Carbon Constraints Research Articles

Greenhouse Gas Mitigation in a Carbon Constrained World: The Role of Carbon Capture and Storage

In a carbon constrained world, at least four classes of greenhouse gas mitigation options are available: Energy efficiency, fuel switching, introduction of carbon dioxide capture and storage along with renewable generating technologies, and reductions in emissions of non-CO2 greenhouse gases. The role of energy technologies is considered crucial in climate change mitigation. In particular, carbon capture and storage (CCS) promises to allow for low-emissions fossil-fuel based power generation. The technology is under development; a number of technological, economic, environmental and safety issues remain to be solved. With regard to its sustainability impact, CCS raises a number of questions: On the one hand, CCS may prolong the prevailing coal-to-electricity regime and countervail efforts in other mitigation categories. On the other hand, given the indisputable need to continue using fossil fuels for some time, it may serve as a bridging technology towards a sustainable energy future. In this paper, we discuss the relevant issues for the case of Germany. We provide a survey of the current state of the art of CCS and activities, and perform an energy-environment-economic analysis using a general equilibrium model for Germany. The model analyzes the impact of introducing carbon constraints with respect to the deployment of CCS, to the resulting greenhouse gas emissions, to the energy and technology mix and with respect to interaction of different mitigation efforts. The results show the relative importance of the components in mitigating greenhouse gas emissions in Germany. For example, under the assumption of a CO2 policy, both energy efficiency and CCS will contribute to climate gas mitigation. A given climate target can be achieved at lower marginal costs when the option of CCS is included. We conclude that, given an appropriate legal and policy framework, CCS, energy efficiency and some other mitigation efforts are complementary measures and should form part of a broad mix of measures required for a successful CO2 mitigation strategy.

Linking the EU emissions trading scheme: economic implications of allowance allocation and global carbon constraints

We investigate the role of domestic allowance allocation and global emissions constraints for the carbon-market impacts of linking the EU Emissions Trading Scheme (ETS) internationally. Employing a quantitative simulation model of the global carbon market, we find that the economic benefits from connecting the European ETS to emerging non-EU schemes strongly depend on the regional allowance allocation of the linking participants: In a world of moderate carbon constraints, an economically efficient regional allowance allocation induces a much stronger fall in total compliance costs than a sub-optimal (i.e. too high) domestic allocation of emissions permits. However, a more efficient (i.e. stricter) allocation shifts abatement efforts and compliance costs to energy-intensive industries which are covered by the domestic ETS. We further find that committing to ambitious global emissions reduction targets (compatible with stabilizing CO2 concentrations at 450 ppm) induces much stronger regional abatement efforts and substantially higher compliance costs for the abating regions. In such an ambitious climate policy regime, an efficient domestic allocation of allowances is even more important from an economic perspective: Here, linking emissions trading schemes diminishes the associated compliance costs on the largest scale.

A Risk-Focused Performance Management System Framework for Planning Change in Organisations Subject to Significant Environmental Pressures and Uncertainty

In 2007, the New Zealand government, in principle, adopted the implementation of a cap and trade emissions trading scheme (ETS) in the energy sector from 2010. The objective of this paper is to develop a risk-focused performance management system (PMS) planning framework for organisations undergoing externally-driven regulatory change that constrains their operating environment and increases business and operating risk exposure. This paper focuses on the New Zealand electricity generators and retailers (gentailers). It utilises contingency theory and secondary data to explain PMS change implications due to the altered business risk exposure potential of the proposed emissions trading regime, and the associated carbon constraints this regulatory change imposes on these organisations' operating environment. The risk-focused PMS planning framework developed in this study, allowed the identification of the drivers and attributes that, due to the ETS adoption, potentially have significant negative business risk impacts for some gentailers. The findings arising from the application of this risk-focused PMS framework to the New Zealand electricity gentailers suggest that the predominantly thermal-based generators will be more disadvantaged due to a reduction in competitiveness and profitability. This reduction is the result of the interaction between the ETS-related risks and the sources and types of external and internal environmental uncertainty associated with the regulatory change. The business risks identified not only influence organisational-level PMS design, function, and operation needs, but also have economic consequences at sectoral and national levels, particularly in relation to national security of electricity supply. The paper provides insights into an organisation's potential internal adjustments in response to increases in internal and external business risks due to the introduction of the ETS and changing wider environmental management expectations. Theory implications relate to the role and use of risk in improving the application of contingency theory in explaining organisational change under environmental pressures. Additionally, the paper contributes to the management accounting research through the examination of the internalisation of externalities, such as wider climate change management. Consequently, the findings of this study will be of potential interest to academics, managers, accountants, other professionals, governments and policy-makers.

Environmental climate instruments in Romania: A comparative approach using dynamic CGE modelling

This study simulates a CO 2 permit market in Romania using a dynamic general equilibrium model. The carbon constraint is set at 20.7% below the reference emissions level for sectors eligible according to the European Union Emission Trading Scheme (EU-ETS). Free permit distribution enhances growth despite a severe emissions cap, because environmental regulation stimulates structural changes [Porter, M., 1991. American's green strategy. Scientific American 264, 168]. That is, grandfathering allows sectors additional resources to invest in developing technologies, but it also raises the CO 2 abatement costs because of energy rebound effects from enhanced growth. Results under endogenous growth [Romer, P.M., 1990. Endogenous technological change. Journal of Political Economy 98 (5), 71–102] are very similar to those obtained under an exogenous growth scenario [Ramsey, Y.F., 1928. A mathematical theory of saving. Economic Journal 38, 543–559], as the substitution effects are responsible for the majority of variations; in addition, Romanian research activities are too modest to significantly impact this system. The abatement cost per unit of GDP is higher under endogenous growth, as spillover effects reduce incentives to invest. Technological diffusion continues to have a positive impact on economic growth, which counterbalances the free-riding attitude adopted by some energy-intensive sectors, such as glass and cement.

Ecology-Driven Real Options: An Investment Framework for Incorporating Uncertainties in the Context of the Natural Environment

The role of uncertainty within an organization’s environment features prominently in the business ethics and management literature, but how corporate investment decisions should proceed in the face of uncertainties relating to the natural environment is less discussed. From the perspective of ecological economics, the salience of ecology-induced issues challenges management to address new types of uncertainties. These pertain to constraints within the natural environment as well as to institutional action aimed at conserving the natural environment. We derive six areas of ecology-induced uncertainties and propose ecology-driven real options as a conceptual approach for systematically incorporating these uncertainties into strategic management. We combine our results in an integrative investment framework and illustrate its application with the case of carbon constraints.

Shifting Trade Patterns as a Means of Reducing Global Carbon Dioxide Emissions

SummaryThis article extends and applies the world trade model with bilateral trade (WTMBT), a linear program with any number of goods, factors, and regional trade partners that determines regional production, bilateral trade patterns, and region‐specific prices on the basis of comparative advantage by minimizing factor use. The model provides a consistent analysis of the global production system, representing geographical location at a regional level, region‐specific technologies at a sector level, emissions from production, and resource constraints and costs. An illustrative analysis investigates how changes in the geographic distribution of production could contribute to reducing global carbon dioxide (CO2) emissions and at what cost. The model provides a bridge between global objectives and their determinants and consequences in specific sectors in individual regions. Multi‐objective analysis is used to construct a trade‐off curve between global factor costs and CO2 emissions. The relevance of both primal and dual solution variables is demonstrated. In particular, changes in goods prices and emissions are investigated. We conclude that the main impact of tightening carbon constraints is a substantial reduction in international trade accompanied by a shift away from regions most reliant on the combustion of coal. In addition to the analysis of the overall global trends, including the impact on prices, the implications of the global carbon constraint for one specific industry are investigated.

Reducing deforestation and trading emissions: Economic implications for the post-Kyoto carbon market

This paper quantitatively assesses the economic implications of crediting carbon abatement from reduced deforestation for the emissions market in 2020 by linking a numerical equilibrium model of the global carbon market with a dynamic partial equilibrium model of the forestry sector. We find that integrating avoided deforestation in international emissions trading considerably decreases the costs of post-Kyoto climate policy – even when accounting for conventional abatement options of developing countries under the CDM. At the same time, tropical rainforest regions receive substantial net revenues from exporting carbon-offset credits to the industrialized world. Moreover, reduced deforestation can increase environmental effectiveness by enabling industrialized countries to tighten their carbon constraints without increasing mitigation costs. Regarding uncertainties of this future carbon abatement option, we find both forestry transaction costs and deforestation baselines to play an important role for the post-Kyoto carbon market.

The trajectories of new energy technologies in carbon constraint cases with the POLES world energy model

This article was submitted without an abstract, please refer to the full-text PDF file.

The trajectories of new energy technologies in carbon constraint cases with the POLES world energy model

The trajectories of new energy technologies in carbon constraint cases with the POLES world energy model

Reducing CO2 emissions from the European power generation sector–Scenarios to 2050

An assessment of the impact of the evolution of the European fossil-fuelled electricity generation technology mix to 2050 on the EU target to reduce greenhouse gas emissions by 20–30% compared to 1990 levels by 2020 has been performed. The influence of fuel and carbon prices, advances in carbon capture and storage technology and the share of non-fossil power sources in electricity generation have been evaluated. The policy target is only achieved in a carbon constraint environment, with the deployment of CCS technology, accompanied by a fuel switch to natural gas for a part of the fossil-fuelled capacity which reduces emissions to the desired level.

Technology comparison of CO2 capture for a gas-to-liquids plant

The accelerating pace of climate change regulatory action has rendered it necessary to understand the potential impact of carbon constraints on unconventional hydrocarbon resources such as gas-to-liquids (GTL). A systematic evaluation approach was applied to a GTL plant: Estimate carbon dioxide (CO2) emissions from a GTL plant. Determine the cost of CO2 capture with retrofit, conventional facilities. Determine the CO2 capture cost for alternate technology, oxy-firing plant heaters. Determine the cost of CO2 capture integrated into the original design.

The Essential Role of State Enforcement in the Brave New World of Greenhouse Gas Emission Limits

I. INTRODUCTION II. THE NATURE AND EXTENT OF THE GREENHOUSE GAS EMISSION REDUCTION EFFORT REQUIRES THE FULL PANOPLY OF ENFORCEMENT TOOLS III. THE CAP-AND-TRADE MARKET POSES SIGNIFICANT ENFORCEMENT CHALLENGES IV. CALIFORNIA'S EXPERIENCE WITH ENERGY MARKETS PROVIDES IMPORTANT LESSONS V. FEDERAL PREEMPTION OF STATE ENFORCEMENT POSES SIGNIFICANT RISKS VI. THE FILED RATE DOCTRINE HAS NO PLACE IN A CAP-AND-TRADE MARKET VII. OTHER LESSONS LEARNED FROM THE ENERGY CRISIS VIII. CONCLUSION I. INTRODUCTION In June 2005, Governor Schwarzenegger addressed the United Nations on the topic of global warming and famously declared, I say the debate is over. We know the science. We see the threat, and we know that the time for action is now. (1) Convinced by overwhelming scientific evidence, the California Legislature passed, and the Governor signed, a landmark law, referred to as 32, which requires the State to reduce greenhouse gas emissions to 1990 levels by 2020. (2) AB 32 poses significant, even daunting, requirements. By 2012, the California Air Resources Board will have issued extensive regulations for virtually every sector of the State's economy across all geographic regions that set forth specific actions for the reduction of greenhouse gas emissions. (3) The new regulations will use multiple mechanisms to achieve the reduction requirements, including the traditional command and control approach, market mechanisms, and regional targeting. (4) While the potential regulations and mechanisms have received a great deal of attention, much less attention has been given to an essential element of achieving the reductions: enforcement. We know from extensive experience that enforcement must be integrated into the process of creating regulations. Further, we must have enough regulators and prosecutors to ensure that enforcement is viable, appropriate and effective. The Air Resources Board's Scoping Plan for AB 32 identifies as a key mechanism for reduction of greenhouse gases the creation and implementation of a cap-and-trade market, in which electricity generators and other significant sources of greenhouse gas emissions will be allowed to buy and sell emission units to meet an ever-diminishing cap on overall emissions. (5) This market may involve hundreds of millions of dollars worth of trades, which will create significant incentives for fraud, manipulation and other misconduct. We know from California's energy crisis and the recent national mortgage meltdown that market abuse combined with insufficient market oversight is a recipe for disaster. (6) Thus, when creating the rules for a cap-and-trade market, we must apply the lessons learned from these experiences and integrate market monitoring and enforcement into the market itself. By requiring market participants to sufficiently fund monitoring and enforcement efforts, the few participants tempted to try to manipulate the market will understand from the outset that market misconduct will not be tolerated. While ensuring market fairness in a market of this expected size and complexity is a tall task, it will be far more manageable if we heed the painful lesson from the California energy crisis and the recent mortgage meltdown: relying exclusively on federal market enforcement can lead to disaster. Significant reduction of greenhouse gas emissions is a massive undertaking and a tremendous challenge. California's multi-layered and often decentralized enforcement network needs to be allowed to continue its historic enforcement role if we are to meet the challenge. In the new world of carbon constraint, California's experience with environmental enforcement provides a useful road map for effective measures, while malfunctioning energy markets and the difficulties posed by federal preemption are significant roadblocks to avoid. For our greenhouse gas reduction efforts to be successful, we must intelligently apply the lessons California has learned to ensure effective monitoring and enforcement approaches. …

Exploitation of renewable energy sources in the Gulf region: fairy tale or challenging opportunity?

During the last decades the need for development of Renewable Energy Technologies (RETs) in the region of Middle East has been pointed by many researchers and policy makers. Considering the fact that the Gulf Cooperation Council (GCC) countries are well known for their large oil and gas reserves it is not surprising that the contribution of Renewable Energy Sources (RES) in their economies has been rather limited. However, the existence of abundant solar and other RES in the region, within the framework of the evolving carbon constraint economy, gives the signal for the detailed elaboration of plans and integrated strategies towards the exploitation of RETs implementation opportunities in the GCC countries. In this regard, purpose of this paper is to present an overview of past and ongoing RES initiatives in the GCC countries, to examine obstacles justifying the low development of RES and to highlight potentially emerging opportunities for increasing the utilisation of alternative energy sources.

Analysis of the Coal Sector under Carbon Constraints

Abstract in HTML and technical report in PDF available on the MIT Joint Program on the Science and Policy of Global Change website (http://mit.edu/globalchange/www/).

The inquiry into electricity supply in New South Wales

In May 2007, the Premier of New South Wales (NSW) announced the establishment of an Inquiry into Electricity Supply in that State to be undertaken by the author of this paper. Fundamental to the Inquiry was the perceived need for additional baseload generating capacity, the identification of the available technologies, carbon constraints and the policy options that would encourage the private sector to undertake the required investments. Although NSW is part of the competitive National Electricity Market, State-owned generators dominate baseload supply. In addition, the State operates three electricity retailing businesses, has a monopoly on transmission and distribution, and provides price stability for NSW residential consumers through the Electricity Tariff Equalisation Fund. Overall, therefore, the State dominates the industry and, not surprisingly, potential private investors are sceptical that its market roles may be based upon criteria other than the purely commercial. The Inquiry's report, which was publicly released in September 2007, recommended sale of all State assets in both electricity generation and retail. This paper provides a rationale for that recommendation.

The Value of Technological Advance in Decarbonizing the U.S. Economy

This paper examines the role of technology in managing the costs of a carbon constraint on the U.S. economy. Two portfolios of technology are examined. One reflects modest investments in climate-friendly technologies, the other more aggressive development. The analysis indicates that the development of a broad range of low-to zero-carbon emitting technologies can substantially reduce (but not eliminate) the economic cost of decarbonization. By enabling large-scale emissions reductions on the supply-side, costly reductions in demand for high-value energy services are avoided. In particular, the emergence of electricity as a low-carbon fuel provides a powerful lever for achieving reductions in other sectors of the economy at lower cost. While the analysis suggests that there is no free lunch, the bill, which may indeed be well worth paying, can be greatly reduced through an accelerated R&D program and successful diffusion of new technology throughout the economy.

The value of technological advance in decarbonizing the U.S. economy

This paper examines the role of technology in managing the costs of a carbon constraint on the U.S. economy. Two portfolios of technology are examined. One reflects modest investments in climate-friendly technologies, the other more aggressive development. The analysis indicates that the development of a broad range of low- to zero-carbon emitting technologies can substantially reduce (but not eliminate) the economic cost of decarbonization. By enabling large-scale emission reductions on the supply-side, costly reductions in demand are avoided. In particular, the emergence of electricity as a low-carbon fuel provides a powerful lever for achieving reductions in other sectors of the economy at lower cost. While the analysis suggests that there is no “free lunch,” the bill, which may indeed be well worth paying, can be greatly reduced through an accelerated R&D program and successful diffusion of new technology throughout the economy.

Reducing Deforestation and Trading Emissions: Economic Implications for the Post-Kyoto Carbon Market

This paper quantitatively assesses the economic implications of crediting carbon abatement from reduced deforestation for the emissions market in 2020 by linking a numerical equilibrium model of the global carbon market with a dynamic partial equilibrium model of the forestry sector. We find that integrating avoided deforestation in international emissions trading considerably decreases the costs of post-Kyoto climate policy - even when accounting for conventional abatement options of developing countries under the CDM. At the same time, tropical rainforest regions receive substantial net revenues from exporting carbon-offset credits to the industrialized world. Moreover, reduced deforestation can increase environmental effectiveness by enabling industrialized countries to tighten their carbon constraints without increasing mitigation costs. Regarding uncertainties of this future carbon abatement option, we find both forestry transaction costs and deforestation baselines to play an important role for the post-Kyoto carbon market.

Biomass for heat or as transportation fuel? A comparison between two model-based studies

In two different energy economy models of the global energy system, the cost-effective use of biomass under a stringent carbon constraint has been analyzed. Gielen et al. conclude that it is cost-effective to use biofuels for transportation, whereas Azar et al. find that it is more cost-effective to use most of the biomass to generate heat and process heat, despite the fact that assumptions about the cost of biofuels production is similar in the models. In this study, we compare the two models with the purpose of finding an explanation for these different results. It was found that both models suggest that biomass is most cost-effectively used for heat production for low carbon taxes (below 50–100 USD/tC, depending on the year in question). But for higher carbon taxes, the cost-effective choice reverses in the BEAP model, but not in the GET model. The reason for this is that GET includes hydrogen from carbon-free energy sources as a technology option, whereas that option is not allowed in the BEAP model. In all other sectors, both models include carbon-free options above biomass. Thus, with higher carbon taxes, biomass will eventually become the cost-effective choice in the transportation sector in BEAP, regardless of its technology cost parameters.

Climate Change: One Goal at a Time

Legislation recently introduced by Senators Bingaman, Specter, Harkin, Stevens, Murkowski, and Akaka, although not perfect, contains essential elements of a sound and durable climate policy for our nation. It would deliver mandatory, economy-wide reductions in all greenhouse gases; cover most emissions without a vast new bureaucracy; use trading to achieve maximum benefits at minimum cost; and generate substantial new funds to develop the technologies needed for a low-carbon future. Some in the environmental community, however, are opposing the bill because it includes a “safety valve”—a price protection mechanism designed to ensure that the costs of reducing greenhouse gas emissions don't rise above a known, predetermined level. They view this feature as a fatal flaw. I couldn't disagree more. Under Bingaman-Specter, there's no “escape hatch” from the financial consequences of emitting. Companies would buy additional allowances only if the costs of reducing emissions exceed a price threshold that starts at $12 per ton of carbon dioxide ($44 per ton of carbon) and escalates 5% above the rate of inflation every year thereafter. Many who oppose this provision also insist that cutting emissions will be relatively cheap. If they're right, the safety valve will never be used. But when it comes to designing a policy that calls this bet, confidence in low-cost solutions mysteriously evaporates. I believe that those solutions do exist and that the cost cap in the Bingaman-Specter bill will be invoked rarely, if at all. But I also recognize that we are never going to pass a law unless we can convince legislators from heavily industrialized states that their concerns about U.S. jobs and competitiveness have been addressed. True, including the safety valve means opting—at least initially—for economic certainty over emissions certainty. But that's a trade-off worth making if it helps cut through the endless cost debates that have blocked action on climate change in this country for over a decade. The safety valve is also important to guard against excessive price volatility in allowance markets. The potential for such volatility exists under a “hard” emissions cap, especially in the early years of program implementation. Nothing would erode support for a carbon cap-and-trade program more quickly than energy-price spikes caused by rapidly fluctuating allowance prices. Volatility serves no one's interests—except those of companies that profit by playing the market. It is no surprise, then, that business opposition to the safety valve is coming not from energy providers, but from financial traders and brokerage firms. As the economy adjusts to carbon constraints, we'll need emissions certainty more than we need cost protection. The Bingaman-Specter bill provides the flexibility to adjust to changing circumstances by creating regular opportunities for Congress and the president to review and modify the safety valve and other program parameters. In the meantime, the safety valve plays a third crucial role: It invests the funds from allowance sales into technology incentives and R&D. The safety valve will only be triggered if our future technology options are poor, but it constantly hedges against that possibility by making deep investments in technology. A key test for any climate policy is whether it changes the investment outlook for old-style coal-fired power plants. Any climate policy that keeps this option alive is not worth much. The Bingaman-Specter bill meets this test by providing new incentives for carbon capture and storage that, coupled with a price on carbon under the emissions trading program, will make advanced coal plants with carbon capture competitive with conventional technology. Any law passed now must provide a strong starting point for long-term action. But further delay in pursuit of ideological purity doesn't advance the shared goals of the advocacy community or begin to provide answers for our rapidly warming planet.