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The Cost of Greenhouse Gas Mitigation: A Brief Overview

This brief overview discusses the increasing emissions of greenhouse gases and the potential economic, environmental, and ecological costs associated with climate change. It also explores different methodologies for costing and mitigating greenhouse gas emissions.

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The Cost of Greenhouse Gas Mitigation: A Brief Overview

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  1. The Cost of Greenhouse Gas Mitigation: A Brief Overview AT 760: Global Carbon Cycle Jonathan Vigh December 18, 2003

  2. The Problem • Increasing Greenhouse Gas (GHG) emissions may cause considerable global and regional climate change leading to significant economic, environmental, and ecological costs over the next century. • Global Warming Potentials (over 100 y): • CO2 1 • CH4 23 • N2O 296

  3. World GHG Emissions by Sector§ SectorCO2 Emissions (GtC)Sharegrowth rate†rate trend Buildings 1.73 31% +1.8% decelerating Transport 1.22 22% +2.5% steady Industry 2.34 43% +1.5% decelerating Agriculture 0.22 4%‡ +3.1% decelerating Total Emissions 5.5 100% +1.8% decelerating (Total energy emissions accounted for 5.5 GtC emissions in 1995). § Energy usage only, does not include other emissions such as cement production, landfill emissions, and land-use changes such as forest management, etc. † Average annual growth rate from 1971-1995 ‡ The agriculture sector accounts for 20% of CO2 equivalents because of methane emissions. [Adapted from Price et al. 1998, 1999, out of table in Climate Change 2001: Mitigation, 3rd Assessment Report (TAR), IPCC Working Group 3]

  4. Current Energy Usage of USA [U.S. EPA Inventory of Greenhouse Gas Emissions, April 2002]

  5. Worldwide Energy Trends • The average annual growth rate of global energy consumption was 2.4% from 1971-1990, but dropped to 1.3% from 1990-1998. • The average annual growth rate of global energy-related CO2 emissions dropped from 2.1% to 1.4% in the same periods. • Why? • Improved energy efficiencies • Increased fuel switching to less carbon-intensive sources • Adoption of renewable energy sources • Dramatic decrease in countries with economies in transition (EIT) as a result of economic changes • Why aren’t emissions dropping then? • Countervailing trends of population growth, economic growth, increased energy usage per capita, and development of the Third World.

  6. Costing Methodologies • Top-down approach • Uses integrated macro-economic models to estimate the cost of GHG reduction activities. • Good for examining the effectiveness of overall mitigation policies. • Bottom-up approach • Estimates the cost of GHG reduction from a given technology or mitigation activity. • Must compare to some baseline emissions from current or expected technology portfolio.

  7. What is the ‘cost’ anyway? • Direct (levelized) costs of delivered energy includes: • Capital costs (plant infrastructure) • Cost of capital (depends on interest rates) • Operation costs (personnel, etc.) • Maintenance costs • Fuel costs (mining, drilling, transport) • Transmission costs • Indirect costs • Waste disposal • Environment • Climate • Opportunity cost of land use • Distortion to the economy • Opportunity cost of capital, export of capital for import of energy • Competition for resources (physical and personnel) • Effect on economic stability – energy security • Equality on local, regional, and global scales

  8. Cost of GHG reductions • Compare a current energy production method or portfolio to an alternative one • Compute difference in GHG emissions • Compute difference in direct and indirect costs • Arrive at cost of GHG avoidance ($/tC) • Proper analysis includes direct and indirect costs, and macroeconomic effects

  9. Mitigation of Greenhouse Gases • Energy Efficiency • Low or no carbon energy production • Sequestration

  10. Electricity • The U.S. spends over $216 billion on electricity each year (out of a total energy expenditure of $558 billion, mostly petroleum) • Current installed capacity is 816 GW, average production is ~750 GW, or 5000 TWh/y • Growth rate is ~1.6% per year • Current electrical production portfolio of the USA is: TypeShareEfficiencyCurrent best efficiency2020 Coal 52% 33% 48.5% 55% Nuclear 20% ~30% - - Gas-fired 16% 60% 60% 70% Hydro 7% - - - Biomass ~3% - - - Geothermal ~2% 10%? - - Wind power 0.2% - - - Solar minute - - -

  11. Lifecycle Emissions

  12. Estimated total costs of various forms of electricity production For power production in Switzerland

  13. The human cost of energy production

  14. Current U.S. Electrical Trends • To a good approximation, all additional electrical capacity over the next 5 years will be natural gas fired turbines. • Natural gas-fired turbines are roughly twice as efficient as existing coal-fired power plants and emit roughly half as much C per unit energy produced

  15. Wind Power • Wind energy has become cost-competitive with other sources of production for high wind classes. • The doubling time of installed capacity is now 3-4 years • For each doubling, costs drop ~15% • Costs in 2006 should be 35-40% less than costs in 1996 • By 2030, the wind farms in the best wind classes could be as low as 2.2 ¢/kW-h, cheaper than even natural gas-fired electricity. • In the U.S. • Total installed US Wind Power capacity is now 5.3 GW as of Oct. 27, 2003 (0.6% of total installed electrical capacity) • 1.6 GW of new U.S. wind capacity coming online by the end of 2003 • 1.5 ¢/kW-h production tax credit (expires Dec 31, 2003) has provided ~$5 billion subsidy over the past 10 years

  16. U.S. Installed Capacity (MW) Total Installed U.S. Wind Energy Capacity: 5,325.7 MW as of Oct 27, 2003 [American Wind Energy Association]

  17. U.S. Installed Wind Capacity (MW) 1981-2003

  18. Conclusions: Best Strategies • The most cost effective short-term (2-20 y) strategies for avoiding emissions due to electricity production are: • Substitute natural gas for coal • Substitute nuclear for coal • Substitute wind for coal • Substitute hydro for coal • For the longer term (20-100 y), the following methods of electricity production may become cost effective as fossil fuel costs increase: • More wind, nuclear, and hydro • Biomass and energy cropping • Coal fired electricity, hydrogen production with sequestration • Solar • Technology wildcards that probably aren’t likely, but could radically alter the mix: • Artificial photosynthesis • Nuclear fusion • Other?

  19. Conclusions: Costs • Current cost of energy in the U.S. is 5% of GDP • If the cost of mitigation is $100/tC avoided, then this would add an expense of $200-300 billion per year, or 2-3% of GDP • Perhaps up to half of the initial reductions actually have negative direct costs (due to energy saved) • How does this compare with other economic costs? • Total health care expenditures in 2001 were 13.9% (8.4% average for OECD countries) • Total spending on defense in the U.S. has fallen to 3-5%

  20. Defense Spending • [Defense and the National Interest web page]

  21. Other outcomes • Even if we ignore the climate effects, other issues could come into play

  22. Recommended Policies: Kyoto Measures, American-style • Institute a moderate carbon tax on refined gasoline, coal • Reduce or eliminate subsidies for oil and coal • Promote increased infrastructure capacity for natural gas transport, eventual hydrogen transport • Modernize the electrical grid, allow for distributed generation • Continue R&D on ‘clean’ coal technologies (with sequestration), with transition to hydrogen production • Continue R&D towards commercialization of solar energy, biomass • Increase tax credits and incentives for use of renewable sources (wind, solar, biomass) • Continue tax credits and incentives for efficiency improvements

  23. General Conclusions for the GHG Problem • We (the U.S.) can definitely afford to keep moving towards a lower carbon-intensive economy. • Accelerating our movement on this path will incur nominal additional costs for our energy. • Future costs of GHG emissions avoidance may be even lower as technologies mature. • Stabilization to 550 ppm will not be excessively hard to achieve, but 450 ppm will be very expensive. • We still have a bit of time left – stabilization will be much harder with departures beyond 2030 (T. Wigley, 1997).

  24. References • The primary reference for this presentation is Climate Change 2001: Mitigation, the 3rd Intergovernmental Panel on Climate Change (IPCC) report, Working Group 3. Chapter 3 was most relevant to this presentation. The report can be obtained online at: http://www.grida.no/climate/ipcc_tar/wg3/index.htm • A secondary reference for energy issues can be found in the World Energy Assessment: Energy and the Challenge of Sustainability, 2000. United Nations Development Programme (UNDP). This report can be obtained online at: http://www.undp.org/seed/eap/activities/wea/drafts-frame.html • Price, L., L. Michaelis, E. Worrell, and M. Khrushch, 1998: Sectoral Trends and Driving Forces of Global Energy Use and Greenhouse Gas Emissions. Mitigation and Adaptation Strategies for Global Change, 3, 263-319. • Price, L., E. Worrell, and M. Khrushch, 1999: Sector Trends and Driving Forces of Global Energy Use and Greenhouse Gas Emissions: Focus on Buildings and Industry. Lawrence Berkeley National Laboratory, LBNL-43746, Pergamon Press, Berkeley, CA. • Wigley, T. M. L., 1997: Implications of recent CO2 emission-limitation proposals for stabilization of atmospheric concentrations. Nature, 390, 267-270. • Williams, Robin. H., 2001: Nuclear and Alternative Energy Supply Options for an Environmentally Constrained World: A Long-term Perspective. Prepared for the Nuclear Control Institute Conference Nuclear Power and the Spread of Nuclear Weapons: Can We Have One Without the Other? Washington, D.C., April 2001. • On the web: • Statistics on U.S. wind energy production (American Wind Energy Association): http://www.awea.org/projects/index.html • Current News on Wind Energy Production Tax Credit: http://www.awea.org/news/news031125ptc.html • Defense Spending as % of GDP (Defense and the National Interest webpage): http://www.d-n-i.net/charts_data/defense_percent_gdp_1940_2000.htm • U.S. Inventory of Greenhouse Gas Emissions (EPA): http://yosemite.epa.gov/oar/globalwarming.nsf/content/Emissions.html • Terasen Gas Greensheet: Natural Gas and the Environment • Energy Information Administration (EIA), U.S. Department of Energy (DOE): http://www.eia.doe.gov • External costs of electricity production, GaBE Project – Comprehensive Assessment of Energy Systems, Paul Scherrer Institut: http://gabe.web.psi.ch/eia-external%20costs.html • Energy subsidies and external costs, UIC Nuclear Issues Briefing #71: http://www.uic.com.au/nip71.htm • “‘Too Little’ Oil for Global Warming”, New Scientist, Oct 2003: http://www.newscientist.com/news/print.jsp?id=ns99994216 • Upsalla Protocol: http://www.isv.uu.se/uhdsg/UppsalaProtocol.html

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