Modeling the Economics of Greenhouse Gas Mitigation Summary of a Workshop (2011) / Chapter Skim
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International Offsets Usage in Proposed U.S. Climate Change Legislation--Allen A. Fawcett
International Offsets Usage in Proposed U.S. Climate Change Legislation--Allen A. Fawcett
Pages 111-131
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From page 111... ...
is used to integrate estimates of GHG abatement supply and demand to model the offsets market. The third section of the paper presents EPA projections of international offsets usage under H.R.
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From page 112... ...
2454 S 1733 tonsa Overall offset limits 2 billion 2 billion tons Source level offset limits Does not aggregate to the overall limit Aggregates to the overall limit Domestic and international offset International: 1 billion tons International: 0.5 billion tons limits Domestic: 1 billion tons Domestic: 1.5 billion tons Criteria for adjusting international Domestic offset usage below Domestic offset usage below offset limit 0.9 billion tons 0.9 billion tons Revised international offset limit 1.5 billion tons 1.25 billion tons Performance standards Landfill and coal mine CH4 covered Landfill and coal mine CH4 are not covered by performance standards, reducing by performance standards.
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From page 113... ...
Now if domestic offset usage were to increase by one million tons from 899 to 900 million tons, then the limit on interna tional offsets would fall by 601 million tons from 1.101 billion to 0.5 billion tons. In this situation a small change that would ordinarily lead to a small increase in allowance prices and small increases in offsets demand, has the potential to have a disproportionately large effect on allowance prices because of the discontinuous change in the international offsets limit.
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From page 114... ...
This section discusses the reference projections of international greenhouse gas emissions and assumed international greenhouse gas policies, which together determine the international demand for greenhouse gas abatement. This section also covers the marginal abatement cost curves that represent the supply of greenhouse gas abatement available from various international sources at different carbon prices.
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The Global Timber Model (Sohngen and Mendelsohn, 2006) generates the marginal abatement cost curves for international forest carbon sequestration.
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EPA (2006) International forest carbon sequestration Sohngen and Mendelsohn (2006)
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In 2050, after all regions are assumed to have adopted market-based climate policies, energy-related CO 2 from group 2 is the largest source of abatement, closely followed by group 2 forest carbon sequestration. 73 Note, all prices for the marginal abatement cost curves in this paper are presented in 2000 year U.S.
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From page 118... ...
As with the forest carbon sequestration marginal abatement cost curves, the energy-related CO 2 marginal abatement cost curves depicted in Figure C.23 were generated using a series of rising carbon price model runs. The adjustment process that was evident in the group 2 non-CO2 MAC curves is again evident in the group 2 energy-related CO2 MAC curves.
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ALLEN A FAWCETT FIGURE C.22 Group 1 and group 2 forest carbon sequestration MACs.
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From page 120... ...
demand for international offsets, is combined with a simple spreadsheet model that includes the assumptions about international GHG abatement demand, as described above, and the international marginal abatement cost curves described above. This system can be solved iteratively to generate a U.S.
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From page 121... ...
In the core IGEM scenario from EPA's supplemental analysis of H.R 2454, the limit on domestic offset usage ends up at 34.7 billion tons cumulatively from 2012 through 2050, and the cumulative limit on international offsets is 51.7 billion tons. These limits are non-binding in the core policy scenario.
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From page 122... ...
Domestic offset usage increases by 2% and covered GHG abatement increases by 1% to make up for the decline in international offsets, and allowance prices increase by 4%. A 20-year delay in international offset availability has a slightly greater impact, decreasing cumulative international offset usage by 12%.
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From page 123... ...
2454 policy scenario, which meant that covered GHG abatement had to increase by a greater amount in response to the removal of international offsets. Banking and International Offsets The previous section discussed how delaying the availability of international offsets affected other sources of GHG abatement and allowance prices.
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From page 124... ...
Appendix C - Fawcett - Figure 10.eps bitmap usage was constant over time at 757 MtCO2e per year; and an alternative scenarios in which international offset usage increases linearly from 265 MtCO2e in 2012 to the limit of 1,273 MtCO2e in 2050. These two scenarios are identical in allowance prices, cumulative international offset usage, and abatement pathways for covered GHG's and domestic offsets.
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From page 125... ...
demand in that year as calculated by the reduced-form IGEM model. Note that this includes the full amount of GHG abatement purchased for use as an offset, which is 25% greater than international offset usage due to the four-to-five turn-in-ratio for international offsets in H.R.
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From page 126... ...
MODELING THE ECONOMICS OF GREENHOUSE GAS MITIGATION FIGURE C.28 International supply and demand of GHG abatementcore policy scenario. Appendix C - Fawcett - Figure 11.eps bitmap FIGURE C.29 International supply Appendix C - FabatementFigure of2.eps and demand of GHG awcett - the effect 1 alternative international reference emissions projections.
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From page 127... ...
This has profound effects on the international carbon market. First, without a market-based climate policy in group 2 countries, their marginal abatement cost curves are subject to a stricter adjustment process, as described in the section "Marginal Abatement Cost Curves Data Sources and 75 Due to the four-to-five turn in ratio for international offsets in H.R.
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From page 128... ...
The substantial increase in international offset usage reduces abatement required from covered GHG emissions by 26%, and results in a 32% fall in U.S. allowance prices (see Figure C.34 below)
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From page 129... ...
Appendix C - Fawcett - Figure 15.eps bitmap FIGURE C.33 International supply and demand of GHG abatement with and without REDD. Appendix C - Fawcett - Figure 16.eps bitmap
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From page 130... ...
Within the United States, the allowance price increases by 25% in the scenario without REDD abatement, as shown in Figure C.34. In order to equalize the marginal cost of abatement across sources, cumulative international offset usage falls by 51%, domestic offset usage increases by 20%, and domestic covered GHG abatement increase by 17% when REDD abatement is not available.
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From page 131... ...
This highlights the importance of future research to update and improve estimates of marginal abatement cost curves for international sources of greenhouse gas abatement; to revisit the difference in greenhouse gas abatement potential from countries with market-based climate policies versus abatement in the form of offsets or sectoral credits from countries without market-based climate policies; to continually update reference greenhouse gas emissions projections; and represent the broad range of climate policies that could be adopted in the future. References Calvin KV, JA Edmonds, B Bond-Lamberty, LE Clarke, SH Kim, GP Kyle, SJ Smith, AM Thomson, and MA Wise.
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