Modeling the energy mix and economic costs of deep decarbonization scenarios in a CGE framework

Abstract

This paper investigates the energy mix and welfare implication of deep decarbonization pathways with net negative emission technologies for North America and globally to 2050 in a computable general equilibrium (CGE) framework. The analysis uses an integrated assessment model (IAM), the Global Change Assessment Model (GCAM), to develop three bounding emission scenarios: i) A business as usual pathway (BAU), ii) A pathway bounded by the Nationally Determined Contributions and attaining a 2°C end of century target (NDC-2°C), and iii) An increasing ambition pathway that attains a 1.5°C end of century target (NDC-1.5°C). The energy mix and economic impacts of these emissions pathways are then evaluated using Environment Canada's Multi-Sector, Multi-Regional (EC-MSMR) CGE model. When bioenergy with carbon capture and storage (BECCS) and direct air capture (DAC) are available, they play an important role in achieving emission reductions. Allowing the use of DAC preserves an additional 5% to 20% of the share of fossil fuels in North America. Including DAC in deep decarbonization pathways lowers the welfare loss by up to ∼1% globally compared to those without DAC in 2050. This finding is robust to both the estimated price of and constraints on DAC deployment. Increasing the potential for fuel switching in the CGE model further reduces the welfare effects for deep decarbonization.