Wh What at's wi with Arti Articl cle 6 and and 45Q? 45Q? Tw Two - - PowerPoint PPT Presentation

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Wh What at's wi with Arti Articl cle 6 and and 45Q? 45Q? Tw Two - - PowerPoint PPT Presentation

Dec 01, 2022 483 likes •797 views

Wh What at's wi with Arti Articl cle 6 and and 45Q? 45Q? Tw Two New New Re Research Ques Questions ons Jae Edmonds Joint Global Change Research Institute 1 The Extraordinary Luxury of Time Thanks for the opportunity to deliver a keynote

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Wh What at's wi with Arti Articl cle 6 and and 45Q? 45Q?

Tw Two New New Re Research Ques Questions

  • ns

Jae Edmonds Joint Global Change Research Institute

1

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The Extraordinary Luxury of Time

  • Thanks for the opportunity to

deliver a keynote address to the 24th AIM workshop.

  • The AIM research team has been

at the cutting edge of research for three decades and I’d like to talk about two issues that are on the frontier

  • One that AIM began work on 2

years ago—Fujimori et al. (2016)

  • The other is just emerging—45Q

2

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The The Va Value of

  • f Arti

Articl cle 6

3

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The Paris Agreement and Article 6

  • The Paris Agreement uses a bottom up approach—

Nationally Determined Contributions (NDCs)

  • Each member of the agreement determines what it can

contribute to achieving the goals of the Paris agreement

  • Article 6 allows countries to jointly implement NDCs

Source: http://www.carbon‐mechanisms.de/en/introduction/the‐ paris‐agreement‐and‐article‐6/

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How Valuable is Article 6?

What is the potential economic value of implementing Article 6?

  • What is the potential size of the carbon

market?

  • Who would be the sellers and who

would be the buyers?

  • How much could costs be reduced?
  • How much additional ambition is

enabled by cost reductions?

5

Source: https://unfccc.int/files/focus/long‐term_strategies/application/pdf/mid_century_strategy_report‐final_red.pdf

We build on earlier work by Shinichiro Fujimori, et al. (2016)

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SLIDE 6

The Global Change Assessment Model (GCAM) Scenario Outputs Scenario Assumptions

Socioeconomic assumptions (population, GDP) Energy, land use, and water technologies Policies, company actions and preferences Resources Prices and production quantities:

Energy sectors Transportation Primary energy resources Agricultural products

Land use

Crops (by type) Pasture Unmanaged

Water demand

Raw demand by sector Response to scarcity

Atmosphere-Climate Economic indicators

Economic losses Income transfer 6

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‐5 5 10 15 20 25 30 35 40 2015 2025 2035 2045 2055 2065 2075 2085 2095 Gt CO2/yr

Global I-NDC Scenario CO2 Emissions

South America_Southern South America_Northern Colombia Central America and Caribbean Brazil Argentina South Africa Africa_Western Africa_Southern Africa_Northern Africa_Eastern Middle East Pakistan India Indonesia Southeast Asia South Asia Central Asia Taiwan China Russia Europe_Eastern Europe_Non_EU European Free Trade Association EU‐15 EU‐12 South Korea Japan Australia_NZ Mexico Canada USA

NDC Emissions: Independent Implementation

Africa India Southeast Asia China LAC

7

  • Significant decline in

emissions

  • The level of emissions

reduction varies by country

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$0.00 $50.00 $100.00 $150.00 $200.00 $250.00 $300.00 $350.00 2020 2040 2060 2080 2100

Shadow Price of CO2

USA Canada Mexico Australia_NZ Japan South Korea EU‐12 EU‐15 European Free Trade Association Europe_Non_EU Europe_Eastern Russia China Taiwan Central Asia South Asia Southeast Asia Indonesia India Pakistan Middle East Africa_Eastern Africa_Northern Africa_Southern Africa_Western South Africa Argentina Brazil Central America and Caribbean Colombia South America_Northern South America_Southern

NDC Shadow Prices: Independent Implementation

2030 2050 2100 I‐NDC Range $0 to $152/tonCO2 $0 to $144/tonCO2 $2 to $314/tonCO2

  • S. Korea

$314/tonCO2

  • Wide range in shadow

prices

$0/tonCO2

8

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$0 $50 $100 $150 $200 $250 $300 $350 2020 2040 2060 2080 2100

Shadow Price of CO2

Shadow Price Range (Independent) Global CO2 Shadow Price

NDC Shadow Prices: Independent vs. Joint Implementation

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2030 2050 2100 I‐NDC Range $0 to $152/tonCO2 $0 to $144/tonCO2 $2 to $314/tonCO2

J‐NDC $46/tonCO2 $74/tonCO2 $120/tonCO2

  • Joint implementation shadow

price lies between high and low

prices of independent implementation

Fujimori, et

  • al. 2016.

$9/ton CO2

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NDC Emissions: Independent vs. Joint Implementation

‐5 5 10 15 20 25 30 35 40 2015 2025 2035 2045 2055 2065 2075 2085 2095 Gt CO2/yr

Global I-NDC Scenario CO2 Emissions

South America_Southern South America_Northern Colombia Central America and Caribbean Brazil Argentina South Africa Africa_Western Africa_Southern Africa_Northern Africa_Eastern Middle East Pakistan India Indonesia Southeast Asia South Asia Central Asia Taiwan China Russia Europe_Eastern Europe_Non_EU European Free Trade Association EU‐15 EU‐12 South Korea Japan Australia_NZ Mexico Canada USA

5 10 15 20 25 30 35 40 2015 2025 2035 2045 2055 2065 2075 2085 2095 Gt CO2/yr

Global J-NDC Scenario CO2 Emissions

South America_Southern South America_Northern Colombia Central America and Caribbean Brazil Argentina South Africa Africa_Western Africa_Southern Africa_Northern Africa_Eastern Middle East Pakistan India Indonesia Southeast Asia South Asia Central Asia Taiwan China Russia Europe_Eastern Europe_Non_EU European Free Trade Association EU‐15 EU‐12 South Korea Japan Australia_NZ Mexico Canada USA

U.S Europe Africa India Southeast Asia China LAC China India Africa LAC

10

Europe

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‐15 ‐10 ‐5 5 10 15 2015 2025 2035 2045 2055 2065 2075 2085 2095 PgCO2/yr Change in CO2 Emissions under Perfect Article 6

South America_Southern South America_Northern Colombia Central America and Caribbean Brazil Argentina South Africa Africa_Western Africa_Southern Africa_Northern Africa_Eastern Middle East Pakistan India Indonesia Southeast Asia South Asia Central Asia Taiwan China Russia Europe_Eastern Europe_Non_EU European Free Trade Association EU‐15 EU‐12 South Korea Japan Australia_NZ Mexico Canada USA

Sellers Buyers

Potential changes in emissions—CO2

  • Seller (13 regions)
  • Buyer (6 regions)
  • Seller to buyer

(10 regions)

  • Buyer to seller

(South Africa)

  • Seller to buyer to seller

(Colombia)

  • Buyer to seller to buyer

(European Free Trade)

U.S Europe India Middle East Southeast Asia Africa China China

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$0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 2015 2030 2045 2060 2075 2090 Billion 2015 USD

Emissions Trading Market Size

South America_Southern South America_Northern Colombia Central America and Caribbean Brazil Argentina South Africa Africa_Western Africa_Southern Africa_Northern Africa_Eastern Middle East Pakistan India Indonesia Southeast Asia South Asia Central Asia

Sellers

Potential Market Size—Billion of 2015 US$

South & Southeast Asia India Middle East Africa China

Year Market Size (Billion 2015 US$) 2030

$222

2050

$572

2100

$1,430

World Bank. 2017. Estimate 2030 market size at $100‐400 billion US$ Fujimori, et al. 2016. Estimate 2030 market size of $38 billion 2005 US$

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Emissions Mitigation Cost: Independent vs. Joint Implementation

$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500

2015 2025 2035 2045 2055 2065 2075 2085 2095

Emissions Mitigation Cost (billion 2015 US$/yr) Joint Independent

0% 20% 40% 60% 80% 100%

2020 2030 2040 2050 2060 2070 2080 2090 2100

Percentage Reduction in Cost

13

$904

$445 $268

Fujimori, et al. 2016. 75% reduction in 2030 Fujimori, et

  • al. 2016.

$220b in 2030

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GDP Change by Region – Billion of 2015 US$

$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000

Net GDP Change (Cumulative)

USA Canada Mexico Australia_NZ Japan South Korea EU‐12 EU‐15 European Free Trade Association Europe_Non_EU Europe_Eastern Russia China Taiwan Central Asia South Asia Southeast Asia Indonesia India Pakistan Middle East Africa_Eastern Africa_Northern Africa_Southern Africa_Western South Africa Argentina Brazil Central America and Caribbean Colombia South America_Northern South America_Southern

China India Africa LAC Europe U.S.

14

Unit: Billion 2015$ Southeast Asia

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How much additional ambition could be enabled by cost reductions?

15

  • We assume that the cost that

each region is willing to contribute to emissions mitigation is reflected in their NDC,

  • We sum the costs and then

assume that in each period, the world limits emissions using Article 6 mechanisms.

  • Each country increases its

ambition so that its net cost, after trade, is identical to its net cost under the I-NDC scenario.

  • Something more easily done in

a model than the real world. 20 25 30 35 40

2010 2025 2040 2055 2070 2085 2100 Gt CO2

Global CO2 Emissions

Independent Mitigation Enhanced Joint Mitigation 2030 11% Reductions

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How much additional ambition c enabled by cost reductions?

16

20 25 30 35 40

2010 2025 2040 2055 2070 2085 2100 Gt CO2

Global CO2 Emissions

Independent Mitigation Enhanced Joint Mitigation

Cumulative Enhanced Mitigation (2020‐2100)

310 Gt CO2

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How Valuable is Article 6?

  • Article 6 holds significant potential

to reduce cost and enhance ambition

  • Everyone could be better off through

collaboration

  • 2030 global net benefit

~$270 billion

  • Realizing this potential is a real-

world challenge

  • Near-term: Translating NDCs to

Internationally Transferred Mitigation Outcomes (ITMOs)

  • Long-term: It could take any

number of forms including NDC coalitions, ratchet mechanisms, or

  • ther novel approaches.

17

Source: https://unfccc.int/files/focus/long‐term_strategies/application/pdf/mid_century_strategy_report‐final_red.pdf

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45Q 45Q

18

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45Q

The Bipartisan Budget Act of 2018 included an amendment to the federal tax code section 45Q.

  • The new 45Q provisions increase the

value of the tax credit for capturing CO2 in a qualifying facility and

  • Selling for use in EOR to $35/ton
  • For deep saline storage to $50/ton.
  • EMF34 Study Group goal: Assess the

effect of 45Q on CO2 capture utilization and storage (CCUS)

  • This implies developing a model of the

CO2 market including supplies and demands

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Source: https://www.pnnl.gov/science/images/highlights/atmospheric/pipeline.jpg

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45Q, CCUS, and CO2 Market

  • Potential sources of

concentrated CO2

  • Natural reservoirs
  • Large point source emitters

with CO2 capture technology

Natural Reservoirs Large point‐ source emitters with CO2 capture

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21

45Q, CCUS, and CO2 Market

  • Potential sources of

concentrated CO2

  • Natural reservoirs
  • Large point source emitters

with CO2 capture technology

  • Potential disposition of

concentrated CO2

  • EOR
  • Long-term storage (e.g.,

Deep saline reservoirs,

  • nshore and offshore)

Natural Reservoirs Large point‐ source emitters with CO2 capture EOR Geologic Repositories

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45Q, CCUS, and CO2 Market

  • Potential sources of

concentrated CO2

  • Natural reservoirs
  • Large point source emitters

with CO2 capture technology

  • Potential disposition of

concentrated CO2

  • EOR
  • Long-term storage (e.g.,

Deep saline reservoirs,

  • nshore and offshore)
  • Markets that connect them

CO2

Market

Natural Reservoirs Large point‐ source emitters with CO2 capture EOR Geologic Repositories

45Q Credit2

45Q Credit1

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Resources, reserves, and EOR potential

  • Production occurs out of reserves
  • Reserves are constantly being

depleted and enhanced

  • The amount of reserves added

depends on the resource supply schedule, technology and policy

  • Reserves are essentially vintage

production entities

  • Reserves are produced over time

(60 years in GCAM)

  • Each reserve vintage includes a

potential EOR category

  • Derived demand for CO2 depends
  • n EOR potential and cost

Production Rate Time Plateau

First oil

Potential EOR

Discovery

EOR

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5 10 15 20 25 2005201020152020202520302035204020452050 EJ

US Electricity Production: Ref 45Q

biomass coal coal CCS retrofit new coal w/CCS gas gas w/CCS geothermal hydro hydrogen nuclear refined liquids rooftop_pv solar wind

GCAM US Electric Production--$50/tCO2

Ref 45Q scenario

  • $50/tCO2 for CCS
  • $35/tCO2 for long-term

and EOR

Credits drive coal retrofits and some new coal with CCS

  • 1/3 of coal retrofitted to

CCS in 2025

  • 2% coal with new CCS

in 2025

  • > half of all coal has

CCS in 2050

U.S. Electricity Production $50/tCO2 Extended 45Q

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GCAM US Electric Production--$75/tCO2

Ref 45Q scenario

  • $75/tCO2 for CCS
  • $50/tCO2 for long-term

and EOR

Credits drive coal retrofits with some new coal with CCS.

5 10 15 20 25 2005201020152020202520302035204020452050 EJ

US Electricity Production: High 45Q

biomass coal coal CCS retrofit new coal w/CCS gas gas w/CCS geothermal hydro hydrogen nuclear refined liquids rooftop_pv solar wind

U.S. Electricity Production $75/tCO2 Extended 45Q

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GCAM Regional Oil Production

50 100 150 200 250 1990 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 EJ

Crude Oil Production: Ref 45Q

USA Rest of the World Europe Africa Latin America Canada China Middle East Russia

  • Resource/Reserve model

leads to stable regional production behavior

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45Q Impact on US Oil Production

  • Early results show small

45Q net upward impact.

  • Interaction with Global

Market needs to be

  • considered. US increase

near-term could save some cheaper oil elsewhere for medium term.

‐1 ‐0.5 0.5 1 1.5 2020 2025 2030 2035 2040 2045 2050

E J

Increased US Oil Production from Ref 45Q

EOR

  • pportunities are

lot available later

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100 200 300 400 500 600 700 800 900 1000 2020 2025 2030 2035 2040 2045 2050 MtC

CCUS 45Q Ref

Carbon Storage EOR 100 200 300 400 500 600 700 800 900 1000 2020 2025 2030 2035 2040 2045 2050 MtC

CCUS 45Q High

Carbon Storage EOR

GCAM CCUS (MtC/year)

  • EOR is used earlier under our modified, extended 45Q, but over time and

at higher CCUS levels the growth is in long-term storage.

$50/tCO2 Extended 45Q $75/tCO2 Extended 45Q

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What’s next?

  • Policy questions continue to

develop and need analysis to answer.

  • The two questions emerging

here are an initial contribution to a literature.

  • But each answer in turn will

stimulate new questions.

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Source: https://matcha‐jp.com/en/1432

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DISCUSSION

30