1. Combining options for commitments AIXG, OECD, 22 March 2005 1 Combining options for commitments: results from modelling exercises Patrick Criqui, LEPII-EPE, CNRS-UPMF Alban Kitous, ENERDATA Cédric Philibert, IEA

2. Combining options for commitments AIXG, OECD, 22 March 2005 2 u The POLES model: key features u The Baseline projection u A Carbon Constraint Case to 2050 u Exploring alternative scenarios: 1.Impacts of non-binding targets for DCs 2.Introducing price caps 3.Introducing indexed targets 4.Strengthening the carbon constraint Outline

3. Combining options for commitments AIXG, OECD, 22 March 2005 3 The POLES model: key features u A partial equilibrium model for the world energy system … u with a year-by-year recursive simulation process from 2004 to 2050 u and 46 key countries and regions u Endogenous supply and demand on international energy markets and prices u Low-emission technologies introduced

4. Combining options for commitments AIXG, OECD, 22 March 2005 4 The 2050 Baseline projection u Supposes no major change in world energy and environmental policies u World energy consumption in 2030 is nearly the same as in WEO but fuel mix differs, with more coal, less oil and gas u 2030 energy-related CO 2 emissions : 43 GtCO 2 against 38 GtCO 2 in WEO u In 2050 more than 50 GtCO 2 from energy, i.e. twice current levels; close to IPCC scenarios leading to 1000 ppmv CO 2 or more (e.g. A1B)

5. Combining options for commitments AIXG, OECD, 22 March 2005 5 The Carbon Constraint Case u US carbon intensity decreases by 2%/year, with technology policies: -On top of pre-existing efficiency improvements and price effects … -Revival of the nuclear option -Full-scale phase-in of CCS technologies u The rest of Annex 1 (or Annex 1*) adopts fixed targets in 2050, at 50 % of 1990 emissions u Non Annex 1 countries accept non-binding targets slightly under their BaU emissions: -90 % of their baseline 2030 emissions -80 % of their baseline 2050 emissions

6. Combining options for commitments AIXG, OECD, 22 March 2005 6 World CO 2 emissions in the CCC u Emissions peak at 40 GtCO 2 in 2040, close to IPCC scenarios for stabilisation at 750 ppmv u Reduction from Baseline: 25% in 2050 u Emissions Trading is allowed among the Annex 1* and developing countries u A carbon value of 19 €/tCO 2 in 2030 and 44 €/tCO 2 in 2050 u Emissions trading largely compensates the abatement costs for developing countries

7. Combining options for commitments AIXG, OECD, 22 March 2005 7 1. Impacts of non-binding targets for DCs u Assumption: one key non Annex 1 region gets a higher- than-expected economic growth u As a result, this region renounces to fully meet its non-binding target and cannot sell CO 2 surplus u Global emissions increase: -by 7% in the Baseline -by up to 18% in the CCC u But the permit price increases only from 44 to 46 €/tCO 2 as higher energy prices partly offset reduced permit supply

8. Combining options for commitments AIXG, OECD, 22 March 2005 8 2. Introducing a «high» price cap u Assumes a price-cap is introduced for Annex 1* with a linear increase to 50 €/tCO 2 in 2050 (i.e. above forecasted costs) u and a key developing region experiences a higher- than-expected economic growth and renounces to meet its non-binding target and to trade CO 2 surplus u … then despite the absence of cheap reduction from this country, marginal abatement costs may not reach the price cap level, due to indirect effects on energy markets u This case reveals no “domino effect” of non binding targets on the other countries’ emissions

9. Combining options for commitments AIXG, OECD, 22 March 2005 9 3. Introducing indexed targets u In case of economic surprises, indexed targets would result in the same global emissions as non-binding targets, but with relatively lower abatement costs for Annex I* countries, as all countries would continue to trade u The risk for the other regions of reaching a possible price cap level set above forecasted costs is in that case lower than with non- binding targets

10. Combining options for commitments AIXG, OECD, 22 March 2005 10 4. Strenghthening the carbon constraint u Assumes that Annex I* countries strengthen their targets, down to 25% of 1990 levels (« Factor 4 ») -Global emissions are reduced to 37.5 GtCO 2 with a permit price of 58 €/tCO 2 (i.e. a 700 ppmv profile) -The relatively limited impact results from the small share of Annex 1* countries in global 2050 emissions (19 %) u A price cap may make this commitment easier. If it is set at 50 €/tCO 2 and if abatement costs are: -as forecasted (58 €/tCO 2 ), the price cap level is reached, but emissions remain almost unaffected at 38 vs. 37.5 GtCO 2 -lower than forecasted, then the more stringent target is reached at lower costs -higher than forecasted, emissions increase beyond the initial scenario

11. Combining options for commitments AIXG, OECD, 22 March 2005 11 Preliminary conclusions u “Combined options scenarios” may result in global reductions in the range of 25 % from Baseline in 2050 u In case of unexpectedly high economic growth, non- binding targets or dynamic targets will indeed entail deviation from targets u But may not have a strong effect on the emissions of the parties under a price cap, due to interactions with energy markets u Price cap may also help strengthening the constraint… with however limited effects on global emissions if the corresponding region is too small