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The Cost of Greenhouse Gas Mitigation: A Brief Overview. AT 760: Global Carbon Cycle Jonathan Vigh December 18, 2003. The Problem.

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the cost of greenhouse gas mitigation a brief overview

The Cost of Greenhouse Gas Mitigation: A Brief Overview

AT 760: Global Carbon Cycle

Jonathan Vigh

December 18, 2003

the problem
The Problem
  • Increasing Greenhouse Gas (GHG) emissions may cause considerable global and regional climate change leading to significant economic, environmental, and ecological costs over the next century.
  • Global Warming Potentials (over 100 y):
    • CO2 1
    • CH4 23
    • N2O 296
world ghg emissions by sector
World GHG Emissions by Sector§

SectorCO2 Emissions (GtC)Sharegrowth rate†rate trend

Buildings 1.73 31% +1.8% decelerating

Transport 1.22 22% +2.5% steady

Industry 2.34 43% +1.5% decelerating

Agriculture 0.22 4%‡ +3.1% decelerating

Total Emissions 5.5 100% +1.8% decelerating

(Total energy emissions accounted for 5.5 GtC emissions in 1995).

§ Energy usage only, does not include other emissions such as cement production, landfill emissions, and land-use changes such as forest management, etc.

† Average annual growth rate from 1971-1995

‡ The agriculture sector accounts for 20% of CO2 equivalents because of methane emissions.

[Adapted from Price et al. 1998, 1999, out of table in Climate Change 2001: Mitigation, 3rd Assessment Report (TAR), IPCC Working Group 3]

current energy usage of usa
Current Energy Usage of USA

[U.S. EPA Inventory of Greenhouse Gas Emissions, April 2002]

worldwide energy trends
Worldwide Energy Trends
  • The average annual growth rate of global energy consumption was 2.4% from 1971-1990, but dropped to 1.3% from 1990-1998.
  • The average annual growth rate of global energy-related CO2 emissions dropped from 2.1% to 1.4% in the same periods.
  • Why?
    • Improved energy efficiencies
    • Increased fuel switching to less carbon-intensive sources
    • Adoption of renewable energy sources
    • Dramatic decrease in countries with economies in transition (EIT) as a result of economic changes
  • Why aren’t emissions dropping then?
    • Countervailing trends of population growth, economic growth, increased energy usage per capita, and development of the Third World.
costing methodologies
Costing Methodologies
  • Top-down approach
    • Uses integrated macro-economic models to estimate the cost of GHG reduction activities.
    • Good for examining the effectiveness of overall mitigation policies.
  • Bottom-up approach
    • Estimates the cost of GHG reduction from a given technology or mitigation activity.
    • Must compare to some baseline emissions from current or expected technology portfolio.
what is the cost anyway
What is the ‘cost’ anyway?
  • Direct (levelized) costs of delivered energy includes:
    • Capital costs (plant infrastructure)
    • Cost of capital (depends on interest rates)
    • Operation costs (personnel, etc.)
    • Maintenance costs
    • Fuel costs (mining, drilling, transport)
    • Transmission costs
  • Indirect costs
    • Waste disposal
    • Environment
    • Climate
    • Opportunity cost of land use
    • Distortion to the economy
      • Opportunity cost of capital, export of capital for import of energy
      • Competition for resources (physical and personnel)
      • Effect on economic stability – energy security
    • Equality on local, regional, and global scales
cost of ghg reductions
Cost of GHG reductions
  • Compare a current energy production method or portfolio to an alternative one
  • Compute difference in GHG emissions
  • Compute difference in direct and indirect costs
  • Arrive at cost of GHG avoidance ($/tC)
  • Proper analysis includes direct and indirect costs, and macroeconomic effects
mitigation of greenhouse gases
Mitigation of Greenhouse Gases
  • Energy Efficiency
  • Low or no carbon energy production
  • Sequestration
  • The U.S. spends over $216 billion on electricity each year (out of a total energy expenditure of $558 billion, mostly petroleum)
  • Current installed capacity is 816 GW, average production is ~750 GW, or 5000 TWh/y
  • Growth rate is ~1.6% per year
  • Current electrical production portfolio of the USA is:

TypeShareEfficiencyCurrent best efficiency2020

Coal 52% 33% 48.5% 55%

Nuclear 20% ~30% - -

Gas-fired 16% 60% 60% 70%

Hydro 7% - - -

Biomass ~3% - - -

Geothermal ~2% 10%? - -

Wind power 0.2% - - -

Solar minute - - -

estimated total costs of various forms of electricity production
Estimated total costs of various forms of electricity production

For power production in Switzerland

current u s electrical trends
Current U.S. Electrical Trends
  • To a good approximation, all additional electrical capacity over the next 5 years will be natural gas fired turbines.
  • Natural gas-fired turbines are roughly twice as efficient as existing coal-fired power plants and emit roughly half as much C per unit energy produced
wind power
Wind Power
  • Wind energy has become cost-competitive with other sources of production for high wind classes.
  • The doubling time of installed capacity is now 3-4 years
  • For each doubling, costs drop ~15%
  • Costs in 2006 should be 35-40% less than costs in 1996
  • By 2030, the wind farms in the best wind classes could be as low as 2.2 ¢/kW-h, cheaper than even natural gas-fired electricity.
  • In the U.S.
    • Total installed US Wind Power capacity is now 5.3 GW as of Oct. 27, 2003 (0.6% of total installed electrical capacity)
    • 1.6 GW of new U.S. wind capacity coming online by the end of 2003
    • 1.5 ¢/kW-h production tax credit (expires Dec 31, 2003) has provided ~$5 billion subsidy over the past 10 years
u s installed capacity mw
U.S. Installed Capacity (MW)

Total Installed U.S. Wind Energy Capacity: 5,325.7 MW as of Oct 27, 2003

[American Wind Energy Association]

conclusions best strategies
Conclusions: Best Strategies
  • The most cost effective short-term (2-20 y) strategies for avoiding emissions due to electricity production are:
    • Substitute natural gas for coal
    • Substitute nuclear for coal
    • Substitute wind for coal
    • Substitute hydro for coal
  • For the longer term (20-100 y), the following methods of electricity production may become cost effective as fossil fuel costs increase:
    • More wind, nuclear, and hydro
    • Biomass and energy cropping
    • Coal fired electricity, hydrogen production with sequestration
    • Solar
  • Technology wildcards that probably aren’t likely, but could radically alter the mix:
    • Artificial photosynthesis
    • Nuclear fusion
    • Other?
conclusions costs
Conclusions: Costs
  • Current cost of energy in the U.S. is 5% of GDP
  • If the cost of mitigation is $100/tC avoided, then this would add an expense of $200-300 billion per year, or 2-3% of GDP
  • Perhaps up to half of the initial reductions actually have negative direct costs (due to energy saved)
  • How does this compare with other economic costs?
    • Total health care expenditures in 2001 were 13.9% (8.4% average for OECD countries)
    • Total spending on defense in the U.S. has fallen to 3-5%
defense spending
Defense Spending
  • [Defense and the National Interest web page]
other outcomes
Other outcomes
  • Even if we ignore the climate effects, other issues could come into play
recommended policies kyoto measures american style
Recommended Policies: Kyoto Measures, American-style
  • Institute a moderate carbon tax on refined gasoline, coal
  • Reduce or eliminate subsidies for oil and coal
  • Promote increased infrastructure capacity for natural gas transport, eventual hydrogen transport
  • Modernize the electrical grid, allow for distributed generation
  • Continue R&D on ‘clean’ coal technologies (with sequestration), with transition to hydrogen production
  • Continue R&D towards commercialization of solar energy, biomass
  • Increase tax credits and incentives for use of renewable sources (wind, solar, biomass)
  • Continue tax credits and incentives for efficiency improvements
general conclusions for the ghg problem
General Conclusions for the GHG Problem
  • We (the U.S.) can definitely afford to keep moving towards a lower carbon-intensive economy.
  • Accelerating our movement on this path will incur nominal additional costs for our energy.
  • Future costs of GHG emissions avoidance may be even lower as technologies mature.
  • Stabilization to 550 ppm will not be excessively hard to achieve, but 450 ppm will be very expensive.
  • We still have a bit of time left – stabilization will be much harder with departures beyond 2030 (T. Wigley, 1997).
  • The primary reference for this presentation is Climate Change 2001: Mitigation, the 3rd Intergovernmental Panel on Climate Change (IPCC) report, Working Group 3. Chapter 3 was most relevant to this presentation. The report can be obtained online at:
  • A secondary reference for energy issues can be found in the World Energy Assessment: Energy and the Challenge of Sustainability, 2000. United Nations Development Programme (UNDP). This report can be obtained online at:
  • Price, L., L. Michaelis, E. Worrell, and M. Khrushch, 1998: Sectoral Trends and Driving Forces of Global Energy Use and Greenhouse Gas Emissions. Mitigation and Adaptation Strategies for Global Change, 3, 263-319.
  • Price, L., E. Worrell, and M. Khrushch, 1999: Sector Trends and Driving Forces of Global Energy Use and Greenhouse Gas Emissions: Focus on Buildings and Industry. Lawrence Berkeley National Laboratory, LBNL-43746, Pergamon Press, Berkeley, CA.
  • Wigley, T. M. L., 1997: Implications of recent CO2 emission-limitation proposals for stabilization of atmospheric concentrations. Nature, 390, 267-270.
  • Williams, Robin. H., 2001: Nuclear and Alternative Energy Supply Options for an Environmentally Constrained World: A Long-term Perspective. Prepared for the Nuclear Control Institute Conference Nuclear Power and the Spread of Nuclear Weapons: Can We Have One Without the Other? Washington, D.C., April 2001.
  • On the web:
    • Statistics on U.S. wind energy production (American Wind Energy Association):
    • Current News on Wind Energy Production Tax Credit:
    • Defense Spending as % of GDP (Defense and the National Interest webpage):
    • U.S. Inventory of Greenhouse Gas Emissions (EPA):
    • Terasen Gas Greensheet: Natural Gas and the Environment
    • Energy Information Administration (EIA), U.S. Department of Energy (DOE):
    • External costs of electricity production, GaBE Project – Comprehensive Assessment of Energy Systems, Paul Scherrer Institut:
    • Energy subsidies and external costs, UIC Nuclear Issues Briefing #71:
    • “‘Too Little’ Oil for Global Warming”, New Scientist, Oct 2003:
    • Upsalla Protocol: