Foreword:
This report describes and illustrates the use of the computable general equilibrium model MSG-TECH, which is a version of the MSG model in Statistics Norway with endogenous climate technology investments. It was first used in the macroeconomic analyses performed by Climate Cure 2020, an expert group commissioned to explore ways to meet climate policy targets set by the Norwegian Parliament in 2008. Climate Cure 2020 delivered their report in February 2010. This report is commissioned by the Ministry of Finance as part of the MSG contract 2012/2013. While carrying out this research, the authors have been associated with the Oslo Centre for Research on Environmentally friendly Energy (CREE). CREE is supported by the Research Council of Norway. The report is also published in the Report series of Statistics Norway (47/2013).
Abstract:
To meet the global challenge of climate change, shifts in industrial structures and consumption patterns will have to be accompanied by technological adaptations. Analytical tools for projecting effects of ambitious climate policies cannot be based on historical data and current technology characteristics, alone, but need to represent technological innovations that have not yet emerged. This is the background for the development of the hybrid model MSG-TECH, which builds on the computable general equilibrium (CGE) model MSG6, but resembles energy system models in its inclusion of anticipated future technological options. The information on technological options is collected from bottom-up calculations and is exploited to model a wider range of possibilities in the optimisation by households, firms, and public institutions than in traditional CGE models.
The significance of the modelling innovations is illustrated by introducing a uniform carbon price to achieve the same climate policy target – a cut of 10 million tons CO2 equivalents by 2020 - in the MSG-TECH model and the original MSG6 model, respectively. When technological adaptations are accounted for, over one half of the necessary reductions take place by choosing other technological solutions. When these options are left out, marginal abatement costs more than triple and welfare costs more than quadruple, and the cost increase for the traditional manufacturing industries is particularly severe. The intuition is that a model that fails to account for a large part of the expected future abatement alternatives reflects an unrealistically inflexible and inefficient economy. The corresponding characteristic would apply to traditional bottom-up models that include technological abatement, but fail to account for reduced economic activity and new industrial patterns.
Sammendrag:
Skal verdens klimautfordring løses, vil det kreve såvel nye nærings- og forbruksmønstre som nye teknologiske løsninger. Analytiske verktøy for studier av fremtidens klimapolitikk kan ikke bygges på historiske og nåtidige observasjoner, alene. De må også ta innover seg teknologisk utvikling som ennå ikke har funnet sted. Dette er bakgrunnen for at modellen MSG-TECH er utviklet. Den er en hybrid modell bygget på den generelle likevektsmodellen MSG6, men som i likhet med energisystemmodeller representerer teknologiske muligheter utover dem som eksisterer i dag. Den teknologiske informasjonen er hentet fra detaljerte beregninger av potensialet til enkeltteknologier og utnyttet til å modellere flere valgmuligheter for husholdninger, og private og offentlige næringer i modellen.
Rapporten illustrerer betydningen av å modellere klimateknologisk innovasjon ved å analysere samme utslippstak – 10 millioner tonn CO2 ekvivalenter – ved bruk av uniform karbonpris i modellene MSG- TECH og MSG6. Når klimateknologiske tilpasninger er mulig, vil over halvparten av reduksjonene skje ved innovasjoner. Uten slike opsjoner vil marginal rensekostnad tredobles og velferdskostnaden firedobles. Kostnadene øker særlig for den eksportrettede, utslippsintensive industrien. Intuisjonen er at en modell som utelukker en stor andel av de tilgjengelige tiltakene er urealistisk rigid og ineffektiv. Tilsvarende vil gjelde for tradisjonelle energisystemmodeller, som kun endogeniserer valg av teknologier og utelukker omallokeringer mot mindre utslippsintensiv bruk av ressursene.