ELECTRICITY CO-OPERATION AND DECARBONISATION

1. ELECTRICITY CO-OPERATION AND DECARBONISATION Kwanruetai Boonyasana Supervisors:Department of Economics Prof. Wojciech Charemza Correspondence: kb200@le.ac.uk Dr. Abbi Kedir TOO HOT! No Ice, No Food, No Home. Picture: http://wallpapers.free-review.net

2. Climate change is one of the most critical global environmental challenges of our time. Many studies indicate that carbon dioxide is the main cause of global warming that is driving climate change. Source: http://www.e2singapore.gov.sg/climate-change-energy-efficiency.html

3. World CO2 by Sector in 2008 CO2 from electricity sector is about 32% of the overall total which is the highest by sector. Source: International Energy Agency (IEA)

4. Plutonium Seeping From Japan's Nuclear Plant Nuclear power involves issues of safety and radioactive waste management. Source: BOISE weekly (30 March 2011)

5. Growth in World Net Electricity Generation and Total World Electricity Consumption, 1990-2035 Index, 1990 = 1 Projection History Year Electricity surplus is expected to account for one third of electricity generation by 2035. Source: Energy Information Administration (EIA)

6. Figure 3: Number of People Without Access to Electricity in The Reference Scenario (Millions) 22 percent of the world's population did not have access to electricity in 2008 Source: International Energy Agency (IEA)

7. Electricity Trade Benefits

8. International Electricity Trade

9. Reduction of Social Cost by International Trade Source: http://www.electriccarsrated.com/

10. Research Question • “This study examines whether electricity co-operation regarding import and export can reduce CO2emissions.”

11. Conceptual Framework Generation Demand co2 Import Export ? Distribution Loss Taxes Subsidies Sequestration Technologies Energy Policies Regulations International agreements Economy Demography Weather or Season Demand Response Interruptibles

12. Panel Data Analysis • determines coefficients of CO2function. • - Pooled Ordinary Least Squares • - Fixed Effects (First differences & Within) • - Random Effects • The main goal of this study is to compare electricity generation and electricity trade to determine which provides lower CO2 emissions. Econometric Methodology

13. CO2 Function (Model 1) ln(CO2it)= α + β1ln (GCit )+ β2ln (Mit )+ β3ln (Xit )+ uit CO2 is Carbon Dioxide from electricity generation GC is electricity generation for country M is electricity import X is electricity export uit is the error term assumed to be independent over i: countries, t: time (year) uit= μi+ εit where μi denotes the unobservable individual-specific effect εitdenotes the remainder distribution.

14. CO2 Function (Model 2) ln(CO2it)= α + β1ln (GEit )+ β2ln (Tit )+ uit • CO2 is Carbon Dioxide from electricity • GE is total electricity generation • T is total electricity trade • uit is the error term assumed to be independent • over i: countries, t: time (year) • uit = μi + εit • where μi denotes the unobservable individual-specific effect • εitdenotes the remainder distribution.

15. This study employs • 130 countries’ yearly data from 1971-2007, • using the data provided by • International Energy Agency (IEA) • Because of a number of missing observations for some countries, • the panel is unbalanced. Data Set

16. ELECTRICITY CO-OPERATION AND DECARBONISATION RESULTS

17. Appropriate Estimation Models of Panel Data Analysis for Model 1 notes: Standard errors in ( ) and *** significant at 1% level.

18. Result of CO2 Function (Model 1)

19. Appropriate Estimation Models of Panel Data Analysis for Model 2 notes: Standard errors in ( ) , *** significant at 1% level and * significant at 10% level.

20. Result of CO2 Function (Model 2)

21. Discussion • The MIT scenario (2008) of a linear Sea Level Rise • (SLR) of 1 metre >>> loss $2 trillion in present value • Susmita (2007) • In this century, hundreds of millions of people in • the developing world can expect displacement by • SLR • The highest efficiency usage of surplus electricity • through trading >>> reduce CO2 emissions in the • atmosphere by about 11% • (calculated from IEA data)

22. Electricity co-operation with regard to import and export is highly significant in decreasing CO2 emissions. • Such trade can have a positive impact on efficient management of decarbonisation of energy supply and be instrumental for governments in the fight against global warming. Conclusion

23. Thailand Flood 2011 Picture: GeoEye, National University of Singapore (NUS)

24. Prof. WojciechCharemza • Dr. AbbiKedir • Prof. Badi H. Baltagi • Dr. Subir Bose • Dr. Nicholas V. Vasilakos • Mr. Robin Neill • IEA, EIA, OECD, IAEE and RMUTP Acknowledgement

25. Thank you • for your attention. • Are there any questions?

26. “If we live as if it matters and it doesn't matter, it doesn't matter. If we live as if it doesn't matter and it matters, then it matters. " Norman Myers quotes from an international conference on the environment

27. Pooled Ordinary Least Squares (POLS) Estimation yit represents the dependent variable • xit represents observed variables • zi represents unobserved variables • εit is an idiosyncratic error term • Hence, it can be written in the regression model as • andunder the restriction

28. Fixed Effects: First Differences Estimation • ,and • + The unobserved effect is removed by subtracting the observation • + More efficient for nonstationary data • Intercept and any X variable that remains fixed for each individual will be • removed from the model • - n degrees of freedom are lost • - results in autocorrelation if εitsatisfies the conditions of the regression

29. Fixed Effects: Within Estimation • ,and • + The unobserved effect is removed by subtracting the observation • Intercept is constant, so it is removed from the model • - is cancelled, • hence the within estimator cannot estimate their effect

30. Random Effects Estimation • In particular, RE estimator turns out to be equivalent to estimation of

31. Descriptive Statistics Dependent variables and independent variables are measured on different scales, Hence all variables are taken logarithms to interpret easier.

32. Panel Unit Root Tests Results notes: * Rejects at 5% level. Every continent is I(1) except for Africa which is I(0).

33. Panel Model Estimators Results (Model 1) Notes:Standard errors in ( ), *** significant at 1% level

34. Panel Model Estimators Results (Model 2) Notes:Standard errors in ( ), *** significant at 1% level, * significant at 10% level

35. Hausman Test Result notes: *** significant at 1% level and ** significant at 5% level.

36. Hausman Test Result notes: *** significant at 1% level and ** significant at 5% level.

37. Breusch-Pagan Lagrange multiplier (LM) Test Results Model 1 notes: Standard errors in ( ) and *** significant at 1% level.

38. Breusch-Pagan Lagrange multiplier (LM) Test Results Model 2 notes: Standard errors in ( ) and *** significant at 1% level.

39. Not surprisingly, following free trade theories, electricity export increases CO2 emissions by only 0.01% which is much lower than for electricity generation (0.55%). • This is because electricity trade reduces electricity cost (private and social) by increasing market efficiency and encourages innovation in electricity generation through competition resulting in less CO2 production (Pomeda and Camacho, 2003). Discussion (2)

40. Furthermore, export countries do not usually use flue sources to generate electricity for export. • For example, in 2009, USA imported 52,190,595 MWh of electricity from Canada (EIA, 2011), most of which came from Canadian hydroelectricity power at Niagara Falls. • Another example is Électricité de France (EDF), the country's main electricity generation and distribution company, which manages the country's 59 nuclear power plants. Discussion (3)

41. Australia is an interesting case, not only because of no international electricity trade in this continent, but also other reasons. • In Australia, mainly fossil fuels are used to generate electricity. In 2005, the largest source of emissions came mainly from electricity production (around 70%). Around 95% of electricity comes from fossil fuels with coal being the main source. • After an extended promotion of green power (renewable electricity) only 7% of Australian households opted to pay more for electricity generated from renewable energy Discussion (4)

42. Obviously, it is impossible that electricity trade can be the highest efficiency (no electricity surplus) because there are some limitations. • There are transmission and distribution losses, hence if the distance between trading partners is too far, electricity import will be more expensive than domestic generation, making trade impossible. Discussion (5)

43. The difficulty of storing electricity is a major force behind the significant growth in electricity trading (Lucia and Schwartz, 2002 and Geman and Roncoroni, 2006), since electricity needs to be available at the time the energy is required. • As a result, the larger the area containing electricity producers (export countries) and consumers (import countries) for international trade, the more successful is the balance between demand and supply. Discussion (6)

44. Electricity ranks as a special commodity since it is vital to the running of every economy. Because of this, countries trading in electricity require a high level of mutual trust. Electricity import and export involves more than just buying and selling - it is founded on co-operation. . Discussion (7)