The Costs of Climate Change

Dr. Ottmar Edenhofer

International Conference on Climate Change

29 – 31 May 2007

Hong Kong Convention and Exhibition Centre

Cost-Benefit Approach to Climate Change Management:

AvoidedDamages

Climate Protection Benefits

Adaptation Costs

Mitigation Costs

=

- -

Tipping Points in the Earth System

Source: OECD (2003) and Kemfert (2004)

Economic Damages in % of GDP

-5

0

5

10

15

20

25

30

35

40

1 2 3 4 5 6

Temperature

in %

GD

P

Temperature Increase

In %

of

GD

P

Nordhaus

Natural Scientists

Kemfert-high

Stern Review

Environmental Scientists

Tol

Kemfert-low

Social Scientists

Source: OECD (2003) and Kemfert (2004)

Economic Damages in % of GDP

-5

0

5

10

15

20

25

30

35

40

1 2 3 4 5 6

Temperature

in %

GD

P

Temperature Increase

In %

of

GD

P

Nordhaus

Natural Scientists

Kemfert-high

Stern Review

Environmental Scientists

Tol

Kemfert-low

Social Scientists

Are there limits to adaptation?

Dutch cow ready for sea level rise?

Sou

rce:

Ede

nhof

er, L

essm

ann

et a

l. 20

06

Mitigation Costs with ITC

Cost-Benefit Analysis

Losses BAU: GWP - 0.84% / 8.5% (2175-2195)

Losses CBA: GWP - 0.8% / 1.8% (2050) ; Cons. - 1.2% / 3.3%(2050)

How to avoid dangerous climate change?

Business As Usual

2°CDangerous Climate Change

Year 2000 ConstantConcentrations

Mitigation and Adaptation

Mitigation

• Reduces GHG emissions.

• Potential benefits are global and expected after 30-50 yrs.

Adaptation• Reduces impacts per

warming scenario.

• Direct benefits are regional.

Mitigation and Adaptation are Complementary!

Glo

bal S

urfa

ce W

arm

ing

(°C

)

The Mitigation Gap‘Business as Usual’

EmissionsEmissionsReductionReduction

What is an Energy System?

Hard Coal: Global Distribution of Reserves & Resources

2,078 Gt = scaling factor 1

Global Reserves: 728 Gt

Source: BGR (2005), Reserves, Resources and Availability of Energy Resources 2005

Brown Coal: Global Distribution of Reserves & Resources

434 Gt = scaling factor 1

Global Reserves: 207 Gt

Source: BGR (2005), Reserves, Resources and Availability of Energy Resources 2005

Biomass Combined Heat-power

Natural Gas NGCC

Solar energy

Wind energy

Hydropower

Nuclear LWR Geothermal energy

Natural Gas NGCC with CCS

Coal PC

EJ/aElectricity production

(450 ppm Scenario)

EJ/aElectricity production

(450 ppm scenario with nuclear power phase-out)

Energy costs due to nuclear power phase-out will

increase by 4.6 %

Biomass Combined Heat-power

Natural Gas NGCC

Solar energy

Wind energy

Hydropower

Nuclear LWR Geothermal energy

Natural Gas NGCC with CCS

Coal PC

Default values for solar energy: learning rate 0,2 – floor costs 1000 $/kW

floor costs of solar energy ($/kW)

learning rate of solar energy

rela

tive

cost

incr

ease

(%

)

Additional costs due to nuclear phase-out

(mitigation costs with nuclear phase-out minus mitigation costs without nuclear phase-out )

New Territory ???

RCLC1 Cushing, Ok Crude Oil Future Contract 1 (Dollars per Barrel)

0

10

20

30

40

50

60

70

Fe

b 1

8, 1

98

2

Ju

l 0

3, 1

98

3

No

v 1

4, 1

98

4

Ma

r 2

9, 1

98

6

Au

g 1

1, 1

98

7

De

c 2

3, 1

98

8

Ma

y 0

7, 1

99

0

Se

p 1

9, 1

99

1

Ja

n 3

1, 1

99

3

Ju

n 1

5, 1

99

4

Oct 2

8, 1

99

5

Ma

r 1

1, 1

99

7

Ju

l 2

4, 1

99

8

De

c 0

6, 1

99

9

Ap

r 1

9, 2

00

1

Se

p 0

1, 2

00

2

Ja

n 1

4, 2

00

4

Ma

y 2

8, 2

00

5

Oct 1

0, 2

00

6

Pri

ce

(c

urr

en

t d

oll

ars

/bb

l)

In the history of oil use, we have never before experienced a prolonged period of ever-increasing oil prices

Futures Market

Oil prices at which energy sources are economically available

Fuel Price

$ per Barrel

Energy Sources in Transportation

$ 80 Biodiesel

$ 60 US corn-based ethanol

$ 50 Shale oil, Biomass-to-liquids

$ 40 Tar sands, Gas-to-liquids, Coal-to-liquids, Brazilian ethanol

$ 20 Conventional Oil

Source: The Economist, Apr 22nd 2006, 67

Primary Energy Secondary Energy

TransportFuels

Electricity

Hydrogen

FossilFuels

Biomass

NGCC, NGT, CHP + CCS

Fischer-Tropsch + CCS

IGCC, PC + CCS

Biodiesel & Bioethanol Production

CHP

Hydrogen Production + CCS

Carbon Sequestration

Coal

Natural Gas

Edenhofer/Lueken 2007

Biomass: Potential and its utilisation

Bioenergy Potential of Europe(15% of Primary Energy Consumption in 2030)

EEA, 2006

Comparative Advantage of Renewables

EUA Closing Prices, historical

32€

12€

8€

4€

0€

16€

20€

24€

28€

Dec 05

Apr 0

5

Jun 0

5

Aug 05

Oct 05

Dec 05

Feb 06

Feb 05

Apr 0

6

Jun 0

6

Aug 06

Oct 06

Dec 06

Feb 07

The graph shows daily bid-offer close EUA Dec 2007 prices from December 2004 (blue line) in the OTC market, and EUA Dec 2008 from Sept 2005 (red line). The data was updated 15 March 2007

Source: Point Carbon

A Bretton Woods Carbon Market

GlobalCO2

Market

CO2

Price

EU ETS

RGGI

California

(Global) Technology Initiative

Carbon Central Bank

EfficiencyRenewable Energy

CCS

CO2-Emissions