The Cost of Greenhouse Gas Mitigation: A Brief Overview

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

11. 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 - - -

12. Lifecycle Emissions

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

14. The human cost of energy production

15. 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

19. 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

20. 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]

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

22. 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?

23. 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%

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

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

26. 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

27. 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).

28. 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