1 Achieving the 2ºC target in the Copenhagen Accord: an assessment using a global model E3MG Terry...

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Achieving the 2ºC target in the Copenhagen Accord:

an assessment using a global model E3MG

Terry BarkerPresentation to the Institute for Sustainable Energy and

the Environment (I-SEE) at the University of Bath, 9 March 2010

ADaptation And Mitigation (ADAM) strategies for climate change was

funded by the EU under FP6

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Outline

• The Copenhagen Accord• Implications for GHG reductions

and carbon prices from IPCC AR4• Global policy implications• Use of E3MG to assess feasibility

and costs of rapid decarbonisation

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Key Features of the Copenhagen Accord,

December 2009• Maintains the twin-track progress

under the UNFCCC: – long-term cooperative action– further commitments of Annex I parties

under the Kyoto Protocol• Agreed by the largest countries

contributing to GHG emissions: US, China,

• Political, non-legally-binding statement• Recognizes “the scientific view that

the increase in global temperatures should be below 2 degrees Celsius”

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Policy outcomes of the Copenhagen Accord, December

2009• Annex I (developed countries)

– quantified GHG emission reduction targets for 2020 to be reported by 31/1/2010

– US$30bn 2010-2012 and $100bn by 2020 to support adaptation and mitigation in non-Annex I countries

– accounting of targets and finance to be “rigorous, robust and transparent”

• Non-Annex I (developing countries)– nationally appropriate mitigation actions to be

reported by 31/1/2010– supported actions to be subject to “international

measurement, reporting and verification”

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Implications for GHG reductions and carbon prices from IPCC AR4

• IPCC AR4 assessed climate modelling literature and synthesised the results

• Ultimate target is to avoid dangerous climate change, but this can be converted to– global temperature rise– GHG concentrations by 2100– GHG emission reductions below 1990 or

2005 levels

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Figure 2: Average global temperatures, GHG concentrations and emissions 2000-2100

-5

0

5

10

15

20

25

30

35

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

Wo

ld C

O2

Em

iss

ion

s (

GtC

)

E: 850-1130 ppm CO2-eq

D: 710-850 ppm CO2-eq

C: 590-710 ppm CO2-eq

B: 535-590 ppm CO2-eq

A2: 490-535 ppm CO2-eq

A1: 445-490 ppm CO2-eq

Stabilization targets:

Post-SRES (max)

Post-SRES (min)

Eq

uil

ibri

um

glo

ba

l m

ea

n t

em

pera

ture

inc

rease

ove

r pre

ind

us

tria

l(°C

)

GHG concentration stabilization level (ppmv CO2-eq)

-5

0

5

10

15

20

25

30

35

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

Wo

ld C

O2

Em

iss

ion

s (

GtC

)

E: 850-1130 ppm CO2-eq

D: 710-850 ppm CO2-eq

C: 590-710 ppm CO2-eq

B: 535-590 ppm CO2-eq

A2: 490-535 ppm CO2-eq

A1: 445-490 ppm CO2-eq


Post-SRES (max)

Post-SRES (min)

Eq

uil

ibri

um

glo

ba

l m

ea

n t

em

pera

ture

inc

rease

ove

r pre

ind

us

tria

l(°C

)

GHG concentration stabilization level (ppmv CO2-eq)Multigas and CO2 only studies combined

-5

0

5

10

15

20

25

30

35

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100


Post-SRES (max)

Post-SRES (min)

Eq

uili

bri

um

glo

bal

mea

n t

emp

erat

ure

incr

ease

ove

r p

rein

du

stri

al(°

C)


-5

0

5

10

15

20

25

30

35

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100


Post-SRES (max)

Post-SRES (min)

Eq

uili

bri

um

glo

bal

mea

n t

emp

erat

ure

incr

ease

ove

r p

rein

du

stri

al(°

C)


Source: IPCC WG3 SPM 2007

Range comes from alternative estimates of

climate sensitivity

Range comes from diferent models

Note lack of studies below 450ppmv-CO2-eq

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Copenhagen temperature target, Stern’s concentration range and “safe” and “feasible” concentration targets

-5

0

5

10

15

20

25

30

35

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100


Post-SRES (max)

Post-SRES (min)

Eq

uil

ibri

um

glo

ba

l m

ea

n t

em

pera

ture

inc

rease

ove

r pre

ind

us

tria

l(°C

)


-5

0

5

10

15

20

25

30

35

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100


Post-SRES (max)

Post-SRES (min)

Eq

uil

ibri

um

glo

ba

l m

ea

n t

em

pera

ture

inc

rease

ove

r pre

ind

us

tria

l(°C

)


Copenhagen Accordinterpretation: global

mean temperature increase at less than 2ºC

above pre-industrial level

Source: IPCC WG3 SPM 2007“feasible”

Stern 450-550

“safe”

where we are now!

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Targets to avoid “dangerous” climate change

• “dangerous” is an ethical and political issue• Target of 2ºC above pre-industrial is very stringent and requires

stabilisation below 450ppm CO2eq to have a 50% probability of being met– stabilisation below 400ppm CO2e is more likely to achieve less than

2˚C

• Stern, p. 284: “The current evidence suggests aiming for stabilisation somewhere within the range 450 - 550ppm CO2e. Anything higher would substantially increase risks of very harmful impacts..” – but costs of <450 are unreliable and may be small

• Most modelling scenarios have been for targets c 650ppm CO2eq (EMF19, EMF21). Innovation Modelling Comparison Project (IMCP) had one scenario around 550 CO2eq (450 CO2

only)– ADAM project assessed the 400ppm CO2e target (4 models)

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Implications for avoiding dangerous climate change

• To have a good probability of achieving <2ºC rise – CO2-eq concentrations have to be <450ppm CO2 eq (c/f c430

now)– global GHG emissions have to fall by >70% below baseline by

2050– technologies have to be developed to capture CO2

• Fossil-fuel GHG stocks cause damages and industrialized countries are responsible for most of current stocks– hence reduction in OECD of c90% below BAU/1990 by 2050

• Risks are asymmetric– so precaution suggests a zero-carbon economy as soon as

possible (without excessive costs)

• Eventually all countries & sectors have to decarbonize– not “How much?” but “When?” for each business and government – with a policy portfolio that is effective, efficient, equitable and

flexible

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Policies for global decarbonisation

• Policy portfolios (market-based, regulation, voluntary) suited to national conditions could be effective, efficient, equitable and flexible

• Market economies respond to price signals, hence the need for a global carbon price that will achieve net zero GHG emissions by an agreed date (2050?)

• Market and political forces will encourage wider cap-and-trade

• Technological standards and agreements support low-cost deployment of low-GHG processes and products

• Gains from co-ordination– +sum game and room for negotiation– climate change threatens long-term growth, so funding of mitigation

benefits all as well as being equitable– substantial demand-side low-GHG investment can utilise resources

otherwise wasted (construction downturn)

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What are the macro-economic costs by 2030 for different

stabilization levels? Stabilization

levels (ppm CO2-eq)

MedianGDP

reduction[1](%)

Range of GDP reduction [2]

(%)

Reduction of average annual

GDP growth rates [3]

(percentage points)

590-710 0.2 -0.6 – 1.2 < 0.06

535-590 0.6 0.2 – 2.5 <0.1

445-535[4] Not available

< 3 < 0.12

[1] This is global GDP based market exchange rates.[2] The median and the 10th and 90th percentile range of the analyzed data are given.[3] The calculation of the reduction of the annual growth rate is based on the average reduction during the period till 2030 that would result in the indicated GDP decrease in 2030.[4] The number of studies that report GDP results is relatively small and they generally use low baselines.

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3% maximum global cost by 2030

Most studies for stringent stabilization (categories A1 and A2) show costs less than 3%

Source: IPCC AR4, WG III Report 2007, Chapter 3, Figure 3.25 (a)

3% cost

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Illustration of the maximum 3% cost number

GDP without mitigation

GDP with stringent

mitigation e.g. 2ºC target

GDP

Time

80%

current

77%

~1 year2007 2030

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Summary: the costs of achieving the 2º C targetKey conclusion from IPCC AR4: not enough

studies on stringent mitigation have been done!Extrapolating from current studies: The macro-economic costs of the 2ºC target appear

to be negligible (even beneficial) for global GDP and welfare, provided policies are “well-

designed”• Equilibrium models (providing nearly all the cost

estimates) assume that mitigation will be costly, despite evidence from econometric models and business

• Low-cost, low-GHG technologies are likely to be developed both directly and through rising carbon prices

• But this requires international co-operation on allocation of burdens and benefits

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Conclusions for policy• 450ppmv CO2-eq is not stringent enough to avoid

dangerous climate change• A rising real carbon price is required of about

$100/tCO2 by 2020 (rising thereafter) to be on the safe side, e.g. by a trading scheme– the price should be guaranteed by government so as to

reduce the risks of investing in low-GHG technologies– a portfolio of supporting policies (regulation, ecotax

reform, information) reduces costs and accelerate change

• A zero-carbon economy appears feasible at negligible (but uncertain) macroeconomic costs, with high carbon prices and strong regulation– costs critically depend on international co-ordination

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Summary of IPCC AR4 on stringent climate change

mitigation• Latest CBA studies suggest that damages at the current stock of GHGs are unbounded (ethical discount rates and unlimited escalating damages and risks)

• AR4: there is not enough evidence from modelling studies for reliable costs of targets more stringent than 445-550 ppmv CO2-eq

• AR4 Literature suggests that global GHG reduction targets are required of at least 30% by 2020 and at least 80% by 2050 for 400-450ppmv CO2-eq by 2100

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Lack of studies of stringent mitigation (below 450ppmv CO2 eq by

2100) GDP cost by 2030

Results of studies for

445-535ppmv CO2eq

stabilization (categories A1 and A2)

Source: IPCC AR4, WG III Report 2007, Chapter 3, Figure 3.25 (a)

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The E3MG approach and the treatment of costs and benefits of

mitigation• Detailed, annual, dynamic, non-linear econometric

simulation model with database 1970-2002, projecting to 2100

• Improved forecasting performance in the short to medium run

• Aggregation over countries – our approach: 20 world regions, local market valuations

• Aggregation over time – not done, i.e. no discounting except for simulating business decisions

• Environmental benefits (e.g. less air pollution) – set aside as conventionally done in the literature

• Recycling of carbon tax and other government revenues – explicitly treated as lowering indirect taxes, not lump-sum

• Costs measure: %GDP, not price of permit or consumers’ expenditure

• Technology benefits (hybrid top-down bottom-up approach)– accelerated technological change with higher economic growth

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Design of measures implemented in E3MG

• Contribution to ADAM FP6 project (ADaptation And Mitigation strategies for climate change)

• Combines mitigation and technology policies for both carbon pricing and regulation

• Designed to give rise to economies of scale & economies of specialisation in the deployment of low C technologies

• Implemented in a cumulative manner (each component includes additional measures to the previous one)

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Measures implemented in E3MG for achieving 400ppm

CO2e (1)1)Carbon prices • auctioning for the energy sector & carbon taxes for

non-energy sectors• revenue recycling through reduction in indirect

taxes, and investment incentives for low-GHG measures in all main sectors

2)Subsidising low-C electricity technologies ($/kWh)• using part of the revenue from 100% auctioning• evenly spread across renewables and CCS• 40% from 2011 to 2030, dropping to 20% by 2040

and to 0% by 2050 3)Accelerated diffusion of CCS and electric plug-

in vehicles through technological agreements and regulations• all new coal-based power plants after 2020 to be fitted with

CCS• 30% of vehicle fleets to be electric by 2020

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Measures implemented in E3MG for achieving 400ppm CO2e (2)

4) Incentives for conversion to low-GHG production methods in energy-intensive sectors

5) Incentives for energy-efficiency investments in households

• 15% of the revenue recycled from the carbon tax

• improving efficiencies of existing domestic dwellings & appliances

• introducing new low-C dwellings & appliances

6) Accelerated increase in carbon prices

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E3MG: E3 Links

ECONOMYas in national

accounts

TECHNOLOGYspecifications &

costs

ENVIRONMENTALEMISSIONS

as in environmentalstatistics

ENERGYas in energy

statistics

damage to health and buildings

e.g. industrial emissions of SF6

funding R&D

pricesandactivity

investment

fuel usefuel prices and costs

fuel use

pollution-abatementequipment

fuel use

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Emission reductions pathways: baseline, 550ppm and 400ppm to

2100

0

2

4

6

8

10

12

14

16

18

20

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

GtC

pe

r ye

ar

(all a

nth

rop

og

en

ic s

ou

rce

s)

Base 550ppm 400ppm

Source: Terry Barker and Şerban Scrieciu (2010) “Modelling Low Climate Stabilisation with E3MG: Towards a ‘New Economics’ Approach to Simulating Energy-Environment-Economy System Dynamics” Energy Journal, 31(1).

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Global GDP and investment 2000-2100:

Baseline, 550ppm and 400ppm

0

50

100

150

200

250

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

GDP: trillion 2000 US$

0

10

20

30

40

50

60

70

80

90

Investments:trillion 2000 US$

Global GDP Base Global GDP 550ppm Global GDP 400ppm

Global Investment Base Global Investment 550ppm Global Investment 400ppm

C price: 100 US$ 2000 / tCO2 in 2020 and then staying constant in real terms

C price: 295 US$ 2000 / tCO2 in 2020 and then staying constant in real terms


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Annual changes in global GDP and investment cycles, 2000-

2100:550ppm and 400ppm stabilisation

scenarios

-6.50

-5.50

-4.50

-3.50

-2.50

-1.50

-0.50

0.50

1.50

2.50

3.50

4.50

5.50

6.50

2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

% annual change from Baseline

-6.50

-5.50

-4.50

-3.50

-2.50

-1.50

-0.50

0.50

1.50

2.50

3.50

4.50

5.50

6.50

% annual change from Baseline

% annual change in Global GDP from Base 550ppm

% annual change in Global GDP from Base 400ppm

% annual change in Global Investment from Base 550ppm

% annual change in Global Investment from Base 400ppm


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The importance of regulation and recycling in achieving the 400ppm

CO2-e target (by excluding electric cars or extra incentives for low-

carbon technology deployment)

400

500

600

700

800

900

1000

1100

1200

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

Cu

mu

lative

CO

2 e

mis

sio

ns

(all a

nth

rop

og

en

ic s

ou

rce

s),

GtC

550ppm target

"400" noecars target

"400" norev target

400ppm target

“400” noecars: no regulation for

electric vehicles

“400” norev: no recycling of

revenues for low-carbon power

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Electricity investment in context: global investment,

2000 $bn56 68 80 93 107 121 13884 98 113 128 143 159 178

180 233 288 342 397 457 523168 220 277 341 406 475 54756 69 83 98 114 133 154

168 214 263 316 372 435 507189 246 305 364 426 493 566141 177 216 256 297 343 391117 154 196 244 296 353 415135 169 205 241 277 319 364

169 219 274 333 396 466 546241 296 355 414 475 543 616231 300 375 448 522 602 685226 284 347 416 490 572 66349 61 75 90 107 127 149

74 93 112 133 155 178 206506 636 775 913 1077 1230 1400111 143 178 216 256 299 34692 117 140 162 184 208 225

485 627 787 958 1136 1334 1539

2404 3155 3973 4803 5634 6527 7479

Global investment, 2000 $bn

0

200

400

600

800

1000

1200

1400

42 D

wellin

gs

38 P

ublic

Adm

in.

26 D

istrib

utio

n

36 P

rof. S

erv

ices

29 L

and

32

37 O

ther B

us.

33 B

ankin

g &

40 H

ealth

&

27 R

eta

iling

41 M

isc.

1 A

gric

ultu

re e

tc

22 E

lectric

ity

25 C

onstru

ctio

n

39 E

ducatio

n

5 F

ood, D

rink &

28 H

ote

ls &

3 O

il & G

as e

tc

19 M

oto

r

2 C

oal

$b

n

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Examples of accelerated decarbonisation

• France’s move to nuclear power in the 1980s

• Copenhagen’s 25% reduction in CO2 emissions below 1990 levels

• Studies of 30% reduction in US CO2 emissions required for Kyoto ratification

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France: decarbonising electricity production from 50% thermal in 1980

to 10%in 1987

Source: http://www.eia.doe.gov/emeu/international/electricitygeneration.html

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Copenhagen’s 25% cut in per capita CO2 emissions by 2005 below 1990

levels• “Every citizen has reduced his input to

global warming from 7 tons to 4.9 tons, by 2.1 tons in fact compared to the 1990 figures.” … despite remarkable growth in the city … due to connecting the district heating system and generating stations to cleaner fuels, especially …natural gas.”

• “So, we dare to set an ambitious new goal of reducing CO2 emissions by a further 20% by 2015 compared to today (2005 figures). This means that by 2015 we will have reduced emissions by 40% compared to 1990.”

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US study of accelerated reductions in CO2 emissions

2010 2020number of years to adjust: 3 to 4 13

trade in emission permits: none Annex I noneAnnex I

CO2 change (%) -30.6 -18.4 -35.1 -23.9

GDP cost (incl co-benefits) (%) -1.2 -0.7 0.1 0.0

US Administration EIA study (1998) for Congress on effects of ratifying the Kyoto Protocol on the US economy, assuming action from 2006

Note: GDP cost allows for co-benefits not included in original study.Sources: US Energy Information Administration (EIA) (1998). Impacts of the Kyoto Protocol on U.S. Energy Markets and Economic Activity. Washington DC. Barker, T., Ekins, P. (2004) ‘The costs of Kyoto for the US economy’, The Energy Journal, Vol. 25 No. 3, 2004, pp.53-71.

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Conclusion (1): A portfolio of policies is needed for low-cost

mitigation• Both carbon prices and regulation is

required for 400ppmv CO2e by 2100 to be feasible at low cost

• Carbon pricing via emission trading and carbon taxes leads markets to choose low-cost options

• Regulation via carbon-efficiency standards for vehicles and power stations leads to increased investment in low-carbon technologies and reductions in costs

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Conclusion (2): Climate policy if well-designed leads to GDP gains

• Climate policies can lead to higher, more efficient and more productive investment– low-carbon technologies are more capital intensive

than fossil fuel technologies– potential for learning by doing is greater– market failures, as in “no regrets” options for

energy-saving in buildings, can be addressed

• Higher investment leads to multiplier effects, especially in times of recession, higher output and lower unemployment

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Conclusion (3): More stringent policies accelerate change and reduce costs

further• Decarbonisation of the global economy is

required over the next 50-70 years to make the achievement of the 2°C target likely

• All sectors will eventually have to become based on clean electricity or solar power

• The new technologies can develop with substantial economies of specialization and scale across the global economy with international cooperation of R&D and standards

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Thank you

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Memo: Relationship between $50/tCO2 and US fuel prices

2005base

Added costof $50/tCO2

$ $ %

Crude Oil ($/bbl) 60 22.4 37%

Regular Gasoline ($/gal) 2.39 0.48 20%

Heating Oil ($/gal) 2.34 0.53 23%

Wellhead Natural gas ($/tcf) 10.17 2.73 27%

Residential Natural gas ($/tcf) 15.3 2.75 18%

Utility Coal ($/short ton) 32.6 101.4 311%

Electricity (c/kWh) 9.6 3.23 34%

Source: Derived from Table ES.5, US CCSP, 2006, sourced in turn from Bradley et al. 1991, updated with U.S. average prices for the 4th quarter of 2005 as reported in DOE, 2006.Note: This table does not include any adjustments in producer prices due to changes in energy demands under stabilization.

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