1 Climate4Media Workshop: Future of Low Carbon Transportation Sponsored by British Council, China July 2010 Carbon,Congestion and Climate Change Models Professor Sheri Markose University of Essex, United Kingdom Economics Department Centre for Computational Finance and Economic Agents

2 Road Map 1 : Climate Change and how we deal with congestion and carbon is the biggest challenge of the 21 st century Challenges posed by road transportation in meeting Kyoto carbon reduction obligations Road transportation major contributor (30% in US/UK countries) to CO2 emissions and global warming (2010 study by Nadine Unger of NASA's Goddard Institute for Space Studies (GISS)) Growing sector with car ownership increasing in China and India How effective will electric cars be in CO2 abatement ? Smart, green, intelligent infrastructure solutions to city centres : Some new thinking and methodology

3 Road Map 2 Behaviour change, market solutions such as congestion charging, carbon tax vs. carbon abatement technological innovation Red Queen arms race among corporates and countries in the green technology race New methodological perspectives needed in extant climate change model : based on reduced form equations and static parameters Essex Economics Dept. pioneering Agent Based Computational Economics (ACE) ACE allows full digital maps for economic environment – be it a city centre congestion hot spot or a financial networks; electronic market rebuilds Multi scale complex system modelling possible Provides platform for testbedding: Ask what if ? questions and stress testing and wind tunnels prior to implementation

4 Why have regional workshops with media, business, local and regional authorities and rank and file ? Chief Economist Talking to Chief Economist Or Elites Talking behind electrified fences on climate change issues : that is no good Why? Individual behaviour change; business and risk management innovation; govt. to coordinate with all three; all being informed and taking responsibility 2007 : My experience of regional climate workshops co-hosted a East of England Congestion and Carbon Conference; 2008 East Yorkshire and Humberside Climate Conference Applaud the Climate Cool Media Workshop: Future of Low Carbon Transportation

5 Car Ownership per 1000 persons (Source UN World Stat Handbook and Statisitical Yearbook : Total cars: China 13.3 m ; India 13.8 mn; UK 62 m; USA 235m

6 Weighted Average Global Car Ownership 164 per 1000 x World Pop 6.8 bn Estimate: 723mn cars If India and China were to have car ownership rates a la US – cities will become ‘unliveable’ with total gridlock If present trends continue, the number of cars on Earth will double in the next 30 years Roads a public good; non-exclusive so cars spill onto roads There are two ways to reduce transportation emissions: travel less, or increase vehicle efficiency. Both alternatives must be pursued vigorously

7 FORECAST UK CO2 EMISSIONS BY SOURCE ( ) MtC DfT et al (2005) – Transport Statistics: Great Britain st edition, October 2005, The Stationary Office, London, Table 3.7, pp. 53. Forecast from Road transport Other transport Rest of the economy Total

8 Situation in UK : Typical car produces 164 g/km ; EU target for g/km If current trends continue in UK, EU target for new cars to 140g/km by 2008 would not be reached in the UK until 2021 Market preferences for bigger,more powerful models. Recent sales of small cars fell to their lowest level for seven years last year while large vehicles secured their highest share of the market yet. This means that the average emissions of carbon dioxide for new cars fell by only 1.2 % in Voluntary agreement between EC and car industry to improve fuel efficiency by 25% relative to 1995 base Very slow progress !

9 Electric Car :If using hydro power based electricity to charge battery - can reduce typical CO2 emission to g/km which is a 11.28% improvement Energy efficient. Electric motors convert 75% of the chemical energy from the batteries to power the wheels—internal combustion engines (ICEs) only convert 20% of the energy stored in gasoline Solar, wind and other non-hydrocarbon source of electricity better CO2 emission reduction entailed However, Electric Car not a silver bullet Hidden emissions from road building; Increased electricity demand (though better utilization of off peak electricity) might result in higher power rates for consumers. The expense of adding recharging infrastructure Manufacture of lithium batteries mostly in Asia

10 Future Trends in Electric Car Uptake International Energy Agency (IEA) forecast sales of electric vehicles and plug-in hybrids at about 5 million globally by 2020, This could grow to a 50 per cent market share by Germany projected to have 1 million electric vehicles on its roads by 2020 Nissan’s Leaf all-electric car, for release in 2011 was unveiled at the 80th Geneva International Motor Show in the March quarter Nissan Leaf US price US$ 32,780, with substantial discounts by the US and state governments. The Leaf promises zero tailpipe emissions, and a range of 160 km (100 miles) on a single lithium-ion battery charge. A 50 kW direct current charger will be available to charge the battery up to 80 per cent in under 30 minutes.

11 Growth of Car Ownership Rates in China and India Implies that even 50% ‘Green’ Cars by 2050 leads to Unsustainablility Hidden emissions from increased road building or gridlock Electric cars an advance only if there is growth in green (solar, wind ) electricity More radical transportation solutions needed to reduce GHG emissions; Vehicle units on roads must be reduced as current trend is to have over 14 bn cars in 2050

12 Future Intelligent Infrastructure 2007 Project funded by UK Office of Science and Technology Intelligent Charging: Smart Market Protocols for Road Transport Sheri M. Markose Amadeo Alentorn and Deddy Koesrindartoto Economics Department and Centre For Computational Finance and Economic Agents (CCFEA), University of Essex, Phil Blythe, Sergio Grosso, Anett Ehlert and Dilum Dissanayake Transport Operations Research Group (TORG), University of Newcastle upon Tyne And Peter Allen Complex Systems Management Centre, Cranfield School of Management

13 Purpose: How to change travel behaviour, fewer journeys Smart Markets could bring intelligence into the road transport network to address congestion; planning of green infrastructure can be done with digitally based agent based models of city centres A Smart Market is an on-line auction: –Potential users submit bids –Auction determines the price and ‘winners’ –Infrastructure operators pre-set the limits (slots) We explore a road pricing regime which fixes (Cap) the number of vehicles able to use the roads at peak time

14 ‘CAP’ and TRADE: Smart Market for Congestion Rationale : ‘CAP’’ and trade Application to a typical congestion ‘hotspot’ in Gateshead How to ‘cap’ or determine optimal congestion? TORG /Vissim Traffic Micro Simulator Cross Sectional demand analysis : Bid Submission (from individuals) SMPRT Algorithm for Price Determination Winners and losers Intelligent infra-structure planning

15 Limited Supply of allowances (cap) Economic value for allowances Economic incentives to reduce emissions Demand for allowances Why Cap & Trade Works Emission Cap –Limits emissions and maintains reductions –Provides market value and certainty –Allows trading without government approval Trading –Minimizes costs through compliance flexibility –Creates incentives to reduce costs going forward

16 The actual Central Gateshead Congestion ‘Hotspot’

17

18 Routes that cross Central Gateshead: South to North North to South

19 TORG /Vissim Traffic Micro Simulation Results The cap is the maximum number of road users permitted to use the road during a time slice in terms of the criteria.  Based on the ‘production function’ of traffic, the cap is:  maximum total distance travelled in the time slice;  begins to drop with incremental growth in vehicle volumes; and  the point at which vehicular emissions grow exponentially.  The PCU volumes are scaled from base-line demands in the transport model from between 10% and 170% of current demand  The cap is given as X# passenger car units (PCUs): PCUs

20 IV.SMPRT Protocol: Winners of auction, Market Clearing Price SMPRT based on a uniform sealed bid Dutch Auction Design where the X * highest bid that clears the market for X* travel slots applies to all bidders who bid above this. SMPRT price algorithm can also adjust for environmental externality costs

21

22 The socio-economic status of commuters We also know the income distributions for different classes of Professionals for the North East: This enables us to calculate the sensitivity to Road User Charges from the different commuters

23 The income distribution of car drivers traversing Gateshead cordon area (i.e. commuters with income greater than £10,500) (Mean annual income is £ )

24 10% reduction in travel slots 20% reduction in travel slots 30% reduction in travel slots Current demand

25 Digital ACE model pin points where persons who are priced out live and work Intelligent public transport infrastructure can be organized for them This analysis can be done for any city congestion hotspot Radical urban planning solutions needed ‘Roll on’ Roll off’ trams/trains for bikes in cities like Beijing Over head pathways in high rise buildings

26 Mitigation of Carbon Emissions: Market Solutions and Technology Arms Race Mr. Stern presents climate change as the biggest market failure. Over use and degradation of resources due to missing markets Appropriate prices that reflect the cost of damage from economic activities We need a price for carbon so that companies and consumers would pay for their emissions

27 Economic Impacts of Climate Change: Further modelling Examples of this : Statistical models starting from impact of climate change on El Nino and El Nana oceanic systems followed by implied variations on regional of the globe and estimated damage (2006, Calzadilla, Pauli and Roson) Modelling climate change risk and extreme climate events still in infancy Climate change affects communities and societies ; also companies and the financial sector. Extreme weather events can ruin companies and destroy economical value. Growing recognition that with a warming planet, risk and corporate business must factor climate change risk Insurance penetration in the West for climate change has grown substantially: courts seek to attribute liability from weather losses People living in vulnerable areas of developing countries are the most affected by the effects of climate change due to lack of civil society, market and social insurance

28 Duration June 2007 Floods in UK ;Flooding in Hull1 in 150 year event June 1June 1, 2007— July 26, July Damages~£2 billion Fatalities~11 Source ITV

29 Global Market for Environmental Goods and Services: $548 billion in 2004 US, EU and Japan account for 94% DTI Report on Emerging markets in Environmental Sector (J.Selwyn) (UK CEED, 2006)

30 45% growth in world markets to 2015 (UK CEED, 2006)

31 Green Developments in China Bloomberg (May ) reports that China will likely set up a domestic market for trading carbon emissions by Polluting companies would have “half mandatory” targets for their greenhouse gases. Feng Shengbo, deputy director of the China Clean Development Mechanism Management Centre said this in an interview. Source Wall Street Journal (June ): VantagePoint (major shareholder in electric vehicles Tesla) set up a 35 company China Low Carbon Index. (Criteria for selection in the index at least 50% or 3.5 bn yuan of annual revenue comes from low carbon business) China Beijing Environmental Exchange seeking to become trading platform for environmental stocks 2009 nearly ½ of public offering in alternative energy IPOs were Chinese Big green Chinese companies are Suntec Holdings or Yingli Green Energy Holdings

32 More Radical Ideas: Personal carbon allowances- Not Regressive like Carbon Tax or Petrol Tax At the moment it’s about governments and ‘installations’, not about individuals. What would an optimal system look like? Individuals given a tradable carbon allowance; Incentives at the right level of decision making;Problem = administrative costs; May be opportunities to start trading at LAD level – but measurement issues.

33 Critique of Extant Economic Models of Climate Change: Single parameters to capture complex dynamics Main responses to climate change: Adaptation, Conservation (reduce use of CO2 high energy with extant technology); CAT-I Carbon Abatement Technology Innovation Consumer preferences unchanging during model horizon : hence no consideration of diffusion of ‘green ethic’ Extensive study of household preference change: In the UK using BHPS data No link up to institutional structures and incentives involved within Sectors eg Emissions Trading ; Insurance and Finance sectors involved in innovative risk management for extreme climate events (catastrophe insurance ) No model of competitive co-evolution arms race which already in place for CAT-I where green sector growth and drive for market share has started; New CAT-I firms becoming market leaders or extant firms converting to CAT (eg Walmart/Asda and Honda showcasing their green technology )

34 Multi-Scale Complex System Analysis Needed Sectoral disaggregation alone not enough for policy analysis Most of all no transitional path dependencies : Necessary to digitally and dynamically track the transition of the economy from high carbon use to low carbon Marginal Cost- Benefit Analysis assume incremental change and not major structural or emergent change Micro-decisions of interconnected agents (household or firms ) can have macro-systemic implications: CAT-I disruptive technology change accelerated obsolescence of extant industry How an economy transits to low carbon in terms of lost employment and output in ‘old’ technology and drivers for GDP growth through a combination Adaptation, Conservation and CAT-I requires ACE type frameworks Why? Individual behaviour change; CAT-I technology race ; business and risk management innovation; govt. to coordinate with all three; all being informed and taking responsibility

35 Climace and Flame Needed Tracking household level consumption and behaviour/preference change for green goods Dynamic tracking of interconnected multi-scale firm level CAT-I and ETS Activity UK regional and sectoral adaptation projects Explicit incorporation of climate change risks to business and climate change financial products Computational test beds for policy analysis Socio-economic sustainability index in addition to DICE type cost benefit analysis

36 Introduction The UK transition to a low carbon economy requires the large-scale development and implementation of CATs. This project examines how this occurs via market and price incentives from participation in Emissions Trading Schemes (ETS) and Green clusters. The latter are local energy networks that provide energy to local industry and households with increased energy efficiency and large reductions in emissions. The aim of this research project is to identify and understand the drivers for the implementation of CATs in UK Background DTI has identified several regions within the UK with increased uptake of CATs and the development of localised green clusters (UK CEED, 2006). Together with increased shift towards regional planning offices and regional innovation policies, the development of green clusters provides an important step for the transition to a low carbon economy. Model framework Expected outcome The following outcomes are expected from this research project: Understanding of drivers for evolution of green clusters and impact of ETS The role of competition in the development of CATs Understanding of interaction between local governance and national and international policies on energy & innovation Construction of a socio-economic sustainability index Test bed for exploration of existing and development of new policy instruments DIGITAL MAPPING OF UK FIRMS’ PARTICIPATION IN GREEN TECHNOLOGY CLUSTERS AND ETS Methodology The methodology consists of two steps: 1.Analysis of diffusion of CATs and infrastructure development, localised incentives and UK-ETS on regional clusters (’00 – ’09) 2.Development of Agent-Based Model for: 1.Modelling of complex interaction between competition and technology development 2.Dynamic tracking of historical and future transition of green clusters 3.Test bed for policy instruments Generator A Generator B Generator C Industry D Industry E domestic storage local production Generator A Generator B Generator C Industry D Industry E domestic From centralised to green clusters Micro-behaviour Governance socio-economic sustainability index

37 Concluding Remarks *Electric Cars can be effective in CO2 only if wholesale use of renewable sources of electricity is available *In Asian cities (and world over ) each city roughly doubling motor vehicle populations, due to the forecast rise in income levels in the business-as-usual scenario, and tripling of fuel use and CO2 emissions between 2005 and 2020; unsustainable choices made in the West to date must be resisted by China and India and in so doing will lead the green technology race *Example of Shanghai where integrated and ICT base intelligent road transport is designed “Among major Chinese cities, Shanghai has one of the lowest ratios of cars to population, even though it has one of the highest gross domestic product per capita. This situation has been achieved through a deliberate effort by the municipal government to preserve the city’s character and environment, largely through the use of regulations, incentives, and fees.” (Source ADA Study 2010)

38 References Markose S., Alentorn A., Koesrindartoto D., Allen P., Blythe P. and Grosso S., 2007, “A smart market for passenger road transport (SMPRT) congestion: An application of computational mechanism design ”, Journal of Economic Dynamics and Control, Volume 31, Issue 6, June 2007, Pages , ISSN: Journal of Economic Dynamics and ControlVolume 31, Issue 6 Essex Congestion and Carbon Conference, which covered topics on Design and Public Policy: Markets for Congestion and Carbon Trading ( ) Design and Public Policy: Markets for Congestion and Carbon Tradinghttp:// CLIMACE /6.%20Sheri%20Markose%20Cost%20Benefit%20analysis.ppt. For full program see /6.%20Sheri%20Markose%20Cost%20Benefit%20analysis.ppt Energy Efficiency and Climate Change Considerations for On- road Transport in Asia 2010 Asian Development Bank Transport/chap02.pdf