Exploring Existing Policies in Energy and Emissions Baselines

1. Business as Unusual (BAuU)The role of existing policies in energy and emissions baselinesDr. Neil StrachanKing’s College London, UKneil.strachan@kcl.ac.ukInternational Energy WorkshopVenice, June 17th – 19th, 2009

2. Motivation • All modelling exercises of long-term energy policy require a counter factual energy and emissions scenario • A reference or baseline or business-as-usual case • Range of descriptions reflect the difficulty in assigning a “without policy" case • Key model drivers of long term costs • Baselines, (co) benefits, model structure, flexibility in meeting targets • Overwhelming focus has been on latter two (see Repetto and Austin, 1997 ; Weyant and Hill, 1999 ; Fischer and Morgenstern, 2006 ; Das et al., 2007) • Historical reviews of modelling studies (Craig et al., 2002 ; Pilavachi et al., 2008 ; EIA, 2007) • Over complexity, non transparency and continuation of existing trends • Large sectoral and technological divergences owning to policy mechanisms • Existing energy and emissions policies are an integral part of any baseline • For CO2 mitigation this already represent a business-as-UNUSUAL (BAuU) case • Note reliance on projections of existing policy impact and iterative nature of policy process

3. Outline • Exploratory analysis of BAuU issue • Near-term (to 2020) assessment of existing UK CO2 policies • Series of UK updated emission projections (UEP), from DECC energy model • Focus on explicit role of policy in projections, fossil fuel price assumptions • Comparison of emissions projection • Long term (to 2050) assessment of existing UK CO2 policies • Via the UK MARKAL MED energy systems optimisation model • Inclusion of near-term policy in BAuU projections • Four base cases: • Current policies – BAuU ; BAuU and high fossil prices • No current policies – BAU ; BAU and high fossil prices • Comparison of CO2 mitigation scenarios (-26% in 2020, -80% in 2050) • Role of current policy • Role of high fossil (HF) prices • No CCS technology (-C)

4. UK UEP • UK Government energy model (DTI-DETR-BERR-DECC) • Increasing frequency: DTI (1992, 1995, 2000, 2003, 2004, 2006a, 2006b, 2008a, 2008b, 2008c, 2009...) • Fast moving policy landscape • Important role in UK government energy policy making • Econometric sectoral demand estimation • Electricity sector optimisation module • Explicit inclusion of current policy impacts • No emphasis on technological change • Post 2020 government projections via IAG scenarios • Major uncertainties in projections • model structure, policy assumptions, fossil prices, GDP growth, land use change & EU-ETS purchases • Note little empirical evidence for fossil prices and GDP correlation (Jimenez-Rodriguez, 2000x)

5. Key UEP characteristics

6. UEP: 2005 oil price assumptions

7. UEP: 2020 oil price assumptions

8. UEP policy impact

9. UEP CO2 projection comparison

10. MARKAL (MED) modelling • Long-term energy systems optimisation modelling (Anandarajah et al., 2009) • Remove near-term policy for “true” BAU projections • Remove EU-ETS (€20/tCO2), Climate Change Levy (CCL) • Remove electricity renewable obligation (15% by 2015), anticipated wind farms projects • Remove renewable transport fuel obligation (5% by 2010) • 10 year delay in transport efficiency improvements (no voluntary agreements) • Moderate appliance efficiency regulation (Band C now permitted) • Remove all efficiency programme implementation in residential, service &industrial sectors • Four base cases: • BAuU; BAuU and high fossil prices • BAU with no current policy ; BAU and high fossil prices • Comparison of policy impact to high fossil prices (HF) and no CCS technology (-C) cases • Six CO2 (-80%) mitigation cases • [BAuU] - C80 ; C80-HF ; C80-C • [BAU] - C80-NP ; C80-NP-HF ; C80-NP-C

11. Long-term fossil fuel pricesSource: BERR (2008), IEA (2008)

12. MED baseline: Final energy

13. MED baseline: CO2 emissions

14. MED policy cases:CO2 prices and Welfare change

15. Conclusions • Existing baseline projections with policies already represent a business-as-unusual (BAuU) case • But valid given iterative future policy-making? • Underestimate true mitigation costs • Current policy impact comparable to other major assumptions (e.g., fossil fuel prices, technology) • Suggests need for three core scenarios • Current-policy reference case (BAuU) • No-policy reference case (BAU) • Long-term mitigation case • Ongoing analytical work on BAuU

16. References • Anandarajah G., N. Strachan, P. Ekins, R. Kannan and N. Hughes (2009) Pathways to a Low Carbon Economy: Energy systems modelling, UKERC Energy 2050 research report 1, www.ukerc.ac.uk • Craig P., A. Gadgil and J. Koomey (2002), What can History teach Us? A Retrospective Examination of Long-Term Energy Forecasts for the United States, Annual Review of Energy Environment, 27: 83-18 • Das A., D. di Valdalbero, M. Virdis (2007), ACROPOLIS: An example of international collaboration in the field of energy modelling to support greenhouse gases mitigation policies, Energy Policy, 35: 763–771. • DTI (various years), Updated Energy Projections (UEP) for the UK, Department for Trade and Industry, London, www.berr.gov.uk/energy/environment/projections/index.html • EIA (2007), AEO Retrospective Review, DOE/EIA 0640 (2006), Energy Information Administration, Washington DC. • Fischer C. and R. Morgenstern (2006), Carbon Abatement Costs: Why the Wide Range of Estimates?, The Energy Journal, 27 (2): 73-86. • Jimenez-Rodriguez R. (2009), Oil Price Shocks and Real GDP Growth: Testing for Non-linearity, The Energy Journal, 30(1): 1-24 • Pilavachi P., T. Dalamaga, D. di Valdalbero, and J. Guilmot (2008), Ex-post evaluation of European energy models, Energy Policy, 36: 1726–1735 • Repetto R. and D. Austin (1997), The costs of climate protection: A guide for the perplexed. World Resources Institute, Washington, D.C. • Weyant J. and J. Hill (1999), Introduction and overview. The costs of the Kyoto Protocol: A multi-model evaluation ,The Energy Journal, 20: vii-xliv.