Modelling innovation and the macroeconomics of low-carbon transitions: theory, perspectives and practical use

This is the author accepted manuscript. The final version is available from Taylor & Francis (Routledge) via the DOI in this record.Energy and climate policies may have significant economy-wide impacts, which are regularly assessed based on quantitative energy-environment-economy models. These tend to vary in their conclusions on the scale and direction of the likely macroeconomic impacts of a low-carbon transition. This paper traces the characteristic discrepancies in models’ outcomes to their origins in different macro-economic theories, most importantly their treatment of technological innovation and finance. We comprehensively analyse the relevant branches of macro-innovation theory and group them into two classes: ‘Equilibrium’ and ‘Non-equilibrium’. While both approaches are rigorous and self-consistent, they frequently yield opposite conclusions for the economic impacts of low-carbon policies. We show that model outcomes are mainly determined by their representations of monetary and finance dimensions, and their interactions with investment, innovation and technological change. Improving these in all modelling approaches is crucial for strengthening the evidence base for policy making and gaining a more consistent picture of the macroeconomic impacts of achieving emissions reductions objectives. The paper contributes towards the ongoing effort of enhancing the transparency and understanding of sophisticated model mechanisms applied to energy and climate policy analysis. It helps tackle the overall “black box” critique, much-cited in policy circles and elsewhere

Limited emission reductions from fuel subsidy removal except in energy exporting regions

Hopes are high that removing fossil fuel subsidies could help to mitigate climate change by discouraging inefficient energy consumption and levelling the playing field for renewables1–3. In September 2016, the G20 countries re-affirmed their 2009 commitment (at the G20 Leaders’ Summit) to phase out fossil fuel subsidies4,5 and many national governments are using today’s low oil prices as an opportunity to do so6–9. In practical terms, this means abandoning policies that decrease the price of fossil fuels and electricity generated from fossil fuels to below normal market prices10,11. However, whether the removal of subsidies, even if implemented worldwide, would have a large impact on climate change mitigation has not been systematically explored. Here we show that fossil fuel subsidy removal would have a small impact on global energy demand and carbon dioxide emissions and would not increase renewable energy use by 2030. Subsidy removal would reduce the carbon price necessary to stabilize greenhouse gas concentration at 550 parts per million by only 2–12 per cent under low oil prices. Removing subsidies in most regions would deliver smaller emission reductions than the Paris Agreement (2015) climate pledges and in some regions global subsidy removal may actually lead to an increase in emissions, owing to either coal replacing subsidized oil and natural gas or natural-gas use shifting from subsidizing, energy-exporting regions to non-subsidizing, importing regions. Our results show that subsidy removal would result in the largest CO2 emission reductions in oil- and gas-exporting regions, where reductions would exceed their climate pledges and where subsidy removal would also affect fewer people below the poverty line than in lower-income regions

CO2 emission mitigation and fossil fuel markets: Dynamic and international aspects of climate policies

This paper explores a multi-model scenario ensemble to assess the impacts of idealized and non-idealized climate change stabilization policies on fossil fuel markets. Under idealized conditions climate policies significantly reduce coal use in the short- and long-term. Reductions in oil and gas use are much smaller, particularly until 2030, but revenues decrease much more because oil and gas prices are higher than coal prices. A first deviation from optimal transition pathways is delayed action that relaxes global emission targets until 2030 in accordance with the Copenhagen pledges. Fossil fuel markets revert back to the no-policy case: though coal use increases strongest, revenue gains are higher for oil and gas. To balance the carbon budget over the 21st century, the long-term reallocation of fossil fuels is significantly larger -- twice and more -- than the short-term distortion. This amplifying effect results from coal lock-in and inter-fuel substitution effects to balance the full-century carbon budget. The second deviation from the optimal transition pathway relaxes the global participation assumption. The result here is less clear-cut across models, as we find carbon leakage effects ranging from positive to negative because trade and substitution patterns of coal, oil, and gas differ across models. In summary, distortions of fossil fuel markets resulting from relaxed short-term global emission targets are more important and less uncertain than the issue of carbon leakage from early mover action

Enhancing global climate policy ambition towards a 1.5 °C stabilization: a short-term multi-model assessment

The Paris Agreement is a milestone in international climate policy as it establishes a global mitigation framework towards 2030 and sets the ground for a potential 1.5 °C climate stabilization. To provide useful insights for the 2018 UNFCCC Talanoa facilitative dialogue, we use eight state-of-the-art climate-energy-economy models to assess the effectiveness of the Intended Nationally Determined Contributions (INDCs) in meeting high probability 1.5 and 2 °C stabilization goals. We estimate that the implementation of conditional INDCs in 2030 leaves an emissions gap from least cost 2 °C and 1.5 °C pathways for year 2030 equal to 15.6 (9.0–20.3) and 24.6 (18.5–29.0) GtCO2eq respectively. The immediate transition to a more efficient and low-carbon energy system is key to achieving the Paris goals. The decarbonization of the power supply sector delivers half of total CO2 emission reductions in all scenarios, primarily through high penetration of renewables and energy efficiency improvements. In combination with an increased electrification of final energy demand, low-carbon power supply is the main short-term abatement option. We find that the global macroeconomic cost of mitigation efforts does not reduce the 2020–2030 annual GDP growth rates in any model more than 0.1 percentage points in the INDC or 0.3 and 0.5 in the 2 °C and 1.5 °C scenarios respectively even without accounting for potential co-benefits and avoided climate damages. Accordingly, the median GDP reductions across all models in 2030 are 0.4%, 1.2% and 3.3% of reference GDP for each respective scenario. Costs go up with increasing mitigation efforts but a fragmented action, as implied by the INDCs, results in higher costs per unit of abated emissions. On a regional level, the cost distribution is different across scenarios while fossil fuel exporters see the highest GDP reductions in all INDC, 2 °C and 1.5 °C scenarios

Downscaling Climate Change Impacts, Socio-Economic Implications and Alternative Adaptation Pathways for Islands and Outermost Regions

This book provides a comprehensive overview of the future scenarios of climate change and management concerns associated with climate change impacts on the blue economy of European islands and outermost regions. The publication collects major findings of the SOCLIMPACT project’s research outcomes, aiming to raise social awareness among policy-makers and industry about climate change consequences at local level, and provide knowledge-based information to support policy design, from local to national level. This comprehensive book will also assist students, scholars and practitioners to understand, conceptualize and effectively and responsibly manage climate change information and applied research. This book provides invaluable material for Blue Growth Management, theory and application, at all levels. This first edition includes up-to-date data, statistics, references, case material and figures of the 12 islands case studies. ¨Downscaling climate change impacts, socio-economic implications and alternative adaptation pathways for Islands and Outermost Regions¨ is a must-read book, given the accessible style and breadth and depth with which the topic is dealt. The book is an up-to-date synthesis of key knowledge on this area, written by a multidisciplinary group of experts on climate and economic modelling, and policy design