climate policy and future coal markets: analysis with the coalmod-world model
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Add picture on dark green area (see slide 9 for an example). Climate Policy and Future Coal Markets: Analysis with the COALMOD-World Model. 34th IAEE International Conference Collaborative Conversations II: World Coal Markets June 21st, 2011, Stockholm, Sweden. Clemens Haftendorn - PowerPoint PPT PresentationTRANSCRIPT
German Institute for Economic Research
Climate Policy and Future Coal Markets: Analysis with the
COALMOD-World Model
Clemens Haftendorn Franziska Holz
Christian von Hirschhausen
Add picture on dark green area(see slide 9 for an example)
34th IAEE International ConferenceCollaborative Conversations II: World Coal Markets
June 21st, 2011, Stockholm, Sweden
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Four Propositions about Climate policy and its Interactions with the Global Steam Coal Market
Proposition 1: The relevant mechanisms to be considered are pure demand and supply effects that will be called “market adjustments”.
Proposition 2: A global and binding climate agreement is crucial to avoid negative market adjustments from unilateral demand reducing policies.
Proposition 3: A faster implementation of the CCS technology would have the greatest benefits on emissions reductions.
Proposition 4: Unconventional supply-side climate policies need to be considered.
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Four Propositions about Climate policy and its Interactions with the Global Steam Coal Market
Proposition 1: The relevant mechanisms to be considered are pure demand and supply effects that will be called “market adjustments”.
Proposition 2: A global and binding climate agreement is crucial to avoid negative market adjustments from unilateral demand reducing policies.
Proposition 3: A faster implementation of the CCS technology would have the greatest benefits on emissions reductions.
Proposition 4: Unconventional supply-side climate policies need to be considered.
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Types of Carbon Leakage and “Market Adjustments”
Source: Dröge, Susanne. 2009. “Tackling Leakage in a World of Unequal Carbon Prices, Synthesis Report.” Technical report, Climate Strategies.
Market adjustments are broader and include both negative and positive effects
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Modeling Approach: COALMOD-World model
COALMOD-World model (equilibrium model in MCP format) with profit maximizing players with respect to sold quantities and investments.
- Model players:
Producers who produce, transport overland and sell the coal to local demand nodes or to the exporters.
Exporters operate the export terminal, transport the coal over sea and sell it to demand nodes with import terminal.
- The players can also invest to expand their production, export or transport capacities that are constrained.
- The model is multi-period and runs till 2030 in 5 years steps calculating yearly market equilibria.
Specification:
- 41 demand nodes, 25 producers, 14 Exporters.
- Virtually all demand for steam coal in the world.
- Models global international seaborne trade as well domestic markets such as China, USA, Russia…
Reference: Haftendorn et al. (2010), COALMOD-World, DIW Discussion Paper 1067
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Individual Scenarios in Scenario Space
Scenarios from IEA WEO 2010
Current Policies
Intensity of Global ClimatePolicy Effort
450 ppm
New Policies
Investments in Production
Constrained UnconstrainedPolicy shock
Unilateral EuropeanClimate Policy
CCS fast roll-out
Indonesia supply-side Policy
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Four Propositions about Climate policy and its Interactions with the Global Steam Coal Market
Proposition 1: The relevant mechanisms to be considered are pure demand and supply effects that will be called “market adjustments”.
Proposition 2: A global and binding climate agreement is crucial to avoid negative market adjustments from unilateral demand reducing policies.
Proposition 3: A faster implementation of the CCS technology would have the greatest benefits on emissions reductions.
Proposition 4: Unconventional supply-side climate policies need to be considered.
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Unilateral European Climate Policy
• In this scenario of Unilateral European climate policy the European Union goes a step further and aims at reducing CO2 emissions of 30% compared to the level of 1990 by 2020 with further reductions in the future.
• The leads to following steam coal demand reduction in comparison to the two reference scenarios Current Policies and New Policies:
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CO2 emissions based on CurrentPoliciesscenario
CO2 emissions based on New Policies scenario
Constrained investments in production capacity
Unconstrained investments in production capacity
in million tons CO2
Actual reduction from unilateral EU policy
Emissions from market adjustment
Remaining emissions
10200
10600
11000
11400
11800
12200
2025 2030
10200
10600
11000
11400
11800
12200
2025 2030
8600
8800
9000
9200
2025 2030
8600
8800
9000
9200
2025 2030
Modeling Results for Unilateral European Climate Policy: Global Carbon Dioxide Emissions.
66%
29%
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Four Propositions about Climate policy and its Interactions with the Global Steam Coal Market
Proposition 1: The relevant mechanisms to be considered are pure demand and supply effects that will be called “market adjustments”.
Proposition 2: A global and binding climate agreement is crucial to avoid negative market adjustments from unilateral demand reducing policies.
Proposition 3: A faster implementation of the CCS technology would have the greatest benefits on emissions reductions.
Proposition 4: Unconventional supply-side climate policies need to be considered.
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CCS Fast Roll-out Starting in 2020
• Prerequisites: Technological breakthroughs, a favorable regulatory framework, strong political support.
• Implementation: installed capacities of coal power plants with CCS projected by the WEO IEA (2010) in the 450 ppm scenario are put in place five years earlier.
• Half of capacity replaces existing older coal power plants, the other half is integrated in the power system as additional capacity, successfully competing with other technologies. CCS power plants are assumed to have 38% efficiency and a capacity factor of 82%.
• Two demand shocks: half of the CCS capacity that is added to the coal demand and the lower efficiency of CCS power plants requires additional coal to produce the same amount of energy.
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Modeling Results for CCS Fast Roll-out: Global Carbon Dioxide Emissions.
CO2 emissions based on NewPoliciesscenario
Constrained investments in production capacity
Unconstrained investments in production capacity
in million tons CO2 Avoided emissions through
market adjustment Remaining emissions
Captured emissions from
additional CCS capacity Captured emissions from CCS capacity replacing conventional coal power plants
6500
7000
7500
8000
8500
9000
9500
10000
10500
11000
2025 2030
6500
7000
7500
8000
8500
9000
9500
10000
10500
11000
2025 2030
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Four Propositions about Climate policy and its Interactions with the Global Steam Coal Market
Proposition 1: The relevant mechanisms to be considered are pure demand and supply effects that will be called “market adjustments”.
Proposition 2: A global and binding climate agreement is crucial to avoid negative market adjustments from unilateral demand reducing policies.
Proposition 3: A faster implementation of the CCS technology would have the greatest benefits on emissions reductions.
Proposition 4: Unconventional supply-side climate policies need to be considered.
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Yasuní-type supply-side policy in Indonesia
The Yasuní-ITT initiative was proposed by the Ecuadorian government.
• Goals: combating global warming, protecting biodiversity and indigenous people, implementing a sustainable social and energetic development.
• Measures: No exploitation oil reserves of the Ishpingo-Tambococha-Tiputini (ITT) oil field within the Yasuní National Park (20% of the Ecuadorian oil reserves)
• Financing: at least half of the earnings Ecuador would receive from exploitation. 3.635 billion USD supplied by the international community to a fund managed by the UNDP.
• Emissions savings: The initiative represents 407 Mt CO2 saved from not using the oil resource and an additional 820 Mt CO2 mitigation potential over 20 years from avoided deforestation and forest management
Scenario for Indonesia:
• Issues: Steam coal exploitation in Kalimatan is potentially endangering one of the greatest rainforests in the world and its biodiversity through deforestation and local air and water pollution. A recent publication points out that coal mining has little to no beneficial effects on the local economy (Fatah, 2008).
• Measure: Export restriction in Million tons per annum (Mtpa):
2006 to 2015 2020 2025 2030
No restriction 50 Mtpa 25 Mtpa Export ban
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CO2 emissions based on CurrentPoliciesscenario
CO2 emissions based on New Policies scenario
Constrained investments in production capacity
Unconstrained investments in production capacity
in million tons CO2
Avoided emissions through market adjustment
Remaining emissions
Modeling Results for Indonesian Supply Side policy: Global Carbon Dioxide Emissions.
10200
10600
11000
11400
11800
12200
2025 2030
10200
10600
11000
11400
11800
12200
2025 2030
8600
8800
9000
9200
2025 2030
8600
8800
9000
9200
2025 2030
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Conclusions and Policy Recommendation for the EU Climate Policy
• Top 1: Reach a globally binding climate agreement on the level of the non-binding commitments of the last climate conferences (Copenhagen and Cancún).
• Top 2: Support the expansion of CCS locally and globally.
• Top 3a: Go a step further in implementing a more ambitious climate policy if the goal of Top 1 is reached. Or combine with Top 3b to hedge negative market adjustment risks.
• Top 3b: Be open for unconventional supply side climate policy.
10200
10600
11000
11400
11800
12200
2025 2030
10200
10600
11000
11400
11800
12200
2025 2030
Europe Unilateral and Indonesia supply-side in the Current Policies, constrained investments framework.
German Institute for Economic Research
Thank you very muchfor your attention!
Any questions or comments?
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Literature
• Dröge, Susanne. 2009. “Tackling Leakage in a World of Unequal Carbon Prices, Synthesis Report.” Technical report, Climate Strategies.
• Fatah, Luthfi. 2008. “The Impacts of Coal Mining on the economy and Environment of South Kalimantan Province, Indonesia.” ASEAN Economic Bulletin 25(1).
• Haftendorn, Clemens, Franziska Holz and Christian von Hirschhausen. 2010. “COALMOD-World: A Model to Assess International Coal Markets until 2030.” DIW Discussion Paper 1067. Berlin.
• Hotelling, Harold. 1931. “The Economics of Exhaustible Resources.” Journal of Political Economy 39(2):137–175.
• IEA. 2010. World Energy Outlook 2010. Paris: OECD.
• IPCC. 2011. “The IPCC Special Report on Renewable Energy Sources and Climate Change Mitigation - SRREN Generic Presentation.”
• Sinn, Hans-Werner. 2008. “Public policies against global warming: a supply side approach.” International Tax and Public Finance 15(4):360–394
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BACK-UP
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Possible Interaction between Climate Policy and Coal Markets: Intertemporal Extraction Path Change
• Change in extraction path over time? Strategic behavior of resource owners? (Green paradox, H.-W. Sinn based on assumptions of the classical Hotelling model)
Extraction
Time
with climate policy
without climate policy
Time t
Scarcity RentNet price Pt = PCt - MCt
Price to consumers PCt
Marginal costs MCt
Prices/ Costs
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No Scarcity Rent to be Expected: No Strategic Behavior Possible
Problem with this approach: more coal on earth than will ever be consumed, hence no long term scarcity rent, and an overall competitive market:Such a strategic behavior is impossible.
More relevant: Leakage effects and market adjustments between countries with different climate policies.
Source: IPCC. 2011. “The IPCC Special Report on Renewable Energy Sourcesand Climate Change Mitigation - SRREN Generic Presentation.”
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Global Emissions Results
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Structure and Countries of COALMOD-WorldCountries
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Structure and Countries of COALMOD-World Basic model structure with energy value conversion
P: ProducersE: ExportersC: Consumption}: Capacity restriction
P
C
C
E$/t
Q
Transport
costs
Transport costs
}
}
}}
$/GJ
$/GJ
PJ
PJ
E*k=Q
E*k=Q
E*k=Q
Pe
Pc
PcFreight ra
tes
Port operation costs
Quality factor:k = t / GJ