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Global fossil energy markets and climate change mitigation – an analysis with REMIND

Author

Listed:
  • Nico Bauer

    () (Potsdam Institute for Climate Impact Research)

  • Ioanna Mouratiadou

    (Potsdam Institute for Climate Impact Research)

  • Gunnar Luderer

    (Potsdam Institute for Climate Impact Research)

  • Lavinia Baumstark

    (Potsdam Institute for Climate Impact Research)

  • Robert J. Brecha

    (University of Dayton)

  • Ottmar Edenhofer

    (Potsdam Institute for Climate Impact Research)

  • Elmar Kriegler

    (Potsdam Institute for Climate Impact Research)

Abstract

Abstract We analyze the dynamics of global fossil resource markets under different assumptions for the supply of fossil fuel resources, development pathways for energy demand, and climate policy settings. Resource markets, in particular the oil market, are characterized by a large discrepancy between costs of resource extraction and commodity prices on international markets. We explain this observation in terms of (a) the intertemporal scarcity rent, (b) regional price differentials arising from trade and transport costs, (c) heterogeneity and inertia in the extraction sector. These effects are captured by the REMIND model. We use the model to explore economic effects of changes in coal, oil and gas markets induced by climate-change mitigation policies. A large share of fossil fuel reserves and resources will be used in the absence of climate policy leading to atmospheric GHG concentrations well beyond a level of 550 ppm CO2-eq. This result holds independently of different assumptions about energy demand and fossil fuel availability. Achieving ambitious climate targets will drastically reduce fossil fuel consumption, in particular the consumption of coal. Conventional oil and gas as well as non-conventional oil reserves are still exhausted. We find the net present value of fossil fuel rent until 2100 at 30tril.US$ with a large share of oil and a small share of coal. This is reduced by 9 and 12tril.US$ to achieve climate stabilization at 550 and 450 ppm CO2-eq, respectively. This loss is, however, overcompensated by revenues from carbon pricing that are 21 and 32tril.US$, respectively. The overcompensation also holds under variations of energy demand and fossil fuel supply.

Suggested Citation

  • Nico Bauer & Ioanna Mouratiadou & Gunnar Luderer & Lavinia Baumstark & Robert J. Brecha & Ottmar Edenhofer & Elmar Kriegler, 2016. "Global fossil energy markets and climate change mitigation – an analysis with REMIND," Climatic Change, Springer, vol. 136(1), pages 69-82, May.
  • Handle: RePEc:spr:climat:v:136:y:2016:i:1:d:10.1007_s10584-013-0901-6
    DOI: 10.1007/s10584-013-0901-6
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    References listed on IDEAS

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    Cited by:

    1. Bauer, Nico & Hilaire, Jérôme & Brecha, Robert J. & Edmonds, Jae & Jiang, Kejun & Kriegler, Elmar & Rogner, Hans-Holger & Sferra, Fabio, 2016. "Assessing global fossil fuel availability in a scenario framework," Energy, Elsevier, vol. 111(C), pages 580-592.
    2. Joachim Weimann & Rüdiger Pethig & Barbara Hendricks & Ottmar Edenhofer & Thomas Puls & Thilo Schaefer & Heinrich Bottermann & Marc Gronwald & Marc Oliver Bettzüge & Jakob Peter, 2016. "Anspruch und Wirklichkeit: Kann das Pariser Klimaabkommen funktionieren?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 69(03), pages 03-29, February.
    3. Köktürk, G. & Tokuç, A., 2017. "Vision for wind energy with a smart grid in Izmir," Renewable and Sustainable Energy Reviews, Elsevier, vol. 73(C), pages 332-345.
    4. Mukanjari, Samson & Sterner, Thomas, 2018. "Do Markets Trump Politics? Evidence from Fossil Market Reactions to the Paris Agreement and the U.S. Election," Working Papers in Economics 728, University of Gothenburg, Department of Economics.

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