Analysis on Technological

Mitigation Potentials and Costs

in Energy supply and Industry
- Methodology & Example -
Tatsuya Hanaoka
National Institute for Environmental Studies

1st Regional Consultation Meeting on Economics of Climate Change

and Low Carbon Growth Strategies in Northeast Asia
Seoul, Korea
9-10 March 2010
 AIM research network in Asia regions
AIM = Asia-Pacific Integrated Model
China
中国能源研究所 ソウル大学
（ERI) 韓国環境研究所(KEI) Energy Research Institute, National Development and Reform Commission
中国科学院地理科学
与資源研究所 国立環境研究所 Institute of Geographical Sciences and Natural Resources Research, Chinese Academy
（IGSNRR) (NIES) of Science
京都大学
インド経営大学院 India
（IIM) Indian Institute of Management
国立太平洋 Thailand
北西研究所
アジア工科大学 （PNNL) Asian Institute of Technology
国際応用システム （AIT) スタンフォード大学
分析研究所 （IIASA) エネルギー・ Korea
モデリング・
フォーラム(EMF) Seoul National University
Korea Environment Institute

AIM model family

AIM Model Development Strategic Database

AIM/ Energy/Technology/Country AIM/ Ecosystem/Water/Impact

A bottom-up A set of ecosystem models,
Temperature
Precipitation
Sunshine
Institution, Management,
technology including a vegetation
selection model of dynamics model, a water
Land use Water resource
Technology, Adaptation
energy use and resource model, an
emissions at
country and local
agricultural productivity
model and a health impact
Socio-economic
indicator
Crop
Productivity Database
level Emission Intensity of SO2 in China model Impact on food demand

Adaptation strategy
Scenario
AIM/Bottom-up
AIM/End -use AIM/Top-down
AIM/Top -down Assessment
A bottom-up
Country technology
&Technology
Based
land use model for
AIM Family A general-equilibrium-type
World Economic
Model Model model
world economic
Asia-Pacific region

Future
Model Base
AIM/Material AIM/Trend
Environmental
Environ- burden economic
economic trend
trend
mental
Burden Environmental Future
Industry environmental
environmental trend
trend
Green Purchase
Industry Korea
An environment-
One country CGE model Developed as a
Consumer
economy
with CO2interacted
and material communication China
model with material Environment Fund India
Recycle

balance, interface with platform in order

Wastes

balance and recycling

environmental
process modules
Environmental
to construct Thailand Japan Strategy
Index Base
Burden
technology model Asia --pacific
Environmental Industry
regional environmental
Option Base
(waste management, recycle)

Technology assessment Technology needs outlook supported with

Research on new technologies multi - regional environment -economic CGE model
 Overview of emission models
Enduse/SDB type modules
Energy end-use, Renewable energy,
Waste treatment/disposal, Resource
recycling

AIM/Enduse models
AIM/CGE AIM/Material
(Energy, Materials)
CGE approach
Bottom-up, enduse,
Global National SDB approach

AIM/Ecosystem AIM/Ecosystem Bottom up/accounting

[global] [country] models

Process/SDB type modules

Land-use, Population-urbanization
Forestry, Agriculture
AIM/Impact[Policy]… Simplified model for Water Resource and Infrastructures
Long-term assessment of climate change Air Load/emission
 Objective of AIM/Enduse[Global]

1) Estimation of marginal abatement costs and

evaluation GHG mitigation potentials in world
regions.
- Region-wise mitigation potentials and costs
- Sector-wise mitigation potentials and costs

2) Analysis of the impact of policy instruments and

consequent effects on GHG emission reductions.
- possibility of achievement of required reduction
under a certain GHG stabilization constraint
 Structure of AIM/Enduse

Energy Energy technology Energy service

• Oil • Blast furnace • Crude steel products

• Coal • Power generation • Electricity demand
• Gas • Air conditioner • Cooling demand
• Solar • Fluorescent • Lighting
• Electricity etc. • Automobile etc. • Transport volume etc.

Energy consumption Technology Energy service

CO2 emissions selection demands

Energy database Technology database Socioeconomic scenario

• Energy type • Technology price • Population growth
• Energy price • Energy consumption • Economic growth
• Energy constraints • Supplied service • Industrial structure
• CO2 emission factor amounts • Employment
• Technology share • Lifestyle
• Lifetime
 Temporal scale of mitigation analysis
AIM/CGE[Global]

AIM/Enduse[Global] How to forecast outlook for innovative

technological development ?
Enduse Enduse
MAC MAC

How to estimate future service demands

Service demand model considering changes in social structure ?

Base Year Short-term Middle-term Long-term

2005 2020 2030 2050 2100 ~

Due to data constraints of future technology information and service demands,

Enduse model analyzes scenarios with horizons of 2030, and up to 2050 at most.

To utilize Enduse model for Low Carbon Society scenario study toward 2050, it is
essential to discuss outlook for innovative technological development and future
service demands considering changes in social structure.
 Regional classification

World
32 regions

Annex I OECD
JPN (Japan) USA (United States) CAN (Canada) KOR (Korea)
AUS (Australia) XE15 (Western EU-15) TUR (Turkey) MEX (Mexico)
NZL (New Zealand) XE10 (Eastern EU-10) XEWI (Other Western EU in Annex I) BRA (Brazil)
RUS (Russia) XE2 (Other EU-2) XEEI (Other Eastern EU in Annex I) ARG (Argentine)
CHN (China) XSA (Other South Asia) XENI (Other EU) XLM (Other Latin America)
IND (India) XEA (Other East Asia) XCS (Central Asia) ZAF (South Africa)
IDN (Indonesia) XSE (Other South-East Asia) XOC (Other Oceania) XAF (Other Africa)

ASEAN
THA (Thailand) MYS (Malaysia) VNM (Viet Nam) XME (Middle East)
 Target gas and sectors
GHG Sector Services
Power generation Coal power plant, Oil power plant, Gas power plant, Renewable
(Wind, Biomass, PV)

Industry ，Cement
Iron and steel，
Other industries （Boiler, motor etc） ）
CO2
CH4
N2O Transportation Passenger vehicle, Truck，Bus，Ship, Aircraft，Passenger train，
Freight train (except for pipeline transport and international
transport)
Residential and ，Cooking，
Cooling, Heating, Hot-water， ，Lighting，
，Refrigerator,
& Commercial TV

CH4 Agriculture Livestock rumination, Manure management, Paddy field, Cropland

N2O MSW Municipal solid waste
CH4 Fugitive Fugitive emission from fuel

By-product of HCFC-22, Refrigerant，Aerosol, Foams，Solvent,

Etching，Aluminum production, Insulation gas, others.
HFCs, Fgas emissions
PFCs,SF6
Note)

Nuclear power, hydro power, and geothermal power generation are included in the baseline
and they are not considered as mitigation options in this study.

There are some mitigation options which are not able to be considered in this study due to
the lack of data availability, for example, CO2 mitigation options in petrochemical, N2O
mitigation options in waste water, CO2 mitigation options in agriculture etc.
Technology options for mitigation measures
- example in energy supply and industry -
Sector Category Technology options
Coal power Efficient coal power plant, PFBC (Pressurized fluidized bed combustion),
combustion),
plant IGCC (Integrated Gasification Combined Cycle)
Energy
Gas power Efficient gas power plant, ACC (Advanced Combined Cycle)
supply
plant
Renewables Wind power, Photovoltaics,
Photovoltaics, Biomass power plant
Coke oven (Coke gas recovery, Automatic combustion, Coal wet adjustment ,
Coke dry type quenching, COG latent heat recovery, Next generation coke
oven),, Sinter furnace (Automatic igniter, Cooler waste heat recovery, Mainly
waste heat recovery, Efficient igniter),, Blast furnace (Large size blast
furnace, Blast furnace gas recovery, Wet top pressure recovery turbine, Dry
Steel top pressure recovery turbine, Heat recovery of hot blast stove, Coal
injection, Dry top pressure gas recovery),, Basic oxygen furnace (LDG
recovery, LDG latent heat recovery),, Casting & rolling (Continuous caster,
Hot charge rolling, Hot direct rolling, Efficient heating furnace, Heat
Industry
furnace with regenerative burner, Continuous annealing lines),, Electric
furnace (DC electric furnace, Scrap pre-heat)
Mill (Tube mill, Vertical mill),, Kiln (Wet kiln, Semi-wet kiln, Dry long kiln,
Cement
Dry shaft kiln, SP/NSP)
Boiler (Efficient boiler [coal, oil, gas], Boiler with combustion control [coal,
Other oil, gas], Cogeneration [coal, oil, gas], Regenerative gas boiler), Process heat
industries (Efficient industrial furnace [oil, gas]),, Motors (Motor with Inverter control,
Efficient motor)
 Overview of AIM/Enduse[Global]
Macroeconomic model
Socio-economic macro frame model
Population

GDP
Sector-wise value added

Service demand model

Waste
Steel production Cement Transportation energy service Agricultural Fluorocarbon
generation
and trade model production model demand model demand model trade model emission model
model

Value added Energy service Energy service

Crude steel Cement Transportation Agricultural Waste Emission of
of secondary demand demand
production production volume production generation fluorocarbon
industry (residential) (commercial)

Technology bottom-up model

Waste
Iron and steel Other industries Transportation Residential Commercial Agriculture Fluorocarbon
Cement sector management
sector sector sector sector sector sector emission sector
sector

Electricity demand Technology database

Initial cost Efficiency

Energy database Technology Maximum

Primary energy lifetime
bottom-up model
Energy price （ power generation sector ） production diffusion rate

Emission factor
Technology
bottom-up model
（
energy mining sector ）
Exogenous Endogenous
variable variable

Model Database GHG emission Technology bottom-up model

 Service demand models
Endogenous Exogenous Estimation Definitional
variable variable equation equation
GDP per capita Exogenous
TIME trend Domestic price Intl. price GDP per capita GDPPi,t variable
TIMEt PDi,t PWt GDPPi,t

Endogenous
Producer Price Export price Import price Consumption variable
PSi,t PEi,t PMi,t per capita Production per
CNSPi,t Estimation
capita
PRDPi,t equation
Relative Relative Population
export price domestic price POPi,t Population Definitional
PEWi,t PDMi,t
POPi,t equation
Production Export ratio Import ratio Consumption
PRDi,t REXCi,t RMCi,t CNSi,t
Production i: region
PRDi,t
t: year

Export Import
EXCi,t MCi,t

： ＝ － ＋
Steel production：∑and
＝∑ trade model
Domestic market equilibriumi

International market equilibrium

CNSi,t PRDi,t EXCi,t MCi,t

EXCi,t MCi,t
i: region
t: year Cement production model
i i

700 1,400

Cement Production (million ton)

2005 2020
Steel Production (million ton)

2005 2020
600 1,200
500 1,000
Steel Cement
400 800
300 600
200 400
100 200
0 0

Developed

インド
ロシア
EU25
インド

日本

米国

Russia

中国
ロシア
EU25

Annex I
Japan

China
Developed

EU25
日本

米国

中国

India
Annex I

USA
Russia

China
Japan

EU25

India
USA
 Database interface for Enduse[Global]
In.xls file

Choice
Enduse or MAC

Pivot.xls file MAC.xls file

GAMS
Methodology of mitigation potential estimates
(MAC: Marginal Abatement Costs curve)

Technology
abatement 100US$/t-CO2

Technology
Marginal

Technology
cost

Technology １

Technology
3
2 5
Cumulative GHG
4 Reductions
（t-CO2 eq)
Reduction potentials
0
① Setting activity amounts in the target year, target region and target sector.
② Setting the level of standard technologies in the base year, target region and target sector.
③ Setting mitigation technology database (initial & running costs, energy consumption, service
supply per unit of technology, lifetime, diffusion rate, etc) and energy database (Energy type,
energy price, emission factor, etc).
④ For a mitigation technology l in each sector, calculating the GHG emission reduction per
activity by introducing a technology l, additional cost of a technology l, and maximum
potential of stock of a technology l, comparing with the standard technology.
⑤ Plotting abatement cost of unit reduction along the y-axis, and GHG emission reduction of a
technology l along the x-axis in order of ascending abatement cost of unit reduction.
⑥ Cumulative GHG reductions under the 100US$/tCO2 eq. are defined as “reduction potentials”
in this study.
 Baseline assumption & technologies
Baseline assumption
Baseline is set as a technology frozen case, i.e. when the future
share and energy efficiency of standard technologies are fixed
at the same level as in the base year.

Mitigation technologies
This study is based on realistic and currently existing
technologies, and future innovative technologies expected in
2020 are not taken into account.

）For example, CCS is one of expected future innovative technologies that is

Note1）
likely to have large effect on mitigation measures. due to the lack of data
availability, CCS is not taken into account as a mitigation measure in this study.
Note2) Effects of mitigation measures such as additional policies promoting modal
shift, public-enlightment actions are not considered in this study.
 Key factors for MAC estimates
Results of mitigation potentials vary widely depending on
data assumptions such as socio-economic characteristics
Coverage Definition
1) Geographical coverage 1) Definition of “potential”
2) Sectoral coverage 2) Definition of “cost”
3) GHG coverage 3) Definition of “drivers”
4) Mitigation options coverage 4) Definition of any specific terms…

Data assumptions Detail information (which

1) Population reflects key uncertainties)
2) GDP and service demands 1) The rate of technology
3) Energy price development and diffusion
4) Discount rate 2) The cost of future technology
5) Payback period 3) Climate and non-climate policy
drivers
6) Composition of power sources
…. and so on
7) Baseline scenario
 Logic of technology selection
Initial cost Running cost for X years
(1) Replacement, new demands
Technology A

Service demand Technology B

If Tech A ＜ Tech B ⇒ then Tech A is selected

Extension of
New demands Introduction pay back period
Replacement in year X+1

Initial cost Running cost for X years

Existing
Technology A

Technology B
X X+1 Year
If Tech A ＜ Tech B ⇒ then Tech B is selected

As private industries take into account high investment risk for energy conserving
technologies, a payback period of 3-years is assumed.
 Logic of technology selection

(2) Substitution of existing technology

Service demand
Initial cost Running cost for X years

Technology A

Technology B

Initial Running cost

cost for X years
Existing
Target for substitution If Tech A ＜ Tech B ⇒ then Tech B is selected
in year X+1

X X+1 Year
 Example of composition of power sources
Japan USA EU25
1,600 5,000 4,000
PV PV PV
1,400 4,500 3,500
Elec tr ic ity o u tp u t (TW h )

Elec tr ic ity o u tp u t (TW h )

Elec tr ic ity o u tp u t (TW h )

WIN 4,000 WIN WIN
1,200 3,000
BMS 3,500 BMS BMS
1,000 3,000 2,500
GEO/HYD GEO/HYD GEO/HYD
800 2,500 2,000
Case NUC
2,000
NUC NUC
600 1,500
A 400
GAS 1,500 GAS
1,000
GAS
OIL 1,000 OIL OIL
200 500 500
COL COL COL
0 0 0
2005

0
20
50
100
200

2005

0
20
50
100
200

2005

0
20
50
100
200
B a selin e

B a selin e
≤

B a selin e
≤ ≤ ≤
≤ ≤ ≤ ≤
≤ ≤ ≤ ≤ ≤ ≤

A drastic energy shift from coal and oil to gas is allowed if it is cost effective.

1,600 5,000 4,000

PV PV PV
1,400 4,500 3,500
E lec tr ic ity o u tp u t (T W h )

E lec tr ic ity o u tp u t (T W h )

E lec tr ic ity o u tp u t (T W h )
WIN 4,000 WIN WIN
1,200 3,000
BMS 3,500 BMS BMS
1,000 3,000 2,500
GEO/HYD GEO/HYD GEO/HYD
800 2,500 2,000
NUC NUC NUC
600 2,000 1,500
Case GAS
1,500 GAS GAS
400 1,000
B 200
OIL 1,000 OIL
500
OIL
COL 500 COL COL
0 0 0
2005

0
20
50
100
200

2005

0
20
50
100
200

2005

0
20
50
100
200
B a selin e

B a selin e

B a selin e
≤ ≤
≤ ≤ ≤ ≤ ≤ ≤
≤ ≤ ≤ ≤ ≤ ≤

Social barriers restrict any drastic energy shift considering realistic state.
 Overview of example case studies
Energy efficient technology options are selected if energy saving cost benefits
exceeds additional investment costs.
Additional investment cost
≦ energy savings ×（energy price＋emission factor × carbon price ）× payback period

① Comparison of length of payback period

short payback period
around 3-years payback period in most of sectors.
around 10-years payback period for large plants such in power generation and
industry

long payback period by policy intervention
adequately payback periods corresponding to about 50~70% of the technology’s lifetime.
e.g.) Residential equipments: 7-10 years (when technology’s lifetime is 10-15years）
Car, truck, bus: 6-9 years (when automobile lifetime is 8-12 years)

② Comparison of composition of power sources

Large plant: 14-15 years (when plant lifetime is 30 years）

composition under cost optimization without energy security restrictions

A drastic energy shift is allowed. For example, if a gas power plant is more cost effective
than a existing coal or oil power plant, then the coal or oil power plant is immediately
stopped and replaced with a gas power plant.

composition with energy security restrictions.
Social barriers restrict to a certain extent any drastic energy shift from coal and oil power
plants to efficient gas powers or renewable energies.
 Example of abatement cost curves in 2020
in energy supply and industry sector in China
Composition of power sources under cost optimization without energy security restrictions
vs with energy security restrictions (Both cases are under short payback settings.)
200

150
Abatement cost (US$/tCO2eq)

100

Stop the existing coal power plant and build a new

efficient gas power plant
50
New gas power plant in stead of new coal power plant
0
0 1,000 2,000 3,000 4,000 5,000 6,000

-50
Reduction quantity (tCO2eq)

CHN(without energy security) CHN(with energy security)

Under cost optimization without energy security restrictions, more mitigation potentials are estimated due
to a drastic energy shift from existing coal and oil power plants to new efficient gas power plants.
 Example of abatement cost curves in 2020
in energy supply and industry sector in Korea
Composition of power sources under cost optimization without energy security restrictions
vs with energy security restrictions (Both cases are under short payback settings.)
200

Stop the existing coal power plant and

Aabatement cost (US$/tCO2eq)

150 build a new efficient gas power plant

100 New gas power plant in stead of new coal power plant

50

0
0 20 40 60 80 100 120 140 160 180

-50
Reduction quantity (tCO2eq)

KOR(without energy security) KOR(with energy security)

Under cost optimization without energy security restrictions, more mitigation potentials are estimated due
to a drastic energy shift from existing coal and oil power plants to new efficient gas power plants.
 Example of abatement cost curves in 2020
in energy supply and industry sector in Japan
Composition of power sources under cost optimization without energy security restrictions
vs with energy security restrictions (Both cases are under short payback settings.)
200

Stop the existing coal power plant and

150
Abatement cost (US$/tCO2eq)

build a new efficient gas power plant

100

New gas power plant in stead of new coal power plant

50

0
0 50 100 150 200 250 300

-50
Reduction quantity (tCO2eq)

JPN(without energy security) JPN(with energy security)

Under cost optimization without energy security restrictions, more mitigation potentials are estimated due
to a drastic energy shift from existing coal and oil power plants to new efficient gas power plants.
 Example of abatement cost curves in 2020
in energy supply and industry sector in China
Settings of short payback vs long payback period (Both cases are in composition of power
sources under cost optimization without energy security restrictions)
200

150
Abatement cost (US$/tCO2eq)

100

50 Wind power and PV in stead of new coal power plant

New gas power plant in stead of new coal power plant

0
0 1,000 2,000 3,000 4,000 5,000 6,000

-50
Reduction quantity (tCO2eq)

CHN(Short_Payback) CHN(Long Payback)

Under the long payback period, more reduction potentials are estimated due to the effects of
promoting high efficient technologies at lower costs .
 Example of abatement cost curves in 2020
in energy supply and industry sector in Korea
Settings of short payback vs long payback period (Both cases are in composition of power
sources under cost optimization without energy security restrictions)
200

150
Abatement cost (US$/tCO2eq)

Stop the existing coal power plant and

100 build a new efficient gas power plant

50

0
0 50 100 150 200

-50
Reduction quantity (tCO2eq)

KOR(Short_Payback) KOR(Long Payback)

Under the long payback period, more reduction potentials are estimated due to the effects of
promoting high efficient technologies at lower costs .
 Example of abatement cost curves in 2020
in energy supply and industry sector in Japan
Settings of short payback vs long payback period (Both cases are in composition of power
sources under cost optimization without energy security restrictions)
200

150
Abatement cost (US$/tCO2eq)

100
PV in stead of new coal power plant

New gas power plant in stead of new coal power plant

50

0
0 50 100 150 200 250 300 350

-50
Reduction quantity (tCO2eq)

JPN(Short_Payback) JPN(Long Payback)

Under the long payback period, more reduction potentials are estimated due to the effects of
promoting high efficient technologies at lower costs .
 Costs: definitions and determinants
See in detail: IPCC Second Assessment Report, WGIII, Chapter 8, pp269-270
1) The direct engineering and financial costs of specific technical measures
Cost of switching from coal to gas in electric production, of improving energy
efficiency of appliances, of planting trees in reforestation program. Technical costs
can show negative net costs because a given technology may yield enough energy
cost saving to more than offset the costs of adopting and using the technology.
These costs depend on both technical-economic data and a given interest rate.
Bottom-up models
2) Economic costs for a given sector
Cost by “partial equilibrium” analysis in sectroral models that do not capture the
feedback effects between the behaviour of a sector and that of the overall economy.

3) Macroeconomic costs CGE models

The impact of a given strategy on the level of the GDP and its components
(household consumption, investment,etc). This aggregated index measures the
monetary value added of goods and services and provides an index of the scale of
human activities including the feedback effects between the behaviour and economy.

4) Welfare costs
 Caveats
The following points must be kept in mind while interpreting the
results of this study:
1) Possibility of more mitigation potentials
This study is based on realistic and currently existing technologies,
and future innovative technologies expected in 2020 are not taken
into account. Therefore, it may be possible to reduce more if
innovative technologies become available in the future.

2) Possibility of over estimation

The baseline emissions in 2020 are estimated under the technology-
frozen case which does not take into account changes in the industrial
structure. Moreover, future service demands are exogenous
parameters, thus changes in the industrial structure and service
demands due to the effects of mitigation measures are not taken into
account. Thus baseline emissions and reduction potentials may be
overestimated.
 MAC Curve by bottom-up models
Abatement cost
($/tCO2 eq) - Implication, caution & limitation -

MAC by energy-engineering
models with bottom-up data
0
Cumulative GHG reductions (tCO2 eq)

Implication:
1) Technological mitigation potentials and technological implementation costs
2) MAC curves can compare mitigation efforts across countries, because MAC
considers various factors such as the current level of energy efficiencies, difference
of socio-economic characteristics by country, scope of renewable energies, etc.

Caution: MAC is a complicated index

1) MAC curves differ widely depending on assumptions of technology data such as
technology costs, energy prices, payback periods, diffusion ratio of technology, etc.
2) MAC curves differ widely depending on socio-economic assumptions and baseline
emissions.

Limitation:
1) Difficult to discuss economic impacts (e.g. GDP loss) by using a bottom-up model.
29