Steven RoseEnergy and Environmental Analysis Research Group, EPRI
RFF/EPRI WebinarDecember 16, 2014
Clean Power Plan Proposal Climate (CO2) Benefits
2© 2014 Electric Power Research Institute, Inc. All rights reserved.
-$20
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Low High
3% DR Health Ben.
billi
ons 2
011$
Air pollution health co-benefits
Climate (CO2) benefits
Total compliance costs
Net benefits
Clean Power Plan Benefits & Costs
Figure developed from U.S. EPA Clean Power Plan Proposed Rule, June 2, 2014, http://www2.epa.gov/carbon-pollution-standards/clean-power-plan-proposed-rule.
Estimated 2020 Benefits & Compliance Costs for Proposed Option 1 State Compliance Approach
Low/high =
lowest/highest climate & air pollution benefit
estimates
Climate (CO2) benefits the minority or majority of
benefits.
However, issues to
consider with Social Cost of Carbon (SCC) estimation & application.
Highest SCC2020
X
CO2 reduction2020
Lowest SCC2020
X
CO2 reduction2020
3© 2014 Electric Power Research Institute, Inc. All rights reserved.
Two Topics
• Social Cost of Carbon Estimation– US Government SCCs
• Social Cost of Carbon Application– CO2 benefits– Cost-benefit analysis
4© 2014 Electric Power Research Institute, Inc. All rights reserved.
Two Topics
• Social Cost of Carbon Estimation– US Government SCCs
• Social Cost of Carbon Application– CO2 benefits– Cost-benefit analysis
5© 2014 Electric Power Research Institute, Inc. All rights reserved.
The Social Cost of Carbon (SCC)
Definition: The net present value of global climate change impacts from one additional net global tonne of carbon dioxideemitted to the atmosphere at a particular point in time
SCC in 2020 is the discounted value of the additional net damages from the marginal
emissions increase in 2020
2000 2300
2000 2300
2000 2300
2000 2300 2000 2300
Population
Income
Emissions (CO2, etc.) Temperature Climate damages
CO2 pulse
Socioeconomics
2000 2300 2000 2300 2000 2300
2000 2300
Dashed = after CO2 pulse
6© 2014 Electric Power Research Institute, Inc. All rights reserved.
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2010 2020 2030 2040 2050
2007
$ /
CO2
US Government SCC Values
3% (95th
percentile)
US Government Social Costs of Carbon by Discount Rate
2.5%
3%
5%
Source: Developed from USG (2010) and USG (2013)
“Central” values
Solid = USG (2013) estimates
Dashed = USG (2010) estimates
$12 to $128/tCO2
What do these mean?
7© 2014 Electric Power Research Institute, Inc. All rights reserved.
EPRI SCC Technical Assessment Study –Trying to Better Understand the SCC Modeling
• Currently difficult to interpret and evaluate the SCCs– Behind each value significant aggregation – models, scenarios, time,
regions, sectors
• Making sense of the SCCs requires delving into the details– We examine inner workings of the models and assess raw
modeling and results (undiscounted, disaggregated)– Elucidating and assessing components & overall approach
2000 2300
2000 2300
2000 2300
2000 2300 2000 2300
Population
Income
Emissions (CO2, etc.) Temperature Climate damages
CO2 pulse
Socioeconomics
2000 2300 2000 2300 2000 2300
2000 2300
Component 1 Component 2 Component 3
Reviewing modeling, programming
components, running diagnostic scenarios, comparing, exploring many perspectives
Dashed = after CO2 pulse
8© 2014 Electric Power Research Institute, Inc. All rights reserved.
Significant Differences in Climate Responses e.g., Projected Incremental Temperatures for a 1 billion tC pulse in 2020
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0.0005
0.001
0.0015
0.002
0.0025
2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
deg
C
DICE
FUND
PAGE
USG5
USG2
For the same incremental emissions scenario, significant differences in the
incremental temperature change over time
Always higher response off lower emissions scenario
Driven by modeling differences in carbon cycle, non-CO2 forcing,
forcing to temperature translation, climate sensitivity responsiveness,
and implementation
9© 2014 Electric Power Research Institute, Inc. All rights reserved.
Significant Differences in Damage Responses e.g., Projected Incremental Global Damages for Incremental Climate Signal
Driven by differences in damage modeling
structure & parameterization
For the same incremental temperature
change scenario, ~4x variation in
incremental damages
10© 2014 Electric Power Research Institute, Inc. All rights reserved.
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0.0005
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0.0025
0.0030
2000 2050 2100
degr
ees
C
DICE - USG2
0.0000
0.0005
0.0010
0.0015
0.0020
0.0025
0.0030
2000 2050 2100
degr
ees C
FUND - USG2
-0.0005
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0.0005
0.0010
0.0015
0.0020
0.0025
0.0030
2000 2050 2100
degr
ees C
1%
5%
25%
50%
75%
95%
99%
Mean
Det
PAGE - USG2
Models Considering Significantly Different Climate & Damage Uncertainty
FUND PAGEDICE
FUND has broader damage
distribution Means
Incremental global damages
Incremental global temperature PAGE has broader temp distribution
Results for USG2 scenarios with climate sensitivity 3˚C
PAGE has higher mean
11© 2014 Electric Power Research Institute, Inc. All rights reserved.
Overall Observations
• Significant structural & response differences across models –need to evaluate if they reflect differences in expert opinion
• Some uncertainty is captured, however reasonable alternative specifications, additional uncertainties, and artificial variation
• Inconsistencies across modeling & inter-model relationships –raises issue of statistical comparability (required for approach)
• Results sensitive & reasonable alternative assumptions and modeling – should evaluate robustness of current results (i.e., sensitivity to alternatives)
• Issues with the overall framework, in particular the multi-model approach (consistency and comparability)
Study Reference: Understanding the Social Cost of Carbon: A Technical Assessment, http://epri.co/3002004657.
12© 2014 Electric Power Research Institute, Inc. All rights reserved.
Two Topics
• Social Cost of Carbon Estimation– USG SCCs
• Social Cost of Carbon Application– CO2 benefits– Cost-benefit analysis
13© 2014 Electric Power Research Institute, Inc. All rights reserved.
SCC Application Issues
• Estimating net global CO2 changes– SCC is the value of a net incremental change in GLOBAL CO2
– Policies applying USG SCCs typically do not estimate– Do we need to revise CO2 benefits estimates? For CPP, CO2 leakage
beyond the US power sector? (x% = x% lower CO2 benefits)
• Consistency between estimated benefits and costs– Do we need consistency in socioeconomic & emissions assumptions in
estimating compliance costs, CO2 reductions, and SCC estimates?– Can we compare levelized costs to annual benefits? Want to compare
net present values to capture temporal profiles of costs & benefits.
• Use of multiple SCC values– Which SCC should be used? In this rule, across rules, across agencies?– Need guidance
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Consistency in Socioeconomic & Emissions Assumptions
Inconsistency in assumptions for compliance costs, CO2 reductions, & SCCs?
Costs & CO2 reductions: 1 future (AEO2013 Reference Case)
SCC: 5 futures (USG1, USG2, USG3, USG5, USG5)
Socioecon/emissions assumptions matter for the SCC
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USG1 USG2 USG3 USG4 USG5 Official SCC
2007
$ pe
r tCO
2
Average across models 2020 SCCs by socio/emissions scenario (DR=3%)
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USG1
USG2
USG3
USG4
USG5
USG1
USG2
USG3
USG4
USG5
USG1
USG2
USG3
USG4
USG5
DICE FUND PAGE
2007
$ pe
r tCO
2
Mean & 1st - 99th percentile 2020 SCCs by model and socio/emissions scenario (DR=3%)
~55% variationEven more variation with
individual models
(60-100% in the means)
Figures developed from USG (2013)
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Concluding Remarks
• Social Cost of Carbon Estimation– The social cost of carbon (SCC) is important– However, current estimates are difficult to interpret & assess – Greater technical clarity on what underlies and drives the
estimates is needed – We undertook a research effort designed to better understand
the current modeling and facilitate future modeling and application and climate research more broadly
– From our detailed technical assessment, we observe some fundamental challenges and issues
• Social Cost of Carbon Application– There are also methodological issues related to application of
SCC values in CO2 benefits calculations & cost-benefit assessment
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Thank You!
Questions/comments:
Steven Rose
202-293-6183