International Trade in Natural Gas: Golden Age of LNG?

The introduction of liquefied natural gas (LNG) as an option for international trade has created a market for natural gas where global prices may eventually be differentiated by the transportation costs between world regions. LNG’s trade share in 2013 was only about 30 percent of the total global trade in natural gas, but use of LNG is on the rise with numerous projects in planning or construction stages. Considering LNG projects that are under construction, planned, or proposed, we provide an analysis of LNG prospects for the next decade. LNG has substantial unexploited potential in terms of reducing capital requirements (especially for liquefaction projects), expanding new technology frontiers (e.g. floating LNG), serving new markets, and establishing new pricing schemes that better reflect the fundamentals of supply and demand. Trade volumes are projected to increase from about 240 Mt LNG in 2013 to about 340–360 Mt LNG in 2021. Despite potential challenges from weaker demand in Asia, longer-term projections show that LNG trade is bound to show substantial growth, partially due to geopolitical tensions that might increase LNG flows to Europe. However, these perspectives largely depend on demand choices, the availability and evolution of alternative fuels (e.g. renewable energies), and—most importantly—political decisions framing economic behavior.We thank The Cyprus Research Promotion Foundation for their support of this study. The interim report focused on the economics of project development options is available at: https://mitei.mit.edu/publications/reports-studies/interim-report-study-natural-gas-monetization-pathways-cyprus. This study was conducted by the MIT Energy Initiative and the MIT Joint Program on the Science and Policy of Global Change, where the authors are employed. MIT Energy Initiative is supported by its members listed at: http://mitei.mit.edu. The MIT Joint Program on the Science and Policy of Global Change is supported by a consortium of government, industry and foundation sponsors listed at http://globalchange.mit.edu/sponsors/current.html. Funding for this study is provided solely by The Cyprus Research Promotion Foundation. While Eni S.p.A. and Total are members of the MIT Energy Initiative, sponsors of the MIT Joint Program, and have exploration interests in Cyprus as described in the interim report, they have not contributed to any input, output, or funding related to this research. The views and opinions expressed in this report are those of the authors

The Influence of Shale gas on U.S. Energy and Environmental Policy

http://globalchange.mit.edu/research/publications/2219The emergence of U.S. shale gas resources to economic viability affects the nation’s energy outlook and the expected role of natural gas in climate policy. Even in the face of the current shale gas boom, however, questions are raised about both the economics of this industry and the wisdom of basing future environmental policy on projections of large shale gas supplies. Analysis of the business model appropriate to the gas shales suggests that, though the shale future is uncertain, these concerns are overstated. The policy impact of the shale gas is analyzed using two scenarios of greenhouse gas control—one mandating renewable generation and coal retirement, the other using price to achieve a 50% emissions reduction. The shale gas is shown both to benefit the national economy and to ease the task of emissions control. However, in treating the shale as a “bridge” to a low carbon future there are risks to the development of technologies, like capture and storage, needed to complete the task.This paper was supported by the U.S. Department of Energy, Office of Science (DE-FG02-94ER61937); the U.S. Environmental Protection Agency; the Electric Power Research Institute; and other U.S. government agencies and a consortium of 40 industrial and foundation sponsors

The Future Energy and GHG Emissions Impact of Alternative Personal Transportation Pathways in China

A major uncertainty in future energy and greenhouse gas (GHG) emissions projections for China is the evolution of demand for personal transportation modes. This paper explores the implications of divergent personal transportation scenarios, either favoring private vehicles, or emphasizing a sector including all purchased transport (including local public transit, rail and aviation) as substitute for vehicle travel. Motivated by a wide range of forecasts for transport indicators in the literature, we construct plausible scenarios with low-, medium- and high-transport demand growth, and implement them in a technology-rich model which represents opportunities for fuel economy improvement and switching to plug-in hybrid-electric vehicles (PHEVs). The analysis compares primary energy use and GHG emissions in China in the absence and presence of climate policies. We find that a policy that extends the current Chinese emissions-intensity goals through 2050 mostly affects other sectors with lower abatement costs, and so only lightly engages household transport, permitting nearly the same large increases in refined oil demand (by more than five times) and private vehicle stocks (to 430–500 million) as in the reference case. A stringent climate stabilization policy affects household transport, limiting vehicle ownership and petroleum demand, but drives up the share of household spending on transport, and carries high economy-wide costs. The large projected scale of vehicle fleets, refined oil use and transport purchases all suggest that the rate and type of travel demand growth deserves attention by policymakers, as China seeks to address its energy, environmental, and economic goals

Toward a just energy transition: A distributional analysis of low-carbon policies in the USA

Distributional impacts of environmental policies have become an increasingly important consideration in policymaking. To evaluate the distributional impacts of carbon pricing with different revenue recycling schemes for the USA, we integrate national economic model for the USA with household microdata that provides consumption patterns and other socio-economic characteristics for thousands of households. Using this combined model, we explore the distributional impacts and the possible trade-offs between equity and efficiency of different revenue recycling schemes. We find that the choice of revenue recycling scheme has a limited effect on efficiency of the policy, but significant distributional impacts. Our analysis indicates that policy makers can mitigate negative distributional impacts with positive synergies on efficiency.Xaquin Garcia-Muros acknowledges financial support from the European Union's H2020-MSCA-IF-2017 Actions No 796650 (CHANCE project)

Emissions Pricing to Stablize Global Climate

http://globalchange.mit.edu/research/publications/2241In the absence of significant greenhouse gas (GHG) mitigation, many analysts project that atmospheric concentrations of species identified for control in the Kyoto protocol could exceed 1000 ppm (carbon-dioxide-equivalent) by 2100 from the current levels of about 435 ppm. This could lead to global average temperature increases of between 2.5° and 6° C by the end of the century. There are risks of even greater warming given that underlying uncertainties in emissions projections and climate response are substantial. Stabilization of GHG concentrations that would have a reasonable chance of meeting temperature targets identified in international negotiations would require significant reductions in GHG emissions below “business-as-usual” levels, and indeed from present emissions levels. Nearly universal participation of countries is required, and the needed investments in efficiency and alternative energy sources would entail significant costs. Resolving how these additional costs might be shared among countries is critical to facilitating a wide participation of large-emitting countries in a climate stabilization policy. The 2°C target is very ambitious given current atmospheric concentrations and inertia in the energy and climate system. The Copenhagen pledges for 2020 still keep the 2°C target within a reach, but very aggressive actions would be needed immediately after that

The Revenue Implications of a Carbon Tax

A primary reason for implementing a carbon or greenhouse gas tax is to reduce emissions, but in recent years there has been increased interest in a carbon tax’s revenue potential. This revenue could be used for federal deficit reduction, to help finance tax reform, support new spending priorities such as infrastructure spending, offset the burden of the tax on households, or other purposes. With an environmental goal to reduce emissions to very low levels, programs that become dependent on the revenue may come up short when and if carbon revenue begins to decline. To date, the revenue potential of a carbon tax has not been studied in detail. This study focuses on how much carbon tax revenue can be collected and whether there is a carbon “Laffer Curve” relationship, with a point where revenue begins to decline. We employ the MIT U.S. Regional Energy Policy (USREP) model, a dynamic computable general equilibrium model for the U.S. economy, for the numerical investigation of this question. We consider scenarios with different carbon prices and emissions reductions goals to explore how they may affect whether and at what tax rate revenues peak. We find that a sufficiently high tax rate would induce a revenue peak between now and 2050. For the scenarios we study, however, we find that carbon tax revenue is a dependable source of revenue to finance federal fiscal initiatives over a thirty-year period at the minimum. We also explore how the cost of low-carbon technology and existing energy policies interact with tax rates and revenues. Our results indicate that lower costs of abatement technology make emissions more responsive to the tax rate, and removing regulations on renewables and personal transportation results in more carbon tax revenues. Our results also show that either lowering technology costs or removing existing policies would reduce the welfare cost of a carbon policy with specific reduction goals, with a larger offsetting gain from eliminating distortions associated with existing policies

Potential Direct and Indirect Effects of Global Cellulosic Biofuel Production on Greenhouse Gas Fluxes from Future Land-use Chage

http://globalchange.mit.edu/research/publications/2240The production of cellulosic biofuels may have a large influence on future land emissions of greenhouse gases. These effects will vary across space and time depending on land-use policies, trade, and variations in environmental conditions. We link an economic model with a terrestrial biogeochemistry model to explore how projections of cellulosic biofuels production may influence future land emissions of carbon and nitrous oxide. Tropical regions, particularly Africa and Latin America, are projected to become major producers of biofuels. Most biofuels production is projected to occur on lands that would otherwise be used to produce crops, livestock and timber. Biofuels production leads to displacement and a redistribution of global food and timber production along with a reduction in the trade of food products. Overall, biofuels production and the displacement of other managed lands increase emissions of greenhouse gases primarily as a result of carbon emissions from deforestation and nitrous oxide emissions from fertilizer applications to maximize biofuel crop production in tropical regions. With optimal application of nitrogen fertilizers, cellulosic biofuels production may enhance carbon sequestration in soils of some regions. As a result, the relative importance of carbon emissions versus nitrous oxide emissions varies among regions. Reductions in carbon sequestration by natural ecosystems caused by the expansion of biofuels have minor effects on the global greenhouse gas budget and are more than compensated by concurrent biofuel-induced reductions in nitrous oxide emissions from natural ecosystems. Land policies that avoid deforestation and fertilizer applications, particularly in tropical regions, will have the largest impact on minimizing land emissions of greenhouse gas from cellulosic biofuels production.This research was supported in part by the David and Lucile Packard Foundation to the MBL, Department of Energy, Office of Science (BER) grants DE-FG02-94ER61937, DE-FG02- 93ER61677, DE-FG02-08ER64648, EPA grant XA-83240101, NSF grant BCS-0410344, and the industrial and foundation sponsors of the MIT Joint Program on the Science and Policy of Global Change

Combining a New Vehicle Fuel Economy Standard with a Cap-and-Trade Policy: Energy and Economic Impact in the United States

http://globalchange.mit.edu/research/publications/2271The United States has adopted fuel economy standards that require increases in the on-road efficiency of new passenger vehicles, with the goal of reducing petroleum use, as well as (more recently) greenhouse gas (GHG) emissions. Understanding the cost and effectiveness of this policy, alone and in combination with economy-wide policies that constrain GHG emissions, is essential to inform coordinated design of future climate and energy policy. In this work we use a computable general equilibrium model, the MIT Emissions Prediction and Policy Analysis (EPPA) model, to investigate the effect of combining a fuel economy standard with an economy-wide GHG emissions constraint in the United States. First, a fuel economy standard is shown to be at least five to fourteen times less cost effective than a price instrument (fuel tax) when targeting an identical reduction in cumulative gasoline use. Second, when combined with a cap-and-trade (CAT) policy, the fuel economy standard increases the cost of meeting the GHG emissions constraint by forcing expensive reductions in passenger vehicle gasoline use, displacing more cost-effective abatement opportunities. Third, the impact of adding a fuel economy standard to the CAT policy depends on the availability and cost of abatement opportunities in transport—if advanced biofuels provide a cost-competitive, low carbon alternative to gasoline, the fuel economy standard does not bind and the use of low carbon fuels in passenger vehicles makes a significantly larger contribution to GHG emissions abatement relative to the case when biofuels are not available. This analysis underscores the potentially large costs of a fuel economy standard relative to alternative policies aimed at reducing petroleum use and GHG emissions. It also demonstrates the importance of jointly considering the effects of multiple policies aimed at reducing petroleum use and GHG emissions, and the associated economic costs

Costs of Climate Mitigation Policies

The wide range of cost estimates for stabilizing climate is puzzling to policy makers as well as researchers. Assumptions about technology costs have been studied extensively as one reason for these differences. Here, we focus on how policy timing and the modeling of economy-wide interactions affect costs. We examine these issues by restructuring a general equilibrium model of the global economy, removing elements of the model one by one. We find that delaying the start of a global policy by 20 years triples the needed starting carbon price and increases the macroeconomic cost by nearly 30%. We further find that including realistic details of the economy (e.g. sectoral and electricity technology detail; tax and trade distortions; capital vintaging) more than double net present discounted costs over the century. Inter-model comparisons of stabilization costs find a similar range, but it is not possible to isolate the structural causes behind cost differences. Broader comparisons of stabilization costs face the additional issue that studies of different vintages assume different policy starting dates, often dates that are no longer realistic given the pace of climate change negotiations. This study can aid in interpretation of estimates and give policymakers and researchers an idea of how to adjust costs upwards as the start of policy is delayed. It also illustrates that models that greatly simplify the realities of modern economies likely underestimate costs.We gratefully acknowledge the financial support for this work provided by the MIT Joint Program on the Science and Policy of Global Change through a consortium of industrial and foundation sponsors and Federal awards, including the U.S. Department of Energy, Office of Science under DE-FG02-94ER61937 and the U.S. Environmental Protection Agency under XA-83600001-1. For a complete list of sponsors and the U.S. government funding sources, please visit http://globalchange.mit.edu/sponsors/all

The Influence of Gas-to-Liquids and Natural Gas Production Technology Penetration on the Crude Oil-Natural Gas Price Relationship

The paper examines conditions under which gas-to-liquids (GTL) technology penetration shifts the crude oil-natural gas price ratio. Technologies that enable direct substitution across fuels, as GTL does, may constrain the price ratio within certain bounds. We analyze the forecasted evolution of the crude oil-natural gas price ratio over the next several decades under alternative assumptions about the availability and cost of GTL and its natural gas feedstock. We do this using a computable general equilibrium model of the global economy with a focus on the refinery sector in the U.S. Absent GTL, a base case forecast of global economic growth over the next few decades produces dramatic increases in the oil-natural gas price ratio. This is because there is a more limited supply of low-cost crude oil resources than natural gas resources. The availability of GTL at conventional forecasts of cost and efficiency does not materially change the picture because it is too expensive to enhance direct competition between the two as fuels in the transportation sector. GTL only modulates the increasing oil-gas price ratio if both (i) natural gas is much cheaper to produce, and (ii) GTL is less costly and more efficient than conventional forecasts.This work has been funded in part by BP, the MITEI ENI Energy Fellowship, the MITEI Martin Family Fellowship, and sponsors of MIT’s Joint Program on the Science and Policy of Global Change. The Joint Program on the Science and Policy of Global Change is funded by the U.S. Department of Energy, Office of Science under grants DE-FG02-94ER61937, DE-FG02- 08ER64597, DE-FG02-93ER61677, DE-SC0003906, DE-SC0007114, XEU-0-9920-01; the U.S. Department of Energy, Oak Ridge National Laboratory under Subcontract 4000109855; the U.S. Environmental Protection Agency under grants XA-83240101, PI-83412601-0, RD-83427901-0, XA-83505101-0, XA-83600001-1, and subcontract UTA12-000624; the U.S. National Science Foundation under grants AGS-0944121, EFRI-0835414, IIS-1028163, ECCS-1128147, ARC-1203526, EF-1137306, AGS-1216707, and SES-0825915; the U.S. National Aeronautics and Space Administration (NASA) under grants NNX06AC30A, NNX07AI49G, NNX11AN72G and Sub Agreement No. 08-SFWS-209365.MIT; the U.S. Federal Aviation Administration under grants 06-C-NE-MIT, 09-C-NE-MIT, Agmt. No. 4103-30368; the U.S. Department of Transportation under grant DTRT57-10-C-10015; the Electric Power Research Institute under grant EP-P32616/C15124, EP-P8154/C4106; the U.S. Department of Agriculture under grant 58-6000-2-0099, 58-0111-9-001; and a consortium of 35 industrial and foundation sponsors (for the complete list see: http://globalchange.mit.edu/sponsors/all)