Chris Bataille

Estimating future elasticities of substitution for the rebound debate

Abstract Because they lower the cost of using energy in production and consumption activities, energy efficiency improvements may lead to a rebound effect, in which the demand for energy increases to offset partly or completely the initial energy saving. The magnitude of the rebound effect depends on: (1) the extent to which the effective costs of energy services (capital and operating) actually decrease from efficiency improvements, (2) the technical and economic ease with which energy and other inputs to production and consumption (capital, labour, materials) can be substituted when the effective cost of using energy does in fact decrease, (3) the response of intermediate and final demands to changes in the cost of energy services (structural change), and (4) the response of energy service demand to changes in income. Estimates of (1) and (2) together, which is the elasticity of substitution (ESUB) between capital and energy, have been criticized in the past for either not being explicit about what is technically possible in future (critique of top-down) or ignoring the intangible costs facing firms and households when considering and implementing energy efficiency investments (critique of bottom-up). In this study, we attempt to address these two concerns by using a technologically explicit and behaviourally realistic, technology simulation model to estimate long-run, future ESUB values for capital and energy for the Canadian economy. Our simulations suggest that the capital-energy ESUB may be lower than assumed by most studies that ignore behaviour, suggesting only weak substitution between capital and energy. Ironically, this could mean that our energy efficiency efforts will be less effective than sometimes thought but that the rebound effect will also be relatively small. However, estimates of (3) and (4) must be combined with our findings to assess the full magnitude of the rebound effect.

The need for national deep decarbonization pathways for effective climate policy

Constraining global average temperatures to 2 °C above pre-industrial levels will probably require global energy system emissions to be halved by 2050 and complete decarbonization by 2100. In the nationally orientated climate policy framework codified under the Paris Agreement, each nation must decide the scale and method of their emissions reduction contribution while remaining consistent with the global carbon budget. This policy process will require engagement amongst a wide range of stakeholders who have very different visions for the physical implementation of deep decarbonization. The Deep Decarbonization Pathways Project (DDPP) has developed a methodology, building on the energy, climate and economics literature, to structure these debates based on the following principles: country-scale analysis to capture specific physical, economic and political circumstances to maximize policy relevance, a long-term perspective to harmonize short-term decisions with the long-term objective and detailed sectoral analysis with transparent representation of emissions drivers through a common accounting framework or ‘dashboard’. These principles are operationalized in the creation of deep decarbonization pathways (DDPs), which involve technically detailed, sector-by-sector maps of each country’s decarbonization transition, backcasting feasible pathways from 2050 end points. This article shows how the sixteen DDPP country teams, covering 74% of global energy system emissions, used this method to collectively restrain emissions to a level consistent with the 2 °C target while maintaining development aspirations and reflecting national circumstances, mainly through efficiency, decarbonization of energy carriers (e.g. electricity, hydrogen, biofuels and synthetic gas) and switching to these carriers. The cross-cutting analysis of country scenarios reveals important enabling conditions for the transformation, pertaining to technology research and development, investment, trade and global and national policies. Policy relevance In the nation-focused global climate policy framework codified in the Paris Agreement, the purpose of the DDPP and DDPs is to provide a common method by which global and national governments, business, civil society and researchers in each country can communicate, compare and debate differing concrete visions for deep decarbonization in order to underpin the necessary societal and political consensus to design and implement short-term policy packages that are consistent with long-term global decarbonization.

Taxing Emissions, Not Income: How to Moderate the Regional Impact of Federal Environment Policy

Canadian policymakers have the policy tools needed to ameliorate the regional economic harm that taxing GHG emissions can cause. A price on GHG emissions will affect Canadian provinces differently, possibly undermining support for a policy that incurs regional transfers of income. The authors recommend returning to the provinces the revenues collected through auctioned emissions permits, so that they may offer personal and corporate income tax relief, all to moderate the regional impact of GHG carbon policy. Allowing provinces to retain the revenues collected from auctioned emissions permits would achieve a greater degree of regional equity than the other policy options.

The Deep Decarbonization Pathways Project (DDPP): insights and emerging issues

International climate policy discussions have fundamentally changed since the fifteenth Conference of the Parties (COP 15) in Copenhagen. Before, the debate was organized around short-term, incremental actions and common but differentiated responsibility (CBDR) was interpreted as putting the responsibility for action on developed countries. Since then, international negotiations have evolved under the increasing pressure from scientific evidence of the negative development impacts of climate change drivers and outcomes (e.g. coal combustion air pollution and sea level rise) and of the increasingly stringent mitigation requirements for climate stabilization. This resulted in international agreement to limit the mean surface temperature increase to 2°C compared with pre-industrial levels, as formalized in the Cancun COP 16 agreement, and recognition that formal participation by all major emitters would be required, as formalized in the Durban COP 17 agreement that each nation would offer voluntary national low-carbon development strategies. These are now called Intended Nationally Determined Contributions (INDCs).

Improving deep decarbonization modelling capacity for developed and developing country contexts

Energy models are essential for the development of national or regional deep decarbonization pathways (DDPs), providing the necessary analytical framework to systematically explore the system transitions that are required. However, this is challenging due to the long time horizon, the numerous data requirements and the need for transparent, credible approaches that can provide insights into complex transitions. This article explores how this challenge has been met to date, based on a review of the literature and the experiences of practitioners, drawing in particular on the Deep Decarbonization Pathways Project (DDPP), a collaborative effort by 16 national modelling teams. The article finds that there are a range of modelling approaches that have been used across different country contexts, chosen for different reasons, with recognized strengths and weaknesses. The key motivations for use of a given approach include being fit-for-purpose, having in-country capacity and the intertwined goals of transparency, communicability and policy credibility. From the review, a conceptual decision framework for DDP analysis is proposed. This three step process incorporates policy priorities, national characteristics and the model-agnostic principles that drive model choices, considering the needs and capabilities of developed and developing countries, and subject to data and analytical practicalities. Finally an agenda for the further development of modelling approaches is proposed, which is vital for strengthening capacity. These include a focus on model linking, incorporating behaviour and policy impacts, the flexibility to handle distinctive energy systems, incorporating wider environmental constraints and the development of entry-level tools. The latter three are critical for application in developing countries. Policy relevance Following the Paris Agreement, it is essential that modelling approaches are available to enable governments to plan how to decarbonize their economies in the long term. This article takes stock of current practices, identifies the strengths and weaknesses of existing approaches and proposes how capacity can be strengthened. It also provides some practical guidance on the process of choosing modelling approaches, given national priorities and circumstances. This is particularly relevant as countries revisit their Nationally Determined Contributions to meet the global objective of remaining well below a 2°C average global temperature increase.

Managing carbon-intensive materials in a decarbonizing world without a global price on carbon

Emissions from the production of iron and steel could constitute a significant share of a 2°C global emissions budget (around 19% under the IEA 2DS scenario). They need to be reduced, and this could be difficult under nationally based climate policy approaches. We compare a new set of nationally based modelling (the Deep Decarbonization Pathways Project) with best practice and technical limit benchmarks for iron and steel and cement emissions. We find that 2050 emissions from iron and steel and cement production represent an average 0.28 tCO2 per capita in nationally based modelling results, very close to the technical limit benchmark of 0.21 tCO2 per capita, and over 2.5 times lower than the best practice benchmark of 0.72 tCO2 per capita. This suggests that national projections may be overly optimistic about achievable emissions reductions in the absence of global carbon pricing and an international research and development effort to develop low emissions technologies for emissions-intensive products. We also find that equal per capita emissions targets, often the basis of proposals for how global emissions budgets should be allocated, would be inadequate without global emissions trading. These results show that a nationally based global climate policy framework, as has been confirmed in the Paris Agreement, could lead to risks of overshooting global emissions targets for some countries and carbon leakage. Tailored approaches such as border taxes, sectoral emissions trading or carbon taxes, and consumption-based carbon pricing can help, but each faces difficulties. Ultimately, global efforts are needed to improve technology and material efficiency in emissions-intensive commodities manufacturing and use. Those efforts could be supported by technology standards and a globally coordinated R&D effort, and strengthened by the adoption of global emissions budgets for emissions-intensive traded goods. Policy relevance This article presents new empirical findings on global iron and steel and cement production in a low-carbon world economy, demonstrates the risks associated with a nationally based global climate policy framework as has been confirmed in the Paris Agreement, and analyses policy options to deal with those risks.

Exploring national decarbonization pathways and global energy trade flows: a multi-scale analysis

The role of fossils fuels in national economies will change radically over the next 40 years under a strong climate regime. However, capturing this changing role through national-based analyses is challenging due to the global nature of fossil fuel demand and resulting trade patterns. This article sets out the limitations of existing national-scale decarbonization analyses in adequately capturing global conditions and explores how the introduction of a global modelling framework could provide vital insights, particularly for those countries that are dependent on fossil fuel exports or imports. The article shows that fossil fuel use will significantly decline by 2050, although gas will have an important transition role. This leaves large fossil fuel exporters exposed, the extent of which is determined by mitigation action in different regions and especially by the pathways adopted by the larger Asian economies. We find that global-scale models provide critical insights that complement the more detailed national analyses and should play a stronger role in informing deep decarbonization pathways (DDPs). They also provide an important basis for exploring key uncertainties around technology uptake, mitigation rates and how this plays out in the demand for fossil fuels. However, use of global models also calls for improved representation of country specifics in global models, which can oversimplify national economic and political realities. Using both model scales provides important insights that are complementary but that can challenge the other’s orthodoxy. However, neither can replace the other’s strengths. Policy relevance: In recent years, how global fossil fuel markets will evolve under different climate regimes has been subject to much debate and analysis. This debate includes whether investments in fossil fuel production still make sense or will be exposed in the future to liabilities associated with high carbon prices. This is important for governments who need to develop coherent policy in relation to fossil fuel sectors and their role as drivers of economic growth and in providing for domestic energy needs. This article argues that national analyses need to be fully cognizant of the global-scale transition, which can be informed by using a multi-scale modelling approach.

Policy uncertainty and diffusion of carbon capture and storage in an optimal region

Carbon capture and storage (CCS) has the potential to dramatically reduce GHG emissions in energy supply and industry. However, its high costs mean that uncertainty about the stringency of future climate policy may dissuade firms from investing in this technology. This article explores the relationship between firms expectations of government policy and investment in CCS. First, it synthesizes recent cost estimates for CCS applications in electricity generation and oil sands extraction in Canada. Second, it uses these estimates to investigate the potential impact of policy stringency and uncertainty on CCS adoption in Alberta, a Canadian province with near-ideal CCS potential. The results suggest investment in CCS, and by extension other costly abatement actions, will not occur unless governments create a more stringent and durable climate policy environment than currently exists. Policy relevance This paper has two novel and linked objectives, the first of significant utility to researchers and energy modellers in particular, the second to climate policy analysts and decision makers. First, it synthesizes publicly available carbon capture and storage literature and develops cost estimates for key applications related to thermal electricity generation and oil sands extraction in Canada. Second, it uses these cost estimates to investigate the potential impact of policy stringency and uncertainty on carbon capture and storage adoption in Alberta, Canada. Alberta is a test case for CCS due to its fossil resources and high CO2 storage potential, and the technologys success or failure in this jurisdiction should be of interest to policy makers elsewhere.

Carbon prices across countries

With country-specific development objectives and constraints, multiple market failures and limited international transfers, carbon prices do not need to be uniform across countries, but must be part of broader policy packages.