1. Potsdam Institute for Climate Impact Research Research Domain Sustainable Solutions 1 Analysis of Post-2012 Climate Policy Regimes Marian Leimbach/Lavinia Baumstark/Nico Bauer/Ottmar Edenhofer Berlin, 3.7.2008

2. Potsdam Institute for Climate Impact Research Research Domain Sustainable Solutions 2 Outline 1.Introduction 2.Model REMIND-R 3.Policy scenarios 4.Results 5.Comparison of policy regimes 6.Conclusion

3. Potsdam Institute for Climate Impact Research Research Domain Sustainable Solutions 3 1. Introduction UNFCC (article 2): … stabilize GHG concentration on such a level that “prevent dangerous anthropogenic interference with the climate system” EU target: avoid temperature increase of 2°C related to preindustrial level Objective of this study: identify the magnitude and regional distribution of costs to attain such target under different policy regimes

4. Potsdam Institute for Climate Impact Research Research Domain Sustainable Solutions 4 1. Introduction

5. Potsdam Institute for Climate Impact Research Research Domain Sustainable Solutions 5 2. Model REMIND-R Hybrid Model REMIND-R: Hard link between ESM and economy and climate module Multi-regional growth model: maximizes weighted sum of regional utility functions using the Negishi approach Connections between regions: trade in… 1.Resources: coal, gas, oil, uranium 2.Aggregated good 3.Emission permits

6. Potsdam Institute for Climate Impact Research Research Domain Sustainable Solutions 6 2. Model REMIND-R

7. Potsdam Institute for Climate Impact Research Research Domain Sustainable Solutions 7 CES-Structure of production function in Macroeconomic Module

8. Potsdam Institute for Climate Impact Research Research Domain Sustainable Solutions 8 Energy System Module

9. Potsdam Institute for Climate Impact Research Research Domain Sustainable Solutions 9 2. Modell REMIND-R 9 Regions: 1. UCA – USA, Canada, Australia 2. EUR – EU27 3. JAP – Japan 4. CHN – China 5. IND – India 6. RUS – Russia 7. AFR – Sub-Saharan Africa 8. MEA – Middle East and North Africa 9. ROW – Rest of the World

10. Potsdam Institute for Climate Impact Research Research Domain Sustainable Solutions 10 3. Policy scenario Reaching a 2°C target requires a fast and drastic decrease of emissions of all regions: -50% until 2035 -78% until 2050 (even more from baseline levels) Reference scenario Policy scenario

11. Potsdam Institute for Climate Impact Research Research Domain Sustainable Solutions 11 3. Policy regimes Universal cap & trade system Emissions trading with all regions as of 2010 3 different allocation schemes: 1.Contraction& Convergence (C&C) in 2010 – grandfathering; in 2050 – equal per capita emission rights 2.Intensity target or option for the rich (INT) emission rights according to shares in world-wide gross product 3.Multistage approach (MST) amount of permits depend upon per capita income

12. Potsdam Institute for Climate Impact Research Research Domain Sustainable Solutions 12 Percentage difference between allocated emission permits and emissions in 1990 20202050 C&CINTMSTC&CINTMST UCA -19%+29%-32%-95%-73%-100% JAP -18%+108%-25%-94%-67%-100% EUR -34%+39%-35%-93%-74%-100% RUS -45%-84%-52%-97%-96%-100% MEA +95%-24%+38%-33%-74%+64% CHN +45%-12%-20%-63%-60%-100% IND +190%-18%+387%+59%-61%+351% AFR +197%-25%+149%+108%-69%+334% ROW +19%-13%+2%-61%-73%-100%

13. Potsdam Institute for Climate Impact Research Research Domain Sustainable Solutions 13 4. Results Separability of efficiency and allocation/equity Same results for: –Global reduction path –Global carbon price –Global mitigation costs –Regional technology choice –Trade in goods and resources Different results for: –Regional mitigation costs –Permit trade

14. Potsdam Institute for Climate Impact Research Research Domain Sustainable Solutions 14 Reference scenario Policy scenario 4. Results: Primary energy consumption (global)

15. Potsdam Institute for Climate Impact Research Research Domain Sustainable Solutions 15 4. Results: Primary energy consumption (regional) EUR MEA China Africa

16. Potsdam Institute for Climate Impact Research Research Domain Sustainable Solutions 16 4. Results: Trade in Oil Oil price rises much slower in the policy scenario compared to the reference scenario. The trade with oil decreases.

17. Potsdam Institute for Climate Impact Research Research Domain Sustainable Solutions 17 4. Results: Trade in Coal Reference scenario Policy scenario Until 2040: decreasing trade in coal in the policy scenario, After 2040: increasing trade in coal in the policy scenario => CCS

18. Potsdam Institute for Climate Impact Research Research Domain Sustainable Solutions 18 4. Results: Permit trading (C&C) Developing regions sell emission permits profitably to industrialised regions. Carbon price: around 100 $US/tCO 2 in 2035

19. Potsdam Institute for Climate Impact Research Research Domain Sustainable Solutions 19 4. Results: Permit Trading (II) INT C&C Permit trade pattern reversed

20. Potsdam Institute for Climate Impact Research Research Domain Sustainable Solutions 20 4. Results: Permit Trading (III) MST C&C Similar structure, but Africa dominates the seller side in the long run

21. Potsdam Institute for Climate Impact Research Research Domain Sustainable Solutions 21 5. Comparison of policy regimes All policy regimes achieve the stabilization target (equal ecological efficiency) C&C: preferable for Russia and China INT: preferable for UCA,JAP, EUR (highest costs for most others) MST: preferable for MEA, IND, AFR

22. Potsdam Institute for Climate Impact Research Research Domain Sustainable Solutions 22 6. Conclusion 2°C climate target can be reached with costs of 1.5% of global GDP; however, regional costs vary significantly Terms-of-trade effects influence mitigation costs substantially: regions with high shares in trade of fossil resources (MEA and Russia) bear highest costs AFR can benefit from a global emissions trading system Mitigation cost differences are higher between regions than between policy regimes Given the rather small variance of mitigation costs in regions like UCA, EUR, MEA and China, a policy regime should be chosen that provides incentives to join an international agreement for the remaining regions (C&C with Russia, MST with India and Africa)

23. Potsdam Institute for Climate Impact Research Research Domain Sustainable Solutions 23 3. Trade results: Coal

24. Potsdam Institute for Climate Impact Research Research Domain Sustainable Solutions 24 5. Mitigation options Doing without nuclear energy is not costly, but CCS option is important.

25. Potsdam Institute for Climate Impact Research Research Domain Sustainable Solutions 25 5. Mitigation options All options No CCS Fixed nuclear

26. Potsdam Institute for Climate Impact Research Research Domain Sustainable Solutions 26 4. Mitigation wedges CHN EUR IND UCA