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Carbon Emissions and Petroleum Resource Assessments Alan S. Manne Stanford University This presentation is based upon joint work with Richard Richels. Helpful comments have been received from Vello Kuuskraa. For research assistance, the author is indebted to Charles Ng. Funding was provided by EPRI. The individual author is solely responsible for the results presented here. For presentation at International Energy Workshop, IIASA, Laxenburg, Austria, June 19, 2001. Abstract This paper demonstrates how oil and gas resource assumptions affect MERGE (a model for evaluating regional and global effects of greenhouse gas reduction policies). Undiscovered resources are based upon the U.S. Geological Survey "World Petroleum Assessment 2000". Guesstimated oil and gas supply curves with ten steps within each region. Instead of OPEC behavioral functions, there are maximum production/reserve ratios and maximum resource depletion factors. To allow for resource depletion without a long-term rising price trend, the reference case includes annual cost reduction factors of 0.5% in each energy category. There are backstops for both electric and nonelectric energy. Results are reported at a global level for: oil and gas production, fuel shares, carbon prices, oil prices and carbon emissions under alternative scenarios. If no energy cost reductions are assumed, there are higher energy prices and lower carbon emissions than in the reference case. If both oil and gas resources are low, there are demands for greater synthetic fuels production and higher carbon emissions. If gas resources are unlimited, emissions are lower during the early years, but higher later on. During the later periods, there is an incentive for electricity production based on gas rather than a carbon-free backstop. This leads to higher carbon emissions than in the reference case. Million Barrels Per Day (Cumulative) Figure 1. Crude oil production in lower 48 states and Alaska, 1954-1999 10 8 Alaska 6 4 Lower 48 States 2 0 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 From Executive Summary, pp. ES-1 and ES-2: The U.S. Geological Survey (USGS) World Petroleum Assessment 2000 provides estimates of the quantities of conventional oil, gas, and natural gas liquids outside the United States that have the potential to be added to reserves in the next 30 years (1995 to 2025) . . . This assessment is based on extensive geologic studies as opposed to statistical analysis. A team of more than 40 geoscientists and additional supporting staff conducted the study over a five-year period from 1995 to 2000. Figure 2. Mean USGS estimates of oil, gas, and NGL – billion barrels of oil equivalent – world, excluding USA 3000 2500 Undiscovered Conventional 2000 Reserve Growth ( Conventional ) 1500 1000 Remaining Reserves 500 Cumulative Production 0 oil gas NGL Figure 3. World reserve and resource/production ratios - static index (years) 175 150 125 100 rsc/prod rsv/prod 75 50 25 0 oil gas • MERGE: A model for evaluating regional and global effects of greenhouse gas reduction policies • Website: www.stanford.edu/group/MERGE • Provides details on this intertemporal general equilibrium model. MERGE is a top-down model of electric and nonelectric energy demands; a bottom-up model of energy supplies. Nine regions: USA, OECD Europe, Japan, CANZ (Canada, Australia and New Zealand), EEFSU (eastern Europe and former Soviet Union), China, India, MOPEC (Mexico and OPEC), and ROW (rest of world). Converting USGS World Petroleum Assessment 2000 into inputs for MERGE: To allow for post-2030 discoveries, took F5(optimistic) as ultimate resources. Guesstimated oil and gas supply curves with ten steps – linearly rising marginal costs. Instead of OPEC behavioral functions, employed maximum production/ reserve ratios and maximum resource depletion factors. Figure 4. Production of an exhaustible resource – initial reserves = 20; undiscovered resources = 80 1.4 1.2 Production-reserve ratio = 5% Resource depletion factor = 2% 1 0.8 0.6 0.4 0.2 0 0 20 40 60 80 100 Conclusions of Michael Lynch, WEFA “No mineral has ever shown long-term rising price trend.” Implemented in MERGE by assuming that there is a 0.5% annual cost reduction in each energy category. Implies 40% reduction in 100 years. Figure 5. World oil and gas production – reference case 250 exajoules oil 200 150 gas 100 50 0 2000 2020 2040 2060 2080 2100 Low resource case As an alternative, have considered a low resource case (50% of the undiscovered resources in the reference case). This is roughly the mean USGS projection. Implications: Oil production peaks in 2020 rather than 2040. Oil prices rise to $29 per barrel rather than $24 in 2010. Because of synthetic fuels, carbon emissions rise post-2050. Figure 6. Total primary energy – fuel shares – reference case 100% carbon-free 80% gas 60% oil 40% 20% coal (+ shale oil + tar sands) 0% 2000 2020 2040 2060 2080 2100 Figure 7. Carbon emissions – reference case and 550 ppmv concentration limit 25 billion tons 20 reference 15 10 5 550 ppmv 0 2000 2020 2040 2060 2080 2100 Figure 8. International price of carbon emission rights – 550 ppmv concentration limit 350 300 250 $ per ton 200 150 100 50 0 2000 2020 2040 2060 2080 2100 Figure 9. International oil prices – reference case vs. no energy cost reductions 70 60 no cost reductions $ per barrel 50 40 30 reference 20 10 0 2000 2020 2040 2060 2080 2100 Figure 10. Carbon emissions – reference case vs. low oil and gas resources vs. no energy cost reductions 25 billion tons low oil and gas 20 reference 15 no cost reductions 10 5 0 2000 2020 2040 2060 2080 2100 Figure 11. Carbon emissions – reference case vs. unlimited gas resources 25 billion tons 20 reference 15 unlimited gas 10 5 0 2000 2020 2040 2060 2080 2100