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Summary: Economics of Climate Change
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All written lectures for passing the endterm of the subject Economics of Climate change from the Vrije Universiteit of Amsterdam (for the master Economics).
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Week 1: Emission reductionLecture 1: Emissions and emission reduction
Sources of greenhouse gas emissions
Greenhouse effect:
Emissions are related to primary energy (inputs)
● Carbon dioxide (CO2)
- Combustion of fossil fuels
CO2 comes from the combustion of fossil fuels. From an economic perspective, CO2 is an
externality: an unintended and an uncompensated byproduct of the actions of one economic
agent (e.g. power generator) on everybody else. From a physical perspective, it is not an
externality.
When you burn fossil fuels, you have a lump of coal (carbohydrate) and you add heat
(energy). This energy breaks the chemical bonds of the carbohydrates in 3 atoms of carbon
and hydrogen. Then, you oxidise the whole thing. The oxygen combined with the carbon
forms CO2. This is dumped into the atmosphere. Hydrogen atoms oxidize and form a new
chemical bond. namely h2o. This is also dumped into the atmosphere.
You add energy to break the chemical bonds, and then you oxidize the thing to form new
chemical bonds and that is how new energy is released (intrinsic formation of CO2). You do
not get energy out of fossils without making CO2 (not a waste product!).
- Land use change:
We place forests with grassland and grassland with crop land. Trees are also made of
carbohydrates. Grass is also made of carbohydrates. You replace something which is full of
carbohydrates with something which is small. The excess you need to get rid of. e.g. trees
are burned, then CO2 is released into the atmosphere
- Cement production
CO2 production is intrinsic to the process. You take limestone and you add heat to drive out
the excess carbon. The limestone is chemically transformed into cement. Cannot avoid the
transformation of CO2.
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, ● Methane (CH4)
- Ruminants (= cows and similar animals)
These animals transform grass into milk and meat. In the transformation, some hydrogen
has gone missing, as cows get rid of hydrogen in their stomach. As stomachs are oxygen
poor environments, the hydrogen is transformed into H2 (hydrogen gas) instead of H2O.
Hydrogen gas is something you do not want in your stomach. Therefore, cows formed a
symbiotic relationship with methanol genetic and methanogenic bacteria. This sacrifices one
useful carbon atom to get rid of four damaging hydrogen atoms, which forms methane
(CH4). This is what cows burp out. All in all, this is an intrinsic transformation.
- Paddy rice (= wet rice)
Rice is a plant from which leaves drop off. If these leaves rot in an oxygen rich environment,
it goes to CO2. If these leaves rot in an oxygen poor environment, such as water, it goes to
CH4. Solution: go from wet to dry rice, but dry rice is less productive.
- Waste
We throw away lots of stuff such as organic stuff (e.g. food). This food rots in a container
(where there is few oxygen) and is transformed into methane.
- Leakage
Methane is a nuisance if we do not want it, and it is called a natural gas if we do like it.
Chemically, they are identical. If chemical gas is transported, it can escape in the
atmosphere if the transportation is not completely airtight.
● Nitrous oxide (M2O)
This comes from the over application of fertilizers in agriculture. Farmers over apply because
fertilizers are cheap, and a bad harvest is very expensive. Fertilizer which the plants do not
need is washed away into the soil, which is chemically transformed into M2O.
● Other gases
E.g. fluorocarbons and sf6, they are very powerful greenhouse gases, which we use in small
quantities. They have very specialized uses.
Kaya identity: past and future
E = emissions
P = people
Y = total income
P = population
Y / P = per capita income (how much money we make)
X = total primary energy use
Y = size of the economy
X / Y = energy intensity of the economy
E = emissions
X = total energy supply
E / X = emissions in terms of the energy sector (the energy supply)
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,Total size of the economy = income per capita * the number of people
Energy intensity of the economy = the amount of CO2 emitted per dollar value added
It is an identity as some terms cancel out, and then we get E = E.
The identity is useful for understanding the source of emissions. Why have emissions gone
up? How can we bring the emissions down in the future?
● Past situation
In the last 50 years, emissions have more than doubled (gone up by 125%). Why?
- the world population has more than doubled (gone up by 102%). CO2 has raised
faster than the number of people, hence, the per capita emissions increased
- per capita income more than doubled
- hence, the total economy has grown by a factor of 4
The energy intensity has fallen over the past 50 years. Why?
- Energy intensity: we use less energy per dollar value added (decreased by 50%)
- Carbon intensity: we emit the same level of carbon of energy used
- Renewables have not done a lot
● Future situation
Assessment of the future situation are extrapolations of the Kaya identity. We need to predict
climate change by knowing what future emissions will be, based on:
- how many people there are in the future (P)
- how rich they will be (Y / P)
- how much energy they will use (X / Y)
- what sort of energy they will use (E / X)
- how much waste they will generate and how will they dispose it (CH4)
- what they will eat (CH4)
- where that food will be grown (CH4)
-> very difficult to predict
The IPCC tried to predict this and created 5 scenarios based on the Kaya identity elements.
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, If you multiply these, we get our emission scenarios:
population * income * energy intensity * carbon intensity
The fat line describes the average across a number of models. The dotted line is the
disagreement between the models.
- Population:
It is not difficult to predict how many mothers there will be in a few years, but it is difficult to
predict how many children these mothers will have, depending on fertility.
- Income:
We have 5 scenarios for income, but only 3 for population. Hence, it is suggested that fertility
and mortality are not related to per capita income. However, in reality it is. While the most
optimistisch scenario seems very unreachable, the people in 1920 also thought the same
about our current income. The most pessimistic scenario states that our income will more
than double until the end of the century.
- Energy intensity:
The most optimistisch situation thinks the energy intensity will drop by a factor of 4. This is in
line with history and what is physically possible.
- Carbon intensity (what energy do we use? renewables? coal?):
Here, the models really start to disagree with each other. If the CO2 intensity would go up
while we are running out of oil and gas (which we are), this suggests that we are not going to
replace this with renewables and nuclear but instead turn to coal. However, we are running
out of cheap coal (only have deep expensive coal leeft).
Options for emission reduction
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