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The Deployment of Low Carbon

Technologies in Energy Intensive Sectors

A GCE Analysis for Europe, China and India

Stefan Nabernegg

Birgit Bednar-Friedl

Fabian Wagner

Janusz Cofala

Thomas Schinko

Yadira Mori-Clement

International Energy Workshop June 1, 2016


Introduction

• 40% of global GHG emissions stem from industrial sectors

• Strong emission reductions for 2°C target (-24% (IEA 2010)) while

increasing demand (double (Allwood et al. 2010))

• Low carbon technologies in energy intensive sectors

– Differences in reduction potential

– Differences in trade exposure

• Other studies

– Descriptive perspective (e.g. Cai et al. 2009)

– Single or subset of sectors (e.g. Schinko et al. 2014)

Introduction Methodology LCT Macroeconomic Analysis Conclusion


Model link of technological and macroeconomic model


Model calibration

Reduced technology representation

• Fuel cost reductions FCs,r(PCO2)

• Investment costs Is,r(PCO2)

• Operation and maintenance costs O&Ms,r(PCO2)

Detailed technology

information by sector

and region

GAINS model (Wagner et al. 2012, 2013)

Macroeconomic

linkages of sectors

and regions

CGE model (Bednar-Friedl et al.

2012a, b)


No. Aggregated Region Model code

1 Central EU 27 + Switzerland CEU

2 Mediterranean EU 27 MEU

3 Northern EU 27 NEU

4 China CHN

5 India IND

6 Southeastern and Rest of Europe SROE

7 North America NAM

8 Rest of industrialized countries ROI

9 Other emerging economies ECO

10 Latin America LAM

11 Oil and gas exporting countries OIGA

12 Rest of South & South East Asia RASI

13 Africa AFR

CGE model (Bednar-Friedl et al. 2012a, 2012b; Schinko et al. 2014)



No. Aggregated Region Model code

1 Central EU 27 + Switzerland CEU

2 Mediterranean EU 27 MEU

3 Northern EU 27 NEU

4 China CHN

5 India IND

6 Southeastern and Rest of Europe SROE

7 North America NAM

8 Rest of industrialized countries ROI

9 Other emerging economies ECO

10 Latin America LAM

11 Oil and gas exporting countries OIGA

12 Rest of South & South East Asia RASI

13 Africa AFR



No. Aggregated Sectors

Model

Code No. Aggregated Sectors

Model

Code

Energy intensive (EIS) 10 Transport TRN

1 Refined oil products P_C Water

2 Electricity ELY Air

3 Iron and steel I_S Road and Rail

4 Cement, lime, glass etc. NMM Extraction

5 Paper, pulp and paper

products PPP 11 Other Extraction EXT

6 Chemicals, rubber and

plastic CRP 12 Coal COA

Non-energy intensive (NEIS) 13 Crude Oil OIL

7 Tech industries TEC 14 Natural Gas GAS

8 Food and textile industries FTI 15 Agriculture AGRI

9 Other services and utilities SERV 16 Capital Goods CGDS




Oth

er r

egio

ns,

O

ther

reg

ion

s,

Reg

ion

al h

ou

seh

old Armington aggregate,Domestic supply,

Domestic production,

Resource extracting

Process emission

ElectricityOther

sectors Oth

er r

egio

ns,


GAINS model (Wagner et al. 2012, 2013, Amann et al. 2009, 2011)

• Packages of individual technologies

• technology simulations with different carbon prices

• Reduced-form representation of fuel cost curves and investment

curves



Investment and fuel savings by sector (GAINS simulations)


0102030405060708090

0 100 200 300

Chemicals

Energyindustries

Iron and Steel

non-ferrousmetals

non-metallicminerals

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

0 100 200 300

Inve

stm

ent

req

uir

emen

ts

[mill

ion

Eu

r]

Carbon price [Eur/tCO2]

-3,000

-2,500

-2,000

-1,500

-1,000

-500

0

0 100 200 300

Re

du

ced

fu

el c

ost

[m

illio

n E

ur/

yr]


Ind

ia

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

0 100 200 300

Inve

stm

ent

req

uir

emen

ts

[mill

ion

Eu

r]


-12,000

-10,000

-8,000

-6,000

-4,000

-2,000

0

0 100 200 300

Re

du

ced

fu

el c

ost

[m

illio

n E

ur/

yr]


Ch

ina

Corresponds to WEO 450 ppm scenario


CGE implementation


Changes in sectoral inputs and unit costs (carbon price 110$/tCO2eq)

-20.00%

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

P_C EL

Y

I_S

NM

M

PP

P

CR

P

P_C EL

Y

I_S

NM

M

PP

P

CR

P

P_C EL

Y

I_S

NM

M

PP

P

CR

P

CEU CHN IND

CAP

p_c

gas

oil

coa

Unit Costs

35.7%

17.8%


Macroeconomic analysis - Scenarios


EUINCH_TECH LCT in EU, China and India; Baseline emission level

EU CHN IND

Baseline 2030 calibrated to GDP growth, CO2 price, fossil fuel prices as in WEO 450 ppm

EU_TECH LCT in EU; Baseline emission level diff

diff


Macroeconomic analysis - Results


EU_TECH LCT in EU; Baseline emission level

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

P_C ELY I_S NMM PPP CRP

Output change (Q)

EU CHN IND

-4%

-2%

0%

2%

4%

6%

8%

CHN IND ECO NAM rest

EU trade flows [%diff]

EU Export Q EU Import Q





-25%

-20%

-15%

-10%

-5%

0%

5%

10%


Output change (Q)

EU CHN IND

-15%

-10%

-5%

0%

5%

EU CHN IND rest Total

EU_Tech

CO2 emissions [%diff]

%diff EIS %diff NEIS



• Sectoral output in energy intensive sectors

– EU: 3 out of 6 sectors decline

– China, India: negligible effects

• EU Trade

– Exports decline

– Imports from China, India, North America increase

• CO2 emissions

– -13% in EU




-30%

-20%

-10%

0%

10%

20%

30%


Output change (Q)

EU CHN IND




-8%-6%-4%-2%0%2%4%6%8%

CHN IND ECO NAM rest

EU trade flows

EU Export Q EU Import Q


-30%

-20%

-10%

0%

10%

20%

30%


Output change (Q)

EU CHN IND




-20%-15%-10%

-5%0%5%

10%15%

EU CHN IND rest Total

EUINCH_Tech

CO2 emissions [%diff]

%diff EIS %diff NEIS



• Sectoral output in energy intensive sectors

– EU: 5 out of 6 sectors decline

– China, India: strongly positive effects

• Trade EU

– Exports redirected to China and India

– Imports from India decline strongly

– Imports from North America increase

• CO2 emissions

– Decline in Europe, China and India

– China, India: Strong decline in EIS, counterbalanced (~25%) in NEIS




Conclusion

• Costs of low carbon technologies in energy intensive sectors

– Sectoral and regional differences: larger potential in China and India, than in EU because of lower investment costs

– Most of energy savings potential is realized at carbon prices below $110 /tCO2eq

• Low carbon technologies in EU

– difference in sectoral output depend on technology savings and investment, as well as international trade and sectoral substitution

• Low carbon technologies also in India and China

– Positive output effect of LCTs in all EIS in India and China

– CO2 reduction in EIS partly offset by CO2 increase in NEIS

– Spillover effect on EU trade flows


Thank you for your attention!

Questions, Comments, Suggestions…

Stefan Nabernegg

[email protected]

Birgit Bednar-Friedl

Fabian Wagner

Janusz Cofala

Thomas Schinko

Yadira Mori-Clement

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