COSTS OF LCS ANDTECHNOLOGY

Five Principles of an
Economically Efficient LCS
Low Carbon Society Workshop
Tokyo, JapanJae Edmonds
February 13, 2008
PNNL-SA-51961

Stabilizing CO22 concentrations means
fundamental change to the global energy system
2100 COHistory and Reference Case Concentration2~740 ppm
1400

1400
Future

1200

1200

1000

1000.

800

Present CO2
Concentration~380 ppm

600

800

400

20020001850

Preindustrial CO2
Concentration~280 ppm

1900

1950

20002050

Present CO2
Concentration~380 ppm

600

40002100 1850

OilNatural Gas
Coal
Biomass Energy
Non-Biomass Renewable Energy

2100 CO2Concentration~550 ppm

FutureHistory

EJ/yearEJ/year..

History

Stabilization of CO2 at 550 ppm

1900

1950

2000

2050

2100

Oil + CCS
Natural Gas + CCS
Coal + CCS
Nuclear Energy
End-use Energy2More Information Is Available inthe GTSP Report
Hard Copies of the Report are Available upon request

Summarizing
Ten Years ofTechnology
Research

And on the Web
http://www.pnl.gov/gtspor

http://gtsp.battelle.org
3Five Principles for Achieving an
Economically Efficient LCS
1. Stabilization requires that greenhouse gases
have a price—implicit or explicit.
2. The price of a greenhouse gas should rise at
the rate of interest plus the natural rate ofremoval of the gas from the atmosphere.
3. The price of a greenhouse gas should be thesame for a gas irrespective of the emissions
source.
4. Decision makers should be able to form areasonable expectation that the price will riseat a regular rate of doubling.
5. Increase R&D, energy-climate R&D in the nearand mid-terms, basic science for the long term.
4

1. Stabilization requires that greenhousegases have a price—implicit or explicit.
Climate is a Public Good
You cannot solve a public goods problem with
better private decisions alone.
z Public goods problems require public intervention.
z Markets are needed to communicate the public interest

to private decision makers.

A price of carbon should reflect the social value ofcarbon.

52. The price of carbon should rise at the rateof interest plus the rate of removal from theatmosphere.
Climate change isa stock pollutant
problem, NOT aflow pollutant.
Price of carbon
should start low andrise steadily tominimize society’scosts.
Eventually allnations andeconomic sectors
need to be coveredas the atmosphereis indifferent as tothe source of CO2emissions.

Global Value of Carbon
800
700$/tonne (2000$)600

450 ppm stabilization
550 ppm stabilization
650 ppm stabilization
750 ppm stabilization

500
400
300
200$102/tC

100$19/tC$10/tC
$4/tC

0
2020

2040

2060

2080

2100

6

3. The price of a greenhouse gas should be thesame for a gas irrespective of the emissions
source.
•Not just electricity•Terrestrial carbon emissions•All regions eventually need to join

3.0
2.5

450 ppm NoCarbon Tax

2.0

450 ppm

GTC/Year

1.5
550 ppm

1.00.5650 ppm

0.0-0.5750 ppm-1.0
GTSPReference-1.5-2.0
2100

2090

2080

2070

2060

2050

2040

2030

2020

2010

2000

7

Electrification
The world is electrifying.
Emissions mitigation increases the relative role of electricity.
Electricity prices fall relative to fossil fuel prices.
Average Electricity Price Relative to Oil Price

Electricity as a Percentage of Total Final Energy
60%

150%

0.8

Index 2005=1.

40%

30%

20%
GTSP 450
GTSP 550
GTSP 650
GTSP 750
GTSP Reference

10%0%
2005

2020

2035

2050

2065

2080

0.6

0.40.2209502005

GTSP 450
GTSP 550GTSP 650
GTSP 750
GTSP Reference
2020

2035

2050

2065

2080

2095
8

A LCS EVENTUALLY NEEDS A GLOBAL CONTROLREGIME
Year 2020 Annex I emissions mitigation, relative to2005, for different accession assumptions: 450 ppm
100%

70%
60%
50%

Not Possible

80%

Not Possible90%

Set 1: 450 ppm
Set 3: 1st Accession 2020-35
Set 3: 1st Accession 2035-50
Set 3: 1st Accession 2050-65

40%30%
20%10%
0%20202050

9

4. Decision makers should be able to form areasonable expectation that the price will riseat a regular rate of doubling.
The time when low-emission technologies enter into
operation is dramatically accelerated when one of the costelements (carbon emissions) is growing more rapidly than
the rate of interest.
zE.g. CCS will come into use long before the price of carbon reaches
the point at which it would be sufficient to deploy the technology if itwere held constant.

Creating an expectation that carbon prices will double
regularly has the side effect of lowering the carbon priceneeded to achieve a given emissions mitigation.
Mechanisms exist to communicate appropriate expectation.
However, they require policies that extend indefinitely into thefuture—even if they include mechanisms for regular review andpegging of the price.
z E.g. “safety valve” for cap and trade where the SV value escalates atthe proper rate.
z10

5. Increase R&D, energy-climate R&D in the near& mid-terms, basic science for the long term.
Emissions Mitigation 2005 to2050 and 2050 to 2095
2005 to 2050

2050 to 2095

100%
80%
60%
40%
20%
0%
750 ppm 650 ppm 550 ppm 450 ppm

The time scale of emissions
mitigation is a century ormore.
Energy technology will beneeded to help control
emissions in the NEAR-,MID-, and Long-term toaddress climate change.
Investments in basic
scientific research in the firsthalf of the 21st century canbe transformed into energy
technologies that canbecome a major part of the
global energy system in thesecond half of the century.
11

Five Principles for Achieving an
Economically Efficient LCS
1. Stabilization requires that greenhouse gases
have a price—implicit or explicit.
2. The price of a greenhouse gas should rise at
the rate of interest plus the natural rate ofremoval of the gas from the atmosphere.
3. The price of a greenhouse gas should be thesame for a gas irrespective of the emissions
source.
4. Decision makers should be able to form areasonable expectation that the price will riseat a regular rate of doubling.
5. Increase R&D, energy-climate R&D in the nearand mid-terms, basic science for the long term.

12More Information Is Available inthe GTSP Report
Hard Copies of the Report are Available upon request

Summarizing
Ten Years ofTechnologyResearchAnd on the Web
http://www.pnl.gov/gtspor

http://gtsp.battelle.org
13