Coupling Carbon Processes and Economics Michael Obersteiner IIASA

Coupling Carbon Processes and Economics Michael Obersteiner IIASA Regional Carbon Budgets: From methodologies to quantification. Beijing, China, 15 -18 November 2004

Overview • Motivation to manage the carbon cycle – Financial Analyst´s point of view • Scenarios of what needs to be done – What is the biospheric contribution • More trade offs than synergies

Effective compliance with Art. 2 UNFCCC!?

Risk analysis… the Chartist Ericsson Nokia Siemens

Siemens Ericsson Nokia

Buy Gold

Data is from the climate system!!! GISP and IPCC data, own calculations

Abrupt Chang e High volatility Concentration s Growing No Analogue Level&speed

The obvious number!? 371, …. 550, …. 750…? Which number would you pick…. . ?

Gold from Science? • IPCC for the 4 th assessment emission scenarios that lead to concentrations of <450 are not planned • No low emission climate runs • No benchmark

Climat e Climate Risk Management Ostriching? • Stabilization target is a SOCIAL CONSTRUCTION – Plausibility of stabilization targets • Little preparation

How to stabilize atmospheric CO concentrations 2 • Use less energy – Improve energy efficiency – Life style changes – Stabilize population • Use other forms of energy – Natural gas instead of coal – Renewables – Nuclear • Capture and store carbon – From fossil fuels and/or biomass (in energy conversion plants) – From the atmosphere (in trees, soils or in CO 2 capture facilities)

Spatial Distribution of GDP • Important inputs to the spatially explicit forestry and regional agricultural model • Necessary information for vulnerability, adaptation and impact assessment

The cost to stabilise the atmosphere Source Azar & Schneider, 2002. Ecological Economics

A 2 -Stabilization Scenario (Fossil Intensive) • The figure shows the various sources of GHGs and the mitigation achieved from the baseline in the A 2 mitigation scenario • Energy represents the top sector for potential mitigation • Sinks contribute significantly in reduction of forest CO 2

CO 2 -concentration 350 ppm, with capture

Carbon storage possibilities 130 – 500 Gton C with structural traps 30 – 650 Gton C Herzog et al Scientific American, February 2000. Enhanced oil recovery 20 – 65 Gton C Grimston et al (2001).

Input • Biophysical – Climate, CO 2 etc… – Land Cover – Relief Modeling Management options applied Forest and agri growth modeled • Socioeconomic – Population – GDP – Forest sector Output Land values LU competition 1. LUC 2. C sequestration/GHGs 3. Bio 4 BE production

INTEGRATED POLICY FRAMEWORK National Economic Models Market Regional Forest Models Farm Models Stand level Models Georeferenced Database Regional Farm Type Models • • • Common Database and Data Structure Harmonized System Boundaries IPCC GPG and /or FGA Accounting Consistent Baseline Assumptions Joint Catalogue of GHG Mitigation Measures Uniform Validation Criteria Agreed Sustainability Constraints Common IT Standards Standard Scenario Assumptions and Story Lines Joint Vision Common Database and Standards Model for GHG Response to Management Scenario

EPIC simulates many processes: Weather: simulated or actual Hydrology: evapotranspiration, runoff, percolation, 5 PET equations, . . . Erosion: wind and water, 6 erosion equations, . . . Carbon sequestration: plant residue, manure, leaching, sediment, . . . Crop growth: NPK uptake, stresses, yields, N-fixation, . . . Fertilization: application, runoff, leaching, mineralization, denitrification, volatilization, nitrification, . . . Tillage: mixing, harvest efficiencies, . . . Irrigation and furrow diking, . . . Drainage: depth, . . . Pesticide: application, movement, degradation, . . . Grazing: trampling, efficiency, . . . Manure application and transport, . . . Crop rotations: inter-cropping, weed, competition, annual and perennial crops, . . . on a daily time step

Geography of Analysis

PICUS 2. 0

Overview of the Regional Agri-Model Data (FADN) - Yields - Area - Variable costs - Producing activities - Size of farms - Altitude -… Other sources - Emissions coefficients - Soils characteristics - Fertilizer uses and prices -… Estimation Typology 15 countries, 101 regions 734 farm-types Calibration Model inputs - Prices - Technical parameters - CAP-related parameters 734 models Maximize gross margin Subject to : - Technical constraints - Policy constraints Model output - Optimal area - Livestock numbers - Animal feeding - Net emissions

Basic Modeling Forestland Forest Production Biofuel/GHG Demand Cropland Water Labor Crop Production Natl. Inputs Other Resources Pasture Land AUM Grazing Markets Domestic Demand Export Processing Import Livestock Production Feed Mixing

Mitigation Strategy Equilibrium Carbon price ($/tce) 500 Afforestation 400 300 CH 4 N 2 O Biofuel offsets Ag-Soil sequestration 200 100 0 0 20 40 60 80 100 120 140 160 Emission reduction (mmtce) 180 200

Afforestation in B 1

Carbon Sequestration Total Carbon Supply: B 1/A 2

Bioenergy Supply for 2000 -2100 B 1 (Price < 6$/GJ)

Land Use Change until 2100 for B 1 Intensity map: (affected) ha x C-uptake Existing forest Afforestation Deforestation

Wrap-up • Slumbering Beast • Much lower stabilization targets are NECESSARY AND PLAUSIBLE • The Problem is currently with the fossil fuels and a large(st) potential of the solution is in the Agri&Forestry&Bioenergy sector.

Winning is not easy • Carbon price (tax or cap-and-trade system) • Energy efficiency standards • Support technology development • Agi&Forestry market reform • Minimize associated social and environmental costs

371, …. 550, …. 750…? THANK YOU!

Climate Policy Sector Policy / Technology Energy Market Policy Electricity Carbon permit Pulp / paper Biomass Land use Policy

Modular Commitment Strategy CO 2 El BM pi

Diversity of Approaches • Engineering models & Biophysical Model • Equilibrium Approaches (Static – Dynamic) • Spatially Explicit and Multisectoral • Risk and Uncertainty Augmented

Goal • Contribute to integrate sinks in ETS – GPG (accounting, certification, verification) – Cost competitiveness and potentials – Transaction Cost • Contribute to policy formulation – – – CAP Energy Climate Forestry Clean Air … Policy Integration