Economic Implications of Global Convergence on Emission Intensities

Govinda R. TimilsinaSenior Economist

The World Bank, Washington, DC

32nd USAEE/IAEE North American ConferenceAnchorage, Alaska

July 28-31, 2013

Disclaimer

The views expressed in this presentation are those of the speaker’s only, and do not necessarily represent the World Bank and its affiliated organizations

Introduction (1/3)

CO2 Emissions in 2010 (Million tons)

Ch

ina

US

A

Ind

ia

Ru

ssia

Jap

an

Ge

rma

ny

Ko

rea

Ca

na

da

Ira

n

UK

S. A

rab

ia

Me

xico

Ind

on

esi

a

Italy

Bra

zil

Au

stra

lia

Fra

nce

S. A

fric

a

Po

lan

d

Ta

iwa

n

Sp

ain

Ukr

ain

e

Tu

rke

y

Th

aila

nd

Ka

zakh

sta

n

Ne

the

rlan

ds

Ma

lays

ia

Ve

ne

zue

la

Eg

ypt

Arg

en

tina

0

2000

4000

6000

8000

(2): 43%

(5): 58%

(20): 81%

(30): 88%

(10): 68%

Introduction (2/3)

0

2

4

6

8

10

12

14

16

18

20

22

24

26

28

30

32

34

36

38

40

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000

US

Qatar

Kuwait

Trinidad & Tobago

UAEBrunei

Russia

India

Germany

Luxembourg

Gibraltar

KazakhstanEstonia

(Finland & Singapore)

(Taiwan, Czech,Netherlands, Turkministan, Belgium)

China

Japan

S. Korea

(Bahrain & Netherlands Antilles)Australia

5 Countries -- 44% of Global Emissions

30 Countries -- 77% of Global Emissions

CanadaSaudi Arabia

Oman

UKPoland

Iran

Countries in terms of absolute emissions and perCapita emissions in 2010

Vertical Axis – Per capita emissions (ton per capita)Horizontal axis – CO2 emissions (Million Tons)

Introduction (3/3) P

er c

apita

CO

2 em

issi

ons

(ton

s)

1990 1995 2000 2005 20100

2

4

6

8

10

12

14 Annex INon-Annex I

14% lower from 1990 level

72% higher from 1990 level

Inte

nsi

ty g

ap

(7

.4)

(11.8 tons)

(10.2 tons)

(1.6 tons)(2.7 tons)

(-20%)

Inte

nsi

ty g

ap

(1

0.3

)

Although, emission intensity gap is decreasing, industrialized countries,on average, still release 3.7 times as high as CO2 emissions per capita than developing countries

The Question

Is stabilization of GHG concentrations to avoid climate change possible while converging the emission intensities between industrialized and developing countries?

Provided that:

To avoid climate change (or avoiding dangerous consequences in the earth’s atmosphere), the earth mean average surface temperature

should not be higher than 2 degree Celsius from the pre-industrialization level

Concentrations of CO2 emissions should be stabilized below 450 PPM

Global emissions to peak before 2020, followed by substantial overall reductions of around 60% below the 2000 level by 2050

Our Approach

We introduced various levels of carbon tax (US$10 to 250 per ton of CO2) to Annex I countries to reduce their fuel consumption and thereby CO2

emissions and emission intensities.

Non-Annex I countries are exempted from carbon taxation, however they are impacted from Annex I countries carbon tax through international

trade.

Since the emission intensities of Annex I countries would decrease in response to the carbon tax while Non-Annex I countries emission intensities would continuously increase, the intensity gap between these two groups of countries drops (i.e., we will be moving towards global convergence of emission intensities).

We used a global CGE model to simulate the effects moving towards global convergence of emission intensities.

Model & Data

Multi-sector, multi-region, global recursive dynamic CGE model

The model is flexible enough to accommodate new regions/countries or sectors and is calibrated with GTAP database

Nested CES and CET functional forms to represent production behavior and land supply, respectively

Representation of bilateral and international trade

Data are coming from the GTAP (Version 7.1)

Per Capita CO2 Emission (tons) under Different Carbon Tax Rates

6.8 tons

2010 2015 2020 2025 20300.0

2.0

4.0

6.0

8.0

10.0

12.0

Annex INon-Annex I

US$10/tCO2

7.5 tons(- 9.4%) (- 36.5%)

2010 2015 2020 2025 20300.0

2.0

4.0

6.0

8.0

10.0

12.0

Annex INon-Annex I

US$50/tCO2

4.8 tons

(- 71.6%)

2010 2015 2020 2025 20300.0

2.0

4.0

6.0

8.0

10.0

12.0

Annex INon-Annex I

US$250/tCO2

2.1 tons(- 51.6%)

2010 2015 2020 2025 20300.0

2.0

4.0

6.0

8.0

10.0

12.0

Annex I

US$100/tCO2

3.6 tons

Impacts on CO2 Emissions

2010 2020 20306,000

9,000

12,000

15,000

18,000 BAU $10 $50 $100 $250

2010 2020 203015,000

18,000

21,000

24,000

27,000

30,000

33,000

BAU $10 $50 $100 $250

2010 2020 203025,000

30,000

35,000

40,000

45,000

50,000 BAU $10 $50 $100 $250

Annex I Non-Annex I

Global

Impacts on CO2 Emissions in 2030Limiting temperature rise below 2°C, CO2 concentrations must be below 450ppm

Global CO2 emissions should be reduced 60% below 2000 level by 2050

Even at the very high carbon tax rate of $250/tCO2, we find that global CO2 emissions in 2030 would be only 18% below from that in the baseline

$10 $50 $100 $250

-11%

-31%

-42%

-57%

0% 1% 2% 3%

-4%

-11%-14%

-18%

Annex I Non Annex I

Global

CO2 Emissions with $250 Carbon Tax Case Compared to 2000 Emission Level

Compared to 2000 emissions level, the emission convergence scenario (72% reduction of intensity gap through $250 carbon tax) would, in 2030,- decrease Annex I emissions by 52%, but- increase Non-Annex I emissions by 3 folds, thereby- increase global emissions by 28%

2010 2020 20300

10,000

20,000

30,000

40,000 Annex I Non Annex I Global

Annex I 2000

Global 2000

Non-Annex I countries emissions would exceed global 2000 level by 2030 if there emissions are not limited

Even if developed countries CO2 emissions are completely wiped out, meeting 2 degree target would be far out of reachunless Non-Annex I countries emissions are limited

Impacts on GDP in 2030

The relationship between the carbon tax level and corresponding GDP loss is exponential

There would be a carbon leakage effect (carbon intensive industries would move to Non-Annex I countries from Annex I countries). Despite the strong international trade linkage between Non-Annex I countries and Annex I countries, the former are not found to be negatively affected by the carbon tax in Annex I countries.

$10 $50 $100 $250

-0.10%

-0.54%

-1.06%

-2.38%

0.01% 0.03% 0.04% 0.04%

-0.06%-0.31%

-0.60%

-1.37%

Annex I Non Annex I

Global

Combining Effects on GDP and CO2 Emissions (2030)

3.65 3.67 3.69 3.71 3.73 3.753573.1

3573.6

3574.1

3574.6

3575.1

3575.6

3575.69648035112

3575.700548936463575.35801729886

3573.1975195924

Non Annex I Countries

Emission intensity (tCO2 per capita)

GD

P P

er C

apita

(Th

ou

san

d 2

004

US

$)

6 7 8 9 10 11 12 13 1438000

38200

38400

38600

38800

39000

39200

39035.1354263444

39007.669174690238888.7872430532

38746.3995089489

38359.0473808276Annex I Countries

Emission intensity (tCO2 per capita)

GD

P p

er

Ca

pit

a (

Th

ou

sa

nd

20

04

US

$)

Non-Annex I countries are also expected to reduce their GHG emissions, in that case, emission intensity will diverge instead of converge

Impacts on International Trade in 2030

The carbon tax introduced in Annex I countries would cause international trade to shrink (up to 2% in the case of $250/tCO2 carbon tax)

Since domestic production would be more expensive in Annex I countries due to carbon tax exports would get impacted the most

Non-Annex I countries would benefit as their exports increase and imports drop

Import Export Import Export Import ExportAnnex I Non Annex I Global

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

US$10/tCO2US$50/tCO2US$100/tCO2US$250/tCO2

Country Results: CO2 Emissions

Country/Regions Carbon tax rate (US$/tCO2)

10 50 100 250Australia and New Zealand -14.9% -36.0% -46.2% -58.7%Canada -9.4% -26.7% -36.6% -50.8%Germany -6.4% -21.1% -30.5% -43.8%Spain -4.2% -15.2% -23.6% -37.5%France -2.9% -10.8% -17.3% -29.4%UK -12.2% -35.0% -46.2% -58.4%Italy -4.2% -15.0% -23.1% -36.6%Japan -8.0% -18.2% -25.4% -37.1%EFTA Countries & Rest of European Union -8.3% -25.6% -35.9% -50.5%Russia -16.7% -42.8% -55.7% -72.2%United States -10.8% -31.6% -43.1% -57.8%Non Annex I Europe & Central Asia 0.5% 1.9% 3.2% 4.7%Argentina 0.1% 0.3% 0.6% 1.2%Brazil 0.4% 1.6% 2.7% 4.9%Rest of Latin America & Caribbean 0.3% 1.2% 2.1% 4.1%China 0.2% 0.8% 1.3% 2.5%Indonesia 0.3% 1.2% 2.0% 3.7%Rest of East Asia & Pacific 0.5% 1.8% 2.9% 5.0%Malaysia 0.2% 0.8% 1.3% 2.4%Thailand 0.3% 1.2% 2.1% 3.7%India 0.2% 0.8% 1.2% 1.9%Rest of South Asia 0.2% 0.8% 1.4% 2.7%Middle East & North Africa 0.0% 0.2% 0.4% 1.0%South Africa 0.7% 2.2% 2.9% 3.8%Rest of Sub-Saharan Africa 0.2% 0.9% 1.7% 3.4%

Country Results: Emission IntensityCO2 emission per capita CO2 emission per GDP

Carbon tax rate (US$/tCO2)

10 50 100 250 10 50 100 250

Australia and New Zealand -14.9% -36.0% -46.2% -58.7% -14.8% -35.6% -45.5% -57.6%Canada -9.4% -26.7% -36.6% -50.8% -9.3% -26.2% -35.7% -49.2%Germany -6.4% -21.1% -30.5% -43.8% -6.4% -21.0% -30.2% -43.2%Spain -4.2% -15.2% -23.6% -37.5% -4.2% -15.0% -23.2% -36.7%France -2.9% -10.8% -17.3% -29.4% -2.9% -10.7% -17.1% -29.0%UK -12.2% -35.0% -46.2% -58.4% -12.2% -34.9% -45.9% -58.0%Italy -4.2% -15.0% -23.1% -36.6% -4.1% -14.7% -22.7% -35.6%Japan -8.0% -18.2% -25.4% -37.1% -8.0% -18.1% -25.1% -36.4%EFTA Countries & Rest of European Union -8.3% -25.6% -35.9% -50.5% -8.2% -25.2% -35.3% -49.4%Russia -16.7% -42.8% -55.7% -72.2% -16.2% -40.3% -51.7% -65.9%United States -10.8% -31.6% -43.1% -57.8% -10.7% -31.3% -42.5% -56.9%Non Annex I Europe & Central Asia 0.5% 1.9% 3.2% 4.7% 0.4% 1.8% 2.9% 4.3%Argentina 0.1% 0.3% 0.6% 1.2% 0.1% 0.4% 0.7% 1.4%Brazil 0.4% 1.6% 2.7% 4.9% 0.4% 1.6% 2.7% 5.0%Rest of Latin America & Caribbean 0.3% 1.2% 2.1% 4.1% 0.3% 1.3% 2.3% 4.6%China 0.2% 0.8% 1.3% 2.5% 0.2% 0.6% 1.0% 1.9%Indonesia 0.3% 1.2% 2.0% 3.7% 0.3% 1.2% 2.0% 3.5%Rest of East Asia & Pacific 0.5% 1.8% 2.9% 5.0% 0.4% 1.6% 2.6% 4.4%Malaysia 0.2% 0.8% 1.3% 2.4% 0.2% 0.9% 1.5% 2.9%Thailand 0.3% 1.2% 2.1% 3.7% 0.3% 1.0% 1.8% 3.3%India 0.2% 0.8% 1.2% 1.9% 0.2% 0.5% 0.8% 1.1%Rest of South Asia 0.2% 0.8% 1.4% 2.7% 0.2% 0.7% 1.2% 2.3%Middle East & North Africa 0.0% 0.2% 0.4% 1.0% 0.2% 1.1% 2.0% 4.0%South Africa 0.7% 2.2% 2.9% 3.8% 0.8% 2.2% 2.9% 3.7%Rest of Sub-Saharan Africa 0.2% 0.9% 1.7% 3.4% 0.3% 1.4% 2.6% 5.1%

Country Results: GDP

Country/Regions Carbon tax rate (US$/tCO2)

10 50 100 250Australia and New Zealand -0.2% -0.7% -1.2% -2.6%Canada -0.1% -0.7% -1.3% -3.1%Germany 0.0% -0.2% -0.4% -1.1%Spain 0.0% -0.3% -0.6% -1.4%France 0.0% -0.1% -0.2% -0.6%UK 0.0% -0.2% -0.4% -1.0%Italy -0.1% -0.3% -0.6% -1.4%Japan 0.0% -0.2% -0.5% -1.1%EFTA Countries & Rest of EU -0.1% -0.4% -0.9% -2.1%Russia -0.7% -4.1% -8.2% -18.5%United States -0.1% -0.5% -1.0% -2.1%NAI Europe & Central Asia 0.0% 0.2% 0.3% 0.4%Argentina 0.0% -0.1% -0.1% -0.2%Brazil 0.0% 0.0% 0.0% -0.1%Rest of LAC 0.0% -0.1% -0.2% -0.5%China 0.0% 0.2% 0.3% 0.6%Indonesia 0.0% 0.0% 0.1% 0.2%Rest of East Asia & Pacific 0.0% 0.2% 0.3% 0.5%Malaysia 0.0% -0.1% -0.2% -0.5%Thailand 0.0% 0.2% 0.3% 0.4%India 0.1% 0.3% 0.4% 0.8%Rest of South Asia 0.0% 0.1% 0.2% 0.4%Middle East & North Africa -0.2% -0.9% -1.6% -2.9%South Africa 0.0% 0.0% 0.0% 0.0%Rest of Sub-Saharan Africa -0.1% -0.5% -0.8% -1.6%

Country Results: International TradeExports Imports

Carbon tax rate (US$/tCO2)

10 50 100 250 10 50 100 250Australia and New Zealand -0.4% -1.5% -2.6% -5.1% -0.1% -0.5% -0.9% -1.7%Canada -0.2% -1.1% -2.0% -4.1% -0.2% -1.1% -2.0% -4.4%Germany -0.2% -0.7% -1.2% -2.5% -0.1% -0.2% -0.5% -1.1%Spain -0.3% -1.4% -2.4% -4.8% 0.0% -0.2% -0.5% -1.3%France -0.1% -0.7% -1.3% -2.6% 0.0% -0.1% -0.3% -0.7%UK -0.1% -0.5% -0.9% -2.0% -0.1% -0.3% -0.6% -1.3%Italy -0.2% -1.1% -1.9% -4.0% -0.1% -0.4% -0.7% -1.8%Japan -0.4% -1.5% -2.7% -5.3% 0.0% -0.2% -0.4% -1.1%EFTA Countries & Rest of European Union -0.2% -1.0% -1.9% -4.1% -0.1% -0.6% -1.1% -2.6%Russia -1.7% -6.6% -10.4% -17.1% -0.5% -2.1% -3.5% -7.1%United States -0.6% -2.5% -4.3% -8.0% 0.0% -0.1% -0.2% -0.6%Non Annex I Europe & Central Asia 0.0% 0.0% 0.0% -0.5% -0.1% -0.3% -0.5% -1.3%Argentina 0.2% 0.9% 1.6% 2.8% -0.2% -0.8% -1.3% -2.5%Brazil 0.1% 0.3% 0.4% 0.6% -0.2% -0.7% -1.3% -2.7%Rest of Latin America & Caribbean 0.2% 1.0% 1.6% 2.9% -0.2% -1.0% -1.8% -3.3%China 0.0% 0.1% 0.2% 0.2% 0.0% 0.0% -0.1% -0.4%Indonesia 0.1% 0.6% 0.9% 1.6% 0.0% 0.1% 0.1% 0.0%Rest of East Asia & Pacific 0.0% 0.1% 0.2% 0.0% 0.0% 0.1% 0.1% 0.0%Malaysia 0.1% 0.2% 0.3% 0.4% 0.0% -0.2% -0.4% -0.9%Thailand 0.0% 0.1% 0.2% 0.1% 0.1% 0.1% 0.2% -0.1%India 0.0% 0.0% -0.1% -0.4% 0.0% 0.1% 0.1% -0.2%Rest of South Asia 0.1% 0.3% 0.4% 0.7% 0.1% 0.2% 0.2% 0.2%Middle East & North Africa 0.5% 2.3% 4.0% 7.7% -0.7% -3.0% -5.1% -9.2%South Africa 0.0% -0.2% -0.4% -0.8% -0.1% -0.3% -0.4% -0.8%Rest of Sub-Saharan Africa 0.2% 0.9% 1.5% 2.6% -0.3% -1.1% -2.0% -3.8%

Conclusions

Developing countries’ argument to converge global CO2 emission

intensity could be reasonable from the equity perspective

However, their demand could not be realized in practice if global CO2 emissions are to be reduced to stabilize CO2 concentration to meet the ultimate objective of the UNFCCC

Limitations of GHG emissions is necessary in developing countries to avoid climate change; the 2 degree target can not be realized even if developed countries CO2 emissions are completely wiped out as long as developing countries’ CO2 emissions increase at the current trend

THANK YOU

Govinda R. Timilsina

Sr. Research Economist (Climate Change & Clean Energy)

Development Research Group

The World Bank

1818 H Street, NW

Washington, DC 20433, USA

Tel: 1 202 473 2767

Fax: 1 202 522 1151

E-mail: gtimilsina@worldbank.org