Climate Change Scenarios Evaluated with MERGE-ETL and Technology Transfer Protocols

1. Climate Change Scenarios Evaluated with MERGE-ETL and Technology Transfer Protocols International Energy Workshop June 17-19 2009, FEEM-Venice, Italy S. Kypreos and H. Turton

2. Outline • Goal/Motivation • Key questions • Model formulation and key data • Emission profiles of the 550/450ppmeq cases • The corresponding Cap & Trade cases • The Global Tax cases and variants of the TTPs • Technologies, Emissions and Economic Impacts • Conclusions

3. Goal of the study on TTP • Evaluate the impact of TTPs for the Climate Change negotiations • Overarching questions: • Are new ideas in Climate Change negotiations on the table to make the difference? • Are Technology Transfer Protocols (TTP) more convincing than C&T policies? • What is the new dimension and How TTP differ from C&T? • Give a practical example of how TTP could work and present the benefits? • Which technological options are needed? • In order to answer the above questions the MERGE model has been changed allowing to study TTP and evaluate the benefits for North and South. • In our TTP example, we describe how industrialized countries finance low-carbon and carbon-free technology transfer to the South based on the carbon-tax revenue.

4. Model equations TTP model variables: TTRX_R1(R2,t): payments from donor R1 region (i.e., North) to R2 regions (i.e., LDCs), in period t SACT(R2,k,t) Learning Activity (i.e., electric or non-electric energy flow ) to be subsidized to enhance learning by doing for technology k, period t, in R2 (i.e., South) SACT activity variables appear explicitly in all fuel balances, demand equations and the cumulative output for electric and not electric learning technologies but the main relevant equations are given below: TTP model Equations: Tax-Subsidy by period: The sum of capital transfers of donor regions to an R2 region and the own tax revenue, should be greater/equal than subsidies for all learning activities (SACT) in favor of carbon-free technologies in R2. The relations above can be substituted by a cumulative constraint based on discounted transfers and discounted learning activities. Technology-transfer payment bound: Technology Transfer payment TTRX_R1 from an R1 country to all R2 countries should be equal to the total tax revenue of region R1 in a given period. Taxes equal the marginal costs of a case, e.g., 450mmpe

5. Scenarios Analyzed The Baseline that follows present trends and regulations. CBA cases where optimal emission paths are defined for a given discount rate, Climate Sensitivity and WTP to avoid damages Stabilize Carbon Concentrations (SCC) to 550 ppmeq or 450 ppmeq via constraints that define emissions levels and marginal costs Cap & Trade policies that correspond to the SCC emission cases but introduce initial endowments of carbon rights in favor of LDCs Variant TTPs scenarios are introduced where the tax revenues of industrialized countries are transferred to LDCs to finance carbon free technologies in form of learning investments (or subsidies)

6. Technical Data

7. Stabilize Carbon Concentrations (SCC) Versus Cap &Trade (C&T) cases

8. Stabilize Carbon Concentrations (SCC) or Cap &Trade (C&T) cases

9. Stabilize Carbon Concentrations (SCC) Versus Cap &Trade (C&T)

10. Stabilize Carbon Concentrations (SCC) Versus Cap &Trade (C&T) Undiscounted GDP losses relative to the Baseline

11. GTS: Global taxes as in SCC and recycle tax revenues to LDCs BTS: Taxes as in SCC for Annex B only and recycle tax revenues to LDCs GRS: Taxes as in SCC for Annex B and taxes in LDCs with 30 year delay but recycle the tax revenue of Annex B countries to LDCs The TTP cases for each CCS are:

12. Stabilize Carbon Concentrations (SCC) Versus Cap &Trade (C&T)

13. Emission Pathways for the CCS and C&T cases

15. Regional Impacts of TTPs Cumulative and Undiscounted GDP

16. Scenario Comparison:Subsidy Index Subsidized production by case relative to the Annex B tax revenue

17. Scenario Comparison: Technology support Wind, CCS and Advanced Nuclear are the winners

18. Scenario Comparison: Global subsidies Versus Tax-Revenue in Annex B regions The difference between the “Subsidy” and the “Revenue” of Annex B countries is due to the tax revenue of LDCs invested to carbon-free systems.

19. Impact of Subsidies on cumulative production for selected technologies Cumulative production of electricity for the period 2000-2040 and 2000-2060 for selected technologies and for the 450 C&T Versus the 450GTS case.

20. Conclusions The TTPs have significant positive outcomes and could serve as guidence to reach a compromise like for example the cases where taxes are introduced everywhere but with a time shift for LDCs and a full tax-revenue transfer from North to South. This case shows emissions pathways as in a CBA case with almost zero discount rates. Some technologies like wind, SPV, CCS and Gen-IV nuclear profit the most. Industrialized countries have good chances to booster exports of advanved carbon-free technology while LDCs have direct benefits of technology transfers and reduced economic losses when accepting the Protocol. The unexpected development is that carbon emissions do not fall down as much as hoped, as low energy prices increase energy use, emissions and economic output. The method needs to be extended to include end-use sectors but also a mixed complementarity formulation with C-taxes as variables