Uncertain long-run emissions targets, CO2 price and global energy transition: A general equilibrium approach

Abstract

The persistent uncertainty about mid-century CO 2 emissions targets is likely to affect not only the technological choices that energy-producing firms will make in the future but also their current investment decisions. We illustrate this effect on CO 2 price and global energy transition within a MERGE-type general-equilibrium model framework, by considering simple stochastic CO 2 policy scenarios. In these scenarios, economic agents know that credible long-run CO 2 emissions targets will be set in 2020, with two possible outcomes: either a "hard cap" or a "soft cap". Each scenario is characterized by the relative probabilities of both possible caps. We derive consistent stochastic trajectories -with two branches after 2020 -for prices and quantities of energy commodities and CO 2 emissions permits. The impact of uncertain long-run CO 2 emissions targets on prices and technological trajectories is discussed. In addition, a simple marginal approach allows us to analyze the Hotelling rule with risk premia observed for certain scenarios.

Sensitivity of modeling results to technological and regional details: The case of Italy's carbon mitigation policy

“…Even if this target is consistent with the five recent studies for EU27 (Bohringer et al, 2009;Durand-Lasserve et al, 2010;Peterson et al, 2011, Bosello et al, 2013, Orecchia and Parrado, 2013), a comparison is not possible. First of all, unlike the five previously cited studies, no permits trade or technological advancement in energy saving is assumed in this paper.…”

“…For instance, five recent studies suggest that for the EU27 countries to achieve a 20% emission reduction target by 2020 from the 1990 level, the carbon price can range from 19 €/tCO2 to 70 €/tCO2 (Bohringer et al, 2009;Durand-Lasserve et al, 2010;Peterson et al, 2011;Bosello et al, 2013;Orecchia and Parrado, 2013). These results indicate that there could be gross domestic product (GDP) gains of around 0.1% or losses of up to 2%.…”

Macroeconomic Impacts of the EU 30% GHG Mitigation Target

“…This exercise is not new to the literature (Bohringer et al, 2009;Durand Lasserve et al, 2010;Peterson et al, 2011). According to these studies, meeting the 20% emission reduction target could imply small GDP gains for the EU27 (Peterson et al, 2011), or a loss reaching 2% of total welfare (Bohringer et al, 2009) and a carbon price ranging roughly between 30 €/tCO2 (Durand Lasserve et al, 2010) and 70 €/tCO2 (Bohringer et al, 2009).…”

“…According to these studies, meeting the 20% emission reduction target could imply small GDP gains for the EU27 (Peterson et al, 2011), or a loss reaching 2% of total welfare (Bohringer et al, 2009) and a carbon price ranging roughly between 30 €/tCO2 (Durand Lasserve et al, 2010) and 70 €/tCO2 (Bohringer et al, 2009). These results are obtained by assuming that emission reductions are implemented at the lowest possible costs.…”

Effects of the Uncertainty about Global Economic Recovery on Energy Transition and CO2 Price

“…and Manne and Olsen (1996) study the impact of the uncertainty surrounding the sensitivity of climate damages to greenhouse-gases concentrations. and Durand-Lasserve et al (2010) study the impact of uncertainty relative to regional emissions-reduction targets. consider the uncertainty over the success of R&D activities concerning a backstop technology.…”