Climate Protection Policy with China and the USA after 2012: Cost Reduction through Emissions Trading and Technological Cooperation

Greenhouse gas emissions should be stabilized to today's level to prevent harmful climate damage.The countries that have signed the Kyoto Protocol committed themselves to reduce their greenhouse gas emissions over the period 2008 to 2012, but only to a very limited extent. The USA decided not to ratify the Kyoto Protocol for various reasons. Furthermore, fast-growing economies like China are about to catch up with the USA in terms of their energy consumption and gas emissions. Therefore, in the near future it is going to be essential to try and persuade both nations, the USA and China, to accept binding greenhouse gas emission reduction targets. The USA and China need to be convinced to enter a 'Kyoto Plus' Agreement after 2012. In this respect, a clearly defined international trade in emission rights can play an important role. In the industrialized countries, costs of approx. 500 billion US dollars could be avoided until 2050 as compared with a scenario in which there is no emissions trading. In order to lower expenses to this extent, Europe, the USA, Japan and Russia need to reduce their emissions by 3% per year from 2012 onwards as compared with an estimated emission curve according to a 'business as usual' scenario, and moreover, simultaneously China needs to be granted emissions rights after 2012. On the one hand, this would help industrialized countries like the USA to effectively reduce emission reductions costs. On the other hand, China could benefit to a large extent from selling emission rights. Moreover, additional incentives to meet climate protection targets could be created through specific cooperation when investing in new technologies.

Global Climate Protection: Immediate Action Will Avert High Costs

The anthropogenic climate change will persist if the global volume of greenhousegas emissions will not be reduced significantly. A dangerous and irreversibleclimate change will occur if atmospheric concentrations of greenhousegases in the year 2100 exceed 450 ppm and global surface temperatureis 2 °C higher than its preindustrial level. The consequence of exceedingthese limits would be both more frequent and more violent extreme climateevents. In order to avoid this, it is necessary to stabilize global greenhousegas concentrations at nearly today's level.Significant emission reduction would require the countries that are primarilyresponsible immediately implementing emissions-reducing measures.If climate policy measures are not introduced, global climate changedamages amounting to up to 20 trillion US dollars can be expected in theyear 2100.1 If such measures are not implemented now, but only in 20 or30 years' time, it will not be possible to prevent the rise in global surfacetemperature exceeding the 2 °C limit. Moreover, the costs of a climate protectionpolicy launched today are likely to be lower than a policy initiatedonly in 20 years' time, which would then be based on drastic measures. Thesooner a policy of climate protection is implemented, the fewer climatechange damages humankind will face in future decades. The costs of anactive climate protection policy implemented today would reach globallyaround 430 billion US dollars in 2050 and around 3 trillion US dollars in2100. A climate protection policy that entered into force only in 2025 wouldimply additional costs of up to 50 billion US dollars in 2050 and 340 billionUS dollars in 2100. Global climate damages of up to 12 trillion US dollarscan be avoided in 2100 if active climate protection policy is implemented asrapidly as possible.In Germany, a climate protection policy that immediately implementseffective measures would cost 5.7 billion US dollars in 2050 and 40 billionUS dollars in 2100. At the same time, however, climate change damagesamounting to 33 billion US dollars in 2050 and 160 billion US dollars in 2100would be avoided.

Induced Technological Change in a Multi-regional, Multi-sectoral Integrated Assessment Model (WIAGEM): Impact Assessment of Climate Policy Strategies

This paper illustrates the representation of induced technological change in the multi- regional, multi-sectoral integrated assessment model WIAGEM. The main aim of this paper is to investigate quantitatively economic impacts of climate policy measures due to induced technological changes that are considered. Improved technological innovations are triggered by increased R&D expenditures that advance energy efficiencies. Model results show that induced technological changes due to increased investment in R&D reduce compliance costs. Although R&D expenditures compete with other investment expenditures, we find that increased R&D expenditures improve energy efficiency that substantially lowers abatement costs. Without the inclusion of induced technological changes, emission targets are primarily reached by production declines, resulting in overall welfare reductions. With the inclusion of induced technological changes, emission mitigations can achieve fewer production drawbacks. Technological spill over effects also lead to improved terms of trade effects.Induced technological change; Multi-regional applied integrated assessment model; Technological spillover

The Economic Costs of Climate Change

International experts agree that the emission of greenhouse gases by mankind is rising further and further, and causing climate change. This can clearly be seen in the rise in the average global temperature and sea level. It is also evident in the increase in extreme weather events and natural catastrophes, which are causing enormous economic damage. If the global temperature changes by 1 degree Celsius economic damage of up to 2 trillion US dollars is possible in 2050. If greenhouse gas emissions are not reduced enough to prevent such a rise in temperature, altogether damage from natural catastrophes amounting to 137 billion euros could be caused in Germany by the year 2050. With optimal cooperation from the main emitters - Europe, Russia and the United States - the costs of reducing greenhouse gas emissions could be minimised. By offering emission rights for sale Russia would gain from climate policy, its participation could bring a revenue of up to 20 billion US dollars over a period of four years (2008 to 2012). So Russia is well advised to ratify the Kyoto Protocol.

The "Bali Convention": Flexibility of Targets and Instruments Inevitable

The Kyoto Protocol is one first important step towards a global greenhouse gas emissions reduction strategy. In order to avoid irreversible climate changes and huge economic damage, not just some but all of the responsible nations should agree on a joint proposal to reduce emissions. Sharing the burden fairly would mean that those nations with high emissions per capita should reduce them more than countries with low emissions per capita. However, a fair burden sharing should also take into account early action and economic and social conditions. Most of the countries, especially those with high economic growth, fear large economic losses if emissions reduction targets are very high. Especially fast-growing nations such as China and India suspect negative consequences if climate policy takes a dominant role. The post-Kyoto negotiations can only be successful if flexibility of targets and instruments is considered. The next UN climate conference, at the end of 2007 in Bali, is an important starting point for a so-called "Bali Convention". This convention should take into account different emissions reduction options and flexible emissions reduction targets. Germany's Chancellor Merkel supports a world per capita emissions target; Europe should find soon a fair burden sharing between the EU member states and start negotiations with 30 % emissions reduction in order to make clear how serious EU is to reduce emissions. The APEC nations favour an energy intensity reduction target. The emissions intensity of a nation can be reduced if CO2-free technologies are widely applied. Nations with a large share of CO2 emissions resulting from high fossil-fuel usage or high methane emissions from energy production or agriculture usually favour flexible indexed targets. The "Bali Convention" should define such flexible targets to take into account national conditions and visions. It is most important that countries agree on binding targets, either concrete emissions reduction targets or indexed targets such as emissions intensity or per capita emissions. The key to success is flexibility of targets and instruments.

Impacts of the German Support for Renewable Energy on Electricity Prices, Emissions and Profits: An Analysis Based on a European Electricity Market Model

Effects of renewable support legislation on electricity prices have been analyzed with a plethora of models. However, these models neglect at least one of the following aspects which we take into account in our analysis: oligopolistic market behavior of dominant firms, emission trading, restricted electricity trade and production capacities, and effects on producer prices and firm profits. In this paper we use the electricity market model EMELIE and decompose the impact of the feed-in of renewable energy in Germany into two effects: a substitution effect triggered by the displacement of conventional sources and a permit price effect induced via the ETS. We find that the renewable support increases consumer prices slightly by 0.1 Eurocent/kWh, while the producer price decreases by 0.4 Eurocent/kWh. In addition, emissions from electricity generation in Germany are reduced by 32 Mt CO2, but are hardly altered if we consider the European electricity sector in total. Finally, the profits of most firms are significantly reduced by the support policy unless the firms combine relatively carbon intensive production equipment with a loose connection to the German grid.

Der Strommarkt in Europa: zwischen Liberalisierung und Klimaschutz: Zukunftschancen für die deutsche Energiewirtschaft

Der europäische Strommarkt steht vor zwei wesentlichen Herausforderungen: Wettbewerb und Klimaschutz. Die Liberalisierung des Stromsektors in Europa hat seit der Einführung der Direktive der Europäischen Kommission im Jahre 1997 zu einem verstärkten Wettbewerb zwischen den Stromanbietern geführt. Die 2003 verabschiedete Richtlinie des Europäischen Rates für den Handel mit Emissionsrechten zielt auf die Verringerung des Ausstoßes von Kohlendioxid. Damit haben diejenigen Stromanbieter einen Wettbewerbsvorteil, die kosteneffizient und zugleich umwelt- bzw. klimaschonend Strom produzieren. Zudem empfiehlt die Europäische Kommission in ihrem Weißbuch von 1997, den Anteil der erneuerbaren Energien an der Stromerzeugung bis zum Jahr 2010 auf 22 % zu erhöhen. Die Stromerzeugung in Deutschland steht aufgrund des altersbedingten Ausscheidens konventioneller Kraftwerke in den nächsten zehn bis zwanzig Jahren vor der Frage, wie in Zukunft die Versorgungssicherheit kosteneffizient und zugleich klimaschonend erreicht werden kann. Für Kraftwerksbetreiber entsteht gerade in Deutschland damit die einmalige Chance, langfristige Wettbewerbsvorteile auf den internationalen Strommärkten durch rechtzeitige Investitionen in zukunftsweisende Technologien zu gewinnen