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1
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
com
pleted
in p
rog
ress
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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)