Wh What at's wi with Arti Articl cle 6 and and 45Q? 45Q? Tw Two New New Re Research Ques Questions ons Jae Edmonds Joint Global Change Research Institute 1
The Extraordinary Luxury of Time • Thanks for the opportunity to deliver a keynote address to the 24 th AIM workshop. • The AIM research team has been at the cutting edge of research for three decades and I’d like to talk about two issues that are on the frontier • One that AIM began work on 2 years ago—Fujimori et al. (2016) • The other is just emerging—45Q 2
The The Va Value of of Arti Articl cle 6 3
The Paris Agreement and Article 6 • The Paris Agreement uses a bottom up approach— Nationally Determined Contributions (NDCs) • Each member of the agreement determines what it can contribute to achieving the goals of the Paris agreement • Article 6 allows countries to jointly implement NDCs paris ‐ agreement ‐ and ‐ article ‐ 6/ Source: http://www.carbon ‐ mechanisms.de/en/introduction/the ‐ 4
How Valuable is Article 6? What is the potential economic value of implementing Article 6? • What is the potential size of the carbon market? • Who would be the sellers and who would be the buyers? • How much could costs be reduced? • How much additional ambition is enabled by cost reductions? Source: https://unfccc.int/files/focus/long ‐ term_strategies/application/pdf/mid_century_strategy_report ‐ final_red.pdf We build on earlier work by Shinichiro Fujimori, et al. (2016) 5
The Global Change Assessment Model (GCAM) Scenario Assumptions Scenario Outputs Socioeconomic assumptions Prices and production (population, GDP) quantities : Energy, land use, and water Energy sectors technologies Transportation Primary energy resources Policies, company actions Agricultural products and preferences Land use Resources Crops (by type) Pasture Unmanaged Water demand Raw demand by sector Response to scarcity Atmosphere-Climate Economic indicators Economic losses Income transfer 6
NDC Emissions: Independent Implementation Global I-NDC Scenario CO 2 Emissions 40 South America_Southern South America_Northern • Significant decline in Colombia 35 Central America and Caribbean LAC Brazil emissions Argentina 30 South Africa Africa_Western Africa Africa_Southern Africa_Northern 25 Africa_Eastern Middle East Pakistan • The level of emissions Gt CO 2 /yr 20 India Indonesia China Southeast Asia reduction varies by India South Asia 15 Central Asia Taiwan country China 10 Russia Europe_Eastern Southeast Europe_Non_EU 5 European Free Trade Association Asia EU ‐ 15 EU ‐ 12 South Korea 0 Japan Australia_NZ Mexico ‐ 5 Canada USA 2015 2025 2035 2045 2055 2065 2075 2085 2095 7
Shadow Price of CO 2 NDC Shadow Prices: $350.00 USA Independent Implementation Canada Mexico S. Korea Australia_NZ $314/tonCO 2 Japan $300.00 South Korea EU ‐ 12 • Wide range in shadow EU ‐ 15 European Free Trade Association $250.00 Europe_Non_EU prices Europe_Eastern Russia China Taiwan $200.00 Central Asia South Asia Southeast Asia Indonesia 2030 2050 2100 $150.00 India Pakistan $0 to $0 to $2 to Middle East I ‐ NDC Range Africa_Eastern $152/tonCO 2 $144/tonCO 2 $314/tonCO 2 $100.00 Africa_Northern Africa_Southern Africa_Western South Africa Argentina $50.00 Brazil Central America and Caribbean Colombia $0/tonCO 2 South America_Northern $0.00 South America_Southern 8 2020 2040 2060 2080 2100
NDC Shadow Prices: Shadow Price of CO 2 Independent vs. Joint $350 Implementation Shadow Price Range (Independent) $300 Global CO2 Shadow Price • Joint implementation shadow $250 price lies between high and low prices of independent $200 implementation $150 2030 2050 2100 $0 to $0 to $2 to I ‐ NDC Range $100 $152/tonCO 2 $144/tonCO 2 $314/tonCO 2 J ‐ NDC $46/tonCO 2 $74/tonCO 2 $120/tonCO 2 $50 Fujimori, et $0 al. 2016. 2020 2040 2060 2080 2100 $9/ton CO 2 9
NDC Emissions: Independent vs. Joint Implementation Global I-NDC Scenario CO 2 Emissions Global J-NDC Scenario CO 2 Emissions 40 40 South America_Southern South America_Southern South America_Northern South America_Northern Colombia Colombia 35 35 Central America and Caribbean Central America and Caribbean LAC Brazil Brazil Argentina Argentina LAC 30 South Africa South Africa 30 Africa_Western Africa_Western Africa Africa_Southern Africa_Southern Africa Africa_Northern Africa_Northern 25 25 Africa_Eastern Africa_Eastern Middle East Middle East Gt CO 2 /yr Pakistan Pakistan Gt CO 2 /yr 20 India 20 India Indonesia Indonesia China India China Southeast Asia Southeast Asia India South Asia 15 South Asia 15 Central Asia Central Asia Taiwan Taiwan China China Europe 10 Russia 10 Russia Europe Europe_Eastern Europe_Eastern Southeast Europe_Non_EU Europe_Non_EU 5 European Free Trade Association European Free Trade Association 5 Asia EU ‐ 15 EU ‐ 15 EU ‐ 12 EU ‐ 12 U.S South Korea 0 South Korea 0 Japan Japan Australia_NZ 2015 2025 2035 2045 2055 2065 2075 2085 2095 Australia_NZ Mexico Mexico ‐ 5 Canada Canada USA 2015 2025 2035 2045 2055 2065 2075 2085 2095 USA 10
Potential changes in emissions—CO 2 Change in CO 2 Emissions under Perfect South America_Southern Article 6 15 South America_Northern • Seller (13 regions) Colombia Central America and Caribbean Sellers Brazil • Buyer (6 regions) Argentina 10 Africa South Africa Africa_Western • Seller to buyer Middle East Africa_Southern Africa_Northern 5 Africa_Eastern (10 regions) India Middle East Pakistan PgCO 2 /yr Southeast Asia • Buyer to seller India China Indonesia 0 Southeast Asia (South Africa) South Asia U.S Central Asia Taiwan • Seller to buyer to seller ‐ 5 China Russia Europe (Colombia) Europe_Eastern Europe_Non_EU European Free Trade Association China ‐ 10 • Buyer to seller to buyer EU ‐ 15 EU ‐ 12 Buyers (European Free Trade) South Korea Japan Australia_NZ ‐ 15 Mexico 2015 2025 2035 2045 2055 2065 2075 2085 2095 Canada 11 USA
Potential Market Size—Billion of 2015 US$ Emissions Trading Market Size $1,600 South America_Southern Sellers South America_Northern Market Size $1,400 Colombia Central America and (Billion 2015 Caribbean Brazil $1,200 Year US$) Argentina Africa South Africa $1,000 Africa_Western $222 2030 Africa_Southern $800 Middle East Billion 2015 USD Africa_Northern Africa_Eastern $600 Middle East $572 2050 India Pakistan $400 India Indonesia Southeast Asia $200 $1,430 South & 2100 South Asia Southeast Asia China Central Asia $0 2015 2030 2045 2060 2075 2090 World Bank. 2017. Estimate 2030 market size at $100 ‐ 400 billion US$ Fujimori, et al. 2016. Estimate 2030 market size of $38 billion 2005 US$ 12
Emissions Mitigation Cost: Independent vs. Joint Implementation Emissions Mitigation Cost (billion 2015 US$/yr) Percentage Reduction in $3,500 Cost 100% $3,000 $904 $2,500 80% $2,000 60% $1,500 Fujimori, et al. 2016. 40% $220b in $1,000 Joint $445 2030 20% Independent Fujimori, et al. 2016. 75% reduction in 2030 $500 $268 $0 0% 2015 2025 2035 2045 2055 2065 2075 2085 2095 2020 2030 2040 2050 2060 2070 2080 2090 2100 13
GDP Change by Region – Billion of 2015 US$ Net GDP Change (Cumulative) $7,000 USA Canada Southeast Asia Mexico Australia_NZ Japan $6,000 South Korea EU ‐ 12 EU ‐ 15 European Free Trade Association $5,000 Europe_Non_EU U.S. China Europe_Eastern Russia Unit: Billion 2015$ India China Europe Taiwan $4,000 Central Asia South Asia Southeast Asia Indonesia $3,000 India Africa Pakistan Middle East Africa_Eastern Africa_Northern $2,000 Africa_Southern LAC Africa_Western South Africa Argentina Brazil $1,000 Central America and Caribbean Colombia South America_Northern South America_Southern $0 14
How much additional ambition could be enabled by cost reductions? Global CO 2 Emissions • We assume that the cost that 2030 40 each region is willing to 11% Reductions contribute to emissions mitigation is reflected in their 35 NDC, • We sum the costs and then Gt CO 2 assume that in each period, 30 the world limits emissions using Article 6 mechanisms. 25 • Each country increases its ambition so that its net cost, after trade, is identical to its 20 net cost under the I-NDC scenario. 2010 2025 2040 2055 2070 2085 2100 • Something more easily done in Independent Mitigation a model than the real world. Enhanced Joint Mitigation 15
How much additional ambition c enabled by cost reductions? Global CO 2 Emissions 40 Cumulative Enhanced Mitigation 35 (2020 ‐ 2100) Gt CO 2 30 25 310 Gt CO 2 20 2010 2025 2040 2055 2070 2085 2100 Independent Mitigation Enhanced Joint Mitigation 16
How Valuable is Article 6? • Article 6 holds significant potential to reduce cost and enhance ambition • Everyone could be better off through collaboration • 2030 global net benefit ~$270 billion • Realizing this potential is a real- world challenge • Near-term : Translating NDCs to Internationally Transferred Mitigation Outcomes (ITMOs) • Long-term : It could take any number of forms including NDC coalitions, ratchet mechanisms, or Source: https://unfccc.int/files/focus/long ‐ term_strategies/application/pdf/mid_century_strategy_report ‐ final_red.pdf other novel approaches. 17
45Q 45Q 18
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