Modelling the global macroeconomic impacts of a carbon constrained energy system using ETSAP-TIAM-MSA

James Glynn, Maurizio Gargiulo, Socrates Kypreos, Brian Ó Gallachóir

UN City, Copenhagen | 66th ETSAP Meeting | TIMES-CGE WS

19th November 2014

Acknowledgements

• ETSAP TIAM Project Group

• MSA Developers Socrates Kypreos (PSI) & Antti Lehtila (VTT)

Proposed Structure

• 1.Introduction • 1.1 Rationale • 1.2 Motivation • 1.3 Scenario description

• 2. Methods • 2.1 Data Harmonisation • 2.2 Model Structure & Linkages • 2.3 Substitution approach & structure (CES, Leontief?) • 2.4 Revenue Recycling (if applicable)

• 3 Results • 3.1 Energy Service Demand impacts • 3.2 Economic Impacts

• 3.2.1 Jobs/Employment

• 3.2.2 Gross Domestic Product

• 3.2.3 Welfare (consumption)

• 3.3 Additional Insights & benefits of model linkages

• 4 Conclusions • 4.1 Critical Messages

Outline

• Rationale

• New User learning experiences with ETSAP TIAM & Macro Stand Alone

• MACRO is not “a Pig” anymore

• Macroeconomic impact of decarbonising of the Energy System

• ETSAP-TIAM MSA Global Energy System Modelling

• Developing on setup experience with Irish-TIMES-MSA

• Initial scenario analysis results

• Work in Progress

• Focus on results to 2050

• Next Steps

Why Model Energy System Macro-economy Feedback?

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

1980 1990 2000 2010

Pe

rce

nta

ge

Ch

an

ge

Global % Changes World - TPER

World - GDP

• Energy Consumption ~ Economic Growth Relation

• Growth drives our models, but what are the scale of feedbacks?

• Decarbonising Energy System

• Increased capital investment in new energy system

• What is the feedback effect on GDP and consumption?

• Welfare? Jobs?

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

1980 1990 2000 2010

Pe

rce

nta

ge

Ch

an

ge

Ireland Ireland - TPER

Ireland - GDP

ETSAP-TIAM model description

Built with the TIMES model generator

• The Integrated MARKAL-EFOM System of IEA-ETSAP

• Linear programming bottom-up energy system model

• Integrated model of the entire energy system

• Prospective analysis on medium to long term horizon (2100 – results to 2050)

• Demand driven (exogenous) in physical units

• Partial and dynamic equilibrium (perfect market)

• Optimal technology selection

• Minimize the total system cost

• Environmental constraints

• 15 Region Model

• Price-elastic demands in the TIMES-ED version

• Not included in MSA runs

ETSAP-TIAM Reference Energy System

Source: Loulou, R., Labriet, M., 2008. ETSAP-TIAM: the TIMES integrated assessment model Part I: Model structure. Comput. Manag. Sci. 5, 7–40. doi:10.1007/s10287-007-0046-z

ETSAP-TIAM MSA (TMSA)

Macro Stand Alone

• Single-sector, multi-regional, inter-temporal general equilibrium model which maximises regional utility.

• The utility is a logarithmic function of the consumption of a single generic consumer.

• Production inputs are labour, capital and energy.

• Energy demand from ETSAP-TIAM model.

• MSA Re-estimates Energy Service Demands based on energy cost

Macro-Economy

MACRO Model

Energy Sector

-TIMES

Energy Costs

Energy Demand

Labour

Consumption

Investment

Capital

Data Harmonisation

• Base year GDP

• Projected GDP growth Rates

• Harmonise between demand drivers

• Regional Elasticity of Substitution?

• Regional Capital Shares

• Negishi Weights

Parameter Description TM_ESUB(r) Elasticity of substitution TM_GDP0(r) GDP in the first period TM_GR(r,y) Projected annual GDP growth in per cent TM_KGDP(r) Initial capital to GDP ratio TM_KPVS(r) Initial capital value share in all production factors

Scenario Outline IPCC AR5 CO2 Mitigation paths

Source: IPCC, 2014. Climate Change 2014: Mitigation of Climate Change, Fifth Assessment Report of the Intergovernmental Panel on Climate Change. Cambridge University Press, Washington, USA.

• Two thirds of emissions are from the energy system

• Radically Decarbonised Energy System

Scenario Outline

• BASE • Reference energy system, least cost optimal without policy

constraints

• Assumes rational optimising choices: not equal to business as usual

• IPCC • BASE with an upper bound set on CO2 emissions to achieve the

2degree target set in the IPCC AR5 WG3 mitigation report

• IPCC MSA • IPCC with MSA active to re-estimate energy service demands relative

to available capital & investment

• REG • BASE with an upper bound set on REGIONAL CO2 emissions in line

with recent UN climate summit pledges

• Developed Countries -80% CO2 by 2050, Developing range of limited constraints peak by 2040, Energy Exporters no constraints.

• Global CO2 Targets are not explicitly met

• REG MSA • REG with MSA active to re-estimate energy service demands relative

to available capital & investment

ETSAP-TIAM 15 Regions Developed, Developing, Exporting

AFR

CAN

USA

MEX

CSA

WEU EEU

MEA IND

FSU

CHI

SKO

JPN

AUS

ODA

Sectoral Energy Consumption

0

100

200

300

400

500

600

700

BASE IPCC IPCCMSA

REG REGMSA

BASE IPCC IPCCMSA

REG REGMSA

2020 . 2050

En

erg

y C

on

su

mp

tio

n

(EJ -

Exajo

ule

s)

Transport

Residential

Industry

Commercial

Agriculture

Demand Decoupling

0

200

400

600

800

1000

1200

BA

SE

IPC

C M

SA

RE

G M

SA

BA

SE

IPC

C M

SA

RE

G M

SA

BA

SE

IPC

C M

SA

RE

G M

SA

BA

SE

IPC

C M

SA

RE

G M

SA

CHI USA CHI USA

2020 2050

Mil

lio

n T

on

ne

s (

Mt)

DEM Non-ferrous metals [INF]

DEM Iron and Steel [IIS]

0

500

1000

1500

2000

2500

3000

3500

4000

BA

SE

IPC

C M

SA

RE

G M

SA

BA

SE

IPC

C M

SA

RE

G M

SA

BA

SE

IPC

C M

SA

RE

G M

SA

BA

SE

IPC

C M

SA

RE

G M

SA

CHI USA CHI USA

2020 2050

Billio

n V

eh

icle

km

/y

r

Road Medium Trucks Demand [TRM]

Road Light Vehicle Demand [TRL]

Road Heavy Trucks Demand [TRH]

Road Commercial Trucks Demand [TRC]

Road Bus Demand [TRB]

Fuel Mixes – 2020 - 2050

0

100

200

300

400

500

600

700

BASE IPCC IPCCMSA

REG REGMSA

BASE IPCC IPCCMSA

REG REGMSA

2020 2050

En

erg

y C

on

su

mp

tio

n

EJ -

Exajo

ule

s

Other Renewable

Oil Products

Hydrogen

Heat

Gas

Electricity

Coal

Biomass

Biodiesel

Bio-Alcohol

Regional Fuel Mixes

0

50

100

150

200

250B

AS

E

IPC

C

IPC

C M

SA

RE

G

RE

G M

SA

BA

SE

IPC

C

IPC

C M

SA

RE

G

RE

G M

SA

BA

SE

IPC

C

IPC

C M

SA

RE

G

RE

G M

SA

BA

SE

IPC

C

IPC

C M

SA

RE

G

RE

G M

SA

CHI USA CHI USA

2020 2050

En

erg

y C

on

su

mp

tio

n

(EJ -

Exajo

ule

s)

Other Renewable

Oil Products (includessynthetic oil)

Heat

Gas

Electricity

Coal

Biomass (excludes biofuels)

Biodiesel

Alcohol (ethanol, methanol,from biomass or not)

Carbon Emissions Regional Burden Sharing Scenario

0

10

20

30

40

50

60

BASE IPCC IPCCMSA

REG REGMSA

BASE IPCC IPCCMSA

REG REGMSA

2020 2020

CO

2 E

mis

sio

ns

(Gt)

WEU

USA

SKO

ODA

MEX

MEA

JPN

IND

FSU

EEU

CSA

CHI

CAN

AUS

AFR

Redistribution of Country Burden Shares – Developing Country shares change

GDP Change 2020, 2050 (*Initial Results – trends rather than specifics)

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

% G

DP

Ch

an

ge

pe

r y

ear

2020 IPCC MSA

2020 REG MSA

2050 IPCC MSA

2050 REG MSA

Energy Exporters

Industrial Developing Developed West

Conclusions

• National CO2 emissions are typically lower in MSA Runs as a result of demand adjustments.

• between -5 and -13% by 2050

• Loss of GDP can be as high and potentially disruptive by 2050.

• National effects are dependent on burden sharing rules

• Short term economic gains are to be made in energy efficiency measures.

• MSA displays non-linear, sectorally non-uniform demand responses that cannot be captured with demand price elasticities.

• Critical Messages – Practical tips using MSA setup • Synch time periods to 11p

• Avoid volatile high marginal costs

• Remove all dummies

• Ensure ALL sensible constraints (I know this should go without saying…)

• Next Steps • Regional Calibration & Testing Ph2

• Regional Sensitivity to Negishi Weights

• Regional Sensitivity to Elasticity of Substitution

Thank You

www.ucc.ie/energypolicy