Costing the Climate Change
Bill: from System Models and
Cost Curves to the Real World
Andy Kerr
What this means by sector: 34% & 42%
Change needed from 2006
to 2020 - 42%
2006
emissions
MtCO2e
MtCO2e
MtCO2e
%
MtCO2e
%
23.0
-5.2
-23%
-9.0
-39%
2.0
-0.2
-9%
-0.2
-9%
3.6
+0.5
+14%
+0.5
+14%
-3.9
-42%
-4.3
-46%
-3.4
-24%
-4.8
-33%
Traded sector excluding aviation
Aviation
Change needed from 2006
to 2020 - 34%
1990
emissions
1.1
Other non-traded
Other, before ETS introduced
33.2
Heat
10.2
9.3
Domestic Buildings
7.8
7.3
Non-domestic buildings
2.4
2.1
13.7
14.5
Road
9.2
10.5
Rail
0.2
0.3
Off-road
1.6
1.6
Shipping
2.6
2.2
5.7
2.5
-1.0
-39%
-1.0
-39%
14.5
12.7
-0.7
-6%
-1.3
-10%
3.7
3.5
Transport
Waste
Agriculture and land use
Livestock
Crops and soils
5.0
3.6
Agricultural and other land use - sources
8.1
8.6
-2.4
-2.9
Forestry
-8.2
-10.1
+2.8
*
+2.4
*
TOTAL
70.1
57.6
-11.2
-19%
-17.6
-31%
Agricultural and other land use - sinks
* percentage has been omitted to avoid confusion when looking at changes in negative numbers.
Activities?
APPROXIMATE COST (public)
•
•
•
•
Electricity
– Renewables
– Carbon Capture & Storage
Transport
– Aviation
– Carbon intensity improvements
– Demand management
Woodland planting
Heat / small scale electricity
– Supplier Obligations
– Renewable heat
£40 – 200 / tCO2e
€60 - 90 / tCO2e
Traded sector carbon price
£20-140 / tCO2e
?
<£20 / tCO2e
<£0 / tCO2e
£5 – 400+ / tCO2e
1,300
How can we go from the general to the
specific and local…?
£/tCO2e
2020
650
FAW
Buildings
Industry
Transport
Power
600
550
Costs to UK/Scot Government?
Costs to society?
450
400
350
300
150
100
50
27
0
-50 0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
75
80
85
90
95
100
105
110
-100
-150
-200
Lighting - Domestic
Building envelopes
4%
Source: UK MAC model
MtCO2e
Wind onshore @ 0-10%
Nuclear growth
Coal-to-gas shift; merit order
Wind offshore @ 0-10%
4%
5%
16%
4%
Refinery efficiency - level 2
Motor systems
Powertrain & non engine techs - cars gasoline
3%
4%
5%
Motor systems - non-VSD
3%
Emissions abatement costs
• Deriving cost estimates – underlying
assumptions/models
• How are they used in practice
• Are MACC sufficient to develop meaningful policy?
• If yes…great! If no:
– What other tools do we need?
– What other approaches to analysis?
– Is it possible to derive meaningful cost estimates?
Marginal abatement cost curves (MACC)
•
Relationship between volume of
emissions abated for different actions /
policies / technologies and the cost of
abatement (or of corresponding carbon
price) at a given point in time
•
Always quantified against a reference
scenario
•
Top down or bottom up approach
•
Convenient way of visualising
responses to a range of abatement
levels: a reduced form model…
General issues
•
Technology (bottom up) MACC shows maximum theoretical
potential; also need “feasible” potential
•
Private / social distinctions (e.g. plug-in cars)
•
Geography (e.g. house types; transport distances)
•
Interdependence of activities / technologies / policies (renewable
technologies)
•
Time (e.g. technology options change)
•
Path dependence of activities (e.g. district heating)
•
Hidden/non-market costs (e.g. time / hassle / capital / supply chain
constraints)
•
Multiple drivers / needs (e.g. energy security; peak oil)
CCC approach to UK costing
• Bottom-up approach: Assess full range of abatement
options and associated costs
• Defining scenarios:
– Cost minimisation for meeting a given target would be achieved
by implementing all measures up to the carbon prices, and
purchasing any residual emissions reductions as required to
meet the target in international carbon markets @ £40/tCO2e,
but also need to aim for radical 2050 target so may use options
that cost more than £40/tCO2e
– The principal of setting the marginal cost equal to the carbon
price also fails to recognise that optimal abatement strategy also
has to be shaped by availability of policy levels – political
acceptability plus behavioural barriers.
CCC approach to UK costing
• Resource cost modelling: summing area under MACC
• Macro-economic modelling: use resource costs and
second order effects of resource cost increases (e.g.
higher energy costs drive a shift of resources from
energy-intensive sectors)
• General Equilibrium modelling: also use resource costs
and second order effects…assumes the economy
adjusts to a new equilibrium in response to higher
energy prices, based on theoretical supply & demand
functions.
CCC resource cost modelling:
summing under the MACC
Delivery Plan (June 2009)
“The 34% measures selected were those with a (UK)
marginal abatement cost of less than the forecast price
of carbon in 2020, £40/tCO2e, or those with a higher
cost that were considered important stepping stones on
the way to 2050. The additional measures for 42% were
further feasible, but more radical, options.”
Revisiting the cost curve…
1,300
£/tCO2e
2020
650
FAW
Buildings
Industry
Transport
Power
600
550
Least cost options?
Is it just pick and mix?
450
400
350
300
150
100
50
27
0
-50 0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
75
80
85
90
95
100
105
110
-100
-150
-200
Lighting - Domestic
Building envelopes
4%
Source: UK MAC model
MtCO2e
Wind onshore @ 0-10%
Nuclear growth
Coal-to-gas shift; merit order
Wind offshore @ 0-10%
4%
5%
16%
4%
Refinery efficiency - level 2
Motor systems
Powertrain & non engine techs - cars gasoline
3%
4%
5%
Motor systems - non-VSD
3%
Aims of breakout groups
•
Unpick strengths and weaknesses of existing approaches
to costing emissions abatement activities in each topic
area (electricity / heat / transport)
•
What quantitative / qualitative tools do we need to use?
–
Behavioural psychology / sociology / political science?
–
Network models / macro-economic models?
•
What insights are important?
•
What questions need to be answered to develop
meaningful estimates of costs?
•
What scenarios need to be developed?
One final thought
“Many analysts have used MACs. They offer an easy to
understand visualization of how costs depend on the level of
abatement. Unfortunately, unless one takes great care in
understanding the exact conditions under which MACs are
constructed and constructs them for the specific use in
mind, it is very easy to misuse them. By misuse we mean
exercising MACs under conditions where the results they
provide would differ substantially from the result one would
get from running the parent model.”
From “Marginal abatement costs and marginal welfare costs
for greenhouse gas emissions reductions”
Morrison et al. (2008) MIT Science and Policy of Global
Change