Energy Transition

General Equilibrium, Electricity Generation Technologies and the Cost of Carbon Abatement

Electricity generation is a major contributor to carbon dioxide emissions, and a key determinant of abatement costs. Ex-ante assessments of carbon policies mainly rely on either of two modeling paradigms: (i) partial equilibrium models of the electricity sector that use bottom-up engineering data on generation technology costs, and (ii) multi-sector general equilibrium models that represent economic activities with smooth top-down aggregate production functions. In this paper, we examine the structural assumptions of these numerical techniques using a suite of models sharing common technological features and calibrated to the same benchmark data. First, our analysis provides evidence that general equilibrium effects of an economy-wide carbon policy are of first-order importance to assess abatement potentials and price changes in the electricity sector, suggesting that the parametrization of Marshallian demand in a partial equilibrium setting is problematic. Second, we find that top-down technology representations produce fuel substitution patterns that are inconsistent with bottom-up cost data, mainly because of difficulties in capturing the temporal and discrete nature of electricity generation by means of aggregate substitution elasticities. Our analysis highlights the difficulty to parameterize numerical models used for policy projections, and suggests that the integration of a bottom-up electricity sector model into a general equilibrium framework provides an attractive structural alternative for ex-ante policy modeling.

Global passenger travel: Implications for CO2 emissions

Humans spend, on average, a constant fraction of their time and expenditure on travel. These and a few other constraints allow a new model for projecting regional and world travel, which we use to develop a scenario for carbon emissions from passenger transport. Globally, carbon emissions rise from 0.8 GtC in 1990 to 2.7 GtC in 2050. In every industrialized region aircraft and high-speed trains become the dominant mode; unable to satisfy the rising demand for mobility within a fixed travel time budget, automobile travel declines by 2050. Passenger transport carbon emissions stabilize by 2020 without any further policy intervention. But in developing countries automobile travel is still rising and becomes the dominant source of carbon dioxide from passenger transport. Fear of global warming may require stabilization of these emissions by mid-century. We show that without some action to accelerate an improvement in energy efficiency starting in the next decade, the goal of stabilization is a technically impossible task, unless zero-carbon technologies become available.

© 1999 Elsevier B.V.

Greenhouse Gas Markets, Carbon Dioxide Credits and Biofuels

The biofuels sector is in the midst of turmoil, and many people are asking whether biofuels will be able to deliver on their climate change, energy security and rural development objectives.

Whether biofuels will emerge from the current deadlock will depend on the policies and strategies that countries adopt, says The Biofuels Market: Current Situation and Alternative Scenarios.

The new UNCTAD report discusses "alternative decision paths" governments may consider in relation to biofuels and provides insights on the global repercussions those different choices may imply. The scenarios are linked to the following specific issues:

* The role of government targets for biofuel use.
* Links between biofuels and the greenhouse gas markets.
* Prospects offered by the unfolding of new biofuel technologies and the related intellectual property rights issues.
* Trade potential available to developing countries.
* Possible changes that could occur in current production and trade patterns, should alternative biofuel feedstocks become commercially available.

The report represents a new contribution by UNCTAD to the analysis of this dynamic and complex sector of the world economy.

This activity was made possible by the generous financial contribution of the Ministry of Environment, Land and Sea of Italy. UNCTAD has been working on the trade and development implications of biofuels since 2005, through its Biofuels Initiative.

© 2009 United Nations

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.

© 2012 Journal of Transport Economics and Policy

Biomass Energy and Competition for Land

We describe an approach for incorporating biomass energy production and competition for land into the MIT Emissions Prediction and Policy Analysis (EPPA) model, a computable general equilibrium model of the world economy, that has been widely used to study climate change policy. We examine multiple scenarios where greenhouse gas emissions are abated or not. The global increase in biomass energy use in a reference scenario (without climate change policy) is about 30 EJ/year by 2050 and about 180 EJ/year by 2100. This deployment is driven primarily by a world oil price that in the year 2100 is over 4.5 times the price in the year 2000. In the scenarios of stabilization of greenhouse gas concentrations, the global biomass energy production increases to 50-150 EJ/year by 2050 and 220-250 EJ/year by 2100. The estimated area of land required to produce 180-250 EJ/year is about 2Gha, which is an equivalent of the current global crop area. In the USA we find that under a stringent climate policy biofuels could supply about 55% of USA liquid fuel demand, but if the biofuels were produced domestically the USA would turn from a substantial net exporter of agricultural goods ($20 billion) to a large net importer ($80 billion). The general conclusion is that the scale of energy use in the USA and the world relative to biomass potential is so large that a biofuel industry that was supplying a substantial share of liquid fuel demand would have very significant effects on land use and conventional agricultural markets.

(Chapter available by request)

About the book: Land has long been overlooked in economics. That is now changing. A substantial part of the solution to the climate crisis may lie in growing crops for fuel and using trees for storing carbon. This book investigates the potential of these options to reduce greenhouse gas emissions, estimates the costs to the economy, and analyses the trade-offs with growing food. The first part presents new databases that are necessary to underpin policy-relevant research in the field of climate change while describing and critically assessing the underlying data, the methodologies used, and the first applications.

Together, the new data and the extended models allow for a thorough and comprehensive analysis of a land use and climate policy. This book outlines key empirical and analytical issues associated with modelling land use and land use change in the context of global climate change policy. It places special emphasis on the economy-wide competition for land and other resources, especially;

  • The implications of changes in land use for the cost of climate change mitigation,
  • Land use change as a result of mitigation, and
  • Feedback from changes in the global climate to land use.

By offering synthesis and evaluation of a variety of different approaches to this challenging field of research, this book will serve as a key reference for future work in the economic analysis of land use and climate change policy.

© 2009 Routledge

Biomass Energy and Competition for Land

We describe an approach for incorporating biomass energy production and competition for land into the MIT Emissions Prediction and Policy Analysis (EPPA) model, a computable general equilibrium model of the world economy, that has been widely used to study climate change policy. We examine multiple scenarios where greenhouse gas emissions are abated or not. The global increase in biomass energy use in a reference scenario (without climate change policy) is about 30 EJ/year by 2050 and about 180 EJ/year by 2100. This deployment is driven primarily by a world oil price that in the year 2100 is over 4.5 times the price in the year 2000. In the scenarios of stabilization of greenhouse gas concentrations, the global biomass energy production increases to 50-150 EJ/year by 2050 and 220-250 EJ/year by 2100. The estimated area of land required to produce 180-250 EJ/year is about 2Gha, which is an equivalent of the current global crop area. In the USA we find that under a stringent climate policy biofuels could supply about 55% of USA liquid fuel demand, but if the biofuels were produced domestically the USA would turn from a substantial net exporter of agricultural goods ($20 billion) to a large net importer ($80 billion). The general conclusion is that the scale of energy use in the USA and the world relative to biomass potential is so large that a biofuel industry that was supplying a substantial share of liquid fuel demand would have very significant effects on land use and conventional agricultural markets.

Bringing Transportation into a Cap-and-Trade Regime

The U.S. may at some point adopt a national cap-and-trade system for greenhouse gases, and if and when that happens the system of CAFE regulation of vehicle design very likely could still be in place. Imposed independently these two systems can lead to economic waste. One way to avoid the inefficiency is to integrate the two systems by allowing emissions trading between them. Two possible approaches to potential linkage are explored here, along with a discussion of ways to guard against violation under such a trading regime of vehicle standards that may be justified by non-climate objectives. At a minimum implementation of a U.S. cap-and-trade system is several years in the future, so we also suggest intermediate measures that would gain some of the advantages of an integrated system and smooth the way to ultimate interconnection.

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.

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