Climate and Energy Policy Analysis with the DIEM Model Martin T. - - PowerPoint PPT Presentation

Climate and Energy Policy Analysis with the DIEM Model

Martin T. Ross 5/10/16

Duke Energy Research Collaboration Workshop

DIEM Model – Macroeconomic Component

“Dynamic Integrated Economy/Energy/Emissions Model”

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• Dynamic computable general

equilibrium (CGE) model

– Global and U.S. regional – Energy production and consumption, six types GHG – Non-energy industrial sectors – Household consumption – Personal vehicle choices – Advanced technologies – Current Applications: Stanford Energy Modeling Forum (EMF)

• Carbon taxes, revenue recycling,

and income distribution impacts

• Natural gas markets

– Future Directions:

• Paris agreement
• Economic impacts of climate change

Economic & Energy Policies

 Economic & Trade  Energy & GHG  Electricity Generation

Global

 GTAP Economic Data  IEA Energy Use & Prices  EPA GHG Emissions  International Trade Flows

U.S. Regional

 IMPLAN State Economic Data  EIA Energy Data  EPA GHG Emissions  Detailed Households, etc.

DIEM-Electricity

 Electricity supply  Fuel consumption  Factor demands  New generation  Response to policy

MODEL EQUATIONS

 Maximize Household Welfare

 Firm Production Technologies  Demand & Supply of Goods  Energy Supply, Use, & Prices  GHG Emissions & Abatement

Output

 GDP & Welfare  Household Consumption  Investment & Trade Flows  Energy Production by Type  Energy Demand & Prices  GHG Emissions & Prices Trade Impacts

Carbon Tax Recycling ($25/ton + 5%/year)

(Hicksian equivalent variation from lowering the labor tax)

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USA Northeast East Central Southeast North Central South Central West All

• 0.24%
• 0.01%
• 0.19%
• 0.36%
• 0.37%
• 0.41%
• 0.13%

<$10k

• 0.45%
• 0.34%
• 0.44%
• 0.48%
• 0.49%
• 0.56%
• 0.38%

$10k-$15k

• 0.43%
• 0.25%
• 0.40%
• 0.48%
• 0.50%
• 0.56%
• 0.32%

$15k-$20k

• 0.37%
• 0.15%
• 0.33%
• 0.44%
• 0.47%
• 0.51%
• 0.24%

$20k-$30k

• 0.31%
• 0.08%
• 0.26%
• 0.40%
• 0.41%
• 0.46%
• 0.19%

$30k-$40k

• 0.20%

0.05%

• 0.15%
• 0.31%
• 0.34%
• 0.37%
• 0.08%

$40k-$50k

• 0.19%

0.05%

• 0.14%
• 0.31%
• 0.33%
• 0.36%
• 0.08%

$50k-$70k

• 0.12%

0.11%

• 0.08%
• 0.26%
• 0.29%
• 0.31%
• 0.02%

$70k-$100k

• 0.25%
• 0.06%
• 0.22%
• 0.38%
• 0.37%
• 0.43%
• 0.18%

$100k-$150k

• 0.22%
• 0.02%
• 0.18%
• 0.36%
• 0.35%
• 0.40%
• 0.15%

>$150k

• 0.06%

0.13%

• 0.02%
• 0.18%
• 0.20%
• 0.23%

0.01%

Households by Annual Income Class and Region of the Country:

• Who pays/benefits from

carbon taxes and can you buy political support?

DIEM Model – Electricity Dispatch Component

“Dynamic Integrated Economy/Energy/Emissions Model”

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• Dynamic linear program model
• Minimize costs of generation

subject to meeting demand and emissions policies

– U.S. regional electricity markets (10-60 regions) – Data on existing / new units, forecasts of demand / fuel prices – Long-run investment, generation, and retirement decisions – Link to macroeconomic CGE – Application: EPA’s CPP

• Choices of CO2 emissions rate targets

versus mass caps by states

• Policy costs, changes in generation

mix, reductions in criteria pollutants

– Future Directions:

• Health benefits of reductions
• Long-term climate policies

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Electricity Emissions in the U.S.

1,250 1,500 1,750 2,000 2,250 2,500 2015 2020 2025 2030 2035 2040 2045 2050 MMTCO2 2005 emissions Baseline Baseline w/EE Baseline w/EE & low Gas price Rate (subcategorized) Mass (existing) Mass (new)

EPA’s Clean Power Plan to reduce CO2 emissions by 30% below 2005 levels

• Emissions rate targets with subcategorized coal and natural gas rates
• Mass-based targets for existing units
• Mass-based targets including new units
• Low gas prices may result

in similar emissions to the Clean Power Plan

• Rate approach encourages

renewables and existing gas, but emissions can grow over time

• Mass approach only

covering existing units can “leak” emissions into new units and grow over time

• Mass approach covering

new units provides emissions certainty but may be more costly

• State choices matter a lot

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0.1% 0.1% 0.0% 0.3%

• 0.5%
• 0.1%

0.1%

• 0.2%

0.1 0.0% 1.4% 0.3%

• 0.4%

2.8% 2.3%

• 4.6%

4.4%

• 2.6%
• 1.1%

2.1% 1.2%

• 0.7%

1.2% 2.2%

• 1.0%
• 0.2%

0.6%

• 0.8%
• 2.2%

0.9%

• 0.3%

0.1% 5.8% 0.1% 0.0%

• 0.2%
• 1.3%

CPP Policy Costs (∆PV to 2040)

(Change in capital, operating, fuel costs plus ERC/allowance trade value)

States with Rate States with Mass RGGI

Estimated Health Benefits of Clean Power Plan* (Annual U.S. benefit = $18-$42 billion in 2030)

7 Annual Benefits by County $0 - $1 million $1 - $5 million $5 - $25 million $25 - $50 million $50 - $500 million

* Author’s calculations based on the EPA COBRA Screening Model (discount rate – 3%) DIEM Model policy – CPP Mass cap with New units (New Source Complement) ( National: SO2 reduction – 48%, NOx reduction – 30% ) Total present value of policy costs through 2040 – $12.1 billion

Thank You

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