Households, Consumption, and Energy Use: The Role of Demographic Change in Future U.S. Greenhouse Gas Emissions

1. Households, Consumption, and Energy Use: The Role of Demographic Change in Future U.S. Greenhouse Gas Emissions U.S. Environmental Protection Agency, Socioeconomic Causes and Consequences of Future Environmental Changes Workshop, San Francisco, November 16, 2005 Brian O’Neill, Brown University & IIASAMike Dalton, California State University Monterey BayLeiwen Jiang, Brown UniversityAlexia Prskawetz (VID) and John Pitkin (Cambridge)

2. Presentation Outline • Key drivers of greenhouse gas emissions and current treatment of population in energy-economic growth models • U.S. household projections from ProFamy model • Economic data for households from U.S. Consumer Expenditure Survey • Demographic structure of Population-Environment-Technology (PET) Model • U.S. CO2 emissions projections with and without demographic effects

3. Drivers of Greenhouse Gas Emissions Demography Economic Growth Technology Policy Lifestyles Energy use Land Use Emissions • Demographic change is one among many drivers • Economic growth models have focused on population size and technology as key drivers • What about other demographic factors?

4. Demography and Emissions Population Growth/Decline Aging Urbanization Household Size Energy use Land Use Emissions • Energy-economic growth models (used for emissions projections) typically consider only changes in population size • What are the implications of other demographic trends for future emissions?

5. Overview of U.S. Emissions Scenarios • Case study of demographic trends in the U.S. that uses long-term (50-100 year) scenarios • New household projections to quantify effects of future demographic change • Combine household projections with benchmark income and consumption data • Incorporate household projections and benchmark data into an energy-economic growth model • Run numerical simulations with the model to compare CO2 emissions in scenarios that account for demographic change to those that do not

6. U.S. Household Projections with ProFamy Model What are plausible bounds for thecomposition of the U.S. population byhousehold size and age? • ProFamy model (Zeng et al., 1997) • Uses demographic events as input • Produces consistent population and household outcomes • Produces wide range of household types as output • Inputs to projections of future living arrangements: • fertility, mortality, migration • marriage, divorce, cohabitation, age at leaving home, propensity of elderly to live with adult children, etc.

7. Total Fertility Rates in Low Scenario

8. U.S. Household Projections • Define one medium scenario and two bounding scenarios: • Large/young scenario: high fertility, low life expectancy, high migration, and stable unions (marriage, cohabitation) • Small/old scenario: low fertility, high life expectancy, low migration, and unstable unions

9. All Scenarios for Total Fertility Rate(TFR), 2000-2100 Total Fertility Rates, All Scenarios

10. Summary of Assumptions, 2100

11. Summary of Assumptions, 2050 • Small/old scenario: unstable unions, cohabitation is a substitute for marriage • Large/young scenario: stable unions,cohabitation is a precursor to marriage • Medium scenario assumes all rates constant at 2000 level

12. U.S. Population in Large/Young and Small/Old Scenarios

13. ProFamy population distribution over households, by age of head

14. ProFamy population distribution over households, by size

15. U.S. Consumer Expenditure Survey How do demographic changes projected by the ProFamy model translate into economic patterns of income and consumption? • We use household level economic data from the U.S. Consumer Expenditure Survey (CEX) to estimate benchmark per capita values for labor and capital, and expenditures on 17 different types of consumer goods

16. Per Capita Household Income • U.S. Consumer Expenditure Survey indicates level and composition of per capita income varies by age and size of the household head • Per capita labor greatest in smaller, younger households

17. CO2 Intensive Household Expenditures • The PET model has 17 consumer goods: Utilities and Fuels have the greatest CO2 intensities • Expenditure levels vary by household age and size, affecting direct and indirect energy use

18. Non-CO2 Intensive Household Expenditures • Education and Health have the lowest CO2 intensities of consumer goods in the PET model • Expenditure levels for these goods differ substantially across age groups

19. Population-Environment-Technology Model How do emissions under baseline patterns of labor supply and household demand implied by the ProFamy projections and CEX data compare to baseline scenarios without changes in age structure or household size? • We developed a dynamic general equilibrium modeling framework (with optimizing, forward-looking behavior) that can be calibrated to baselines with and without demographic change in labor supply, demand for consumer goods, etc.

20. Introducing Demography into the PET Model • Replaced standard “representative household” assumption by disaggregated household types • Population composition of each household type driven by exogenous household projections • Households are stratified into successive “cohorts”, and two size categories • Within each size category, cohorts are linked together separated by a generation length (30 yrs), to form three co-existing infinitely-lived dynasties

21. PET Model Dynastic Structure • Lexis diagram shows age structure of three co-existing dynasties • Dynasty 1 consists of cohorts 1a-f Dynasty 2 consists of cohorts 2a-f Dynasty 3, consists of cohorts 3a-e • For example: one dynasty includes today’s 20 year-old, 50 year-old, and 80 year-old households

22. PET Model Overview Households Consumption & Savings Capital & Labor CO2 Emissions C & I K & L Final Goods Producers Consumption Investment Government Exports & Imports Intermediate goods producers Oil&Gas Coal Electricity Refined Petroleum Materials E & M 22

23. Per Capita Labor Income for 3 Dynasties (Old/Small Scenario, effects of age only) Dynasty 1 Dynasty 3 Dynasty 2

24. Per Capita Asset Accumulation for 3 Dynasties (Old/Small Scenario, effects of age only) Dynasty 1 Dynasty 3 Dynasty 2

25. US CO2 Emissions and Population Aging (solid = representative; dashed = w/age effects)

26. Effects of Aging and Changes in Household Size on Emissions in 2100 All changes relative to emissions in representative household case.No technological progress in this scenario.

27. SRES A1 Changes in GDP and CO2-Intensity Change in per capita GDP Change in CO2-Intensity

28. US CO2 Emissions in SRES A1 Pop Effect with No Tec • Comparison of emissions with and without technical change: population effects are larger than technology effects until almost 2090! Pop Effect with Tec Decline in C-Intensity overtakes effects of population heterogeneity

29. Results Summary • Population heterogeneity in the PET model reduces CO2 emissions in all scenarios, up to 30% by 2100 in the Old/Small scenario • Age-effects reduce emissions in all scenarios • Size-effects increase emissions in the Old/Small scenario, and decrease emissions in the Young/Large scenario • Effects of population heterogeneity on CO2 emissions as large, or larger, than technology in some cases

30. Current and Future Work • Immigration scenarios for the U.S. • Household projections and household level economic data for China, India (work in progress at Brown, IIASA) • Land use component for the PET model and link to Integrated Science Assessment Model (ISAM)

31. Acknowledgements • Financial support from the U.S. Environmental Protection Agency, and U.S. Department of Energy • Warren Sanderson and other participants at the Symposium on Population Ageing and Economic Productivity, Vienna Institute for Demography • Computational support from California State University Monterey Bay and International Institute for Applied Systems Analysis (IIASA)