Taiwans Cost of GHG Reduction and Adaptation Strategies

Taiwan’s Cost of GHG Reduction and Adaptation Strategies Lin Hsing-Hua, Su Han-Pang, Huang Chung-Huang and Lin Shih-Mo 1/1/2022 能源經濟與政策模型國際會議 1

CONTENTS ¡ ¡ ¡ Motivations Objectives Methodology l l ¡ ¡ 1/1/2022 Measurements of emission reduction cost Evaluation of emission reduction potential The model The policy shocks Results and Implications Concluding Remarks 能源經濟與政策模型國際會議 2

Motivations ¡ ¡ ¡ 1/1/2022 Potential impact of Kyoto Protocol on the economy is of great concern Clarification of cost measurements is needed Distributional difference of cost burden among industrial sectors is policy relevant ¡ Choice of mitigation proposals ¡ Evaluation of reduction potential 能源經濟與政策模型國際會議 3

Objectives ¡ ¡ 1/1/2022 How to measure the cost of emission reduction? reduction How to measure the emission reduction potential? potential To what extent does the cost burden differ among reduction proposals and sectors? What’s needed for the future? 能源經濟與政策模型國際會議 4

Measurements of Emission Reduction Cost ¡ Measurements l l ¡ The shortcomings of prevailing marginal cost curve l l 1/1/2022 Top-down measure vs. bottom-up measure Gross cost vs. net cost Social cost vs. private cost Average cost vs. marginal cost Overstated from social viewpoints Inappropriate for decision optimization Useless to evaluate policy impacts Irrelevant to selection of policy instruments 能源經濟與政策模型國際會議 5

Components of Emission Costs Indirect Costs Direct Costs • • Capital cost Maintenance Fuel cost Operation Major item estimated by bottom-up model 1/1/2022 Implementation cost Risk and Uncertainty cost Auxiliary cost and benefit Macroeconomic cost Administration cost Major item estimated by topdown model Barrier-removing cost 能源經濟與政策模型國際會議 6

＄ Measurement of Emission Reduction Cost MC + MRC D MC P* P 0 E G F Production 0 1/1/2022 Q* Q 0 能源經濟與政策模型國際會議 D’ 7

C o s t o f E m i s s i o n R ed u c t i o n (1 /2 ) Source: IPCC (2002) 8 能源經濟與政策模型國際會議 1/1/2022

C o s t o f E m i s s i o n R ed u c t i o n (2 /2 ) Source: IPCC (2002) 9 能源經濟與政策模型國際會議 1/1/2022

Emission Reduction Cost: Electricity Sector Source: Lu and Tsai (2002). 能源經濟與政策模型國際會議 1/1/2022 10

Emission Reduction Cost: Manufactory Sector Source: Lu and Tsai (2002). 1/1/2022 能源經濟與政策模型國際會議 11

Comparative-static Interpretation of Results Employment ▪ Divergence from the base period Trend after shocks Baseline ▪ ▪ Dynamic or through-time change Results refer to changes at some future point in time. 1/1/2022 能源經濟與政策模型國際會議 12

Evaluation of Emission Reduction Potential ¡ ¡ ¡ 1/1/2022 Physical potential Technological potential Market potential Social-demographic potential Institutional and political potential Economic potential 能源經濟與政策模型國際會議 13

Mi ti g a ti o n Me a s u r e s , P o te n ti a l a n d B a r r i e r s 14 能源經濟與政策模型國際會議 1/1/2022

Strategic Structure for Emission Reduction Nat’l Energy Conference FCCC’s Rules 1/1/2022 Equity, differentiated responsibilities and respective capabilities Full consideration for the developing countries Precautionary measures and cost effectiveness Sustainable development and supportive and open international economic system Reduction strategies in response to FCCC Adjustment in energy policy and structure Adjustment in industrial policy and structure Energy efficiency and development of Energy technology Energy policy instruments 能源經濟與政策模型國際會議 Emission Reduction 15

Policy Targets in Taiwan ¡ ¡ ¡ 1/1/2022 Reduce total emission to the level of year 2000 by 2020 (or, equivalently, per capita from 9. 3 in 2000 to 10 tons in 2020 Accumulate energy intensity reduction rate up to 26% by 2020 Renewable energy shall account for 4. 5% (hydraulics incuded) of the total primary energy supply by 2020. 能源經濟與政策模型國際會議 16

Major Policies: Bureau of Energy (1/2) 1. Implement Energy Saving Programs Establish new energy efficiency indicators and monitoring system Effectively audit major energy users Implement voluntary programs to save energy and reduce cost Increase existing efficiency standards and enact new standards for electric equipments Regulating energy efficiency through Building Technical Rules 2. Implement Co-Generation Programs Successfully achieved the goals set in the National Energy Conference. 1/1/2022 能源經濟與政策模型國際會議 17

Major Policies: Bureau of Energy (2/2) 3. Promote New and Clean Energies Initiate and implement the “Program on Energy Saving and Clean Energy Development” (2000 -2004) Initiate the “Development Program on Renewable Energies” Enact the “Development Act of the Renewable Energies”, with annual budget of NT$3 billion to support development of clean and energy-saving technologies Facilitate construction of Gas Power Plants 1/1/2022 能源經濟與政策模型國際會議 18

The Model: TAIGEM-D (TAIwan General Equilibrium Model-Dynamic) Functions — To evaluate economic impacts of policies in response to greenhouse gases reduction. Orientation — A dynamic, single country, multisectoral, computable general equilibrium model, developed in collaboration with Co. PS. 1/1/2022 能源經濟與政策模型國際會議 19

Key Features Multisectoral (160 sectors, 170 commodities) Six occupations and eight types of margins Ten electricity-generating technologies Ten carbon-generating commodities Inter-substitution of fuels Technology bundle approach Extended dynamic mechanisms 1/1/2022 能源經濟與政策模型國際會議 20

CGE Overview: Economy Representation Output market Trade Foreigners Firm Trade Input market e. g. tax e. g. ta x Households Government 1/1/2022 能源經濟與政策模型國際會議 21

Economic Flows Financial System Foreign System X M Saving I Productivity impact G C Investor Regulation Employment Producer Government Transfer payments Taxes Technology Energy, Water, Land ···· Abatement Consumer Pollution Ecological impact Ecological System Utility or welfare impact 1/1/2022 能源經濟與政策模型國際會議 22

Policy Shock Scenarios ¡ US scenarios: l l ¡ US 1: CO 2 intensity reduced by 18% between 2004 -2013 by carbon tax US 2: CO 2 intensity reduced by 18% between 2011 -2020 by carbon tax Emission quota scenarios: l l l 1/1/2022 MC 1: MC 2: MC 3: MC 4: MC 5: MC 6: CO 2 CO 2 total total emission emission reduced reduced by by by 能源經濟與政策模型國際會議 10% 15% 18% between between 2004 -10 2011 -20 23

Emissions: Baseline vs. Mitigation Scenarios 1/1/2022 能源經濟與政策模型國際會議 24

Accumulated Emission Reduction under Various Scenarios 1/1/2022 能源經濟與政策模型國際會議 25

GDP Growth Rates 1/1/2022 能源經濟與政策模型國際會議 26

Emission Per Capita 1/1/2022 能源經濟與政策模型國際會議 27

Emission Reduction Costs: National Averages 1/1/2022 能源經濟與政策模型國際會議 28

Emission Reduction Costs: Sectorial Averages 1/1/2022 能源經濟與政策模型國際會議 29

Concluding Remarks (1/2) ¡ ¡ 1/1/2022 Emission reduction cost depends on such factors as timeframe, reduction targets, and mitigation measures. The scenario with higher reduction cost does not necessarily result in lower economic growth rate. The cost is sectorally dependent, transportation sector is likely to render higher cost than other energy intensive sectors. Earlier reduction allows policy target to be achieved with greater possibility, but at higher cost. 能源經濟與政策模型國際會議 30

Concluding Remarks (2/2) ¡ Cost evaluation of post-Kyoto mitigation proposals is warranted. ¡ Room remained for further improvement to TAIGEM-D, including unemployment, market structure, uncertainty, etc. Difference in cost estimates from top-down and bottom-up models needs scientific examination. Correct interpretation and proper use of the cost estimates are critical for policy making. Inadequate financial support for R&D on top-down model development should not be ignored. ¡ ¡ ¡ 1/1/2022 能源經濟與政策模型國際會議 31