Energy Transition

The Future of Natural Gas in China: Effects of Pricing Reform and Climate Policy

China has a goal of reducing carbon emissions. At the same time, China is currently targeting an increase in natural gas consumption as a part of broader national strategies to reduce the environmental (air pollution) impacts of the nation’s energy system, which at present is still heavily reliant on coal. Natural gas is also being promoted in residential sector as a way to improve living standards.

Chinese policy makers have recently launched nationwide gas pricing reform that links the natural gas price to oil prices to address natural gas supply shortages. My analysis of the pricing reform shows that it leads to a better predictability and transparency than the previous pricing regime. The reform also increased natural gas price that incentivized gas suppliers to produce and import more gas. However, there are also some limitations of the reform. First, it creates biased incentives that favor suppliers. Second, natural gas and oil have different supply and demand patterns and linking natural gas price to oil price may create distortions for natural gas use. The Chinese government should support a market-based natural gas pricing system because it will establish a better resource allocation system and improve welfare of China.

To assess natural gas scenarios up to 2050, I use the EPPA model, which is a global energy-economic model where China is represented as a separate region. Based on my updates to the EPPA model to represent China’s energy system and cost of technologies, three main policy scenarios are explored: the reference scenario, the cap-and-trade policy scenario, and the integrated policy scenario that coordinates the natural gas subsidy with economy-wide emission constraints.

The results show that a cap-and-trade policy will reduce natural gas consumption while enabling China to achieve its climate goals. The integrated policy uses a part of the carbon revenue obtained from the cap-and-trade system and promotes natural gas consumption. The integrated policy results in a further reduction in coal use relative to the cap-and-trade policy case. Both the climate objective and the natural gas promotion objective can be achieved with the integrated policy. The integrated policy has a very moderate welfare cost while leading to a reduction in air pollution. The results are tested for their sensitivity to excluding the household sector from the cap-and-trade scheme, the cost of natural gas-based power generation, the substitutability of fuels in final consumption, and the level of nuclear power generation in China.

The Impact of Oil Prices on Bioenergy, Emissions and Land Use

We evaluate how alternative future oil prices will influence the penetration of biofuels, energy production, greenhouse gas (GHG) emissions, land use and other outcomes. Our analysis employs a global economy wide model and simulates alternative oil prices out to 2050 with and without a price on GHG emissions. In one case considered, based on estimates of available resources, technological progress and energy demand, the reference oil price rises to $124 by 2050. Other cases separately consider constant reference oil prices of $50, $75 and $100, which are targeted by adjusting the quantity of oil resources. In our simulations, higher oil prices lead to more biofuel production, more land being used for bioenergy crops, and fewer GHG emissions. Reducing oil resources to simulate higher oil prices has a strong income effect, so decreased food demand under higher oil prices results in an increase in land allocated to natural forests. We also find that introducing a carbon price reduces the differences in oil use and GHG emissions across oil price cases.

The Global Energy, CO2 Emissions, and Economic Impact of Vehicle Fuel Economy Standards

Fuel economy standards for new light-duty passenger vehicles have recently been adopted or tightened in many nations. Using a global computable general equilibrium (CGE) model, we analyse the combined effect of existing and accelerated national and regional fuel economy standards on demand for petroleum-based fuels, CO2 emissions, and economic cost, and compare the results to a carbon pricing scenario with identical emissions reductions. We find that fuel economy standards are less cost-effective than a carbon price, with year-on-year consumption loss rising to 10 per cent of global GDP in 2050 under fuel economy standards, compared with 6 per cent under carbon pricing.

© 2015 JTEP

The Impact of Water Scarcity on Food, Bioenergy and Deforestation

We evaluate the impact of explicitly representing irrigated land and water scarcity in an economy"‘wide model on food prices, bioenergy production and deforestation both with and without a global carbon policy. The analysis develops supply functions of irrigable land from a water resource model resolved at 282 river basins and applies them within a global economy-wide model of energy and food production, land-use change and greenhouse gas emissions. The irrigable land supply curves are built on basin-level estimates of water availability, and the costs of improving irrigation efficiency and increasing water storage, and include other water requirements within each basin. The analysis reveals two key findings. First, explicitly representing irrigated land at has a small impact on food, bioenergy and deforestation outcomes. This is because this modification allows more flexibility in the expansion of crop land (i.e. irrigated and rainfed land can expand in different proportions) relative to when a single type of crop land is represented, which counters the effect of rising marginal costs for the expansion of irrigated land. Second, due to endogenous irrigation and storage responses, changes in water availability have small impacts on food prices, bioenergy production, land-use change and the overall economy, even with large scale (~150 exajoules) bioenergy production.

The feasibility, costs, and environmental implications of large-scale biomass energy

What are the feasibility, costs, and environmental implications of large-scale bioenegry? We investigate this question by developing a detailed representation of bioenergy in a global economy-wide model. We develop a scenario with a global carbon dioxide price, applied to all anthropogenic emissions except those from land use change, that rises from $25 per metric ton in 2015 to $99 in 2050. This creates market conditions favorable to biomass energy, resulting in global non-traditional bioenergy production of ~ 150 exajoules (EJ) in 2050. By comparison, in 2010, global energy production was primarily from coal (138 EJ), oil (171 EJ), and gas (106 EJ). With this policy, 2050 emissions are 42% less in our Base Policy case than our Reference case, although extending the scope of the carbon price to include emissions from land use change would reduce 2050 emissions by 52% relative to the same baseline. Our results from various policy scenarios show that lignocellulosic (LC) ethanol may become the major form of bioenergy, if its production costs fall by amounts predicted in a recent survey and ethanol blending constraints disappear by 2030; however, if its costs remain higher than expected or the ethanol blend wall continues to bind, bioelectricity and bioheat may prevail. Higher LC ethanol costs may also result in the expanded production of first-generation biofuels (ethanol from sugarcane and corn) so that they remain in the fuel mix through 2050. Deforestation occurs if emissions from land use change are not priced, although the availability of biomass residues and improvements in crop yields and conversion efficiencies mitigate pressure on land markets. As regions are linked via international agricultural markets, irrespective of the location of bioenergy production, natural forest decreases are largest in regions with the lowest barriers to deforestation. In 2050, the combination of carbon price and bioenergy production increases food prices by 3.2%–5.2%, with bioenergy accounting for 1.3%–3.5%.

© 2015 the authors

The impact of climate change on wind and solar resources in southern Africa

The mitigation of potential climate change while sustaining energy resources requires global attention and cooperation. Among the numerous strategies to reduce Green House Gas (GHG) emissions is to decommission carbon intensive electricity production while increase the deployment of renewable energy technologies – such as wind and solar power generation. Yet the generation capacity, availability, and intermittency of these renewable energy sources are strongly climate dependent – and may also shift due to unavoidable human-induced change. In this study, we present a method, based on previous studies, that estimates the risk of climate-change on wind and solar resource potential. The assessment combines the risk-based climate projections from the Integrated Global Systems Model (IGSM), which considers emissions and global climate sensitivity uncertainty, with more regionally detailed climate information from 8 GCMs available from the Coupled Model Intercomparison Project phase 3 (CMIP-3). Southern Africa, specifically those in the Southern African Development Countries (SADC), is used as a case study. We find a median change close to zero by 2050 in the long-term mean of both wind speed and Global Horizontal Irradiance (GHI), both used as indicators of changes in electricity production potential. Although the extreme possibilities range from about −15% to +15% change, these are associated with low probability. The most prominent effect of a modest climate mitigation policy is seen in the doubled likelihood of the mode of the distribution of wind power change. This increased likelihood is made at the expense of decreased likelihood in the large changes of the distribution, but these trade-offs with the more extreme likelihoods are not symmetric with respect to the modal change.

© 2015 the authors

The Impact of Climate Policy on Carbon Capture and Storage Deployment in China

Carbon capture and storage (CCS) from coal combustion is widely viewed as an important approach for China’s carbon dioxide (CO2) emission mitigation, but the pace of its development is still fairly slow. In addition to the technological and economic uncertainties of CCS, lack of strong policy incentive is another main reason for the wide gap between early expectations and the actual progress towards its demonstration and commercialization. China’s mitigation scenario and targets are crucial to long-term development of CCS. In this research, impacts of CCS on energy and CO2 emissions are evaluated under two mitigation scenarios reflecting different policy effort levels for China using the China-in-Global Energy Model (C-GEM). Results indicate that with CCS applications in the power sector China can achieve an added emissions reduction of 0.3 to 0.6 Gigatons CO2 (GtCO2) in 2050 at the same level of carbon taxes respectively in the two mitigation scenarios. Under the more ambitious mitigation scenario, approximately 56% of China’s fossil fuel fired power plants will have CCS installed, and CO2 emission amounting to 1.4 GtCO2 will be captured in 2050. A carbon price not lower than $35/tCO2 appears to be necessary for the large-scale application of CCS in the power sector, indicating the vital role of policy in the deployment of CCS in China’s power sector.

The Influence of Gas-to-Liquids and Natural Gas Production Technology Penetration on the Crude Oil-Natural Gas Price Relationship

The paper examines conditions under which gas-to-liquids (GTL) technology penetration shifts the crude oil-natural gas price ratio. Technologies that enable direct substitution across fuels, as GTL does, may constrain the price ratio within certain bounds. We analyze the forecasted evolution of the crude oil-natural gas price ratio over the next several decades under alternative assumptions about the availability and cost of GTL and its natural gas feedstock. We do this using a computable general equilibrium model of the global economy with a focus on the refinery sector in the U.S. Absent GTL, a base case forecast of global economic growth over the next few decades produces dramatic increases in the oil-natural gas price ratio. This is because there is a more limited supply of low-cost crude oil resources than natural gas resources. The availability of GTL at conventional forecasts of cost and efficiency does not materially change the picture because it is too expensive to enhance direct competition between the two as fuels in the transportation sector. GTL only modulates the increasing oil-gas price ratio if both (i) natural gas is much cheaper to produce, and (ii) GTL is less costly and more efficient than conventional forecasts.

The Value of Electricity Storage under Large-Scale Penetration of Renewable Energy: a Hybrid Modeling Approach

Due to the physics of electricity, and the current high costs of storage technologies, electricity generation and demand need to be instantaneously balanced at all times. The large-scale deployment of intermittent renewables requires increased operational flexibility to accommodate fluctuating and unpredictable power supply while maintaining this balance. This dissertation investigates the value of electricity storage for the economy. Specifically, what is the value of storage under large-scale penetration of renewable energy in the context of climate policy? To answer this question, I develop a new hybrid modeling approach that couples an electricity sector model to the MIT EPPA model, a general equilibrium model for climate change policy analysis. The electricity sector model includes the main constraints for reliable and secure operation; electricity demand; wind, solar and hydro resources on the hourly time-scale; and utility-scale storage technologies. The hybrid modeling approach reconciles the very short-term dynamics required for renewables and storage technologies assessment, and the long-term time-scale required for the analysis of economic and environmental outcomes under climate policy.

Using Mexico as a case study, this dissertation analyses policies currently under discussion in the country. The experimental design explores increasing shares of renewables with varying levels of storage capacity. Under scenarios with increasing shares of renewables in the power grid, the value of storage increases sharply. By 2050, with 50% renewables penetration, the present value of storage capacity per MW installed in Mexico is estimated at $1500/MW and $200/MWh. Energy management services resulted in the highest value component (58%), followed by operational reserves provision (22%) and capacity payments (18%). Storage capacity in the system changes both investments and operational decisions, allowing larger penetration of wind technologies and displacing gas technologies. Storage capacity in the system reduces price volatility and the occurrence of negative prices that would otherwise result as renewables scale up.

The general equilibrium analysis shows that the availability of competitive storage technologies under an economy-wide climate policy reduces the overall policy costs. Simulating a 50% emissions reduction by 2050, the model demonstrated that storage could decrease total welfare losses by 0.7% when compared to the case without storage. Despite the sharp increase in the value of storage driven by renewables penetration, the findings suggest that the current cost of most storage technologies will still have to drastically be reduced for them to be economical.

Updates to disaggregating the refined oil sector in EPPA: EPPA6-ROIL

This note describes how to disaggregate the standard version of EPPA’s refined oil (ROIL) commodity into specific refined petroleum products. EPPA’s treatment of all refined products as a single commodity implies that all refined fuels are fungible, that the ease of international trade in each fuel is equal, and that all refined fuels face the same drivers of demand. This treatment precludes examination of competition between specific refined fuels (e.g., gasoline cars vs. diesel cars), modeling the impacts of low-sulfur fuel requirements (which would prohibit usage of residual fuel oils in maritime shipping, for example), or the examination of technologies that could compete with oil refining in specific fuels (e.g., gas-to-liquids (GTL), coal-to-liquids (CTL), or even a rigorous treatment of biofuel production. The methodology described here disaggregates the refined oil product imported from Global Trade Analysis Project (GTAP) by calculating the volume and value flow shares of six refined fuel categories. Data from the International Energy Agency (IEA), the U.S. Energy Information Administration (EIA), and the International Council on Clean Transportation (ICCT) are utilized to calculate these shares.

Pages

Subscribe to Energy Transition