Advanced Electric Generating Technologies in a CGE Model of Germany

Transcription

1 Paper presented at the International Energy Workshop (IEW) in Laxenburg, Austria, June Advanced Electric Generating Technologies in a CGE Model of Germany Ronald D. Sands Joint Global Change Research Institute, College Park, Maryland, USA (Ronald.Sands@pnl.gov) Katja Schumacher German Institute for Economic Research (DIW), Berlin, Germany ABSTRACT The electricity generating sector is important for analysis of climate policy because of the large point sources of carbon emissions, the potential for fuel switching, and the potential for advanced generating technologies. One of the challenges facing developers of computable general equilibrium (CGE) models is representing advanced energy technologies in a way that is consistent with engineering cost models. We report on progress to introduce advanced electricity technologies such as integrated gasification combined cycle (IGCC), natural gas combined cycle (NGCC), wind power, and carbon capture, into SGM-Germany, an economic model used to analyze trade in carbon emissions rights. INTRODUCTION The cost of meeting any particular carbon emissions constraint depends crucially on the set of technologies and the amount of time available for capital stocks to adjust to a new set of equilibrium energy and carbon price required to meet the constraint. This suggests that top-down economic models should consider the composition of the capital stock carefully and account for advanced technologies to the extent possible. Developers thereby face the challenge of representing advanced technologies in a way that is consistent with engineering cost models. A few model developers so far have tried to reconcile the gap in linking top-down representations of the economy with bottom-up descriptions of technologies in energy markets through hard links, that is through integrating both models in a consistent modeling framework, e.g. through adding complementary slackness into their top-down model (Böhringer 1998). Other attempts target so called soft links in linking bottom-up components, for example in the form of modules to their top-down models. In this case, bottom-up and top-down models would run independently of each other. Results from one model, however, would feed into the other, or vice versa.

2 A substantial part of greenhouse gas emissions world-wide is produced by the electricity system. Carbon dioxide emissions due to fossil fuel combustion for electricity production amount to more than 40% of total carbon dioxide emissions in Germany, as they do in most other industrialized countries. However, electricity is essential for development as it delivers fundamental services to society. Substantial mitigation possibilities in the electricity sector exist in the form of reducing demand through more efficient end use technologies, or on the generation side through the potential for fuel switching, and the potential for advanced generating technologies. In Germany as in many other countries, environmental policies are in act to enhance the share of advanced technologies, such as renewable energy technologies, and to promote an efficient transformation and consumption of energy. Innovation efforts have successfully been directed towards the development of more environmentally sound technologies. Fossil fuels have been substituted by less carbon intensive fuels. It is expected that advanced generating technologies will come to play a more and more important role in electric power production. In this paper, we develop a benchmark simulation for estimating the costs to Germany of complying with the Kyoto target and the national emissions reductions target. Currently, Germany is one of the largest carbon emitters in the European Union. Within the burden sharing agreement under the Kyoto Protocol, Germany has committed to reduce its carbon emissions by 21% in compared to The national target of reducing emissions by 25% by the year 2005 compared to 1990 is even stricter. At this point in time, though, it seems likely that it may be failed. Another more long term national target is to reduce carbon dioxide emissions by 40% by the year 2020 compared to Traditionally, environmental policy in Germany focused on command and control options. Recently, however, an ecological tax was introduced and more stringent voluntary agreements on reducing industrial carbon emissions were established. At the same time, emissions trading is a major topic of attention because of its market based approach and its economically efficient way of meeting emissions targets. The European Union decided on implementing a European wide emissions trading scheme in 2005, while it is foreseen for Annex I countries in the Kyoto Protocol to start in In this paper, we report on progress to introduce advanced electricity technologies such as integrated gasification combined cycle (IGCC), natural gas combined cycle (NGCC), wind power, and carbon capture, into SGM-Germany, an economic model used to analyze trade in carbon emissions rights. The analysis will provide costs to Germany under an emissions trading policy taking into account the ecological tax reform the potentials for advanced generating technologies. ECOLOGICAL TAX REFORM IN GERMANY In 1999, Germany introduced an ecological tax ( eco tax ) on fossil fuel and electricity consumption to support a two-sided goal: 1) to help achieve environmental targets, and 2) to reduce the rate of unemployment. The tax was additional to any pre-existing energy taxes, and increased in five stepwise intervals from 1999 to the year The energy carriers taxed under the eco tax are fuel oils (heavy and light), electricity, natural gas,

3 diesel, and gasoline; coal consumption is exempt from the eco tax. Figure xx provides an overview of the pre-existing tax rates, the cumulative increase and the total tax burden in 2003 by energy carrier. It can be seen that the tax rate increase is highest, in absolute numbers, for electricity, gasoline, and diesel. More detailed information on the eco tax rates is given in the appendix. Figure 1: Existing energy taxes and eco tax in Germany euros per GJ Additional tax ( ) Tax before Coal Fuel Oil (heavy) Fuel Oil (light) Natural Gas Electricity Gasoline Diesel The collected tax revenue was recycled in form of a decrease of the cost of labor in order to stimulate employment. Several special provisions and exemptions to the eco tax were introduced so to not excessively burden some sectors compared to others. For example, industries (mining, utilities, manufacturing and construction industries) can claim a balance of net burden : Should the tax burden exceed the associated reduction in social security payments (more specifically, the reduction of industry s contribution to employee s pension plan payments) by more than 20%, the exceeding electricity and gas and fuel oil tax will be reimbursed. More details on special provisions and exemptions to the eco tax are provided in the appendix. In order to incorporate the eco tax in the SGM, an effective eco tax rate by sector accounting for these provisions and exemptions had to be derived. This was done based on the mix of energy inputs, the average size of enterprises in the sector, the reduction in costs of labor through tax revenue recycling, etc. (DIW 2000). For the SGM specific sectoral disaggregation, the results are shown in Table xx.

4 Table 1. Effective Eco Tax for the SGM specific sector Electricity Ref. Petr. Prod. N. Gas Tax before 1999 Cumulative Tax 2003 Tax before 1999 Cumulative Tax 2003 Tax before 1999 Cumulative Tax 2003 Agr ETE Crude Oil N. Gas Coal Coke Elec Ref. Petr City Gas Paper Chemicals NM Min Metals Food Other Ind Land+Rail Transp Other Transp Consumer NATIONAL PROJECTIONS OF CARBON EMISSIONS

5 no eco tax SGM baseline million t C euros per tc 200 euros per tc DIW historical EIA projections Kyoto target National target [Figure 2. plot of emissions projections superimposed on historical data] ELECTRICITY SECTOR [need a table with cost assumptions] electricity from fossil fuels peaking base load oil gas wind [Figure 3. tree diagram] PC PCcd IGCC IGCCcd NGCC NGCCcd

6 [talk about competition in Figure 4 along two dimensions] IGCC levelized cost (cents per kwh) IGCC with capture and disposal NGCC NGCC with capture and disposal carbon price (euros per t C) [Figure 4. levelized cost as a function of carbon price] ELECTRICITY SIMULATIONS

7 2,000 1,800 1,600 1,400 nuclear wind NGCC 1,200 IGCC petajoules 1, coal (PC) gas oil hydro [Figure 5a. baseline electricity] 2,000 1,800 1,600 nuclear 1,400 wind petajoules 1,200 1, NGCC IGCC 600 coal (PC) gas oil hydro [Figure 5b. electricity at 200 euros]

8 2,000 1,800 1,600 nuclear petajoules 1,400 1,200 1, wind NGCCcd NGCC IGCCcd IGCC coal (PCcd) 600 coal (PC) gas oil hydro [Figure 5c. electricity with cd at 200 euros] CONCLUSIONS REFERENCES [Boehringer] [EMF-19 paper] [see list of references for EMF-19 paper] APPENDIX

9 Table A1. Ecological Tax in Germany Energy Carrier Tax Rate before April Pf/unit Energy Tax per unit - yearly increase - from April on yearly increase thereafter Cumulative increase 1999 to 2003 Total Tax burden in 2003 Pf/unit DM/GJ Pf/unit DM/GJ Coal (kg) Fuel Oil heavy 1) (kg) 3,00-0,5 2) 0,5 0,12 3,50 0,85 Fuel Oil light (l) 8,00 4,00 0 4,00 1,12 12,00 3,37 Natural Gas (kwh) 0,36 0,32 0 0,32 0,89 0,68 1,89 Electricity ) (kwh) 0,00 2,00 0,5 4,00 11,11 4,00 11,11 Gasoline (l) 98,00 6,00 6,00 30,00 9,27 128,00 39,55 Diesel (l) 62,00 6,00 6,00 30,00 8,38 92,00 25,71 1) Consistent tax for heavy fuel oil since ) One time increase in Sources: Gesetz zum Einstieg in die ökologische Steuerreform (Bundesgesetzblatt I, S. 378, 1999), Gesetz zur Fortführung der ökologischen Steuerreform (Bundesgesetzblatt I, S. 2432, 1999); DIW (2000). Special provisions and exemptions to the Eco Tax Exceptions applying to manufacturing industries and agriculture and forestry: 1. Should the additional tax burden for electricity and heat exceed 1000DM per year each, the exceeding energy consumption will be taxed at a reduced rate of 20% of the regular tax rate only. (does not apply to gasoline). 2. In addition, industries (mining, utilities, manufacturing and construction industries) can claim a balance of net burden : Should the tax burden exceed the associated reduction in social security payments (more specifically, the reduction of industry s contribution to employee s pension plan payments) by more than 20%, the exceeding electricity and gas and fuel oil tax will be reimbursed. Additional exceptions: 1. Gas and oil consumption for either electricity or heat production are exempt from the tax increase, as are CHP plants with a conversion efficiency of more than 60%. 2. Existing exemptions for taxation of mineral oil still apply. 3. Electricity consumption for public transport is taxed at 50% of the above rate only. 4. From 2000 on, the tax increase for oil products in public transport will only be half the regular rate (i.e. 3 Pf/year) 5. Gasoline with high sulfur content (more than 50mg/kg starting in 11/01/2001, from 1/1/2003 the limit will be reduced to 10mg/kg) will be taxed with an additional 3Pf/l. 6. Electricity for night storage heating will be taxed at half the regular rate if installed before 4/1/1999. Exceptions for efficient power plants:

10 1. CHP with conversion efficiency of more than 70% are exempt from all energy taxes. 2. Combined Cycle power plants with conversion efficiency of more than 57.5% are exempt for five years if they are built between 1/1/2000 and 12/31/ Power plants of less than 2 MW (capacity or generation?? I don t know) are exempt from the electricity tax (increased in 1/1/2000 from 0.7 MW).