Carbon prices alone won’t keep warming below 2°C

Annela Anger-Kraavi from the University of East Anglia. Image credit: University of East Anglia

Annela Anger-Kraavi from the University of East Anglia. Image credit: University of East Anglia

It’s possible to cut emissions of the greenhouse gas CO2 enough to keep global warming below 2°C, while maintaining growth in the world’s industrial production. But the ‘decarbonisation scenario’ developed by UK researchers needs more than just the carbon price relied on by most economists looking at how to reduce our fossil fuel use. “There are no magic measures,” Annela Anger-Kraavi from the University of East Anglia told me. “You need regulations, a carbon price, and investment. And all industries need to be considered simultaneously – you cannot leave anything out if you want to achieve the best results.”

Seeing temperatures 2°C higher than the ‘pre-industrial’ average from 1850-1899 as the danger level for climate change, governments have agreed to keep warming below this limit. Scientists have calculated that 450 CO2 molecules are allowable in every million air molecules to give us better than a 3/5 chance of keeping temperature rises below 2°C. But few economists have modelled scenarios that might keep CO2 levels below this 450 parts per million (ppm) threshold, as many think it’s clearly too expensive. In the report released by the United Nations Intergovernmental Panel on Climate Change in 2007, for example, just six out of 177  studies summarised looked at this range.

Since then there have been more studies, still finding the costs too high. But they use ‘neoclassical’ economic theories  – something Annela and her teammates wanted to avoid, because models based on such theories failed to predict the recent financial crisis. They also mainly rely on charging for the right to emit CO2 to cut emissions, through a carbon tax, or emission permits that companies must pay for. In the New Economics of Decarbonising the Global Economy (NewEDGE) project the University of Cambridge’s Terry Barker developed a model that links 43 sectors across the world economy. It avoids some central Keynesian ideas, such as that prices will always change everywhere at the same time, and that everything supplied is always bought.

Making acceptance, not taking exception

The world's gross democratic product (GDP, top two lines) and investment (bottom two lines)in Annela and Terry's 'business as usual' reference and decarbonisation scenarios. The economists sought to avoid any reduction in the world's gross democratic product while reducing CO2 levels in the air to safe levels. In fact they found the investment of earnings from carbon prices actually increased GDP slightly. Image credit: Annela-Anger Kraavi and Terry Barker

The world’s gross democratic product (GDP, top two lines) and investment (bottom two lines)in Annela and Terry’s ‘business as usual’ reference and decarbonisation scenarios. The economists sought to avoid any reduction in the world’s gross democratic product while reducing CO2 levels in the air to safe levels. In fact they found the investment of earnings from carbon prices actually increased GDP slightly. Image credit: Annela-Anger Kraavi and Terry Barker

“It’s basically an economic model that’s got energy use attached to it, and from energy use emissions are calculated,” Annela explained. “We tried to get the model to fit the past, to check how far we can reproduce what actually happened. When it comes to some variables we have quite a good fit. For some countries the fit is no good at all, and it’s based on the quality of the data available.” One example of the problems such models can face came in an earlier project focussed on Europe. “Every time I tried to do anything, the Italian aircraft sector went bust,” she said. “And in fact since the 1990s Alitalia has been effectively bankrupt, but because it’s a national carrier it is heavily subsidised. This kind of behaviour, where you force something to stay in business, models cannot pick up.”

In their worldwide model, called E3MG, Annela, Terry and their teammates examined how we might be able to stay below 2°C of warming and retain economic growth. In their upcoming book ‘Decarbonising the Global Economy’ they show that it is possible, but that relying on a carbon price alone would make emitting CO2 unacceptably expensive. “They need to be so high that no government would agree to them,” Annela explained.

As well as a carbon price, the economists looked at investments needed to support stricter energy efficiency standards that the International Energy Agency suggests to stay below the 450 ppm limit. The investments will help ensure the development and take-up of renewable technologies and reduce costs arising from the standards. “They try and do it industry-by-industry, we run it through the economic model,” Annela says. “We had to increase the investments by 20% to achieve the decarbonisations that they think they’re going to achieve. This is the difference between looking at the industries in isolation and having system-wide investment, because industry demands are all connected and they need products from each other. You can have positive or negative feedback effects.”

Avoiding wrong turns

Global CO2 and greenhouse gas (GHG) emissions in Annela and Terry's reference and decarbonisation scenarios. Image credit: Annela-Anger Kraavi and Terry Barker

Global CO2 and greenhouse gas (GHG) emissions in Annela and Terry’s reference and decarbonisation scenarios. Image credit: Annela-Anger Kraavi and Terry Barker

This need for investment undermines the idea that halting and reversing economic growth, sometimes known as ‘degrowth’, could be a solution to climate change. “Degrowth is very dangerous,” Annela said. “You need to switch to cheaper fuels, and cheap energy sources are usually more carbon intensive. You need very high investment to develop new technologies. When you have investment, jobs are created and growth continues.”

Annela and Terry’s work also suggests another hazard could come if decarbonisation measures are not taken across all industries at once.  “For example, decarbonising the transport sector without doing anything else would increase CO2 emissions,” Annela explained. “Switching to electric and plug-in hybrid vehicles pushes electricity demand up. If there’s no regulation for the power sector, they switch to coal because it’s the cheapest fuel, the cheapest energy carrier for them and CO2 emissions go up.”

Establishing a carbon price, regulations and and making extra investment sounds simple enough. But Annela stresses that getting it adopted will dwarf the three years of effort needed to write their book, whose results Annela and Terry will also publish in academic journals. “It looks easy because we can have whatever policies we want in the model,” she says. “We don’t have to negotiate.”

How carbon prices and regulations for the power sector, building, industry and transport contribute to Annela and Terry’s decarbonisation scenario. The top line is the reference "business as usual" scenario. The coloured wedges show how much each measure reduces emissions by, ultimately reaching the decarbonisation scenario level, shaded blue. Image credit: Annela Anger-Kraavi and Terry Barker

How carbon prices and regulations for the power sector, building, industry and transport contribute to Annela and Terry’s decarbonisation scenario. The top line is the reference “business as usual” scenario. The coloured wedges show how much each measure reduces emissions by, ultimately reaching the decarbonisation scenario level, shaded blue. Image credit: Annela Anger-Kraavi and Terry Barker

Book reference:
Terry Barker, Annela Anger-Kraavi, et al (2013). Decarbonising the Global Economy Imperial College Press

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4 Responses to “Carbon prices alone won’t keep warming below 2°C”

  1. uknowispeaksense Says:

    Reblogged this on uknowispeaksense and commented:
    Unfortunately, we are already locked in to 2 degrees warming even if all fossil fuel burning ceased tomorrow but the general ideas here are correct.

  2. Fed up Says:

    True, but the other seven pieces of legislation, that the tax funds will go a long way, to lower carbon emission. CEF is a suite of bills. It is taking Abbott eleven bills to get rid of whgat he calls a biug toxic tax,

    • andyextance Says:

      Hi Fed up, hopefully you noticed this is about the whole world, not just Australia? Though I don’t think the research disagrees with what you say – in fact that’s almost exactly the point!

  3. Give those we love the climate they deserve | Simple Climate Says:

    […] Carbon prices alone won’t keep warming below 2°C […]


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