Climate Policy

Modeling Uncertainty in Integrated Assessment of Climate Change: A Multimodel Comparison

Abstract: The economics of climate change involves a vast array of uncertainties, complicating our understanding of climate change. This study explores uncertainty in baseline trajectories using multiple integrated assessment models commonly used in climate policy development. The study examines model and parametric uncertainties for population, total factor productivity, and climate sensitivity. It estimates the probability distributions of key output variables, including CO2 concentrations, temperature, damages, and social cost of carbon (SCC). One key finding is that parametric uncertainty is more important than uncertainty in model structure. Our resulting distributions provide a useful input into climate policy discussions.

To avoid the most serious and permanent damage from climate change, from catastrophic sea-level rise to devastating droughts, and do so at the least cost, the world will need to reduce net human-caused carbon dioxide (CO₂) emissions to zero ASAP. Getting to net-zero emissions in a timely manner will require the development of technologies and policies aimed at decarbonizing human activities rapidly and economically, with ambition far exceeding that of the initial pledges of the Paris Agreement.

Handicapping the High-Stakes Race to Net-Zero

On first glance, it could be a tall order for Turkey to fulfill its Paris Agreement pledge, which targets a reduction in the nation’s greenhouse gas (GHG) emissions by 21 percent in 2030 below business-as-usual levels. Fossil fuels comprise nearly all of Turkey’s energy mix, and low-carbon options have not yet gained traction. Wind and solar accounts for about five percent of energy generation and nuclear power plants are only in the planning stages.

The price of the pledge
Incentivizing firm compliance with China’s national emissions trading system

When it launches in 2017, China's CO2 emissions trading system (ETS) will cover the largest CO2 emissions volume of any system to date and be among the very first to launch in a developing country. We evaluate the potential of an ETS to alter the emitting behavior of covered firms and to support the achievement of national CO2 intensity reduction targets at least cost. Specifically, we focus on two questions: (1) What factors have limited firms' past compliance with environmental policy in China, and (2) what can be done to strengthen compliance with China's national ETS? We argue that altering firm behavior will require a simultaneous effort to strengthen firms' compliance incentives through changes to national institutions - in particular, a strong legal foundation for the system, a nationally unified set of measurement, reporting, and verification requirements subject to independent scrutiny, and ongoing broader economic reforms to support system operation. It will also require signaling a sustained commitment to experimentation, evaluation, and modification of the system based on performance, given that system effectiveness will depend on expectations about its longevity and credibility, but will inevitably require adjustments. We illustrate the importance of these recommendations for firm compliance behavior by drawing on the experience of the Beijing pilot ETS (2013-2015). Given vast heterogeneity across provinces, special attention should be given to strengthening institutional foundations where they are least developed alongside the construction of a national ETS.

Keywords: Climate change, emissions trading system, firm compliance, China

Turkish Energy Sector Development and the Paris Agreement Goals: A CGE Model Assessment

In the Paris Agreement, Turkey pledged to reduce greenhouse gas (GHG) emissions by 21% by 2030 relative to business-as-usual (BAU). However, Turkey relies heavily on imported energy and fossil-intensive power generation. And despite significant wind and solar energy potential, only 5.1% of its total power is generated by wind and solar installations. Finally, although two nuclear power stations are planned, no nuclear capacity currently exists.

This study is based on an expectation that to fulfill its Paris Agreement pledge, Turkey will likely need to reduce its reliance on fossil-based energy and make additional investments in low-carbon energy sources—moves that may impact the nation’s GDP, electricity generation profiles and resulting carbon prices. To fully assess these impacts, the researchers develop a computable general equilibrium (CGE) model of the Turkish economy that combines macroeconomic representation of non-electric sectors with a detailed representation of the electricity sector. They analyze several scenarios to assess the impact of an emission trading scheme in Turkey: one including the planned nuclear development and renewable subsidy scheme (BAU), the other in which no nuclear technology is allowed (NoN).

The assessment shows that in 2030, without an emissions trading policy, the primary energy mix will consist mainly of oil, natural gas and coal. Under an emission trading scheme, however, coal-fired power generation vanishes by 2030 in both BAU and NoN due to the high cost of carbon. With nuclear (BAU), GHG emissions are 3.1% lower than NoN due to the resulting energy mix, allowing for a lower carbon price ($50/tCO2 in BAU compared to $70/tCO2 in NoN). These results suggest that fulfillment of Turkey’s Paris Agreement pledge may be possible at a modest economic cost of about 0.8–1% of GDP by 2030.

Turkish Energy Sector Development and the Paris Agreement Goals: A CGE Model Assessment

In the Paris Agreement, Turkey pledged to reduce greenhouse gas (GHG) emissions by 21% by 2030 relative to business-as-usual (BAU). However, Turkey relies heavily on imported energy and fossil-intensive power generation. And despite significant wind and solar energy potential, only 5.1% of its total power is generated by wind and solar installations. Finally, although two nuclear power stations are planned, no nuclear capacity currently exists.

This study is based on an expectation that to fulfill its Paris Agreement pledge, Turkey will likely need to reduce its reliance on fossil-based energy and make additional investments in low-carbon energy sources—moves that may impact the nation’s GDP, electricity generation profiles and resulting carbon prices. To fully assess these impacts, the researchers develop a computable general equilibrium (CGE) model of the Turkish economy that combines macroeconomic representation of non-electric sectors with a detailed representation of the electricity sector. They analyze several scenarios to assess the impact of an emission trading scheme in Turkey: one including the planned nuclear development and renewable subsidy scheme (BAU), the other in which no nuclear technology is allowed (NoN).

The assessment shows that in 2030, without an emissions trading policy, the primary energy mix will consist mainly of oil, natural gas and coal. Under an emission trading scheme, however, coal-fired power generation vanishes by 2030 in both BAU and NoN due to the high cost of carbon. With nuclear (BAU), GHG emissions are 3.1% lower than NoN due to the resulting energy mix, allowing for a lower carbon price ($50/tCO2 in BAU compared to $70/tCO2 in NoN). These results suggest that fulfillment of Turkey’s Paris Agreement pledge may be possible at a modest economic cost of about 0.8–1% of GDP by 2030.

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