Probabilistic GHG Emissions Forecasts under Energy Prices Uncertainty

In this paper we use a multi-country and multi-sector computable general equilibrium (CGE) model to assess the effects of future energy prices uncertainty on global and regional greenhouse gases (GHG) emissions projections by 2015. In the last Annual Energy Outlook of the U.S. Department of Energy (IEA-DOE, 2005), world oil prices are set in an environment where the members of OPEC are assumed to act as the dominant producers, with lower production costs than other supply regions or countries. As explained in the report, the behavior and ability of OPEC member countries to set the price of oil will be influenced by many factors about which there is considerable uncertainty. These factors include the risk of oil supply disruptions, and the forces that will drive world oil demand, such as the rate of economic growth in the developed and developing world and the degree to which oil demand is linked to economic growth. This paper proposes to assess the impact of higher oil prices on GHG emissions. We run two types of simulation. A deterministic scenario in which oil prices are projected to be at $65 per barrel in 2005, and then rise by 0.6% per year to reach $74 per barrel in 2015. A stochastic scenario, in which we introduce probability distribution functions for oil prices, and for the indexation of gas prices to oil prices. These PDFs are exogenously set from bottom-up studies and expert thinking. Using a Monte Carlo approach, we obtain probability distribution functions for energy consumption and GHG emissions in the baseline-as-usual scenario by 2015.