Economic comparison of greenhouse gas mitigation options in Germany

Abstract

Our objective is to provide a balanced analysis of greenhouse gas mitigation options, across a variety of climate policy scenarios, for Germany. At least four classes of greenhouse gas mitigation options are available: energy efficiency, fuel switching, CO2 capture and storage (CCS), and reductions in emissions of non-CO2 greenhouse gases. These options vary by cost, timing, and our ability to represent them in an economic analysis. We use the Second Generation Model, an economy-wide computable general equilibrium (CGE) model that embodies greenhouse gas mitigation possibilities from the energy system and CCS. Policy scenarios are represented as a response to varying levels of a price for greenhouse gas emissions, either applied economy-wide or targeted at energy-intensive sectors of the economy according to the EU emissions trading scheme. Energy efficiency options are represented in the standard CGE format where non-energy inputs substitute for energy inputs within economic production functions, or system of consumer demand equations, as the price of energy increases relative to other goods. The electric power sector provides substantial opportunities for fuel switching and the deployment of advanced electricity-generating technologies, with and without CO2 capture and storage. Our methodology relies on engineering descriptions of electricity-generating technologies and how their competitive positions vary with a CO2 price or change in fuel price. Further, we allow for reduction of emissions of non-CO2 gases, which adds a set of mitigation opportunities not usually included in energy-economic modeling efforts. A formal decomposition methodology is used to isolate the contribution of each greenhouse gas mitigation option.