Avoiding dangerous climate change by inducing technological progress: scenarios using a large-scale econometric model��

Terry Barker, Haoran Pan, Jonathan Köhler, Rachel Warren and Sarah Winne�� July 2005

Tyndall Centre for Climate Change Research

Working Paper 77

Avoiding dangerous climate change by inducing technological progress: scenarios using a large-scale econometric model
Terry Barker* , Haoran Pan*, Jonathan Köhler,** *Rachel Warren** and Sarah Winne**
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Faculty of Economics, University of Cambridge Sidgwick Avenue, Cambridge CB3 9DE, UK Tyndall Centre (HQ)

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Zuckerman Institute for Connective Environmental Research, School of Environmental Sciences, University of East Anglia, Norwich, NR4 7TJ, UK

Email: terry.barker@econ.cam.ac.uk Tyndall Centre Working Paper No. 77 July 2005

Please note that Tyndall working papers are "work in progress". Whilst they are commented on by Tyndall researchers, they have not been subject to a full peer review. The accuracy of this work and the conclusions reached are the responsibility of the author(s) alone and not the Tyndall Centre.

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Summary This paper addresses the question of the costs of stabilising atmospheric concentrations of carbon dioxide at three levels 550ppm, 500ppm and 450ppm, with the emissions projected to 2100. Two policy instruments are used to achieve these targets: emission trading permits for the energy industries and carbon taxes for the rest of the economy, with the revenues recycled to prevent extra inflation. These are applied at different rates and at different times to allow for early action under the UN Framework Convention for three regional groupings: the USA, the rest of the Annex I countries and all non-Annex I countries. Extra investment in non-fossil technologies is induced by the permit schemes and taxes since they lead to substantial increases in the real cost of burning fossil fuels according to their carbon content. This prompts a switch to lowcarbon technologies. The ensuing world-wide wave of extra investment, diffused by export-led growth in nearly all sectors and regions over the century to 2100, raises the rate of economic growth in the model solution, i.e. growth is endogenous. There is a purely economic benefit in stabilisation, which increases with more demanding targets.

This finding complements the literature showing reductions in the modelled costs of achieving stabilisation when induced technological change is taken into account, but which generally assume that GDP is largely given by assumption. The approach is novel in the treatment of technological change within long-term economic models since it is based on cross-section and time-series data analysis of the global system 19702001 using formal econometric techniques and thus provides a different perspective on stabilisation costs. In particular, a sectoral and regionally specific analysis is presented using the model E3MG (energyenvironment-economy model at the global level), coupled to the simple climate model MAGICC, which are both components of the Community Integrated Assessment System (CIAS) of the UK Tyndall Centre.

Keywords: climate stabilisation, CIAS, E3MG, E3 modelling, GHG mitigation, induced technological change, endogenous economic growth, top-down and bottom-up modelling

Denison’s study of US growth 1929-1982 attributes the average long-run rate of about 3%pa to six factors: about 25% to labour at constant quality, about 16% to improvements in labour quality as from education, 12% to capital, 11% to improved allocation of resources, e.g. labour moving from traditional agriculture to urban manufacturing, 11% to economies of scale and 34% to growth of knowledge.

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1 Introduction As part of the research programme on Integrated Assessment at the Tyndall Centre, a world macroeconomic model (E3MG environment-energy-economy global) is being developed to investigate policies for climate change, as a module of an Integrated Assessment Modelling system or IAM. In coupling economic models with meteorological and atmospheric chemistry models of climate change, long timescales are necessary because changes in CO2 concentrations enhance the greenhouse effect over time periods of 50-100 years and more.

1.1 Technological progress as cause of economic growth In projecting the future, the approach of this paper is first to consider the past. Looking back over the last 200 years, the socio-economic system seems to be characterized by ongoing fundamental change, rather than convergence to any equilibrium state. Maddison (2001) takes a long view of global economic growth over the last millennium. He finds growth rates to be very different across countries and over time, and ascribes the comparatively high rates of growth to technological progress and diffusion. He argues that the increase in growth rates that emerged in Europe since 1500, and that became endemic from 1820, were founded on innovations in banking and accounting, transport and military equipment, scientific thinking and engineering. He also finds that inequalities between nations in per capita GDP have increased (in particular since WW2), not diminished over time. These three features of growth (technological progress, diversity across nations and time periods, and increasing inequalities) are evident in the solutions underlying the scenarios reported below.

These ideas are supported by quantitative studies identifying the causes of economic growth. Technological progress associated with investment is intimately related to Denison’s (1967, 1985) causal factors1 (capital, economies of scale and knowledge) accounting for 57% of growth. More recently, Wolff (1994a, 1994b) has found strong correlations between investment embodying technological change and growth in OECD economies. Technology is important for climate change analysis for two reasons: first, technological progress is implicated in anthropogenic climate change; and second, a change to a low-carbon society will require widespread development and mass deployment of new, low-carbon technologies. Such large-scale changes have been a feature of ‘advanced’ society in the last 200 years. The industrial revolution of the first part of the 19th century was founded on burning coal as never before. The use of motor vehicles and aircraft, powered by oil products, is still diffusing through the world, providing the most serious challenge for policy to reduce the rate of climate change. Both coal and oil were essential to the transformations of economies and societies.

1.2 The purpose of the paper The purpose of this paper is to model this process over the 21 century assuming policies leading to global decarbonisation. This has been done by combining an econometric, long-run model with an energy

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technology model to derive the costs of moving from a baseline to stabilisation targets of 550, 500 and 450 ppmv CO2 using the instruments of emission permit trading and carbon taxes, with and without incorporation of endogenous technical change in the model. At this stage only preliminary estimates of the stabilisation costs for particular concentration targets are provided, since we have yet to carry out an uncertainty analysis of both the economic and climate models which is required to provide estimates of the potential ranges of mitigation benefits and costs for each level of stabilisation. For example, the use of different parameters in the representation of the carbon cycle in the MAGICC climate model would strongly affect whether or not the actual scenario runs used here would deliver stabilisation of CO2 concentrations in 2100. Furthermore, a wider range of policies than carbon taxes and permit trading might be considered useful. The purpose of the paper is thus not to provide specific estimates of stabilisation costs and outcomes, although we do so, but to use a novel treatment of the economy and innovation processes to illustrate the influence of endogenous and induced technical change on estimates of stabilisation costs.

2 Modelling economic growth, technological change and the costs of stabilisation In modelling long-run economic growth and technological change, we have followed the post-Keynesian “history” approach2 of cumulative causation (Kaldor, 1957; Setterfield, 2002), which focuses on gross investment (Scott, 1989) and trade (McCombie and Thirwall, 1994, 2004), in which technological progress is embodied in gross investment and affects energy demand and trade3. Long-run growth and structural change through socio-technical systems, called ‘Kondratiev waves’, are described by Freeman and Louçã (2001) and modelled by Köhler (2005). Growth in this approach is dependent on waves of investment in new technologies.

2.1 Exogenous versus endogenous and induced technological change Grubb, Köhler and Anderson (2002) explain that many energy-environment-economy (E3) models do not incorporate induced technical change4 (ITC), but instead use the older concept of technology as exogenous ‘manna from heaven’. A meta-analysis of costs of mitigation (Barker et al., 2002) also found that technological change in the post-SRES models is treated largely as exogenous to the system. Hourcade and Shukla (2001) review modelling studies of costs of stabilisation in post-SRES mitigation scenarios from top-down general economic models and report the results of a model comparison study (pp.548-9). They
This is contrast to the mainstream equilibrium approach adopted in most economic models of the costs of climate stabilisation. See (DeCanio, 2003) for a critique and (Weyant, 2004) for a discussion of technological change in this approach. 3 These are the effects most relevant to a study of decarbonisation. However, the underlying model also includes effects of technological progress on many other variables, which are being implemented, but which are not included in the analysis of this paper. 4 In the models, exogenous or autonomous technological change is that which is imposed from outside the model, usually in the form of a time trend affecting energy demand or the growth of world output. If, however, the choice of technologies is included within the models and affects energy demand and/or economic growth, then the model includes endogenous technological change (ETC). With ETC, further changes can generally be induced by economic
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identify widely differing costs of stabilisation at 550 ppmv by 2050 of between 0.2 to 1.75% GDP, mainly influenced by the size of the emissions in the baseline. Hourcade and Shukla (2001, pp.550-552) explain that a critical factor affecting the timing and cost of cost-effective emission abatement in the model results is the treatment of technological change. The studies incorporating ITC suggest that it could reduce stabilization costs substantially: ITC greatly broadens the scope of technology-related policies and usually increases the benefits of early action, which accelerates development of cheaper technologies. This is the opposite of the result from models with exogenous technical change, which can imply waiting for better technologies to arrive.

2.2 Recent findings on induced technological change More recent work seems to confirm these findings. For example, Manne and Richels (2004) and Goulder (2004) also found that ITC lowers mitigation costs and that more extensive reductions in GHGs are justified than with exogenous technical change. Nakicenovich and Riahi (2003) noted how the assumption about the availability of future technologies was a strong driver of stabilisation costs. Edmonds et al (2004) studied stabilisation at 550 ppmv CO2 in the SRES B2 world using the MiniCAM model and showed a reduction in costs of a factor of 2.5 in 2100 using a baseline incorporating technical change. Edmonds considers that advanced technology development to be far more important as a driver of emission reductions than carbon taxes. Van Vuuren et al (2004) also concluded that technology development is a key in achieving emission reductions as a result of carbon taxes: omitting technology development reduced the efficacy of the carbon tax by 50% in their model. Weyant (2004) concludes that stabilisation will require development on a large scale of new energy technologies and that costs would be reduced if many technologies are developed in parallel and there is early adoption of policies to encourage technology development.

policies, hence the term induced technological change (ITC); therefore ITC implies ETC, as assumed throughout the rest of this paper.

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Figure 1: Future technological clusters: a global choice
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“Optimal” set of 53 technological dynamics

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2100 Global Emissions Ranges, GtC
Source: A. Gritsevskyi, N. Nakicenovic (2000), Modeling uncertainty of induced technological change. Energy Policy 28 (2000) 907-921 (IIASA, Laxenburg, Austria)
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2.3 The effects of technological change in the energy-engineering literature The results from the bottom-up energy-engineering literature give a different perspective. Following the work in particular of IIASA (e.g. Grubler, 1999), models investigating induced technical change emerged during the mid- and late 1990s. These models show that ITC can alter results in many ways. Nakicenovich and Riahi (2003) also note the great significance of the choice of baseline scenario in driving stabilisation costs. However, this influence is itself largely due to the different assumptions made about technological change in the baseline scenarios. In an intriguing and path-breaking finding, Gritsevskyi and Nakicenovic (2000) using the MESSAGE model were able to identify some 53 clusters of least-cost technologies allowing for endogenous technological learning and projecting global CO2 emissions to 2100. The outcomes modelled under uncertainty were strongly grouped into two sets of high and low emission scenarios (p. 909) “demonstrating a kind of implicit bifurcation across the range of possible emissions” (see Figure 1). Since the scenarios are all similar in cost, this suggests that a decarbonised economy may not cost any more than a carbonised one, if technology learning curves are taken into account, a general finding that is supported by the results presented below. Other key findings are that there is a large diversity across alternative energy technology strategies, a finding that also emerges below, and that it is not possible to choose an “optimal” direction of energy-system development (p. 920).

The IPCC Third Assessment Report on such modelling suggests (Watson et al., 2001 p. 109) that up to 5GtC a year reduction by 2020 (some 50% of baseline projections) might be achieved by current technologies, half of the reduction at no direct cost, the other half at direct costs of less than $100/tCequivalent. This does not include new technologies and there is no reason not to expect that the savings

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would continue as real costs of carbon rise. Pacala and Socolow (2004) argue that the portfolio of available technologies is large enough to solve the climate problem by 2050 without revolutionary new technology, although they do not put a cost on action or explain what incentives are necessary.

3 The approach to modelling the economy and technological change The contribution that this paper makes is to introduce a novel approach to the modelling of technological change in the literature on the costs of climate stabilisation. This approach involves the use of econometric estimation to identify the effects of technological change on exports and energy demand and embed these in a large post-Keynesian non-linear simulation model with a dynamic structure, which is both sector and region specific. A treatment of substitution between fossil and non-fossil fuel technologies is included, accounting for non-linearities resulting from investment in new technology, learning-by-doing, and innovation. The effects of technological change modelled this way turn out to be sufficiently large in a closed global model to account for a substantial proportion (about 20%) of the long-run growth of the system.

3.1 A linked top-down bottom-up modelling approach The large-scale econometric model, E3MG (energy-environment-economy model of the globe) has been built to model these processes, using econometric estimation to identify the effects of endogenous technological change (ETC) on exports and energy demand. This then allows policy measures for induced technological change (ITC) to be modelled. The model has been developed in the traditions of the Cambridge dynamic model of the UK economy (Barker and Peterson, 1987) and the European model E3ME (Barker, 1999). The approach has been developed to include the bottom-up technology ETM model (Anderson and Winne, 2004) within a top-down macroeconomic model. Thus, like the studies

(Nakicenovic and Riahi, 2003; and McFarland, et al., 2004) which are also based on the linkage of topdown and bottom-up models, our modelling approach avoids the typical optimistic bias often attributed to a bottom-up engineering approach, and unduly pessimistic bias of typical macroeconomic approaches. The advantages5 of using this combined approach have recently been reviewed (Grubb, Köhler and Anderson, 2002).

E3MG incorporates endogenous technological change in 3 ways: i. the sectoral energy and export demand equations include indicators of technological progress in the form of accumulated investment and R&D ii. the ETM incorporates learning curves through regional investment in energy generation technologies that depend on global scale economies
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There are also disadvantages. The coupled model is highly non-linear with the possibility of instabilities, multiple solutions and discontinuities. The solution is simplified by adopting the smooth transitions assumed by Anderson and

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extra investment in new technologies, in relation to baseline investment induces further output and therefore investment, trade, income, consumption and output in the rest of the world economy through a Keynesian multiplier effect.

3.2 Effects of investment on export performance The effect of investment and R&D on export performance, which drives our long-run results, goes back to Posner’s technological gap theory (1961). Since the 1990s they have been the topic of substantial empirical research, and the effects have been found for different countries and regions at the individual plant, industrial sector and macro economy levels. Roper and Love (2001) use micro-level data to compare export performance for UK and German manufacturing plants and find “strong and consistent evidence that innovation, however measured, has a systematic effect on both the probability and propensity to export.” Greenhalgh (1990) and Greenhalgh et al (1994) find significantly positive effects of R&D for over 30 UK industries’ net exports. Wakelin (1998) in a study of 22 industries in 9 OECD countries finds effects of different technological indicators on trade, suggesting that the choice of index is important. Magnier and Toujas-Bernate (1994) find evidence of the innovation effects on exports for nine European countries. Fagerberg (1988) and León-Ledesma (2000) both find support for a positive effect of OECD trading partners’ R&D on their exports. The underlying hypothesis is that higher investment and/or R&D is associated with higher quality and innovatory products and therefore exports, and that this leads to higher demand for the exports. (For the demand to be effective in the long run there must also be an increase in supply, which is realised by economies of specialisation and scale in production and higher employment and labour productivity.)

3.3 The top-down model E3MG The top-down model, E3MG, is a 20-region, structural, annual, dynamic, econometric simulation model based on data covering the period from 1970-2001, and projected forward to 2100. The database contains information about the historic changes by region and sector in emissions, energy use, energy prices and taxes, input-output coefficients, and industries’ output, trade, investment and employment. This is supplemented by data on macroeconomic behaviour and bi-lateral trade.
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The E3MG industrial and

energy/emissions database covering the years 1971-2001 is drawn from OECD, IEA, GTAP, RIVM, and other national and international sources and processed to provide comprehensive and consistent time-series of varying quality and reliability across regions and sectors. It contains information about the historic changes by region and sector in emissions, energy use, energy prices and taxes, input-output coefficients, and industries’ output, trade, investment and employment. This is supplemented by data on macroeconomic behaviour from the IMF and the World Bank. However, the data are far from comprehensive, especially for

Winne (2004), but local instabilities remain. We are intending to tackle this problem by using the multiple solution techniques of a Bayesian uncertainty analysis. 6 The database was constructed, and the equations estimated, by teams in Cambridge Econometrics.

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developing countries. There is clearly a large “errors in variables” problem for some regions and variables, which must be taken into account in the econometric estimation and in interpreting the results.

These data are used to estimate a set of econometric equations using cointegration techniques proposed by Engel and Granger (1987) and developed by Abadir (2004) for neo-Keynesian theories of markets, which do not clear through prices alone and with long-run solutions which are not necessarily in equilibrium. E3MG requires as inputs dynamic profiles of population, energy supplies, baseline GDP, government expenditures, tax and interest and exchange rates; and it derives outputs of carbon dioxide and other greenhouse gas emissions, SO2 emissions, energy use and GDP and its expenditure and industrial components. The emphasis in the modelling is on two sets of estimated equations7 included in the model: aggregate energy demand by 19 fuel users and 20 regions and exports of goods and services by 41 industries and 20 regions. Each sector in each region is assumed to follow a different pattern of behaviour within an overall theoretical structure, implying that the representative agent assumption8 is invalid. This means that the behaviour of each sector-region is not assumed to be the same as that of the average of the group. Two sets of critical parameters, one from each set of equations are shown in Figures 2 and 39 as probability plots10 of the short- and long-run responses of energy demand to relative prices, and the long-run responses of export demand to the technological progress indicator for Annex I and non-Annex I regions. There are in principle 380 parameter estimates for the energy responses and 820 for the export responses, and the estimated ones are shown with circles (distorted into ovals by the graphics software) representing their standard errors. The issue is whether each set of parameters might reasonably have come from the same distribution, such that there is one unique parameter for energy demand and another for exports. If a parameter is significantly different from a unique estimate using the whole dataset, then the circle will intersect with the 45 degree line, showing the expected values of the average assuming normality. Both plots show a number of departures from the benchmark t-Student distribution. Figure 2 shows that the short-run responses are small compared with the long-run ones, which have a maximum of -1.8; Figure 3 shows that the long-run
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In technical terms, these sets of equations have been estimated by instrumental variables in a cointegrating generalto-specific framework (see Barker and DeRamon, 2005, for details), assuming a long-run relationship that can be projected over the next 100 years. 8 The assumption of the representative agent, commonly adopted in equilibrium models, is that the behaviour of an economic group is adequately represented by that of a group, each of whose members have the identical characteristics of the average of the group. 9 These and subsequent figures should be seen in colour. 10 See Barker and De Ramon, 2005, for an explanation of the tests and graphics. Probability plots (Chambers et al., 1983) show the estimated parameters (vertical axis) against t-Student distribution (horizontal) with degrees of freedom according to the number of observations. The t-Student data are scaled-up using the sample mean and standard deviation of all estimated parameters and the 45º-solid line is the t-Student benchmark. Circles correspond to 2 standard deviations around the individual parameter estimates.

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responses for Annex I regions are more reliable (many more circles shown), more concentrated (most of them near the origin) and lower (clustered around 0.2) than those for non-Annex I regions, which is not a surprise, given the quality of the data for the latter regions.

Figure 2: Probability plots for short- and long-run response of fuel use to relative prices
Probability Plot of estimated LPREN_short LPREN_long
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Figure 3: Probability plots for Annex I and non-Annex I long-run responses of exports to the technological progress indicator
Probability Plot of estimated YRKE_long

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In order to represent long-term structural change in economies, the model also includes assumptions about how the input-output coefficients might change in the long term. These changes were assessed by considering the role of new technologies over the next 50 years (Dewick et al. forthcoming), although this feedback is not included in the scenarios reported here and the coefficients are left at baseline levels.

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3.4 The bottom-up model ETM The bottom-up model is an annual, dynamic technology model, referred to here as the ETM model (Anderson and Winne, 2004). It is based on the concept of a price effect on the elasticity of substitution between competing technologies. Existing economic models usually assume constant elasticities of

substitution between competing technologies. Although the original ETM is not specifically regional and is not estimated by formal econometric techniques, it does model, in a simplified way, the switch from carbon energy sources to non-carbon energy sources over time. It is designed to account for the fact that a large array of non-carbon options is emerging, though their costs are generally high relative to those of fossil fuels. However, costs are declining relatively with innovation, investment and learning-by-doing. The process of substitution is also argued to be highly non-linear, involving threshold effects. The ETM models the process of substitution, allowing for non-carbon energy sources to meet a larger part of global energy demand as the price of these sources decrease with investment, learning-by-doing, and innovation. The model considers 26 separate energy supply technologies, of which 19 are carbon neutral.

Investment shares in energy generation technologies are based on the following equation (Anderson and Winne, 2004, equation 6):

ˆ S it = S it −1 + a i S it −1 S it −1 (1 + S it −1 − ∑iS it −1 ) − S it −1 (Pit − Pit −1 )

(

)

(1)

ˆ where S is market shares in new investment in technology i, S it is a maximum share attainable by any given
technology and P is the price ratio of technology i to a marker technology or numeraire (typically CCGT). The equation is a modified logistic, with the responses dependent on the differences over time of the technology’s price relative to the marker technology. If the price falls, the technology will be adopted at increasingly faster rates; eventually the rates diminish as saturation is approached. A similar representation, although simpler and more stylised, is adopted for the switch from gasoline to battery-powered vehicles rechargeable from the electricity grid.

One component of the ETM is the learning curve (McDonald and Schrattenholzer, 2001). The importance of including a learning curve in the model cannot be underestimated, as the technology costs do not simply decline as a function of time, but decrease as experience is gained by using a particular technology. As investment is made in ‘new’ technologies, learning takes place and the cost of the new technology lowers so that it becomes competitive with the ‘old’ technologies. For each type of energy demanded there is usually a technology or fuel of choice—what might be termed a ‘marker’ technology—against which the alternatives will have to compete. In the ETM, the total capital and operating costs of using this fuel per unit output are used as a basis or numeraire for expressing the relative costs of the alternatives. Even though the marker technology may comprise the majority of the market, there are always so-called niche markets

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and opportunities where the non-carbon technology is cheaper than the marker. ETM provides a simple model of the process of switching from a marker technology to the possible substitutes. This substitution process may be accelerated if a carbon tax is implemented.

3.5 The assumptions adopted The approach requires a set of assumptions to reduce the complexity of the problem11. The main ones adopted for the modelling and for the results reported below are as follows: 1) Population growth and migration is exogenous at CPI baseline levels (see below), and the assumption is adopted of sufficient labour being available from productivity growth or structural change to meet the demand for products. After 2050, the growth rate in all the scenarios slows down to match a slower growth in population. Throughout the century it is assumed that the workforce in developing countries will move from the traditional, mainly rural agricultural sector, to urban and modern sectors. 2) Monetary and fiscal policy. Independent central banks are assumed to hold the rate of consumer price inflation constant. Ministries of finance maintain a long-run fiscal balance by the combination of lower-non-carbon prices and reductions in costs from new technologies, which are sufficient to prevent any extra long-run inflation from the change in the tax regime. The increase in the costs of carbon-based products is offset by a decrease in the costs of non-carbonbased products. This implies that interest rates and exchange rates remain at baseline levels in all the scenarios 3) The econometric equations in the model are reduced to two sets: energy and export demand. The energy equations include those for inter-fuel substitution, so that in principle, all energy demand will fall when relative prices rise and non-fossil fuels will be substituted for fossil fuels when the real prices of carbon rise. The energy technologies in the model, including fossil-fuel, nuclear and carbon capture, are also reduced to two sets: those for the electricity sector and, in a simpler form, those for road vehicles. Except for these equations and for investment by the electricity and vehicles industries, other behavioural equations are treated as being in fixed proportions to their main determinants. 4) The emission permit scheme and the carbon taxes have their effects in raising prices of energy products in proportion to their carbon content where ever they are imposed, and revenues are recycled as reductions in indirect taxes to maintain fiscal neutrality. The high rates required,

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A number of theoretical post-Keynesian models of long-run demand-led growth are described in (Setterfield, 2002). One implication of these theories is that investment induces the requisite voluntary saving, i.e. “Mr Meade’s Relation” holds (Dalziel and Harcourt, 1997).

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especially for 450ppm, may prove impractical, if not politically impossible. Thus the scenarios show how high the emission prices and tax rates have to rise to achieve the targets. 5) World oil prices are held at baseline levels in all the scenarios. The main reason for this is that the model does not yet include supply functions for oil (especially oil from high-cost unconventional sources such as tar sands and shale), so the long-run supply-demand relationship cannot be solved to provide the effects on oil prices. However, because the conventional oil market becomes increasing dominated by OPEC producers (future conventional oil reserves are overwhelming concentrated in OPEC countries), the outcome for oil prices in the medium term will depend on how OPEC chooses to use its market power. The assumption implies that OPEC will exert its power to prevent oil prices falling as climate targets become more stringent. More important in the long term (since conventional oil reserves are utilised in all the scenarios) are the costs of unconventional oil. The assumption of constant oil prices in the long run is essentially one of unlimited supplies of unconventional oil as a back-up fuel at the assumed baseline prices. The econometric approach used here is not limited by the assumptions necessary in those macroeconomic models which handle inter-temporal optimisation. In order to do so such models have to assume, inter alia, that the social planner has perfect foresight with no uncertainty, and that perfectly functioning markets exist.

4 Derivation of Pathways and Scenarios to 2100 4.1 The baseline The common POLES-IMAGE (CPI) baseline has been taken as a starting point. This baseline itself derives from the IMAGE IPCC SRES A1B and B2 baselines. CPI assumes continued globalisation, medium technology, continued development, and strong dependence on fossil fuels. Population follows the UN medium projections for 2030, and the UN long-term medium projection between 2030 and 2100. Further details may be found in Van Vuuren et al, (2004). This baseline is used for the population assumptions of E3MG and projections made for government expenditures and per capita household consumption have been made for each region assuming the average growth rate will slow after 2050. With other components of GDP endogenous in the model, GDP (in $ at year 2000 prices and exchange rates) is calculated. Economic growth is near the historic average at 2.3% pa 2000-2100, with higher rates to 2050 and lower rates thereafter.

4.2 The solution process The solution process is complicated. There are three baseline solutions, each yielding closely similar (in principal identical) results. The first is the calibrated solution of the model, in which consumers’ expenditures are exogenous at projected levels as implied by the CPI baseline and stored on a projection databank. A second un-calibrated solution is derived by using these stored values but including equations

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explaining these expenditures, and calculating and storing the residuals between the equation solution and the exogenous, stored values. A third endogenous solution then solves the equations using the stored residuals from the second solution and so also reproduces the calibrated solution. The endogenous solution includes, for each sector and region, sectoral output, employment, energy use and prices and emissions. It is the basis for two baseline sets of carbon dioxide emissions, one in which E3MG and ETM allow technological change, and another in which they do not. In these baseline solutions no new permit schemes or carbon taxes are applied but technological change still occurs and is modelled as a projection of the estimated effects and through learning by doing. The solution includes for each region, sectoral output, employment, energy use and prices and emissions. In the case of the baseline, no new permit schemes or carbon taxes are applied but technological change still occurs and is modelled as a projection of the estimated effects and through learning by doing.

4.3 Scenarios for stabilisation pathways In the other scenarios, economic instruments are used to achieve the stabilisation targets, and we analyse the results with and without ITC. Note that even with no endogenous or induced technological change, the instruments can be used to achieve the targets, since they provide incentives for energy saving and fuel switching through higher carbon prices under existing technologies. Three stabilisation scenarios are used in this study, selected to span the range adopted for international model comparison studies, in which carbon dioxide concentrations stabilise at 450, 500 and 550 ppmv by 2100. Cumulative emissions of CO2 to 2100 are derived from the MAGICC model as used by the IPCC (Watson et al. 2001). Many other studies of stabilisation costs (e.g. Nakicenovich and Riahi (2003), Van Vuuren, 2004) also use the MAGICC climate model to represent the relationship between emissions and concentrations. It is a set of linked reduced form models emulating the behaviour of a GCM. It consists of coupled gas-cycle, radiative forcing, climate and ice-melt models integrated into a single package. It calculates the annual-mean global surface air temperature and sea-level implications of emission scenarios for greenhouse gases and sulphur dioxide.The E3MG model is then used to derive a cost-effective emission pathway which keeps cumulative emissions within these limits prescribed by the MAGICC model. Costs of stabilisation are then calculated relative to the baseline. The emission pathways that come from E3MG are then put back into MAGICC to check that with the new profile, the same concentrations are achieved. Although MAGICC and E3MG both model emissions scenarios detailing non-CO2 greenhouse gases, we do not consider the costs of reducing these gases and their effects in this first analysis12.

If the CO2 emission pathway does not result in stabilisation in the fully integrated analysis, policy parameters are adjusted in E3MG until a consistent solution is achieved. We judged (see Figure 3 below) that the concentrations projected by MAGICC were sufficiently close to the targets given the uncertainties for the conclusions of the paper to hold.

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These emission scenarios are also subject to exogenously defined dates at which the USA, other Annex-1 countries and non-Annex 1 countries join in permit and carbon tax schemes. By default the permit scheme covers the energy industries only (electricity supply, the fossil fuel and energy-intensive sectors covering metals, chemicals, mineral products and ore extraction) and starts in Annex I, except for the USA, 20112015. In 2016, the energy sectors in the USA and non-Annex I countries are assumed to join at the prevailing price, and the permit price is assumed to escalate in real terms until 2050, then stay constant again in real terms until 2100. 50% of the permits are allocated freely to the energy users on the basis of their past emissions (grandfathering) and the rest are auctioned (this rule is adopted to prevent excessive profits in the energy sectors from the sale of permits under conditions in which these industries have market power because they have a large share of regional electricity generation13). The CO2 emissions from the rest of the economy are assumed to be covered by a carbon tax which again starts in the Annex I countries except for the USA in 2011 and then extends to the USA and non-Annex I countries at low real rates from 2020, escalating to 2050 to the same levels at the Annex I rates. After 2050 the carbon tax remains at the same rate as the permit prices. The revenues are assumed to be recycled in each region independently. The auction revenues are used along with the revenues from carbon taxes to reduce indirect taxes in general (such as the USA’s sales taxes or the EU’s VAT) as the instrument to help maintain general price stability.

5 Results for Alternative Mitigation Policies 5.1 Emission-permit prices and carbon tax rates for stabilisation These assumptions are essentially profiles for the rates required to achieve the stabilisation targets. It soon emerged that they become excessively high for the most demanding target, 450ppmv, so for these scenarios, the USA was assumed to act alongside the rest of Annex I rather than as the non-Annex I group. The profiles are raised or lowered in proportion to reduce CO2 emissions sufficiently to achieve the targets. Stabilisation can be achieved in the model with or without allowing technical change to be induced. If ITC is not included, the carbon taxes and permit trading schemes induce energy efficiency and fuel switching measures between existing technologies. If ITC is included, the same emission limits are imposed but the economy can grow faster within them. The rates assuming induced technological change are shown to 2100 in Table 1 together with the outcomes for CO2 in Table 2 and GDP in Table 3. The results are tabulated for the baseline and three stabilisation scenarios, with the results for GDP also shown without induced technological change, using the permit and carbon tax rates to achieve stabilisation.

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Barker and Rosendahl (2000) in a study of ancillary benefits of GHG mitigation in the EU find that free allocation of permits leads to large profits in the energy industries, compared to the baseline, but profits can be maintained in the long run if only 50% of the permits are allocated freely and 50% are auctioned (p. 21). Goulder has also addressed this issue, using a general equilibrium approach. A recent paper concludes: “Under a wide range of parameter values, profits can be maintained in both “upstream” (fossil-fuel-supplying) and “downstream” (fossil-fuel-using) industries by freely allocating less (and sometimes considerably less) than 50 percent of pollution permits.” (Goulder et al. forthcoming, p. 4)

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TABLE 1: CO2 EMISSION PERMIT PRICES AND CARBON TAX RATES $(2000)/tC Scenario 2020 2030 2040 2050-2100 Annex 1 550ppmv 500ppmv 450ppmv 37 37 112 65 68 198 93 98 285 Non Annex 1 550ppmv 500ppmv 450ppmv Source: E3MG2.0sp1 20 21 76 54 56 174 88 92 272 122 128 371 122 128 371

There are three features worth mentioning about the rates. First there are the modest levels required for the 550ppmv target, with permit prices starting at $11/tC in 2011 and rising to $37tC by 2020. The tax rates are even lower. These rates are sufficient to increase energy efficiency appreciably and shift the electricity system to a mixture of low-carbon options including renewables, coal and gas with sequestration, and nuclear depending on region and local conditions. Second, the rates for the 500ppmv target are only slightly above those for the 550ppmv target. The reason is that the small increase is a sufficient incentive to cause the conversion from gasoline to electric vehicles largely over the years to 2050. The modelling of the conversion is highly non-linear, since it requires a system change, and the permit/tax rates required are very uncertain. As the transport sector decarbonises, it requires more electricity, and this further accelerates the move to low-carbon technologies in the electricity sector. Third, the 450ppmv target is much more difficult to achieve. Permit prices start at $35/tC in 2011 and rise to $198tC by 2020 and $371 by 2050. The easier, lower cost options for reducing emissions have been exhausted, and the extra growth stimulated by the higher investment is also encouraging the demand for energy in general.

TABLE 2: CO2 AND GHG EMISSIONS 2000-2100 CO2 Gt-C per year Scenario 2000 2020 2050 2100

Baseline 550ppmv 500ppmv 450ppmv

7.7 7.7 7.7 7.7

10.6 9.4 9.5 8.1

13.0 10.2 9.0 5.5 GHG Gt-C-eq

15.6 8.5 3.3 2.2

450ppmv

11.1

9.5

7.0

2.6

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Source: E3MG2.0sp1

5.2 Emission pathways Table 2 and Figure 4 show the emission pathways and Figure 5 the CO2 concentrations, both with and without induced technological change. The striking feature shown in these charts is that the treatment of induced technological change makes very little difference to the use of carbon in the world economy. Taking the system as a whole, the effects of technological change as modelled are simultaneously to reduce energy demand directly through improvements in efficiency but increase economic growth and so increase energy demand indirectly, offsetting the effects of the improvements in energy efficiency. This relates to the “rebound effect” found in studies of energy efficiency (Herring, 2004; Frodel, 2004) in which the expected reductions in energy use do not occur because the extra real income provided by the improvement in efficiency leads to more energy use. At the global, long-run, scale, technology drives energy efficiency, but it also, more significantly, drives economic growth and the outcome is higher energy use and CO2 emissions, which in this modelling exercise can only be curtailed by increases in real carbon prices.

Figure 4: Global CO2 emission pathways and induced technological change
18 16 14 12 10 8 6 4 2 0
20 00 20 10 20 20 20 30 20 40 20 50 20 60 20 70 20 80 20 90 21 00
Base ITC Base no ITC 550ppmv ITC 550ppmv no ITC 500ppmv ITC 500ppmv no ITC 450ppmv ITC 450ppmv no ITC

CO2 (GtC)

year
Source: E3MG2.0sp1r1,model solutions annually to 2020 and every 10 years to 2100

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Figure 5: Carbon Dioxide Concentrations for Illustrative Stabilisation Scenarios
600 550 500 450 400 350 300
2000 2011 2022 2033 2044 2055 2066 2077 2088 2099 CO2 concentration (ppm)
450 ITC 450 no ITC 500 ITC 500 no ITC 550 ITC 550 no ITC

Year

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5.3 Shares of technologies in electricity capacity Figure 6 shows the shares of global electricity capacity taken by 4 technologies (fossil, nuclear, renewable and fossil generation with CO2 sequestration) 2000-2100 for the baseline and the 450ppmv scenario. Overall, electricity demand is lower in the 450ppmv scenario. Fossil fuel shares fall and renewable shares rise in both the base and the scenarios. The higher real costs of carbon in the scenarios have their main effect in the acceleration of this shift. Within the renewable group, there is a wide diversity of technologies adopted, depending on local conditions and niche markets. There are no substantial responses in favour of nuclear or fossil generation with sequestration.

Figure 6: Global electricity capacity by technology (shares)
0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0
BASE nuclear
BASE renewable
BASE fossil-seq.
450ppmv fossil
450ppmv nuclear
450 renewable

BASE fossil

20

00

20

20

20

40

20

60

8 20

0

0 21

0

450 fossil-seq
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5.4 The effects of more stringent targets on energy- and carbon-intensities One feature of the results is that as the stabilization target becomes more stringent and the rates of permit prices and taxes rise, the abatement becomes more focused on reducing energy intensities rather than carbon intensities. This feature can be explained by the econometric approach adopted in the modelling as follows.

There are four basic routes by which CO2 is abated in E3MG2.0: (1) through the energy technology switches, which operate only for two sectors: electricity generation and vehicles. These sectors emit directly some 50% of global CO2. (2) through increasing the relative price of carbon, which affects demand in the aggregate energy demand equations. Generally the responses to relative prices are rather low and, even though they are higher in the very long run, the price elasticities are only about -1. (3) through increasing the relative price of carbon, which changes the prices of coal, oil, gas and electricity in the fuel share equations, shifting the shares towards lower carbon fuels. Here the substitution elasticities are high for coal, oil and gas, but low for electricity. (4) through the technological progress indicator (TPI) in the aggregate energy demand equations (not in the fuel substitution equations), which endogenizes general improvements in energy efficiency.

As the real prices of carbon rise between the base and the 550ppmv scenario, the electricity sector is effectively decarbonized, with a switch mainly to renewables, and much of the coal is switched to gas and electricity by fuel substitution. The electricity price stays relatively high because of the permit scheme and the need to fund new investment. As the real prices of carbon rise even further from the levels in the 550ppmv scenario towards those on the 500ppmv scenario, they trigger a system switch from gasoline to electric vehicles and more demand for the now low-carbon electricity. Simultaneously there is more substitution away from coal and oil to gas and electricity. With the conversion of the power and vehicles technologies to low-carbon alternatives, and all the easy inter-fuel substitution being done, it becomes very difficult to reduce the remaining CO2 emissions, so the real price of carbon has to rise much more between the 500ppmv and the 450ppmv scenarios than between 550 and 500ppmv. The extra growth is comparatively less (c/f 550 to 500ppmv) because there are fewer investment opportunities, so the permit prices and tax rates must rise even more to achieve the required increases in energy efficiency. This is why energy efficiency is increasing rather than carbon intensity decreasing.

The effect can be traced back to electricity as a premium energy carrier, with high income and low price elasticities compared to the other energy carriers. As the global energy system is decarbonized electricity becomes the low-carbon energy carrier throughout the system. Also, the fuel-switching opportunities tend

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to take place earlier and at lower carbon prices compared with general energy-efficiency opportunities, which take place later and at higher carbon prices.

TABLE 3: GDP 2000-2100 $(2000) trillion %pa 2000Scenario Baseline No ITC ITC 550ppmv No ITC ITC 500ppmv No ITC ITC 450ppmv No ITC ITC Source: E3MG2.0sp1 30.7 30.7 101.6 140.1 204.1 326.4 2.4 3.1 1.4 1.7 1.9 2.4 30.7 30.7 99.6 137.4 202.0 325.2 2.4 3.0 1.4 1.7 1.9 2.4 30.7 30.7 97.9 135.0 196.0 315.1 2.3 3.0 1.4 1.7 1.9 2.4 30.7 30.7 97.5 134.3 194.9 311.4 2.3 3.0 1.4 1.7 1.9 2.3 2000 2050 2100 2000-50 2050-2100 2100

5.5 Effects of ITC on global GDP Table 3 and Figure 7 show the outcomes for GDP, also with and without induced technological change. The substantial effects of including endogenous technological change are apparent in the baseline projections, with very small effects of decarbonisation on global economic growth. This is not a surprise. Energy demand and supply is very small in relation to the rest of the economy, around 3-4% of value added, and technological change is led by improvements in the use of machinery and information technology and communications. These improvements allow long-run growth to proceed by saving on scarce resources such as labour and energy. The growth itself ultimately comes from the demand by consumers for goods and services, promoted by technological and marketing innovations. Table 4 also shows the extent to which higher growth is induced by the extra investment as a result of the increases in real carbon prices. At 550ppmv, ITC generates extra GDP from a baseline without ITC, but the overall effects are very small, about 1 percentage point by 2100. Figure 8 shows that when the stabilisation targets are more demanding, the extra investment required leads to a small increase in the growth rate, and GDP is about 3-5% higher by 2100, with ITC accounting for about 0.5 percentage points.

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Figure 7: The effects of induced technological change on GDP
350 300 250 200 150 100 50 0
450ppmv ITC 450ppmv no ITC 500ppmv ITC 500ppmv no ITC 550ppmv ITC 550ppmv no ITC

GDP ($2000tr)

Source: E3MG2.0sp1r1, model solutions annually to 2020 and every 10 years to 2100

20 00 20 10 20 20 20 30 20 40 20 50 20 60 20 70 20 80 20 90 21 00
year

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Figure 8: The effects of ITC on GDP by 2100
6 5
%GDP

4 3 2 1 0 450 500 CO2 stabilisation (ppm) 550

ITC
no ITC

Source: E3MG2.0sp1r1, 6 scenarios, % difference from base in year 2100. Note: Single carbon cycle strength only; neutral revenue recycling; no ancillary benefits.
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Figure 9: The social cost of carbon for climate stabilization in E3MG solutions 2000-2100
Social cost of carbon
$(2000) per tonne Cequivalent

400 300 200 100 0 450 500 CO2 stabilisation (ppm) 550

ITC no ITC

Source: E3MG2.0sp1r1, 6 scenarios, escalating tax rates with year 2050 tax rates shown. Note: Single carbon cycle strength only; neutral revenue recycling; no ancillary benefits.
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5.6 The social cost of carbon in this approach Figure 9 shows the social costs of carbon14 interpreted as the global permit price and carbon tax rate calculated to achieve the three stabilization targets by 2100, expressed in year 2000 $s and exchange rates. The social costs of carbon to achieve stabilisation are not much affected by whether technological change is endogenous or not. At 550ppmv, when change is endogenous, the prices have to be a little higher. This is a consequence of the dominating feature of the projections, discussed above, that the effects of the increase in costs in raising energy efficiency are offset by the effects of the extra investment on economic growth and hence energy use. The outcome is that the social cost can be higher or lower as a consequence of ITC depending on the balance between these effects.

6 Conclusions These are the first results of a substantial data collection, estimation and modelling project, adopting an econometric and technological approach to the estimation of the costs of stabilisation. Under a set of plausible assumptions, economic growth has been made endogenous in a large-scale econometric model, with export and energy demand equations estimated on 20-region annual data 1971-2001. General technological progress at the macroeconomic level has been measured by indicators taken to be accumulated gross fixed investment enhanced by R&D expenditures, and its effects estimated by inclusion of the indicators in these equations. About 20% of growth over 100 years is accounted for by these effects.

The social cost of carbon can also be calculated by expressing all the climate change damages in money terms and discounting to obtain present values. However, the uncertainties are such that we have chosen not to follow this approach and instead, we have adopted stabilization targets assumed to be chosen by governments acting under the UNFCC and calculated the required extra cost of achieving them in terms of CO2 permit prices and tax rates.

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However, there is virtually no net effect on CO2 emissions. One conclusion is therefore that general technological change alone seems unlikely to lead to decarbonisation. Improvements in energy efficiency are offset in their effects on CO2 emissions by the effects of higher growth in exports, incomes and therefore the demand for energy. This phenomenon is a global, macroeconomic counterpart to the rebound effect found in microeconomic studies of energy policies.

Specific technological progress has been included in the model by a bottom-up representation of technologies using energy in the electricity and vehicle industries, with learning curves and responses to real energy prices. The instruments chosen to achieve stabilisation are CO2 emission permits for the energy sector and carbon taxes for the rest of the economy, starting in 2011 in Annex I regions, covering all regions by 2020, and escalating to 2050. The carbon tax revenues and 50% of the permit revenues are assumed to be recycled in the form of reductions in other indirect taxes on consumers. As the real cost of carbon rises in the system, learning-by-doing reduces the unit costs of the technologies as the scale of adoption increases. When technological change is induced by allowing the technologies to respond to increase in the costs of carbon through costs of permits and taxes, the outcome is a wave of extra investment, initiated in the electricity and vehicle industries, but diffusing rapidly to all investing and other industries in all regions. This is shown to be larger and earlier than the investment in fossil technologies in the baseline. The extra investment raises economic growth, with demands being stimulated by higher incomes and supplies made available by economies of scale and specialisation. At the 450ppmv stabilisation level, the permit price and the carbon tax rates are much higher than at the 500ppmv and 550ppmv levels, but the increase in economic growth is only slightly higher. Although carbon prices and carbon taxes are higher, overall inflation is unchanged because non-fossil energy prices and tax rates are reduced by more economies of scale and revenue recycling.

The responses are very uncertain in many respects and a formal uncertainty analysis of the outcomes is planned, but the general picture is clear, that there is a wide range of technology and system changes that may be induced by different real costs of carbon, and substantial mitigation options may be implemented at relatively low rates of permits/taxes, but these become increasing rare as the rates rise. There are niche uses of carbon-based fuels (in power generation and vehicle use as well as in other sectors), which are very expensive to replace and which will persist even at high real carbon prices. It may be that the picture will change with the inclusion of more bottom-up demand-side technologies for services and households use of energy. However, these will mainly affect energy demand rather than carbon demand.

The conclusions are conditional on model uncertainties and assumptions, and on specific and highly stylised fiscal polices, with half the permits being freely allocated and the other half auctioned and all government revenues from the permits and taxes recycled back to consumers. Macroeconomic inflation stability is assumed, with the assumption of central bank independence and the recycling of revenues

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through reductions in indirect taxes holding consumer inflation at baseline values. In effect consumer taxation is shifted towards products in proportion to their carbon intensity. Energy-industry profits are maintained at baseline values by half the permits being freely allocated. The long-run public sector finances are assumed to be kept in balance by the increases in tax revenues from the higher growth. Under these conditions, if policies successfully raise real carbon prices, then the extra investment from the induced technological change is expected to lead to slightly more economic growth.

The literature on the economics of stabilisation has been dominated by issues of efficient allocation of resources, rather than sources of growth, and has focussed on economic costs rather than benefits, and, as Azar and Schneider (2002) point out, occasionally exaggerating them. If the economic issue becomes whether mitigation policies might lead to higher growth, then mitigation policies may be seen to provide net economic benefits, so that investment-led climate policies enhance economic development, albeit with only small but positive effects on economic growth. It appears that the application of current cost-effective technologies can decarbonise the world economy, supporting the conclusions of Pacala and Socolow (2004), provided it is specifically driven by increases in the real prices of carbon arising from emission permit schemes and taxes. If policies are successful in raising real carbon prices, under conditions of macroeconomic stability (so that inflation is unaffected and governmental fiscal rules are followed) then the extra investment is expected to lead to higher global growth and incomes, even for almost complete global decarbonisation.

Acknowledgements The development of E3MG version 1 (4-region pilot model) and version 2 (20 regions, including the UK) has been supported under Tyndall phase 1. However the large-scale version 2 used in this paper could not have been developed without substantial contributions from Cambridge Econometrics Ltd in the forms of some data provision and of procedures for data management and estimation, which were undertaken by teams headed by Rachel Beaven and Sebastian De-Ramon, and including Dijon Antony, Ole Lofnaes, Michele Pacillo and Hector Pollitt. The authors are very grateful for these contributions.

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ANNEX 1: E3MG An Energy-Environment-Economy Model at the Global level BRIEF DESCRIPTION AND RELEVANT CLASSIFICATIONS

Terry Barker and Haoran Pan
E3MG is an econometric simulation model of the global E3 system, estimated on annual data 1971-2002 and projecting annually to 2020 and every 10 years to 2100. It is designed to address the issues of energy security and climate stabilisation both in the medium and long terms, with particular emphasis on dynamics, uncertainty and the design and use of economic instruments, such as emission allowance trading schemes. It is a disequilibrium model with an open structure such that labour, foreign exchange and public financial markets are not necessarily closed. It is very disaggregated, with 20 world regions (including the 13 nation states with the highest CO2 emissions in 2000), 12 energy carriers, 19 energy users, 28 energy technologies, 14 atmospheric emissions and 42 industrial sectors, with comparable detail for the rest of the economy.

The methodology of the model can be described as post-Keynesian, following that of the European model E3ME developed by Cambridge Econometrics (see www.camecon.co.uk/e3me/intro.htm) except that at the global level various markets are closed, e.g. total exports equal total imports at a sectoral level allowing for imbalances in the data. The model is in the process of development. Exogenous inputs in the current version of the model (E3MG2.0) include GDP (largely), the world oil price, regional gas and coal prices, energy supplies, population, participation rates, exchange and interest rates and population. The main outputs of the model include energy demands, greenhouse gas emissions, other polluting gases, the structure of GDP in terms of industrial outputs and expenditure components. The model includes the economic instruments of CO2 emission allowances (auctioned or grandfathered), energy and carbon taxes, employment taxes, and other direct and indirect taxes.

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

E3MG20: Regions (RE) USA Japan Germany UK France Italy Rest EU-15 EU-10 Canada Australia OECD nes (not elsewhere specified) Russian Federation Rest of Annex I China India Mexico Brazil NICs OPEC Rest of world

US JP DE UK FR IT ER EE CA AU RO RS RA CN incl HK IN MX BR NI OP RW

World R1 to 20 WO Annex I R1 to 13 A1 non-Annex I R14 to 20 NA EU25 R3 to 8 EU The classification is organised by Annex I countries (US, Japan, EU, other OECD, Russia and E Europe outside EU), followed by rest of world. Within each geo-political grouping in the main classification, individual countries are ordered by size of CO2 emissions in 2000. In the regional groups, the countries are ordered alphabetically (English). Notes (1) South Korea and Mexico are in OECD, but not in Annex I (2) Countries with large populations in ROW are ordered by size of CO2 emissions in 2002. All countries listed account for about 98% of CO2 emissions in 2000.

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Unified/E3ME40/E3MG20: Energy Technology (ET) 1 Coal-clean 2 Coal-dirty 3 Oil fuels-clean 4 Oil fuels-dirty 5 Gas-central 6 Gas-micro CHP 7 Gas-f.c. vehicle 8 Nuclear electricity 9 Hydro electricity 10 Biomass crops 11 Biomass wastes: CHP 12 Wind-intermittent 13 Wind-with storage 14 Solar PV-intermittent 15 Solar PV-with storage 16 Solar Thrml-intermittent 17 Solar Thrml-w/gas 18 Solar Thrml-w/storage 19 Marine-intermittent 20 Marine-with storage 21 Geothermal 22 Gas - with sequestration 23 Coal - with sequestration 24 Hydrogen-central 25 Hydrogen-micro CHP 26 Hydrogen-f.c. vehicles

CC CD OC OD GC GM GV NE HE BC BW WI WS SI SS TI TG TS MI MS GE GS CS HC HM HV

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Unified E3ME40/E3MG20 Technical Characteristics (TC) of ET capital (e.g.power plant)
1 2 3 4 5 6 7 8 9 Variable costs USc/kWe Fixed costs USc/kWe Average costs USc/kWe Efficiency, kWhe/kWh % Load factor, % Waste used %kWh input CO2 emissions: g/kWh NOx emissions: g/kWh SO2 emissions g/kWh

10 PM10 emissions: g/kWh 11 Lifetime of plant, yrs 12 Investment lag, yrs 13 Development lag, yrs 14 15 Subn par SD % mean Subn parameter ‘a’

16 Learning rate 17 Minimum cost: US$/kWhe 18 Tech. limits: % total market 19 Initial market shares S0, % 20 Infrastr. cost, US$/kW 21 Resource endow (various)

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1 2 3 4

Unified/E3ME40/E3MG20: Energy Carriers (J) Hard coal HC Hard coal OC CO HO MO OG NG EL HE CW BF HY
Lignite/Brown Coal/Sub-Bituminous Coal, Coking Coal, Other Bituminous C Charcoal. Crude/NGL/Feedstocks/Non-Crude, Crude Oil, Refinery Feedstocks, Additiv Heavy Fuel Oil, Naphtha, White Spirit & SBP, Lubricants, Bitumen, Paraffin Motor Gasoline, Aviation Gasoline, Gasoline type Jet Fuel, Kerosene type Jet Gas Works Gas, Coke Oven Gas, Blast Furnace Gas, and Oxygen Steel Furna Natural Gas, and Natural Gas Liquids. Electricity Heat Industrial Wastes, Municipal Wastes Renewables, Municipal Wastes Non-Re Primary Solid Biomass, Biogas, and Liquid Biomass. Hydrogen

Other coal etc Crude oil etc Heavy fuel oil Middle 5 distillates 6 Other gas 7 Natural gas 8 Electricity 9 Heat Combusible 10 waste 11 Biofuels 12 Hydrogen

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Annex 2: ETM The Energy Technology Sub-model Sarah Winne
Although E3MG is a complex econometric, simulation model, it originally lacked a representation of the array of non-carbon energy options that could potentially emerge in the future. To fill this gap, an annual, dynamic technology model, referred to here as the ETM model, has been linked with E3MG. The ETM sub-model has been built to generalise earlier work by Anderson and Winne to form the basis of a new energy technology component of E3MG. Although the ETM is not specifically regional and is not estimated by formal econometric techniques, it does model, in a simplified way, the switch from carbon energy sources to non-carbon energy sources over time. The ETM model was designed to account for the fact that a large array of non-carbon options is emerging, though their costs are generally high relative to those of fossil fuels. However, costs are declining relatively with innovation, investment and learning-bydoing. The process of substitution is also argued to be highly non-linear, involving threshold effects. The ETM models the process of substitution, allowing for non-carbon energy sources to meet a larger part of global energy demand as the price of these sources decrease with investment, learning-by-doing, and innovation. One component of the ETM is the learning curve.15 The importance of including a learning curve in the model cannot be underestimated, as the technology costs do not simply decline as a function of time, but decrease as experience is gained by using a particular technology.16 The learning curve in the ETM has the form

Ct = C0 ( X t / X 0 ) −b

(1)

where Ct are the unit costs at time t, C0 initial costs, Xt the cumulative investment (taken as an indicator of experience) in the technology by time t from the time of its first introduction and b is the ‘learning-curve parameter’. This relationship is highly non-linear, especially in the early phases when Xt is small and experience accumulates rapidly. Figure 1 below shows the effect, in which market share is taken as a proxy for Xt.17

A. McDonald and L. Schrattenholzer (2001). A. Manne and R. Richels, (2004.) 17 The term learning rate in Figure 3 refers to the per unit decline in costs with each doubling of cumulative investment, which is equal to 1-2-b.
16

15

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F igure 1: T hresho ld Effects in T echno lo gy Develo pment
( le a rning ra t e s in pe rc e nt a ge s )
6

Init ia l C o s t s , whe n m a rk e t s a re s m a ll
5

C o s t R a t io , re la t iv e t o e xis t ing t e c hno lo gie s

4

3

10 %
2

20%
1

30%
0 0. 1 0. 2 0. 3 0. 4 0. 5 0. 6 0. 7 0. 8 0. 9 1

0

As investment is made in ‘new’ technologies, learning takes place and the cost of the new technology lowers so that it becomes competitive with the ‘old’ technologies. For each type of energy demanded there is usually a technology or fuel ‘of choice’—what might be termed a ‘marker’ technology—against which the alternatives will have to compete. In the ETM, the total capital and operating costs of using this fuel per unit output will be used as a basis or numeraire for expressing the relative costs of the alternatives.

Even though the numeraire technology may comprise the majority of the market, there are always so-called niche markets and opportunities where the non-carbon technology is cheaper than then numeraire. Such applications may be limited, but the point is that, while it may be generally true that the costs of a marker technology may be lower or higher than those of its substitute, this is not true in every case. Even with hydrogen, there have been small niche markets for a century, for instance in oil refineries and for the chemical industry; hydrogen surpluses have been used for co-generation for several years.

The General Structure of the ETM The following table shows the substitution structure of the ETM, including the numeraire technology (marked with a *) and the possible substitute technologies for each of the energy sectors. For example, in the electricity sector, gas (central) is currently the numeraire, although any of the 21 alternate technologies could act as substitutes under the right market conditions.

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Table A.2: The New Energy Demand-Supply Structurea/ Solid Fuels Energy Technologies S 1 1. Coal—clean 2. Coal—dirty 3. Oil fuels—clean 4. Oil fuels—dirty 5. Gas—central 6. Gas—micro CHP 7. Gas—fuel cell vehicle 8. Nuclear electricity 9. Hydro electricity 10. Biomass crops 11. Biomass wastes: CHP 12. Wind—intermittent 13. Wind—with storage 14. Solar PV—intermittent 15. Solar PV—with storage 16. Solar Thrml—w/gas 17. Solar Thrml—w/storage 18. Solar Thrml-y y y y y y y y y y y y y y y y y y f/ f/ * y * y * y H 2 O 3 H 4 G 5 H 6 8 y y d/

Oil Fuels

Natural Gas

Electricity

Tradl. Biomas s

9 e/ e/ * y yc/

-d/ * y

intermittent 19. Marine—intermittent 20. Marine—with storage 21. Geothermal 22. sequestration 23. Gas—with sequestration 24. Hydrogen—central 25. Hydrogen—micro CHP y y y y y y y Coal—with y y y y

a/ A y indicates where an equation to represent substitution is required, an asterisk the numeraire.

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b/ Hydrogen from coal or gas (with the carbon being sequestered) is treated as a single option in the present model. The choice between the two primary fuel will probably vary with region in practice. See text section dealing with hydrogen. c/ In many regions this is LPG, which can be regarded as centrally produced. d/ Oil fuels are used for electricity generation, but occupy an increasingly small share, and the energy they supply for this purpose is included in with that supplied by coal and gas. (See text.) e/ Coal was a substitute historically in the industrial countries, and still is in China, but the historical trend is toward kerosene and gas; the use of coal as a substitute is considered to be included in the demands for solid fuels. f/ CHP from biomass as a substitute for traditional biomass is considered along with coal to be included in the demands for solid fuels.

Some of the substitute technologies listed in Table 1 will be restricted for technical reasons, for instance the amount of intermittent renewable energy that can be permitted on the electricity grids, and others for economic reasons, for instance the rising costs of land use by biomass or onshore wind. In the ETM, these restrictions are represented by a rising cost of use as the limits are reached.

The main equations used in the ETM to model the switch from carbon technologies to non-carbon technologies, as costs decrease are listed below. For the electricity sector, the marker technology (n) or numeraire is electricity generation from natural gas. The superscript E refers to the electricity sector.

Substitution equations for new technologies:

E E E E E E ˆE S it = S it −1 + aiE S it −1 S it −1 (1 + S it −1 − ∑i S it −1 ) − S it −1 PitE − PitE 1 −

(

)(

)

(1)

where S is market shares in new investment.
E E S nt = 1 − ∑ S it −1 i

Marker technology:

(2)

Investment:

E E I tE = DtE − DtE 1 + δ nU nt −1 + ∑i δ iU it −1 −

(3)

where Dt is the demand for electricity at time t and δ is the retirement rate of technology i. Cumulative net investment: Ditto, marker technology: Cost dynamics:
E E C it = C it −1 −

E E E E U it = U it −1 + S it −1 I tE 1 − δ iU it −1 −

(4) (5)

E E E E U nt = U nt −1 + S nt −1 I tE 1 − δ nU nt −1 −

biE E E WitE − WitE 1 C it − C it −1 − E Wit

(

)(

)

(6)

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ANNEX 3: CIAS Community Integrated Assessment System Rachel Warren
The CIAS model (also known as Community Integrated Assessment Model, CIAMn) links together a global economic model, E3MG, and two alternative climate models of contrasting complexity, one of which is the MAGIC-C model, and a climate change impacts tool. The former three originate at the Tyndall Centre and the latter originates from the Potsdam Institute for Climate Change. The component models E3MG and MAGIC-C are described above. For this paper, the simplest application of the model was used in which only the economic model and the simple climate model, MAGIC-C, were linked.

Figure A.3 The CIAS model in its current simple form

The future: CIAS in context

Integrated assessment modelling (IAM) is one of the most promising forms of scientific analysis that can cope with the complexity of, and linkages between, the physical and social science inherent to the climate policy issue. IAM is a problem-solving exercise requiring the linking of a number of key pieces of Although the principles of IAM are agreed,

scientific information from different disciplines.

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implementation is generally rather simplistic, involving an inflexible linkage of a small number of models at a given institution, commonly written in the same computer language and run upon the same platform (Alcamo 1984, Dowlatabadi 1995, Hulme et al. 1995, Rotmans 1990). These systems have inherent limits, namely (i) the impossibility of building large all-purpose models that assemble a comprehensive array of modules at a single site, and (ii) the impossibility of providing responses to policy-relevant questions sufficiently rapidly. A group of institutions are at a preliminary stage in developing an ambitious, innovative Community Integrated Assessment Model “CIAMn” (Warren 2002, Schellnhuber et al in press). The model described above is actually the first stage in this process. CIAS will ultimately bring together also models, transport, social behaviour, and detailed representations of climate change impacts on ecosystems. To bridge the gap between policy needs and scientific knowledge, CIAS employs a team to assess stakeholder need, collate scientific knowledge, and compose it into a Community Integrated Assessment Model, CIAMn, before communicating output to the stakeholder. CIAMn is a multi-disciplinary model which will ultimately bring together models of climate, economy, technological change, transport, social behaviour, hydrology, agriculture, and climate change impacts on humans and ecosystems. Its unique advantages over existing IA models are that it: • A: links together modules written at several different European institutions • B: links together modules written in different computer languages supported by different platforms • C: has a modular, flexible design in which modules are linked supported by a new application of the latest e-science technologies • D: takes a participatory approach to integrated assessment • E: enables study of inter-model uncertainty, allowing study of the robustness of policy advice to the differing assumptions made at different institutions about, for example, economic theory (i.e. neoclassical versus Keynesian, discount rates, backstop technologies, etc). This is of key importance to policy makers. Study of intra-model uncertainty is planned to be facilitated through application of Bayesian uncertainty analyses (Oakley and O’Hagain 2002) further enhancing the robustness of policy advice. The CIAS model described here is only a first step in what ultimately is planned to be the product of a suite of institutions exchanging modules and knowledge to address society’s possible responses to the climate change problem according to the needs of a diverse range of stakeholders.

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The trans-disciplinary Tyndall Centre for Climate Change Research undertakes integrated research into the long-term consequences of climate change for society and into the development of sustainable responses that governments, business-leaders and decision-makers can evaluate and implement. Achieving these objectives brings together UK climate scientists, social scientists, engineers and economists in a unique collaborative research effort. Research at the Tyndall Centre is organised into four research themes that collectively contribute to all aspects of the climate change issue: Integrating Frameworks; Decarbonising Modern Societies; Adapting to Climate Change; and Sustaining the Coastal Zone. All thematic fields address a clear problem posed to society by climate change, and will generate results to guide the strategic development of climate change mitigation and adaptation policies at local, national and global scales. The Tyndall Centre is named after the 19th century UK scientist John Tyndall, who was the first to prove the Earth’s natural greenhouse effect and suggested that slight changes in atmospheric composition could bring about climate variations. In addition, he was committed to improving the quality of science education and knowledge. The Tyndall Centre is a partnership of the following institutions: University of East Anglia UMIST Southampton Oceanography Centre University of Southampton University of Cambridge Centre for Ecology and Hydrology SPRU – Science and Technology Policy Research (University of Sussex) Institute for Transport Studies (University of Leeds) Complex Systems Management Centre (Cranfield University) Energy Research Unit (CLRC Rutherford Appleton Laboratory) The Centre is core funded by the following organisations: Natural Environmental Research Council (NERC) Economic and Social Research Council (ESRC) Engineering and Physical Sciences Research Council (EPSRC) UK Government Department of Trade and Industry (DTI) For more information, visit the Tyndall Centre Web site (www.tyndall.ac.uk) or contact: External Communications Manager Tyndall Centre for Climate Change Research University of East Anglia, Norwich NR4 7TJ, UK Phone: +44 (0) 1603 59 3906; Fax: +44 (0) 1603 59 3901 Email: tyndall@uea.ac.uk

Tyndall Working Papers are available online at http://www.tyndall.ac.uk/publications/working_papers/working_papers.shtml Mitchell, T. and Hulme, M. (2000). A Country-byCountry Analysis of Past and Future Warming Rates, Tyndall Centre Working Paper 1. Hulme, M. (2001). Integrated Assessment Models, Tyndall Centre Working Paper 2. Berkhout, F, Hertin, J. and Jordan, A. J. (2001). Socio-economic futures in climate change impact assessment: using scenarios as 'learning machines', Tyndall Centre Working Paper 3. Barker, T. and Ekins, P. (2001). How High are the Costs of Kyoto for the US Economy?, Tyndall Centre Working Paper 4. Barnett, J. (2001). The issue of 'Adverse Effects and the Impacts of Response Measures' in the UNFCCC, Tyndall Centre Working Paper 5. Goodess, C.M., Hulme, M. and Osborn, T. (2001). The identification and evaluation of suitable scenario development methods for the estimation of future probabilities of extreme weather events, Tyndall Centre Working Paper 6. Barnett, J. (2001). Security and Climate Change, Tyndall Centre Working Paper 7. Adger, W. N. (2001). Social Capital and Climate Change, Tyndall Centre Working Paper 8. Barnett, J. and Adger, W. N. (2001). Climate Dangers and Atoll Countries, Tyndall Centre Working Paper 9. Gough, C., Taylor, I. and Shackley, S. (2001). Burying Carbon under the Sea: An Initial Exploration of Public Opinions, Tyndall Centre Working Paper 10. Barker, T. (2001). Representing the Integrated Assessment of Climate Change, Adaptation and Mitigation, Tyndall Centre Working Paper 11. Dessai, S., (2001). The climate regime from The Hague to Marrakech: Saving or sinking the Kyoto Protocol?, Tyndall Centre Working Paper 12. Dewick, P., Green K., Miozzo, M., (2002). Technological Change, Industry Structure and the Environment, Tyndall Centre Working Paper 13. Shackley, S. and Gough, C., (2002). The Use of Integrated Assessment: An Institutional Analysis Perspective, Tyndall Centre Working Paper 14. Köhler, J.H., (2002). Long run technical change in an energy-environment-economy (E3) model for an IA system: A model of Kondratiev waves, Tyndall Centre Working Paper 15. Adger, W.N., Huq, S., Brown, K., Conway, D. and Hulme, M. (2002). Adaptation to climate change: Setting the Agenda for Development Policy and Research, Tyndall Centre Working Paper 16. Dutton, G., (2002). Hydrogen Energy Technology, Tyndall Centre Working Paper 17. Watson, J. (2002). The development of large technical systems: implications for hydrogen, Tyndall Centre Working Paper 18. Pridmore, A. and Bristow, A., (2002). The role of hydrogen in powering road transport, Tyndall Centre Working Paper 19. Turnpenny, J. (2002). Reviewing organisational use of scenarios: Case study - evaluating UK energy policy options, Tyndall Centre Working Paper 20. Watson, W. J. (2002). Renewables and CHP Deployment in the UK to 2020, Tyndall Centre Working Paper 21. Watson, W.J., Hertin, J., Randall, T., Gough, C. (2002). Renewable Energy and Combined Heat and Power Resources in the UK, Tyndall Centre Working Paper 22. Paavola, J. and Adger, W.N. (2002). Justice and adaptation to climate change, Tyndall Centre Working Paper 23. Xueguang Wu, Jenkins, N. and Strbac, G. (2002). Impact of Integrating Renewables and CHP into the UK Transmission Network, Tyndall Centre Working Paper 24 Xueguang Wu, Mutale, J., Jenkins, N. and Strbac, G. (2003). An investigation of Network Splitting for Fault Level Reduction, Tyndall Centre Working Paper 25 Brooks, N. and Adger W.N. (2003). Country level risk measures of climate-related natural disasters and implications for adaptation to climate change, Tyndall Centre Working Paper 26 Tompkins, E.L. and Adger, W.N. (2003). Building resilience to climate change through adaptive management of natural resources, Tyndall Centre Working Paper 27

Dessai, S., Adger, W.N., Hulme, M., Köhler, J.H., Turnpenny, J. and Warren, R. (2003). Defining and experiencing dangerous climate change, Tyndall Centre Working Paper 28 Brown, K. and Corbera, E. (2003). A MultiCriteria Assessment Framework for CarbonMitigation Projects: Putting “development” in the centre of decision-making, Tyndall Centre Working Paper 29 Hulme, M. (2003). Abrupt climate change: can society cope?, Tyndall Centre Working Paper 30 Turnpenny, J., Haxeltine A. and O’Riordan, T. (2003). A scoping study of UK user needs for managing climate futures. Part 1 of the pilotphase interactive integrated assessment process (Aurion Project), Tyndall Centre Working Paper 31 Xueguang Wu, Jenkins, N. and Strbac, G. (2003). Integrating Renewables and CHP into the UK Electricity System: Investigation of the impact of network faults on the stability of large offshore wind farms, Tyndall Centre Working Paper 32 Pridmore, A., Bristow, A.L., May, A. D. and Tight, M.R. (2003). Climate Change, Impacts, Future Scenarios and the Role of Transport, Tyndall Centre Working Paper 33 Dessai, S., Hulme, M (2003). Does climate policy need probabilities?, Tyndall Centre Working Paper 34 Tompkins, E. L. and Hurlston, L. (2003). Report to the Cayman Islands’ Government. Adaptation lessons learned from responding to tropical cyclones by the Cayman Islands’ Government, 1988 – 2002, Tyndall Centre Working Paper 35 Kröger, K. Fergusson, M. and Skinner, I. (2003). Critical Issues in Decarbonising Transport: The Role of Technologies, Tyndall Centre Working Paper 36 Ingham, A. and Ulph, A. (2003) Uncertainty, Irreversibility, Precaution and the Social Cost of Carbon, Tyndall Centre Working Paper 37 Brooks, N. (2003). Vulnerability, risk and adaptation: a conceptual framework, Tyndall Centre Working Paper 38 Tompkins, E.L. and Adger, W.N. (2003). Defining response capacity to enhance climate change policy, Tyndall Centre Working Paper 39

Klein, R.J.T., Lisa Schipper, E. and Dessai, S. (2003), Integrating mitigation and adaptation into climate and development policy: three research questions, Tyndall Centre Working Paper 40 Watson, J. (2003), UK Electricity Scenarios for 2050, Tyndall Centre Working Paper 41 Kim, J. A. (2003), Sustainable Development and the CDM: A South African Case Study, Tyndall Centre Working Paper 42 Anderson, D. and Winne, S. (2003), Innovation and Threshold Effects in Technology Responses to Climate Change, Tyndall Centre Working Paper 43 Shackley, S., McLachlan, C. and Gough, C. (2004) The Public Perceptions of Carbon Capture and Storage, Tyndall Centre Working Paper 44 Purdy, R. and Macrory, R. (2004) Geological carbon sequestration: critical legal issues, Tyndall Centre Working Paper 45 Watson, J., Tetteh, A., Dutton, G., Bristow, A., Kelly, C., Page, M. and Pridmore, A., (2004) UK Hydrogen Futures to 2050, Tyndall Centre Working Paper 46 Berkhout, F., Hertin, J. and Gann, D. M., (2004) Learning to adapt: Organisational adaptation to climate change impacts, Tyndall Centre Working Paper 47 Pan, H. (2004) The evolution of economic structure under technological development, Tyndall Centre Working Paper 48 Awerbuch, S. (2004) Restructuring our electricity networks to promote decarbonisation, Tyndall Centre Working Paper 49 Powell, J.C., Peters, M.D., Ruddell, A. & Halliday, J. (2004) Fuel Cells for a Sustainable Future? Tyndall Centre Working Paper 50 Agnolucci, P., Barker, T. & Ekins, P. (2004) Hysteresis and energy demand: the Announcement Effects and the effects of the UK climate change levy, Tyndall Centre Working Paper 51 Agnolucci, P. (2004) Ex post evaluations of CO2 –Based Taxes: A Survey, Tyndall Centre Working Paper 52

Agnolucci, P. & Ekins, P. (2004) The Announcement Effect and environmental taxation, Tyndall Centre Working Paper 53 Turnpenny, J., Carney, S., Haxeltine, A., & O’Riordan, T. (2004) Developing regional and local scenarios for climate change mitigation and adaptation, Part 1: A framing of the East of England, Tyndall Centre Working Paper 54 Mitchell, T.D. Carter, T.R., Jones, .P.D, Hulme, M. and New, M. (2004) A comprehensive set of high-resolution grids of monthly climate for Europe and the globe: the observed record (1901-2000) and 16 scenarios (2001-2100), Tyndall Centre Working Paper 55 Vincent, K. (2004) Creating an index of social vulnerability to climate change for Africa, Tyndall Centre Working Paper 56 Shackley, S., Reiche, A. and Mander, S (2004) The Public Perceptions of Underground Coal Gasification (UCG): A Pilot Study, Tyndall Centre Working Paper 57 Bray, D and Shackley, S. (2004) The Social Simulation of The Public Perceptions of Weather Events and their Effect upon the Development of Belief in Anthropogenic Climate Change, Tyndall Centre Working Paper 58 Anderson, D and Winne, S. (2004) Modelling Innovation and Threshold Effects In Climate Change Mitigation, Tyndall Centre Working Paper 59 Few, R., Brown, K. and Tompkins, E.L. (2004) Scaling adaptation: climate change response and coastal management in the UK, Tyndall Centre Working Paper 60 Brooks, N. (2004) Drought in the African Sahel: Long term perspectives and future prospects, Tyndall Centre Working Paper 61 Barker, T. (2004) The transition to sustainability: a comparison of economics approaches, Tyndall Centre Working Paper 62 Few, R., Ahern, M., Matthies, F. and Kovats, S. (2004) Floods, health and climate change: a strategic review, Tyndall Centre Working Paper 63 Peters, M.D. and Powell, J.C. (2004) Fuel Cells for a Sustainable Future II, Tyndall Centre Working Paper 64

Adger, W. N., Brown, K. and Tompkins, E. L. (2004) The political economy of cross-scale networks in resource co-management, Tyndall Centre Working Paper 65 Turnpenny, J., Haxeltine, A., Lorenzoni, I., O’Riordan, T., and Jones, M., (2005) Mapping actors involved in climate change policy networks in the UK, Tyndall Centre Working Paper 66 Turnpenny, J., Haxeltine, A. and O’Riordan, T., (2005) Developing regional and local scenarios for climate change mitigation and adaptation: Part 2: Scenario creation, Tyndall Centre Working Paper 67 Bleda, M. and Shackley, S. (2005) The formation of belief in climate change in business organisations: a dynamic simulation model, Tyndall Centre Working Paper 68 Tompkins, E. L. and Hurlston, L. A. (2005) Natural hazards and climate change: what knowledge is transferable?, Tyndall Centre Working Paper 69 Abu-Sharkh, S., Li, R., Markvart, T., Ross, N., Wilson, P., Yao, R., Steemers, K., Kohler, J. and Arnold, R. (2005) Can Migrogrids Make a Major Contribution to UK Energy Supply?, Tyndall Centre Working Paper 70 Boyd, E. Gutierrez, M. and Chang, M. (2005) Adapting small-scale CDM sinks projects to low-income communities, Tyndall Centre Working Paper 71 Lowe, T., Brown, K., Suraje Dessai, S., Doria, M., Haynes, K. and Vincent., K (2005) Does tomorrow ever come? Disaster narrative and public perceptions of climate change, Tyndall Centre Working Paper 72 Walkden, M. (2005) Coastal process simulator scoping study, Tyndall Centre Working Paper 73 Ingham, I., Ma, J., and Ulph, A. M. (2005) How do the costs of adaptation affect optimal mitigation when there is uncertainty, irreversibility and learning?, Tyndall Centre Working Paper 74 Fu, G., Hall, J. W. and Lawry, J. (2005) Beyond probability: new methods for representing uncertainty in projections of future climate, Tyndall Centre Working Paper 75

Agnolucci,. P (2005) The role of political uncertainty in the Danish renewable energy market, Tyndall Centre Working Paper 76 Barker, T., Pan, H., Köhler, J., Warren., R and Winne, S. (2005) Avoiding dangerous climate change by inducing technological progress: scenarios using a large-scale econometric model, Tyndall Centre Working Paper 77