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TETRIS

WP6 – Quantitative Analysis of International Emissions Tradingand

Linkages between Workpackages

Christoph Böhringer, Ulf Moslener and Niels Anger

Presentation for Project Meeting,Amsterdam, June 21, 2006

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WP6: Structure of the Presentation

PART I: Modelling concept of WP6

PART II: Linkages between workpackages

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PART I: Modelling concept of WP6

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• ZEWWorkpackage leader:

Workpackage participants:• Ecoplan• CCAP• ECN• NTE

WP6: Objectives

• Extend existing CGE model of international trade and energy use with a concrete representation of the EU ETS

• Integrate project-based JI and CDM within top-down framework accounting for- Transaction costs

- CDM-specific investment risks

- Technology transfer

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WP6: Workplan

1. EU ETS analysis• National allocation plans (NAPs): EU-25 (country level)• Complementary EU policies (taxes) for non-ETS sectors• Update of data base: GTAP-6, IEA/DOE energy outlooks• Simulation of economic and emission impacts (based on

CGE analysis)

2. Extensions• Explicit bottom-up CDM/JI supply curves (cost-potential)• Bottom-up (technology-specific) transaction costs• CDM Investment risk indicator• Technology transfer

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pleted

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Complementary MAC incorporation

Partial equilibrium: SIMAC General equilibrium: PACE

• Direct + indirect (macro) impacts• Strengths: Comprehensiveness,

(market interactions, income)

• Explicit MACs based on BU or TD approach

• Discrete step function or continously differentiable functional form (fit), e.g.:

3,3

2,2,1 )()()( iroiriroiriroir

ir

ir eeaeeaeeae

Cp

iririr

MAC

• Direct impacts (carbon market only)• Regional compliance costs• Strengths: transparency, communication

abatement

Explicit CDM supply

curves based on BU

Macro impacts also for

CDM host countries

Macro impacts except for

CDM host countries

Implicit CDM

supply curves

PACE: CDM Technology Transfer

Variant 1: Variant 2 (optional):

CDMEmissionstrading

Choice of trading regions and sectors (r, i):Alternative sectoral coverage for CDM host countries (restricted vs. unlimited)

Analogous modelling of CDM and emissions trading. Model does not explicitly capture:

- CDM induced technology changes

- CDM-specific investment flows between host and donor CER transfer and

technology transferAAU transfer

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Assessment of Technology Transfer

A) Bottom-up approach 2-/3-step procedure (PE&GE):

1. Determine equilibrium carbon prices in model analysis (WP6)2. Deduce transferred technologies from bottom-up CDM supply

curves and database (WP3)3. Determine investment flows from donor to host country (WP3+WP6)

Technology-based approach

B) Top-down approach – optional (GE only):

• Multi-regional CGE model• Non-project based CDM for regions and sectors to be specified• Modelling of efficiency improvements in the electricity sector

Macroeconomic aspects of technology transfer

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Transaction costs and investment risk

Transaction costs:

• Project based transaction costs (WP3)- Upward shift of CDM supply curve- Modelling: Premium on CER price

Investment risk specific to CDM:

• Composite investment risk indicator CPI (WP1)- Risk premium on CER price- Upward shift of CDM supply curve (risk lowers

expected return of CDM projects)

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PART II: Linkages to other workpackages

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Model Inputs

CDM supply:

• Project-based abatement cost data (CDM) (WP3)• Project-based technology data (WP3,WP2)• Project-based transaction costs (WP3)

CDM investment risk:

• Country-specific risk indicator (WP1)

Emissions data Eastern Europe:

• Emission projections (WP5)

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WP6 Linkage Phase

Participants: ZEW, Ecoplan, ECN, Natsource, CCAP

Mapping 1:

Countries (regions) CDM risk indicator

Mapping 2:

CDM projects Abatement potential & price

CountrySectorTechnologyTransaction costsInvestment volume (?)

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Linkages to other WP

WP 1: Investment risk

Composite indicator (CPI) Transformation to risk

premium scale

WP 5: JI and ET in Eastern Europe

Emissions data

WP 3: Permit supply

- MAC curves by region and sector w/wo transaction costs- Technology transfer: Step 2 and 3

WP 2: Technology transfer

Case studies: Real world experience

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Good luck Oranje!Good luck Oranje!

Presentation for Project Meeting,Amsterdam, June 21, 2006

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Annex

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Partial Equilibrium: The Model

SIMAC : SImulation Model based on Marginal Abatement Costs Böhringer et al. (2005)

Numerical multi-country partial equilibrium model of the (world) carbon market in 2010 and 2020

Objective: Minimization of compliance (abatement) costs by emissions trading

Model may covers transaction costs and investment risk for CDM projects

Based on (calibrated) marginal abatement cost functions for energy-intensive and non-energy-intensive sectors EU-ETS

MACs can be based on bottom-up (e.g. POLES energy system model) or top-down model (e.g. PACE – CGE model)

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General Equilibrium: The Model PACE

– Multi-sector, multi-region model of the EU (updated data base: GTAP 6)– Incorporation of market interactions and income closures– Micro-consistent calibration based on empirical data for technologies and

consumer preferences

PACE (Policy Assessment based on Computable Equilibrium):

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Regions and Sectors - PACE

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Channels of international technology transfer

1. TT through foreign direct investment – Channels: imitation effects, labor turnover and vertical linkages of firms (Saggi 2000)

2. TT as international knowledge spillovers by international capital flows induced technological change (Kemfert 2002)

3. TT as knowledge transfer through trade in goods (Grossman and Helpman 1991)

“Embodiment hypothesis”: technology is embodied in commodities knowledge is transferred through trade

a) Knowledge spillovers embodied in final goods (Das 2000)b) Knowledge spillovers embodied in intermediate inputs (Das 2002)