The role of capital costs in decarbonizing the electricity sector

Low-carbon electricity generation, i.e. renewable energy, nuclear power and carbon capture and storage, is more capital intensive than electricity generation through carbon emitting fossil fuel power stations. High capital costs, expressed as high weighted average cost of capital (WACC), thus tend to encourage the use of fossil fuels. To achieve the same degree of decarbonization, countries with high capital costs therefore need to impose a higher price on carbon emissions than countries with low capital costs. This is particularly relevant for developing and emerging economies, where capital costs tend to be higher than in rich countries. In this paper we quantitatively evaluate how high capital costs impact the transformation of the energy system under climate policy, applying a numerical techno-economic model of the power system. We find that high capital costs can significantly reduce the effectiveness of carbon prices: if carbon emissions are priced at USD 50 per ton and the WACC is 3%, the cost-optimal electricity mix comprises 40% renewable energy. At the same carbon price and a WACC of 15%, the cost-optimal mix comprises almost no renewable energy. At 15% WACC, there is no significant emission mitigation with carbon pricing up to USD 50 per ton, but at 3% WACC and the same carbon price, emissions are reduced by almost half. These results have implications for climate policy; carbon pricing might need to be combined with policies to reduce capital costs of low-carbon options in order to decarbonize power systems

Truncation Error Estimates in Process Life Cycle Assessment Using Input‐Output Analysis

Process life cycle assessment (PLCA) is widely used to quantify environmental flows associated with the manufacturing of products and other processes. As PLCA always depends on defining a system boundary, its application involves truncation errors. Different methods of estimating truncation errors are proposed in the literature; most of these are based on artificially constructed system complete counterfactuals. In this article, we review the literature on truncation errors and their estimates and systematically explore factors that influence truncation error estimates. We classify estimation approaches, together with underlying factors influencing estimation results according to where in the estimation procedure they occur. By contrasting different PLCA truncation/error modeling frameworks using the same underlying input‐output (I‐O) data set and varying cut‐off criteria, we show that modeling choices can significantly influence estimates for PLCA truncation errors. In addition, we find that differences in I‐O and process inventory databases, such as missing service sector activities, can significantly affect estimates of PLCA truncation errors. Our results expose the challenges related to explicit statements on the magnitude of PLCA truncation errors. They also indicate that increasing the strictness of cut‐off criteria in PLCA has only limited influence on the resulting truncation errors. We conclude that applying an additional I‐O life cycle assessment or a path exchange hybrid life cycle assessment to identify where significant contributions are located in upstream layers could significantly reduce PLCA truncation errors.EC/FP7/603864/EU/High-End cLimate Impacts and eXtremes/HELIXDFG, SFB 1026, Sustainable Manufacturing - Globale Wertschöpfung nachhaltig gestalte

Distributional Impacts of Carbon Pricing: A Meta-Analysis

Understanding the distributional impacts of market-based climate policies is crucial to design economically efficient climate change mitigation policies that are socially acceptable and avoid adverse impacts on the poor. Empirical studies that examine the distributional impacts of carbon pricing and fossil fuel subsidy reforms in different countries arrive at ambiguous results. To systematically determine the sources of variation between these outcomes, we apply an ordered probit meta-analysis framework. Based on a comprehensive, systematic and transparent screening of the literature, our sample comprises 53 empirical studies containing 183 effects in 39 countries. Results indicate a significantly increased likelihood of progressive distributional outcomes for studies on lower income countries and transport sector policies. The same applies to study designs that consider indirect effects, demand-side adjustments of consumers or lifetime income proxies

The effect of industry delocalization on global energy use: A global sectoral perspective

Sectoral production technologies differ largely across countries, so do sectoral energy intensities. Hence, shifts in production locations within global sectors, possibly caused by environmental regulations, are likely to have an impact on aggregated energy usage and emissions. Applying a Logarithmic Mean Divisia Index decomposition we decompose changes of sectoral energy use from 2001–2011 into three effects: (sectoral) value added, energy efficiency and delocalization, which in this paper is conceived as a structural effect within sectors, between regions. Our results show that although economic activity and technological progress dominate global energy use developments, for most sectors a delocalization towards less efficient production places is ongoing. It contributes to annual increases in energy use in the range of 1–6%. Especially, manufacturing sectors, which are among the most energy consuming sectors, reveal significant increases in energy usage due to delocalization since 2004. This development is accompanied by declining energy intensity improvement rates, indicating that delocalization induces second order effects.BMBF, 01LS1610B, Klimapolitische Maßnahmen und Transformationspfade zur Begrenzung der globalen Erwärmung auf 1.5°C (PEP1p5)DFG, SFB 1026, Sustainable Manufacturing - Globale Wertschöpfung nachhaltig gestalte

Implications of climate change mitigation for sustainable development

Evaluating the trade-offs between the risks related to climate change, climate change mitigation as well as co-benefits requires an integrated scenarios approach to sustainable development. We outline a conceptual multi-objective framework to assess climate policies that takes into account climate impacts, mitigation costs, water and food availability, technological risks of nuclear energy and carbon capture and sequestration as well as co-benefits of reducing local air pollution and increasing energy security. This framework is then employed as an example to different climate change mitigation scenarios generated with integrated assessment models. Even though some scenarios encompass considerable challenges for sustainability, no scenario performs better or worse than others in all dimensions, pointing to trade-offs between different dimensions of sustainable development. For this reason, we argue that these trade-offs need to be evaluated in a process of public deliberation that includes all relevant social actors

Road to glory or highway to hell? Global road access and climate change mitigation

Transportation infrastructure is considered a key factor for economic development and poverty alleviation. The United Nations have explicitly included the provision of transport infrastructure access, e.g. through all-season road access, in their Sustainable Development Goal agenda (SDGs, target 9.1). Yet, little is known about the number of people lacking access to roads worldwide, the costs of closing existing access gaps and the implications of additional roads for other sustainability concerns such as climate change mitigation (SDG-13). Here we quantify, for 250 countries and territories, the percentage of population without road access in 2 km. We find that infrastructure investments required to provide quasi-universal road access are about USD 3 trillion. We estimate that the associated cumulative CO2 emissions from construction work and additional traffic until the end of the century amount to roughly 16 Gt. Our geographically explicit global analysis provides a starting point for refined regional studies and for the quantification of further environmental and social implications of SDG-9.1

The role of capital costs in decarbonizing the electricity sector

Low-carbon electricity generation, i.e. renewable energy, nuclear power and carbon capture and storage, is more capital intensive than electricity generation through carbon emitting fossil fuel power stations. High capital costs, expressed as high weighted average cost of capital (WACC), thus tend to encourage the use of fossil fuels. To achieve the same degree of decarbonization, countries with high capital costs therefore need to impose a higher price on carbon emissions than countries with low capital costs. This is particularly relevant for developing and emerging economies, where capital costs tend to be higher than in rich countries. In this paper we quantitatively evaluate how high capital costs impact the transformation of the energy system under climate policy, applying a numerical techno-economic model of the power system. We find that high capital costs can significantly reduce the effectiveness of carbon prices: if carbon emissions are priced at USD 50 per ton and the WACC is 3%, the cost-optimal electricity mix comprises 40% renewable energy. At the same carbon price and a WACC of 15%, the cost-optimal mix comprises almost no renewable energy. At 15% WACC, there is no significant emission mitigation with carbon pricing up to USD 50 per ton, but at 3% WACC and the same carbon price, emissions are reduced by almost half. These results have implications for climate policy; carbon pricing might need to be combined with policies to reduce capital costs of low-carbon options in order to decarbonize power systems

Clean up your own mess: an experimental study of moral responsibility and efficiency

Although market-based environmental policy instruments feature prominently in economic theory and are widely employed, they often meet with public resistance. We argue that such resistance may be driven by a feeling of moral responsibility where citizens prefer to tackle environmental problems themselves, rather than delegating the task to others by means of a market mechanism. Using a laboratory experiment that isolates moral responsibility from alternative explanations, we show that moral responsibility induces participants to incur a sizable cost on themselves as well as on other participants. We discuss the implications of this finding for the design and implementation of environmental policies

Productivity ranges of sustainable biomass potentials from non-agricultural land

Land is under pressure from a number of demands, including the need for increased supplies of bioenergy. While bioenergy is an important ingredient in many pathways compatible with reaching the 2 °C target, areas where cultivation of the biomass feedstock would be most productive appear to co-host other important ecosystems services. We categorize global geo-data on land availability into productivity deciles, and provide a geographically explicit assessment of potentials that are concurrent with EU sustainability criteria. The deciles unambiguously classify the global productivity range of potential land currently not in agricultural production for biomass cultivation. Results show that 53 exajoule (EJ) sustainable biomass potential are available from 167 million hectares (Mha) with a productivity above 10 tons of dry matter per hectare and year (tD Mha−1 a−1), while additional 33 EJ are available on 264 Mha with yields between 4 and 10 tD M ha−1 a−1: some regions lose less of their highly productive potentials to sustainability concerns than others and regional contributions to bioenergy potentials shift when less productive land is considered. Challenges to limit developments to the exploitation of sustainable potentials arise in Latin America, Africa and Developing Asia, while new opportunities emerge for Transition Economies and OECD countries to cultivate marginal land

Reducing global CO2 emissions with the technologies we have

The energy intensities of the various industrial sectors differ considerably across countries. This suggests a potential for emissions reductions through improved accessibility to efficient technologies. This paper estimates an upper-bound CO2 emission mitigation potential that could theoretically be achieved by improved access to efficient technologies in industrial sectors. We develop a linear optimization framework that facilitates the exchange of sectoral production technologies based on the World Input-Output Database (WIOD), assuming perfect substitutability of technologies and homogeneity within economic sectors, while ignoring barriers to technological adoption and price driven adjustments. We consider the full global supply chain network and multiple upstream production inputs in addition to energy demand. In contrast to existing literature our framework allows to consider supply chain effects of technology replacements. We use our model to calculate emission reduction potentials for varying levels of access to technology. If best practice technologies were made available globally, CO2 emissions could theoretically be reduced by more than 10 gigatons (Gt). In fact, even second-tier production technologies would create significant global reduction potentials. We decompose sectoral emission reductions to identify contributions by changes in energy intensity, supply chain effects and changes in carbon intensities. Excluding the latter, we find that considering supply chain effects increases total mitigation potentials by 14%. The largest CO2 emission reduction potentials are found for a small set of developing countries.DFG, SFB 1026, Sustainable Manufacturing - Globale Wertschöpfung nachhaltig gestalte