Is there a mitigation trap? Lessons learnt so far and next steps Jan Steckel and Michael Jakob Potsdam Institute for Climate Impact Research April 20, 2012

Leapfrogging can currently not be observed Energy 1971 - 2005 Emissions 1971 - 2005 Developing countries Developing countries Stronger coupling of growth and energy Stronger coupling of growth and emissions OECD countries OECD countries Weaker coupling of growth and energy Weaker coupling of growth and emissions ‚Decoupling‘ should not be expected for developing countries in the near to midterm (Jakob et al. 2012)

Newly Industrializing Countries‘ growth drive emissions Global emissions by countries/regions Contributions to net annual emissions growth coming from different characteristic factors [all in %] Slower energy efficiency improvements and a growth surge, not necessarily carbonisation, explain China’s explosion of emissions China’s large contribution to recent global emissions growth (Steckel et al. 2011)

Energy thresholds Cement Steel Threshold at around 40 GJ per capita Steckel et al. (submitted to EcolEcon) Threshold at around 40 GJ per capita Steel 10 GJ per capita can be explained by subsidiary needs 10 – 20 GJ per capita can be explained by infrastructure needs

Climate Finance Curse Climate Finance Range [% of GDP] Data Resource Exports, FDI: Year 2009 Aid: Year 2008 ETS: ReMIND scenario Year 2020

Implications Do developing countries face a tri-lemma? Impacts of climate change most severe in developing countries even though they are not responsible Mitigation policy has the potential to delay their development Compensation based on equity principles is difficult

Further ideas Threshold effects known to cause trap-like behaviour Understanding of nature of threshold essential Threshold externalities of energy at low development levels and interrelation to emissions needs to be further understood Reasons for traps: special role of energy in development processes (increasing returns to scale at low levels) Definition of trap not necessarily consistent, in any case, a delay in development seems to be possible which is equally inacceptable for developing countries

“Mitigation trap“ in a Solow model Production function: [$] KC Capital formation: K0 In the case of climate policy: β decreases The trap gets more likely in the presence of climate policy in the form of βK(s) [Independent from the form of the function s(k)]

The resource curse in a coaltion model Example region: India MICA: Model of International Climate Agreements (Lessmann et al., 2009) The creation and stability of a coalition depends on the regions‘ resulting welfare welfare = discounted consumption Including a resource curse in MICA changes welfare values  Effect on coalition stability Consumption Production Nahmmacher, Kornek, Lessmann, Steckel (in preperation)

Questions and discussion Thank you very much! Questions and discussion http://www.pik-potsdam.de/members/jakob http://www.pik-potsdam.de/members/steckel

Additional Slides

Model results India Non Annex I Annex I Europe 55 30 50 45 25 FE per capita [GJ] 40 FE per capita [GJ] 35 20 30 15 25 Cat 3+4 2030 Cat 3+4 2050 Cat 1+2 2030 Cat 1+2 2050 Baseline 2030 Baseline 2050 Cat 3+4 2030 Cat 3+4 2050 Cat 1+2 2030 Cat 1+2 2050 Baseline 2030 Baseline 2050 Annex I 140 Europe 160 140 120 FE per capita [GJ] FE per capita [GJ] 120 100 100 80 80 Baseline 2030 Baseline 2050 Cat 3+4 2030 Cat 3+4 2050 Cat 1+2 2030 Cat 1+2 2050 Baseline 2030 Baseline 2050 Cat 3+4 2030 Cat 3+4 2050 Cat 1+2 2030 Cat 1+2 2050 12

Energy and Infrastructure Investments and GDP are highly significant for steel and cement in developing countries In OECD countries both are less or not significant Population is also important factor for both inputs in developing countries In OECD countries population is only a significant driver for cement R² are better for cement, might be due to trade patterns

Projections of Energy for Infrastructure

Decomposing Scenarios BAU 450ppm CO2

China‘s role in global mitigation efforts

Energy and Infrastructure Investments and GDP are highly significant for steel and cement in developing countries In OECD countries both are less or not significant Population is also important factor for both inputs in developing countries In OECD countries population is only a significant driver for cement R² are better for cement, might be due to trade patterns

Mitigation costs might be underestimated. Why is this important ? $50 $30 $10 BAU GDP per capita [$] Final Energy per capita [GJ] Aspects of development are usually not included into state of the art energy-economy models (such as ReMIND by PIK)! Mitigation costs might be underestimated.

India’s production and consumption without resource curse domestic production consumption Emission trading and the resource curse 19

India’s production and consumption with resource curse domestic production consumption Emission trading and the resource curse 20