The 18th Annual GTAP Conference on Global Economic Analysis took place June 17-19 in Melbourne, Australia. The conference takes place annually, and the focus of the papers submitted to the conference follows the popular issues of the time. One of the foci that has lasted throughout the past decade has been energy and climate change. As these studies have matured, something stood out during this years conference: we are relying on unproven technologies to meet our carbon targets.
Studies on climate change in the past were mainly concerned with the incidence of a carbon policy on different aspects of the economy. Subsequently, promising technologies, such as carbon capture and storage (CCS) and cellulosic/advanced biofuels, were tested as "backstops" in these same models to determine at what prices or tax levels they could make a significant impact on meeting carbon targets.
Because of the timeliness of the issues, power of the models, and the ability to increase scope and scale, this research grew tremendously. The new trend seems to focus on nexi - e.g. “the energy-electricity-environment nexus” or “the bioenergy-land-food nexus” - which integrates various specialized models. Because of the wide-scope, researchers can draw out a number of interesting results on the linkages in our interdependent economy (e.g. how does a biofuel mandate impact land-use, food prices, etc.?).
More linkages beget more results, so these studies tend to add as much detail as possible. As such it is tempting to also include technologies which have been previously explored in legacy models - even if it is not of immediate importance in the study; “If it is in there, keep it in there”. Two examples, which are also pervasive in literature, are CCS and advanced biofuels.
However, the assumptions on technologies significantly impact results and often the uncertainty is not appropriately handled - leading us to certain conclusions despite uncertain data.
Problems with unproven technologies
However, these are unproven. CCS was implemented in an electricity plant for the very first time in October 2014. Advanced biofuels do not really exist in any real scale either. We don’t know their costs, we don’t know their efficiencies, and we don’t know how they substitute with other technologies.
Therefore, what ends up happening is that we make conclusions about the “road to carbon-reduced future” or the “impact of biofuels on land-use” while the whole time making heroic assumptions on technologies we simply do not know much about. Several papers presented at the GTAP conference, these technologies have a large (if not the largest) role in the results.
For instance, an especially comprehensive European Commission report neatly integrated a high detailed energy module with a top-down model of the world economy. In doing so, they were able to show a detailed view of where emission reductions might come from in order to meet carbon targets. Further, the report presents clear interpretations for climate policy. One interesting results was that they found that by 2050 22% of the reductions in global GHG emissions would be from CCS - in a way relying on the unproven super-technology to meet our targets.
They hedge the unknowns of CCS by introducing at some future data (around 2020), but is this sufficient? What if the assumptions on CCS which were borrowed from previous studies are off by a small amount (or by a large amount)? While this wasn't the focus of this particular (and in my opinion very important) work, it is relevant nonetheless.
These types of research are hugely important on many merits, and it wouldn’t be fair to criticize without offering some sort of alternative. My arguments is that these heroic conclusions must be appropriately hedged.
The best way to do this, in my opinion, is to employ sensitivity analysis of the unproven technology's cost, efficiency, and substitutability on the results. Unfortunately, this is rarely performed, presumably, because it can be time-intensive and detracts from the clarity of the results. Although perhaps projecting to 2050 and beyond shouldn’t necessarily have “clear” conclusions in the first place.
A simpler way is to compare just two scenarios - one with the best estimate of the unproven technology and one without the technology altogether. Another paper (Winchester and Reilly, forthcoming) showed a baseline scenario and then another scenario with expensive advanced biofuels. The difference in the results were significant. This simple type of analysis can show a range of future possibilities while considering the unknowns in the potentially disruptive technology.
- Jeffrey C. Peters
Labat, A., Kitous, A., Perry, M., Saveyn, B., Vandyck, T., and Z. Vrontisi. 2015. GECO 2015 Global Energy and Climate Outlook Road to Paris. Assessment of Low Emission Levels under World Action Integrating National Contributions. JRC Science and Technology Report. Report EUR 27239 EN.
Winchester, N. and J. Reilly. Working paper. Inquire for additional information.