EAAERE2019
Beijing University
August 4, 2019

Outline and Purpose of the Session
Modelling Innovation to Transition Industry,
Transport and Residential Heating
Systems Towards a Sustainable, Low
Carbon Future in East Asia

Presented by

Soocheol Lee(Meijo University)

1.Outline and Purposeof the Session

REEPS
Research Group for East Asia Environmental Policy Studies

http://www.reeps.org/
Since 2014, supported by
Grants-in-Aid for Scientific Research, Japan<KAKENHI>

Environmental and economic
Sustainability in East Asia
Policies and Institutional Reforms
Edited byEnvironmental Charge System in East Asia
Showado Publishing(2010)

Soocheol Lee, Hector Pollitt and Kiyoshi Fujikawa

Energy and Environmental Policyin East Asia
Showado Publishing(2014)

ROUTLEDGE Publishing(2015)

Forth coming(October 2019)• The aim of this session is to assess how we mightachieve carbon emission reductions through thediffusion of new technologies across the wholeeconomy, for each East Asian country by 2050. We
use a modelling approach, specifically the global
macro-econometric E3ME model (www.e3me.com).
• E3ME is linked to a full set of bottom-up technology
transformation sub modules (FTT:Future TechnologyTransformation) namely: FTT:Steel, FTT:Transportand FTT:Heat.

• The session looks in detail at a scenario in which acombination of policies is used to achieve the 2050
2℃ target across East Asia.
• As well as a carbon tax for Steel Sector(P1), there aresector-specific policies, for example fuel taxes, EVsubsidies and a biofuel mandate in theTransportation Sector(P2), or renewable subsidies inthe Household Heating Sector(P3). We assess boththe environmental and economic impacts of thepolicies.

• We will show that carbon taxes with a policy mix of regulations
and subsidies applied to the steel, transport and heating sectors
boost the uptake of low-carbon technologies.
• Paper 1 focuses on the policies needed to decarbonize the steel
sector, leading to the uptake for example of electric andhydrogen-based furnaces.
• Paper 2 considers measures to promote the uptake of hybrid
and electric vehicles.
• Paper 3 discusses how households might be encouraged to useheat pumps and solar thermal water heaters.
• These three sectors are important end users of energy in East
Asia. Their decarbonization is crucial for meeting overall carbon
targets.Energy, and Environmental andEconomic Sustainability in East Asia
Policies and Institutional Reforms
Edited by Soocheol Lee, Hector Pollitt and Fujikawa Kiyoshi
PART I Building low-carbon power generation while simultaneously
reducing the role of nuclear
PART II Innovating to reduce CO2 emissions in industry, transportand buildings
PART III Wider sustainability issues: reducing water and material
consumption, and improving air quality

2.E3ME Description

The E3ME model: Dimensions• Econometric model• cover world 59 regions, including explicit representation of all G20 countries
and all EU Member States. The model has recently been expanded to cover
many East Asia and South East Asia regions explicitly including Japan, China,Korea, Taiwan and Indonesia. Other ASEAN countries are grouped together.
• based on the system of national accounts• includes intermediate and all components of final demand• detailed treatment of the labor market• 22 stochastic equation sets, also covering energy and prices• large sectoral disaggregation: 42 industries, 28 consumption categories• 12 different fuel types, and 23 separate fuel user groups ,24power technologies• 14 atmospheric emissions• long and short-term specification• annual solutions to 2050
• For more details see www.e3memodel.com

Simple structure of The E3ME Simulation Model

3.FTT Description and its
Linkage to E3ME

J.-F. Mercure, Energy Policy 48, 799-811 (2012)

Choice probability distribution depends on cost distribution
Choice probability represents diversity of investors※Δx=xi-xj

00• Power sector replace their generation systems in time intervals related to technical lifetimes• Choices are based on Levelised Costs of power Generation (LCOG):
combined measure of investment costs, fuel costs, and maintenance costs• Calibration of these costs to observed preferences and trends:
12
accounts for lead times of constructions, different comfort levels, local variations, existing policies etc.

FTT: Power Link between E3ME and FTT
FTT is a micro-model of technology choice and substitution, given economic/policy context

Post-Schumpeterian(evolutionary)

FTT・Fuel consumption
・Investment in
new power source
・Electricity price・Electricity demand・Fuel demand

Post-Keynesian,E3ME＝・CO2 emission
・Investment spill over・GDP, Employment

13

Post-Schumpeterian(evolutionary)

FTT・Fuel consumption
・Investment innew technology
・price of each technology

・Fuel demand・Electricity demand

Post-Keynesian(effective demand)

E3ME＝・CO2 emission
・Investment spill over・GDP, Employment
14

Adoption rate

Technological learning and cost impact

Cost

Time

Diffusion and learninginteractTimeTechnological learning and cost impact
By Florian Knobloch

FTT:Heat simulation of future solar thermal heating costs, by country(assuming a continuation of current policies).

Policy effects on heating costs in JapanBy Florian Knobloch
ElectricGas
Oil
Heat-airSola thermal

Wood boiler

Heat-ground

Coal

Technological learning mainly
reduces cost ofsolar thermal, heat pumps andmodern biomass.

The carbon tax increases the costof coal, oiland gas-bases heating.

The subsidy decreases the cost ofrenewables. Although
it is phased out after 2030, costs remain at
a much lowerlevel, due to technological learning in themeantime.

FTT: Power

Modeling technology substitution

53 regions, 24 power
generation technologies

Substitutions

Simulates:• The future replacement and diffusion• By power generation sectors worldwide(59 world regions)• Based on dynamical shares equations(the FTT method – no optimisation)

Coal

CCGT

CCGT

CCGTWindéë Fij ùûHydro
Windéë Fij ùûHydro
WindPVPVPV

BIGCC

BIGCC

BIGCC

…

t=1

…

an exogenous driver (depending onfuture levels of construction/gereration)

Coal

…

• Useful energy demand by country as

Coal

Hydro

• Of power technologies

Substitutions

t=2

t=3

J.-F. Mercure, Energy Policy 48, 799-811 (2012)…

FTT-Power (LCOE – IEA 2016)

FTT: SteelFTT Methodology53 regions, 26 steel
production technologies
Conv. BF BOF

Conv. BF BOF

Conv. BF BOF

DR(gas) - EAFDR(gas) - EAFDR(gas) - EAFDR(coal) EAF

DR(coal) EAF

DR(coal) EAF

SR - BOF

SR - BOF

SR - BOF

HFS - EAF

HFS - EAF

HFS - EAF

Scrap - EAF

Scrap - EAF

Scrap - EAF

FTT calculates the Levelised Cost of Steelmaking(LCOS)  (imperfect) Investor preferences  Can
be affected by:Learning-by-doingPrices of raw materials
(Un)availability of scrap
Emissions (when carbon taxes are applied)Market share changes are then proportional toinvestor preferences, and technological and sectoral
constraints

FTT:Transport
53 regions, 25 transport technologies
15.$UK
Prices'of'cars'(USD/km)
Std'of'price'' fuel'cost'(USD)std'fuel'cost O&M'costs'(USD)
O&M'costs'(std)'
Discount'ratelifetime energy'use'(MJ/km)
Distance'travelled'per'year'
occupancy'rate'
Capacity'factor'C'(initial) CO2EmissionsSeats/Veh Learning'exponent
Petrol$Econ
18683.00
4396.00
0.095
0.013
0.038
0.020
15%
12
1.583
12104
0.375
4539.0 1.00744 109.732966
4 R0.0144996
Petrol$Mid
32185.00
8164.00
0.123
0.014
0.051
0.030
15%
122.06412104
0.375
4539.0 0.72093 143.044759
4 R0.0144996
Petrol$Lux
99538.00 49455.00
0.202
0.057
0.064
0.030
15%
123.379
12104
0.375
4539.0 R0.216744 234.16231
4 R0.0144996
Advance$Petrol$Econ
18683.00
4396.00
0.076
0.013
0.038
0.020
15%
121.42512104
0.375
4539.0 1.00744 98.759669
4 R0.0740006
Advance$Petrol$Mid
32185.00
8164.00
0.110
0.014
0.051
0.030
15%
121.858
12104
0.375
4539.0 0.72093 128.740283
4 R0.0740006
Advance$Petrol$Lux
99538.00 49455.00
0.161
0.057
0.064
0.030
15%
123.04112104
0.375
4539.0 0.216744 210.746079
4 R0.0740006
Diesel$Econ
22608.00
3297.00
0.069
0.010
0.038
0.020
15%
12
1.351
12104
0.375
4539.00.3 100.104906
4 R0.0144996
Diesel$Mid$
33755.00
7065.00
0.077
0.015
0.051
0.030
15%
12
1.581
12104
0.375
4539.00 117.12274
4 R0.0144996
Diesel$Large
54793.00 14601.000.118
0.025
0.064
0.040
15%
122.10412104
0.375
4539.0 R0.441858 155.926763
4 R0.0144996
Advance$Diesel$Econ
22608.00
3297.00
0.084
0.010
0.038
0.000
15%
121.21612104
0.375
4539.00.3 90.0944151
4 R0.0740006
Advance$Diesel$Mid$33755.00
7065.00
0.095
0.015
0.051
0.000
15%
121.42312104
0.375
4539.00 105.410466
4 R0.0740006
Advance$Diesel$Large
54793.00 14601.00
0.095
0.025
0.064
0.000
15%
121.894
12104
0.375
4539.0 R0.441858 140.334087
4 R0.0740006
CNG$Econ21485.45
1000.00
0.048
0.055
0.039
0.020
15%
121.508
12104
0.375
4539.0 0.627906 84.5988
4 R0.0144996
CNG$Mid
37012.75
3000.00
0.071
0.069
0.056
0.030
15%
122.21012104
0.375
4539.0 0.321858 123.981
4 R0.0144996
CNG$large
114468.70
5000.00
0.082
0.076
0.066
0.040
15%
122.54812104
0.375
4539.0R0.78 142.9428
4 R0.0144996
Hybrid$Econ
29202.00
2826.00
0.084
0.003
0.039
0.030
15%
121.41412104
0.375
4539.0 R0.302328 97.9758621
4 R0.1520031
Hybrid$Mid
34540.00
6594.00
0.073
0.009
0.056
0.040
15%
121.21612104
0.375
4539.0R0.72 84.2592414
4 R0.1520031
Hybrid$Lux$
78343.00
9263.00
0.124
0.017
0.066
0.040
15%
122.078
12104
0.375
4539.0 R0.78093 144.024517
4 R0.1520031
EV$Econ10990.00
157.00
0.000
0.000
0.046
0.040
15%
120.21012104
0.375
4539.0 1.32558
04 R0.1520031
EV$Mid44745.00
1256.00
0.000
0.000
0.065
0.05015%120.54012104
0.375
4539.00
0
4 R0.1520031
EV$Lux89961.00
2355.00
0.000
0.000
0.080
0.060
15%
120.58012104
0.375
4539.0R3
0
4 R0.1520031
2$Wheelers$Motorcycle$Econ$(<500cc)
3808.00
1326.00
0.040
0.003
0.030
0.030
15%
70.6766052
0.55
3328.62.2693 46.8324621
2 R0.0144996
2$Wheelers$Motorcycle$Lux$(>500cc)
14932.00
5760.00
0.127
0.039
0.030
0.030
15%
72.1246052
0.55
3328.6 0.906978 147.159745
2 R0.0144996
Adv$Mot
3808.00
1326.00
0.040
0.095
0.030
0.030
15%
70.6766052
0.55
3328.62.2693 46.8324621
2 R0.0144996
Adv$Mot$14932.00
5760.00
0.095
0.095
0.030
0.030
15%
72.1246052
0.55
3328.6 0.906978 147.159745
R0.0144996
Mercure &2 Lam,
In preparation (2016)

FTT:Heat
53 regions, 12 heating technologies

Energy Resources
Natural resource use
and depletion

Policy Assumptions
Economic feedbacks
GHG Emissions

Energy Prices /Resource costs

GHG Concentrations
Environmental Changes

Energy Policy
assumptions

FTT:SteelPower sectortechnology model

Steel technology
model

FTT:Transport
Transport technology
model

FTT:Agriculture
Competing usesof land

LPJmL-em
Landproductivity

FTT:HeatTechnological change
in residential heating

Global warming

Precipitation
anomalies

Other climate
impacts

GHG emission
Env. Impacts

E3ME
Macroeconometricmodel

Climate Change/
GENIE1
Carbon cycle

Concentrations

FTT:Power

Land productivity

GENIE1 - PLASIM
Climate system