Economic comparison of greenhouse gas mitigation options in Germany

Katja Schumacher, German Institute for Economic Research (DIW Berlin), Germany
Ron Sands, Joint Global Change Research Institute, USA

Keywords

climate change, greenhouse gas mitigation, general equilibrium modelling, energy efficiency, CO2 capture and storage, fuel switch, Germany

Abstract

At least four classes of greenhouse gas mitigation options are available: energy efficiency, fuel switching, introduction of carbon dioxide capture and storage along with electric generating technologies, and reductions in emissions of non-CO2 greenhouse gases. These options vary by cost, timing, and our ability to represent them in an economic analysis. Our objective is to provide a balanced analysis of these classes, across a variety of carbon policy scenarios, for Germany. Policy scenarios are represented as a response to varying levels of a carbon price, either applied economy-wide or targeted at energy-intensive sectors of the economy according to the EU emissions trading scheme. We use the Second Generation Model (SGM), an economy-wide computable general equilibrium model that embodies energy and other greenhouse gas mitigation possibilities. Energy efficiency options are represented in the standard Computer General Equilibrium (CGE) format, where non-energy inputs substitute for energy inputs within economic production functions, or system of consumer demand equations, as the price of energy increases relative to other goods. The electric power sector provides substantial opportunities for fuel switching and the deployment of advanced electricity generating technologies with and without CO2 capture and storage. Our methodology relies on engineering descriptions of electricity generating technologies and how their competitive positions varies with a carbon price or change in fuel price. Furthermore, we allow for reduction of emissions of non-CO2 gases, which adds a set of mitigation opportunities not usually included in energy-economic modeling efforts.