1. 1 Coupling bottom-up and top-down energy models: challenges and results with TIAM and GEMINI-E3 Marc Vielle 1, Maryse Labriet 2, Laurent Drouet 3, Alain Haurie 4, Amit Kanudia 5, Richard Loulou 6 1 Ecole Polytechnique de Lausanne and ORDECSYS, Switzerland 2 Kanlo Consultants, France and Spain 3 Ecole Polytechnique de Lausanne, Switzerland 4 University of Geneva and ORDECSYS, Switzerland 5 Kanors Consulting, India 6 Kanlo Consultants, France International Energy Workshop Venice (Italy), June 17 th, 2009

2. 2 Aims of coupling Enhance the description of world energy system by combining the strengths of the two models : 1.Detailed technological representation of the energy system of ETSAP-TIAM allowing the endogenous computation of (amongst others) energy flows and prices 2.General equilibrium effects of GEMINI-E3 allowing the explicit representation of the main economic factors (labor, consumption, capital, etc.) and their interactions with the energy service demands

3. 3 GEMINI-E3 General Equilibrium Model 24 countries/regions – 14 sectors CO 2 and other GHG Reference year 2001 – based on GTAP database Time period 2001- 2050 Website: http://www.gemini-e3.net/

4. 4 ETSAP-TIAM Technology rich, dynamic inter-temporal partial equilibrium representing the entire energy systems Based on maximum total surplus (via LP) with own price elastic service demands Driven by demands for energy services. eg. tons aluminium, km car travel, etc. 15 regions linked by trades of 9 energy commodities + emissions CO2 and other GHGs Reference year 2005 – IEA Energy Statistics Time horizon 2005-2100 (2005-2050 is used here) Website: www.etsap.org/documentation (Energy Technology System Analysis Programme)

5. 5 Connecting the models: regions, sectors and commodities Choose a common regional disaggregation TIAM GEMINI-E3

6. 6 Connecting the models: regions, sectors and commodities Create connections between the two activity classifications (the two models are based on two different data sets) Additions of activity sectors in GEMINI-E3: hydrogen, biomass, adjusted share of other non-fossil fuels

7. 7 Coupling Framework GEMINI-E3 TIAM Demand functions demand=driver elast Energy mix Energy prices Technical progress Investments Cost CO2 price Drivers: GDP Industrial outputs Service demands Harmonisation of the two models (POP, GDP, energy prices, some energy constraints) Coupling of the two models COUPLINGCOUPLING

8. 8 Coupling Algorithm Starting point: harmonized models (GDP, POP, energy prices)

9. 9 Case study: World Climate Agreement Radiative forcing limited to 3.5 W/m 2 (2005-2050, no overshooting) Full World cooperation –All sectors –All countries  Only one carbon price for each time period, equivalent to a tax applied to all sectors and all countries What do we learn from the coupling?

10. 10 Convergence Convergence criteria Achieved at iteration 4

11. 11 Some verifications  No difference between Coupled models and TIAM-Elast  Of course, energy service reductions help for mitigation (lower CO2 price than w/o elasticities) CO2 emissions (GtC/yr)

12. 12 Focus on final energy services  Expected added value of the coupling of TIAM and GEMINI-E3: better representation of the factors influencing the demands for energy services, globally and more importantly, regionally  What is observed in the results of the Coupled models? Agriculture, commercial, residential and road transport behave similarly in both approaches, with slightly higher reductions in the Coupled models in residential and non-road sectors, and slightly smaller reduction in commercial and agriculture. Demands for non-road transport (aviation, navigation) are more drastically reduced in TIAM-Elast More complex dynamics in the industry sector, while in TIAM-Elast, all industrial energy services decrease

13. 13 Industrial sectors

14. 14 Example: the Iron&Steel sector Relative values of production wrt Ref Domestic production = Domestic demand + Exports - Imports Decision factors Relative values of domestic consumption and trade wrt Ref

15. 15 Example: the Iron&Steel sector Why such differences between regions?  First, all regions decrease their domestic consumption of Iron&Steel, even those which increase their exports  Variations of trade depend on regions  Strong decrease of exports / increase of imports in China and India High contribution to the World emissions (almost 60% in 2050 in the Reference)  any (or almost any) available mitigation options are implemented in all sectors Why do they prefer to import and not domestically produce Iron&Steel with clean processes? Remaining (and not too expensive) mitigation options are limited, compared to some other countries. For example: all its biomass potential is used This is an example of how both models are useful to understand the results

16. 16 Some macro-economic effects (from GEMINI-E3) Energy exporting countries: loss of terms of trade Other affected countries: where the energy intensive industry is strong Importing countries / high energy efficiency: smaller costs

17. 17 Other applications: Partial Climate Agreements (S2) Climate Agreement Limited to the Energy Intensive Industries in Non-OECD in order to avoid penalizing too much the households (residential and transport) but also to limit the loss of competitiveness of developed countries. Same target 3.5 W/m2. (S2B) Climate Agreement Limited to the Electricity generation of Non-OECD countries. Target 3.5 W/m2 infeasible. Target 4.0 W/m2. What are the impacts on the energy system? Are there emissions / investment leakages? Are the costs supported by Non-OECD countries reduced?

18. 18 Some of the technology decisions S1: Full Cooperation – 3.5 W/m2 S2B: Only Energy Intensive Sectors of Non-OECD – 3.5 W/m2 S2B: Only Electricity Sectors of Non-OECD – 4.0 W/m2 More electricity consumed in S2 wrt S1 by industry in all countries, and by residential in OECD only. No increase of elc consumed in Non-OECD in S2B Electricity generation by plants with CCS and renewable in all scenarios Increase of emissions of the residential sector of Non-OECD countries in both scenarios: biomass consumed in residential is transferred to industry and power plants, and replaced by coal No rebound of oil consumption in Non-OECD Displacement of gas extraction in S2B when Supply is excluded form the Climate agreement (AFR, FSU)

19. 19 Other investment leakages? Industrial productions and trade variations of S2 (where industry of Non-OECD is covered by the Climate agreement) follow the same trends as in S1 (full cooperation) There is displacement of some energy intensive industries in S2B when industry in excluded from the Climate agreement (AFR, MEA), but remains moderate No increase of emissions thanks to the decrease of World oil consumption  less extraction  less emissions Macro-economic costs reduced for non-OECD countries

20. 20 Macro-economic impacts (surplus in % of households final consumption) S2 more costly for developed countries than the full coop (S1), since the CO2 price is higher Developing countries are better: households are exempted from carbon taxation and benefit from the decrease of fossil fuel prices vs Reference Energy exporting countries are especially better since the World energy consumption does not decrease so much S2B: smaller costs (more acceptable?), but less strict environmental target

21. 21 Conclusion Fine technology and energy analysis (mix, prices, technical progress) provided by ETSAP-TIAM Fine macro-economic analysis (GDP, sectoral outputs) provided by GEMINI-E3. Finer representation of the variations of the demands for energy services, especially at the regional level (possible displacement of the production). Crucial (and not easy): Connections between the two models Complexity in the understanding of the results, especially the macro-economic ones, since GEMINI-E3 is the most altered model in the coupled approach

22. 22 Appendix

23. 23 Reference Energy System of TIAM

24. 24 Regions of TIAM Africa* Australia-New Zealand Canada Central and South America* China Middle-East* Other Developing Asia* South Korea United States Western Europe * OPEC and Non-OPEC countries are separated in primary and secondary sectors  appropriate modelling of oil production strategies and oil price control by OPEC countries Eastern Europe Former Soviet Union India Japan Mexico

25. 25 Connections

26. 26 Connections

27. 27 Connections

28. 28 Connections

29. 29 Connections

30. 30 Connections

31. 31 Technical progress The final energy consumed in TIAM to satisfy the service demands results from several factors –The trajectories of the future end-use service demands themselves, driven by the macro-economic drivers and the elasticities of the demands to these drivers; –The energy and technology choices made by the model when optimizing the energy system.

32. 32 Example: the Iron&Steel sector The variations of the Iron&Steel production are not the same in all regions: strong decreases in China, India, Middle-East, while the production slightly increases in some other regions MEA IND CHI

33. 33 Example: the Iron&Steel sector Absolute values of production wrt Ref Relative values of production wrt Ref

34. 34 Technology and energy decisions in Iron&Steel sector (from ETSAP-TIAM) Technology and energy decisions are the result of the complex interactions between energy forms, technologies, sectors, regions (linked by energy trade) World level –Substitution of coal by gas –Decrease of total production (14%) –Better efficiency (+10%) of technologies –Decrease of total energy consumption

35. 35 Electricity production, S1 and S2

36. 36 Electricity production, S2B