1. 1

2. Motivation
OECD countries are (or will soon be) taking actions to reduce greenhouse gas emissions
Major emerging economies will face pressures to get involved in the cooperative effort to reduce GHG emissions
Analyze the implications of delayed versus immediate participation of developing regions in an international climate agreement
Optimal investment strategies of emerging economies in response to a future commitment
International carbon market as accession deal 1 1

3. EMF22 International Scenarios
EMF22 modeling comparison exercise:
10 models X 10 scenarios
Main results and complete dataset accessible (
Papers being published on Energy Economics
Scenario design:
Long term stabilization targets: 2.6,3.7,3.7OS,4.5 W/m^2
Rate of international participation: immediate (all in 2015), myopic BAU till 2030, ROW till 2050, join afterwards)
Degree of policy anticipation: foresight (non signatories can anticipate future policies)
Analysis carried out with the I.A.M. WITCH ( 2 1

4. The challenge of sharing the burden
China/US ratio
Total Emissions
Per Capita Emissions
From 1900
0.28
Rio:1992
0.48
0.10
Kyoto:1997
0.55
0.12
2007
1.13
0.26
2030
1.75
0.44
Source: EIA for the 1992, 1997 and 2030 projections estimate is from MNP and BP 3 1

5. Stabilization pathways
Energy-related CO2 emissions in the BAU and the stabilization
scenarios for the WITCH model 4 1

6. Overcoming free riding incentives5 1

7. Costs of delayed participation
Global macro-economic costs of climate stabilization policies
(GWP losses with respect to Business as Usual, annualized at 5% discount rate).
RF Target (W/m^2)
Immediate
2.6
infeasible
3.7
1.26%
3.7 OS
1.11%
4.5
0.06% 6 1

8. Costs of delayed participation
Global macro-economic costs of climate stabilization policies
(GWP losses with respect to Business as Usual, annualized at 5% discount rate).
RF Target (W/m^2)
Immediate
Myopic
Myopic penalty
(USD Trillions)
2.6
infeasible -
3.7
1.26%
2.53% 25
3.7 OS
1.11%
1.50% 8
4.5
0.06%
0.10%
0.2 7 1

9. C tax for 3.7 W/m^2 (550 ppmeq) 8 1

10. C tax for 3.7 W/m^2 (550 ppmeq) 9 1

11. Some Forces affecting non-participatory countries
Relax the assumption that non-signatories invest as in BAU, allow for foresight:
Fossil fuel prices: leakage due to lower consumption and prices
Technological spillovers: international flows of knowledge and experience.
Policy anticipation: when perfect foresight is accounted for, countries ‘price-in’ the future carbon price in their investment choices and, given the low turnover of energy capital and the lag time in the innovation processes, adjust their portfolio of investments accordingly.
Compare with myopic and immediate cases 10 1

12. CCS deployment 11 1

13. Cost of advanced breakthrough technology12 1

14. Decomposition of technical change13 1

15. Optimal Investments in China
Nuclear power additions (5 yrs)
Energy R&D Investments (Blns USD)
Since 2000, China’s nuclear power generation output has grown at an average rate of
22% per year to reach 54.8 TWh in 2006 (NBS, 2008). During the 9th Five-Year Plan
period ( ), China developed four nuclear power projects with a total of eight
units having a combined capacity of 6.7 GW. As a result, China has now mastered
PWR nuclear power generation technology at unit sizes of 300 MW and 600 MW,
with 60% of components manufactured locally. In August 2007, China began building
its largest nuclear power project, the MW Red River nuclear power plant in
Liaoning, the first in the 11th Five-Year Plan period. China’s own CPR1000 nuclear
technology will be used for all four units.
China nuclear power plans:
- 4 GW Red River under constr.
- 2020: 40/60 GW
China innovation plans:
Total R&D now at 1.5% GDP (40 Billions), target of 2.5% in 2020
if energy R&D is 2% of tot R&D, 4 Blns in 2020 14 1

16. Optimal Emissions in China15 1

17. The economic benefits of policy anticipation
Region
Efficiency gains of foresight
World
38% 16 1

18. The economic benefits of policy anticipation
Region
Efficiency gains of foresight
World
38%
OECD
48%
BRICs
22% 17 1

19. International carbon market
The negative effects of delayed participation can be mitigated (besides via policy anticipation) by using carbon trading as an accession incentive and a mean to equalize marginal cost.
The question is what allocation should be negotiated and what transfers would it imply:
non-signatories at myopic BAU
non-signatories at foresight 18 1

20. International carbon market
Financial transfers
(USD Billions,+ outflow, - inflow)
Myopic (BAU)
Foresight
2020
2030
OECD
94.2
197.2
23.6
147.8
BRICs
-75.6
-152.8
-17.1
-65.6
OTHER
-18.6
-44.4
-6.5
-82.2 19 1

21. Conclusions
Delayed participation of emerging economies (BRIC) in an international climate agreement
increase policy costs significantly
limited for non stringent climate targets and overshoot
Policy foresight has the potential to significantly ease the mark up of delayed participation.
Optimal investment behavior for emerging economies is to anticipate their participation in a climate policy by roughly 10 years.
China actual and projected trends in green innovation and low carbon technologies compatible with the adoption of an emission mitigation policy by 2030
The degree of policy anticipation is shown to be important in determining the financial transfers of an international carbon market. 20 1

22. The WITCH model
Analysis carried out with the I.A.M. WITCH (Bosetti et al, 2006)
Hybrid energy-economy-climate model
Perfect foresight, dynamic optimization of world economies
Technological change via experience and innovation processes
Game-theoretical set up 21 1