Regional Analysis

Energy Scenarios for East Asia, 2005-2025

We describe several scenarios for economic development and energy use in East Asia based on the MIT Emissions Prediction and Policy Analysis (EPPA) model, a computable general equilibrium model of the world economy. Historic indicators for Asian economic growth, energy use, and energy intensity are discussed. In the Baseline scenario, energy use in East Asia is projected to increase from around 120 EJ in 2005 to around 220 EJ in 2025. Alternative scenarios were developed to consider: (1) How fast might energy demand grow in East Asia and how does it depend on key uncertainties? (2) Do rising prices for energy affect growth in the region? (3) Would growth in East Asia have a substantial effect on world energy markets? (4) Would development of regional gas markets have substantial effects on energy use in the region and on gas markets in other regions? Briefly, we find that with more rapid economic growth, demand in East Asia could reach 430 EJ by 2025, almost twice the level in the Baseline; rising energy prices place a drag on growth of countries in the region of 0.2 to 0.6% per year; world crude oil markets could be substantially affected by demand growth in the region, with the price effect being as much as $25 per barrel in 2025; and development of regional gas markets could expand gas use in East Asia while leading to higher gas prices in Europe.

(Document available by request)

Energy Scenarios for East Asia: 2005-2025

Federal Tax Policy Towards Energy

On Aug. 8, 2005, President Bush signed the Energy Policy Act of 2005 (PL 109-58). This was the first major piece of energy legislation enacted since 1992 following five years of Congressional efforts to pass energy legislation. Among other things, the law contains tax incentives worth over $14 billion between 2005 and 2015. These incentives represent both pre-existing initiatives that the law extends as well as new initiatives.

In this paper I survey federal tax energy policy focusing both on programs that affect energy supply and demand. I briefly discuss the distributional and incentive impacts of many of these incentives. In particular, I make a rough calculation of the impact of tax incentives for domestic oil production on world oil supply and prices and find that the incentives for domestic production have negligible impact on world supply or prices despite the United States being the third largest oil producing country in the world.

Finally, I present results from a model of electricity pricing to assess the impact of the federal tax incentives directed at electricity generation. I find that nuclear power and renewable electricity sources benefit substantially from accelerated depreciation and that the production and investment tax credits make clean coal technologies cost competitive with pulverized coal and wind and biomass cost competitive with natural gas.

Foreign Direct Investment, Intra-organizational Proximity, and Technological Capability: The Case of China's Automobile Industry

This dissertation consists of three self-contained essays, each of which examines part of the causal link among inward/outward foreign direct investment (FDI), intra-organizational proximity, and in-house technology development performances.

The first essay explores why international joint ventures (IJVs)—an FDI-hosting arrangement often employed by the global South to strengthen foreign investors’ commitment to local economic development—may lead to only partial success in nurturing local technological capability. The experience of China’s passenger vehicle sector demonstrates that, in the existence of a substantial technological-capability gap between alliance partners, the IJV arrangement is likely to create a “passive” learning mode where foreign firms determine what, when, and how their local IJV partner firms should learn. Accordingly, learners using this IJV arrangement may be able to strengthen their production capability, where interests of both IJV partner firms often converge, but it leaves their project-execution and innovation capabilities largely undeveloped.

The second essay discusses how outward FDI can complement the IJV-based technological capability-building process, through an analysis of the Shanghai Automotive Industry Corporation (SAIC) case. When a firm is upgrading its technological capability, outward FDI can allow learners to have access to human-embedded skills and knowledge and other intellectual assets that are hardly accessible through the inward globalization strategy. Access to a wide range of external resources is a critical ingredient for improving technological capability, and it can also promote self-learning capability by encouraging subsequent learning-by-doing practices. Accordingly, outward FDI can augment “active” nature in the “passive” learning mode created by the inward globalization strategy.

The last essay examines why intra-organizational proximity matters for the technological catchup process, through a comparison of the Chinese Big Three automotive groups. As a firm’s asset-seeking inward/outward globalization strategy and domestic mergers are accompanied by substantial growth in their organizations and assets, intra-firm governance affects the internalization outcome of the acquired assets. The comparative analysis demonstrates that SAIC surpasses the First Automotive Works and the Dongfeng Motor Group in terms of in-house technology development partly because the former has managed its corporate growth within a tight geographical and relational space, compared to the latter. Intra-organizational proximity contributed to SAIC’s technological capability-building process by encouraging the sharing and integration of acquired resources across sub-operational units, thus creating group-wide synergy for the effective internalization of the resources.

NOTE: Only the abstract and introductory portion of the dissertation is provided in the PDF file linked below. For the complete dissertation manuscript, please contact the author at kmnam [at] mit.edu.

Growth and welfare losses from carbon emissions restrictions: A general equilibrium analysis for Egypt

The authors assess the economic effects in Egypt, under various conditions, of restricting carbon dioxide emissions. They use their model to assess the sensitivity of these effects to alternative specifications: changes in the level or timing of restrictions, changes in the rate of discount of future welfare, and the presence or absence of alternative technologies for generating power. They also analyze a constraint on accumulated emissions of carbon dioxide. Their time model has a time horizon of 100 years, with detailed accounting for every five years, so they can be specific about differences between short- and long-run effects and their implications. However, the results reported here cover only a 60-year period - and are intended only to compare the results of generic,"what if?"questions, not as forecasts. In that 60-year period, the model economy substantially depletes its hydrocarbon reserves, which are the only non produced resource. The authors find that welfare losses due to the imposition of annual restrictions on the rate of carbon dioxide emissions are substantial - ranging from 4.5 percent for a 20 percent reduction in annual carbon dioxide emissions to 22 percent for a 40 percent reduction. The effects of the annual emissions restrictions are relatively nonlinear. The timing of the restrictions is significant. Postponing them provides a longer period for adjustment and makes it possible to continue delivering consumption goods in a relatively unconstrained manner. The form of emissions restrictions is also important. Welfare losses are much higher when constraints are imposed on annual emissions rates rather than on total additions to the accumulation of greenhouse gases. Conventional backstop technologies for maintaining output and consumption - cogeneration, nuclear power, and gas-powered transport - are more significant than unconventional"renewable"technologies,which cannot compete for cost.

Biofuels, Climate Policy and the European Vehicle Fleet

We examine the effect of biofuels mandates and climate policy on the European vehicle fleet, considering the prospects for diesel and gasoline vehicles. We use the MIT Emissions Prediction and Policy Analysis (EPPA) model, which is a general equilibrium model of the world economy. We expand this model by explicitly introducing current generation biofuels, by accounting for stock turnover of the vehicle fleets and by disaggregating gasoline and diesel cars. We find that biofuels mandates alone do not substantially change the share of diesel cars in the total fleet given the current structure of fuel taxes and tariffs in Europe that favors diesel vehicles. Jointly implemented changes in fiscal policy, however, can reverse the trend toward more diesel vehicles. We find that harmonizing fuel taxes reduces the welfare cost associated with renewable fuel policy and lowers the share of diesel vehicles in the total fleet to 21% by 2030 compared to 25% in 2010. We also find that eliminating tariffs on biofuel imports, which under the existing regime favor biodiesel and impede sugar ethanol imports, is welfare-enhancing and brings about further substantial reductions in CO2 emissions.

Biofuels, Climate Policy, and the European Vehicle Fleet

We examine the effect of biofuels mandates and climate policy on the European vehicle fleet, in particular the prospects for diesel and gasoline vehicles. Our analysis is based on a dynamic computable general equilibrium model of the world economy which explicitly incorporates current generation biofuels, accounts for stock turnover of the vehicle fleets, disaggregates gasoline and diesel cars, and represents an advanced E85 vehicle. We find that the European vehicle fleet is robust to proposed biofuels mandates owing to an existing fuel tax and tariffs structure that favours diesel vehicles. Harmonising excise duties on diesel and gasoline or lowering tariffs on biofuel imports, however, is shown to reverse the trend toward more diesel vehicles and significantly alters the efficiency costs and environmental effectiveness of renewable fuel policies.

Black Carbon and West African Monsoon Precipitation: Observations and Simulations

We have recently investigated large-scale co-variability between aerosol and precipitation and other meteorological variables in the West African Monsoon (WAM) region using long term satellite observations and reanalysis data. In this study we compared the observational results to a global model simulation including only direct radiative forcing of black carbon (BC). From both observations and model simulations we found that in boreal cold seasons anomalously high African aerosols are associated with significant reductions in cloud amount, cloud top height, and surface precipitation. These results suggest that the observed precipitation reduction in the WAM region is caused by radiative effect of BC. The result also suggests that the BC effect on precipitation is nonlinear.

Canada and Alaska

About the book: This volume is a synthesis of the NASA funded work under the Land-Cover and Land-Use Change Program. Hundreds of scientists have worked for the past eight years to understand one of the most important forces that is changing our planet-human impacts on land cover, that is land use. Its contributions span the natural and the social sciences, and apply state-of-the-art techniques for understanding the earth: satellite remote sensing, geographic information systems, modeling, and advanced computing. It brings together detailed case studies, regional analyses, and globally scaled mapping efforts. This is the most organized effort made to understand the dominant force that has been responsible for changing the Earth’s biosphere.

Canada's Bitumen Industry Under CO2 Constraints

We investigate the effects of implementing CO2 emissions reduction policies on Canada’s oil sands industry, the largest of its kind in the world. The production of petroleum products from oils sands involves extraction of bitumen from the oil sands, upgrading it to a synthetic crude oil by adding lighter hydrocarbons, and then use of more conventional petroleum refining processes to create products such as gasoline and diesel. The relatively heavy crude generally requires the use of cracking and other advanced refinery operations to generate a product slate with substantial fractions of the higher value petroleum products such as diesel and gasoline. Each part of the process involves significant amounts of energy, and that contributes to a high level of CO2 emissions. We apply the MIT Emissions Prediction and Policy Analysis (EPPA) model, a computable general equilibrium model of the world economy, augmented to include detail on the oil sands production processes, including the possibility of carbon capture and storage (CCS). We find: (1) without climate policy annual Canadian bitumen production increases over 6-fold from 2005 to 2050; (2) with CO2 emissions caps implemented in developed countries, Canadian bitumen production drops by nearly 65% from the reference 6-fold increase and bitumen upgrading capacity moves to the developing countries; (3) with CO2 emissions caps implemented worldwide, the Canadian bitumen production becomes essentially non-viable even with CCS technology, at least through our 2050 horizon. The main reason for the demise of the oil sands industry with global CO2 policy is that the demand for oil worldwide drops substantially. CCS takes care of emissions from the oil sands production, upgrading, and refining processes, at a cost, but there is so little demand for petroleum products which still emit CO2 when used that it can be met with conventional oil resources that entail less CO2 emissions in the production process.

MIT Global Change

Regional Analysis

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