Chapter 3 The Economic Impacts of Climate Change on Energy Demand for Space Heating and Cooling
Figure 3-5: Difference in the heating and cooling demand for the residential and commercial sectors in the climate change damage cases compared to the Base Case As previously mentioned, the version of the MARKAL Model used in this study minimizes the total fixed (investment) and variable cost of building, operating, maintaining the infrastructure in the national power system. The demand for electricity in this version of MARKAL is not simultaneously determined by the interaction between downward sloping demand curves for electricity and the short and long-run supply curves for the electricity produced by the system. It is not possible to determine how climate change impacts will affect the marketclearing price of electricity, nor is it possible to determine the consumer surplus or producer surplus welfare measures that are consistent with the price changes that occur in response to climate change. What is possible to do is to calculate the minimum electricity system cost and compare the cost with that in the Base Case. This would be an acceptable measure of climate change damages in the case of a cost minimizing industry subject to demand constraints and where the price of electricity is equal to the marginal system cost. Table 3-4 presents the MARKAL estimates of the present value of the total system cost for the Base Case and the three climate change damages cases, which are all in the range of about EUR 14.8 – 15.1 billion. The difference between this cost in each of the scenarios and the Base Case represents an approximate estimate of climate change damages under the conditions described above. The system costs in each of the damages cases rises, relative to the Base Case. This is be expected since the system was constrained in how it could adjust to climate change, by the capacity levels in the Base Case, although the mix of resources allowed to produce electricity was able to change. The increase in total system costs due to climate change that were simulated using the MARKAL Model are relatively small, as low as 0.06% and as large as 1.74% compared to the Base Case system cost. The relative magnitudes of these damages conform to the picture presented in Figure 3-5 and are directly related to how much energy has to be produced in each of the climate change damage scenarios to cope with the changes in residential and commercial electricity demand due to climate change. |47|