www.ecn.nl

www.camecon.com

Climate change mitigation in

Latin America

Tom Kober (ECN), Philip Summerton (CE)

ETSAP workshop on Methodologies Linking Energy Systems Models and Economic Models

Copenhagen, 19 Nov 2014

Outline

1. Rationale

2. Model description of E3ME and TIAM-ECN & their linkage

3. Results

4. Conclusion

Rationale of model linkage (energy system model & macro-economic model)

• Energy system costs are not representative of whole economy impacts – Distribution and timing of impacts matters

• Downstream: energy system costs are absorbed differently by different consumers – E.g. demand response

– Trade flows

• Upstream: energy system ‘suppliers’ (capital, fuel, etc.) have differing economic characteristics with implications for macroeconomic impacts

• Technology diffusion/transfer – Innovation can be cross sectoral (e.g. batteries)

E3 interactions within E3ME

Link to TIAM-ECN

TIAM-ECN

model characterisation

• Global, technology rich, long-term energy system model • Economic optimisation: determination of cost optimal

configuration of the system • 20 world regions with trade of energy, emission certificates and

captured CO2 • All energy supply and demand

sectors (from resource extraction to the final end use of energy)

• Comprehensive energy technology portfolio, e.g. hydrogen and synfuel production, CCS in power, industry and upstream sector, renewables for heat and power

• Emissions: CO2, CH4, N2O

Separate regions:

Mexico

Colombia

Venezuela

Brazil

Argentina

Chile

Model linkage

TIAM-ECN inputs to E3ME E3ME outputs

TIAM-ECN representative for the energy system part of E3ME

TIAM-ECN results impact on

the economy

Three main channels through which the TIAM-ECN results impact on the economy:

• level of investment in energy technologies, the upstream impact of that investment and the way the investment is financed

• electricity prices and industry costs, and the consequential impact on demand

• mix of energy demand by fuel in the economy

Scenario definition &

assumptions

• 3 scenarios: – Core baseline (No policy promoting climate change mitigation)

– Low price path for GHG emissions (10 $/tCO2e in 2020 and + 4% p.a. afterwards)

– High price path for GHG emissions (50 $/tCO2e in 2020 and + 4% p.a. afterwards)

• Population growth according to UNDP medium fertility rate

GHG emission development in

Latin America

Core baseline

Low GHG price

High GHG price

Total emissions in 2050 Baseline: 6.7 GtCO2e (100%) Low price: 6.0 GtCO2e (-10%) High price: 3.7 GtCO2e (-45%)

Investments in the energy

supply sector (TIAM-ECN)

0

50

100

150

200

250

300

350

400

Bas

elin

e

Low

pri

ce

Hig

h p

rice

Bas

elin

e

Low

pri

ce

Hig

h p

rice

Bas

elin

e

Low

pri

ce

Hig

h p

rice

Bas

elin

e

Low

pri

ce

Hig

h p

rice

2020 2030 2040 2050

An

nu

al in

vest

me

nt

cost

[b

ln U

S$(2

00

5)]

electricity

other energy Delta: 40 bln US$

Low-carbon technology

investments vs. capacity

Scenario 1a Core baseline $50 CO2 price

0

200

400

600

800

1,000

1,200

0 100 200 300 400

Cu

mu

lati

ve in

vest

me

nts

(201

0-20

50)

[bln

US$

(200

5)]

Cumulative capacity installed between 2010 and 2050 [GW]

0

200

400

600

800

1,000

1,200

0 100 200 300 400

Cumulative capacity installed between 2010 and 2050 [GW]

Hydro

Solar

Wind

CCS

Nuclear

Hydro

Solar

Wind

CCS

Nuclear

GDP impacts in Latin America

in the high carbon price scenario

Energy technology costs (investments and O&M costs)

Decomposition of impact on Gross Domestic Product

Consumer spending Investment

Exports Imports

Electricity production

Other supply

Industry

Residential, commercial, agriculture

Transport

-4.0%

-2.0%

0.0%

2.0%

4.0%

2020 2030 2040 2050

GD

P c

han

ge

-1.0

1.0

3.0

5.0

7.0

9.0

11.0

2020 2030 2040 2050

20

20

= 1

GDP impacts in Brazil and Mexico

in the high carbon price scenario

Energy technology costs (investments and O&M costs)

Decomposition of impact on Gross Domestic Product

Consumer spending InvestmentExports Imports

Electricity production

Other supply

Industry

Residential, commercial, agriculture

Transport

Other supply

Industry

Transport

Residential, commercial, agriculture

Brazil:

2020 2030 2040 2050

4.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

2020 2030 2040 2050

GD

P c

han

ge-4.0%

-2.0%

0.0%

2.0%

4.0%

2020 2030 2040 2050

GD

P c

han

ge

11.0

-1.0

1.0

3.0

5.0

7.0

9.0

11.0

2020 2030 2040 2050

20

20

= 1

-1.0

1.0

3.0

5.0

7.0

9.0

11.0

2020 2030 2040 2050

20

20

= 1

Mexico:

2020 2030 2040 2050

4.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

2020 2030 2040 2050

GD

P c

han

ge-4.0%

-2.0%

0.0%

2.0%

4.0%

2020 2030 2040 2050

GD

P c

han

ge

11.0

-1.0

1.0

3.0

5.0

7.0

9.0

11.0

2020 2030 2040 2050

20

20

= 1

-1.0

1.0

3.0

5.0

7.0

9.0

11.0

2020 2030 2040 2050

20

20

= 1

Long-term (2050) employment

effects under high carbon price*

* figures compared to Core baseline

• Employment increases on average by 1.4%

• Unemployment declines by 30% (+5 mln. jobs)

Conclusions

• With increasing GHG emission reduction obligation energy supply investments shift towards electricity technology

• Among low-carbon technology significant investments in hydro and solar technology under high carbon tax

• Investments in low-carbon technology don’t crowd-out investments in other sectors if capital can be transferred from non-productive assets to productive assets. This results in: – Positive macro-economic effects

– Stabilisation of consumer spending if carbon tax is recycled

– Increase of employment

Outlook

• E3ME delivers insights into demand response – Different demand scenarios

– Update of demand elasticity factors for TIAM-ECN (long-term option)

• Recycling of carbon tax revenues to be reflected in TIAM-ECN – Carbon prices are used representatively in energy system models

– If assumed revenue is recycled into economy, how does this offset the impact?

– Demand response?

– Technology-specific subsidy: NCAP_ISUB

– Consumer-specific: COM_SUBPRD

Acknowledgements

The analysis presented has been produced with the financial assistance of the European Union in the context of the CLIMACAP project (EuropeAid/131944/C/SER/Multi). The contents of this publication are the sole responsibility of the authors and can in no way be taken to reflect the views of the European Union.

For more information about CLIMACAP project visit: http://www.climacap.org

Thank you!

Tom Kober

Policy Studies | Global Sustainability

T: +31 88 515 4105 | F: +31 224 56 83 38 Radarweg 60, 1043 NT Amsterdam, The Netherlands

kober@ecn.nl

Philip Summerton

Cambridge Econometrics

T: +441223533100

Reuben House, Covent Garden, Cambridge, CB1 2HT, UK

ps@camecon.com

•Supplementary material

Model interaction in

CLIMACAP project

E3ME TIAM-ECN LEAP/MESSAGE/…

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

-6% -5% -4% -3% -2% -1% 0% 1% 2% 3%

Imp

act

on

CO

2co

mp

ared

to

bas

elin

e

Impact on GDP compared to baseline

GDP impact relative to CO2 impact, Latin America

iPETS 2A

iPETS 2C

Phoenix 2A

Phoenix 2C

EPPA 2A

EPPA 2C

E3ME TIAM-ECN 2A

E3ME TIAM-ECN 2C

ADAGE 2A