Growth, Technology & EmissionsEmissions Projections (Say, CO2 to 2020)Market-Based vs. Technology CostThe Origin of CO2 Emissions (An accounting identity)Non-CO2 Human EmissionsComponents of a Projection ModelTechnology: Cutting GrassWith Several TechnologiesTechnology ChoiceTechnology ImprovementHow Flexible Is the Economy? Constant Elasticity of SubstitutionExtended Production FunctionSimple “Top-Down” Model A Recursive Dynamic ModelA Forward-Looking ModelEPPA: Sectoral AggregationSample Production StructureThe Base-Year Data Social Accounting Matrix (SAM)EPPA: Regional AggregationScenarios of Emissions & Concentrations The three models (U.S. CCSP pp. 47-48)Global Industrial CO2 EmissionsMIT OpenCourseWare http://ocw.mit.edu15.023J / 12.848J / ESD.128J Global Climate Change: Economics, Science, and PolicySpring 2008For information about citing these materials or our Terms of Use, visit: http://ocw.mit.edu/terms.• The reference or BAU projection: its uses– Understand the climate problem, its magnitude– Basis for analyzing mitigation measures• Methods & puzzles in construction– “Horses for courses”– Underlying assumptions• How the analysis is done– Simple growth models, myopic & forward-looking– Add an energy sector, and multiple regions– Multiple goods and energy types– Multiple regions & trade in goods & permits• Sample results from a 3-model studyGrowth, Technology & Emissions• For MIT–––• For the USA–––Emissions Projections(Say, CO2to 2020)Market-Based vs. Technology Cost• General equilibrium– Full economy• Goods, capital, labor– Prices endogenous– Factors driving growth– International trade• Sacrifice technological detail– Production technology– Aggregation of sectors• Engineering cost– Technical detail– Zero-cost opportunities• Partial equilibrium– Key prices exogenous– Omit interactions• Direct costs, ignoring– Consumer surplus loss– Industrial structure– Transactions costsTop-Down vs. Bottom-upHybridsCO2= Pop ∗ GDP/Pop ∗ E/GDP ∗ CO2/EThe Origin of CO2Emissions(An accounting identity)PopulationPer-capita standard of livingEnergy efficiency ofproductionCarbon intensity of energy•CH4– Coal, gas and oil production– Landfills, livestock, rice production•N2O – Agricultural soils, chemical production• Industrial gases– HFCs (air conditioning, foam blowing, solvents) – PFCs (semiconductor production, aluminum)–SF6(Insulator in electrical switchgear)• Black carbon (aerosols)– Diesel engines, biomass burning• Sox (aerosol precursor)– Coal burningNon-CO2Human Emissions• Represent the production process• Drivers of growth– Population– Productivity change– Growth in the capital stock• Economic decisions (e.g., savings rate, consumer choice)• Carbon emissions– Energy use– Carbon content of energy• Calibrate to base year dataComponents of a Projection ModelTechnology: Cutting GrassK, EL,MPower Mower20 acres per day10 acres per dayWith Several TechnologiesK, EL,MPush MowerPower MowerRiding Mower2-person Power Mower10 acres per dayTechnology ChoiceK, EL,MPush MowerPower MowerRiding MowerPrices 1Prices 2Technology ImprovementK, EL,MPush MowerPower MowerRiding MowerNew Riding MowerHow Flexible Is the Economy?Constant Elasticity of SubstitutionCES:KLKLKLLaKaXLKttρρρα1)( +=KLKLρσ−=11KLXKLXσ>0KLX σ=0XExtended Production FunctionOther Input Factors to Production: q = f (K, L, E, M, FF)Technical Change:Multi-factor Productivity:q = a(t) f (K, L, E, M)Labor Productivity: q = f (K, a(t)L, E, M)Energy Efficiency:q = f(K, L, a(t)E, M)Endog. Tech. Change: q= f(K, L, a(t, PE)E, M)OutputCapital Labor EnergyMaterials Fixed Factor• Simplifications– One output good (X)– One country (no trade)– “Parameterized” energy sector– No government (no taxes or transfers)– Recursive-dynamic (myopic): economic agents don’t anticipate future prices–CO2only• Relax these as we go forwardSimple “Top-Down” ModelA Recursive Dynamic ModelProduction functionLabor force growthProductivity changeCapital accumulationAccounting IdentitySaving/investm’t equilibriumSavings behaviorCarbon emissionsKLKLLKLKtt)LbKb(aXρρρ1+=tt)(LLγ+= 10()ttga+= 1()tttIKK+−=−11δtttSCX+=ttIS=)XY(sYStt≡=()t,XfEtt=A Forward-Looking ModelProduction functionLabor force growthTechnical changeCapital accumulationAccounting IdentitySaving/invest equilibriumMaximize welfare (W)Carbon emissionsKLKLLKLKtt)LbKb(aXρρρ1+=tt)(POPLγ+= 10()ttga+= 1()tttIKK+−=−11δtttSCX+=ttIS=()t,XfEtt=()()∑+=tttr)C(fWMax1MIT Integrated Global System ModelTransactions In a Simple EconomySectorsNon-EnergyAgricultureEnergy IntensiveOther IndustryServicesIndustrial TransportHousehold TransportEnergyCrude & Refined oil,BiofuelShale oilCoalNatural gasSynthetic gas (from coal)ElectricityEPPA: Sectoral AggregationFor special studiesCrops Livestock ForestryFood processingTechnologies IncludedFossil (oil, gas & coal)IGCC with captureNGCC with captureNGCC without captureNuclearHydroWind and solarBiomassFor special studiesCrude sources & gasoline, diesel, petcokeheavy oil, biodiesel, ethanol, NGLs& explicit upgradingSample Production StructureKLKLLKLKtt)LbKb(aρρρ1+=Estimate σVACalibration of a’sVAThe Base-Year DataSocial Accounting Matrix (SAM)Commodities iFactors fColumn Total11nnLabourCapitalResourcesNet TaxesCons. Inv. Gov't Exp. Imp.RowTotalFinal DemandsIndustriesdjXVVLVKVFGττYlYlYnYnGCGGGIGXGMFigure by MIT OpenCourseWare.MIT (EPPA) ModelMulti-Regions and TradeAnnex BUSAEurope CanadaMexicoJapanAus. & N.Z.FSUE. EuropeNon-Annex BChinaIndiaPersian GulfIndonesiaAfricaLatin AmericaEast AsiaRest of WorldEPPA: Regional AggregationFor special studies:Finland France Germany Britain Italy Holland Spain Sweden Hungary Poland Otherp. 61p. 64Scenarios of Emissions & ConcentrationsThe three models (U.S. CCSP pp. 47-48)Feature IGSM/EPPA MERGE MiniCAMStructure General equilibriumGeneral equilibriumPartial equilibriumSolution Recursive dynamicForward lookingRecursive dynamicPopulation Exogenous Exogenous ExogenousLabor force Proportional to populationProportional to populationPopulation demographicsMain growth driverExog. Labor productivityExog. Labor productivityExog. Labor productivityStructure of final demandSectors shown earlierSingle prod’nsector (GDP)Buildings, transport,industryGlobal Population0246810122000 2020 2040 2060 2080 2100YearBillionEPPA_REFMERGE_REFMINICAM_REFGlobal