Usher, W; (2010) Investment Uncertainty Under Stringent UK Decarbonisation Targets. In: Energy Economy, Policies and Supply Security: Surviving the Global Economic Crisis. (pp. pp. 1-12). IAEE: Vilnius, Lithuania.

Text Usher - 2010 - INVESTMENT UNCERTAINTY UNDER STRINGENT UK Decarbonisation Targets.pdf Download (151kB)

Abstract

The legally binding UK greenhouse gas emissions targets were in part derived using deterministic variants of UK MARKAL. UCL, under UKERC, has developed a new two- stage stochastic variant, which provides additional near-term insights for policy makers under future uncertainties. Significant uncertainties remain as to the level of effort required by the UK to avoid dangerous warming. In this paper, the use of cumulative CO2 targets, equivalent to 80% and 90% reductions by 2050 allow comparison between current UK policy and the modelled results. Deterministic scenarios result in steep near-term decarbonisation in part due to a social discount rate, proportional to the cumulative target. Under uncertain future cumulative CO2 emission targets, the cost of the hedging strategy is related asymmetrically to the weighting of future scenarios. When the cumulative CO2 targets are equally weighted, the near-term investment strategy lies close to that of the deterministic 90% CO2 target. This indicates that steep near-term decarbonisation is important given exponentially rising cumulative welfare costs with increasingly stringent cumulative emission targets.

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