VTT PUBLICATIONS 374 Integrated cost-effectiveness analysis of greenhouse gas emission abatement The case of Finland Antti Lehtilä VTT Energy Sami Tuhkanen VTT Energy TECHNICAL RESEARCH CENTRE OF FINLAND ESPOO 1999 ISBN 951–38–5357–8 (soft back ed.) ISSN 1235–0621 (soft back ed.) ISBN 951–38–5358–6 (URL: http://www.inf.vtt.fi/pdf/) ISSN 1455–0849 (URL: http://www.inf.vtt.fi/pdf/) Copyright © Valtion teknillinen tutkimuskeskus (VTT) 1999 JULKAISIJA – UTGIVARE – PUBLISHER Valtion teknillinen tutkimuskeskus (VTT), Vuorimiehentie 5, PL 2000, 02044 VTT puh. vaihde (09) 4561, faksi (09) 456 4374 Statens tekniska forskningscentral (VTT), Bergsmansvägen 5, PB 2000, 02044 VTT tel. växel (09) 4561, fax (09) 456 4374 Technical Research Centre of Finland (VTT), Vuorimiehentie 5, P.O.Box 2000, FIN–02044 VTT, Finland phone internat. + 358 9 4561, fax + 358 9 456 4374 VTT Energia, Energiajärjestelmät, Tekniikantie 4 C, PL 1606, 02044 VTT puh. vaihde (09) 4561, faksi (09) 456 6538 VTT Energi, Energisystem, Teknikvägen 4 C, PB 1606, 02044 VTT tel. växel (09) 4561, fax (09) 456 6538 VTT Energy, Energy Systems, Tekniikantie 4 C, P.O.Box 1606, FIN–02044 VTT, Finland phone internat. + 358 9 4561, fax + 358 9 456 6538 Technical editing Leena Ukskoski Libella Painopalvelu Oy, Espoo 1999 Lehtilä, Antti & Tuhkanen, Sami. Integrated cost-effectiveness analysis of greenhouse gas emission abatement. The case of Finland. Espoo 1999, Technical Research Centre of Finland, VTT Publications 374. 144 p. + app. 15 p. Keywords greenhouse effect, emission, abatement, carbon dioxide, methane, nitrogen oxide, environments, environmental effects Abstract In Finland greenhouse gas emissions are expected to increase during the next decades due to economic growth, particularly in the energy intensive industrial sectors. The role of these industries is very central in the national economy. The emission control according to the Kyoto Protocol will therefore be quite difficult and costly. The study analyses the cost-effectiveness of different technical options for reducing the emissions of carbon dioxide, methane, and nitrous oxide in Finland. The analysis is performed with the help of a comprehensive energy system model for Finland, which has been extended to cover all major sources of methane and nitrous oxide emissions in the energy sector, industry, waste management and agriculture. The focus being on technical options, no consi- deration is given to possible policy measures, emission trading or joint implementation in the study. Under the boundary conditions given for the development of the Finnish energy economy, cost-effective technical measures in the energy system include increases in the use of wood biomass, natural gas and wind energy, increases in the contribution of CHP to the power supply, and intensified energy conservation in all end-use sectors. Additional cost-effective measures are landfill gas recovery, utilisation of the combustible fraction of waste and catalytic conversion of N O in nitric acid production. With baseline 2 assumptions, the direct annual costs of emission abatement are calculated to be about 2000 MFIM (330 M˛ ) in 2010. The marginal costs are estimated to be about 230 FIM (40 ˛ ) per tonne of CO -equivalent in 2010. The cost curve 2 derived from the analysis could be used in further analyses concerning emissions trading. 3 Preface In Kyoto in 1997 practically all the nations of the world agreed on a greenhouse gas abatement protocol limiting the emissions from the industrial countries. The reduction of the greenhouse gas emissions is a challenging task as the growth of the economy tends to increase the energy demand. This study considers the technical possibilities and costs of reducing the Finnish emissions of the three most important greenhouse gases: carbon dioxide, methane and nitrous oxide. Especially cost-effective solutions of emission reduction are searched for. The work has been carried out at VTT Energy as a part of the Energy and Environment Research Programme SIHTI 2 of the Technology Development Centre of Finland (Tekes). Additional funding has been obtained from the Ministry of Environment. The chairman of the SIHTI 2 steering group was Mr. Heikki Niininen of Fortum Ltd. and the contact person in the Ministry of Environment, Mr. Seppo Sarkkinen. Dr. Ilkka Savolainen of VTT Energy acted as project leader, and Messrs. Antti Lehtilä and Sami Tuhkanen of VTT Energy as research scientists. 4 Contents Abstract.................................................................................................................3 Preface...................................................................................................................4 1. Introduction.......................................................................................................8 2. Greenhouse gas emissions in Finland.............................................................10 2.1 Overview..................................................................................................10 2.2 Carbon dioxide.........................................................................................13 2.2.1 Overview.........................................................................................13 2.2.2 Fuel combustion activities..............................................................14 2.2.3 Industrial processes.........................................................................17 2.2.4 Fugitive emissions..........................................................................19 2.2.5 Non-energy use of fuels..................................................................20 2.2.6 Land-use..........................................................................................20 2.3 Methane....................................................................................................21 2.3.1 Overview.........................................................................................21 2.3.2 Waste management.........................................................................22 2.3.3 Agriculture......................................................................................26 2.3.4 Energy.............................................................................................28 2.3.5 Other anthropogenic sources..........................................................29 2.4 Nitrous oxide emissions...........................................................................29 2.4.1 Overview.........................................................................................29 2.4.2 Energy.............................................................................................30 2.4.3 Agriculture......................................................................................31 2.4.4 Industrial processes.........................................................................33 2.4.5 Atmospheric nitrogen deposition....................................................33 3. Calculation of the greenhouse effect...............................................................34 3.1 Additive concentrations of the greenhouse gases in the atmosphere.......34 3.2 Radiative forcing......................................................................................36 3.3 Global warming potential........................................................................37 4. Technical options for reducing greenhouse gas emissions.............................38 4.1 Abatement of carbon dioxide emissions..................................................38 5 4.1.1 Energy supply sector.......................................................................38 4.1.2 Industrial sector..............................................................................48 4.1.3 Residential and tertiary sectors.......................................................52 4.1.4 Transport sector..............................................................................55 4.2 Abatement of methane emissions............................................................57 4.2.1 Recycling and waste incineration...................................................57 4.2.2 Landfill gas recovery......................................................................59 4.2.3 The composting of organic waste...................................................61 4.2.4 Anaerobic treatment of animal manure and organic waste.............62 4.2.5 The composting of manure.............................................................64 4.2.6 Other CH reduction measures.......................................................65 4 4.3 Abatement of nitrous oxide emissions.....................................................65 4.3.1 Combustion processes.....................................................................65 4.3.2 Industry and agriculture..................................................................66 5. Calculation model...........................................................................................68 5.1 Overview..................................................................................................68 5.2 The supply modules.................................................................................71 5.3 The demand modules...............................................................................76 5.3.1 Manufacturing sectors....................................................................76 5.3.2 Residential, tertiary and transport sectors......................................79 5.4 Modules for agriculture and waste management.....................................83 6. Scenarios.........................................................................................................86 6.1 Overview..................................................................................................86 6.2 Demand scenarios....................................................................................88 6.2.1 Overview.........................................................................................88 6.2.2 Manufacturing.................................................................................89 6.2.3 Residential and tertiary sectors.......................................................93 6.2.4 Transport.........................................................................................96 6.3 Supply scenarios......................................................................................98 6.3.1 Supply of fuels................................................................................98 6.3.2 Energy transformation....................................................................99 6.4 Scenarios for the greenhouse gas abatement.........................................100 6.4.1 Emission reduction commitments due to the Kyoto Protocol......100 6.4.2 The reduction objectives based on the radiative forcing..............102 6 7. Results...........................................................................................................105 7.1 Development of the energy sector.........................................................105 7.1.1 Primary energy consumption........................................................105 7.1.2 Electricity generation....................................................................108 7.2 Developments in the end-use sectors.....................................................112 7.3 Development of the greenhouse gas emissions......................................115 7.3.1 Emission reduction based on the amounts of gases emitted.........115 7.3.2 The development of carbon dioxide emissions by the fuel consumption sector.....................................................................118 7.3.3 Emission reduction based on the radiative forcing.......................118 7.4 Emission reduction costs........................................................................120 7.4.1 Annual reduction costs in the different scenarios.........................120 7.4.2 The abatement cost curve.............................................................121 7.4.3 The effect of various reduction targets.........................................122 7.5 The nuclear power option......................................................................123 8. Discussion and conclusions..........................................................................127 Acknowledgements...........................................................................................134 References.........................................................................................................135 APPENDICES Appendix A: CH and N O emission factors 4 2 Appendix B: Scenarios for manufacturing 7 1. Introduction Anthropogenic emissions are increasing the atmospheric concentrations of several important greenhouse gases. In the Kyoto Protocol in 1997 the parties of the UN Framework Convention on Climate Change (FCCC) agreed on strict limits for greenhouse gas emissions from industrialised countries. To compensate for annual fluctuations of the emissions, the average over a five- year period in 2008–2012 is used for monitoring the emission levels. The protocol deals with emissions of carbon dioxide, methane, nitrous oxide, and three types of fluorinated gases. The emission targets agreed upon are related to the total aggregate greenhouse impact of all the gases pertaining to the protocol. The emissions of the first three gases are compared to the 1990 level, and the emissions of the fluorinated gases are compared optionally either to the 1990 or the 1995 level. The emission reduction commitment of the Kyoto Protocol is valid for the GWP-weighted (see Chapter 3) sum of the gas emissions expressed in CO equivalents. This enables countries to focus the emission reductions on 2 different gases in a cost-efficient way. For example, a country could reduce methane emissions substantially if reduction of the dominant greenhouse gas, carbon dioxide, is too difficult or expensive. According to the Protocol, countries are allowed to perform part of their commitments by increasing the sinks, i.e. by land-use change and forestry. Afforestation and reforestation done after 1990 are counted as positive actions in the calculation of national emission balances. Similarly, erasing the forests is counted as a negative action (FCCC 1997). Detailed calculation methods for the sinks are under consideration, and they will probably be added to the Framework Convention on Climate Change in forthcoming conferences of parties (COP), likely in the year 2000 or later. Policies and measures (PAMs) for the emission reductions are mentioned in the Protocol only as suggestive and optional ones, and therefore countries are allowed to choose them without constraints or obligations. Emissions trading was also considered in the Kyoto conference, and was accepted into the protocol. The parties to the protocol may, supplemental to domestic actions, participate in emissions trading for the purposes of fulfilling their national 8 commitments after the year 2000 (FCCC 1997). In such trading a country buys emission reduction quotas from another party to the protocol, implying that the necessary emission reductions are less costly to the seller party. In addition, joint implementation is allowed between different parties. In joint implementation emission reduction projects, or measures to increase the sinks within one party's territory will be counted to another party’s credit. Joint projects can be implemented also between industrial and developing countries under the Clean Development Mechanism. Detailed rules for emissions trading and joint implementation have not yet been accepted. The sanctions for the parties not meeting their commitments will also be considered in the forthcoming conferences of parties. The EU commitment in the Kyoto Protocol is to reduce emissions by eight per cent from the 1990 level. The EU has shared the emission reductions between its member states in June 1998. Finland has agreed on a national commitment to return the emissions to the 1990 level. In practice, this commitment will require the implementation of quite extensive reduction measures. In 1997 the Finnish CO emissions from energy use and industrial processes were already about ten 2 per cent higher than in 1990 (Statistics Finland 1998b). The objective of the present study is to present a comprehensive analysis on the cost-effectiveness of technical measures for reducing greenhouse gas emissions in Finland. However, only the three most important gases, carbon dioxide, methane and nitrous oxide are taken into consideration. In order to assess various technical options simultaneously and consistently, a large systems model based on cost optimisation is used. The focus of the model is on the national energy system, but modules for agriculture and waste management have been included as well Firstly, an overview of the sources and present inventories of greenhouse gas emissions is given in Chapter 2. In Chapter 3 the methods for calculating the greenhouse effect are presented. A brief review of the various technical options available for the abatement of greenhouse gas emissions in Finland is given in Chapter 4. The calculation model and the technical measures taken into account in the study are described in more detail in Chapter 5. As the analysis is dealing with projections into the future, a number of different future scenarios have been constructed, and these will be presented in Chapter 6. Finally, the main results from the analyses are presented and discussed in Chapters 7 and 8. 9 2. Greenhouse gas emissions in Finland 2.1 Overview The Kyoto Protocol covers six important types of greenhouse gases: carbon dioxide, methane, nitrous oxide, hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF ). Besides these, there are many other 6 significant greenhouse gases, such as chlorinated and brominated hydrocarbons. However, because the emissions of these gases deplete stratospheric ozone, their emissions are already dealt with by other international protocols, and are usually not included in greenhouse gas balances. The emissions of some other gases, like nitrogen oxides, volatile organic com- pounds, carbon monoxide, and sulphur dioxide affect indirectly the regional and local radiation balance in the atmosphere, contributing to the greenhouse effect. The impact of these emissions takes place via formation of tropospheric ozone, which has a warming impact, or aerosols, which tend to cool. The net impact of these emissions is uncertain, however (IPCC 1996a). National inventories of greenhouse gas emissions are most reliable for carbon dioxide. Most of the emissions are due to combustion of fuels, for which reasonably accurate statistics are normally available. Furthermore, the com- bustion of renewable fuels such as wood biomass need not be included in the inventories if it can be assumed that the carbon released into the atmosphere will be compensated by the growth of the biomass stocks in living vegetation, litter and soils. Over the past decade many revisions have been made to the national greenhouse gas inventories, including carbon dioxide. Regarding CO emissions, the revi- 2 sions have been mainly due to extended coverage of various emission sources not related to fuel combustion, but also due to refined calculations of the actual amounts of fuels combusted. However, much higher uncertainties are involved in the estimates for the other greenhouse gases. The latest national estimates for the Finnish greenhouse gas emissions in the year 1990 and 1995 are presented in Table 1 . When all emissions are converted 10