8.9 The Costs of Meeting a Range of Stabilization Targets
Cost-effectiveness studies with a century timescale estimate that the costs
of stabilizing CO2 concentrations in the atmosphere increase as the
concentration stabilization level declines. Different baselines can have a strong
influence on absolute costs. While there is a moderate increase in the costs
when passing from a 750ppmv to a 550ppmv concentration stabilization level,
there is a larger increase in costs passing from 550ppmv to 450ppmv unless the
emissions in the baseline scenario are very low. These results, however, do
not incorporate carbon sequestration and gases other than CO2, and
did not examine the possible effect of more ambitious targets on induced technological
In particular, the choice of the reference scenario has a strong influence.
Recent studies using the IPCC SRES reference scenarios as baselines against
which to analyze stabilization clearly show that the average reduction in projected
GDP in most of the stabilization scenarios reviewed here is under 3% of the
baseline value (the maximum reduction across all the stabilization scenarios
reached 6.1% in a given year). At the same time, some scenarios (especially
in the A1T group) showed an increase in GDP compared to the baseline because
of apparent positive economic feedbacks of technology development and transfer.
The GDP reduction (averaged across storylines and stabilization levels) is lowest
in 2020 (1%), reaches a maximum in 2050 (1.5%), and declines by 2100 (1.3%).
However, in the scenario groups with the highest baseline emissions (A2 and
A1FI), the size of the GDP reduction increases throughout the modelling period.
Due to their relatively small scale when compared to absolute GDP levels, GDP
reductions in the post-SRES stabilization scenarios do not lead to significant
declines in GDP growth rates over this century. For example, the annual 1990-2100
GDP growth rate across all the stabilization scenarios was reduced on average
by only 0.003% per year, with a maximum reduction reaching 0.06% per year.
The concentration of CO2 in the atmosphere is determined more by
cumulative rather than by year-by-year emissions. That is, a particular concentration
target can be reached through a variety of emissions pathways. A number of studies
suggest that the choice of emissions pathway can be as important as the target
itself in determining overall mitigation costs. The studies fall into two categories:
those that assume that the target is known and those that characterize the issue
as one of decision making under uncertainty.
For studies that assume that the target is known, the issue is one of identifying
the least-cost mitigation pathway for achieving the prescribed target. Here
the choice of pathway can be seen as a carbon budget problem. This problem has
been so far addressed in terms of CO2 only and very limited treatment
has been given to non-CO2 GHGs. A concentration target defines an
allowable amount of carbon to be emitted into the atmosphere between now and
the date at which the target is to be achieved. The issue is how best to allocate
the carbon budget over time.
Most studies that have attempted to identify the least-cost pathway for meeting
a particular target conclude that such as pathway tends to depart gradually
from the model's baseline in the early years with more rapid reductions
later on. There are several reasons why this is so. A gradual near-term transition
from the world's present energy system minimizes premature retirement of
existing capital stock, provides time for technology development, and avoids
premature lock-in to early versions of rapidly developing low-emission technology.
On the other hand, more aggressive near-term action would decrease environmental
risks associated with rapid climatic changes, stimulate more rapid deployment
of existing low-emission technologies (see also Section 8.10),
provide strong near-term incentives to future technological changes that may
help to avoid lock-in to carbon intensive technologies, and allow for later
tightening of targets should that be deemed desirable in light of evolving scientific
It should also be noted that the lower the concentration target, the smaller
the carbon budget, and hence the earlier the departure from the baseline. However,
even with higher concentration targets, the more gradual transition from the
baseline does not negate the need for early action. All stabilization targets
require future capital stock to be less carbon-intensive. This has immediate
implications for near-term investment decisions. New supply options typically
take many years to enter into the marketplace. An immediate and sustained commitment
to R&D is required if low-carbon low-cost substitutes are to be available
The above addresses the issue of mitigation costs. It is also important to
examine the environmental impacts of choosing one emission pathway over another.
This is because different emission pathways imply not only different emission
reduction costs, but also different benefits in terms of avoided environmental
impacts (see Section 10).
The assumption that the target is known with certainty is, of course, an oversimplification.
Fortunately, the UNFCCC recognizes the dynamic nature of the decision problem.
It calls for periodic reviews "in light of the best scientific information
on climate change and its impacts." Such a sequential decision making process
aims to identify short-term hedging strategies in the face of long-term uncertainties.
The relevant question is not "what is the best course of action for the
next hundred years" but rather "what is the best course for the near-term
given the long-term uncertainties."
Several studies have attempted to identify the optimal near-term hedging strategy
based on the uncertainty regarding the long-term objective. These studies find
that the desirable amount of hedging depends upon one's assessment of the
stakes, the odds, and the cost of mitigation. The risk premium - the amount
that society is willing to pay to avoid risk - ultimately is a political
decision that differs among countries.
8.10 The Issue of Induced Technological Change
Most models used to assess the costs of meeting a particular mitigation objective
tend to oversimplify the process of technical change. Typically, the rate of
technical change is assumed to be independent of the level of emissions control.
Such change is referred to as autonomous. In recent years, the issue of induced
technical change has received increased attention. Some argue that such change
might substantially lower and perhaps even eliminate the costs of CO2
abatement policies. Others are much less sanguine about the impact of induced
Recent research suggests that the effect on timing depends on the source of
technological change. When the channel for technological change is R&D,
the induced technological change makes it preferable to concentrate more abatement
efforts in the future. The reason is that technological change lowers the costs
of future abatement relative to current abatement, making it more cost-effective
to place more emphasis on future abatement. But, when the channel for technological
change is learning-by-doing, the presence of induced technological change has
an ambiguous impact on the optimal timing of abatement. On the one hand, induced
technical change makes future abatement less costly, which suggests emphasizing
future abatement efforts. On the other hand, there is an added value to current
abatement because such abatement contributes to experience or learning and helps
reduce the costs of future abatement. Which of these two effects dominates depends
on the particular nature of the technologies and cost functions.
Certain social practices may resist or enhance technological change. Therefore,
public awareness-raising and education may help encourage social change to an
environment favourable for technological innovation and diffusion. This represents
an area for further research.