JP

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.

Cap and Trade Policies in the Presence of Monopoly and Distortionary Taxation

We extend an analytical general equilibrium model of environmental policy with pre-existing labor tax distortions to include pre-existing monopoly power as well. We show that the existence of monopoly power has two offsetting effects on welfare. First, the environmental policy reduces monopoly profits, and the negative effect on income increases labor supply in a way that partially offsets the pre-existing labor supply distortion. Second, environmental policy raises prices, so interaction with the pre-existing monopoly distortion further exacerbates the labor supply distortion. This second effect is larger, for reasonable parameter values, so the existence of monopoly reduces the welfare gain (or increases the loss) from environmental restrictions.

Capture-ready coal plants - options, technologies and economics

This paper summarizes the spectrum of options that can be employed during the initial design and construction of pulverized coal (PC), and integrated gasification and combined cycle (IGCC) plants to reduce the capital costs and energy losses associated with retrofitting for CO2 capture at some later time in the future. It also estimates lifetime (40 year) net present value (NPV) costs of plants with differing levels of pre-investment for CO2 capture under a wide range of CO2 price scenarios. Three scenarios are evaluated—a baseline supercritical PC plant, a baseline IGCC plant and an IGCC plant with pre-investment for capture. This analysis evaluates each technology option under a range of CO2 price scenarios and determines the optimum year of retrofit, if any. The results of the analysis show that a baseline PC plant is the most economical choice under low CO2 prices, and IGCC plants are preferable at higher CO2 prices (e.g., an initial price of about $22/t CO2 starting in 2015 and growing at 2%/year). Little difference is seen in the lifetime NPV costs between the IGCC plants with and without pre-investment for CO2 capture. This paper also examines the impact of technology choice on lifetime CO2 emissions. The difference in lifetime emissions become significant only under mid-estimate CO2 price scenarios (roughly between $20 and 40/t CO2) where IGCC plants will retrofit sooner than a PC plant.

© 2007 Elsevier Ltd

Carbon Cycle Variability at Bermuda and in the North Atlantic Subtropical Gyre

Progress in understanding the carbon cycle and its variability require us to take full advantage of both imperfect numerical models and limited data. Timeseries observations are crucial because they reveal carbon cycle variability in time, but do not directly allow study of spatial structures. Coupled physical-biogeochemical models estimate both spatial and temporal variability, but are imperfect representations of the real world. In this paper, we report on a new physical-biogeochemical model that is able to capture much of the observed carbon cycle variability from 1983 to 2005 at Bermuda (Bates, 2007). Preliminary results suggest that sea surface temperature at Bermuda has been stable since 1984 due to horizontal advection balancing decadal timescale warming and cooling trends in the local atmospheric forcing. The result is that temperature-driven pCO2 trends have been negligible. There is an increasing trend in surface ocean pCO2 driven by increasing atmospheric pCO2, and DIC anomalies due to changing vertical mixing also strongly influence surface ocean pCO2. Following detailed model-data comparisons, we use the model to consider the predictive power of timeseries observations at Bermuda for the rest of the subtropical gyre.

Carbon cycling in extratropical terrestrial ecosystems of the Northern Hemisphere during the 20th Century: A modeling analysis of the influences of soil thermal dynamics

There is substantial evidence that soil thermal dynamics are changing in terrestrial ecosystems of the Northern Hemisphere and that these dynamics have implications for the exchange of carbon between terrestrial ecosystems and the atmosphere. To date, large-scale biogeochemical models have been slow to incorporate the effects of soil thermal dynamics on processes that affect carbon exchange with the atmosphere. In this study we incorporated a soil thermal module (STM), appropriate to both permafrost and non-permafrost soils, into a large-scale ecosystem model, version 5.0 of the Terrestrial Ecosystem Model (TEM). We then compared observed regional and seasonal patterns of atmospheric CO2 to simulations of carbon dynamics for terrestrial ecosystems north of 30°N between TEM 5.0 and an earlier version of TEM (version 4.2) that lacked a STM. The timing of the draw-down of atmospheric CO2 at the start of the growing season and the degree of draw-down during the growing season were substantially improved by the consideration of soil thermal dynamics. Both versions of TEM indicate that climate variability and change promoted the loss of carbon from temperate ecosystems during the first half of the 20th century, and promoted carbon storage during the second half of the century. The results of the simulations by TEM suggest that land-use change in temperate latitudes (30–60°N) plays a stronger role than climate change in driving trends for increased uptake of carbon in extratropical terrestrial ecosystems (30–90°N) during recent decades. In the 1980s the TEM 5.0 simulation estimated that extratropical terrestrial ecosystems stored 0.55 Pg C yr−1, with 0.24 Pg C yr−1 in North America and 0.31 Pg C yr−1 in northern Eurasia. From 1990 through 1995 the model simulated that these ecosystems stored 0.90 Pg C yr−1, with 0.27 Pg C yr−1 stored in North America and 0.63 Pg C yr−1 stored in northern Eurasia. Thus, in comparison to the 1980s, simulated net carbon storage in the 1990s was enhanced by an additional 0.35 Pg C yr−1 in extratropical terrestrial ecosystems, with most of the additional storage in northern Eurasia. The carbon storage simulated by TEM 5.0 in the 1980s and 1990s was lower than estimates based on other methodologies, including estimates by atmospheric inversion models and remote sensing and inventory analyses. This suggests that other issues besides the role of soil thermal dynamics may be responsible, in part, for the temporal and spatial dynamics of carbon storage of extratropical terrestrial ecosystems. In conclusion, the consideration of soil thermal dynamics and terrestrial cryospheric processes in modeling the global carbon cycle has helped to reduce biases in the simulation of the seasonality of carbon dynamics of extratropical terrestrial ecosystems. This progress should lead to an enhanced ability to clarify the role of other issues that influence carbon dynamics in terrestrial regions that experience seasonal freezing and thawing of soil.

© 2003 Blackwell Munksgaard

Carbon dioxide and oxygen fluxes in the Southern Ocean: mechanisms for interannual variability

We analyze the variability of air-sea fluxes of carbon dioxide and oxygen in the Southern Ocean during the period 1993-2004, in a biogeochemical and physical simulation of the global ocean. Our results suggest that ENSO and the Southern Annular Mode are of comparable significance in driving interannual variability; both climatic indices are associated with surface heat fluxes, which in turn control the mixed-layer depth variability in the model. Because carbon-rich, oxygen-poor waters are entrained into the mixed layer during winter convection episodes, soluble gas fluxes are correlated with changes in entrainment. We adopt a Lagrangian view of tracers propagating along the Antarctic Circumpolar Current to highlight the importance of convective mixing in inducing anomalous air-sea fluxes of carbon dioxide and oxygen. The idealized Lagrangian model captures the principal features of the variability simulated by the more complex model. Distinct spatial and temporal patterns arise from the different equilibration timescales of the two gases.

Carbon Dioxide and Oxygen Fluxes in the Southern Ocean: Mechanisms for Interannual Variability

We analyze the variability of air-sea fluxes of carbon dioxide and oxygen in the Southern Ocean during the period 1993–2003 in a biogeochemical and physical simulation of the global ocean. Our results suggest that the nonseasonal variability is primarily driven by changes in entrainment of carbon-rich, oxygen-poor waters into the mixed layer during winter convection episodes. The Southern Annular Mode (SAM), known to impact the variability of air-sea fluxes of carbon dioxide, is also found to affect oxygen fluxes. We find that El Niño–Southern Oscillation (ENSO) also plays an important role in generating interannual variability in air-sea fluxes of carbon and oxygen. Anomalies driven by SAM and ENSO constitute a significant fraction of the simulated variability; the two climate indices are associated with surface heat fluxes, which control the modeled mixed layer depth variability. We adopt a Lagrangian view of tracers advected along the Antarctic Circumpolar Current (ACC) to highlight the importance of convective mixing in inducing anomalous air-sea fluxes of carbon dioxide and oxygen. The idealized Lagrangian model captures the principal features of the variability simulated by the more complex model, suggesting that knowledge of entrainment, temperature, and mean geostrophic flow in the mixed layer is sufficient to obtain a first-order description of the large-scale variability in air-sea transfer of soluble gases. Distinct spatial and temporal patterns arise from the different equilibration timescales of the two gases.

© 2007 American Geophysical Union

Carbon Dioxide Capture from Coal-Fired Power Plants: A Real Options Analysis

Investments in three coal-fired power generation technologies are valued using the "real options" valuation methodology in an uncertain carbon dioxide (CO2) price environment. The technologies evaluated are pulverized coal (PC), integrated coal gasification combined cycle (baseline IGCC), and IGCC with pre-investments that make future retrofit for CO2 capture less expensive (pre-investment IGCC). All coal-fired power plants can be retrofitted to capture CO2 and can be considered "capture-capable", even though the cost and technical difficulty to retrofit may vary greatly. However, initial design and investment that take into consideration such future retrofit, makes the transition easier and less expensive to accomplish. Plants that have such an initial design can be considered to be "capture-ready". Pre-investment IGCC can be considered to be "capture-ready" in comparison to PC and baseline IGCC on this basis. Furthermore, baseline IGCC could be taken as "capture-ready" in comparison to PC. Cash flow models for specific cases of these three technologies were developed based on literature studies. The problem was formulated such that CO2 price is the only uncertain cash flow variable. All cases were designed to have a constant net electric output before and after CO2 retrofit. As a result, electricity price uncertainty had no differential impact on the competitive positions of the different technologies. While coal price was taken to be constant, sensitivity analysis were conducted to show the impact of varying coal prices. Investment valuation was done using the "real options" approach.
(cont.) This approach combines (i) Market Based Valuation (MBV) to valuing cash flow uncertainty, with (ii) Dynamic quantitative modeling of uncertainty, which helps model dynamic retrofit decision making. The thesis addresses three research questions: (i) What is the economic value of temporal flexibility in making the decision to retrofit CO2 capture equipment? (ii) How does the choice of valuation methodology (DCF v. MBV) impact the investment decision to become "capture-ready"? (iii) Among the coal-fired power plant technologies, which should a firm choose to invest in, given an uncertain CO2 policy? What are the economic factors that influence this choice? The answers to the research questions strongly depend on the input assumptions to the cash flow and CO2 price models, and the choice of representative cases of the technologies. For the specific cases analyzed in this thesis, it was found that investing in "capture-ready" power plants was not economically attractive.

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