Brief Overview of the Second Generation Model

1. Brief Overview of theSecond Generation Model Presentation to U.S. EPA Science Advisory Board SAB Second Generation Model (SGM) Advisory Panel Dr. Michael Shelby Office of Atmospheric Programs December 2, 2004

2. Overview • Rationale for Advisory • Background on the SGM • Sample Outputs

3. Rationale For Advisory • The SGM is one of EPA's primary tools for analyses of climate change policies • Used extensively by the the U.S. government (i.e., CEA) in 1998 and 1999 to analyze the impact of the Kyoto Protocol • Used in modeling forums such as the Stanford EMF to conduct analysis of climate policies • Never been formally peer reviewed • In keeping with Agency and Administration policies (e.g., EPA peer review policies), OAP would like the SGM to undergo a formal peer review

4. Rationale For Advisory • Expect iterative process of consultation(s) and peer review to be the best and most useful mechanism for examining the model • SGM is still evolving and developing. We hope that SAB will offer insights into the next best steps for model development efforts

5. SGM Basics • Computable General Equilibrium model designed for analysis of global change issues, including: • projecting baseline greenhouse gas emissions • determining the least-cost pathways for emission mitigation • providing a measure of the carbon-equivalent price • providing a measure of the overall cost • analyzing relative impacts on different sectors and/or regions • Developed by Jae Edmonds, Hugh Pitcher, Ron Sands and others at the Joint Global Change Research Institute of Pacific Northwest National Laboratory and the University of Maryland

6. Key Features • 14 regions of the world • USA, Canada, Mexico, Western Europe, Eastern Europe, former Soviet Union, China, India, Brazil, Japan, South Korea, Australia/New Zealand, Middle East, Rest of World • Can be operated in single region mode • Many regional models are developed in collaboration with in-country researchers • 5 year time steps from 1990 to 2050 • 7 Greenhouse Gases • CO2, CH4, N2O, HFCs, HFC-23, PFCs, SF6

7. SGM Structure Factor Markets: Factor Services Land Labor Supply of Land, Labor, & Capital Capital Production Sectors: Final Demand Sectors: Energy Government Intermediate Goods Industry Households Transportation Investments Agriculture ETE Product Markets: Energy Final Goods Industry Transportation Agriculture ETE Exports Imports Rest of the World Kim, S.H., 1995, Stabilization of carbon emissions: a viable option for the Republic of South Korea. MIT, Cambridge, MA.

8. SGM Production Sectors (includes recent additions of renewable energy and advanced fossil technologies)

9. Mapping Emissions from Production Sectors Fawcett, A., and R. Sands, Non-CO2 Greenhouse Gases in the Second Generation Model, submitted to The Energy Journal, September ‘04

10. Production Functions • All goods are produced with either a non-nested Constant-Elasticity-of-Substitution (CES) production function • new investment within the electricity sector (e.g., new coal, gas, oil, etc.) is allocated based on a logit sharing mechanism or • Leontief production function • For production functions with elasticities of substitution < 0.05 • Oil refining • electricity generation from its various energy sources

11. Technical Change • Set of parameters that can be used to simulate technical change over time for production sectors • Separate parameters are available for each input to each production process (and each vintage) • Parameters that determine energy, land, labor, and capital productivity, i.e., non-neutral technical change • Labor productivity parameters are the primary determinant of economic growth • Both energy efficiency and labor productivity parameters can be altered to construct reference scenarios

12. Other Notable Features • Capital stock is industry-specific and is segmented into five-year vintages by sector • Elasticity of substitution between inputs is greater for new capital than for old capital vintages • “Putty-semi putty” and “putty-clay” • Economic input-output tables combine with energy balance tables to form hybrid input-output tables • Energy balance is maintained throughout the model time horizon • IEA tables used for energy balance data

13. Sample Outputs: Global Analysis (1) Global Reference Case Emissions Fawcett, A., and R. Sands, Non-CO2 Greenhouse Gases in the Second Generation Model, submitted to The Energy Journal, September ‘04

14. Sample Outputs: Global Analysis (2) (Stabilize Forcing at 4.5 Wm-2 Relative to Pre-industrial Times by 2150) Global Emissions Under CO2-Only Policy Case Fawcett, A., and R. Sands, Non-CO2 Greenhouse Gases in the Second Generation Model, submitted to The Energy Journal, September ‘04

15. Sample Outputs: Global Analysis (3) Global Emissions Under Multi-Gas Policy Case Fawcett, A., and R. Sands, Non-CO2 Greenhouse Gases in the Second Generation Model, submitted to The Energy Journal, September ‘04

16. Sample Outputs: Global Analysis (4) Global Cumulative Emissions Reductions (2013 – 2050 with Hotelling price and 3% interest rate) Fawcett, A., and R. Sands, Non-CO2 Greenhouse Gases in the Second Generation Model, submitted to The Energy Journal, September ‘04

17. Sample Outputs: U.S. Analysis (1) U.S. Baseline Emissions from Energy Combustion/Non-CO2 Greenhouse Gases Fawcett, A., and R. Sands, Non-CO2 Greenhouse Gases in the Second Generation Model, submitted to The Energy Journal, September ‘04

18. Sample Outputs: U.S. Analysis (2) U.S. Reference Electricity Generation Fawcett, A., and R. Sands, Non-CO2 Greenhouse Gases in the Second Generation Model, submitted to The Energy Journal, September ‘04

19. Sample Outputs: U.S. Analysis (3) U.S. Cumulative Emissions Reductions Over 50 years at Alternative Constant Carbon Prices Fawcett, A., and R. Sands, Non-CO2 Greenhouse Gases in the Second Generation Model, submitted to The Energy Journal, September ‘04