20.0%

-10.0%

0.0%

10.0%

20.0%

USA JPN CAN WEU AUS SKO EEU MEX MEA CSA FSU CHI ODA IND AFR World

GD

P C

han

ge %

Efficient

Rule 6

Rule 7

Rule (6)

Rule (7)

0

1

2

3

4

5

6

7

2020 2030 2040 2050 2060 2070 2080 2090 2100

tCO

2/yr

Carbon Traded Capital Transfers % GDP Change Brazilian Proposal for burden sharing.Carbon Permits GtCO2 (Left), CapitalTransfers Tn US Dollars (Centre) per regionper time period and Cumulative (2010 –2100) GDP loss per region (Right). Rule (6)Regional allocation of cumulative populationweighted emissions permits and Rule (7)Brazil rule allocation weighted to populationper cumulative emissions.

Conclusions

• The 2 Degree goal is barely technically feasible and comes with prohibitively expensive marginal abatement costs.

• The technologically efficient global cumulative cost of the 2 degree goal is 5% GDP on aggregate with regional variations of between 2.5% and 11% GDP.

• Equitable burden sharing rules require massive capital transfers of trillions US $ (undiscounted) per year in the second half of the century.

• Emissions per capita budgets are not necessarily in the best interests of developing countries• China is best off when the burden sharing rules focus on equalisation for

economic losses,

• India, Other developing Asia and Africa have greater economic benefits when rules focus on equitable cumulative emissions per capita.

• These burden sharing rules are politically infeasible given the scale of capital transfers

• Compensating LDCs for relative energy cost losses has the smallest capital transfers and potentially the most politically favourable rule?

• Rule 6 or Rule 7 is probably the most equitable, but politically difficult messaging and possibly counter productive by induced delayed action

Environmental Research Institute

Instiúd Taighde Comshaoil

Energy Policy and Modelling Group

www.ucc.ie/energypolicy

@james_glynn

james.glynn@umail.ucc.ie

Model Emissions Scenarios1150 scenarios from the IPCC Fifth Assessment Report are shown

Data Source: AR5 Emissions Database

https://secure.iiasa.ac.at/web-apps/ene/AR5DB/

Cumulative Emissions Budget

EU28

USA

CHI

IND

ROW

ETSAP-TIAM MSA (TMSA)

Macro Stand Alone

𝑀𝑎𝑥 𝑈 =

𝑡=1

𝑇

𝑟

𝑛𝑤𝑡𝑟 . 𝑝𝑤𝑡𝑡. 𝑑𝑓𝑎𝑐𝑡𝑟,𝑡. 𝑙𝑛 𝐶𝑟,𝑡 (1) (MSA OBJz)

𝑌𝑟,𝑡 = 𝐶𝑟,𝑡 + 𝐼𝑁𝑉𝑟,𝑡 + 𝐸𝐶𝑟,𝑡 + 𝑁𝑇𝑋(𝑛𝑚𝑟)𝑟,𝑡 (2)

𝑌𝑟,𝑡 = 𝑎𝑘𝑙𝑟 ∙ 𝐾𝑟,𝑡𝑘𝑝𝑣𝑠𝑟∙𝜌𝑟 ∙ 𝑙𝑟,𝑡

(1−𝑘𝑝𝑣𝑠𝑟)𝜌𝑟 +

𝑘

𝑏𝑟,𝑘 ∙ 𝐷𝐸𝑀𝑟,𝑡,𝑘𝜌𝑟

1𝜌𝑟

(3)

• nwt – Negishi Weights

• pwt – weight Multiplier

• dfact – utility discount factor

• C - Consumption

• Y – Production

• INV – Investment

• EC – Energy Cost

• NTX – Net exports

• akl – production fn constant

• K – Capital

• kpvs – capital value share

• l - Labour annual growth

• b – Demand coefficient

• p – elasticity of substitution

• DEM - Energy Demands

R

r YEARSy

yREFYR

yr yrANNCOSTdNPVMin1

, ),()1( (TIAM OBJz)