Sabine Fuss

Climate change mitigation through livestock system transitions.

Significance The livestock sector contributes significantly to global warming through greenhouse gas (GHG) emissions. At the same time, livestock is an invaluable source of nutrition and livelihood for millions of poor people. Therefore, climate mitigation policies involving livestock must be designed with extreme care. Here we demonstrate the large mitigation potential inherent in the heterogeneity of livestock production systems. We find that even within existing systems, autonomous transitions from extensive to more productive systems would decrease GHG emissions and improve food availability. Most effective climate policies involving livestock would be those targeting emissions from land-use change. To minimize the economic and social cost, policies should target emissions at their source—on the supply side—rather than on the demand side. Livestock are responsible for 12% of anthropogenic greenhouse gas emissions. Sustainable intensification of livestock production systems might become a key climate mitigation technology. However, livestock production systems vary substantially, making the implementation of climate mitigation policies a formidable challenge. Here, we provide results from an economic model using a detailed and high-resolution representation of livestock production systems. We project that by 2030 autonomous transitions toward more efficient systems would decrease emissions by 736 million metric tons of carbon dioxide equivalent per year (MtCO2e⋅y−1), mainly through avoided emissions from the conversion of 162 Mha of natural land. A moderate mitigation policy targeting emissions from both the agricultural and land-use change sectors with a carbon price of US

Effects of low-cost offsets on energy investment: new perspectives on REDD.

10 per tCO2e could lead to an abatement of 3,223 MtCO2e⋅y−1. Livestock system transitions would contribute 21% of the total abatement, intra- and interregional relocation of livestock production another 40%, and all other mechanisms would add 39%. A comparable abatement of 3,068 MtCO2e⋅y−1 could be achieved also with a policy targeting only emissions from land-use change. Stringent climate policies might lead to reductions in food availability of up to 200 kcal per capita per day globally. We find that mitigation policies targeting emissions from land-use change are 5 to 10 times more efficient—measured in “total abatement calorie cost”—than policies targeting emissions from livestock only. Thus, fostering transitions toward more productive livestock production systems in combination with climate policies targeting the land-use change appears to be the most efficient lever to deliver desirable climate and food availability outcomes.

Policies for the Energy Technology Innovation System (ETIS)

Tropical deforestation is one of the major sources of carbon emissions, but the Kyoto Protocol presently excludes avoiding these specific emissions to fulfill stabilization targets. Since the 13th Conference of the Parties (COP) to the UNFCCC in 2007, where the need for policy incentives for the reduction of emissions from deforestation and degradation (REDD) was first officially recognized, the focus of this debate has shifted to issues of implementation and methodology. One question is how REDD would be financed, which could be solved by integrating REDD credits into existing carbon markets. However, concern has been voiced regarding the effects that the availability of cheap REDD credits might have on energy investments and the development of clean technology. On the other hand, investors and producers are also worried that emissions trading schemes like the one installed in Europe might deter investment into new technologies and harm profits of existing plants due to fluctuations in the price of emissions permits. This paper seeks to contribute to this discussion by developing a real options model, where there is an option to invest in less carbon-intensive energy technology and an option to purchase credits on REDD, which you will exercise or not depending on the future evolution of CO2 prices. In this way, unresolved questions can still be addressed at a later stage, while producers and investors hold REDD options to maintain flexibility for later decisions. We find that investment in cleaner technology is not significantly affected if REDD options are priced as a derivative of CO2 permits. Indeed, the availability of REDD options helps to smooth out price fluctuations that might arise from permit trading and thus decreases risk for the producer - thereby being a complement to permit trading rather than an obstacle undermining cap-and-trade.

Climate change induced transformations of agricultural systems: insights from a global model

The development and introduction of heat pumps provides an interesting illustration of policy influence and effectiveness in relation to energy technology innovation. Heat pumps have been supported by several countries since the 1970s as a strategy to improve energy efficiency, support energy security, reduce environmental degradation, and combat climate change. Sweden and Switzerland have been essential to the development and commercialization of heat pumps in Europe. In both countries, numerous policy incentives have lined the path of technology and market development. Early policy initiatives were poorly coordinated but supported technology development, entrepreneurial experimentation, knowledge development, and the involvement of important actors in networks and organisations. The market collapse in the mid 1980s could have resulted in a total failure ‐ but did not. The research programmes continued in the 1980s, and a new set of stakeholders formed ‐ both publicly and privately funded researchers, authorities, and institutions ‐ and provided an important platform for further development. In the 1990s and 2000s, Sweden and Switzerland introduced more coordinated and strategic policy incentives for the development of heat pumps. The approaches were flexible and adjusted over time. The policy interventions in both countries supported learning, successful development and diffusion processes, and cost reductions. This assessment of innovation and diffusion policies for heat pump systems can be used to generalise some insights for energy technology innovation policy.

An integrated CVaR and real options approach to investments in the energy sector

Climate change might impact crop yields considerably and anticipated transformations of agricultural systems are needed in the coming decades to sustain affordable food provision. However, decision-making on transformational shifts in agricultural systems is plagued by uncertainties concerning the nature and geography of climate change, its impacts, and adequate responses. Locking agricultural systems into inadequate transformations costly to adjust is a significant risk and this acts as an incentive to delay action. It is crucial to gain insight into how much transformation is required from agricultural systems, how robust such strategies are, and how we can defuse the associated challenge for decision-making. While implementing a definition related to large changes in resource use into a global impact assessment modelling framework, we find transformational adaptations to be required of agricultural systems in most regions by 2050s in order to cope with climate change. However, these transformations widely differ across climate change scenarios: uncertainties in large-scale development of irrigation span in all continents from 2030s on, and affect two-thirds of regions by 2050s. Meanwhile, significant but uncertain reduction of major agricultural areas affects the Northern Hemispheres temperate latitudes, while increases to non-agricultural zones could be large but uncertain in one-third of regions. To help reducing the associated challenge for decision-making, we propose a methodology exploring which, when, where and why transformations could be required and uncertain, by means of scenario analysis.

Investment in irrigation systems under precipitation uncertainty

The objective of this paper is to combine a real options framework with portfolio optimization techniques and to apply this new framework to investments in the electricity sector. In particular, a real options model is used to assess the adoption decision of particular technologies under uncertainty. These technologies are coal-fired power plants, biomassfired power plants and onshore wind mills, and they are representative of technologies based on fossil fuels, biomass and renewables, respectively. The return distributions resulting from this analysis are then used as an input to a portfolio optimization, where the measure of risk is the Conditional Value-at-Risk (CVaR).

Politics Matters: Regulatory Events as Catalysts for Price Formation Under Cap-and-Trade

Efficient agricultural water management is indispensable in meeting future food demands. The European Water Framework Directive promotes several measures such as the adoption of adequate water pricing mechanisms or the promotion of water-saving irrigation technologies. We apply a stochastic dynamic programming model (SDPM) to analyze a farmer’s optimal investment strategy to adopt a water-efficient drip irrigation system or a sprinkler irrigation system under uncertainty about future production conditions, i.e. about future precipitation patterns. We assess the optimal timing to invest into either irrigation system in the planning period 2010 to 2040. We then investigate how alternative policies, (a) irrigation water pricing, and (b) equipment subsidies for drip irrigation, affect the investment strategy. We perform the analysis for the semi-arid agricultural production region Marchfeld in Austria, and use data from the bio-physical process simulation model EPIC (Environmental Policy Integrated Climate) which takes into account site and management related characteristics as well as weather parameters from a statistical climate change model. We find that investment in drip irrigation is unlikely unless subsidies for equipment cost are granted. Also water prices do not increase the probability to adopt a drip irrigation system, but rather delay the timing to invest into either irrigation system.

The Influence of Negative Emission Technologies and Technology Policies on the Optimal Climate Mitigation Portfolio

This paper investigates how the political process of making cap adjustments has shaped market outcomes in the world׳s largest cap-and-trade system – the EU ETS. Capitalizing on an event study method that incorporates an econometric technique designed to handle parameter instability and model uncertainty, we assess the news-implied price response to 29 hand-collected announcements about the EU ETS supply schedule. Our findings document a high market responsiveness to political events and reveal how market participants view the evolution of cap stringency in the light of a particular announcement. We provide evidence that a sequence of strong event-induced price drops evolve in the backloading decision process, which is consistent with the interpretation that market participant׳s confidence in the political support for reform, and probably the EU ETS in general, has been unsettled. We also document positive price reactions to the 2020 and 2030 policy packages, but not the 2050 roadmaps.

Optimal mitigation strategies with negative emission technologies and carbon sinks under uncertainty

Combining policies to remove carbon dioxide (CO2) from the atmosphere with policies to reduce emissions could decrease CO2 concentrations faster than possible via natural processes. We model the optimal selection of a dynamic portfolio of abatement, research and development (R&D), and negative emission policies under an exogenous CO2 constraint and with stochastic technological change. We find that near-term abatement is not sensitive to the availability of R&D policies, but the anticipated availability of negative emission strategies can reduce the near-term abatement optimally undertaken to meet 2°C temperature limits. Further, planning to deploy negative emission technologies shifts optimal R&D funding from “carbon-free” technologies into “emission intensity” technologies. Making negative emission strategies available enables an 80% reduction in the cost of keeping year 2100 CO2 concentrations near their current level. However, negative emission strategies are less important if the possibility of tipping points rules out using late-century net negative emissions to temporarily overshoot the CO2 constraint earlier in the century.

Carbon capture and storage (CCS): The way forward

In recent years a body of literature has arisen on the topic of how to compose the optimal portfolio of mitigation options. The focus has been mainly on options involving shifts from high- to low- or even negative-carbon technologies. Natural sinks play an important role in any attempt to stabilize atmospheric CO2 and usually enter as a constant term in the overall carbon budget. In this paper, we introduce natural sinks to the carbon management problem and analyze the implications for negative emission technology deployment and the overall mitigation strategy. Amongst other sensitivity analyses, we also investigate the impact of uncertainty in the carbon sink, which we find to raise the importance of negative emissions in the mitigation portfolio significantly lowering the cost of the policy mix.