Update on Market Simulation Group Modeling September 24, 2012 1 - - PowerPoint PPT Presentation

Update on Market Simulation Group Modeling

September 24, 2012

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162.8 159.7 394.5 382.4 370.4 358.3 346.3 334.2

50 100 150 200 250 300 350 400 450 2013 2014 2015 2016 2017 2018 2019 2020 Millions CO2e

Forecasted BAU GHG Emissions Compared to the Allowance Cap Covered Entities Only 2013 - 2020

BAU Forecast (Phase 1&2 entities) BAU Forecast (Phase1 entities) AB32 Cap

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Supply of Abatement with Containment Reserve

Allowance Price GHG Reductions Complementary Measures Costless Reshuffling Costly Reshuffling Offsets Electricity Dispatch Changes; Industrial Processes Changes; Fuels Consumption Changes 40 50

Factors in BAU modeling

• Macroeconomic growth and fluctuations
• Energy intensity trends and fluctuations
• Complimentary policies

– SB1368, LCFS, RPS, CAFE, Fed Policies/Incentives

• Supply shocks: hydro-electricity, fuels, natural

gas, OTC retirements

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Electricity Sector

• Reshuffling
• Relabeling
• Scope for dispatch changes

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Industrial Sector

• Output incentives under output-based

updating

– Removes elasticity that the sector would

• therwise contribute to the abatement supply
• Production efficiency incentives under output-

based updating

• Changes between compliance periods
• Border adjustments instead of output-based

updating?

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Non-Industrial Natural Gas

• Level and form of free allocation (fixed or

indexed to something) to local distribution companies

• Passthrough from LDCs to customers
• Elasticity of demand (and cross-elasticity with
• ther energy)

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Tailpipe Emissions

• Elasticity of personal and commercial

transport with respect to fuel prices

• Medium-run versus long-run elasticities

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Offsets

• Offset supply curve
• Exogenous uncertainties on offset availability
• Regulatory uncertainties on offset

qualification

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Other Modeling Issues

• Intertemporal arbitrage over 8 years and 3

compliance periods

• Discrete investments
• Endgame issue in 2020

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“Soft” Uncertainties may drive results

• Willingness of importers to reshuffle
• Offset protocols and barriers
• Willingness to hold allowances for future

– Confidence in the program – Incentives of regulated utilities

• Regulatory incentives for GHG reduction

– Eg, tariff design

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Outcomes

• Competitive market expected outcome and

volatility

– Scenarios with price near floor – Scenarios with price near $40 or higher

• Potential for market power
• Potential for market manipulation

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