Burning assets for a sustainable future Climate finance and - - PowerPoint PPT Presentation

Burning assets for a sustainable future

Climate finance and divestment from stranded assets in the context of the NDC’s and the Sustainable Development Goals

Daniel Huppmann, David McCollum, Wenji Zhou, Volker Krey, Keywan Riahi

IAEE Conference 2017, Vienna

Agenda

• Introduction

Climate finance & investment for a sustainable future

• The MESSAGEix model

A new platform for integrated-assessment modeling

• The Horizon 2020 project “CD-LINKS”

Linking Climate and Development Policies An international and national model comparison exercise

• Some (very) preliminary results on investment and divestment
• Conclusions and outlook

Daniel Huppmann, David McCollum, et al. Burning assets for a sustainable future

Introduction: Climate finance and the energy transition

• Financial impacts on owners of existing installations crucially

depend on the short-term ambition of energy & climate policy Compensation may be necessary to ensure incentive-compatibility

• Coal and oil will be most heavily affected

Coal-fired power plants without CCS will be most heavily affected (Bertram, Johnson, et al., 2015; Johnson, Krey, et al., 2015) But crude oil refineries are far more capital-intensive and less well understood in energy++ systems models

• Research question:

Estimate scales of investment, write-off, and compensation Identify trade-offs and synergies of investment & divestment with UN sustainable development goals

Climate change mitigation & decarbonisation will require substantial shifts in capacity and investment

Daniel Huppmann, David McCollum, et al. Burning assets for a sustainable future

The MESSAGE Integrated Assessment Model

• “Model for Energy Supply Systems And their General Environmental impact”

Process-based Integrated Assessment Model (IAM) Developed at IIASA and the IAEA since the 1980s (Schrattenholzer, 1981) Linear perfect-foresight systems optimization problem coupled with the general-economy MACRO model (Manne and Richels, 1992)

• The MESSAGE implementation of the Shared-Socioeconomic Pathways (SSP)

(Fricko et al., 2016) maintained at IIASA…

Detailed energy system representation Integrated with land-use model GLOBIOM (Havlik et al., 2014) Emissions and air pollution based on the GAINS model (Amann et al., 2011) Evaluation of climate impact using the MAGICC model (Meinshausen et al., 2011)

• Detailed documentation:

Krey, Havlik, et al. (2016) MESSAGE-GLOBIOM 1.0 Documentation.

http://data.ene.iiasa.ac.at/message-globiom/

Daniel Huppmann, David McCollum, et al. Burning assets for a sustainable future

The 11 regions of the global MESSAGE model

The new MESSAGEix framework

An integrated modeling platform for x-cutting analysis

Daniel Huppmann, David McCollum, et al. Burning assets for a sustainable future

Scheduled to be released later this year under an open-source/open-access license!

The Horizon 2020 project CD-LINKS

• Consortium of 19 international

research organizations Explore national and global transformation strategies for climate change mitigation Connect to broader sustainable-development agenda

• Policy evaluation:

Design complementary climate-development policies

• Methodology development:

Bi-directional linkage of global and national models

Daniel Huppmann, David McCollum, et al. Burning assets for a sustainable future

This project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 642147 (CD-LINKS).

Bridging energy modeling and sustainable development

“Tr Tran ansforming ng our r world: th the e 2030 Agen enda for for Su Susta tainable le De Development” Adopted at the United Nations Sustainable Development Summit

• n 25 September 2015, a.k.a. the Susta

tainable e De Devel elopment Goa

• als.

Daniel Huppmann, David McCollum, et al. Burning assets for a sustainable future

The „Paris Agreement“ Article 2.1.a: “[...] holding the increase in the global average temperature to well ell belo elow 2 °C C above pre-industrial levels and to pursue eff efforts to lim limit it th the e tem empera rature re in incre crease to 1.5 .5 °C C [...]”

Estimates of energy system investment requirements

Increasing climate ambition from a 2°C goal to a 1.5°C target does not imply a (very) substantial cost increase in 2030

Daniel Huppmann, David McCollum, et al. Burning assets for a sustainable future

Figure from Zhou (2017)

Preliminary results – please do not cite (yet)!

Investment requirements in 2030 towards a... 1.5° target 2° target

Comparison of investment requirements across SDG’s

Figure from McCollum, Zhou, et al., 2017

Infrastructure is the main bulk of investment needs

Burning assets for a sustainable future Daniel Huppmann, David McCollum, et al.

Preliminary results – please do not cite (yet)!

trillion US$ / year 1 2

CD-LINKS models GEA (2012) Pachauri et al. (2013) O Broin et al. (2016) SDSN + UN

• N. Rao

calculations

A glimpse on investment pathways

Installed capacity in GW, MESSAGEix-GLOBIOM scenarios for the CD-LINKS project

Perfect-foresight (dis)-investment paths are implausible in the context of liberalized electricity markets

Daniel Huppmann, David McCollum, et al. Burning assets for a sustainable future

200 400 600 800 1000 2020 2030 2040 2050

Global coal power plant installed capacity

National policies NDC baseline 2°C CCS 1.5°C CCS

Preliminary results – please do not cite (yet)!

Preliminary insights and outlook

• It is not straightforward to determine the “lost book value”
• f decommissioned power plants due to climate change policies

Ideas for including profitability considerations in MESSAGE

• Minimum-run-years after investment (no early decommissioning),

but this does not consider actual profitability

• Considering profitability (prices minus costs) endogenously

would require moving to an equilibrium (MCP) modeling approach

• Going beyond the coal question: crude oil industry and refineries

Refineries are far more difficult to model (and operate) compared to power plants Very stylized representation in Integrated Assessment Models

• But at least, we’ll have another open-source energy systems model!

We need to include “profitability” considerations of investors to properly assess plausibility of transition pathways

Daniel Huppmann, David McCollum, et al. Burning assets for a sustainable future

• Dr. Daniel Huppmann

Research Scholar – Energy Program International Institute for Applied Systems Analysis (IIASA) Schlossplatz 1, A-2361 Laxenburg, Austria huppmann@iiasa.ac.at +43 (0) 2236 807 - 572 http://www.iiasa.ac.at

Thank you very much for your attention!

Please visit www.cd-links.org for more information

Energy Security Climate Change Local Air Pollution

Image sources: NASA, http://www.powernewsnetwork.com/white-house-releases-plan-to-cut-oil-imports-by-13-by-2025/1798/, http://wheresmyamerica.wordpress.com/2007/08/26/i-cant- see-my-america/, http://www.americanprogress.org/issues/green/report/2009/05/14/6142/energy-poverty-101/, http://today.uconn.edu/blog/2010/12/reclaiming-water-a-green-leap- forward/, http://te.wikipedia.org/wiki/%E0%B0%A6%E0%B0%B8%E0%B1%8D%E0%B0%A4%E0%B1%8D%E0%B0%B0%E0%B0%82:Forest_Osaka_Japan.jpg

Energy Access Water Scarcity Land & Food

Key challenges

Climate Change Local Air Pollution Energy Access Water Scarcity Land & Food Energy Security Income Distribution Projections

• Fuel choice model

Access

Spatially explicit forest management

G4M

Agriculture, bioenergy and forestry

GLOBIOM

Energy++ system (including all GHGs and energy sector)

MESSAGE

Long-term climate pathways

MAGICC

Hydro-economy

WAT

GHG & air pollution mitigation

GAINS

Macro-economy

MACRO

Consumer vehicle choice

TRANSPORT

IIASA Integrated Assessment Framework

Spatially explicit forest management

G4M

Agriculture, bioenergy and forestry

GLOBIOM

Energy++ system (including all GHGs and energy sector)

MESSAGE

Long-term climate pathways

MAGICC

Hydro-economy

WAT

GHG & air pollution mitigation

GAINS

IIASA Integrated Assessment Framework

Income Distribution Projections

• Fuel choice model

Access

Macro-economy

MACRO

Consumer vehicle choice

TRANSPORT

Spatially explicit forest management

G4M

Agriculture, bioenergy and forestry

GLOBIOM

Energy++ system (including all GHGs and energy sector)

MESSAGE

Long-term climate pathways

MAGICC

Hydro-economy

WAT

GHG & air pollution mitigation

GAINS

IIASA Integrated Assessment Framework

carbon prices biomass potential and prices water demand costs, availability

Macro-economy

MACRO

Consumer vehicle choice

TRANSPORT

Income Distribution Projections

• Fuel choice model

Access

energy prices fuel demand

energy prices energy demand energy demand energy prices