Combining options for commitments: results from modelling exercises

1. Combining options for commitments: results from modelling exercises Patrick Criqui, LEPII-EPE, CNRS-UPMF Alban Kitous, ENERDATA Cédric Philibert, IEA

2. Outline • The POLES model: key features • The Baseline projection • A Carbon Constraint Case to 2050 • Exploring alternative scenarios: • Impacts of non-binding targets for DCs • Introducing price caps • Introducing indexed targets • Strengthening the carbon constraint

3. The POLES model: key features • A partial equilibrium model for the world energy system … • with a year-by-year recursive simulation process from 2004 to 2050 • and 46 key countries and regions • Endogenous supply and demand on international energy markets and prices • Low-emission technologies introduced

4. The 2050 Baseline projection • Supposes no major change in world energy and environmental policies • World energy consumption in 2030 is nearly the same as in WEO but fuel mix differs, with more coal, less oil and gas • 2030 energy-related CO2 emissions : 43 GtCO2 against 38 GtCO2 in WEO • In 2050 more than 50 GtCO2 from energy, i.e. twice current levels; close to IPCC scenarios leading to 1000 ppmv CO2 or more (e.g. A1B)

5. The Carbon Constraint Case • US carbon intensity decreases by 2%/year, with technology policies: • On top of pre-existing efficiency improvements and price effects … • Revival of the nuclear option • Full-scale phase-in of CCS technologies • The rest of Annex 1 (or Annex 1*) adopts fixed targets in 2050, at 50 % of 1990 emissions • Non Annex 1 countries accept non-binding targets slightly under their BaU emissions: • 90 % of their baseline 2030 emissions • 80 % of their baseline 2050 emissions

6. World CO2 emissions in the CCC • Emissions peak at 40 GtCO2 in 2040, close to IPCC scenarios for stabilisation at 750 ppmv • Reduction from Baseline: 25% in 2050 • Emissions Trading is allowed among the Annex 1* and developing countries • A carbon value of 19 €/tCO2 in 2030 and 44 €/tCO2 in 2050 • Emissions trading largely compensates the abatement costs for developing countries

7. 1. Impacts of non-binding targets for DCs • Assumption: one key non Annex 1 region gets a higher-than-expected economic growth • As a result, this region renounces to fully meet its non-binding target and cannot sell CO2 surplus • Global emissions increase: • by 7% in the Baseline • by up to 18% in the CCC • But the permit price increases only from 44 to 46 €/tCO2 as higher energy prices partly offset reduced permit supply

8. 2. Introducing a «high» price cap • Assumes a price-cap is introduced for Annex 1* with a linear increase to 50 €/tCO2 in 2050 (i.e. above forecasted costs) • and a key developing region experiences a higher-than-expected economic growth and renounces to meet its non-binding target and to trade CO2 surplus • … then despite the absence of cheap reduction from this country, marginal abatement costs may not reach the price cap level, due to indirect effects on energy markets • This case reveals no “domino effect” of non binding targets on the other countries’ emissions

9. 3. Introducing indexed targets • In case of economic surprises, indexed targets would result in the same global emissions as non-binding targets, but with relatively lower abatement costs for Annex I* countries, as all countries would continue to trade • The risk for the other regions of reaching a possible price cap level set above forecasted costs is in that case lower than with non-binding targets

10. 4. Strenghthening the carbon constraint • Assumes that Annex I* countries strengthen their targets, down to 25% of 1990 levels (« Factor 4 ») • Global emissions are reduced to 37.5 GtCO2 with a permit price of 58 €/tCO2(i.e. a 700 ppmv profile) • The relatively limited impact results from the small share of Annex 1* countries in global 2050 emissions (19 %) • A price cap may make this commitment easier. If it is set at 50 €/tCO2 and if abatement costs are: • as forecasted (58 €/tCO2), the price cap level is reached, but emissions remain almost unaffected at 38 vs. 37.5 GtCO2 • lower than forecasted, then the more stringent target is reached at lower costs • higher than forecasted, emissions increase beyond the initial scenario

11. Preliminary conclusions • “Combined options scenarios” may result in global reductions in the range of 25 % from Baseline in 2050 • In case of unexpectedly high economic growth, non-binding targets or dynamic targets will indeed entail deviation from targets • But may not have a strong effect on the emissions of the parties under a price cap, due to interactions with energy markets • Price cap may also help strengthening the constraint… with however limited effects on global emissions if the corresponding region is too small