Energy Transition

Long-term economic modeling for climate change assessment

A growing concern for using large scale applied general equilibrium models to analyze energy and environmental policies has been whether these models produce reliable projections. Based on the latest MIT Economic Projection and Policy Analysis model we developed, this study aims to tackle this question in several ways, including enriching the representation of consumer preferences to generate changes in consumption pattern consistent to those observed in different stages of economic development, comparing results of historical simulations against actual data, and conducting sensitivity analyses of future projections to key parameters under various policy scenarios. We find that: 1) as the economies grow, the empirically observed income elasticities of demand are better represented by our setting than by a pure Stone–Geary approach, 2) historical simulations in general perform better in developed regions than in developing regions, and 3) simulation results are more sensitive to GDP growth than energy and non-energy substitution elasticities and autonomous energy efficiency improvement.

© 2016 Elsevier B.V.

Modeling intermittent renewable electricity technologies in general equilibrium models

Economy-wide top-down (TD) equilibrium models have traditionally proved to be valuable tools for assessing energy and climate policies. New modeling challenges brought about by intermittent renewable energy sources, however, require a careful review of existing tools. This paper presents an overview of TD modeling approaches for incorporating renewable energy and describes in detail one approach, using the MIT USREP model, to identify critical parameters and assumptions underlying the general equilibrium formulation. We then quantitatively assess its performance regarding the ability to correctly estimate the participation of intermittent renewables in the electricity sector as predicted by a bottom-up electricity sector model, which is designed to analyze the expansion and operation of a system with a large penetration of wind and which is integrated within an economy-wide general equilibrium framework. We find that a properly specified TD approach to modeling intermittent renewable energy is capable of roughly replicating the results from the benchmark model. We argue, however, that the general equilibrium approach is highly sensitive to key parameters which are a priori typically unknown or at least highly uncertain. Our analysis suggests that traditional TD simulation tools have to be enhanced to avoid potentially misrepresenting the implications of future climate policies where presumably renewable energy could participate at large scale. Detailed power system models that capture system reliability and adequacy constraints are needed to properly assess the potential of renewable energy.

© 2015 Elsevier B.V.

Modeling Regional Transportation Demand in China and the Impacts of a National Carbon Policy

China's climate and energy policy commitments are stated at the national level, but they may have uneven impacts on the country's regionally heterogeneous transport system. This work quantifies the expected provincial-level response of freight transport to an economywide policy targeting reductions in carbon emissions intensity. The analysis applies the China Regional Energy Model, a multisector, static, global, computable general equilibrium (CGE) model representing 30 individual provinces with physical accounts of energy and greenhouse gas emissions. The structure of road and nonroad freight (and passenger) sectors, the preparation of transport activity data, and a policy similar to announced goals that specify a 17% reduction in the carbon dioxide emissions intensity of gross domestic product are described. In the national aggregate and in most provinces, the road freight sector is most affected by the emissions intensity cap. The road freight sector contributes 24%—versus 18% from nonroad freight and 51% from nontransport sectors—of a 5.1% reduction in national refined oil demand. Significant regional differences are found in the impacts of a national-level, economywide policy. Steep reductions in freight activity occur in some of the poorest provinces, partly because they offer low-cost abatement opportunities, and the resulting adjustments across the economy affect transport demand. This research contributes a new tool capable of capturing the transport impact of sector- and province-specific policies in detail and providing a rigorous foundation for future dynamic CGE analyses. Potential impacts of energy and climate policy on regional transport systems are important inputs to policy and infrastructure investment decisions at the central and local levels.

© 2015 Transportation Research Board

Modelling the potential for wind energy integration on China's coal-heavy electricity grid

Expanding the use of wind energy for electricity generation forms an integral part of China’s efforts to address degraded air quality and climate change. However, the integration of wind energy into China’s coal-heavy electricity system presents significant challenges owing to wind’s variability and the grid’s system-wide inflexibilities. Here we develop a model to predict how much wind energy can be generated and integrated into China’s electricity mix, and estimate a potential production of 2.6 petawatt-hours (PWh) per year in 2030. Although this represents 26% of total projected electricity demand, it is only 10% of the total estimated physical potential of wind resources in the country. Increasing the operational flexibility of China’s coal fleet would allow wind to deliver nearly three-quarters of China’s target of producing 20% of primary energy from non-fossil sources by 2030.

China, the world’s largest energy consumer and greenhouse gas emitter, has made deploying wind-generated electricity a cornerstone of long-term plans to mitigate climate change, air pollution and other energy-related environmental impacts. Following rapid expansion in recent years, especially in remote, less populous areas, wind has faced significant challenges integrating into the coal-heavy power grid owing to its fundamental operational differences compared to conventional energy sources. We present the first assessment of China’s wind energy potential and its regional distribution that incorporates an operational model of the grid and undertakes systematic exploration of key uncertainties.

Natural Gas Pricing Reform in China: Getting Closer to a Market System?

Recent policy in China targets an increase in the contribution of natural gas to the nation’s energy supply. Historically, China’s natural gas prices have been highly regulated with a goal to protect consumers. The old pricing regime failed to provide enough incentives for natural gas suppliers, which often resulted in natural gas shortages. A new gas pricing reform was tested in Guangdong and Guangxi provinces in 2011 and was introduced nationwide in 2013. The reform is aimed at creating a more market based pricing mechanism. We show that substantial progress toward better predictability and transparency of prices has been made. China’s prices are now more connected with international fuel oil and liquid petroleum gas prices. The government’s approach for temporary two tier pricing when some volumes are still traded at old prices reduced potential opposition during the new regime implementation. Some limitations created by the natural gas pricing remain: it created biased incentives for producers and favors large natural gas suppliers. The pricing reform at its current stage falls short of establishing a complete market mechanism driven by an interaction of supply and demand of natural gas in China.

Reducing CO2 from cars in the European Union

The European Union (EU) recently adopted CO2 emissions mandates for new passenger cars, requiring steady reductions to 95 gCO2/km in 2021. We use a multi-sector computable general equilibrium (CGE) model, which includes a private transportation sector with an empirically-based parameterization of the relationship between income growth and demand for vehicle miles traveled. The model also includes representation of fleet turnover, and opportunities for fuel use and emissions abatement, including representation of electric vehicles. We analyze the impact of the mandates on oil demand, CO2 emissions, and economic welfare, and compare the results to an emission trading scenario that achieves identical emissions reductions. We find that vehicle emission standards reduce CO2 emissions from transportation by about 50 MtCO2 and lower the oil expenditures by about €6 billion, but at a net added cost of €12 billion in 2020. Tightening CO2 standards further after 2021 would cost the EU economy an additional €24–63 billion in 2025, compared with an emission trading system that achieves the same economy-wide CO2 reduction. We offer a discussion of the design features for incorporating transport into the emission trading system.

Renewables Intermittency: Operational Limits and Implications for Long-TermEnergy System Models

In several regions of the world, the share of intermittent renewables (such as wind and solar PV) in electricity generation is rapidly increasing. The current share of these renewable energy sources (RES) can still more or less be handled by existing systems and flexibility, benefiting from remaining excess capacity of dispatchable (backup) generation and links to other grids that can balance the intermittency. However, often higher levels of intermittent RES are envisaged for the future, posing significant challenges on system operation and planning. In assessing possible energy futures, long-term energy system models are typically used. The representation of RES in such models needs careful attention, as intermittent RES come with a number of specific characteristics, making them different from conventional dispatchable generation. This paper focuses on technical implications related to systems trying to achieve high shares of renewable electricity. The relevance of demand and RES generation profiles are demonstrated. After some threshold, a sharp decreasing relationship between installed RES capacity and marginal contribution in terms of generation is identified; therefore, even with perfect backup, a technical limit exists on achievable RES shares. The impact of RES on net demand peak reduction is also addressed. In the absence of system flexibility, substantial backup is required to ensure reliable electricity provision. The role of different flexibility instruments is explored and is found to be significant. Reflections are provided on options to include these aspects in long-term energy system models.

On July 6, MIT Joint Program Deputy Director Sergey Paltsev was a keynote speaker at the International Conference on Economic Modeling, EcoMod 2016, in Lisbon, Portugal. EcoMod is the world’s leading research, advisory and educational nonprofit network focused on promoting advanced modeling and statistical techniques in economic policy and decision-making. The annual conference draws hundreds of economic policy modelers from around the world.

Energy Scenarios: The Value and Limits of Scenario Analysis

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