INDUSTRIAL AND TERRESTRIAL CARBON LEAKAGE UNDER CLIMATE POLICY FRAGMENTATION

Mikel González-Eguino (BC3)

together with Capellán-Pérez, I. (UPV), Arto, I. (BC3), Ansuategi A. (UPV)

and Markandya, A. (BC3)

October 23, 2015

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OUTLINE

Introduction

Model

Scenarios

Results

Conclusions

1. Introduction

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Fragmented climate policy -> carbon leakage (Böhringer et al. 2012)

Carbon leakage: carbon regulation/price in some countries could increase the carbon emissions of non-participatory countries.

Main channels: change in the price of fossil fuels (“industrial carbon leakage”, Calvin et al. 2009) and changes in competitiveness (Rutherford et al 1995).

However, there is another channel has received little attention: the carbon leakage triggered by land use changes or “terrestrial carbon leakage” (TCL)

Literature on TCL: Wise et al. (2009), Calvin et al. (2010, 2014) and Kuik (2014)

No previous study has analyzed the “industrial” (ICL) and “terrestrial” (TCL) channel in combination (Otto et al. 2015). We explore these two forms of leakage when emissions from both sources are taxed identically.

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2. Model:

Global Change Assessment Model (GCAM): an Integrated Assessment model that links the world’s energy, agriculture and land use systems with a climate model.

• GCAM was one of the four models chosen by IPCC to create one of the main scenario (RCP 4.5) for the IPCC’s AR5 (Thomson et al. 2011).

• GCAM model can track not only fossil fuel and industrial emissions but also terrestrial emissions associated to land use change.

• GCAM contains detailed representations of technology options for each of its economic components with technology choice determined by market probabilistic competition (Clarke and Edmonds 1993).

More info: http://wiki.umd.edu/gcam/

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3. Scenarios (1/3): spatial fragmentation

Scenarios

Scenario Participating Regions

REF None

FR1 EU-27

FR2 EU-27 + US

FR3 Developed

FR4 Developed + China

FR5 Developed + BASIC

FR6 All, except Africa, Russia, Middle East

BASIC (Brazil, South Africa, India and China) group was

formed by an agreement on 28 November 2009.

Share of the global total CO2 emissions by

scenario, 2050

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3. Scenarios (2/3): temporal fragmentation

First Time Period:

• Developed countries follow EU: reduce emissions by 80% in 2050.

• Developing countries follow China: peak emissions in 2030.

Second Time Period:

• Common but differentiated convergence approach.

• Developed and developing countries converge towards an equal per-capita emissions levels in 2100 [0.5 tons of CO2-eq to meet the 2 C target].

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4. Scenarios (3/3): emissions per capita (tCO2pc)

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Africa, Russia and ME Africa, Russia and ME Africa, Russia and ME

Africa, Russia and ME Africa, Russia and ME Africa, Russia and ME

5. Results: carbon leakage: (GtCO2, cumulative 2010-2050, wrt REF)

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5. Results: global carbon leakage (GtCO2)

The relation between leakage (in absolute terms) and the size of the coalition implementing the climate regime shows an inverted-U shape.

Terrestrial carbon leakage is relevant for the period 2020-2050, but industrial carbon leakage dominates once the carbon storage potential of afforestation is fully exploited.

Global carbon leakage (GtCO2) for 2020-2050 (left) and 2020-2100 (right)

0

20

40

60

80

100

FR1 FR2 FR3 FR4 FR5 FR6

CO

2 E

mis

ion

s (

GtC

O2

)

Industrial Terrestrial

0

50

100

150

200

250

300

350

400

FR1 FR2 FR3 FR4 FR5 FR6

CO

2 E

mis

ion

s (

GtC

O2

)

Industrial Terrestrial

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5. Results: carbon leakage rate (%)

Carbon leakage rate: % of the reduction shifted to non-participants.

Total carbon leakage rate decreases with the size of the coalition from 24% in FR1 to 5% in FR6.

Industrial carbon leakage rate is below 30%, but terrestrial is much larger.

Cumulative carbon leakage rate (%) 2020-2100

0%

20%

40%

60%

80%

100%

FR1 FR2 FR3 FR4 FR5 FR6

Leak

age

Rat

e (

%)

Industrial Terrestrial Total

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5. Results: energy system

The main channel for ICL is the change on fossil fuel prices, which decrease with the increasing size of coalition.

Global Fossil Fuel Price Index,2050 (2010=100)

Global Energy Mix, 2050 (EJ/y)

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5. Results: global land-use change

There is an incentive also to trade products from land with low carbon density (e.g. crop land) for products from land with high carbon density (e.g. forest) as CO2 from land has now a market price.

Evolution of Global Forest Area (Mkm2)

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5. Results: regional land-use change

However, there will be also an incentive for deforestation in non-participant regions.

Africa, Russia and ME

Evolution of Regional Forest Area (Mkm2 wrt to REF)

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5. Results: side-effects on the price of food

There is a important trade-off to pay from afforestation: an important increase in the price of food.

The highest increases in prices are in the price of animal products such as beef and poultry.

Global Food Price index (Base 2010=100)

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5. Results: climate system

Unilateral action from developing countries will have a small impact.

It will be very difficult to met the 2 degree target if some countries never join to the coalition (unless negative emission technologies or BECSS would be available)

Global temperature change, 2010-2100 (ºC)

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6. Conclusions

1. Fragmentation can lead to relevant carbon leakage effects, especially if terrestrial carbon leakage is considered.

2. The dominant type of carbon leakage up to 2050 is the terrestrial channel, although industrial carbon leakage takes over during the second half of the century, once the carbon storage potential of afforestation is fully exploited.

3. Fragmentation can hurt vulnerable countries (even if they do not participate in the climate coalition), because it induces deforestation in those regions and increases (remarkably) the global price of food.

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References Böhringer, Christoph, Edward J. Balistreri, and Thomas F. Rutherford. 2012. “The Role of Border Carbon Adjustment in

Unilateral Climate Policy: Overview of an Energy Modeling Forum Study (EMF 29).” Energy Economics, The Role of

Border Carbon Adjustment in Unilateral Climate Policy: Results from EMF 29, 34, Supplement 2: S97–110.

Calvin, Katherine, Marshall Wise, Page Kyle, Pralit Patel, Leon Clarke, and Jae Edmonds. 2014. “Trade-Offs of Different

Land and Bioenergy Policies on the Path to Achieving Climate Targets.” Climatic Change 123 (3-4): 691–704.

doi:10.1007/s10584-013-0897-y.

Calvin, Katherine. 2009. Land-Use Leakage. Working Report, PNNL.

Edmonds, J., and J. Reilly. 1985. Global Energy: Assessing the Future. New York: Oxford University Press.

Kyle, Page. 2011. GCAM 3.0 Agriculture and Land Use: Data Sources and Methods.

Otto, Sander A. C., David E. H. J. Gernaat, Morna Isaac, Paul L. Lucas, Mariësse A. E. van Sluisveld, Maarten van den

Berg, Jasper van Vliet, and Detlef P. van Vuuren. 2014. “Impact of Fragmented Emission Reduction Regimes on the

Energy Market and on CO2 Emissions Related to Land Use: A Case Study with China and the European Union as

First Movers.” Technological Forecasting and Social Change. doi:10.1016/j.techfore.2014.01.015.

Thomson, Allison M., Katherine V. Calvin, Steven J. Smith, G. Page Kyle, April Volke, Pralit Patel, Sabrina Delgado-Arias,

et al. 2011. “RCP4.5: A Pathway for Stabilization of Radiative Forcing by 2100.” Climatic Change 109 (1-2): 77–94.

doi:10.1007/s10584-011-0151-4.

Thomson, Allison M., Katherine V. Calvin, Steven J. Smith, G. Page Kyle, April Volke, Pralit Patel, Sabrina Delgado-Arias,

et al. 2011. “RCP4.5: A Pathway for Stabilization of Radiative Forcing by 2100.” Climatic Change 109 (1-2): 77–94.

doi:10.1007/s10584-011-0151-4.

Wise, M., and K. Calvin. 2011. GCAM 3.0 Agriculture and Land Use: Technical Description of Modeling Approach.

http://www.pnl.gov/main/publications/external/technical_reports/PNNL-21025.pdf.

Wise, Marshall, Katherine Calvin, Allison Thomson, Leon Clarke, Benjamin Bond-Lamberty, Ronald Sands, Steven J.

Smith, Anthony Janetos, and James Edmonds. 2009. “The Implications of Limiting CO2 Concentrations for Land Use

and Energy.” Science 324 (5931): 1183–86. doi:10.1126/science.1168475.

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Thank you

Eskerrik Asko

Gracias

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5. Results: climate system (1/3)

Price of CO2 increases with participation as global mitigation effort will also increase.

In scenarios FR4, FR5 and FR6 there will be two CO2 markets (developing and developed ) and, therefore, there will be two prices for CO2.

CO2 prices by regions ($/tCO2 US$2010)

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The cumulative discounted cost of mitigation increases with participation.

The incentives to free-ride are very relevant

5. Results: climate system (2/2)

Policy cost for the different scenario In 2100 (Trillion 2010$)