Carbon Emissions and Petroleum Resource Assessments Alan S. Manne Stanford University This presentation is based upon joint work with Richard Richels. Helpful comments have been received from Vello Kuuskraa. For research assistance, the author is indebted to Charles Ng. Funding was provided by EPRI. The individual author is solely responsible for the results presented here. For presentation at International Energy Workshop, IIASA, Laxenburg, Austria, June 19, 2001.

Abstract This paper demonstrates how oil and gas resource assumptions affect MERGE (a model for evaluating regional and global effects of greenhouse gas reduction policies). Undiscovered resources are based upon the U.S. Geological Survey "World Petroleum Assessment 2000". Guesstimated oil and gas supply curves with ten steps within each region. Instead of OPEC behavioral functions, there are maximum production/reserve ratios and maximum resource depletion factors. To allow for resource depletion without a long-term rising price trend, the reference case includes annual cost reduction factors of 0.5% in each energy category. There are backstops for both electric and nonelectric energy. Results are reported at a global level for: oil and gas production, fuel shares, carbon prices, oil prices and carbon emissions under alternative scenarios. If no energy cost reductions are assumed, there are higher energy prices and lower carbon emissions than in the reference case. If both oil and gas resources are low, there are demands for greater synthetic fuels production and higher carbon emissions. If gas resources are unlimited, emissions are lower during the early years, but higher later on. During the later periods, there is an incentive for electricity production based on gas rather than a carbon-free backstop. This leads to higher carbon emissions than in the reference case.

Figure 1. Crude oil production in lower 48 states and Alaska,

From Executive Summary, pp. ES-1 and ES-2: The U.S. Geological Survey (USGS) World Petroleum Assessment 2000 provides estimates of the quantities of conventional oil, gas, and natural gas liquids outside the United States that have the potential to be added to reserves in the next 30 years (1995 to 2025)...

This assessment is based on extensive geologic studies as opposed to statistical analysis. A team of more than 40 geoscientists and additional supporting staff conducted the study over a five-year period from 1995 to 2000.

Figure 2. Mean USGS estimates of oil, gas, and NGL – billion barrels of oil equivalent – world, excluding USA

Figure 3. World reserve and resource/production ratios - static index (years)

MERGE: A model for evaluating regional and global effects of greenhouse gas reduction policies Website: Provides details on this intertemporal general equilibrium model. MERGE is a top-down model of electric and nonelectric energy demands; a bottom-up model of energy supplies.

Nine regions: USA, OECD Europe, Japan, CANZ (Canada, Australia and New Zealand), EEFSU (eastern Europe and former Soviet Union), China, India, MOPEC (Mexico and OPEC), and ROW (rest of world).

Converting USGS World Petroleum Assessment 2000 into inputs for MERGE: To allow for post-2030 discoveries, took F5(optimistic) as ultimate resources. Guesstimated oil and gas supply curves with ten steps – linearly rising marginal costs. Instead of OPEC behavioral functions, employed maximum production/ reserve ratios and maximum resource depletion factors.

Figure 4. Production of an exhaustible resource – initial reserves = 20; undiscovered resources = 80

Conclusions of Michael Lynch, WEFA “No mineral has ever shown long-term rising price trend.” Implemented in MERGE by assuming that there is a 0.5% annual cost reduction in each energy category. Implies 40% reduction in 100 years.

Figure 5. World oil and gas production – reference case

Low resource case As an alternative, have considered a low resource case (50% of the undiscovered resources in the reference case). This is roughly the mean USGS projection. Implications: Oil production peaks in 2020 rather than Oil prices rise to $29 per barrel rather than $24 in Because of synthetic fuels, carbon emissions rise post-2050.

Figure 6. Total primary energy – fuel shares – reference case

Figure 7. Carbon emissions – reference case and 550 ppmv concentration limit

Figure 8. International price of carbon emission rights – 550 ppmv concentration limit

Figure 9. International oil prices – reference case vs. no energy cost reductions

Figure 10. Carbon emissions – reference case vs. low oil and gas resources vs. no energy cost reductions

Figure 11. Carbon emissions – reference case vs. unlimited gas resources