Burning assets for a sustainable future Climate finance and divestment from stranded assets in the context of the NDC’s and the Sustainable Development Goals Daniel Huppmann, David McCollum, Wenji Zhou, Volker Krey, Keywan Riahi IAEE Conference 2017, Vienna
Agenda • Introduction Climate finance & investment for a sustainable future • The MESSAGE ix model A new platform for integrated-assessment modeling • The Horizon 2020 project “CD - LINKS” Linking Climate and Development Policies An international and national model comparison exercise • Some (very) preliminary results on investment and divestment • Conclusions and outlook Burning assets for a sustainable future Daniel Huppmann, David McCollum, et al.
Introduction: Climate finance and the energy transition Climate change mitigation & decarbonisation will require substantial shifts in capacity and investment • Financial impacts on owners of existing installations crucially depend on the short-term ambition of energy & climate policy Compensation may be necessary to ensure incentive-compatibility • Coal and oil will be most heavily affected Coal-fired power plants without CCS will be most heavily affected (Bertram, Johnson, et al., 2015; Johnson, Krey, et al., 2015) But crude oil refineries are far more capital-intensive and less well understood in energy++ systems models • Research question: Estimate scales of investment, write-off, and compensation Identify trade-offs and synergies of investment & divestment with UN sustainable development goals Burning assets for a sustainable future Daniel Huppmann, David McCollum, et al.
The MESSAGE Integrated Assessment Model • “Model for Energy Supply Systems And their General Environmental impact” Process-based Integrated Assessment Model (IAM) Developed at IIASA and the IAEA since the 1980s (Schrattenholzer, 1981) Linear perfect-foresight systems optimization problem coupled with the general-economy MACRO model (Manne and Richels, 1992) • The MESSAGE implementation of the Shared-Socioeconomic Pathways (SSP) (Fricko et al., 2016) maintained at IIASA… Detailed energy system representation Integrated with land-use model GLOBIOM (Havlik et al., 2014) Emissions and air pollution based on the GAINS model (Amann et al., 2011) Evaluation of climate impact The 11 regions of the global MESSAGE model using the MAGICC model (Meinshausen et al., 2011) • Detailed documentation: Krey, Havlik, et al. (2016) MESSAGE-GLOBIOM 1.0 Documentation. http://data.ene.iiasa.ac.at/message-globiom/ Burning assets for a sustainable future Daniel Huppmann, David McCollum, et al.
The new MESSAGE ix framework An i ntegrated modeling platform for x -cutting analysis Scheduled to be released later this year under an open-source/open-access license! Burning assets for a sustainable future Daniel Huppmann, David McCollum, et al.
The Horizon 2020 project CD-LINKS • Consortium of 19 international research organizations Explore national and global transformation strategies for climate change mitigation Connect to broader sustainable-development agenda • Policy evaluation: Design complementary climate-development policies • Methodology development: Bi-directional linkage of global and national models This project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 642147 (CD-LINKS). Burning assets for a sustainable future Daniel Huppmann, David McCollum, et al.
Bridging energy modeling and sustainable development The „Paris Agreement“ Article 2.1.a: “[...] holding the increase in the global average temperature to well ell belo elow 2 ° C C above pre-industrial levels and to pursue eff efforts to lim limit it th the e tem empera rature re in incre crease to 1.5 .5 ° C C [...]” “ Tr Tran ansforming ng our r world: th the e 2030 Agen enda for for Su Susta tainable le De Development ” Adopted at the United Nations Sustainable Development Summit on 25 September 2015, a.k.a. the Susta tainable e De Devel elopment Goa oals. Burning assets for a sustainable future Daniel Huppmann, David McCollum, et al.
Estimates of energy system investment requirements Preliminary results – please do not cite (yet)! Increasing climate ambition from a 2 ° C goal to a 1.5 ° C target does not imply a (very) substantial cost increase in 2030 Investment requirements in 2030 towards a... 2 ° target 1.5 ° target Figure from Zhou (2017) Burning assets for a sustainable future Daniel Huppmann, David McCollum, et al.
Comparison of investment requirements across SDG’s Preliminary results – please do not cite (yet)! Infrastructure is the main bulk of investment needs 2 trillion US$ / year O Broin et al. (2016) 1 CD-LINKS SDSN + UN N. Rao models Pachauri et al. calculations (2013) GEA (2012) Figure from McCollum, Zhou, et al., 2017 Burning assets for a sustainable future Daniel Huppmann, David McCollum, et al.
A glimpse on investment pathways Preliminary results – please do not cite (yet)! Perfect-foresight (dis)-investment paths are implausible in the context of liberalized electricity markets Global coal power plant installed capacity 1000 800 600 400 200 0 2020 2030 2040 2050 National policies NDC baseline 2°C CCS 1.5°C CCS Installed capacity in GW, MESSAGEix-GLOBIOM scenarios for the CD-LINKS project Burning assets for a sustainable future Daniel Huppmann, David McCollum, et al.
Preliminary insights and outlook We need to include “profitability” considerations of investors to properly assess plausibility of transition pathways • It is not straightforward to determine the “lost book value” of decommissioned power plants due to climate change policies Ideas for including profitability considerations in MESSAGE • Minimum-run-years after investment (no early decommissioning), but this does not consider actual profitability • Considering profitability (prices minus costs) endogenously would require moving to an equilibrium (MCP) modeling approach • Going beyond the coal question: crude oil industry and refineries Refineries are far more difficult to model (and operate) compared to power plants Very stylized representation in Integrated Assessment Models • But at least, we’ll have another open -source energy systems model! Burning assets for a sustainable future Daniel Huppmann, David McCollum, et al.
Thank you very much for your attention! Please visit www.cd-links.org for more information Dr. Daniel Huppmann Research Scholar – Energy Program International Institute for Applied Systems Analysis (IIASA) Schlossplatz 1, A-2361 Laxenburg, Austria huppmann@iiasa.ac.at +43 (0) 2236 807 - 572 http://www.iiasa.ac.at
Key challenges Energy Access Energy Security Land & Food Climate Change Water Scarcity Local Air Pollution Image sources: NASA, http://www.powernewsnetwork.com/white-house-releases-plan-to-cut-oil-imports-by-13-by-2025/1798/, http://wheresmyamerica.wordpress.com/2007/08/26/i-cant- see-my-america/, http://www.americanprogress.org/issues/green/report/2009/05/14/6142/energy-poverty-101/, http://today.uconn.edu/blog/2010/12/reclaiming-water-a-green-leap- forward/, http://te.wikipedia.org/wiki/%E0%B0%A6%E0%B0%B8%E0%B1%8D%E0%B0%A4%E0%B1%8D%E0%B0%B0%E0%B0%82:Forest_Osaka_Japan.jpg
IIASA Integrated Assessment Framework Consumer vehicle Macro-economy choice MACRO TRANSPORT Spatially explicit Income Distribution forest management Projections G4M - Energy++ system Agriculture, bioenergy Fuel choice model (including all GHGs and forestry Access and energy sector) GLOBIOM MESSAGE Energy Access Energy Security Land & Food Long-term GHG & air pollution climate pathways mitigation Hydro-economy MAGICC GAINS WAT Climate Change Water Scarcity Local Air Pollution
IIASA Integrated Assessment Framework Consumer vehicle Macro-economy choice MACRO TRANSPORT Spatially explicit Income Distribution forest management Projections G4M - Energy++ system Agriculture, bioenergy Fuel choice model (including all GHGs and forestry Access and energy sector) GLOBIOM MESSAGE Long-term GHG & air pollution climate pathways mitigation Hydro-economy MAGICC GAINS WAT
IIASA Integrated Assessment Framework Consumer vehicle Macro-economy choice MACRO TRANSPORT energy energy energy energy Spatially explicit demand prices demand prices Income Distribution forest management Projections G4M - carbon prices energy prices Energy++ system Agriculture, bioenergy Fuel choice model (including all GHGs and forestry biomass Access fuel demand and energy sector) potential and GLOBIOM prices MESSAGE water costs, demand availability Long-term GHG & air pollution climate pathways mitigation Hydro-economy MAGICC GAINS WAT
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