Economics Models

pricing carbon > economics models for the long-term carbon price evaluations

edited by alice.favero@feem.it

The Table presents the long-term estimations (after 2020) as calculated through economic models. For each evaluation collected we will define the source (AUTHORS), the publication year (YEAR) and information on the scenario assumed in the models, which may be useful in order to understand the achieved results (assumptions on the policy, allowed use of flexible mechanisms, geographic area reference, etc).
The stabilization scenario at 450 parts per million (ppm) of CO2 in the atmosphere will involve higher carbon prices compared to less ambitious stabilization scenarios such as the 550 ppm CO2. Taking into account that the present CO2 concentration is around 380 ppm, it is easy to understand that in order to keep the concentration under a certain level such as 450 ppm (this is the level needed in order to avoid a 2°C temperature increase by the end of the century according to many authoritative sources) a strict policy with a high CO2 price is required.
Finally, the average and standard deviation will be included in the last rows of the table. These are computed taking into account all estimations analysed, in order to reach an increasingly reliable price value.

Model

Author

Year

Scenario

 CO2 price estimation  (€/tCO2)

2020

2030

2050

2100

WITCH

Recipe Project

2009

Global cap-and-trade stabilization target at 450 ppm CO2 by 2100, no banking under different scenarios:
- Immediate global action scenario: all regions participate to a global agreement immediately through a contraction and converge (C&C) allocation which foresees a smooth transition of emission shares from emissions in 2005 to equal per capita emissions in 2050 in order to achieve the stabilization target
- Delay in global action: countries do not take on binding targets immediately but start from 2020
- EU-only: EU takes a reduction target that is equal to its reduction implied by the all-2010 C&C allocation rule until 2020, while the other regions continue according to BAU joining the EU in 2020
- Technology impasse: there is an limit in the use of renewable energy for achieve the stabilization target

16.52
0.00
0.00
14.56

58.28
7.81
5.82
66.87

376.32
603.11
579.41
652.09

1011.94
1708.02
1455.17
1323.77

FAIR

Netherlands Environmental Assessment Agency

2008

- international trading market
- full use of the flexible Kyoto mechanisms
- all banked excess emission allowances during the period 2008-2012 are fully used in the period 2013- 2018
- three scenarios for our assumptions on the aggregate Annex I emission reduction of
*20% : long-term stabilization levels of 550 ppm CO2eq : non-Annex I: -10% compared to the BAU
* 30% : long-term stabilization levels of 450 ppm CO2eq : non-Annex I: -16% compared to the BAU
* 40% : long-term stabilization levels of 400 ppm CO2eq : non-Annex I:  -22% compared to the BAU
- contraction and convergence approach, with a convergence year of 2050, under a global emission pathway for stabilization

41.23
74.04
197.72

n.d.

n.d.

n.d.

FUND 2009

Tol

2009

- worldwide market for greenhouse gas emission permits

- emission allocation of:

  • South America, former Soviet Union, South Asia, and China equals their emissions in the baseline scenario until 2030, and their emissions in the “delayed participation” between 2030 and 2050
  • Rest of the World equals their emissions in the baseline scenario
  • OECD is such that the global emission cap equals that in the “full participation” scenario

Target:

  • 3.7 Wm-2 
  • 4.5 Wm-2 

39.75
15.44

64.07
25.09

170.20
66.77

n.d.

EPPA

Paltsev, Reilly, Jacoby and Morris

2009

- International emission trading
- Banking and borrowing allowed
- GDP growth, 2005-2050, 2.5% rate/yr
- 2050 baseline emissions: 10.8 GtCO2e
- Mitigation efforts among countries:

  • Developed countries (with exception of US) reducing to 50% below 1990 levels by 2050;
  • US emissions 80% below 1990 by 2050 (167 Bmt)
  • China, India, Russia, and Brazil starting in 2030 on a linear path to 50% below their 2030 emissions level by 2070;
  • the rest of the countries delaying action beyond the 2050 horizon

- Different cost assumption about nuclear, CCS and renewables

  • cost advantage to nuclear
  • cost advantage to CCS
  • neither nuclear or CCS available
  • slow renewable penetration

45.54
55.58
63.30
56.35

67.16
82.59
93.40
83.37

146.66
181.40
205.33
182.17

n.d.

MERGE

Blanford, Richels and Rutherford

2009

- Global cap-and-trade
- One decade of unconstrained emissions growth in Non-Annex B countries
- Expected growth rate downward to 2.4% between 2003 and 2030
- Stabilization target:

  • 450 ppm CO2
  • 550 ppm CO2

69.47
7.72

121.96
32.42

n.d.

n.d.

WITCH

Bosetti, Carraro, Duval, Sgobbi and Tavoni

2009

- Global carbon market
- 450 ppm CO2 stab. scenario
- World energy intensity fall by 65%
- Carbon intensity falls by 45%
- Energy decarbonisation is achieve mainly in power sector
- share of low-carbon technologies in electricity mix rising to 90%
- possibility of investing in breakthrough technologies

  • No
  • Yes

28.04
28.70

69.07
52.37

271.46
122.23

1515.76
408.59

IMACLIM
REMIND

Recipe Project

2009

Immediate and global collaborative action on climate change and a broad portfolio of mitigation options are assumed for a stabilization target of 550 CO2-only
Global cap-and-trade stabilization target by 2100

189.31
8.57

273.45
17.50

241.47
70.58

320.56
70.14

WITCH

Bosetti, Carraro and Massetti

2008
  • global carbon market
  • 450 ppm CO2 stabilization scenario
  • borrowing not allowed
  • until 2030 the whole abatement effort is undertaken by High Income regions alone, while Low Income countries are allocated their baseline emissions.
  • Different allocation scheme:
  • Equal Emissions per Capita (EPC): allowances are distributed among regions in proportion to their population, so that each individual is endowed with the same CO2 emission rights with (EPC_BNK) and without banking provision
  • Sovereignty (SOV): allowances are distributed to each region according to their present share of total emissions with (SOV_BNK) and without banking provision
  • Contraction and Convergence (CC): emission rights are first distributed according to the sovereignty rule then, greater weight is given to the equal emissions per capita allocation rule switching to a full application of it by 2100 with (CC_BNK) and without banking provision

 

 

49.60
66.60

 

49.45
67.00

 

49.65
66.60

 

 

108.30
120.70

 

108.75
131.80

 

108.35
120.20

 

 

414.70
346.60

 

413.50
357.60

 

414.00
347.40

 

 

1659.80
1661.10

 

1661.00
1587.80

 

1664.45
1667.40

E3MG

The Climate Group

2009

Limited action
a) EU–only action -> -30% 1990 level by 2020
b) US–only action -> - 30% 1990 level by 2020
c) EU and US joint action -> - 30% 1990 level by 2020
d) All Annex I Countries à -> 30% 1990 level by 2020

China included in mitigation effort
e)Annex I + China (2010) -> Annex I: - 30% 1990 level + China: return to 2010 levels by 2020
f)Annex I and China (2015) -> Annex I: - 30% 1990 level + China: return to 2015 levels by 2020

Global climate agreement
g)World (Developing 2010) -> Annex I: - 30% 1990 level + Non-Annex I: return to 2010 levels by 2020
h)World (Developing 2015) -> Annex I: - 30% 1990 level + Non-Annex I: return to 2015 levels by 2020


a)59.38
b)40.20
c)25.58
d)19.18

e)11.88
f)3.65

g)7.31
h)3.65

 

n.d.

n.d.

n.d.

REMIND-R

Luken, Bauer, Knopf, Leimbach, Luderer,  Edenhofer

2009

Four climate policy scenarios with different assumptions on the availability of technologies:

i.Default -> The full portfolio of low-carbon technologies is available.

ii.Nuclfix -> The use of nuclear power is restricted to levels in the reference scenario.

iii.Renewfix -> The use of renewable energy sources (wind, solar, hydro and geothermal energy) is restricted to the respective levels in the reference scenario. Biomass use is not restricted.

iv.Ccsmin -> The use of carbon capture and storage (CCS) is limited to a total cumulated amount of 100 GtC.

n.d.

n.d.

n.d.

i.   925.51

ii.  1177.92

iii. 1009.65

iv.  3281.35

RICE-2009

Nordhaus

2009

Three different scenario:

1. Optimal: Climate change policies maximize economic welfare with no participation or other constraints. The optimal path finds a cut in global emissions of 50% from 2005 in 100 years. Stabilization scenario higher than 550 ppm CO2

2. Limit temperature to 2 °C: The optimal policies are taken subject to a constraint that global temperature would not increase more than 2°C above the 1900 average. The path prescribes zero emissions at about 2080, stabilization scenario at 450 ppm CO2

3. Optimization with limited participation: a cost-beneficial policy such as 1 in which a timetable is placed for the participation: 2010 for developed countries, 2040 China and Latin America, 2050 India, Middle East and Other Asia countries, 2080 Africa Stabilization scenario higher than 550 ppm CO2

9.70
15.75
9.95

18.90
25.45
13.40

25.00
69.35
25.90

78.15
197.55
78.60

EPPA

Paltsev, Reilly, Jacoby and Morris

2009
  • International emission trading
  • Slower CCS progress
  • Renewable competitive with conventional generation
  • Banking and borrowing allowed
  • GDP growth, 2005-2050, 2.5% rate/yr
  • 2050 baseline emissions: 10.8 GtCO2e
  • Mitigation efforts among countries:

- developed countries (with exception of US) reducing to 50% below 1990 levels by 2050;

- China, India, Russia, and Brazil starting in 2030 on a linear path to 50% below their 2030 emissions level by 2070;

- the rest of the countries delaying action beyond the 2050 horizon

- allowance allocation for US equal to:

    - 2008 emissions levels by 2050(287 Bmt)

    - 50% below 1990 by 2050(203 Bmt)

    - 80% below 1990 by 2050 (167 Bmt)

7.72
38.60
54.80

11.58
54.03
81.05

13.89
119.64
177.54

n.d.
ETSAP

Clarke et al.

 2009

Two options on overshoot are explored:


- a not-to-exceed formulation in which the long-term target cannot be exceeded at any point;
- an overshoot formulation in which the long-term target must be met by 2100, but in which concentrations can temporarily exceed the target prior to 2100.


Two assumptions regarding international participation in emissions reduction are explored:


- full initial participation assumes that all countries begin emissions reductions, in a coordinated fashion, in 2012 and that mitigation is undertaken where it is least costly;
- delayed participation scenario in which the majority of the developed regions begin mitigation as a group in 2012 (includes the Annex 1 countries minus Russia) and the remaining regions enter at different points in the future after 2030.

Possible combinations:

550 CO2
Full not-to-exceed Delayed not-to-exceed


450 CO2
Full overshoot
Full not-to-exceed
Delayed overshoot
Delayed not-to-exceed

2.32
3.86
6.18
7.72
10.03
18.53

      
FUND

15.44
33.19
39.37
40.14
113.47

184.48		      
GTEM

10.81
12.35
20.84
20.84
21.61

      
IMAGE

0.77
0.77
8.49
12.35
9.26

      
MESSAGE

4.63
27.02
5.40
20.07
27.02

      
POLES

5.40
6.95
20.84
31.65
39.37

      
SGM

7.72
8.49
30.88
30.88
51.72
51.72

      
WITCH

2.32
4.63
3.09
16.98
27.79
101.12

      
G-Cubed
 McKibbin et al. 2009

Two scenarios considered:


- OA policy: every OECD country Emissions in 2020 and 2050 would be reduced by 14 percent and 83 percent, respectively, from 2005 emissions levels.
- DD policy: sets year-by-year reduction targets for 2020, 2030, and 2050 of 20, 40, and 83 percent, respectively, relative to 2005 emissions.

Each of the non-OECD regions in the study (China, the Former USSR, Other LDC’s, and OPEC) take on obligations later than the OECD countries and in the form of a price on carbon and they take on no climate policy until 2025, at which time they each take a real price on carbon of $30.
No banking or borrowing, nor offsets or international trade in emission permits are assumed.

 30.88
42.45 		61.75
69.47 		100.35
100.35 		 
WITCH
 Bastianin et al. 2010 - a global cap-and-trade scheme
- allowances are distributed according to the contraction and convergence (CC) rule: in 2010 permits are first distributed in proportion to present emissions and then progressively converge to a full equal-per-capita allocation scheme in 2050
- banking and borrowing of emissions allowances are not allowed

Under different scenarios:
- free access to the international carbon market
- limit the purchase of international offsets to:
  • 25 per cent of the national abatement target.
  • 50 per cent of the national abatement target.
  • 75 per cent of the national abatement target.
- R&D investments are fixed to the level they have in the Reference scenario
15.90


14.41
15.69
16.35

11.56
53.43


46.75
53.43
53.43

57.01
393.95


75.34
222.04
313.65

817.78
1002.69


933.17
787.13
923.66

3607.89
RICE-2010 Nordhaus 2010 Optimal:
Climate-change policies maximize economic welfare with full participation starting in 2010 and no climatic constraints.

Limit temperature to 2 °C:
The optimal policies are taken subject to a further constraint that global temperature would not increase more than 2 °C above the 1900 average.

Copenhagen Accord:
High-income countries implement deep emissions reductions with developing countries following in the next 2 - 5 decades.

Copenhagen Accord with only rich countries:
High-income countries implement deep reductions as in case 4, but developing countries do not participate.
10.00



22.26



1.66



1.85
16.84



37.89



13.47



13.89
23.16



101.05



48.42



13.68
80.00



162.10



87.37



8.42
DART 2009

1. 20% emissions reduction:

  • Uniform carbon price
  • Uniform carbon price in ETS and non-ETS
  • Uniform carbon price in ETS; non-ETS carbon prices vary by Member State


2. 20% emissions reduction and a lower bound of 20% on renewables penetration:
  • Uniform carbon price
  • Uniform carbon price in ETS and non-ETS
  • Uniform carbon price in ETS; non-ETS carbon prices vary by Member State.

52.00
20.00
35.00

73.00
26.00
52.00

 n.d. n.d. n.d.
PACE

30.00
20.00

35.00
25.00

 n.d. n.d. n.d.
GEMINI-E3

65.00
68.00
68.00

70.00
70.00
70.00

 n.d. n.d. n.d.
WITCH PLANETS project 2010 First best scenario: entire planet acts as early as 2010 in fully cooperative manner to achieve the climate target of:
  • LLGHG radiative forcing not to exceed 3.2 Watts/m2 at any time during the 21st century (500 ppm CO2-eq)
  • LLGHG radiative forcing not to excced 3.5 Watts/m2 at any time during the 21st century (530 ppm CO2-eq)
Emissions trading is allowed as early as 2012.


Second best scenario: stating date of the commitment is 2015 for OECD, 2025 for all the others Percentage emissions reduction in 2050 wrt 2005:
  • OECD -80%
  • Energy Exporting countries: -50%
  • Developing Asia: increase of 50%
  • RoW: increase of 55%
Emission trading starts in 2020 for all countries
EU is assumed to pursue its objective of al least 20% emissions reduction by 2020 After 2050 all countries cooperate fully to attain by 2100 the target of:
  • 3.2 Watts/m2
  • 3.5 Watts/m2

32.94
13.12
2.89 2.91

65.86
43.71
39.08

49.43

571.08
266.34
249.34

289.74

1199.10
619.50
2186.72

621.88
ETSAP-TIAM

47.60
21.41
13.86 12.53

89.55
39.02
42.25

39.11

194.95
107.24
110.39

110.05

233.65
170.56
588.97

175.46
TIAMEC

109.09
42.39 0.00

190.41
74.66

143.60

--
177.33

233.76		 n.d.
GEMINI-E3

20.98
6.12 3.70

92.54
26.14

26.89

--
177.33

233.76		 n.d.
TIMES

28.36
14.87

14.07

62.00
13.18

10.69

326.99
204.52

598.30		 n.d.
DEMETER

95.40
35.27

17.75

104.16
54.00

27.65

204.26
80.56

74.03

1323.44
771.46

933.76

NEW AVERAGE ESTIMATION
Stabilization at 450 or 550 ppm

43.25
23.26

68.02
26.66

235.33
53.75

1068.55
162.07

NEW STANDARD DEVIATION
Stabilization at 450 or 550 ppm

29.16
20.02

42.69
15.39

169.08
46.47

843.20
214.66