Preliminary SGM Results for
EMF 22 Transition Scenarios
Allen A. Fawcett - U.S. EPA
Ronald D. Sands - PNNLEMF 22
Climate Policy Scenarios for Stabilizationand in Transition
December 12, 2006

SGM Overview• Set of 13 regional dynamic recursive CGE models• USA, Aus. & NZ, Canada, Eastern Europe, Former Soviet
Union, India, Japan, Korea, Mexico, Middle East, WesternEurope, Rest of World• Emphasis on energy transformation, energy consumption,and greenhouse gas emissions• Model runs from 1990 – 2050 in five-year time steps• Keeps track of capital stocks in five-year vintages bysector• Energy balance is maintained throughout the model timehorizon• 7 gases: CO2, CH4, N2O, HFCs, HFC-23, PFCs, SF6

Scenarios• Cap & Trade•

Declining cap starting at 2015 levels in 2015,
declining at x% per year through 2035, andremaining constant thereafter.
1.1.1
1.1.2
1.1.3

Domestic Trading
Annex 1 Trading
Annex 1 Trading & CDM

x = 0.5%
x = 0.5%
x = 0.5%

1.2.1
1.2.2
1.2.3

Domestic Trading
Annex 1 Trading
Annex 1 Trading & CDM

x = 1.0%
x = 1.0%
x = 1.0%

1.3.1 Domestic Trading
1.3.2 Annex 1 Trading
1.1.3 Annex 1 Trading & CDM

x = 0.5%
x = 0.5%
x = 0.5%

Scenarios• Carbon Tax Scenarios•Carbon tax starting at 7$/tCe in 2015,
increasing linearly to $30/tCe in 2035, andremaining constant thereafter.
2.1 Carbon tax applied to Annex 1 countries only
2.2 Carbon tax applied Globally

Scenarios• Optimal Scenarios•Full ‘when’ ‘where’ ‘what’ flexibility (i.e.
banking with a 5% Hotelling interest rate,equal carbon price across countries, andmulti-gas coverage).
3.1.1 Global Hotelling Price – Cumulative Emissions
Reductions Equivalent to 0.5% Declining Cap
3.1.2 Global Hotelling Price – Cumulative Emissions
Reductions Equivalent to 1.0% Declining Cap
3.1.3 Global Hotelling Price – Cumulative Emissions
Reductions Equivalent to 1.5% Declining Cap
3.2.1 Global Hotelling Price – Cumulative Emissions
Reductions Equivalent to Annex 1 Linear Carbon Price
3.3.2 Global Hotelling Price – Cumulative Emissions
Reductions Equivalent to Global Linear Carbon PriceCDM Methodology•••

For the CDM scenarios, we followed the methodology used in
EPA’s analysis of the Clean Air Planning Act (Carper, S.843 in
108th Congress), which was previously developed in cooperation
with the White House Council of Economic Advisors.
•The marginal abatement cost curves for each region areadjusted to account for expected differences between anoptimal emissions trading program and a stringent offsetsprogram.
•The adjustments account for differences in the incentives forentities under the respective programs.
In this analysis, the marginal abatement cost curves for CDM
countries are shifted in by 75%.
To implement this in SGM, we use an iterative procedure to limit
the abatement in CDM countries to 25% of what would beachievable at the prevailing CO2 price in Annex 1 countries.

Total GHG - Base Case
70,00060,000MMTCO2eq

50,00040,00030,00020,00010,0000
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Rest of World
Middle East
Mexico
Korea
India
China
Former Soviet Union
Eastern Europe
Western Eurpoe
JapanAus & NZ
CanadaUSA

Total GHG - Annex 1 Linear Tax
70,00060,000MMTCO2eq

50,00040,00030,00020,00010,00002005 2010 2015 2020 2025 2030 2035 2040 2045 2050

AbatedRest of World
Middle East
Mexico
Korea
India
China
Former Soviet Union
Eastern Europe
Western Eurpoe
Japan
Aus & NZ
CanadaUSA

Total GHG - Global Optimal Tax (ALT)
70,00060,000MMTCO2eq

50,00040,00030,00020,00010,0000
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

AbatedRest of World
Middle East
Mexico
Korea
India
China
Former Soviet Union
Eastern Europe
Western Eurpoe
Japan
Aus & NZ
CanadaUSA

Total GHG - Global Linear Tax
70,00060,000MMTCO2eq

50,00040,00030,00020,00010,00002005 2010 2015 2020 2025 2030 2035 2040 2045 2050

AbatedRest of World
Middle East
Mexico
Korea
India
China
Former Soviet Union
Eastern Europe
Western Eurpoe
Japan
Aus & NZ
CanadaUSA

Total GHG - Global Optimal Tax (GLT)
70,00060,000MMTCO2eq

50,00040,00030,00020,00010,00002005 2010 2015 2020 2025 2030 2035 2040 2045 2050

AbatedRest of World
Middle East
Mexico
Korea
India
China
Former Soviet Union
Eastern Europe
Western Eurpoe
Japan
Aus & NZ
CanadaUSA

Carbon Price - Tax Scenarios$16
Optimal - Global
Reductions$12$10Linear Tax
Schedule$8$6

Optimal - A1
Reductions$4$22050204520402035203020252020201520
10$02005

2006 USD / tCO2e$14

Total GHG - Annex 1 Decl. Cap 1.0%
70,00060,000MMTCO2eq

50,00040,00030,00020,00010,00002005 2010 2015 2020 2025 2030 2035 2040 2045 2050

AbatedRest of World
Middle East
Mexico
Korea
India
China
Former Soviet Union
Eastern Europe
Western Eurpoe
JapanAus & NZ
CanadaUSATotal GHG - Annex 1 Decl. Cap 1.0% Trade
70,00060,000MMTCO2eq

50,00040,00030,00020,00010,00002005 2010 2015 2020 2025 2030 2035 2040 2045 2050

AbatedRest of World
Middle East
Mexico
Korea
India
China
Former Soviet Union
Eastern Europe
Western Eurpoe
Japan
Aus & NZ
CanadaUSA

Total GHG - CDM Decl. Cap 1.0%
70,00060,000MMTCO2eq

50,00040,00030,00020,00010,00002005 2010 2015 2020 2025 2030 2035 2040 2045 2050

AbatedRest of World
Middle East
Mexico
Korea
India
China
Former Soviet Union
Eastern Europe
Western Eurpoe
Japan
Aus & NZ
CanadaUSA

Total GHG - Optimal Decl. Cap 1.0%
70,00060,000MMTCO2eq

50,00040,00030,00020,00010,00002005 2010 2015 2020 2025 2030 2035 2040 2045 2050

AbatedRest of WorldMiddle East
Mexico
Korea
India
China
Former Soviet Union
Eastern Europe
Western Eurpoe
Japan
Aus & NZ
CanadaUSACarbon Price - Annex 1, CDM, Optimal Trading$120

1.5% - A1 Trade
1.0% - A1 Trade
0.5% - A1 Trade
1.5% - CDM
1.0% - CDM
0.5% - CDM
1.5% - Optimal
1.0% - Optimal
0.5% - Optimal

$80

$60

$40

$20

20
50

20
45

20
40

20
35

20
30

20
25

20
20

20
15

20
10$02005

2006 USD / tCO2e

$100

2050

2045

2040

2035

2030

2025

2020

20152010

2005

USA GDP % Change

0.0%-0.2%2006 USD / tCO2e

-0.4%
-0.6%
-0.8%
-1.0%
-1.2%
-1.4%
-1.6%
-1.8%
-2.0%

0.5% - Optimal
1.0% - Optimal
1.5% - Optimal
0.5% - CDM
1.0% - CDM
1.5% - CDM
0.5% - A1 Trade
1.0% - A1 Trade
1.5% - A1 TradeCarbon Permit Trade Revenues - A1 Trade 1.0%$80Former Soviet
Union

$60

Western Europe
Eastern Europe

$20
2045

2035

2025

-$20

2015

$0
2005

Billions of 2006 USD

$40

Japan
Aus & NZ
Canada-$40
-$60
-$80
-$100
-$120

USAUSA Electricity Generation - Base Case
8,000
7,000
6,000

4,000
3,000
2,000
1,000
02005
2010201520
20202520302035
20402045
2050

GWh

5,000

Geothermal
Solar PV
Off-Shore Wind
On-Shore Wind
Municipal Solid Waste
Hydro
NuclearCoal IGCC w/ ccs
Coal IGCC
Coal-Fired
NGCC w/ ccs
NGCC
Gas-Fired
Oil-FiredUSA Electricity Generation - Optimal Decl. Cap 1.0%
8,000
7,000
6,000

4,000
3,000
2,000
1,000
02005
20
102015202020
2520302035
20402045
2050

GWh

5,000

ReducedGeothermal
Solar PV
Off-Shore Wind
On-Shore Wind
Municipal Solid Waste
Hydro
NuclearCoal IGCC w/ ccs
Coal IGCC
Coal-Fired
NGCC w/ ccs
NGCCGas-Fired
Oil-FiredUSA Electricity Generation - CDM Decl. Cap 1.0%
8,000
7,000
6,000

4,000
3,000
2,000
1,000
02005
201020152020202520302035
204020452050

GWh

5,000

ReducedGeothermal
Solar PV
Off-Shore Wind
On-Shore Wind
Municipal Solid Waste
Hydro
NuclearCoal IGCC w/ ccs
Coal IGCC
Coal-Fired
NGCC w/ ccs
NGCC
Gas-Fired
Oil-FiredUSA Electricity Generation - Annex 1 Cap 1.0% Trade
8,000
7,000
6,000

4,000
3,000
2,000
1,00002005201020152020202520302035204020452050

GWh

5,000

ReducedGeothermal
Solar PV
Off-Shore Wind
On-Shore Wind
Municipal Solid Waste
Hydro
NuclearCoal IGCC w/ ccs
Coal IGCC
Coal-Fired
NGCC w/ ccs
NGCC
Gas-Fired
Oil-FiredUSA Electricity Generation - Annex 1 Cap 1.0%
8,000
7,000
6,000

4,000
3,000
2,000
1,000
02005
20102015202020252030
2035204020452050

GWh

5,000

ReducedGeothermal
Solar PV
Off-Shore Wind
On-Shore Wind
Municipal Solid Waste
Hydro
NuclearCoal IGCC w/ ccs
Coal IGCC
Coal-Fired
NGCC w/ ccs
NGCCGas-Fired
Oil-FiredSGM Model Improvements• The analysis presented here was done with thelegacy version of SGM• We are currently in the progress of transitioning
to a new Objects version of SGM• The new version of the model will include many
improvements, such as:• Updated nested CES production functions• Updated household sector based on a linearexpenditure system• Improved representation of international trade• Longer capital lifetimes in the electricity sector• Updated data set with a more recent base year