A robust sequential CO2 emissions strategy based on optimal control of atmospheric CO2 concentrations

This paper formally introduces the concept of mitigation as a stochastic control problem. This is illustrated by applying a digital state variable feedback control approach known as Non-Minimum State Space (NMSS) control to the problem of specifying carbon emissions to control atmospheric CO₂ concentrations in the presence of uncertainty. It is shown that the control approach naturally lends itself to integrating both anticipatory and reflexive mitigation strategies within a single unified framework. The framework explicitly considers the closed-loop nature of climate mitigation, and employs a policy orientated optimisation procedure to specify the properties of this closed-loop system. The product of this exercise is a control law that is suitably conditioned to regulate atmospheric CO₂ concentrations through assimilating online information within a 25-year review cycle framework. It is shown that the optimal control law is also robust when faced with significant levels of uncertainty about the functioning of the global carbon cycle.     

Policy incentives for carbon capture and storage technologies in Europe: A qualitative multi-criteria analysis

In this paper, we compare different policy incentives for overcoming investment uncertainties that are typical for low-carbon technologies prior to their commercialisation, some of which may be attributable to market failures. The paper focuses on the particular case of carbon capture and storage (CCS) technologies and conducts a qualitative multi-criteria analysis of different public policy support schemes for CCS demonstration to evaluate their suitability. The assessed schemes include mandatory CCS, emission performance standards and several different financial incentives (in addition to the European Union Emission Trading Scheme). Based on the available literature and on experience in the UK and Germany with promotion instruments for low-carbon technologies, the results of our analysis suggest that two alternative schemes, a CCS bonus incentive or a carbon dioxide (CO₂) price guarantee, perform best in comparison with the other assessed instruments. While they reduce the uncertainty of CCS investments in the face of low European Union Allowance prices, they also avoid significant adverse impacts on operational and investment decisions in electricity markets.     

The promise of carbon capture and storage: evaluating the capture-readiness of new EU fossil fuel power plants

To what degree are recently built and planned power plants in the EU ‘capture-ready’ for carbon capture and storage (CCS)? Survey results show that most recently built fossil fuel power plants have not been designed as capture-ready. For 20 planned coal-fired plants, 13 were said to be capture-ready (65%). For 31 planned gas-fired power plants, only 2 were indicated to be capture-ready (6%). Recently built or planned power plants are expected to cover a large share of fossil fuel capacity by 2030 and thereby have a large impact on the possibility to implement CCS after 2020. It is estimated that around 15–30% of fossil fuel capacity by 2030 can be capture-ready or have CO₂ capture implemented from the start. If CCS is implemented at these plants, 14–28% of baseline CO₂ emissions from fossil fuel power generation in 2030 could be mitigated, equivalent to 220–410 MtCO₂. A key reason indicated by utilities for building a capture-ready plant is (expected) national or EU policies. In addition, financial incentives and expected high CO₂ prices are important. The implementation of a long-term regulatory framework for CCS with clear definitions of ‘capture- readiness’ and policy requirements will be important challenges.     

Uncertainty, learning and ambiguity in economic models on climate policy: some classical results and new directions

We present how uncertainty and learning are classically studied in economic models. Specifically, we study a standard expected utility model with two sequential decisions, and consider two particular cases of this model to illustrate how uncertainty and learning may affect climate policy. While uncertainty has generally a negative effect on welfare, learning has always a positive, and thus opposite, effect. The effects of both uncertainty and learning on decisions are less clear. Neither uncertainty nor learning can be used as a general argument to increase or reduce emissions today without studying the specific intertemporal costs and benefits. Considering limits in applying the expected utility framework to climate change problems, we then consider a more recent framework with ambiguity-aversion which accounts for situations of imprecise or multiple probability distributions. We discuss both the impact of ambiguity-aversion on decisions and difficulties in applying such a non-expected utility framework to a dynamic context.     

Marginal abatement cost curves: a call for caution

Legal commitments to reduce CO₂ emissions require policy makers to find cost-efficient means to meet these obligations. Marginal abatement cost (MAC) curves, which illustrate the economics associated with climate change mitigation, have recently attracted a great amount of attention. A number of limitations with MAC curves are explained by the implication they should be just one tool in a broader set of decision-making aids used in assessing climate policy. MAC curves, for example, omit ancillary benefits of greenhouse gas emission abatement, treat uncertainty in a limited manner, exclude intertemporal dynamics and lack the necessary transparency concerning their assumptions. MAC curves based on the individual assessment of abatement measures suffer from additional shortcomings such as the non-consideration of interactions and non-financial costs, a possibly inconsistent baseline, double counting and limited treatment of behavioural aspects. Reducing emissions from deforestation and forest degradation exhibit many of the above-mentioned problems, making it particularly difficult to capture in a cost curve. Policy makers should therefore be cautious when interpreting MAC curves, pay attention to the underlying assumptions, consider non-financial costs and be aware of the important uncertainties and underlying path dependencies.     

What information do policy makers need to develop climate adaptation plans for smallholder farmers? The case of Central America and Mexico

Scientific and technical information can increase the ability of policy makers to make strategic decisions. However, climate change policy is often formulated without significant input from science. We examine whether the availability and accessibility of information related to climate change is a major barrier for policy action on climate change adaptation for smallholder farmers. We also investigate whether scientific information related to climate change is available and used in policy making in Central America and Mexico. Our online survey of 105 decision makers indicated that a lack of scientific and technical information hinders policy makers from developing policies to help smallholder farmers adapt to climate change. Specific needs include information on the impacts of climate change on water availability for agriculture and the areas that are or will be prone to flooding, droughts or landslides. Information about the location of the farmers who are most vulnerable to climate change, the projected temperature and precipitation in agricultural areas and the expected impacts of climate change on crop yields or animal productivity, is also needed. Despite high interest in having scientific information guide policy making, many respondents indicated that policy makers rarely use this information in adaptation planning. In addition to ensuring that relevant information is available to inform policy making, technical and scientific information must be published in venues that are readily accessible for policy makers, easy to understand, and written in a format that is policy-relevant. It is also critical that scientific articles provide specific recommendations for achieving desired policy outcomes.     

The value of bioenergy in low stabilization scenarios: an assessment using REMIND-MAgPIE

This study investigates the use of bioenergy for achieving stringent climate stabilization targets and it analyzes the economic drivers behind the choice of bioenergy technologies. We apply the integrated assessment framework REMIND-MAgPIE to show that bioenergy, particularly if combined with carbon capture and storage (CCS) is a crucial mitigation option with high deployment levels and high technology value. If CCS is available, bioenergy is exclusively used with CCS. We find that the ability of bioenergy to provide negative emissions gives rise to a strong nexus between biomass prices and carbon prices. Ambitious climate policy could result in bioenergy prices of 70 $/GJ (or even 430 $/GJ if bioenergy potential is limited to 100 EJ/year), which indicates a strong demand for bioenergy. For low stabilization scenarios with BECCS availability, we find that the carbon value of biomass tends to exceed its pure energy value. Therefore, the driving factor behind investments into bioenergy conversion capacities for electricity and hydrogen production are the revenues generated from negative emissions, rather than from energy production. However, in REMIND modern bioenergy is predominantly used to produce low-carbon fuels, since the transport sector has significantly fewer low-carbon alternatives to biofuels than the power sector. Since negative emissions increase the amount of permissible emissions from fossil fuels, given a climate target, bioenergy acts as a complement to fossils rather than a substitute. This makes the short-term and long-term deployment of fossil fuels dependent on the long-term availability of BECCS.     

Using the social cost of carbon to value earth observing systems

The goal of this study is to show how to quantify the benefits of accelerated learning about key parameters of the climatic system and use this knowledge to improve decision-making on climate policy. The US social cost of carbon (SCC) methodology is used in innovative ways to value new Earth observing systems (EOSs). The study departs from the strict US SCC methodology, and from previous work, in that net benefits are used instead of only damages to calculate the value of information of the enhanced systems. In other respects the US SCC methodology is followed closely. We compute the surfeit expected net benefits of learning the actionable information earlier, with the enhanced system, versus learning later with existing systems. The enhanced systems are designed to give reliable information about climate sensitivity on accelerated timescales relative to existing systems; therefore, the decision context stipulates that a global reduced emissions path would be deployed upon receiving suitable information on the rate of temperature rise with a suitable level of confidence. By placing the enhanced observing system in a decision context, the SCC enables valuing this system as a real option.

Policy relevance

Uncertainty in key parameters of the climatic system is often cited as a barrier for near-term reductions of carbon emissions. It is a truism among risk managers that uncertainty costs money, and its reduction has economic value. Advancing policy making under uncertainty requires valuing the reduction in uncertainty. Using CLARREO, a new proposed EOS,as an example, this article applies value of information/real option theory to value the reduction of uncertainty in the decadal rate of temperature rise. The US interagency social cost of carbon directive provides the decision context for the valuations. It is shown that the real option value of the uncertainty reduction, relative to existing observing systems, is a very large multiple of the new system's cost.     

Substitution of Natural Gas for Coal: Climatic Effects of Utility Sector Emissions

Substitution of natural gas for coal is one means of reducing carbon dioxide (CO₂) emissions. However, natural gas and coal use also results in emissions of other radiatively active substances including methane (CH₄), sulfur dioxide (SO₂), a sulfate aerosolprecursor, and black carbon (BC) particles. Will switching from coal to gas reduce the net impact of fossil fuel use on global climate? Using the electric utility sector as an example, changes in emissions of CO₂, CH₄,SO₂ and BC resulting from the replacement of coal by natural gas are evaluated, and their modeled net effect on global mean-annual temperature calculated. Coal-to-gas substitution initially produces higher temperatures relative to continued coal use. This warming is due to reduced SO₂ emissionsand possible increases in CH₄ emissions, and can last from 1 to 30years, depending on the sulfur controls assumed. This is followed by a net decrease in temperature relative to continued coal use, resulting from lower emissions of CO₂ and BC. The length of this period and the extent of the warming or cooling expected from coal-to-gas substitution is found to depend on key uncertainties and characteristics of the substitutions, especially those related to: (1) SO₂ emissions and consequentsulphate aerosol forcing; and (2) the relative efficiencies of the power plantsinvolved in the switch.     

Envisioning carbon capture and storage: expanded possibilities due to air capture,leakage insurance,and C-14 monitoring

In order to meet the challenge of climate change while allowing for continued economic development, the world will have to adopt a net zero carbon energy infrastructure. Due to the world’s large stock of low-cost fossil fuels, there is strong motivation to explore the opportunities for capturing the CO₂ that is produced in the combustion of fossil fuels and keeping it out of the atmosphere. Three distinct sets of technologies are needed to allow for climate neutral use of fossil fuels: (1) capture of CO₂ at concentrated sources like electric power plants, future hydrogen production plants and steel and cement plants; (2) capture of CO₂ from the air; and (3) the safe and permanent storage of CO₂ away from the atmosphere. A strong regime of carbon accounting is also necessary to gain the public’s trust in the safety and permanence of CO₂ storage. This paper begins with an extensive overview of carbon capture and storage technologies, and then presents a vision for the potential implementation of carbon capture and storage, drawing upon new ideas such as air capture technology, leakage insurance, and monitoring using a radioactive isotope such as C-14. These innovations, which may provide a partial solution for managing the risks associated with long-term carbon storage, are not well developed in the existing literature and deserve greater study.     

The public perception of carbon dioxide capture and storage in the UK: results from focus groups and a survey

Abstract

A series of meetings of two ‘Citizen Panels’ were held to explore public perceptions of off-shore carbon dioxide (CO₂) capture and storage (CCS). In addition, a face-to-face survey of 212 randomly selected individuals was conducted. We found that, on first hearing about CCS in the absence of any information on its purpose, the majority of people either do not have an opinion at all or have a somewhat negative perspective. However, when (even limited) information is provided on the role of CO₂ storage in reducing CO₂ emissions to the atmosphere, opinion shifts towards expressing slight support for the concept.

Support depends, however, upon concern about human-caused climate change, plus recognition of the need for major reductions in CO₂ emissions. It also depends upon CCS being seen as just one part of a wider strategy for achieving significant cuts in CO₂ emissions. A portfolio including renewable energy technologies, energy efficiency, and lifestyle change to reduce demand was generally favoured. CCS can be part of such a portfolio, but wind, wave, tidal, solar and energy efficiency were preferred. It was felt that uncertainties concerning the potential risks of CCS had to be better addressed and reduced; in particular the risks of accidents and leakage (including the potential environmental, ecosystem and human health impacts which might result from leakage).     

Carbon emission trading and carbon taxes under uncertainties

The idea of market-based carbon emission trading and carbon taxes is gaining in popularity as a global climate change policy instrument. However, these mechanisms might not necessarily have a positive outcome unless their value reflects socioeconomic and environmental impacts and regulations. Moreover, the fact that they have various inherent exogenous and endogenous uncertainties raises serious concerns about their ability to reduce emissions in a cost-effective way. This paper aims to introduce a simple stochastic model that allows the robustness of economic mechanisms for emission reduction under multiple natural and human-related uncertainties to be analyzed. Unlike standard equilibrium state analysis, the model shows that the explicit introduction of uncertainties regarding emissions, abatement costs, and equilibrium states makes it almost impossible for existing market-based trading and carbon taxes to be environmentally safe and cost-effective. Here we propose a computerized multi-agent trading model. This can be viewed as a prototype to simulate an emission trading market that is regulated in a decentralized way. We argue that a market of this type is better equipped to deal with long-term emission reductions, their direct regulation, irreversibility, and “lock-in” equilibria.     

On the economics of coastal adaptation solutions in an uncertain world

The economics of adaptation to climate change relies heavily on comparisons of the benefits and costs of adaptation options that can range from changes in policy to implementing specific projects. Since these benefits are derived from damages avoided by any such adaptation, they are critically dependent on the specification of a baseline. The current exercise paper reinforces this point in an environment that superimposes stochastic coastal storm events on two alternative sea level rise scenarios from two different baselines: one assumes perfect economic efficiency of the sort that could be supported by the availability of actuarially fair insurance and a second in which fundamental market imperfections significantly impair society’s ability to spread risk. We show that the value of adaptation can be expressed in terms of differences in expected outcomes damages only if the effected community has access to efficient risk-spreading mechanisms or reflects risk neutrality in its decision-making structure. Otherwise, the appropriate metric for measuring the benefits of adaptation must be derived from certainty equivalents. In these cases, increases in decision-makers’ aversion to risk increase the economic value of adaptations that reduce expected damages and diminish the variance of their inter-annual variability. For engineering and other adaptations that involve significant up-front expense followed by ongoing operational cost, increases in decision-makers’ aversion increase the value of adaptation and therefore move the date of economically efficient implementation closer to the present.     

Accounting for uncertainties and time preference in economic analysis of tackling climate change through forestry and selected policy implications for Scotland and Ukraine

The paper discusses the development of economic techniques for dealing with uncertainties in economic analysis of planting trees to mitigate climatic change. In consideration of uncertainty, time preference and intergenerational equity, the traditional cost-benefit analysis framework is challenged with regard to the discounting/non-discounting of carbon uptake benefits, and because it usually uses a constant and positive discount rate. We investigate the influence of various discounting protocols on the outputs of economic analysis. The idea of using the declining discount rate is also considered. Several numerical examples dealing with the analysis of afforestation for carbon sequestration in Scotland and Ukraine are provided. We show that the choice of discounting protocols have a considerable influence on the results of economic analysis, and therefore, on the decision-making processes related to climate change mitigation strategies. The paper concludes with some innovative insights on accounting for uncertainties and time preference in tackling climate change through forestry, several climate policy implications of dealing with uncertainties, and a brief discussion of what the use of different discounting protocols might imply for decision making.     

Carbon capture and storage policy in the United States: A new coalition endeavors to change existing policy

Carbon capture and storage (CCS) is considered by some to be a promising technology to reduce greenhouse gas emissions, and advocates are seeking policies to facilitate its deployment. Unlike many countries, which approach the development of policies for geologic storage (GS) of carbon dioxide (CO₂) with nearly a blank slate, the U.S. already has a mature policy regime devoted to the injection of CO₂ into deep geologic formations. However, the existing governance of CO₂ injection is designed to manage enhanced oil recovery (EOR), and policy changes would be needed to manage the risks and benefits of CO₂ injection for the purpose of avoiding GHG emissions. We review GS policy developments at both the U.S. federal and state levels, including original research on state GS policy development. By applying advocacy coalition framework theory, we identify two competing coalitions defined by their beliefs about the primary purpose of CO₂ injection: energy supply or greenhouse gas (GHG) emission reductions. The established energy coalition is the beneficiary of the current policy regime. Their vision of GS policy is protective: to minimize harm to fossil energy industries if climate policy were to be enacted. In contrast, the newly formed climate coalition seeks to change existing GS policy to support their proactive vision: to maximize GHG reductions using CCS when climate policy is enacted. We explore where and at what scale legislation emerges and examine which institutions gain prominence as drivers of policy change. Through a detailed textual analysis of the content of state GS legislation, we find that the energy coalition has had greater success than the climate coalition in shaping state laws to align with its policy preferences. It has enshrined its view of the purpose of CO₂ injection in state legislation, delegated authority for GS to state agencies aligned with the existing policy regime, and protected the EOR status quo, while creating new opportunities for EOR operators to profit from the storage of CO₂ The climate coalition's objective of proactively putting GS policy in place has been furthered, and important progress has been made on commonly held concerns, such as the resolution of property rights issues, but the net result is policy change that does not significantly revise the existing policy regime.     

The transportation sector and low-carbon growth pathways: modelling urban,infrastructure, and spatial determinants of mobility

This article contributes to the controversial debate over the effect of spatial organization on CO₂ emissions by investigating the potential of infrastructure measures that favour lower mobility in achieving the transition to a low-carbon economy. The energy–economy–environment (E3) IMACLIM-R model is used to provide a detailed representation of passenger and freight transportation. Unlike many of the E3 models used to simulate mitigation options, IMACLIM-R represents both the technological and behavioural determinants of mobility. By comparing business-as-usual, carbon price only, and carbon price combined with transport policy scenarios, it is demonstrated that the measures that foster a modal shift towards low-carbon modes and a decoupling of mobility needs from economic activity significantly modify the sectoral distribution of mitigation efforts and reduce the level of carbon tax necessary to reach a given climate target relative to a ‘carbon price only’ policy.

Policy relevance

Curbing carbon emissions from transport activities is necessary in order to reach mitigation targets, but it poses a challenge for policy makers. The transport sector has two peculiarities: a weak ability to react to standard pricing measures (which encourages richer policy interventions) and a dependence on long-lived infrastructure (which imposes a delay between policy interventions and effective action). To address these problems, a framework is proposed for analysing the role of transport-specific measures adopted complementarily to carbon pricing in the context of international climate policies. Consideration is given to alternative approaches such as infrastructure measures designed to control mobility through less mobility-intensive denser agglomerations, investment reorientation towards public mode, and logistics reorganization towards less mobility-dependent production processes. Such measures can significantly reduce transport emissions in the long term and hence would moderate an increase in the carbon price and reduce its more important detrimental impacts on the economy.     

Does black carbon abatement hamper CO 2 abatement?

Concerns have been raised that near-term black carbon abatement strategies for global warming mitigation would interfere with the longer-term CO₂ abatement efforts. In response, we put forward a “combined target and metric approach”, a theoretical framework, in which the time horizon of the metric is linked to the specific target of the climate policy. In this approach, a shorter time horizon for the metric is justified only when the overall climate policy is tightened; the lower the target level of the climate policy, the earlier the year of the target. Employing a consistent time perspective for the metric and target means that enhanced near-term reduction of short-lived climate forcers does not reduce the importance of the CO₂ abatement, since the overall climate target is stricter.     

The influence of negative emission technologies and technology policies on the optimal climate mitigation portfolio

Combining policies to remove carbon dioxide (CO₂) from the atmosphere with policies to reduce emissions could decrease CO₂ concentrations faster than possible via natural processes. We model the optimal selection of a dynamic portfolio of abatement, research and development (R&D), and negative emission policies under an exogenous CO₂ constraint and with stochastic technological change. We find that near-term abatement is not sensitive to the availability of R&D policies, but the anticipated availability of negative emission strategies can reduce the near-term abatement optimally undertaken to meet 2°C temperature limits. Further, planning to deploy negative emission technologies shifts optimal R&D funding from ??carbon-free?? technologies into ??emission intensity?? technologies. Making negative emission strategies available enables an 80% reduction in the cost of keeping year 2100 CO₂ concentrations near their current level. However, negative emission strategies are less important if the possibility of tipping points rules out using late-century net negative emissions to temporarily overshoot the CO₂ constraint earlier in the century.     

Uncertainty,cost-effectiveness and environmental safety of robust carbon trading: integrated approach

Carbon markets, like other commodity markets, are volatile. They react to stochastic “disequilibrium” spot prices, which may be affected by inadequate policies, speculations and bubbles. The market-based emission trading, therefore, does not necessarily minimize abatement costs and achieve emission reduction goals. We introduce a basic stochastic model integrating emissions reduction, monitoring and trading costs allowing us to analyze the robustness of emission and uncertainty reduction policies under environmental safety constraints asymmetric information and other multiple anthropogenic and natural uncertainties. Explicit treatment of uncertainties provides incentives for reducing them before trading. We illustrate functioning of the robust market with numerical results involving such countries as the US, Australia, Canada, Japan, EU27, Russia, Ukraine. In particular, we analyze if the knowledge about uncertainties may affect portfolios of technological and trade policies or structure of the market and how uncertainty characteristics may affect market prices and change the market structure.     

Perceived fairness and public acceptability of carbon pricing: a review of the literature

While carbon pricing is widely seen as a crucial element of climate policy and has been implemented in many countries, it also has met with strong resistance. We provide a comprehensive overview of public perceptions of the fairness of carbon pricing and how these affect policy acceptability. To this end, we review evidence from empirical studies on how individuals judge personal, distributional and procedural aspects of carbon taxes and cap-and-trade. In addition, we examine preferences for particular redistributive and other uses of revenues generated by carbon pricing and their role in instrument acceptability. Our results indicate a high concern over distributional effects, particularly in relation to policy impacts on poor people, in turn reducing policy acceptability. In addition, people show little trust in the capacities of governments to put the revenues of carbon pricing to good use. Somewhat surprisingly, most studies do not indicate clear public preferences for using revenues to ensure fairer policy outcomes, notably by reducing its regressive effects. Instead, many people prefer using revenues for ‘environmental projects’ of various kinds. We end by providing recommendations for improving public acceptability of carbon pricing. One suggestion to increase policy acceptability is combining the redistribution of revenue to vulnerable groups with the funding for environmental projects, such as on renewable energy.

Key policy insights

• If people perceive carbon pricing instruments as fair, this increases policy acceptability and support.

• People’s satisfaction with information provided by the government about the policy instrument increases acceptability.

• While people express high concern over uneven distribution of the policy burden, they often prefer using carbon pricing revenues for environmental projects instead of compensation for inequitable outcomes.

• Recent studies find that people’s preferences shift to using revenues for making policy fairer if they better understand the functioning of carbon pricing, notably that relatively high prices of CO₂-intensive goods and services reduce their consumption.

• Combining the redistribution of revenue to support both vulnerable groups and environmental projects, such as on renewable energy, seems to most increase policy acceptability.