The Cost of Greenhouse The Cost of Greenhouse Gas Mitigation: A Brief Gas Mitigation: A Brief

OverviewOverview

AT 760: Global Carbon CycleAT 760: Global Carbon Cycle

Jonathan VighJonathan Vigh

December 18, 2003December 18, 2003

The ProblemThe Problem Increasing Greenhouse Gas (GHG) Increasing Greenhouse Gas (GHG)

emissions may cause considerable global emissions may cause considerable global and regional climate change leading to and regional climate change leading to significant economic, environmental, and significant economic, environmental, and ecological costs over the next century.ecological costs over the next century.

Global Warming Potentials (over 100 y):Global Warming Potentials (over 100 y): COCO22 11 CHCH44 2323 NN22OO 296296

World GHG Emissions by SectorWorld GHG Emissions by Sector§§SectorSector COCO22 Emissions (GtC) Emissions (GtC) ShareShare growth rate†growth rate† rate rate

trendtrendBuildingsBuildings 1.731.73 31%31% +1.8%+1.8% deceleratingdeceleratingTransportTransport 1.221.22 22%22% +2.5%+2.5% steady steady IndustryIndustry 2.342.34 43%43% +1.5%+1.5% decelerating decelerating AgricultureAgriculture 0.220.22 4%‡4%‡ +3.1%+3.1% deceleratingdecelerating

Total EmissionsTotal Emissions 5.55.5 100%100% +1.8%+1.8% deceleratingdecelerating

(Total energy emissions accounted for 5.5 GtC emissions in 1995).(Total energy emissions accounted for 5.5 GtC emissions in 1995).

§ Energy usage only, does not include other emissions such as cement production, landfill § Energy usage only, does not include other emissions such as cement production, landfill emissions, and land-use changes such as forest management, etc.emissions, and land-use changes such as forest management, etc.

† † Average annual growth rate from 1971-1995Average annual growth rate from 1971-1995‡ ‡ The agriculture sector accounts for 20% of COThe agriculture sector accounts for 20% of CO22 equivalents because of methane equivalents because of methane

emissions.emissions.

[Adapted from Price [Adapted from Price et al.et al. 1998, 1999, out of table in Climate Change 2001: Mitigation, 3 1998, 1999, out of table in Climate Change 2001: Mitigation, 3rdrd Assessment Report (TAR), IPCC Working Group 3]Assessment Report (TAR), IPCC Working Group 3]

Current Energy Usage of USACurrent Energy Usage of USA

[U.S. EPA Inventory of Greenhouse Gas Emissions, April 2002][U.S. EPA Inventory of Greenhouse Gas Emissions, April 2002]

Worldwide Energy TrendsWorldwide Energy Trends The average annual growth rate of global energy consumption The average annual growth rate of global energy consumption

was 2.4% from 1971-1990, but dropped to 1.3% from 1990-1998.was 2.4% from 1971-1990, but dropped to 1.3% from 1990-1998. The average annual growth rate of global energy-related COThe average annual growth rate of global energy-related CO22

emissions dropped from 2.1% to 1.4% in the same periods.emissions dropped from 2.1% to 1.4% in the same periods.

Why?Why? Improved energy efficienciesImproved energy efficiencies Increased fuel switching to less carbon-intensive sourcesIncreased fuel switching to less carbon-intensive sources Adoption of renewable energy sourcesAdoption of renewable energy sources Dramatic decrease in countries with economies in transition (EIT) as a Dramatic decrease in countries with economies in transition (EIT) as a

result of economic changesresult of economic changes

Why aren’t emissions dropping then?Why aren’t emissions dropping then? Countervailing trends of population growth, economic growth, Countervailing trends of population growth, economic growth,

increased energy usage per capita, and development of the Third increased energy usage per capita, and development of the Third World.World.

Costing MethodologiesCosting Methodologies Top-down approachTop-down approach

Uses integrated macro-economic models to Uses integrated macro-economic models to estimate the cost of GHG reduction activities. estimate the cost of GHG reduction activities.

Good for examining the effectiveness of overall Good for examining the effectiveness of overall mitigation policies.mitigation policies.

Bottom-up approachBottom-up approach Estimates the cost of GHG reduction from a Estimates the cost of GHG reduction from a

given technology or mitigation activity.given technology or mitigation activity. Must compare to some baseline emissions from Must compare to some baseline emissions from

current or expected technology portfolio. current or expected technology portfolio.

What is the ‘cost’ anyway?What is the ‘cost’ anyway? Direct (levelized) costs of delivered energy includes:Direct (levelized) costs of delivered energy includes:

Capital costs (plant infrastructure)Capital costs (plant infrastructure) Cost of capital (depends on interest rates)Cost of capital (depends on interest rates) Operation costs (personnel, etc.)Operation costs (personnel, etc.) Maintenance costsMaintenance costs Fuel costs (mining, drilling, transport)Fuel costs (mining, drilling, transport) Transmission costsTransmission costs

Indirect costsIndirect costs Waste disposalWaste disposal EnvironmentEnvironment ClimateClimate Opportunity cost of land useOpportunity cost of land use Distortion to the economyDistortion to the economy

Opportunity cost of capital, export of capital for import of energyOpportunity cost of capital, export of capital for import of energy Competition for resources (physical and personnel)Competition for resources (physical and personnel) Effect on economic stability – energy securityEffect on economic stability – energy security

Equality on local, regional, and global scalesEquality on local, regional, and global scales

Cost of GHG reductionsCost of GHG reductions Compare a current energy production Compare a current energy production

method or portfolio to an alternative onemethod or portfolio to an alternative one Compute difference in GHG emissionsCompute difference in GHG emissions Compute difference in direct and indirect Compute difference in direct and indirect

costscosts Arrive at cost of GHG avoidance ($/tC)Arrive at cost of GHG avoidance ($/tC) Proper analysis includes direct and indirect Proper analysis includes direct and indirect

costs, and macroeconomic effectscosts, and macroeconomic effects

Mitigation of Greenhouse Gases Mitigation of Greenhouse Gases Energy EfficiencyEnergy Efficiency Low or no carbon energy productionLow or no carbon energy production SequestrationSequestration

Electricity Electricity The U.S. spends over $216 billion on electricity each year (out of a total The U.S. spends over $216 billion on electricity each year (out of a total

energy expenditure of $558 billion, mostly petroleum)energy expenditure of $558 billion, mostly petroleum) Current installed capacity is 816 GW, average production is ~750 GW, or Current installed capacity is 816 GW, average production is ~750 GW, or

5000 TWh/y5000 TWh/y Growth rate is ~1.6% per yearGrowth rate is ~1.6% per year

Current electrical production portfolio of the USA is:Current electrical production portfolio of the USA is:TypeType ShareShare EfficiencyEfficiency Current best efficiencyCurrent best efficiency

20202020CoalCoal 52%52% 33%33% 48.5%48.5%

55%55%NuclearNuclear 20%20% ~30%~30% -- --Gas-fired Gas-fired 16%16% 60%60% 60%60% 70%70%HydroHydro 7%7% -- -- --BiomassBiomass ~3%~3% -- -- --GeothermalGeothermal ~2%~2% 10%?10%? -- --Wind powerWind power 0.2%0.2% -- -- --SolarSolar minuteminute -- --

--

Lifecycle EmissionsLifecycle Emissionsg/kWh CO2 Japan Sweden Finland

coal 975 980 894

gas thermal 608 1170 (peak, reserve) -

gas combined cycle 519 450 472

solar photovoltaic 53 50 95

wind 29 5.5 14

nuclear 22 6 10-26

hydro 11 3 -

Estimated total costs of various Estimated total costs of various forms of electricity productionforms of electricity production

For power production in SwitzerlandFor power production in Switzerland

The human cost of energy The human cost of energy productionproduction

Current U.S. Electrical TrendsCurrent U.S. Electrical Trends To a good To a good

approximation, all approximation, all additional electrical additional electrical capacity over the next capacity over the next 5 years will be natural 5 years will be natural gas fired turbines.gas fired turbines.

Natural gas-fired Natural gas-fired turbines are roughly turbines are roughly twice as efficient as twice as efficient as existing coal-fired existing coal-fired power plants and emit power plants and emit roughly half as much C roughly half as much C per unit energy per unit energy producedproduced

0

5

10

15

20

25

30

NaturalGas

Coal

kg C emittedper GJ energydelivered(combustion)

Wind PowerWind Power

Wind energy has become cost-competitive with other sources Wind energy has become cost-competitive with other sources of production for high wind classes.of production for high wind classes.

The doubling time of installed capacity is now 3-4 yearsThe doubling time of installed capacity is now 3-4 years For each doubling, costs drop ~15%For each doubling, costs drop ~15% Costs in 2006 should be 35-40% less than costs in 1996Costs in 2006 should be 35-40% less than costs in 1996 By 2030, the wind farms in the best wind classes could be as By 2030, the wind farms in the best wind classes could be as

low as 2.2 ¢/kW-h, cheaper than even natural gas-fired low as 2.2 ¢/kW-h, cheaper than even natural gas-fired electricity.electricity.

In the U.S.In the U.S. Total installed US Wind Power capacity is now 5.3 GW as of Oct. 27, Total installed US Wind Power capacity is now 5.3 GW as of Oct. 27,

2003 (0.6% of total installed electrical capacity) 2003 (0.6% of total installed electrical capacity) 1.6 GW of new U.S. wind capacity coming online by the end of 2003 1.6 GW of new U.S. wind capacity coming online by the end of 2003 1.5 ¢/kW-h production tax credit (expires Dec 31, 2003) has 1.5 ¢/kW-h production tax credit (expires Dec 31, 2003) has

provided ~$5 billion subsidy over the past 10 yearsprovided ~$5 billion subsidy over the past 10 years

U.S. Installed Capacity (MW)U.S. Installed Capacity (MW)

Total Installed U.S. Wind Energy Capacity: 5,325.7 MW as of Oct 27, 2003[American Wind Energy Association]

U.S. Installed Wind Capacity (MW) U.S. Installed Wind Capacity (MW) 1981-20031981-2003

0

1000

2000

3000

4000

5000

6000

1981 1986 1991 1996 2001

Wind Capacity(MW)

Conclusions: Best StrategiesConclusions: Best Strategies The most cost effective short-term (2-20 y) strategies for avoiding emissions The most cost effective short-term (2-20 y) strategies for avoiding emissions

due to electricity production are: due to electricity production are: Substitute natural gas for coalSubstitute natural gas for coal Substitute nuclear for coalSubstitute nuclear for coal Substitute wind for coalSubstitute wind for coal Substitute hydro for coalSubstitute hydro for coal

For the longer term (20-100 y), the following methods of electricity For the longer term (20-100 y), the following methods of electricity production production maymay become cost effective as fossil fuel costs increase: become cost effective as fossil fuel costs increase:

More wind, nuclear, and hydroMore wind, nuclear, and hydro Biomass and energy croppingBiomass and energy cropping Coal fired electricity, hydrogen production with sequestrationCoal fired electricity, hydrogen production with sequestration Solar Solar

Technology wildcards that probably aren’t likely, but could radically alter the Technology wildcards that probably aren’t likely, but could radically alter the mix:mix:

Artificial photosynthesisArtificial photosynthesis Nuclear fusionNuclear fusion Other?Other?

Conclusions: CostsConclusions: Costs Current cost of energy in the U.S. is 5% of GDPCurrent cost of energy in the U.S. is 5% of GDP If the cost of mitigation is $100/tC avoided, then If the cost of mitigation is $100/tC avoided, then

this would add an expense of $200-300 billion per this would add an expense of $200-300 billion per year, or 2-3% of GDPyear, or 2-3% of GDP

Perhaps up to half of the initial reductions actually Perhaps up to half of the initial reductions actually have negative direct costs (due to energy saved)have negative direct costs (due to energy saved)

How does this compare with other economic costs?How does this compare with other economic costs? Total health care expenditures in 2001 were 13.9% (8.4% Total health care expenditures in 2001 were 13.9% (8.4%

average for OECD countries)average for OECD countries) Total spending on defense in the U.S. has fallen to 3-5%Total spending on defense in the U.S. has fallen to 3-5%

Defense SpendingDefense Spending

[Defense and the National Interest web page][Defense and the National Interest web page]

Other outcomesOther outcomes Even if we ignore the climate effects, other Even if we ignore the climate effects, other

issues could come into playissues could come into play

Recommended Policies: Kyoto Recommended Policies: Kyoto Measures, American-styleMeasures, American-style

Institute a moderate carbon tax on refined gasoline, Institute a moderate carbon tax on refined gasoline, coalcoal

Reduce or eliminate subsidies for oil and coalReduce or eliminate subsidies for oil and coal Promote increased infrastructure capacity for natural Promote increased infrastructure capacity for natural

gas transport, eventual hydrogen transportgas transport, eventual hydrogen transport Modernize the electrical grid, allow for distributed Modernize the electrical grid, allow for distributed

generationgeneration Continue R&D on ‘clean’ coal technologies (with Continue R&D on ‘clean’ coal technologies (with

sequestration), with transition to hydrogen sequestration), with transition to hydrogen productionproduction

Continue R&D towards commercialization of solar Continue R&D towards commercialization of solar energy, biomassenergy, biomass

Increase tax credits and incentives for use of Increase tax credits and incentives for use of renewable sources (wind, solar, biomass)renewable sources (wind, solar, biomass)

Continue tax credits and incentives for efficiency Continue tax credits and incentives for efficiency improvementsimprovements

General Conclusions for the GHG General Conclusions for the GHG ProblemProblem

We (the U.S.) can definitely afford to keep moving We (the U.S.) can definitely afford to keep moving towards a lower carbon-intensive economy.towards a lower carbon-intensive economy.

Accelerating our movement on this path will incur Accelerating our movement on this path will incur nominal additional costs for our energy. nominal additional costs for our energy.

Future costs of GHG emissions avoidance may be Future costs of GHG emissions avoidance may be even lower as technologies mature. even lower as technologies mature.

Stabilization to 550 ppm will not be excessively hard Stabilization to 550 ppm will not be excessively hard to achieve, but 450 ppm will be very expensive.to achieve, but 450 ppm will be very expensive.

We still have a bit of time left – stabilization will be We still have a bit of time left – stabilization will be much harder with departures beyond 2030 (T. much harder with departures beyond 2030 (T. Wigley, 1997).Wigley, 1997).

ReferencesReferences The primary reference for this presentation is Climate Change 2001: Mitigation, the 3The primary reference for this presentation is Climate Change 2001: Mitigation, the 3rdrd Intergovernmental Panel on Intergovernmental Panel on

Climate Change (IPCC) report, Working Group 3. Chapter 3 was most relevant to this presentation. The report can be Climate Change (IPCC) report, Working Group 3. Chapter 3 was most relevant to this presentation. The report can be obtained online at: http://www.grida.no/climate/ipcc_tar/wg3/index.htmobtained online at: http://www.grida.no/climate/ipcc_tar/wg3/index.htm

A secondary reference for energy issues can be found in the World Energy Assessment: Energy and the Challenge of A secondary reference for energy issues can be found in the World Energy Assessment: Energy and the Challenge of Sustainability, 2000. United Nations Development Programme (UNDP). This report can be obtained online at: Sustainability, 2000. United Nations Development Programme (UNDP). This report can be obtained online at: http://www.undp.org/seed/eap/activities/wea/drafts-frame.htmlhttp://www.undp.org/seed/eap/activities/wea/drafts-frame.html

Price, L., L. Michaelis, E. Worrell, and M. Khrushch, 1998: Sectoral Trends and Driving Forces of Global Energy Use and Price, L., L. Michaelis, E. Worrell, and M. Khrushch, 1998: Sectoral Trends and Driving Forces of Global Energy Use and Greenhouse Gas Emissions. Greenhouse Gas Emissions. Mitigation and Adaptation Strategies for Global ChangeMitigation and Adaptation Strategies for Global Change, , 33, 263-319., 263-319.

Price, L., E. Worrell, and M. Khrushch, 1999: Price, L., E. Worrell, and M. Khrushch, 1999: Sector Trends and Driving Forces of Global Energy Use and Greenhouse Gas Sector Trends and Driving Forces of Global Energy Use and Greenhouse Gas Emissions: Focus on Buildings and IndustryEmissions: Focus on Buildings and Industry. Lawrence Berkeley National Laboratory, LBNL-43746, Pergamon Press, . Lawrence Berkeley National Laboratory, LBNL-43746, Pergamon Press, Berkeley, CA.Berkeley, CA.

Wigley, T. M. L., 1997: Implications of recent COWigley, T. M. L., 1997: Implications of recent CO22 emission-limitation proposals for stabilization of atmospheric emission-limitation proposals for stabilization of atmospheric concentrations. concentrations. NatureNature, , 390390, 267-270., 267-270.

Williams, Robin. H., 2001: Nuclear and Alternative Energy Supply Options for an Environmentally Constrained World: A Williams, Robin. H., 2001: Nuclear and Alternative Energy Supply Options for an Environmentally Constrained World: A Long-term Perspective. Prepared for the Nuclear Control Institute Conference Long-term Perspective. Prepared for the Nuclear Control Institute Conference Nuclear Power and the Spread of Nuclear Nuclear Power and the Spread of Nuclear Weapons: Can We Have One Without the Other?Weapons: Can We Have One Without the Other? Washington, D.C., April 2001. Washington, D.C., April 2001.

On the web:On the web: Statistics on U.S. wind energy production (American Wind Energy Association): Statistics on U.S. wind energy production (American Wind Energy Association): http://www.awea.org/projects/index.htmlhttp://www.awea.org/projects/index.html Current News on Wind Energy Production Tax Credit: Current News on Wind Energy Production Tax Credit: http://www.awea.org/news/news031125ptc.htmlhttp://www.awea.org/news/news031125ptc.html Defense Spending as % of GDP (Defense and the National Interest webpage): Defense Spending as % of GDP (Defense and the National Interest webpage):

http://www.d-n-i.net/charts_data/defense_percent_gdp_1940_2000.htmhttp://www.d-n-i.net/charts_data/defense_percent_gdp_1940_2000.htm U.S. Inventory of Greenhouse Gas Emissions (EPA): http://yosemite.epa.gov/oar/globalwarming.nsf/content/Emissions.htmlU.S. Inventory of Greenhouse Gas Emissions (EPA): http://yosemite.epa.gov/oar/globalwarming.nsf/content/Emissions.html Terasen Gas Greensheet: Natural Gas and the EnvironmentTerasen Gas Greensheet: Natural Gas and the Environment Energy Information Administration (EIA), U.S. Department of Energy (DOE): http://www.eia.doe.govEnergy Information Administration (EIA), U.S. Department of Energy (DOE): http://www.eia.doe.gov External costs of electricity production, GaBE Project – Comprehensive Assessment of Energy Systems, Paul Scherrer Institut: External costs of electricity production, GaBE Project – Comprehensive Assessment of Energy Systems, Paul Scherrer Institut:

http://gabe.web.psi.ch/eia-external%20costs.htmlhttp://gabe.web.psi.ch/eia-external%20costs.html Energy subsidies and external costs, UIC Nuclear Issues Briefing #71: http://www.uic.com.au/nip71.htmEnergy subsidies and external costs, UIC Nuclear Issues Briefing #71: http://www.uic.com.au/nip71.htm “‘“‘Too Little’ Oil for Global Warming”, New Scientist, Oct 2003: http://www.newscientist.com/news/print.jsp?id=ns99994216Too Little’ Oil for Global Warming”, New Scientist, Oct 2003: http://www.newscientist.com/news/print.jsp?id=ns99994216 Upsalla Protocol: http://www.isv.uu.se/uhdsg/UppsalaProtocol.htmlUpsalla Protocol: http://www.isv.uu.se/uhdsg/UppsalaProtocol.html