8.1.1 Summary of Mitigation Cost Analysis in the Second
Chapters 8 and 9 of Second Assessment Report (SAR) (IPCC, 1996) reviewed the
literature on costs of greenhouse gas (GHG) mitigation prior to 1995. At that
period, the debate was dominated by the differences in results from bottom-up
(B-U) models and top-down (T-D) models. The former contain more
details of technology and physical flows of energy, and the latter give more
consideration to linkages between a given sector and a set of measures and macroeconomic
parameters like gross domestic product (GDP) and final household consumption.
B-U models showed that energy efficiency gains of 10%30% above baseline
trends could be realized at negative to zero net costs over the next two or
three decades. However, the costs of stabilizing emissions at 1990 levels reported
by T-D analysis for Organization for Economic Co-operation and Development (OECD)
countries were less optimistic, in the range 0.5% to 2% of GDP. SAR devoted
much effort to explain the reasons for these differences and their meaning for
policymakers. B-U models identify negative-cost mitigation potentials because
of the difference between the best available techniques and those currently
in use; the key question is then the extent to which market imperfections that
inhibit access to these potentials can be removed cost-effectively by policy
initiatives. T-D analyses focus on the overall macroeconomic effect of new incentive
structures, such as carbon taxes or subsidies for energy efficiency; their results
reflect a judgement on the capacity of non-price policies (market reforms, information,
capacity building) to enhance the effectiveness of such signals to decarbonize
the economy. The lesson is that, for a given abatement target, the content of
the policy mix (carbon tax, carbon-energy tax, or auctioned emissions trading
system) is as important as the assumptions regarding technology.
A second lesson of SAR is that, for both B-U and T-D models, the differences
in cost assessment usually result from differences in the definition of baseline
scenarios and in the time frame within which a given abatement target has to
be met. Less often, they result from divergences in the costs of achieving this
target from the same baseline scenario. This, in turn, relates to:
- the structural features of the scenario (assumptions about population, the
rate and structure of economic growth, consumption patterns, and technology
development paths); and
- its level of suboptimality (higher efficiency in the baseline scenario results
in higher mitigation-costs estimates for a given target, while the existence
of market failure, which enhances GHG emissions, or of fiscal distortions
provides a possibility for economic and environmental double dividends).
The third lesson is that some of the determinants of costs are beyond the field
of energy and environmental policy stricto sensu. This is why SAR emphasizes
the importance of developing multiple baseline scenarios to support policymaking.
This issue of the multiplicity of baseline scenarios is specifically important
for the developing countries and countries with economies in transition. These
regions were underinvestigated compared with the number of studies available
for OECD countries.
8.1.2 Progress since the Second Assessment Report
Since SAR, the most important advance is the treatment of new topics related
to linkages between national policies and the international framework of these
policies in the context of the pre-Kyoto and post-Kyoto negotiation process.
Of specific interest is the articulation between international emissions trading
systems and domestic policies (taxes, domestic emissions trading, and standards).
This link has been made in national models and global models that provide a
description of relationships among various regions of the world. Some models
represent solely GHG emissions trading, while others also incorporate energy
flows, trade of other goods, and capital flows. In this context, while SAR discussed
only the carbon leakage between abating and non-abating economies, an increasing
number of studies have captured spillover effects (see Box
8.1) such as those triggered by trade effects and the modification of the
A second evolution is the emergence of studies on the local and regional ancillary
benefits of climate policies.
|Box. 8.1. Global Public Health Effects of Greenhouse
Gas Mitigation Policies
It is useful to estimate ancillary benefits through quantitative indicators,
even if they are not monetized (Pearce, 2000). One such global scale effort
was produced by the WHO/WRI/EPA Working Group on Public Health and Fossil
Fuel Combustion on the range of avoidable deaths that could arise between
2000 and 2020 under current policies, and under the scenario proposed
by the EU in 1995. This EU Scenario assumed that by 2010 GHG emissions
would be 15% below 1990 levels for Annex I countries, and 10% below projected
emissions for 2010 for non-Annex I countries (Davis, 1997; Working Group
on Public Health and Fossil Fuel Combustion, 1997). The total change in
carbon emissions was estimated globally, based on a sourcereceptor
matrix for four specific sectors (industry, transport, household, and
energy) that was adjusted for local temperature and humidity. Applied
to nine regions and adjusted for temperature and humidity, this matrix
yielded changes in projected fuel types and formed the basis for calculating
total emissions of particulates. Mortality tied with particulates was
calculated based on best estimates (Borja-Aburto et al., 1997,
1998; Pereira et al., 1998; Gold et al., 1999; Braga
et al., 1999; Linn et al., 2000).
The report included a sensitivity analysis of the range of deaths, predicting
that by 2020, 700,000 avoidable deaths (90% Confidence Interval, 385,0001,034,000)
will occur annually as a result of additional particulate matter (PM)
exposure under the baseline forecasts when compared with the climate policy
scenario. From 2000 to 2020, the cumulative impact on public health related
to the difference in PM exposure could reach 8 million deaths globally
(90% CI, 4.411.9 million). In the USA alone, the number of annual
deaths from PM exposure in 2020 (without control policy) would equal in
magnitude deaths associated with human immunodeficiency diseases or all
liver diseases in 1995. The mortality estimates are indicative of
the magnitude of the potential health benefits of the climate-policy scenario
examined and are not precise predictions of avoidable deaths. While characterized
by considerable uncertainty, the short-term public-health impacts of reduced
PM exposure associated with greenhouse-gas reductions are likely to be
substantial even under the most conservative set of assumptions.
The framework for this assessment is described in more detail in Abt
Associates (1997); Pechan and Associates (1997).
The third evolution is the development of studies on various abatement pathways
towards given long-run concentration targets and on rules for emissions quota
allocation among countries. These approaches, more dynamic in nature, capture
the consequences of various abatement timetables on the behaviour of carbon
prices and on the sharing of the overall burden among countries. They provide
basic information about the equity of various designs of climate policies.
This chapter covers studies on global assessments of the net cost of GHG mitigation
policies irrespective of the avoided costs of climate change: total mitigation
expenditure, and welfare gains or losses resulting from the economic feedbacks
of mitigation policies and from their environmental co-benefits.
A specific effort has been devoted to ensure a balanced representation of global
models and national models. Global models incorporate linkages between regions
and countries; they cannot, however, represent very precisely the specific characteristics
of each country, such as differences in national fiscal policies, in regional
arrangements, and in socioeconomic constraints. Results from these models are
widely diffused within the scientific community through publications in international
journals, but are less utilized by national policymakers. The second type of
study uses models the scope of which is limited to within the national frame.
Results of such studies are more frequently reported in local languages and
are more reflective of national debates and the specifics of the country in
question. They incorporate linkages with the rest of the world economy, although
in a more simplistic manner than the global models.
The results of these studies group into three large clusters. Section
8.2 reviews the studies that entail near-to-mid term impacts of domestic
mitigation policies on factors such as GDP, welfare, income distribution, and
social and environmental co-benefits at the local and national levels. Section
8.3 contains the results of mitigation studies that examine the interface
between these domestic policies and the international context: international
trade regimes, and spillover effects of the implementation of mitigation measures
by a country or a block of nations on other countries. Section
8.4 reviews studies that focus on social, environmental, and economic impacts
of alternate pathways to meet a range of concentration stabilization pathways
beyond the Kyoto Protocol. They encompass a longer time horizon and do not incorporate
details of macro economic policies, but highlight the question of technological
change over the long run and the consequences of various sets of national targets.