Workshop on Mitigation of CO2 emissions by the agricultural sector,

Bergen, 3 Oct 2011

Taran Fæhn, Statistics Norway:Taran Fæhn, Statistics Norway:

Climate policy aims and Climate policy aims and emissions pricing in Norway.emissions pricing in Norway.

2

Carbon pricing - Some principles• Social benefit = sum of marginal damage= emissions price

Global 1.best: same price (ETS)Distribution: Allocation of qoutasNecessary global price 2020 (IEA/OECD): 50$ (250NOK) – sharply increasing towards 2050: 150-250$

• 2. best: Rich countries: Lower marginal benefit from emitting ->higher price (i.e. use carbon pricing as distributional instrument)

• Norwegian climate policies?• The Olsen commission:

– The EU price is a reasonable point of departure– Cost efficiency: All sources uniform price like EU’s – It is not cost efficient to have a national target– If national target desirable, use a uniform price (even if carbon leakage and EU ETS)– Only if market failures, supplement with appropriate standards, regulation, subsidies…

• A national targetoptimal price = the necessary price to meet target

under: no damage over: unacceptable damage

3

The Climate Agreement and Norway’s pledges post-Copenhagen:• Overfulfill the Kyoto commitments by 10% (quotas/CDM)

• Within 2020: Cut the globale climate gas emissions equivalent

to 30% of our 1990 emissions

• Participate in EU ETS phase 2 (2008-12) and 3 (2013-2020)

• 2/3s of the reduction from a specified 2020 benchmark ”seem

obtainable” domestically

• Carbon neutrality within 2030, if other industrial countries

make considerable commitments, too

4

A quantitative interpretation of the domestic goal in 2020 (in our mandate):

12-14 million tons ”non-forest”(15-17 incl. forest measures)

45-47 million tons ”non-forest”(42-44 incl. forest measures)

New measuresNew measures

BenchmarkObserved (until 2008)Global contribution capDomestic target

5

The Climate Cure 2020 Two approaches:

TOP-DOWN approach (Statistics Norway):Macroeconomic CGE analysis :Computations of totale and marginal costs of the sum of measures necessary – Drawback : excisting technologies– Innovation: integrating information from 1)

BOTTOM-UP approach:Sector-by-sector analyses:

Detailed information on costs and

abatement potentials of different

measures

6

The macroeconomic scenariosA. The international commitments and pledges, only

– The Kyoto commitments– The aims on global contributions post-Kyoto– The EU ETS participation phase 2 and 3

B. Adding a national target– uniform pricing =

approximating a cost-effective regime

C. Sheltering the EU ETS sector– No additional policies in the EU ETS sector

Cost-efficient EU ETS market Protect cornerstone enterprises Avoid carbon leakage

– Same international and domestic targets:burden-shifting to non-EU ETS

7

THE MODEL MSG-TECH of the Norwegian economy

Top-down features:

- Economy-Energy-Emission CGE model (6 Kyoto-gases and 6 local pollutants)

- Small, open economy features (no terms-of-trade effects)

- Relatively disaggregate (40 industries, 60 goods) to capture substitution and composition effects

- Second-best features of the real economy (market failures and policy distortions)

- Recycling through labour taxation and endogenous labour supply responses

8

THE MODEL MSG-TECH

Bottom-up features:

- Current and future technological options modelled within:- four process manufacturing industries (metals, chemicals, mineral products, pulp and paper) - petroleum industry- road transport within industries, households, public sector

- Data and modelling: - detailed, plant-specific project studies of costs and abatement

potentials- marginal abatement cost curves attributed to each industry- simultaneous determination of technological adaptation and other

adjustments to GHG policy instruments

(- Other technological change: Exogenous TFP growth and substitution (estimated on historical data)

9

Modelling technological abatement costsill: Petroleum industry:

VVVX

CVV

XU

DUU

UUdccfcDC

UUcfD

/~

)( )6(

~ )5(

/ )4(

~ )3(

0./)( )2(

0./)( )1(

D = 9E-07c2 - 0,0003c + 0,0118

R2 = 0,9696

-1

0

1

2

3

4

5

6

7

8

9

10

0 500 1000 1500 2000 2500 3000 3500

Marginal cost

Aba

tem

ent m

ill to

nnes

The detailed projects:Electrification

Wind power installations

Power efficiency improvements

CCS

The equations:

The abatement curve:

A) International commitments/ aimsA) International commitments/ aimsEuropean: Industries:

2008-12: Petroleum, Refining, Process industries (not aluminium), Power

(= 40% of emissions)

From 2013: Also aluminium

( >50% of emissions)

(From 2012: Aviation market (not modelled))

Global:KYOTO COMMITMENTS 2008-2012Target: 10% Over-fulfillment = 44,9 mill tons CO2-eq annually

PLEDGES FOR 2020 TO UNTarget: 2020: cap of 35 millioner tonn CO2-ekvivalenter2013-2020: Assumed: As in Kyoto-period

11

0

10

20

30

40

50

60

70

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Mil

lio

ner

to

nn

CO

2-ek

viva

len

ter

Referansebane totalt

Globalt bidrag

Referansebane EU-ETS

Europeisk bidrag

International contributions- benchmarks- commitments/pledges

Benchmark total

Global contribution

Benchmark EU ETS

European contribution

12

The international quota prices

-50

50

150

250

350

450

550

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

eu-ets

f leksible mek

offshore

Flexible mechanisms

GHG emissions in 2020 reduced by 3 mill tons (dvs. ¼-way)• Only in the EU ETS sector•Technology measures: 1,1 mill tons

Permit purchases: 18 millt. in 2020; i.e. 86% total global target

Social costs: 1,6 bill. NOK yearly (annuity) • Primarily permit purchases• NOTE: No transition costs

International commitments/aims International commitments/aims

ResultsResults

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Policy B: Uniform emission price

The domestic, uniform emission price :

-

50,00

100,00

150,00

200,00

250,00

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

EU

RO

/to

nn

CO

2-ek

v.

190€/t (1500 NOK/t)

15

0

10

20

30

40

50

60

70

1 2 3 4 5 6 7 8 9 10 11 12 13

Mill

ione

r to

nn

CO

2-ek

viva

lent

er

Referansebane totalt

Innenlandsk bidrag totalt

Globalt bidrag

Referansebane EU-ETS

Innenlandsk bidrag EU-ETS

Europeisk bidrag

Policy B: Uniform emission price

Benchmark total

Domestic contribution

Global contribution

Benchmark EU ETS

Domestic contribution EU ETS

European contribution

16

The abatement composition:

- 50/50 technological investments and others (within technol)

Policy B: Uniform emission price

-12000000

-10000000

-8000000

-6000000

-4000000

-2000000

0

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Non-tech: Residual

Non-tech: EU ETS

Tech: Residual

Tech: EU ETS other

Tech: Offshore

Mill to CO2 eq

17

The abatement costs:

Policy B: Uniform emission price

• Welfare loss: 5 bill NOK, i.e. more than tripled

• Important preconditions:– Equal emission prices for all!– Global and European contribution targets in excess are met through quota

purchase– Revenue is fed back as reduced labour tax, which improves efficiency– Subsidised onshore process industries are crowded out and they are relatively

unproductive– No abatement nor downscaling of primary industries

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Information from the bottom-up studies:Some technological measures/adaptations are omitted

Buildings: Many more than free measures (conversion and efficiency measures) ca 2 millt

Other manufacturing: conversion and efficiency ca ½ millt

Agriculture: diffuse emissions/sinks ca 1 millt Skogbruk: Sinks ca ½ millt

ca 4 millt

Foto: Marianne Gjørv

Can it be even more cost effective?

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Nr Measure Potential (2020)(tonn CO2-ekv)

Unit cost (kr/tonn CO2-

ekv)1 Biogass trinn 1: 30 prosent

husdyrgjødsel136 500 1700

2 Biogass trinn 2: 30 - 60 prosent husdyr gjødsel

136 500 3100

3 Biogass trinn 1 + sambehand ling[2] med 200 000 tonn våtorgan isk avfall

147 500 1200

4 Biogass trinn 2 + sambehand ling med 200 000 tonn våtorgan isk avfall

147 500 2700

5 Optimalisering av spredningstidspunkt og -metode for husdyrgjødsel og oppfølging av gjødselplan

113 000 540

6 Redusert norm for gjødsling og tiltak for drenering og redusert jordpakking

93 000 -1200

7 Stans i nydyrking av myr og restaurering av dyrket myr

78 000 145

8 Produksjon av biokull fra halm og lagring i jordbruksjord

560 000 900

9 Erstatning av olje, propan og el-kjel i veksthus med forbrenning av 260 000 m3 flis

45 500 300

10 Biogass fra 60 prosent tilgjengelig hus dyrgjødsel i Rogaland innført på gassnettet

62 000[6] 500

11 Innblanding av 10 prosent vol bio diesel i merket diesel[7]

42 000 1050

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C: Sheltering the EU ETS sector

Emissions price in non-EI ETS (2020): 3400 NOK/t

0

500

1000

1500

2000

2500

3000

3500

400020

08

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

NO

K/t

on

n C

O2-

ekv.

utslippspris rest

utslippspris EU-ETS

Non EU ETS

EU ETS

21

C: Sheltering the EU ETS sector

-7,00

-6,00

-5,00

-4,00

-3,00

-2,00

-1,00

0,00

teknologitiltakkvotepliktige

andretilpasningerkvotepliktige

teknologitiltakrestsektor

andretilpasningerrestsektor

mil

lio

ner

to

nn

CO

2-ek

viva

len

ter

lik pris for alle

kvotepliktige skjermes

Emission abatement 2020 (mill tons)

Uniform priceEU ETS sheltered

22

• Social costs: Doubling from B– 10 bill/year (annuity). – Permit purchases cost more (less EU-ETS-red -> more EU-quotas)– Domestic abatement much more expensive– More revenue (high price an inelastic emission sources) (-)– More technological adaptation in transport (extrapolation)

C: Sheltering the EU ETS sector

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Main results

• Only the international commitments/pledges– At least two prices apply– Costs are nevertheless low towards 2020 (Climate cure

overestimated the price 40€ in 2020?)– Post-2020?.. depending on the global efforts

• Domestic target– Marginal cost in 2020: 1500 NOK /200 €– More than tripling the total cost

• Domestic target and sheltering– Another doubling of marginal and total costs

24

Several targets imply several emission prices

Illustrated by the computations:– Global target, only: Use the global marginal cost – EU ETS participation: EU-ETS price– Extra expectations from offshore EU ETS + tax– National target: Domestic marginal cost (=1500,- NOK)– National only for non-EU ETS: nonEU ETS marginal cost (=3400,-)

• The more objectives in the climate policy, the more costly and the higher number of prices/marginal costs

• The reasonable emission price/marginal cost estimate for agriculture???

25

Thank you

tfn@ssb.no

www.Klimakur2020.no