CO2 emissions and energy demand to 2005

Tables 9.13 and 9.14 show the results for CO2 emissions and total gross energy demand for the year 2005. The emissions for 1990 from the DOE statistics are estimated to be 160 million tonnes carbon (mtc); and the estimated total gross energy demand in 1990 is 94.7 billion therms. The tables show the changes projected over the period 1990-2005 and the estimated effect of the EU carbon/energy tax introduced in 1993 on the emissions and energy demand in 2005.

There are several interesting features in these results. The first is that the differing assumptions about price elasticities affect the CO2 emissions in the absence of any carbon tax. Since real energy prices are expected to be lower

Table 9.13 UK CO2 emissions 1990-2005 from projections using MDM

Zero

Price elasticity

Low (base +0.1) Base specification High (base -0.1) Higher (base -0.2)

CO2 emissions 2005 (mtc) (no 157.3 carbon/energy tax)

CO2 emissions 2005 (mtc) 138.2

(carbon/energy tax)

1990-2005(no carbon/energy tax)

1990-2005 (carbon/energy tax)

Difference from base in CO2 -12.1 emissions (%) in 2005 (carbon/

energy tax)_

175.1

178.6

147.7 11.6

in 2005 than in 1990, the higher (more negative) the price elasticity, the higher the energy demand and CO2 emissions. An increase in the absolute values of the elasticities of 0.1 across the board from base values increases energy demand by 3.0 per cent. Comparing the projection when zero price elasticities are imposed with the base case, the reduction in real energy prices for 1990-2005 is calculated to raise energy demand by 12.3 per cent. The second feature is the larger increases in energy demand than in CO2 emissions for any particular set of price elasticities. This is the effect of the substantial increase in the use of gas and the reduction in the use of coal in 2005 compared with 1990. However, when it comes to responses to the carbon/energy tax, the reductions in energy demand are uniformly lower than the reductions in CO2 emissions, because the tax penalizes the high-carbon fuels such as coal. The difference is sufficient to mean that in most of the tax scenarios energy demand in 2005 is higher than in 1990 and at the same time CO2 emissions are lower. The third feature worth noting is that there is a strong response to

Table 9.14 UK total energy demand 1990-2005 from projections using MDM

Zero

Price elasticity

Low (base +0. 1) Base specification High (base -0. 1) Higher (base -0.2)

Energy demand 2005 (billion 101.4

therms) (no carbon/energy tax)

Energy demand 2005 (billion 93.3 therms) (carbon/energy tax) Change in energy demand 7.1 (%), 1 990-2005 (no carbon/ energy tax)

Change in energy demand -1.5 (%), 1990-2005 (carbon/ energy tax)

109.9

113.9

100.7 20.3

117.3

101.4 23.9

119.8

102.0 26.5

Price elasticity

Zero Low (base +0. 1) Base specification High (base -0. 1) Higher (base -0.2)

Difference from base in -8.0 -9.1 -11.6 -13.6 -14.9

energy demand (%) in 2005

(carbon/energy tax)_

the carbon/energy tax even if the aggregate energy demand elasticities in question are zero. This is because there are at least two other important responses to the tax which are left out of these sensitivity tests, namely substitution between different fuels with different carbon contents and the response of the electricity generators to the new fuel prices. Finally, the estimated effect of the tax on emissions is shown to depend, not surprisingly, on the elasticities imposed. On the basis of these tests, the range of effects is from a reduction in emissions of 12 per cent for zero elasticities (with the effects all coming from fuel substitution and responses in the electricity industry) to 18 per cent for the highest elasticities assumed.

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