Climate Policy

Empirical evidence and projections of carbon leakage: Some, but not too much, probably

A chapter by Justin Caron appears in Handbook on Trade Policy and Climate Change edited by Michael Jacob, Edward Elgar Publishing Ltd (2022). 

Abstract: The potential for policy-driven emissions reductions to “leak” to less regulated regions is a well-researched topic in climate change economics, though no clear conclusion regarding the likely magnitude of the problem has yet to emerge from the literature.

This chapter offers a broad overview of carbon leakage estimates, combining insights from various methodologies that existing meta-studies have so far reviewed separately: “simulation” studies providing ex-ante projections from complex economic models, and “estimation” studies that econometrically tease out ex-post evidence for leakage from existing carbon pricing schemes.

Combined with additional indirect evidence that trade frictions are generally strong relative to climate policy-induced energy price differentials, I conclude that the weight of evidence points to the conclusion of “some, but not too much” leakage: while specific sectors may be severely affected, estimated economy-wide leakage rates (of 10-30% on average) do not justify using it as an argument against climate policy.

The cost of CO2 transport and storage in global integrated assessment modeling

Abstract: Carbon capture and storage (CCS) is one of many critical tools to mitigate global climate change. Much analytic work has been dedicated to evaluating the cost and performance of various CO2 capture technologies, but less attention has been paid to evaluating the cost of CO2 transport and storage. This paper assesses the range of CO2 transport and storage costs and evaluates their impact on economy-wide modelling results of decarbonization pathways. Many integrated assessment modeling studies assume a combined cost for CO2 transport and storage that is uniform in all regions of the world, commonly estimated at $10/tCO2. Realistically, the cost of CO2 transport and storage is not fixed at $10/tCO2 and varies across geographic, geologic, and institutional settings. I surveyed the literature to identify key sources of variability in transport and storage costs and developed a method to quantify and incorporate these elements into a cost range. I find that onshore pipeline transport and storage costs vary from $4 to 45/tCO2 depending on key sources of variability including transport distance, scale (i.e. quantity of CO2 transported and stored), monitoring assumptions, reservoir geology, and transport cost variability such as pipeline capital costs. Using the MIT Economic Projection and Policy Analysis (EPPA) model, I examined the impact of variability in transport and storage costs by applying a range of uniform costs in all geographic regions in a future where global temperature rise is limited to 2°C. I then developed several modeling cases where transport and storage costs vary regionally. In these latter cases, global cumulative CO2 captured and stored through 2100 ranges from 290 to 377 Gt CO2, compared to 425 Gt CO2 when costs are assumed to be uniformly $10/t CO2 in all regions. I conclude that the widely used assumption of $10/tCO2 for the transport and storage of CO2 is reasonable in some regions, but not in others. Moreover, CCS deployment is more sensitive to transport and storage costs in some regions than others, particularly China. Several transport and storage options should be taken into account when modeling large-scale deployment of CCS in decarbonization pathways. However, cost data are scarce and there is still a significant amount of uncertainty and variability in available transport and storage costs.  

Hard-to-abate sectors: The role of industrial carbon capture and storage (CCS) in emission mitigation

Abstract: Carbon capture and storage (CCS) technology is an important option in the portfolio of emission mitigation solutions in scenarios that lead to deep reductions in greenhouse gas (GHG) emissions. We focus on CCS application in hard-to-abate sectors (cement industry, iron and steel, chemicals) and introduce industrial CCS options into the MIT Economic Projection and Policy Analysis (EPPA) model, a global multi-region multi-sector energy-economic model that provides a basis for the analysis of long-term energy deployment.

We use the EPPA model to explore the potential for industrial CCS in different parts of the world, under the assumptions that CCS is the only mitigation option for deep GHG emission reductions in industry and that negative emission options are not available for other sectors of the economy. We evaluate CCS deployment in a scenario that limits the increase in average global surface temperature to 2°C above preindustrial levels. When industrial CCS is not available, global costs of reaching the target are higher by 12% in 2075 and 71% in 2100 relative to the cost of achieving the policy with CCS.

Overall, industrial CCS enables continued growth in the use of energy-intensive goods along with large reductions in global and sectoral emissions. We find that in scenarios with stringent climate policy, CCS in the industry sector is a key mitigation option, and our approach provides a path to projecting the deployment of industrial CCS across industries and regions. 

Global Electrification of light-duty vehicles: Impacts of economics and climate policy

Abstract: We explore potential impacts of global decarbonization on trends in light-duty vehicle (LDV) fleets from 2020-2050. Using an economy-wide multi-region multi-sector model, we project that the global EV fleet will grow from 5 million vehicles in 2018 to about 95–105 million EVs by 2030, and 585–823 million EVs by 2050. At this level of market penetration, EVs would constitute one-third to one-half of the overall LDV fleet by 2050 in different scenarios.

China, USA, and Europe remain the largest markets in our study timeframe, but EVs are projected to grow in all regions reducing oil use and emissions. EVs play a role in reducing oil use, but a more substantial reduction in oil consumption comes from economy-wide carbon pricing. Absent more aggressive efforts to reduce carbon emissions, global oil consumption is not radically reduced in the next several decades because of increased demand from other sectors, such as for heavy-duty transport and non-fuel uses. use of increased demand from other sectors, such as for heavy-duty transport and non-fuel uses. Overall, we find that EVs, along with more efficient internal combustion engine vehicles (ICEVs), represent a viable opportunity among a set of options for reducing global carbon emissions at a reasonable cost.

 

Pages

Subscribe to Climate Policy