On energy and climate change policies: The impact of baseline projections

As a result of statistical contingencies, research frequently employs aged databases to examine the impacts of energy and climate change policies in contemporary situations, or in forward timeframes out to 2050 or even 2100. These forward-looking studies require a base case scenario in order to assess the impacts of a policy. In this article, we hypothesise how a baseline is ‘rolled forward’, and specifically, how this process can materially alter the apparent performance of an energy or climate change policy. In the literature, we find a variety of methods are used to update databases and project forward base case scenarios, some which scale an entire economy to a general trend of growth, whereas others account for sectoral differences. We extend a global electricity-detailed model (GTAP-E-Power) to examine our hypothesis. We evaluate impacts of a world-wide carbon tax policy ($50/t of carbon dioxide equivalent) using three different baselines, with varying levels of specificity relating to macroeconomic projections and sectoral developments and constraints. Results show the impact on sectors and the overall economy in all countries are highly diverse when different baselines are used. For example, fossil-based power output in the United States declines between 36.7 and 65.5% while Real GDP in China declines between −0.66 and −1.54% for an identical policy, depending on which baseline methodology is used. Above all, we find that stronger development of renewable energy and technology in the baselines results in lower costs of a climate change mitigation policy.