• Energy Research

Most energy-economy policy models offered to policy makers are deficient in terms of at least one of technological explicitness, microeconomic realism, or macroeconomic completeness. We herein describe CIMS, a model which starts with the technological explicitness of the “bottom-up” approach and adds the microeconomic realism and macroeconomic completeness of the “topdown” CGE approach. This paper demonstrates CIMS’ direct utility for policy analysis, and also how it can be used to better estimate the long run capital-forenergy substitution elasticity (ESUB) and autonomous energy efficiency index (AEEI) technology parameters used in top-down models. By running CIMS under several possible energy price futures and observing their effects on capital and energy input shares and energy consumption, we estimate an economy-wide ESUB of 0.26 and an AEEI of 0.57%, with significant sectoral differences for both parameters.

The need to reduce CO2 emissions to zero by 2050 has meant an increasing focus on high emitting industrial sectors such as steel. However, significant uncertainties remain as to the rate of technology diffusion across steel production pathways in different regions, and how this might impact on climate ambition. Informed by empirical analysis of historical transitions, this paper presents modelling on the regional deployment of Direction Reduction Iron using hydrogen (DRI-H2). We find that DRI-H2 can play a leading role in the decarbonisation of the sector, leading to near-zero emissions by 2070. Regional spillovers from early to late adopting regions can speed up the rate of deployment of DRI-H2, leading to lower cumulative emissions and system costs. Without such effects, cumulative emissions are 13% higher than if spillovers are assumed and approximately 15% and 20% higher in China and India respectively. Given the estimates of DRI-H2 cost-effectiveness relative to other primary production technologies, we also find that costs increase in the absence of regional spillovers. However, other factors can also have impacts on deployment, emission reductions, and costs, including the composition of the early adopter group, material efficiency improvements and scrap recycling rates. For the sector to achieve decarbonisation, key regions will need to continue to invest in low carbon steel projects, recognising their broader global benefit, and look to develop and strengthen policy coordination on technologies such as DRI-H2.

A mid-century net zero target creates a challenge for reducing the emissions of emissions-intensive, trade-exposed sectors with high cost mitigation options. These sectors include aluminium, cement, chemicals, iron and steel, lime, pulp and paper and petroleum refining. Available studies agree that decarbonization of these sectors is possible by mid-century if more ambitious policies are implemented soon. Existing carbon pricing policies have had limited impact on the emissions of these sectors because their marginal abatement costs almost always exceed the tax rate or allowance price. But emissions trading systems with free allowance allocations to emissions-intensive, trade-exposed sectors have minimized the adverse economic impacts and associated leakage. Internationally coordinated policies are unlikely, so implementing more ambitious policies creates a risk of leakage. This paper presents policy packages a country can implement to accelerate emission reduction by these sectors with minimal risk of leakage. To comply with international trade law the policy packages differ for producers whose goods compete with imports in the domestic market and producers whose goods are exported. Carbon pricing is a critical component of each package due its ability to minimize the risk of adverse economic impacts on domestic industry, support innovation and generate revenue. The revenue can be used to assist groups adversely impacted by the domestic price and production changes due to carbon pricing and to build public support for the policies. Key policy insights:A country with a mid-century net zero GHG emission target likely will need to implement more ambitious mitigation policies soon for emission-intensive sectors such as aluminium, cement, chemicals, iron and steel, lime, pulp and paper and petroleum refining.More ambitious mitigation policies are likely to vary by country and be implemented at different times, creating a risk of leakage due to industrial production shifts to other jurisdictions.More ambitious mitigation policy packages, compatible with international trade law, that a country can implement to reduce emissions from these sectors with minimal risk of leakage are available but differ for producers whose goods compete with imports in the domestic market and those whose goods are exported.Carbon pricing is a critical component of each package due its ability to minimize the risk of adverse economic impacts on domestic producers, support innovation and generate revenue. A country with a mid-century net zero GHG emission target likely will need to implement more ambitious mitigation policies soon for emission-intensive sectors such as aluminium, cement, chemicals, iron and steel, lime, pulp and paper and petroleum refining. More ambitious mitigation policies are likely to vary by country and be implemented at different times, creating a risk of leakage due to industrial production shifts to other jurisdictions. More ambitious mitigation policy packages, compatible with international trade law, that a country can implement to reduce emissions from these sectors with minimal risk of leakage are available but differ for producers whose goods compete with imports in the domestic market and those whose goods are exported. Carbon pricing is a critical component of each package due its ability to minimize the risk of adverse economic impacts on domestic producers, support innovation and generate revenue.

The target of zero emissions sets a new standard for industry and industrial policy. Industrial policy in the twenty-first century must aim to achieve zero emissions in the energy and emissions int...

AbstractSeveral recent studies have identified emerging and near‐commercial process and technological options to transition heavy industry to global net‐zero greenhouse gas (GHG) emissions by mid‐century, as required by the Paris Agreement. To reduce industrial emissions with sufficient speed to meet the Paris goals, this review article argues for the rapid formation of regional and sectoral transition plans, implemented through comprehensive policy packages. These policy packages, which will differ by country, sector, and level of development, must reflect regional capacities, politics, resources, and other key circumstances, and be informed and accepted by the stakeholders who must implement the transition. These packages will likely include a mix of the following mutually reinforcing strategies: reducing and substituting the demand for GHG intense materials (i.e., material efficiency) while raising the quantity and quality of recycling through intentional design and regulation; removal of energy subsidies combined with carbon pricing with competitiveness protection; research and development support for decarbonized production technologies followed by lead markets and subsidized prices during early stage commercialization; sunset policies for older high carbon facilities; electricity, hydrogen and carbon capture, and storage infrastructure planning and support; and finally, supporting institutions, including for a “just workforce & community transition” and monitoring and adjustment of policy effectiveness. Given the paucity of industrial decarbonization perspectives available for in‐transition and less‐developed countries, the review finishes with a discussion of priorities and responsibilities for developed, in‐transition and less developed countries.This article is categorized under: Climate Economics > Economics of Mitigation Climate and Development > Decoupling Emissions from Development

The Paris Agreement introduces long-term strategies as an instrument to inform progressively more ambitious emission reduction objectives, while holding development goals paramount in the context of national circumstances. In the lead up to the twenty-first Conference of the Parties, the Deep Decarbonization Pathways Project developed mid-century low-emission pathways for 16 countries, based on an innovative pathway design framework. In this Perspective, we describe this framework and show how it can support the development of sectorally and technologically detailed, policy-relevant and country-driven strategies consistent with the Paris Agreement climate goal. We also discuss how this framework can be used to engage stakeholder input and buy-in; design implementation policy packages; reveal necessary technological, financial and institutional enabling conditions; and support global stocktaking and increasing of ambition.