Jan Christoph Steckel

Renewable Energy in the Context of Sustainable Development

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The value of technology and of its evolution towards a low carbon economy

This paper assesses the economic value associated with the development of various low-carbon technologies in the context of climate stabilization. We analyze the impact of restrictions on the development of specific mitigation technologies, comparing three integrated assessment models used in the RECIPE comparison exercise. Our results indicate that the diversification of the carbon mitigation portfolio is an important determinant of the feasibility of climate policy. Foregoing specific low carbon technologies raises the cost of achieving the climate policy, though at different rates. CCS and renewables are shown to have the highest value, given their flexibility and wide coverage. The costs associated with technology failure are shown to be related to the role that each technology plays in the stabilization scenario, but also to the expectations about their technological progress. In particular, the costs of restriction of mature technologies can be partly compensated by more innovation and technological advancement.

Drivers for the renaissance of coal

Significance The current carbonization of the global energy system poses a severe challenge for efforts to reduce carbon emissions. Here we show that the increase in the carbon intensity of energy production is caused mainly by the increased use of coal, not only in China and India but also across a broad range of developing countries, especially poor, fast-growing countries mainly in Asia. The (relatively) low coal prices are an important reason countries choose coal to satisfy their energy needs. This result underlines the importance of cheaply available energy for economic growth and suggests that viable alternatives to cheap coal will be required to ensure the participation of developing countries in global climate change mitigation. Coal was central to the industrial revolution, but in the 20th century it increasingly was superseded by oil and gas. However, in recent years coal again has become the predominant source of global carbon emissions. We show that this trend of rapidly increasing coal-based emissions is not restricted to a few individual countries such as China. Rather, we are witnessing a global renaissance of coal majorly driven by poor, fast-growing countries that increasingly rely on coal to satisfy their growing energy demand. The low price of coal relative to gas and oil has played an important role in accelerating coal consumption since the end of the 1990s. In this article, we show that in the increasingly integrated global coal market the availability of a domestic coal resource does not have a statistically significant impact on the use of coal and related emissions. These findings have important implications for climate change mitigation: If future economic growth of poor countries is fueled mainly by coal, ambitious mitigation targets very likely will become infeasible. Building new coal power plant capacities will lead to lock-in effects for the next few decades. If that lock-in is to be avoided, international climate policy must find ways to offer viable alternatives to coal for developing countries.

Teleconnected food supply shocks

The 2008–2010 food crisis might have been a harbinger of fundamental climate-induced food crises with geopolitical implications. Heat-wave-induced yield losses in Russia and resulting export restrictions led to increases in market prices for wheat across the Middle East, likely contributing to the Arab Spring. With ongoing climate change, temperatures and temperature variability will rise, leading to higher uncertainty in yields for major nutritional crops. Here we investigate which countries are most vulnerable to teleconnected supply-shocks, i.e. where diets strongly rely on the import of wheat, maize, or rice, and where a large share of the population is living in poverty. We find that the Middle East is most sensitive to teleconnected supply shocks in wheat, Central America to supply shocks in maize, and Western Africa to supply shocks in rice. Weighing with poverty levels, Sub-Saharan Africa is most affected. Altogether, a simultaneous 10% reduction in exports of wheat, rice, and maize would reduce caloric intake of 55 million people living in poverty by about 5%. Export bans in major producing regions would put up to 200 million people below the poverty line at risk, 90% of which live in Sub-Saharan Africa. Our results suggest that a region-specific combination of national increases in agricultural productivity and diversification of trade partners and diets can effectively decrease future food security risks.

The role of capital costs in decarbonizing the electricity sector

Low-carbon electricity generation, i.e. renewable energy, nuclear power and carbon capture and storage, is more capital intensive than electricity generation through carbon emitting fossil fuel power stations. High capital costs, expressed as high weighted average cost of capital (WACC), thus tend to encourage the use of fossil fuels. To achieve the same degree of decarbonization, countries with high capital costs therefore need to impose a higher price on carbon emissions than countries with low capital costs. This is particularly relevant for developing and emerging economies, where capital costs tend to be higher than in rich countries. In this paper we quantitatively evaluate how high capital costs impact the transformation of the energy system under climate policy, applying a numerical techno-economic model of the power system. We find that high capital costs can significantly reduce the effectiveness of carbon prices: if carbon emissions are priced at USD 50 per ton and the WACC is 3%, the cost-optimal electricity mix comprises 40% renewable energy. At the same carbon price and a WACC of 15%, the cost-optimal mix comprises almost no renewable energy. At 15% WACC, there is no significant emission mitigation with carbon pricing up to USD 50 per ton, but at 3% WACC and the same carbon price, emissions are reduced by almost half. These results have implications for climate policy; carbon pricing might need to be combined with policies to reduce capital costs of low-carbon options in order to decarbonize power systems.

Climate finance for developing country mitigation: blessing or curse?

Under the United Nations Framework Convention on Climate Change, industrialized countries have agreed to cover the incremental costs of climate change mitigation in developing countries and recent climate negotiations have reaffirmed the central role of climate finance for global mitigation efforts. We use an integrated energy–economy–climate model to assess the potential magnitude of financial transfers to developing countries that can be expected under non-market transfer mechanisms as well as international emission trading with several allocation schemes. Our results indicate that for the latter, depending on international permit allocation rules financial transfers to developing countries could reach almost USD bln 400 per year in 2020, with Sub-Saharan Africa receiving financial inflows of as much as 14.5% of its GDP. Reviewing the literature on natural resource revenues, official development assistance and foreign direct investment, we identify three major channels through which such sizable financial inflows may induce harmful effects for recipients: volatility, Dutch disease, and rent-seeking and corruption. We discuss the relevance of these mechanisms for climate finance and identify institutional arrangements which could help to avoid a ‘climate finance curse’. We conclude that there is no deterministic relationship between financial inflows and adverse consequences, as the most serious problems could be prevented or at least alleviated by appropriately designed policies and governance provisions.

REGIONAL AND SECTORAL DISAGGREGATION OF MULTI-REGIONAL INPUT–OUTPUT TABLES – A FLEXIBLE ALGORITHM

A common shortcoming of available multi-regional input–output (MRIO) data sets is their lack of regional and sectoral detail required for many research questions (e.g. in the field of disaster impact analysis). We present a simple algorithm to refine MRIO tables regionally and/or sectorally. By the use of proxy data, each MRIO flow in question is disaggregated into the corresponding sub-flows. This downscaling procedure is complemented by an adjustment rule ensuring that the sub-flows match the superordinate flow in sum. The approximation improves along several iteration steps. The algorithm unfolds its strength through the flexible combination of multiple, possibly incomplete proxy data sources. It is also flexible in a sense that any target sector and region resolution can be chosen. As an exemplary case we apply the algorithm to a regional and sectoral refinement of the Eora MRIO database.

Implications of climate change mitigation for sustainable development

Evaluating the trade-offs between the risks related to climate change, climate change mitigation as well as co-benefits requires an integrated scenarios approach to sustainable development. We outline a conceptual multi-objective framework to assess climate policies that takes into account climate impacts, mitigation costs, water and food availability, technological risks of nuclear energy and carbon capture and sequestration as well as co-benefits of reducing local air pollution and increasing energy security. This framework is then employed as an example to different climate change mitigation scenarios generated with integrated assessment models. Even though some scenarios encompass considerable challenges for sustainability, no scenario performs better or worse than others in all dimensions, pointing to trade-offs between different dimensions of sustainable development. For this reason, we argue that these trade-offs need to be evaluated in a process of public deliberation that includes all relevant social actors.

Economic growth, decarbonization and international transfers

We examine a carbon budget-based climate policy in a multi-region Integrated Assessment Model with intertemporal optimization. Innovation and technology diffusion are endogenized in a modern growth theory-based setup that is unique in integrated assessment. They can be directed towards energy or labour productivity. We study in detail how the strength and direction of innovation and technology diffusion influence the dynamic pattern of decarbonization and the structure of mitigation costs. For this purpose, we apply extended decomposition methods for decarbonization and consumption effects. We show that with high labour productivity growth, optimal decarbonization starts earlier and gains from emission permit trade for developing countries are dominated by output reductions. Therefore, additional transfers to developing countries will likely be necessary in a world of high labour productivity growth.

Enabling Low-Carbon Development in Poor Countries

The challenges associated with achieving sustainable development goals and stabilizing the world’s climate cannot be solved without significant efforts by developing and newly-emerging countries. With respect to climate change mitigation, the main challenge for developing countries lies in avoiding future emissions and lock-ins into emission-intensive technologies, rather than reducing today’s emissions. While first best policy instruments like carbon prices could prevent increasing carbonization, those policies are often rejected by developing countries out of a concern for negative repercussions on development and long-term growth. In addition, policy environments in developing countries impose particular challenges for regulatory policy aiming to incentivize climate change mitigation and sustainable development. This chapter first discusses how climate policy could potentially interact with sustainable development and economic growth. It focuses, in particular, on the role of industrial sector development. The chapter then continues by discussing how effective policy could be designed, specifically taking developing country circumstances into account.