Transcript Slide 1

Integrated Assessment Models:
Modeling Mitigation (Abatement)
Economics 331b
Spring 2011
Week of March 28
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Agenda
This week (Monday and Wednesday):
- Review on term paper
- How to calculate SCC
- Final work on impacts
- Mitigation
Next Monday: Add last module to your little model:
mitigation.
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How to estimate SCC
1. Numerical derivative:
- Calculate PV income
- Recalculate PV income with 1 additional unit of E
- Take difference
- BE VERY CAREFUL WITH UNITS
2. Analytical:
- Have Damage=D=f(T); T = g(RF); RF=h(C); C=z(E).
- Therefore D’(E)=f’ g’ h’ z’
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Model estimate
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UNITS!!!
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National Academy Report on Abrupt Climate Change
“Illustration of difference between impacts with and without adaptation. The
upper line shows the impact of climate change with full adaptation where
farmers can change crops and irrigate…. The lower line shows the impacts
without adaptation, as is likely to occur with abrupt climate change. Note that …
the costs are likely to be lower with adaptation. We have also shown a break in
the no-adaptation line to reflect the potential for sharp threshold effects, such as
those due to floods or fire.” (National Academy, Abrupt Climate Change, 2002.)
Components of damages circa 2000
Damages in billions of 2000 $
Low
High
Market or near-market
Agriculture
Forest
Sea level rise
Electricity
Hurricanes
Water supply
Urban infrastructure
1.1
0.0
4.0
1.1
0.2
7.0
0.0
17.5
43.6
8.4
11.2
0.8
15.6
0.1
Non-market
Human amenity
Human mortality
Migration
Leisure
Air pollution
Species loss
0.0
9.4
0.5
0.0
3.5
4.0
12.0
37.4
1.0
1.7
59.8
8.4
Total
55.5
139.2
Percent of GDP
1.0
Source: IPCC, Second Assessment Report
2.5
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Damage summary: global
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Dots
from
Tol survey
Damages as percent of output
5
4
Line is Yale
DICE/RICE
model
3
2
1
0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
-1
-2
-3
Global mean temperature increase (°C)
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Summary of Impacts Estimates
Early studies contained a major surprise:
Modest impacts for gradual climate change, market impacts, highincome economies, next 50-100 years:
- Impact about 0 (+ 2) percent of output.
- Further studies confirmed this general result.
BUT, outside of this narrow finding, potential for big problems:
- many subtle thresholds and tipping elements
- abrupt climate change (“inevitable surprises”)
- many ecological disruptions (ocean carbonization, species loss, forest
wildfires, loss of terrestrial glaciers, snow packs, …)
- stress to small, topical, developing countries
- gradual coastal inundation of 1 – 10 meters over 1-5 centuries
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Now on to mitigation (abatement) costs
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Price of carbon emissions
The basic analytical structure
Marginal Cost
Pcarbon*
Social cost of carbon
0
Abatement*
Abatement
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Mitigation (abatement)
• We have examined the damage side.
• For a full cost-benefit analysis, we need the cost side.
• “Mitigation” involves analyses of the policies involving the
reduction of emissions CO2 and other GHGs
There are four major issues involved:
1. Projecting the emissions
2. Estimating the costs of emissions reductions
3. Designing policies to reduce emissions
4. Encouraging low-carbon technological change
• This set of tasks is generally much easier that impacts because we
have extensive information on impacts of energy taxes, regulations,
etc.
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1. Projecting emissions
For this we need an integrated assessment model.
As an example, the following shows the projected
emissions to 2105 in the Yale-RICE model and in several
other models examined in EMF-22.
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Projections CO2 emissions various models
(with no emissions reductions policies)
140
Global emissions Gt CO2
120
100
80
60
40
20
0
2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
EMF-22 and Yale-RICE model (with orange dots)
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Scientific consensus
Commonly heard.
But what is a scientific consensus?
Does scientific consensus = truth?
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2. Estimating Costs of Reducing Emissions
Analysts use different strategies to model abatement:
–
Some use econometric analysis (“top-down”)
–
Some use engineering/mathematical programming
estimates (“bottom up”)
–
Behavioral (uncharted territory … how to do this?)
Bottom up:
- Relies on individual technologies and processes from
engineering studies
- Aggregates these together to get a minimum cost
mitigation function
- Often has weak behavioral component.
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Example from passenger cars
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Example from passenger cars
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Estimated cost of improvement, compact car
Nat. Acad. Sci., Effectiveness and Impact of Corporate Average
Fuel Economy (CAFE) Standards,2002.
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Example from McKinzey Study
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Impact of Japanese events on mitigation costs?
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Nordhaus house survey
***
***
***
***
Feature
Air Sealup Seal air leaks
Duct Sealing Seal ducts
Insulation storage
Floor Insulation - Laundry Insulate to R 30
Floor Insulation - Rear Crawl
Duct pipe insulation
Door insulation (3)
13 Medium Window(s) Replace with double-pane, low-e
20 Small Window(s) Replace with double-pane, low-e
Attic insulation -- storage
Attic insulation -- original
Basement window panels
Stair window panels
Downstairs windows -- high e
ALL PROPOSED
Cost
Savings
$979
$360
$987
$349
$391
$113
$421
$117
$514
$111
$836
$175
$300
$35
$4,576
$394
$5,500
$350
$541
$32
$605
$31
$250
$10
$550
$8
$15,000
$150
$31,450
$2,235
Rate of return
37%
35%
29%
28%
22%
21%
12%
9%
6%
6%
5%
4%
1%
1%
7%
Nordhaus house survey
*** recommended by contractor
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2. Top-down (econometric)
Top down or econometric:
- Look for some kind of “experiment” in which energy
or carbon prices vary. Then estimate impact of higher
prices on carbon emissions:
- Some examples of CO2 taxes or European Trading
System.
- More useful are energy taxes.
- Some rely on production functions and simulations.
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Example of econometric (“top-down”)
approach to mitigation
[Numbers are calibrated to
Actual US data.]
Carbon price ($ per ton C reduction)
Assume that the demand for gasoline is
Q = Bp-λ
Supply of gasoline is perfectly elastic with tax τ:
p=q+ τ
CO2 emissions are proportional to consumption:
E = kQ
250
So we have:
200
E = kB -λ (q + τ)-λ =c (q + τ)-λ
150
100
50
0
0
2
4
6
8
10
12
Percentage reduction
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Further discussion
There has been a great deal of controversy about the
McKinsey study. The idea of “negative cost” emissions
reduction raises major conceptual and policy issues.
Most economic models rely on more econometric studies.
The next set of slides shows estimates based on the IPCC
Fourth Assessment Report survey of mitigation costs.
The bottom line is that the cost using the top-down
approaches are generally higher than bottom-up.
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Survey of multiple models from IPCC FAR
Source: IPCC, AR4, Mitigation.
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Summary of estimates
Source: IPCC, AR4, Mitigation, p. 77.
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Summary from IPCC
100
Top down
Carbon price (p/t C)
80
Bottom up
60
40
20
0
-20
0
10
20
30
40
Percentage reduction
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Derivation of mitigation cost function in RICE model
Start with a reduced-form cost function:
(1)
C = Qλμ
where C = mitigation cost, Q = GDP, μ = emissions control rate,
λ,  are parameters.
Take the derivative w.r.t. emissions and substitute σ = E0 /Q
(2)
dC/dE = MC emissions reductions
= Qλβμ-1[dμ/dE] = λβμ-1/σ
Note that MC(0) = 0; MC(1) = λβ/σ = price of backstop
technology*; and C/Q = λ with zero emissions.
*”Backstop technology” is technology at which get 100 emissions
reduction (say solar/nuclear/fusion/wind for everything).
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What are your views on top down v. bottom up?
There is a very lively controversy about the role of
"negative cost" mitigation. The McKinsey report
(Reducing US Greenhouse Emissions, p. xiii) has a
very substantial number of such mitigation
possibilities. Other modelers are sharply critical of
the MK report and believe that (aside from
external costs) there are very few negative cost
options. You should think about this and have
some pros and cons (for final exam?).
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