more gas, less coal, and less co2? — unilateral co2 reduction … · 2018. 11. 23. · co2?...
TRANSCRIPT
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
More Gas, Less Coal, and Less CO2?
�
Unilateral CO2 Redu tion Poli y with More
than One Carbon Energy Sour e
Julien Daubanes (UNIGE, UCPH, and CESifo),
Fanny Henriet (PSE)
and
Katheline S hubert (PSE, and CESifo)
Frontiers in Climate Change E onomi s
UCPH 2018
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
Gas Promotion Strategy
Natural gas releases less CO2 than regular fuels
Now more than ever, hope large repla ement of very arbon
intensive fuels by shale gas will help gas-produ ing regions
mitigate CO2 emissions
Example: US, Russia, China, Japan
Manifest in the power generation se tor: Steam oal vs natural gas
2 important on erns:
1 Methane emissions at gas produ tion stage: spe i� regulatory
hallenges
2 This paper: international oal leakage
Unlike gas� onsumed where produ ed� oal high leakage
potential; more gas releases tradable oal
1/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
US Example
US 2nd biggest CO2 emitter
2nd biggest oal produ er and oal onsumer, top oal reserve
holder
Top (shale) gas produ er
CO2 emissions regulation by the 2011 Clean Air A t
Paris Climate Agreement US ommitment, at least until next
Administration: 26% redu tion target over 2005-2025
So far, gas- oal substitution strategy
The US "position as the top natural gas produ er ... not only an
provide ... heap power, but it an also help redu e [US℄ arbon
emissions." (President Obama, June 25, 2013)
Ele tri ity se tor: 2015 Clean Power Plan
2/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
US Example: Substitution at Work
E�e tive substitution of steam oal by natural gas in US ele tri ity
se tor, hand in hand with development and poli y promotion of gas
0
5000
10000
15000
20000
25000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure: Coal and gas onsumption by the US power generation se tor in
million MMBtu (EIA)
3/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
US Example: Redu tion in Domesti CO2
Emissions
Given large CO2 ontribution of the se tor, the oal-gas
substitution has ontributed to the redu tion of the US CO2
emissions (Feng et al 2015, Kot hen & Mansur 2016)
4600
4800
5000
5200
5400
5600
5800
6000
6200
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure: CO2 emissions (million metri tons) from energy onsumption
in the US (EIA)
4/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
US Example: Coal Leakage
However, the gas boom and its poli y promotion have aused large
amounts of oal to meet a foreign demand
Rise in net US oal exports on omitant with oal-gas substitution
0
5
10
15
20
25
30
35
40
Q12000
Q32000
Q12001
Q32001
Q12002
Q32002
Q12003
Q32003
Q12004
Q32004
Q12005
Q32005
Q12006
Q32006
Q12007
Q32007
Q12008
Q32008
Q12009
Q32009
Q12010
Q32010
Q12011
Q32011
Q12012
Q32012
Q12013
Q32013
Q12014
Q32014
Q12015
Q32015
Q12016
Q32016
Q12017
Q32017
Figure: Net exports of oal (short tons) from the US to the rest of the
world (EIA)
5/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
US Example: Perspe tives
Those developments are likely to persist, irrespe tive of the
ultimate US de ision on the Paris agreement
1 Pressure towards CO2 redu tion to be ontinued by US states and
orporations (eg The E onomist June 5 2017)
2 Rise of gas still to be publi ly supported (President Trump, June
29, 2017)
3 Exports of oal likely to ontinue in reasing
a Gas to release amounts of tradable oal (eg Wolak 2013)
b Coal export terminals to re eive a favorable regulatory treatment
The rise of US oal exports has be ome a poli y obje tive in itself
(President Trump, June 29, 2017)
6/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
The Problem
Two main reasons why this deserves attention in urrent ontext
1 Paris Climate Agreement: Governments will have to rely on
unilateral initiatives
2 The rise of gas as an intermediate (less arbon intensive) energy
sour e fundamentally modi�es the analysis of unilateral poli ies
Standard analysis with a single CO2 energy sour e: Unilateral
redu tion entails CO2 leakage but < 100%With more than one CO2 sour e, we show that leakage may be
≥ 100%, so that unilateral poli y may be ounter-produ tive
However, no study of unilateral CO2 redu tion in presen e of more
than one CO2 energy sour e examining this possibility
7/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
This Paper
We do applied theory to examine onsequen es of unilateral
strategy to rely on gas as an intermediate�less CO2
intensive�energy sour e
We examine an open e onomy that relies on two substitutable
CO2 inputs to produ e ele tri ity:
Coal (more CO2 intensive)
Gas (less so)
Question: Can the domesti promotion of gas help redu e
domesti and world CO2 emissions?
8/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
Outline
1 Simplest version of the model, with minimal ingredients involved
Stati representation of energy markets (eg Hoel 1994, Harstad 2012)
Coal tradable, unlike gas
Perfe t substitution, as is the ase in a su� iently long run
2 Appli ation to the US
3 Dis ussion on extensions to other aspe ts
9/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
Interse tion of 2 Strands of Applied-Theory
Literature
1 Leakage e�e t limiting e�e tiveness of unilateral limate poli ies
Eg Ei hner & Pethig 2011, Ritter & S hopf 2013
Extension to more than one energy sour e, giving rise to possibility of
> 100% leakage, thus of poli y ounter-e�e tiveness
Leakage ounterpart of the "green paradox"
2 Resour e e onomi s with multiple polluting energy sour es
Eg Chakravorty, Moreaux & Tidball 2008
Extension to open e onomy and unilateral poli y
⇒ At the interse tion, Fis her & Salant 2017, but possibility of
> 100% leakage remains overlooked
10/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
Literature on US Climate Poli y
Con erns over rising US oal exports (eg Fowlie 2014, Knittel et al
2016, NGOs)
Existing studies mostly fo used on hanges within US e onomy
(Burtraw et al 2014, Knittel et al 2015, Cullen & Mansur 2017)
Ex eption: Re ent simulations by Wolak 2016 with global oal
market
Assuming perfe tly-inelasti oal demand, as in the short run
(Knittel et al 2017)
Our addition:
New insights as to CO2 leakage with gas intermediate energy sour e
In a longer-run perspe tive, we do away with the assumption of zero
oal demand elasti ity (eg Burke & Liao 2015)
Results indi ate�and appli ation illustrates�that this is riti al
Call for reexamining Wolak's poli y on lusions
11/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
Basi 2-Country-2-Good Model
2 ountries / regions
H : Home, ountry of interest
F : Rest of the World
2 perfe tly substitutable energies
Coal c, tradable, produ ed in H and F
sHc = SHc (pc)
sFc = SFc (pc)
where pc is Coal produ er pri eGas g, produ ed in H only, and only onsumed lo ally
sHg = SHg (pg)
where pg is Gas produ er pri e
12/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
Basi 2-Country-2-Good Model
2 ountries / regions
H : Home, ountry of interest
F : Rest of the World
2 perfe tly substitutable energies
Coal c, tradable, produ ed in H and F
sHc = SHc (pc)
sFc = SFc (pc)
where pc is Coal produ er pri eGas g, produ ed in H only, and only onsumed lo ally
sHg = SHg (pg)
where pg is Gas produ er pri e
12/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
Basi 2-Country-2-Good Model
2 ountries / regions
H : Home, ountry of interest
F : Rest of the World
2 perfe tly substitutable energies
Coal c, tradable, produ ed in H and F
sHc = SHc (pc)
sFc = SFc (pc)
where pc is Coal produ er pri eGas g, produ ed in H only, and only onsumed lo ally
sHg = SHg (pg)
where pg is Gas produ er pri e
12/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
Energy Demand and Trade
F only relies on Coal
xFc = DF (pc)
H relies not only on Coal but also on domesti Gas
xH = DH(p) = xHc
︸︷︷︸
Coal
+ sHg︸︷︷︸
Gas
where p is �nal energy pri e (Coal and Gas)
When Home uses Coal and Gas at the same time, no arbitrage
p = pc = pg
In laissez-faire, p balan es supply and demand at world level:
DH(p) +DF (p) = SHc (p) + SF
c (p) + SHg (p)
13/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
Energy Demand and Trade
F only relies on Coal
xFc = DF (pc)
H relies not only on Coal but also on domesti Gas
xH = DH(p) = xHc
︸︷︷︸
Coal
+ sHg︸︷︷︸
Gas
where p is �nal energy pri e (Coal and Gas)
When Home uses Coal and Gas at the same time, no arbitrage
p = pc = pg
In laissez-faire, p balan es supply and demand at world level:
DH(p) +DF (p) = SHc (p) + SF
c (p) + SHg (p)
13/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
Energy Demand and Trade
F only relies on Coal
xFc = DF (pc)
H relies not only on Coal but also on domesti Gas
xH = DH(p) = xHc
︸︷︷︸
Coal
+ sHg︸︷︷︸
Gas
where p is �nal energy pri e (Coal and Gas)
When Home uses Coal and Gas at the same time, no arbitrage
p = pc = pg
In laissez-faire, p balan es supply and demand at world level:
DH(p) +DF (p) = SHc (p) + SF
c (p) + SHg (p)
13/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
Domesti CO2 Commitment
CO2 intensities of Coal and Gas:
θc ≥ θg ≥ 0
Domesti emission limit, assumed binding:
θcxHc + θgs
Hg = eH
However it is implemented, similar to a CO2 penalty; assume it is
an expli it CO2 pri e (eg arbon tax or permits pri e)
τH ≥ 0
Equilibrium no-arbitrage ondition be omes
p = pc + θcτH = pg + θg τ
H
and produ er pri es
{pc = p− θcτ
H
pg = p− θg τH
14/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
Equilibrium with Domesti CO2 Commitment
Final energy pri e p balan es energy market
DH(p) +DF (
pc
︷ ︸︸ ︷
p− θcτH)
= (1)
SHc (p− θcτ
H
︸ ︷︷ ︸
pc
) + SFc (p− θcτ
H
︸ ︷︷ ︸
pc
) + SHg (p− θg τ
H
︸ ︷︷ ︸
pg
)
Domesti arbon pri e τH must satisfy CO2 ommitment
θc[DH(p)− SH
g (p− θg τH)
]
︸ ︷︷ ︸
xHc
+θg SHg (p− θg τ
H)︸ ︷︷ ︸
sHg
= eH (2)
Proposition 0 (Equilibrium)
System (1)-(2) uniquely determines the �nal energy pri e p and
the arbon pri e τH
15/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
Domesti CO2 Redu tion and Gas Produ tion
E�e t of redu tion deH < 0 on Gas produ tion?
Coal penalized as the most polluting energy sour e: dpc < 0
In ontrast, e�e t on Gas is ambiguous: dpg?
Proposition 1 (E�e t of domesti CO2 redu tion on Gas)
Less CO2 in H warrants more Gas i� Gas su� iently less CO2
intensive:
θc − θgθg
> r0 ≡ξDH
xFc
xH ξDF + scxH ξSc
(3)
Testable ondition involving elasti ities, market shares, and rate
(θc − θg)/θg of pollution in rease from Gas to Coal
Polar ases:
Never satis�ed if θc = θg, as if single energy sour e
Always if θg 7→ 0: Penalize oal, only arbon energy sour e
In general, ambiguous: For example, more likely when H small
energy- onsuming ountry
16/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
Domesti CO2 Redu tion, Coal Exports, and
Emissions in Rest of the World
E�e t of redu tion deH < 0 on world emissions?
As far as Coal is on erned, standard logi of leakage:
Coal penalized as the most polluting energy sour e: dpc < 0Rise in Coal use in rest of the world: dxF
c > 0Despite ontra tion of oal supply: dsHc , dsFc < 0Central role of Coal exports from H: d
(
sFc − xFc
)
> 0
Domesti CO2 redu tion (at least partly) ompensated by CO2
in rease in rest of the world:
deW = deH︸︷︷︸
<0
+ θcdxFc
︸ ︷︷ ︸
>0
However, in presen e of Gas, the leakage rate
deF
−deHmay ex eed 100%
17/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
Domesti CO2 Redu tion and World Emissions
E�e t on world emissions ambiguous: deW ?
Proposition 2 (E�e t of domesti CO2 redu tion on
leakage and world CO2)
Less CO2 in H leads to less CO2 in the world (leakage < 100%) i�
θc − θgθg
<ξDH
xFc
xH ξDF + scxH ξSc
︸ ︷︷ ︸
r0
1 +θcθg
ξSc
θcθg
sHgscξSg
+
θc−θgθg
xH
scξDH
︸ ︷︷ ︸
>1
(4)
(4) may be violated only if (3) is satis�ed: Leakage > 100% only
if more Gas
In polar ases, (4) always satis�ed:
θg = θc, as if single arbon energy sour e
θg 7→ 0, as when only oal ontains arbon
With realisti intermediate values 0 < θg < θc, need to be veri�ed
18/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
Domesti CO2 Redu tion: Summary
Criti al role of rate of pollution in rease (θc − θg)/θg(4) satis�ed if U-shape fun tion takes positive values
PSfrag repla ements
θc−θgθg
Less Gas
0
More Gas
Less CO2
Less CO2
More CO2
xe
o(N)
No
xo
r0 r ˜r
Figure: Domesti CO2 redu tion poli y, o urren e of gas boom and
in rease in world CO2 emissions
19/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
Appli ation to US: Empiri al Values
Relative CO2 intensities
IPCC 2014, Howarth et al 2011
Standard θc/θg = 2, ie (θc − θg)/θg = 1, but ontroversial
Market shares
EIA
sc + sHg = 8; sc = 7; xH = 2; xHc = 1; xH
g = 1
US ele tri ity demand elasti ity
Bernstein & Gri�n 2006, Paul et al 2009, Deryugina et al 2017
Intermediate value of ξDH = 0.2
Non-US oal demand elasti ity
Burke & Liao 2015, Chakravorty et al 2015
Intermediate value of ξDF = 0.5
Coal and Gas supply elasti ities
Light et al 1999, Brown & Krupni k 2010, Truby & Paulus 2012
Average values of ξSc = ξSg = 1, despite large dispersion
20/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
Appli ation to US: Results with Most Realisti
Values
With the apparently most realisti parameter values
Proposition 1: Gas promotion justi�ed to redu e US emissions
r0 = 0.04 << 1 =θc − θg
θg
Proposition 2: US CO2 redu tion e�e tively ontributes to redu e
world CO2 emissions
deF
−deH= 41% < 100%
However, omitting gas as an intermediate energy sour e leads to
largely underestimate the leakage rate; assuming a single arbon
energy sour e as in the standard leakage analysis would yield
deF
−deH= 27% < 41%
21/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
Appli ation to US: Sensitivity
Robust to realisti variations in CO2 intensities
However, highly sensitive to variations in supply elasti ities:
Figure: Curves of iso-leakage-rate and supply elasti ities
Admissible values of ξSc= 0.1 and ξSg
= 1 imply > 100% leakage!
Call for more empiri al resear h on the medium/long-run elasti ity
of gas and oal supply
22/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
CO2 Commitment in Rest of the World
Sensible to onsider CO2 ommitment in rest of the world
Assume F ommitment not to use more Coal:
θcxFc ≤ eF
Implemented with CO2 pri e τF > 0
E�e t of domesti CO2 redu tion in H deH < 0 in this ontext?
Same e�e ts as above, ex ept that emissions in F will not
in rease, but CO2 pri e τF will
Proposition 3 (E�e t of domesti CO2 redu tion on
poli y in rest of the world)
Less CO2 in H requires an in rease in CO2 penalty in F:
dτF
dτH=
ξDH +(
θc−θgθc
)xHg
xH ξSg
ξDH + scxH ξSc +
xHg
xH ξSg
> 0 (5)
Appli ation to the US: A US unilateral CO2 pri e rise by $10 alls
for a CO2 pri e rise in the rest of the world by $1.723/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
Dynami Coal and Gas Supplies
In fa t, Coal and Gas are fossil fuels produ ed over time
Extension:
Costless extra tion over time by Hotelling-type se tors
Endogenous reserve development (Gaudet & Lasserre 1988)
Formulation in terms of umulative quantities isomorphi to stati
model
The extension highlights that relevant notion of supply elasti ity is
long-run (reserve) produ tion elasti ity
24/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
International Gas Trade
Very hallenging but progressively be oming reality (eg US)
If Coal and Gas also perfe tly substitutable in rest of the world
If some Gas is used in H: same analysis
Otherwise, reinterpret Gas supply as residual supply: same analysis
In general, a CO2 intermediate energy sour e like Gas modi�es the
qualitative and quantitative analysis of unilateral limate poli y
and international CO2 leakage
25/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
Te hni al Progress in the Produ tion of Gas and
Other Alternative Energy Sour es
Te hni al improvement on omitant to the unilateral CO2
redu tion in H may a�e t our results
1 Te hni al progress in the produ tion of Gas substantiates the
on ern that a CO2 redu tion in H may be ounter-produ tive
Redu tion in domesti CO2 emissions under the same ondition as in
Proposition 1
Rise in world CO2 emissions for intermediate values of (θc − θg)/θg
2 Te hni al progress in alternative energy sour es obviously redu es
world CO2 emissions
26/27
More Gas, Less
Coal, and Less
CO2?
�
Unilateral CO2
Redu tion Poli y
with More than
One Carbon
Energy Sour e
Julien Daubanes,
Fanny Henriet,
and Katheline
S hubert
Introdu tion
Model
Domesti CO2
Redu tion
CO2 Leakage
Appli ation to the
US
Extensions
CO2 Poli y in Rest of
the World
Dynami Energy
Supply
International Gas
Trade
Te hni al Progress
Con lusion
Con lusion
Now more than ever, gas used as an intermediate energy sour e to
redu e CO2 emissions
Possibility that ambitious unilateral poli y be ounter-produ tive,
unlike standard leakage analysis
Analysis needed
New results, important, espe ially in the aftermath of the Paris
agreement
Formulas an be used to roughly evaluate limate poli y in any gas
ri h e onomy
Illustrative appli ation to the US:
US urrent poli y e�e tive
Highly sensitive to supply elasti ities: More empiri al resear h needed
Call for more stringent CO2 penalties in rest of the world
However, model too stylized to draw de�nitive on lusion and
poli y pres ription
Call for reexamining existing poli y analysis of Wolak 2016
27/27