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Cost-effectiveness analysis

Cost-effectiveness analysis. Fabian Wagner International Institute for Applied Systems Analysis (IIASA). Cost-effectiveness vs cost-benefit analysis The complexity of the problem Formulation of optimization problem Target setting Implementation of optimization. Agenda. *X. minimize.

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Cost-effectiveness analysis

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  1. Cost-effectiveness analysis Fabian Wagner International Institute for Applied Systems Analysis (IIASA)

  2. Cost-effectiveness vs cost-benefit analysis • The complexity of the problem • Formulation of optimization problem • Target setting • Implementation of optimization Agenda

  3. *X minimize costs - benefits (1a) Cost-benefit analysis: OR costs (1b) minimize *X benefits Cost-effectiveness vs cost-benefit analysis Cost-effectivenessanalysis: minimize costs (2) such that Environmental targets are met

  4. Cost-effectiveness analysis • Uses (technology) cost-minimization approach • Avoids implicit judgments on • value of environmental benefits • value of human health • differences thereof between countries • Allows independent choices of targets

  5. Environmental targets (I): 1 pollutant, 1 emitter

  6. Environmental targets (II): 2 pollutants, 1 impact, 1 emitter Ozone concentration

  7. Environmental targets (III): 2 pollutants, 1 impact, 2 emitters, 2 receptors Country A Country B Ozone concentration Ozone concentration

  8. See: GAINS optimization module Environmental targets (IV): e.g. 5 pollutants, 4 impact, 40 emitters, 40 receptors

  9. IIASA’s GAINScomputer model PM SO2 NH3 NOx VOC Policy targets for 2020 Multi-pollutant/multi-effect analysisfor identifying cost-effective policy scenarios Health Eutrophication Acidification Ozone

  10. Minimize: costs such that: Constraints are satisfied • Implementation in GAMS (separate from web-interface) • Data on constraints taken from input database • Technologies are explicitly represented • Substitution options can be switched on/off • Effectiveness of multi-pollutant technologies is taken into account GAINS optimization module

  11. Environmental targets are met (e.g. 4 indicators in each of some 40 regions) • Technical potentials are not exceeded • Implied emissions cannot increase • Aggregations are consistent • Useful energy is constant (‘balance equations’) Constraints

  12. Two alternative ‘modes’ of optimization • Activity levels constant – can only change control strategies (‘RAINS mode’) • Both control strategies and some activities can change, e.g. power plants (‘GAINS mode’) • Synergies with CO2 mitigation • More flexibility, lower cost

  13. GAINS single pollutant optimization: With and without Efficiency improvements & fuel substitutions

  14. The GAINS optimization in brief Objective function: Minimization of total emission control costs C for add-on measures (x) and structural changes (y): Application levels(x) and substitution potentials(y) are constrained: Emissions are calculated from activity levels and emission factors: Sectoral emissions of current legislation may not increase: Activity levels plus substitution levels must remain constant to satisfy demand:

  15. Balance equations E.g. energy savings: Demandx + energy_savx = DemandBL Eg: fuel substitution A -> B Fuel(A)x+Θ(A->B)x = Fuel(A)BL Fuel(B)x-λA->B* Θ(A->B)x = Fuel(B)BL

  16. yi,s,f,s’f’: amount of xai,s,f replaced by xai,s’,f’ xai,s’’,f’’• effi,s’’,f’’ xai,s’,f’ • effi,s’,f’ yi,s’’,f’’,s,f yi,s,f,s’f’ xai,s’’,f’’ xai,s’,f’ Italy, power plants, coal Italy, power plants, wind The meaning of balance equations xai,s,f • effi,s,f xai,s,f Italy, power plants, gas

  17. Documentation:

  18. Three concepts for target settingfor PM health effects • Uniform limit value for air quality:Bring down PM2.5 everywhere below a AQ limit value • Gap closure concept:Reduce PM2.5 levels everywhere by same percentage

  19. Base year exposure (2000/1990) 0% Gap used for CAFE analysis 50% 100% Definition of “gap closure”used NEC 2010 ceilings and NEC 2020 ceilings Effect indicator NEC 2010 Baseline 2020 (Current legislation) MTFR from EU25 excluding EURO5/6 MTFR from EU25 MTFR from EU-25 + shipping MTFR from Europe + shipping No-effect level (critical load/level) Zero exposure

  20. Three concepts for target settingfor PM health effects • Uniform limit value for air quality:Bring down PM2.5 everywhere below a AQ limit value • Gap closure concept:Reduce PM2.5 levels everywhere by same percentage • Maximize total health benefits in Europe for a given European budget constraint, disregarding the location of the benefit

  21. Cost-effectiveness of the target setting approachesEmission control costs [billion €/yr] vs. YOLL

  22. Public access Internal Web-interface Database Extract baseline scenario targets Architecture Optimization Upload optimal solution

  23. GAINS uses cost-effectiveness approach – not CBA • This approach helps policy processes: • Objective is clear • No implicit value judgments • The optimization problem is quite complex • Alternative target setting approaches have been explored • We are in the process of making all inputs accessible through web-interface Conclusions

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