Pathways to a low-carbon economy for the UK with the macro-econometric E3MG model
Introduction
Climate change, as a result of rising greenhouse gas emissions, threatens the stability of the world’s climate, economy and population. The causes and consequences of climate change are global, and while national governments can and should take action, the ultimate solution must be a collective global effort. The latest scientific consensus (IPCC, 2007) has further strengthened the evidence base that it is very likely that anthropogenic GHG emissions at or above current rates would cause further warming and induce many changes in the global climate system during the 21st century. A major recent report on the economics of global climate change (Stern, 2006) supports the position that the benefits of stringent climate mitigation action outweighed the costs and risks of delayed action.
Although there is a global consideration of the climate change effects, individual countries have undertaken different steps in climate change mitigation, which is obvious given the extended negotiations towards the ratification of the Kyoto Protocol (e.g. Höhne et al., 2007). The EU and individual Member States have undertaken several commitments and directed several policies towards the reduction of their emissions. UK has been selected for this analysis as there is political will within the country, as described below from the commitments to tackle climate change. But this commitment can be examined in the context of negotiations at international level, such as the recent commitment of G8 to reduce their emissions by 80% by 2050.
Climate change mitigation and energy security are the UK's core energy policy goals (BERR, 2007). In addition, the decline in domestic reserves and production of UK oil and natural gas, combined with increasing geopolitical instabilities in key gas and oil production and transmission countries have highlighted the need for a secure and resilient UK energy system (BERR, 2007). Other UK energy policy goals are reductions in vulnerable consumers’ exposure to high energy prices (i.e. fuel poverty) and a continued emphasis on open and competitive energy markets.
The UK set itself a groundbreaking climate change mitigation policy with the publication of a long-term national CO2 reduction target of 60% by 2050 (DTI, 2003). This target was established in response to the climate challenge set out by the Royal Commission on Environmental Pollution (RCEP, 2000). Climate change mitigation targets were reaffirmed in light of competing energy security issues via the 2007 Energy White paper (BERR, 2007). The 60% UK CO2 reductions target is being established in the UK legislative process through the Climate Change Bill as the minimum CO2 reduction target required by 2050 (DEFRA, 2008). This longer term target has been further analyzed by the new regulatory Committee on Climate Change (CCC, 2008), in light of new evidence concerning global stabilization targets (IPCC, 2007). This has led to the proposal for an 80% reduction target for greenhouse gases by 2050 compared to 1990 levels. This target has been adopted by the Brown Administration and the Energy and Climate Change Secretary of State Ed Miliband, becoming a law through the Climate Change Act (DECC, 2008). Additionally, the UK has been a leading proponent of global long-term CO2 target setting within the G8, as the causes and consequences of climate change are global, and while national governments can and should take action, the ultimate solution must be a collective global effort. The G8 dialogue resulted in agreement at the 2009 G8 Italian summit for a robust response to climate change including the adoption of the goal to achieve at least 80% reduction of their emissions by 2050, and aiming to reach an agreement of a 50% reduction in global emissions with other countries.
The implementation of three deep CO2 reduction targets (40%, 60% and 80%) for the G8 is examined using the macro-econometric E3MG model. Results are reported for the UK, which is selected as there is a political will to implement such reductions. These targets, examined within the UK Energy Research Centre’s 2050 project (UKERC2050), are met through the implementation of a portfolio of policies in contrast to the neoclassical approach, where the targets are imposed and the marginal abatement cost for meeting those targets is estimated. The paper contributes by adopting a novel hybrid approach integrating simulation models of the economic system and energy technologies and therefore providing an alternative approach to the traditional economic equilibrium modeling. Moreover the paper aims to provide evidence that there exist pathways for meeting deep reduction targets and also helping the economy to grow. The need for such evidence has been noted by the IPCC (2007a) in its assessment of the literature on stringent mitigation targets. Such evidence can inform the international negotiations for a post-Kyoto global agreement.
Section snippets
Modeling framework
Long-term forecast of the economy and of the energy system expansion is subject to uncertainties on fossil fuel resources, prices, economic and technical characteristics of new technologies, behavioural change, political framework and regulatory environment. But the modeling approach implemented to simulate the energy system and the interaction with the global economy is crucial for the results. There are many modeling approaches used for examining energy and climate policies at global (van
Scenarios
The E3MG model is run for a total of three carbon ambition pathways and a reference case (Table 2). These are designed for relevance to the UK policy process for the near and long-term targets of the Climate Change Committee. These pathways are designed to be comparable to those with the same names as in the UK Energy Research Centre’s 2050 project (UKERC2050). The project used the energy technology model MARKAL to represent the scenarios and provide results for energy demand and supply,
Decarbonisation Pathways
E3MG focuses on the implementation of policies rather than on the reduction targets. The three emission reduction scenarios (CFH, CLC and CAM) are characterized by a set of policies and measures, with analysis to check the influence of those policies when implemented alone or together. Firstly the CLC scenario is examined, where all the above described policies (carbon price, incentives in end-use sectors, regulation for the penetration of electric vehicles and incentives for new energy
Conclusions
Before deriving any particular conclusion from the scenarios presented in this paper, it is important to consider the modeling approach and the way the scenarios have been implemented with E3MG. E3MG being a macro-econometric model of the global economy has the advantage of examining policies at global and at national level, which is more important in cases of international efforts. The 40%, 60% and 80% reduction targets are not realistic options if implemented only by UK because they would not
Acknowledgment
The financial support of the UK Energy Research Centre (UKERC) is gratefully acknowledged.
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