Working Group III: Mitigation

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Executive Summary

Figure 5.1:
Penetration of environmentally sound technologies: a conceptual framework. Various barriers prevent the different potentials from being realized. Opportunities exist to overcome barriers through innovative projects, programmes and financing arrangements. An action can address more than one barrier. Actions may be pursued to address barriers at all levels simultaneously. Their implementation may require public policies, measures and instruments. The socioeconomic potential may lie anywhere in the space between the economic and technological potential.

The transfer of technologies and practices that have the potential to reduce greenhouse gas (GHG) emissions is often hampered by barriers1 that slow their penetration. The opportunity2 to mitigate GHG concentrations by removing or modifying barriers to the spread of technology may be viewed within a framework of different potentials for GHG mitigation (Figure 5.1). The “market potential” indicates the amount of GHG mitigation that might be achieved under forecast market conditions, with no changes in policy or implementation of measures whose primary purpose is the mitigation of GHGs. The market potential can be close to zero as a result of extreme poverty, absence of markets, and remoteness of communities. The inability of the poor or isolated communities to access modern energy services reflects this situation. Because interventions to address poverty fall outside the immediate scope of this chapter, they receive only limited treatment here despite the intrinsic general importance of the subject.

In addition to the market potential, there is also the economic potential and the socioeconomic potential to be considered. Eliminating imperfections of markets, public policies, and other institutions that inhibit the diffusion of technologies that are (or are projected to be) cost-effective for consumers (evaluated using consumers’ private rate of time discounting and prices) without reference to any GHG benefits they may generate would increase GHG mitigation to the level defined as the “economic potential”. The “socioeconomic” potential consists of barriers derived from people’s individual habits, attitudes and social norms, and vested interests in the diffusion of new technology. This potential represents the level of GHG mitigation that would be achieved if technologies that are cost effective from a societal perspective are implemented.

Finally, some technologies might not be widely used simply because they are too expensive from a societal perspective. This leads to the level of the “technical potential”, which can be improved upon by solving scientific and technological problems. Policies to overcome this category of barriers must be aimed at fostering research and development (R&D).

Technological and social innovation is a complex process of research, experimentation, learning, and development that can contribute to GHG mitigation. Several theories and models have been developed to understand its features, drivers, and implications. New knowledge and human capital may result from R&D spending, through learning by doing, and/or in an evolutionary process. Most innovations require some social or behavioural change on the part of users. Rapidly changing economies, as well as social and institutional structures offer opportunities for locking-in to GHG-mitigative technologies that may lead countries on to sustainable development pathways. The pathways will be influenced by the particular socioeconomic context that reflects prices, financing, international trade, market structure, institutions, the provision of information, and social, cultural and behavioural factors; key elements of which are described below.

Unstable Macroeconomic Conditions
Such conditions increase risk to private investment and finance. Unsound government borrowing and fiscal policy lead to chronic public deficits, reducing the availability of credit to the private sector. Trade barriers that favour inefficient technologies, or prevent access to advanced knowledge and hardware, can slow the diffusion of mitigation options.

Commercial Financing Institutions
These institutions face high risks when developing “green” financial products. Innovative approaches in the private sector to address this and other issues include leasing, environmental and ethical banks, micro-credits or small grants facilities targeted at low income households, environmental funds, energy service companies (ESCOs), and green venture capital.

Distorted or Incomplete Prices
The absence of a market price for certain impacts, such as environmental harm, can constitute a barrier to the diffusion of environmentally beneficial technologies. Distortion of prices arising from taxes, subsidies, or other policy interventions that make resource consumption more or less expensive to consumers can also impede the diffusion of resource-conserving technologies.

Information as a Public Good
Generic information regarding the availability of different kinds of technologies and their performance characteristics has the attributes of a “public good” and hence may be underprovided by the private market.

Lack of Effective Regulatory Agencies
Many countries have on their books excellent constitutional and legal provisions for environmental protection but the latter are not enforced. However, “informal regulation” under community pressure may substitute for formal regulatory pressure.

Lifestyles, Behaviours, and Consumption Patterns
These have developed within current and historical socio-cultural contexts. Changes in behaviour and lifestyles may result from a number of intertwined processes. Barriers take various forms in association with each of the above processes.

Conventional Policy Development
This type of development is based on a model of human psychology, where people are assumed to be rational welfare-maximizers, that has been widely criticized. Such a model does not explain processes, such as learning, habituation, value formation, or the bounded rationality observed in human choice.

The poor in every country are affected far more by barriers in this sector than the rich, because of inadequate access to financing, low literacy rates, adherence to traditional customs, and the need to devote a higher fraction of income to satisfy basic needs, including fuel purchases.

Measures to overcome these barriers that have been implemented include voluntary programmes, building efficiency standards, equipment efficiency standards, state market transformation programmes, financing, government procurement, tax credits, accelerated R&D, and a carbon cap and trade system.

The low relative cost of fuel, split incentives, a perception that the car is more convenient or economical than alternatives, are some of the barriers that slow the use of mitigation technologies in this sector. The car has also become charged with significance as a means of freedom, mobility and safety, a symbol of personal status and identity, and as one of the most important products in the industrial economy. A combination of policies protecting road transport interests, rather than any single policy, poses the greatest barrier to change.

Barriers include the high transaction costs for obtaining reliable information, the use of capital for competing investment priorities, high-hurdle rates for energy efficiency investments, lack of skilled personnel for small and medium-sized enterprises (SMEs), and the low relative cost of energy. Information programmes, environmental legislation, and voluntary agreements have been used and tested in developed countries with varying rates of success in reducing barriers.

Energy Supply
The increasing deregulation of energy supply has raised particular concerns. Volatile spot and contract prices, short-term outlook of private investors, and the perceived risks of nuclear and hydropower plants have shifted fuel and technology choice towards natural gas and oil plants, and away from hydro in many countries. Co-generation is hampered by lack of information, the decentralized character of the technology, the hostile attitude of grid operators, the terms of grid connection, and lack of policies that foster long-term planning. Firm public policy and regulatory authority are necessary to install and safeguard harmonized conditions, transparency, and unbundling of the main power supply functions.

Agriculture and Forestry
Adoption of new technology is limited by small farm size, credit constraints, risk aversion, lack of access to information and human capital, inadequate rural infrastructure and tenurial arrangements, and unreliable supply of complementary inputs. Subsidies for critical inputs to agriculture, such as fertilizers, water supply, and electricity and fuels, and to outputs in order to maintain stable agricultural systems and an equitable distribution of wealth distort markets for these products. In relation to climate change mitigation, other issues such as lack of technical capability, lack of credibility about setting project baselines, and monitoring of carbon stocks pose difficult challenges.

Waste Management
The principal barriers to technology transfer include limited financing and institutional capability, jurisdictional complexity, and the need for community involvement. Climate change mitigation projects face further barriers owing to the unfamiliarity with methane (CH4) capture and potential electricity generation, unwillingness to commit additional human capacity for climate mitigation, and the involvement of diverse institutions at all levels.

Regional Considerations
Changing global patterns provide an opportunity for introducing GHG mitigation technologies and practices that are consistent with development, equity, and sustainability (DES) goals. A culture of energy subsidies, institutional inertia, fragmented capital markets, vested interests, etc., however, presents major barriers to their implementation in the developing countries and those with economies in transition (EIT). Situations in these two groups of countries call for a more careful analysis of trade, institutional, financial, and income barriers and opportunities; distorted prices and information gaps. In the developed countries, other barriers such as the current carbon-intensive lifestyle and consumption patterns, social structures, network externalities, and misplaced incentives offer opportunities for intervention to control the growth of GHG emissions. Lastly, new and used technologies mostly flow from the developed to developing and transitioning countries. A global approach to reducing emissions that targets technology being transferred from developed to developing countries could have a significant impact on future emissions.

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