9.2 Selected Specific Sectoral Findings on Costs of Climate
Within this broad picture, certain sectors will be substantially affected by
mitigation. Relative to the reference case, the coal industry, producing the
most carbon-intensive of products, faces almost inevitable decline in the long
term, relative to the baseline projection. Technologies still under development,
such as CO2 removal and storage from coal-burning plants and in-situ
gasification, could play a future role in maintaining the output of coal whilst
avoiding CO2 and other emissions. Particularly large effects on the
coal sector are expected from policies such as the removal of fossil fuel subsidies
or the restructuring of energy taxes so as to tax the carbon content rather
than the energy content of fuels. It is a well-established finding that removal
of the subsidies would result in substantial reductions in GHG emissions, as
well as stimulating economic growth. However, the effects in specific countries
depend heavily on the type of subsidy removed and the commercial viability of
alternative energy sources, including imported coal.
The oil industry also faces a potential relative decline, although this may
be moderated by lack of substitutes for oil in transportation, substitution
away from solid fuels towards liquid fuels in electricity generation, and the
diversification of the industry into energy supply in general.
Table TS.6 shows a number of model results for the impacts
of implementation of the Kyoto Protocol on oil exporting countries. Each model
uses a different measure of impact, and many use different groups of countries
in their definition of oil exporters. However, the studies all show that the
use of the flexibility mechanisms will reduce the economic cost to oil producers.
Thus, studies show a wide range of estimates for the impact of GHG mitigation
policies on oil production and revenue. Much of these differences are attributable
to the assumptions made about: the availability of conventional oil reserves,
the degree of mitigation required, the use of emission trading, control of GHGs
other than CO2, and the use of carbon sinks. However, all studies
show a net growth in both oil production and revenue to at least 2020, and significantly
less impact on the real price of oil than has resulted from market fluctuations
over the past 30 years. Figure TS.9 shows the projection
of real oil prices to 2010 from the IEA's 1998 World Energy Outlook, and
the effect of Kyoto implementation from the G-cubed model, the study which shows
the largest fall in Organization of Oil Exporting Countries (OPEC) revenues
in Table TS.6. The 25% loss in OPEC revenues in the non-trading scenario implies
a 17% fall in oil prices shown for 2010 in the figure; this is reduced to a
fall of just over 7% with Annex I trading.
|Table TS.6: Costs of Kyoto Protocol implementation
for oil exporting region/countriesa
||With Annex-I trading
||With "global trading"
||-25% oil revenue
||-13% oil revenue
||-7% oil revenue
||-3% real income
||"Substantially reduced loss"
||0.2% GDP loss
||<0.05% GDP loss
||1.39% welfare loss
||1.15% welfare loss
||0.36% welfare loss
||-17% OPEC revenue
||-10% OPEC revenue
||-8% OPEC revenue
||-10% some oil exporters' revenues
These studies typically do not consider some or all of the following policies
and measures that could lessen the impact on oil exporters:
- policies and measures for non-CO2 GHGs or non-energy sources
of all GHGs;
- offsets from sinks;
- industry restructuring (e.g., from energy producer to supplier of energy
- the use of OPEC's market power; and
- actions (e.g., of Annex B Parties) related to funding, insurance, and the
transfer of technology.
In addition, the studies typically do not include the following policies and
effects that can reduce the total cost of mitigation:
- the use of tax revenues to reduce tax burdens or finance other mitigation
- environmental co- or ancillary benefits of reductions in fossil fuel use;
- induced technical change from mitigation policies.
As a result, the studies may tend to overstate both the costs to oil exporting
countries and overall costs.
Figure TS.9: Real oil prices and the effects of Kyoto implementation.
Modelling studies suggest that mitigation policies may have the least impact
on oil, the most impact on coal, with the impact on gas somewhere between; these
findings are established but incomplete. The high variation across studies for
the effects of mitigation on gas demand is associated with the importance of
its availability in different locations, its specific demand patterns, and the
potential for gas to replace coal in power generation.
These results are different from recent trends, which show natural gas usage
growing faster than the use of either coal or oil. They can be explained as
follows. In the transport sector, the largest user of oil, current technology
and infrastructure will not allow much switching from oil to non-fossil fuel
alternatives in Annex I countries before about 2020. Annex B countries can only
meet their Kyoto Protocol commitments by reducing overall energy use and this
will result in a reduction in natural gas demand, unless this is offset by a
switch towards natural gas for power generation. The modelling of such a switch
remains limited in these models.
In general as regards the effects on the electricity sector, mitigation policies
either mandate or directly provide incentives for increased use of zero-emitting
technologies (such as nuclear, hydro, and other renewables) and lower-GHG-emitting
generation technologies (such as combined cycle natural gas). Or, second, they
drive their increased use indirectly by more flexible approaches that place
a tax on or require a permit for emission of GHGs. Either way, the result will
be a shift in the mix of fuels used to generate electricity towards increased
use of the zero- and lower-emitting generation technologies, and away from the
higher-emitting fossil fuels.
Nuclear power would have substantial advantages as a result of GHG mitigation
policies, because power from nuclear fuel produces negligible GHGs. In spite
of this advantage, nuclear power is not seen as the solution to the global warming
problem in many countries. The main issues are (1) the high costs compared to
alternative CCGTs, (2) public acceptance involving operating safety and waste,
(3) safety of radioactive waste management and recycling of nuclear fuel, (4)
the risks of nuclear fuel transportation, and (5) nuclear weapons proliferation.
Unless highly efficient vehicles (such as fuel cell vehicles) become rapidly
available, there are few options available to reduce transport energy use in
the short term, which do not involve significant economic, social, or political
costs. No government has yet demonstrated policies that can reduce the overall
demand for mobility, and all governments find it politically difficult to contemplate
such measures. Substantial additional improvements in aircraft energy efficiency
are most likely to be accomplished by policies that increase the price of, and
therefore reduce the amount of, air travel. Estimated price elasticities of
demand are in the range of -0.8 to -2.7. Raising the price of air travel by
taxes faces a number of political hurdles. Many of the bilateral treaties that
currently govern the operation of the air transport system contain provisions
for exemptions of taxes and charges, other than for the cost of operating and
improving the system.