Climate change mitigation in Latin America: requirements for the energy sector and impacts on the economy

1. www.ecn.nl
www.camecon.com
Climate change mitigation in
Latin America
Tom Kober (ECN), Philip Summerton (CE)
ETSAP workshop on Methodologies Linking Energy
Systems Models and Economic Models
Copenhagen, 19 Nov 2014

2. Outline
1. Rationale
2. Model description of E3ME and TIAM-ECN & their linkage
3. Results
4. Conclusion

3. Rationale of model linkage
(energy system model & macro-economic model)
• Energy system costs are not representative of whole economy
impacts
– Distribution and timing of impacts matters
• Downstream: energy system costs are absorbed differently by
different consumers
– E.g. demand response
– Trade flows
• Upstream: energy system ‘suppliers’ (capital, fuel, etc.) have differing
economic characteristics with implications for macroeconomic
impacts
• Technology diffusion/transfer
– Innovation can be cross sectoral (e.g. batteries)

4. E3 interactions within E3ME
Link to
TIAM-ECN

5. TIAM-ECN
model characterisation
• Global, technology rich, long-term energy system model
• Economic optimisation: determination of cost optimal
configuration of the system
• 20 world regions with trade of energy, emission certificates and
captured CO2
• All energy supply and demand
sectors (from resource extraction
to the final end use of energy)
• Comprehensive energy technology
portfolio, e.g. hydrogen and synfuel
production, CCS in power, industry
and upstream sector, renewables
for heat and power
• Emissions: CO2, CH4, N2O
Separate regions:
Mexico
Colombia
Venezuela
Brazil
Argentina
Chile

6. Model linkage
TIAM-ECN inputs to E3ME E3ME outputs
 TIAM-ECN representative for the
energy system part of E3ME

7. TIAM-ECN results impact on
the economy
Three main channels through which the TIAM-ECN results impact on the
economy:
• level of investment in energy technologies, the upstream impact of
that investment and the way the investment is financed
• electricity prices and industry costs, and the consequential impact on
demand
• mix of energy demand by fuel in the economy

8. Scenario definition &
assumptions
• 3 scenarios:
– Core baseline (No policy promoting climate change mitigation)
– Low price path for GHG emissions (10 $/tCO2e in 2020 and + 4% p.a. afterwards)
– High price path for GHG emissions (50 $/tCO2e in 2020 and + 4% p.a. afterwards)
• Population growth according to UNDP medium fertility rate

9. GHG emission development in
Latin America
Core baseline
Low GHG price
High GHG price
Total emissions in 2050
Baseline: 6.7 GtCO2e (100%)
Low price: 6.0 GtCO2e (-10%)
High price: 3.7 GtCO2e (-45%)

10. Investments in the energy
supply sector (TIAM-ECN)
0
50
100
150
200
250
300
350
400
Baseline
Lowprice
Highprice
Baseline
Lowprice
Highprice
Baseline
Lowprice
Highprice
Baseline
Lowprice
Highprice
2020 2030 2040 2050
Annualinvestmentcost[blnUS$(2005)]
electricity
other energy
Delta: 40 bln US$

11. Low-carbon technology
investments vs. capacity
Core baseline $50 CO2 price
0
200
400
600
800
1,000
1,200
0 100 200 300 400
Cumulativeinvestments(2010-
2050)[blnUS$(2005)]
Cumulative capacity installedbetween2010
and 2050 [GW]
0
200
400
600
800
1,000
1,200
0 100 200 300 400
Cumulative capacity installedbetween
2010 and 2050 [GW]
Hydro
Solar
Wind
Hydro
Solar
Wind
CCS
Nuclear

12. GDP impacts in Latin America
in the high carbon price scenario
Energy technology costs
(investments and O&M costs)
Decomposition of impact on
Gross Domestic Product
Consumer spending Investment
Exports Imports
Electricity production
Other supply
Industry
Residential, commercial, agriculture
Transport
-4.0%
-2.0%
0.0%
2.0%
4.0%
2020 2030 2040 2050
GDPchange
-1.0
1.0
3.0
5.0
7.0
9.0
11.0
2020 2030 2040 2050
2020=1

13. GDP impacts in Brazil and Mexico
in the high carbon price scenario
Energy technology costs
(investments and O&M costs)
Decomposition of impact on
Gross Domestic Product
Consumer spending Investment
Exports Imports
Electricity production
Other supply
Industry
Other supply
Industry
Transport
Residential, commercial, agriculture
Brazil:
2020 2030 2040 2050
4.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
2020 2030 2040 2050
GDPchange
-4.0%
-2.0%
0.0%
2.0%
4.0%
2020 2030 2040 2050
GDPchange
11.0
-1.0
1.0
3.0
5.0
7.0
9.0
11.0
2020 2030 2040 2050
2020=1
-1.0
1.0
3.0
5.0
7.0
9.0
11.0
2020 2030 2040 2050
2020=1
Mexico:
2020 2030 2040 2050
4.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
2020 2030 2040 2050
GDPchange
-4.0%
-2.0%
0.0%
2.0%
4.0%
2020 2030 2040 2050
GDPchange
11.0
-1.0
1.0
3.0
5.0
7.0
9.0
11.0
2020 2030 2040 2050
2020=1
-1.0
1.0
3.0
5.0
7.0
9.0
11.0
2020 2030 2040 2050
2020=1

14. Long-term (2050) employment
effects under high carbon price*
* figures
compared to
Core baseline
• Employment increases on
average by 1.4%
• Unemployment declines by
30% (+5 mln. jobs)

15. Conclusions
• With increasing GHG emission reduction obligation energy supply
investments shift towards electricity technology
• Among low-carbon technology significant investments in hydro and
solar technology under high carbon tax
• Investments in low-carbon technology don’t crowd-out investments
in other sectors if capital can be transferred from non-productive
assets to productive assets. This results in:
– Positive macro-economic effects
– Stabilisation of consumer spending if carbon tax is recycled
– Increase of employment

16. Outlook
• E3ME delivers insights into demand response
– Different demand scenarios
– Update of demand elasticity factors for TIAM-ECN (long-term option)
• Recycling of carbon tax revenues to be reflected in TIAM-ECN
– Carbon prices are used representatively in energy system models
– If assumed revenue is recycled into economy, how does this offset the impact?
– Demand response?
– Technology-specific subsidy: NCAP_ISUB
– Consumer-specific: COM_SUBPRD

17. Acknowledgements
The analysis presented has been produced with the financial assistance
of the European Union in the context of the CLIMACAP project
(EuropeAid/131944/C/SER/Multi). The contents of this publication are
the sole responsibility of the authors and can in no way be taken to
reflect the views of the European Union.
For more information about CLIMACAP project visit:
http://www.climacap.org

18. Thank you!
Tom Kober
Policy Studies | Global Sustainability
T: +31 88 515 4105 | F: +31 224 56 83 38
Radarweg 60, 1043 NT Amsterdam, The Netherlands
kober@ecn.nl
Philip Summerton
Cambridge Econometrics
T: +441223533100
Reuben House, Covent Garden, Cambridge, CB1 2HT, UK
ps@camecon.com

19. •Supplementary material

20. Model interaction in
CLIMACAP project
E3ME TIAM-ECNLEAP/MESSAGE/…

21. -80%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
-6% -5% -4% -3% -2% -1% 0% 1% 2% 3%
ImpactonCO2comparedtobaseline
Impact on GDP compared to baseline
GDP impact relative to CO2 impact, Latin America
iPETS 2A
iPETS 2C
Phoenix 2A
Phoenix 2C
EPPA 2A
EPPA 2C
E3ME TIAM-ECN 2A
E3ME TIAM-ECN 2C
ADAGE 2A