Some industries’ efficiencies have more room to grow than others and therefore this should be taken into account when modeling them. These efficiencies are especially important to carbon heavy industries such as steel and cement where increased efficiencies could impact the global output of carbon greatly. Within the latest AMPL-Source CIM-EARTH Framework (ASCEF) model it is possible to change the rate at which efficiency increases for industries, but it had not been used within the trade model to alter the efficiencies of industries. Altering the input/output (I/O) efficiency is used as a proxy to reduce emissions and study how the efficiency can alter CO2 output. Because we are using the I/O it is impossible to extract any meaningful data from the price, or quantity outputs, but the emissions reductions are still viable. The data suggests that a very heavy carbon tax would be needed to reduce CO2 emissions the same amount as modest increases in efficiencies, especially in carbon heavy industries. This suggests that R&D focused on increasing CO2 efficiency may be a viable alternative to carbon taxes.
The global manufacturing industry emits 43% of global CO2 emissions (Price, et al., 1999). There is a clear distinction between emissions by countries with more developed (and therefore efficient) processes. The cement and steel industries are both very carbon heavy--cement because the reaction to produce the cement results in the release in CO2 therefore there are carbon emissions that cannot be avoided in the process. The steel industry is carbon heavy because many of the ways that steel is made are very energy inefficient, especially the processing of pig iron which requires ten times the input energy as some other methods, a process that is still commonplace in East Asia.
Because of the disparities in efficiencies that exist within these industries, such as pig iron versus recycled steel, and the differences in furnace efficiencies in cement, it is possible to meaningfully study the effects of future efficiency gains resulting from the transition from old technologies to new.
Within the latest AMPL-Source CIM-EARTH Framework (ASCEF) model it is possible to change the rate at which efficiency increases or decreases for a variety of industries. This ability has been used to study efficiencies within the electricity sectors, but hasn’t been used to study industry like cement and steel. Efficiency in the model by default assumes the same change in efficiency across all sectors within a region. This, however, does not take into account that some sectors have more room to grow whereas others do not.While this isn’t directly related to how much carbon is emitted, it is complementary because if you are able to do more with the same amount, emissions will be reduced. This makes it a viable way to see how the efficiency of a plant would affect trade.
The hypothesis is that it will be easier to meet emissions reductions similar to that of carbon taxes ($65 and $125/ton) by increasing efficiency in countries like China (represented as a part of EAA (East Asia) in the model) that have relatively inefficient cement and steel production practices relative to other countries like the US where the industries are already more efficient.
Within the ASCEF model it is possible to change the efficiencies of sectors by country. After running an initial BAU (Business As Usual) scenario with no taxes applied, and certain global carbon tax ($65/ton of CO2 and $125/ton of CO2) scenarios under all of the standard efficiencies that have been set by the developers of the model, then I changed the efficiencies within the US (which will see lower efficiency gains) and East Asia (EAA) (which will see higher efficiency gains).
Within the US I raised the efficiencies by 3% (over the initial efficiency gains over the 20 years that the model runs) in both the steel and cement industries. This is a level of change that could be attainable by an increase in the efficiency of the electricity used in each of the processes.
Within EAA I raised the efficiencies by 8% for the cement industry and 13% for the steel industry. The reason for the difference between the industries is that cement has an inherent amount of CO2 that cannot be avoided in its processing, but in the steel industry recycling can lead to greatly increased efficiency.
Here is an example of the output data. US and EAA (East Asia) Cement industries under a variety of conditions.
Higher efficiencies can greatly reduce the emissions of an industry, more so than even a relatively high carbon tax of $125/ton of CO2. This could mean that spending more in R&D would actually be more effective than ‘taxing our way out of the problem’.
Efficiencies can be changed within the model, but it has limited value when trying to study an emission efficiency and how that affects the economy. Future editions of the model could solve this problem by allowing for changes in CO2 efficiencies by a country on an annual basis. These changes might also increase the effectiveness of the model.
How reliable of a gauge changing the efficiencies is is limited because the change in efficiency is changing the output for a given input. This means that any conclusions that are derived in terms of price will not be accurate.