The Effects of aCarbon Charge

on Electricity Generation –Comparing Two Models

Presentation to

Motu Climate EconomicsResearch Workshop

21 March 2012

Adolf Stroombergen

Models

Evans: electricity market model• Forward looking expectations

• Uncertain lake inflows

• Storage options

• Two inputs: gas and hydro (proxy fossil fuel and renewables)

ESSAM• Traditional general equilibrium model

• Four electricity inputs: coal, gas, oil and renewables

• Elasticities of substitution between fuels

• No hydro storage

2020 ScenariosScenario

1Scenario

2

Evans et al MED

% change on BAU

Private Consumption -0.6 -0.6

Exports -1.1 -1.1

Imports -0.6 -0.6

GDP -0.6 -0.6

RGNDI -0.5 -0.5

Terms of trade 0.9 0.9

CO2e emissions -4.5 -5.3

Electricity generation

Coal -4.6 -20.4 -46.3

Gas -2.2 -5.1 0.0

Renewable -3.3 0.1 5.0

Total -3.2 -2.7 -0.1

Evans:

For $25/tonne CO2:

• Gas generation: -10.3%

• Hydro generation: 0%

For $50/tonne CO2:

• Gas generation: -18.6%

• Hydro generation: 0%

Evans: Implicit σ(GC)H≈0.40

ESSAM: Need σGC≈0.85 to get Evans’ result: Scenario 2

MED:

• Electricity price up 9.4%, but no change in demand. ESSAM: -3.0%, Evans: -4.1%

• Change in coal generation by assumption.

Coal-Gas Substitution

• Is an elasticity sensible?

• Short run v long run

• Huntly, old and inefficient (dual fuel, fast switching)

• Choice of new thermal: location, resource consent