Energy system transition and macroeconomic impacts of low carbon development policies in Nepal and Thailand

Greenhouse gas (GHG) mitigation has become increasingly an important environmental issue for developing countries. Energy, being the vital commodity for economic development and the main factor for the rising anthropogenic GHG emissions, is closely interrelated with climate change. In an international effort to tackle climate change, Parties to the United Nations Framework Convention on Climate Change (UNFCCC) adopted a legally binding framework known as the Paris Agreement. It brings all the nations together to combat climate change by maintaining a global temperature rise of less than 2°C above the pre-industrial levels by the end of this century and pursuing efforts to limit the temperature increase even further to 1.5°C. The Intergovernmental Panel on Climate Change (IPCC) indicates the urgency to reach net-zero carbon dioxide (CO2) emissions globally around 2050, including deep reductions in emissions of non-CO2 forcers, mainly methane (CH4), to limit the warming to 1.5°C. Limiting warming to 1.5°C requires rapid transformation of the energy system demanding a significant shift in the investment patterns.The objective of this dissertation is to analyze the energy system development, the associated GHG and local air pollutant emissions and economy-wide consequences of the selected low carbon development policies in the cases of two diverse emerging economies of Asia, i.e., Nepal and Thailand. This study developed and used the bottom-up cost minimizing MARKet ALlocation (MARKAL) modeling framework and the top-down dynamic computable general equilibrium (CGE) model as tools to examine the mid- and long-term effects of low carbon development policies in both Nepal and Thailand. Besides the business-as-usual (BAU) scenario, this study considered the GHG emission reduction target and the carbon tax policy scenarios as the two low carbon policy instruments over the period up to 2050, to explore the possibilities of achieving carbon neutrality of the energy system in pursuit of a maximum temperature rise of 1.5°C by the end of the century. The updated NDC of Thailand in 2020 intends to reduce its GHG emissions by 20 to 25% from the projected baseline level by 2030 with the deployment of renewable energy technologies and energy efficiency improvement measures. The second NDC of Nepal envisions activity-based and policy targets in key sectors, including GHG emission reductions of around 28% from the transport sector and around 23% from the residential sector through increased electrification and deployment of clean cooking by 2030. With Nepal, being in transition from a lower middle-income to an upper middle-income country, and Thailand, being in transition from an upper middle-income to high income country, the energy systems of both countries have vast differences in terms of both scale and pattern. Nepal’s energy system is dominated by biomass and the situation is estimated to continue by 2050. The power generation mix of Nepal would continue to remain hydropower dominant during the planning period; however, there would be a small increase in the share of other renewables by 2050. For Thailand, the energy system would be driven by oil and natural gas by 2050 under the BAU scenario. The power sector of Thailand is natural gas dominant and would remain so throughout the planning period. The residential sector was the major contributor in the total GHG emissions in Nepal while the power sector occupied the largest share in Thailand in 2010. The transport sector would emerge as the major GHG emitting sector by 2050 in the BAU scenario in both the countries.The findings of the GHG emission constraint and the carbon tax scenarios analyses show that the transition towards low carbon development pathways would be a challenging task for Nepal and Thailand. Results show that the low carbon development strategies focused at achieving the carbon neutrality of the energy system and leading towards the net-zero emission pathways would be achievable through increased electrification, development of renewable energy resources, wide application of energy efficient devices across sectors, fuel switching from fossil fuels to low carbon fuels, modal shifts from road to rail and/or private to public modes of transport, energy demand reductions and behavioral changes in both countries. The results highlight the need of ambitious mitigation efforts and drastic transformation in the energy system beyond 2030 to increase the possibility of meeting the long-term goal of the Paris Agreement of staying within 1.5°C in Nepal and Thailand. Results show that the introduction of the energy policy targets of the second NDC of Nepal would cause the GHG emissions to reduce by only 9.9% by 2050. However, the GHG emission reduction requirement lies in the range of 54% to 80% by 2050 to achieve carbon neutrality of the energy system in Nepal in pursuit of limiting the temperature rise of 2°C to 1.5°C, respectively. The achievement of 60% and 90% of GHG emission reductions by 2050 in Thailand would require GHG emission reductions of 28% in the 2°C and 51% in the 1.5°C scenarios by 2030, respectively. Both these reduction requirements by 2030 are higher than those targeted in the Thailand NDC. Both the GHG emission constraint and the carbon tax scenarios would promote the development of indigenous hydropower resources in Nepal. The carbon neutrality of the energy supply system in Thailand would be achievable with negative emissions through the wide scale adoption of bioenergy with carbon capture and storage (BECCS). Besides the increased adoption of electric and biofuel vehicles and a modal shift from private to public modes of transportation, the hydrogen fuel cell vehicles would serve as a promising technology option in several 2°C and 1.5°C pathways with the imposition of carbon tax in Thailand. In the case of Nepal, both the carbon tax and the GHG mitigation scenarios would promote increased electrification of the transport sector and encourage modal shifts from road-based transportation to mass rapid transits including the penetration of green hydrogen driven public taxis by 2050. Results show that the majority of the GHG emission reduction in the 1.5°C scenario would come from the residential sector in Nepal and from the power sector in Thailand. The carbon offset measure, such as forest carbon sequestration through increased forest cover, should be taken into consideration to abate the remaining emissions unabated in order to achieve the net-zero emissions by 2050 in both countries. In addition, inclusion of a carbon offset option through surplus hydroelectricity exports can also provide potential benefits and increase the possibility for Nepal to achieve net-zero GHG emissions by 2050.The findings show that the NDC, the 2°C and the 1.5°C scenarios would be achievable at the expense of national economic losses. The NDC scenario of Nepal could be met at a carbon price of US$ 3.8 per tCO2eq in 2025 to US$ 4.0 per tCO2eq in 2050. However, the carbon price of US$ 21 per tCO2eq and US$ 245 per tCO2eq would be needed in Nepal by 2050 to achieve the 2°C and the 1.5°C scenarios, respectively. In the case of Thailand, the price of GHG mitigation varies from 348 to 628 US$ per tCO2eq in 2050 among the various 2°C scenarios, while the values would be much higher, lying in the range of 1,207 to 1,423 US$ per tCO2eq, across the various 1.5°C scenarios in Thailand in 2050. Results suggest that the development and deployment of energy-efficient and renewable energy-based technologies would play a significant role not only in minimizing the GHG emissions but also in overcoming the macroeconomic losses and lowering the price of GHG emissions. Results reveal that without a transformative change in the economic structure and energy systems, both countries would have to face enormous costs in reducing their GHG emissions. In addition, the shift from 2°C pathways to 1.5°C pathways would demand much more effort and pose greater challenges in terms of transformational changes in the energy sector.