sectoral economic costs and benefits of ghg mitigation - IPCC

Ulrich Bartsch and Benito Müller
contain the major oil exporting developing countries, whereas the ROE region contains Norway
as the most important OECD oil exporting country. China and India are modelled individually
because of their large population sizes and importance for the world economy and emissions
profiles in the next century. The Rest of the World region in the model represents poor
developing countries in Sub-Saharan Africa and Asia.
The OIES simulation model further distinguishes 12 commodity sectors in each region or
country. The non-energy sectors are agriculture, livestock, paddy rice, energy intensive
manufactures, other goods (including non-transport services), and transport. The energy sectors
are oil, refined oil, gas, coal, electricity, and a utility sector for the distribution of gas. Industrial
sectors and private households do not consume crude oil, which is only used in the refinery
sector.
This sectoral aggregation distinguishes the three fossil fuels as sources of CO 2 and fugitive fuel
Methane, and the livestock and paddy rice sectors as sources of agricultural Methane. Industries
are distinguished into primary energy (oil, coal, gas) secondary energy producing (refining,
electricity generation), distribution in the case of gas, and three types of energy using (energy
intensive, other industries and services, and transport).
The model distinguishes alternative fuels, which are competitors to conventional sources of
energy. Non-conventional oil, from tar sands, shale, gas-to-liquids, or solid-to-liquids
technologies, substitutes for conventional oil. Non-carbon fuel (hydrogen for fuel cell
applications, ethanol, bio-diesel, etc.) substitutes for oil products in electricity generation and
transport. Alternative sources of energy are more expensive than their competitors in the base
year. Price rises in conventional energy sources draw alternative fuels into the market in later
years. Market penetration is controlled in the model by infrastructure factors, which means prices
of alternative fuels do not act as a firm ceiling to prices of conventional fuels.
3 The World Without Climate Change Measures
As a baseline against which to compare results of policy simulations, we first present Businessas-Usual
(BaU) projections for economic and environmental parameters. The baseline is meant
to portray a world in which the greenhouse gas problem is not addressed. We will here
summarise basic assumptions about economic growth, technological progress, and fossil fuel
supplies and demand. Results of policy simulations in later sections are compared against the
baseline parameters shown here.
3.1 Economic Growth
Economic growth is determined by growth in the supply of labour and capital, technological
progress, and increases in the availability of resources. Population growth assumptions
underlying the growth of regional labour supplies are based on UN population projections. Two
types of technical progress are modelled, both the general, Harrod-neutral variety which
increases factor productivity, and progress in energy efficiency which reduces the amount of
energy needed to produce a given unit of output. Growth in the capital stock is determined by
national savings. CLIMOX is investment driven, i.e. household savings adjust to exogenous
assumptions of investment demand for funds. Capital stock growth, technological progress, and
government demand growth have been calibrated to produce certain economic growth rates in
the base run of the model. We assume economic growth in the world to average 2.5 per cent of
GDP over the 25-year horizon of this analysis as shown in Table 2.
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