Analysis of the relative roles of supply-side and demand-side measures in tackling global climate change : application of a hybrid energy system model

Abstract

Climate change is one of the most critical issues facing the world today. In 2015, the Paris Agreement under the United Nations Framework Convention on Climate Change (UNFCCC) codified an ambitious long-term global target: holding the increase in the global average temperature well-below 2°C. It is recognized that this goal is a safe guardrail and will reduce negative impacts of climate change, significantly. To meet the target, the energy sector offers a wide range of technological options, namely, energy efficiency improvement, shifting from high carbon-intensive fossil fuels to less carbon-intensive alternatives (e.g. switching from coal to natural gas), and the enhanced use of renewables, nuclear, and Carbon Capture and Storage (CCS). On the other hand, additional investments in cleaner technologies will, ceteris paribus, result in a higher price of energy services and consequently reduce demand for energy-services which is considered as a mitigation measure. This dissertation aims at exploring, in a systematic manner, the required energy system transformations and the associated price-dependent energy-service demand reductions in order to hold the increase in global average temperature well-below 2°C above pre-industrial levels by 2100. For a more comprehensive assessment, it also evaluates the macroeconomic implications of the climate mitigation policy. The analysis is carried out using a hybrid model which is a combination of a bottom-up, technology-rich model, TIAM (TIMES Integrated Assessment Model) and a top-down, macroeconomic model, MACRO. One of the key parameters of this hybrid model is elasticity of substitution denoting the ease of substituting energy-service demand with other production factors in the model (i.e. capital-labor) as their relative prices change. To provide more insight into the role of energy-service demand reductions, it is additionally assumed that the elasticity parameter varies across regions and over time. Furthermore, due to the uncertainties around the potential for mitigation technologies, a set of different scenarios with respect to the potentials are considered. The main findings of this study highlight the importance of early action in all energy sectors. Renewables are found to be the main mitigation measure. Furthermore, biomass with CCS is an essential option to compensate for residual emissions in sectors (e.g., transport) where direct mitigation is more challenging. It is also revealed that reaching such an ambitious mitigation target comes with considerable negative macroeconomic impacts, while energy-service demand reductions play an important role in offsetting the impacts.