Policies adopted to mitigate global warming will have implications for specific
sectors, such as the coal industry, the oil and gas industry, electricity, manufacturing,
transportation and households. A sectoral assessment helps to put the costs
in perspective, to identify the potential losers, and the extent and location
of the losses, as well as to identify the sectors that may benefit. However,
it is worth noting that the available literature to make this assessment is
limited: there are few comprehensive studies of the sectoral effects of mitigation,
compared with those on the macro gross domestic product (GDP) effects, and they
tend to be for Annex B countries and regions.
There is a fundamental problem for mitigation policies. It is well established
that, compared to the situation for potential gainers, the potential sectoral
losers are easier to identify, and their losses are likely to be more immediate,
more concentrated, and more certain. The potential sectoral gainers (apart from
the renewables sector and perhaps the natural gas sector) can only expect a
small, diffused, and rather uncertain gain, spread over a long period. Indeed
many of those who may gain do not exist, being future generations and industries
yet to develop.
It is also well established that the overall effects on GDP of mitigation policies
and measures, whether positive or negative, conceal large differences between
sectors. In general, the energy intensity and the carbon intensity of the economies
will decline. The coal and perhaps the oil industries are expected to lose substantial
proportions of output relative to those in the reference scenarios, but other
sectors may increase their outputs yet by much smaller proportions. Energy-intensive
sectors, such as heavy chemicals, iron and steel, and mineral products, will
face higher costs, accelerated technical or organizational change, or loss of
output (again relative to the reference scenario) depending on their energy
use and the policies adopted for mitigation. Other industries, including renewables
and services, can be expected to benefit in the long term from the availability
of financial and other resources that would otherwise have been taken up in
fossil fuel production. They may also benefit from reductions in tax burdens,
if taxes are used for mitigation, and the revenues recycled as reductions in
employer or corporate or other taxes.
Within this broad picture, certain sectors will be substantially affected by
mitigation. The coal industry, producing the most carbon-intensive of products,
faces almost inevitable decline in the long term relative to the baseline projection.
However, technologies still under development, such as carbon dioxide (CO2)
sequestration from coal-burning plants and in-situ gasification, could play
a future role in maintaining the output of coal whilst reducing CO2
and other emissions. The oil industry also faces a potential relative decline,
although this may be moderated by (1) lack of substitutes for oil in transportation
and (2) substitution away from solid fuels towards liquid fuels in electricity
generation. 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.
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 greenhouse gas (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; and there may be adverse distributional effects.
There is a wide range of estimates for the impact of implementation of the
Kyoto Protocol on the oil market using global models and stylized policies.
All studies show net growth in both oil production and revenue to at least 2020
with or without mitigation. They show that implementation leads to a fall in
oil-exporting countries revenues, GDP, income or welfare, but significantly
less impact on the real price of oil than has resulted from market fluctuations
over the past 30 years. Of the studies surveyed, the largest fall in the Organization
of Petroleum Exporting Countries (OPEC) revenues is a 25% reduction in 2010
below the baseline projection, assuming no permit trading and implying a 17%
fall in oil prices; the reduction in OPEC revenues becomes just over 7% with
Annex B trading.
However, the studies typically do not consider some or all of the following
factors that could lessen the impact on oil production and trade. They usually
do not include policies and measures for non-CO2 GHGs or non-energy sources
of GHGs, offsets from sinks, and actions under the Kyoto Protocol related to
funding, insurance, and the transfer of technology. In addition, the studies
typically do not include other policies and effects that can reduce the total
cost of mitigation, such as the use of tax revenues to reduce tax burdens, ancillary
environmental benefits of reductions in fossil fuel use, and induced technical
change from mitigation policies. As a result, the studies may tend to overstate
the overall costs of achieving Kyoto targets.
The very likely direct costs for fossil fuel consumption are accompanied by
very likely environmental and public health benefits associated with a reduction
in the extraction and burning of the fuels. These benefits come from a reduction
in the damages caused by these activities, especially the reduction in the emissions
of pollutants that are associated with combustion, such as sulphur dioxide (SO2),
nitrogen oxides (NOx), carbon monoxide (CO) and other chemicals,
and particulate matter. This will improve local and regional air and water quality,
and thereby lessen damage to human, animal and plant health and the ecosystem.
If all the pollutants associated with GHG emissions are removed by new technologies
or end-of-pipe abatement (for example, flue gas desulphurization on a power
station combined with removal of all other non-GHG pollutants), then this ancillary
benefit will no longer exist. But removal of all pollutants is limited at present
and it is expensive, especially for small-scale emissions from dwellings and
Industries concerned directly with mitigation are likely to benefit from action.
These include renewable electricity, producers of mitigation equipment (incorporating
energy- and carbon-saving technologies), agriculture and forestry producing
energy crops, research services producing energy and carbon-saving research
and development (R&D). The extent and nature of the benefits will vary with
the policies followed. Some mitigation policies can lead to overall economic
benefits, implying that the gains from many sectors will outweigh the losses
for coal and other fossil fuels, and energy-intensive industries. In contrast,
other less well-designed policies can lead to overall losses.
These results come from different approaches and models. A proper interpretation
of the results requires an understanding of the methods adopted and the underlying
assumptions of the models and studies. Large differences in results can arise
from the use of different reference scenarios or baselines. The characteristics
of the baseline can also markedly affect the quantitative results of modelling
mitigation policy. For example, if air quality is assumed to be satisfactory
in the baseline, then the potential for air-quality ancillary benefits in any
GHG mitigation scenario is ruled out by assumption. Even with similar or the
same baseline assumptions, the studies yield different results. As regards the
costs of mitigation, these differences appear to be largely a result of different
approaches and assumptions, with the most important being the type of model
adopted. Bottom-up engineering models assuming new technological opportunities
tend to show benefits from mitigation. Top-down, general equilibrium models
appear to show lower costs than top-down, time-series econometric models. The
main assumptions leading to lower costs in the models are that:
- new flexible instruments, such as emission trading and joint implementation,
- evenues from taxes or permit sales are returned to the economy by reducing
burdensome taxes; and
- anacillary benefits, especially from reduced air pollution, are included
in the results.
Finally, long-term technological progress and diffusion are largely given in
the top-down models; different assumptions or a more integrated, dynamic treatment
could have major effects on the results.
It is worth placing the task faced by mitigation policy in an historical perspective.
CO2 emissions have tended to grow more slowly than GDP in a number
of countries over the last 40 years. The reasons for such trends vary but include:
- a shift away from coal and oil and towards nuclear and gas as the source
- improvements in energy efficiency by industry and households; and
- service and information-based economic activity.
These trends will be encouraged and strengthened by mitigation policies.