With federal policies to curb greenhouse gas emissions in the U.S. stagnating, California has taken action on its own. We estimate the impact of California’s cap-and-trade program on the leakage of emissions to other regions using a calibrated general equilibrium model. Sub-national policies can lead to high leakage rates as state economies are generally closely connected to other economies, including integration of electricity markets. Measures that will prevent leakage from California’s cap-and-trade program include requiring permits to be surrendered for emissions embodied in imported electricity and legislation banning “resource shuffling”. Under a cap-and-trade policy without measures to reduce leakage, the price of emission permits is $12 per ton of CO2 and emissions in other regions increase by 46% of the reduction in emissions in California. When imported electricity is included in the program and resource shuffling is banned, the carbon price is $65, there is negative leakage to regions exporting electricity to California, positive leakage to other regions and the overall leakage rate is 2%. We conclude that although there is potential for large increases in emissions elsewhere due to California’s cap-and-trade policy, enforcement of requirements for imported electricity will be effective at curtailing leakage.

In the negotiations of the United Nations Framework Convention on Climate Change (UNFCCC), new market mechanisms are proposed to involve Non-Annex I countries in the carbon markets developed by Annex I countries, beyond their current involvement through the Clean Development Mechanism (CDM). Sectoral trading is one such mechanism. It would consist of coupling one economic sector of a Non-Annex I country, e.g., the Chinese electricity sector, with the carbon market of some Annex I countries, e.g., the European Union Emission Trading Scheme (EU ETS). Previous research analyzed the potential impacts of such a mechanism and concluded that a limit would likely be set on the amount of carbon permits that could be imported from the non-Annex I country to the Annex I carbon market, should such a mechanism come into effect. This paper analyzes the impact of limited trading in carbon permits between the EU ETS and Chinese electricity sector when the latter is constrained by a 10% emissions reduction target below business as usual by 2030. The limit on the amount of Chinese carbon permits that could be sold into the European carbon market is modeled through the introduction of a trade certificate system. The analysis employs the MIT Emissions Prediction and Policy Analysis (EPPA) model and takes into account the banking–borrowing of allowances and the inclusion of aviation emissions in the EU ETS. We find that if the amount of permits that can be imported from China to Europe is 10% of the total amount of European allowances, the European carbon price decreases by 34%, while it decreases by 74 % when sectoral trading is not limited. As a consequence, limited sectoral trading does not reverse the changes initiated in the European electricity sector as much as unlimited sectoral trading would. We also observe that international leakage and leakage to non-electricity sectors in China are lower under limited sectoral trading, thus achieving more emissions reductions at the aggregate level. Finally, we find that, if China can capture the rents due to the limit on sectoral trading, it is possible to find a limit that makes both regions better off relative to when there is no international trade in carbon permits.

We use the global 3-D chemical transport model GEOS-Chem to simulate long-range atmospheric transport of polycyclic aromatic hydrocarbons (PAHs). To evaluate the model’s ability to simulate PAHs with different volatilities, we conduct analyses for phenanthrene (PHE), pyrene (PYR), and benzo[a]pyrene (BaP). GEOS-Chem captures observed seasonal trends with no statistically significant difference between simulated and measured mean annual concentrations. GEOS-Chem also captures variability in observed concentrations at nonurban sites (r = 0.64, 0.72, and 0.74, for PHE, PYR, and BaP). Sensitivity simulations suggest snow/ice scavenging is important for gas-phase PAHs, and on-particle oxidation and temperature-dependency of gas-particle partitioning have greater effects on transport than irreversible partitioning or increased particle concentrations. GEOS-Chem estimates mean atmospheric lifetimes of <1 day for all three PAHs. Though corresponding half-lives are lower than the 2-day screening criterion for international policy action, we simulate concentrations at the high-Arctic station of Spitsbergen within four times observed concentrations with strong correlation (r = 0.70, 0.68, and 0.70 for PHE, PYR, and BaP). European and Russian emissions combined account for ∼80% of episodic high-concentration events at Spitsbergen.

© 2012 American Chemical Society

This thesis addresses the question of how to maximize the value of energy capital projects in light of the various risks faced by these projects. The risks can be categorized as exogenous risks (not in control of involved entities) and endogenous risks (arising from sub-optimal decisions by involved entities). A dominant reason for poor project performance is the endogenous risks associated with weak incentives to deliver optimal project outcomes. A key objective of this research is to illustrate that risk-sharing through contracts is central to incentivize the involved entities to maximize overall project value.

The thesis presents a risk management framework for energy capital projects that accounts for both exogenous risks and endogenous risks to evaluate the optimal risk management strategies. This work focuses on a carbon capture and storage project (CCS) with enhanced oil recovery (EOR). CCS is projected to play a key role in reducing the global CO2 emissions. However, the actual deployment of CCS is likely to be lower than projected because of the various risks and uncertainties involved. The analysis of CCS-EOR projects presented in this thesis will help encourage the commercial deployment of CCS by identifying the optimal risk management strategies. This work analyzes the impact of the exogenous risks (market risks, geological uncertainty) on the value of the CCS-EOR project, and evaluates the optimal contingent decisions. Endogenous risks arise from the involvement of multiple entities in the CCS-EOR project; this thesis evaluates alternate CO2 delivery contracts in terms of incentives offered to the individual entities to make the optimal contingent decisions.

Key findings from this work illustrate that the final project value depends on both the evolution of exogenous risk factors and on the endogenous risks associated with response of the entities to change in the risk factors. The results demonstrate that contractual risk-sharing influences decision-making and thus affects project value. For example, weak risk-sharing such as in fixed price CO2-EOR contracts leads to a high likelihood of sub-optimal decision-making, and the resulting losses can be large enough to affect investment and project continuity decisions. This work aims to inform decision-makers in capital projects of the importance of considering strong contractual risk-sharing structures as part of the risk management process to maximize project value.