Greenhouse Gas Mitigation as a Structural Change and Policies that Offset Its Depressing Effects

Abstract in HTML and technical report in PDF available on the Massachusetts Institute of Technology Joint Program on the Science and Policy of Global Change website (http://mit.edu/globalchange/www/).The current economic modeling of emissions limitations does not embody economic features that are likely to be particularly important in the short term, yet the politics of limiting greenhouse gas emissions are often dominated by relatively short term considerations. Moreover, only a few of these studies also consider policies that would offset the negative direct economic effects of those restrictions. This paper models the effects of restrictions on greenhouse gas emissions while embodying two of the most significant types of short term economic imperfections: sectoral rigidities in labor mobility and sectoral rigidities in wage adjustments. A labor policy is also analyzed that would reduce the direct negative economic effects of emissions restrictions. For plausible estimates of the parameters, the model shows that with the labor market imperfections, if there were no offsetting policies, there would be as much as 4 per cent reductions in GNP in the U.S. in the first ten years after emissions restrictions were imposed. However, if there were two policies, instead of just one: a counteracting labor market policy, as well as the emissions restrictions, the negative direct economic effects could be completely eliminated.This study received funding from the MIT Joint Program on the Science and Policy of Global Change, which is supported by a consortium of government, industry and foundation sponsors

Is international emissions trading always beneficial?

Abstract in HTML and technical report in PDF available on the Massachusetts Institute of Technology Joint Program on the Science and Policy of Global Change website (http://mit.edu/globalchange/www/).Economic efficiency is a major argument for the inclusion of an international emission permit trading system under the Kyoto Protocol. Using a partial equilibrium framework, energy system models have shown that implementing tradable permits for greenhouse gases internationally could reduce compliance costs associated with the emission targets. However, we show that international emission trading could be welfare decreasing under a general equilibrium framework. We describe a case of immiserizing growth in the sense of Bhagwati where the negative terms of trade and tax-interaction effects wipeout the primary income gains from emission trading. Immiserizing emission trading occurs only when there are pre-existing distortions in the economy. Simulation results based on a CGE model developed at MIT (the EPPA model) show that under an EU-wide emission trading regime the introduction of a permit trading system cause welfare losses for some of the trading countries

The MIT Emissions Prediction and Policy Analysis (EPPA) Model: Version 4

Abstract in HTML and technical report in PDF available on the Massachusetts Institute of Technology Joint Program on the Science and Policy of Global Change website (http://mit.edu/globalchange/www/).The Emissions Prediction and Policy Analysis (EPPA) model is the part of the MIT Integrated Global Systems Model (IGSM) that represents the human systems. EPPA is a recursive-dynamic multi-regional general equilibrium model of the world economy, which is built on the GTAP dataset and additional data for the greenhouse gas and urban gas emissions. It is designed to develop projections of economic growth and anthropogenic emissions of greenhouse related gases and aerosols. The main purpose of this report is to provide documentation of a new version of EPPA, EPPA version 4. In comparison with EPPA3, it includes greater regional and sectoral detail, a wider range of advanced energy supply technologies, improved capability to represent a variety of different and more realistic climate policies, and enhanced treatment of physical stocks and flows of energy, emissions, and land use to facilitate linkage with the earth system components of the IGSM. Reconsideration of important parameters and assumptions led to some revisions in reference projections of GDP and greenhouse gas emissions. In EPPA4 the global economy grows by 12.5 times from 2000 to 2100 (2.5% per year) compared with an increase of 10.7 times (2.4% per year) in EPPA3. This is one of the important revisions that led to an increase in CO2 emissions to 25.7 GtC in 2100, up from 23 GtC in 2100 projected by EPPA3. There is considerable uncertainty in such projections because of uncertainty in various driving forces. To illustrate this uncertainty we consider scenarios where the global GDP grows 0.5% faster (slower) than the reference rate, and these scenarios result in CO2 emissions in 2100 of 34 (17) GtC. A sample greenhouse gas policy scenario that puts the world economy on a path toward stabilization of atmospheric CO2 at 550 ppmv is also simulated to illustrate the response of EPPA4 to a policy constraint.This research was supported by the U.S Department of Energy, U.S. Environmental Protection Agency, U.S. National Science Foundation, U.S. National Aeronautics and Space Administration, U.S. National Oceanographic and Atmospheric Administration; and the Industry and Foundation Sponsors of the MIT Joint Program on the Science and Policy of Global Change: Alstom Power (France), American Electric Power (USA), BP p.l.c. (UK/USA), Chevron Corporation (USA), CONCAWE (Belgium), DaimlerChrysler AG (Germany), Duke Energy (USA), J-Power (Japan), Electric Power Research Institute (USA), Electricité de France, ExxonMobil Corporation (USA), Ford Motor Company (USA), General Motors (USA), Murphy Oil Corporation (USA), Oglethorpe Power Corporation (USA), RWE Power (Germany), Shell Petroleum (Netherlands/UK), Southern Company (USA), Statoil ASA (Norway), Tennessee Valley Authority (USA), Tokyo Electric Power Company (Japan), Total (France), G. Unger Vetlesen Foundation (USA)

Modeling non-CO₂ greenhouse gases

Abstract in HTML and technical report in PDF available on the Massachusetts Institute of Technology Joint Program on the Science and Policy of Global Change website (http://mit.edu/globalchange/www/).Although emissions of CO₂ are the largest anthropogenic contributor to the risks of climate change, other substances are important in the formulation of a cost-effective response. To provide improved facilities for addressing their role, we develop an approach for endogenizing control of these other greenhouse gases within a computable general equilibrium (CGE) model of the world economy. The calculation is consistent with underlying economic production theory. For parameterization it is able to draw on marginal abatement cost (MAC) functions for these gases based on detailed technological descriptions of control options. We apply the method to the gases identified in the Kyoto Protocol: methane (CH4), nitrous oxide (N2O), sulfur hexaflouride (SF6), the perflourocarbons (PFCs), and the hyrdoflourocarbons (HFCs). Complete and consistent estimates are provided of the costs of meeting greenhouse-gas reduction targets with a focus on "what" flexibility — i.e., the ability to abate the most cost-effective mix of gases in any period. We find that non-CO2 gases are a crucial component of a cost-effective policy. Because of their high Global Warming Potentials (GWPs) under current international agreements they would contribute a substantial share of early abatement