Texto

SUMMARY FOR POLICYMAKERS
CLIMATE CHANGE 2001: MITIGATION
A Report of Working Group III

of the Intergovernmental Panel on Climate Change
This summary, approved in detail at the Sixth Session of IPCC Working Group III (Accra, Ghana •
28 February - 3 March 2001), represents the formally agreed statement of the IPCC concerning
climate change mitigation.
Based on a draft prepared by:

Tariq Banuri, Terry Barker, Igor Bashmakov, Kornelis Blok, Daniel Bouille, Renate Christ, Ogunlade Davidson, Jae
Edmonds, Ken Gregory, Michael Grubb, Kirsten Halsnaes, Tom Heller, Jean-Charles Hourcade, Catrinus Jepma, Pekka
Kauppi, Anil Markandya, Bert Metz, William Moomaw, Jose Roberto Moreira, Tsuneyuki Morita, Nebojsa Nakicenovic,
Lynn Price, Richard Richels, John Robinson, Hans Holger Rogner, Jayant Sathaye, Roger Sedjo, Priyaradshi Shukla,
Leena Srivastava, Rob Swart, Ferenc Toth, John Weyant
CONTENTS
Introduction 3
The Nature of the Mitigation Challenge 3
Options to Limit or Reduce Greenhouse Gas Emissions and Enhance Sinks 5
The Costs and Ancillary Benefits of Mitigation Actions 9
Ways and Means for Mitigation 11
Gaps in Knowledge 13
Summary for Policymakers 3
Introduction timing and costs of mitigation depend on different national cir-

cumstances and socio-economic, and technological develop-
1. This report assesses the scientific, technical, environmental, ment paths and the desired level of greenhouse gas concentra-
economic and social aspects of the mitigation of climate tion stabilization in the atmosphere (see Figure SPM.1 for an
change. Research in climate change mitigation1 has continued example for total CO2 emissions). Development paths leading
since the publication of the IPCC Second Assessment Report to low emissions depend on a wide range of policy choices and
(SAR), taking into account political changes such as the agree- require major policy changes in areas other than climate
ment on the Kyoto Protocol to the United Nations Framework change (Sections 2.2.2, 2.3.2, 2.4.4, 2.5).
Convention on Climate Change (UNFCCC) in 1997, and is
reported on here. The Report also draws on a number of IPCC
Special Reports, notably the Special Report on Aviation and 4. Climate change mitigation will both be affected by, and have
the Global Atmosphere, the Special Report on Methodological impacts on, broader socio-economic policies and trends, such
and Technological Issues in Technology Transfer (SRTT), the as those relating to development, sustainability and equity.
Special Report on Emissions Scenarios (SRES), and the Climate mitigation policies may promote sustainable develop-
Special Report on Land Use, Land Use Change and Forestry ment when they are consistent with such broader societal
(SRLULUCF). objectives. Some mitigation actions may yield extensive bene-
fits in areas outside of climate change: for example, they may
reduce health problems; increase employment; reduce negative
The Nature of the Mitigation Challenge environmental impacts (like air pollution); protect and enhance
forests, soils and watersheds; reduce those subsidies and taxes
2. Climate change2 is a problem with unique characteristics. It which enhance greenhouse gas emissions; and induce techno-
is global, long-term (up to several centuries), and involves logical change and diffusion, contributing to wider goals of
complex interactions between climatic, environmental, eco- sustainable development. Similarly, development paths that
nomic, political, institutional, social and technological process- meet sustainable development objectives may result in lower
es. This may have significant international and intergenera- levels of greenhouse gas emissions (Sections 1.3, 1.4, 2.2.3,
tional implications in the context of broader societal goals such 2.4.4, 2.5, 7.2.2, 8.2.4).
as equity and sustainable development. Developing a response
to climate change is characterized by decision-making under
uncertainty and risk, including the possibility of non-linear 5. Differences in the distribution of technological, natural and
and/or irreversible changes (Sections 1.2.5, 1.3, 10.1.2, 10.1.4, financial resources among and within nations and regions, and
10.4.5).3 between generations, as well as differences in mitigation costs,
are often key considerations in the analysis of climate change
mitigation options. Much of the debate about the future differ-
3. Alternative development paths4 can result in very different entiation of contributions of countries to mitigation and related
greenhouse gas emissions. The SRES and the mitigation sce- equity issues also considers these circumstances5. The chal-
narios assessed in this report suggest that the type, magnitude, lenge of addressing climate change raises an important issue of
equity, namely the extent to which the impacts of climate
change or mitigation policies create or exacerbate inequities
1 Mitigation is defined here as an anthropogenic intervention to both within and across nations and regions. Greenhouse gas
reduce the sources of greenhouse gases or enhance their sinks. stabilization scenarios assessed in this report (except those
2 where stabilization occurs without new climate policies, e.g.
Climate change in IPCC usage refers to any change in climate over
time, whether due to natural variability or as a result of human activ-
B1) assume that developed countries and countries with
ity. This usage differs from that in the UNFCCC, where climate economies in transition limit and reduce their greenhouse gas
change refers to a change of climate that is attributed directly or indi- emissions first.6
rectly to human activity that alters the composition of the global
atmosphere and that is in addition to natural climate variability
5 Approaches to equity have been classified into a variety of cate-
observed over comparable time periods.
gories, including those based on allocation, outcome, process, rights,
3 Section numbers refer to the main body of the Report. liability, poverty, and opportunity, reflecting the diverse expectations
of fairness used to judge policy processes and the corresponding out-
4 In this report “alternative development paths” refer to a variety of comes (Sections 1.3, 10.2).
possible scenarios for societal values and consumption and produc-
6 Emissions from all regions diverge from baselines at some point.
tion patterns in all countries, including but not limited to a continua-
tion of today’s trends. These paths do not include additional climate Global emissions diverge earlier and to a greater extent as stabiliza-
initiatives which means that no scenarios are included that explicitly tion levels are lower or underlying scenarios are higher. Such scenar-
assume implementation of the UNFCCC or the emission targets of the ios are uncertain, do not provide information on equity implications
Kyoto Protocol, but do include assumptions about other policies that and how such changes may be achieved or who may bear any costs
influence greenhouse gas emissions indirectly. incurred.
4 Summary for Policymakers
40 40 40
SPM-1a IPCC SRES A1B Scenarios SPM-1b IPCC SRES A1T Scenarios SPM-1c IPCC SRES A1FI Scenarios
30 A1FI
30 30
Global Anthropogenic Carboon Dioxide Emissions (GtC)
20 20 20
A1B
10 650 10 A1T 10 750

550 650 650
450 550 550
450 450
0 0 0
1990 2010 2030 2050 2070 2090 1990 2010 2030 2050 2070 2090 1990 2010 2030 2050 2070 2090
40 40 40
SPM-1d IPCC SRES A2 Scenarios SPM-1e IPCC SRES B1 Scenarios SPM-1f IPCC SRES B2 Scenarios
30 30 30
A2
20 20 20
B2
750
10 10 10 650
550 B1
550 550
450 450
0 0 0
1990 2010 2030 2050 2070 2090 1990 2010 2030 2050 2070 2090 1990 2010 2030 2050 2070 2090
Figure SPM.1: Comparison of reference and stabilization scenarios. The figure is divided into six parts, one for each of the ref-
erence scenario groups from the Special Report on Emissions Scenarios (SRES, see Box SPM.1). Each part of the figure shows
the range of total global CO2 emissions (gigatonnes of carbon (GtC)) from all anthropogenic sources for the SRES reference sce-
nario group (shaded in grey) and the ranges for the various mitigation scenarios assessed in the TAR leading to stabilization of
CO2 concentrations at various levels (shaded in colour). Scenarios are presented for the A1 family subdivided into three groups
(the balanced A1B group (Figure SPM.1a), non-fossil fuel A1T (Figure SPM.1b) and the fossil intensive A1FI (Figure SPM.1c))
with stabilization of CO2 concentrations at 450, 550, 650 and 750 ppmv; for the A2 group with stabilization at 550 and 750 ppmv
in Figure SPM.1d, the B1 group with stabilization at 450 and 550 ppmv in Figure SPM.1e, and the B2 group with stabilization
at 450, 550 and 650 ppmv in Figure SPM.1f. The literature is not available to assess 1000 ppmv stabilization scenarios. The fig-
ure illustrates that the lower the stabilization level and the higher the baseline emissions, the wider the gap. The difference
between emissions in different scenario groups can be as large as the gap between reference and stabilization scenarios within
one scenario group. The dotted lines depict the boundaries of the ranges where they overlap.
6. Lower emissions scenarios require different patterns of dant fossil fuel resources that will not limit carbon emissions
energy resource development. Figure SPM.2 compares the during the 21st century. However, different from the relatively
cumulative carbon emissions between 1990 and 2100 for vari- large coal and unconventional oil and gas deposits, the carbon
ous SRES scenarios to carbon contained in global fossil fuel in proven conventional oil and gas reserves, or in convention-
reserves and resources7. This figure shows that there are abun- al oil resources, is much less than the cumulative carbon emis-
sions associated with stabilization of carbon dioxide at levels
of 450 ppmv or higher (the reference to a particular concentra-
7 Reserves are those occurrences that are identified and measured as tion level does not imply an agreed-upon desirability of stabi-
economically and technically recoverable with current technologies lization at this level). These resource data may imply a change
and prices. Resources are those occurrences with less certain geolog- in the energy mix and the introduction of new sources of ener-
ical and/or economic characteristics, but which are considered poten- gy during the 21st century. The choice of energy mix and asso-
tially recoverable with foreseeable technological and economic devel-
ciated investment will determine whether, and if so, at what
opments. The resource base includes both categories. On top of that,
there are additional quantities with unknown certainty of occurrence
level and cost, greenhouse concentrations can be stabilized.
and/or with unknown or no economic significance in the foreseeable Currently most such investment is directed towards discover-
future, referred to as “additional occurrences” (SAR, Working Group ing and developing more conventional and unconventional fos-
II). Examples of unconventional fossil fuel resources include tar sil resources (Sections 2.5.1, 2.5.2, 3.8.3, 8.4).
sands, shale oil, other heavy oil, coal bed methane, deep geopressured
gas, gas in acquifers, etc.
Box SPM.1. The Emissions Scenarios of the IPCC Special Report on Emissions Scenarios (SRES)
A1. The A1 storyline and scenario family describes a future world of very rapid economic growth, global population that peaks in mid-
century and declines thereafter, and the rapid introduction of new and more efficient technologies. Major underlying themes are con-
vergence among regions, capacity building and increased cultural and social interactions, with a substantial reduction in regional dif-
ferences in per capita income. The A1 scenario family develops into three groups that describe alternative directions of technological
change in the energy system. The three A1 groups are distinguished by their technological emphasis: fossil intensive (A1FI), non-fos-
sil energy sources (A1T), or a balance across all sources (A1B) (where balanced is defined as not relying too heavily on one particu-
lar energy source, on the assumption that similar improvement rates apply to all energy supply and end use technologies).
A2. The A2 storyline and scenario family describes a very heterogeneous world. The underlying theme is self-reliance and preserva-
tion of local identities. Fertility patterns across regions converge very slowly, which results in continuously increasing population.
Economic development is primarily regionally oriented and per capita economic growth and technological change more fragmented
and slower than other storylines.
B1. The B1 storyline and scenario family describes a convergent world with the same global population, that peaks in mid-century
and declines thereafter, as in the A1 storyline, but with rapid change in economic structures toward a service and information econo-
my, with reductions in material intensity and the introduction of clean and resource-efficient technologies. The emphasis is on global
solutions to economic, social and environmental sustainability, including improved equity, but without additional climate initiatives.
B2. The B2 storyline and scenario family describes a world in which the emphasis is on local solutions to economic, social and envi-
ronmental sustainability. It is a world with continuously increasing global population, at a rate lower than A2, intermediate levels of
economic development, and less rapid and more diverse technological change than in the B1 and A1 storylines. While the scenario is
also oriented towards environmental protection and social equity, it focuses on local and regional levels.
An illustrative scenario was chosen for each of the six scenario groups A1B, A1FI, A1T, A2, B1 and B2. All should be considered
equally sound.
The SRES scenarios do not include additional climate initiatives, which means that no scenarios are included that explicitly assume
implementation of the United Nations Framework Convention on Climate Change or the emissions targets of the Kyoto Protocol.
Options to Limit or Reduce Greenhouse Gas Emissions and Some key findings are:
Enhance Sinks • Hundreds of technologies and practices for end-use
energy efficiency in buildings, transport and manufac-
7. Significant technical progress relevant to greenhouse gas turing industries account for more than half of this
emissions reduction has been made since the SAR in 1995 and potential (Sections 3.3, 3.4, 3.5).
has been faster than anticipated. Advances are taking place in • At least up to 2020, energy supply and conversion will
a wide range of technologies at different stages of develop- remain dominated by relatively cheap and abundant
ment, e.g., the market introduction of wind turbines, the rapid fossil fuels. Natural gas, where transmission is eco-
elimination of industrial by-product gases such as N2O from nomically feasible, will play an important role in emis-
adipic acid production and perfluorocarbons from aluminium sion reduction together with conversion efficiency
production, efficient hybrid engine cars, the advancement of improvement, and greater use of combined cycle and/or
fuel cell technology, and the demonstration of underground co-generation plants (Section 3.8.4).
carbon dioxide storage. Technological options for emissions • Low-carbon energy supply systems can make an impor-
reduction include improved efficiency of end use devices and tant contribution through biomass from forestry and
energy conversion technologies, shift to low-carbon and agricultural by-products, municipal and industrial waste
renewable biomass fuels, zero-emissions technologies, to energy, dedicated biomass plantations, where suitable
improved energy management, reduction of industrial by-prod- land and water are available, landfill methane, wind
uct and process gas emissions, and carbon removal and storage energy and hydropower, and through the use and lifetime
(Section 3.1, 4.7). extension of nuclear power plants. After 2010, emissions
from fossil and/or biomass-fueled power plants could be
Table SPM.1 summarizes the results from many sectoral stud- reduced substantially through pre- or post-combustion
ies, largely at the project, national and regional level with some carbon removal and storage. Environmental, safety, reli-
at the global levels, providing estimates of potential green- ability and proliferation concerns may constrain the use
house gas emission reductions in the 2010 to 2020 timeframe. of some of these technologies (Section 3.8.4).
4000
Historic coal emissions
Historic gas emissions

3500
Historic oil emissions
3000 Unconventional reserves and resources
Conventional resources (upper estimate)

2500
Conventional reserves
GtC
2000 Scenarios
1500
1000
500
0
l
al
8
B1
T
B2
A2
FI
00
Oi
Ga
99
A1
35
45
55
65
75
A1
Co
A1
10
-1
RE
RE
RE
RE
RE
RE
80
W
18
SRES scenarios
Figure SPM.2: Carbon in oil, gas and coal reserves and resources compared with historic fossil fuel carbon emissions
1860–1998, and with cumulative carbon emissions from a range of SRES scenarios and TAR stabilization scenarios up until 2100.
Data for reserves and resources are shown in the left hand columns (Section 3.8.2). Unconventional oil and gas includes tar
sands, shale oil, other heavy oil, coal bed methane, deep geopressured gas, gas in acquifers, etc. Gas hydrates (clathrates) that
amount to an estimated 12,000GtC are not shown. The scenario columns show both SRES reference scenarios as well as sce-
narios which lead to stabilization of CO2 concentrations at a range of levels. Note that if by 2100 cumulative emissions associ-
ated with SRES scenarios are equal to or smaller than those for stabilization scenarios, this does not imply that these scenarios
equally lead to stabilization.
• In agriculture, methane and nitrous oxide emissions can rates. Private internal rates of return vary greatly, and are often
be reduced, such as those from livestock enteric fer- significantly higher, affecting the rate of adoption of these
mentation, rice paddies, nitrogen fertilizer use and ani- technologies by private entities.
mal wastes (Section 3.6).
• Depending on application, emissions of fluorinated Depending on the emissions scenario this could allow global
gases can be minimized through process changes, emissions to be reduced below 2000 levels in 2010–2020 at
improved recovery, recycling and containment, or these net direct costs. Realizing these reductions involve addi-
avoided through the use of alternative compounds and tional implementation costs, which in some cases may be sub-
technologies (Section 3.5 and Chapter 3 Appendix). stantial, the possible need for supporting policies (such as those
described in Paragraph 18), increased research and develop-
The potential emissions reductions found in Table SPM.1 for ment, effective technology transfer and overcoming other bar-
sectors were aggregated to provide estimates of global poten- riers (Paragraph 17). These issues, together with costs and ben-
tial emissions reductions taking account of potential overlaps efits not included in this evaluation are discussed in Paragraphs
between and within sectors and technologies to the extent pos- 11, 12 and 13.
sible given the information available in the underlying studies.
Half of these potential emissions reductions may be achieved The various global, regional, national, sector and project stud-
by 2020 with direct benefits (energy saved) exceeding direct ies assessed in this report have different scopes and assump-
costs (net capital, operating, and maintenance costs), and the tions. Studies do not exist for every sector and region. The
other half at a net direct cost of up to US$100/tCeq (at 1998 range of emissions reductions reported in Table SPM.1 reflects
prices). These cost estimates are derived using discount rates in the uncertainties (see Box SPM.2) of the underlying studies on
the range of 5% to 12%, consistent with public sector discount which they are based (Sections 3.3-3.8).
Table SPM.1: Estimates of potential global greenhouse gas emission reductions in 2010 and in 2020 (Sections 3.3-3.8 and Chapter 3 Appendix)
Sector Historic emissions Historic Ceq annual Potential emission Potential emission Net direct costs per tonne of carbon avoided
in 1990 growth rate in reductions in 2010 reductions in 2020
(MtCeq/yr) 1990-1995 (%) (MtCeq/yr) (MtCeq/yr)
Buildingsa CO2 only 1,650 1.0 700-750 1,000-1,100 Most reductions are available at negative net direct costs.
Transport CO2 only 1,080 2.4 100-300 300-700 Most studies indicate net direct costs less than US$25/tC
Summary for Policymakers
but two suggest net direct costs will exceed US$50/tC.
Industry CO2 only 2,300 0.4

-energy efficiency 300-500 700-900 More than half available at net negative direct costs.
-material efficiency ~200 ~600 Costs are uncertain.
Industry Non-CO2 gases 170 ~100 ~100 N2O emissions reduction costs are US$0-US$10/tCeq.
Agricultureb CO2 only 210 Most reductions will cost between US$0-100/tCeq. with
Non-CO2 gases 1,250-2,800 n.a 150-300 350-750 limited opportunities for negative net direct cost options.
Wasteb CH4 only 240 1.0 ~200 ~200 About 75% of the savings as methane recovery from
landfills at net negative direct cost; 25% at a cost of
US$20/tCeq.
Montreal Protocol 0 n.a. ~100 n.a. About half of reductions due to difference in study
replacement applications baseline and SRES baseline values. Remaining half of
Non-CO2 gases the reductions available at net direct costs below
US$200/tCeq.
Energy supply and (1,620) 1.5 50-150 350-700 Limited net negative direct cost options exist; many
conversionc CO2 only options are available for less than US$100/tCeq.
Total 6,900–8,400d 1,900–2,600e 3,600–5,050e

a Buildings include appliances, buildings, and the building shell.
b The range for agriculture is mainly caused by large uncertainties about CH4, N2O and soil related emissions of CO2. Waste is dominated by landfill methane and the other sectors could be estimated with
more precision as they are dominated by fossil CO2.
c Included in sector values above. Reductions include electricity generation options only (fuel switching to gas/nuclear, CO2 capture and storage, improved power station efficiencies, and renewables).
d Total includes all sectors reviewed in Chapter 3 for all six gases. It excludes non-energy related sources of CO2 (cement production, 160MtC; gas flaring, 60MtC; and land use change, 600-1,400MtC) and
energy used for conversion of fuels in the end-use sector totals (630MtC). If petroleum refining and coke oven gas were added, global 1990 CO2 emissions of 7,100MtC would increase by 12%. Note that
forestry emissions and their carbon sink mitigation options are not included.
e The baseline SRES scenarios (for six gases included in the Kyoto Protocol) project a range of emissions of 11,500–14,000MtCeq for 2010 and of 12,000–16,000MtCeq for 2020. The emissions reduction esti-
mates are most compatible with baseline emissions trends in the SRES-B2 scenario. The potential reductions take into account regular turn-over of capital stock. They are not limited to cost-effective options,
but exclude options with costs above US$100/tCeq (except for Montreal Protocol gases) or options that will not be adopted through the use of generally accepted policies.
7
8. Forests, agricultural lands, and other terrestrial ecosystems 9. There is no single path to a low emission future and coun-
offer significant carbon mitigation potential. Although not nec- tries and regions will have to choose their own path. Most
essarily permanent, conservation and sequestration of carbon model results indicate that known technological options8
may allow time for other options to be further developed and could achieve a broad range of atmospheric CO2 stabilization
implemented. Biological mitigation can occur by three strate- levels, such as 550ppmv, 450ppmv or below over the next 100
gies: (a) conservation of existing carbon pools, (b) sequestra- years or more, but implementation would require associated
tion by increasing the size of carbon pools, and (c) substitution socio-economic and institutional changes. To achieve stabi-
of sustainably produced biological products, e.g. wood for lization at these levels, the scenarios suggest that a very signif-
energy intensive construction products and biomass for fossil icant reduction in world carbon emissions per unit of GDP
fuels (Sections 3.6, 4.3). Conservation of threatened carbon from 1990 levels will be necessary. Technological improve-
pools may help to avoid emissions, if leakage can be prevent- ment and technology transfer play a critical role in the stabi-
ed, and can only become sustainable if the socio-economic dri- lization scenarios assessed in this report. For the crucial ener-
vers for deforestation and other losses of carbon pools can be gy sector, almost all greenhouse gas mitigation and concentra-
addressed. Sequestration reflects the biological dynamics of tion stabilization scenarios are characterized by the introduc-
growth, often starting slowly, passing through a maximum, and tion of efficient technologies for both energy use and supply,
then declining over decades to centuries. and of low- or no-carbon energy. However, no single technol-
ogy option will provide all of the emissions reductions needed.
Conservation and sequestration result in higher carbon stocks, Reduction options in non-energy sources and non-CO2 green-
but can lead to higher future carbon emissions if these ecosys- house gases will also provide significant potential for reducing
tems are severely disturbed by either natural or direct/indirect emissions. Transfer of technologies between countries and
human-induced disturbances. Even though natural distur- regions will widen the choice of options at the regional level
bances are normally followed by re-sequestration, activities to and economies of scale and learning will lower the costs of
manage such disturbances can play an important role in limit- their adoption (Sections 2.3.2, 2.4, 2.5).
ing carbon emissions. Substitution benefits can, in principle,
continue indefinitely. Appropriate management of land for
crop, timber and sustainable bio-energy production, may 10. Social learning and innovation, and changes in institution-
increase benefits for climate change mitigation. Taking into al structure could contribute to climate change mitigation.
account competition for land use and the SAR and SRLU- Changes in collective rules and individual behaviours may
LUCF assessments, the estimated global potential of biological have significant effects on greenhouse gas emissions, but take
mitigation options is in the order of 100GtC (cumulative), place within a complex institutional, regulatory and legal set-
although there are substantial uncertainties associated with this ting. Several studies suggest that current incentive systems can
estimate, by 2050, equivalent to about 10% to 20% of potential encourage resource intensive production and consumption pat-
fossil fuel emissions during that period. Realization of this terns that increase greenhouse gas emissions in all sectors, e.g.
potential depends upon land and water availability as well as transport and housing. In the shorter term, there are opportuni-
the rates of adoption of different land management practices. ties to influence through social innovations individual and
The largest biological potential for atmospheric carbon mitiga- organizational behaviours. In the longer term such innovations,
tion is in subtropical and tropical regions. Cost estimates in combination with technological change, may further
reported to date of biological mitigation vary significantly enhance socio-economic potential, particularly if preferences
from US$0.1/tC to about US$20/tC in several tropical coun- and cultural norms shift towards lower emitting and sustain-
tries and from US$20/tC to US$100/tC in non-tropical coun- able behaviours. These innovations frequently meet with resis-
tries. Methods of financial analysis and carbon accounting have tance, which may be addressed by encouraging greater public
not been comparable. Moreover, the cost calculations do not participation in the decision-making processes. This can help
cover, in many instances, inter alia, costs for infrastructure, contribute to new approaches to sustainability and equity
appropriate discounting, monitoring, data collection and imple- (Sections 1.4.3, 5.3.8, 10.3.2, 10.3.4).
mentation costs, opportunity costs of land and maintenance, or
other recurring costs, which are often excluded or overlooked.
The lower end of the ranges are biased downwards, but under-
standing and treatment of costs is improving over time. These
biological mitigation options may have social, economic and
environmental benefits beyond reductions in atmospheric CO2,
if implemented appropriately. (e.g., biodiversity, watershed pro-
tection, enhancement of sustainable land management and rural 8 “Known technological options” refer to technologies that exist in
employment). However, if implemented inappropriately, they operation or pilot plant stage today, as referenced in the mitigation
may pose risks of negative impacts (e.g., loss of biodiversity, scenarios discussed in this report. It does not include any new tech-
community disruption and ground-water pollution). Biological nologies that will require drastic technological breakthroughs. In this
mitigation options may reduce or increase non-CO2 greenhouse way it can be considered to be a conservative estimate, considering
gas emissions (Sections 4.3, 4.4). the length of the scenario period.
Box SPM.2. Approaches to Estimating Costs and Benefits, and their Uncertainties
For a variety of factors, significant differences and uncertainties surround specific quantitative estimates of the costs and benefits of
mitigation options. The SAR described two categories of approaches to estimating costs and benefits: bottom-up approaches, which
build up from assessments of specific technologies and sectors, such as those described in Paragraph 7, and top-down modelling stud-
ies, which proceed from macroeconomic relationships, such as those discussed in Paragraph 13. These two approaches lead to differ-
ences in the estimates of costs and benefits, which have been narrowed since the SAR. Even if these differences were resolved, other
uncertainties would remain. The potential impact of these uncertainties can be usefully assessed by examining the effect of a change
in any given assumption on the aggregate cost results, provided any correlation between variables is adequately dealt with.
The Costs and Ancillary9 Benefits of Mitigation Actions • Discount rates: the long time scales make discounting
assumptions critical and there is still no consensus on
11. Estimates of cost and benefits of mitigation actions differ appropriate long-term rates, though the literature shows
because of (i) how welfare is measured, (ii) the scope and increasing attention to rates that decline over time and
methodology of the analysis, and (iii) the underlying assump- hence give more weight to benefits that occur in the
tions built into the analysis. As a result, estimated costs and long term. These discount rates should be distinguished
benefits may not reflect the actual costs and benefits of imple- from the higher rates that private agents generally use
menting mitigation actions. With respect to (i) and (ii), costs in market transactions.
and benefits estimates, inter alia, depend on revenue recycling, (Sections 7.2, 7.3, 8.2.1, 8.2.2, 9.4)
and whether and how the following are considered: implemen-
tation and transaction cost, distributional impacts, multiple
gases, land-use change options, benefits of avoided climate 12. Some sources of greenhouse gas emissions can be limited
change, ancillary benefits, no regrets opportunities10 and valu- at no or negative net social cost to the extent that policies can
ation of externalities and non-market impacts. Assumptions exploit no regrets opportunities (Sections 7.3.4, 9.2.1):
include, inter alia: • Market imperfections. Reduction of existing market or
• Demographic change, the rate and structure of eco- institutional failures and other barriers that impede
nomic growth; increases in personal mobility, techno- adoption of cost-effective emission reduction mea-
logical innovation such as improvements in energy effi- sures, can lower private costs compared to current prac-
ciency and the availability of low-cost energy sources, tice. This can also reduce private costs overall.
flexibility of capital investments and labour markets, • Ancillary benefits. Climate change mitigation mea-
prices, fiscal distortions in the no-policy (baseline) sce- sures will have effects on other societal issues. For
nario. example, reducing carbon emissions in many cases
• The level and timing of the mitigation target. will result in the simultaneous reduction in local and
• Assumptions regarding implementation measures, e.g. regional air pollution. It is likely that mitigation strate-
the extent of emissions trading, the Clean Development gies will also affect transportation, agriculture, land-
Mechanism (CDM) and Joint Implementation (JI), reg- use practices and waste management and will have an
ulation, and voluntary agreements11 and the associated impact on other issues of social concern, such as
transaction costs. employment, and energy security. However, not all of
the effects will be positive; careful policy selection and
9 Ancillary benefits are the ancillary, or side effects, of policies aimed design can better ensure positive effects and minimize
exclusively at climate change mitigation. Such policies have an negative impacts. In some cases, the magnitude of
impact not only on greenhouse gas emissions, but also on resource use ancillary benefits of mitigation may be comparable to
efficiency, like reduction in emissions of local and regional air pollu- the costs of the mitigating measures, adding to the no
tants associated with fossil fuel use, and on issues such as transporta- regrets potential, although estimates are difficult to
tion, agriculture, land-use practices, employment, and fuel security. make and vary widely (Sections 7.3.3, 8.2.4, 9.2.2-
Sometimes these benefits are referred to as “ancillary impacts” to
9.2.8, 9.2.10).
reflect that in some cases the benefits may be negative.
• Double dividend. Instruments (such as taxes or auc-
10 In this report, as in the SAR, no regrets opportunities are defined tioned permits) provide revenues to the government. If
as those options whose benefits such as reduced energy costs and used to finance reductions in existing distortionary
reduced emissions of local/regional pollutants equal or exceed their taxes (“revenue recycling”), these revenues reduce the
costs to society, excluding the benefits of avoided climate change. economic cost of achieving greenhouse gas reductions.
11 A voluntary agreement is an agreement between a government
The magnitude of this offset depends on the existing
tax structure, type of tax cuts, labour market conditions,
authority and one or more private parties, as well as a unilateral com-
mitment that is recognized by the public authority, to achieve envi- and method of recycling. Under some circumstances, it
ronmental objectives or to improve environmental performance is possible that the economic benefits may exceed the
beyond compliance. costs of mitigation (Sections 7.3.3, 8.2.2, 9.2.1).
13. The cost estimates for Annex B countries to implement the level marginal costs. The global modelling studies reported
Kyoto Protocol vary between studies and regions as indicated above show national marginal costs to meet the Kyoto targets
in Paragraph 11, and depend strongly upon the assumptions from about US$20/tC up to US$600/tC without trading, and a
regarding the use of the Kyoto mechanisms, and their interac- range from about US$15/tC up to US$150/tC with Annex B
tions with domestic measures. The great majority of global trading. The cost reductions from these mechanisms may
studies reporting and comparing these costs use international depend on the details of implementation, including the com-
energy-economic models. Nine of these studies suggest the fol- patibility of domestic and international mechanisms, con-
lowing GDP impacts12 (Sections 7.3.5, 8.3.1, 9.2.3, 10.4.4): straints, and transaction costs.
Annex II countries13: In the absence of emissions trading Economies in transition: For most of these countries, GDP
between Annex B countries14, the majority of global studies effects range from negligible to a several per cent increase.
show reductions in projected GDP of about 0.2% to 2% in This reflects opportunities for energy efficiency improvements
2010 for different Annex II regions. With full emissions trading not available to Annex II countries. Under assumptions of dras-
between Annex B countries, the estimated reductions in 2010 tic energy efficiency improvement and/or continuing econom-
are between 0.1% and 1.1% of projected GDP15. These studies ic recessions in some countries, the assigned amounts may
encompass a wide range of assumptions as listed in Paragraph exceed projected emissions in the first commitment period. In
11. Models whose results are reported in this paragraph assume this case, models show increased GDP due to revenues from
full use of emissions trading without transaction cost. Results for trading assigned amounts. However, for some economies in
cases that do not allow Annex B trading assume full domestic transition, implementing the Kyoto Protocol will have similar
trading within each region. Models do not include sinks or non- impact on GDP as for Annex II countries.
CO2 greenhouse gases. They do not include the CDM, negative
cost options, ancillary benefits, or targeted revenue recycling.
For all regions costs are also influenced by the following factors: 14. Cost-effectiveness studies with a century timescale esti-
• Constraints on the use of Annex B trading, high trans- mate that the costs of stabilizing CO2 concentrations in the
action costs in implementing the mechanisms, and inef- atmosphere increase as the concentration stabilization level
ficient domestic implementation could raise costs. declines. Different baselines can have a strong influence on
• Inclusion in domestic policy and measures of the no absolute costs. While there is a moderate increase in the costs
regrets possibilities10 identified in Paragraph 12, use of when passing from a 750ppmv to a 550ppmv concentration
the CDM, sinks, and inclusion of non-CO2 greenhouse stabilization level, there is a larger increase in costs passing
gases, could lower costs. Costs for individual countries from 550ppmv to 450ppmv unless the emissions in the base-
can vary more widely. line scenario are very low. These results, however, do not
incorporate carbon sequestration, gases other than CO2 and
The models show that the Kyoto mechanisms are important in did not examine the possible effect of more ambitious targets
controlling risks of high costs in given countries, and thus can on induced technological change16. Costs associated with
complement domestic policy mechanisms. Similarly, they can each concentration level depend on numerous factors includ-
minimize risks of inequitable international impacts and help to ing the rate of discount, distribution of emission reductions
over time, policies and measures employed, and particularly
the choice of the baseline scenario: for scenarios character-
12
ized by a focus on local and regional sustainable development
Many other studies incorporating more precisely the country
for example, total costs of stabilizing at a particular level are
specifics and diversity of targeted policies provide a wider range of
net cost estimates (Section 8.2.2).
significantly lower than for other scenarios17 (Sections 2.5.2,
8.4.1, 10.4.6).
13Annex II countries: Group of countries included in Annex II to the
UNFCCC, including all developed countries in the Organisation of
Economic Co-operation and Development.
14Annex B countries: Group of countries included in Annex B in the

Kyoto Protocol that have agreed to a target for their greenhouse gas 16 Induced technological change is an emerging field of inquiry. None
emissions, including all the Annex I countries (as amended in 1998) of the literature reviewed in TAR on the relationship between the cen-
but Turkey and Belarus. tury-scale CO2 concentrations and costs, reported results for models
employing induced technological change. Models with induced tech-
15 Many metrics can be used to present costs. For example, if the nological change under some circumstances show that century-scale
annual costs to developed countries associated with meeting Kyoto concentrations can differ, with similar GDP growth but under differ-
targets with full Annex B trading are in the order of 0.5% of GDP, this ent policy regimes (Section 8.4.1.4).
represents US$125 billion (1000 million) per year, or US$125 per per-
son per year by 2010 in Annex II (SRES assumptions). This corre- 17 See Figure SPM.1 for the influence of reference scenarios on the
sponds to an impact on economic growth rates over ten years of less magnitude of the required mitigation effort to reach a given stabiliza-
than 0.1 percentage point. tion level.
15. Under any greenhouse gas mitigation effort, the economic The effects on these countries can be further reduced by
costs and benefits are distributed unevenly between sectors; to removal of subsidies for fossil fuels, energy tax restruc-
a varying degree, the costs of mitigation actions could be turing according to carbon content, increased use of
reduced by appropriate policies. In general, it is easier to iden- natural gas, and diversification of the economies of
tify activities, which stand to suffer economic costs compared non-Annex I, oil-exporting countries.
to those which may benefit, and the economic costs are more • Other non-Annex I countries: They may be adversely
immediate, more concentrated and more certain. Under mitiga- affected by reductions in demand for their exports to
tion policies, coal, possibly oil and gas, and certain energy- OECD nations and by the price increase of those car-
intensive sectors, such as steel production, are most likely to bon-intensive and other products they continue to
suffer an economic disadvantage. Other industries including import. These countries may benefit from the reduction
renewable energy industries and services can be expected to in fuel prices, increased exports of carbon-intensive
benefit in the long term from price changes and the availabili- products and the transfer of environmentally sound
ty of financial and other resources that would otherwise have technologies and know-how. The net balance for a
been devoted to carbon-intensive sectors. Policies such as the given country depends on which of these factors domi-
removal of subsidies from fossil fuels may increase total soci- nates. Because of these complexities, the breakdown of
etal benefits through gains in economic efficiency, while use of winners and losers remains uncertain.
the Kyoto mechanisms could be expected to reduce the net • Carbon leakage22. The possible relocation of some car-
economic cost of meeting Annex B targets. Other types of poli- bon-intensive industries to non-Annex I countries and
cies, for example exempting carbon-intensive industries, redis- wider impacts on trade flows in response to changing
tribute the costs but increase total societal costs at the same prices may lead to leakage in the order of 5%-20%
time. Most studies show that the distributional effects of a car- (Section 8.3.2.2). Exemptions, for example for energy-
bon tax can have negative income effects on low-income intensive industries, make the higher model estimates
groups unless the tax revenues are used directly or indirectly to for carbon leakage unlikely, but would raise aggregate
compensate such effects (Section 9.2.1). costs. The transfer of environmentally sound technolo-
gies and know-how, not included in models, may lead
to lower leakage and especially on the longer term may
16. Emission constraints in Annex I countries have well estab- more than offset the leakage.
lished, albeit varied “spillover” effects18 on non-Annex I coun-
tries (Sections 8.3.2, 9.3).
• Oil-exporting, non-Annex I countries: Analyses report Ways and Means for Mitigation
costs differently, including, inter alia, reductions in
projected GDP and reductions in projected oil rev- 17. The successful implementation of greenhouse gas mitiga-
enues19. The study reporting the lowest costs shows tion options needs to overcome many technical, economic,
reductions of 0.2% of projected GDP with no emissions political, cultural, social, behavioural and/or institutional bar-
trading, and less than 0.05% of projected GDP with riers which prevent the full exploitation of the technological,
Annex B emissions trading in 201020. The study report- economic and social opportunities of these mitigation options.
ing the highest costs shows reductions of 25% of pro- The potential mitigation opportunities and types of barriers
jected oil revenues with no emissions trading, and 13% vary by region and sector, and over time. This is caused by the
of projected oil revenues with Annex B emissions trad- wide variation in mitigation capacity. The poor in any country
ing in 2010. These studies do not consider policies and are faced with limited opportunities to adopt technologies or
measures21 other than Annex B emissions trading, that change their social behaviour, particularly if they are not part
could lessen the impact on non-Annex I, oil-exporting of a cash economy, and most countries could benefit from
countries, and therefore tend to overstate both the costs
to these countries and overall costs.
21 These policies and measures include: those for non-CO2 gases and
non-energy sources of all gases; offsets from sinks; industry restruc-
turing (e.g., from energy producer to supplier of energy services); use
18Spillover effects incorporate only economic effects, not environ- of OPEC’s market power; and actions (e.g. of Annex B Parties) relat-
mental effects. ed to funding, insurance, and the transfer of technology. In addition,
the studies typically do not include the following policies and effects
19 Details of the six studies reviewed are found in Table 9.4 of the that can reduce the total cost of mitigation: the use of tax revenues to
underlying report. reduce tax burdens or finance other mitigation measures; environ-
mental ancillary benefits of reductions in fossil fuel use; and induced
20 These estimated costs can be expressed as differences in GDP technological change from mitigation policies.
growth rates over the period 2000–2010. With no emissions trading,
GDP growth rate is reduced by 0.02 percentage points/year; with 22Carbon leakage is defined here as the increase in emissions in non-
Annex B emissions trading, growth rate is reduced by less than 0.005 Annex B countries due to implementation of reductions in Annex B,
percentage points/year. expressed as a percentage of Annex B reductions.
innovative financing and institutional reform and removing activities. Specific attention can foster the transfer of those
barriers to trade. In the industrialized countries, future oppor- technologies to small and medium size enterprises. Moreover,
tunities lie primarily in removing social and behavioural barri- taking ancillary benefits into account in comprehensive nation-
ers; in countries with economies in transition, in price rational- al development strategies can lower political and institutional
ization; and in developing countries, in price rationalization, barriers for climate-specific actions (Sections 2.2.3, 2.4.4,
increased access to data and information, availability of 2.4.5, 2.5.1, 2.5.2, 10.3.2, 10.3.4).
advanced technologies, financial resources, and training and
capacity building. Opportunities for any given country, howev-
er, might be found in the removal of any combination of barri- 20. Co-ordinated actions among countries and sectors may
ers (Sections 1.5, 5.3, 5.4). help to reduce mitigation cost, address competitiveness con-
cerns, potential conflicts with international trade rules, and
carbon leakage. A group of countries that wants to limit its col-
18. National responses to climate change can be more effective lective greenhouse gas emissions could agree to implement
if deployed as a portfolio of policy instruments to limit or well-designed international instruments. Instruments assessed
reduce greenhouse gas emissions. The portfolio of national cli- in this report and being developed in the Kyoto Protocol are
mate policy instruments may include - according to national emissions trading; Joint Implementation (JI); the Clean
circumstances - emissions/carbon/energy taxes, tradable or Development Mechanism (CDM); other international instru-
non-tradable permits, provision and/or removal of subsidies, ments also assessed in this report include co-ordinated or har-
deposit/refund systems, technology or performance standards, monized emission/carbon/energy taxes; an emission/carbon/
energy mix requirements, product bans, voluntary agreements, energy tax; technology and product standards; voluntary agree-
government spending and investment, and support for research ments with industries; direct transfers of financial resources
and development. Each government may apply different eval- and technology; and co-ordinated creation of enabling envi-
uation criteria, which may lead to different portfolios of instru- ronments such as reduction of fossil fuel subsidies. Some of
ments. The literature in general gives no preference for any these have been considered only in some regions to date
particular policy instrument. Market based instruments may be (Sections 6.3, 6.4.2, 10.2.7, 10.2.8).
cost-effective in many cases, especially where capacity to
administer them is developed. Energy efficiency standards and
performance regulations are widely used, and may be effective 21. Climate change decision-making is essentially a sequential
in many countries, and sometimes precede market based process under general uncertainty. The literature suggests that
instruments. Voluntary agreements have recently been used a prudent risk management strategy requires a careful consid-
more frequently, sometimes preceding the introduction of more eration of the consequences (both environmental and econom-
stringent measures. Information campaigns, environmental ic), their likelihood and society’s attitude toward risk. The lat-
labelling, and green marketing, alone or in combination with ter is likely to vary from country to country and perhaps even
incentive subsidies, are increasingly emphasized to inform and from generation to generation. This report therefore confirms
shape consumer or producer behaviour. Government and/or the SAR finding that the value of better information about cli-
privately supported research and development is important in mate change processes and impacts and society’s responses to
advancing the long-term application and transfer of mitigation them is likely to be great. Decisions about near-term climate
technologies beyond the current market or economic potential policies are in the process of being made while the concentra-
(Section 6.2). tion stabilization target is still being debated. The literature
suggests a step-by-step resolution aimed at stabilizing green-
house gas concentrations. This will also involve balancing the
19. The effectiveness of climate change mitigation can be risks of either insufficient or excessive action. The relevant
enhanced when climate policies are integrated with the non- question is not “what is the best course for the next 100 years”,
climate objectives of national and sectorial policy development but rather “what is the best course for the near term given the
and be turned into broad transition strategies to achieve the expected long-term climate change and accompanying uncer-
long-term social and technological changes required by both tainties” (Section 10.4.3).
sustainable development and climate change mitigation. Just
as climate policies can yield ancillary benefits that improve
wellbeing, non-climate policies may produce climate benefits. 22. This report confirms the finding in the SAR that earlier
It may be possible to significantly reduce greenhouse gas emis- actions, including a portfolio of emissions mitigation, technol-
sions by pursuing climate objectives through general socio- ogy development and reduction of scientific uncertainty,
economic policies. In many countries, the carbon intensity of increase flexibility in moving towards stabilization of atmos-
energy systems may vary depending on broader programmmes pheric concentrations of greenhouse gases. The desired mix of
for energy infrastructure development, pricing, and tax poli- options varies with time and place. Economic modelling stud-
cies. Adopting state-of-the-art environmentally sound tech- ies completed since the SAR indicate that a gradual near-term
nologies may offer particular opportunity for environmentally transition from the world’s present energy system towards a
sound development while avoiding greenhouse gas intensive less carbon-emitting economy minimizes costs associated with
premature retirement of existing capital stock. It also provides non-CO2, non-energy mitigation options; understand-
time for technology development, and avoids premature locking of technology diffusion across different regions;
in to early versions of rapidly developing low-emission tech- identifying opportunities in the area of social innova-
nology. On the other hand, more rapid near-term action would tion leading to decreased greenhouse gas emissions;
decrease environmental and human risks associated with rapid comprehensive analysis of the impact of mitigation
climatic changes. measures on carbon flows in and out of the terrestrial
system; and some basic inquiry in the area of geo-engi-
It would also stimulate more rapid deployment of existing low- neering.
emission technologies, provide strong near-term incentives to • Economic, social and institutional issues related to cli-
future technological changes that may help to avoid lock-in to mate change mitigation in all countries. Priority areas
carbon-intensive technologies, and allow for later tightening of include: analysis of regionally specific mitigation
targets should that be deemed desirable in light of evolving sci- options and barriers; the implications of equity assess-
entific understanding (Sections 2.3.2, 2.5.2, 8.4.1, 10.4.2, ments; appropriate methodologies and improved data
10.4.3). sources for climate change mitigation and capacity
building in the area of integrated assessment; strength-
ening future research and assessments, especially in the
23. There is an inter-relationship between the environmental developing countries.
effectiveness of an international regime, the cost-effectiveness • Methodologies for analysis of the potential of mitiga-
of climate policies and the equity of the agreement. Any inter- tion options and their cost, with special attention to
national regime can be designed in a way that enhances both its comparability of results. Examples include: character-
efficiency and its equity. The literature assessed in this report izing and measuring barriers that inhibit greenhouse
on coalition formation in international regimes presents differ- gas-reducing action; making mitigation modelling
ent strategies that support these objectives, including how to techniques more consistent, reproducible, and accessi-
make it more attractive to join a regime through appropriate ble; modelling technology learning; improving analyti-
distribution of efforts and provision of incentives. While analy- cal tools for evaluating ancillary benefits, e.g. assigning
sis and negotiation often focus on reducing system costs, the the costs of abatement to greenhouse gases and to other
literature also recognizes that the development of an effective pollutants; systematically analyzing the dependency of
regime on climate change must give attention to sustainable costs on baseline assumptions for various greenhouse
development and non-economic issues (Sections 1.3, 10.2). gas stabilization scenarios; developing decision analyt-
ical frameworks for dealing with uncertainty as well as
socio-economic and ecological risk in climate policy
Gaps in Knowledge making; improving global models and studies, their
assumptions and their consistency in the treatment and
24. Advances have been made since previous IPCC assess- reporting of non-Annex I countries and regions.
ments in the understanding of the scientific, technical, envi- • Evaluating climate mitigation options in the context of
ronmental, and economic and social aspects of mitigation of development, sustainability and equity. Examples
climate change. Further research is required, however, to include: exploration of alternative development paths,
strengthen future assessments and to reduce uncertainties as including sustainable consumption patterns in all sec-
far as possible in order that sufficient information is available tors, including the transportation sector; integrated
for policy making about responses to climate change, includ- analysis of mitigation and adaptation; identifying
ing research in developing countries. opportunities for synergy between explicit climate poli-
cies and general policies promoting sustainable devel-
The following are high priorities for further narrowing gaps opment; integration of intra- and inter-generational
between current knowledge and policy making needs: equity in climate change mitigation analysis; implica-
• Further exploration of the regional, country and sector tions of equity assessments; analysis of scientific, tech-
specific potentials of technological and social innova- nical and economic implications of options under a
tion options. This includes research on the short, medi- wide variety of stabilization regimes.
um and long-term potential and costs of both CO2 and
TECHNICAL SUMMARY
A Report of Working Group III

of the Intergovernmental Panel on Climate Change
This summary was accepted but not approved in detail at the Sixth Session of IPCC Working Group
III (Accra, Ghana • 28 February - 3 March 2001). “Acceptance” of IPCC reports at a session of
the Working Group or Panel signifies that the material has not been subject to line-by-line discus-
sion and agreement, but nevertheless presents a comprehensive, objective, and balanced view of the
subject matter.
Lead Authors:
Tariq Banuri (Pakistan), Terry Barker (UK), Igor Bashmakov (Russian Federation), Kornelis Blok (Netherlands), John
Christensen (Denmark), Ogunlade Davidson (Sierra Leone), Michael Grubb (UK), Kirsten Halsnaes (Denmark),
Catrinus Jepma (Netherlands), Eberhard Jochem (Germany), Pekka Kauppi (Finland), Olga Krankina (Russian
Federation), Alan Krupnick (USA), Lambert Kuijpers (Netherlands), Snorre Kverndokk (Norway), Anil Markandya
(UK), Bert Metz (Netherlands), William R. Moomaw (USA), Jose Roberto Moreira (Brazil), Tsuneyuki Morita (Japan),
Jiahua Pan (China), Lynn Price (USA), Richard Richels (USA), John Robinson (Canada), Jayant Sathaye (USA), Rob
Swart (Netherlands), Kanako Tanaka (Japan), Tomihiru Taniguchi (Japan), Ferenc Toth (Germany), Tim Taylor (UK),
John Weyant (USA)
Review Editor:
Rajendra Pachauri (India)
CONTENTS
1 Scope of the Report 19 4.4 Criteria for Biological Carbon Mitigation
1.1 Background 19 Options 43
1.2 Broadening the Context of Climate Change 4.5 Economic Costs 43
Mitigation 19 4.6 Marine Ecosystem and Geo-engineering 43
1.3 Integrating the Various Perspectives 20
5 Barriers, Opportunities, and Market Potential of
2 Greenhouse Gas Emissions Scenarios 21 Technologies and Practices 44
2.1 Scenarios 21 5.1 Introduction 44
2.2 Greenhouse Gas Emissions Mitigation 5.2 Sources of Barriers and Opportunities 44
Scenarios 21 5.3 Sector- and Technology-specific Barriers
2.3 Global Futures Scenarios 22 and Opportunities 47
2.4 Special Report on Emissions Scenarios 23
2.5 Review of Post-SRES Mitigation Scenarios 24 6 Policies, Measures, and Instruments 48
6.1 Policy Instruments and Possible Criteria
3 Technological and Economic Potential of for their Assessment 48
Mitigation Options 26 6.2 National Policies, Measures, and
3.1 Key Developments in Knowledge about Instruments 49
Technological Options to Mitigate GHG 6.3 International Policies and Measures 50
Emissions in the Period up to 2010-2020 6.4 Implementation of National and
since the Second Assessment Report 26 International Policy Instruments 50
3.2 Trends in Energy Use and Associated
Greenhouse Gas Emissions 27 7 Costing Methodologies 51
3.3 Sectoral Mitigation Technological Options 28 7.1 Conceptual Basis 51
3.3.1 The Main Mitigation Options in the 7.2 Analytical Approaches 51
Buildings Sector 29 7.2.1 Co-Benefits and Costs and Ancillary
3.3.2 The Main Mitigation Options in the Benefits and Costs 51
Transport Sector 38 7.2.2 Implementation Costs 52
3.3.3 The Main Mitigation Options in the 7.2.3 Discounting 52
Industry Sector 38 7.2.4 Adaptation and Mitigation Costs and
3.3.4 The Main Mitigation Options in the the Link between Them 52
Agricultural Sector 39 7.3 System Boundaries: Project, Sector, and
3.3.5 The Main Mitigation Options in the Macro 52
Waste Management Sector 39 7.3.1 Baselines 52
3.3.6 The Main Mitigation Options in the 7.3.2 Consideration of No Regrets Option 52
Energy Supply Sector 39 7.3.3 Flexibility 53
3.3.7 The Main Mitigation Options for 7.3.4 Development, Equity and
Hydrofluorocarbons and Sustainability Issues 53
Perfluorocarbons 40 7.4 Special Issues Relating to Developing
3.4 The Technological and Economic Countries and EITs 53
Potential of Greenhouse Gas Mitigation: 7.5 Modelling Approaches to Cost Assessment 54
Synthesis 40
8 Global, Regional, and National Costs and
4 Technological and Economic Potential of Options AncillaryBenefits 54
to Enhance, Maintain, and Manage Biological 8.1 Introduction 54
Carbon Reservoirs and Geo-engineering 41 8.2 Gross Costs of GHG Abatement in
4.1 Mitigation through Terrestrial Ecosystem Technology-detailed Models 54
and Land Management 41 8.3 Costs of Domestic Policy to Mitigate
4.2 Social and Economic Considerations 42 Carbon Emissions 55
4.3 Mitigation Options 42 8.4 Distributional Effects of Carbon Taxes 56
8.5 Aspects of International Emission Trading 57 9.2.2 Oil 63
8.6 Ancillary Benefits of Greenhouse Gas 9.2.3 Gas 65
Mitigation 58 9.2.4 Electricity 65
8.7 “Spillover” Effects from Actions Taken in 9.2.5 Transport 65
Annex B on Non-Annex B Countries 58 9.3 Sectoral Ancillary Benefits of Greenhouse
8.8 Summary of the Main Results for Kyoto Gas Mitigation 65
Targets 60 9.4 The Effects of Mitigation on Sectoral
8.9 The Costs of Meeting a Range of Competitiveness 65
Stabilization Targets 61 9.5 Why the Results of Studies Differ 66
8.10 The Issue of Induced Technological Change 62
10 Decision Analytical Frameworks 66
9 Sectoral Costs and Ancillary Benefits of 10.1 Scope for and New Developments in
Mitigation 62 Analyses for Climate Change Decisions 66
9.1 Differences between Costs of Climate 10.2 International Regimes and Policy Options 67
Change Mitigation Evaluated Nationally 10.3 Linkages to National and Local Sustainable
and by Sector 62 Development Choices 68
9.2 Selected Specific Sectoral Findings on 10.4 Key Policy-relevant Scientific Questions 68
Costs of Climate Change Mitigation 63
9.2.1 Coal 63 11 Gaps in Knowledge 69
Technical Summary 19
1 Scope of the Report tive and efficient manner. The present assessment advances
this process by including recent analyses of climate change that
1.1 Background place policy evaluations in the context of sustainable develop-
ment. This expansion of scope is consistent both with the evo-
In 1998, Working Group (WG) III of the Intergovernmental lution of the literature on climate change and the importance
Panel on Climate Change (IPCC) was charged by the IPCC accorded by the UNFCCC to sustainable development - includ-
Plenary for the Panel’s Third Assessment Report (TAR) to ing the recognition that “Parties have a right to, and should pro-
assess the scientific, technical, environmental, economic, and mote sustainable development” (Art. 3.4). It therefore goes
social aspects of the mitigation of climate change. Thus, the some way towards filling the gaps in earlier assessments.
mandate of the Working Group was changed from a predomi-
nantly disciplinary assessment of the economic and social Climate change involves complex interactions between climat-
dimensions on climate change (including adaptation) in the ic, environmental, economic, political, institutional, social, and
Second Assessment Report (SAR), to an interdisciplinary technological processes. It cannot be addressed or compre-
assessment of the options to control the emissions of green- hended in isolation of broader societal goals (such as equity or
house gases (GHGs) and/or enhance their sinks. sustainable development), or other existing or probable future
sources of stress. In keeping with this complexity, a multiplic-
After the publication of the SAR, continued research in the ity of approaches have emerged to analyze climate change and
area of mitigation of climate change, which was partly influ- related challenges. Many of these incorporate concerns about
enced by political changes such as the adoption of the Kyoto development, equity, and sustainability (DES) (albeit partially
Protocol to the United Nations Framework Convention on and gradually) into their framework and recommendations.
Climate Change (UNFCCC) in 1997, has been undertaken and Each approach emphasizes certain elements of the problem,
is reported on here. The report also draws on a number of IPCC and focuses on certain classes of responses, including for
Special Reports1 and IPCC co-sponsored meetings and Expert example, optimal policy design, building capacity for design-
Meetings that were held in 1999 and 2000, particularly to sup- ing and implementing policies, strengthening synergies
port the development of the IPCC TAR. This summary follows between climate change mitigation and/or adaptation and other
the 10 chapters of the report. societal goals, and policies to enhance societal learning. These
approaches are therefore complementary rather than mutually
exclusive.
1.2 Broadening the Context of Climate Change
Mitigation This chapter brings together three broad classes of analysis,
which differ not so much in terms of their ultimate goals as of
This chapter places climate change mitigation, mitigation pol- their points of departure and preferred analytical tools. The
icy, and the contents of the rest of the report in the broader con- three approaches start with concerns, respectively, about effi-
text of development, equity, and sustainability. This context ciency and cost-effectiveness, equity and sustainable develop-
reflects the explicit conditions and principles laid down by the ment, and global sustainability and societal learning. The dif-
UNFCCC on the pursuit of the ultimate objective of stabilizing ference between the three approaches selected lies in their
greenhouse gas concentrations. The UNFCCC imposes three starting point not in their ultimate goals. Regardless of the
conditions on the goal of stabilization: namely that it should starting point of the analysis, many studies try in their own way
take place within a time-frame sufficient to “allow ecosystems to incorporate other concerns. For example, many analyses that
to adapt naturally to climate change, to ensure that food pro- approach climate change mitigation from a cost-effectiveness
duction is not threatened and to enable economic development perspective try to bring in considerations of equity and sus-
to proceed in a sustainable manner” (Art. 2). It also specifies tainability through their treatment of costs, benefits, and wel-
several principles to guide this process: equity, common but fare. Similarly, the class of studies that are motivated strongly
differentiated responsibilities, precaution, cost-effective mea- by considerations of inter-country equity tend to argue that
sures, right to sustainable development, and support for an equity is needed to ensure that developing countries can pursue
open international economic system (Art. 3). their internal goals of sustainable development–a concept that
includes the implicit components of sustainability and efficien-
Previous IPCC assessment reports sought to facilitate this pur- cy. Likewise, analysts focused on concerns of global sustain-
suit by comprehensively describing, cataloguing, and comparability have been compelled by their own logic to make a case
ing technologies and policy instruments that could be used to for global efficiency–often modelled as the decoupling of pro-
achieve mitigation of greenhouse gas emissions in a cost-effec- duction from material flows–and social equity. In other words,
each of the three perspectives has led writers to search for ways
to incorporate concerns that lie beyond their initial starting
1 Notably the Special Report on Aviation and the Global Atmosphere, point. All three classes of analyses look at the relationship of
the Special Report on Methodological and Technological Issues in climate change mitigation with all three goals–development,
Technology Transfer, the Special Report on Emissions Scenarios, and equity, and sustainability–albeit in different and often highly
the Special Report on Land Use, Land-Use Change and Forestry. complementary ways. Nevertheless, they frame the issues dif-
20 Technical Summary
ferently, focus on different sets of causal relationships, use dif- demonstrating the sensitivity of some equity measures to poli-
ferent tools of analysis, and often come to somewhat different cy design, national perspective, and regional context. Indeed,
conclusions. cost-effectiveness analyses had even highlighted similar sensi-
tivities for other measures of development and sustainability.
There is no presumption that any particular perspective for As mentioned, the analyses that start from equity concerns
analysis is most appropriate at any level. Moreover, the three have by and large focused on the needs of developing coun-
perspectives are viewed here as being highly synergistic. The tries, and in particular on the commitment expressed in Article
important changes have been primarily in the types of ques- 3.4 of the UNFCCC to the pursuit of sustainable development.
tions being asked and the kinds of information being sought. Countries differ in ways that have dramatic implications for
In practice, the literature has expanded to add new issues and scenario baselines and the range of mitigation options that can
new tools, subsuming rather than discarding the analyses be considered. The climate policies that are feasible, and/or
included in the other perspectives. The range and scope of cli- desirable, in a particular country depend significantly on its
mate policy analyses can be understood as a gradual broaden- available resources and institutions, and on its overall objec-
ing of the types and extent of uncertainties that analysts have tives including climate change as but one component.
been willing and able to address. Recognizing this heterogeneity may, thus, lead to a different
range of policy options than has been considered likely thus far
The first perspective on climate policy analysis is cost effec- and may reveal differences in the capacities of different sectors
tiveness. It represents the field of conventional climate policy that may also enhance appreciation of what can be done by
analysis that is well represented in the First through Third non-state actors to improve their ability to mitigate.
Assessments. These analyses have generally been driven
directly or indirectly by the question of what is the most cost- The third perspective is global sustainability and societal learn-
effective amount of mitigation for the global economy starting ing. While sustainability has been incorporated in the analyses
from a particular baseline GHG emissions projection, reflect- in a number of ways, a class of studies takes the issue of glob-
ing a specific set of socio-economic projections. Within this al sustainability as their point of departure. These studies focus
framework, important issues include measuring the perfor- on alternative pathways to pursue global sustainability and
mance of various technologies and the removal of barriers address issues like decoupling growth from resource flows, for
(such as existing subsidies) to the implementation of those can- example through eco-intelligent production systems, resource
didate policies most likely to contribute to emissions reduc- light infrastructure and appropriate technologies, and decou-
tions. In a sense, the focus of analysis here has been on identi- pling wellbeing from production, for example through inter-
fying an efficient pathway through the interactions of mitiga- mediate performance levels, regionalization of production sys-
tion policies and economic development, conditioned by con- tems, and changing lifestyles. One popular method for identi-
siderations of equity and sustainability, but not primarily guid- fying constraints and opportunities within this perspective is to
ed by them. At this level, policy analysis has almost always identify future sustainable states and then examine possible
taken the existing institutions and tastes of individuals as transition paths to those states for feasibility and desirability. In
given; assumptions that might be valid for a decade or two, but the case of developing countries this leads to a number of pos-
may become more questionable over many decades. sible strategies that can depart significantly from those which
the developed countries pursued in the past.
The impetus for the expansion in the scope of the climate pol-
icy analysis and discourse to include equity considerations was
to address not simply the impacts of climate change and miti- 1.3 Integrating the Various Perspectives
gation policies on global welfare as a whole, but also of the
effects of climate change and mitigation policies on existing Extending discussions of how nations might respond to the mit-
inequalities among and within nations. The literature on equity igation challenge so that they include issues of cost-effective-
and climate change has advanced considerably over the last ness and efficiency, distribution narrowly defined, equity more
two decades, but there is no consensus on what constitutes fair- broadly defined, and sustainability, adds enormous complexity
ness. Once equity issues were introduced into the assessment to the problem of uncovering how best to respond to the threat
agenda, though, they became important components in defin- of climate change. Indeed, recognizing that these multiple
ing the search for efficient emissions mitigation pathways. The domains are relevant complicates the task assigned to policy-
considerable literature that indicated how environmental poli- makers and international negotiators by opening their delibera-
cies could be hampered or even blocked by those who consid- tions to issues that lie beyond the boundaries of the climate
ered them unfair became relevant. In light of these results, it change problem, per se. Their recognition thereby underlines
became clear how and why any widespread perception that a the importance of integrating scientific thought across a wide
mitigation strategy is unfair would likely engender opposition range of new policy-relevant contexts, but not simply because of
to that strategy, perhaps to the extent of rendering it non-opti- some abstract academic or narrow parochial interest advanced
mal (or even infeasible, as could be the case if non-Annex I by a small set of researchers or nations. Cost-effectiveness, equi-
countries never participate). Some cost-effectiveness analyses ty, and sustainability have all been identified as critical issues by
had, in fact, laid the groundwork for applying this literature by the drafters of the UNFCCC, and they are an integral part of the
charge given to the drafters of the TAR. Integration across the igative capacity” is also introduced as a possible way to inte-
domains of cost-effectiveness, equity, and sustainability is there- grate results derived from the application of the three perspec-
fore profoundly relevant to policy deliberations according to the tives in the future. The determinants of the capacity to mitigate
letter as well as the spirit of the UNFCCC itself. climate change include the availability of technological and
policy options, and access to resources to underwrite undertak-
The literature being brought to bear on climate change mitiga- ing those options. These determinants are the focus of much of
tion increasingly shows that policies lying beyond simply the TAR. The list of determinants is, however, longer than this.
reducing GHG emissions from a specified baseline to mini- Mitigative capacity also depends upon nation-specific charac-
mize costs can be extremely effective in abating the emission teristics that facilitate the pursuit of sustainable development –
of GHGs. Therefore, a portfolio approach to policy and analy- e.g., the distribution of resources, the relative empowerment of
sis would be more effective than exclusive reliance on a nar- various segments of the population, the credibility of empow-
row set of policy instruments or analytical tools. Besides the ered decision makers, the degree to which climate objectives
flexibility that an expanded range of policy instruments and complement other objectives, access to credible information
analytical tools can provide to policymakers for achieving cli- and analyses, the will to act on that information, the ability to
mate objectives, the explicit inclusion of additional policy spread risk intra- and inter-generationally, and so on. Given that
objectives also increases the likelihood of “buy-in” to climate the determinants of mitigative capacity are essentially the same
policies by more participants. In particular, it will expand the as those of the analogous concept of adaptive capacity intro-
range of no regrets2 options. Finally, it could assist in tailoring duced in the WGII Report, this approach may provide an inte-
policies to short-, medium-, and long-term goals. grated framework for assessing both sets of options.
In order to be effective, however, a portfolio approach requires

weighing the costs and impacts of the broader set of policies 2 Greenhouse Gas Emissions Scenarios
according to a longer list of objectives. Climate deliberations
need to consider the climate ramifications of policies designed 2.1 Scenarios
primarily to address a wide range of issues including DES, as
well as the likely impacts of climate policies on the achievement A long-term view of a multiplicity of future possibilities is
of these objectives. As part of this process the opportunity costs required to consider the ultimate risks of climate change, assess
and impacts of each instrument are measured against the multi- critical interactions with other aspects of human and environ-
ple criteria defined by these multiple objectives. Furthermore, mental systems, and guide policy responses. Scenarios offer a
the number of decision makers or stakeholders to be considered structured means of organizing information and gleaning
is increased beyond national policymakers and international insight on the possibilities.
negotiators to include state, local, community, and household
agents, as well as non-government organizations (NGOs). Each mitigation scenario describes a particular future world,
with particular economic, social, and environmental character-
The term “ancillary benefits” is often used in the literature for istics, and they therefore implicitly or explicitly contain infor-
the ancillary, or secondary, effects of climate change mitigation mation about DES. Since the difference between reference case
policies on problems other than GHG emissions, such as reduc- scenarios and stabilization and mitigation scenarios is simply
tions in local and regional air pollution, associated with the the addition of deliberate climate policy, it can be the case that
reduction of fossil fuels, and indirect effects on issues such as the differences in emissions among different reference case
transportation, agriculture, land use practices, biodiversity scenarios are greater than those between any one such scenario
preservation, employment, and fuel security. Sometimes these and its stabilization or mitigation version.
are referred to as “ancillary impacts”, to reflect the fact that in
some cases the benefits may be negative3. The concept of “mit- This section presents an overview of three scenario literatures:
general mitigation scenarios produced since the SAR, narra-
tive-based scenarios found in the general futures literature, and
2 In this report, as in the SAR, no regrets options are defined as those mitigation scenarios based on the new reference scenarios
options whose benefits such as reduced energy costs and reduced developed in the IPCC SRES.
emissions of local/regional pollutants equal or exceed their costs to
society, excluding the benefits of avoided climate change. They are
also known as negative cost options. 2.2 Greenhouse Gas Emissions Mitigation Scenarios
3 In this report sometimes the term “co-benefits” is also used to indi-
cate the additional benefits of policy options that are implemented for
This report considers the results of 519 quantitative emissions
various reasons at the same time, acknowledging that most policies scenarios from 188 sources, mainly produced after 1990. The
designed to address GHG mitigation also have other, often at least review focuses on 126 mitigation scenarios that cover global
equally important, rationales, e.g., related to objectives of develop- emissions and have a time horizon encompassing the coming
ment, sustainability and equity. The benefits of avoided climate change century. Technological improvement is a critical element in all
are not covered in ancillary or co-benefits. See also Section 7.2. the general mitigation scenarios.
Based on the type of mitigation, the scenarios fall into four cat- which there is an assumed adoption of high-efficiency
egories: concentration stabilization scenarios, emission stabi- measures in the baseline show less scope for further
lization scenarios, safe emission corridor scenarios, and other introduction of efficiency measures in the mitigation
mitigation scenarios. All the reviewed scenarios include ener- scenarios. In part this results from model input assump-
gy-related carbon dioxide (CO2) emissions; several also tions, which do not assume major technological break-
include CO2 emissions from land-use changes and industrial throughs. Conversely, baseline scenarios with high car-
processes, and other important GHGs. bon intensity reductions show larger carbon intensity
reductions in their mitigation scenarios.
Policy options used in the reviewed mitigation scenarios take
into account energy systems, industrial processes, and land use, Only a small set of studies has reported on scenarios for miti-
and depend on the underlying model structure. Most of the sce- gating non-CO2 gases. This literature suggests that small
narios introduce simple carbon taxes or constraints on emis- reductions of GHG emissions can be accomplished at lower
sions or concentration levels. Regional targets are introduced cost by including non-CO2 gases; that both CO2 and non-CO2
in the models with regional disaggregation. Emission permit emissions would have to be controlled in order to slow the
trading is introduced in more recent work. Some models increase of atmospheric temperature sufficiently to achieve cli-
employ policies of supply-side technology introduction, while mate targets assumed in the studies; and that methane (CH4)
others emphasize efficient demand-side technology. mitigation can be carried out more rapidly, with a more imme-
diate impact on the atmosphere, than CO2 mitigation.
Allocation of emission reduction among regions is a con-
tentious issue. Only some studies, particularly recent ones, Generally, it is clear that mitigation scenarios and mitigation
make explicit assumptions about such allocations in their sce- policies are strongly related to their baseline scenarios, but no
narios. Some studies offer global emission trading as a mecha- systematic analysis has been published on the relationship
nism to reduce mitigation costs. between mitigation and baseline scenarios.
Technological improvement is a critical element in all the gen-

eral mitigation scenarios. 2.3 Global Futures Scenarios
Detailed analysis of the characteristics of 31 scenarios for sta- Global futures scenarios do not specifically or uniquely con-
bilization of CO2 concentrations at 550ppmv4 (and their base- sider GHG emissions. Instead, they are more general “stories”
line scenarios) yielded several insights: of possible future worlds. They can complement the more
quantitative emissions scenario assessments, because they con-
• There is a wide range in baselines, reflecting a diversi- sider dimensions that elude quantification, such as governance
ty of assumptions, mainly with respect to economic and social structures and institutions, but which are nonethe-
growth and low-carbon energy supply. High economic less important to the success of mitigation policies. Addressing
growth scenarios tend to assume high levels of progress these issues reflects the different perspectives presented in
in the efficiency of end-use technologies; however, car- Section 1: cost-effectiveness and/or efficiency, equity, and sus-
bon intensity reductions were found to be largely inde- tainability.
pendent of economic growth assumptions. The range of
future trends shows greater divergence in scenarios that A survey of this literature has yielded a number of insights that
focus on developing countries than in scenarios that are relevant to GHG emissions scenarios and sustainable
look at developed nations. There is little consensus with development. First, a wide range of future conditions has been
respect to future directions in developing regions. identified by futurists, ranging from variants of sustainable
development to collapse of social, economic, and environmen-
• The reviewed 550ppmv stabilization scenarios vary tal systems. Since future values of the underlying socio-eco-
with respect to reduction time paths and the distribution nomic drivers of emissions may vary widely, it is important
of emission reductions among regions. Some scenarios that climate policies should be designed so that they are
suggested that emission trading may lower the overall resilient against widely different future conditions.
mitigation cost, and could lead to more mitigation in
the non-OECD countries. The range of assumed miti- Second, the global futures scenarios that show falling GHG
gation policies is very wide. In general, scenarios in emissions tend to show improved governance, increased equi-
ty and political participation, reduced conflict, and improved
environmental quality. They also tend to show increased ener-
4 The reference to a particular concentration level does not imply an gy efficiency, shifts to non-fossil energy sources, and/or shifts
agreed-upon desirability of stabilization at this level. The selection of to a post-industrial (service-based) economy; population tends
550ppmv is based on the fact that the majority of studies in the litera- to stabilize at relatively low levels, in many cases thanks to
ture analyze this level, and does not imply any endorsement of this increased prosperity, expanded provision of family planning,
level as a target for climate change mitigation policies. and improved rights and opportunities for women. A key impli-
cation is that sustainable development policies can make a sig- the whole set of scenarios. These six scenarios include mark-
nificant contribution to emission reduction. er scenarios for each of the worlds as well as two scenarios,
A1FI and A1T, which illustrate alternative energy technology
Third, different combinations of driving forces are consistent developments in the A1 world (see Figure TS.1).
with low emissions scenarios, which agrees with the SRES
findings. The implication of this seems to be that it is impor- The SRES scenarios lead to the following findings:
tant to consider the linkage between climate policy and other • Alternative combinations of driving-force variables can
policies and conditions associated with the choice of future lead to similar levels and structure of energy use, land-
paths in a general sense. use patterns, and emissions.
• Important possibilities for further bifurcations in future
development trends exist within each scenario family.
2.4 Special Report on Emissions Scenarios • Emissions profiles are dynamic across the range of
SRES scenarios. They portray trend reversals and indi-
Six new GHG emission reference scenario groups (not includ- cate possible emissions cross-over among different sce-
ing specific climate policy initiatives), organized into 4 scenarios.
nario “families”, were developed by the IPCC and published as • Describing potential future developments involves
the Special Report on Emissions Scenarios (SRES). Scenario inherent ambiguities and uncertainties. One and only
families A1 and A2 emphasize economic development but dif- one possible development path (as alluded to, for
fer with respect to the degree of economic and social conver- instance, in concepts such as “business-as-usual sce-
gence; B1 and B2 emphasize sustainable development but also nario”) simply does not exist. The multi-model
differ in terms of degree of convergence (see Box TS.1). In all, approach increases the value of the SRES scenario set,
six models were used to generate the 40 scenarios that com- since uncertainties in the choice of model input assump-
prise the six scenario groups. Six of these scenarios, which tions can be more explicitly separated from the specific
should be considered equally sound, were chosen to illustrate model behaviour and related modelling uncertainties.
Box TS.1. The Emissions Scenarios of the IPCC Special Report on Emissions Scenarios (SRES)
A1. The A1 storyline and scenario family describe a future world of very rapid economic growth, global population that peaks in mid-
century and declines thereafter, and the rapid introduction of new and more efficient technologies. Major underlying themes are con-
vergence among regions, capacity building, and increased cultural and social interactions, with a substantial reduction in regional dif-
ferences in per capita income. The A1 scenario family develops into three groups that describe alternative directions of technological
change in the energy system. The three A1 groups are distinguished by their technological emphasis: fossil intensive (A1FI), non-fos-
sil energy sources (A1T), or a balance across all sources (A1B) (where balanced is defined as not relying too heavily on one particu-
lar energy source, on the assumption that similar improvement rates apply to all energy supply and end-use technologies).
A2. The A2 storyline and scenario family describe a very heterogeneous world. The underlying theme is self-reliance and preserva-
tion of local identities. Fertility patterns across regions converge very slowly, which results in a continuously increasing population.
Economic development is primarily regionally oriented and per capita economic growth and technological change more fragmented
and slower than in other storylines.
B1. The B1 storyline and scenario family describe a convergent world with the same global population, which peaks in mid-century
and declines thereafter, as in the A1 storyline, but with rapid change in economic structures towards a service and information econo-
my, with reductions in material intensity and the introduction of clean and resource-efficient technologies. The emphasis is on global
solutions to economic, social, and environmental sustainability, including improved equity, but without additional climate initiatives.
B2. The B2 storyline and scenario family describe a world in which the emphasis is on local solutions to economic, social, and envi-
ronmental sustainability. It is a world with continuously increasing global population, at a rate lower than in A2, intermediate levels
of economic development, and less rapid and more diverse technological change than in the B1 and A1 storylines. While the scenario
is also oriented towards environmental protection and social equity, it focuses on local and regional levels.
An illustrative scenario was chosen for each of the six scenario groups A1B, A1FI, A1T, A2, B1, and B2. All should be considered
equally sound.
The SRES scenarios do not include additional climate initiatives, which means that no scenarios are included that explicitly assume
implementation of the United Nations Framework Convention on Climate Change or the emissions targets of the Kyoto Protocol.
Scenario Population Economy Environment Equity Technology Globalization
A1FI
A1B
A1T
B1
A2
B2
Figure TS.1: Qualitative directions of SRES scenarios for different indicators.
2.5 Review of Post-SRES Mitigation Scenarios 650ppmv case, with very rapid emission reduction over the
next 20 to 30 years (see Figure TS.2).
Recognizing the importance of multiple baselines in evaluating
mitigation strategies, recent studies analyze and compare mit- A key policy question is what kind of emission reductions in
igation scenarios using as their baselines the new SRES sce- the medium term (after the Kyoto Protocol commitment peri-
narios. This allows for the assessment in this report of 76 od) would be needed. Analysis of the post-SRES scenarios
“post-SRES mitigation scenarios” produced by nine modelling (most of which assume developing country emissions to be
teams. These mitigation scenarios were quantified on the basis below baselines by 2020) suggests that stabilization at 450
of storylines for each of the six SRES scenarios that describe ppmv will require emissions reductions in Annex I countries
the relationship between the kind of future world and the after 2012 that go significantly beyond their Kyoto Protocol
capacity for mitigation. commitments. It also suggests that it would not be necessary to
go much beyond the Kyoto commitments for Annex I by 2020
Quantifications differ with respect to the baseline scenario, to achieve stabilization at 550ppmv or higher. However, it
including assumed storyline, the stabilization target, and the should be recognized that several scenarios indicate the need
model that was used. The post-SRES scenarios cover a very for significant Annex I emission reductions by 2020 and that
wide range of emission trajectories, but the range is clearly none of the scenarios introduces other constraints such as a
below the SRES range. All scenarios show an increase in CO2 limit to the rate of temperature change.
reduction over time. Energy reduction shows a much wider
range than CO2 reduction, because in many scenarios a decou- An important policy question already mentioned concerns the
pling between energy use and carbon emissions takes place as participation of developing countries in emission mitigation. A
a result of a shift in primary energy sources. preliminary finding of the post-SRES scenario analysis is that,
if it is assumed that the CO2 emission reduction needed for
In general, the lower the stabilization target and the higher the stabilization occurs in Annex I countries only, Annex I per
level of baseline emissions, the larger the CO2 divergence from capita CO2 emissions would fall below non-Annex I per capi-
the baseline that is needed, and the earlier that it must occur. ta emissions during the 21st century in nearly all of the stabi-
The A1FI, A1B, and A2 worlds require a wider range of and lization scenarios, and before 2050 in two-thirds of the scenar-
more strongly implemented technology and/or policy measures ios, if developing countries emissions follow the baseline
than A1T, B1, and B2. The 450ppmv stabilization case requires scenarios. This suggests that the stabilization target and the
more drastic emission reduction to occur earlier than under the baseline emission level are both important determinants of the
40 40 40
TS-2a IPCC SRES A1B Scenarios TS-2b IPCC SRES A1T Scenarios TS-2c IPCC SRES A1FI Scenarios
30 A1FI
30 30
20 20 20
A1B
10 650 10 A1T 10 750

550 650 650
450 550 550
450 450
0 0 0
1990 2010 2030 2050 2070 2090 1990 2010 2030 2050 2070 2090 1990 2010 2030 2050 2070 2090
40 40 40
TS-2d IPCC SRES A2 Scenarios TS-2e IPCC SRES B1 Scenarios TS-2f IPCC SRES B2 Scenarios
30 30 30
A2
20 20 20
B2
750
10 10 10 650
550 B1
550 550
450 450
0 0 0
1990 2010 2030 2050 2070 2090 1990 2010 2030 2050 2070 2090 1990 2010 2030 2050 2070 2090
Figure TS.2: Comparison of reference and stabilization scenarios. The figure is divided into six parts, one for each of the ref-
erence scenario groups from the Special Report on Emissions Scenarios (SRES). Each part of the figure shows the range of total
global CO2 emissions (gigatonnes of carbon (GtC)) from all anthropogenic sources for the SRES reference scenario group (shad-
ed in grey) and the ranges for the various mitigation scenarios assessed in the TAR leading to stabilization of CO2 concentra-
tions at various levels (shaded in colour). Scenarios are presented for the A1 family subdivided into three groups (the balanced
A1B group (Figure TS-2a), non-fossil fuel A1T (Figure TS-2b), and the fossil intensive A1FI (Figure TS-2c)) and stabilization of
CO2 concentrations at 450, 550, 650 and 750ppmv; for the A2 group with stabilization at 550 and 750ppmv in Figure TS-2d, the
B1 group and stabilization at 450 and 550ppmv in Figure TS-2e, and the B2 group including stabilization at 450, 550, and
650ppmv in Figure TS-2f. The literature is not available to assess 1000ppmv stabilization scenarios. The figure illustrates that
the lower the stabilization level and the higher the baseline emissions, the wider the gap. The difference between emissions in
different scenario groups can be as large as the gap between reference and stabilization scenarios within one scenario group.
The dotted lines depict the boundaries of the ranges where they overlap (see Box TS.1).
timing when developing countries emissions might need to Assumed mitigation options differ among scenarios and are
diverge from their baseline. strongly dependent on the model structure. However, common
features of mitigation scenarios include large and continuous
Climate policy would reduce per capita final energy use in the energy efficiency improvements and afforestation as well as
economy-emphasized worlds (A1FI, A1B, and A2), but not in low-carbon energy, especially biomass over the next 100 years
the environment-emphasized worlds (B1 and B2). The reduc- and natural gas in the first half of the 21st century. Energy con-
tion in energy use caused by climate policies would be larger in servation and reforestation are reasonable first steps, but inno-
Annex I than in non-Annex I countries. However, the impact of vative supply-side technologies will eventually be required.
climate policies on equity in per capita final energy use would Possible robust options include using natural gas and com-
be much smaller than that of the future development path. bined-cycle technology to bridge the transition to more
There is no single path to a low emission future and countries

and regions will have to choose their own path. Most model 5 “Known technological options” refer to technologies that exist in
results indicate that known technological options5 could operation or pilot plant stage today, as referenced in the mitigation
achieve a broad range of atmospheric CO2 stabilization levels, scenarios discussed in this report. It does not include any new tech-
such as 550ppmv, 450ppmv or, below over the next 100 years nologies that will require drastic technological breakthroughs. In this
or more, but implementation would require associated socio- way it can be considered to be a conservative estimate, considering
economic and institutional changes.. the length of the scenario period.
advanced fossil fuel and zero-carbon technologies, such as the market introduction of efficient hybrid engine cars, rapid
hydrogen fuel cells. Solar energy as well as either nuclear ener- advancement of wind turbine design, demonstration of under-
gy or carbon removal and storage would become increasingly ground carbon dioxide storage, and the near elimination of
important for a higher emission world or lower stabilization N2O emissions from adipic acid production. Greater energy
target. efficiency opportunities for buildings, industry, transportation,
and energy supply are available, often at a lower cost than was
Integration between global climate policies and domestic air expected. By the year 2010 most of the opportunities to reduce
pollution abatement policies could effectively reduce GHG emissions will still come from energy efficiency gains in the
emissions in developing regions for the next two or three end-use sectors, by switching to natural gas in the electric
decades. However, control of sulphur emissions could amplify power sector, and by reducing the release of process GHGs
possible climate change, and partial trade-offs are likely to per- from industry, e.g., N2O, perfluoromethane (CF4), and HFCs.
sist for environmental policies in the medium term. By the year 2020, when a proportion of the existing power
plants will have been replaced in developed countries and
Policies governing agriculture, land use and energy systems countries with economies in transition (EITs), and when many
could be linked for climate change mitigation. Supply of bio- new plants will become operational in developing countries,
mass energy as well as biological CO2 sequestration would the use of renewable sources of energy can begin contributing
broaden the available options for carbon emission reductions, to the reduction of CO2 emissions. In the longer term, nuclear
although the post-SRES scenarios show that they cannot pro- energy technologies – with inherent passive characteristics
vide the bulk of the emission reductions required. That has to meeting stringent safety, proliferation, and waste storage goals
come from other options. – along with physical carbon removal and storage from fossil
fuels and biomass, followed by sequestration, could potential-
ly become available options.
3 Technological and Economic Potential of
Mitigation Options Running counter to the technological and economic potential
for GHG emissions reduction are rapid economic development
3.1 Key Developments in Knowledge about and accelerating change in some socio-economic and behav-
Technological Options to Mitigate GHG Emissions ioural trends that are increasing total energy use, especially in
in the Period up to 2010-2020 since the Second developed countries and high-income groups in developing
Assessment Report countries. Dwelling units and vehicles in many countries are
growing in size, and the intensity of electrical appliance use is
Technologies and practices to reduce GHG emissions are con- increasing. Use of electrical office equipment in commercial
tinuously being developed. Many of these technologies focus buildings is increasing. In developed countries, and especially
on improving the efficiency of fossil fuel energy or electricity the USA, sales of larger, heavier, and less efficient vehicles are
use and the development of low carbon energy sources, since also increasing. Continued reduction or stabilization in retail
the majority of GHG emissions (in terms of CO2 equivalents) energy prices throughout large portions of the world reduces
are related to the use of energy. Energy intensity (energy con- incentives for the efficient use of energy or the purchase of
sumed divided by gross domestic product (GDP)) and carbon energy efficient technologies in all sectors. With a few impor-
intensity (CO2 emitted from burning fossil fuels divided by the tant exceptions, countries have made little effort to revitalize
amount of energy produced) have been declining for more than policies or programmes to increase energy efficiency or pro-
100 years in developed countries without explicit government mote renewable energy technologies. Also since the early
policies for decarbonization, and have the potential to decline 1990s, there has been a reduction in both public and private
further. Much of this change is the result of a shift away from resources devoted to R&D (research and development) to
high carbon fuels such as coal towards oil and natural gas, develop and implement new technologies that will reduce
through energy conversion efficiency improvements and the GHG emissions.
introduction of hydro and nuclear power. Other non-fossil fuel
energy sources are also being developed and rapidly imple- In addition, and usually related to technological innovation
mented and have a significant potential for reducing GHG options, there are important possibilities in the area of social
emissions. Biological sequestration of CO2 and CO2 removal innovation. In all regions, many options are available for
and storage can also play a role in reducing GHG emissions in lifestyle choices that may improve quality of life, while at the
the future (see also Section 4 below). Other technologies and same time decreasing resource consumption and associated
measures focus on the non-energy sectors for reducing emis- GHG emissions. Such choices are very much dependent on
sions of the remaining major GHGs: CH4, nitrous oxide (N2O), local and regional cultures and priorities. They are very close-
hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sul- ly related to technological changes, some of which can be asso-
phur hexafluoride (SF6). ciated with profound lifestyle changes, while others do not
require such changes. While these options were hardly noted in
Since the SAR several technologies have advanced more rapid- the SAR, this report begins to address them.
ly than was foreseen in the earlier analysis. Examples include
450
400
350
300 Middle East

Priamry Energy (EJ)
Latin America
250
Africa
200 Developing countries in Asia Pacific
Economies in transition
150
Industrialized countries
100
50
0
1971 1974 1977 1980 1983 1986 1989 1992 1995 1998
Figure TS.3: World primary energy use by region from 1971 to 1998.
Note: Primary energy calculated using the IEA’s physical energy content method based on the primary energy sources used to produce heat
and electricity.
3.2 Trends in Energy Use and Associated Greenhouse annual rate of 4.6% per year since 1990. Developing countries
Gas Emissions in the Asia-Pacific region emitted 22% of the global total car-
bon dioxide, and have been the fastest growing with increases
Global consumption of energy and associated emission of CO2 of 4.9% per year since 1990. The rest of the developing coun-
continue an upward trend in the 1990s (Figures TS.3 and TS.4). tries accounted for slightly more than 10% of total emissions,
Fossil fuels remain the dominant form of energy utilized in the growing at an annual rate of 4.3% since 1990.
world, and energy use accounts for more than two thirds of the
GHG emissions addressed by the Kyoto Protocol. In 1998, 143 During the period of intense industrialization from 1860 to
exajoules (EJ) of oil, 82EJ of natural gas, and 100EJ of coal 1997, an estimated 13,000EJ of fossil fuel were burned, releas-
were consumed by the world’s economies. Global primary ing 290GtC into the atmosphere, which along with land-use
energy consumption grew an average of 1.3% annually change has raised atmospheric concentrations of CO2 by 30%.
between 1990 and 1998. Average annual growth rates were By comparison, estimated natural gas resources6 are compara-
1.6% for developed countries and 2.3% to 5.5% for developing ble to those for oil, being approximately 35,000EJ. The coal
countries between 1990 and 1998. Primary energy use for the resource base is approximately four times as large. Methane
EITs declined at an annual rate of 4.7% between 1990 and clathrates (not counted in the resource base) are estimated to be
1998 owing to the loss of heavy industry, the decline in overall approximately 780,000EJ. Estimated fossil fuel reserves con-
economic activity, and restructuring of the manufacturing sec- tain 1,500GtC, being more than 5 times the carbon already
tor. released, and if estimated resources are added, there is a total
of 5,000GtC remaining in the ground. The scenarios modelled
Average global carbon dioxide emissions grew – approximate-
ly at the same rate as primary energy – at a rate of 1.4% per
6 Reserves are those occurrences that are identified and measured as
year between 1990 and 1998, which is much slower than the
2.1% per year growth seen in the 1970s and 1980s. This was in economically and technically recoverable with current technologies
large measure because of the reductions from the EITs and and prices. Resources are those occurrences with less certain geolog-
ical and/or economic characteristics, but which are considered poten-
structural changes in the industrial sector of the developed
tially recoverable with foreseeable technological and economic devel-
countries. Over the longer term, global growth in CO2 emis- opments. The resource base includes both categories. On top of that
sions from energy use was 1.9% per year between 1971 and there are additional quantities with unknown certainty of occurrence
1998. In 1998, developed countries were responsible for over and/or with unknown or no economic significance in the foreseeable
50% of energy-related CO2 emissions, which grew at a rate of future, referred to as “additional occurrences” (SAR). Examples of
1.6% annually from 1990. The EITs accounted for 13% of unconventional fossil fuel resources are tar sands and shale oils, geo-
1998 emissions, and their emissions have been declining at an pressured gas, and gas in aquifers.
8.000
7.000
Carbon Dioxide Emissions (MtC)
6.000 Middle East

5.000 Latin America
Africa
4.000
Developing countries in Asia Pacific
3.000 Economies in transition
2.000
Industrialized countries
1.000
0
1971 1974 1977 1980 1983 1986 1989 1992 1995 1998
Figure TS.4: World CO2 emissions by region, 1971-1998.
by the SRES without any specific GHG emission policies fore- developed and EIT countries at costs ranging from -US$250 to
see cumulative release ranging from approximately 1,000 GtC –US$150/tC and by 125MtC in developing countries at costs
to 2,100 GtC from fossil fuel consumption between 2,000 and of –US$250 to US$50/tC. Similarly, CO2 emissions from com-
2,100. Cumulative carbon emissions for stabilization profiles mercial buildings in 2010 can be reduced by 185MtC in devel-
of 450 to 750 ppmv over that same period are between 630 and oped and EIT countries at costs ranging from –US$400 to
1,300GtC (see Figure TS.5). Fossil-fuel scarcity, at least at the –US$250/tC avoided and by 80MtC in developing countries at
global level, is therefore not a significant factor in considering costs ranging from -US$400 to US$0/tC. In the transport sec-
climate change mitigation. On the contrary, different from the tor costs range from –US$200/tC to US$300/tC, and in the
relatively large coal and unconventional oil and gas deposits, agricultural sector from –US$100/tC to US$300/tC. Materials
the carbon in conventional oil and gas reserves or in conven- management, including recycling and landfill gas recovery, can
tional oil resources is much less than the cumulative carbon also produce savings at negative to modest costs under
emissions associated with stabilisation at 450 ppmv or higher US$100/tC. In the energy supply sector a number of fuel
(Figure TS.5). In addition, there is the potential to contribute switching and technological substitutions are possible at costs
large quantities of other GHGs as well. At the same time it is from –US$100 to more than US$200/tC. The realization of this
clear from Figure TS.5 that the conventional oil and gas potential will be determined by the market conditions as influ-
reserves are only a small fraction of the total fossil fuel enced by human and societal preferences and government
resource base. These resource data may imply a change in the interventions.
energy mix and the introduction of new sources of energy dur-
ing the 21st century. The choice of energy mix and associated
investment will determine whether, and if so at what level and
cost, greenhouse concentrations can be stabilized. Currently 7 International Energy Statistics (IEA) report sectoral data for the
most such investment is directed towards discovering and industrial and transport sectors, but not for buildings and agriculture,
developing more conventional and unconventional fossil which are reported as “other”. In this section, information on energy
resources. use and CO2 emissions for these sectors has been estimated using an
allocation scheme and based on a standard electricity conversion fac-
tor of 33%. In addition, values for the EIT countries are from a dif-
3.3 Sectoral Mitigation Technological Options7 ferent source (British Petroleum statistics). Thus, the sectoral values
can differ from the aggregate values presented in section 3.2, although
general trends are the same. In general, there is uncertainty in the data
The potential8 for major GHG emission reductions is estimat-
for the EITs and for the commercial and residential sub-categories of
ed for each sector for a range of costs (Table TS.1). In the
the buildings sector in all regions.
industrial sector, costs for carbon emission abatement are esti-
mated to range from negative (i.e., no regrets, where reductions 8The potential differs in different studies assessed but the aggregate
can be made at a profit), to around US$300/tC9. In the build- potential reported in Sections 3 and 4 refers to the socio-economic
ings sector, aggressive implementation of energy-efficient potential as indicated in Figure TS.7.
technologies and measures can lead to a reduction in CO2
9 All costs in US$.
emissions from residential buildings in 2010 by 325MtC/yr in
4000
Historic coal emissions
Historic gas emissions

3500
Historic oil emissions
3000 Unconventional reserves and resources
Conventional resources (upper estimate)

2500
Conventional reserves
GtC
2000 Scenarios
1500
1000
500
0
l
al
8
B1
T
B2
A2
FI
00
Oi
Ga
99
A1
35
45
55
65
75
A1
Co
A1
10
-1
RE
RE
RE
RE
RE
RE
80
W
18
SRES scenarios
Figure TS.5: Carbon in oil, gas and coal reserves and resources compared with historic fossil fuel carbon emissions 1860-1998,
and with cumulative carbon emissions from a range of SRES scenarios and TAR stabilization scenarios up until 2100. Data for
reserves and resources are shown in the left hand columns. Unconventional oil and gas includes tar sands, shale oil, other heavy
oil, coal bed methane, deep geopressured gas, gas in acquifers, etc. Gas hydrates (clathrates) that amount to an estimated 12,000
GtC are not shown. The scenario columns show both SRES reference scenarios as well as scenarios which lead to stabilization
of CO2 concentrations at a range of levels. Note that if by 2100 cumulative emissions associated with SRES scenarios are equal
to or smaller than those for stabilization scenarios, this does not imply that these scenarios equally lead to stabilization.
Table TS.2 provides an overview and links with barriers and been phased out, and are projected to decline further as HCFCs
mitigation impacts. Sectoral mitigation options are discussed are phased out. R&D effort has led to increased efficiency of
in more detail below. refrigerators and cooling and heating systems. In spite of the
continued improvement in technology and the adoption of
3.3.1 The Main Mitigation Options in the Buildings Sector improved technology in many countries, energy use in build-
ings has grown more rapidly than total energy demand from
The buildings sector contributed 31% of global energy-related 1971 through 1995, with commercial building energy register-
CO2 emissions in 1995, and these emissions have grown at an ing the greatest annual percentage growth (3.0% compared to
annual rate of 1.8% since 1971. Building technology has con- 2.2% in residential buildings). This is largely a result of the
tinued on an evolutionary trajectory with incremental gains increased amenity that consumers demand – in terms of
during the past five years in the energy efficiency of windows, increased use of appliances, larger dwellings, and the modern-
lighting, appliances, insulation, space heating, refrigeration, ization and expansion of the commercial sector – as economies
and air conditioning. There has also been continued develop- grow. There presently exist significant cost-effective techno-
ment of building controls, passive solar design, integrated logical opportunities to slow this trend. The overall technical
building design, and the application of photovoltaic systems in potential for reducing energy-related CO2 emissions in the
buildings. Fluorocarbon emissions from refrigeration and air buildings sector using existing technologies combined with
conditioning applications have declined as chlorofluorocar- future technical advances is 715MtC/yr in 2010 for a base case
bons (CFCs) have been phased out, primarily thanks to with carbon emissions of 2,600MtC/yr (27%), 950MtC/yr in
improved containment and recovery of the fluorocarbon refrig- 2020 for a base case with carbon emissions of 3,000MtC/yr
erant and, to a lesser extent, owing to the use of hydrocarbons (31%), and 2,025MtC/yr in 2050 for a base case with carbon
and other non-fluorocarbon refrigerants. Fluorocarbon use and emissions of 3,900MtC/yr (52%). Expanded R&D can assure
emission from insulating foams have declined as CFCs have continued technology improvement in this sector.
Table TS.1: Estimations of greenhouse gas emission reductions and cost per tonne of carbon equivalent avoided following the anticipated socio-economic potential uptake 30
by 2010 and 2020 of selected energy efficiency and supply technologies, either globally or by region and with varying degrees of uncertainty
Region US$/tC avoided 2010 2020 References, comments, and

–400 –200 0 +200 relevant section in Chapter 3
Potentiala Probabilityb Potentiala Probabilityb of this report
Buildings / appliances
Residential sector OECD/EIT ◊◊◊◊◊ ◊◊◊◊◊ Acosta Moreno et al., 1996;
Brown et al., 1998
Dev. cos. ◊◊◊ ◊◊◊◊◊ Wang and Smith, 1999
Commercial sector OECD/EIT ◊◊◊◊ ◊◊◊◊◊
Dev. cos. ◊◊◊ ◊◊◊◊◊
Transport
Automobile efficiency USA ◊◊◊◊ ◊◊◊ Interlab. Working Group, 1997
improvements Brown et al, 1998
Europe ◊◊ ◊◊ US DOE/EIA, 1998
ECMT, 1997 (8 countries only)
Japan ◊◊ ◊◊ Kashiwagi et al, 1999
Denis and Koopman, 1998
Dev. cos. ◊◊ ◊◊ Worrell et al., 1997b
Manufacturing
CO2 removal – fertilizer; Global ◊◊◊◊ ◊◊◊◊ Table 3.21
refineries
Material efficiency improvement Global ◊◊◊ ◊◊◊ Table 3.21
Blended cements Global ◊◊◊ ◊◊◊ Table 3.21
N2O reduction by chem. indus. Global ◊◊◊◊ ◊◊◊ Table 3.21
PFC reduction by Al industry Global ◊◊◊ ◊ ◊◊ Table 3.21
HFC-23 reduction by chem. Global ◊◊◊ ◊◊◊ Table 3.21

industry
Energy efficient improvements Global ◊◊◊◊◊ ◊◊◊◊ Table 3.19
(continued)
Technical Summary
Table TS.1: continued
Region US $/tC avoided 2010 2020 References, comments, and

Technical Summary
Agriculture
Increased uptake of Dev. cos. ◊◊ ◊◊ Zhou, 1998; Table 3.27
conservation tillage and Dick et al., 1998
cropland management Global ◊◊ ◊◊◊ IPCC, 2000
Soil carbon sequestration Global ◊◊ ◊◊◊ Lal and Bruce, 1999
Table 3.27
Nitrogenous fertilizer OECD ◊◊◊ ◊◊◊ Kroeze & Mosier, 1999

management Table 3.27
Global ◊◊◊ ◊◊◊◊ OECD, 1999; IPCC, 2000
Enteric methane reduction OECD ◊◊ ◊◊◊ Kroeze & Mosier, 1999

Table 3.27
USA ◊◊ ◊◊◊ OECD, 1998
Reimer & Freund, 1999
Dev. cos. ◊ ◊◊ Chipato, 1999
Rice paddy irrigation and Global ◊◊ ◊◊◊ Riemer & Freund, 1999
fertilizers IPCC, 2000
Wastes
Landfill methane capture OECD ◊◊◊ ◊◊◊◊ Landfill methane USEPA, 1999
Energy supply
Nuclear for coal Global ◊◊ ◊◊◊◊ Totalsc – See Section 3.8.6
Annex I ◊◊ ◊◊ Table 3.35a
Non-Annex I ◊◊◊ ◊◊◊ Table 3.35b
Nuclear for gas Annex I ◊ ◊ Table 3.35c
Non-Annex I ◊ ◊ Table 3.35d
(continued)
31
32
Region US$/tC avoided 2010 2020 References, comments, and

Gas for coal Annex I ◊◊◊ ◊◊◊◊ Table 3.35a
Non-Annex I ◊◊◊◊ ◊◊◊◊ Tables 3.35b
CO2 capture from coal Global ◊◊ ◊◊ Tables 3.35a + b
CO2 capture from gas Global ◊◊ ◊◊ Tables 3.35c + d
Biomass for coal Global ◊◊◊◊ ◊◊◊◊ Tables 3.35a + b

Moore, 1998; Interlab w. gp. 1997
Biomass for gas Global ◊ ◊◊◊ Tables 3.35c + d
Wind for coal or gas Global ◊◊◊ ◊◊◊◊ Tables 3.35a - d
BTM Cons 1999; Greenpeace, 1999
Co-fire coal with 10% biomass USA ◊◊◊ ◊◊◊ Sulilatu, 1998
Solar for coal Annex I ◊ ◊ Table 3.35a
Non-Annex I ◊ ◊ Table 3.35b
Hydro for coal Global ◊ ◊◊ Tables 3.35a + b
Hydro for gas Global ◊ ◊◊ Tables 3.35c + d
Notes:
a Potential in terms of tonnes of carbon equivalent avoided for the cost range of US$/tC given.
= <20 MtC/yr = 20-50 MtC/yr = 50-100MtC/yr = 100-200MtC/yr = >200 MtC/yr
b Probabilityof realizing this level of potential based on the costs as indicated from the literature.
◊ = Very unlikely ◊ ◊ = Unlikely ◊ ◊ ◊ = Possible ◊ ◊ ◊ ◊ = Probable ◊ ◊ ◊ ◊ ◊ = Highly probable
c Energy supply total mitigation options assumes that not all the potential will be realized for various reasons including competition between the individual technologies as listed below the totals.
Technical Summary
Table TS.2: Technological options, barriers, opportunities, and impacts on production in various sectors
Technological options Barriers and opportunities Implications of mitigation policies on sectors
Buildings, households and services: Hundreds of technologies Barriers: In developed countries a market structure not con- Service industries: Many will gain output and employment
and measures exist that can improve the energy efficiency of ducive to efficiency improvements, misplaced incentives, and depending on how mitigation policies are implemented, howe-
Technical Summary
appliances and equipment as well as building structures in all lack of information; and in developing countries lack of finan- ver in general the increases are expected to be small and diffu-
regions of the world. It is estimated that CO2 emissions from cing and skills, lack of information, traditional customs, and sed.
residential buildings in 2010 can be reduced by 325MtC in administered pricing.
developed countries and the EIT region at costs ranging from Households and the informal sector: The impact of mitigation on
-US$250 to -US$150/tC and by 125MtC in developing coun- Opportunities: Developing better marketing approaches and households comes directly through changes in the technology
tries at costs of -US$250 to US$50/tC. Similarly, CO2 emis- skills, information-based marketing, voluntary programmes and price of household’s use of energy and indirectly through
sions from commercial buildings in 2010 can be reduced by and standards have been shown to overcome barriers in deve- macroeconomic effects on income and employment. An impor-
185MtC in industrialized countries and the EIT region at costs loped countries. Affordable credit skills, capacity building, tant ancillary benefit is the improvement in indoor and outdoor
ranging from -US$400 to -US$250/tC and by 80MtC in deve- information base and consumer awareness, standards, incenti- air quality, particularly in developing countries and cities all
loping countries at costs ranging from -US$400 to US$0/tC. ves for capacity building, and deregulation of the energy over the world.
These savings represent almost 30% of buildings, CO2 emis- industry are ways to address the aforementioned barriers in
sions in 2010 and 2020 compared to a central scenario such as the developing world.
the SRES B2 Marker scenario.
Transportation: Transportation technology for light-duty vehi- Barriers: Risk to manufacturers of transportation equipment is Transportation: Growth in transportation demand is projected to
cles has advanced more rapidly than anticipated in the SAR, an important barrier to more rapid adoption of energy efficient remain, influenced by GHG mitigation policies only in a limited
as a consequence of international R&D efforts. Hybrid-elec- technologies in transport. Achieving significant energy effi- way. Only limited opportunities for replacing fossil carbon -
tric vehicles have already appeared in the market and intro- ciency improvements generally requires a “clean sheet” rede- based fuels exist in the short to medium term. The main effect of
duction of fuel cell vehicles by 2003 has been announced by sign of vehicles, along with multibillion dollar investments in mitigation policies will be to improve energy efficiency in all
most major manufacturers. The GHG mitigation impacts of new production facilities. On the other hand, the value of gre- modes of transportation.
technological efficiency improvements will be diminished to ater efficiency to customers is the difference between the pre-
some extent by the rebound effect, unless counteracted by sent value of fuel savings and increased purchase price, which
policies that effectively increase the price of fuel or travel. In net can often be a small quantity. Although markets for trans-
countries with high fuel prices, such as Europe, the rebound port vehicles are dominated by a very small number of com-
effect may be as large as 40%; in countries with low fuel pri- panies in the technical sense, they are nonetheless highly
ces, such as the USA, the rebound appears to be no larger than competitive in the sense that strategic errors can be very cost-
20%. Taking into account rebound effects, technological ly. Finally, many of the benefits of increased energy efficien-
measures can reduce GHG emissions by 5%-15% by 2010 cy accrue in the form of social rather than private benefits.
and 15%-35% by 2020, in comparison to a baseline of conti- For all these reasons, the risk to manufacturers of sweeping
nued growth. technological change to improve energy efficiency is general-
ly perceived to outweigh the direct market benefits.
Enormous public and private investments in transportation
infrastructure and a built environment adapted to motor vehi-
cle travel pose significant barriers to changing the modal
structure of transportation in many countries.
(continued)
33
Table TS.2: continued 34
Opportunities: Information technologies are creating new

opportunities for pricing some of the external costs of trans-
portation, from congestion to environmental pollution.
Implementation of more efficient pricing can provide greater
incentives for energy efficiency in both equipment and modal
structure. The factors that hinder the adoption of fuel-effi-
cient technologies in transport vehicle markets create condi-
tions under which energy efficiency regulations, voluntary or
mandatory, can be effective. Well-formulated regulations eli-
minate much of the risk of making sweeping technological
changes, because all competitors face the same regulations.
Study after study has demonstrated the existence of technolo-
gies capable of reducing vehicle carbon intensities by up to
50% or in the longer run 100%, approximately cost-effective-
ly. Finally, intensive R&D efforts for light-duty road vehicles
have achieved dramatic improvements in hybrid power-train
and fuel cell technologies. Similar efforts could be directed at
road freight, air, rail, and marine transport technologies, with
potentially dramatic pay-offs.
Industry. Energy efficiency improvement is the main emis- Barriers: lack of full-cost pricing, relatively low contribution Industry: Mitigation is expected to lead to structural change in
sion reduction option in industry. Especially in industrialized of energy to production costs, lack of information on part of manufacturing in Annex I countries (partly caused by changing
countries much has been done already to improve energy effi- the consumer and producer, limited availability of capital and demands in private consumption), with those sectors supplying
ciency, but options for further reductions remain. 300 - skilled personnel are the key barriers to the penetration of energy-saving equipment and low-carbon technologies benefit-
500MtC/yr and 700 -1,100MtC/yr can be reduced by 2010 mitigation technology in the industrial sector in all, but most ting and energy-intensive sectors having to switch fuels, adopt
and 2020, respectively, as compared to a scenario like SRES importantly in developing countries. new technologies, or increase prices. However, rebound effects
B2. The larger part of these options has net negative costs. may lead to unexpected negative results
Non-CO2 emissions in industry are generally relatively small Opportunities: legislation to address local environmental con-
and can be reduced by over 85%, most at moderate or some- cerns; voluntary agreements, especially if complemented by
times even negative costs. government efforts; and direct subsidies and tax credits are
approaches that have been successful in overcoming the
above barriers. Legislation, including standards, and better
marketing are particularly suitable approaches for light indus-
tries.
(continued)
Technical Summary
Land-use change and forestry. There are three fundamental Barriers: to mitigation in land-use change and forestry inclu- GHG mitigation policies can have a large effect on land use,
ways in which land use or management can mitigate atmosp- de lack of funding and of human and institutional capacity to especially through carbon sequestration and biofuel production.
monitor and verify, social constraints such as food supply, In tropical countries, large-scale adoption of mitigation activities
Technical Summary
heric CO2 increases: protection, sequestration, and substitu-

tiona. These options show different temporal patterns; conse- people living off the natural forest, incentives for land cle- could lead to biodiversity conservation, rural employment gene-
quently, the choice of options and their potential effectiveness aring, population pressure, and switch to pastures because of ration and watershed protection contributing to sustainable deve-
depend on the target time frame as well as on site productivi- demand for meat. In tropical countries, forestry activities are lopment. To achieve this, institutional changes to involve local
ty and disturbance history. The SAR estimated that globally often dominated by the state forest departments with a mini- communities and industry and necessary thereby leading to a
these measures could reduce atmospheric C by about 83 to mal role for local communities and the private sector. In some reduced role for governments in managing forests.
131GtC by 2050 (60 to 87GtC in forests and 23 to 44GtC in parts of the tropical world, particularly Africa, low crop pro-
agricultural soils). Studies published since then have not sub- ductivity and competing demands on forests for crop produc-
stantially revised these estimates. The costs of terrestrial tion and fuelwood are likely to reduce mitigation opportuni-
management practices are quite low compared to alternatives, ties.
and range from 0 ('win-win' opportunities) to US$12/tC.
Opportunities: in land use and forestry, incentives and policies
are required to realize the technical potential. There may be in
the form of government regulations, taxes, and subsidies, or
through economic incentives in the form of market payments
for capturing and holding carbon as suggested in the Kyoto
Protocol, depending on its implementation following deci-
sions by CoP.
Agriculture and waste management. Energy inputs are gro- Barriers: In agriculture and waste management, these include Energy: forest and land management can provide a variety of
wing by <1% per year globally with the highest increases in inadequate R&D funding, lack of intellectual property rights, solid, liquid, or gaseous fuels that are renewable and that can
non-OECD countries but they have reduced in the EITs. lack of national human and institutional capacity and infor- substitute for fossil fuels.
Several options already exist to decrease GHG emissions for mation in the developing countries, farm-level adoption cons-
investments of -US$50 to 150/tC. These include increasing traints, lack of incentives and information for growers in Materials: products from forest and other biological materials
carbon stock by cropland management (125MtC/yr by 2010); developed countries to adopt new husbandry techniques, are used for construction, packaging, papers, and many other
reducing CH4 emissions from better livestock management (need other benefits, not just greenhouse gas reduction). uses and are often less energy-intensive than are alternative
(>30MtC/yr) and rice production (7MtC/yr); soil carbon materials that provide the same service.
sequestration (50-100MtC/yr) and reducing N2O emissions Opportunities: Expansion of credit schemes, shifts in research
from animal wastes and application of N measures are feasi- priorities, development of institutional linkages across coun- Agriculture/land use: commitment of large areas to carbon
ble in most regions given appropriate technology transfer and tries, trading in soil carbon, and integration of food, fibre, and sequestration or carbon management may compliment or con-
incentives for farmers to change their traditional methods. energy products are ways by which the barriers may be over- flict with other demands for land, such as agriculture. GHG miti-
Energy cropping to displace fossil fuels has good prospects if come. Measures should be linked with moves towards sustai- gation will have an impact on agriculture through increased
the costs can be made more competitive and the crops are pro- nable production methods. demand for biofuel production in many regions. Increasing com-
duced sustainably. Improved waste management can decrea- petition for arable land may increase prices of food and other
se GHG emissions by 200MtCeq in 2010 and 320MtCeq in Energy cropping provides benefits of land use diversification agricultural products.
2020 as compared to 240MtCeq emissions in 1990. where suitable land is currently under utilized for food and
fibre production and water is readily available.
35
(continued)
Table TS.2: continued 36
Waste management: Utilization of methane from landfills and Barriers: Little is being done to manage landfill gas or to redu-
from coal beds. The use of landfill gas for heat and electric ce waste in rapidly growing markets in much of the develo-
power is also growing. In several industrial countries and ping world.
especially in Europe and Japan, waste-to-energy facilities
have become more efficient with lower air pollution emis- Opportunities: countries like the US and Germany have spe-
sions, paper and fibre recycling, or by utilizing waste paper as cific policies to either reduce methane producing waste,
a biofuel in waste to energy facilities. and/or requirements to utulize methane from landfills as an
energy source. Costs of recovery are negative for half of land-
fill methane.
Energy sector: In the energy sector, options are available both Barriers: key barriers are human and institutional capacity, Coal: Coal production, use, and employment are likely to fall as
to increase conversion efficiency and to increase the use of imperfect capital markets that discourage investment in small a result of greenhouse gas mitigation policies, compared with
primary energy with less GHGs per unit of energy produced, decentralized systems, more uncertain rates of return on projections of energy supply without additional climate policies.
by sequestering carbon, and reducing GHG leakages. Win- investment, high trade tariffs, lack of information, and lack of However, the costs of adjustment will be much lower if policies
win options such as coal bed methane recovery and improved intellectual property rights for mitigation technologies. For for new coal production also encourage clean coal technology.
energy efficiency in coal and gas fired power generation as renewable energy, high first costs, lack of access to capital,
well as co-production of heat and electricity can help to redu- and subsidies for fossil fuels and key barriers. Oil: Global mitigation policies are likely to lead to reductions in
ce emissions. With economic development continuing, effi- oil production and trade, with energy exporters likely to face
ciency increases alone will be insufficient to control GHG Opportunities for developing countries include promotion of reductions in real incomes as compared to a situation without
emissions from the energy sector. Options to decrease emis- leapfrogs in energy supply and demand technology, facilita- such policies. The effect on the global oil price of achieving the
sions per unit energy produced include new renewable forms ting technology transfer through creating an enabling envi- Kyoto targets, however, may be less severe than many of the
of energy, which are showing strong growth but still account ronment, capacity building, and appropriate mechanisms for models predict, because of the options to include non-CO2 gases
for less than 1% of energy produced worldwide. Technologies transfer of clean and efficient energy technologies. Full cost and the flexible mechanisms in achieving the target, which are
for CO2 capture and disposal to achieve “clean fossil” energy pricing and information systems provide opportunities in often not included in the models.
have been proposed and could contribute significantly at developed countries. Ancillary benefits associated with
costs competitive with renewable energy although considera- improved technology, and with reduced production and use of Gas: Over the next 20 years mitigation may influence the use of
ble research is still needed on the feasibility and possible fossil fuels, can be substantial. natural gas may positively or negatively, depending on regional
environmental impacts of such methods to determine their and local conditions. In the Annex I countries any switch that
application and usage. Nuclear power and, in some areas, lar- takes place from coal or oil would be towards natural gas and
ger scale hydropower could make a substantially increased renewable sources for power generation. In the case of the non-
contribution but face problems of costs and acceptability. Annex 1 countries, the potential for switching to natural gas is
Emerging fuel cells are expected to open opportunities for much higher, however energy security and the availability of
increasing the average energy conversion efficiency in the domestic resources are considerations, particularly for countries
decades to come. such as China and India with large coal reserves.
(continued)
Technical Summary
Renewables: Renewable sources are very diverse and the miti-

gation impact would depend on technological development. It
Technical Summary
would vary from region to region depending on resource endow-

ment. However, mitigation is very likely to lead to larger mar-
kets for the renewables industry. In that situation, R&D for cost
reduction and enhanced performance and increased flow of
funds to renewables could increase their application leading to
cost reduction.
Nuclear: There is substantial technical potential for nuclear

power development to reduce greenhouse gas emissions;
whether this is realized will depend on relative costs, political
factors, and public acceptance.
Halocarbons: Emissions of HFCs are growing as HFCs are Barriers: uncertainty with respect to the future of HFC policy
being used to replace some of the ozone-depleting substances in relation to global warming and ozone depletion.
being phased out. Compared to SRES projections for HFCs in
2010, it is estimated that emissions could be lower by as Opportunities: capturing new technological developments
much as 100MtCeq at costs below US$200/tCeq. About half of
the estimated reduction is an artifact caused by the SRES
baseline values being higher than the study baseline for this
report. The remainder could be accomplished by reducing
emissions through containment, recovering and recycling ref-
rigerants, and through use of alternative fluids and technolo-
gies.
Geo-engineering: Regarding mitigation opportunities in mari- Barriers: In geo-engineering, the risks for unanticipated con- Sector not yet in existence: not applicable.
ne ecosystems and geo-engineeringb, human understanding of sequences are large and it may not even be possible to engi-
biophysical systems, as well as many ethical, legal, and equi- neer the regional distribution of temperature and precipita-
ty assessments are still rudimentary. tion.
Opportunities: Some basic inquiry appears appropriate.
a 'Protection' refers to active measures that maintain and preserve existing C reserves, including those in vegetation, soil organic matter, and products exported from the ecosystem (e.g., preventing the conver-
sion of tropical forests for agricultural purposes and avoiding drainage of wetlands). 'Sequestration' refers to measures, deliberately undertaken, that increase C stocks above those already present (e.g., afforesta-
tion, revised forest management, enhanced C storage in wood products, and altered cropping systems, including more forage crops, reduced tillage). “Substitution” refers to practices that substitute renewable
biological products for fossil fuels or energy-intensive products, thereby avoiding the emission of CO2 from combustion of fossil fuels.
b Geo-engineering involves efforts to stabilize the climate system by directly managing the energy balance of the earth, thereby overcoming the enhanced greenhouse effect.
37
3.3.2 The Main Mitigation Options in the Transport Sector sions in OECD economies (-0.8%/yr between 1990 and 1995).
The CO2 from EITs declined most strongly (-6.4% per year
In 1995, the transport sector contributed 22% of global energy- between 1990 and 1995 when total industrial production
related carbon dioxide emissions; globally, emissions from this dropped).
sector are growing at a rapid rate of approximately 2.5% annu-
ally. Since 1990, principal growth has been in the developing Differences in the energy efficiency of industrial processes
countries (7.3% per year in the Asia–Pacific region) and is between different developed countries, and between developed
actually declining at a rate of 5.0% per year for the EITs. and developing countries remain large, which means that there
Hybrid gasoline-electric vehicles have been introduced on a are substantial differences in relative emission reduction poten-
commercial basis with fuel economies 50%-100% better than tials between countries.
those of comparably sized four-passenger vehicles. Biofuels
produced from wood, energy crops, and waste may also play an Improvement of the energy efficiency of industrial processes is
increasingly important role in the transportation sector as enzy- the most significant option for lowering GHG emissions. This
matic hydrolysis of cellulosic material to ethanol becomes potential is made up of hundreds of sector-specific technologies.
more cost effective. Meanwhile, biodiesel, supported by tax The worldwide potential for energy efficiency improvement –
exemptions, is gaining market share in Europe. Incremental compared to a baseline development – for the year 2010 is esti-
improvements in engine design have, however, largely been mated to be 300-500MtC and for the year 2020 700-900MtC. In
used to enhance performance rather than to improve fuel econ- the latter case continued technological development is necessary
omy, which has not increased since the SAR. Fuel cell powered to realize the potential. The majority of energy efficiency
vehicles are developing rapidly, and are scheduled to be intro- improvement options can be realized at net negative costs.
duced to the market in 2003. Significant improvements in the
fuel economy of aircraft appear to be both technically and eco- Another important option is material efficiency improvement
nomically possible for the next generation fleet. Nevertheless, (including recycling, more efficient product design, and mate-
most evaluations of the technological efficiency improvements rial substitution); this may represent a potential of 600MtC in
(Table TS.3) show that because of growth in demand for trans- the year 2020. Additional opportunities for CO2 emissions
portation, efficiency improvement alone is not enough to avoid reduction exist through fuel switching, CO2 removal and stor-
GHG emission growth. Also, there is evidence that, other age, and the application of blended cements.
things being equal, efforts to improve fuel efficiency have only
partial effects in emission reduction because of resulting A number of specific processes not only emit CO2, but also
increases in driving distances caused by lower specific opera- non-CO2 GHGs. The adipic acid manufacturers have strongly
tional costs. reduced their N2O emissions, and the aluminium industry has
made major gains in reducing the release of PFCs (CF4, C2F6).
3.3.3 The Main Mitigation Options in the Industry Sector Further reduction of non-CO2 GHGs from manufacturing
industry to low levels is often possible at relatively low costs
Industrial emissions account for 43% of carbon released in per tonne of C-equivalent (tCeq) mitigated.
1995. Industrial sector carbon emissions grew at a rate of 1.5%
per year between 1971 and 1995, slowing to 0.4% per year Sufficient technological options are known today to reduce
since 1990. Industries continue to find more energy efficient GHG emissions from industry in absolute terms in most devel-
processes and reductions of process-related GHGs. This is the oped countries by 2010, and to limit growth of emissions in
only sector that has shown an annual decrease in carbon emis- this sector in developing countries significantly.
Table TS.3: Projected energy intensities for transportation from 5-Laboratory Study in the USAa
Determinants 1997 2010

BAU Energy HE/LC
efficiency
New passenger car l/100km 8.6 8.5 6.3 5.5

New light truck l/100km 11.5 11.4 8.7 7.6
Light-duty fleet l/100kmb 12.0 12.1 10.9 10.1
Aircraft efficiency (seat-l/100km) 4.5 4.0 3.8 3.6
Freight truck fleet l/100km 42.0 39.2 34.6 33.6
Rail efficiency (tonne-km/MJ) 4.2 4.6 5.5 6.2
a BAU, Business as usual; HE/LC, high- energy/low-carbon.

b Includes existing passenger cars and light trucks.
3.3.4 The Main Mitigation Options in the Agricultural terms of GHG emissions. In several developed countries, and
Sector especially in Europe and Japan, waste-to-energy facilities have
become more efficient with lower air pollution emissions.
Agriculture contributes only about 4% of global carbon emis-
sions from energy use, but over 20% of anthropogenic GHG 3.3.6 The Main Mitigation Options in the Energy Supply
emissions (in terms of MtCeq/yr) mainly from CH4 and N2O as Sector
well as carbon from land clearing. There have been modest
gains in energy efficiency for the agricultural sector since the Fossil fuels continue to dominate heat and electric power pro-
SAR, and biotechnology developments related to plant and duction. Electricity generation accounts for 2,100MtC/yr or
animal production could result in additional gains, provided 37.5% of global carbon emissions10. Baseline scenarios with-
concerns about adverse environmental effects can be adequate- out carbon emission policies anticipate emissions of 3,500 and
ly addressed. A shift from meat towards plant production for 4,000MtCeq for 2010 and 2020, respectively. In the power sec-
human food purposes, where feasible, could increase energy tor, low-cost combined cycle gas turbines (CCGTs) with con-
efficiency and decrease GHG emissions (especially N2O and version efficiencies approaching 60% for the latest model have
CH4 from the agricultural sector). Significant abatement of become the dominant option for new electric power plants
GHG emissions can be achieved by 2010 through changes in wherever adequate natural gas supply and infrastructure are
agricultural practices, such as: available. Advanced coal technologies based on integrated
gasification combined cycle or supercritical (IGCCS) designs
• soil carbon uptake enhanced by conservation tillage potentially have the capability of reducing emissions at modest
and reduction of land use intensity; cost through higher efficiencies. Deregulation of the electric
• CH4 reduction by rice paddy irrigation management, power sector is currently a major driver of technological
improved fertilizer use, and lower enteric CH4 emis- choice. Utilization of distributed industrial and commercial
sions from ruminant animals; combined heat and power (CHP) systems to meet space heat-
• avoiding anthropogenic agricultural N2O emissions ing and manufacturing needs could achieve substantial emis-
(which for agriculture exceeds carbon emission from sion reductions. The further implications of the restructuring of
fossil fuel use) through the use of slow release fertiliz- the electric utility industry in many developed and developing
ers, organic manure, nitrification inhibitors, and poten- countries for CO2 emissions are uncertain at this time, although
tially genetically-engineered leguminous plants. N2O there is a growing interest in distributed power supply systems
emissions are greatest in China and the USA, mainly based on renewable energy sources and also using fuel cells,
from fertilizer use on rice paddy soils and other agri- micro-turbines and Stirling engines.
cultural soils. More significant contributions can be
made by 2020 when more options to control N2O emis- The nuclear power industry has managed to increase signifi-
sions from fertilized soils are expected to become avail- cantly the capacity factor at existing facilities, which improved
able. their economics sufficiently that extension of facility life has
become cost effective. But other than in Asia, relatively few
Uncertainties on the intensity of use of these technologies by new plants are being proposed or built. Efforts to develop
farmers are high, since they may have additional costs involved intrinsically safe and less expensive nuclear reactors are pro-
in their uptake. Economic and other barriers may have to be ceeding with the goal of lowering socio-economic barriers and
removed through targetted policies. reducing public concern about safety, nuclear waste storage,
and proliferation. Except for a few large projects in India and
3.3.5 The Main Mitigation Options in the Waste China, construction of new hydropower projects has also
Management Sector slowed because of few available major sites, sometimes-high
costs, and local environmental and social concerns. Another
There has been increased utilization of CH4 from landfills and development is the rapid growth of wind turbines, whose annu-
from coal beds. The use of landfill gas for heat and electric al growth rate has exceeded 25% per year, and by 2000 exceed-
power is also growing because of policy mandates in countries ed 13GW of installed capacity. Other renewables, including
like Germany, Switzerland, the EU, and USA. Recovery costs solar and biomass, continue to grow as costs decline, but total
are negative for half of landfill CH4. Requiring product life contributions from non-hydro renewable sources remain below
management in Germany has been extended from packaging to 2% globally. Fuel cells have the potential to provide highly
vehicles and electronics goods. If everyone in the USA efficient combined sources of electricity and heat as power
increased per capita recycling rates from the national average densities increase and costs continue to drop. By 2010, co-fir-
to the per capita recycling rate achieved in Seattle, Washington, ing of coal with biomass, gasification of fuel wood, more effi-
the result would be a reduction of 4% of total US GHG emis-
sions. Debate is taking place over whether the greater reduction
in lifecycle GHG emissions occurs through paper and fibre 10Note that the section percentages do not add up to 100% as these
recycling or by utilizing waste paper as a biofuel in waste-to- emissions have been allocated to the four sectors in the paragraphs
energy facilities. Both options are better than landfilling in above.
cient photovoltaics, off-shore wind farms, and ethanol-based and water, and not-in-kind technologies. The alternative cho-
biofuels are some of the technologies that are capable of pene- sen to replace CFCs and other ODSs varies widely among the
trating the market. Their market share is expected to increase applications, which include refrigeration, mobile and station-
by 2020 as the learning curve reduces costs and capital stock ary air-conditioning, heat pumps, medical and other aerosol
of existing generation plants is replaced. delivery systems, fire suppression, and solvents.
Simultaneously considering energy efficiency with ozone layer
Physical removal and storage of CO2 is potentially a more protection is important, especially in the context of developing
viable option than at the time of the SAR. The use of coal or countries, where markets have just begun to develop and are
biomass as a source of hydrogen with storage of the waste CO2 expected to grow at a fast rate.
represents a possible step to the hydrogen economy. CO2 has
been stored in an aquifer, and the integrity of storage is being Based on current trends and assuming no new uses outside the
monitored. However, long-term storage is still in the process of ODS substitution area, HFC production is projected to be 370
being demonstrated for that particular reservoir. Research is kt or 170MtCeq/yr by 2010, while PFC production is expected
also needed to determine any adverse and/or beneficial envi- to be less than 12MtCeq/yr. For the year 2010, annual emissions
ronmental impacts and public health risks of uncontrolled are more difficult to estimate. The largest emissions are likely
release of the various storage options. Pilot CO2 capture and to be associated with mobile air conditioning followed by com-
storage facilities are expected to be operational by 2010, and mercial refrigeration and stationary air conditioning. HFC use
may be capable of making major contributions to mitigation by in foam blowing is currently low, but if HFCs replaces a sub-
2020. Along with biological sequestration, physical removal stantial part of the HCFCs used here, their use is projected to
and storage might complement current efforts at improving reach 30MtCeq/yr by 2010, with emissions in the order of 5-
efficiency, fuel switching, and the development of renewables, 10MtCeq/yr.
but must be able to compete economically with them.
The report considers the potential for mitigation technologies in 3.4 The Technological and Economic Potential of
this sector to reduce CO2 emissions to 2020 from new power Greenhouse Gas Mitigation: Synthesis
plants. CCGTs are expected to be the largest provider of new
capacity between now and 2020 worldwide, and will be a strong Global emissions of GHGs grew on average by 1.4% per year
competitor to displace new coal-fired power stations where addi- during the period 1990 to 1998. In many areas, technical
tional gas supplies can be made available. Nuclear power has the progress relevant to GHG emission reduction since the SAR has
potential to reduce emissions if it becomes politically acceptable, been significant and faster than anticipated. The total potential
as it can replace both coal and gas for electricity production. for worldwide GHG emissions reductions resulting from tech-
Biomass, based mainly on wastes and agricultural and forestry nological developments and their adoption amount to 1,900 to
by-products, and wind power are also potentially capable of 2,600MtC/yr by 2010, and 3,600 to 5,050MtC/yr by 2020. The
making major contributions by 2020. Hydropower is an estab- evidence on which this conclusion is based is extensive, but has
lished technology and further opportunities exist beyond those several limitations. No comprehensive worldwide study of
anticipated to contribute to reducing CO2 equivalent emissions. technological potential has yet been done, and the existing
Finally, while costs of solar power are expected to decline sub- regional and national studies generally have varying scopes and
stantially, it is likely to remain an expensive option by 2020 for make different assumptions about key parameters. Therefore,
central power generation, but it is likely to make increased con- the estimates as presented in Table TS.1 should be considered to
tributions in niche markets and off-grid generation. The best mit- be indicative only. Nevertheless, the main conclusion in the
igation option is likely to be dependent on local circumstances, paragraph above can be drawn with high confidence.
and a combination of these technologies has the potential to
reduce CO2 emissions by 350-700MtC by 2020 compared to pro- Costs of options vary by technology and show regional differ-
jected emissions of around 4,00MtC from this sector. ences. Half of the potential emissions reductions may be
achieved by 2020 with direct benefits (energy saved) exceeding
3.3.7 The Main Mitigation Options for Hydrofluoro- direct costs (net capital, operating, and maintenance costs), and
carbons and Perfluorocarbons the other half at a net direct cost of up to US$100/tCeq (at 1998
prices). These cost estimates are derived using discount rates in
HFC and, to a lesser extent, PFC use has grown as these chem- the range of 5% to 12%, consistent with public sector discount
icals replaced about 8% of the projected use of CFCs by weight rates. Private internal rates of return vary greatly, and are often
in 1997; in the developed countries the production of CFCs and significantly higher, which affects the rate of adoption of these
other ozone depleting substances (ODSs) was halted in 1996 to technologies by private entities. Depending on the emissions
comply with the Montreal Protocol to protect the stratospheric scenario this could allow global emissions to be reduced below
ozone layer. HCFCs have replaced an additional 12% of CFCs. 2000 levels in 2010-2020 at these net direct costs. Realizing
The remaining 80% have been eliminated through controlling these reductions will involve additional implementation costs,
emissions, specific use reductions, or alternative technologies which in some cases may be substantial, and will possibly need
and fluids including ammonia, hydrocarbons, carbon dioxide supporting policies (such as those described in Section 6),
increased research and development, effective technology trans- Conservation and sequestration allow time for other options to
fer, and other barriers to be overcome (Section 5 for details). be further developed and implemented. The IPCC SAR esti-
mated that about 60 to 87GtC could be conserved or
Hundreds of technologies and practices exist to reduce GHG sequestered in forests by the year 2050 and another 23 to
emissions from the buildings, transport, and industry sectors. 44GtC could be sequestered in agricultural soils. The current
These energy efficiency options are responsible for more than assessment of the potential of biological mitigation options is
half of the total emission reduction potential of these sectors. in the order of 100GtC (cumulative) by 2050, equivalent to
Efficiency improvements in material use (including recycling) about 10% to 20% of projected fossil fuel emissions during
will also become more important in the longer term. The ener- that period. In this section, biological mitigation measures in
gy supply and conversion sector will remain dominated by terrestrial ecosystems are assessed, focusing on the mitigation
cheap and abundant fossil fuels. However, there is significant potential, ecological and environmental constraints, econom-
emission reduction potential thanks to a shift from coal to nat- ics, and social considerations. Also, briefly, the so-called geo-
ural gas, conversion efficiency improvement of power plants, engineering options are discussed.
the expansion of distributed co-generation plants in industry,
commercial buildings and institutions, and CO2 recovery and Increased carbon pools through the management of terrestrial
sequestration. The continued use of nuclear power plants ecosystems can only partially offset fossil fuel emissions.
(including their lifetime extension), and the application of Moreover, larger C stocks may pose a risk for higher CO2
renewable energy sources could avoid some additional emis- emissions in the future, if the C-conserving practices are dis-
sions from fossil fuel use. Biomass from by-products and continued. For example, abandoning fire control in forests, or
wastes such as landfill gas are potentially important energy reverting to intensive tillage in agriculture may result in a rapid
sources that can be supplemented by energy crop production loss of at least part of the C accumulated during previous years.
where suitable land and water are available. Wind energy and However, using biomass as a fuel or wood to displace more
hydropower will also contribute, more so than solar energy energy-intensive materials can provide permanent carbon mit-
because of its relatively high costs. N2O and fluorinated GHG igation benefits. It is useful to evaluate terrestrial sequestration
reductions have already been achieved through major techno- opportunities alongside emission reduction strategies, as both
logical advances. Process changes, improved containment and approaches will likely be required to control atmospheric CO2
recovery, and the use of alternative compounds and technolo- levels.
gies have been implemented. Potential for future reductions
exists, including process-related emissions from insulated foam Carbon reservoirs in most ecosystems eventually approach
and semiconductor production and by-product emissions from some maximum level. The total amount of carbon stored and/or
aluminium and HCFC-22. The potential for energy efficiency carbon emission avoided by a forest management project at any
improvements connected to the use of fluorinated gases is of a given time is dependent on the specific management practices
similar magnitude to reductions of direct emissions. Soil carbon (see Figure TS.6). Thus, an ecosystem depleted of carbon by
sequestration, enteric CH4 control, and conservation tillage can past events may have a high potential rate of carbon accumula-
all contribute to mitigating GHG emissions from agriculture. tion, while one with a large carbon pool tends to have a low rate
of carbon sequestration. As ecosystems eventually approach
Appropriate policies are required to realize these potentials. their maximum carbon pool, the sink (i.e., the rate of change of
Furthermore, on-going research and development is expected the pool) will diminish. Although both the sequestration rate
to significantly widen the portfolio of technologies that provide and pool of carbon may be relatively high at some stages, they
emission reduction options. Maintaining these R&D activities cannot be maximized simultaneously. Thus, management
together with technology transfer actions will be necessary if strategies for an ecosystem may depend on whether the goal is
the longer term potential as outlined in Table TS.1 is to be real- to enhance short-term accumulation or to maintain the carbon
ized. Balancing mitigation activities in the various sectors with reservoirs through time. The ecologically achievable balance
other goals, such as those related to DES, is key to ensuring between the two goals is constrained by disturbance history, site
they are effective. productivity, and target time frame. For example, options to
maximize sequestration by 2010 may not maximize sequestra-
tion by 2020 or 2050; in some cases, maximizing sequestration
4 Technological and Economic Potential of by 2010 may lead to lower carbon storage over time.
Options to Enhance, Maintain and
Manage Biological Carbon Reservoirs The effectiveness of C mitigation strategies, and the security of
and Geo-engineering expanded C pools, will be affected by future global changes,
but the impacts of these changes will vary by geographical
4.1 Mitigation through Terrestrial Ecosystem and region, ecosystem type, and local abilities to adapt. For exam-
Land Management ple, increases in atmospheric CO2, changes in climate, modi-
fied nutrient cycles, and altered (either natural or human
Forests, agricultural lands, and other terrestrial ecosystems induced disturbance) regimes can each have negative or posi-
offer significant, if often temporary, mitigation potential. tive effects on C pools in terrestrial ecosystems.
225
Displaced fossil fuels
200
Energy for products
Cumulative carbon (tC/ha)
175
Landfill
150
125 Short-lived products
100 Long-lived products
75 Trees
50
Litter
25
Soil
0
0 10 20 30 40 50 60 70 80 90 100
Time (years)
Figure TS.6: Carbon balance from a hypothetical forest management project.

Note: The figure shows cumulative carbon-stock changes for a scenario involving afforestation and harvest for a mix of traditional forest products with some of
the harvest being used as a fuel. Values are illustrative of what might be observed in the southeastern USA or Central Europe. Regrowth restores carbon to the
forest and the (hypothetical) forest stand is harvested every 40 years, with some litter left on the ground to decay, and products accumulate or are disposed of in
landfills. These are net changes in that, for example, the diagram shows savings in fossil fuel emissions with respect to an alternative scenario that uses fossil
fuels and alternative, more energy-intensive products to provide the same services.
In the past, land management has often resulted in reduced C tion strategies can be pursued as one element of more compre-
pools, but in many regions like Western Europe, C pools have hensive strategies aimed at sustainable development, where
now stabilized and are recovering. In most countries in tem- increasing C stocks is but one of many objectives. Often, mea-
perate and boreal regions forests are expanding, although cur- sures can be adopted within forestry, agriculture, and other
rent C pools are still smaller than those in pre-industrial or pre- land uses to provide C mitigation and, at the same time, also
historic times. While complete recovery of pre-historic C pools advance other social, economic, and environmental goals.
is unlikely, there is potential for substantial increases in carbon Carbon mitigation can provide additional value and income to
stocks. The Food and Agriculture Organization (FAO) and the land management and rural development. Local solutions and
UN Economic Commission for Europe (ECE)’s statistics sug- targets can be adapted to priorities of sustainable development
gest that the average net annual increment exceeded timber at national, regional, and global levels.
fellings in managed boreal and temperate forests in the early
1990s. For example, C stocks in live tree biomass have A key to making C mitigation activities effective and sustainable
increased by 0.17GtC/yr in the USA and 0.11GtC/yr in is to balance it with other ecological and/or environmental, eco-
Western Europe, absorbing about 10% of global fossil CO2 nomic, and social goals of land use. Many biological mitigation
emissions for that time period. Though these estimates do not strategies may be neutral or favourable for all three goals and
include changes in litter and soils, they illustrate that land sur- become accepted as “no regrets” or “win-win” solutions. In other
faces play a significant and changing role in the atmospheric cases, compromises may be needed. Important potential environ-
carbon budget. Enhancing these carbon pools provides poten- mental impacts include effects on biodiversity, effects on amount
tially powerful opportunities for climate mitigation. and quality of water resources (particularly where they are
already scarce), and long-term impacts on ecosystem productiv-
In some tropical countries, however, the average net loss of ity. Cumulative environmental, economic, and social impacts
forest carbon stocks continues, though rates of deforestation could be assessed in individual projects and also from broader,
may have declined slightly in the past decade. In agricultural national and international perspectives. An important issue is
lands, options are now available to recover partially the C lost “leakage” – an expanded or conserved C pool in one area lead-
during the conversion from forest or grasslands. ing to increased emissions elsewhere. Social acceptance at the
local, national, and global levels may also influence how effec-
tively mitigation policies are implemented.
4.2 Social and Economic Considerations
Land is a precious and limited resource used for many purpos- 4.3 Mitigation Options
es in every country. The relationship of climate mitigation
strategies with other land uses may be competitive, neutral, or In tropical regions there are large opportunities for C mitiga-
symbiotic. An analysis of the literature suggests that C mitigation, though they cannot be considered in isolation of broader
policies in forestry, agriculture, and other sectors. Additionally, 4.5 Economic Costs
options vary by social and economic conditions: in some
regions slowing or halting deforestation is the major mitigation Most studies suggest that the economic costs of some biologi-
opportunity; in other regions, where deforestation rates have cal carbon mitigation options, particularly forestry options, are
declined to marginal levels, improved natural forest manage- quite modest through a range. Cost estimates of biological mit-
ment practices, afforestation, and reforestation of degraded igation reported to date vary significantly from US$0.1/tC to
forests and wastelands are the most attractive opportunities. about US$20/tC in several tropical countries and from US$20
However, the current mitigative capacity11 is often weak and to US$100/tC in non-tropical countries. Moreover the cost cal-
sufficient land and water is not always available. culations do not cover, in many instances, inter alia, costs for
infrastructure, appropriate discounting, monitoring, data col-
Non-tropical countries also have opportunities to preserve lection and interpretation, and opportunity costs of land and
existing C pools, enhance C pools, or use biomass to offset fos- maintenance, or other recurring costs, which are often exclud-
sil fuel use. Examples of strategies include fire or insect control, ed or overlooked. The lower end of the ranges are biased
forest conservation, establishing fast-growing stands, changing downwards, but understanding and treatment of costs is
silvicultural practices, planting trees in urban areas, ameliorat- improving over time. Furthermore, in many cases biological
ing waste management practices, managing agricultural lands mitigation activities may have other positive impacts, such as
to store more C in soils, improving management of grazing protecting tropical forests or creating new forests with positive
lands, and re-planting grasses or trees on cultivated lands. external environmental effects. However, costs rise as more
biological mitigation options are exercised and as the opportu-
Wood and other biological products play several important nity costs of the land increases. Biological mitigation costs
roles in carbon mitigation: they act as a carbon reservoir; they appear to be lowest in developing countries and higher in
can replace construction materials that require more fossil fuel developed countries. If biological mitigation activities are
input; and they can be burned in place of fossil fuels for renew- modest, leakage is likely to be small. However, the amount of
able energy. Wood products already contribute somewhat to leakage could rise if biological mitigation activities became
climate mitigation, but if infrastructures and incentives can be large and widespread.
developed, wood and agricultural products may become a vital
element of a sustainable economy: they are among the few
renewable resources available on a large scale. 4.6 Marine Ecosystem and Geo-engineering
Marine ecosystems may also offer possibilities for removing

4.4 Criteria for Biological Carbon Mitigation Options CO2 from the atmosphere. The standing stock of C in the
marine biosphere is very small, however, and efforts could
To develop strategies that mitigate atmospheric CO2 and focus, not on increasing biological C stocks, but on using bios-
advance other, equally important objectives, the following cri- pheric processes to remove C from the atmosphere and trans-
teria merit consideration: port it to the deep ocean. Some initial experiments have been
• potential contributions to C pools over time; performed, but fundamental questions remain about the per-
• sustainability, security, resilience, permanence, and manence and stability of C removals, and about unintended
robustness of the C pool maintained or created; consequences of the large-scale manipulations required to have
• compatibility with other land-use objectives; a significant impact on the atmosphere. In addition, the eco-
• leakage and additionality issues; nomics of such approaches have not yet been determined.
• economic costs;
• environmental impacts other than climate mitigation; Geo-engineering involves efforts to stabilize the climate sys-
• social, cultural, and cross-cutting issues, as well as tem by directly managing the energy balance of the earth,
issues of equity; and thereby overcoming the enhanced greenhouse effect. Although
• the system-wide effects on C flows in the energy and there appear to be possibilities for engineering the terrestrial
materials sector. energy balance, human understanding of the system is still
rudimentary. The prospects of unanticipated consequences are
Activities undertaken for other reasons may enhance mitiga- large, and it may not even be possible to engineer the regional
tion. An obvious example is reduced rates of tropical defor- distribution of temperature, precipitation, etc. Geo-engineering
estation. Furthermore, because wealthy countries generally raises scientific and technical questions as well as many ethi-
have a stable forest estate, it could be argued that economic cal, legal, and equity issues. And yet, some basic inquiry does
development is associated with activities that build up forest seem appropriate.
carbon reservoirs.
In practice, by the year 2010 mitigation in land use, land-use
change, and forestry activities can lead to significant mitiga-
11Mitigative capacity: the social, political, and economic structures tion of CO2 emissions. Many of these activities are compatible
and conditions that are required for effective mitigation. with, or complement, other objectives in managing land. The
overall effects of altering marine ecosystems to act as carbon Thus, the socio-economic potential represents the level of
sinks or of applying geo-engineering technology in climate GHG mitigation that would be approached by overcoming
change mitigation remain unresolved and are not, therefore, social and cultural obstacles to the use of technologies that are
ready for near-term application. cost-effective.
Finally, even if all market, institutional, social, and cultural

5 Barriers, Opportunities, and Market barriers were removed, some technologies might not be wide-
Potential of Technologies and Practices ly used simply because they are too expensive. Elimination of
this requirement would therefore take us up to the level of
5.1 Introduction “technological potential”, the maximum technologically feasi-
ble extent of GHG mitigation through technology diffusion.
The transfer of technologies and practices that have the poten-
tial to reduce GHG emissions is often hampered by barriers12 An issue arises as to how to treat the relative environmental
that slow their penetration. The opportunity13 to mitigate GHG costs of different technologies within this framework. Because
concentrations by removing or modifying barriers to or other- the purpose of the exercise is ultimately to identify opportuni-
wise accelerating the spread of technology may be viewed ties for global climate change policies, the technology poten-
within a framework of different potentials for GHG mitigation tials are defined without regard to GHG impacts. Costs and
(Figure TS.7). Starting at the bottom, one can imagine address- benefits associated with other environmental impacts would be
ing barriers (often referred to as market failures) that relate to part of the cost-effectiveness calculation underlying economic
markets, public policies, and other institutions that inhibit the potential only insofar as existing environmental regulations or
diffusion of technologies that are (or are projected to be) cost- policies internalize these effects and thereby impose them on
effective for users without reference to any GHG benefits they consumers. Broader impacts might be ignored by consumers,
may generate. Amelioration of this class of “market and insti- and hence not enter into the determination of economic poten-
tutional imperfections” would increase GHG mitigation tial, but they would be incorporated into a social cost-effec-
towards the level that is labelled as the “economic potential”. tiveness calculation. Thus, to the extent that other environmen-
The economic potential represents the level of GHG mitigation tal benefits make certain technologies socially cost-effective,
that could be achieved if all technologies that are cost-effective even if they are not cost-effective from a consumer’s point of
from the consumers’ point of view were implemented. Because view, the GHG benefits of diffusion of such technologies
economic potential is evaluated from the consumer’s point of would be incorporated in the socio-economic potential.
view, we would evaluate cost-effectiveness using market prices
and the private rate of time discounting, and also take into
account consumers’ preferences regarding the acceptability of 5.2 Sources of Barriers and Opportunities
the technologies’ performance characteristics.
Technological and social innovation is a complex process of
Of course, elimination of all these market and institutional research, experimentation, learning, and development that can
barriers would not produce technology diffusion at the level of contribute to GHG mitigation. Several theories and models
the “technical potential”. The remaining barriers, which define have been developed to understand its features, drivers, and
the gap between economic potential and technical potential, implications. New knowledge and human capital may result
are usefully placed in two groups separated by a socio-eco- from R&D spending, through learning by doing, and/or in an
nomic potential. The first group consists of barriers derived evolutionary process. Most innovations require some social or
from people’s preferences and other social and cultural barri- behavioural change on the part of users. Rapidly changing
ers to the diffusion of new technology. That is, even if market economies, as well as social and institutional structures offer
and institutional barriers are removed, some GHG-mitigating opportunities for locking in to GHG-mitigative technologies
technologies may not be widely used simply because people that may lead countries on to sustainable development path-
do not like them, are too poor to afford them, or because exist- ways. The pathways will be influenced by the particular socio-
ing social and cultural forces operate against their acceptance. economic context that reflects prices, financing, international
If, in addition to overcoming market and institutional barriers, trade, market structure, institutions, the provision of informa-
this second group of barriers could be overcome, what is tion, and social, cultural, and behavioural factors; key elements
labelled as the “socio-economic potential” would be achieved. of these are described below.
Unstable macroeconomic conditions increase risk to private

12 investment and finance. Unsound government borrowing and
A barrier is any obstacle to reaching a potential that can be over-
come by a policy, programme, or measure.
fiscal policy lead to chronic public deficits and low liquidity in
the private sector. Governments may also create perverse
13An opportunity is a situation or circumstance to decrease the gap microeconomic incentives that the encourage rent-seeking and
between the market potential of a technology or practice and the eco- corruption, rather than the efficient use of resources. Trade bar-
nomic, socio-economic, or technological potential. riers that favour inefficient technologies, or prevent access to
Examples of Examples of actions to

Mitigation potential barriers overcome barriers
Physical potential
(theoretical upper-bound, may
shift over time)
Research,
development,
demonstration of
new technologies
Limited availability of Network creation

and knowledge about
Technological potential new technologies Community
(approached by implementing involvement in
technology that has already been policy-making
demonstrated)
Alternative
lifestyles
Education
Policy initiatives
Institutional
reform
Subsidy reform
Micro-credit
Rural
electrification
Co-operative
agreements
New measures
(taxes, incentives)
Multi- and
bi-lateral projects
Market potential
Achieved
(actual use of environmentally sound
technologies and practices)
Time
Figure TS.7: Penetration of environmentally sound technologies: a conceptual framework.

foreign technology, slow technology diffusion. Tied aid still regulation” under community pressure from, for example, non-
dominates in official development assistance. It distorts the governmental organizations (NGOs), trade unions, neighbour-
efficiency of technology choice, and may crowd-out viable hood organizations, etc. may substitute for formal regulatory
business models. pressure.
Commercial financing institutions face high risks with devel- Information is often considered as a public good. Generic
oping “green” financial products. Environmentally sound tech- information regarding the availability of different kinds of
nologies with relatively small project sizes and long repayment technologies and their performance characteristics may have
periods deter banks with their high transaction costs. Small col- the attributes of a “public good” and hence may be underpro-
lateral value makes it difficult to use financing instruments, vided by the private market. This problem is exacerbated by
such as project finance. Innovative approaches in the private the fact that even after a technology is in place and being used,
sector to address these issues include leasing, environmental it is often difficult to quantify the energy savings that resulted
and ethical banks, micro-credits or small grants facilities tar- from its installation owing to measurement errors and the dif-
getted at low income households, environmental funds, energy ficulty with baseline problems. Knowing that this uncertainty
service companies (ESCOs), and green venture capital. The will prevail can itself inhibit technology diffusion.
insurance industry has already begun to react to risks of cli-
mate change. New green financial institutions, such as forestry Current lifestyles, behaviours, and consumption patterns have
investment funds, have tapped market opportunities by work- developed within current and historical socio-cultural contexts.
ing towards capturing values of standing forests. Changes in behaviour and lifestyles may result from a number
of intertwined processes, such as:
Distorted or incomplete prices are also important barriers. The
absence of a market price for certain impacts(externalities), • scientific, technological, and economic developments;
such as environmental harm, constitutes a barrier to the diffu- • developments in dominant world views and public dis-
sion of environmentally beneficial technologies. Distortion of course;
prices because of taxes, subsidies, or other policy interventions • changes in the relationships among institutions, politi-
that make resource consumption more or less expensive to cal alliances, or actor networks;
consumers also impedes the diffusion of resource-conserving • changes in social structures or relationships within
technologies. firms and households; and
• changes in psychological motivation (e.g., conve-
Network externalities can generate barriers. Some technologies nience, social prestige, career, etc.).
operate in such a way that a given user’s equipment interacts
with the equipment of other users so as to create “network Barriers take various forms in association with each of the
externalities”. For example, the attractiveness of vehicles using above processes.
alternative fuels depends on the availability of convenient refu-
elling sites. On the other hand, the development of a fuel dis- In some situations policy development is based on a model of
tribution infrastructure depends on there being a demand for human psychology that has been widely criticized. People are
alternative fuel vehicles. assumed to be rational welfare-maximizers and to have a fixed
set of values. Such a model does not explain processes, such as
Misplaced incentives result between landlords and tenants learning, habituation, value formation, or the bounded ratio-
when the tenant is responsible for the monthly cost of fuel nality, observed in human choice. Social structures can affect
and/or electricity, and the landlord is prone to provide the consumption, for example, through the association of objects
cheapest-first-cost equipment without regard to its monthly with status and class. Individuals’ adoption of more sustainable
energy use. Similar problems are encountered when vehicles consumption patterns depends not only on the match between
are purchased by companies for the use of their employees. those patterns and their perceived needs, but also on the extent
to which they understand their consumption options, and are
Vested interests: A major barrier to the diffusion of technical able to make choices.
progress lies in the vested interests who specialize in conven-
tional technologies and who may, therefore, be tempted to col- Uncertainty
lude and exert political pressure on governments to impose Another important barrier is uncertainty. A consumer may be
administrative procedures, taxes, trade barriers, and regula- uncertain about future energy prices and, therefore, future
tions in order to delay or even prevent the arrival of new inno- energy savings. Also, there may be uncertainty about the next
vations that might destroy their rents. generation of equipment – will next year bring a cheaper or
better model? In practical decision making, a barrier is often
Lack of effective regulatory agencies impedes the introduction associated with the issue of sunk cost and long lifetimes of
of environmentally sound technologies. Many countries have infrastructure, and the associated irreversibilities of invest-
excellent constitutional and legal provisions for environmental ments of the non-fungible infrastructure capita.
protection but the latter are not enforced. However, “informal
5.3 Sector- and Technology-specific Barriers and full cost of GHG emissions would result in a similar impact on
Opportunities CO2 reductions in road transport. Several studies have
explored the potential for adjusting the way existing road taxes,
The following sections describe barriers and opportunities par- licence fees, and insurance premiums are levied and have
ticular to each mitigation sector (see also Table TS.2). found potential emissions reductions of around 10% in OECD
countries. Inadequate development and provision of conve-
Buildings: The poor in every country are affected far more by nient and efficient mass transport systems encourage the use of
barriers in this sector than the rich, because of inadequate more energy consuming private vehicles. It is the combination
access to financing, low literacy rates, adherence to traditional of policies protecting road transport interest, however, that
customs, and the need to devote a higher fraction of their poses the greatest barrier to change, rather than any single type
income to satisfy basic needs, including fuel purchases. Other of instrument.
barriers in this sector are lack of skills and social barriers, mis-
placed incentives, market structure, slow stock turnover, New and used vehicles and/or their technologies mostly flow
administratively set prices, and imperfect information. from the developed to developing countries. Hence, a global
Integrated building design for residential construction could approach to reducing emissions that targets technology in
lead to energy saving by 40%-60%, which in turn could reduce developed countries would have a significant impact on future
the cost of living (Section 3.3.4). emissions from developing countries.
Policies, programmes, and measures to remove barriers and Industry: In industry, barriers may take many forms, and are
reduce energy costs, energy use, and carbon emissions in resi- determined by the characteristics of the firm (size and struc-
dential and commercial buildings fall into ten general cate- ture) and the business environment. Cost-effective energy effi-
gories: voluntary programmes, building efficiency standards, ciency measures are often not undertaken as a result of lack of
equipment efficiency standards, state market transformation information and high transaction costs for obtaining reliable
programmes, financing, government procurement, tax credits, information. Capital is used for competing investment priori-
energy planning (production, distribution, and end-use), and ties, and is subject to high hurdle rates for energy efficiency
accelerated R&D. Affordable credit financing is widely recog- investments. Lack of skilled personnel, especially for small
nized in Africa as one of the critical measures to remove the and medium-sized enterprises (SMEs), leads to difficulties
high first-cost barrier. Poor macroeconomic management cap- installing new energy-efficient equipment compared to the
tured by unstable economic conditions often leads to financial simplicity of buying energy. Other barriers are the difficulty of
repression and higher barriers. As many of several obstacles quantifying energy savings and slow diffusion of innovative
can be observed simultaneously in the innovation chain of an technology into markets, while at the same time firms typical-
energy-efficient investment or organizational measure, policy ly underinvest in R&D, despite the high rates of return on
measures usually have to be applied as a bundle to realize the investment.
economic potential of a particular technology.
A wide array of policies to reduce barriers, or the perception of
Transport: The car has come to be widely perceived in modern barriers, has been used and tested in the industrial sector in
societies as a means of freedom, mobility and safety, a symbol developed countries, with varying success rates. Information
of personal status and identity, and as one of the most impor- programmes are designed to assist energy consumers in under-
tant products in the industrial economy. Several studies have standing and employing technologies and practices to use ener-
found that people living in denser and more compact cities rely gy more efficiently. Forms of environmental legislation have
less on cars, but it is not easy, even taking congestion problems been a driving force in the adoption of new technologies. New
into account, to motivate the shift away from suburban sprawl approaches to industrial energy efficiency improvement in
to compact cities as advocated in some literature. An integrat- developed countries include voluntary agreements (VAs).
ed approach to town and transport planning and the use of
incentives are key to energy efficiency and saving in the trans- In the energy supply sector virtually all the generic barriers
port sector. This is an area, where lock-in effects are very cited in Section 5.2 restrict the introduction of environmental-
important: when land-use patterns have been chosen there is ly sound technologies and practices. The increasing deregula-
hardly a way back. This represents an opportunity in particular tion of energy supply, while making it more efficient, has
for the developing world. raised particular concerns. Volatile spot and contract prices,
short-term outlook of private investors, and the perceived risks
Transport fuel taxes are commonly used, but have proved very of nuclear and hydropower plants have shifted fuel and tech-
unpopular in some countries, especially where they are seen as nology choice towards natural gas and oil plants, and away
revenue-raising measures. Charges on road users have been from renewable energy, including – to a lesser extent –
accepted where they are earmarked to cover the costs of trans- hydropower, in many countries.
port provision. Although trucks and cars may be subject to dif-
ferent barriers and opportunities because of differences in their Co-generation or combined production of power and heat
purpose of use and travel distance, a tax policy that assesses the (CHP) is much more efficient than the production of energy
for each of these uses alone. The implementation of CHP is ment. Climate change mitigation projects face further barriers
closely linked to the availability and density of industrial heat resulting from unfamiliarity with CH4 capture and potential
loads, district heating, and cooling networks. Yet, its imple- electricity generation, unwillingness to commit additional
mentation is hampered by lack of information, the decentral- human capacity for climate mitigation, and the additional insti-
ized character of the technology, the attitude of grid operators, tutional complexity required not only by waste treatment but
the terms of grid connection, and a lack of policies that foster also byenergy generation and supply. The lack of clear regula-
long-term planning. Firm public policy and regulatory author- tory and investment frameworks can pose significant chal-
ity is necessary to install and safeguard harmonized condi- lenges for project development.
tions, transparency, and unbundling of the main power supply
functions. To overcome the barriers and to avail the opportunities in
waste management, it is necessary to have a multi-project
Agriculture and Forestry: Lack of adequate capacity for approach, the components of which include the following :
research and provision of extension services will hamper the
spread of technologies that suit local conditions, and the • Building databases on availability of wastes, their char-
declining Consultative Group on International Agricultural acteristics, distribution, accessibility, current practices
Research (CGIAR) system has exacerbated this problem in the of utilization and/or disposal technologies, and eco-
developing world. Adoption of new technology is also limited nomic viability;
by small farm size, credit constraints, risk aversion, lack of • Institutional mechanism for technology transfer though
access to information and human capital, inadequate rural a co-ordinated programme involving the R&D institu-
infrastructure and tenurial arrangements, and unreliable supply tions, financing agencies, and industry; and
of complementary inputs. Subsidies for critical inputs to agri- • Defining the role of stakeholders including local
culture, such as fertilizers, water supply, and electricity and authorities, individual householders, industries, R&D
fuels, and to outputs in order to maintain stable agricultural institutions, and the government.
systems and an equitable distribution of wealth distort markets
for these products. Regional Considerations: Changing global patterns provide an
opportunity for introducing GHG mitigation technologies and
Measures to address the above barriers include: practices that are consistent with DES goals. A culture of ener-
• The expansion of credit and savings schemes; gy subsidies, institutional inertia, fragmented capital markets,
• Shifts in international research funding towards water- vested interests, etc., however, presents major barriers to their
use efficiency, irrigation design, irrigation manage- implementation, and may be particular issues in developing
ment, adaptation to salinity, and the effect of increased and EIT countries. Situations in these two groups of countries
CO2 levels on tropical crops; call for a more careful analysis of trade, institutional, financial,
• The improvement of food security and disaster early and income barriers and opportunities, distorted prices, and
warning systems; information gaps. In the developed countries, other barriers
• The development of institutional linkages between such as the current carbon-intensive lifestyle and consumption
countries; and patterns, social structures, network externalities, and misplaced
• The rationalization of input and output prices of agri- incentives offer opportunities for intervention to control the
cultural commodities, taking DES issues into consider- growth of GHG emissions. Lastly, new and used technologies
ation. mostly flow from the developed to developing and transition-
ing countries. A global approach to reducing emissions that tar-
The forestry sector faces land-use regulation and other macro- gets technology that is transferred from developed to develop-
economic policies that usually favour conversion to other land ing countries could have a significant impact on future emis-
uses such as agriculture, cattle ranching, and urban industry. sions.
Insecure land tenure regimes and tenure rights and subsidies
favouring agriculture or livestock are among the most impor-
tant barriers for ensuring sustainable management of forests as 6 Policies, Measures, and Instruments
well as sustainability of carbon abatement. In relation to cli-
mate change mitigation, other issues, such as lack of technical 6.1 Policy Instruments and Possible Criteria for their
capability, lack of credibility about the setting of project base- Assessment
lines, and monitoring of carbon stocks, poses difficult chal-
lenges. The purpose of this section is to examine the major types of
policies and measures that can be used to implement options to
Waste Management: Solid waste and wastewater disposal and mitigate net concentrations of GHGs in the atmosphere. In
treatment represent about 20% of human-induced methane keeping within the defined scope of this Report, policies and
emissions. The principal barriers to technology transfer in this measures that can be used to implement or reduce the costs of
sector include limited financing and institutional capability, adaptation to climate change are not examined. Alternative
jurisdictional complexity, and the need for community involve- policy instruments are discussed and assessed in terms of spe-
cific criteria, all on the basis of the most recent literature. There ported by firms who would fare better than their competitors.
is naturally some emphasis on the instruments mentioned in the Regulated firms, of course, are not the only group with a stake
Kyoto Protocol (the Kyoto mechanisms), because they are new in regulation: opposing interest groups will fight for their own
and focus on achieving GHG emissions limits, and the extent interests.
of their envisaged international application is unprecedented.
In addition to economic dimensions, political economy, legal,
and institutional elements are discussed insofar as they are rel- 6.2 National Policies, Measures, and Instruments
evant to these policies and measures.
In the case of countries in the process of structural reform, it is
Any individual country can choose from a large set of possible important to understand the new policy context to develop rea-
policies, measures, and instruments, including (in arbitrary sonable assessments of the feasibility of implementing GHG
order): emissions, carbon, or energy taxes, tradable permits, mitigation policies. Recent measures taken to liberalize energy
subsidies, deposit-refund systems, voluntary agreements, non- markets have been inspired for the most part by desires to
tradable permits, technology and performance standards, prod- increase competition in energy and power markets, but they
uct bans, and direct government spending, including R&D also can have significant emission implications, through their
investment. Likewise, a group of countries that wants to limit impact on the production and technology pattern of energy or
its collective GHG emissions could agree to implement one, or power supply. In the long run, the consumption pattern change
a mix, of the following instruments (in arbitrary order): trad- might be more important than the sole implementation of cli-
able quotas, joint implementation, clean development mecha- mate change mitigation measures.
nism, harmonized emissions or carbon or energy taxes, an
international emissions, carbon, or energy tax, non-tradable Market-based instruments – principally domestic taxes and
quotas, international technology and product standards, volun- domestic tradable permit systems – will be attractive to gov-
tary agreements, and direct international transfers of financial ernments in many cases because they are efficient. They will
resources and technology. frequently be introduced in concert with conventional regula-
tory measures. When implementing a domestic emissions tax,
Possible criteria for the assessment of policy instruments policymakers must consider the collection point, the tax base,
include: environmental effectiveness; cost effectiveness; distri- the variation among sectors, the association with trade,
butional considerations including competitiveness concerns; employment, revenue, and the exact form of the mechanism.
administrative and political feasibility; government revenues; Each of these can influence the appropriate design of a domes-
wider economic effects including implications for internation- tic emissions tax, and political or other concerns are likely to
al trade rules; wider environmental effects including carbon play a role as well. For example, a tax levied on the energy
leakage; and effects on changes in attitudes, awareness, learn- content of fuels could be much more costly than a carbon tax
ing, innovation, technical progress, and dissemination of tech- for equivalent emissions reduction, because an energy tax rais-
nology. Each government may apply different weights to varies the price of all forms of energy, regardless of their contribu-
ous criteria when evaluating GHG mitigation policy options tion to CO2 emissions. Yet, many nations may choose to use
depending on national and sector level circumstances. energy taxes for reasons other than cost effectiveness, and
Moreover, a government may apply different sets of weights to much of the analysis in this section applies to energy taxes, as
the criteria when evaluating national (domestic) versus inter- well as carbon taxes.
national policy instruments. Co-ordinated actions could help
address competitiveness concerns, potential conflicts with A country committed to a limit on its GHG emissions also can
international trade rules, and carbon leakage. meet this limit by implementing a tradable permit system that
directly or indirectly limits emissions of domestic sources.
The economics literature on the choice of policies adopted has Like a tax, a tradable permit system poses a number of design
emphasized the importance of interest group pressures, focus- issues, including type of permit, ways to allocate permits,
ing on the demand for regulation. But it has tended to neglect sources included, point of compliance, and use of banking. To
the “supply side” of the political equation, emphasized in the be able to cover all sources with a single domestic permit
political science literature: the legislators and government and regime is unlikely. The certainty provided by a tradable permit
party officials who design and implement regulatory policy, system of achieving a given emissions level for participating
and who ultimately decide which instruments or mix of instru- sources comes at the cost of the uncertainty of permit prices
ments will be used. However, the point of compliance of alter- (and hence compliance costs). To address this concern, a
native policy instruments, whether they are applied to fossil hybrid policy that caps compliance costs could be adopted, but
fuel users or manufacturers, for example, is likely to be politi- the level of emissions would no longer be guaranteed.
cally crucial to the choice of policy instrument. And a key
insight is that some forms of regulation actually can benefit the For a variety of reasons, in most countries the management of
regulated industry, for example, by limiting entry into the GHG emissions will not be addressed with a single policy
industry or imposing higher costs on new entrants. A policy instrument, but with a portfolio of instruments. In addition to
that imposes costs on industry as a whole might still be sup- one or more market-based policies, a portfolio might include
standards and other regulations, voluntary agreements, and marginal abatement costs (MACs) may acquire emission reduc-
information programmes: tions from countries with low MACs. Similarly, JI would allow
Annex I Parties to exchange emission reduction units among
• Energy efficiency standards have been effective in themselves on a project-by-project basis. Under the CDM,
reducing energy use in a growing number of countries. Annex I Parties would receive credit – on a project-by-project
They may be especially effective in many countries basis – for reductions accomplished in non-Annex I countries.
where the capacity to administer market instruments is
relatively limited, thereby helping to develop this Economic analyses indicate that the Kyoto mechanisms could
administrative infrastructure. They need updating to reduce significantly the overall cost of meeting the Kyoto
remain effective. The main disadvantage of standards is emissions limitation commitments. However, achievement of
that they can be inefficient, but efficiency can be the potential cost savings requires the adoption of domestic
improved if the standard focuses on the desired results policies that allow individual entities to use the mechanisms to
and leaves as much flexibility as possible in the choice meet their national emissions limitation obligations. If domes-
of how to achieve the results. tic policies limit the use of the Kyoto mechanisms, or interna-
tional rules governing the mechanisms limit their use, the cost
• Voluntary agreements (VAs) may take a variety of savings may be reduced.
forms. Proponents of VAs point to low transaction costs
and consensus elements, while sceptics emphasize the In the case of JI, host governments have incentives to ensure
risk of “free riding”, and the risk that the private sector that emission reduction units (ERUs) are issued only for real
will not pursue real emissions reduction in the absence emission reductions, assuming that they face strong penalties
of monitoring and enforcement. Voluntary agreements for non-compliance with national emissions limitation com-
sometimes precede the introduction of more stringent mitments. In the case of CDM, a process for independent cer-
measures. tification of emission reductions is crucial, because host gov-
ernments do not have emissions limitation commitments and
• Imperfect information is widely recognized as a key hence may have less incentive to ensure that certified emission
market failure that can have significant effects on reductions (CERs) are issued only for real emission reductions.
improved energy efficiency, and hence emissions. The main difficulty in implementing project-based mecha-
Information instruments include environmental nisms, both JI and CDM, is determining the net additional
labelling, energy audits, and industrial reporting emission reduction (or sink enhancement) achieved; baseline
requirements, and information campaigns are market- definition may be extremely complex. Various other aspects of
ing elements in many energy-efficiency programmes. these Kyoto mechanisms are awaiting further decision making,
including: monitoring and verification procedures, financial
A growing literature has demonstrated theoretically, and with additionality (assurance that CDM projects will not displace
numerical simulation models, that the economics of addressing traditional development assistance flows), and possible means
GHG reduction targets with domestic policy instruments of standardizing methodologies for project baselines.
depend strongly on the choice of those instruments. Price-
based policies tend to lead to positive marginal and positive The extent to which developing country (non-Annex I) Parties
total mitigation costs. In each case, the interaction of these will effectively implement their commitments under the
abatement costs with the existing tax structure and, more gen- UNFCCC may depend, among other factors, on the transfer of
erally, with existing factor prices is important. Price-based environmentally sound technologies (ESTs).
policies that generate revenues can be coupled with measures
to improve market efficiency. However, the role of non-price
policies, which affect the sign of the change in the unit price of 6.4 Implementation of National and International
energy services, often remains decisive. Policy Instruments
Any international or domestic policy instrument can be effec-

6.3 International Policies and Measures tive only if accompanied by adequate systems of monitoring
and enforcement. There is a linkage between compliance
Turning to international policies and measures, the Kyoto enforcement and the amount of international co-operation that
Protocol defines three international policy instruments, the so- will actually be sustained. Many multilateral environmental
called Kyoto mechanisms: international emissions trading agreements address the need to co-ordinate restrictions on con-
(IET), joint implementation (JI), and the Clean Development duct taken in compliance with obligations they impose and the
Mechanism (CDM). Each of these international policy instru- expanding legal regime under the WTO and/or GATT umbrel-
ments provides opportunities for Annex I Parties to fulfil their la. Neither the UNFCCC nor the Kyoto Protocol now provides
commitments cost-effectively. IET essentially would allow for specific trade measures in response to non-compliance. But
Annex I Parties to exchange part of their assigned national emis- several domestic policies and measures that might be devel-
sion allowances (targets). IET implies that countries with high oped and implemented in conjunction with the Kyoto Protocol
could conflict with WTO provisions. International differences valid, but there is no coherent and consistent method of valua-
in environmental regulation may have trade implications. tion that can replace the existing one in its entirety. Concerns
about, for example, equity can be addressed along with the
One of the main concerns in environmental agreements basic cost estimation. The estimated costs are one piece of
(including the UNFCCC and the Kyoto Protocol) has been information in the decision-making process for climate change
with reaching wider participation. The literature on interna- that can be supplemented with other information on other
tional environmental agreements predicts that participation social objectives, for example impacts on key stakeholders and
will be incomplete, and incentives may be needed to increase the meeting of poverty objectives.
participation (see also Section 10).
In this section the costing methodology is overviewed, and
issues involved in using these methods addressed.
7 Costing Methodologies
7.1 Conceptual Basis 7.2 Analytical Approaches
Using resources to mitigate greenhouse gases (GHGs) gener- Cost assessment is an input into one or more rules for decision-
ates opportunity costs that should be considered to help guide making, including cost-benefit analysis (CBA), cost-effective-
reasonable policy decisions. Actions taken to abate GHG emis- ness analysis (CEA), and multi-attribute analysis. The analyti-
sions or to increase carbon sinks divert resources from other cal approaches differ primarily by how the objectives of the
alternative uses. Assessing the costs of these actions should decision-making framework are selected, specified, and val-
ideally consider the total value that society attaches to the ued. Some objectives in mitigation policies can be specified in
goods and services forgone because of the diversion of economic units (e.g., costs and benefits measured in monetary
resources to climate protection. In some cases, the sum of ben- units), and some in physical units (e.g., the amount of pollu-
efits and costs will be negative, meaning that society gains tants dispersed in tonnes of CO2). In practice, however, the
from undertaking the mitigation action. challenge is in developing a consistent and comprehensive def-
inition of every important impact to be measured.
This section addresses the methodological issues that arise in
the estimation of the monetary costs of climate change. The 7.2.1 Co-Benefits and Costs and Ancillary Benefits and
focus is on the correct assessment of the costs of mitigation Costs
measures to reduce the emissions of GHGs. The assessment of
costs and benefits should be based on a systematic analytical The literature uses a number of terms to depict the associated
framework to ensure comparability and transparency of esti- benefits and costs that arise in conjunction with GHG mitiga-
mates. One well-developed framework assesses costs as tion policies. These include co-benefits, ancillary benefits, side
changes in social welfare based on individual values. These benefits, secondary benefits, collateral benefits, and associated
individual values are reflected by the willingness to pay (WTP) benefits. In the current discussion, the term “co-benefits” refers
for environmental improvements or the willingness to accept to the non-climate benefits of GHG mitigation policies that are
(WTA) compensation. From these value measures can be explicitly incorporated into the initial creation of mitigation
derived measures such as the social surpluses gained or lost policies. Thus, the term co-benefits reflects that most policies
from a policy, the total resource costs, and opportunity costs. designed to address GHG mitigation also have other, often at
least equally important, rationales involved at the inception of
While the underlying measures of welfare have limits and these policies (e.g., related to objectives of development, sus-
using monetary values remains controversial, the view is taken tainability, and equity). In contrast, the term ancillary benefits
that the methods to “convert” non-market inputs into monetary connotes those secondary or side effects of climate change mit-
terms provide useful information for policymakers. These igation policies on problems that arise subsequent to any pro-
methods should be pursued when and where appropriate. It is posed GHG mitigation policies.
also considered useful to supplement this welfare-based cost
methodology with a broader assessment that includes equity Policies aimed at mitigating GHGs, as stated earlier, can yield
and sustainability dimensions of climate change mitigation other social benefits and costs (here called ancillary or co- ben-
policies. In practice, the challenge is to develop a consistent efits and costs), and a number of empirical studies have made
and comprehensive definition of the key impacts to be mea- a preliminary attempt to assess these impacts. It is apparent that
sured. the actual magnitude of the ancillary benefits or co-benefits
assessed critically depends on the scenario structure of the
A frequent criticism of this costing method is that it is analysis, in particular on the assumptions about policy man-
inequitable, as it gives greater weight to the “well off”. This is agement in the baseline case. This implies that whether a par-
because, typically, a well-off person has a greater WTP or ticular impact is included or not depends on the primary objec-
WTA than a less well-off person and hence the choices made tive of the programme. Moreover, something that is seen as a
reflect more the preferences of the better off. This criticism is GHG reduction programme from an international perspective
may be seen, from a national perspective, as one in which local 7.3 System Boundaries: Project, Sector, and Macro
pollutants and GHGs are equally important.
Researchers make a distinction between project, sector, and
7.2.2 Implementation Costs economywide analyses. Project level analysis considers a
“stand-alone” investment assumed to have insignificant sec-
All climate change policies necessitate some costs of imple- ondary impacts on markets. Methods used for this level
mentation, that is costs of changes to existing rules and regula- include CBA, CEA, and life-cycle analysis. Sector level analy-
tions, making sure that the necessary infrastructure is available, sis examines sectoral policies in a “partial-equilibrium” con-
training and educating those who are to implement the policy text in which all other variables are assumed to be exogenous.
as well those affected by the measures, etc. Unfortunately, such Economy-wide analysis explores how policies affect all sectors
costs are not fully covered in conventional cost analyses. and markets, using various macroeconomic and general equi-
Implementation costs in this context are meant to reflect the librium models. A trade-off exists between the level of detail in
more permanent institutional aspects of putting a programme the assessment and complexity of the system considered. This
into place and are different to those costs conventionally con- section presents some of the key assumptions made in cost
sidered as transaction costs. The latter, by definition, are tem- analysis.
porary costs. Considerable work needs to be done to quantify
the institutional and other costs of programmes, so that the A combination of different modelling approaches is required for
reported figures are a better representation of the true costs that an effective assessment of climate change mitigation options.
will be incurred if programmes are actually implemented. For example, detailed project assessment has been combined
with a more general analysis of sectoral impacts, and macro-
7.2.3 Discounting economic carbon tax studies have been combined with the sec-
toral modelling of larger technology investment programmes.
There are broadly two approaches to discounting–an ethical or
prescriptive approach based on what rates of discount should 7.3.1 Baselines
be applied, and a descriptive approach based on what rates of
discount people (savers as well as investors) actually apply in The baseline case, which by definition gives the emissions of
their day-to-day decisions. For mitigation analysis, the country GHGs in the absence of the climate change interventions being
must base its decisions at least partly on discount rates that considered, is critical to the assessment of the costs of climate
reflect the opportunity cost of capital. Rates that range from change mitigation. This is because the definition of the baseline
4% to 6% would probably be justified in developed countries. scenario determines the potential for future GHG emissions
The rate could be 10–12% or even higher in developing coun- reduction, as well as the costs of implementing these reduction
tries. It is more of a challenge to argue that climate change mit- policies. The baseline scenario also has a number of important
igation projects should face different rates, unless the mitiga- implicit assumptions about future economic policies at the
tion project is of very long duration. The literature shows macroeconomic and sectoral levels, including sectoral structure,
increasing attention to rates that decline over time and hence resource intensity, prices, and thereby technology choice.
give more weight to benefits that occur in the long term. Note
that these rates do not reflect private rates of return, which typ- 7.3.2 Consideration of No Regrets Options
ically must be greater to justify a project, at around 10–25%.
No regrets options are by definition actions to reduce GHG
7.2.4 Adaptation and Mitigation Costs and the Link emissions that have negative net costs. Net costs are negative
Between Them because these options generate direct or indirect benefits, such
as those resulting from reductions in market failures, double
While most people appreciate that adaptation choices affect dividends through revenue recycling and ancillary benefits,
the costs of mitigation, this obvious point is often not large enough to offset the costs of implementing the options.
addressed in climate policymaking. Policy is fragmented - The no regrets issue reflects specific assumptions about the
with mitigation being seen as addressing climate change and working and the efficiency of the economy, especially the exis-
adaptation seen as a means of reacting to natural hazards. tence and stability of a social welfare function, based on a
Usually mitigation and adaptation are modelled separately as a social cost concept:
necessary simplification to gain traction on an immense and
complex issue. As a consequence, the costs of risk reduction • Reduction of existing market or institutional failures
action are frequently estimated separately, and therefore each and other barriers that impede adoption of cost-effec-
measure is potentially biased. This realization suggests that tive emission reduction measures can lower private
more attention to the interaction of mitigation and adaptation, costs compared to current practice. This can also reduce
and its empirical ramification, is worthwhile, though uncer- private costs overall.
tainty about the nature and timing of impacts, including sur- • A double dividend related to recycling of the revenue of
prises, will constrain the extent to which the associated costs carbon taxes in such a way that it offsets distortionary
can be fully internalized. taxes.
• Ancillary benefits and costs (or ancillary impacts), framework allows, the lower the costs of achieving a given
which can be synergies or trade-offs in cases in which reduction. More flexibility and more trading partners can
the reduction of GHG emissions has joint impacts on reduce costs. The opposite is expected with inflexible rules and
other environmental policies (i.e., relating to local air few trading partners. Flexibility can be measured as the ability
pollution, urban congestion, or land and natural to reduce carbon emissions at the lowest cost, either domesti-
resource degradation). cally or internationally.
Market Imperfections 7.3.4 Development, Equity, and Sustainability Issues

The existence of a no regrets potential implies that market and
institutions do not behave perfectly, because of market imper- Climate change mitigation policies implemented at a national
fections such as lack of information, distorted price signals, level will, in most cases, have implications for short-term eco-
lack of competition, and/or institutional failures related to nomic and social development, local environmental quality, and
inadequate regulation, inadequate delineation of property intra-generational equity. Mitigation cost assessments that fol-
rights, distortion-inducing fiscal systems, and limited financial low this line can address these impacts on the basis of a deci-
markets. Reduction of market imperfections suggests it is pos- sion-making framework that includes a number of side-impacts
sible to identify and implement policies that can correct these to the GHG emissions reduction policy objective. The goal of
market and institutional failures without incurring costs larger such an assessment is to inform decision makers about how dif-
than the benefits gained. ferent policy objectives can be met efficiently, given priorities
of equity and other policy constraints (natural resources, envi-
Double Dividend ronmental objectives). A number of international studies have
The potential for a double dividend arising from climate miti- applied such a broad decision-making framework to the assess-
gation policies was extensively studied during the 1990s. In ment of development implications of CDM projects.
addition to the primary aim of improving the environment (the
first dividend), such policies, if conducted through revenue- There are a number of key linkages between mitigation costing
raising instruments such as carbon taxes or auctioned emission issues and broader development impacts of the policies,
permits, yield a second dividend, which can be set against the including macroeconomic impacts, employment creation,
gross costs of these policies. All domestic GHG policies have inflation, the marginal costs of public funds, capital availabili-
an indirect economic cost from the interactions of the policy ty, spillovers, and trade.
instruments with the fiscal system, but in the case of revenue-
raising policies this cost is partly offset (or more than offset) if,
for example, the revenue is used to reduce existing distor- 7.4 Special Issues Relating to Developing Countries
tionary taxes. Whether these revenue-raising policies can and EITs
reduce distortions in practice depends on whether revenues can
be “recycled” to tax reduction. A number of special issues related to technology use should be
considered as the critical determinants of climate change miti-
Ancillary Benefits and Costs (Ancillary Impacts) gation potential and related costs for developing countries.
The definition of ancillary impacts is given above. As noted These include current technological development levels, tech-
there, these can be positive as well as negative. It is important nology transfer issues, capacity for innovation and diffusion,
to recognize that gross and net mitigation costs cannot be barriers to efficient technology use, institutional structure,
established as a simple summation of positive and negative human capacity aspects, and foreign exchange earnings.
impacts, because the latter are interlinked in a very complex
way. Climate change mitigation costs (gross and well as net Climate change studies in developing countries and EITs need
costs) are only valid in relation to a comprehensive specific to be strengthened in terms of methodology, data, and policy
scenario and policy assumption structure. frameworks. Although a complete standardization of the meth-
ods is not possible, to achieve a meaningful comparison of
The existence of no regrets potentials is a necessary, but not a results it is essential to use consistent methodologies, perspec-
sufficient, condition for the potential implementation of these tives, and policy scenarios in different nations.
options. The actual implementation also requires the develop-
ment of a policy strategy that is complex as comprehensive The following modifications to conventional approaches are
enough to address these market and institutional failures and suggested:
barriers.
• Alternative development pathways should be analyzed
7.3.3 Flexibility with different patterns of investment in infrastructure,
irrigation, fuel mix, and land-use policies.
For a wide variety of options, the costs of mitigation depend on • Macroeconomic studies should consider market trans-
what regulatory framework is adopted by national govern- formation processes in the capital, labour, and power
ments to reduce GHGs. In general, the more flexibility the markets.
• Informal and traditional sector transactions should be (Article 3.3) states that “policies and measures to deal with cli-
included in national macroeconomic statistics. The mate change should be cost-effective so as to ensure global
value of non-commercial energy consumption and the benefits at the lowest possible costs”15. This section reports on
unpaid work of household labour for non-commercial literature on the costs of greenhouse gas mitigation policies at
energy collection is quite significant and needs to be the national, regional, and global levels. Net welfare gains or
considered explicitly in economic analysis. losses are reported, including (when available) the ancillary
• The costs of removing market barriers should be con- benefits of mitigation policies. These studies employ the full
sidered explicitly. range of analytical tools described in the previous chapter.
These range from technologically detailed bottom-up models
to more aggregate top-down models, which link the energy
7.5 Modelling Approaches to Cost Assessment sector to the rest of the economy.
The modelling of climate mitigation strategies is complex and

a number of modelling techniques have been applied including 8.2. Gross Costs of GHG Abatement in Technology-
input-output models, macroeconomic models, computable Detailed Models
general equilibrium (CGE) models, and energy sector based
models. Hybrid models have also been developed to provide In technology-detailed “bottom-up” models and approaches,
more detail on the structure of the economy and the energy sec- the cost of mitigation is derived from the aggregation of tech-
tor. The appropriate use of these models depends on the sub- nological and fuel costs such as: investments, operation and
ject of the evaluation and the availability of data. maintenance costs, and fuel procurement, but also (and this is
a recent trend) revenues and costs from import and exports.
As discussed in Section 6, the main categories of climate
change mitigation policies include: market-oriented policies, Models can be ranked along two classification axes. First, they
technology-oriented policies, voluntary policies, and research range from simple engineering-economics calculations effect-
and development policies. Climate change mitigation policies ed technology-by-technology, to integrated partial equilibrium
can include all four of the above policy elements. Most analyt- models of whole energy systems. Second, they range from the
ical approaches, however, only consider some of the four ele- strict calculation of direct technical costs of reduction to the
ments. Economic models, for example, mainly assess market- consideration of observed technology-adoption behaviour of
oriented policies and in some cases technology policies pri- markets, and of the welfare losses due to demand reductions
marily those related to energy supply options, while engineer- and revenue gains and losses due to changes in trade.
ing approaches mainly focus on supply and demand side tech-
nology policies. Both of these approaches are relatively weak This leads to contrasting two generic approaches, namely the
in the representation of research and development and volun- engineering-economics approach and least-cost equilibrium
tary agreement policies. modelling. In the first approach, each technology is assessed
independently via an accounting of its costs and savings. Once
these elements have been estimated, a unit cost can be calcu-
8 Global, Regional, and National Costs and lated for each action, and each action can be ranked according
Ancillary Benefits to its costs. This approach is very useful to point out the poten-
tials for negative cost abatements due to the ‘efficiency gap’
8.1 Introduction between the best available technologies and technologies cur-
rently in use. However, its most important limitation is that
The UNFCCC (Article 2) has as its ultimate goal the “stabili- studies neglect or do not treat in a systematic way the interde-
sation of greenhouse gas concentrations in the atmosphere at a pendence of the various actions under examination.
level that will prevent dangerous anthropogenic interference
with the climate system”14. In addition, the Convention
15 “The Parties should take precautionary measures to anticipate, pre-
vent, or minimise the causes of climate change and mitigate its
adverse effects. Where there are threats of serious irreversible dam-
14 “The ultimate objective of this Convention and any related legal age, lack of full scientific certainty should not be used as a reason for
instruments that the Conference of Parties may adopt is to achieve, in postponing such measures, taking into account that polices and mea-
accordance with the relevant provisions of the Convention, stabiliza- sures to deal with climate change should be cost-effective so as to
tion of greenhouse gas concentrations in the atmosphere at such a ensure global benefits at the lowest possible costs. To achieve this,
level that would prevent dangerous interference with the climate sys- such policies and measures should take into account different socio-
tem. Such a level should be achieved within a timeframe sufficient to economic contexts, be comprehensive, cover all relevant sources,
allow ecosystems to adapt naturally to climate change, to ensure that sinks and reservoirs of greenhouse gases and adaptation, and com-
food production is not threatened, and to enable economic develop- prise all economic sectors. Efforts to address climate change may be
ment to proceed in a sustainable manner.” carried out co-operatively by interested Parties.”
Partial equilibrium least-costs models have been constructed to rate in GDP, the rate of decline of energy use per unit of out-
remedy this defect, by considering all actions simultaneously put, and the rate of decline of CO2 emissions per unit of ener-
and selecting the optimal bundle of actions in all sectors and at gy use.
all time periods. These more integrated studies conclude high-
er total costs of GHG mitigation than the strict technology by In a multi-model comparison project that engaged more than a
technology studies. Based on an optimization framework they dozen modelling teams internationally, the gross costs of com-
give very easily interpretable results that compare an optimal plying with the Kyoto Protocol were examined, using energy
response to an optimal baseline; however, their limitation is sector models. Carbon taxes are implemented to lower emis-
that they rarely calibrate the base year of the model to the exist- sions and the tax revenue is recycled lump sum. The magnitude
ing non optimal situation and implicitly assume an optimal of the carbon tax provides a rough indication of the amount of
baseline. They consequently provide no information about the market intervention that would be needed and equates the mar-
negative cost potentials. ginal abatement cost to meet a prescribed emissions target. The
size of the tax required to meet a specific target will be deter-
Since the publication of the SAR, the bottom-up approaches mined by the marginal source of supply (including conserva-
have produced a wealth of new results for both Annex I and tion) with and without the target. This in turn will depend on
non-Annex I countries, as well as for groups of countries. such factors as the size of the necessary emissions reductions,
Furthermore, they have extended their scope much beyond the assumptions about the cost and availability of carbon-based
classical computations of direct abatement costs by inclusion and carbon-free technologies, the fossil fuel resource base, and
of demand effects and some trade effects. short- and long-term price elasticities.
However, the modelling results show considerable variations With no international emission trading, the carbon taxes neces-
from study to study, which are explained by a number of fac- sary to meet the Kyoto restrictions in 2010 vary a lot among the
tors, some of which reflect the widely differing conditions that models. Note from Table TS.416 that for the USA they are cal-
prevail in the countries studied (e.g., energy endowment, eco- culated to be in the range US$76 to US$322, for OECD Europe
nomic growth, energy intensity, industrial and trade structure), between US$20 and US$665, for Japan between US$97 and
and others reflect modelling assumptions and assumptions US$645, and finally for the rest of OECD (CANZ) between
about negative cost potentials. US$46 and US$425. All numbers are reported in 1990 dollars.
Marginal abatement costs are in the range of US$20-
However, as in the SAR, there is agreement on a no regrets US$135/tC if international trading is allowed. These models do
potential resulting from the reduction of existing market imper- not generally include no regrets measures or take account of
fections, consideration of ancillary benefits, and inclusion of the mitigation potential of CO2 sinks and of greenhouse gases
double dividends. This means that some mitigation actions can other than CO2.
be realized at negative costs. The no regrets potential results
from existing market or institutional imperfections that prevent However, there is no strict correlation between the level of the
cost-effective emission reduction measures from being taken. carbon tax and GDP variation and welfare because of the influ-
The key question is whether such imperfections can be ence of the country specifics (countries with a low share of fos-
removed cost-effectively by policy measures. sil energy in their final consumption suffer less than others for
the same level of carbon tax) and because of the content of the
The second important policy message is that short and medium policies.
term marginal abatement costs, which govern most of the
macroeconomic impacts of climate policies, are very sensitive The above studies assume, to allow an easy comparison across
to uncertainty regarding baseline scenarios (rate of growth and countries, that the revenues from carbon taxes (or auctioned
energy intensity) and technical costs. Even with significant emissions permits) are recycled in a lump-sum fashion to the
negative cost options, marginal costs may rise quickly beyond economy. The net social cost resulting from a given marginal
a certain anticipated mitigation level. This risk is far lower in cost of emissions constraint can be reduced if the revenues are
models allowing for carbon trading. Over the long term this targetted to finance cuts in the marginal rates of pre-existing
risk is reduced as technical change curbs down the slope of distortionary taxes, such as income, payroll, and sales taxes.
marginal cost curves. While recycling revenues in a lump-sum fashion confers no
efficiency benefit, recycling through marginal rate cuts helps
avoid some of the efficiency costs or dead-weight loss of exist-
8.3 Costs of Domestic Policy to Mitigate Carbon ing taxes. This raises the possibility that revenue-neutral car-
Emissions bon taxes might offer a double dividend by (1) improving the
environment and (2) reducing the costs of the tax system.
Particularly important for determining the gross mitigation
costs is the magnitude of emissions reductions required in
order to meet a given target, thus the emissions baseline is a 16
The highest figures cited in this sentence are all results from one
critical factor. The growth rate of CO2 depends on the growth model: the ABARE-GTEM model.
Table TS.4: Energy Modelling Forum main results. Marginal abatement costs (in 1990 US$/tC; 2010 Kyoto target)
Model No trading Annex I trading Global trading

US OECD-E Japan CANZ
ABARE-GTEM 322 665 645 425 106 23

AIM 153 198 234 147 65 38
CETA 168 46 26
Fund 14 10
G-Cubed 76 227 97 157 53 20
GRAPE 204 304 70 44
MERGE3 264 218 500 250 135 86
MIT-EPPA 193 276 501 247 76
MS-MRT 236 179 402 213 77 27
Oxford 410 966 1074 224 123
RICE 132 159 251 145 62 18
SGM 188 407 357 201 84 22
WorldScan 85 20 122 46 20 5
Administration 154 43 18
EIA 251 110 57
POLES 135.8 135.3 194.6 131.4 52.9 18.4
Note: The results of the Oxford model are not included in the ranges cited in the TS and SPM because this model has not been subject to substantive academic
review (and hence is inappropriate for IPCC assessment), and relies on data from the early 1980s for a key parametization that determines the model results. This
model is entirely unrelated to the CLIMOX model, from the Oxford Institutes of Energy Studies, referred to in Table TS.6.
EMF-16. GDP losses (as a percentage of total GDP) associated with complying with the prescribed targets under the Kyoto Protocol. Four regions include the
USA, OECD Europe (OECD-E), Japan, and Canada, Australia and New Zealand (CANZ). Scenarios include no trading, Annex B trading only, and full global
trading.
One can distinguish a weak and a strong form of the double double dividend. Another conclusion is that even in cases of no
dividend. The weak form asserts that the costs of a given rev- strong double-dividend effect, one fares considerably better
enue-neutral environmental reform, when revenues are devot- with a revenue-recycling policy in which revenues are used to
ed to cuts in marginal rates of prior distortionary taxes, are cut marginal rates of prior taxes, than with a non-revenue recy-
reduced relative to the costs when revenues are returned in cling policy, like for example grandfathered quotas.
lump-sum fashion to households or firms. The strong form of
the double-dividend assertion is that the costs of the revenue- In all countries where CO2 taxes have been introduced, some
neutral environmental tax reform are zero or negative. While sectors have been exempted by the tax, or the tax is differenti-
the weak form of the double-dividend claim receives virtually ated across sectors. Most studies conclude that tax exemptions
universal support, the strong form of the double dividend asser- raise economic costs relative to a policy involving uniform
tion is controversial. taxes. However, results differ in the magnitude of the costs of
exemptions.
Where to recycle revenues from carbon taxes or auctioned per-
mits depends upon the country specifics. Simulation results
show that in economies that are especially inefficient or dis- 8.4 Distributional Effects of Carbon Taxes
torted along non-environmental lines, the revenue-recycling
effect can indeed be strong enough to outweigh the primary As well as the total costs, the distribution of the costs is impor-
cost and tax-interaction effect so that the strong double divi- tant for the overall evaluation of climate policies. A policy that
dend may materialize. Thus, in several studies involving leads to an efficiency gain may not be welfare improving over-
European economies, where tax systems may be highly dis- all if some people are in a worse position than before, and vice
torted in terms of the relative taxation of labour, the strong versa. Notably, if there is a wish to reduce the income differ-
double dividend can be obtained, in any case more frequently ences in the society, the effect on the income distribution
than in other recycling options. In contrast, most studies of car- should be taken into account in the assessment.
bon taxes or permits policies in the USA demonstrate that recy-
cling through lower labour taxation is less efficient than The distributional effects of a carbon tax appear to be regres-
through capital taxation; but they generally do not find a strong sive unless the tax revenues are used either directly or indi-
Table TS.5: Energy Modeling Forum main results. GDP loss in 2010 (in % of GDP; 2010 Kyoto target)
No trading Annex I trading Global trading

Model US OECD-E Japan CANZ US OECD-E Japan CANZ US OECD-E Japan CANZ
ABARE-GTEM 1.96 0.94 0.72 1.96 0.47 0.13 0.05 0.23 0.09 0.03 0.01 0.04
AIM 0.45 0.31 0.25 0.59 0.31 0.17 0.13 0.36 0.20 0.08 0.01 0.35
CETA 1.93 0.67 0.43
G-CUBED 0.42 1.50 0.57 1.83 0.24 0.61 0.45 0.72 0.06 0.26 0.14 0.32
GRAPE 0.81 0.19 0.81 0.10 0.54 0.05
MERGE3 1.06 0.99 0.80 2.02 0.51 0.47 0.19 1.14 0.20 0.20 0.01 0.67
MS-MRT 1.88 0.63 1.20 1.83 0.91 0.13 0.22 0.88 0.29 0.03 0.02 0.32
Oxford 1.78 2.08 1.88 1.03 0.73 0.52 0.66 0.47 0.33
RICE 0.94 0.55 0.78 0.96 0.56 0.28 0.30 0.54 0.19 0.09 0.09 0.19
Note: The results of the Oxford model are not included in the ranges cited in the TS and SPM because this model has not been subject to substantive academic
review (and hence is inappropriate for IPCC assessment), and relies on data from the early 1980s for a key parametization that determines the model results. This
model is entirely unrelated to the CLIMOX model, from the Oxford Institutes of Energy Studies, referred to in Table TS.6.
rectly in favour of the low-income groups. Recycling the tax The calculation is made by various models with both global
revenue by reducing the labour tax may have more attractive and regional detail. In each instance, the goal is to meet the
distributional consequences than a lump-sum recycling, in emission reduction targets contained in the Kyoto Protocol. All
which the recycled revenue is directed to both wage earners of the models show significant gains as the size of the trading
and capital owners. Reduced taxation of labour results in market is expanded. The difference among models is due in
increased wages and favours those who earn their income part to differences in their baseline, the assumptions about the
mainly from labour. However, the poorest groups in the society cost and availability of low-cost substitutes on both the supply
may not even earn any income from labour. In this regard, and demand sides of the energy sector, and the treatment of
reducing labour taxes may not always be superior to recycling short-term macro shocks. In general, all calculated gross costs
schemes that distribute to all groups of a society and might for the non-trading case are below 2% of GDP (which is
reduce the regressive character of carbon taxes. assumed to have increased significantly in the period consid-
ered) and in most cases below 1%. Annex B trading lowers the
costs for the OECD region as a whole to less than 0.5% and
8.5 Aspects of International Emission Trading regional impacts within this vary between 0.1% to 1.1%.
Global trading in general would decrease these costs to well
It has long been recognized that international trade in emission below 0.5% of GDP with OECD average below 0.2%.
quota can reduce mitigation costs. This will occur when coun-
tries with high domestic marginal abatement costs purchase The issue of the so-called “hot air”17 also influences the cost of
emission quota from countries with low marginal abatement implementing the Kyoto Protocol. The recent decline in eco-
costs. This is often referred to as “where flexibility”. That is, nomic activity in Eastern Europe and the former Soviet Union
allowing reductions to take place where it is cheapest to do so has led to a decrease in their GHG emissions. Although this
regardless of geographical location. It is important to note that trend is eventually expected to reverse, for some countries
where the reductions take place is independent of who pays for emissions are still projected to lie below the constraint imposed
the reductions. by the Kyoto Protocol. If this does occur, these countries will
have excess emission quota that may be sold to countries in
“Where flexibility” can occur on a number of scales. It can be search of low-cost options for meeting their own targets. The
global, regional or at the country level. In the theoretical case cost savings from trading are sensitive to the magnitude of “hot
of full global trading, all countries agree to emission caps and air”.
participate in the international market as buyers or sellers of
emission allowances. The CDM may allow some of these cost Numerous assessments of reduction in projected GDP have
reductions to be captured. When the market is defined at the been associated with complying with Kyoto-type limits. Most
regional level (e.g., Annex B countries), the trading market is
more limited. Finally, trade may take place domestically with
all emission reductions occurring in the country of origin. 17 Hot air: a few countries, notably those with economies in transition,
have assigned amount units that appear to be well in excess of their
Table TS.5 shows the cost reductions from emission trading for anticipated emissions (as a result of economic downturn). This excess
Annex B and full global trading compared to a no-trading case. is referred to as hot air.
economic analyses have focused on gross costs of carbon The exact magnitude, scale, and scope of these ancillary bene-
emitting activities18, ignoring the cost-saving potential of mit- fits and costs will vary with local geographical and baseline
igating non-CO2 gases and using carbon sequestration and nei- conditions. In some circumstances, where baseline conditions
ther taking into account environmental benefits (ancillary ben- involve relatively low carbon emissions and population densi-
efits and avoided climate change), nor using revenues to ty, benefits may be low. The models most in use for ancillary
remove distortions. Including such possibilities could lower benefit estimation – the computable general equilibrium (CGE)
costs. models – have difficulty in estimating ancillary benefits
because they rarely have, and may not be able to have, the nec-
A constraint would lead to a reallocation of resources away essary spatial detail.
from the pattern that is preferred in the absence of a limit and
into potentially costly conservation and fuel substitution. With respect to baseline considerations most of the literature
Relative prices will also change. These forced adjustments lead on ancillary benefits systematically treats only government
to reductions in economic performance, which impact GDP. policies and regulations with respect to the environment. In
Clearly, the broader the permit trading market, the greater the contrast, other regulatory policy baseline issues, such as those
opportunity for reducing overall mitigation costs. Conversely, relating to energy, transportation, and health, have been gener-
limits on the extent to which a country can satisfy its obliga- ally ignored, as have baseline issues that are not regulatory,
tions through the purchase of emissions quota can increase mit- such as those tied with technology, demography, and the natur-
igation costs. Several studies have calculated the magnitude of al resource base. For the studies reviewed here, the biggest
the increase to be substantial falling in particular on countries share of the ancillary benefits is related to public health. A
with the highest marginal abatement costs. But another para- major component of uncertainty for modelling ancillary bene-
meter likely to limit the savings from carbon trading is the very fits for public health is the link between emissions and atmos-
functioning of trading systems (transaction costs, management pheric concentrations, particularly in light of the importance of
costs, insurance against uncertainty, and strategic behaviour in secondary pollutants. However, it is recognized that there are
the use of permits). significant ancillary benefits in addition to those for public
health that have not been quantified or monetized. At the same
time, it appears that there are major gaps in the methods and
8.6 Ancillary Benefits of Greenhouse Gas Mitigation models for estimating ancillary costs.
Policies aimed at mitigating greenhouse gases can have posi-

tive and negative side effects on society, not taking into 8.7 “Spillover” Effects19 from Actions Taken in Annex B
account benefits of avoided climate change. This section on Non-Annex B Countries
assesses in particular those studies that evaluate the side effects
of climate change mitigation. Therefore the term “ancillary In a world where economies are linked by international trade
benefits or costs” is used. There is little agreement on the def- and capital flows, abatement of one economy will have welfare
inition, reach, and size of these ancillary benefits, and on impacts on other abating or non-abating economies. These
methodologies for integrating them into climate policy. impacts are called spillover effects, and include effects on
Criteria are established for reviewing the growing literature trade, carbon leakage, transfer and diffusion of environmental-
linking specific carbon mitigation policies to monetized ancil- ly sound technology, and other issues (Figure TS.8).
lary benefits. Recent studies that take an economy-wide, rather
than a sectoral, approach to ancillary benefits are described in As to the trade effects, the dominant finding of the effects of
the report and their credibility is examined (Chapter 9 presents emission constraints in Annex B countries on non-Annex B
sectoral analyses). In spite of recent progress in methods devel- countries in simulation studies prior to the Kyoto Protocol was
opment, it remains very challenging to develop quantitative that Annex B abatement would have a predominantly adverse
estimates of the ancillary effects, benefits and costs of GHG impact on non-Annex B regions. In simulations of the Kyoto
mitigation policies. Despite these difficulties, in the short term, Protocol, the results are more mixed with some non-Annex B
ancillary benefits of GHG policies under some circumstances regions experiencing welfare gains and other losses. This is
can be a significant fraction of private (direct) mitigation costs mainly due to a milder target in the Kyoto simulations than in
and in some cases they can be comparable to the mitigation pre-Kyoto simulations. It was also universally found that most
costs. According to the literature, ancillary benefits may be of non-Annex B economies that suffered welfare losses under
particular importance in developing countries, but this litera- uniform independent abatement would suffer smaller welfare
ture is as yet limited. losses under emissions trading.
19 “Spillovers” from domestic mitigation strategies are the effects that

these strategies have on other countries. Spillover effects can be pos-
18 Although some studies include multi-gas analysis, much research is itive or negative and include effects on trade, carbon leakage, transfer
needed on this potential both intertemporally and regionally. and diffusion of environmentally sound technology, and other issues.
Spillovers
Benefits from technology Impacts on energy industries Impacts on energy intensive Resource transfers to
improvement activity and prices industries sectors
Policies and measures
Increase in the scientific

Public R&D policies knowledge base
Increase in know-how
"Market access" policies through experience, learning
for new technologies by doing
New cleaner industry/

Standards, subsidies,
product performance
Voluntary agreements
standards
Carbon leakages, positive
Carbon taxes impacts for activity, negative
Reduction of activity in fossil for envir. in receiving country
fuel industries
Price-induced technical Lower international prices,
Energy subsidy removal change and technology negative impacts for
diffusion exporters, Reduced distorsions in
positive for importers, industrial competition
possibility of a
Harmonized carbon taxes "rebound effect"
Distorsion in competition if
Domestic emission trading differentiated schemes
(grandfathered vs. auctioned)
Joint Implementation, Clean

Development Mechanism Technology transfer
Net gain when permit price

International emission trading is superior (not equal)
to average reduction costs
Figure TS.8: ”Spillovers” from domestic mitigation strategies are the effects that these strategies have on other countries.
Spillover effects can be positive or negative and include effects on trade, carbon leakage, transfer and diffusion of environ-
mentally sound technology, and other issues.
A reduction in Annex B emissions will tend to result in an in practice, and other factors, make the higher model esti-
increase in non-Annex B emissions reducing the environmen- mates for carbon leakage unlikely, but would raise aggregate
tal effectiveness of Annex B abatement. This is called “carbon costs.
leakage”, and can occur in the order of 5%-20% through a pos-
sible relocation of carbon-intensive industries because of Carbon leakage may also be influenced by the assumed degree
reduced Annex B competitiveness in the international market- of competitiveness in the world oil market. While most studies
place, lower producer prices of fossil fuels in the international assume a competitive oil market, studies considering imperfect
market, and changes in income due to better terms of trade. competition find lower leakage if OPEC is able to exercise a
degree of market power over the supply of oil and therefore
While the SAR reported that there was a high variance in esti- reduce the fall in the international oil price. Whether or not
mates of carbon leakage from the available models, there has OPEC acts as a cartel can have a reasonably significant effect
been some reduction in the variance of estimates obtained in on the loss of wealth to OPEC and other oil producers and on
the subsequent years. However, this may largely result from the level of permit prices in Annex B regions (see also Section
the development of new models based on reasonably similar 9.2).
assumptions and data sources. Such developments do not nec-
essarily reflect more widespread agreement about appropriate The third spillover effect mentioned above, the transfer and
behavioural assumptions. One robust result seems to be that diffusion of environmentally sound technology, is related to
carbon leakage is an increasing function of the stringency of induced technical change (see Section 8.10). The transfer of
the abatement strategy. This means that leakage may be a less environmentally sound technologies and know-how, not
serious problem under the Kyoto target than under the more included in models, may lead to lower leakage and especially
stringent targets considered previously. Also emission leakage on the longer term may more than offset the leakage.
is lower under emissions trading than under independent
abatement. Exemptions for energy-intensive industries found
8.8 Summary of the Main Results for Kyoto Targets above show national marginal costs to meet the Kyoto targets
from about US$20/tC up to US$600/tC without trading, and a
The cost estimates for Annex B countries to implement the range from about US$15/tC up to US$150/tC with Annex B
Kyoto Protocol vary between studies and regions, and depend trading. The cost reductions from these mechanisms may
strongly upon the assumptions regarding the use of the Kyoto depend on the details of implementation, including the com-
mechanisms, and their interactions with domestic measures. patibility of domestic and international mechanisms, con-
The great majority of global studies reporting and comparing straints, and transaction costs.
these costs use international energy-economic models. Nine of
these studies suggest the following GDP impacts20: Economies in transition: For most of these countries, GDP
effects range from negligible to a several percent increase. This
Annex II countries21: In the absence of emissions trading reflects opportunities for energy efficiency improvements not
between Annex B countries22, the majority of global studies available to Annex II countries. Under assumptions of drastic
show reductions in projected GDP of about 0.2% to 2% in 2010 energy efficiency improvement and/or continuing economic
for different Annex II regions. With full emissions trading recessions in some countries, the assigned amounts may
between Annex B countries, the estimated reductions in 2010 exceed projected emissions in the first commitment period. In
are between 0.1% and 1.1% of projected GDP23. These studies this case, models show increased GDP through revenues from
encompass a wide range of assumptions. Models whose results trading assigned amounts. However, for some economies in
are reported here assume full use of emissions trading without transition, implementing the Kyoto Protocol will have similar
transaction cost. Results for cases that do not allow Annex B impacts on GDP as for Annex II countries.
trading assume full domestic trading within each region.
Models do not include sinks or non-CO2 greenhouse gases. Non-Annex I countries: Emission constraints in Annex I coun-
They do not include the CDM, negative cost options, ancillary tries have well established, albeit varied “spillover” effects24
benefits, or targeted revenue recycling. on non-Annex I countries.
For all regions costs are also influenced by the following factors: • Oil-exporting, non-Annex I countries: Analyses report
• Constraints on the use of Annex B trading, high trans- costs differently, including, inter alia, reductions in
action costs in implementing the mechanisms and inef- projected GDP and reductions in projected oil rev-
ficient domestic implementation could raise costs. enues25. The study reporting the lowest costs shows
• Inclusion in domestic policy and measures of the no reductions of 0.2% of projected GDP with no emissions
regrets possibilities2, use of the CDM, sinks, and inclu- trading, and less than 0.05% of projected GDP with
sion of non-CO2 greenhouse gases, could lower costs. Annex B emissions trading in 201026. The study report-
Costs for individual countries can vary more widely. ing the highest costs shows reductions of 25% of pro-
jected oil revenues with no emissions trading, and 13%
The models show that the Kyoto mechanisms, are important in of projected oil revenues with Annex B emissions trad-
controlling risks of high costs in given countries, and thus can ing in 2010. These studies do not consider policies and
complement domestic policy mechanisms. Similarly, they can measures27 other than Annex B emissions trading, that
minimize risks of inequitable international impacts and help to
level marginal costs. The global modelling studies reported
24Spillover effects here incorporate only economic effects, not envi-
ronmental effects.
20 Many other studies incorporating more precisely the country
specifics and diversity of targetted policies provide a wider range of 25Details of the six studies reviewed are found in Table 9.4 of the
net cost estimates. underlying report.
21 Annex II countries: Group of countries included in Annex II to the 26 These estimated costs can be expressed as differences in GDP
UNFCCC, including all developed countries in the Organisation of growth rates over the period 2000-2010. With no emissions trading,
Economic Co-operation and Development. GDP growth rate is reduced by 0.02 percentage points/year; with
Annex B emissions trading, growth rate is reduced by less than 0.005
22Annex B countries: Group of countries included in Annex B in the percentage points/year.
Kyoto Protocol that have agreed to a target for their greenhouse gas
emissions, including all the Annex I countries (as amended in 1998) 27 These policies and measures include: those for non-CO2 gases and
but Turkey and Belarus. non-energy sources of all gases; offsets from sinks; industry restruc-
turing (e.g., from energy producer to supplier of energy services); use
23 Many metrics can be used to present costs. For example, if the of OPEC’s market power; and actions (e.g. of Annex B Parties) relat-
annual costs to developed countries associated with meeting Kyoto ed to funding, insurance, and the transfer of technology. In addition,
targets with full Annex B trading are in the order of 0.5% of GDP, this the studies typically do not include the following policies and effects
represents US$125 billion (1000 million) per year, or US$125 per per- that can reduce the total cost of mitigation: the use of tax revenues to
son per year by 2010 in Annex II (SRES assumptions). This corre- reduce tax burdens or finance other mitigation measures; environ-
sponds to an impact on economic growth rates over ten years of less mental ancillary benefits of reductions in fossil fuel use; and induced
than 0.1 percentage point. technological change from mitigation policies.
could lessen the impact on non-Annex I, oil-exporting reviewed here is under 3% of the baseline value (the maximum
countries, and therefore tend to overstate both the costs reduction across all the stabilization scenarios reached 6.1% in
to these countries and overall costs. a given year). At the same time, some scenarios (especially in
The effects on these countries can be further reduced by the A1T group) showed an increase in GDP compared to the
removal of subsidies for fossil fuels, energy tax restruc- baseline because of apparent positive economic feedbacks of
turing according to carbon content, increased use of technology development and transfer. The GDP reduction
natural gas, and diversification of the economies of (averaged across storylines and stabilization levels) is lowest in
non-Annex I, oil-exporting countries. 2020 (1%), reaches a maximum in 2050 (1.5%), and declines
• Other non-Annex I countries: They may be adversely by 2100 (1.3%). However, in the scenario groups with the
affected by reductions in demand for their exports to highest baseline emissions (A2 and A1FI), the size of the GDP
OECD nations and by the price increase of those car- reduction increases throughout the modelling period. Due to
bon-intensive and other products they continue to their relatively small scale when compared to absolute GDP
import. These countries may benefit from the reduction levels, GDP reductions in the post-SRES stabilization scenar-
in fuel prices, increased exports of carbon-intensive ios do not lead to significant declines in GDP growth rates over
products and the transfer of environmentally sound this century. For example, the annual 1990-2100 GDP growth
technologies and know-how. The net balance for a rate across all the stabilization scenarios was reduced on aver-
given country depends on which of these factors domi- age by only 0.003% per year, with a maximum reduction
nates. Because of these complexities, the breakdown of reaching 0.06% per year.
winners and losers remains uncertain.
• Carbon leakage:28 The possible relocation of some car- The concentration of CO2 in the atmosphere is determined
bon-intensive industries to non-Annex I countries and more by cumulative rather than by year-by-year emissions.
wider impacts on trade flows in response to changing That is, a particular concentration target can be reached
prices may lead to leakage in the order of 5-20%. through a variety of emissions pathways. A number of studies
Exemptions, for example for energy-intensive indus- suggest that the choice of emissions pathway can be as impor-
tries, make the higher model estimates for carbon leak- tant as the target itself in determining overall mitigation costs.
age unlikely, but would raise aggregate costs. The The studies fall into two categories: those that assume that the
transfer of environmentally sound technologies and target is known and those that characterize the issue as one of
know-how, not included in models, may lead to lower decision making under uncertainty.
leakage and especially on the longer term may more
than offset the leakage. For studies that assume that the target is known, the issue is
one of identifying the least-cost mitigation pathway for achiev-
ing the prescribed target. Here the choice of pathway can be
8.9 The Costs of Meeting a Range of Stabilization seen as a carbon budget problem. This problem has been so far
Targets addressed in terms of CO2 only and very limited treatment has
been given to non-CO2 GHGs. A concentration target defines
Cost-effectiveness studies with a century timescale estimate an allowable amount of carbon to be emitted into the atmos-
that the costs of stabilizing CO2 concentrations in the atmosphere between now and the date at which the target is to be
phere increase as the concentration stabilization level declines. achieved. The issue is how best to allocate the carbon budget
Different baselines can have a strong influence on absolute over time.
costs. While there is a moderate increase in the costs when
passing from a 750ppmv to a 550ppmv concentration stabi- Most studies that have attempted to identify the least-cost path-
lization level, there is a larger increase in costs passing from way for meeting a particular target conclude that such as path-
550ppmv to 450ppmv unless the emissions in the baseline sce- way tends to depart gradually from the model’s baseline in the
nario are very low. These results, however, do not incorporate early years with more rapid reductions later on. There are sev-
carbon sequestration and gases other than CO2, and did not eral reasons why this is so. A gradual near-term transition from
examine the possible effect of more ambitious targets on the world’s present energy system minimizes premature retire-
induced technological change29. In particular, the choice of the ment of existing capital stock, provides time for technology
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 29 Induced technological change is an emerging field of inquiry. None
in projected GDP in most of the stabilization scenarios
of the literature reviewed in TAR on the relationship between the cen-
tury-scale CO2 concentrations and costs reported results for models
employing induced technological change. Models with induced tech-
28
Carbon leakage is defined here as the increase in emissions in non- nological change under some circumstances show that century-scale
Annex B countries resulting from implementation of reductions in concentrations can differ, with similar GDP growth but under differ-
Annex B, expressed as a percentage of Annex B reductions. ent policy regimes (Section 8.4.1.4).
development, and avoids premature lock-in to early versions of of induced technical change has received increased attention.
rapidly developing low-emission technology. On the other Some argue that such change might substantially lower and
hand, more aggressive near-term action would decrease envi- perhaps even eliminate the costs of CO2 abatement policies.
ronmental risks associated with rapid climatic changes, stimu- Others are much less sanguine about the impact of induced
late more rapid deployment of existing low-emission technolo- technical change.
gies (see also Section 8.10), provide strong near-term incen-
tives to future technological changes that may help to avoid Recent research suggests that the effect on timing depends on
lock-in to carbon intensive technologies, and allow for later the source of technological change. When the channel for
tightening of targets should that be deemed desirable in light of technological change is R&D, the induced technological
evolving scientific understanding. change makes it preferable to concentrate more abatement
efforts in the future. The reason is that technological change
It should also be noted that the lower the concentration target, lowers the costs of future abatement relative to current abate-
the smaller the carbon budget, and hence the earlier the depar- ment, making it more cost-effective to place more emphasis on
ture from the baseline. However, even with higher concentra- future abatement. But, when the channel for technological
tion targets, the more gradual transition from the baseline does change is learning-by-doing, the presence of induced techno-
not negate the need for early action. All stabilization targets logical change has an ambiguous impact on the optimal timing
require future capital stock to be less carbon-intensive. This of abatement. On the one hand, induced technical change
has immediate implications for near-term investment deci- makes future abatement less costly, which suggests emphasiz-
sions. New supply options typically take many years to enter ing future abatement efforts. On the other hand, there is an
into the marketplace. An immediate and sustained commitment added value to current abatement because such abatement con-
to R&D is required if low-carbon low-cost substitutes are to be tributes to experience or learning and helps reduce the costs of
available when needed. future abatement. Which of these two effects dominates
depends on the particular nature of the technologies and cost
The above addresses the issue of mitigation costs. It is also functions.
important to examine the environmental impacts of choosing
one emission pathway over another. This is because different Certain social practices may resist or enhance technological
emission pathways imply not only different emission reduction change. Therefore, public awareness-raising and education
costs, but also different benefits in terms of avoided environ- may help encourage social change to an environment
mental impacts (see Section 10). favourable for technological innovation and diffusion. This
represents an area for further research.
The assumption that the target is known with certainty is, of
course, an oversimplification. Fortunately, the UNFCCC rec-
ognizes the dynamic nature of the decision problem. It calls for 9 Sectoral Costs and Ancillary Benefits of
periodic reviews “in light of the best scientific information on Mitigation
climate change and its impacts.” Such a sequential decision
making process aims to identify short-term hedging strategies 9.1 Differences between Costs of Climate Change
in the face of long-term uncertainties. The relevant question is Mitigation Evaluated Nationally and by Sector
not “what is the best course of action for the next hundred
years” but rather “what is the best course for the near-term Policies adopted to mitigate global warming will have implica-
given the long-term uncertainties.” tions for specific sectors, such as the coal industry, the oil and
gas industry, electricity, manufacturing, transportation, and
Several studies have attempted to identify the optimal near- households. A sectoral assessment helps to put the costs in per-
term hedging strategy based on the uncertainty regarding the spective, to identify the potential losers and the extent and
long-term objective. These studies find that the desirable location of the losses, and to identify the sectors that may ben-
amount of hedging depends upon one’s assessment of the efit. However, it is worth noting that the available literature to
stakes, the odds, and the cost of mitigation. The risk premium make this assessment is limited: there are few comprehensive
– the amount that society is willing to pay to avoid risk – ulti- studies of the sectoral effects of mitigation, compared with
mately is a political decision that differs among countries. those on the macro GDP effects, and they tend to be for Annex
I countries and regions.
8.10 The Issue of Induced Technological Change There is a fundamental problem for mitigation policies. It is
well established that, compared to the situation for potential
Most models used to assess the costs of meeting a particular gainers, the potential sectoral losers are easier to identify, and
mitigation objective tend to oversimplify the process of techni- their losses are likely to be more immediate, more concentrat-
cal change. Typically, the rate of technical change is assumed ed, and more certain. The potential sectoral gainers (apart from
to be independent of the level of emissions control. Such the renewables sector and perhaps the natural gas sector) can
change is referred to as autonomous. In recent years, the issue only expect a small, diffused, and rather uncertain gain, spread
over a long period. Indeed many of those who may gain do not 9.2 Selected Specific Sectoral Findings on Costs of
exist, being future generations and industries yet to develop. Climate Change Mitigation
It is also well established that the overall effects on GDP of 9.2.1 Coal
mitigation policies and measures, whether positive or negative,
conceal large differences between sectors. In general, the ener- Within this broad picture, certain sectors will be substantially
gy intensity and the carbon intensity of the economies will affected by mitigation. Relative to the reference case, the coal
decline. The coal and perhaps the oil industries are expected to industry, producing the most carbon-intensive of products,
lose substantial proportions of their traditional output relative faces almost inevitable decline in the long term, relative to the
to those in the reference scenarios, though the impact of this on baseline projection. Technologies still under development,
the industries will depend on diversification, and other sectors such as CO2 removal and storage from coal-burning plants and
may increase their outputs but by much smaller proportions. in-situ gasification, could play a future role in maintaining the
Reductions in fossil fuel output below the baseline will not output of coal whilst avoiding CO2 and other emissions.
impact all fossil fuels equally. Fuels have different costs and Particularly large effects on the coal sector are expected from
price sensitivities; they respond differently to mitigation poli- policies such as the removal of fossil fuel subsidies or the
cies. Energy-efficiency technology is fuel and combustion restructuring of energy taxes so as to tax the carbon content
device-specific, and reductions in demand can affect imports rather than the energy content of fuels. It is a well-established
differently from output. Energy-intensive sectors, such as finding that removal of the subsidies would result in substan-
heavy chemicals, iron and steel, and mineral products, will face tial reductions in GHG emissions, as well as stimulating eco-
higher costs, accelerated technical or organizational change, or nomic growth. However, the effects in specific countries
loss of output (again relative to the reference scenario) depend- depend heavily on the type of subsidy removed and the com-
ing on their energy use and the policies adopted for mitigation. mercial viability of alternative energy sources, including
imported coal.
Industries concerned directly with mitigation are likely to ben-
efit from action. These industries include renewable and 9.2.2 Oil
nuclear electricity, producers of mitigation equipment (incorpo-
rating energy- and carbon-saving technologies), agriculture and The oil industry also faces a potential relative decline, although
forestry producing energy crops, and research services produc- this may be moderated by lack of substitutes for oil in trans-
ing energy and carbon-saving R&D. They may benefit in the portation, substitution away from solid fuels towards liquid
long term from the availability of financial and other resources fuels in electricity generation, and the diversification of the
that would otherwise have been taken up in fossil fuel produc- industry into energy supply in general.
tion. They may also benefit from reductions in tax burdens if
taxes are used for mitigation and the revenues recycled as Table TS.6 shows a number of model results for the impacts of
reductions in employer, corporate, or other taxes. Those studies implementation of the Kyoto Protocol on oil exporting coun-
that report reductions in GDP do not always provide a range of tries. Each model uses a different measure of impact, and many
recycling options, suggesting that policy packages increasing use different groups of countries in their definition of oil
GDP have not been explored. The extent and nature of the ben- exporters. However, the studies all show that the use of the
efits will vary with the policies followed. Some mitigation poli- flexibility mechanisms will reduce the economic cost to oil
cies can lead to net overall economic benefits, implying that the producers.
gains from many sectors will outweigh the losses for coal and
other fossil fuels, and energy-intensive industries. In contrast, Thus, studies show a wide range of estimates for the impact of
other less-well-designed policies can lead to overall losses. GHG mitigation policies on oil production and revenue. Much
of these differences are attributable to the assumptions made
It is worth placing the task faced by mitigation policy in an his- about: the availability of conventional oil reserves, the degree
torical perspective. CO2 emissions have tended to grow more of mitigation required, the use of emission trading, control of
slowly than GDP in a number of countries over the past 40 GHGs other than CO2, and the use of carbon sinks. However,
years. The reasons for such trends vary but include: all studies show a net growth in both oil production and rev-
enue to at least 2020, and significantly less impact on the real
• a shift away from coal and oil and towards nuclear and price of oil than has resulted from market fluctuations over the
gas as the source of energy; past 30 years. Figure TS.9 shows the projection of real oil
• improvements in energy efficiency by industry and prices to 2010 from the IEA’s 1998 World Energy Outlook, and
households; and the effect of Kyoto implementation from the G-cubed model,
• a shift from heavy manufacturing towards more service the study which shows the largest fall in Organization of Oil
and information-based economic activity. Exporting Countries (OPEC) revenues in Table TS.6. The 25%
loss in OPEC revenues in the non-trading scenario implies a
These trends will be encouraged and strengthened by mitiga- 17% fall in oil prices shown for 2010 in the figure; this is
tion policies. reduced to a fall of just over 7% with Annex I trading.
Table TS.6: Costs of Kyoto Protocol implementation for oil exporting region/countries a
Model b Without trading c With Annex-I trading With “global trading”
G-Cubed -25% oil revenue -13% oil revenue -7% oil revenue
GREEN -3% real income “Substantially reduced loss” N/a
GTEM 0.2% GDP loss <0.05% GDP loss N/a
MS-MRT 1.39% welfare loss 1.15% welfare loss 0.36% welfare loss
OPEC Model -17% OPEC revenue -10% OPEC revenue -8% OPEC revenue
CLIMOX N/A -10% some oil exporters’ revenues N/A
a The definition of oil exporting country varies: for G-Cubed and the OPEC model it is the OPEC countries, for GREEN it is a group of oil exporting coun-
tries, for GTEM it is Mexico and Indonesia, for MS-MRT it is OPEC + Mexico, and for CLIMOX it is West Asian and North African oil exporters.
b The models all considere the global economy to 2010 with mitigation according to the Kyoto Protocol targets (usually in the models, applied to CO2 mitiga-
tion by 2010 rather than GHG emissions for 2008 to 2012) achieved by imposing a carbon tax or auctioned emission permits with revenues recycled through
lump-sum payments to consumers; no co-benefits, such as reductions in local air pollution damages, are taken into account in the results.
c “Trading” denotes trading in emission permits between countries.
These studies typically do not consider some or all of the fol- In addition, the studies typically do not include the following
lowing policies and measures that could lessen the impact on policies and effects that can reduce the total cost of mitigation:
oil exporters: • the use of tax revenues to reduce tax burdens or finance
• policies and measures for non-CO2 GHGs or non-ener- other mitigation measures;
gy sources of all GHGs; • environmental co- or ancillary benefits of reductions in
• offsets from sinks; fossil fuel use; and
• industry restructuring (e.g., from energy producer to • induced technical change from mitigation policies.
supplier of energy services);
• the use of OPEC’s market power; and As a result, the studies may tend to overstate both the costs to
• actions (e.g., of Annex B Parties) related to funding, oil exporting countries and overall costs.
insurance, and the transfer of technology.
70
year 2000 estimated price

60 G-Cubed: Kyoto Annex I trading
Real oil price $(1990) per barrel
G-Cubed: Kyoto no trading

50
IEA Projection
40
30
20
10
0
1970 1975 1980 1985 1990 1995 2000 2005 2010
Note: The oil price shown is that of UK Brent deflated by the US GDP deflator. The year 2000 estimated price is based on actual prices January to August and
futures prices September to December.
Figure TS.9: Real oil prices and the effects of Kyoto implementation.
9.2.3 Gas ly to be accomplished by policies that increase the price of, and
therefore reduce the amount of, air travel. Estimated price elas-
Modelling studies suggest that mitigation policies may have ticities of demand are in the range of -0.8 to -2.7. Raising the
the least impact on oil, the most impact on coal, with the price of air travel by taxes faces a number of political hurdles.
impact on gas somewhere between; these findings are estab- Many of the bilateral treaties that currently govern the opera-
lished but incomplete. The high variation across studies for the tion of the air transport system contain provisions for exemp-
effects of mitigation on gas demand is associated with the tions of taxes and charges, other than for the cost of operating
importance of its availability in different locations, its specific and improving the system.
demand patterns, and the potential for gas to replace coal in
power generation.
9.3 Sectoral Ancillary Benefits of Greenhouse Gas
These results are different from recent trends, which show nat- Mitigation
ural gas usage growing faster than the use of either coal or oil.
They can be explained as follows. In the transport sector, the The direct costs for fossil fuel consumption are accompanied
largest user of oil, current technology and infrastructure will by environmental and public health benefits associated with a
not allow much switching from oil to non-fossil fuel alterna- reduction in the extraction and burning of the fuels. These
tives in Annex I countries before about 2020. Annex B coun- benefits come from a reduction in the damages caused by
tries can only meet their Kyoto Protocol commitments by these activities, especially a reduction in the emissions of pol-
reducing overall energy use and this will result in a reduction lutants that are associated with combustion, such as SO2,
in natural gas demand, unless this is offset by a switch towards NOx, CO and other chemicals, and particulate matter. This
natural gas for power generation. The modelling of such a will improve local and regional air and water quality, and
switch remains limited in these models. thereby lessen damage to human, animal, and plant health,
and to ecosystems. If all the pollutants associated with GHG
9.2.4 Electricity emissions are removed by new technologies or end-of-pipe
abatement (for example, flue gas desulphurization on a power
In general as regards the effects on the electricity sector, miti- station combined with removal of all other non-GHG pollu-
gation policies either mandate or directly provide incentives tants), then this ancillary benefit will no longer exist. But such
for increased use of zero-emitting technologies (such as abatement is limited at present and it is expensive, especially
nuclear, hydro, and other renewables) and lower-GHG-emit- for small-scale emissions from dwellings and cars (See also
ting generation technologies (such as combined cycle natural Section 8.6).
gas). Or, second, they drive their increased use indirectly by
more flexible approaches that place a tax on or require a per-
mit for emission of GHGs. Either way, the result will be a shift 9.4 The Effects of Mitigation on Sectoral
in the mix of fuels used to generate electricity towards Competitiveness
increased use of the zero- and lower-emitting generation tech-
nologies, and away from the higher-emitting fossil fuels. Mitigation policies are less effective if they lead to loss of
international competitiveness or the migration of GHG-emit-
Nuclear power would have substantial advantages as a result of ting industries from the region implementing the policy (so-
GHG mitigation policies, because power from nuclear fuel pro- called carbon leakage). The estimated effects, reported in the
duces negligible GHGs. In spite of this advantage, nuclear literature, on international price competitiveness are small
power is not seen as the solution to the global warming problem while those on carbon leakage appear to beat the stage of com-
in many countries. The main issues are (1) the high costs competing explanations, with large differences depending on the
pared to alternative CCGTs, (2) public acceptance involving models and the assumptions used. There are several reasons for
operating safety and waste, (3) safety of radioactive waste man- expecting that such effects will not be substantial. First, miti-
agement and recycling of nuclear fuel, (4) the risks of nuclear gation policies actually adopted use a range of instruments and
fuel transportation, and (5) nuclear weapons proliferation. usually include special treatment to minimize adverse industri-
al effects, such as exemptions for energy-intensive industries.
9.2.5 Transport Second, the models assume that any migrating industries will
use the average technology of the area to which they will
Unless highly efficient vehicles (such as fuel cell vehicles) move; however, instead they may adopt newer, lower CO2-
become rapidly available, there are few options available to emitting technologies. Third, the mitigation policies also
reduce transport energy use in the short term, which do not encourage low-emission technologies and these also may
involve significant economic, social, or political costs. No gov- migrate, reducing emissions in industries in other countries
ernment has yet demonstrated policies that can reduce the (see also Section 8.7).
overall demand for mobility, and all governments find it polit-
ically difficult to contemplate such measures. Substantial addi-
tional improvements in aircraft energy efficiency are most like-
9.5 Why the Results of Studies Differ tions since SAR. First, they integrate an increasing number of
issues into a single analytical framework in order to provide an
The results in the studies assessed come from different internally consistent assessment of closely related components,
approaches and models. A proper interpretation of the results processes, and subsystems. The resulting integrated assessment
requires an understanding of the methods adopted and the models (IAMs) cited in Chapter 9, and indeed throughout the
underlying assumptions of the models and studies. Large dif- whole report, provide useful insights into a number of climate
ferences in results can arise from the use of different reference policy issues for policymakers. Second, scientists pay increas-
scenarios or baselines. And the characteristics of the baseline ing attention to the broader context of climate related issues
can markedly affect the quantitative results of modelling miti- that have been ignored or paid marginal attention previously.
gation policy. For example, if air quality is assumed to be sat- Among other factors, this has fostered the integration of devel-
isfactory in the baseline, then the potential for air-quality ancil- opment, sustainability and equity issues into the present report.
lary benefits in any GHG mitigation scenario is ruled out by
assumption. Even with similar or the same baseline assump- Climate change is profoundly different from most other envi-
tions, the studies yield different results. ronmental problems with which humanity has grappled. A
combination of several features lends the climate problem its
As regards the costs of mitigation, these differences appear to uniqueness. They include public good issues raising from the
be largely caused by different approaches and assumptions, concentration of GHGs in the atmosphere that requires collec-
with the most important being the type of model adopted. tive global action, the multiplicity of decision makers ranging
Bottom-up engineering models assuming new technological from global down to the micro level of firms and individuals,
opportunities tend to show benefits from mitigation. Top-down and the heterogeneity of emissions and their consequences
general equilibrium models appear to show lower costs than around the world. Moreover, the long-term nature of climate
top-down time-series econometric models. The main assump- change originates from the fact that it is the concentration of
tions leading to lower costs in the models are that: GHGs that matters rather than their annual emissions and this
feature raises the thorny issues of intergenerational transfers of
• new flexible instruments, such as emission trading and wealth and environmental goods and bads. Next, human activ-
joint implementation, are adopted; ities associated with climate change are widespread, which
• revenues from taxes or permit sales are returned to the makes narrowly defined technological solutions impossible,
economy by reducing burdensome taxes; and and the interactions of climate policy with other broad socio-
• ancillary benefits, especially from reduced air pollu- economic policies are strong. Finally, large uncertainties or in
tion, are included in the results. some areas even ignorance characterize many aspects of the
problem and require a risk management approach to be adopt-
Finally, long-term technological progress and diffusion are ed in all DMFs that deal with climate change.
largely given in the top-down models; different assumptions or
a more integrated, dynamic treatment could have major effects Policymakers therefore have to grapple with great uncertainties
on the results. in choosing the appropriate responses. A wide variety of tools
have been applied to help them make fundamental choices.
Each of those decision analysis frameworks (DAFs) has its
10 Decision Analytical Frameworks own merits and shortcoming through its ability to address some
of the above features well, but other facets less adequately.
10.1 Scope for and New Developments in Analyses for Recent analyses with well-established tools such as cost–bene-
Climate Change Decisions fit analysis as well as newly developed frameworks like the
tolerable windows or safe landing approach provide fresh
Decision making frameworks (DMFs) related to climate change insights into the problem.
involve multiple levels ranging from global negotiations to
individual choices and a diversity of actors with different Figure TS.10a shows the results of a cost-effectiveness analy-
resource endowments, and diverging values and aspirations. sis exploring the optimal hedging strategy when uncertainty
This explains why it is difficult to arrive at a management strat- with respect to the long-term stabilization target is not resolved
egy that is acceptable for all. The dynamic interplay among eco- until 2020, suggesting that abatement over the next few years
nomic sectors and related social interest groups makes it diffi- would be economically valuable if there is a significant proba-
cult to arrive at a national position to be represented at interna- bility of having to stay below ceilings that would be otherwise
tional fora in the first place. The intricacies of international cli- reached within the characteristic time scales of the systems
mate negotiations result from the manifold often-ambiguous producing greenhouse gases. The degree of near-term hedging
national positions as well as from the linkages of climate in the above analysis is sensitive to the date of resolution of
change policy with other socio-economic objectives. uncertainty, the inertia in the energy system, and the fact that
the ultimate concentration target (once it has been revealed)
No DMF can reproduce the above diversity in its full richness. must be met at all costs. Other experiments, such as those with
Yet analysts have made significant progress in several direc- cost-benefit models framed as a Bayesian decision analysis
18
14 Perfect Foresight
16 Uncertainty Resolved in 2020
13 650
Reference 14 Reference Case
12 550A Scenario
550 12
11
GtC
Hedging Strategy
10
GtC
10
8
9
6
8 Decide target
in 2020 only 4
7 Low Probability,
450 2 High Consequence Scenario
0
2000 2020 2040 1990 2010 2030 2050 2070 2090
Figure TS.10a: Optimal carbon dioxide emissions strategy, Figure TS.10b: Optimal hedging strategy for low probability,
using a cost-effectiveness approach. high consequence scenario using a cost-benefits optimization
approach.
problem show that optimal near-term (next two decades) emis- 10.2 International Regimes and Policy Options
sion paths diverge only modestly under perfect foresight, and
hedging even for low-probability, high-consequence scenarios The structure and characteristics of international agreements
(see Figure TS.10b). However, decisions about near-term cli- on climate change will have a significant influence on the
mate policies may have to be made while the stabilization tar- effectiveness and costs and benefits of mitigation. The effec-
get is still being debated. Decision-making therefore should tiveness and the costs and benefits of an international climate
consider appropriate hedging against future resolution of that change regime (such as the Kyoto Protocol or other possible
target and possible revision of the scientific insights in the risks future agreements) depend on the number of signatories to the
of climate change. There are significant differences in the two agreement and their abatement targets and/or policy commit-
approaches. With a cost-effectiveness analysis, the target must ment. At the same time, the number of signatories depends on
be made regardless of costs. With a cost-benefit analysis, costs the question of how equitably the commitments of participants
and benefits are balanced at the margin. Nevertheless, the basic are shared. Economic efficiency (minimizing costs by maxi-
message is quite similar and involves the explicit incorporation mizing participation) and equity (the allocation of emissions
of uncertainty and its sequential resolution over time. The limitation commitments) are therefore strongly linked.
desirable amount of hedging depends upon one’s assessment of
the stakes, the odds, and the costs of policy measures. The risk There is a three-way relationship between the design of the
premium – the amount that society is willing to pay to reduce international regime, the cost-effectiveness/efficiency of cli-
risk – ultimately is a political decision that differs among coun- mate policies, and the equity of the consequent economic out-
tries. comes. As a consequence, it is crucial to design the interna-
tional regime in a way that is considered both efficient and
Cost-effectiveness analyses seek the lowest cost of achieving equitable. The literature presents different theoretical strategies
an environmental target by equalizing the marginal costs of to optimize an international regime. For example, it can be
mitigation across space and time. Long-term cost-effectiveness made attractive for countries to join the group that commits to
studies estimate the costs of stabilizing atmospheric CO2 con- specific targets for limitation and reduction of emissions by
centrations at different levels and find that the costs of the increasing the equity of a larger agreement – and therefore its
450ppmv ceiling are substantially greater than those of the efficiency – through measures like an appropriate distribution
750ppmv limit. Rather than seeking a single optimal path, the of targets over time, the linkage of the climate debate with
tolerable windows/safe landing approach seeks to delineate the other issues (“issue linkage”), the use of financial transfers to
complete array of possible emission paths that satisfy external- affected countries (“side payments“), or technology transfer
ly defined climate impact and emission cost constraints. agreements.
Results indicate that delaying near-term effective emission
reductions can drastically reduce the future range of options for Two other important concerns shape the design of an interna-
relatively tight climate change targets, while less tight targets tional regime: “implementation” and “compliance”. The effec-
offer more near-term flexibility. tiveness of the regime, which is a function of both implemen-
tation and compliance, is related to actual changes of behaviour
that promote the goals of the accord. Implementation refers to
the translation of international accords into domestic law, pol-
icy, and regulations by national governments. Compliance is objectives. Energy efficiency improvements, including energy
related to whether and to what extent countries do in fact conservation, switch to low carbon content fuels, use of renew-
adhere to provisions of an accord. Monitoring, reporting, and able energy sources and the introduction of more advanced non
verification are essential for the effectiveness of international conventional energy technologies, are expected to have signif-
environmental regimes, as the systematic monitoring, assess- icant impacts on curbing actual GHG emission tendencies.
ment, and handling of implementation failures have been so far Similarly, the adoption of new technologies and practices in
relatively rare. Nonetheless, efforts to provide “systems of agriculture and forestry activities as well as the adoption of
implementation review” are growing, and are already incorpo- clean production processes could make substantial contribu-
rated into the UNFCCC structure. The challenge for the future tions to the GHG mitigation effort. Depending on the specific
is to make them more effective, especially by improving data context in which they are applied, these options may entail pos-
on national emissions, policies, and measures. itive side effects or double dividends, which in some cases are
worth undertaking whether or not there are climate-related rea-
sons for doing so.
10.3 Linkages to National and Local Sustainable
Development Choices Sustainable development requires radical technological and
related changes in both developed and developing countries.
Much of the ambiguity related to sustainable development and Technological innovation and the rapid and widespread trans-
climate change arises from the lack of measurements that could fer and implementation of individual technological options and
provide policymakers with essential information on the alter- choices, as well as overall technological systems, constitute
native choices at stake, how those choices affect clear and rec- major elements of global strategies to achieve both climate sta-
ognizable social, economic, and environmental critical issues, bilization and sustainable development. However, technology
and also provide a basis for evaluating their performance in transfer requires more than technology itself. An enabling
achieving goals and targets. Therefore, indicators are indis- environment for the successful transfer and implementation of
pensable to make the concept of sustainable development oper- technology plays a crucial role, particularly in developing
ational. At the national level important steps in the direction of countries. If technology transfer is to bring about economic and
defining and designing different sets of indicators have been social benefits it must take into account the local cultural tra-
undertaken; however, much work remains to be done to trans- ditions and capacities as well as the institutional and organiza-
late sustainability objectives into practical terms. tional circumstances required to handle, operate, replicate, and
improve the technology on a continuous basis.
It is difficult to generalize about sustainable development poli-
cies and choices. Sustainability implies and requires diversity, The process of integrating and internalizing climate change and
flexibility, and innovation. Policy choices are meant to intro- sustainable development policies into national development
duce changes in technological patterns of natural resource use, agendas requires new problem solving strategies and decision-
production and consumption, structural changes in the produc- making approaches. This task implies a twofold effort. On one
tion systems, spatial distribution of population and economic hand, sustainable development discourse needs greater analyti-
activities, and behavioural patterns. Climate change literature cal and intellectual rigor (methods, indicators, etc.) to make this
has by and large addressed the first three topics, while the rel- concept advance from theory to practice. On the other hand, cli-
evance of choices and decisions related to behavioural patterns mate change discourse needs to be aware of both the restrictive
and lifestyles has been paid scant attention. Consumption pat- set of assumptions underlying the tools and methods applied in
terns in the industrialized countries are an important reason for the analysis, and the social and political implications of scientif-
climate change. If people changed their preferences this could ic constructions of climate change. Over recent years a good
alleviate climate change considerably. To change consumption deal of analytical work has addressed the problem in both direc-
patterns, however, people must not only change their behaviour tions. Various approaches have been explored to transcend the
but also change themselves because these patterns are an limits of the standard views and decision frameworks in dealing
essential element of lifestyles and, therefore, of self-esteem. with issues of uncertainty, complexity, and the contextual influ-
Yet, apart from climate change there are other reasons to do so ences of human valuation and decision making. A common
as well as indications that this change can be fostered politi- theme emerges: the emphasis on participatory decision making
cally. frameworks for articulating new institutional arrangements.
A critical requirement of sustainable development is a capaci-

ty to design policy measures that, without hindering develop- 10.4 Key Policy-relevant Scientific Questions
ment and consistent with national strategies, could exploit
potential synergies between national economic growth objec- Different levels of globally agreed limits for climate change (or
tives and environmentally focused policies. Climate change for corresponding atmospheric GHG concentrations), entail
mitigation strategies offer a clear example of how co-ordinated different balances of mitigation costs and net damages for indi-
and harmonized policies can take advantage of the synergies vidual nations. Considering the uncertainties involved and
between the implementation of mitigation options and broader future learning, climate stabilization will inevitably be an iter-
ative process: nation states determine their own national targets ing that could lead to a disproportionately high level of
based on their own exposure and their sensitivity to other coun- burden on certain countries. Finally, it could be more
tries’ exposure to climate change. The global target emerges important to build a regime on the combined implica-
from consolidating national targets, possibly involving side tions of the various equity principles rather than to
payments, in global negotiations. Simultaneously, agreement select any one particular equity principle. Diffusing
on burden sharing and the agreed global target determines non-carbon, energy-efficient, as well as other GHG
national costs. Compared to the expected net damages associ- reducing technologies worldwide could make a signifi-
ated with the global target, nation states might reconsider their cant contribution to reducing emissions over the short
own national targets, especially as new information becomes term, but many barriers hamper technology transfer,
available on global and regional patterns and impacts of cli- including market imperfections, political problems, and
mate change. This is then the starting point for the next round the often-neglected transaction costs;
of negotiations. It follows from the above that establishing the • some obvious linkages exist between current global and
“magic number” (i.e., the upper limit for global climate change continental environmental problems and attempts of
or GHG concentration in the atmosphere) will be a long the international community to resolve them, but the
process and its source will primarily be the policy process, potential synergies of jointly tackling several of them
hopefully helped by improving science. have not yet been thoroughly explored, let alone
exploited.
Looking at the key dilemmas in climate change decision mak-
ing, the following conclusions emerge (see also Table TS.7): Mitigation and adaptation decisions related to anthropogeni-
• a carefully crafted portfolio of mitigation, adaptation, cally induced climate change differ. Mitigation decisions
and learning activities appears to be appropriate over the involve many countries, disperse benefits globally over
next few decades to hedge against the risk of intolerable decades to centuries (with some near-term ancillary benefits),
magnitudes and/or rates of climate change (impact side) are driven by public policy action, based on information avail-
and against the need to undertake painfully drastic emis- able today, and the relevant regulation will require rigorous
sion reductions if the resolution of uncertainties reveals enforcement. In contrast, adaptation decisions involve a short-
that climate change and its impacts might imply high er time span between outlays and returns, related costs and
risks; benefits accrue locally, and their implementation involves local
• emission reduction is an important form of mitigation, public policies and private adaptation of the affected social
but the mitigation portfolio includes a broad range of agents, both based on improving information. Local mitigation
other activities, including investments to develop low- and adaptive capacities vary significantly across regions and
cost non-carbon, energy efficient and carbon manage- over time. A portfolio of mitigation and adaptation policies will
ment technologies that will make future CO2 mitigation depend on local or national priorities and preferred approaches
less expensive; in combination with international responsibilities.
• timing and composition of mitigation measures (invest-
ment into technological development or immediate Given the large uncertainties characterizing each component of
emission reductions) is highly controversial because of the climate change problem, it is difficult for decision makers
the technological features of energy systems, and the to establish a globally acceptable level of stabilizing GHG con-
range of uncertainties involved in the impacts of differ- centrations today. Studies appraised in Chapter10 support the
ent emission paths; obvious expectations that lower stabilization targets involve
• international flexibility instruments help reduce the substantially higher mitigation costs and relatively more ambi-
costs of emission reductions, but they raise a series of tious near-term emission reductions on the one hand, but, as
implementation and verification issues that need to be reported by WGII, lower targets induce significantly smaller
balanced against the cost savings; bio/geophysical impacts and thus induce smaller damages and
• while there is a broad consensus to use the Pareto opti- adaptation costs.
mality30 as the efficiency principle, there is no agree-
ment on the best equity principle on wich to build an
equitable international regime. Efficiency and equity 11 Gaps in Knowledge
are important concerns in negotiating emission limita-
tion schemes, and they are not mutually exclusive. Important gaps in own knowledge on which additional
Therefore, equity will play an important role in deter- research could be useful to support future assessments include:
mining the distribution of emissions allowances and/or
within compensation schemes following emission trad- • Further exploration of the regional, country, and sector
specific potentials of technological and social innovation
options, including:
30 Pareto optimum is a requirement or status that an individual’s wel- – The short, medium, and long-term potential and costs
fare could not be further improved without making others in the soci- of both CO2 and non-CO2, non-energy mitigation
ety worse off. options;
Table TS.7: Balancing the near-term mitigation portfolio
Issue Favouring modest early abatement Favouring stringent early abatement
Technology development • Energy technologies are changing and improved • Availability of low-cost measures may have substantial
versions of existing technologies are becoming impact on emissions trajectories.
available, even without policy intervention. • Endogenous (market-induced) change could accelerate
• Modest early deployment of rapidly improving development of low-cost solutions (learning-by-doing).
technologies allows learning-curve cost • Clustering effects highlight the importance of moving to
reductions, without premature lock-in to lower emission trajectories.
existing, low-productivity technology. • Induces early switch of corporate energy R&D from
• The development of radically advanced fossil frontier developments to low carbon technologies.
technologies will require investment in
basic research.
Capital stock and inertia • Beginning with initially modest emissions limits • Exploit more fully natural stock turnover by influencing
avoids premature retirement of existing capital new investments from the present onwards.
stocks and takes advantage of the natural rate of • By limiting emissions to levels consistent with low CO2
capital stock turnover. concentrations, preserves an option to limit CO2 concen-
• It also reduces the switching cost of existing trations to low levels using current technology.
capital and prevents rising prices of investments • Reduces the risks from uncertainties in stabilization
caused by crowding out effects. constraints and hence the risk of being forced into very
rapid reductions that would require premature capital
retirement later.
Social effects and inertia • Gradual emission reduction reduces the extent of • Especially if lower stabilization targets would be
induced sectoral unemployment by giving more required ultimately , stronger early action reduces the
time to retrain the workforce and for structural maximum rate of emissions abatement required
shifts in the labour market and education. subsequently and reduces associated transitional
• Reduces welfare losses associated with the need problems, disruption, and the welfare losses associated
for fast changes in people’s lifestyles and living with the need for faster later changes in people’s
arrangements. lifestyles and living arrangements.
Discounting and • Reduces the present value of future abatement • Reduces impacts and (ceteris paribus) reduces their
intergenerational equity costs (ceteris paribus), but possibly reduces present value.
future relative costs by furnishing cheap
technologies and increasing future income levels.
Carbon cycle and • Small increase in near-term, transient CO2 • Small decrease in near-term, transient CO2
radiative change concentration. concentration.
• More early emissions absorbed, thus enabling • Reduces peak rates in temperature change.
higher total carbon emissions this century under
a given stabilization constraint (to be
compensated by lower emissions thereafter).
Climate change impacts • Little evidence on damages from multi-decade • Avoids possibly higher damages caused by faster rates
episodes of relatively rapid change in the past. of climate change.
– Understanding of technology diffusion across different – Exploration of alternative development paths including
regions; sustainable consumption patterns in all sectors, includ-
– Identifying opportunities in the area of social innova- ing the transportation sector, and integrated analysis of
tion leading to decreased greenhouse gas emissions; mitigation and adaptation;
– Comprehensive analysis of the impact of mitigation – Identifying opportunities for synergy between explicit
measures on C flows in and out of the terrestrial sys- climate policies and general policies promoting sus-
tem; and tainable development;
– Some basic inquiry in the area of geo-engineering. – Integration of inter- and intragenerational equity in cli-
mate change mitigation studies;
– Implications of equity assessments;
• Economic, social, and institutional issues related to climate – Analysis of scientific, technical, and economic aspects
change mitigation in all countries. Priority areas include: of implications of options under a wide variety of sta-
– Much more analysis of regionally specific mitigation bilization regimes;
options, barriers, and policies is recommended as these – Determining what kinds of policies interact with what
are conditioned by the regions’ mitigative capacity; sorts of socio-economic conditions to result in futures
– The implications of mitigation on equity; characterized by low CO2 emissions;
– Appropriate methodologies and improved data sources – Investigation on how changes in societal values may be
for climate change mitigation and capacity building in encouraged to promote sustainable development; and
the area of integrated assessment; – Evaluating climate mitigation options in the context of
– Strengthening future research and assessments, espe- and for synergy with potential or actual adaptive mea-
cially in developing countries. sures.
• Methodologies for analysis of the potential of mitigation • Development of engineering-economic, end-use, and sec-
options and their cost, with special attention to compara- toral studies of GHG emissions mitigation potentials for
bility of results. Examples include: specific regions and/or countries of the world, focusing on:
– Characterizing and measuring barriers that inhibit – Identification and assessment of mitigation technolo-
greenhouse gas-reducing action; gies and measures that are required to deviate from
– Make mitigation modelling techniques more consistent, “business-as-usual” in the short term (2010, 2020);
reproducible, and accessible; – Development of standardized methodologies for quan-
– Modelling technology learning; improving analytical tifying emissions reductions and costs of mitigation
tools for evaluating ancillary benefits, e.g. assigning technologies and measures;
the costs of abatement to greenhouse gases and to other – Identification of barriers to the implementation of the
pollutants; mitigation technologies and measures;
– Systematically analyzing the dependency of costs on – Identification of opportunities to increase adoption of
baseline assumptions for various greenhouse gas stabi- GHG emissions mitigation technologies and measures
lization scenarios; through connections with ancillary benefits as well as
– Developing decision analytical frameworks for dealing furtherance of the DES goals; and
with uncertainty as well as socio-economic and ecolog- – Linking the results of the assessments to specific poli-
ical risk in climate policymaking; cies and programmes that can overcome the identified
– Improving global models and studies, their assump- barriers as well as leverage the identified ancillary ben-
tions, and their consistency in the treatment and report- efits.
ing of non-Annex I countries and regions.
• Evaluating climate mitigation options in the context of

development, sustainability, and equity. Examples include:
– More research is needed on the balance of options in
the areas of mitigation and adaptation and of the mit-
igative and adaptive capacity in the context of DES;
1
Setting the Stage: Climate Change and
Sustainable Development
Co-ordinating Lead Authors:

TARIQ BANURI (PAKISTAN), JOHN WEYANT (USA)
Lead Authors:
Grace Akumu (Kenya), Adil Najam (Pakistan), Luiz Pinguelli Rosa (Brazil), Steve
Rayner (USA), Wolfgang Sachs (Germany), Ravi Sharma (India/UNEP),
Gary Yohe (USA)
Contributing Authors:
Anil Agarwal (India), Steve Bernow (USA), Robert Costanza (USA), Thomas
Downing (USA), Sivan Kartha (USA), Ashok Khosla (India), Ambuj Sagar (India),
John Robinson (Canada), Ferenc Toth (Germany)
Review Editors:
Hans Opschoor (The Netherlands), Kirit Parikh (India)
CONTENTS
Executive Summary 75 1.4.1 Alternative Development Pathways 95
1.4.2 Decoupling Growth from Resource Flows 98
1.1 Introduction 77 1.4.2.1 Eco-intelligent Production Systems 99
1.4.2.2 Resource-light Infrastructures 99
1.2 Cost-effective Mitigation 80 1.4.2.3 “Appropriate” Technologies 99
1.2.1 Introduction 80 1.4.2.4 Full Cost Pricing 100
1.2.2 The Costs of Climate Change Mitigation 81 1.4.3 Decoupling Wellbeing from Production 101
1.2.3 The Role of Technology 83 1.4.3.1 Intermediate Performance Levels 101
1.2.4 The Role of Uncertainty 83 1.4.3.2 Regionalization 102
1.2.5 Distributional Impacts and Equity 1.4.3.3 “Appropriate” Lifestyles 102
Considerations 84 1.4.3.4 Community Resource Rights 102
1.2.6 Sustainability Considerations 84
1.5 Integrating Across the Essential Domains–Cost-
1.3 Equity and Sustainable Development 85 effectiveness, Equity, and Sustainability 103
1.3.1 What Is the Challenge? 87 1.5.1 Mitigative Capacity–A Tool for Integration 103
1.3.2 What Are the Options? 90 1.5.1.1 Integrating Environmental, Social,
1.3.3 How Has Global Climate Policy Treated and Economic Objectives in the
Equity? 91 Third Assessment Report 104
1.3.4 Assessment of Alternatives: Sustainable 1.5.1.2 Expanding the Scope of Integration 106
Development 92 1.5.2 Lessons from Integrated Analyses 107
1.3.5 Why Worry about Equity and Sustainable 1.5.3 Mitigation Research: Current Lessons and
Development? 94 Future Directions 108
1.4 Global Sustainability and Climate Change References 110

Mitigation 95
Setting the Stage: Climate Change and Sustainable Development 75
EXECUTIVE SUMMARY
This chapter places climate change mitigation, mitigation pol- This chapter brings together three broad classes of analysis,
icy, and the contents of the rest of the report in the broader con- which differ not so much in terms of their ultimate goals as in
text of development, equity, and sustainability. This context their points of departure and preferred analytical tools. The
reflects the explicit conditions and principles laid down by the three approaches start with concerns, respectively, about effi-
UN Framework Convention on Climate Change (UNFCCC) on ciency and cost-effectiveness, equity and sustainable develop-
the pursuit of the ultimate objective of stabilizing greenhouse ment, and global sustainability and societal learning. The dif-
gas concentrations. The UNFCCC imposes three conditions on ference between the three approaches we have selected lies in
the goal of stabilization, namely, that it should take place with- their starting point, not in their ultimate goals. Regardless of
in a time-frame sufficient to “allow ecosystems to adapt natu- the starting point of the analysis, many studies try in their own
rally to climate change, to ensure that food production is not way to incorporate other concerns. For example, many analy-
threatened and to enable economic development to proceed in ses that approach climate change mitigation from a cost-effec-
a sustainable manner” (Art. 2). It also specifies several princi- tiveness perspective try to bring in considerations of equity and
ples to guide this process: equity, common but differentiated sustainability through their treatment of costs, benefits, and
responsibilities, precaution, cost-effective measures, right to welfare. Similarly, the class of studies motivated strongly by
sustainable development, and support for an open internation- considerations of inter-country equity tend to argue that equity
al economic system (Art. 3). is needed to ensure that developing countries can pursue their
internal goals of sustainable development–a concept that
Previous IPCC assessment reports sought to facilitate this pur- includes the implicit components of sustainability and efficien-
suit by comprehensively describing, cataloguing and compar- cy. Likewise, analysts focused on concerns of global sustain-
ing technologies and policy instruments that could be used to ability have been compelled by their own logic to make a case
achieve mitigation of greenhouse gas emissions in a cost- for global efficiency–often modelled as the decoupling of pro-
effective and efficient manner. The present assessment duction from material flows–and social equity. In other words,
advances this process by including recent analyses of climate each of the three perspectives has led writers to search for ways
change that place policy evaluations in the context of sustain- to incorporate concerns that lie beyond their initial starting
able development. This expansion of scope is consistent both point. All three classes of analyses look at the relationship of
with the evolution of the literature on climate change and climate change mitigation with all three goals–development,
importance accorded by the UNFCCC to sustainable develop- equity, and sustainability–albeit in different and often highly
ment - including the recognition that “Parties have a right to, complementary ways. Nevertheless, they frame the issues dif-
and should promote sustainable development” (Art. 3.4). It ferently, focus on different sets of causal relationships, use dif-
therefore goes some way towards filling the gaps in earlier ferent tools of analysis, and often come to somewhat different
assessments. conclusions.
Climate Change involves complex interactions between climat- There is no presumption that any particular perspective for
ic, environmental, economic, political, institutional, social, and analysis is most appropriate at any level. Moreover, the three
technological processes. It cannot be addressed or comprehend- perspectives are viewed here as being highly synergistic. The
ed in isolation from broader societal goals (such as sustainable important changes have been primarily in the types of ques-
development), or other existing or probable future sources of tions being asked and the kinds of information being sought.
stress. In keeping with this complexity, a multiplicity of In practice, the literature has expanded to add new issues and
approaches have emerged to analyze climate change and relat- new tools, subsuming rather than discarding the analyses
ed challenges. Many of these incorporate concerns about devel- included in the other ones. The range and scope of climate pol-
opment, equity, and sustainability (albeit partially and gradual- icy analyses can be understood as a gradual broadening of the
ly) into their framework and recommendations. Each approach types and extent of uncertainties that analysts have been will-
emphasizes certain elements of the problem, and focuses on ing and able to address.
certain classes of responses, including for example, optimal
policy design, building capacity for designing and implement- The first perspective on climate policy considered is Cost-
ing policies, strengthening synergies between climate change effectiveness. It represents a perspective that is well represent-
mitigation and/or adaptation and other societal goals, and poli- ed in conventional climate policy analysis and in the First
cies to enhance societal learning. These approaches are there- through Third Assessments. These analyses have generally
fore complementary rather than mutually exclusive. been driven directly or indirectly by the question of what the
76 Setting the Stage: Climate Change and Sustainable Development
most cost-effective amount of mitigation for the global econo- opment. Assessing the climate challenge from a sustainable
my is, starting from a particular baseline greenhouse gas development perspective immediately reveals that countries
(GHG) emissions scenario, reflecting a specific set of socioe- differ in ways that have dramatic implications for scenario
conomic scenarios. Within this framework, important issues baselines and the range of mitigation options that can be con-
include measuring the performance of various technologies sidered. The climate policies that are feasible, and or desirable,
and the removal of barriers (such as existing subsidies) to the in a particular country depend importantly on its available
implementation of those candidate policies most likely to con- resources and institutions, and on its overall objectives includ-
tribute to emissions reductions. In a sense, the focus of analy- ing climate change as but one component. Moreover, although
sis here has been on identifying an efficient pathway through OECD centered models may give helpful first order insights
the interactions of mitigation policies and economic develop- into the efficacy of global scale policy interventions, their
ment, conditioned by considerations of equity and sustainabil- underlying assumptions may make them less useful when the
ity, but not primarily guided by them. At this level, policy heterogeneity of nations is fully incorporated. Recognizing this
analysis has almost always taken the existing institutions and heterogeneity may lead to a different range of policy options
tastes of individuals as given; assumptions that might be valid than has been considered likely thus far and may ultimately
for a decade or two, but may become more questionable over feed back into policy design for Annex I. Recognizing hetero-
many decades. geneity among countries reveals, in short, differences in the
capacities of different sectors that may also enhance apprecia-
The impetus for the expansion in the scope of the climate pol- tion of what can be done by non-state actors as well as gov-
icy analysis and discourse to include Equity considerations was ernments to build their ability to mitigate.
to include considerations not simply of the impacts of climate
change and mitigation policies on global welfare as a whole, While sustainability has been incorporated in the analyses in a
but also of the effects of climate change and mitigation policies number of ways, a class of studies takes the issue of Global
on existing inequalities among and within nations. The litera- Sustainability as the point of departure. One popular method
ture on equity and climate change has advanced considerably for identifying constraints and opportunities within this per-
over the last two decades, but there is no consensus on what spective is to identify future sustainable states and then exam-
constitutes fairness. Once equity issues were introduced into ine possible transition paths to those states for feasibility and
the assessment agenda, though, they became important compo- desirability. In the case of developing countries this leads to a
nents in defining the search for efficient emissions mitigation number of possible strategies that can depart significantly from
pathways. The considerable literature that indicated how envi- what the developed countries pursued in the past.
ronmental policies could be hampered or even blocked by
those who considered them unfair became relevant. In the light The chapter closes with a discussion of preliminary attempts to
of these results, it became clear how and why any widespread integrate the information and insights that result from studies
perception that a mitigation strategy is unfair would likely done from the three perspectives. Within this report the con-
engender opposition to that strategy, perhaps to the extent of cept of “co-benefits” is used to capture dimensions of the
rendering it non-optimal. Some cost-effectiveness analyses response to mitigation policies from the equity and sustainabil-
had, in fact, laid the groundwork for applying this literature by ity perspectives in a way that could be used to modify the cost
demonstrating the sensitivity of some equity measures to poli- projections produced by those working form the cost-effec-
cy design, national perspective, and regional context. Indeed, tiveness perspective although ancillary benefit has been more
cost-effectiveness analyses had even highlighted similar sensi- widely used in the literature. The concept of “mitigative capac-
tivities for other measures of development and sustainability. ity” is also introduced as a possible way to integrate results
derived from the application of the three perspectives in the
As mentioned, the analyses that start from equity concerns future.
have by and large focused on the needs of developing coun-
tries, and, in particular, on the commitment expressed in
Article 3.4 of the UNFCCC to the pursuit of sustainable devel-
1.1 Introduction Also, little consideration was given in FAR to policies

designed to enhance adaptation to climate change impacts. In
This chapter puts climate change mitigation and climate TAR, though, adaptation has become a major focus of the
change mitigation policy in the broader context of develop- Working Group II (WGII) report (IPCC, 2001). At the begin-
ment, equity, and sustainability. The ultimate objective of the ning of the 1990s, assessments of the capabilities of countries
United Nations Framework Convention on Climate Change to achieve emissions reductions were almost exclusively based
(UNFCCC) “is to achieve … stabilization of greenhouse gas on estimates of their fossil fuel consumption. With a few
(GHG) concentrations in the atmosphere at a level that would exceptions (e.g., Grubb, 1991; Rayner, 1993) no explicit con-
prevent dangerous anthropogenic interference with the climate sideration was given to social, cultural, political, institutional,
system. Such a level should be achieved within a timeframe or decision-making constraints on the capacity of governments
sufficient to allow ecosystems to adapt naturally to climate to implement climate change policies.
change, to ensure that food production is not threatened and to
enable economic development to proceed in a sustainable man- Consistent with the state of the policy literature on climate
ner” (Article 2). The UNFCCC goes on to specify principles that change, FAR (IPCC, 1991) also made no attempt to address
should guide this process: equity, common but differentiated issues of equity. Prior to the publication of Global Warming in
responsibilities, precaution, cost-effectiveness, the right to sus- an Unequal World (Agarwal and Narain, 1991a), consideration
tainable development, and the avoidance of arbitrary restriction of the fairness of climate change policies (both among and
on international trade (Article 3). Previous Intergovernmental within countries) received little attention from analysts and
Panel on Climate Change (IPCC) assessment reports sought to policymakers (for exceptions see Grubb, 1989; Kasperson and
lay the groundwork for policymakers pursuing the UNFCCC Dow, 1991; Parikh et al., 1991). The IPCC Second Assessment
goals by comprehensively describing, cataloguing, and compar- Report WGIII (IPCC WG III, 1996) did, however, mention the
ing technologies and policy instruments that could be used to need to extend the focus of analysis and assessment into areas
achieve the mitigation of GHG emissions. that included issues not only of equity and fairness, but also of
development and sustainability. Some of the studies available
The attention accorded in the UNFCCC to sustainable devel- then did note the distributional effects of alternative policy
opment–including the recognition that “Parties have a right to, designs and targets; and some did trace other effects into the
and should promote sustainable development” (Article domains of development and sustainability. The point here is
3.4)–has not, however, been matched by its treatment in previ- not that earlier work ignored these broader issues, but that this
ous IPCC assessment reports. As a result, the present assess- report begins the process of making them more central in the
ment seeks to address this mismatch by placing policy evalua- assessment of the existing policy analyses. This report begins
tions in the broader context of development, equity, and sus- the task of integrating technology and policy characterizations
tainability as outlined in the Convention. The rising stature of into alternative development scenarios and policy decision-
development, equity, and sustainability in the discussion of frameworks that are broadly conceived. In the same spirit, this
mitigation is, indeed, entirely consistent with the overall evo- chapter seeks to locate the work of WGIII in a broader context
lution of the scope of the literature on climate change. of development, equity, and sustainability. In the process, we
draw on several themes (elaborated in subsequent chapters) to
In fact, the analysis of climate change policies has evolved sig- identify opportunities to enhance the capacity of regions, coun-
nificantly between the preparation of the First Assessment tries, and communities to mitigate GHG emissions while
Report (FAR; IPCC, 1991), the Second Assessment Report simultaneously pursuing their sustainable development goals.
(SAR; IPCC, 1996), and Third Assessment Report (TAR) of Neither the greenhouse gas mitigation nor the sustainable
the IPCC. In the late 1980s, for example, the focus of policy development initiative, however, eliminates the need to con-
analysis was almost exclusively on climate change mitigation duct efficiency-based assessments of the opportunity costs of
through emissions reduction. GHG emissions were modelled mitigation and/or the enhancement of the capacity to mitigate.
almost exclusively in terms of carbon dioxide (CO2) from ener- Instead, climate change and sustainable development both sim-
gy use (Nordhaus and Yohe, 1983; Edmonds and Reilly, 1985); ply expand the number of objectives against which these costs
and emissions reductions were to be achieved primarily by need to be measured.
increasing the prices of fossil fuels. Hence, it is hardly surpris-
ing that, with a few exceptions (e.g., Bradley and Williams, The expansion of IPCC’s scope in this WGIII report comple-
1989; Parikh et al., 1991), carbon taxes were overwhelmingly ments that of WGII (IPCC, 2001), which addresses the impacts
the most commonly analyzed policy instrument. FAR (IPCC, of continued atmospheric accumulation of GHGs and the adap-
1991) documents the possible ramifications of a wide range of tive capacity of countries to adjust to the consequences of that
policy instruments, but it reports that carbon taxes are again the accumulation. The analogous concept of mitigative capacity
most fully analyzed in the literature. This report, by way of (Yohe, in press) is offered in Section 1.5 as one tool with which
contrast, demonstrates a significant enhancement in the capac- policymakers and researchers alike might integrate insights
ity of policy analysts to consider the sources and sinks of mul- drawn from the domains of cost-effectiveness, equity, and sus-
tiple gases as well as a broader array of policy instruments to tainability into their understanding of mitigation. Drawing
curtailing the emission of these gases into the atmosphere. attention to concepts like mitigative capacity also allows the
reader to approach the complexity of mitigation within a most likely to contribute to emissions reductions. In a sense,
framework that mirrors the emphasis placed on adaptive capac- the focus of such analysis is to identify an efficient pathway
ity by the TAR WGII Report. through the interactions of mitigation policies and economic
development, in some cases conditioned by considerations of
The expansion of the range and scope of IPCC policy analysis, equity and sustainability, but not primarily guided by them. At
just described, can be understood as a gradual broadening of this level, IPCC policy analysis has almost always taken the
the types and extent of uncertainties that analysts have been existing institutions and tastes of individuals as given; such
willing and able to address. A graphic representation of this assumptions might be valid for a decade or two, but may
expansion of interest and capability (Figure 1.1) shows that the become more questionable over many decades.1
policy sciences have made significant advances since IPCC
FAR. This figure simply depicts different perspectives that By introducing the issue of equity, SAR (IPCC, 1996) broad-
have been employed to examine climate policy issues and the ened the IPCC policy discourse; a process reflected by
stage at which they were incorporated into the IPCC process. “Equity” in Figure 1.1. The impetus for this expansion in the
Progression through the IPCC assessments displayed in Figure scope of the discourse was to include considerations not sim-
1.1 represents expansions in the scope of climate policy analy- ply of the impacts of climate change and mitigation policies on
ses since 1980. There is no presumption that any particular global welfare as a whole, but also of the effects of climate
framework for analysis is most appropriate at any level. The change and mitigation policies on existing inequalities among
important changes are primarily in the types of questions being and within nations. The literature on equity and climate change
asked and the kinds of information being sought. In practice, has advanced considerably since SAR, but there is no consen-
the literature has expanded to add new issues and has sub- sus on what constitutes fairness. Once equity issues were intro-
sumed rather than discarded the analyses of the initial issues. duced into the IPCC assessment agenda, though, they became
With each assessment, IPCC has added to the necessary tool important components in defining the search for efficient emis-
set without obviating the need for the tools developed in the sions mitigation pathways. The considerable literature that
earlier assessments. indicates how environmental policies could be hampered or
even blocked by those who considered them unfair became rel-
The first concern of policy analysis to be included in IPCC evant (National Academy of Engineering, 1986; Rayner and
assessments is labelled “Cost-effectiveness” in Figure 1.1. It Cantor, 1987; Grubb, 1989; Weiss, 1989; Kasperson and Dow,
represents the field of conventional climate policy analysis that 1991). In light of these results, it became clear how and why
is well represented in the First through to the Third any widespread perception that a mitigation strategy is unfair
Assessments. These analyses are generally driven directly or would likely engender opposition to that strategy, perhaps to
indirectly by the question of what is the most cost-effective the extent of rendering it non-optimal (or even infeasible).
amount of mitigation for the global economy starting from a Some cost-effectiveness analyses had, in fact, laid the ground-
particular baseline GHG emissions scenario, and reflecting a work for applying this literature by demonstrating the sensitiv-
specific set of socioeconomic scenarios. Within this frame- ity of some equity measures to policy design, national per-
work, important issues include measuring the performance of spective, and regional context. Indeed, cost-effectiveness
various technologies and the removal of barriers (such as exist- analyses had even highlighted similar sensitivities for other
ing subsidies) to the implementation of the candidate policies measures of development and sustainability.
Throughout this evolution, though, the historical model of

Future IPCC societies that industrialized in the nineteenth and twentieth
Assessment
IPCC Third Reports centuries served as the central notion of what constitutes devel-
Assessment opment in both the cost-effectiveness and equity perspectives.
IPCC Second Report
Climate According to some analysts (e.g., Simon and Kahn, 1984;
Assessment
IPCC First +Impacts
Assessment
Report
Climate
Beckerman, 1996) this path represents the best model for glob-
Cost-
Report +Impacts effectiveness al prosperity. However, a growing parallel literature recognizes
Climate Cost- Equity
the importance of diverse development pathways in achieving
Climate +Impacts
+Impacts effectiveness an environmentally and socioeconomically sustainable world
Cost- Global (see Section 1.4). This insight can serve as the basis of a third
Equity
Cost- effectiveness Sustainability
analytical perspective–a perspective represented in Figure 1.1
effectiveness
Equity by “Global Sustainability”. As yet, however, analyses of such
Global
Sustainability alternative development pathways remain largely unrealized
(? ? ? ? ?)
within the framework of IPCC. Still, the first steps in this
direction can be detected throughout this volume.
Continuing Focus
New Focus
1 Recent work in the theory of public choice (e.g., Michaelowa and
Emerging Focus
Dutschke, 1998) suggests that a more dynamic view of institutions
Figure 1.1: Evolution of the IPCC assessment process. can be incorporated into this style of analysis.
The above description of three complementary perspectives on The expansion of analytic perspectives also represents the
climate change mitigation and the broad societal goals of increasing complexity of issues selected for analytic focus. On
development, equity, and sustainability bears elaboration. The the left-hand side of Figure 1.1, complexity refers primarily to
rest of this chapter can be seen as a triptych, in which each sec- the analytical challenges presented by individual technologies
tion presents a particular perspective on climate change miti- (such as fuel cells or photovoltaics) or specific policy instru-
gation–motivated respectively by considerations of cost-effec- ments (such as carbon taxes or tradable emissions permits).
tiveness, equity, and sustainability. However, we also describe Moving from left to right across the figure, such complexities
how each of the perspectives has attempted to address and become compounded, first by interactions among technologies
incorporate concerns that lie beyond their initial starting and policy instruments, then among mitigation and adaptation
points. For example, Section 1.2 details the Cost-effectiveness issues, and, finally among climate change issues narrowly
perspective; however, its two concluding sections, (1.2.5 and defined and a wide range of environmental and socioeconom-
1.2.6) describe how this approach has addressed concerns of ic issues. Finally, linkages and interactions with policy objec-
equity and sustainability. Similarly, Section 1.3 is entitled tives for the development of the global economy come into the
“Equity and Sustainable Development” in recognition of the picture.
fact that writers examining the issue of climate change from a
vantage point of global equity have generally sought to explore A major part of the complexity that must be dealt with in for-
how developing countries could pursue their sustainable devel- mulating climate policies is the uncertainties about how the
opment goals. In the penultimate sub-section (1.3.4) of this world and the climate system will evolve without new policies,
section, we examine the concept of sustainable development about what policies will be implemented now and in the future,
and describe its relationship to cost-effectiveness, efficiency, and about the efficacy of those policies. The economist Frank
and sustainability. Finally, the theme of Section 1.4 is Global Knight (1921) introduced a fundamental distinction between
sustainability; and its two main sub-sections (1.4.2 and 1.4.3) “risk” and “uncertainty”,2 whereby risk refers to cases for
discuss issues of resource efficiency (de-coupling growth from which the probable outcomes are predicted through well-estab-
resource flows), and values and norms that include issues of lished theories and methods, and with reliable data (e.g., the
equity. radiative forcing of a tonne of CO2 or the efficiency of a gas
turbine); and uncertainty to situations in which theories and
In other words, instead of forcing the literature that describes methods are widely accepted, but the appropriate data are not
the relationship between climate change mitigation and devel- available or are fragmentary, and probabilities and outcomes
opment, equity, and sustainability into a single framework, we can be assessed subjectively by relevant experts. In this situa-
have tried to bring out both the commonalities and differences tion, formal decision-analytic tools can be quite useful, but
between alternative approaches and analytical frameworks. All only if carefully and systematically applied (Savage, 1954;
three classes of analyses look at the relationship of climate Raiffa, 1968; Howard, 1980, 1988: Howard and Matheson,
change mitigation with all three goals–development, equity, 1984). There is, however, a third state in the climate context,
and sustainability–albeit in different and often highly comple- which may be called decision making under deep uncertainty
mentary ways. Nevertheless, they frame the issues differently, (sometimes also referred to as “secondary” uncertainties; see
focus on different sets of causal relationships, use different Fischbeck, 1991). For deep uncertainty, it is not possible to
tools of analysis, and often come to somewhat different con- specify the behaviour of major components of a system
clusions. Accordingly, they are likely to be useful to decision because of the absence of or contradictions in data, methods,
makers in different ways. and/or theory. Decision-analytic methods can still be applied,
but the process of eliciting subjective probabilities is much
Assessing the climate challenge with a sustainable develop- more complicated. The experts must factor in assessments
ment perspective immediately reveals that countries differ in about the likelihood of each of the alternative theories being
ways that have dramatic implications for baselines and the correct, on top of assessments of the probabilities for alterna-
range of mitigation options that can be considered. Moreover, tive parameter values within the methods suggested by that
although models centred on Organization of Economic Co- theory. In addition, the experts need to provide some estimate
operation and Development (OECD) countries may give help- of the uncertainty in outcomes caused by factors not incorpo-
ful first-order insights into the efficacy of global policy inter- rated into any existing theory. For example, there may be dis-
ventions, the underlying assumptions may make such models continuities in the response of the climate or ecological sys-
less useful when the heterogeneity of nations is incorporated tems that occur at as yet unrecognized thresholds.
fully. Recognition of this heterogeneity may lead to a different
range of policy options than considered likely thus far, and
may ultimately feed back into policy design for Annex I coun-
tries. Recognizing heterogeneity among countries reveals, in 2 Knight defined uncertainties as either risks accessible using objec-
short, differences in the capacities of different sectors, which tive historical data or uncertainty where there is little or no data and
may also enhance appreciation of what can be done by non- the underlying processes are not well understood. The exposition
state actors as well as governments to build their mitigative here updates his original taxonomy to include more recent thinking
capacity. on a fuller range of degrees of uncertainties.
Since they have different starting points and objectives, the 1.2 Cost-effective Mitigation
three approaches to climate policy analysis have exhibited
somewhat different approaches to handling uncertainty. 1.2.1 Introduction
Applications of the cost-effectiveness approach have generally
ignored uncertainty completely or stayed fairly close to the tra- This section describes the key themes that have been pursued
ditional decision analysis approach, focusing on incorporating by the research community working from the “cost-effective
a limited number of subjectively accessed probabilities on key mitigation” perspective (as conceptualized in Figure 1.2). The
uncertainties. Applications of the equity approach have been focus here is on the kinds of issues that the research communi-
focused on the risks climate change and climate change polity working from this perspective address and not on specific
cies might pose to the “most vulnerable” elements of the glob- results.
al population and have generally employed sensitivity analyses
to accomplish this objective. Studies done from the sustain- Researchers working from a cost-effective perspective gener-
ability perspective have more often than not focused on the ally focus on achieving some policy objective at minimum
robustness of policies (and especially those designed to build cost. Cost minimization, in some cases, is used to compare
climate mitigation and adaptation possibilities) across wide alternative ways to meet some climate policy objective (like a
ranges of values for uncertain inputs and parameters. specific GHG emissions or concentration target); in other
cases, alternative ways to minimize the total cost of climate
The rest of this chapter elaborates each of the three analytic per- change and policies designed to ameliorate its impacts are con-
spectives shown in Figure 1.1. The motivation for this elabora- sidered. In the former, the policy objective is included as a con-
tion is threefold. First, it is to help the reader situate each per- straint; but in the latter, the objective is to minimize the cost of
spective in the evolution of policy science as reflected in IPCC the climate change. In either case, the policies considered are
assessments. Second, it is designed to situate the issue of GHG generally restricted to those that directly affect energy use or
emissions mitigation in the context of climate policy more broad- other activities with a direct impact on GHG emissions.
ly. Third, it seeks to locate climate policy in a broader context of Although equity and sustainability metrics are frequently
concerns about development, equity, and sustainability. However, examined in these analyses, their inclusion usually occurs after
it must be emphasized that Figure 1.1 does not represent any sort the cost-effectiveness calculations have been completed.
of linear evolution in which one kind of analytic tool or policy Exceptions to this general observation include input assump-
focus replaces a predecessor. Rather than a hierarchy of tions related to discounting and utility function parameters that
approaches, the evolution of perspectives suggests a portfolio do represent trade-offs between the utilities of various groups
approach both to assessment and policy choice. Just like a per- and generations. Judicious use of sensitivity analysis can, how-
sonal investment portfolio, a rational global climate policy port- ever, illuminate the trade-offs implied along these dimensions,
folio contains a flexible mix of diverse commitments consistent but these trade-offs are not usually the main focus of such stud-
with different development goals, and to protect against different ies. It is therefore difficult, ex post, to graft other policy objec-
contingencies at various levels of uncertainty about the future. tives related to development or sustainability (e.g., poverty
Environmental and
Adaptation,
Vulnerability
Socio-economic
Impacts
Costs
Ancillary Benefits
Emissions Mitiga-
Climate
tion Policy
Figure 1.2: The cost-effectiveness perspective.

reduction, human capital development) onto a cost-effective- against other metrics. In all cases, though, the underlying ele-
ness style of assessment. ment of cost is the sacrifice of opportunities, goods, or ser-
vices; and this element is often quite different from the overt
financial outlay involved.
1.2.2 The Costs of Climate Change Mitigation
Chapter 7 also indicates that some notions of cost incorporate
The United Nations Framework Convention on Climate behavioural, institutional, or cultural responses that can be
Change makes clear that cost-effectiveness is an important cri- missed by economic analyses. In measuring opportunity costs,
terion to be used (among others) in formulating and imple- more specifically, economic analyses generally take personal
menting climate policies. As stated in Article 3.3 of the con- preferences, social and legal institutions, and cultural values as
vention “…taking into account that policies and measures to given. Yet climate policies can affect (positively or negatively)
deal with climate change should be cost-effective so as to the functioning of institutions. They can alter the ways in
ensure that global benefits at the lowest possible cost (UNFCC, which people relate to each other; and they can influence indi-
1992)”. The impacts of climate policy can be defined as the viduals’ attitudes, values, or preferences. Taking these impacts
changes that policies cause relative to some “business-as- into account can alter the cost assessment. Moreover, while
usual” or “baseline” situation. As discussed in Chapter 2, a economic analyses (including standard benefit–cost analyses)
baseline is a scenario of how the global or regional environ- tend to measure costs by adding up individuals’ valuations of
ments, depending on the study, will evolve over time (often their forgone opportunities, other approaches to cost can be
over 100 years or more for baselines used in climate policy defined in terms that are not simple aggregations of individual
studies) in the absence of climate policy intervention. Thus, a measures.
baseline is typically built upon assumptions about future pop-
ulation growth, economic output, and resource and technology As discussed below, equitable policy making brings attention
availability, as well as upon assumptions about future non-cli- to the distribution of costs as well as to their aggregate levels.
mate environmental policies, like controls on sulphur dioxide There has been considerable progress since SAR in identifying
emissions. Changes from these baselines are frequently put ways that climate change can be avoided at lower costs. Both
into categories of “benefits” and “costs”. The benefits includ- theoretical and modelling studies have helped to reveal the
ed in the calculus are estimated from avoided climate damages types of policies that might achieve given targets at the lowest
and other ancillary benefits that would have otherwise cost. Moreover, as indicated below, models have identified cer-
occurred if mitigation policies had not been introduced. The tain circumstances in which at least some reductions in GHGs
costs for mitigation and other side effects that result are esti- might be achieved at no cost.
mated from economic sacrifices that might be required to mit-
igate climate change. Chapter 8 reports that the cost of mitigation can depend signif-
icantly on the selection of a designated concentration target
Climate change would be a relatively simple problem to over- that, typically, is assumed to be achievable within 100 or 200
come if it could be avoided without sacrifice and if the means years. Most model-based studies indicate that the first units of
to effect this avoidance were recognized widely. At present, abatement are fairly inexpensive; “low-hanging fruit” is easily
however, there are concerns about the sacrifices that avoiding picked. However, most studies show that additional units of
climate change might involve. A fundamental challenge in mit- abatement require more extensive changes and involve signif-
igation policy analysis is thus to discern how climate change icantly higher costs.3 Thus, to lower the original concentration
can be avoided at a minimal cost or sacrifice. Chapters 3–9 target is projected to result in a more than proportional increase
describe a number of advances since WGIII SAR that identify in costs. Rising marginal abatement costs provide a rationale to
methods to reduce the costs of climate change mitigation. employ broad-based, economically efficient mechanisms for
Indeed, these chapters report that some degree of mitigation GHG abatement.
might be achieved at zero cost.
The cost of mitigation depends not only upon the cumulative
Chapter 7 distinguishes several cost concepts. Opportunity cost emissions reductions required over the next century, but on the
(the value of a sacrificed opportunity) constitutes a basis upon timing of these emissions reductions as well. Chapter 8 reviews
which estimates of economic cost are constructed. The extent some studies that argue the most cost-effective approach to
of the costs of mitigating climate change is, from an economic achieving a given long-term concentration target involves
perspective, measured in terms of the value of other opportu- gradually rising abatement through time. The attraction of this
nities that must be forgone (for example, the opportunity to approach is that it helps avoid the premature turnover of stocks
enjoy low prices for domestic heating or other energy ser- of capital. In addition, deferring the bulk of abatement effort to
vices). It follows that economic costs can be different when
they are viewed from different perspectives. Costs of mitiga-
tion incurred by a regulated sector are, for example, generally 3It is possible for the cost curves to be very flat in certain regions,
different from economy-wide costs. Costs are sometimes mea- however, and technological change can shift them down significantly
sured in currency units, but they are sometimes also measured over time.
the future allows more discounting of abatement costs. The issue of revenue recycling applies also to policies that
However, other studies show potential cost advantages in would reduce CO2 through carbon permits or “caps”. As dis-
concentrating more abatement towards the near term. These cussed in Chapter 6, revenues could be recycled through cuts
studies argue, in particular, that near-term abatement helps in existing taxes if CO2 permits are auctioned. In contrast, if
generate cost-effective “learning-by-doing”, by accelerating the permits are distributed freely, then no revenue is collected
the development of new technologies that can reduce future and there is no possibility of revenue recycling. Thus, auction-
abatement costs. These findings are not necessarily contradic- ing the permits has a significant potential cost advantage over
tory. By introducing mitigation efforts in the near term, the free allocation.
process of learning-by-doing is initiated. At the same time, by
increasing over time the stringency of policies (that is, the It is also important to keep in mind that aggregate costs are not
extent of abatement), nations can avoid premature capital- the only useful consideration in evaluating alternative policy
stock turnover and exploit the cost savings from future techno- instruments from the cost-effectiveness perspective. The distri-
logical advances. Chapter 10 elaborates on these issues. bution of these costs across businesses, regions, and individu-
als is important as well. Moreover, other important evaluation
It is worth emphasizing that abatement policies (such as the criteria, including administrative and political feasibility, can
introduction of national targets on carbon emissions or policies play a role in determining exactly how and why mitigation ini-
to stimulate the development of energy technologies not based tiatives might emerge.
on carbon, as discussed in Chapter 3) can proceed in the near
term even when abatement efforts are significantly deferred to The theoretical and modelling literature also reveals that interna-
the future. The near-term introduction of policies helps to stim- tional policy co-ordination through “flexibility mechanisms”
ulate efforts to bring about new technologies, which is crucial offers enormous opportunities to achieve given reductions in
to enable future abatement to be achieved at lower cost. GHG emissions at relatively lower cost. In principle, co-ordinat-
ed policies can be designed so that cost-effectiveness is
As Chapter 6 discusses, individual countries can choose from a improved on a global scale. The Kyoto Protocol defines several
large set of possible policy instruments to limit domestic GHG flexibility mechanisms, including international emissions trading
emissions. These include traditional regulatory mechanisms (IET), joint implementation (JI), and the clean development
such as technology mandates and performance standards. They mechanism (CDM). Each of these international policy instru-
also include “market-based” instruments such as carbon taxes, ments provides opportunities, in theory, for Annex I Parties to
energy taxes, tradable emissions permits, and subsidies to clean fulfil their commitments cost-effectively. IET allows Annex I
technologies. They also include various voluntary agreements parties to exchange parts of their assigned amount. Similarly, JI
between industries and regulators. A group of countries that allows Annex I parties to exchange “emission reduction units”
wishes to limit its collective GHG emissions can agree to among themselves on a project-by-project basis. Under the
implement some of these policies in a co-ordinated fashion. CDM, Annex I parties receive credit, on a project-by-project
basis, for reductions accomplished in non-Annex I countries.
Chapters 6–9 reveal that the costs of achieving specified miti- Participation in these programmes can also increase the level of
gation targets depend critically upon the policy instrument investment in clean energy technologies. International policy co-
employed. Any given target is achieved at the lowest cost when ordination in implementing climate policy also requires account-
the incremental cost of emissions reduction (abatement) is the ing for the “ spillover” effects of mitigation in one country that
same across all emitters. If this condition is not met, then the can effect economic activity in other countries through interna-
overall costs of emissions reduction could be reduced if firms tional trade linkages. In general, countries that mitigate less may
with lower incremental costs reduced emissions a bit more, and gain an advantage in their share of international trade over their
firms with higher incremental costs pursued a bit less abate- trading partners, but can also lose market share if those trading
ment. It follows that cost-effective emissions reductions hold partners control more and thus reduce their overall level of eco-
the promise of allowing larger emissions reductions from any nomic activity. See Chapter 8 for more on these issues.
allocation of resources
Most studies of national or global mitigation costs focus on
While market-based instruments such as carbon taxes and trad- CO2 from fossil energy alone (e.g., see Chapter 8), but some
able carbon permits have potential cost advantages, the extent recent studies consider other GHGs as well. For example,
to which these potential advantages are actually realized Chapters 3 and 4 discuss options to reduce emissions of non-
depends on whether the policy generates revenues and whether CO2 gases and CO2 net emissions from land-use change,
these revenues are “recycled” in the form of cuts in existing respectively. Chapter 8 indicates that defining national targets
taxes. Revenue recycling is important to the costs of a carbon in terms of a “basket” of gases (as under the Kyoto Protocol)
tax, for example. When the revenues from the carbon tax rather than in terms of individual gases enhances flexibility and
finance reductions in the rates of pre-existing taxes, some of can reduce the costs of mitigating climate change. Emissions of
the distortionary cost of these prior taxes can be avoided; and several of the GHGs (such as methane and nitrous oxide) from
so the cost of mitigation is reduced. These issues are further some sources can, in addition, be very difficult to monitor. This
elaborated in Chapters 6–9. practical complication raises the potential cost of mitigation
over the short- to medium-term, because it highlights the need may shed light on some of these controversies. In all cases,
to improve the methods used to monitor these emissions. though, the opportunity costs associated with using terrestrial
systems involve welfare implications on multiple scales.
1.2.3 The Role of Technology

1.2.4 The Role of Uncertainty
The time horizon for climate change is long. The climate
impacts of decisions made in the next decade or two will be felt The uncertainties that surround climate change are vast. The
over the next century and beyond. As a result, technology and, connections between emissions of GHGs and climate change
more specifically, improvements in the rate and direction of are not fully understood. In addition, uncertainty distorts our
technological change, will play a very important role. As dis- understanding of the impacts of climate change and the value
cussed in Chapter 2, the development and diffusion of new of those impacts to humans. These uncertainties depend on
technologies is perhaps the most robust and effective way to scale, and become larger across the spectrum from “average”
reduce GHG emissions. Three aspects of technology can be impacts across broadly defined geographical areas to specific
distinguished: invention (the development, perhaps in a labo- impacts felt at a more local level.
ratory, of a new production method, product, or service), inno-
vation (the bringing of new inventions to the market), and dif- The uncertainties that surround climate change bear on the
fusion (the gradual adoption of new processes or products by issue of whether mitigation policies are justified. Some ana-
firms and individuals). Chapter 3 indicates that hundreds of lysts might conclude that these uncertainties justify the post-
recently invented technologies can improve energy efficiency ponement of significant mitigation efforts–particularly those
and thus reduce energy and associated GHG emissions. These that involve economic sacrifices–on the grounds that not
technologies can yield more energy-efficient buildings and enough is yet known about the problem. Proponents of this
appliances and equipment used in them. There are, however, point of view argue that there is some chance that scientific
significant barriers to their innovation and diffusion. Chapter 5 inquiry will eventually reveal that the continued accumulation
(see also IPCC, 2000a) classifies these barriers and provides a of GHGs will not produce significant changes in climate and/or
framework for understanding their connections with one anoth- significant associated damages. So long as the possibility
er. Some new low-carbon emission technologies are not adopt- exists that a “type one” error (an action that will ultimately turn
ed because their cost and performance characteristics make out to be unnecessary) could occur, the argument goes, it is
them unattractive relative to existing technologies. To be premature to undertake costly mitigation measures now.
adopted, these technologies require tax advantages, cost subsi-
dies, or additional cost-reducing or performance-enhancing However, uncertainty also introduces the risk that the opposite
research and development (R&D; see Chapter 6 for a discus- will occur. There is a significant possibility that scientific
sion of the possible efficacy of such policies). Other technolo- investigations will ultimately reveal that the continued accu-
gies could be adopted more rapidly if market failures and other mulation of GHGs will have severe consequences for climate
socioeconomic constraints are reduced. Market failures refers and substantial associated impacts. If this scenario should
to situations in which the price system does not allocate materialize, the cost of making this “type two” error (of taking
resources efficiently (see, e.g., Opschoor, 1997). They can little or no action in the near term to stem the accumulation of
emerge when information is not fully disseminated or when GHGs) could be enormous. As discussed in Chapters 8–10, it
market prices do not reflect the full social cost. So, a new tech- may be less costly to spread the costs of averting climate
nology may not be employed if potential purchasers lack change by beginning mitigation efforts early, rather than to
information about it or if its price lies between its private value wait several decades and take actions after the problem has
and its, potentially higher, social value. already advanced much further. Indeed, if postponing mitiga-
tion efforts allows irreversible climate impacts to occur, then
While Chapter 3 summarizes advances in our understanding of no future efforts, at any cost, can undo the resultant damage.
technological options to limit or reduce GHG emissions,
Chapter 4 indicates that terrestrial systems offer significant The risks of premature (or unnecessary) action should there-
potential to capture and hold substantially increased volumes fore be compared with the risks of failing to take action that
of carbon within organic material. However, the challenges later proves warranted. As stated in Article 3.3 of the
associated with defining and measuring contributions to Framework Convention “…The parties should take precau-
sequestration and with monitoring the performance of individ- tionary measures to anticipate, prevent or minimise the causes
ual sink projects are significant. The nature of sequestration of climate change and mitigate its adverse effects”(UNFCCC,
opportunities differs by region. In some regions, the least-cost 1992). Which risk is larger? Analyses of this issue (see Chapter
method of accomplishing sequestration is to slow or halt defor- 10) tend to indicate that the latter risk is sufficient to justify
estation. In others, afforestation and reforestation of abandoned some mitigation efforts in the short run, despite the possibility
agricultural lands, degraded forests, and wastelands offer the that these efforts might ultimately prove unnecessary. These
lowest-cost opportunities. The results of the IPCC (2000c) analyses depict mitigation efforts as a type of insurance against
Special Report on Land Use, Land-Use Change and Forestry potentially serious future consequences. It is generally sensible
for a person to purchase fire insurance on his or her house of the economic impacts of climate policies are distributed
(despite the likelihood a fire will never occur). Likewise, it is unevenly as well, although the distribution of these impacts
rational for nations to insure against potentially serious dam- depends on the types of mitigation policies introduced. It is
ages from climate change, despite the significant chance that important to consider the distribution of cost impacts of differ-
the most serious scenarios will not materialize. ent potential policies across nations, socioeconomic groups,
industrial sectors, and generations.
The term precautionary principle has been employed to express
the idea that it may be appropriate to take actions to prevent The distribution of the economic impacts of mitigation policies
potentially harmful climate-change outcomes. As discussed in across economic sectors is examined in Chapter 9. Policies
Chapter 10, this term has more than one meaning. A weak ver- such as carbon taxes or carbon caps are designed to limit car-
sion of the principle is the idea that, in the presence of uncer- bon use and are likely to cause production, output, and employ-
tainty, it may be prudent to engage in policies that provide ment to fall in the coal and oil extraction industries. The impact
insurance against some of the potential damages from climate on the natural gas industry is less clear. On the one hand, a car-
change. Insuring against potentially serious damages can be bon tax raises the cost of supplying natural gas, which tends to
rational simply because the costs of the insurance are less than imply reduced demands, output, and employment in this indus-
the expected value of avoided damages. This weaker form of try. On the other hand, this tax raises the price of coal by a larg-
the precautionary principle applies even if individuals or soci- er percentage, inducing shifts in demand from coal to natural
eties are not particularly averse to risk. In its stronger form, the gas. The impact of mitigation policies on renewable energy
precautionary principle stipulates that nations should pursue sources is likely to vary by resource and region but are likely
whatever policies are necessary to minimize the damages to lead to larger markets for renewables. Mitigation policies are
under the worst possible scenario. This stronger form assumes expected to lead to structural changes in manufacturing, espe-
extreme risk-aversion, since it focuses exclusively on the worst cially in the developed countries. Sectors that supply energy-
possible outcomes. It is clear, though, that there are costs asso- saving equipment and low-carbon technologies are likely to
ciated with climate policies that could, under some circum- benefit from these policies. Sectors that rely intensively on car-
stances, impose large costs on particular peoples and/or bon-based fuels are expected to suffer price increases and a
nations; but neither form of the precautionary principle has yet loss of output.
been applied to this side of the climate calculus.
Chapter 8 indicates results that concern the distribution of
Uncertainty also bears on the design of mitigation policies. As impacts across household income groups. According to most
indicated in Chapters 8 and 10, the problem of climate change studies, mitigation policies that imply higher energy prices
might be addressed most effectively through a process of impose higher cost-burdens (relative to income) on less affluent
sequential decision making, in which policies are adjusted over households than on richer households. This reflects that the
time as new scientific information becomes available and poor tend to spend a larger share of their income on energy.
uncertainties are reduced. Moss and Schneider (2000) offer Equity considerations suggest that mitigation policies can over-
guidance on how subjective probabilities can be utilized effec- come these distributional consequences by including provisions
tively when empirical data are not available or are inconclu- that reduce the costs they impose on the lowest-income groups.
sive. New information is valuable, and flexible policies that
can make use of this information have an advantage over rigid For the most part, existing studies of the impacts across house-
ones that cannot. In any case, policies that help build or hold groups (or socioeconomic groups, more broadly) apply to
strengthen mitigation capacity are consistent with the insur- developed nations. There is a severe need for studies that con-
ance approach. To the extent that mitigation capacity is higher, sider the distributional impacts within developing countries. In
the costs of future action can be expected to be lower. addition, nearly all the studies lack the detail necessary to con-
sider impacts in socioeconomic dimensions other than income.
As a result, important costs to various groups within the gen-
1.2.5 Distributional Impacts and Equity Considerations eral population may be overlooked. Important costs may also
be hidden by aggregation. This is especially relevant in studies
It is important to consider more than the aggregate (worldwide) of the impacts of climate change and mitigation activity in
benefits and costs of such policies in examining and evaluating developing countries, since existing studies may overlook
mitigation options. Considerations of the national, intranation- major impacts to the most vulnerable individuals. Section 1.3
al, industrial, and intergenerational distributions of the benefits discusses the issue of equity in more detail and from a broader
and burdens of mitigation policies–as well as considerations of perspective.
the historical contributions to the accumulation of GHGs–are
crucial to develop equitable climate policies. The WGII report
(IPCC, 2001) indicates that the impacts of climate change vary 1.2.6 Sustainability Considerations
substantially across regions of the globe. Indeed, climate
impacts can differ even on the scale of a few miles depending Sustainability considerations are typically not the primary
on geography, terrain, and other natural conditions. The costs motivation for studies carried out from the “cost-effectiveness
perspective”. Besides the distributional effects of climate poli- new technologies and production processes that rely less on
cies, their implications for other environmental concerns can carbon-based fuels (see Chapters 3 and 4). If this is the domain
also be calculated. For example, the implied impact of climate of mitigation policy, then other (anticipated) actions that do not
policies on sulphur, particulate emissions, or land uses can be fall in this category need to be regarded, by default, as part of
calculated. Sulphur emissions in some scenarios may be so the baseline. However, other activities have important conse-
high that they have major health impacts, and the land-use quences for climate change. For example, policies oriented
requirements for a global energy industry based on a very large towards local air pollution–such as controls on hydrocarbon
biomass could potentially crowd out agriculture, forestry, and emissions from automobiles–affect levels of emissions of CO2
the recreational use of land. as well as the formation of tropospheric ozone, and thus have
consequences for climate. Moreover, as discussed below, some
As indicated in Chapter 2, the benefits and costs from a given policies, such as poverty alleviation, may ultimately have sig-
mitigation policy depend on the baseline circumstances to nificant implications for the emissions of GHGs and are there-
which the policy is applied. The uncertainties as to what the fore extremely important to climate change.
baseline circumstances might be are vast, in the light of which
it is important to evaluate the impacts of given policies relative The implications of different baseline assumptions about the
to a range of baseline scenarios rather than to a single baseline future of the world reflect, in part, different assumptions about
scenario. the sustainability of economic, biological, and social systems.
Bringing them to bear on the analyses of mitigation opens the
Human welfare and the state of the environment (which may possibility that climate policies can be assessed within alterna-
be a determinant of human welfare, but one that is the focus of tive worlds and that how climate policies might effect various
this assessment report) depend both on the baseline path and on measures of sustainability can be examined explicitly. This
the policy-induced departures from the baseline. A striking kind of analysis can support, though, only a limited treatment
conclusion from Chapter 2 is that the differences in human of sustainable development. A more in-depth treatment has
welfare across plausible baselines can be greater than the wel- been attempted by researchers working from the perspective of
fare impacts of mitigation policies. That is, the nature of the “envisioning transitions to sustainability”; their perspective is
baseline–which reflects a wide range of human decisions and described in Section 1.4.
policies outside of the climate-policy arena–can be more
important than the departures from that baseline caused by cli- In addition to the direct benefits of GHG mitigation represent-
mate policy. The lower the level of baseline GHG emissions, ed in terms of reductions in impacts resulting from climate
the smaller is the effort required to achieve any specific emis- change, the cost-effectiveness perspective also considers bene-
sions or concentration target. This does not eliminate the fits from reductions in other pollutants4 that may accompany
importance of policy actions to mitigate climate change, but it the GHG emission reductions. Given the focus on climate
reveals the importance of developments that occur outside change mitigation as the primary objective the term used most
what is typically regarded as “climate policy”. often is “ancillary benefits” (see also Chapter 8). The term “co-
benefits” is used for situations where climate change and other
It is not surprising that changes in the economy resulting from environmental or socioeconomic objectives are equally impor-
climate policy may be small compared to changes that may tant. That notion comes more naturally from the sustainability
occur in response to other trends in the economy and to other perspective and reflects that most policies designed to address
policies. This is so because most the GHG emissions occur in GHG mitigation also have other, often at least equally impor-
energy production, which forms a relatively low percentage of tant, rationales, e.g. related to development, equity and sus-
the economy (no more than 5%–10%). In principle, rearrang- tainability.
ing energy use as one element of a mitigation strategy need not
be a major shock to the economy if it is done efficiently.
Important also is that the costs of mitigation are likely to vary 1.3 Equity and Sustainable Development
substantially among nations because of both differences in
baseline emissions trends and differences in flexibility to The above review of the literature on cost-effective GHG mit-
accomplish the emissions reductions required (see also igation (including the chapters in this report) shows that ele-
Schneider (1998) on this subject). ments of development, equity, and sustainability are addressed
in some of the analyses. However, they generally take the form
Deciding what counts as “climate policy” is not always of boundary conditions, barriers, or constraints rather than the
straightforward, as discussed in Chapter 2. In many policy dis- primary motivation of the analysis. There is also a large and
cussions, climate-change mitigation policy is assumed to growing volume of research that approaches mitigation direct-
involve actions for which the primary target is a reduction in ly from a concern with equity and development (Figure 1.3).
GHG concentrations. These include efforts directly aimed at
reducing carbon emissions, at expanding carbon sinks, at
reducing emissions of other GHGs (like methane and nitrous 4In principle these ancillary benefits should be credited only to the
oxide from agriculture), and at promoting the development of extent of the cost of direct control of those pollutants they obviate.
Development
Equity, Sustainability
Finance, Technology,
Livelihoods
Environmental and Equity and

Adaptation, Socio-economic Sustainable
Vulnerability Development
Impacts
Policy
Costs
Ancillary Benefits
Emissions Mitiga-
Climate
tion Policy
Figure 1.3: Equity and climate change mitigation.
While in principle, equity concerns pertain to at least three generations of humankind, on the basis of equity and in accor-
domains5–international, intra-country, and inter-genera- dance with their common but differentiated responsibilities and
tional–much of this literature focuses on the international respective capabilities. Accordingly, the developed country
dimensions of equity, and takes as its primary challenge the Parties should take the lead in combating climate change and
goal of sustainable development and poverty eradication in the adverse effects thereof.”
developing countries, (Parikh, 1992; Parikh and Parikh, 1998;
Murthy, 2000). The UNFCCC goes on to require developed countries to assist
developing countries in coping and adapting with the impacts
As mentioned earlier, although this literature starts with con- of climate change (Articles 4.3, 4.4, 4.5, 4.8, 4.9, 4.10), recog-
cerns about global equity, one of its central concerns is the pro- nizes that “economic and social development and poverty erad-
motion of the prospects of sustainable development, especially ication are the first and overriding priorities of the developing
in developing countries. Accordingly, we have entitled this countries” (Article 4.7), and, indeed, that “Parties have a right
approach, “equity and sustainable development”. to and should promote sustainable development” (Article 3.4).
The Kyoto Protocol retained this emphasis by referring to var-
An important motivation for this literature is climate change ious paragraphs of Article 4 of the UNFCCC (1992), and
agreements in which equity–at all relevant levels (intergenera- refrained from imposing additional commitments on develop-
tional, intragenerational, international, and intranational)–is a ing countries (UNFCC, 1997b Article 10, preamble). It reiter-
prominent and consistent theme. The first principle of the ated the goal of sustainable development and established the
UNFCCC (1992, Article 3.1) states: “The Parties should pro- CDM to assist developing countries in achieving sustainable
tect the climate system for the benefit of present and future development while contributing to the ultimate objectives of
the UNFCCC (1997b, Article 12.2; see also Jacoby et al.,
1998; Najam and Page, 1998; Jamieson, 2000; Agarwal et al.,
5
2000).
This is an extensive and diverse literature, of which a few examples
are Ramakrishna (1992), Shue (1993, 1995), Mintzer and Leonard
(1994), Munasinghe (1994, 1995, 2000), Lipietz (1995), Parikh
Finally, the issue of equity has been discussed not only with
(1995), Rowlands (1995), Runnalls (1995), Jamieson (1996, 2000), regard to the distribution of resources and burdens within and
Murthy et al. (1997), Parikh et al. (1997), Rajan (1997), Sagar and between generations, but also in terms of the role that it plays
Kandlikar (1997), Schelling (1997), Byrne et al. (1998), Najam and in the generation of social capital. Along with reproducible,
Sagar (1998), Parikh and Parikh (1998), Tolba (1998), Agarwal et al. natural, and human and intellectual capital, social capital is
(2000). necessary for sustainability (Rayner et al., 1999; for related
arguments, see also Hahn and Richards, 1989; Toman and less than US$1 per day. Other measures of poverty and vulner-
Burtraw, 1991; Rose and Stevens, 1993). Fairness is integral to ability–lack of access to health, education, clean water, or san-
the establishment and maintenance of social relations at every itation–yield higher estimates of poverty. Since poverty is con-
level, from the micro to the macro, from the local to the centrated in non-Annex I countries–especially South Asia and
global. Africa–whose average per capita income is less than one-quar-
ter (in dollars of constant Purchasing Power Parity) of the aver-
What is fair may be the subject of disagreement, but the age for developed countries (UNDP, 1999; World Bank, 1999),
demand for fairness only arises because of the existence of equity concerns have focused on differences between rather
community. It is very hard to imagine what fairness would than within countries.
mean if we did not live and work together in families, commu-
nities, firms, nations, and other social arrangements that persist The distributional dimension of global poverty was illustrated
over time (Rayner, 1995). vividly by the Human Development Report 1989 (UNDP,
1989), in the form that has come to be known as the cham-
pagne glass (Figure 1.4). This representation of global income
1.3.1 What Is the Challenge? distribution shows that in 1988 the richest fifth of the world’s
population received 82.7% of the global income, which is near-
The challenge of climate change mitigation from an equity per- ly 60 times the share of the income received by the poorest fifth
spective is to ensure that neither the impact of climate change (1.4%). More recent statistics indicate that inequality has
nor that of mitigation policies exacerbates existing inequities widened further since then and that in 1999 the richest quintile
both within and across nations. The starting point for describ- received 80 times the income earned by the poorest quintile
ing this challenge is the vast range of differences in incomes, (UNDP, 1999).
opportunities, capacities, and human welfare, both between
and within countries. This is combined with the fact that car- Besides average income levels, Annex I and non-Annex I
bon emissions are closely correlated to income levels–both countries differ in other ways, most importantly in terms of the
across time and across nations–which suggests that restrictions capacity for collective action and access to technology and
on such emissions may have strong distributional effects finance. Many non-Annex I countries face problems of gover-
(Parikh et al., 1991; Parikh et al., 1997b; Munasinghe, 2000). nance because of weak administrative infrastructures, failure to
invest in human and institutional capacity, lack of transparen-
Income and consumption, as well as vulnerability to climate cy and accountability, and a high incidence of civic, political,
change, are distributed unevenly both within and between and regional conflicts (World Bank, 1992; UNDP, 1997;
countries.6 Concerns about the disproportionate impacts of cli- Kaufmann et al., 1999; Knack, 2000; Thomas et al., 2000).
mate change on developing countries are mirrored in similar They also house a less than proportionate fraction of R&D
fears with regard to poor and vulnerable communities within infrastructure, and consequently lack access to technology and
developing countries (Jamieson, 1992; Ribot et al., 1996; innovation. This is especially important in issues of global
Reiner and Jacoby, 1997). Similarly, issues of intergenerational environmental change, which are strongly science-driven areas
equity have been raised to caution against shifting the burden (Jamieson, 1992; Ramakrishna, 1992; Najam, 1995; Agarwal
of adjustment to future generations, which cannot influence and Narain, 1999). Finally, many (though not all) of these
political choices today (see Weiss, 1989),7 a theme picked up countries are over-exposed to international debt–and their gov-
in Section 1.4 below. ernments to domestic debt–and thus have less flexibility in the
choice of policy options (World Bank, 1998).
Academic and policy interest has focused on income distribu-
tion as well as the poverty that underlies it. Global poverty sta- Notwithstanding the diversity of initial conditions in various
tistics are compelling. Over 1.3 billion people, or more than countries, they share a common commitment to the goal of
one-fifth of the global population, are estimated to be living at
Population Income
20% 82.7%
6 The average per capita energy consumption of low income house-
holds in developing countries is frequently only about 10% of that of 20% 11.7%
the upper-middle income groups in these countries, a pattern that par-
allels the 1:10 ratio of per capita energy consumption between devel- 20% 2.3%
oping and developed countries (see Siddiqui, 1995).
20% 1.9%
7 Although this issue received attention in the IPCC SAR (IPCC,
1996), the discussion was framed in technical terms, namely the deter- 20% 1.4%
mination of the appropriate discount rate, which made little accom-
modation for philosophical, legal, and sociological perspectives on
intergenerational rights and responsibilities. Figure 1.4: Global distribution of income and population.
14.00
Qatar
12.00
Carbon emissions/Capita (tonnes)
10.00
United Arab
8.00
Emirates
Luxembourg
Singapore
6.00
United States
Australia
Norway
4.00 Saudi Arabia Canada
Czech Republic
2.00 Switzerland
Hong Kong, China

0.00
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000
GDP/Capita (US$PPP)
Figure 1.5: Per capita carbon emission and income.
economic growth, partly for its own sake and partly because it countries have per capita incomes over US$(PPP)20,000 and
is perceived as one of the means of poverty eradication and carbon emissions between 2 and 6 tonnes per capita. Non-
capacity development. However, most analysts recognize that Annex I countries have much lower incomes and much lower
growth alone is not a solution and it needs to be combined with emissions, while the economies in transition fall in the middle
ancillary policies and safeguards to protect environmental and of the range. In particular, the bulk of the world’s poor live in
social resources. In fact, while national economic growth a smaller number of non-Annex I countries, which are bunched
appears to be correlated with a reduction in poverty levels (and at the bottom left corner of the graph, with incomes below
neutral with regard to national income distribution), over the US$(PPP)5,000 per capita, and emissions below 0.5tC/capita.
past 50 years global income growth has been accompanied by
a worsening of global income distribution (World Bank, 2000) Useful analytical tools in this regard are various decomposition
and a persistence of poverty.8 The concept of sustainable devel- approaches9 that represent carbon emissions as the product of
opment has incorporated distributional aspects mainly in three factors, carbon intensity (emissions per unit of income),
response to these concerns (see Lélé, 1991; Murcott, 1997). Be affluence (income per capita), and population. The decomposi-
that as it may, economic growth continues to be the centre of tion suggests that reconciliation of the goals of emissions
government policies and plans. abatement and economic growth must involve a combination
of population decline and technological and managerial
This is relevant to climate change mitigation, since a fairly improvements that lead to lower carbon intensity. Some poten-
robust stylized fact of historical development, consistent with tial for improvement is evident from Figure 1.5, namely the
both cross-country and time-series data, is the close correlation large differences in per capita emissions of countries and
between economic growth and carbon emissions. Figure 1.5, regions at the same level of affluence (e.g., Hong Kong,
for example, presents cross-country data on per capita carbon Switzerland, Singapore, Japan, and the USA). This suggests
emissions and income (in US$(PPP); see also Box 1.1 on a con- the possibility of technological “leap-frogging” (see
troversy over the representation of data). The bold trend line Goldemberg, 1998a, Schneider, 1998), that is the lowering of
highlights the proportionate increases (or, as in some emissions by a factor of two or three without impacting income
economies in transition recently, decreases) in per capita emis- levels through investment in technological development and
sions and income over time. Broadly speaking, developed
9 See, e.g., de Bruyn et al. (1998) and Opschoor (1997), who develop
8 The reason for this paradox is that at the global level intercountry this idea from a development perspective, and Hoffert et al. (1998)
distributional impacts dominate over the within-country impacts (see who uses the “Kaya Identity” to formulate decompositions from an
World Bank, 2000, p. 51). energy economics perspective.
capacity building.10 However, the operational and other obsta- sions are slightly more than 3 tonnes per year in Annex I coun-
cles against the realization of these possibilities have not been tries and slightly less than 0.5 tonnes per year in non-Annex I
analyzed systematically in the literature. countries. With about 1.3 billion people living in Annex I coun-
tries and about 4.7 billion in non-Annex I countries, total car-
In the absence of such investment, economic growth and con- bon emissions are in the range of (3.1)(1.3) + (0.48)(4.7) = 6.29
ventional economic development are likely to remain strongly billion tonnes. Thus carbon emissions at a global scale average
linked to the ability to emit unlimited amounts of carbon. about 1 tonne per capita per year. The stabilization of CO2 con-
Therefore, restrictions on emissions will continue to be viewed centrations in the atmosphere at 450, 550, 650, and 750ppmv
by many people in developing countries as yet another con- will require steep declines in the aggregate emissions as well
straint on the development process. The mitigation challenge, emissions per capita and per dollar of gross domestic product
therefore, is to decouple growth and economic development (GDP) as illustrated in the IPCC SAR Synthesis Report (IPCC,
from emission increases. 1996). For example, based on the SAR Synthesis Report and a
recent set of calculations by Bolin and Kheshgi (2000), stabi-
However, mitigation policies in general, and its decoupling lization of CO2 concentrations in the atmosphere at 450, 550,
from economic growth in particular, have to be designed with 650, and 750ppmv would require limiting fossil-fuel carbon
specific contexts in mind. Policies designed for one context are emissions at about 3, 6, 9 and 12 billion tonnes, respectively,
generally not appropriate for another (Shue, 1993; Rahman, by 2100 and further reductions thereafter to less than half cur-
1996; Jepma and Munasinghe, 1998), and identical ultimate rent global emissions. If, for example, the world population
goals–stabilization of GHG accumulation and maintenance or stabilized at about 10 billion people by then, an average carbon
achievement of the quality of life–yield different priorities and emissions per capita of 0.3, 0.6, 0.9, and 1.2 tonnes of carbon
strategies in Annex I and non-Annex I countries. In the former, would be required to achieve the 450, 550, 650, and 750ppmv
these goals are translated as reducing emissions while improv- limits, respectively. We make no assumption here about how
ing the quality of life, and in the latter it is the other way these emissions would or should be allocated globally, but sim-
around–improving the quality of life, inter alia, by maintaining ply report that the average by 2100 must work out to these lev-
the rate of economic growth, while maintaining or lowering per els to achieve the stabilization objectives. Thus, to achieve a
capita emissions. 450ppmv concentration target, average carbon emissions per
capita globally need to drop from about 1 tonne today to about
The current global response to this situation is to exempt non- 0.3 tons in 2100; to achieve a 650ppmv target they need to drop
Annex I countries from climate obligations to allow them to pur- to 0.9 tonnes (about one-quarter of current emissions per capi-
sue their developmental goals freely. Furthermore, UNFCCC as ta in the Annex I countries) by 2100 and further thereafter.
well as subsequent agreements stipulate the provision of finan- Finally, with a global economy currently producing about 25
cial and technological resources for voluntary mitigation actions trillion dollars of output, carbon emissions per million dollars
by this group of countries. Finally, the Kyoto Protocol created of output are currently about 240 tonnes. If, for example, the
the CDM to enable developing countries to contribute to emis- global economy grows to 200 trillion dollars of output by 2100,
sions abatement while pursuing sustainable development. the emissions per million dollars (in year 2000 dollars) would
need to be limited to about 10, 25, 40, and 55 tonnes of carbon
As non-Annex I emissions continue to grow, however, this in order to achieve the 450, 550, 650, and 750ppmv CO2 lim-
strategy may become inadequate, and more innovative mitiga- its, respectively. If further population and economic growth
tion efforts might be called for in non-Annex I countries. This continues beyond 2100 additional reductions in average emis-
will mean divergences of the development path of the current- sions per capita and per unit of economic output would be
ly developing countries from that which developed countries required.
have displayed (Munasinghe, 1994; Jacoby et al., 1998; Najam
and Sagar, 1998; Barrett, 1999). As the UNDP Human This framing of the mitigation challenge is central to the liter-
Development Report (1998, p.7) points out, “Poor countries ature on global equity and climate change. Virtually all stabi-
need to accelerate their consumption growth – but they need lization trajectories in the literature show an initially rising
not follow the path taken by the rich and high-growth trend of aggregate global emissions, followed by a declining
economies over the past half century.” trend; and they also show a gradual narrowing of the gap
between per capita emissions of various countries and regions.
Some simple calculations can help illustrate the nature of the In many of these scenarios, over a finite period of time, aggre-
global mitigation challenge. Current per capita carbon emis- gate net global emissions contract to levels consistent with the
absorptive capacity of global sinks, while per capita emissions
of Annex I and non-Annex I countries move towards conver-
10 This possibility is also corroborated by time-series data on carbon gence in the interest of global equity. One possible internation-
intensity, which reveal evidence of “de-coupling” of the strong rela- al regime to achieve stabilization would initially have only
tion in some countries, including developing countries. However, the Annex I emissions decline over a period of time (to make room
change has not been significant enough to reverse the overall trends for the growth prospects and therefore rising emissions of non-
towards increasing emissions. Annex I countries). At the same time, as per capita emissions
Box 1.1. A Numbers Game
A persistent theme in the literature is the explicit or implicit assignment of responsibility for global warming trends. Without going
into the merits of the issue, it is useful to point out that many of the arguments revolve around the appropriate way to represent the
data. For example, Agarwal and Narain (1991a) criticize the uncritical use of aggregate national emissions figures, which could imply
parity between developed countries and large developing countries (China, India, and Brazil) mainly because of the large populations
of the latter. Instead, they recommend the use of per capita “net emissions”–that is, emissions that exceed the per capita absorptive
capacity of global carbon sinks. Other analysts distinguish between “necessary” and “luxury” emissions (Agarwal et al., 1999; Shue,
1993).
Another theme is the relative impact of CO2 emissions and that of other GHGs and land-use changes, given that the latter are less
strongly correlated with per capita income. Most analyses have focused on CO2 emissions, given that it constitutes the bulk of the con-
tribution to global warming. Others suggests that CO2 emissions are accompanied by forced cloud changes and tropospheric aerosols,
which offset their warming impact (Hansen et al., 2000). There are also debates over the precision of the estimates of these associat-
ed offsets, as well as those of methane emissions in developing countries (Agarwal et al., 1999). For example, Parikh et al. (1991)
identify potentially serious problems with World Resources Institute’s deforestation estimates (WRI, 1991); and Parikh (1992) shows
how the IS92 IPCC scenarios may have been formulated with developed country interests hard-wired into them such that they could
be very unfair to the developing countries. In response to this criticism some of the new SRES scenarios (IPCC, 2000a) explicitly
explore scenarios with a narrowing income gap between the developed and developing countries.
Finally, “per capita” is not the only relevant normalization (Najam and Sagar, 1998), since emissions per unit of income can also indi-
cate potential for efficiency improvements. Besides annual emissions, data can also be presented in terms of atmospheric concentra-
tions, or the contribution to the global average temperature, each of which has slightly different implications for the responsibility for
climate change. Given the uncertainties involved in constructing such estimates, the picture is not entirely clear. However, most esti-
mates suggest that the developing countries may overtake Annex I countries, in terms of total annual emissions, in another 15–20 years,
and in terms of the contribution to the global average temperature increase in 60–90 years (Hasselmann et al., 1993; Enting, 1998;
Meira, 1999; Pinguelli Rosa and Ribeiro, 2000).
of both groups decline and converge, aggregate emissions also opportunity. A number of perspectives on equity are discussed
decline–in some scenarios to close to a carbon-free situation. more fully in Chapter 10.
There are in principle many other approaches to an equitable
international regime, that are discussed in Section 1.3.2. Rights-based, that is based on equal (or otherwise defensible)
rights to the global commons.11 The earliest formulation of this
For the purposes of this chapter, it is convenient to divide the approach was as a proposal for tradable permits (see, e.g.,
required emissions trajectory into three segments. Phase 1, an Agarwal and Narain, 1991a; Parikh et al., 1991; Grubb, 1989;
upward sloping segment of the non-Annex I trajectory, may Ghosh, 1993). A formulation that carries this insight to its log-
require only marginal deviations in baseline emissions, for ical conclusion is that of “contraction and convergence”
which the assessment of policy options entails a central atten- (Meyer, 1999), whereby net aggregate emissions decline to
tion to the costs and benefits of mitigation. However, for zero, and per capita emissions of Annex I and non-Annex I
options relevant for Phase 2, a downward sloping segment of countries reach precise equality. Initial analysis assumed an
non-Annex I emissions, in which deeper cuts may be called for, equal per capita allocation of emission permits–or rights to the
global equity issues will need greater attention. Finally, the “atmospheric commons”–but subsequent questioning led other
policy options that can help realize Phase 3, the asymptotic writers to explore equity and efficiency implications of alter-
segment of the trajectory, revolve to a greater extent around native allocation formulas, including geographical area, his-
sustainability concerns. toric use, economic activity, or some combination of these. In
all this literature, the idea is that “surplus” countries or regions,
namely those (mainly among non-Annex I countries) with per
1.3.2 What Are the Options? capita emissions below their total allocation, could sell excess
These considerations have given rise to a variety of solutions,

both in the evolving climate agreements and in the scholarly 11Much of the discussion on equity invokes global commons as an
literature. This literature classifies options in terms of the organizing concept, especially with regard to the conflict between
underlying theoretical and philosophical approaches to equity. individual (or corporate) use and global community interests. This is
Toth (1999) constructs a useful taxonomy of perspectives on a well-worn theme in the literature on collective action, dating back to
equity. We have modified this taxonomy slightly into four Hardin (1968), who saw unchecked population growth as the main
alternative views, based on: rights, liability, poverty, and problem. For a recent and more nuanced view, see Ostrom (2000).
emissions rights to “deficit” countries, namely those (mainly ulations. Elements of this solution are contained in Agenda 21,
among the Annex I countries) that exceed their quota. Besides but it has not otherwise played a prominent role in discussions
a transfer from rich to poor countries, this scheme provided of global climate regimes or global governance–except for the
incentives to both groups to reduce their emissions–at least as occasional reference to intranational equity (see, e.g., Rayner
long as emissions rights are a scarce commodity–to reap the and Malone, 2000).
financial benefits of conservation. In other words, it sought
simultaneously to reward restraint, punish profligacy, provide Opportunity-based, that is based on the right of people, not to
incentives for conservation, induce a transfer from rich coun- the global commons per se, but to the opportunity to achieve a
tries to poor ones, and thus lead to distributional equity, effi- standard of living enjoyed by those with greater access to the
ciency, and sustainability. commons (see e.g., Najam, 2000). It has strong overlaps with
the compromise solution that is emerging from the negotia-
Liability-based, that is based on the right of people not to be tions. Its exclusive focus is on the relationship between states,
harmed by others’ actions without suitable compenzation (see and it has led to agreements that place the burden of adjustment
Rayner et al., 1999).12 This literature focuses on the damage primarily on Annex I countries. It also implies a tacit consen-
caused by overuse of the commons, and seeks to establish sus on such matters as:
mechanisms through which those who cause such damage are • no large financial transfers or windfall gains;
penalized and the victims of the damage compensated. This • no sudden shocks, but a gradual approach consistent
perspective opens up possibilities of financial instruments, with the coping capacity of different countries;
such as insurance, which distribute risk across society. • no financial burden on non-Annex I countries; and
Countries or groups that believe that the risk of harm is over- • no restrictions on the space for sustainable develop-
stated could offer insurance to others against the liability ment, particularly in the developing countries.
(Sagar and Banuri, 1999). In other words, this solution is
expected to lead to sustainability (incentive for restraint) and
procedural (though not necessarily distributional) equity. 1.3.3 How Has Global Climate Policy Treated Equity?
However, broadly speaking, the climate negotiations have not
taken this route in any significant manner. Indeed, some elements of the equity agenda–primarily at the
international level–have been incorporated into the emerging
Poverty-based, that is based on the need to protect the poor and global climate policy regime. In particular:
vulnerable against the impact of climate change as well as cli- • initial mitigation efforts have been concentrated in
mate policy. Roughly 2 billion people in the world exist at lev- Annex I countries, resulting in a search for the most
els of consumption that, from the CO2 emissions perspective, cost-effective solutions as detailed in Section 1.2;
do not pose a threat to the climate (although their lifestyles are • currently, non-Annex I countries are exempt from spe-
a threat to their own survival).13 Unlike the high-technology cific mitigation obligations;14
sectors of the developed as well as developing countries, the • there are agreements to provide financial resources to
poor and vulnerable communities lack the flexibility to adapt non-Annex I countries to cover the full cost of prelim-
to global changes or global agreements. Options based on this inary climate obligations (e.g., monitoring, reporting,
approach include investment in capacity building and protec- and planning), and the incremental cost of voluntary
tion for the poor and vulnerable groups to enable them to mitigation actions;
enhance their livelihoods in an emerging climate regime, while • there are agreements and some programs to provide
setting aggregate emission targets for the rest of the world. technical assistance and training to identify potential
This could also involve a transition to renewable energy in the win–win opportunities;
developing countries, which is generally consistent with the • various voluntary mechanisms are being designed to
sustainable livelihoods perspective, especially since the current induce early mitigation action in non-Annex I coun-
menu of renewable energy technologies includes many that are tries, most notably including the CDM of the Kyoto
small scale and appropriate for scattered and low-income pop- Protocol.
While the details of the CDM are still to be worked out, in

12In the literature cited by Rayner et al. (1999) see, in particular, broad terms it allows entities in Annex I countries to fulfil their
Grubb (1995), Burtraw and Toman (1992), and Chichilnisky and Heal
(1994). For a theoretical framework on accident liability, see
Calabrese (1970).
14 However, current trends suggest that mitigation has already begun
13 This group has been referred to in the literature as the “ecological in some non-Annex I countries, even in the absence of deliberate cli-
refugees” (Gadgil and Guha, 1995), the “vagabonds” (Bauman, mate policy. Reductions on fossil fuel subsidies (as a percentage of
1998), the “castaways” (Latouche, 1993), and the “excluded” (Korten, existing subsidies) have been larger in developing countries (espe-
1995). However, some writers have raised concerns that these groups cially China) than in OECD countries, and are leading to considerable
impact climate change (as well as biodiversity) adversely through savings in carbon emissions (International Energy Agency, 1996;
non-sustainable land-use practices and deforestation. Johnson et al., 1996; Reid and Goldemberg, 1997).
mitigation obligations through co-operative investment in non- not suffice to promote economic growth or sustainable
Annex I countries, presumably at a lower cost. It has been development without appropriate policy and institu-
hailed by some analysts as an ingenious device to reconcile the tional environments (World Bank, 1998). It is not clear
goals of GHG abatement and sustainable development (see whether financial resources alone will lead to climate
Goldemberg, 1998b; Haites and Aslam, 2000). On the other mitigation and economic growth.
hand, it has also generated a degree of criticism. Critics fear • Equity and trust. Despite consistent and repeated refer-
that: ences to equity in climate agreements, sceptics remain
• CDM will channel investment into projects of margin- wary that equity will eventually be subverted in some
al social utility (Agarwal and Narain, 1999); way and involuntary obligations imposed on non-
• gains will not be shared fairly (Parikh et al., 1991, Annex I countries (without financial compenzation) to
1997a; Parikh, 1994, 1995); force them to bear a disproportionate burden of mitiga-
• technology transfer will not be satisfactory (Parikh, tion (Agarwal and Narain, 1991a; Hyder, 1992; Parikh,
2000); 1992; Dasgupta, 1994; Parikh, 1995; Parikh and
• poorer countries (especially African countries) and vul- Parikh, 1998; Agarwal et al., 1999).16
nerable groups will be excluded (Sokona et al., 1998,
1999; Goldemberg, 1998b); Some scholars propose remedies to reconcile these longer-term
• only resources for cheap mitigation options will be concerns with the more immediate goals of the existing agen-
attracted (the so-called “low-hanging fruit”), leaving da. The simplest is a proposal to restrict all co-operative mea-
developing countries to undertake the more expensive sures–and thus all early and voluntary action in non-Annex I
options themselves (Agarwal et al., 1999);15 countries–to “non-carbon” projects (Agarwal and Narain,
• CDM will lead to an effective relaxation of the emis- 1999). While this would exclude some legitimate mitigation
sion caps (Begg et al., 2000; Parkinson et al., 1999), options from the purview, it could channel research and entre-
and preneurial resources into a new market, bring down unit costs,
• paradoxically, it may compromise the capacity of create and strengthen technical and managerial capacities, and
developing countries to pursue sustainable develop- thus enable both developed and developing countries to engi-
ment (Banuri and Gupta, 2000). neer a transition to a carbon-free future. Renewable energy
projects have been implemented at smaller scales, which make
Going beyond the current options, such as CDM, and to a them appropriate for poor rural communities. Other proposals
longer time horizon raises the need to integrate mitigation similarly address the potential co-benefits of the protection of
goals within the broader (sustainable) development agendas of primary forests (see Kremen et al., 2000).
developing countries (Najam, 2000). An emerging literature
has begun to explore this redefined problem (see Munasinghe,
2000). Some issues that are relevant to this discussion include: 1.3.4 Assessment of Alternatives: Sustainable Development
• Scale. The scale of the mitigation challenge in non-
Annex I countries is projected to be much broader in While the motivating concern of the perspective described in
the long term than the short term. Instead of an exclu- this section is that of global equity, the literature included here
sive reliance on financial and technological assistance, has also sought to incorporate concerns of efficiency and sus-
which ordinarily indicates increases in assistance levels tainability. The main mechanism through which this has been
significantly above historical trends, there is a need to accomplished is by using equity considerations to argue for the
invest in indigenous capacity to undertake mitigation protection of the prospects of sustainable development in
without compromising the development agenda. developing countries. Such an agenda is equivalent to a non-
• Timing. To sustain the interest of both developed and co-ordinated pursuit of sustainability in each country, as well
developing countries in co-operative solutions, the goal as the formulation of policies that promote economic growth
must be to lower the cost of mitigation over time rather and resource efficiency.
than to concentrate simply on exhausting the cheap mit-
igation options (the so-called “low-hanging fruit”). This is analogous to the discussed in Section 1.2, in which it
• Relevance to economic growth and sustainable devel- was shown that the cost–benefit perspective enables the assess-
opment. Recent studies of the impact of foreign ment and comparison of alternative policy options from an
resource inflows demonstrate that these flows alone do efficiency standpoint. Analogously, the progression from glob-
15 However, defenders of the CDM argue that the current options will 16 For example, several authors have commented on the initiation of
disappear if not exploited immediately (for the “low-hanging fruit” attempts at Kyoto to incorporate developing countries within an emis-
will rot if not picked early), and that the early exploitation will trans- sions control mandate as a retreat from the foundational principles of
fer technology, capacity, and resources to developing countries and the UNFCCC (Cooper, 1998; Jacoby et al., 1998; Schmalensee, 1998).
enable them to access the more expensive options later (see Haites and These attempts include the call for the adoption of voluntary emissions
Aslam, 2000). control targets by non-Annex 1 countries (UNFCCC, 1997a).
Box 1.2. Sustainable Development
The term “sustainable development” was popularized in academic and policy circles by the Brundtland Report (WCED, 1987),
although its distinctive antecedents predate the report (especially IUCN, WWF, and UNEP, 1980). The Brundtland Commission
defines it as “development that meets the needs of the present without compromising the ability of future generations to meet their
own needs” (WCED, 1987, p. 8). However, although the ubiquity of references to this definition suggests a degree of scholarly con-
sensus, this is not the case. There is considerable disagreement on conceptual grounds and, perhaps most significantly, on its opera-
tionalization (see Lélé, 1991). Nevertheless, most scholars and practitioners accept a concern for economic prosperity (development),
ecological integrity (sustainability), and social justice (equity) as the three pillars of sustainable development (Buitenkamp et al., 1992;
Opschoor, 1992; Munasinghe, 1993, 2000; Banuri et al., 1994; Munasinghe and Shearer, 1995; Elkington, 1997; Carley and Spapens,
1998; Sachs et al., 1998; Sachs, 1999).
Sustainable development is an integrating concept (Lélé, 1991; Perrings, 1991; Dietz et al., 1992; Munasinghe, 2000) that has emerged
gradually (Rayner and Malone, 1998a , 2000; Costanza, 1999; Munasinghe, 2000; Pichs-Madruga, 1999). Initially, the environmen-
tal, economic, and social domains were treated independently, and sustainability viewed as their sum or union. More recently, with the
shift in emphasis towards practical and operational aspects, the literature has begun to look at synergies and trade-offs between the
three goals.
al equity to sustainable development enables the comparison of is equivalent to investment in this composite stock of capital.
policy options that emanate from concerns about global equity. However, there are differences of approach rooted in the per-
This framework has evolved precisely to enable the assessment sistent controversies in development thinking. Some authors
of the synergies and trade-offs involved in the pursuit of mul- focus on investments in all relevant forms of capital, while oth-
tiple goals–environmental conservation, social equity, eco- ers focus on the capacity to make such investments. Similarly,
nomic growth, and poverty eradication (Box 1.2). These analy- the degree of substitution that is possible between kinds of cap-
ses touch upon many of the themes relevant to an assessment ital -- for example, between natural and human capital -- is a
of the broad range of policy options described above–time subject of disagreement among researchers. (see Box 1.3).19
horizon, uncertainty, and welfare.
It might appear from the above that sustainable development
Sustainable development is one of a series of innovative con- entails a trade-off between investment in physical capital,
cepts–following such antecedents as human development, social capital, and natural capital, and therefore between eco-
equitable development, or appropriate development–that seek nomic growth, income distribution, and environmental conser-
to broaden the scope of development theory from its narrow vation. However, some branches of development theory have
focus on economic growth.17 However, this evolution has not ceased to view these as trade-offs. In particular, the goal of the
led to a radical transformation in the operational dimensions of research on sustainable development–especially conservation
development planning. The focus still continues to be the stock strategies and action plans–is to show that under appropriate
of capital–which in many ways serves as the proxy for welfare institutional and social conditions there is a synergy rather than
or as the index of the “real” or “permanent” income of a soci- conflict between different goals (IUCN, WWF, and UNEP,
ety (see Johnson, 1964). As such, much development policy 1980). Even earlier, development analysts had begun to ques-
concentrates on measures that stimulate investment and expand tion the supposed trade-off between economic growth and
the stock of capital. Each innovation has served mainly to income distribution (World Bank, 2000; see also Kuznets,
expand the definition of the capital stock. 1955; Hicks, 1979; Chenery, 1980; Fields, 1980).
Sustainable development, being the most recent in the series of These debates stem from the earliest days of development
conceptual advances, subsumes the earlier ones, and rather thinking, in which a distinction was made between the “bal-
than meaning simply “development plus natural resource con-
servation”, includes human development, poverty eradication,
18 “Social capital” is generally taken to mean the network of social
and social equity as well. Accordingly, it expands the definition
of the capital stock to include human capital (skills), natural relationships, collective social capacities, and institutions (Banuri et
capital (natural resources and biodiversity), and, most recently, al., 1994; Clague, 1997).
social capital.18 In principle therefore, sustainable development 19 In the absence of detailed data that would (or, indeed, could) allow
the aggregation of the different components of the capital stock into

a single index, the only option is to pay attention to each component
17 These innovations have also yielded alternative indices of welfare, separately. The “four capitals” approach has remained largely a con-
including the human development index (HDI; see UNDP, 1989), ceptual device rather than an operational one, even though it has often
basic human needs (BHN; see Streeten et al., 1981), the physical qual- been applied at a project level to ensure that all the necessary com-
ity of life index (PQLI; see Morris, 1979), and others. ponents are accounted for.
Box 1.3. Approaches to Understanding Sustainability
Economists distinguish between four main components of the resource base: natural capital (natural resource assets), reproducible cap-
ital (durable structures or equipment produced by human beings), human capital (the productive potential of human beings), and social
capital (norms and institutions that influence the interactions among humans). These are called capital because they are durable assets
capable of generating flows of goods and services. In this construction, development is sustainable if some aggregate index across all
forms of capital is non-decreasing.
Strong Sustainability. The strong sustainability approach of the so-called London school (Pearce, 1993) holds that different types of
capital are not necessarily substitutable, so that sustainability requires the maintenance of a fixed (or minimum) stock of each compo-
nent of natural capital. Under this notion, any development path that leads to an overall diminishment in the stocks of natural capital
(or to a decline below the minimum) fails to be sustainable even if other forms of capital increase.
Weak Sustainability: The weak sustainability approach asserts that the different forms of capital can substitute for one another to some
degree. The substitutability of different types of capital implies that the preservation of an aggregate level of capital, rather than the
preservation of natural capital in particular, is crucial. The weak sustainability approach is consistent with the idea that some loss of
“climate capital” could be consistent with sustainability if increases in other forms of capital could compensate for the loss.
anced growth” advocated by some writers (Rosenstein-Rodan, of aid, while in “failed” cases foreign aid was associated with
1943; Nurkse, 1958), and the strategy of “unbalanced growth” a net decline in private investment.
advanced initially by Albert Hirschman (1958). Hirschman
argued that growth is a disequilibrium process, which occurs Similar shifts have occurred in other areas of development the-
through the efforts of economic agents to overcome bottle- ory and practice. The operationalization of sustainable human
necks that emerge during normal economic activity. Therefore, development, for example, is increasingly argued to consist not
policy should not be restricted merely to the mobilization of of the simultaneous pursuit of several independent goals, but of
financial transfers and transfer of technology, but should focus investments in social capital to enable the other goals to be pur-
on the larger goal of creating the capacity for mobilizing and sued through normal market or regulatory mechanisms (Banuri
allocating such resources,20 in effect to create conditions in et al., 1994). Poverty eradication programmes focus increas-
which economic agents can most effectively respond to bottle- ingly on institutional development rather than the creation of
necks. physical or social infrastructures. They concentrate on the fact
that poor and vulnerable groups generally lack formal organi-
It is fair to say that the development profession has increasing- zational structures and recognition as well as the capacity to
ly invoked themes from the latter approach. The emphasis has respond to market opportunities.21
shifted from promoting growth towards promoting the capaci-
ty for growth. Development policy is concerned increasingly
with conditions that stimulate investment–trade liberalization, 1.3.5 Why Worry about Equity and Sustainable
structural adjustment, skill development, governance, institu- Development?
tional development, and market access–rather than the invest-
ment itself. This is partly because the fashion has changed from While many consider equity to be a good thing in and of itself,
public to private investment, and partly because a large body of this alone may not be reason enough to include it within the
research shows that, while the scarcity of financial resources context of climate change mitigation. The literature on equity
can inhibit the growth process, inflows do not necessarily pro- and climate change tends to argue rather that the pursuit of
mote it (Bauer and Yamey, 1982). For example, a recent review equity will help generate support for mitigation efforts; and
of cross-country experience (World Bank, 1998) discovered that by enabling the pursuit of sustainable development within
that the net impact of foreign resource inflows depends criti- individual countries, it will lead to more effective mitigation
cally on ancillary factors–the nature of domestic policies, the (Lipietz, 1995; Rowlands, 1995; Runnals, 1997; Shue, 1995;
fiscal stance, the institutions of governance, and the openness Jamieson, 1996, 2000; Byrne, et al., 1998; Parikh and Parikh,
to international trade flows. “Successful” foreign aid led to 1998; Tolba, 1998; Agarwal et al., 1999). Given that develop-
US$2 of additional private sector investment for every dollar
21 Indeed, some analysts argue that the poor constitute a distinct

20 “Capacity” is different from “capital”, although the two are related. “livelihood” economy, which is not well integrated into the global
The latter implies the availability of income-generating capacity trading and financial system, and therefore lacks the flexibility to
alone, while the former suggests the freedom to make policy choices respond to emerging market opportunities or standard economic poli-
or to achieve social goals. cies (Korten, 1990, 1995).
ing countries have a large suite of pressing social and econom- global equity respectively. We now turn to a third category of
ic concerns besides emissions control (Najam, 1995; Runnals, literature, which is motivated largely by considerations of
1995; Tolba, 1998), they tend to be wary of mitigation policies global sustainability. This literature views the climate problem
lest they undermine other policy goals. Support for sustainable as a component of a larger problem, namely the unsustainable
development, besides its own merits, can generate support for lifestyles and patterns of production and consumption, and
climate policy as well. While global climate policy seeks to explores a broad range of options for moving the world
push the Annex I countries towards emissions contraction, towards a sustainable future (Figure 1.6).
global sustainable development policy offers the opportunity to
nudge the developing countries towards a potentially “conver-
gent” trajectory. 1.4.1 Alternative Development Pathways
Of course, the question is not simply of nudging and pushing The modes of analysis in the studies reviewed in Sections 1.2
countries towards an ultimately equitable path, but to arrive at and 1.3 start, by and large, with existing institutions and behav-
a global stabilization that is both equitable and sustainable in iour, and examine their implications for future outcomes. The
the long run. Reaction to the Kyoto targets (Malakoff, 1997) literature discussed in this section adopts a different approach.
suggests that this would require much more than just slight It starts with desirable outcomes and examines actions and
pushing and nudging. A growing literature suggests that this institutions from the point of view of their compatibility with
process would be helped by a the longer term focus on sus- desirable outcomes. It seeks to fulfil a different objective. It
tainability and the alternative development pathways that could aims to create shared visions of sustainable and desirable soci-
lead to it. This is the subject of the next section. eties among the general public, and so it does not, in the first
place, suggest implementation alternatives for fixed goals to
decision makers (Costanza, 2000). To enlarge the range of
1.4 Global Sustainability and Climate Change accessible options in future decisions, authors who contribute
Mitigation to this line of inquiry intend to foster a process of societal
learning among citizens. After all, value formation through
In Sections 1.2 and 1.3, we examined literature that was moti- public discussion is, as Sen (1995) suggests, the essence of
vated primarily by concerns of global cost-effectiveness and democracy. In doing so, the work of these authors comple-
Alternative
Development Pathways
Development
Equity, Sustainability
Vision,
Lifestyles
Finance, Technology,
Livelihoods
Equity and
Environmental and
Adaptation, Socio-economic Sustainable
Vulnerability
Impacts Development
Policy
Costs
Ancillary Benefits
Emissions Mitiga-
Climate
tion Policy
Figure 1.6: The global-sustainability perspective.

ments the studies discussed above by providing alternative Backcasting from desirable future conditions can, according to
frameworks, normative contexts, and sets of methodological Thompson et al. (1986), be a useful response to situations char-
tools to assess (a broader range of) policy options. acterized by a high degree of ignorance, for which it is difficult
Conceptually speaking, this literature takes two forms. The to assess the probabilities of possible outcomes or even to
first offers visions of the future based on the inter-relation of know what those possible outcomes might be. Although there
various factors across a long time-scale. The second explores is a scientific consensus that anthropogenic climate change is
possible elements of future scenarios, often relying upon the occurring, there is considerable uncertainty about the rate of
extrapolation of the existing experience with sustainable prac- expected change and its manifestations and impacts at the
tices. regional and global levels (see IPCC, 2001, Chapter 19).
Science cannot predict the climate and its impacts in
The bulk of this literature starts with the recognition that long- Milwaukee, Mumbai, or Moscow half a century ahead very
term sustainability can imply an appropriate scale of resource accurately, and it may never be able to do so. Moreover, these
flows, in society (Daly, 1997). Taking a society of appropriate types of predictions also require scenarios of the social, eco-
physical scale as a desirable future, this literature goes on to nomic, and technological paths that the world will follow over
works backwards (backcasts) through possible development the same period (see Chapter 2)–knowledge that may be fur-
paths that may lead from present-day society to a more sus- ther beyond our reach than climate prediction. Moreover, this
tainable, and in the case of concerns about climate change, uncertainty increases with the time scale.
low-carbon society. Authors who write from this perspective
usually assume that resource availability, technology, and soci- The high degree of uncertainty under which climate policy
ety move forwards in a co-evolutionary fashion (Norgaard, must be developed has important implications for the type of
1994). They work on the hypothesis that the transition to bal- policy regimes likely to be most effective. There is a high
anced and sustainable resource flows implies concomitant degree of uncertainty about how ecosystems would respond to
changes in technologies, institutions, lifestyles, and world- climate change in the studies reviewed here. This recognition
views. Though this research takes a certain state of sustainabil- suggests that a portfolio approach that includes a broad range
ity as its point of departure, it is also sensitive to the principles of policies diversified across all the major uncertainties might
of equity and cost-effectiveness. It tends to view these as sec- be better than betting on any one particular set of outcomes.
ond-order principles that provide structure to the pursuit of sus- Some studies have even drawn a direct parallel between the
tainability, the first-order principle. In a sense, this literature value of biological diversity and the diversity of institutions
can be viewed as the mirror image of the studies reviewed ear- and worldviews that contribute to the social capital necessary
lier–studies that justify the pursuit of sustainability on the to maintain the sustainability of human societies (Rayner and
grounds of efficiency and equity. Malone, 1998b). Stressing the relationship between risk,
resilience, and governance, these authors argue that rather than
This perspective becomes relevant when it is placed in the con- seeking to anticipate and fix particular problems, the purpose
text of concerns about unsustainability (loss of biological of policy should be to develop coping capacity. This would
diversity, extinction of species, air and water pollution, defor- both switch development and environmental management
estation, desertification, persistent poverty, and rising inequal- strategies more nimbly as scientific information improves and
ity both within and between nations, and so on). These con- strengthen the resilience of vulnerable communities to climate
cerns are derived from underlying pressures imposed by the impacts. Conditions of deep uncertainty make it rational for
growth of consumption and population and the inability of societies to focus on increasing their resilience and flexibility.
many people and communities to protect their health and liveli- Resilience in the face of unknown challenges, this research
hoods against these damages. Climate change is thus a poten- argues, may be achieved by relying on the formation of values
tially critical factor in the larger process of society’s adaptive and worldviews that embrace the goal of long-term sustain-
response to changing historical conditions through its choice of ability, at least until some of the key uncertainties are resolved
developmental paths (Cohen et al., 1998, p. 360). Chapter 2 of to the point that pursuit of a more narrowly focused policy
this report (based on the IPCC (2000a) Special Report on regime can be justified.
Emissions Scenarios (SRES)) notes, for example, that future
emissions will be determined not just by climate policy, but Backcasting from a sustainable future state also supports the
also and more importantly by the “world” in which we will search for options with which certain normative goals might be
live. Decisions about technology, investment, trade, poverty, achieved. For climate mitigation scenarios, such a goal might
biodiversity, community rights, social policies, or governance, be expressed as a hypothetically acceptable stabilization
which may seem unrelated to climate policy, may have pro- threshold for GHG concentrations that may, in turn, imply cer-
found impacts upon emissions, the extent of mitigation tain trajectories for emission reductions. At this point, there-
required, and the cost and benefits that result. Conversely, cli- fore, it is useful to review the historical data of global and
mate policies that implicitly address social, environmental, regional carbon emissions in aggregate as well as in per capita
economic, and security issues may turn out to be important terms (Table 1.1; see also Box 1.1 on the controversy over pre-
levers for creating a sustainable world (Reddy et al., 1997, p. sentation of data). In 1996, aggregate global emissions were
6). about 6GtC, that is about 1 tonne of carbon per capita world-
Table 1.1: Per capita income and carbon emissions in various regions
Reference case, 1990 to 2020 (MtC)
Region/Country History Projections Average annual

change (%)
1990 1996 2000 2010 2020 1996 to 2020
North America 1550 1687 1833 2079 2314 1.3

USA 1346 1463 1585 1790 1975 1.3
Canada 126 140 151 162 182 1.1
Western Europe 936 904 947 1021 1114 0.9
Industrialized Asia 364 389 377 435 479 0.9
Japan 274 291 273 322 358 0.9
Australasia 90 99 103 113 122 0.9
Total Developed 2850 2980 3157 3535 3907 1.1
Former Soviet Union (FSU) 991 613 583 666 746 0.8
Eastern Europe (EE) 299 228 243 270 277 0.8
Total EE/FSU 1290 842 827 935 1024 0.8
Developing Asia 1065 1474 1659 2426 3377 3.5

China 620 805 930 1391 2031 3.9
India 153 230 273 386 494 3.2
Middle East 229 283 323 434 555 2.8
Africa 178 198 214 270 325 2.1
Central and South America 174 206 251 418 629 4.8
Total Developing 1646 2161 2447 3547 4886 3.5
Total World 5786 5983 6430 8018 9817 2.1
wide. Of this, the 1.2 billion people living in Annex I countries “budget” of 630GtC–13,00GtC. As discussed in section 1.3.1,
emitted roughly 64% (3.8GtC), or an average of about 3 tonnes the target of 450ppmv translates into a reduction (by 2100) of
of carbon per capita (3tC/capita). In contrast, 4.4 billion people annual emissions to about 3GtC; that is reductions in annual
living in non-Annex I countries were responsible for the emissions to half of the current level of about 6GtC. Simply
remaining 2.1GtC, averaging only 0.5tC/capita, or about one- stated, per capita emissions of all countries have to fall below
sixth the average for richer countries. Global emissions current levels in developing countries if GHG stabilization at
increased from 5.8GtC to 6GtC from 1990 to 1996, and are low levels is to be the targetted future. If these reductions were
projected to increase to 6.4GtC in 2000 and 9.8GtC in 2020.22 shared equally, per capita emissions of developed countries
Non-Annex I emissions are growing much faster than those of would decline by a factor of 10, while emissions from devel-
Annex I countries, averaging 3.5% annual growth compared oping countries would halve23.
with 1% in Annex I. As a result, the Annex I share of emissions
is declining–from approximately 72% in 1990 and 64% in These issues, as well as others with purviews beyond the con-
1995 to a projected 50% in 2020. fines of climate change, can provide a starting point for a vari-
ety of approaches and analyses. The studies reviewed here
Table 1.2 provides long-term information by displaying aggre- investigate kinds of behaviour, institutions, values, technolo-
gate emissions budgets for IPCC SRES scenarios (IPCC, gies, and lifestyles that would be compatible or incompatible
2000a) and for various stabilization goals identified in the SAR with a “desirable” or targetted future. They argue, implicitly or
(IPCC, 1996). These goals translate into a 100-year emissions explicitly, that sustainability is built on societal goals made
22 EIA, Energy Outlook. These scenarios do not account for the impact 23 While in the previous section on the equity perspective the empha-
of the recent agreements in Kyoto to curb emissions. The differences sis is on an equitable distribution of greenhouse gas emissions while
in trends in Annex I and non-Annex I are similar in other baseline sce- taking into account sustainability criteria, in this section on global
narios. Chapter 2 discusses the range of possible scenarios and crite- sustainability the focus is on the implications of an eventual decrease
ria for selection. of global per capita emissions taking into account equity criteria.
Table 1.2. Comparison of cumulative carbon emissions in SRES scenarios and SAR
SRES baseline scenarios Total emissions 1990 to 2100 (GtC)
B1 989
A1T 1038
B2 1166
A1B 1437
A2 1773
A1FI 2128
IPCC SAR stabilization scenarios Total emissions 1990 to 2100 (GtC)

(Stabilization level in ppmv CO2)
450 630–650
550 870–990
650 1030–1190
750 1200–1300
mutually supportive early in the process, when the goals and achieved with different resource flows (Adriaanse et al.,
policies of society are being set, rather than downstream after 1997),24 and economic growth that takes societies beyond cer-
the costs of unsustainable development have already been tain subsistence levels may not increase satisfaction, or human
incurred (Schmidt-Bleek, 1994; Factor 10 Club, 1995). For welfare (UNDP, 1998), or societal welfare (Cobb and Cobb,
this reason, they often adopt the industrial metabolism 1994; Linton, 1998). Consequently, the purpose of these
approach, focussing on the flow of materials and energy in visions is to explore how societies might be able to decouple
modern society through the chain of extraction, production, economic output from resource flows (see Weizsäcker et al.,
consumption, and disposal (Ayres and Simonis, 1994; Fischer- 1997; OECD, 1998) and wellbeing from economic output (see
Kowalski et al., 1997; Opschoor, 1997). It is argued that the Robinson and Herbert, 2000). Climate change mitigation is one
pressure the human economy exerts on the environment of the co-benefits of these decoupling processes.
depends on levels and patterns of these flows between the
economy and the biosphere. Within this conceptual frame-
work, sustainability requires reductions in the overall level of 1.4.2 Decoupling Growth from Resource Flows
resource flows, particularly the primary flow of (fossil) mate-
rials and energy at the input side. Trajectories of emissions A considerable literature has emerged recently on experiences
reduction of the sort described above can, therefore, be taken with technologies, practices, and products that increase
as rough indicators for the order of magnitude of the changes resource productivity and ecological efficiency, and thereby
involved in the transition to long-term sustainability. In light of reduce the volume of resource input per unit of economic out-
this perspective, a number of studies of developed countries put. The ultimate hope is to shed light on ways in which eco-
(Buitenkamp et al., 1992; McLaren et al., 1997; Carley and nomic growth and social security can be sustained while
Spapens, 1998; Sachs et al., 1998; Bologna et al., 2000) have resource flows decline in developed countries and/or grow
attempted to backcast a transition to a society capable of cre- more slowly in developing countries. This literature cites
ating human welfare with a constantly diminishing amount of macroeconomic trends with relative reductions in the intensity
natural resources. Certainly, scenarios that explore such out- of resource use coupled with slight increases in absolute levels
comes are not restricted to decarbonization or a trend toward in the developed economies (Adriaanse et al., 1997). It deals
carbon sequestration. They may, however, view policies that with issues that are central to alternative development paths
facilitate these trends as vehicles for nudging the world that are also discussed in the SRES (IPCC, 2000a) and chapter
towards a sustainable future. 2. It also notes leapfrogging phases of technological develop-
ment for developing economies (UNDP, 1998, p. 83). On the
All of these scenarios proceed on the premise that economic micro level, it identifies experiences with cleaner, more eco-
growth (at least as currently measured) is not the sole goal of nomical energy systems, and the potential for information tech-
societies across the globe. Moreover, they assume that the rela- nology to increase resource efficiency. In either case, authors
tionships between economic growth and resource consump-
tion, on the one hand, and wellbeing, on the other, are not
fixed. Both should, instead, be shapable by political and social 24 In post-industrial economies, in particular, the resource intensity of
design. A given level of gross domestic product (GDP) can be GDP is declining.
uncover policy options that pertain mainly to support the pro- 1.4.2.2 Resource-light Infrastructures
liferation of these trends. These options emerge from a broad-
er conception of climate mitigation than has typically been In a complementary strand of literature attention has focused
captured in the energy supply and demand technologies repre- on the greater scope for a transition in developing countries by
sented in existing energy–economic models. Each option has decoupling investment from resource depletion and the
the potential to reduce GHG emissions, but each needs to be destruction of ecological processes. More specifically, since
carefully evaluated in terms of its impacts on economic, social, the physical infrastructure in developing countries is still being
and biological systems. Moreover, each of these options needs designed and installed, they have a better opportunity to avoid
to be evaluated alongside conventional energy supply and the resource-intensive trajectories of infrastructural evolution
demand alternatives in terms of their impacts. Expanding the adopted by developed countries (Shukla et al., 1998, p. 53;
analysis of the set of available options in this way should make Goldemberg, 1998a). Specific examples cited in this context
us better off, as some of the new options will be attractive upon are efficient rail systems, decentralized energy production,
further analysis, although others will not. public transport, grey-water sewage systems, surface irrigation
systems, regionalized food systems, and dense urban settle-
1.4.2.1 Eco-intelligent Production Systems ment clusters. These can set a country on the road towards
cleaner, less costly, more equitable, and less emission-intensive
Many authors argue that progress in developed countries has development patterns. The costs of such a transition are proba-
been driven largely by the technologically based substitution of bly higher in places where considerable capital investments in
natural resources for labour. As a result, labour productivity infrastructures have already been made and where turnover is
has generally grown faster than resource productivity. Against rather slow. For this reason, the timing of such choices is vital,
the background of environmental scarcities, though, this pat- as decisions about systemic technological solutions tend to
tern has and will continue to change so that innovation may lock economies onto a path with a specific resource and emis-
increasingly be shifted away from labour-saving advances sion intensity.
towards resource-saving technologies.
In the context of climate policies, innovations in energy sys-
Possibilities include: tems are of particular importance. Possible strategies advanced
• Eco-efficient innovation, that is making products in in the literature include a shift from expanding conventional
ways that minimize resource content, utilize biodegrad- energy supply towards emphasizing energy services through a
able materials, extend durability, and save inputs during combination of end-use efficiency, increased use of renew-
use (Stahel, 1994; Fussler, 1996; Weaver et al., 2000). ables, and new-generation fossil-fuel technologies (Reddy et
• Industrial ecology, that is moving from the nineteenth al., 1997, p. 131). Developing countries that take advantage of
century concept of a linear throughput growth–in which these sorts of innovations could follow a path that leads direct-
materials flow through the economy as if through a ly to less energy-intensive development patterns in the long run
straight pipe–to a closed loop economy in which indus- and thereby avoid large increases in energy and/or GDP inten-
trial materials are fed back into the production cycle sities in the short and medium term.
(Graedel et al., 1995; LTI-Research Group, 1998;
Pauli, 1998). In many places, renewable energy technologies seem to offer
• Products to services, that is shifting the entrepreneurial some of the best prospects for providing needed energy ser-
focus from the sale of hardware to the direct sale of the vices while addressing the multiple challenges of sustainable
services through leasing or renting to facilitate the full development, including air pollution, mining, transport, and
utilization of hardware, including maintenance and energy security. For instance, 76% of Africa’s population relies
recycling (Deutscher Bundestag, 1995; Hennicke and on wood for its basic fuel needs; but research and policy design
Seifried, 1996; Hawken et al., 1999).25 targetted to improve sustainability has been largely absent.
• Eco-efficient consumption, that is changing patterns of Solar energy has a significant potential in sahelian Africa, but
consumption (using new technologies) to achieve slow technological progress, high unit costs, and the absence of
greater efficiency and to reduce waste and pollution technology transfer have retarded its installation. The Brazilian
(OECD, 1998) in sectors such as transport, food, and ethanol programme to provide automotive fuel from renewable
housing. Dematerializing consumption may go hand- resources (see Box 1.4) is another example. Throughout the
in-hand with a shift from resource-intensive goods to developing world the exploitation of hydro potential also
service-intensive and knowledge-intensive goods remains constrained because of high capital requirements and
(UNDP, 1998, p. 91). environmental and social concerns generated by inappropriate
dam building.
1.4.2.3 “Appropriate” Technologies

25 Most of this literature contains assessments of the economic poten-
tial of single technologies as well. For some more detail, see Chapter Development of so-called appropriate technologies could lead
3 of this report. to environmental protection and economic security in develop-
Box 1.4. The Brazilian Ethanol Programme
In 1974, Brazil launched a programme to shift to sugarcane alcohol (ethanol) as an automotive fuel, initially as an additive to gaso-
line in a proportion of about 20%. After 1979, pure alcohol-fuelled cars were produced, with the necessary technological adaptation
of engines, through an agreement between the government and multinational car companies in Brazil. The conversion was driven pri-
marily by tax policy and the regulation of fuel and vehicles. The relative prices of alcohol and gasoline were adjusted through
Petrobras, the state owned oil company. In 1981 the price of alcohol was set 26% below that of gasoline, although gasoline’s produc-
tion cost was lower than that of alcohol (Pinguelli Rosa et al., 1998).
The alcohol programme created more than 500,000 jobs in rural areas and allowed Brazil to reduce oil imports. The sales of new alco-
hol-powered cars grew to 30% in 1980 and to more than 90% of the total car sales after 1983 until 1987. Alcohol accounted for about
50% of car fuel consumption at that time. However, the sharp decline in world oil prices along with deregulation in the energy sector
meant the abandonment of alcohol-fuelled cars. Even in 1995, though, avoided emissions through alcohol fuel use in Brazil were
24.3MtCO2. The cumulative avoided emissions from 1975 to 1998 can be calculated as 385MtCO2 (Pinguelli Rosa and Ribiero, 1998).
ing countries. The label “appropriate technologies” is used amounts of resources than comparable technologies designed
because they build upon the indigenous knowledge and capa- for high eco-efficiency and high performance levels. By
bilities of local communities; produce locally needed materi- design, performance levels can vary in such dimensions as
als, use natural resources in a sustainable fashion, and help to level of power, speed, availability of service, yield, and labour
regenerate the natural resource base. They may enable devel- intensity. Indeed, intermediate performance levels are often
oping countries to keep an acceptable environmental quality desirable because of their higher employment impact, lower
within a controlled cost (Hou, 1988). Low-cost, but resource- investment costs, local adaptability, and potential for decen-
efficient technologies are of particular importance for the rural tralization. For this reason, technologies that combine high
and urban poor (see Box 1.5). There is a latent demand for low- eco-efficiency with appropriate performance levels hold an
cost housing, small hydropower units, low-input organic agri- enormous potential for improving people’s living conditions
culture, local non-grid power stations, and biomass-based while containing the use of natural resources and GHG emis-
small industries. Sustainable agriculture can benefit both the sions.
environment and food production. Biomass-based energy
plants could produce electricity from local waste materials in 1.4.2.4 Full Cost Pricing
an efficient, low-cost, and carbon-free manner. Each of these
options needs to be evaluated alongside conventional energy Changing macroeconomic frameworks is often considered
supply and demand alternatives (see Chapter 3) in terms of the indispensable, in both developed and developing countries
impacts and contribution to sustainable development. (Stavins and Whitehead, 1997), to bringing economic rational-
Expanding the analysis of the set of available options in this ity progressively in line with ecological rationality. Economic
way should make us better off, as some of the new options will restructuring and energy-pricing reforms both compliment and
be attractive upon further analysis, although others will not. are a prerequisite for the success of many environmental poli-
cies (Bates et al., 1994; TERI, 1995). As long as natural
It is important, in light of these examples, to realize that the resources, including energy, are undervalued relative to labour,
results of greater resource efficiency differ according to the the tendency should be to substitute the cheaper factor for the
performance level of the technology under consideration. more expensive one. Giving a boost to efficiency markets
Technologies devised for high eco-efficiency and intermediate requires, first of all, the elimination of environmentally coun-
performance levels consume, for example, lower absolute terproductive subsidies (at least over the medium-to-long
Box 1.5. Resource-efficient Construction in India
Recent analysis shows construction-sector activities to be major drivers of Indian GHG emissions. In addition, conventional building
costs place traditional construction beyond the means of an increasing fraction of rural families. A new building technology developed
by an Indian non-profit organization, Development Alternatives, reverses this trend. This technology uses hand-powered rams to shape
compressed earth into strong, durable, weather-resistant but unbaked bricks. The ingredients for the bricks include only locally avail-
able materials, mostly soil and water.
Building new residential and commercial structures with these rammed-earth bricks creates rural jobs and delivers structurally sound
buildings with high thermal integrity and few embodied emissions of GHGs. As a result of their inherently high thermal mass, these
new buildings easily incorporate passive solar design for heating and cooling. Since they use little purchased input besides human
labour, their cost is well within the range of poor families.
term), as on fossil fuels, motorized transport, or pesticides, as poor. Frequently discussed examples are the construction of
much as concessions for logging and water extraction large dams for urban electricity supply, which displace large
(Roodman, 1996; Larraìn et al., 1999). Reform of environ- numbers of subsistence peasants, or deforestation for industri-
mentally destructive incentives would remove a major source al purposes, which marginalizes indigenous people living in
of price distortions. Finally, shifting the tax base gradually and from the forest. In contrast to literature that postulates a
from labour to natural resources in a revenue-neutral manner “trickling-down effect” in the long term, this school of thought
could begin to rectify the imbalance in market prices is concerned about the social cost in the present. For its propo-
(European Environment Agency, 1996; Hammond et al., nents, to secure the rights of the most vulnerable would, in
1997). A more extensive discussion of eco-taxation, reporting many cases, imply moderation of resource extraction in terms
a wide-ranging debate, is given in Chapter 6 of this report. of absolute volumes (Gadgil and Guha, 1995). In the light of
these reasons, social and technological systems that combine
both high eco-efficiency and intermediate performance levels
1.4.3 Decoupling Wellbeing from Production may be the most likely to foster human welfare at a lower cost
to the environment and to social justice.
Creating an improved, or at least a different, way of life sup-
ported by a given set of natural inputs could also enhance the Four dimensions–intermediate performance levels, regionaliza-
overall resource productivity in society. For developed coun- tion, “appropriate” lifestyles, and community resource
tries (and the corresponding social sections in developing rights–can be distinguished in the relevant literature. Policy
countries) pursuing such an objective might start from the options identified along these four dimensions emerge from a
insight offered by some research that there is no clear link broader concept of climate mitigation than is typically captured
between level of GNP and quality of life (or satisfaction) in the energy supply and demand technologies represented in
beyond certain thresholds. Linton (1998) and UNDP (1998) existing energy–economic models. Each option has great poten-
draw this distinction clearly. Both sources argue that the qual- tial to reduce GHG emissions, but each needs to be evaluated
ity of life is determined by subjective and non-subjective vari- carefully in terms of its impacts on economic, social, and bio-
ables. On the subjective side, quality of life depends upon per- logical systems. This sort of evaluation of opportunity cost has
sonal satisfaction, which in part depends on shared preferences not, however, been reported in the literature under review.
and institutional values. On the non-subjective side, it depends Moreover, most authors are ready to admit that the conditions
upon opportunity structures, which may include access to of public acceptance of such options are not often present at the
nature, participation in community, availability of non-market requisite large scale; they emphasize, however, the necessity to
goods, or public wealth, in addition to purchasing power. This explore these options in order to foster long-term social learn-
literature describes situations in which GNP growth continues ing processes. Regional views on the need for or feasibility of
without a corresponding increase in human welfare as “overde- decoupling wellbeing from production vary widely. This sub-
velopment” or “uneconomic growth” (Daly, 1997). For devel- section closes with a brief review of each dimension noted here.
oping countries, however, the research suggests that this
decoupling perspective may start from the insight that non- 1.4.3.1 Intermediate Performance Levels
monetary assets (in terms of natural resources, just as in terms
of community networks) need to be protected and enhanced to Most of the literature on resource-efficient technologies takes
improve the livelihoods of the poorer and less powerful sec- for granted that performance levels will (and should) increase.
tions of society. Structures, patterns, and rates of economic For the sake of a broader portfolio of options, however, some
growth may have to be shaped in such a way that these non- analysts question this assumption. It is suggested that to create
monetary assets are not diminished, but increased. resource-light economies could imply deliberately designing
technologies (e.g., in construction, ventilation, refrigeration,
On both monetary and non-monetary accounts, a decoupling vehicles, crop cultivation, energy delivery systems) with levels
transition to sustainability implies a twin-track strategy. It may of performance that lie below the maximum feasible. These
be achieved through both an intelligent reinvention of means technologies are often more labour intensive. For instance, the
(“efficiency”) and a prudent moderation of ends (“sufficien- higher speed in transportation are (efficiency gains notwith-
cy”; Meadows et al., 1992; Sachs et al., 1998) for the sake of standing) unlikely to be environmentally sustainable in the long
both environmental and social sustainability. With regard to the run; moreover, it is doubtful that this trend really enhances the
environment, efficiency-centred strategies can have a limit; quality of life (Hirsch, 1976; Wachtel, 1994). Designing cars
they can fail to account for the effects of continuing growth and trains with lower top speeds could give rise to a new gen-
(Ayres, 1998). For instance, higher per-unit fuel efficiency of eration of moderately motorized vehicles with much lower
cars may not reduce total gasoline consumption in the long run resource requirements. In general, renewable energy sources
if growth effects in terms of number, power, and size of cars and locally adapted materials, it is argued, become more com-
cancel efficiency gains (see Chapter 3; Pinguelli Rosa and
Tolmasquin, 1993).26 With regard to social justice, resource
consumption on the part of the rich has been shown, at times, 26For a more detailed discussion of the so-called rebound effect, see
to undermine the environmental sources of livelihood for the the special issue of Energy Policy, 28 (2000), 355–495.
petitive when the performance expectations on the demand side On one level, most resource-intensive consumer goods, in
are reduced (Meyer-Abich, 1997). Sails still drive much of ship effect, used for only a fraction of time because they are indi-
traffic in parts of the world, as on the Niger and Nile, or the vidually owned. Intensity of use could be increased27 through
great rivers of China. And bicycles carry a substantial portion of schemes that involve co-ownership, renting, or leasing
traffic in many regions of the world. Indeed, biomass of all (Zukunftskommission, 1998). On another level, the marginal
kinds (wood for construction and fuel, plant and animal food utility of more free time increases faster than the marginal util-
and fibre, medicines, dyes, etc.) has been the renewable ity of more purchasing power for the more affluent parts of
resource base for humankind since time immemorial. However, society (Schor, 1998). Choosing more wealth in time rather
to successfully upgrade non-carbon-based technologies, the than more wealth in goods and services can be seen as a viable
performance level desired seems to be a critical factor for them option, which promises to increase freedom while containing
to be technically and economically viable. consumption levels. Finally, under conditions of “reflexive
modernization” (Beck, 1991), consumption styles might
1.4.3.2 Regionalization emerge that put more emphasis on quality and non-material
satisfaction rather than on rising volumes of consumption
Production and lifestyles based on high volumes of long-dis- (Durning, 1992). As consumption activities become reinserted
tance transportation carry a relatively high load of energy and into the broader contexts of human wellbeing, diverse balances
raw materials. Some researchers argue (Shuman, 1998; may be found between satisfaction derived from the market-
Magnaghi, 2000) that a low-input society may require that the place and satisfaction derived from non-monetary assets
economy evolves in a plurality of spaces, in which markets that (Reisch and Scherhorn, 1999).
work with “regional sourcing” and “regional marketing” can co-
exist with markets that focus on “global sourcing” and “global 1.4.3.4 Community Resource Rights
marketing”. Avoiding demand for transport rather than just opti-
mizing the modal split between private and public means of One-third of mankind derives its sustenance directly from
transport is often considered the objective of sustainable policies nature (UNDP, 1998, p. 80); and these people live, for the most
(Whitelegg, 1993), and regionalized economies may be best part, in ecologically fragile areas. Environmental resources are
suited to this objective. Moreover, solar power, which relies on valued as a source of livelihood by groups as diverse as the
the widespread but diffuse resource of sunlight, may be best fisherfolk of Kerala, the forest dwellers of the Amazon, the
developed when many operators harvest small amounts of ener- herders of Tanzania, and the peasants of Mexico (Ghai and
gy, transforming and consuming the resource at close distance. Vivian, 1992). In such cases, households rely on non-market
A similar logic holds for biomass-centred technologies. Plant goods and natural habitats for important inputs into the pro-
matter is widespread, available, and heavy in weight; it may be duction system (Cavendish, 1996). Many of these communi-
best obtained and processed in a decentralized fashion. For this ties, over the centuries, developed complex and ingenious sys-
reason, some analysts argue that a resource-light economy has to tems of institutions and rules to regulate ownership and use of
be, in part, a regionalized economy. On the other hand, Chapter natural resources in such a way that an equilibrium between
2 points out that regionalization may impede technology trans- resource extraction and resource preservation could be
fer, leading to higher emissions, other things being equal. achieved. However, particularly under the pressure of the
resource needs brought forth by individuals with relatively
1.4.3.3 “Appropriate” Lifestyles high energy consumption, the basis of their livelihood has been
undermined, degrading their dignity and sending many of them
Many authors question whether the accumulation of individu- into misery (Kates, 2000). Under these circumstances, sustain-
ally owned goods beyond a certain threshold continues to able development may mean, in the first place, ensuring the
increase wellbeing at the same rate. They suggest that individ- rights of communities over their own resources. Properly
uals and families could be capable of enhancing their personal arranged, and in concert with competitive markets and astute
resource productivity–a goal which, in turn, could be defined institutional arrangements, resource rights could make invest-
as the ability to maintain and/or increase satisfaction with ment consistent with community values and associated positive
lower and/or intermediate input of resources. Some authors effects on climate change mitigation. Use of ecologically sus-
consider intervention in the prevailing narrative of consump- tainable resources can be made a matter of self-interest. Well-
tion–“more (consumption) is better”–a possible strategy to designed resource-right mechanisms permit resource users to
interrupt the satisfaction–consumption cycle (Common, 1995; use new information and new technology and pursue new mar-
Lichtenberg, 1996; Schor, 1998). These approaches draw their ket opportunities. Resource use by outsiders becomes a matter
motivation from the hypothesis that, ecologically, it is not only of negotiation or trading on more equal terms, which protects
the pattern, but also the overall scale of consumption that mat- the economic security of the communities involved. Better
ters. If this is correct, then social capital in its broadest sense
might have to substitute for increased absolute volumes of con-
sumption (Robinson and Herbert, 2000). Chapters 5 and 10 27This would lower the demand for capital equipment and allow larg-
elaborate on the role of lifestyles as a barrier to climate change er scale more efficient equipment to be used, which in turn would
mitigation, but also as a potential opportunity. lower resource use and GHG emissions.
access to resources could offer new opportunities to increase in the extent of poverty, human capital development, etc.) that
the productivity of all components of the village would result from specific mitigation policies. Although this
ecosystem–from grazing and forestlands to croplands, water would be a start on a more integrated quantitative assessment
systems, and animals. This may, in turn, enhance people’s well- of costs, it would initiate a debate on how these other metrics
being, which in these circumstances depends on increasing and ought to be evaluated and aggregated. This may make it desir-
regenerating biomass in an equitable and sustainable manner. It able to move to a broader integrating framework where multi-
is well known from the economics literature that the manage- ple policies could be evaluated according to multiple metrics
ment of common property resources seems to work best when simultaneously. The development of the concept of “mitigative
group members can draw on trust and reciprocity, have some capacity” is one new, but promising, step towards the develop-
autonomy to make their own rules, and perceive to gain bene- ment of the systematic evaluation of mitigation options from
fits from their efforts (Ostrom et al., 2000). an integrated cost-effectiveness, equity, sustainability perspec-
tive.
To summarize, we have examined three different perspectives
that approach climate change mitigation from different vantage Yohe (2001, in press) has recently introduced mitigative capac-
points–cost-effectiveness, equity, and sustainability–but con- ity as an organizing tool to aid policymakers and analysts alike
verge in terms of the comprehensive set of goals to be pursued. as they try to accomplish this integration. Briefly defined, a
However, the three perspectives use different analytical tools nation’s mitigative capacity reflects its ability to diminish the
and causal relationships, and often provide different policy intensity of the natural (and other) stresses to which it might be
guidance. The main message of this chapter is that these three exposed. The list of stresses for any particular nation might
perspectives are complementary in nature, and can be helpful include climate change and climate variability, of course. It fol-
for the policymaker if used in conjunction. However, this does lows that to review the diversity of the determinants of mitiga-
raise the issue of how to choose between various policy options tive capacity from a climate perspective can help assessors
and how to prioritize actions in the face of possibly divergent who contribute to IPCC Assessments and researchers who will
advice. look to their report for guidance in setting their research agen-
das. These determinants can, in short, provide a framework
upon which to build and through which to assess systematic
1.5 Integrating Across the Essential Domains–Cost- and comparable representations of nations’ relative capacities
effectiveness, Equity, and Sustainability to cope. Mitigative capacity is therefore offered here as one
means with which to integrate and to evaluate the complex
To include issues of cost-effectiveness, distribution (narrowly issues that have emerged since the publication of SAR. There
defined), equity (more broadly defined), and sustainability may be other means to the same end, of course, but a focus on
adds enormous complexity to discussions on the problem of mitigative capacity has the virtue of concentrating attention
how nations can respond best to the threat of climate change. directly on the problem at hand–climate change mitigation.
Indeed, recognition that these multiple domains are relevant
complicates the task assigned to policymakers and internation-
al negotiators by opening their deliberations to issues that lie 1.5.1 Mitigative Capacity–A Tool for Integration
beyond the boundaries of the climate change problem, per se.
Their recognition thereby underscores the need to integrate sci- There are eight distinct but related determinants of mitigative
entific thought across a wide range of new policy-relevant con- capacity (Yohe, 2001, in press). Cast here in the context of a
texts, but not simply because of some abstract academic or nar- single country trying to confront its climate change mitigation
row parochial interest advanced by a small set of researchers or challenge, they are:
nations. Cost-effectiveness, equity, and sustainability have all • range of viable technological options for reducing
been identified as critical issues by the crafters of the UNFC- emissions;
CC, and they are an integral part of the charge given to the • range of viable policy instruments with which the coun-
drafters of TAR. Integration across the domains of cost-effec- try might effect the adoption of these options;
tiveness, equity, and sustainability is therefore profoundly rel- • structure of critical institutions and the derivative allo-
evant to policy deliberations according to the letter as well as cation of decision-making authority;
the spirit of the Framework Convention itself. • availability and distribution of resources required to
underwrite their adoption and the associated, broadly
One important preliminary step towards integration of the three defined opportunity cost of devoting those resources to
perspectives that is developed in the body of this report is the mitigation;
use of ancillary and co-benefits, developed and assessed most • stock of human capital, including education and per-
fully in Chapters 7 and 8 and referred to in many of the other sonal security;
chapters, that could be used to augment mitigation cost esti- • stock of social capital, including the definition of prop-
mates produced by the cost-effectiveness approach. Thus, one erty rights;
could add or subtract an estimate of the equivalent cost or ben- • country’s access to risk-spreading processes (e.g.,
efits on various equity or sustainability metrics (e.g., changes insurance, options and futures markets, etc.); and
• ability of decision makers to manage information, the • existence of social, cultural, and political constraints to
processes by which these decision makers determine its adoption; and
which information is credible, and the credibility of the • ability of key decision makers to understand and to
decision makers themselves. access its potential.
This section will use these determinants as organizing tools in Chapter 5 underlines the significance of each of these charac-
its assessment of the degree to which current thinking, as evi- teristics. It points out that cost and performance specifications
denced by subsequent chapters, includes the first very prelimi- are critical; however, a technology could be expensive in one
nary steps toward a thorough integration of cost-effectiveness, place and relatively inexpensive in another; or it may be inex-
equity, and sustainability on the mitigation side of the climate pensive when denominated in one numeraire, but expensive
problem. when denominated in another (see Schneider, 1999). Chapter 5
also highlights social and economic constraints derived from
Mitigative capacity is the mitigation analogue of the concept of high private discount rates, market failures, closed economies,
adaptive capacity introduced in Chapter 18 of the WGII report uneven allocations of resources, uneven access to decision-
(IPCC, 2001). Indeed, adaptive capacity is offered there as a making processes, and other characteristics of social and cul-
framework upon which to build systematic and comparable tural structures. Finally, Chapter 5 focuses considerable atten-
representations of communities’ and/or countries’ ability to tion on information. Decision makers must be able to under-
ameliorate or exploit the impacts of the natural or social stress- stand a technology’s economic and technical potential in the
es that they might face. As such, adaptive capacity plays a sim- context of their own countries, for which data and information
ilar organizational role for WGII in their assessment of impacts may be scarce or, in cases where prices do not reflect social
as mitigative capacity does herein. WGII authors built their cost, misleading. Clearly, these observations extend the discus-
assessments around the notion that a system’s vulnerability to sion beyond simply listing gadgets towards developing an
climate change is determined both by its exposure to the understanding of how country-specific characteristics might
impacts of climate change and by its adaptive capacity. Their enhance or impede decision makers’ abilities to adopt mitiga-
analysis uncovered a list of determinants for adaptive capacity tive technologies.
that is nearly identical to the list of determinants for mitigative
capacity given above. Organization of their thoughts around This chapter also underlines the sensitivity of acceptable poli-
those determinants enabled them to integrate cost-effective- cy instruments to a similar list of critical parameters that
ness, equity, and sustainability into their assessments of the rel- extend efficiency discussions to include equity and sustainabil-
ative vulnerabilities of different nations, regions, and sectors. ity. These include:
• opportunity cost of their implementation, measured
Many of the subsequent chapters presented here offer insight broadly to include their development, equity, and sus-
into the role of the first two determinants listed above in deter- tainability implications;
mining the ability of various nations to mitigate climate • sensitivity of these costs to alternative designs;
change. Section 1.5.1.1 offers a brief introduction to these • availability of credible information and the ability to
insights. An equally brief assessment of some of the related lit- monitor critical factors in the face of uncertainty;
erature from which the roles of the other determinants has been • definition of a wide range of policy objectives and the
gleaned is given in Section 1.5.1.2. Its coverage is more sug- degree to which they complement the objective of cli-
gestive of where climate researchers and policymakers should mate mitigation;
look for aid in formulating the next round of questions; it is less • credibility of the policies and legitimacy of the policy-
indicative of where past efforts and discussion have been con- makers;
centrated. • social, cultural, political, and economic constraints to
their implementation, and
1.5.1.1 Integrating Environmental, Social, and Economic • the structure of the decision-making process itself.
Objectives in the Third Assessment Report
These characteristics clearly have enormous significance when
Chapters 3 and 4 herein discuss in detail the standard techno- they are cast in the context of development, equity, and sustain-
logical options to mitigate climate change. Some or all of these ability. Later chapters in this report show how alternative poli-
options might be available to any country as it decides to cy designs can, on average, have widely different costs and
reduce or to slow its emissions of greenhouse cases. However, implications even if they achieve comparable results. Chapters
each technological option must be evaluated in terms of five 6 to 8 show, for example, that the cost of a policy does not
factors: depend on the specification of its targeted outcome only. It also
• its technological potential in an uncertain environment; depends on the specification of its timing, on the flexibility that
• its economic potential given economic uncertainty and it allows, and on the degree to which it is supported by the inter-
risk; national co-ordination of similar efforts across the globe.
• existence of technical and economic constraints to its Different policy designs for the same objective can also have
adoption; different distributional impacts–different sets of winners and
losers across space and time who all come to the table with dif- ly, these policy decisions cover both regulatory and market
ferent access to decision making. Moreover, the opportunity instruments. Individual economic actors will respond to these
cost of any policy can be measured not only in terms of eco- incentives through internal changes as well as domestic and
nomic cost, but also in terms of non-economic metrics that international decisions. International decisions cover the innov-
measure progress or regression across a wide range of critical ative Kyoto mechanisms (JI, IET, and the CDM) and are rele-
variables and against an equally large range of social, cultural, vant to non-Annex I countries, which will need to take support-
or political objectives (see Schneider, 1999). As a result, miti- ive policy decisions as well. These are specifically in the area of
gation policies that have been successfully adopted in one coun- institutional development, capacity building, project approval,
try might be totally beyond the range of possibility in another. project monitoring and certification, and national reporting.
Finally, differences in the flexibility of alternative policy Uncertainty, vulnerability to shocks, and attitudes towards risk
designs can also mean differences in long-term sustainability influence the perceived legitimacy of various decision options.
from one country to another. Flexibility in response to one mit- At a global or national level, public opinion and therefore pub-
igation policy that adds efficiency and reduces costs in one lic policy is affected by the scientific uncertainty over the range
place may threaten the very existence of critical systems in and impact of climate change. At subnational levels, such
another. Ultimately, the goal of international agreements is to uncertainty and vulnerability lies not only in the future, but
induce decision makers at various levels–national and munici- also in the present circumstances of specific groups–the poor,
pal governments, corporate executives, rural communities, and the communities living in fragile or threatened areas, and the
individuals engaging in both production and consumption deci- ecological refugees (Gadgil and Guha, 1995). It shapes the col-
sions–to undertake actions that lead to the mitigation of GHGs. lective experience of such groups, determines their decision
There is, in short, a multitude of policy options and instruments objectives, and affects their choices as well as susceptibility to
available to decision makers at various levels. policy-induced changes.
Figure 1.7 illustrates this complexity in a diagrammatic form by Finally, the incentive situation, the nature and strength of insti-
taking the example of the Kyoto Protocol. The parties have tutions for collective action, and the quality and type of infor-
agreed to a 5.2% reduction of Annex I emissions below 1990 mation available to decision makers affect individual decisions.
levels by the first commitment period, 2008 to 2012. To realize All three of these factors vary from one context to another and
these reductions, however, national governments in these coun- from one level of decision making to another. Next the nature
tries have to undertake policy measures that induce corporate of governmental policy intervention is discussed, and then the
and other actors to modify their behaviour. As is shown present- context within which such policies are used is analyzed.
Kyoto Reduction
Protocol 5.2% over 1990
Reduction Committments
by Countries (QELRC)
Market Instruments
National Policies
Annex1 Regulations
Incentives and/or Obligations

to Reduce Net Emissions
Corporate Domestic International

Strategies Activities Activities
- Technology Investment
Domestic International
- Management
- Consumption Emission Trading
JI CDM
Finance, - Institutional/Supportive Framework National

Certification - Project Approval/Selection Mechanisms Policies
Monitoring - Capacity Building (project preparation non-Annex I
certification, infrastructure, national reporting)
- National Reporting Figure 1.7: Levels of decision making for
Kyoto mechanisms.
1.5.1.2 Expanding the Scope of Integration tiations and compromises between them. As a result,
O’Riordan et al., 1998) argue that issues considered by gov-
Decisions that lead to the emissions of GHGs that result in ernments to be on the policy periphery, like climate change, are
global warming are made under, and generally because of, the not easily factored into consideration of issues at the policy
system of incentives and institutions in place, and are based on core (such as health care, education, national economic policy,
the information available to decision makers. Influencing such or corporate manufacturing strategy). The issue networks and
decisions requires policy intervention at global, national, or policy communities around environmental ministries in most
local levels. Conversely, the existence of institutions and legit- countries are weak relative to those around economic and
imacy determines the effectiveness of the menu of potential defence ministries. Climate change is sometimes invoked to
governmental policies outlined above. There is significant het- boost support for existing policy agendas, such as industrial
erogeneity within most countries in the types of climate change restructuring. Nonetheless, climate change has seldom, if ever,
impacts that might be expected and in the likely impact of been perceived within the powerful ministries and their policy
GHG mitigation policies. The ability to adapt to climate communities as sufficiently threatening to their departmental
change depends on the level of income and technology, as well interests to fundamentally change those agendas (O’Riordan
as the capacity of the system of governance and existing insti- and Jäger, 1996; Beuerman and Jäger, 1996).
tutions to cope with change. The ability to mitigate GHG emis-
sions depends on industrial structure (the mix of industrial There is, as well, enormous variety in the range of institution-
activities), social structure (including, e.g., the distance people al and other conditions in various countries at the subnational
must travel to work or to engage in recreational activities), the level. The political decision-making process in developed
nature of governance (especially the effectiveness of govern- countries is affected to a certain degree by powerful non-gov-
ment policy), and the availability and cost of alternatives. In ernmental institutions–including corporations and issue-based
short, what is feasible at the national level depends significant- non-governmental organizations (NGOs; March and Rhodes,
ly on what can be done at the subnational, local, and various 1992; Sabatier and Jenkins-Smith, 1993; Smith, 1993;
sectoral levels. However, most studies assume that the nation- Michaelowa, 1998; O’Riordan et al., 1998). These can be a
al level is the most appropriate for assessing and reacting to the source of resources and new ideas to address climate change as
externalities that result from emissions of GHGs and for nego- it occurs, but they can also impede the identification and
tiating international climate change agreements. response to changes because of vested interests in the current
or some desired allocation of resources. In developing coun-
The prospect of climate change is just one of many issues of tries, a growing number of institutions have emerged to cham-
concern to governments, and in most countries climate policy pion environmental agendas. These range from groups con-
is debated within a broader framework. National policymakers, cerned with narrowly defined problems and opportunities (e.g.,
therefore, have to make trade-offs in implementing climate grassroots groups, wetlands protection groups) to broad-based
policies within a comprehensive national and international rights groups (e.g. women’s groups) that address a range of
political economy framework. Many political parties and common problems (see, e.g., Banuri et al., 1994). However,
stakeholder groups oppose climate policy because of perceived significant differences continue between the legitimacy and
conflicts with private sector interests. They also perceive con- reach of such groups in the developed and developing regions.
flicts with traditional macroeconomic goals, like full employ-
ment, price stability, and international competitiveness. They The role of the informal sector can also differ between devel-
also sometimes fear competition with other traditional objec- oped and developing countries (see, e.g., Cantor et al., 1992).
tives for public attention and public expenditure (e.g., health Although the term is defined somewhat loosely in the litera-
care, national security, infrastructure, and education). ture–often referring to urban, small-scale, non-organized eco-
Likewise, some people may resist mitigation policies (regard- nomic activities, and elsewhere to activities not covered in
less of who pays for them) because of the perceived adverse national tax nets–estimates suggest that the informal economy
impacts on economic growth and poverty eradication, even may cover as much as one-third of the economic activity of
though others might suggest that the implementation of such some developing countries. Given its relative imperviousness
policies could provide potential opportunities for sustainable to analysis as well as policy influence (indeed, its very exis-
development. tence is credited by some writers to its ability to escape policy
influence), it is difficult to project how this sector will react to
Also, many countries have more than one national policy-mak- impacts from climate change or mitigation policies.
ing authority. In some cases, this diversity may reflect a sepa-
ration of the executive and legislative branches of government. The role of information depends critically on the legitimacy of
In others, it may simply be that separate agencies are responsi- institutions that provide it. The capacity for research, analysis,
ble for economic policy, environment, and international affairs. and policy development is generally weak in developing coun-
These agencies will have different views regarding both the tries, and especially so in terms of climate change. More
needs for climate policy and its likely impact on other goals. importantly, this limited capacity is focused exclusively at the
The decision-making process invariably reflects the relative national level. The result is often a credibility gap between the
political influence of these groups, and involves political nego- national and local levels. In general, it is difficult to convince
local actors of the significance of climate change and the need and/or policies. The benefits of mitigation would meanwhile be
for corrective action. marginal for most people because they would be distributed
widely across the population and spread far into the future.
More importantly, the bulk of the research and analytical capac- Mitigative capacity could then be small.
ity at the global level is concentrated in the developed coun-
tries. This is true especially of climate modelling, but also in Countries most vulnerable to climate change may have the
analyses of the relationship between climate change and sus- smallest mitigative capacity. Vulnerability to climate change
tainable development. Since the late 1980s, massive investment results from high exposure to climate impacts, low adaptive
in climate change research has taken place in the developed capacity, or both. In the high-exposure case, the opportunity
countries. In contrast, there is a paucity of research institutions cost, broadly defined, of expending resources to mitigate GHG
in developing countries, with a relatively small level of research emissions may be too high. In the case of low adaptive capac-
effort and investment. This is adequate neither for policy devel- ity, the factors responsible may also work to diminish mitiga-
opment nor for reassuring policymakers and NGOs of the tive capacity. And in the third case, both deleterious correla-
developing region that the research results are unbiased (Sagar, tions could work to complement each other.
1999).28
Enhancing any one component of mitigative capacity may (or
Taken together, these insights suggest a need for investment in may not) reduce the (marginal) cost of mitigation, because it
the research and analytical capacity of the developing coun- either expands the set of possible mitigative options or because
tries, and for orienting the research effort in both developing it reduces the constraints that stand in the way of their efficient
and developed countries towards the local impacts of climate application. Adding to the list of available technological
change and the capacity for climate change adaptation and mit- options can, of course, lower the cost of implementing a spe-
igation. Section 1.5.2 indicates how approaching this complex- cific policy designed to accomplish a specific objective, but the
ity within the organizing concept of mitigative capacity can additions must be more socially acceptable than the existing
help to generate insights into interpreting and extending ana- alternatives, as well as structurally, socially, politically, and
lytical exercises, integrating these exercises across multiple culturally feasible. If not, they will not be adopted.
stresses, and using this integration to inform discussions and Furthermore, their informational requirements must not exceed
debates in the policy arena. the informational capacity of the host country.
A nation, region, or community’s international position can

1.5.2 Lessons from Integrated Analyses play a significant role in determining its ability to exercise its
mitigative capacity, because outside entities can influence the
Integrating, organizational tools are most useful when they also effectiveness of technological options and/or domestic policy
provide an effective means to assess the existing literature so alternatives. External forces can have a secondary but nonethe-
that new hypotheses can be articulated and new directions can less significant effect on the likelihood that mitigation will
be identified. occur. Section 1.2 highlights the value of international co-ordi-
nation. Trade policies, be they global or the domestic policies
One such lesson is that to aggregate representations of mitiga- of significant trading partners, directly influence national
tion across nations and/or groups may be misleading. Quite incomes and their distribution. Trade also influences the degree
simply, the capacity to reduce emissions of GHGs can vary to which a country’s development plans put pressure on its
dramatically from nation to nation, sector to sector, region to stocks of social, human, and natural capital. Each of these fac-
region, group to group, and timeframe to timeframe. tors subsequently affects the constraints that determine the set
of feasible mitigation technologies and policies.
Secondly, one country can easily display high adaptive capac-
ity and low mitigative capacity simultaneously (or visa versa), Developing indicators of mitigative capacity could help deter-
even though both capacities share the same list of determi- mine who should be expected to do what in terms of mitiga-
nants. In a wealthy nation the damages associated with climate tion. Examining the determinants of mitigative capacity can
change may focus on a small but well-connected group of peo- identify weak points in the links required for countries to rec-
ple, while the cost of a wide range of adaptation options can, ognize and to act upon the need for climate mitigation This
through a well established tax system, be distributed across the approach can organize existing information effectively as well
entire population. The same country might, however, include as suggest new research directions. Specifically, attention to
another small group of people who would be seriously hurt by mitigative capacity underlines the role of instruments and tar-
most if not all of the wide range of available mitigation options gets in framing policy discussions. There are, typically, multi-
ple targets (environmental improvement being one of them)
and multiple instruments to achieve them. Contemplating the
28 Participants in international research programme are mostly scien- determinants of mitigative capacity suggests that there is a ben-
tific experts and do not have expertise in development, equity, or sus- efit from broadening the range of instruments used in climate
tainability issues. policy. This may be especially so if “climate policy” is under-
stood to include mechanisms to achieve environmental goals, economies. In particular, it may help to broaden the range of
sustainability goals, equity goals, and development goals. In win–win options.
this light, mitigative capacity highlights the necessity to
observe market failures, political failures, and other failures Concepts like mitigative capacity can help to clarify the trade-
that might otherwise be overlooked. The fundamental ques- offs within and between this expanded range of options. It can
tions are, then, ones of a broad perspective to see exactly how show how the assessment of climate change mitigation oppor-
much public policy should be devoted to enhancing mitigative tunities contained in this volume can be used and integrated to
capacity in ways that can help answer questions like “Where confront the problem of climate change most effectively. This
are the payoffs clearly greater than the costs?” or “Where is the is especially true when the broad lessons from WGIII herein
low-hanging fruit that deserves picking?” are taken in concert with lessons drawn from the assessment
provided by WGII (IPCC, 2001) on impacts and adaptation.
Contemplating the complexity of mitigative capacity reveals Many of the determinants of adaptive capacity are essentially
that the sources of uncertainty in understanding mitigation the same as those of mitigative capacity. Therefore, a portfolio
extend far beyond the boundaries of the uncertainties that of policy strategies that enhances the capacity to mitigate most
cloud how various technologies might be applied and how var- effectively should also be effective in enhancing the capacity to
ious policy designs might function. The same determinants of adapt. A number of lessons and directions for future research
mitigative capacity that bring development, equity, and sus- can be enumerated.
tainability factors into play add to the list of these sources, just
as they do on the impact side of the climate change calculus. In
short, therefore, anticipating how mitigation might evolve, • Improved deliberations on appropriate climate policies in
how much it might cost, how effective it might be, and how the the short, medium, and long terms.
costs and benefits might be distributed is just as uncertain as The literature being brought to bear on the climate issue
anticipating how systems might adapt to the impacts of climate increasingly shows that policies beyond simply reducing GHG
change and climate variability. emissions from a specified baseline at minimum costs can be
extremely effective in abating the emission of GHGs.
Understanding the determinants of mitigative capacity offers a Consideration of policies not directly focused on climate, such
way of organizing not only the analysis of mitigation, but also as those focused on the broader objectives of sustainable devel-
the negotiations over how to meet the mitigation challenge. opment, gives policymakers more flexibility to achieve climate
Indeed, enhancing mitigative capacity can be a policy objec- policy objectives.
tive in and of itself. The means by which this enhancement
might be accomplished can be drawn directly from an under- • Expanded lists of tools for decision makers and analysts.
standing of how the determinants work within and across Consideration of the objectives of development, equity, and
countries, how they might complement one another, and how sustainability can help buy in more participants to climate poli-
they might conflict. Of course, the opportunity cost of enhanc- cies–beyond national and international delegations to include
ing mitigative capacity, measured in terms of cost of regress- state, local, community, and household agents, as well as
ing against other objectives, is critical in evaluating its desir- NGOs. It also expands the list of tools that can be applied to
ability. It is also clear, given the way in which its determinants illuminate the decision-makers’ deliberations, from efficiency-
can be expected to interact, that enhancing mitigative capaci- and/or distribution-based analytical tools to include alternative
ty means more than simply transferring resources from one decision-analytic frameworks and the development of alterna-
nation to another. Weakness beyond access to adequate tive scenarios.
resources can surely impede the capacity to mitigate any
stress; and so it follows that these weaknesses can undermine • Weighing the costs and impacts of a broader set of policies
significantly the efficacy of offering or requesting simple according to a longer list of objectives.
financial support. Climate deliberations would then consider the climate ramifi-
cations of policies designed primarily to address a wide range
of issues, including development, equity, sustainability, and
1.5.3 Mitigation Research: Current Lessons and Future sustainable development, as well as the likely impacts of cli-
Directions mate policies on the achievement of these other objectives. As
part of this process the opportunity costs and impacts of each
Broadening the domain of analysis to include concerns of instrument are measured against the multiple criteria defined
development, equity, and sustainability over multiple time by these multiple objectives.
scales adds enormous complexity to policy deliberations. A
portfolio of strategies (not just policy instruments) that draw on • A portfolio approach to policy that effectively enhances the
efficiency and cost-effectiveness, equity, and sustainability capacity to meet the mitigation challenge as well as the
considerations may nonetheless offer the promise of identify- capacity to adapt to climate change.
ing new options and synergies that may make the job of imple- Focusing research and policy on the determinants of mitigative
menting climate policy less disruptive to societies and and adaptive capacity simultaneously can show when, where,
and how synergies and conflicts between mitigation and adap- • Much additional research is needed before concepts like
tation might arise. Focusing research on these determinants mitigative capacity can be used to assess the relative mer-
also makes it clear that policy making in either sphere can be its of specific options.
matched by complementary action in the other. Coping with Integrating concepts like mitigative capacity should prove use-
the climate problem is not a question of mitigating and then ful as a heuristic device to integrate diverse policy instruments
adapting. Nor is it a question of adapting and then mitigating. into a comprehensive policy portfolio, to discover the metrics
It is a more holistic question of doing both at the same time; with which costs and benefits should be measured, and (per-
focusing attention on the common determinants of mitigative haps most immediately) to broaden the range of no regrets
and adaptive capacities can lead productively to an under- options.
standing of exactly how to meet these coincident challenges.
Cavendish, W., 1996: Economics and Ecosystems: The Case of Zimbabwean

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2
Greenhouse Gas Emission Mitigation
Scenarios and Implications

TSUNEYUKI MORITA (JAPAN), JOHN ROBINSON (CANADA)
Lead Authors:
Anthony Adegbulugbe (Nigeria), Joseph Alcamo (Germany), Deborah Herbert
(Canada), Emilio Lebre La Rovere (Brazil), Nebojša Nakicenovic (Austria), Hugh
Pitcher (USA), Paul Raskin (USA), Keywan Riahi (Iran), Alexei Sankovski (USA),
Vassili Sokolov (Russian Federation), Bert de Vries (Netherlands), Dadi Zhou (China)
Kejun Jiang (China), Ton Manders (Netherlands), Yuzuru Matsuoka (Japan),
Shunsuke Mori (Japan), Ashish Rana (India), R. Alexander Roehrl (Austria), Knut
Einar Rosendahl (Norway), Kenji Yamaji (Japan)
Review Editors:
Michael Chadwick (UK), Jyoti Parikh (India)
CONTENTS
Executive Summary 117 2.5 Special Report on Emissions Scenarios (SRES)
and Post-SRES Mitigation Scenarios 143
2.1 Introduction: Summary of the Second Assessment 2.5.1 Special Report on Emissions Scenarios:
Report and Progress since this Report 120 Summary and Differences from TAR 143
2.5.1.1 IPCC Emissions Scenarios and the
2.2 Scenarios 120 SRES Process 143
2.2.1 Introduction to Scenarios 120 2.5.1.2 SRES Approach to Scenario
2.2.2 Mitigation and Stabilization Scenarios 122 Development 143
2.2.3 Scenarios and “Development, Equity, and 2.5.1.3 A Short Description of the SRES
Sustainability” 123 Scenarios 144
2.5.1.4 Emissions and Other Results of the
2.3 Greenhouse Gas Emissions: General Mitigation SRES Scenarios 146
Scenarios 123 2.5.2 Review of Post-SRES Mitigation Scenarios 147
2.3.1 Overview of General Mitigation Scenarios 123 2.5.2.1 Background and Outline of
2.3.2 Quantitative Characteristics of Mitigation Post-SRES Analysis 147
Scenarios 131 2.5.2.2 Storylines of Post-SRES Mitigation
2.3.2.1 Characteristics of Baseline Scenarios 149
Scenarios 131 2.5.2.3 Comparison of Quantified
2.3.2.2 Characteristics of Stabilization Stabilization Scenarios 150
Scenarios 133 2.5.2.4 Comparison of Technology and/or
2.3.3 Summary of General Mitigation Scenario Policy Measures and Assessment of
Review 136 Robustness 156
2.5.2.5 Summary of Post-SRES Scenario
2.4 Global Futures Scenarios 137 Review 159
2.4.1 The Role of Global Futures Scenarios 137
2.4.2 Global Futures Scenario Database 137 2.6 Recommendations for Future Research 160
2.4.3 Global Futures Scenarios: Range of
Possible Futures 137 References 162
2.4.4 Global Futures Scenarios, Greenhouse Gas
Emissions, and Sustainable Development 139 Appendix 165
2.4.5 Conclusions 142
Greenhouse Gas Emission Mitigation Scenarios and Implications 117
EXECUTIVE SUMMARY
Introduction: Summary of the Second Assessment Report and of the scenarios introduce simple carbon taxes or constraints on
progress since this report. emissions or concentration levels to reflect measures that are
taken to implement such options. Regional targets are intro-
This chapter reviews three scenario literatures: general mitiga- duced in the models with regional disaggregation. Emission
tion scenarios produced since the Second Assessment Report trading is introduced in more recent work. Some models
(SAR), narrative-based scenarios found in the general futures employ supply-side technology introduction, while others
literature, and mitigation scenarios based on the new reference emphasize efficient demand-side technology options.
scenarios developed in the Intergovernmental Panel on Climate
Change (IPCC) Special Report on Emissions Scenarios Allocation of emission reduction among regions is a con-
(SRES). tentious issue. Only some studies, particularly recent ones,
make explicit assumptions about such allocations in their sce-
Scenarios narios. Some studies offer global emission trading as a mecha-
nism to reduce mitigation costs.
A long-term view of a multiplicity of future possibilities is
required to consider the ultimate risks of climate change, assess Technological improvement is a critical element in all the gen-
critical interactions with other aspects of human and environ- eral mitigation scenarios.
mental systems and guide policy responses. Scenarios offer a
structured means of organizing information and gleaning Detailed analysis of the characteristics of 31 scenarios for sta-
insight into the possibilities. bilization at 550ppmv (and their respective baseline scenarios)
yielded several insights1.
Each mitigation scenario describes a future world with partic-
ular economic, social, and environmental characteristics, and There was a wide range in baselines, reflecting a diversity of
therefore implicitly or explicitly contains information about assumptions, mainly with respect to economic growth and low-
development, equity, and sustainability (DES). Since the dif- carbon energy supply. High economic growth scenarios tend to
ference between reference case scenarios and their correspond- assume high levels of progress in the efficiency of end-use
ing mitigation scenarios is simply the addition of deliberate cli- technologies; carbon intensity reductions were found to be
mate policy, it can be the case that the differences in emissions largely independent of economic growth assumptions. The
among reference case scenarios are greater than between any range of future trends shows greater divergence in scenarios
one such scenario and its mitigation version. that focus on developing countries than in scenarios that look
at developed nations. There is little consensus with respect to
General Greenhouse Gas Emissions Mitigation Scenarios future directions in developing regions.
This chapter considers the results of 519 quantitative emission The reviewed 550ppmv stabilization scenarios vary with
scenarios from 188 sources, mainly produced after 1990. The respect to reduction time paths and the distribution of emission
review focuses on 126 mitigation scenarios that cover global reductions among regions. Some scenarios show that emission
emissions and have a time horizon encompassing the coming trading lowers overall mitigation cost by shifting mitigation to
century. non-OECD countries, where abatement costs are assumed to
be lower. The range of assumed mitigation policies is very
These mitigation scenarios include concentration stabilization wide. In general, scenarios in which there is an assumed adop-
scenarios, emission stabilization scenarios, tolerable win- tion of high-efficiency measures in the baseline show less
dows/safe emission corridor scenarios, and other mitigation scope for further introduction of efficiency measures in the
scenarios. They all include energy-related carbon dioxide mitigation scenarios. In part this is due to the structure of the
(CO2) emissions; several also include CO2 emissions from models, which do not assume major technological break-
land-use changes and industrial processes and other important
greenhouse gases (GHGs).
1 The selection of 550ppmv scenarios is based on the relatively large
Mitigation options used in the reviewed mitigation scenarios number of available studies that use this level and does not imply any
take into account energy systems, industrial processes, and endorsement of this particular level of CO2 concentration stabiliza-
land use, and depend on the underlying model structure. Most tion.
118 Greenhouse Gas Emission Mitigation Scenarios and Implications
throughs. Conversely, baseline scenarios with high carbon seem to be that it is important to consider the linkage between
intensity reductions show larger carbon intensity reductions in climate policy and other policies and conditions associated
their corresponding mitigation scenarios. Global macroeco- with the choice of future paths in a general sense.
nomic costs of mitigation in the reviewed scenarios range from
0% to 3.5% of gross domestic product (GDP), while a few sim- Special Report on Emission Scenarios
ple models estimate more increase in the second half of the 21st
century. No clear relationship was discovered between the Six new GHG emission reference scenario groups (not includ-
GDP loss and the GDP growth assumptions in the baselines. ing specific climate policy initiatives), organised into 4 sce-
nario “families”, were developed by the IPCC and published as
Only a small set of studies has reported on scenarios for miti- the Special Report on Emission Scenarios (SRES). Scenario
gating non-CO2 gases. This literature suggests that small reduc- families A1 and A2 emphasize economic development but dif-
tions of GHG emissions can be accomplished at lower cost by fer with respect to the degree of economic and social conver-
including non-CO2 gases; that both CO2 and non-CO2 emissions gence; B1 and B2 emphasize sustainable development but also
would have to be controlled in order to reduce emissions suffi- differ in terms of degree of convergence. In all, six models
ciently to meet assumed mitigation targets; and that methane were used to generate 40 scenarios that comprise the six sce-
(CH4) mitigation can be carried out more rapidly, with a more nario groups. In each group of scenarios, which should be con-
immediate impact on the atmosphere, than CO2 mitigation. sidered equally sound, one illustrative case was chosen to illus-
trate the whole set of scenarios. These six scenarios include
In most cases it is clear that mitigation scenarios and mitigation marker scenarios for each of the scenario families as well as
policies are strongly related to their baseline scenarios, but no two scenarios, A1FI and A1T, which illustrate alternative ener-
systematic analysis in this class of literature has been published gy technology developments in the A1 world.
on the relationship between mitigation and baseline scenarios.
The SRES scenarios lead to the following findings:
Global Futures Scenarios • Alternative combinations of driving-force variables can
lead to similar levels and structure of energy use, land-
Global futures scenarios do not specifically or uniquely con- use patterns and emissions.
sider GHG emissions. Instead, they are more general “stories” • Important possibilities for further bifurcations in future
of possible future worlds. They can complement the more development trends exist within each scenario family.
quantitative emission scenario assessment because they con- • Emissions profiles are dynamic across the range of
sider dimensions that elude quantification, such as governance SRES scenarios. They portray trend reversals and indi-
and social structures and institutions, but which are nonethe- cate possible emissions cross-over among different sce-
less important to the success of mitigation policies. Addressing narios.
these issues reflects the different perspectives presented in • Describing potential future developments involves
Chapter 1 on cost-effectiveness, equity, and sustainability. inherent ambiguities and uncertainties. One and only
one possible development path (as alluded to for
A survey of this literature has yielded a number of insights. First, instance in concepts such as “business-as-usual sce-
a wide range of future conditions has been identified by futurists, nario”) simply does not exist. The multi-model
ranging from variants of sustainable development to collapse of approach increases the value of any scenario set, since
social, economic, and environmental systems. Since the underly- uncertainties in the choice of model input assumptions
ing socio-economic drivers of emissions may vary widely in the can be more explicitly separated from the specific
future, it is important that climate policies should be designed so model behaviour and related modelling uncertainties.
that they are resilient against widely different future conditions.
Review of Post-SRES Mitigation Scenarios
Second, the global futures scenarios that show falling GHG
emissions tend to show improved governance, increased equi- Recognizing the importance of multiple baselines in evaluating
ty and political participation, reduced conflict, and improved mitigation strategies, recent studies analyze and compare miti-
environmental quality. They also tend to show increased ener- gation scenarios using as their baselines the new SRES scenar-
gy efficiency, shifts to non-fossil energy sources, and/or shifts ios. This allows for the assessment in this report of 76 “Post-
to a post-industrial economy. Furthermore, population tends to SRES Mitigation Scenarios” produced by nine modelling teams.
stabilize at relatively low levels, in many cases as a result of
increased prosperity, expanded provision of family planning, These mitigation scenarios were quantified on the basis of sto-
and improved rights and opportunities for women. A key impli- rylines for each of the six SRES scenarios which describe the
cation is that sustainable development policies can make a sig- relationship between the kind of future world and its capacity
nificant contribution to emission reduction. for mitigation.
Third, different combinations of driving forces are consistent Quantifications differ with respect to the baseline scenario
with low emission scenarios. The implication of this would including assumed storyline, the stabilization target, and the
model that was used. The post-SRES scenarios cover a very The reduction in energy use caused by climate policies would
wide range of emission trajectories but the range is clearly be larger in Annex I than in non-Annex I. However, the impact
below the SRES range. All scenarios show an increase in CO2 of climate policies on equity in per capita final energy use
reduction over time. Energy reduction shows a much wider would be much smaller than that of the future development
range than CO2 reduction, because in many scenarios a decou- path.
pling between energy use and carbon emissions takes place as
a result of a shift in primary energy sources. No single measure will be sufficient for the timely develop-
ment, adoption, and diffusion of mitigation options to stabilize
In general, the lower the stabilization target and the higher the atmospheric GHGs. Instead, a portfolio based on technological
level of baseline emissions, the larger the CO2 divergence from change, economic incentives, and institutional frameworks
the baseline that is needed, and the earlier that it must occur. could be adopted. Combined use of a broad array of known
The A1FI, A1B, and A2 worlds require a wider range and more technological options has a long-term potential which, in com-
strongly implemented technology and/or policy measures than bination with associated socio-economic and institutional
A1T, B1, and B2. The 450 ppmv stabilization case requires changes, is sufficient to achieve stabilization of atmospheric
very rapid emission reduction over the next 20 to 30 years. CO2 concentrations in the range of 450–550ppmv or below.
A key policy question is what kind of emission reductions in Assumed mitigation options differ among scenarios and are
the medium term (after the Kyoto protocol commitment peri- strongly dependent on the model structure. However, common
od) would be needed. Analysis of the post-SRES scenarios features of mitigation scenarios include large and continuous
(most of which assume developing country emissions to be energy efficiency improvements and afforestation as well as
below baselines by 2020) suggests that stabilization at low-carbon energy, especially biomass, over the next one hun-
450ppmv will require emissions reductions in Annex I coun- dred years and natural gas in the first half of the 21st century.
tries after 2012 that go significantly beyond their Kyoto Energy conservation and reforestation are reasonable first
Protocol commitments. It also suggests that it would not be steps, but innovative supply-side technologies will eventually
necessary to go much beyond the Kyoto commitments for be required. Possible robust options include using natural gas
Annex I countries by 2020 to achieve stabilization at 550ppmv and combined-cycle technology to bridge the transition to
or higher. However, it should be recognized that several sce- more advanced fossil fuel and zero-carbon technologies, such
narios indicate the need for significant Annex I emission reduc- as hydrogen fuel cells. Solar energy along with either nuclear
tions by 2020 and that none of the scenarios introduces other energy or carbon removal and storage would become increas-
constraints such as a limit to the rate of temperature change. ingly important for a higher emission world or lower stabiliza-
tion target.
An important policy question already mentioned concerns the
participation of developing countries in emission mitigation. A Integration between global climate policies and domestic air
preliminary finding of the post-SRES scenario analysis is that, pollution abatement policies could effectively reduce GHG
if it is assumed that the CO2 emission reduction needed for sta- emissions in developing regions for the next two or three
bilization would occur in Annex I countries only, Annex I per decades; however, control of sulphur emissions could amplify
capita CO2 emissions would fall below non-Annex I per capi- possible climate change, and partial trade-offs are likely to per-
ta emissions during the 21st century in nearly all of the stabi- sist for environmental policies in the medium term.
lization scenarios, and before 2050 in two-thirds of the scenar-
ios. This suggests that the stabilization target and the baseline Policies governing agriculture and land use and energy systems
emission level are both important determinants of the timing need to be linked for climate change mitigation. Supply of bio-
when developing countries’ emissions might need to diverge mass energy as well as biological CO2 sequestration would
from their baseline. broaden the available options for carbon emission reductions,
although the post-SRES scenarios show that they cannot pro-
Climate policy would reduce per capita final energy consump- vide the bulk of the emission reductions required. That has to
tion in the economy-emphasized worlds (A1F1, A1B, and A2), come from other options.
but not in the environment-emphasized worlds (B1 and B2).
2.1 Introduction: Summary of the Second Assessment 2.2 Scenarios

Report and Progress since this Report
2.2.1 Introduction to Scenarios
Various options for mitigating climate change, which consti-
tute the basis of this Working Group III report, depend on soci- Climate change assessment addresses a highly complex set of
etal visions of the future. These visions largely define the deci- interactions between human and natural systems, a scientific
sion analytical frameworks used (see Chapter 10) and form the challenge that is compounded by the cumulative and long-term
basis for evaluating options. As this chapter will make clear, character of the phenomenon. While the world of many
existing visions of the future are very different in scope and decades from now is indeterminate, scenarios offer a structured
scale, in time horizons, in constituents and uncertainties, and means of organizing information and gleaning insight into the
cover different areas of human activities, natural conditions, possibilities. Scenarios can draw on both science and imagina-
etc. Whereas some authors explore the future by extrapolating tion to articulate a spectrum of plausible visions of the future
trends, others aim at a more desirable future state. and pathways of development. Some scenarios are assumed to
evolve gradually and continuously from current social, eco-
Many visions of the future can be modified into scenarios nomic, and environmental patterns and trends; others deviate
through the systematization of data and other available informa- in fundamental ways. A long view of a multiplicity of future
tion, using various modelling techniques, and thereby leading to possibilities is required to consider the ultimate risks of climate
quantitative interpretations of the future. The spectrum of sce- change, assess critical interactions with other aspects of human
narios can be as broad as that of visions, however, articulating a and environmental systems, and guide policy responses.
scenario can provide a more detailed picture of the framework
for decisions and the associated limitations for decision-making The term “scenarios” appears in two distinct streams of
processes and policy interventions in any particular area. inquiry, one based on qualitative narrative and the other on
mathematical models. Qualitative scenarios are primarily liter-
Climate change and its impacts have a long history in the exist- ary exercises, aimed at holistic and integrated sketches of
ing scenario literature, while mitigation scenarios that explore future visions and compelling accounts of a progression of
policy options to be implemented are of more recent origin. In events that might lead to those futures. Quantitative, formal
the Second Assessment Report (SAR) of the Intergovernmental models seek mathematical representation of key features of
Panel on Climate Change (IPCC), greenhouse gas (GHG) mit- human and/or environmental systems in order to represent the
igation scenarios were reviewed. Since that time, there has evolution of the system under alternative assumptions, such as
been considerable development of such scenarios, focussing on population, economic growth, technological change, and envi-
issues of the timing, location, and extent of responses required ronmental sensitivity. Qualitative scenarios have a greater
to stabilize atmospheric concentrations at various levels. These power to posit system shifts, to explore the implications of sur-
new mitigation scenarios are reviewed in this chapter. prise, and to include critical factors that defy quantification,
such as values, cultural shifts, and institutional features. On the
Another literature, consisting of more narrative-based scenar- other hand, qualitative scenarios may appear arbitrary, idiosyn-
ios of alternative global futures, is also reviewed in this chap- cratic, and weakly supported. Model-based scenarios are use-
ter. These more general scenarios provide a basis for contextu- ful for examining futures that result from variations of quanti-
alizing the more traditional emissions scenarios, and providing tative-driving variables, and they offer a systematic and replic-
a link to development, equity, and sustainability (DES). able basis for analysis.
In addition, in 1996, the IPCC commissioned a new report on A first wave of global assessments began in the 1970s.
emissions scenarios (the Special Report on Emissions Ambitious global modelling exercises aimed to forecast the
Scenarios, or SRES), in which new scenarios were developed behaviour over many decades of development, resource, and
(Nakicenovic et al., 2000). During 1999 and 2000 various environmental systems, and to assess resource constraints
modellers used these new reference scenarios as the basis of (Meadows et al., 1972; Mesarovic and Pestel, 1974). The Latin
new mitigation and stabilization analyses. This post-SRES American world model stressed social and political concerns,
work is also reviewed in this chapter. rather than physical limits, by positing a normative egalitarian
future to examine the actions required to achieve it (Herrera et
Section 2.2 provides a background of scenarios in general, and al., 1976). A second wave of integrated global scenario analy-
emission and mitigation scenarios in particular, and discusses ses responded to new concerns about sustainable development
the link between scenarios and DES. Section 2.3 reviews gen- and the future (WCED, 1987). Many of these were in the qual-
eral mitigation scenarios produced since the SAR. Section 2.4 itative tradition (Svedin and Aniansson, 1987; Toth et al.,
discusses global futures scenarios, which are narrative-based 1989; Milbrath, 1989; Burrows et al., 1991; Kaplan, 1994;
scenarios found in the general futures literature. Section 2.5 Gallopin et al., 1997; WBCSD, 1997; Bossel, 1998). In addi-
provides a review of the SRES and discusses post-SRES miti- tion, stimulated largely by the climate issue, there have been a
gation scenarios. Finally, Section 2.6 provides recommenda- number of new models that quantitatively link energy and
tions for future research. other human activities to atmospheric, oceanic, and terrestrial
systems (e.g., Rotmans and de Vries, 1997). Finally, scenario ties in long-range future assumptions make the assignation of a
studies have begun recently to synthesize the modelling and most-probable trajectory problematic.
qualitative approaches, in order to blend structured quantitative
analysis with textured and pluralistic scenario narratives In 1996, the IPCC initiated a process for establishing a new set
(Raskin et al., 1998; Nakicenovic et al., 2000). of reference emissions scenarios. The new scenarios are
described in the IPCC Special Report on Emissions Scenarios
IPCC GHG emission scenarios were prepared for the first (Nakicenovic et al., 2000). These are designed to be non-miti-
assessment report of 1990. These initial scenarios were updat- gation or reference scenarios, that is, scenarios in which addi-
ed and extended, and led to the publication in 1992 of alterna- tional policy initiatives aimed specifically at lowering GHG
tive emissions scenarios for the period 1990 through 2100 emissions are assumed to be absent.
(Leggett et al., 1992; Pepper et al., 1992). These so-called IS92
emission scenarios were used by the IPCC to assess changes in Owing to fundamental uncertainties, it is impossible to predict
atmospheric composition and climate over this time horizon. or forecast the long-range global future, even with the most
Analysts have used the IS92 scenarios, and particularly IS92a, sophisticated methods. Long-range indeterminism implies that
as the preferred reference scenarios for mitigation and stabi- probabilities cannot be rigorously assigned for either a given
lization studies. A subsequent IPCC evaluation of the IS92 sce- set of driving assumptions or the likelihood of structural shifts
narios (Alcamo et al., 1995) found that for the purposes of dri- in societies and natural systems. Consequently, instead of a sin-
ving atmospheric and climate models, the carbon dioxide gle “business as usual” scenario, multiple baseline scenarios
(CO2) emissions trajectories of the IS92 scenarios provided a are needed to scan a spectrum of plausible possibilities in order
reasonable reflection of variations found in the open literature. to guide the formulation of robust policies that are not geared
However, the review found that these scenarios should not be to an overly rigid sense of where the world is heading.
used for evaluating the consequences of interventions to reduce
GHG emissions since the scenarios have insufficient sectoral To account for the wide variety of possible futures and the large
and regional detail for careful analyses. This review also took uncertainties involved in such forward projections, the SRES
into account criticism by Parikh (1992) who suggested the team opted for a multiple baseline approach.2 It also decided to
need for a more coherent approach and scenarios that show fuse a qualitative, narrative approach with a more formal
improved equity between the developed and the developing approach with different models, to guarantee structural variance
countries. and methodological diversity in the scenarios. As such, the
SRES-scenarios combine elements from both the more story-like
The 1995 review also emphasized the need for analysts to con- scenarios discussed in Section 2.4 below, and the more model-
sider the full range of IS92 emissions scenarios, rather than a based scenarios discussed in Section 2.3. The relationship
single “business-as-usual” reference scenario. The uncertain- between these three kinds of scenarios is shown in Figure 2.1.
General Futures
Scenarios
(Section 2.4 )
Qualitative SRES & Post-
SRES Scenarios TARGETS: climate
(Section 2.5) scenarios for
each Utopia
narrative
na
scenarios
quantitative (storyline)
Polestar: quantitative
scenarios
descriptions
Beyond the Limits:

CO2 emission
Quantitative scenarios
General Mitigation
Scenarios EPA: rapid changing &
(Section 2.3) slow changing world
Climate General
Figure 2.1: Relationship among the three groups of literature reviewed in Chapter 2.
2.2.2 Mitigation and Stabilization Scenarios There are two common difficulties associated with the formu-
lation and quantification of mitigation scenarios. First, in cer-
Mitigation scenarios are usually defined as a description and a tain cases there is not a clear-cut distinction between interven-
quantified projection of how GHG emissions can be reduced tion and non-intervention scenarios, that is, scenarios with or
with respect to some baseline scenario. They contain new without explicit climate policy. This is discussed in detail in
emission profiles as well as costs associated with the emission Box 2.1. The second important problem regarding mitigation
reduction. Stabilization scenarios are mitigation scenarios that scenarios has to do with the difference between top-down and
aim at a pre-specified GHG reduction target. Usually the target bottom-up models. Whereas the latter focus on engineering
is the concentration of CO2 or the CO2-equivalent concentra- trends and technology costs, the former view resource devel-
tion of a “basket” of gases by 2100 or at some later date when opment from a macroeconomic price-mediated perspective.
atmospheric stabilization is actually reached. Although, as discussed in the SAR (IPCC, 1995), the differ-
Box 2.1. Differentiating Between Climate Policy and No-climate-policy Scenarios

Recent discussions among IPCC experts and reactions from reviewers of this report and the SRES report revealed the need to clarify
differences between various types of GHG emission scenarios, in particular, between climate policy scenarios (CP scenarios) and sce-
narios without climate policies (NCP scenarios) but with low emissions.
CP scenarios (also known as climate intervention or climate mitigation scenarios) are defined in this report as those that: (1) include
explicit policies and/or measures, the primary3 goal of which is to reduce GHG emissions (e.g., carbon tax) and/or (2) mention no cli-
mate policies and/or measures, but assume temporal changes in GHG emission sources or drivers required to achieve particular cli-
mate targets (e.g., GHG emission levels, GHG concentration levels, temperature increase or sea level rise limits).4
CP scenarios are often, but not always, constructed with reference to a corresponding reference or baseline scenario that is similar to
the CP scenario in every respect except the inclusion of climate mitigation measures and/or policies. In fact, climate policy analysis
often starts with the construction of such a reference scenario, to which is added climate policy to create the CP scenario.
Another type of CP scenario is not originally built around such “no-policy” baselines. Developers of such scenarios envision future
“worlds” that are internally consistent with desirable climate targets (e.g., a global temperature increase of no more than 1°C by 2100),
and then work “backwards” to develop feasible emission trajectories and emission driver combinations leading to these targets. Such
scenarios, also referred to as “safe landing” or “tolerable windows” scenarios, imply the necessary development and implementation
of climate policies, intended to achieve these targets in the most efficient way.
The general definition of CP scenarios provided here enables one to effectively discriminate between CP scenarios and other scenar-
ios with low emissions (e.g., IS92c, SRES-B1). Unlike the former, NCP scenarios have low emissions but do not assume any explicit
emission abatement measures or policies, nor are they designed specifically to achieve certain climate targets. NCP scenarios by them-
selves may explore a wide variety of alternative development paths, including “green” or “dematerialization” futures.
Confusion can arise when the inclusion of “non-climate-related” policies in a NCP scenario has the effect of significantly reducing
GHG emissions. For example, energy efficiency or land use policies that reduce GHG emissions may be adopted for reasons that are
not related to climate policies and may therefore be included in a NCP scenario. Such a NCP scenario may have GHG emissions that
are lower than some CP scenarios.
The root cause of this potential confusion is that, in practice, many policies can both reduce GHG emissions and achieve other goals.
Whether such policies are assumed to be adopted for climate or non-climate policy related reasons in any given scenario is determined
by the scenario developer based on the underlying scenario narrative. While this is a problem in terms of making a clear distinction
between CP and NCP scenarios, it is at the same time an opportunity. Because many decisions are not made for reasons of climate
change alone, measures implemented for reasons other than climate change can have a large impact on GHG emissions, opening up
many new possibilities for mitigation. Chapters 7, 8, and 9 discuss ancillary benefits of climate mitigation and the co-benefits of poli-
cies integrating climate mitigation objectives with other goals.
2 It is perhaps worth noting in this connection that, in a similar way, 3 Some climate polices have multiple benefits. For example, a partic-
the IPCC had originally recommended that climate and other modular policy designed to reduce methane leaks from natural gas systems
ellers use the full set of IS92 scenarios but, in practice, this advice has may also increase the operating company’s profitability and improve
not been followed by most researchers who have focussed primarily safety. However, if this policy was originally developed to reduce
on the “central” IS92 case, thereby potentially contributing to an emissions it should be classified as a climate policy, not as a policy to
unjustified sense of probability or accuracy. increase profitability or improve safety.
4Such targets may be reached without specific additional climate poli-

cies, e.g., by pursuing particular development pathways.
ences between these approaches are continiously narrowing as expressed in terms of equal per capita emissions allocations.
each incorporates elements of the other, there is still quite a dif- Alternative assumptions on burden sharing have important
ference in their formulation of emission reduction strategies. implications for equity, sustainable development, and the eco-
This suggests the importance of including multiple method- nomics of emissions abatement. However, it is noteworthy that
ological approaches in scenario analysis. this critical conditioning variable is usually not explicitly treat-
ed in mitigation scenarios in the literature (see section 2.3
below). Indeed, documentation of scenarios generally does not
2.2.3 Scenarios and “Development, Equity, and address the implications of the scenarios for equity and burden
Sustainability (DES)” sharing. In rare cases, mitigation scenarios have been devel-
oped which explicitly impose the simultaneous co-constraints
The climate issue is embedded in the larger question of how of climate and equity goals (e.g., Raskin et al., 1998).
combined social, economic, and environmental subsystems
interact and shape one another over many decades. There are In this and other ways scenario analysis could become an
multiple links. Economic development depends on mainte- important way of linking DES issues to climate policy consid-
nance of ecosystem resilience; poverty can be both a result and erations. However, as discussed in more detail in section 2.4,
a cause of environmental degradation; material-intensive many quantitative mitigation and stabilization scenarios have
lifestyles conflict with environmental and equity values; and not been designed with this purpose in mind. As a result, it is
extreme socio-economic inequality within societies and not always easy to draw out the DES implications of particular
between nations undermines the social cohesion required for stabilization and mitigation scenarios.
effective policy responses.
Although this chapter focuses on mitigation and stabilization
It is clear that climate policy, and the impacts of climate scenarios, it is important to note that DES issues are also
change, will have significant implications for sustainable implicit in the base case or reference scenarios that underlie
development at both the global and sub-global levels. In addi- mitigation and stabilization scenarios. Since the difference
tion, policy and behavioural responses to sustainable develop- between reference case scenarios and stabilization and mitiga-
ment issues may affect both our ability to develop and suc- tion scenarios is simply the addition of deliberate climate pol-
cessfully implement climate policies, and our ability to icy, it can be the case that the DES differences among different
respond effectively to climate change. In this way, climate pol- reference case scenarios are greater than between any one such
icy response will affect the ability of countries to achieve sus- scenario and its stabilization or mitigation version. This is of
tainable development goals, while the pursuit of those goals particular relevance in the discussion below in section 2.5.2 of
will in turn affect the opportunities for, and success of, climate scenarios based on the baselines produced in the IPCC’s SRES
policy responses. (Nakicenovic et al., 2000).
In this report and its Working Group II companion report, cli-

mate change impacts, mitigation, and adaptation strategies are 2.3 Greenhouse Gas Emissions: General Mitigation
discussed in the broader context of DES (see Munasinghe, Scenarios
1999).
This chapter reviews three scenario literatures, which span a
The issues raised by a consideration of DES are of particular range from more quantitative scenario analysis to analysis that
relevance to the scenarios discussed in this chapter. Because is based more on narrative descriptions (see Figure 2.1). At the
they are necessarily based upon assumptions about the socio- quantitative end of the spectrum are the “general mitigation
economic conditions that give rise to emissions profiles, miti- scenarios” reviewed in this section, which consist mainly of
gation and stabilization scenarios implicitly or explicitly con- quantitative descriptions of driving forces and emission pro-
tain information about DES. In principle, each stabilization or files.
mitigation scenario describes a particular future world, with
particular economic, social, and environmental characteristics.
Given the strong interactions between development, environ- 2.3.1 Overview of General Mitigation Scenarios
ment, and equity as aspects of a unified socio-ecological sys-
tem and the interplay between climate policies and DES poli- More than 500 emission scenarios have already been quanti-
cies, emissions scenarios are viewed in this report as an aspect fied, including non-mitigation (non-intervention) scenarios and
of broad sustainable development scenarios. mitigation (intervention) scenarios that assume policies to mit-
igate climate change. These scenarios have been published in
The allocation of emissions in a scenario is coupled closely to the literature or reported in conference proceedings, and many
an important policy question in climate negotiations: the fair of them were collected in the IPCC SRES database (Morita &
distribution of future emission rights among nations, or “bur- Lee, 1998a) and made available through the Internet (Morita &
den sharing”. For example, an egalitarian formulation of the Lee, 1998b). Using this database, a systematic review of non-
rights of developing countries to future “climate space” is often mitigation scenarios has already been reported in the SRES
(Nakicenovic et al., 2000). However, several mitigation and used as a benchmark for stabilization in the previous studies on
other scenarios were missing from this database and new emis- mitigation scenarios. This number may be related to the fre-
sion scenarios have been quantified since the SRES review. quent references made to it in political discussions. The adop-
Accordingly, the missing scenarios and new scenarios were tion by the European Union of a maximum increase in global
collected and the database revised for this new review of miti- average temperature of 2°C above pre-industrial levels is
gation scenarios (Rana and Morita, 2000). roughly equivalent to a stabilization level of 550ppmv CO2
equivalent or 450ppmv CO2. It does not imply an agreed-upon
The current database collection, covered in this report, contains desirability of stabilization at this level. In fact, environmental
the results of a total of 519 scenarios from 188 sources. These groups have argued for desirable levels well below 550ppmv,
scenarios were mainly produced after 1990. Two question- while other interest groups and some countries have questioned
naires were sent to representative modellers in the world, and the necessity and/or feasibility of achieving 550ppmv.
sets of scenarios from the International Energy Workshop Scenarios with levels of concentration stabilization other than
(IEW) and Energy Modelling Forum (EMF) comparison pro- 550ppmv are contained in IPCC (1990), Manne et al. (1995),
grammes were collected. The database is intended to include Alcamo and Kreileman (1996), Ha-Duong et al. (1997),
only scenarios that are based on quantitative models. Manne and Richels (1997), and Fujii and Yamaji (1998).
Therefore, it does not include scenarios produced using other
methods; for example, heuristic estimations such as Delphi. The emission stabilization scenarios account for 20 of the 126
mitigation scenarios. Most scenarios of this type are intended
Of the 519 scenarios, a total of 380 were global GHG emission to stabilize at 1990 emission levels in Annex I or the
scenarios, most of which were disaggregated into several Organization for Economic Co-operation and Development
regional emission profiles. Of these 380 global emission sce- (OECD) countries. Some scenarios have emissions stabilizing
narios, a total of 150 were mitigation (climate policy) scenar- at other levels, for example, the emissions stabilization sce-
ios. This review focuses on mitigation scenarios that cover nario of DICE (Nordhaus, 1994) aims at a level of 8GtC/yr of
global emissions and also have a time horizon encompassing CO2 and chlorinated fluorocarbons (CFCs) by 2100. Other sta-
the coming century. Of the 150 mitigation scenarios, a total of bilization scenarios, namely the “Safe Emissions Corridor” or
126 long-term scenarios that cover the next 50 to 100 years “Tolerable Windows” (WBGU, 1995; Alcamo and Kreileman,
were selected for this review. 24 scenarios were excluded on 1996; Matsuoka et al., 1996) and “Climate Stabilization”
the basis of their short time coverage. (Nordhaus, 1994) scenarios, determine the upper limit of emis-
sions based on a constraint of some natural threshold, such as
Table 2.1 presents an outline of several representative scenar- global mean temperature increase rate. Only a few studies are
ios in this review; these scenarios exemplify the modelling lit- based on such scenarios.
erature. Columns 1 and 2 of the table show the main identifiers
of the scenarios, namely, the model name and source and the Other scenarios based on DICE (Nordhaus, 1994), MERGE
policy scenario name, as given by the modellers. The third and (Manne and Richels, 1997) and MARIA (Mori and Takahashi,
fourth columns show the policy scenario type and specific sce- 1998) determine the level of emission reduction based on net
nario assumptions. The remaining columns contain additional benefit maximization, which is estimated as the benefit pro-
important features of the policy scenarios, including reduction duced by climatic policy minus the policy implementation
time-paths and burden sharing, GHGs analyzed, policy options cost. In addition to the above, the low CO2-emitting energy
and approaches, and feedback. Only five studies among the supply system (LESS) constructions should be noted. These
selected sources of Table 2.1 have detailed policies. Most of scenarios were developed on the basis of detailed assessments
the other scenarios assume very simple policy options such as of technological potentials, and can therefore be distinguished
carbon taxes and simple constraints. from many other mitigation scenarios (see Box 2.2).
Based on the type of mitigation, the scenarios can be classified Of the remaining mitigation scenarios, a total of 50 adopt other
into four categories: concentration stabilization scenarios, criteria to reduce GHGs. Some of these scenarios assume the
emission stabilization scenarios, safe emission corridor (toler- introduction of specific policies such as a constant carbon tax,
able windows/safe landing) scenarios, and other mitigation while others assume the Kyoto Protocol targets for Annex I
scenarios. countries up to 2010 and a stabilization of their emissions
thereafter at 2010 levels.
Scenarios for concentration stabilization account for a large
proportion of the mitigation scenarios, with 47 of the 126 mit- While all the scenarios deal necessarily with energy-related
igation scenarios being classified into this type. Many scenar- CO2 emissions that have the most significant influence on cli-
ios of this type were quantified in the process of the EMF com- mate change, several models include CO2 emissions from land
parison (Weyant and Hill, 1999) where a systematic guideline use changes and industrial processes (e.g., IPCC, 1992;
was prepared for stabilization quantification. Of the 47 scenar- Nakicenovic et al., 1993; Matsuoka et al., 1995; Alcamo and
ios, two-thirds are intended to stabilize atmospheric concentra- Kreileman, 1996). Some of them include other important
tions of CO2 at 550ppmv. The concentration of 550ppmv was GHGs in their calculations, such as methane (CH4) and nitrous
Table 2.1: Overview of mitigation scenarios: the main futures of representive scenarios from 26 sources
Model name Policy scenario Policy scenario Specific Reduction time GHGs analyzed Sectors in which Feedbacks3
and source name type scenario paths and policies are
assumptions2 burden sharing introduced
1 ASF RCWP Emission stab. 475ppm Based on policy CO2, CO, CH4, N2O Detailed policy scenario EP to M
scenario
EPA (1990) RCWR Emission stab. 350ppm NOx, CFCs Energy supply; Land use; EP to M
End use
2 ASF/ IMAGE Control policy Conc. stab. 540ppm Based on policy CO2, CO, CH4, N2O Detailed policy scenario EP to M
(2x CO2 by 2090) scenario
IPCC (1990) Accelerated control Conc. stab. 465ppm NOx, CFCs Energy supply; Land use;
( < 2x CO2) End use
3 ASF IS92b Other mitigation1 18.6BtC CO2, CO, CH4, N2O, Energy supply; Industrial EP to M
processes
IPCC (1992) (CO2 emissions) VOC. SOx, CFCs, NOx
4 MESSAGE ECS’92 + Other mitigation1 CO2 Energy supply; Industrial

processes;
Greenhouse Gas Emission Mitigation Scenarios and Implications
Nakicenovic End use

et al. (1993)
5 DICE Optimal policy; Other mitigation1 Utility maximization CO2, CFCs Energy C to M
Nordhaus (1994) 10-yr delay of Other mitigation1 Utility maximization Other GHGs are
optimal policy
emission stabilization Emission stab. 8BtC/yr Based on policy Exogenous I to M
(CO2+CFCs) scenario
20% emission cut Other mitigation1 6BtC/yr Based on policy C to M
(CO2+CFCs) scenario
Geoengineering Other mitigation Based on policy I to M
scenario
Climate stabilization Slow global temp. 0.2°C/decade Based on policy
increase scenario
6 CETA “Selfish” case Emissions cont. Cost minimization CO2, CO, CH4, N2O, Energy C to M
by OECD (regional)
Peck and Tiesberg “Altruistic” case Emissions cont. Cost minimization CFCs
(1995) by OECD (global)
“Optimal” case Emissions cont. Cost minimization
by both (global)
(continued)
125
Table 2.1: continued
126
7 LESS LESS Constructions Other mitigation1 CO2 Energy supply

(IPCC, 1996)
8 Manne et al. Delayed tax; Other mitigation1 750 ppm; 540 ppm Utility maximization CO2, CH4, N2O Energy C to M
(1995) Early tax
MERGE Emission stab. Emission stab. 540 ppm Utility maximization
Conc. stab. Conc. stab. 415 ppm Utility maximization
9 MESSAGE Case C Other mitigation1 430 ppm Based on policy CO2, CO, CH4, N2O, Energy supply
scenario
WEC (1995) Ecologically driven SOx, CFCs NOx, VOC. End use
10 WBGU (1995) Tolerable temp. Safe corridor deltaT = 1°C Temp. rise constraint CO2
(German Adv. window temp. rise (upper limit)
Council) constraint
11 AIM/Top-down Negotiable safe Safe corridor deltaT = 1-2°C Temp. rise constraint CO2 Energy EP to M
emiss. corridor
Matsuoka Temperature rise
et al. (1996) const.
12 DICE/RICE Cooperative RICE Other mitigation1 Global welfare CO2 Energy; Land use C to M
optimization
Nordhaus and Non-cooperative RICE Other mitigation1 Regional welf. I to M
Yang (1996) optimization
13 IMAGE 2 Stab 350–650 ppm Conc. stab. 367–564 ppm CO2, CH4, N2O Energy supply;
Industrial processes;
Alcamo and Stab yr 1990 Conc. stab. 354 ppm Land use
Kreileman (1996)
St2000-a - St2000-e Other mitigation1 633–433 ppm
Safe emissions corridor Safe corridor deltaT = 1–2°C Temp. rise constraint
deg
14 MiniCAM Adv. tech Other mitigation1 Based on policy CO2, CH4, N2O, Energy supply EP to M
scenario SOx, aerosols,
Edmonds et al. (5 Cases using Halocarbons
(coninud)
15 YOHE Stabilization Conc. stab. Based on policy CO2 Energy C to M

scenarios
Yohe and
Wallace (1996)
16 DIAM 450A-D; 550A-D; Conc. stab. Cost minimization CO2 Energy

650A
Ha-Duong, et al.
(1997)
17 FUND 1.6 Non-cooperative Other mitigation1 Regional welf. CO2, CH4, N2O
optimum optimization
Tol (1997) Cooperative optimum Other mitigation1 Generational
welf. optim.
18 MERGE 3.0 Range of scenarios Conc. stab. 350 to 750ppm Utility maximization CO2 Energy C to M
Manne and 350 to 750 ppm depending on (non-Annex I begin
Richels (1997) scenario limit in 2030)
19 SGM M1990 ; M1990+10%; Other mitigation1 CO2, CO, CH2, N2O, Energy EP to M
M1990–10%;
Edmonds et al. M1995 NOx, VOC, SOx.
(1997)
20 ABARE/GTEM Independent abatement; Other mitigation1 Kyoto targets CO2 Energy C to M

Tulpule et al. Annex B trading;
(1998) Double bubble
21 AIM/Top-down No trading; Annex I Other mitigation1 Kyoto targets Based on policy C to M

Trading; scenario
Kainuma et al. Global trading;
(1998) Double bubble;
Annex I + Chn&Ind;
No trading 5% offset
(coninud)
127
128
22 G-CUBED Annex I trading; Other mitigation1 CO2 Energy C to M

Double bubble
McKibbin Global permit
(1998) trade
23 MARIA Case B Emission stab. 1990 level Energy supply; End use; C to M
Land use
Mori and
Takahashi (1998)
24 NE21 Conc. regulation Conc. stab. Below 550ppm Cost minimization CO2 Energy C to M
Fujii and Yamaji
(1998)
25 WorldScan No Trade; Full trade; Other mitigation1 Kyoto targets CO2 EP to M

Clubs
Bollen et al. Restricted trade;
(1996) CDM
26 FUND 1.6 EMF-14 scenarios Conc. stab. Various Various

Tol (1999) (WRE/WGI+
450/550/650+ NC/C)
Notes:
1 Other mitigation means emission reduction not necessarily leading to stabilization.
2 Specific scenario assumption indicates year 2100 level of emissions/conc. unless specified otherwise.
3 EP: Energy price; M: Macro economy; C: Cost; I: Impact.
Box 2.2. Review of Low Carbon Dioxide Emitting Energy Supply System (LESS) Constructions from the Second Assessment
Report
The LESS constructions described in the IPCC’s SAR, Working Group II (IPCC, 1996, Ch19), were probably the only constructions
akin to mitigation “scenarios” taken up in SAR. They are similar to the mitigation scenarios reviewed in this chapter in that they also
explore alternative paths to energy futures in order to achieve mitigation of carbon dioxide.
A number of technologies with potential for reducing CO2 emissions exist or are in a state of possible commercialization. The LESS
constructions illustrate the potential for reducing emissions by using energy more efficiently and by using various combinations of
low CO2-emitting energy supply technologies, including shifts to low-carbon fossil fuels, shifts to renewable and nuclear energy
sources, and decarbonization of fuels. The assumed technological feasibility and costs of each of the technologies included in these
variants is based on an extensive literature review.
Both bottom-up and top-down approaches were used in the LESS constructions. For the reference cases in the bottom-up analyses,
the energy demand projections for the high economic growth variant of the “Accelerated Policies” scenarios developed by the
Response Strategies Working Group (RSWG, 1990) were adopted.
The five variants constructed in the bottom-up analyses were (1) BI: biomass intensive, (2) NI: nuclear intensive, (3) NGI: natural gas
intensive, (4) CI: coal intensive, and (5) HD: high demand. The BI variant explores the potential for using renewable electricity
sources in power generation. Both intermittent renewables (wind, photovoltaics, and solar thermal-electricity technologies) and
advanced biomass electricity-generating technologies (biomass-integrated gasifier and/or gas turbine technologies through 2025 and
biomass-integrated gasifier and/or fuel-cell technologies through 2050 and beyond) were applied. The NI variant involves a revital-
ization of the nuclear energy option and deployment of nuclear electric power technology worldwide. In the NGI variant, the empha-
sis is on natural gas. Any natural gas in excess of that for the reference cases is used to make methanol (CH4O) and hydrogen (H2).
These displace CH4O and H2 produced from plantation biomass. In the CI variant, the strategy for achieving deep reductions involves
using coal and biomass for CH4O and H2 production, along with sequestration of the CO2 separated out at synthetic fuel production
facilities. Finally, in the HD variant the excess demand is met by providing an extra supply of fuels with low emissions. To illustrate
the possibilities, the HD variant is constructed with all of the incremental electricity provided by intermittent renewables.
A top-down exercise was carried out to test the robustness of the bottom-up energy supply analyses by incorporating performance and
cost parameters for some of the key technologies in the BI variant. Six technology cases were modelled using the Edmonds–Reilly–Barns
(ERB) model. The results for CO2 emissions in two cases (cases 5 and 6) were comparable to the bottom-up LESS variants, but the ener-
gy end-uses were different owing to different assumptions.
The central finding of the LESS construction exercise is that deep reductions of CO2 emissions from the energy sector are technical-
ly possible within 50 to 100 years, using alternative strategies. Global CO2 emissions could be reduced from about 6GtC in 1990 to
about 2GtC in 2100, in many combinations of the options analyzed. Cumulative CO2 emissions, from 1990 to 2100, would range from
about 450 to about 470GtC in the alternative LESS constructions. Higher energy efficiency is underscored in order to achieve deep
reductions in CO2 emissions, increase the flexibility of supply-side combinations, and reduce overall energy system costs.
oxide (N2O) (e.g., EPA, 1990; IPCC, 1990; Manne et al., chiefly pertain to increased energy efficiency in industry, trans-
1995; Tol, 1997), and a few go even further to include sul- port, and residential and/or commercial applications.
phates, volatile organic compounds (VOCs), and halocarbons
(e.g. IPCC, 1992; WEC, 1995; Edmonds et al., 1996, 1997). The policy instruments analyzed depend on the underlying
With respect to the policy options used in the scenario quan- model structure. Most of the scenarios introduce policies such
tifications, three fields are taken into account in the reviewed as simple carbon taxes or a constraint on emissions or concen-
studies: energy systems (including both supply and demand), tration levels for achieving the desired reduction or stabiliza-
industrial processes (including cement and metal production), tion. How the constraint is imposed varies from scenario to
and land use (including agriculture and forest management). scenario. Among the models with regional disaggregation, a
few regional targets have been introduced (e.g., Nordhaus,
Since most of the modelling exercises have been carried out to 1994; Tol, 1999). Regional disaggregation also allows mod-
study the CO2 emissions from human activities linked to the ellers to let the regions trade in emission permits. Permit trad-
use of energy, energy supply and end-use are naturally the ing is introduced in more recent work, especially just before
areas where policy is applied. Energy supply options include and after the Third Conference of the Parties to the United
natural gas, renewable energy, and commercial biomass; intro- Nations Framework Convention on Climate Change in Kyoto
duction of new technologies; and so on. End-use options (December 1997). Some studies offer permit trading as a
AIM (1)
AIM96 (2)
70
CETA (3)
CETA (4)
CRPS (5)
60 DICE (6)
DNE21/98 (7)
HCRA (9)
50 ICAM2 (10)
ICAM2 (11)
IIASA (12)
IIASA (13)
40
IMAGE (16)
MARIA (17)
MERGE (19)
GtC/yr
30 MINICAM (20)
MIT (21)
MIT (22)
PAGE (24)
20
PEF (25)
PEF (26)
RICE (27)
10 SGM97 (28)
SGM97 (28)
Yohe (30)
FUND (33)
0
G-CUBED (34)
1980 2000 2020 2040 2060 2080 2100
RICE (40)
IS92a
-10 Database Max
Year Database Min
Figure 2.2: Global CO2 emissions from baseline scenarios used for 550ppmv stabilization quantification (fossil fuel CO2 emissions
over the period 1990 to 2100 with the maximum and minimum numbers of the database of scenarios). This figure excludes the SRES
scenarios (for legend details see Appendix 2.1).
15 AIM (1)
AIM96 (2)
CETA (3)
CETA (4)
CRPS (5)
DICE (6)
12 DNE21/98 (7)
HCRA (9)
ICAM2 (10)
ICAM2 (11)
IIASA (12)
IIASA (13)
IMAGE2.1 (16)
9 MARIA (17)
MERGE (19)
GtC/yr
MINICAM (20)
MIT (21)
MIT (22)
NWEAR21 (23)
PAGE (24)
6
PEF (25)
PEF (26)
RICE (27)
SGM97 (28)
SGM97 (28a)
SGM97 (28b)
3 SGM97 (28c)
YOHE (30)
FUND (33)
FUND (33a)
RICE (40)
WRE550
WGI550
0
Database Max
1980 2000 2020 2040 2060 2080 2100 Database Min
Year
Figure 2.3: Global CO2 emissions from mitigation scenarios for 550ppmv stabilization (fossil fuel CO2 emissions over the period
1990 to 2100 with the maximum and minimum numbers of the database of scenarios). This figure excludes the post-SRES scenarios
(for legend details see Appendix 2.1).
mechanism to reduce the overall costs of abatement. Much of earlier modelling studies such as EPA (1990), IPCC (1990), and
the work done in the early 1990s led to the development of IPCC (1992).
detailed scenarios for introducing such policies (EPA, 1990;
IPCC, 1990, 1992). Some models employ policies of supply-
side technology introduction (Nakicenovic et al., 1993; 2.3.2 Quantitative Characteristics of Mitigation Scenarios
Edmonds et al., 1996; Fujii and Yamaji, 1998), while other
models emphasize the introduction of efficient demand-side From the large number of mitigation scenarios, a selection must
technology (EPA, 1990; Kainuma et al., 1999a). be made in order to clarify in a manageable way the quantitative
characteristics of mitigation scenarios. One of the efficient ways
The issue of burden sharing among regions is a contentious one to analyze them is to focus on a typical mitigation target. As the
and it was sparsely treated in the first half of the 1990s. Most most frequently studied mitigation target is the 550ppmv stabi-
discussions about burden sharing are of a qualitative and par- lization scenario, a total of 31 stabilization scenarios adopting
tial nature and are not related to model-based mitigation sce- that target were selected along with their baseline (reference or
narios. A few studies (most notably Rose and Stevens, 1993; non-intervention) scenarios in order to analyze the characteris-
Enquete Commission, 1995; and Manne and Richels, 1997) tics of the stabilization scenarios as well as their baselines5.
present a set of burden-sharing rules in their scenarios. Of late, Figure 2.2 shows these baseline scenarios, and Figure 2.3 shows
the EMF exercises looking at the Kyoto scenarios have treated the mitigation scenarios for 550ppmv stabilization. (The sources
this issue better than in the past (Weyant, 1999). and scenario names are noted in Appendix 2.1).
The time-paths of emission reduction are determined in three 2.3.2.1 Characteristics of Baseline Scenarios
ways in the reviewed studies. First, the emission trajectories
are determined by policy scenarios that have been designed in In order to analyze the characteristics of stabilization scenarios,
detail for regions over the time frame (EPA, 1990; IPCC, 1990; it is very important to identify the features of the baseline sce-
WEC, 1995; Edmonds et al., 1996; Yohe and Wallace, 1996; narios that have been used for mitigation quantification.
Kainuma et al., 1998). Second, dynamic optimization models Although the general characteristics of non-intervention scenar-
automatically determine these reduction time-paths by global ios have already been analyzed in the SRES (Nakicenovic et al.,
cost minimization over time (e.g., Peck and Tiesberg, 1995; 2000), more specific analyses are conducted here, focusing on
Fujii and Yamaji, 1998) or economic welfare maximization the baseline scenarios that have been used for 550ppmv stabi-
(Nordhaus, 1994; Manne et al., 1995). Third, mitigation sce- lization quantification.
narios of tolerable windows/safe landing, or safe emission cor-
ridors, can fix the time series of emission reduction by intro- First, it is clear that the range of CO2 emissions in baseline sce-
ducing a specific constraint of the rate of change in natural sys- narios used for 550ppmv stabilization quantification is very wide
tems including the global temperature change rate (e.g., at the global level, as shown in Figure 2.2. The maximum levels
Alcamo and Kreileman, 1996). of CO2 emissions represent more than ten times the current lev-
els, while the minimum level represents four times current levels.
Finally, there are differences in the treatment of feedback to the The range of baseline scenarios covers the upper half of the total
macro-economy in the models. While most bottom-up models range of the database, and most of them were estimated to be
have no feedback from cost to the macro-economy, top-down larger than IS92a (IPCC 1992 scenario “a”). This means that the
models allow for the feedback of energy prices to the macro- baseline scenarios used for the 550ppmv stabilization analyses
economy. The MERGE (Manne et al., 1995) and CETA (Peck have a very wide range and are high relative to other studies.
and Tiesberg, 1995) models also have feedback from impacts
to the macro-economy. This divergence can be explained by the Kaya identity (Kaya,
1990), which separates CO2 emissions into three factors: gross
Technological improvement is a critical element in all the gen- domestic product (GDP), energy intensity, and carbon intensity6:
eral mitigation scenarios. This is apparent when the detailed pol-
icy options are studied, where such literature is available. For
5 This closer look at 550ppmv CO2 stabilization scenarios is solely
instance, Nakicenovic et al. (1993) (using MESSAGE) incorpo-
rated policies of dematerialization and recycling, efficiency based on the frequency of their occurrence in the literature, which in
improvements and industrial process changes, and fuel-mix turn has been influenced by frequent reference to this level in the pol-
changes in the industrial sector; fuel efficiency improvements, icy area (e.g., it has been selected as a long-term target by the
European Union). The discussion in this chapter does not imply any
modal split changes, behavioural change, and technological
endorsement of this particular level as a policy target. There is a need
change in the transport sector; and efficiency improvements of for analysis of the feasibility and implications of stabilization levels
end-use conversion technologies, fuel-mix changes, and other than 550 ppmv.
demand-side measures in the household and services sector. It
should be noted that efficiency improvement through techno- 6The usual form of the Kaya identity separates the GDP term into pop-
logical advancement is emphasized in all sectors. Similar poli- ulation × GDP/capita. However, population assumptions were not pro-
cies leading to efficiency improvement were also underlined in vided for most scenarios and thus the GDP term was not disaggregated.
World GDP Energy intensity Carbon intensity

16 1.4 1.6
14 1.4
1.2
12 1.2
1
Index 1990 = 1
10 1
0.8
8 0.8
0.6
6 0.6
0.4
4 0.4
2 0.2 0.2
0 0 0
1950 1970 1990 2010 2030 2050 2070 2090 1950 1970 1990 2010 2030 2050 2070 2090 1950 1970 1990 2010 2030 2050 2070 2090
Year Year Year
AIM (1) AIM96 (2) CETA (3) CETA (4) CRPS (5) DICE (6) DNE21/98 (7)
HCRA (9) ICAM2 (10) ICAM2 (11) IIASA (12) IIASA (13) IIASA/WEC98 (14) IIASAWEC (15)
IMAGE2.1 (16) MARIA (17) MARIA95 (18) MERGE (19) MINICAM (20) MIT (21) MIT (22)
NWEAR21 (23) PEF (25) PEF (26) RICE (27) SGM97 (28) WEC (29) YOHE (30)
AIM97 (31) CETA (32) FUND (33) G-CUBED (34) GRAPE (35) RICE (40) SGM (41)
Figure 2.4: Range of baseline assumptions in GDP, energy intensity, and carbon intensity over the period 1990 to 2100 used for 550
ppmv stabilization analyses (indexed to 1990 levels), with historical trend data for comparison (for legend details see Appendix 2.1).
CO2 emissions = GDP * Energy intensity * Carbon intensity countries, GDP growth is the most significant factor, resulting
= GDP * (energy/GDP) * (emissions/energy) in high levels of energy use and CO2 emissions; energy effi-
ciency improvements are the most significant factor in the sce-
Figure 2.4 shows these factors. For comparability of the factors, narios for China; and carbon intensity reductions are very high
which were not harmonized to be the same number among mod- in Africa, Latin America, and Southeast Asia, because of dras-
els in the base year of 1990, all the values are indexed to 1990 tic energy mix changes.
levels. CO2 emissions are mostly determined by energy con-
sumption. This, in turn, is determined by the levels of GDP, Other interesting characteristics at the global level can be iden-
energy intensity, and carbon intensity. However, the ranges of tified in the relationships among GDP, energy intensity, and
GDP and of carbon intensities in the scenarios are larger than the carbon intensity. Figure 2.5 shows a scatter plot of GDP
range of energy intensities. This suggests that the large range of growth rate versus energy intensity reduction from the baseline
CO2 emissions in the scenarios is primarily a reflection of the scenarios. As might be expected, the energy intensity reduction
large ranges of GDP and carbon intensity in the scenarios. Thus, is higher with a higher GDP growth rate, while a lower energy
the assumptions made about economic growth and energy sup- intensity reduction is associated with a lower GDP growth rate.
ply result in huge variations in CO2 emission projections. This relationship suggests that high economic growth scenar-
ios assume high levels of progress in end-use technologies.
These characteristics are also observed in regional scenarios.
For example, in both the OECD and non-OECD scenarios, Unlike energy intensity reductions, carbon intensity reductions
CO2, GDP, energy intensity, and carbon intensity have wide in the models are apparently seen as largely independent of
ranges, and in particular, the range among scenarios for the economic growth and consequently are a function of societal
non-OECD nations is wider than the range among scenarios for choices, including energy and environmental policies. The sce-
OECD nations. In addition, the growth of CO2 emissions in narios do not show any clear relationship between energy
non-OECD nations is generally larger than the growth of emis- intensity reduction and carbon intensity reduction. The values
sions in OECD nations. This is mainly caused by higher GDP depend on regional characteristics in energy systems and tech-
growth in the non-OECD countries. nology combinations. Energy intensity reduction can include
many measures other than fuel shifting. Most of the efficiency
With regard to regional comparisons, it is very difficult to measures will result in lower carbon emissions, and fuel shifts
come to any general conclusions, as the ranges involved in the from high-carbon to low- or non-carbon fuels can increase the
regional scenarios are extraordinarily large. Moreover, with the efficiency of energy systems in many cases. However, carbon
exception of the USA, Europe, the Former Soviet Union (FSU) intensity reductions can also lead to reduced efficiency in ener-
and China, the number of available scenarios is limited. gy systems, as in the case of shifts to biomass gasification or
However, some general trends can be identified that are asso- liquefaction, or result in increased energy consumption, as in
ciated with the medium ranges of the scenarios: for Asian the case of industrial carbon sequestration.
2.5 tories, since behind them lies a distribution between countries

World and the political, technical, economic, and social acceptability
Developing Regions of this distribution would depend on how the equity concerns
2
Developed Regions
EI improvement (%/yr)
are sorted out.
1.5 Figures 2.6 and 2.7 show energy-related CO2 reduction at the
global and the non-OECD levels, respectively, which were
1 estimated for each scenario source by subtracting stabilization
scenario emissions (Figure 2.3) from baseline scenario emis-
sions (Figure 2.2). These figures show that the range of
0.5 reduced CO2 emissions for 550ppmv stabilization is also very
wide both at the global and the non-OECD levels. This wide
0 range is apparently caused by the divergent baseline scenarios
0 1 2 3 4 5 shown in Figure 2.2, while other factors such as differences in
GDP growth (%/yr) emission time-path, in timing of stabilization and in the carbon
cycle model used also tend to increase the range.
Figure 2.5: Scatter plot of GDP growth versus energy intensi-
ty reduction in baseline scenarios (including world and region- Figures 2.6 and 2.7 show the simulation results of models,
al data). assuming that non-OECD countries would participate in miti-
gation. The distribution of mitigation among the countries is
based on different approaches, such as the introduction of emis-
2.3.2.2 Characteristics of Stabilization Scenarios sion caps, or the assumption of the same rate of emission reduc-
tion for all countries, or global emission trading. The results
The stabilization scenarios that were estimated based on the show that emission trading may lower the mitigation cost, and
above baselines also have a very wide range, as shown in could lead to more mitigation in the non-OECD countries.
Figure 2.3. This wide range is caused by several factors,
including differences in emission time-paths for the stabiliza- The regional allocation of reductions is a controversial and
tion, differences in timing of the stabilization at 550 ppmv, and highly political issue from the equity viewpoint. Mostly, mod-
different carbon cycle models used to assess the stabilization. ellers do not explicitly state the burden-sharing rule.
Nevertheless, the emission reduction from baseline by the non-
The divergence in reduction time-path has been discussed Annex I countries is a good indicator of when it is assumed that
based on two sets of popular scenarios. One is a set of IPCC these countries start sharing the reductions. The data set used
Working Group (WG) I scenarios (Houghton et al., 1996) in this analysis is limited in the sense that models have differ-
which is sometimes referred to as “early action scenarios” and ent regional specifications; it was therefore difficult to obtain a
denoted as “WGI”; the other is a set of scenarios published by large number of data points to analyze non-Annex I emissions.
Wigley et al. (1996), sometimes referred to as “delayed action As a proxy, emission reduction from the baseline by the non-
scenarios” and denoted “WRE”. Chapter 8 explains that these OECD region is used, which includes Russia and Eastern
terms are misleading, since WRE scenarios may not assume Europe. This is shown in Figure 2.7. In part of the AIM,
early emissions reductions, but do assume early actions to MiniCAM, FUND, and PEF scenarios, introduction of climate
facilitate such reductions later. Figure 2.3 compares the 550 policy in the non-OECD region is assumed not to begin by
ppmv stabilization scenarios of these two scenario sets with the 2010. Although Russia and Eastern European countries are
reviewed scenarios, and it shows that scenarios reviewed here included in the Kyoto Protocol, the models do assume that
cover a wider range than that of the WGI and WRE scenarios. because of the decreased emissions in these countries since
While the RICE and MERGE scenarios show late reduction 1990, actual climate policies would not be needed until 2010.
(WRE type) trajectories, the CETA, MARIA and MIT scenar- Some scenarios show that non-OECD regions may not have to
ios show more severe reduction (WGI type) trajectories.7 A significantly reduce emissions before 2030. However, there are
few scenarios, for example ICAM2, show no drastic reduction still other scenarios that show an opposite picture. The RICE,
even in the latter half of the 21st century. Most of the scenar- MERGE, MIT, and MARIA scenarios show a very steep
ios have emissions trajectories that lie in between. increase in emission reduction from baseline levels in the non-
OECD region starting very early in the 21st century.
The reduction time-path of emissions is a controversial point,
which is closely related to the intergenerational equity issue. One of the ways to explain this divergence in reduction time
However, no conclusion can be drawn from such global trajec- series is to differentiate the assumptions about trade in these
scenarios. Some scenarios assume trade in emission credits,
which are allotted initially to each country or region. This
7 For a more detailed discussion of the WRE and WGI trajectories, see allows some countries to purchase emission rights from other
Chapters 8 and 10 of this report. countries to minimize the cost of meeting their emission tar-
Year
CETA (3)
1980 2000 2020 2040 2060 2080 2100 CETA (4)
0 CRPS (5)
DICE (6)
DNE21/98 (7)
-10 HCRA (9)
ICAM2 (10)
ICAM2 (11)
IIASA (12)
-20
IIASA (13)
Global CO2 emission changes from baseline (%)
IMAGE2.1 (16)
MARIA (17)
-30
MERGE (19)
MINICAM (20)
MIT (21)
-40
MIT (22)
NWEAR21 (23)
PAGE (24)
-50 PEF (25)
PEF (26)
RICE (27)
-60 SGM97 (28)
SGM97 (28A)
SGM97 (28B)
-70 SGM97 (28C)
YOHE (30)
AIM97 (31)
-80 AIM97 (31a)
AIM97 (31b)
AIM97 (31c)
-90 AIM97 (31d)
AIM97 (31e)
FUND (33)
-100 FUND (33A)
RICE (40)
Figure 2.6: Global CO2 emission reduction from baseline for 550ppmv stabilization scenarios, estimated for each scenario
source as baseline emissions minus emissions in the 550ppmv stabilization scenario (for legend details see Appendix 2.1).
Year
1980 2000 2020 2040 2060 2080 2100
0
DNE21/98 (7) trade
ICAM2 (10) trade
-10
ICAM2 (11) trade
IIASA (12)
Global CO2 emission changes from baseline (%)
-20 IIASA (12) trade

MARIA (17) trade
MERGE (19)
-30
MINICAM (20)
MINICAM (20) trade
-40 PEF (25)
RICE (27) trade
SGM97 (28) trade
-50
SGM97 (28a)
SGM97 (28b) trade
-60 SGM97 (28c)
AIM97 (31)
AIM97 (31a) trade
-70 AIM97 (31b)
AIM97 (31c) trade
AIM97 (31d)
-80
AIM97 (31e)
FUND (33)
-90 FUND (33) trade
RICE (40) trade
-100
Figure 2.7: Non-OECD CO2 emission reduction for 550ppmv stabilization, estimated for each scenario source as baseline emis-
sions minus emissions in the 550ppmv stabilization scenario divided by baseline emissions. Dotted lines show the scenarios which
assume carbon credit trading between the OECD and developing regions (for legend details see Appendix 2.1).
(a) (b) (c) 0 2 4 6 8 10

1.8 2.5 0
Additional EI improvement rate in
GDP Change in S550 (% of Baseline)

1.6 a b c
2 -2
1.4
Additional CI reduction in
S550 (%/year)
1.2
1.5 -4
S550 (%/year)
1
0.8 1 -6
0.6
-8
0.4
0.2 -10
0
0
-0.5 0 0.5 1 1.5
-0.2 -12
0 0.5 1 1.5 2 2.5
EI improvement rate in Baseline (%/year) CI reduction in Baseline (%/year) GDP Growth in Baseline
World Developing Regions Developed Regions
Figure 2.8: Scatter plots to analyze the relationships between baseline scenario assumptions and mitigation scenario outputs in
Energy Intensity (a), Carbon Intensity (b), and GDP growth (c).
gets. The dotted lines in Figure 2.7 show the scenarios that intensity in mitigation scenarios over the base cases would be
assume trade in emission credits between the Annex I and non- lower when the assumed energy intensity reduction is high in
Annex I countries. The scenarios that show an early reduction the base case, and vice versa. In the case of unanticipated tech-
of emissions in the non-OECD region are included in the trade nological breakthroughs, of course, this relationship may not
scenarios, and they assume the OECD region would transfer hold and one could expect further energy efficiency improve-
funds to the non-OECD region via emission credit trading. ments, even when the baseline has a fair amount of energy effi-
Most of the other scenarios assume that the non-OECD region ciency built into it.
would start to introduce reduction policies after 2010.
Figure 2.8 (b) shows the relationship between the effects of
With regard to overall mitigation, the range of assumed poli- decarbonization policies and the carbon intensity reductions
cies is very wide, resulting in a wide range of emission reduc- assumed in the baseline scenarios. This figure suggests that
tions. The additional increase in energy efficiency improve- baseline scenarios with high carbon intensity reductions show
ment from the baseline ranges between minus 0.04 and 1.56% larger carbon intensity reductions in their mitigation scenarios,
per year within the sampled data, while the additional reduc- while those with low carbon intensity reductions in the base
tion in carbon intensity from the baseline is between zero and case show smaller reductions in carbon intensity in their corre-
3.76% per year. Although it is difficult to identify detailed pol- sponding stabilization cases. This is somewhat counterintuitive
icy assumptions from the database, the range of these factors and difficult to explain simply on the basis of the results avail-
suggests divergent policy options among scenarios. These pol- able. One might expect that high carbon intensity reductions in
icy options are dependent not only on the level of CO2 reduc- the base case might “use up” decarbonization potential, giving
tion, but also on the baseline scenarios that have been used for rise to lower additional reduction of carbon intensity in mitiga-
550 ppmv stabilization quantification. tion scenarios. On the other hand, increased investment in low-
carbon energy technology in the base case could increase the
Figure 2.8 (a) shows the relationship between the effects of resource base of low-carbon energy, thereby providing more
efficiency improvement policy in mitigation scenarios and the opportunity to reduce CO2 emissions in the stabilization case.
energy intensity reduction assumption in baseline scenarios. The mitigation potential in this direction depends not only on
This figure suggests an inverse relationship between them. The the technology but also, and perhaps more, on the economics
implication of this is that scenarios in which there is an and social acceptance of the technology. A closer and more
assumed adoption of high-efficiency measures in the baseline careful analysis of which particular mitigation policies were
usually would have less scope for further introduction of effi- assumed in constructing the scenario than was possible on the
ciency measures in the mitigation scenarios, as compared to basis of the available information, would reveal the underlying
scenarios that have a lower level of efficiency improvement in reasons for such a pattern.
their baseline.8 As a result, the additional reduction of energy
Finally, Figure 2.8 (c) shows the relationship between macro-
economic costs9 in the mitigation scenarios and GDP growth
8 In part this is an artefact of the structure of the models, which can- assumptions in the baseline scenarios. No clear relationship is
not easily account for changes in social and technological structure visible, but it can be observed that macroeconomic costs for the
such as significant changes in consumption patterns, land use, or world as a whole are estimated to range between 0% and 3.5%
urban form. of GDP in 2100, while a few simple models estimate more
Box 2.3. Non-CO2 Mitigation Scenarios
Since the publication of IPCC’s SAR, the literature on mitigation scenarios has continued to focus on the reduction of CO2 emissions
rather than on other GHGs. This is unfortunate because non-CO2 emissions make up a significant fraction of the total “basket of gases”
that must be reduced under the Kyoto Protocol. However, a small set of papers has reported on scenarios for mitigating non-CO2 gases,
especially CH4 and N2O. In one such paper, Reilly et al. (1999) compared scenarios for achieving emission reductions with and with-
out non-CO2 emissions in Annex B countries (those countries that are included in emission controls under the Kyoto Protocol).
Scenarios that omitted measures for reducing non-CO2 gases had 21% higher annual costs in 2010 than those that included them.
Tuhkanen et al. (1999) and Lehtilä et al. (1999) came to similar conclusions — in a scenario analysis for 2010, they found that includ-
ing CH4 and N2O in mitigation strategies for Finland reduced annual costs by 20% in the year 2010 relative to a baseline scenario. The
general conclusion of these papers is that small reductions of GHG emissions, for example of the magnitude required by the Kyoto
Protocol, can be accomplished at a lower cost by taking into account measures to reduce non-CO2 gases, and that a small reduction of
non-CO2 gases can produce large impacts at low cost because of the high global warming potential (GWP) of these gases.
In another type of scenario analysis, Alcamo and Kreileman (1996) used the IMAGE 2 model to evaluate the environmental conse-
quences of a large set of non-CO2 and CO2 mitigation scenarios. They concluded that non-CO2 emissions would have to be controlled
along with CO2 emissions in order to slow the increase of atmospheric temperature to below prescribed levels. Hayhoe et al. (1999)
pointed out two additional benefits of mitigating CH4, an important non-CO2 gas. First, most CH4 reduction measures do not require
the turnover of capital stock (as do CO2 measures), and can therefore be carried out more rapidly than CO2 reduction measures. Second,
CH4 reductions will have a more immediate impact on mitigating climate change than CO2 reductions because the atmosphere
responds more rapidly to changes in CH4 than to CO2 concentrations.
increase in the second half of the 21st century. The GDP loss with other factors such as differences in models and reduction
may or may not be related to the GDP growth assumptions in time-paths also acting to increase the range. Allocations of
baselines. For instance, high baseline economic growth would emission reductions between OECD and non-OECD countries
lead to higher emissions of GHGs, which would lead to also vary widely, and are affected by policy assumptions and
increased GHG reduction costs compared to the corresponding model structures.
mitigation scenario for a low-growth baseline. On the other
hand, high economic growth could provide increased funds for The mitigation scenarios under review were quantified based
research and development (R&D) of advanced technologies, on a wide range of baselines that reflect a diversity of assump-
which would decrease the cost of GHG reduction. The net cost tions, mainly with respect to economic growth and low-carbon
would depend on the relative strengths of these effects. energy supply. The range of future trends shows greater diver-
Another aspect is that the costs are also dependent upon the gence in scenarios that focus on developing countries than in
structure of economies, i.e., economies with high fossil fuel scenarios that consider developed nations. There is little con-
dependence, via either exports or domestic consumption, are sensus with respect to future directions among the existing dis-
likely to experience higher costs compared with economies aggregated scenarios in developing regions.
with relatively lower fossil fuel dependence.
Some general conclusions about the relationships between
baseline scenarios and mitigation policies are suggested by this
2.3.3 Summary of General Mitigation Scenario Review review: an assumption of high economic growth in the baseline
tends to be associated with more technological progress; the
Many mitigation as well as stabilization scenarios have already additional improvement of energy efficiency in mitigation sce-
been quantified and published. Most assume very simple poli- narios tends to be lower when the energy efficiency improve-
cy options for their mitigation scenarios, and only some of ment is high in the base case; and baseline scenarios with high
them have detailed policy packages. These policy options have carbon intensity reductions lead to mitigation scenarios with
a very wide range in their level, which is apparently caused by relatively more carbon intensity reduction. The counterintu-
the divergent baseline scenarios and GHG reduction targets, itive nature of some of these conclusions suggests that the rela-
tionship between economic growth and the macroeconomic
cost of emission reduction is very complicated.
9 The macroeconomic cost is defined here as the reduction of GDP
caused by GHG emission reduction in comparison to baseline GDP. It Most generally, it is clear that mitigation scenarios and mitiga-
should be noted that these costs do not take into account the benefits tion policies are strongly related to their baseline scenarios, but
that would occur from avoiding climate change-related damages or no systematic analysis has been published on the relationship
any co-benefits. See also Chapters 7 and 8 for a discussion of these between mitigation and baseline scenarios.
issues.
2.4 Global Futures Scenarios Scenarios were selected which were global11, long-term, and
multidimensional in scope. The scenarios consider timelines
2.4.1 The Role of Global Futures Scenarios that run from the base year to anywhere between 2010 and
2100. Most scenarios are detailed and comprehensive depic-
In contrast to the GHG emission scenarios discussed in sections of possible future worlds, with descriptions of the social,
tions 2.3 and 2.5 of this chapter, “global futures” scenarios do economic, and environmental characteristics of these worlds.
not specifically or uniquely consider GHG emissions. Instead, Others are less detailed but still describe more than one char-
they are more general “stories” of possible future worlds. acteristic of the future world. Some scenarios are derived from
Global futures scenarios can complement the more quantitative the authors’ judgement about most likely future conditions.
emission scenario assessments, because they consider several Others are part of sets of possible futures, usually posited as
dimensions that elude quantification, such as governance, alternatives to a reference case. Still others are normative sce-
social structures, and institutions, but which are nonetheless narios, in that they describe the authors’ visions of desirable
important to the success of mitigation (and adaptation) policies future worlds.
and, more generally, describe the nature of the future world.
In general, the global futures scenarios provide few quantified
In this assessment, the global futures scenario literature was projections, although there are some notable exceptions such
reviewed to achieve three objectives. First, it was consulted in as CPB (1992), Meadows et al. (1992), Duchin et al. (1996),
order to determine the range of possible future worlds that have Gallopin et al. (1997), OECD (1997), Rotmans and de Vries
been identified by futurists. This aids climate change policy (1997), Glenn and Gordon (1998), Nakicenovic et al. (1998),
analysis by providing a range of potential futures against which and Raskin et al. (1998). Several scenarios explicitly consider
the robustness of policy instruments may be assessed. energy use, GHG emissions, and/or future climate change, but
not all of these provide numerical estimates of the relevant
Second, global futures scenarios were analyzed to determine variables. These quantified scenarios are different from the
whether they displayed any relationships between the various scenarios in the previous section since they present quantifica-
scenario dimensions and GHG emissions. Although these relations of primarily narrative scenarios. The basis of the scenar-
tionships are often based entirely on qualitative analysis, they ios in the previous section is a purely quantitative analysis of
might nonetheless yield insights about the relationships emissions profiles without narrative description.
between some dimensions, especially those that are difficult to
quantify, and emissions.
2.4.3 Global Futures Scenarios: Range of Possible
Third, global futures scenarios may provide a link between the Futures
more quantitative emission scenarios and sustainable develop-
ment issues. Global futures scenarios generally provide good The global futures scenarios vary widely along different demo-
coverage of sustainable development issues, while the quanti- graphic, socio-economic, and technological dimensions, as
tative emission scenarios generally provide only limited cover- shown in Table 2.2. Scenarios range from economic collapse to
age of these issues. Linking the global futures scenarios with virtually unlimited economic prosperity; from population col-
the quantitative emission scenarios therefore might also pro- lapse (caused by famine, disease, and/or war), to stabilization
vide a link between the latter and sustainable development near current levels, to explosive population growth.
issues. Governance systems range from decentralized, semi-
autonomous communities with a form of direct democracy to
global oligarchies. Some scenarios posit large improvements in
2.4.2 Global Futures Scenario Database income and social equality, within and among nations, while
others foresee a widening of the income gap. Many scenarios
An extensive review of the futures literature was conducted envisage a future world that is high-tech, with varying rates of
and, from this review, a database of scenarios was constructed. diffusion, but some envisage a world in which a crisis of some
This database contains 124 scenarios from 48 sources.10 kind leads to a decline in technological development and even
a loss of technological capability. Most scenarios are pes-
simistic with respect to resource availability; some are more
10 See Barney, 1993; Bossel, 1998; Coates and Jarratt, 1990; Coates,
1991, 1997; Cornish, 1996; Costanza, 1999; CPB, 1992; Duchin et Leyden, 1997; Science Advisory Board, 1995; Shinn, 1982; Stokke et
al., 1994; Gallopin et al., 1997; GBN, 1996; Glenn and Gordon, 1997, al., 1991; Sunter, 1992; Svedin and Aniansson, 1987; Toffler, 1980;
1998; Henderson, 1997; Hughes, 1997; IDEA Team, 1996; Kahane, van den Bergh, 1996; Wallerstein, 1989; WBCSD, 1997; 1998;
1992; Kinsman, 1990; Linden, 1998; Makridakis, 1995; McRae, Wilkinson, 1995; World Bank, 1995; WRI, 1991.
1994; Meadows et al., 1992; Mercer, 1998; Millennium Project, 1998;
11 The literature contains a great many scenarios that focus on specif-
Nakicenovic et al., 1998; OECD, 1997; Olson, 1994; Price, 1995;
Ramphal, 1992; Repetto, 1985; Rotmans and de Vries, 1997; ic countries or regions. However, time and space limitations preclud-
Schindler and Lapid, 1989; Schwartz, 1991, 1995; Schwartz and ed including these scenarios in this review.
Table 2.2: Descriptive statistics for global futures scenario dimensions
Number of Range Most Number of scenarios showing

scenarios common changes (compared to
(mode) current situation)
Declining Same Rising
Total Scenarios 124

Size of Economy 102 collapse to high growth Rising 24 13 65
Population Size 84 collapse to high growth Rising 10 5 69
Level of Technology 98 stagnation & decline to Rising 4 9 85
very high
Degree of Globalization 84 isolated communities More global 22 1 61
to global civilization
Government Intervention in Economy 76 laissez-faire to strong regulation Declining 36 9 31
Pollution 85 very low to very high Rising 34 3 48
International Income Equality 99 very low to very high Rising 32 16 50
Intranational Income Equality 53 very low to very high Rising 24 0 29
Degree of Conflict 76 peace to many wars/world war Rising 26 14 36
Fossil Fuel Use 49 virtually zero to high 24 1 24
Energy Use 51 low to high Rising 14 0 37
GHG Emissions 45 low to high Rising 11 1 33
Climate Change (yes/no) 0 no climate change to severe
climate change
Structure of Economy 50 agrarian/subsistence to Increasingly 4 6 40
“quaternary” (leisure) post-industrial
Percentage of Older Persons in Population 11 primarily young population Rising 2 0 9
to ageing population
Migration 30 low to high Rising 10 0 20
Human Health 38 worsening to improving Improving 13 3 22
Degree of Competition 41 low to high Rising 14 0 27
Citizen Participation in Governance 56 autocracy to meaningful Rising 14 14 28
participation
Community Vitality 42 breakdown to very strong Rising 12 0 30
Responsiveness of Institutions 75 irrelevant to very Improving 21 16 38
responsive/citizen-driven
Social Equity 38 low to high 19 1 18
Security Activity 30 low to high Rising 13 0 17
Conflict Resolution 30 inadequate to successful Improving 10 1 19
Technological Diffusion 58 low to high Improving 9 13 36
Rate of Innovation 45 low to high Rising 3 14 28
Renewable Resource Availability 28 low to high Declining 19 1 8
Non-renewable Resource Availability 35 low to high Rising 15 4 16
Food Availability 45 low to high Rising 16 4 25
Water Availability 18 low to high Declining 12 0 6
Biodiversity 33 low to high Declining 21 2 10
Threat of Collapse 26 unlikely to likely Rising 9 1 16
optimistic, pointing to the ability of technology and demand describe a future in which environmental quality improves
changes to alleviate scarcity. Most scenarios also project throughout the scenario.
increasing environmental degradation; more positively, many
of these scenarios portray this trend reversing in the long-term, The scenarios were grouped together according to their main
leading to an eventual improvement in environmental quality. distinguishing features and were combined into four groups,
The sustainable development scenarios, on the other hand, according to whether they described futures in which, accord-
Table 2.3: Global futures scenario groups
Scenario group Scenario subgroups Number of scenarios
1. Pessimistic Scenarios Breakdown: collapse of human society 5

Fractured World: deterioration into antagonistic regional blocs 9
Chaos: instability and disorder 4
Conservative: world economic crash is succeeded by conservative and risk-averse regime 2
2. Current Trends Scenarios Conventional: no significant change from current and/or continuation of present-day trends 12
High Growth: government facilitates business, leading to prosperity 14
Asia Shift: economic power shifts from the West to Asia 5
Economy Paramount: emphasis on economic values leads to deterioration in social and 9
environmental conditions
3. High-Tech Optimist Cybertopia: information & communication technologies facilitate individualistic, 16

Scenarios diverse and innovative world
Technotopia: technology solves all or most of humanity’s problems 5
4. Sustainable Development Our Common Future: increased economic activity is made to be consistent with 21
Scenarios improved equity and environmental quality
Low Consumption: conscious shift from consumerism 16
ing to the scenario authors, conditions deteriorate (group 1), in which information and communication technologies enable
stay the same (group 2), or improve (groups 3 and 4). These a highly individualistic, diverse, and innovative global com-
groups are summarized in Table 2.3. munity. Other group 3 scenarios describe worlds in which
technological advances solve all or most of the problems fac-
The scenarios in group 1 describe futures in which conditions ing humanity, including environmental problems.
deteriorate from present. Some of these scenarios describe a
complete breakdown of human society, because of war, The scenarios in group 4 are “Sustainable Development” sce-
resource exhaustion, or economic collapse. Other scenarios narios. In general these scenarios envisage a change in society
describe a future in which the world is fractured into antago- towards improved co-operation and democratic participation,
nistic blocs or in which society deteriorates into chaos. Still with a shift in values favouring environment and equity. These
others describe futures in which the global economic system scenarios can be subdivided into two subgroups. The first sub-
crashes and is succeeded by a conservative, risk-averse group might be described as “Our Common Future” scenarios
regime. in which economic growth occurs, but is managed so that
social and environmental objectives may also be achieved. The
The scenarios in group 2 describe futures in which conditions second subgroup could be characterized as “Low
do not change significantly from the present, or in which cur- Consumption” sustainable development scenarios. They
rent trends continue. Many of these scenarios are “reference” describe worlds in which economic activity and consumerism
scenarios, which are used by their authors to contrast other considerably decline in importance and, usually, population is
alternative future scenarios. In general, these scenarios are pes- stabilized at relatively low levels. Many of these scenarios also
simistic; they describe futures in which many current problems envisage increasing regional autonomy and self-reliance.
get worse, although there may be improvement in some areas.
This is particularly true of the “Economy Paramount” scenar- These groups correspond quite closely with the scenario arche-
ios, which describe futures in which an emphasis on economic types that have been developed by the Global Scenarios Group
over other values leads to deteriorating environmental and (see Box 2.4). They also roughly correspond with the 4 new
social conditions. Other scenarios in group 2 describe a more emission scenario “families” that were developed in the IPCC
optimistic future in which government and business co-operate SRES (see Section 2.5.1 below) and the scenarios developed
to improve market conditions (generally through market liber- by the World Business Council for Sustainable Development
alization and free trade), leading to an increase in prosperity. (WBCSD, 1997).
Several of the group 2 scenarios foresee a shift in economic
power from the West to Asia.
2.4.4 Global Futures Scenarios, Greenhouse Gas
The group 3 scenarios could be characterized as “High-Tech Emissions, and Sustainable Development
Optimist” scenarios. They describe futures in which technolo-
gy and markets combine to produce increased prosperity and Of the 124 global futures scenarios in the database, 35 provide
opportunity. Many of these scenarios describe “Cybertopias” some kind of projection of future GHG (usually CO2) emis-
Box 2.4. The Global Scenarios Group: Scenarios and Process
A few organizations have been developing futures scenarios that incorporate both narrative and quantitative elements, including, for
example, the Dutch Central Planning Bureau (CPB, 1992), the Millennium Project (Glenn and Gordon, 1998), and the Global Scenario
Group (Gallopin et al., 1997). The latter is discussed here as an illustration of this kind of approach to scenario development.
The Global Scenario Group (GSG) was convened by the Stockholm Environment Institute in 1995 as an international process to illu-
minate the requirements for a transition to global sustainability. It is a continuing and interdisciplinary process involving participants
from diverse regional perspectives, rather than a single study. The GSG scenarios are holistic, developed both as narratives — accounts
of how human values, cultural choices, and institutional arrangements might unfold — and detailed quantitative representations of
social conditions such as level of poverty, economic patterns, and a wide range of environmental issues.
The GSG framework includes three broad classes of scenarios for scanning the future — “Conventional Worlds”, “Barbarization”, and
“Great Transitions” — with variants within each class. All are compatible with current patterns and trends, but have very different
implications for society and the environment in the 21st century (Gallopin et al., 1997). In “Conventional Worlds” scenarios, global
society develops gradually from current patterns and dominant tendencies, with development driven primarily by rapidly growing mar-
kets as developing countries converge towards the development model of advanced industrial (“developed”) countries. In
“Barbarization” scenarios, environmental and social tensions spawned by conventional development are not resolved, humanitarian
norms weaken, and the world becomes more authoritarian or more anarchic. “Great Transitions” explore visionary solutions to the sus-
tainability challenge, which portray the ascendancy of new values, lifestyles, and institutions.
“Conventional Worlds” is where much of the policy discussion occurs, including most of the analysis of climate mitigation. The inte-
grated GSG approach situates the discussion of alternative emission scenarios in the context of sustainable development, by making
poverty reduction an explicit scenario driver, and highlighting the links between climate and other environment and resource issues
(Raskin et al., 1998). The regional distribution of emissions becomes an explicit consideration in scenario design that is linked to
poverty reduction, equity, and burden sharing in environmentally-sound global development. By underscoring the interactions between
environmental and social goals, the policy strategies for addressing climate are assessed for compatibility and synergy with a wider
family of actions for fostering sustainable development.
sions. These projections range from narrative descriptions nologies are key to emission reduction; a number of scenarios
(e.g., “emissions continue to rise”) to numerical estimates. assume a tax on fossil fuels.
Figure 2.9 shows global carbon dioxide emissions projections
from the scenarios that provide numerical estimates. Table 2.4 summarizes the apparent relationships between emis-
sions and scenario dimensions. It is important to note that there
Most (22) of these scenarios project increased emissions, but is considerable variety among the scenarios; Table 2.4 there-
several (13) foresee declining emissions. All but one of the lat- fore shows relationships that were in the majority, but not nec-
ter scenarios are Sustainable Development scenarios in which essarily all, of the scenarios. It should also be noted that the
there is a concerted policy effort towards emission reduction, relationships shown in Table 2.4 do not by themselves prove
innovation in energy development towards improved efficien- causation; they simply reflect what the majority of scenarios
cy and conservation, and/or alternatives to fossil fuels. The with rising and falling GHG emissions, respectively, indicate
exception is a High-Tech Optimist scenario in which energy for each scenario dimension.
efficiency technologies and a shift to low- and non-fossil fuels
bring about declining emissions. What is clear from Table 2.4 is that there are no strong patterns
in the relationship between economic activity and GHG emis-
The Sustainable Development scenarios that project declining sions. Growth in economic activity is compatible, across this
emissions are in general characterized by increased co-opera- set of scenarios, with both increasing and decreasing GHG
tion and political participation; many assume that there is emissions. In the latter case, mediating factors include
strong international agreement on the environment and devel- increased energy efficiency, shifts to non-fossil energy sources,
opment in general and climate change in particular. There is and/or shifts to a post-industrial (service-based) economy.
improved environmental quality and equity and, in several sce- Similarly, population growth is present in scenarios with rising
narios, increased material affluence globally (although some emissions as well as scenarios with falling emissions, although
scenarios indicate a decline in consumerism). Population con- in the latter group of scenarios, population tends to stabilize at
tinues to grow but at slower rates and stabilizes at relatively relatively low levels, in many cases owing to increased pros-
low levels. In most scenarios significant developments of ener- perity, expanded provision of family planning, and improved
gy efficiency, energy conservation, and alternative energy tech- rights and opportunities for women.
2.5
OCF
GS
2
ER
GC
BG
BIG
index (1990 = 1)
A1
1.5
A2
A3
B
C1
C2
1
CW-R
CW-PR
0.5
0
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Figure 2.9: CO2 Emissions in Global Futures Scenarios (narrative scenarios). Acronyms: OCF, the “Our Common Future” sce-
nario from Duchin et al., 1994; GS, the “Global Shift”; ER, the “European Renaissance”; GC, the “Global Crisis”; and BG the
“Balanced Growth” scenarios from the Central Planning Bureau of the Netherlands (CPB, 1992); A1, A2, A3, B, C1 and C2,
scenarios from Nakicenovic et al., 1998; CW-R, “Conventional Worlds – Reference”; and CW-PR, “Conventional Worlds –
Policy Reform” from Gallopin et al., 1997 and Raskin et al., 1998. Note that this figure shows emission projections from a sub-
set of the Global Futures Scenarios which discuss emissions, and a slightly higher proportion of scenarios in this larger group
foresee declining emissions (13 of 35 scenarios, compared to 4 of 14 scenarios shown in the figure).
Table 2.4: Factors associated with changing GHG emissions in global futures scenarios
Factor Rising GHGs Falling GHGs
Economy Growing, post-industrial economy with Some scenarios show rising GDP, others show
globalization, (mostly) low government economic activity limited to ecologically sustainable
intervention, and generally high level of competition levels; generally high level of government intervention
Population Growing population with high level of migration Growing population that stabilizes at relatively low
level; low level of migration
Governance No clear pattern in governance Improvements in citizen participation in governance,

community vitality, and responsiveness of institutions
Equity Generally declining income equality within nations Increasing social equity and income equality within
and no clear pattern in social equity or international and among nations
income equality
Conflict/ High level of conflict and security activity (mostly), Low level of conflict and security activity, improved
Security deteriorating conflict resolution capability conflict resolution capability
Technology High level of technology, innovation, and High level of technology, innovation, and technologi-
technological diffusion cal diffusion
Resource Availability Declining renewable resource and water availability; Increasing availability of renewable resources, food
no clear pattern for non-renewable resource and and water; no clear pattern for non-renewable
food availability resources
Environment Declining environmental quality Improving environmental quality

The major visible difference has to do with environmental environmental systems. Since future values of the underlying
impacts. As might be expected, pollution and the risk of eco- socio-economic drivers of emissions may vary widely, it is
logical collapse are generally high in scenarios which show ris- important that GHG emission scenarios in particular, and cli-
ing GHG emissions, and low in scenarios which show falling mate change analysis in general, not limit themselves to a nar-
GHG emissions. Water availability and biodiversity decline in row range of possible futures, but consider the implications for
the scenarios with rising GHG emissions, and rise or stay the mitigation of quite different sets of future conditions. In turn,
same in the scenarios with falling GHG emissions. climate policies should be designed so that they are resilient
against widely different future conditions.
On a different front, in the scenarios with rising GHG emis-
sions, conflict and security activity are generally high, while Second, the global futures scenarios describe a wide range of
government intervention in the economy and income equality worlds, from pessimistic to optimistic, that are consistent with
(within nations) are generally low. The reverse is true in the rising GHG emissions and a smaller range of (generally opti-
scenarios with falling GHG emissions, which also show mistic) worlds that are consistent with falling emissions.
improving equity between North and South. This would be Scenarios that show falling emissions tend to show improved
expected from the fact that all but one of these scenarios are governance, increased equity and political participation,
Sustainable Development scenarios. reduced conflict, conditions supportive of lower birth rates,
and improved environmental quality. Scenarios with rising
Chapter 3 of the SRES discusses the relationships between emissions generally show reduced environmental quality and
GHG emissions and a number of driving forces, including pop- equity within nations and increased conflict, and are more
ulation, economic and social development (including equity), mixed with respect to governance and international equity.
and technology. What is clear from that discussion, which is Both types of scenarios generally indicate continued techno-
consistent with the evidence summarized in Table 2.4, is that logical development. The Sustainable Development scenarios
the impacts on GHG emissions of changes in these underlying suggest that sustainable development approaches are feasible,
driving forces are complex. and can lead to futures characterized by relatively low emis-
sions. A key implication is that sustainable development poli-
These complex relationships suggest that the choice of future cies, taken generally, can make a significant contribution to
“world” is more fundamental than the choice of a few driving emission reduction.
forces in determining GHG emissions. The wide range of emis-
sions in the various SRES baseline scenarios also demonstrates Third, scenarios do not all show a positive relationship
this point. Choices about DES are crucial, not just for the between emissions and economic and population growth, as is
underlying conditions which give rise to emissions, but also for commonly assumed (see also the discussion of the Kaya iden-
the nature and severity of climate change impacts, and the suc- tity in Section 2.3.2.1 of this chapter). This is largely because,
cess of particular mitigation and adaptation policies. This find- in the scenarios with declining emissions and rising population
ing is consistent with the discussion in Chapter 1, which sug- and economic activity, policy, lifestyle choices, and technolog-
gests the central importance of DES issues in any consideration ical development act to reduce emissions through efficiency
of climate change. improvements, energy conservation, shifts to alternative fuels,
and shifts to post-industrial economic structures. This suggests
It is important therefore that emission scenarios consider qual- that different combinations of driving forces are consistent
itative aspects that are potentially important for future GHG with low emission scenarios, which agrees with the SRES find-
emissions and mitigation policies. One way to do this is to link ings. The implication of this would seem to be that it is impor-
these scenarios with the broader global futures scenarios. tant to consider the linkage between climate policy and other
However, this will be difficult because there are few areas of policies and conditions associated with the choice of future
overlap, as a result of the very different natures of the two paths in a general sense. In other words, low emission futures
kinds of scenarios. Perhaps a more fruitful way of incorporat- are associated with a whole set of policies and actions that go
ing qualitative dimensions into quantitative scenarios, already beyond the development of climate policy itself.
pursued by the Global Scenarios Group and others, as well as
in the SRES, is to develop quantitative estimates of key vari- In general, the global futures scenarios provide more compre-
ables based on qualitative descriptions of future worlds. hensive coverage of the issues relevant to sustainable develop-
ment than the general mitigation scenarios described in section
2.3. They therefore represent an important complement to the
2.4.5 Conclusions quantitative emission scenarios. However, there are significant
difficulties involved in trying to connect the mainly narrative-
A survey of the global futures literature has yielded a number based scenarios discussed in this section with the more quanti-
of insights that are relevant to GHG emission scenarios and tatively oriented scenarios discussed earlier. In this connection,
sustainable development. First, a wide range of future condi- the work of the Global Scenarios Group, the SRES, and others
tions has been identified by futurists, ranging from variants of in linking narrative scenarios addressing social, environmental,
sustainable development to collapse of social, economic, and and economic elements of sustainable development with model
“quantifications” appears to point the way to the type of work qualitative description gives background information about the
needed to better assess the implications of GHG mitigation for global setting of the scenarios, which can be used to assess the
sustainable development and vice versa. Section 2.5 below dis- capability of society to adapt to and mitigate climate change,
cusses the SRES scenarios and process, as well as mitigation and for linking the emission scenarios with DES issues. The
scenarios that were developed on the basis of the SRES base- quantitative description of emission scenarios can be used as
line scenarios. input to models for computing the future extent of climate
change, and for assessing strategies to reduce emissions.
2.5 Special Report on Emissions Scenarios (SRES) The relation between qualitative and quantitative scenarios can
and Post-SRES Mitigation Scenarios be characterized in terms of Figure 2.10.
This section reviews two scenario literatures. One is the SRES, The SRES writing team developed four scenario “families”
which reports on the development of multiple GHG emissions (see Box 2.5 for an explanation of terminology used in the
baselines based on different future world views, and the other SRES), because an even number helps to avoid the impression
is the post-SRES literature, which involves the quantification that there is a “central” or “most likely” case. The scenarios
of mitigation scenarios based on the new SRES baseline sce- cover a wide range – but not all possible futures. In particular,
narios. there are no “global disaster” scenarios. None of the scenarios
include new explicit climate policies.
2.5.1 Special Report on Emissions Scenarios: Summary Each family has a unifying theme in the form of a “storyline”
and Differences from TAR or narrative that describes future demographic, social, eco-
nomic, technological, and policy trends. Four storylines were
2.5.1.1 IPCC Emissions Scenarios and the SRES Process developed by the whole writing team that identified driving
forces, key uncertainties, possible scenario families, and their
First, the reference scenarios are reviewed, namely the SRES logic. Six global modelling teams then quantified the story-
GHG emissions scenarios. These are “reference” scenarios in lines. The quantification consisted of first translating the story-
the sense that they describe future emissions in the absence of lines into a set of quantitative assumptions about the driving
specific new policies to mitigate climate change. The new sce- forces of emissions (for example, rates of change of population
narios are published as the Special Report on Emissions and size of the economy and rates of technological change).
Scenarios (SRES) by the IPCC (Nakicenovic et al., 2000). Next, these assumptions were input to six integrated, global
models that computed the emissions of GHGs and sulphur
A key feature of the SRES process was that different method- dioxide (SO2). As a result, a total of 40 scenarios were pro-
ological approaches and models were used to develop the sce- duced for the four storylines. The large number of alternative
narios. Another was that an “open process” was used to devel- scenarios showed that a single storyline could lead to a large
op the scenarios through which researchers and other interest number of feasible emission pathways.
groups throughout the world could review and comment on the
SRES scenarios as they were being developed. The SRES also In all, six models were used to generate the 40 scenarios that
aimed at improving the process of scenario development by comprise the four scenario families. Six of these scenarios,
extensively documenting the inputs and assumptions of the
SRES scenarios; by formulating narrative scenario storylines;
e
by encouraging a diversity of approaches and methods for
tativ
deriving scenarios; by making the scenarios from different anti
groups more comparable, and by assessing their differences Qu
and similarities; by expanding the range of economic-develop- Models
ment pathways, including a narrowing of the income gap
between developing and industrially developed countries; by
incorporating the latest information on economic restructuring
Scenarios
throughout the world; and by examining different trends in and
rates of technological change.
2.5.1.2 SRES Approach to Scenario Development Stories

e
tativ
The basic approach of the SRES writing team was to construct ali
Qu
scenarios that were both qualitative and quantitative. The
process involved first the formulation of the qualitative sce- Figure 2.10: Schematic illustration of alternative scenario
nario characteristics in the form of narrative storylines and then formulations ranging from narrative storylines to quantitative
their quantification by six different modelling approaches. The formal models (source: Nakicenovic et al., 2000).
Box 2.5. IPCC SRES Scenario Terminology (Source: Nakicenovic et al., 2000)
Model: a formal representation of a system that allows quantification of relevant system variables.
Storyline: a narrative description of a scenario (or a family of scenarios) highlighting the main scenario characteristics, relationships
between key driving forces, and the dynamics of the scenarios.
Scenario: a description of a potential future, based on a clear logic and a quantified storyline.
Family: scenarios that have a similar demographic, societal, economic, and technical-change storyline. Four scenario families com-
prise the SRES: A1, A2, B1, and B2.
Group: scenarios within a family that reflect a variation of the storyline. The A1 scenario family includes three groups designated by A1T,
A1FI, and A1B that explore alternative structures of future energy systems. The other three scenario families consist of one group each.
Category: scenarios are grouped into four categories of cumulative CO2 emissions between 1990 and 2100: low, medium–low, medi-
um–high, and high emissions. Each category contains scenarios with a range of different driving forces yet similar cumulative emissions.
Marker: a scenario that was originally posted on the SRES website to represent a given scenario family. A marker is not necessarily
the median or mean scenario.
Illustrative: a scenario that is illustrative for each of the six scenario groups reflected in the Summary for Policymakers of this report.
They include four revised “scenario markers” for the scenario groups A1B, A2, B1, and B2, and two additional illustrative scenarios
for the A1FI and AIT groups. See also “(Scenario) Groups” and “(Scenario) Markers”.
Harmonized: harmonized scenarios within a family share common assumptions for global population and GDP while fully harmo-
nized scenarios are within 5% of the population projections specified for the respective marker scenario, within 10% of the GDP and
within 10% of the marker scenario’s final energy consumption.
Standardized: emissions for 1990 and 2000 are indexed to have the same values.
Other scenarios: scenarios that are not harmonized.
which should be considered equally sound, were chosen to other increasing regionalization. Combining these choices
illustrate the whole set of scenarios. They span a wide range of yielded four different scenario families (Figure 2.11). This
uncertainty, as required by the SRES Terms of Reference. two-dimensional representation of the main SRES scenario
These encompass four combinations of demographic change, characteristics is an oversimplification. It is shown just as an
social and economic development, and broad technological illustration. In fact, to be accurate, the space would need to be
developments, corresponding to the four families (A1, A2, B1, multi-dimensional, listing other scenario developments in
B2), each with an illustrative “marker” scenario. Two of the many different social, economic, technological, environmental,
scenario groups of the A1 family (A1FI, A1T) explicitly and policy dimensions.
explore energy technology developments, alternative to the
“balanced” A1B group, holding the other driving forces con- The titles of the four scenario storylines and families have been
stant, each with an illustrative scenario. Rapid growth leads to kept simple: A1, A2, B1, and B2. There is no particular order
high capital turnover rates, which means that early small dif- among the storylines; they are listed in alphabetical and numer-
ferences among scenarios can lead to a large divergence by ical order:
2100. Therefore, the A1 family, which has the highest rates of • The A1 storyline and scenario family describes a future
technological change and economic development, was selected world of very rapid economic growth, global popula-
to show this effect. tion that peaks in mid-century and declines thereafter,
and the rapid introduction of new and more efficient
To provide a scientific foundation for the scenarios, the writing technologies. Major underlying themes are conver-
team extensively reviewed and evaluated over 400 published gence among regions, capacity building, and increased
scenarios. Results of the review were published in the scientif- cultural and social interactions, with a substantial
ic literature (Alcamo and Nakicenovic, 1998), and made avail- reduction in regional differences in per capita income.
able to the scientific community in the form of an Internet sce- The A1 scenario family develops into three groups that
nario database. The background research by the six modelling describe alternative directions of technological change
teams for developing the 40 scenarios was also published in the in the energy system. The three A1 groups are distin-
scientific literature (Nakicenovic, 2000). guished by their technological emphasis: fossil inten-
sive (A1FI), non-fossil energy sources (A1T), or a bal-
2.5.1.3 A Short Description of the SRES Scenarios ance across all sources (A1B).12
• The A2 storyline and scenario family describes a very
Since there is no agreement on how the future will unfold, the heterogeneous world. The underlying theme is self-
SRES tried to sharpen the view of alternatives by assuming
that individual scenarios have diverging tendencies — one 12Balanced is defined as not relying too heavily on one particular
emphasizes stronger economic values, the other stronger envi- energy source, on the assumption that similar improvement rates
ronmental values; one assumes increasing globalization, the apply to all energy supply and end-use technologies.
SRES Scenarios reliance and preservation of local identities. Fertility pat-

terns across regions converge very slowly, which results
in continuously increasing global population. Economic
development is primarily regionally oriented and per
capita economic growth and technological change are
Economic
more fragmented and slower than in other storylines.
A1 A2 • The B1 storyline and scenario family describes a con-
vergent world with the same global population that
Global Regional peaks in mid-century and declines thereafter, as in the
A1 storyline, but with rapid changes in economic struc-
B1 B2 tures towards a service and information economy, with
reductions in material intensity, and the introduction of
Environmental clean and resource-efficient technologies. The empha-
sis is on global solutions to economic, social, and envi-
ronmental sustainability, including improved equity,
y A but without additional climate initiatives.
Econom
n
gr
op (Lan •
u l a tio
P
The B2 storyline and scenario family describes a world

icult
y
En
og
d-us )
l er in which the emphasis is on local solutions to econom-

ure
o gy
Te c h n
e
ic, social, and environmental sustainability. It is a world

Dr s with a continuously increasing global population at a
iving Force
rate lower than in A2, intermediate levels of economic
Figure 2.11. Schematic illustration of SRES scenarios. The development, and less rapid and more diverse techno-
four scenario “families” are shown, very simplistically, for logical change than in the B1 and A1 storylines. While
illustrative purposes, as branches of a two-dimensional tree. the scenario is also oriented towards environmental
The two dimensions shown indicate global and regional sce- protection and social equity, it focuses on local and
nario orientation, and development and environmental orien- regional levels.
tation, respectively. In reality, the four scenarios share a space
of a much higher dimensionality given the numerous driving In all, six models were used to generate the 40 scenarios that
forces and other assumptions needed to define any given sce- comprise the four scenario families. They are listed in Table
nario in a particular modelling approach. The schematic dia- 2.5. These six models are representative of emissions scenario
gram illustrates that the scenarios build on the main driving modelling approaches and different integrated assessment
forces of GHG emissions. Each scenario family is based on a frameworks in the literature, and include so-called top-down
common specification of some of the main driving forces. and bottom-up models.
Table 2.5: Models used to generate the SRES scenarios
Model Source Reference
Asian Pacific Integrated Model (AIM) National Institute of Environmental Morita et al., 1994
Studies in Japan Kainuma et al., 1998, 1999a, 1999b
Atmospheric Stabilization Framework ICF Consulting in the USA EPA 1990; Pepper et al., 1992
Model (ASF)
Integrated Model to Assess the Greenhouse IMAGE: RIVM and WorldScan: CPB IMAGE: Alcamo 1994; Alcamo et al.,1998;
Effect (IMAGE), used in connection with (Central Planning Bureau), de Vries et al., 1999
the WorldScan model The Netherlands WorldScan: CPB Netherlands, 1999
Multiregional Approach for Resource and Science University of Tokyo in Japan Mori and Takahashi, 1998
Industry Allocation (MARIA)
Model for Energy Supply Strategy Alternatives IIASA in Austria Messner et al., 1996; Riahi and Roehrl, 2000
and their General Environmental Impact
(MESSAGE)
The Mini Climate Assessment Model PNNL in the USA Edmonds et al., 1996
(MiniCAM)
2.5.1.4 Emissions and Other Results of the SRES Scenarios ly. The range of global energy-related and industrial CO2 emis-
sions for the six illustrative SRES scenarios is generally some-
Figure 2.12 illustrates the range of global energy-related and what lower than the range of the IPCC IS92 scenarios (Leggett
industrial CO2 emissions for the 40 SRES scenarios against the et al., 1992; Pepper et al., 1992). Adding the other 36 SRES
background of all the 400 emissions scenarios from the litera- scenarios increases the covered emissions range. Jointly, the
ture documented in the SRES scenario database. The six sce- SRES scenarios cover the relevant range of global emissions,
nario groups are represented by the six illustrative scenarios. from the 95th percentile at the high end of the distribution all
Figure 2.12 also shows a range of emissions of the six scenario the way down to very low emissions just above the 5th per-
groups next to each of the six illustrative scenarios. centile of the distribution. Thus, they only exclude the most
extreme emissions scenarios found in the literature – those sit-
Figure 2.12 shows that the four marker and two illustrative uated out in the tails of the distribution. What is perhaps more
scenarios by themselves cover a large portion of the overall important is that each of the four scenario families covers a siz-
scenario distribution. This is one of the reasons that the SRES able part of this distribution, implying that a similar quantifi-
Writing Team recommended the use of all four marker and two cation of driving forces can lead to a wide range of future emis-
illustrative scenarios in future assessments. Together, they sions. More specifically, a given combination of the main dri-
cover most of the uncertainty of future emissions, both with ving forces is not sufficient to uniquely determine a future
respect to the scenarios in the literature and the full SRES sce- emission path. There are too many uncertainties. The fact that
nario set. Figure 2.12 also shows that they are not necessarily each of the scenario families covers a substantial part of the lit-
close to the median of the scenario family because of the nature erature range also leads to an overlap in the emissions ranges
of the selection process. For example, A2 and B1 are at the of the four families. This implies that a given level of future
upper and lower bounds of their scenario families, respective- emissions can arise from very different combinations of dri-
Total database range

10
SRES Scenarios and Database Range
8
Global Carbon Dioxide Emissions
(index, 1990 = 1)
Maximum in 95%
6
Database
A1FI
Non-intervention
A2
IS92 range
4
Non-classified
Median
B2
2 A1B
1990 range
Intervention
B1
Minimum in Database 5% A1T
0
1900 1950 2000 2050 2100
Figure 2.12: Global CO2 emissions from energy and industry, historical development from 1900 to 1990 and in 40 SRES sce-
narios from 1990 to 2100, shown as an index (1990 = 1). The range is large in the base year 1990, as indicated by an “error”
bar, but is excluded from the indexed future emissions paths. The dashed time-paths depict individual SRES scenarios and the
blue shaded area the range of scenarios from the literature (as documented in the SRES database). The median (50th), 5th, and
95th percentiles of the frequency distribution are shown. The statistics associated with the distribution of scenarios do not imply
probability of occurrence (e.g., the frequency distribution of the scenarios in the literature may be influenced by the use of IS92a
as a reference for many subsequent studies). The 40 SRES scenarios are classified into six groups. Jointly the scenarios span most
of the range of the scenarios in the literature. The emissions profiles are dynamic, ranging from continuous increases to those
that curve through a maximum and then decline. The coloured vertical bars indicate the range of the four SRES scenario fami-
lies in 2100. Also shown as vertical bars on the right are the ranges of emissions in 2100 of IS92 scenarios, and of scenarios from
the literature that apparently include additional climate initiatives (designated as “intervention” scenarios emissions range),
those that do not (“non-intervention”), and those that cannot be assigned to either of these two categories (“non-classified”).
ving forces. This result is of fundamental importance for a particular scenario description. This particularly
assessments of climate change impacts and possible mitigation applies to the A2 and B2 scenarios that imply a variety
and adaptation strategies. of regional development patterns that are wider than in
the A1 and B1 scenarios. The numerical precision of
An important feature of the SRES scenarios obtained using the any model result should not distract from the basic fact
SAR methodology is that their overall radiative forcing is high- that uncertainty abounds. However, in the opinion of
er than the IS92 range despite comparatively lower GHG emis- the SRES writing team, the multi-model approach
sions (Wigley and Raper, 1992; Wigley et al., 1994; Houghton increases the value of the SRES scenario set, since
et al., 1996; Wigley, 1999; Smith et al., 2000; IPCC, 2001). uncertainties in the choice of model input assumptions
This results from the loss of sulphur-induced cooling during can be more explicitly separated from the specific
the second half of the 21st century. On one hand, the reduction model behaviour and related modelling uncertainties.
in global sulphur emissions reduces the role of sulphate • Any scenario has subjective elements and is open to
aerosols in determining future climate, and therefore reduces various interpretations. While the SRES writing team
one aspect of uncertainty about future climate change (because as a whole has no preference for any of the scenarios,
the precise forcing effect of sulphate aerosols is highly uncer- and has no judgement about the probability or desir-
tain). On the other hand, uncertainty increases because of the ability of the scenarios, the open process and reactions
diversity in spatial patterns of SO2 emissions in the scenarios. to SRES scenarios have shown that individuals and
Future assessments of possible climate change need to account interest groups do have such judgements. This will
for these different spatial and temporal dynamics of GHG and stimulate an open discussion in the political arena about
sulphur emissions, and they need to cover the whole range of potential futures and choices that can be made in the
radiative forcing associated with the scenarios. context of climate change response. For the scientific
community, the SRES scenario exercise has led to the
In summary, the SRES scenarios lead to the following findings: identification of a number of recommendations for
• Alternative combinations of driving-force variables can future research that can further increase understanding
lead to similar levels and structure of energy use and about potential development of socio-economic driving
land-use patterns, as illustrated by the various scenario forces and their interactions, and associated GHG emis-
groups and scenarios. Hence, even for a given scenario sions.
outcome, for example, in terms of GHG emissions,
there are alternative combinations and alternative path-
ways that could lead to that outcome. For instance, sig- 2.5.2 Review of Post-SRES Mitigation Scenarios
nificant global changes could result from a scenario of
high population growth, even if per capita incomes 2.5.2.1 Background and Outline of Post-SRES Analysis
would rise only modestly, as well as from a scenario in
which a rapid demographic transition (low population The review of general mitigation scenarios shows that mitiga-
levels) coincides with high rates of income growth and tion scenarios and policies are strongly related to their base-
affluence. lines, and that there has been no systematic comparison of the
• Important possibilities for further bifurcations in future relationship between baseline and mitigation scenarios.
development trends exist within one scenario family, Modellers participating in the SRES process recognized the
even when adopting certain values for important sce- need to analyze and compare mitigation scenarios using as
nario driving force variables to illustrate a particular their baselines the new IPCC scenarios, which quantify a wide
possible development path. range of future worlds. Consequently, they participated (on a
• Emissions profiles are dynamic across the range of voluntary basis) in a special comparison programme to quanti-
SRES scenarios. They portray trend reversals and indi- fy SRES-based mitigation scenarios (Morita et al., 2000a;
cate possible emissions crossover among different sce- 2000b). These SRES-based scenarios are called “Post-SRES
narios. They do not represent mere extensions of a con- Mitigation Scenarios”.
tinuous increase of GHGs and sulphur emissions into
the future. This more complex pattern of future emis- The process of the post-SRES analysis was started by a public
sions across the range of SRES scenarios reflects the invitation to modellers. A “Call for Scenarios” was sent to
recent scenario literature. more than one hundred researchers in March 1999 by the Co-
• Describing potential future developments involves ordinating Lead Authors of this chapter and the SRES to facil-
inherent ambiguities and uncertainties. One and only itate an assessment of the potential implications of mitigation
one possible development path (as alluded to for scenarios based on the SRES cases, which report was devel-
instance in concepts such as “business-as-usual sce- oped in support of the Third Assessment Report. Modellers
nario”) simply does not exist. And even for each alter- from around the world were invited to prepare quantified sta-
native development path described by any given sce- bilization scenarios for two or more concentrations of atmos-
nario, there are numerous combinations of driving pheric CO2, based on one or more of the six SRES scenarios.
forces and numerical values that can be consistent with Concentration ceilings include 450, 550 (minimum require-
Table 2.6: Post-SRES participants and quantified scenarios (indicated by CO2 stabilization target in ppmv)
Baseline scenarios A1B A1FI A1T A2 B1 B2
AIM 450, 550, 550 550 550 550

(NIES and Kyoto University, Japan) 650
ASF (ICF Corporation, USA) 550, 750
IMAGE (RIVM, Netherlands) 550 450
LDNE (Tokyo University, Japan) 550 550 550 550 550 550
MARIA (Science 450, 550, 450, 550, 450, 550 450, 550,
University of Tokyo, Japan) 650 650 650
MESSAGE-MACRO 450, 550, 450(*) , 550(*) 450, 550 550, 750 550
(IIASA, Austria) 650 650(*), 750(*)
MiniCAM (PNNL, USA) 550(*) 450, 550, 550 450, 550 550 (*)
650, 750
PETRO 450, 550, 450, 550

(Statistics Norway, Norway) 650, 750 650, 750
WorldScan (CPB, Netherlands) 450 (**), 550(**) 450, 550(**) 450(**), 550 450(**), 550
Notes: (*) High and low baselines were used; (**) An early action and a delayed response were quantified.
ment), 650, and 750ppmv, and harmonization with the SRES duced scenarios of them from outside of their models for esti-
scenarios was required by tuning reference cases to SRES val- mating atmospheric concentrations of CO2.
ues for GDP, population, and final energy demand.
In order to check the performance of CO2 concentration stabi-
Nine modelling teams participated in the comparison pro- lization for each post-SRES mitigation scenario, a special
gramme, including six SRES modelling teams and three other “generator” (Matsuoka, 2000) was used by the modelling
teams: AIM team (Jiang et al., 2000), ASF team (Sankovski et teams to convert the CO2 emissions into CO2 concentration tra-
al., 2000), IMAGE team, LDNE team (Yamaji et al., 2000), jectories. In addition, the generator was used by them to esti-
MESSAGE-MACRO team (Riahi & Roehrl, 2000), MARIA mate the eventual level of atmospheric CO2 concentration by
team (Mori, 2000), MiniCAM team (Pitcher, 2000), PETRO 2300, based on the 1990 to 2100 CO2 emissions trajectories
team (Kverndokk et al., 2000) and WorldScan team (Bollen et from the scenarios. This generator is based on the Bern Carbon
al., 2000). Table 2.6 shows all the modelling teams and the sta- Cycle Model (Joos et al., 1996), which was used in the IPCC
bilized concentration levels which were adopted as stabiliza- SAR (IPCC, 1996) and TAR (IPCC, 2001). Using this genera-
tion targets by each one. Most of the modelling teams covered tor, each modelling team adjusted their mitigation scenarios so
more than two SRES baseline scenarios, and half of them that the interpolated CO2 concentration reached one of the
developed multiple stabilization cases for at least one baseline, alternative fixed target levels at the year 2150 within a 5%
so that a systematic review can be conducted to clarify the rela- error. The year 2150 was selected based on Enting et al. (1994)
tionship between baseline scenarios and mitigation policies who gave a basis for stabilization scenarios of the IPCC SAR
and/or technologies. (IPCC, 1996).13 A further constraint imposed was that the
While all baselines were analyzed, the A1B baseline was most
13 Enting et al. (1994) selected the timings to reach alternative target
frequently used. Across baselines, the stabilization target of
550ppmv seemed to be the most popular. Because of time con- levels in 2100 year for 450ppmv, 2150 year for 550 ppmv, 2200 year
straints involved in quantifying the stabilization scenarios, the for 650ppmv, and 2250 year for 750ppmv. Post-SRES modellers
selected only the year 2150 for all the stabilization targets; this deci-
modelling teams mostly focused their analyses on energy-relat-
sion was a consequence of the tight time constraints the modelling
ed CO2 emissions. However, about half of the modelling teams faced for preparation of the scenarios. As a result, 450ppmv
teams, notably the AIM, IMAGE, MARIA, and MiniCAM stabilization scenarios of post-SRES require slightly more reductions
teams, have quantified mitigation scenarios in non-energy CO2 of CO2 than those of IPCC (1995), while 650 and 750ppmv stabiliza-
emissions as well as in non-CO2 emissions. The modelling tion scenarios of post-SRES require slightly less reductions than those
teams that did not estimate non-energy CO2 emissions intro- of IPCC (1995), both during the period from now to 2150.
interpolated emission curve should be smooth after 2100, the mented through international negotiation and mechanisms with
end of the time-horizon of the scenarios. This adjustment the support of governments and multinational companies. New
played an important role in the post-SRES analyses for harmo- emission reduction technologies from developed countries will
nizing emissions concentrations levels across the stabilization enable developing countries to respond more rapidly and effec-
scenarios. The key driving forces of emissions such as popula- tively if barriers to technology transfer can be overcome. In
tion, GDP, and final energy consumption were harmonized in this high-growth world, the economic costs associated with the
baseline assumptions specified by the six SRES scenarios. response to climate change are likely to be bearable. In the
A1B scenario, where mitigation strategies may hit the limits of
2.5.2.2 Storylines of Post-SRES Mitigation Scenarios renewable energy supply, and in the A1FI scenario, carbon
removal and storage as well as higher end-use energy efficien-
The procedure for creating post-SRES mitigation scenarios cy will become major emission reduction options. In the A1T
was similar to the SRES process, even though the period for scenario, technology developments are such that mitigation
the post-SRES work was much shorter than that for the SRES policies and measures only require limited additional efforts.
and, in contrast to the SRES process, the exercise was volun-
tary and not mandated by the IPCC. The storyline approach of Developing and implementing climate change mitigation mea-
SRES indicates that different future worlds will have different sures and policies in the A2 world can be quite complicated.
mitigative capacities (cf. Chapter 1). Hence, the first step of the This is a result of several features embedded in the scenario
post-SRES scenario work was to create storylines for the miti- storyline: rapid population growth, relatively slow GDP per
gation scenarios. capita growth, slow technological progress, and a regional and
partially “isolationist” approach in national and international
In general, mitigation scenarios are defined relative to a base- politics. Because of all these serious challenges, the abatement
line scenario. If mitigation strategies are formulated and of GHG emissions in the A2 world becomes plausible only in
implemented in any of the future worlds as described within the situation when the negative effects of climate change
SRES, a variety of aspects of that world will determine the become imminent and the associated losses “outweigh” the
capacity to formulate and implement carbon reduction policies, costs of mitigation. The same features that make the A2 world
for instance: “non-receptive” to worldwide mitigation policies may exacer-
• The availability and dissemination of relevant knowl- bate the climate change effects and prompt nations to act.
edge on emissions and climate change; Measures such as a rapid shift towards high-tech renewable
• The institutional, legal, and financial infrastructure to energy or deep-sea carbon storage will be highly improbable in
implement mitigation policies and measures; the A2 world as a consequence of technology limitations.
• Entrepreneurial and/or governmental policies for gen- Instead, such relatively low-tech measures as limiting energy
erating innovation and encouraging the penetration of consumption, and capturing and using methane from natural
new technologies; and gas systems, coal mining, and landfills better fit the A2 world’s
• The mechanisms by which consumers and entrepre- economic and technological profile. The lack of global co-
neurs respond to changing prices and new products and operation may cause rather large regional variations in the fea-
processes. sibility and cost of mitigation policies and measures.
In the post-SRES process, it was difficult for the modelling The B1 world is also well equipped to formulate and imple-
teams to consider all of these aspects with relation to the SRES ment mitigation strategies, in view of its high economic growth
future worlds, because of their inherent complexity and the and willingness to co-operate at a global scale. In comparison
amount of time available for the work. However, some aspects with the A1 world, however, it will be confronted with higher
were considered by some modelling teams and these were marginal abatement costs, although total costs are much lower
reflected in the quantification assumptions. The rest of this sec- than in A1B or A1FI. This is because baseline carbon emis-
tion illustrates these major points in the form of storylines for sions are lower in the B1 world compared to the A1 world, a
each of the six SRES scenarios, which describe the relationship consequence of the emphasis on sustainable development in
between the kind of future world on the one hand and the B1. There will be intense monitoring and reporting of emis-
capacity for mitigation on the other. sions and climate change. The precautionary principle informs
international agenda setting and policy formulation, with gov-
The A1 world is well equipped to formulate and implement ernments taking responsibility for climate change-related pre-
mitigation strategies in view of its high-tech, high-growth ori- ventive and adaptive action. Tightening international standards
entation and its willingness to co-operate at a global scale, pro- generates incentives for further innovation towards energy-
vided the major actors acknowledge the need for mitigation. efficiency and low- and zero-carbon options. Educational cam-
There will be good monitoring and reporting on emissions and paigns are another important instrument. Developed regions
climate change, and possible signs of climate change will be support the less developed regions in a variety of ways, includ-
detected early and become part of the international agenda. ing transfer of energy-efficiency and renewable-energy related
Market-oriented policies and measures will be the preferred technologies. Carbon taxes are introduced; an elaborate phase-
response. Least-cost options will be searched for and imple- in mechanism for less developed regions is negotiated and
implemented. A part of the carbon tax revenue is used to com- electricity demand in developing countries present business
pensate some fossil-fuel exporters and for a fund to compen- opportunities no longer available in OECD countries.
sate those affected by climate change. Therefore, there exist a number of incentives for bilateral envi-
ronmental policy co-operation between R&D intensive coun-
In the B2 scenario actions to reduce GHG emissions are taken tries in the North and developing countries of the South.
mainly at a local or regional scale in response to climate Energy trade links, first for oil and later for natural gas and
change impacts. Environmentally aware citizens of the B2 methanol, will play an important seed role for new environ-
world will increasingly attribute damages to human-induced mental bilateral co-operation, leading to a regionally heteroge-
climate change. High-income countries, which are generally neous approach to GHG reduction.
less vulnerable to climate change impacts, will increasingly see
the need for climate policy action as a consequence of cost- 2.5.2.3 Comparison of Quantified Stabilization Scenarios
benefit analyses. With increasing costs of damage, counter-
measures challenge existing energy sector policies and institu- Based on the storylines, 76 stabilization scenarios were quan-
tional frameworks. Generally high educational levels promote tified as shown in Table 2.6. The assessment of the post-SRES
both development and environmental protection. Resource work in this section is restricted to the analysis of CO2 emis-
availability, economic development, and technical change are sions and energy use in the different model runs. The detailed
uneven over regions. In relative terms, R&D expenditures are comparison of macroeconomic costs of reducing CO2 emis-
expected to stay constant, but they will be more targeted sions costs is not dealt with here: Chapter 8 addresses this
towards cleaner and less carbon-intensive energy technologies. aspect of stabilization.
Existing bilateral trade links will foster bilateral technology
transfer from OECD countries to some developing countries. Figure 2.13 shows the CO2 emission trajectories of the 76 post-
This is because rapidly increasing energy and, in particular, SRES mitigation scenarios along with the ranges of SRES and
25 A2-750 ASF A2-750 MESSAGE

A1FI-750 MESSAGE A1FI-750 MESSAGE
A1FI-750 MiniCAM A1B-750 PETRO
Maximum in A2-750 PETRO A1B-650 AIM
literature A1B-650 MARIA A1T-650 MARIA
B2-650 MARIA A1B-650 MESSAGE
Maximum A1FI-650 MESSAGE A1FI-650 MESSAGE
in SRES A1FI-650 MiniCAM A1B-650 PETRO
20 A2-650 PETRO A1B-550 AIM
A2-550 AIM B1-550 AIM
B2-550 AIM A1FI-550 AIM
A2-550 ASF A1B-550 IMAGE
A1B-550 LDNE A2-550 LDNE
B1-550 LDNE B2-550 LDNE
A1FI-550 LDNE A1T-550 LDNE
15 A1B-550 MARIA A1T-550 MARIA
B1-550 MARIA B2-550 MARIA
A1B-550 MESSAGE A2-550 MESSAGE
GtC
B2-550 MESSAGE A1FI-550 MESSAGE

A1FI-550 MESSAGE A1T-550 MESSAGE
A1B-550 MiniCAM A2-550 MiniCAM
B1-550 MiniCAM B2H-550 MiniCAM
B2L-550 MiniCAM A1FI-550 MiniCAM
10 A1B-550 PETRO A2-550 PETRO
B1-550EA WorldScan B1-550-DR WorldScan
B2-550-EA WorldScan A1B-550-EA WorldScan
A1B-550-DR WorldScan A2-550-EA WorldScan
A2-550-DR WorldScan A1B-450 AIM
B1-450 IMAGE A1T-450 MARIA
A1B-450 MARIA B1-450 MARIA
B2-450 MARIA A1B-450 MESSAGE
5 A1FI-450 MESSAGE A1FI-450 MESSAGE
A1T-450 MESSAGE B1-450 MiniCAM
Minimum A1F1-450 MiniCAM A1B-450 PETRO
in SRES A2-450 PETRO B1-450-DR WorldScan
Minimum in B1-450-EA WorldScan B2-450-EA WorldScan
literature B2-450-DR WorldScan A1B-450-EA WorldScan
A1B-450-DR WorldScan A2-450-EA WorldScan
WGI550
0 WRE550
SRES-Minimum SRES-Maximum
1980 2000 2020 2040 2060 2080 2100 2120 Database Max Database Min.
Figure 2.13: The 76 post-SRES stabilization scenarios of world fossil fuel CO2 emissions. Different stabilization levels are indi-
cated by colour, with 750ppmv in red, 650ppmv in black, 550ppmv in blue, and 450ppmv in green. For comparison, the minimum
and maximum of the ranges of scenarios from the literature (grey) and the SRES (yellow) as well as the WRI and WRE 550ppmv
stabilization scenarios (bold black) are also shown.
other published scenarios. Quantifications differ with respect component in bringing down the costs of mitigation options
to the baseline scenario including assumed storyline, the stabi- and their contribution to the emissions reduction. The A1FI sta-
lization target, and the model that was used. As shown in bilization scenarios, which are based on the highest baseline
Figure 2.13, the post-SRES scenarios cover a very wide range emissions, require much larger emission reductions than the
of emission trajectories, but the range is relatively below the A1T stabilization scenarios. The role of technology has been
SRES range, and they are apparently classified into groups found to be crucial in the A1 scenario variants.
according to the different stabilization targets. The figure
shows the WRE late-response scenario and WGI early-action Morita et al. (2000a) compared all the stabilization variants in
scenario for 550ppmv stabilization to compare with post-SRES detail and found several common characteristics among these
scenarios, and it shows that the post-SRES range covers a scenarios. These findings are as follows:
much wider range than that between WRE and WGI. • Comparing the CO2 emissions reductions from SRES
baselines, the models have many points in common, but
Figure 2.14 shows the comparison of SRES and post-SRES there are also some clear differences. All models show
scenario ranges in total global CO2 emissions. The post-SRES an increase in CO2 reduction over time. This reflects
ranges are estimated based on the selected scenarios quantified the strong constraint of atmospheric CO2 concentration.
by SRES participants in order to compare the formal SRES There is a considerable range in reductions among
ranges in Nakicenovic et al. (2000). It is shown clearly in the models in early years. However, most models achieve a
figure that concentration stabilization requires much more similar proportional reduction from the baseline over
reduction of CO2 emissions under development paths with high the observation period.
emissions such as A1FI and A2 than under development paths • For achieving stabilization at 550ppmv, the highest
such as B1 and B2. These differences in reduction require- reductions in CO2 emissions compared to the baseline
ments result in selection of different technology and/or policy are observed in the A2 family. B1 shows the lowest
measures and, as a consequence, different costs to stabilize reductions. CO2 reduction at the end of the 21st century
concentrations even at the same level. In the A1 scenario fam- ranges in A2 between 75% and 80%, A1B between
ily, with its different scenarios in technological development 50% and 75%, B2 between 40% and 70%, and B1
(A1B, A1FI, and A1T), technological change is also a key between 5% and 40%.
40 40 40
IPCC SRES A1B Scenarios IPCC SRES A1T Scenarios IPCC SRES A1FI Scenarios
30 A1FI
30 30
20 20 20
A1B
10 650 10 A1T 10 750

550 650 650
450 550 550
450 450
0 0 0
1990 2010 2030 2050 2070 2090 1990 2010 2030 2050 2070 2090 1990 2010 2030 2050 2070 2090
40 40 40
IPCC SRES A2 Scenarios IPCC SRES B1 Scenarios IPCC SRES B2 Scenarios
30 30 30
A2
20 20 20
B2
750
10 10 10 650
550 B1
550 550
450 450
0 0 0
1990 2010 2030 2050 2070 2090 1990 2010 2030 2050 2070 2090 1990 2010 2030 2050 2070 2090
Figure 2.14: Comparison of SRES and post-SRES scenario ranges in total global CO2 emissions. The post-SRES ranges are esti-
mated based on the selected scenarios quantified by SRES participants in order to compare SRES ranges.
MiniCAM
A1FI, A2
PETRO MESSAGE
450 A1B, B2
ppmv MARIA
A1T, B1
AIM
A1FI, A2
550 LDNE
ppmv A1B, B2
AIM
LDNE
A1T, B1
A1FI, A2
650, 750 MiniCAM PETRO MESSAGE
A1B, B2
ppmv
MARIA
A1T, B1
1980 2000 2020 2040 2060 2080 2100 2120
Figure 2.15: Timing when the stabilization scenarios achieve a reduction of 20% of global energy-related CO2 baseline emis-
sions, compared across stabilization targets as well as baselines. Slanted lines join scenarios quantified by the same model.
• The target stabilization level also significantly affects First, a CO2 reduction index was compared among stabilization
the CO2 reduction, even when based on the same base- levels as well as among SRES worlds. This index is calculated
line scenario. In the 450ppmv stabilization case, the by subtracting baseline emissions from mitigation scenario
reduction reaches 70% to 100%14 of A1B baseline emissions. In general, the lower the stabilization level that is
emissions at the end of the 21st century. required, as well as the higher the level of baseline emissions
• Energy consumption reductions are more complicated caused by the selected development path, the larger the CO2
among models. There is no strong relationship between divergence from the baseline that is needed in all the regions.
the level of energy consumption and the stabilization However, it does not simply follow from the larger divergence
level. in emissions that there is an earlier divergence from the base-
• Different baselines lead to different macroeconomic line.
costs in order to reach a stabilization target. In spite of
the wide range among models, A2 would be the most The impact on the timing of emission reduction of both the sta-
expensive case while B1 would require the lowest cost bilization level and the baseline level of emissions is further
for stabilization at 550ppmv. The GDP loss in B1 elaborated in Figure 2.15. This figure shows when the reduc-
would be less than one-tenth that in the A1B case, and tion in energy-related CO2 emissions in each stabilization sce-
less than one-twentieth that in the A2 case. nario would reach 20% of baseline emissions. This figure indi-
• The CO2 reduction and macroeconomic costs are also cates that more stringent stabilization targets require earlier
significantly affected by the target stabilization level, emission reductions from baseline levels. Higher emission
even when based on the same baseline scenario. The worlds such as A1F1 and A2 also require earlier reduction than
economic cost for 450ppmv stabilization would be lower emission worlds such as A1T and B1.
around three times that for 550ppmv, and six to eight
times that for 650ppmv. These relationships can be A key policy question is what kind of emission reductions
observed at both the global and regional levels. would be needed in the medium term, after the commitment
• Different stabilization targets also require different tim- period of the Kyoto Protocol (assuming that it will be imple-
ing for the introduction of reduction policies. The mented). Figure 2.16 shows the percent reduction in energy-
450ppmv stabilization case requires drastic emission related CO2 emissions in Annex I countries from 1990 for the
reductions that occur earlier than under the 650ppmv various stabilization cases. Since the first commitment period
case. Very rapid increases in emission reduction over of the Kyoto Protocol ends in 2012, this can give some indica-
20 to 30 years are also observed in the 450ppmv stabi- tion of the extent to which emission reduction commitments
lization case. after 2012 would be needed to achieve the various stabilization
levels. It should be noted that about two thirds of the scenarios
In order to compare the scenarios in further detail, several assume that developing countries have already diverged from
indices were calculated for this review. their baseline emission trajectories in 2020. Another point is
that the post-SRES scenarios were not developed specifically
to include the Kyoto targets, so there is a range of Annex I
14 The 100% reduction scenario based on LDNE assumes the large emission reductions (from 1990 levels) in 2010, 2020 and
scale introduction of carbon sequestration technologies. 2030. The mid-course scenarios are indicated in Figure 2.16 as
Stabilization Year 25th percentile

level 6% 19%
2010
450
ppmv 2020
2030
11% 52%
–5% 11%
2010
550
ppmv 2020
2030
–8% 18%
–9% 6%
2010
650, 750
ppmv 2020
2030
–21% –4%
75th percentile
–80% –60% –40% –20% 0% 20% 40% 60% 80% 100%
Figure 2.16: The reduction of energy-related CO2 emissions from 1990 levels in Annex I countries for stabilization at 450ppmv,
550ppmv, and 650–750ppmv. For each stabilization level, emission reductions are shown for the years 2010 (upper lines), 2020
(middle lines), and 2030 (lower lines). Shaded areas show the range between the 25th and 75th percentiles of the frequency dis-
tribution of the scenarios.
the range between the 25th and 75th percentiles of the frequen- This suggests that achievement of stabilization at 450ppmv will
cy distribution of the scenarios. require emissions reductions in Annex I countries by 2020 that
go significantly beyond their Kyoto Protocol commitments for
Figure 2.16 shows that: 2008 to 2012.15 It also suggests that it would not be necessary
• In the 450ppmv stabilization scenarios, the middle to go much beyond the Kyoto commitments for Annex I coun-
range (between the 25th and 75th percentiles) of Annex tries (assuming as indicated that developing countries diverge
I emissions in 2010 lies between the Kyoto target and a from their baselines by 2020) to achieve stabilization at
19% reduction from 1990 levels. This range increases 550ppmv or higher. However, it should be recognized that sev-
after 2010, as does the decrease in Annex I emissions eral scenarios do indicate the need for significant emission
that would be needed to achieve stabilization at 450 reductions by 2020 in order to achieve these stabilization lev-
ppmv. The percent reduction from 1990 levels in the els. These findings should be interpreted in light of the facts that
middle range of scenarios is 13%–34% in 2020 and CO2 concentrations are assumed to reach one of the alternative
11%–52% in 2030; fixed target levels in the year 2150, and unlike “emission cor-
• In the 550ppmv stabilization scenarios, the middle ridor” analyses, these scenarios do not introduce other condi-
range of Annex I emissions in 2010 is around the Kyoto tions such as a constraint on the rate of temperature increase.
target (from an 11% decrease to a 5% increase from
1990 levels); in 2020, the middle range of emissions Another important policy question concerns the participation
lies between a 17% decrease and an 8% increase from of developing countries in emission mitigation. As a first step
1990 levels; and in 2030, it lies between an 18% in addressing this question, the post-SRES scenarios were
decrease and an 8% increase from 1990 levels. The evaluated according to when per capita CO2 emissions in
average level of emissions slightly decreases after Annex I countries would fall below per capita emissions in
2010; and non-Annex I countries, assuming that all CO2 emission reduc-
• The 650 or 750ppmv stabilization scenarios show sim- tion necessary for stabilization would occur in Annex I coun-
ilar changes in emission levels in 2010 compared to tries and that non-Annex I countries would emit CO2 without
1990, and few of them show any additional reduction in
Annex I emissions after 2010. The middle range of
emissions lies between an increase of 1%–17% from 15 It should be noted, however, that a few scenarios show the possi-
1990 levels in 2020, and an increase of 4%–21% from bility of achieving 450ppmv stabilization even if the initial Kyoto
1990 levels in 2030. commitments are not met, provided that emissions decline sufficient-
ly by 2020.
A1FI, A2
WorldScan WorldScan
450 A1B, B2
ppmv MARIA
A1T, B1
AIM
A1FI, A2
LDNE MiniCAM
550
A1B, B2
ppmv AIM
MESSAGE
A1T, B1
AIM MARIA
A1FI, A2
PETRO MESSAGE
650, 750 A1B, B2
ppmv
A1T, B1
2000 2020 2040 2060 2080 2100 2120
Figure 2.17: Timing of when per capita CO2 emissions in Annex I countries would fall below per capita CO2 emissions in non-
Annex I countries, assuming that all CO2 emission reduction necessary for stabilization would occur in Annex I countries and
that non-Annex I countries would emit CO2 without any controls.
any controls. This hypothetical assumption permits the analy- ing towards low-carbon or carbon free energy to the impact of
sis of one of the determinants of when non-Annex I emissions energy intensity reduction. The response index is the ratio of
might begin to diverge from baseline levels. The results are the change in carbon intensity to the change in primary energy
shown in Figure 2.17 for each stabilization level and for three intensity16.
groups of SRES baselines.
When energy intensity reduction is relatively larger than car-
Figure 2.17 shows that: bon intensity reduction, the index shows more than 1.0, and
• Assuming that all the CO2 reductions for concentration less than 1.0 in the opposite case.
stabilization are undertaken in Annex I countries, most
of the post-SRES scenarios indicate that per capita It is clear from Figure 2.18 that the priority of response to
Annex I emissions would fall below per capita non- reduce CO2 emissions would change over time. Energy inten-
Annex I emissions in the 21st century. This situation sity reduction would be relatively larger than carbon intensity
occurs before 2050 in two-thirds of the scenarios. Only reduction in the beginning of 21st century, but these would be
in the A1T or B1 worlds would per capita CO2 emis- of equal weight by the middle of the century. The impact of
sions in developing countries remain below those of energy intensity reduction would be saturated towards the end
developed countries in the 21st century. of the 21st century, and the use of low-carbon or carbon-free
• These timings are significantly affected by the time energy sources would become relatively much larger. This pat-
series of emission reductions in the scenarios, and con- tern is generally consistent across the stabilization levels. The
sequently they diverge in the scenarios. However, com- lower the stabilization target, the higher the relative importance
parison within individual models suggests that the of energy intensity reduction in the beginning of the 21st cen-
lower the stabilization level, the earlier that Annex I per tury, and the higher the relative importance of low-carbon or
capita emissions fall below non-Annex I per capita carbon free energy towards the end of the 21st century.
emissions. Stabilization scenarios based on higher
emission worlds such as A1FI and A2 also tend to show These trends are important, but it is necessary at the same time
earlier timing for Annex I to fall below non-Annex I per to understand the model assumptions behind them. Most of the
capita emissions compared to scenarios based on the models do not accommodate very well structural and con-
lower emission worlds of B1 or A1T. This suggests that sumption-pattern-related efficiency measures (e.g., advanced
the stabilization target and the baseline emission level dematerialization, major structural change, and changes in con-
are both important determinants of the timing when sumption patterns and lifestyles). A few cases which incorpo-
developing countries’ emissions might need to diverge
from their baseline emissions.
16
In order to assess priority setting in energy intensity reduction (Cit , MS / CIt , BS )
R=
or in carbon intensity reduction, a “response index” was calcu- ( EIt , Ms / EIt , BS )
lated for all stabilization variants of post-SRES scenarios for In this expression, CI denotes carbon intensity and EI energy inten-
the years 2020, 2050, and 2100, as shown in Figure 2.18. This sity. The indices BS and MS refer to the baseline and mitigation sce-
index relates the impact on CO2 emission reduction of switch- nario, respectively; the time is given by t.
10.00 10.00
(2020) (2050) (2100)
Energy efficiency
more important
Response index
1.00 1.00 1.00
Carbon efficiency
more important
0.10 0.10 0.10

350 450 550 650 750 850 350 450 550 650 750 850 350 450 550 650 750 850
Figure 2.18: Response index to assess priority setting in energy intensity reduction (more than 1.0) or in carbon intensity reduc-
tion (less than 1.0) for all stabilization variants of post-SRES scenarios in 2020, 2050, and 2100.
rate drastic changes in social structure (e.g., some of the sce- As shown in this figure, some interesting trends can be
narios based on AIM and WorldScan) give relatively high pri- observed:
ority to energy efficiency improvement even in the latter half • In the development-emphasized worlds (A1B and A2)
of 21st century. climate policy would reduce per capita final energy in
both the Annex I and non-Annex I countries, while in
A per capita final energy index was calculated in order to ana- the environment-emphasized worlds (B1 and B2) cli-
lyze equity between North and South. Since one of the weak mate policy would have little effect on energy use.
points of quantified scenario analysis concerns equity or “bur- These impacts would slightly improve equity in per
den sharing”, the comparison of this kind of index is very capita final energy use between the Annex I and non-
important. Even though the per capita income is the most pop- Annex I countries, because the reduction in energy use
ular index to analyze equity, this index was not estimated by all caused by climate policies would be larger in Annex I
the modelling teams. Therefore, final energy consumption per than in non-Annex I.
person in each region was adopted as an appropriate index for • However, the impact of climate policies on equity in
the equity analysis, because this index is closely related to per per capita final energy use would be much smaller than
capita economic welfare. Figure 2.19 shows this index (in that of the future development path. The differences
GJ/capita) among the OECD, EFSU, ASIA and ALM regions17 among the various SRES baseline conditions have the
for all post-SRES and SRES variants over the period 1990 to largest impact upon whether per capita energy use val-
2100. ues converge between Annex I and non-Annex I coun-
tries, with the highest degree of convergence occurring
in the A1B and B1 worlds. This can be seen in Figure
2.19 by comparing the (smaller) change in energy use
between regions within each of the four columns (i.e.,
17 These regional aggregations were defined by Nakicenovic et al.
between the baseline and the 55ppmv stabilization sce-
(2000). OECD: OECD member countries as of 1990; EFSU: the East nario for each world) with the (much larger) change
and Central European countries and Former Soviet Union; ASIA: all between regions across each of the two rows (i.e.,
non-Annex I countries in Asia (excluding the Middle East); ALM: across the baseline or across the 550ppmv stabilization
Africa, Latin America, and the Middle East, and the rest of the world. scenario).
300 A1B post-SRES 300 A2 post-SRES 300 B1 post-SRES B2 post-SRES

300
Annex I OECD90
Per Capita Final Enery Use (GJ/capita)
Non Annex I EFSU

250 250 250 250
ASIA
ALM
200 200 200 200
150 150 150 150
100 100 100 100
50 50 50 50
0 0 0 0
1950 2000 2050 2100 2150 195 2050 2100 2150 1950 2000 2050 2100 2150 1950 2050 2100 2150
300 A1B SRES 300 A2 SRES 300

B1 SRES B2 SRES
300
Per Capita Final Enery Use (GJ/capita)
250 250 250 250
200 200 200 200
150 150 150 150
100 100 100 100
50 50 50
0 0 0 0
1950 2000 2050 2100 2150 1950 2000 2050 2100 2150 1950 2000 2050 2100 2150 1950 2000 2050 2100 2150
Figure 2.19: An equity index to compare per capita final energy use (GJ/capita) between the Annex I (pink) and non-Annex I
(blue) countries for all post-SRES (550ppmv stabilization) and SRES (baseline) variants from 1990 to 2100. Climate policy has
a much smaller impact on equity in energy use than does choice of development path. This can be seen by comparing the change
in energy use within each of the four worlds (i.e., between the baseline and the 550ppmv stabilization for each world) with the
change among the worlds (i.e., across the baselines or across the 550ppmv stabilization).
Though the analyses described above mainly focus on CO2 dependent on the model structure. MESSAGE-MACRO,
emissions from energy consumption, it is also important to LDNE, and MARIA are dynamic optimization-type models
consider non-CO2 emissions as well as non-energy-related that incorporate detailed supply-side technologies; once a con-
CO2 emissions. However, very few scenarios that include these straint on CO2 emission or concentration is imposed, the opti-
emissions have been quantified and therefore it was not possi- mal set of technology and/or policy measures (focusing on
ble to include this additional review in this report. Some of the energy supply) is automatically selected in the model. AIM and
nine modelling approaches used here do include other radia- IMAGE are recursive simulation-type models which integrate
tively active gases. However, the mitigation and/or stabiliza- physical and land-use modules rather than focus on energy
tion scenarios include explicit limitations only on CO2 emis- demand, so that highly detailed technology and/or policy mea-
sions, and hence the reductions in other gases are indirect sures are assumed for each region and time as exogenous sce-
results (or ancillary benefits) of the CO2 reduction measures. narios. ASF, MiniCAM, PETRO, and WorldScan are other
types of integrated models focusing on the economics of ener-
2.5.2.4 Comparison of Technology and/or Policy Measures gy systems. In these models, only a carbon tax is used for the
and Assessment of Robustness post-SRES analyses.
Assumed technology and/or policy options differ among mod- In order to reduce CO2 and other GHG emissions, each model-
els (Morita et al., 2000a). These differences are strongly ling team assumed specific technology and/or policy measures
Table 2.7: Sources of emissions reduction for 550ppmv stabilization across the nine post-SRES models.
Minimum-maximum and (median) at 2100 (GtC)
A1B A1FI A1T A2 B1 B2
Substitution among -0.1 – 2.2 0.2 – 11.8 0.1 – 0.1 2.4 – 5.4 0.0 – 0.2 0.6 – 2.7
fossil fuels (0.97) (1.82) (0.09) (2.95) (0.09) (1.35)
Switch to nuclear 0.3 – 6.4 -2.4 – 1.9 0.0 – 2.0 0.3 – 1.7 0.0 – 3.1 -0.2 – 5.1
(0.55) (1.20) (1.03) (1.18) (0.02) (2.28)
Switch to biomass -0.8 – 1.5 -0.2 – 5.5 -0.2 – 0.3 1.1 – 3.8 0.0 – 4.3 -1.9 – 1.5
(1.03) (2.50) (0.07) (1.84) (0.04) (0.63)
Switch to other 0.1 – 2.5 0.6 – 15.1 -0.1 – 0.0 2.2 – 6.7 0.1 – 0.3 0.1 – 3.2
renewables (1.51) (2.70) (-0.05) (3.33) (0.28) (2.07)
CO2 scrubbing and 0.0 – 4.7 0.0 – 23.8 0.5 – 1.6 0.0 – 5.8 0.0 – 1.1 0.0 – 3.0
removal (0.00) (0.39) (1.06) (0.00) (0.00) (0.63)
Demand reduction 0.5 – 6.6 1.9 – 17.7 0.0 – 0.2 5.2 – 15.6 0.1 – 0.3 0.7 – 3.5
(0.94) (10.4) (0.11) (10.21) (0.08) (1.64)
TOTAL reduction 7.1 – 11.9 21.7 – 30.5 0.3 – 4.4 21.7 – 26.9 0.2 –9.6 6.0 – 10.6
(9.16) (21.1) (2.31) (22.81) (0.39) (8.14)
Note: Emission reductions are estimated by subtracting the mitigation value (in GtC) from the baseline value (in GtC) of each scenario.
for its scenario quantification. The main reduction measures concentrations. Across the scenarios, the contributions of
are: demand reduction, substitution among fossil fuels, and switch-
• demand reductions and/or efficiency improvements; ing to renewable energy are all relatively large. The contribu-
• substitution among fossil fuels; tions of nuclear energy, of CO2 scrubbing and removal differ
• switch to nuclear energy; significantly among the models and also across the post-SRES
• switch to biomass; scenarios.
• switch to other renewables;
• CO2 scrubbing and removal; and With respect to the role of biofuels, it should be noted that the
• afforestation. models assume trade in biofuels across regions; hence, bio-
mass produced in Africa and/or South America can satisfy the
Table 2.7 summarizes the contribution of these emission miti- fuel needs of Asia. In all mitigation scenarios, the additional
gation options and/or measures for the post-SRES scenarios. role of biomass, as a mitigation option, is limited and the world
The table shows the emission reduction (in GtC) between the supply never exceeds 400EJ/yr; this is possible because the
baseline and the mitigation and/or stabilization cases, corre- other options (solar and/or wind, nuclear, and CO2 removal and
sponding to the first six points of the list above. For simplicity, storage) also play a key role in mitigation strategies. Table 2.8
the total ranges as well as the median value in 2100 are shown shows the ranges in primary biomass use in 2050 in the post-
only for the 550ppmv stabilization case. As shown in Table 2.7, SRES scenarios.
no single source will be sufficient to stabilize atmospheric CO2
Table 2.8: Ranges of primary use of biomass in 2050 in the post-SRES scenarios (EJ)
Stabilization target A1B A1FI A1T A2 B1 B2
450ppmv 246 - 328 226 - 246 137 - 246 128 96 - 186 127 - 189
550ppmv 76 - 228 78 - 217 74 - 217 22 - 232 36 - 176 27 - 157
650ppmv 0 -180 143 -184 133 (*) 121
750ppmv (*) 131 25 - 63
Note: As the PETRO model does not separate biomass energy from primary energy, no number is filled in (*).
To contribute to a synthesis of findings, each modelling team role in the B1 and B2 scenarios. In the case of A1B and
was asked to respond to the following questions about the pol- A2, PV would increase rapidly especially in the Middle
icy implications of the scenarios: East and North Africa (ALM) where PV panels could
• How do technology and/or policy measures vary be set in wide desert areas. For the entire SRES world,
among different baselines for a given stabilization methanol would be made from hydrogen (H2) and car-
level? bon monoxide (CO) through gas splitting mainly in the
• How does the stabilization level affect the technology Former Soviet Union and Eastern Europe (EFSU)
and/or policy measures used in the scenarios? where there are plenty of natural gas resources. Wind
• What packages of technology and/or policy measures energy production would play an important role in
are robust enough to beeffected in the different baseline North America (LDNE team: Yamaji et al., 2000).
worlds? • In the A1B and A1T worlds, expansion of biomass uti-
lization is the major strategy, rather than nuclear power,
As shown in Table 2.7, high emission worlds such as A1FI, A2, for carbon emission control in OECD and EFSU. In the
and A1B require a larger introduction of energy demand reduc- latter, biomass mainly substitutes for natural gas in
tion, switching to renewable energy, and substitution among public and other sectors, and a shift from coal to natur-
fossil fuels, in comparison to other SRES worlds. The contribu- al gas in the industry sector is also observed. Nuclear
tion of CO2 scrubbing and removal is largest in the A1FI stabi- power is mainly used in the Asia-Pacific and ALM
lization scenarios, while mitigation measures in the A1T world regions. In contrast, the B1 scenarios give very similar
depend mainly on a switch to nuclear power as well as carbon figures among regions, except for a small increase of
scrubbing and removal. Biomass energy steadily contributes biomass in the OECD region. Carbon sequestration is
across the SRES worlds and also across stabilization targets. implemented in all regions for the purpose of carbon
emission control. B2 scenarios are basically similar to
The following summarizes more detailed differences in tech- those of the A1 family, except that nuclear energy and
nology and/or policy measures across the regions as well as the biomass are introduced in the OECD region (MARIA
different SRES worlds: team: Mori, 2000).
• The timing and the pace of the emissions reduction are • In the A1 and B1 families, technology transfer to devel-
particularly influenced by the region’s resource avail- oping countries would occur with respect to renewable
ability. Regions with large amounts of cheap fossil fuel energy production, unconventional oil and gas
reserves and resources (ASIA: coal; EFSU: natural gas) exploitation, and nuclear power generation. In these
rely comparatively longer on fossil fuel-based power worlds, there would be a large increase in biomass use
generation. In the long run the emissions mitigation in the Asia and ALM regions. Coal is mainly produced
measures are predominantly the result of the technolo- in the Asia-Pacific region. Nuclear technology is wide-
gy assumptions consistent with the scenario storylines. ly used in developing regions. In the A2 and B2 worlds,
In the fossil-intensive A2 scenario, emissions reduction energy supply and use heavily depend on local energy
for 2100 in ASIA and EFSU are mainly a result of shifts resources because of international trade barriers. The
to advanced fossil technologies in combination with Asia-Pacific region will rely on nuclear energy and
carbon scrubbing and/or removal and increasing shares coal, while ALM may use much renewable energy. The
of solar-photovoltaic, and advanced nuclear technolo- OECD region makes much use of advanced end-use
gies. For the B2 scenario, the shift towards non-fossil technology and modern renewable energy technolo-
fuels in ASIA and EFSU is more complete, and hence, gies. Large gas resources in the EFSU region can satis-
scrubbing plays a less important role. In A2 and B2, fy much of the energy demand in that region (AIM
synthetic fuel production from biomass plays a key role team: Jiang et al., 2000).
in the ALM region. In both scenarios the emissions mit- • The allocation of carbon “taxes” across regions based
igation in the OECD region is because of shifts to wind, on their per capita GDP levels leads to substantial dif-
solar-photovoltaic, biomass, and nuclear technologies. ferences in levels of CO2 reductions relative to the
In the OECD, fossil fuels contribute roughly 30% to the baseline. The largest relative reductions are implement-
power generation, which comes predominantly from ed in regions with relatively high per capita GDP
fuel cells (MESSAGE-MACRO team: Riahi and growth (e.g., OECD) and regions with a relatively low
Roehrl, 2000). cost of renewable energy (Latin America). The lowest
• In the 550ppmv cases, the composition of primary relative reductions are achieved in regions with low per
energy is diversified, with increased shares of various capita GDP and a relatively high cost of renewable
renewable energy sources, nuclear power, and natural energy (e.g., Africa) (ASF team: Sankovski et al.,
gas. Among the renewable energy sources, photo- 2000).
voltaics (PV) seem to be the most promising abatement • Assuming that there are no constraints on fuel trade, the
measure in the A1 and A2 scenarios, where the final Middle East and later the Commonwealth of
energy demands grow quite substantially, while CO2 Independent States (CIS) will still be major fossil fuel
recovery and disposal measures play a very important exporters; their revenues may decline significantly by
the middle of the 21st century as a consequence of car- to be made and these may well imply the need to sig-
bon mitigation measures. Parts of Africa and South nificantly further redirect the energy system
America may develop into important biofuel exporters. (MiniCAM and WorldScan teams); and
High-income regions with limited fossil fuel resources, • Energy systems would still be dependent on fossil fuels
such as Europe and the USA, will probably be among at more than 20% of total primary energy over the next
the first to introduce high-efficiency and non-carbon century, even with the stabilization of CO2 concentra-
technologies. This results over time in sizeable cost tion (LDNE and WorldScan teams).
reductions, enabling less industrialized regions to
replace their indigenous coal use by these relatively The post-SRES analyses supplied several other findings from
capital-intensive supply side options. individual model simulations. The AIM and the MESSAGE-
MACRO teams as well as other teams found that technological
One of the major results of the post-SRES analyses is the iden- progress plays a very important role in stabilization, and that
tification of “robust climate policy options” across the differ- knowledge transfer to developing countries is a key issue in
ent SRES worlds as well as across different stabilization tar- facilitating their participation in early CO2 emission reduction.
gets. Most of the modelling teams have identified several such With respect to policy integration, the AIM team found that
options based on their simulations. The following list summa- integration between climate policies and domestic policies
rizes the major findings: could effectively reduce GHGs in developing regions from
• Robust policies include technological efficiency their baselines, especially for the next two or three decades. On
improvements for both energy use technology and the other hand, the MESSAGE-MACRO team estimated that
energy supply technology, social efficiency improve- regional air pollution control with respect to sulphur emissions
ments such as public transport introduction, demateri- tends to: (1) amplify global climate change in the medium-term
alization promoted by lifestyle changes and the intro- perspective, and (2) accelerate the shift towards less carbon
duction of recycling systems, and renewable energy (and sulphur) intensive fuels such as renewables. The
incentives through the introduction of energy price MiniCAM team concluded that agriculture and land use and
incentives such as a carbon tax (AIM, IMAGE, energy system controls need to be linked, and that failure to do
MARIA, MiniCAM (Pitcher, 2000), PETRO this can lead to much larger than necessary costs.
(Kverndokk et al., 2000), and WorldScan teams);
• It would be reasonable to start with energy conserva- The above results are found with robust technology and/or pol-
tion and reforestation to cope with global warming. icy measures across the SRES worlds and across different sta-
However, innovative supply-side technologies will bilization targets, and many of them are common among dif-
eventually be required to achieve stabilization of ferent modelling teams. A part of these common results can be
atmospheric CO2 concentration (AIM, ASF, IMAGE, tested by more detailed analyses of emission reduction sources,
and LDNE teams); shown in Table 2.7. This table as well as time series analyses
• Robust options across the SRES worlds are natural gas of the contribution of sources clearly show that:
and the use of biomass resources. Innovative transi- • Large and continuous energy efficiency improvements
tional strategies of using natural gas as a “bridge” are common features of mitigation scenarios in all the
towards a carbon-free hydrogen economy (including different SRES worlds;
CO2 sequestration) are at a premium in a possible • Introduction of low-carbon energy is also a common
future world with low emissions (MESSAGE- feature of all scenarios, especially biomass energy intro-
MACRO, AIM, MARIA, and MiniCAM teams); duction over the next one hundred years and natural gas
• In all mitigation scenarios, gas combined-cycle tech- introduction in the first half of the 21st century;
nology bridges the transition to more advanced fossil • Solar energy and other renewable energy sources could
(fuel) and zero-carbon technologies. The future elec- play an important role in climate stabilization in the lat-
tricity sector is not dominated by any single dominant ter half of the 21st century, especially for higher emis-
technology, however, hydrogen fuel cells are assumed sion baselines or lower stabilization levels; and
to be the most promising technology among all stabi- • Mitigation scenarios with reduced fossil fuel use will
lization cases (MESSAGE-MACRO, IMAGE, and further decrease regional sulphur emissions and hence
MiniCAM teams); open up the possibility of earlier and larger climate
• Climate stabilization requires the introduction of natur- change effects.
al gas and biomass energy in the first half of the 21ST
century, and either nuclear energy or carbon removal 2.5.2.5 Summary of Post-SRES Scenario Review
and storage in the latter half of the century as the cost
effective pathways. Carbon removal and storage has a A new type of policy assessment has been conducted by the
role to play in high emission worlds such as A1FI and post-SRES activities, with nine modelling teams quantifying
A1B for the serious or moderate targets (LDNE, various simulation cases. Even though stabilization scenarios
MiniCAM, and MARIA teams); show a range among the models, several common trends and
• Even in the B1 world there are very difficult decisions characteristics can be observed.
The different SRES baseline worlds require different technology have a greater mitigation potential than reductions in the
gy and/or policy measures to stabilize at the same level. The energy intensity of GDP in the latter half of the 21st century,
A1F1, A1B, and A2 worlds require a wider range of stronger while energy intensity reduction is greater than carbon intensi-
technology and/or policy measures than A1T, B1, and B2. For ty reduction in the beginning of the century. This result appears
example, energy efficiency improvements in all sectors, the to be robust across the storylines and stabilization levels, if
introduction of low-carbon energy, and afforestation would all drastic social changes are not assumed for energy efficiency
be required in the A1F1, A1B, and A2 worlds in the first half improvement. In an A1B or A2 world, either nuclear power or
of the 21st century, with the additional introduction of carbon sequestration would become increasingly important for
advanced technologies in renewable energy and other energy GHG concentration stabilization, the more so if stabilization
sources in the second half of the 21st century. The level of tech- targets are lower. Solar energy could play an important role in
nology and/or policy measures in the beginning of this century climate stabilization in the latter half of the 21st century, espe-
would be significantly affected by the choice of development cially for a higher emission baseline or lower stabilization lev-
path over the next one hundred years. Higher emission worlds els.
such as A1F1 and A2 require earlier reduction than low emis-
sion worlds such as A1T and B1. Robust policy and/or technological options include technolog-
ical efficiency improvements for energy supply and use, social
The stabilization level chosen also significantly affects tech- efficiency improvements, renewable energy incentives, and the
nology and/or policy measures and the timing of their intro- introduction of energy price incentives such as a carbon tax.
duction. More stringent stabilization targets require earlier Energy conservation and reforestation are reasonable first
emission reductions from baseline levels. The post-SRES sce- steps, but innovative supply-side technologies will eventually
nario analysis suggests that stabilization at 450ppmv will be required to achieve stabilization of atmospheric CO2 con-
require emissions reductions in Annex I countries that go sig- centration. Possibilities include using natural gas and com-
nificantly beyond the Kyoto Protocol commitments. It also bined-cycle technology to bridge the transition to more
suggests that maintaining emissions at the level of the Kyoto advanced fossil (fuel) and zero-carbon technologies such as
commitments may be adequate for achieving stabilization at hydrogen fuel cells. However, even with emissions control,
550ppmv or higher, although it should be recognized that sev- some modellers found that energy systems would still be
eral scenarios do indicate the need for significant emission dependent on fossil fuels over the next century.
reductions by 2020 in order to achieve these stabilization lev-
els. Integration between global climate policies and domestic air
pollution abatement policies could effectively reduce GHG
With respect to the important policy question of the role of emissions in developing regions for the next two or three
developing countries in GHG emission mitigation, a prelimi- decades. However, control of sulphur emissions could amplify
nary finding of the post-SRES scenario analysis is that, assum- possible climate change, and partial trade-offs are likely to per-
ing that the CO2 emission reduction needed for stabilization sist for environmental policies in the medium term.
occurs in Annex I countries only, per capita CO2 emissions in
Annex I countries would fall below per capita emissions in non- Policies governing agriculture and land use and energy systems
Annex I countries during the 21st century except in some of need to be linked for climate change mitigation. Failure to do
A1T and B1 stabilization scenarios, and this occurs before 2050 this can lead to much larger than necessary costs. At tight lev-
in two-thirds of the scenarios. This suggests that, especially for els of control, even some ability to acquire additional emis-
more stringent stabilization targets and/or worlds with relative- sions capacity from land sequestration can have major cost-
ly high baseline emissions, there is a need for emissions to reducing impacts. Moreover, a high potential supply of bio-
diverge from baseline levels in developing countries. The stabi- mass energy would ameliorate the burden of carbon emission
lization target and the baseline emission level were both impor- reductions.
tant determinants of the timing when developing countries
emissions might need to diverge from their baseline emissions.
2.6 Recommendations for Future Research
No single measure will be sufficient for the timely develop-
ment, adoption, and diffusion of mitigation options to stabilize • Rigorous techno-economic analysis of multiple mitiga-
atmospheric GHGs. Rather, a portfolio based on technological tion measures for each baseline and mitigation target;
change, economic incentives, and institutional frameworks • More explicit analysis of policy instruments leading to
might be adopted. Large and continuous energy efficiency mitigation;
improvements and afforestation are common features of miti- • Inclusion of other GHGs in addition to CO2;
gation scenarios in all the different SRES worlds. Introduction • Analysis of the feasibility and costs of stabilizing
of low-carbon energy is also a common feature of all scenarios, atmospheric concentrations at levels other than
especially biomass energy introduction over the next one hun- 550ppmv CO2;
dred years, as well as natural gas introduction in the first half • Explicit cost-benefit analysis of the impacts of timing
of the 21st century. Reductions in the carbon intensity of ener- and burden sharing on mitigation costs and targets;
• Quantitative analysis of linkages between DES targets

(e.g., international equity) and climate change mitiga-
tion costs and benefits;
• More extensive attempts to link qualitative narrative-
based scenarios analysis with quantitative modelling
work; and
• Capacity building for scenario analyses in developing
countries.
Enquete Commission, 1995: Mehr Zukunft für die Erde. Final Report of the
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Chapter 2 Appendix
Appendix 2.1: Details of scenarios from IPCC-SRES database in legends of Figures 2.2, 2.3, 2.4, 2.6, and 2.7
Legend Key Baseline scenario Stabilzation Legend key Baseline scenario Stabilzation
name scenario name name name scenario name
AIM (1) Standard Ref Stblz ppm/STD PEF (25) Modeler's Ref Stblz ppm/MOD
AIM96 (2) Standard Scenario Scenario_3 PEF (26) Standard Ref Stblz ppm/STD
CETA (3) Modeler's Ref Stblz ppm/MOD RICE (27) Modeler's Ref Stblz ppm/MOD
CETA (4) Standard Ref Stblz ppm/STD SGM97 (28) Reference MID550 (full trade)
CRPS (5) Standard Ref Stblz ppm/STD SGM97 (28a) -- MID550 (partial
trading)
DICE (6) Modeler's Ref Stblz ppm/MOD SGM97 (28b) -- WGI550 (trade)
DNE21/98 (7) Ref 550ppmv SGM97 (28c) -- WRE550 (trade)
HCRA (9) Standard Ref Stblz ppm/STD WEC (29) -- C
ICAM2 (10) Modeler's Ref Stblz ppm/MOD YOHE (30) Modeler's Ref Stblz ppm/MOD
ICAM2 (11) Standard Ref Stblz ppm/STD AIM97 (31) -- Stblz ppm/MOD
IIASA (12) Modeler's Ref Stblz ppm/MOD AIM97 (31a) -- MID550 (full trade)
IIASA (13) Standard Ref Stblz ppm/STD AIM97 (31b) -- MID550 (no trade)
IIASA/WEC98 (14) -- C1 AIM97 (31c) -- WRE550 (full trade)
IIASAWEC (15) -- C1 AIM97 (31d) -- WRE550 (no trade)
IMAGE2.1 (16) Baseline-A Stab 550 All AIM97 (31e) -- WGI550 (no trade)
MARIA (17) Standard Ref Stblz ppm/STD CETA (32) -- 550_stab
MARIA95 (18) -- A FUND (33) Modeler's Reference Kyoto+Min.Cost
550ppm
MERGE (19) Standard Ref Stblz ppm/STD FUND (33a) -- Min. Cost 550ppm
MINICAM (20) Standard Ref Stblz ppm/STD G-CUBED (34) Modeler's Reference Stblz ppm
MIT (21) Modeler's Ref Stblz ppm/MOD GRAPE (35) -- Stblz ppm
MIT (22) Standard Ref Stblz ppm/STD RICE (40) Modeler's Reference Min. Cost 550ppm
NWEAR21 (23) -- Stblz ppm/MOD SGM (41) -- WRE550 (trade)
PAGE (24) Standard Ref Stblz ppm/STD
Note: The scenario names are taken from the IPCC scenario database (Morita & Lee, 1998a)
3
Technological and Economic Potential of
Greenhouse Gas Emissions Reduction

WILLIAM R. MOOMAW (USA), JOSE ROBERTO MOREIRA (BRAZIL)
Lead Authors:
Kornelis Blok (Netherlands), David L. Greene (USA), Ken Gregory (UK), Thomas
Jaszay (Hungary), Takao Kashiwagi (Japan), Mark Levine (USA), Mack McFarland
(USA), N. Siva Prasad (India), Lynn Price (USA), Hans-Holger Rogner (Germany),
Ralph Sims (New Zealand), Fengqi Zhou (China), Peter Zhou (Botswana)
Frank Ackerman (USA), Erik Alsema (Netherlands), Harry Audus (IEA GHG), Jeroen
de Beer (Netherlands), Ranjan K. Bose (India), John Davison (IEA GHG), Paul
Freund (IEA GHG), Jochen Harnisch (Germany), Gilberto de M. Jannuzzi (Brazil),
Anja Kollmuss (Switzerland), Changsheng Li (USA), Evan Mills (USA), Kiyoyuki
Minato (Japan), Steve Plotkin (USA), Sally Rand (USA), A. Schafer (USA), David
Victor (USA), Arnaldo C. Walter (Brazil), John J. Wise (USA), Remko Ybema
(Netherlands)
Review Editors:
Ramon Pichs-Madruga (Cuba), Hisashi Ishitani (Japan)
CONTENTS
Executive Summary 171 3.5.3.1 Energy Efficiency Improvement 207
3.5.3.2 Fuel Switching 212
3.1 Introduction 175 3.5.3.3 Renewable Energy 212
3.5.3.4 Carbon Dioxide Removal 212
3.2 Drivers of Technological Change and Innovation 180 3.5.3.5 Material Efficiency Improvement 212
3.5.4 Emission Reduction Options for Non-CO2
3.3 Buildings 182 Greenhouse Gases 213
3.3.1 Introduction 182 3.5.4.1 Nitrous Oxide Emissions from
3.3.2 Summary of the Second Assessment Report 182 Industrial Processes 213
3.3.3 Historic and Future Trends 182 3.5.4.2 PFC Emissions from Aluminium
3.3.4 New Technological and Other Options 184 Production 214
3.3.4.1 Integrated Building Design 184 3.5.4.3 PFCs and other Substances Used in
3.3.4.2 Reducing Standby Power Losses in Semiconductor Production 214
Appliances and Equipment 184 3.5.4.4 HFC-23 Emissions from HCFC-22
3.3.4.3 Photovoltaic Systems for Buildings 187 Production 215
3.3.4.4 Distributed Power Generation for 3.5.4.5 Emissions of SF6 from the
Buildings 187 Production, Use and Decommissioning
3.3.5 Regional Differences 187 of Gas Insulated Switchgear 215
3.3.6 Technological and Economic Potential 188 3.5.4.6 Emissions of SF6 from Magnesium
3.3.7 Conclusions 189 Production and Casting 215
3.5.4.7 Some Smaller Non-CO2 Emission
3.4 Transport and Mobility 189 Reduction Options 215
3.4.1 Introduction 189 3.5.4.8 Summary of Manufacturing Industry
3.4.2 Summary of the Second Assessment Report 190 GHG Emission Reduction Options 216
3.4.3 Historic and Future Trends 190 3.5.5 Regional Differences 216
3.4.4 New Technology and Other Options 193 3.5.5.1 China 219
3.4.4.1 Hybrid Electric Vehicles 194 3.5.5.2 Japan 219
3.4.4.2 Lower Weight Structural Materials 194 3.5.5.3 Latin America 220
3.4.4.3 Direct Injection Gasoline and Diesel 3.5.5.4 USA and Canada 220
Engines 195 3.5.5.5 Africa 220
3.4.4.4 Automotive Fuel Cells 195 3.5.5.6 Western Europe 221
3.4.4.5 Fuel Cycle Emissions 196 3.5.6 Conclusions 222
3.4.4.6 Use of Biofuels 197
3.4.4.7 Aircraft Technology 197 3.6 Agriculture and Energy Cropping 222
3.4.4.8 Waterborne Transport 198 3.6.1 Introduction 222
3.4.4.9 Truck Freight 198 3.6.2 Summary of the Second Assessment Report 225
3.4.4.10 Systems Approaches to 3.6.3 Historic and Future Trends 225
Sustainability 198 3.6.4 New Technological Options and Social and
3.4.5 Regional Differences 199 Behavioural Issues 226
3.4.6 Technological and Economic Potential 199 3.6.4.1 Uptake of Management Techniques 226
3.4.7 Conclusions 203 3.6.4.2 Uptake of New Technologies 226
3.6.4.3 Energy Cropping 226
3.5 Manufacturing Industry 203 3.6.4.4 Crop and Animal Wastes 229
3.5.1 Introduction 203 3.6.4.5 Behavioural Changes 229
3.5.2 Energy and GHG Emissions 205 3.6.5 Regional Differences 229
3.5.3 New Technological and Other Options for 3.6.6 Technological and Economic Potential 229
CO2 and Energy 207
3.7 Waste 230 3.8.2 Summary of the Second Assessment Report 235
3.7.1 Summary of the Second Assessment Report 230 3.8.3 Historic Trends and Driving Forces 236
3.7.2 Historic and Future Trends 230 3.8.4 New Technological Options 237
3.7.2.1 Landfills 230 3.8.4.1 Fossil Fuelled Electricity Generation 237
3.7.2.2 Recycling and Reuse 230 3.8.4.2 Nuclear Power 240
3.7.2.3 Composting and Digestion 230 3.8.4.3 Renewable Energy Conversion
3.7.2.4 Incineration 231 Technologies 242
3.7.2.5 Waste Water 231 3.8.4.4 Technical CO2 Removal and
3.7.3 New Technological and other Options 231 Sequestration 249
3.7.3.1 Landfill Management 231 3.8.4.5 Emissions from Production,
3.7.3.2 Recycling 231 Transport, Conversion and
3.7.3.3 Composting 232 Distribution 252
3.7.3.4 Incineration 232 3.8.5 Regional Differences 252
3.7.3.5 Wastewater Treatment 233 3.8.5.1 Privatization and Deregulation of
3.7.4 Regional Differences 233 the Electricity Sector 252
3.7.4.1 Germany 233 3.8.5.2 Developing Country Issues 253
3.7.4.2 United States 233 3.8.5.3 Distributed Systems 253
3.7.4.3 Japan 233 3.8.6 Technological and Economic Potential 253
3.7.4.4 India 233 3.8.7 Conclusions 260
3.7.4.5 China 234
3.7.4.6 Africa 234 3.9 Summary and Conclusions 260
3.7.5 Technological and Economic Potential 234
References 266
3.8 Energy Supply, Including Non-renewable and
Renewable Resources and Physical CO2 Removal 235 Appendix 279
3.8.1 Introduction 235
Technological and Economic Potential of Greenhouse Gas Emissions Reduction 171
EXECUTIVE SUMMARY
The technological and economic potential to reduce green- demand for energy-consuming products as a result of increased
house gas (GHG) emissions is large enough to hold annual electrification.
global greenhouse gas emissions to levels close to or even
below those of 2000 by 2010 and even lower by 2020. A number of new technologies and practices have gained
Realization of these reductions requires combined actions in all importance since the Second Assessment Report (SAR). As a
sectors of the economy including adoption of energy-efficient result, greater opportunities for energy efficiency are available,
technologies and practices, increased fuel switching toward often at lower cost than was expected. Annual growth in glob-
lower carbon fuels, continued growth in the use of efficient gas al consumption of primary energy and related carbon dioxide
turbines and combined heat and power systems, greater emissions dropped to 1.3% and 1.4%, respectively, between
reliance on renewable energy sources, reduced methane emis- 1990 and 1998 after experiencing much higher growth rates of
sions through improved farm management practices and rumi- 2.4% and 2.1% between 1971 and 1990. This decrease in
nant methane reduction strategies, diversification of land use to growth rate is because of the combined effects of improved
provide sinks and offsets, increased recovery of landfill energy efficiency technologies, increased fuel switching and
methane for electricity production and increased recycling, adoption of renewable energy sources, and the dramatic
reduction in the release of industrial gases, more efficient vehi- decrease in emissions of countries with economies in transition
cles, physical sequestration of CO2, and improving end-use (EITs) as a result of economic changes (Figures 3.1 and 3.2).
efficiency while protecting the ozone layer. Countervailing
socioeconomic and behavioural trends that cause greenhouse Sustained progress in the development and adoption of tech-
gas emissions to increase also exist, including increased size of nologies and practices to reduce greenhouse gas emissions
dwelling units, increased sales of heavier and more powerful requires continued efforts in the areas of research and develop-
vehicles, growing vehicle kilometers travelled, reduced incen- ment, demonstration, dissemination, policies, and pro-
tives for efficient use of energy or the purchase of energy effi- grammes. There has been a reduction in both public and private
ciency technologies as a result of low real retail energy prices, resources devoted to research and development to develop and
increased consumption of consumer goods, and stimulated implement new technologies that will reduce greenhouse gas
450
400
350
300 Middle East

Priamry Energy (EJ)
Latin America
250
Africa
200 Developing Countries in Asia–Pacific
Economies in Transition
150
Industrialized Countries
100
50
0
1971 1974 1977 1980 1983 1986 1989 1992 1995 1998
Figure 3.1: World primary energy use per region 1971 - 1998.
Note: Primary energy calculated using the IEA’s physical energy content method based on the primary energy sources used to produce heat and
electricity (IEA, 2000).
172 Technological and Economic Potential of Greenhouse Gas Emissions Reduction
8000
7000
Carbon Dioxide Emissions (MtC)
6000 Middle East
5000 Latin America
Africa
4000
Developing Countries in Asia–Pacific
3000 Economies in Transition
2000
1000
0
1971 1974 1977 1980 1983 1986 1989 1992 1995 1998
Figure 3.2: World CO2 emissions by region, 1971 - 1998.
emissions. Despite the development of new, efficient technolo- sectors addressed are buildings, transport, industry, agriculture,
gies, current rates of energy efficiency improvements alone and waste. Energy supply includes non-renewable resources,
will not be sufficient to significantly reduce greenhouse gas renewable resources, and physical carbon dioxide sequestra-
emissions in the near term. In addition, policies or programmes tion. In addition, options for reducing global warming contri-
to increase energy efficiency and promote renewable energy butions from substitutes for ozone depleting substances are dis-
technology are lacking in many countries. cussed in the Appendix to this chapter.
Technological innovation and change are influenced by the dif- The buildings sector contributes about 31% of global energy-
fering needs of different economies and sectors. A large per- related carbon dioxide emissions and these emissions grew at
centage of capital is invested in a relatively small number of an average annual rate of almost 2.0% between 1971 and 1995.
technologies that are responsible for a significant share of the Growth in emissions varied significantly by region; between
energy supply and consumption market (automobiles, electric 1990 and 1995 the largest annual increases were experienced in
power generators, industrial processes, and building heating developing countries (around 5.0% per year), moderate growth
and cooling systems). There is a tendency to optimize these was seen in developed countries (around 1.0% per year), and
few technologies and their related infrastructure development, emissions declined in the EITs (–3.0% per year). The growth in
gaining them advantages and locking them into the economy. emissions in the developing and developed countries is largely
That makes it more difficult for alternative, low-carbon tech- caused by the increased amenity that consumers demand – in
nologies to compete. For example, a particular technological terms of increased purchase and use of appliances, larger
configuration such as road-based automobiles has become dwellings, and the modernization and expansion of the com-
“locked-in” as the dominant transportation mode. In industrial mercial sector – as economies grow. Technology has continued
countries, technologies are developed as a result of corporate on an evolutionary trajectory with incremental gains during the
innovation or government-supported R&D, and in response to past decade in windows, lighting, insulation, space heating,
environmental regulations, utility deregulation, energy tax refrigeration, air conditioning, building controls, passive solar
policies, or other incentives. In many developing countries, design, and infiltration reduction. Although CFCs have been
where electric power capacity and much end-use demand is eliminated in developed countries as working fluids in heat
growing most rapidly, there is often greater emphasis on get- pumps, air conditioners, and refrigerators, and as foam blowing
ting technology such as electric power generation established agents for insulation, research and development (R&D) has
in order to enhance economic development, with less concern been able to continue to improve energy efficiency of refriger-
for environmental and other issues. Capital flows and differ- ators and cooling and heating systems. Integrated building
ing types of technology transfer may also determine technolo- design has demonstrated very large reductions in energy use
gy choices. It is important to recognize that often values other and greenhouse gas emissions. Expanded R&D is needed to
than energy efficiency or greenhouse gas emissions are the assure continued technology improvement, but implementation
dominant shapers of technological choice and innovation. policies remain the major hurdle to their rapid introduction.
This chapter describes technologies and practices to reduce The transport sector contributes 22% of carbon dioxide emis-
greenhouse gas emissions in the end-use sectors of the econo- sions; globally, emissions from this sector are growing at a rate
my as well as through changes in energy supply. The end-use of approximately 2.5% annually. Between 1990 and 1995,
growth was highest in the developing countries (7.3% per year and declined at a rate of –5.4% per year in the EIT. However,
in the developing countries of Asia–Pacific and 4.6% per year methane and nitrous oxide emissions dominate the agricultural
in the remaining developing countries), moderate in the devel- sector, which contributes over 20% of global anthropogenic
oped countries (1.9% per year) and is actually declining at a greenhouse gas emissions in terms of CO2 equivalents.
rate of –5.0% per year for the EITs. Technology improvements Reductions can be made by improved farm management prac-
may generate operational cost reductions that have a rebound tices such as more efficient fertilizer use, better waste treat-
effect that stimulates further personal transportation use. These ment, use of minimum tillage techniques, and ruminant
issues show the necessity of both policies and behavioural methane reduction strategies. Biotechnology and genetic mod-
changes to lower emissions from the transport sector. Hybrid ification developments could provide additional future gains
gasoline-electric vehicles have been introduced on a commer- and also lead to reduced energy demand, but the conflict
cial basis with fuel economies 50% to 100% better than that of between food security and environmental risk is yet to be
comparably sized four-passenger vehicles. The development of resolved. Mitigation solutions exist overall for
extremely low-polluting engines may reduce the incentive for 100–200MtCeq/yr but farmers are unlikely to change their tra-
hybrid and battery electric vehicles that were previously ditional farming methods without additional incentives.
thought to encourage the adoption of vehicles that would also Diversification of land use to energy cropping has the techni-
reduce greenhouse gases. Lightweight materials have the cal potential to provide both carbon sinks and offsets in regions
potential to improve fuel economy for all land transport. Fuel where suitable land and water are available. Transport biofuel
cell powered vehicles are developing rapidly, and could be production costs remain high compared with oil products, but
introduced to the market sometime during the coming decade. do provide additional value in the form of oxygenates and
Substantial potential for improving the fuel economy of heavy- increased octane (ethanol). Because of market liberalization
duty trucks seems feasible. Only incremental improvements of policies, the potential for biofuels has declined, though there is
the order of 1%/yr are expected for aircraft over the next sev- a growing demand for biodiesel in Germany. Improvements in
eral decades. There appears to be little attention being given to biofuel conversion routes, such as the enzymatic hydrolysis of
rail or public transportation systems, but waterborne transport lignocellulosic material to ethanol, may help narrow the cost
of freight is already highly efficient, and has potential for addi- disadvantage versus fossil fuels.
tional gains.
Greenhouse gas emissions are being lowered substantially by
Industrial emissions account for over 40% of carbon dioxide increased utilization of methane from landfills and from coal
emissions. Global industrial sector carbon dioxide emissions beds for electric power generation. Significant energy-related
grew at a rate of 1.5% per year between 1971 and 1995, slow- greenhouse gas reductions are identified for improved waste
ing to 0.4% per year between 1990 and 1995. This is the only recycling in the plastics and carpet industries, and through
sector that has shown an annual decrease in carbon emissions product remanufacturing. A major discussion is taking place
in industrial economies (–0.8% per year between 1990 and over whether the greater reduction in lifecycle CO2 emissions
1995) as well as in the EITs (–6.4% per year between 1990 and occurs through paper recycling or by utilizing waste paper as a
1995). Emissions from this sector in developing countries, biofuel in waste to energy facilities. In several developed coun-
however, continue to grow (6.3% per year in developing countries, and especially in Europe and Japan, waste-to-energy
tries of Asia–Pacific and 3.4% per year in the remaining devel- facilities have become more efficient with lower air pollution
oping countries). Substantial differences in the energy efficien- emissions.
cy of industrial processes between countries exist.
Improvement of energy efficiency is the most important emis- Abundant fossil fuel reserves that are roughly five times the
sion reduction option in the short term. However, industries total carbon already burned are available. The electric power
continue to find new, more energy efficient processes which sector accounts for 38% of total CO2 emissions. Low cost,
makes this option also important for the longer term. The larg- aero-derivative, combined cycle gas turbines with conversion
er part of the energy can be saved at net negative costs. In addi- efficiencies approaching 60% have become the dominant
tion, material efficiency improvement (including more effi- option for new electric power generation plants, wherever ade-
cient product design, recycling, and material substitution) can quate natural gas supply and infrastructure are available. With
greatly contribute to reducing emissions. For many sources of deregulation of the electric power sector, additional emission
non-CO2 emissions, like those from the aluminium industry, reductions have occurred in most countries through the utiliza-
and adipic acid and HCFC-22 production, substantial emission tion of waste heat in combined heat and power systems that are
reductions are possible or are already being implemented. capable of utilizing 90% of the fossil fuel energy. Low carbon-
emitting technologies such as nuclear power have managed to
The agricultural sector has the smallest direct CO2 emissions, significantly increase their capacity factor at existing facilities,
contributing 4.0% of total global emissions. Growth in these but relatively few new plants are being proposed or built
emissions between 1990 and 1995 was greatest in the develop- because of public concern about safety, waste storage, and pro-
ing countries (6.0% per year in the developing countries of liferation. There has also been rapid deployment of wind tur-
Asia–Pacific and 9.3% per year in the remaining developing bines and smaller, but expanding markets for photovoltaic
countries), modest in the developed countries (1.3% per year), solar power systems. The annual growth rate from a small base
for both wind and solar currently exceeds 25% per year, and recovery of fluids, and the use of alternative substances. The
together with an increasing number of bioenergy plants, importance of considering energy efficiency simultaneously
accounts for around 2% of global electricity generation. with ozone layer protection is discussed in the Appendix, espe-
Modern biomass gasification is increasing the opportunities for cially in the context of developing countries.
this renewable resource. There remains additional hydropower
potential in some locations, but most large sites have already This chapter concludes with a quantification of the potential
been developed in many regions of the world. Fuel cells for reducing greenhouse gas (GHG) emissions in the various
appear to be a promising combined heat and electric power end-use sectors of the economy and through changes in energy
source as part of evolving distributed generation systems. supply. It is found that sufficient technological potential exists
to stabilize or lower global greenhouse gas emissions by 2010,
Further analysis since the SAR suggests that physical seques- and to provide for further reductions by 2020. The quantifica-
tration of CO2 underground in aquifers, in depleted gas and oil tion is based on sector-specific analyses and, thus, caution
fields, or in the deep ocean is potentially a viable option. should be taken when adding up the various estimates resulting
Technical feasibility has been demonstrated for CO2 removal from interactions between different types of technologies.
and storage from a natural gas field, but long-term storage and These sector-based analyses can be used to provide further
economic viability remain to be demonstrated. Environmental understanding of the results of global mitigation scenarios,
implications of ocean sequestration are still being evaluated. such as those presented in Chapter 2, which account for inter-
The utilization of hydrogen from fossil fuels, biomass, or solid sectoral interactions, but typically do not provide estimates of
waste followed by sequestration appears particularly attractive. sectoral level GHG emissions reduction potential or costs.
Along with biological sequestration, physical sequestration
might complement current efforts at improving energy effi- Some of the costs associated with sector specific options for
ciency, fuel switching, and the further development and imple- reducing GHG emissions may appear high (for example
mentation of renewables, but it must compete economically US$300/tCeq). However, we estimate that there is technologi-
with them. cal potential for reductions of between 1,900 and
2,600MtCeq/yr in 2010 and 3,600 to 5,050MtCeq/yr in 2020.
Hydrofluorocarbon (HFCs) and perfluorocarbon (PFCs) use is Half of these reductions are achievable at net negative costs
growing as CFCs and, to a much lesser extent HCFCs, are (value of energy saved is greater than capital, operating and
eliminated. There is a variety of uses for these substances as maintenance costs), and most of the remainder is available at a
alternatives in refrigeration, mobile and stationary air-condi- cost of less than US$100tCeq/yr. The continued development
tioning, heat pumps, in medical and other aerosol delivery sys- and adoption of a wide range of greenhouse gas mitigation
tems, insulating plastic foams, and for fire suppression and sol- technologies and practices will result not only in a large tech-
vents. The replacement of ozone-depleting substances with nical and economic potential for reducing greenhouse gas
HFCs and PFCs has been about one-tenth on a mass basis, with emissions but will also provide continued means for pursuing
the difference being attributed to improved containment, sustainable development goals.
3.1 Introduction (IEA) is not homogeneous because of the use of various report-
ing mechanisms and “official” sources of national data (IEA,
Technologies and measures to reduce greenhouse gas emissions 1997a; IEA, 1997b; IEA, 1997c)2. Second, for the economies
are continuously being developed (Nadel et al., 1998; National in transition, primary energy use data and carbon dioxide data
Laboratory Directors, 1997; PCAST, 1997; Martin et al., 2000). are from two different sources (BP, 1997; IEA, 1997a; IEA,
Many of these technologies focus on improving the efficiency of 1997b; IEA, 1997c). There are inconsistencies between the two
fossil fuel use since more than two-thirds of the greenhouse gas sources, and no analysis has yet been done to resolve them.
emissions addressed in the Kyoto Protocol (in carbon dioxide Third, IEA statistics report sectoral data for the industrial and
equivalents) are related to the use of energy. Energy intensity transport sectors, but not for buildings and agriculture, which
(energy consumed divided by gross domestic product (GDP)) are reported as “other”. These sectors have been estimated
and carbon dioxide intensity (CO2 emitted from burning fossil using an allocation scheme described in Price et al. (1998)3. In
fuels divided by the amount of energy produced) have been general, the most uncertainty is associated with data for the
declining for more than 100 years in developed countries with- economies in transition region, and for the commercial and res-
out explicit government policies for decarbonization and both idential sub-categories of the buildings sector in all regions.
have the potential to decline further. Non-fossil fuel energy
sources are also being developed and implemented as a means It is likely that total commercial energy production and
of reducing greenhouse gas emissions. Physical and biological demand estimates will be known accurately for most devel-
sequestration of CO2 can potentially play a role in reducing oped countries (within one or a few per cent), relatively accu-
greenhouse gas emissions in the future. Other technologies and rately for some developing countries (with an uncertainty of
measures focus on reducing emissions of the remaining major 1% to 5%), and less accurately for developing countries with
greenhouse gases - methane, nitrous oxide, hydrofluorocarbons poorly functioning data gathering and statistical systems.
(HFCs), perfluorocarbons (PFCs), and sulphur hexafluoride Converting the energy data into carbon emissions introduces
(SF6)(see Section 3.5 and Appendix to this Chapter). some increased uncertainty – primarily as a consequence of the
fraction of natural gas that leaks to the atmosphere and the
Table 3.1 shows energy consumption in the four end-use sectors fraction of all fossil fuels that are left uncombusted – the uncer-
of the global economy – industry, buildings, transport, and agri- tainty in carbon emissions is greater than that of energy use.
culture–over time1. Data are displayed for six world regions – Uncertainties in non-CO2 greenhouse gas emissions are greater
developed countries, countries with economies in transition than those for carbon emissions.
(EITs), developing Asia-Pacific countries, Africa, Latin America
and the Middle East. Comparing global annual average growth In general, energy supply statistics, and their disaggregation
rates (AAGRs) for primary energy use in the period 1971 to into fuel types, are more reliable than statistics for energy
1990 and 1990 to 1995 a significant decrease is noticed– from demand. In particular, the estimates of sectoral energy demand
2.5% in the first period to about 1.0% in the latter, due almost (buildings, industry, transportation, agriculture) and the further
entirely to the economic crisis in the EITs. Overall, growth aver- disaggregation into subsectors (e.g., residential and commer-
aged about 2.0% per year from 1971 to 1995. Table 3.1 also cial buildings; auto transportation; specific industries), and
shows carbon dioxide emissions from energy consumption for then into end uses has relatively high levels of uncertainty for
four world regions. The AAGR of global carbon dioxide emis- at least two reasons. First, the full data to perform these disag-
sions from the use of energy also declined (from 2% to 1%) in gregations are rarely gathered at the national level, so that
the same periods. A different picture emerges if the countries assumptions and approximations need to be made. Second, the
with economies in transition are excluded. In this case, growth conventions vary among different countries as to what energy
in world energy use averaged about 2.5% per year in both the use belongs to which sector or subsector (e.g., the distinction
1971 to 1990 and 1990 to 1995 periods, while average annual
growth in carbon dioxide emissions was 2.0% and 2.6% during
the same time periods, respectively. 2 The IEA explains: “Countries often have several ‘official’ sources of
data such as a Ministry, a Central Bureau of Statistics, a nationalized
Uncertainty in Table 3.1 arises in a number of areas. First, the electricity company, etc. Data can also be collected from the energy
quality of energy data from the International Energy Agency suppliers, the energy consumers or the customs statistics. The IEA
tries to collect the most accurate data, but does not necessarily have
access to the complete data set that may be available to national
experts calculating emissions inventories for the UNFCCC” (IEA,
1 The data in this table differ slightly from the data presented in 1997c).
Figures 3.1 and 3.2 because those figures are based on IEA data alone
while the data in the table represents a combination of IEA and British 3 The results of this allocation scheme were compared to the
Petroleum data (further described in the next paragraph of the text). Lawrence Berkeley National Laboratory (LBNL) sectoral energy data
Also, in Figure 3.1, primary energy was calculated using IEA’s phys- for a number of developed countries. In general, the sectoral energy
ical energy content method which is based on the primary energy consumption values based on allocated IEA data compare favourably
sources used to produce heat and electricity (IEA, 2000) while in to LBNL data for total buildings and agriculture for most countries.
Table 3.1, primary energy was calculated using a standard electricity Larger discrepancies were seen between the LBNL data and the allo-
conversion efficiency of 33% (Price et al., 1998). cated IEA data at the level of commercial and residential buildings.
Table 3.1: World carbon dioxide emissions and primary energy use by sector and region – 1971 to 1995 176
(Price et al., 1998, 1999)
Carbon dioxide emissions (MtC) Primary energy use (EJ)
Average annual Average annual

growth rate growth rate
Buildings sector 1971 1975 1980 1985 1990 1995 1971- 1990- 1971- 1971 1975 1980 1985 1990 1995 1971- 1990- 1971-
1990 1995 1995 1990 1995 1995
Developed Countries 790 836 886 887 915 958 0.8% 0.9% 0.8% 44.4 48.9 52.3 56.8 62.3 68.5 1.8% 1.9% 1.8%
Residential 522 543 549 537 539 560 0.2% 0.8% 0.3% 28.3 30.5 33.0 34.6 36.7 40.6 1.4% 2.0% 1.5%
Commercial 268 293 336 350 377 398 1.8% 1.1% 1.7% 16.1 18.4 19.3 22.2 25.6 27.9 2.5% 1.7% 2.3%
Economies in Transition 240 296 362 381 373 320 2.3% -3.0% 1.2% 10.7 13.0 18.2 21.0 23.0 16.2 4.1% -6.8% 1.7%
Residential 164 213 266 290 279 256 2.9% -1.8% 1.9% 8.1 9.8 12.9 14.3 15.1 10.4 3.3% -7.2% 1.1%
Commercial 76 83 97 92 94 64 1.1% -7.3% -0.7% 2.6 3.2 5.3 6.7 7.9 5.8 6.0% -6.1% 3.4%
Dev. countries Asia-Pacific 67 88 131 179 232 292 6.7% 4.7% 6.3% 3.6 4.6 5.6 7.9 10.2 12.9 5.7% 4.8% 5.5%
Residential 57 75 110 145 180 210 6.2% 3.1% 5.6% 3.0 3.9 4.6 6.3 7.9 9.3 5.2% 3.4% 4.8%
Commercial 10 14 21 33 51 81 9.0% 9.7% 9.1% 0.6 0.8 1.0 1.6 2.3 3.6 7.8% 9.0% 8.1%
Africa 15 18 23 30 38 48 5.0% 5.1% 5.0% 0.6 0.8 1.1 1.4 1.9 2.5 6.0% 5.4% 5.9%
Residential 11 12 16 22 29 39 5.1% 6.0% 5.2% 0.5 0.6 0.8 1.1 1.5 2.0 6.1% 6.0% 6.0%
Commercial 3 6 7 8 8 9 4.8% 1.7% 4.2% 0.1 0.2 0.3 0.3 0.4 0.5 5.8% 3.1% 5.2%
Latin America 18 21 24 24 30 34 2.6% 2.8% 2.7% 1.7 2.1 2.8 3.3 4.1 5.0 4.9% 4.1% 4.7%
Residential 14 16 19 19 22 24 2.5% 1.6% 2.3% 1.3 1.6 2.0 2.3 2.9 3.4 4.2% 3.3% 4.0%
Commercial 4 5 6 5 8 10 3.2% 5.9% 3.7% 0.3 0.5 0.8 0.9 1.2 1.6 7.0% 5.8% 6.8%
Middle East 9 13 23 41 58 80 10.5% 6.7% 9.7% 0.4 0.7 1.2 2.2 4.1 4.6 12.3% 2.8% 10.3%
Residential 7 10 17 30 41 59 10.0% 7.6% 9.5% 0.4 0.7 1.1 2.0 3.4 3.7 11.5% 1.8% 9.4%
Commercial 2 4 6 12 17 21 12.0% 4.3% 10.3% 0.0 0.0 0.1 0.2 0.7 1.0 20.2% 7.0% 17.3%
Rest of World 42 52 71 95 125 162 6.0% 5.3% 5.8% 2.7 3.7 5.1 6.9 10.1 12.1 7.1% 3.8% 6.4%
Residential 32 38 52 70 92 122 5.7% 5.8% 5.7% 2.2 2.8 3.9 5.4 7.8 9.1 6.8% 3.2% 6.0%
Commercial 10 14 19 25 33 40 6.7% 4.0% 6.2% 0.5 0.8 1.2 1.5 2.3 3.0 8.5% 5.7% 7.9%
World 1140 1273 1450 1542 1646 1732 2.0% 1.0% 1.8% 61.5 70.3 81.3 92.6 105.6 109.8 2.9% 0.8% 2.4%
Residential 775 869 977 1042 1091 1148 1.8% 1.0% 1.6% 41.7 47.1 54.5 60.6 67.4 69.4 2.6% 0.6% 2.2%
Commercial 364 404 473 500 555 584 2.2% 1.0% 2.0% 19.8 23.2 26.8 31.9 38.2 40.3 3.5% 1.1% 3.0%
(continued)
Technological and Economic Potential of Greenhouse Gas Emissions Reduction

Transport sector 1971 1975 1980 1985 1990 1995 1971- 1990- 1971- 1971 1975 1980 1985 1990 1995 1971- 1990- 1971-
1990 1995 1995 1990 1995 1995
Economies in Transition 69 75 77 83 87 67 1.2% -5.0% -0.1% 6.0 7.3 8.0 9.2 10.0 7.3 2.7% -6.0% 0.8%
Dev. Countries Asia-Pacific 51 54 69 87 122 173 4.7% 7.3% 5.2% 2.0 2.4 3.3 4.3 6.0 8.7 5.9% 7.6% 6.2%
Africa 17 21 26 30 31 33 3.2% 1.5% 2.9% 0.8 1.0 1.3 1.5 1.6 1.7 3.6% 1.6% 3.2%
Latin America 33 44 53 55 62 79 3.4% 5.0% 3.7% 2.2 2.9 3.8 3.9 4.5 5.5 3.9% 4.2% 4.0%
Middle East 7 13 24 34 33 46 8.6% 6.6% 8.2% 0.4 0.7 1.3 1.8 1.7 2.4 8.6% 6.5% 8.1%
Rest of World 57 77 104 119 126 159 4.3% 4.6% 4.4% 3.3 4.6 6.3 7.2 7.8 9.6 4.6% 4.2% 4.5%
World 672 760 862 925 1078 1215 2.5% 2.4% 2.5% 37.5 43.6 50.1 54.4 63.3 69.0 2.8% 1.7% 2.6%
Industrial sector
Developed Countries 932 911 970 859 887 852 -0.3% -0.8% -0.4% 48.6 49.3 55.0 52.3 54.3 56.8 0.6% 0.9% 0.7%
Africa 35 43 57 63 68 66 3.5% -0.4% 2.6% 1.4 1.8 2.5 2.8 3.1 3.1 4.5% 0.0% 3.5%
Latin America 33 41 55 53 58 70 3.1% 3.8% 3.2% 2.5 3.4 4.8 5.7 6.3 7.4 5.1% 3.4% 4.7%
Middle East 13 19 31 38 28 45 4.0% 10.2% 5.3% 0.7 1.1 1.6 2.1 1.5 2.4 3.9% 9.6% 5.1%
Rest of World 81 104 143 154 154 182 3.4% 3.4% 3.4% 4.6 6.2 8.9 10.5 11.0 13.0 4.7% 3.5% 4.5%
World 1653 1796 2094 2110 2293 2340 1.7% 0.4% 1.5% 88.0 98.5 113.5 119.8 129.4 130.8 2.1% 0.2% 1.7%
Agricultural sector
Africa 2 3 4 4 4 7 2.9% 11.3% 4.6% 0.1 0.1 0.2 0.2 0.2 0.3 3.1% 9.8% 4.5%
Latin America 3 4 6 6 7 10 4.1% 7.2% 4.7% 0.2 0.3 0.5 0.6 0.6 0.8 4.6% 6.2% 5.0%
Middle East 1 2 4 5 5 8 7.6% 10.2% 8.1% 0.0 0.0 0.1 0.0 0.1 0.5 11.3% 35.7% 16.0%
Rest of World 7 10 13 15 16 25 4.6% 9.3% 5.5% 0.4 0.5 0.7 0.8 0.9 1.6 4.7% 12.6% 6.3%
World 103 120 159 186 210 217 3.8% 0.6% 3.1% 4.4 5.1 6.1 7.5 8.9 9.3 3.8% 0.8% 3.1%
(continued)
177
178

World Total 1971 1975 1980 1985 1990 1995 1971- 1990- 1971- 1971 1975 1980 1985 1990 1995 1971- 1990- 1971-
1990 1995 1995 1990 1995 1995
Africa 70 85 110 127 141 155 3.8% 2.0% 3.4% 2.9 3.8 5.1 5.9 6.9 7.7 4.6% 2.3% 4.1%
Latin America 87 110 138 139 157 194 3.1% 4.3% 3.4% 6.5 8.7 11.8 13.4 15.5 18.8 4.7% 3.9% 4.5%
Middle East 30 48 83 118 124 179 7.7% 7.7% 7.7% 1.6 2.5 4.2 6.1 7.4 10.0 8.5% 6.0% 8.0%
Rest of World 187 243 330 383 422 528 4.4% 4.6% 4.4% 11.0 14.9 21.1 25.4 29.8 36.4 5.4% 4.1% 5.1%
World 3567 3948 4565 4763 5227 5504 2.0% 1.0% 1.8% 191.4 217.5 251.0 274.2 307.2 318.8 2.5% 0.7% 2.1%
Notes: Emissions from energy use only; does not include feedstock or CO2 from calcination in cement production. Biomass = no emissions. Rest of World = Africa, Latin America, Middle East. Primary energy
use and CO2 emissions for Economies in Transition are from different sources and thus cannot be compared to each other.
Primary energy calculated using a standard 33% electricity conversion rate.
between residential and commercial buildings; the issue of will be the last mitigation option to be adopted because of cost
whether energy use in industrial buildings counts as industrial (National Laboratory Directors, 1997). Nevertheless, with
or building energy use). appropriate policies, economic barriers can be minimized,
opening possibilities for all the three categories of mitigation
The least accurate data are for non-commercial energy use, options. Considering the large number of available technolo-
especially in developing countries – dung, plant or forest gies in all categories and the still modest results obtained to
waste, logs, and crops used for energy. Energy use from these date (see Table 3.1), it is possible to infer that their commer-
sources is generally estimated from surveys, and is known very cial uses are being constrained by market barriers and failures
poorly. Because of uncertainty about whether these sources are as well as a lack of adequate policies to induce the use of more
used in sustainable ways and, even more importantly, because costly mitigation options (see Chapters 5 and 6). This should
the release of products of incomplete combustion – which are not be interpreted as a reason to reduce R&D efforts and fund-
potent greenhouse gases – are poorly characterized, the overall ing, since technological advances always help to cut costs and
contribution of non-commercial energy sources to greenhouse consequently reduce the amount and intensity of policies
gas emissions is only somewhat better than an educated guess needed to overcome the existing economic barriers.
at this time. Implementing new technological solutions could start soon by
establishing policies that will encourage demand for these
An important observation from Table 3.1 is the high AAGR in devices and practices. Complex technological innovations
the transport sector for energy and carbon emission. AAGR is advance through a non-linear, interactive innovation process
not only the greatest for the transport sector, but it has slowed in which there is synergy between scientific research, technol-
only slightly since 1960 despite significant improvements in ogy development, and deployment activities (OTA, 1995a;
technology. Because of the increase in the number of vehicles, Branscomb et al., 1997; R&D Magazine, 1997). Early tech-
and the recent decline in energy efficiency gains as vehicles nology demand can be stimulated through well-placed policy
have become larger and more powerful, transportation now is mechanisms.
responsible for 22% of CO2 emission from fuel use (1995).
Unlike electricity, which can be produced from a variety of In this chapter numerous technologies are discussed that are
fuels, air and road transport is almost entirely fuelled with either already commercialized or that show a probable likeli-
petroleum, except for ethanol and biodiesel used in a few coun- hood to be in the commercial market by the year 2020, along
tries. Biomass-derived fuels and hydrogen production from with technologies that might possibly contribute to GHG
fossil fuels with carbon sequestration technology, in parallel abatement by 2010. For the quantification of the abatement
with improved fuel efficiency conversion, are some of the few capacity of some of the technologies a horizon as far as 2050
more promising alternatives for reducing significantly carbon must be considered since the capital stock turnover rate, espe-
emissions in the transport sector for the next two decades. The cially in the energy supply sector, is very low.
accelerated introduction of hybrid and fuel cell vehicles is also
promising, but these gains are already being offset by increased A number of new technologies and practices have gained
driving, and the rapid growth of the personal vehicle market importance since the preparation of SAR, including:
worldwide.
Buildings
Oil, gas, and coal availability is still recognized to be very • Off-grid building photovoltaic energy supply systems;
extensive. Fossil fuel reserves are estimated to be approxi- • Integrated building design for greater efficiency.
mately five times the carbon content of all that have been used Transportation
since the beginning of the industrial revolution. The possibili- • Hybrid electric vehicles;
ty of using gas hydrates and coal bed methane as a source of • Fuel cell vehicles.
natural gas has increased since the SAR. Industry
• Advanced sensors and controls for optimizing industri-
Greenhouse gas (GHG)-reducing technologies for energy sys- al processes;
tems for all sectors of the economy can be divided into three • Large reductions in process gases such as CF4, N2O and
categories – energy efficiency, low or no carbon energy pro- HFCs through improved industrial processes;
duction, and carbon sequestration (Acosta Moreno et al., • Reduced energy use and CO2 emissions through
1996; National Laboratory Directors, 1997). Even though improvements in industrial processing, remanufactur-
progress will continue to be made in all categories, it is ing, and use of recycled materials;
expected that energy efficiency will make a major contribution • Improved containment and recovery of CFC substi-
in the first decade of the 21st century. Renewable technologies tutes, the use of low Global Warming Potential (GWP)
are expected to begin to be significant around 2010, and pilot alternatives, and the use of alternative technologies.
plants for the physical carbon sequestration from fossil fuels4 Agriculture
• Biotechnology development for crop improvements
(including energy crops), alternative fuels other than
4 Biological carbon sequestration is discussed in Chapter 4. biomass, carbon cycle manipulation/sequestration, bio-
processing for fuels and chemicals and biological/bio- response to environmental regulations, energy tax policies, or
chemical hydrogen production; other incentives. The shift of electric and gas utilities from reg-
• Minimum tillage practices in agriculture to reduce ulated monopolies to competing enterprises has also played a
energy requirements and soil erosion, and improved major role in the strong shift to combined cycle gas turbines,
management systems that lower N2O emissions. often with utilization of the waste heat in the electric power
Energy sector.
• Grid-connected Alternating Current (AC) solar panels;
• Combined cycle gas turbines for standard electric The most rapid growth in the electric power sector and many
power production; energy intensive industries is now occurring in developing
• Distributed combined heat and power systems; countries, which have come to rely heavily upon technology
• Fuel cells for distributed power and low temperature transfer for investments in energy infrastructure. Capital for
heat applications; investment flows from industrial countries to developing coun-
• Conversion of cellulosic materials for production of tries through several pathways such as multilateral and bilater-
ethanol; al official development assistance (ODA), foreign direct
• Wind-based electricity generation; investments (FDI), commercial sales, and commercial and
• Carbon sequestration in aquifers and depleted oil and development bank lending. During the period 1993 to 1997,
gas wells; ODA experienced a downward trend with an increase in 1998,
• Increased coal bed methane and landfill gas use; while FDI has increased substantially by a factor of five (see
• Replacement of grid connected electricity by PV; Figure 3.3) (OECD, 1999; Metz et al., 2000). This shift is a
• Nuclear plants life extension. consequence of the many opportunities that have opened for
private capital in developing countries, and a reluctance by
Cost data are presented in this chapter for many mitigation some industrial countries to increase ODA. The energy supply
options. They are derived from a large number of studies and sector of developing countries is also undergoing deregulation
are not fully comparable. However, in general, the following from state to private ownership, increasing the role of the pri-
holds for the studies quoted in this Chapter. The specific miti- vate sector in technology innovation.
gation costs related to the implementation of an option are cal-
culated as the difference of levelized costs5 over the difference A large percentage of capital is invested in a relatively small
in greenhouse gas emissions (both in comparison to the situa- number of technologies that are responsible for a significant
tion without implementation of the option). Costs are general- share of the energy supply and consumption market (automo-
ly calculated on a project basis (for a definition see Chapter 7, biles, electric power generators, and building heating and
Section 7.3.1). The discount rates used in the cost calculation cooling systems). There is a tendency to optimize these few
reflect real public sector discount rates (for a discussion of dis- technologies and their related infrastructure development,
count rates, see Chapter 7, Section 7.2.4). Generally, the dis- gaining them advantages that will make it more difficult for
count rates in the quoted studies are in the range of 5%–12% subsequent competing technologies to catch up. For example,
per year. It should be noted that the discount rates used here are a particular technological configuration such as road-based
lower than those typically used in private sector decision mak- automobiles can become “locked-in” as the dominant trans-
ing. This means that options reported in this chapter to have portation mode. This occurs because evolution of technologi-
negative net costs will not necessarily be taken up by the mar- cal systems is as important as the evolution of individual new
ket. Furthermore, it should be noted that in some cases even technologies. As their use expands their development becomes
small specific costs may form a substantial burden for compa- intertwined with the evolution of many other technologies and
nies. institutional and social developments. The evolution of tech-
nologies for oil exploration and extraction and for automobile
production both affect and are affected by the expansion of
3.2 Drivers of Technological Change and Innovation infrastructures such as efficient refineries and road networks.
They also affect and are affected by social and institutional
Reduction of greenhouse gas emissions is highly dependent developments, such as political and military power and settle-
upon both technological innovation and practices. The rate of ment patterns, and business adaptation to changed transporta-
introduction of new technologies, and the drivers for adoption tion options, respectively.
are, however, different in industrial market economies,
economies in transition and developing countries. Lock-in effects have two implications. First, early investments
and early applications are extremely important in determining
In industrial countries, technologies are developed as a result which technologies will be most important in the future.
of corporate innovation or government-supported R&D, and in Second, learning and lock-in make technology transfer more
difficult. Learning is much more dependent on successful
building and using technology than on instruction manuals.
5 Levelized costs include capital costs, operation and maintenance Furthermore, technological productivity is strongly dependent
costs, fuel costs, etc. upon complementary networks of suppliers, repair persons and
400
Other private flows
Total bond lending

300
Foreign direct
investment
Current US$ billion
200 Other official development

finance
Official development
assistance
100 International bank
lending
0
1991 1992 1993 1994 1995 1996 1997
-100
Figure 3.3: Total net resource flows to aid recipient countries.
training which is difficult to replicate in another country or regulation may be applied at the global level. The Kyoto
region (IIASA/WEC, 1998; Unruh, 1999, 2000). Protocol and its mechanisms represent opportunities to bring
much needed energy-efficient practices and alternative energy
There are multiple government-driven pathways for technolog- to the continuously growing market of developing countries
ical innovation and change. Through regulation of energy mar- and in reshaping the energy markets of the economies in tran-
kets, environmental regulations, energy efficiency standards, sition.
and market-based initiatives such as energy and emission
taxes, governments can induce technology changes and influ- Important dimensions and drivers for the successful transfer of
ence the level of innovations. Important examples of govern- lower GHG technologies to developing countries and
ment policies on energy supply include the Clean Air Act in the economies in transition are capacity building, an enabling
USA, the Non Fossil Fuel Obligation in the UK, the Feed-in- environment, and adequate mechanisms for technology trans-
Law in Germany, the Alcohol Transport Fuel Program in fer (Metz et al., 2000). Markets for the use of new forms of
Brazil, and utility deregulation that began in the UK and has energy are often non-existent or very small, and require col-
now moved to the USA, Norway, Argentina, and many other laboration among the local government and commercial or
countries. Voluntary agreements or initiatives implemented by multilateral lending banks to promote procurement. It may also
the manufacturing industry, including energy supply sections, be necessary to utilize temporary subsidies and market-based
can also be drivers of technological change and innovation. incentives as well. Because energy is such a critical driver of
development, it is essential that strategies to reduce GHG emis-
In the energy-consuming sector, major government actions can sions be consistent with development goals. This is true for all
promote energy efficient use and the replacement of high (like economies, but is especially true for developing countries and
coal) to lower carbon fuels (like natural gas and renewables). economies in transition where leap-frogging to modern, low
Energy efficiency standards for vehicles, appliances, heating emitting, highly efficient technologies is critical (Moomaw et
and cooling systems, and buildings can also substantially al., 1999a; Goldemberg, 1998).
encourage the adoption of new technologies. On the other
hand, continued subsidies for coal and electricity, and a failure Non-energy benefits are an important driver of technological
to properly meter electricity and gas are substantial disincen- change and innovation (Mills and Rosenfeld, 1996; Pye and
tives to energy efficiency gains and the uptake of renewable McKane, 2000). Certain energy-efficient, renewable, and dis-
and low carbon technologies. Government-supported R&D has tributed energy options offer non-energy benefits. One class of
also played a significant role in developing nuclear power, low such benefits accrues at the national level, e.g. via improved
carbon technologies such as gas turbines, and carbon-free ener- competitiveness, energy security, job creation, environmental
gy sources including wind, solar, and other renewables. Such protection, while another relates to consumers and their deci-
government actions in the energy-consuming sector can ensure sion-making processes. From a consumer perspective, it is
increasing access to energy required for sustainable develop- often the non-energy benefits that motivate decisions to adopt
ment. such technologies. Consumer benefits from energy-efficient
technologies can be grouped into the following categories: (1)
While regulation in national energy markets is well estab- improved indoor environment, comfort, health, safety, and pro-
lished, it is unclear how international efforts at GHG emission ductivity; (2) reduced noise; (3) labour and time savings; (4)
improved process control; (5) increased reliability, amenity or Mitigation Options for Human Settlements (Levine et al.,
convenience; (6) water savings and waste minimization; and 1996a). This chapter showed that residential and commercial
(7) direct and indirect economic benefits from downsizing or buildings accounted for 19% and 10%, respectively, of global
elimination of equipment. Such benefits have been observed in carbon dioxide (CO2) emissions from the use of fossil fuels in
all end-use sectors. For renewable and distributed energy tech- 1990. More recent estimates increase this percentage to 21%
nologies, the non-energy benefits stem primarily from reduced for residential buildings and 10.5% for commercial buildings,
risk of business interruption during and after natural disasters, both for 1990 and 1995, as shown in Table 3.1. Globally, space
grid system failures or other adverse events in the electric heating is the dominant energy end-use in both residential and
power grid (Deering and Thornton, 1998). commercial buildings. Developed countries account for the
vast majority of buildings-related CO2 emissions, but the bulk
Product manufacturers often emphasize non-energy benefits as of growth in these emissions over the past two decades was
a driver in their markets, e.g. the noise- and UV-reduction ben- seen in developing countries. The SAR found that many cost-
efits of multi-glazed window systems or the disaster-recovery effective technologies are available to reduce energy-related
benefits of stand-alone photovoltaic technologies. Of particular CO2 emissions, but that consumers and decision-makers often
interest are attributes of energy-efficient and renewable energy do not invest in energy efficiency for a variety of reasons,
technologies and practices that reduce insurance risks (Mills including existing economic incentives, levels of information,
and Rosenfeld, 1996). Approximately 80 specific examples and conditions in the market. The SAR concluded that under a
have been identified with applications in the buildings and scenario with aggressive adoption of energy-efficiency mea-
industrial sectors (Vine et al., 1998), and insurers have begun sures, cost-effective energy efficiency could likely cut project-
to promote these in the buildings sector (Mills, 1999). The ed baseline growth in carbon emissions from energy use in
insurance sector has also supported transportation energy effi- buildings by half over the next two decades.
ciency improvements that increase highway safety (reduced
speed limits) and urban air quality (mass transportation)
(American Insurance Association, 1999). Insurance industry 3.3.3 Historic and Future Trends
concern about increased natural disasters caused by global cli-
mate change also serves as a motivation for innovative market CO2 from energy use is the dominant greenhouse gas emitted
transformation initiatives on behalf of the industry to support in the buildings sector, followed by HFCs used in refrigeration,
climate change adaptation and mitigation (Mills 1998, 1999; air conditioning, and foam insulation, and cookstove emissions
Vellinga et al., 2000; Nutter, 1996). Market benefits for indus- of methane and nitrous oxide (see Table 3.2). Developed coun-
tries that adopt low carbon- emitting processes and products tries have the largest emissions of CO2 and HFCs, while devel-
have also been increasingly recognized and documented oping countries have the largest emissions of greenhouse gases
(Hawken et al., 1999; Romm, 1999). from non-renewable biomass combustion in cookstoves (Smith
et al., 2000). It is noted, however, that the biomass energy
source is being replaced with non-renewable carbon-based
3.3 Buildings fuels (Price et al., 1998). This trend is expected to continue.
3.3.1 Introduction Energy use in buildings exhibited a steady growth from 1971
through 1990 in all regions of the world, averaging almost 3%
This section addresses greenhouse gas emissions and emis- per year. Because of the decline in energy use in buildings in
sions reduction opportunities for residential and commercial the former Soviet Union after 1989, global energy use in
(including institutional) buildings, often called the residential buildings has grown slower than for other sectors in recent
and service sectors. Carbon dioxide emissions from fossil fuel years. Growth in commercial buildings was higher than
energy used directly or as electricity to power equipment and growth in residential buildings in all regions of the world,
condition the air (including both heating and cooling) within averaging 3.5% per year globally between 1971 and 1990.
these buildings is by far the largest source of greenhouse gas Energy-related CO2 emissions also grew during this period.
emissions in this sector. Other sources include HFCs from the By 1995, CO2 emissions from fuels and electricity used in
production of foam insulation and for use in residential and buildings reached 874MtC and 858MtC, respectively, for a
commercial refrigeration and air conditioning, and a variety of total of 1732MtC, or 98% of all buildings-related GHG emis-
greenhouse gases produced through combustion of biomass in sions. Growth in these CO2 emissions was slower than the
cookstoves. growth in primary energy in both the developed countries and
the rest-of-world region, most likely the result of fuel switch-
ing to lower carbon fuels in these regions. In contrast, growth
3.3.2 Summary of the Second Assessment Report in energy-related CO2 emissions in the developing countries
— Asia Pacific region — was 6.3% per year between 1971
The Second Assessment Report (SAR) reviewed historical and 1995, greater than the 5.5% per year growth in primary
energy use and greenhouse gas emissions trends as well as mit- energy use, reflecting a growing reliance on more carbon-
igation options in the buildings sector in Chapter 22, intensive fuels in this region.6
Technological and economic potential of greenhouse gas emissions reduction 183
Table 3.2: Overview of 1995 greenhouse gas emissions in the buildings sector (in MtC) by region
(Price et al., 1998, 1999; Smith et al., 2000).
Greenhouse gas source Developed Countries with Developing Rest of World Total
Countries Economies Countries in
in Transition Asia-Pacific
Fuel CO2 397 235 167 75 874

Electricity CO2a 561 85 125 87 858
Refrigeration, A/C, foam insulation HFCs 45b
Biomass cookstove CH4 40c
Total 1817
a CO2 emissions from production of electricity.

b Based on an estimated range of 47 to 50MtC in the year 2000 (see Appendix to this Chapter).
c Based on an estimate of global annual emissions of 7 Tg of CH4. Estimates for N2O emissions from biomass cookstoves are not available (Smith et al., 2000).
Non-CO2 greenhouse gas emissions from the buildings sector more urbanized and commercial fuels, especially electricity,
are hydrofluorocarbons (HFCs)7 used or projected to be used in become easier to obtain, the demand for energy services such
residential and commercial refrigerators, air conditioning sys- as refrigeration, lighting, heating, and cooling increases. The
tems, and in open and closed cell foam for insulation. HFCs in number of people living in urban areas almost doubled
the building sector were essentially zero in 1995, but are pro- between 1970 and 1995, growing from 1.36 billion, or 37% of
jected to grow as they replace ozone-depleting substances (see the total, in 1970 to 2.57 billion, or 45% of the total, in 1995
Appendix to this chapter). In addition, methane (CH4), nitrous (UN, 1996).
oxide (N2O), carbon monoxide (CO), and nitrogen oxides
(NOx) (along with CO2) are produced through combustion of Driving forces influencing the use of HFCs include both its
biomass in cookstoves (Levine et al., 1996b; Smith et al., suitability as a replacement for CFCs and HCFCs, as well as an
2000). It is estimated the biomass cookstoves emit about awareness of the contribution of HFCs to global climate
40MtCeq, 2% of total buildings-related GHG emissions (Smith change. It is expected that this awareness will continue to drive
et al., 2000). These emissions are concentrated in developing decisions to use HFCs only in highest value applications. Some
countries, where biomass fuels can account for more than 40% countries have enacted regulations limiting emissions of HFCs
of the total energy used in residences (UNDP, 1999).8 while others have established voluntary agreements with
industry to reduce HFC use (see Appendix to this chapter).
Key drivers of energy use and related GHG emissions in build-
ings include activity (population growth, size of labour force, Global projections of primary energy use for the buildings sec-
urbanization, number of households, per capita living area, and tor show a doubling, from 103EJ to 208EJ, between 1990 and
persons per residence), economic variables (change in GDP 2020 in a baseline scenario (WEC, 1995a). The most rapid
and personal income), energy efficiency trends, and carbon growth is seen in the commercial buildings sector, which is
intensity trends. These factors are in turn driven by changes in projected to grow at an average rate of 2.6% per year. Increases
consumer preferences, energy and technology costs, settlement in energy use in the EITs are projected to be as great as those
patterns, technical change, and overall economic conditions. in the developing countries, as these countries recover from the
economic crises and as the growth in developing countries
Urbanization, especially in developing countries, is clearly begins to slow. Under a scenario where state-of-the-art tech-
associated with increased energy use. As populations become nology is adopted, global primary energy consumption in the
buildings sector will only grow to about 170EJ in 2020. A more
aggressive “ecologically driven/advanced technology” sce-
6 Trends in primary energy use and CO emissions in the EIT region
2 nario, which assumes an international commitment to energy
cannot be compared because these values are from two different data efficiency as well as rapid technological progress and wide-
sources (see Price et al., 1998).
spread application of policies and programmes to speed the
7HFCs are used as a replacement gas for chlorofluorocarbons (CFCs) adoption of energy-efficient technologies in all major regions
which are being phased out globally under the Montreal Protocol on of the world, results in primary energy use of 140EJ in 2020
Substances that Deplete the Ozone Layer. (WEC, 1995a).
8 For example, traditional fuels based on biomass account for a large
share of residential energy consumption in Nicaragua (43%), El The IPCC’s IS92a scenario projected baseline global carbon
Salvador (44%), Honduras (50%), Paraguay (51%), Guatemala (61%) dioxide emissions from the buildings sector to grow from 1900
and Haiti (87%) (UNDP, 1999). MtC to 2700MtC between 1990 and 2020. An analysis of the
potential reductions from implementation of energy-efficient Velsen et al., 1998), India (Asian Development Bank, 1998),
technologies found that annual global carbon dioxide emis- Indonesia (Cahyono Adi et al., 1997), Mexico (Mendoza et al.,
sions from the buildings sector could be reduced by an esti- 1991), Poland (Gaj and Sadowski, 1997); Ukraine (Raptsoun
mated 950MtC in 2020 compared to the IS92a baseline sce- and Parasyuk, 1997), and the US (Interlaboratory Working
nario (Acosta Moreno et al., 1996). Over 60% of these pro- Group, 1997; National Laboratory Directors, 1997; STAP-
jected savings are realized through improvements in residential PA/ALAPCO, 1999). Below examples are given of three new
equipment and the thermal integrity of buildings globally. developments out of many that could be cited: integrated build-
Carbon dioxide emissions from commercial buildings grow ing design, reducing standby power losses in appliances and
from 37% to 41% of total buildings emissions between 1990 equipment, and photovoltaic systems for residential and com-
and 2020 as a result of expected increases in commercial floor mercial buildings. These examples focus on options for reduc-
space (which implies increases in heating, ventilation, and air ing greenhouse gas emissions from the buildings sector in
conditioning systems (HVAC)) as well as increased use of which there has been significant recent research: improving the
office and other commercial sector equipment (Acosta Moreno building shell, improving building equipment and appliances,
et al., 1996; WEC, 1995a). and switching to lower carbon fuels to condition the air and
power the equipment and appliances in buildings. In addition,
The B2 scenario from the IPCC’s Special Report on Emissions recent developments in distributed power generation for build-
Scenario projects buildings sector carbon dioxide emissions to ings are briefly described (see also Section 3.8.5.3).
grow from 1,790MtC in 1990 to 3,090MtC in 2020. The most
rapid growth is seen in the developing countries, which show 3.3.4.1 Integrated Building Design
an average growth in buildings-related carbon dioxide emis-
sions of over 3% per year. In contrast, this scenario envisions Integrated building design focuses on exploiting energy-saving
that the emissions from buildings in the EIT region continue to opportunities associated with building siting as well as syner-
decline, at an average annual rate of –1.3% (Nakicenovic et al., gies between building components such as windows, insula-
2000). tion, equipment, and heating, air conditioning, and ventilation
systems. Installing increased insulation and energy-efficient
windows, for example, allows for installation of smaller heat-
3.3.4 New Technological and Other Options ing and cooling equipment and reduced or eliminated duct-
work.10 Most importantly, it will become possible in the future
There are myriad opportunities for energy efficiency improve- to design a building where operation can be monitored, con-
ment in buildings (Acosta Moreno et al., 1996; Interlaboratory trolled, and faults detected and analyzed automatically. For
Working Group, 1997; Nadel et al., 1998) (see Table 3.3). Most large commercial buildings, such systems (which are currently
of these technologies and measures are commercialized but are under development) have the potential to create significant
not fully implemented in residential and commercial buildings, energy savings as well as other operational benefits. Two
while some have only recently been developed and will begin recent projects that used integrated building design for resi-
to penetrate the market as existing buildings are retrofitted and dential construction found average energy savings between
new buildings are designed and constructed. 30% and 60% per cent (Elberling and Bourne, 1996; Hoeschele
et al., 1996; Parker et al., 1996), while for commercial build-
A recent study identified over 200 emerging technologies and ings energy savings have varied between 13% and 71% (Piette
measures to improve energy efficiency and reduce energy use et al., 1996; Hernandez et al., 1998; Parker et al., 1997;
in the residential and commercial sectors (Nadel et al., 1998). Thayer, 1995; Suozzo and Nadel, 1998). Assuming an average
Individual country studies also identify many technologies and savings of 40% for integrated building design, the cost of saved
measures to improve the energy efficiency and reduce green- energy for residential and commercial buildings has been cal-
house gas emissions from the buildings sector in particular cli- culated to be around US$3/GJ (the average cost of energy in
mates and regions.9 For example, a study for South Africa dis- the US buildings sector is about US$14/GJ) (Nadel et al.,
cusses 15 options for the residential sector and 11 options for 1998; US DOE/EIA, 1998).
the commercial sector (Roos, 2000). Examples of other studies
that identify energy efficiency or greenhouse gas mitigation 3.3.4.2 Reducing Standby Power Losses in Appliances and
options for the buildings sector include those for Brazil Equipment
(Schaeffer and Almeida, 1999), Bulgaria (Tzvetanov et al,
1997), Canada (Bailie et al., 1998); China (Research Team of Improving the energy efficiency of appliances and equipment
China Climate Change Country Study, 1999); Czech Republic can result in reduced energy consumption in the range of 10 to
(Tichy, 1997), the European Union (Blok et al., 1996; van 70%, with the most typical savings in the 30% to 40% range
(Acosta Moreno et al., 1996; Turiel et al., 1997).
9 Many countries provide a discussion of these technologies and mea-

sures in their National Communications to the UNFCCC 10It is noted that production of these efficient products increases ener-
(http://www.unfccc.int/text/resource/natcom/). gy use for materials production in the industrial sector (Gielen, 1997).
Table 3.3: Overview of opportunities for energy efficiency improvement in buildings

(Acosta Moreno et al., 1996; Interlaboratory Working Group, 1997; Nadel et al., 1998; Suozzo and Nadel, 1998).
End use Energy efficiency improvement opportunities
Insulation Materials for buildings envelopes (e.g., walls, roofs, floors, window frames); materials for refrigerated
spaces/cavities; materials for highly heated cavities (e.g., ovens); solar reflecting materials; solar and wind
shades (e.g., vegetation, physical devices); controls; improved duct sealing
Heating, ventilation, and air Condensing furnaces; electric air-source heat pumps; ground-source heat pumps; dual source heat pumps;
conditioning (HVAC) systems Energy Star residential furnaces and boilers; high efficiency commercial gas furnaces and boilers; efficient
commercial and residential air conditioners; efficient room air conditioners; optimization of chiller and
tower systems; desiccant coolers for supermarkets; optimization of semiconductor industry cleanroom
HVAC systems; controls (e.g., economizers, operable windows, energy management control systems);
motors; pumps; chillers; refrigerants; combustion systems; thermal distribution systems; duct sealing; radi-
ant systems; solar thermal systems; heat recovery; efficient wood stoves
Ventilation systems Pumps; motors; air registers; thermal distribution systems; air filters; natural and hybrid systems
Water heating systems High efficiency electric resistance water heaters; water heaters; air-source heat pump water heaters; exhaust
air heat pump water heaters; integrated space/water heating systems; integrated gas-fired space/water heat-
ing systems, high efficiency gas water heaters; instantaneous gas water heaters; solar water heaters; low-
flow showerheads
Refrigeration Efficient refrigerators; high efficiency freezers; commercial refrigeration technologies
Cooking Improved biomass stoves; efficient wood stoves; Turbochef combination microwave/convection oven; high
efficiency gas cooking equipment
Other appliances Horizontal axis washing machine; increase washing machine spin speed; heat pump clothes dryer; efficient
dishwashers; consumer electronics with standby losses less than 1 watt; consumer electronics with efficient
switch-mode power supplies
Windows Double and triple-glazed windows; low-emittance windows; spectrally selective windows; electrochromic
windows
Lighting systems Compact fluorescents (including torchères); halogen IR lamps; electronic ballasts; efficient fluorescents and
fixtures; HIDs, LED exit signs; LED traffic lights; solid state general purpose lighting (LEDs and OLEDs);
lighting controls (including dimmers); occupancy controls; lighting design (including task lighting, reduc-
ing lighting levels);daylighting controls; replacement of kerosene lamps
Office equipment Efficient computers; low-power mode for equipment; LCD screens
Motors Variable speed drives; high efficiency motors; integrated microprocessor controls in motors; high quality
motor repair practices
Energy management Buildings energy management systems; advanced energy management systems; commercial building retro-
commissioning
Design Integrated building design; prefabricated buildings; solar design (including heat or cold storage); orienta-
tion; aspect ratio; window shading; design for monitoring; urban design to mitigate heat islands; high
reflectance roof surfaces
Energy sources Off-grid photovoltaic systems; cogeneration systems
Implementation of advanced technologies in refrigerator/freez- idential electricity, and slightly less in European countries
ers, clothes washers, clothes dryers, electric water heaters, and (Nakagami et al., 1997; Meier et al., 1998). Metering studies
residential lighting in the US is estimated to save 3.35EJ/yr by have shown that such standby losses can be reduced to one
2010, reducing energy use of these appliances by nearly 50% watt in most of these mass-produced goods (Meier et al.,
from the base case (Turiel et al., 1997). 1998). The costs of key low-loss technologies, such as more
efficient switch-mode power supplies and smarter batteries, are
A number of residential appliances and electronic devices, low (Nadel et al., 1998) and a recent study found that if all US
such as televisions, audio equipment, telephone answering appliances were replaced by units meeting the 1-watt target,
machines, refrigerators, dishwashers, and ranges consume aggregate standby losses would fall at least 70%, saving the
electricity while in a standby or off mode (Meier et al., 1992; USA over US$2 billion annually (Meier et al., 1998).
Herring, 1996; Meier and Huber, 1997; Molinder, 1997;
Sanchez, 1997). These standby power losses are estimated to
consume 12% of Japanese residential electricity, 5% of US res-
Table 3.4: Buildings sector 1995 fuel, electricity, primary energy, CO2 emissions, and average annual growth rates (AAGRs) for
1971 to 1990 and 1990 to 1995 by region
(Price et al., 1998, 1999).
Fuels Electricity Primary energy CO2 emissions
1995 AAGR AAGR 1995 AAGR AAGR 1995 AAGR AAGR 1995 AAGR AAGR
Energy 1971- 1990- Energy 1971- 1990- Energy 1971- 1990- CO2 1971- 1990-
(EJ) 1990 1995 (EJ) 1990 1995 (EJ) 1990 1995 (MtC) 1990 1995
Developed 25.45 -0.7% 0.7% 14.21 4.5% 2.7% 68.51 1.8% 1.9% 958.46 0.8% 0.9%
Countries
Countries with 11.98 3.4% -6.4% 1.39 6.6% -7.9% 16.19 4.1% -6.8% 319.83 2.3% -3.0%
Economies in
Transition
Developing Cos. 7.34 4.3% 1.5% 1.85 10.4% 10.5% 12.93 5.7% 4.8% 291.62 6.7% 4.7%
In Asia-Pacific
Rest of World 5.14 6.2% 0.5% 2.31 8.2% 6.7% 12.15 7.1% 3.8% 162.32 6.0% 5.3%
World 49.91 1.3% -1.2% 19.76 5.3% 2.6% 109.78 2.9% 0.8% 1732.23 2.0% 1.0%
Note: Data sources are IEA, 1997a; IEA, 1997b, IEA, 1997c and BP, 1997. For the EIT region only, energy data from British Petroleum were
used instead of IEA data. Thus, primary energy and CO2 emissions for the EIT region cannot be compared. For a more detailed description of
the data, see Price et al., 1998, 1999.
120
100
80
Primary Energy (EJ)
60
40
Middle East
Latin America
Africa
20 Developing Countries in Asia-Pacific
0
1971 1975 1980 1985 1990 1995
Figure 3.4: Primary energy use in the buildings sector, 1971-1995.

3.3.4.3 Photovoltaic Systems for Buildings 3.3.5 Reginal Differences
Photovoltaic systems are being increasingly used in rural off- There are significant regional differences in levels of energy
grid locations, especially in developing countries, to provide use and related GHG emissions from the buildings sector.
electricity to areas not yet connected to the power infrastruc- Table 3.4 presents 1995 buildings sector’s fuels, electricity, pri-
ture or to offset fossil fuel generated electricity. These systems mary energy, and CO2 emissions and historical growth rates for
are most commonly used to provide electricity for lighting, but the 1971 to 1990 and 1990 to 1995 periods for four regions
are also used for water pumping, refrigeration, evaporative (Price et al., 1998, 1999). Figure 3.4 provides a graphical pre-
cooling, ventilation fans, air conditioning, and powering vari- sentation of the data on primary energy use in buildings, with
ous electronic devices. In 1995, more than 200,000 homes the fourth region (Rest of World) desegregated into Middle
worldwide depended on photovoltaic systems for all of their East, Latin America, and Africa. Three very important trends
electricity needs (US DOE, 1999a). Between 1986 and 1998, are apparent:
global PV sales grew from 37MW to 150MW (US DOE,
1999b). Rural electrification programmes have been estab- • Developed countries have by far the largest CO2 emis-
lished in many developing countries. In Brazil, more than 1000 sions from the buildings sector and have exhibited a
small stand-alone systems that provide power for lighting, relatively steady long-term trend of annual primary
TVs, and radios were recently installed in homes and schools, energy growth in the 1.8% to 1.9% range (with lower
while two hybrid (PV-wind-battery) power systems were growth through 1985 and higher growth thereafter).
installed in the Amazon Basin to reduce the use of diesel gen- • Since the late 1980s, energy use and related CO2 emis-
erators that supply power to more than 300 villages in that area sions from buildings in the developing countries, par-
(Taylor, 1997). Similar projects have been initiated in South ticularly in the Asia–Pacific region, have grown about
Africa (Arent, 1998), Egypt (Taylor and Abulfotuh, 1997), five times as fast as the global average (and more than
India (Stone and Ullal, 1997; US DOE, 1999b), Mexico twice as fast as in developed countries).
(Secretaria de Energia, 1997), China, Indonesia, Nepal, Sri • The growth rate of buildings’ energy use globally has
Lanka, Vietnam, Uganda, Solomon Islands, and Tanzania declined since 1990 because of the economic crisis in
(Williams, 1996). Recent developments promoting increased the EITs. The world other than the EITs continued its
adoption of photovoltaic systems include the South African long-term trend (1971-1995) of annual energy growth
Solar Rural Electrification Project (Shell International, 1999), in the 2.8% to 2.9% range.
the US Million Solar Roofs Initiative (US DOE, 1999a), the
effort to install 5000MW on residences in Japan by 2010 The average annual increase in urban population was nearly
(Advisory Committee for Energy, 1998), and net metering, 4.0% per year in Asia and Rest of World regions. This
which allows the electric meters of customers with renewable increased urbanization led to increased use of commercial
energy generating facilities to be reversed when the generators fuels, such as kerosene and liquefied petroleum gas (LPG), for
are producing energy in excess of residential requirements (US cooking instead of traditional biomass fuels. In general, higher
DOE, 1999b). levels of urbanization are associated with higher incomes and
increased household energy use, including significantly
3.3.4.4 Distributed Power Generation for Buildings increased purchase and use of a variety of household appli-
ances (Sathaye et al., 1989; Nadel et al., 1997, Sathaye and
Distributed power generation relies on small power generation Ketoff, 1991). Wealthier populaces in developing countries
or storage systems located near or at the building site. Several exhibit consumption patterns similar to those in developed
small scale (below 500kW), dispersed power-generating tech- countries, where purchases of appliances and other energy-
nologies are advancing quite rapidly. These technologies using equipment increase with gains in disposable income
include both renewable and fossil fuel powered alternatives, (WEC, 1995a).
such as photovoltaics and microturbines. Moving power gen-
eration closer to electrical end-uses results in reduced system Between 1971 and 1990, global primary energy use per capita
electrical losses, the potential for combined heat and power in the buildings sector grew from 16.5GJ/capita to 20GJ/capi-
applications (especially for building cooling), and opportuni- ta. Per capita energy use in buildings varied widely by region,
ties to better co-ordinate generation and end-use, which can with the developed and EIT regions dominating globally.
together more than compensate for the lower conversion effi- Energy use per capita is higher in the residential sector than in
ciency and result in overall energy systems that are both less the commercial sector in all regions, although average annual
expensive and emit less carbon dioxide than the familiar cen- growth in commercial energy use per capita was higher during
tral power generating station. The likelihood of customer sites the period, averaging 1.7% per year globally compared to 0.6%
becoming net generators will be determined by the configura- per year for the residential sector.
tion of the building and/or site, the opportunities for on-site use
of cogenerated heat, the availability and relative cost of fuels, Energy consumption in residential buildings is strongly corre-
and utility interconnection, environmental, building code, and lated with household income levels. Between 1973 and 1993,
other regulatory restrictions (NRECA, 2000). increases in total private consumption translated into larger
homes, more appliances, and an increased use of energy ser- The carbon intensity of the residential sector declined in most
vices (water heating, space heating) in most developed coun- developed countries between 1970 and the early 1990s (IEA,
tries (IEA, 1997d). In developed countries, household floor 1997d). In the service sector, carbon dioxide emissions per
area increased but household size dropped from an average of square meter of commercial floor area also dropped in most
3.5 persons per household in 1970 to 2.8 persons per household developed countries during this period in spite of increasing
in 1990. These trends led to a decline in energy use per house- carbon intensity of electricity production in many countries
hold but increased residential energy use per capita (IEA, (Krackeler et al., 1998). In developing countries, carbon inten-
1997d). sity of both the residential and commercial sector is expected
to continue to increase, both as a result of increased demand for
In the commercial sector, the ratio of primary energy use to energy services and the continuing replacement of biomass
total GDP as well as commercial sector GDP fell in a number fuels with commercial fuels (IEA, 1995).
of developed countries between 1970 and the early 1990s. This
decrease, primarily a result of increases in energy efficiency,
occurred despite large growth in energy-using equipment in 3.3.6 Technological and Economic Potential
commercial buildings, almost certainly the result of improved
equipment efficiencies. Growth in electricity use in the com- An estimate of the technological and economic potential of
mercial sector shows a relatively strong correlation with the energy efficiency measures was recently prepared for the IPCC
commercial sector GDP (IEA, 1997d). (Acosta Moreno et al., 1996).11 This analysis provides an esti-
mate of energy efficiency potential for buildings on a global
Space heating is the largest end-use in the developed countries basis. Using the B2 Message marker scenario (Nakicenovic et
as a whole and in the EIT region (Nadel et al., 1997), although al., 2000) as the base case,12 the analysis indicates an overall
not as important in some developed countries with a warm cli- technical and economic potential for reducing energy-related
mate. The penetration of central heating doubled from about CO2 emissions in the buildings sector of 715MtC/yr in 2010
40% of dwellings to almost 80% of dwellings in many devel- for a base case with carbon emissions of 2,600MtC/yr (27%),
oped countries between 1970 and 1992 (IEA, 1997d). District of 950MtC/yr in 2020 for a base case with carbon emissions of
heating systems are common in some areas of Europe and in 3,000MtC/yr (31%), and of 2,025MtC/yr in 2050 for a base
the EIT region. Space heating is not common in most develop- case with carbon emissions of 3,900MtC/yr (52%) (see Table
ing countries, with the exception of the northern half of China, 3.5).13 It is important to note that the availability of technolo-
Korea, Argentina, and a few other South American countries gies to achieve such savings cost-effectively depends critically
(Sathaye et al., 1989). Residential space heating energy inten- on significant R&D efforts.
sities declined in most developed countries (except Japan)
between 1970 and 1992 because of reduced heat losses in Estimates of the ranges of costs of carbon reductions are based
buildings, lowered indoor temperatures, more careful heating on a synthesis of recent studies of costs (Brown et al., 1998);
practices, and improvements in energy efficiency of heating these estimates are similar to those provided in an International
equipment (IEA, 1997d; Schipper et al., 1996). Energy Agency Workshop on Technologies to Reduce
Greenhouse Gas Emissions (IEA, 1999a). The qualitative rank-
Water heating, refrigeration, space cooling, and lighting are the ings for the reductions in carbon emissions follow the results
next largest residential energy uses, respectively, in most of the IPCC Technical Paper (Acosta Moreno et al., 1996). In
developed countries (IEA, 1997d). In developing countries, general, it is assumed that costs are initially somewhat higher
cooking and water heating dominate, followed by lighting, in developing countries because of the reduced availability of
small appliances, and refrigerators (Sathaye and Ketoff, 1991). advanced technology and the lack of a sufficient delivery infra-
Appliance penetration rates increased in all regions between
1970 and 1990. The energy intensity of new appliances
11 The review of more recent information bearing on the technical and
declined over the past two decades; for example, new refriger-
economic potential of energy efficiency measures gives no reason to
ators in the US were 65% less energy-intensive in 1993 than in change the earlier estimate in the IPCC technical paper (see, for exam-
1972, accounting for differences in size or performance (IEA, ple, Brown et al., 1998; de Almeida and Fonseca, 1999; Jochem,
1997d; Schipper et al., 1996). Electricity use and intensity 1999; Kainuma et al., 1999a; Lenstra, 1999; Levine et al, 1996;
(MJ/m2) increased rapidly in the commercial buildings sector Schaeffer and Almeida, 1999; Sheinbaum et al., 1998; Urge-Vorsatz
as the use of lighting, air conditioning, computers, and other and Szesler, 1999; Zhou, 1999).
office equipment has grown. Fuel intensity (PJ/m2) declined 12The original analysis was based on the IS92a scenario. From the set
rapidly in developed countries as the share of energy used for of IPCC SRES scenarios, for the period covered in this chapter (up to
space heating in commercial buildings dropped as a result of 2020), scenario B2 most resembles baseline scenarios with the low
thermal improvements in buildings (Krackeler et al., 1998). levels of technology introduction used in the literature assessed here.
Fuel use declined faster than electricity consumption 13 Of the efficiency measures that are technically and economically
increased, with the result that primary energy use per square feasible, the IPCC report estimated that between 35% and 60% could
meter of commercial sector floor area gradually declined in be adopted in the market through known and established policy
most developed countries. approaches.
Table 3.5: Technical and economic potential for reducing energy-related carbon dioxide emissions from the buildings sector
(Acosta Moreno et al., 1996).
Projected emissions reductions Share of projected total emissions

(MtC)
2010 2020 2050 2010 2020 2050
Developed Countries + EIT Region

Residential 325 420 660 30% 35% 54%
Commercial 185 245 450 32% 38% 68%
Total 510 665 1110 31% 36% 59%
Developing Countries
Residential 125 170 515 20% 21% 39%
Commercial 80 115 400 24% 26% 57%
Total 205 285 915 21% 23% 45%
World 715 950 2025 27% 31% 52%
Note: Projected total emissions based on B2 Message marker scenario (standardized) (Nakicenovic et al., 2000).
structure. However, depending upon conditions in the country where appropriate. There are many cost-effective technologies
or region, these high costs could be offset by the fact that there and measures that have the potential to significantly reduce the
are many more low-cost opportunities to improve energy effi- growth in GHG emissions from buildings in both developing
ciency in most developing countries. and developed countries by improving the energy performance
of whole buildings, as well as reducing GHG emissions from
These studies show that with aggressive implementation of ener- appliances and equipment within the buildings.
gy-efficient technologies and measures, CO2 emissions from res-
idential buildings in 2010 can be reduced by 325MtC in devel-
oped countries and the EIT region at costs ranging from 3.4 Transport and Mobility
–US$250 to –US$150/tC saved and by 125MtC in developing
countries at costs of –US$200 to US$50/tC saved. Similarly, CO2 3.4.1 Introduction
emissions from commercial buildings in 2010 can be reduced by
185MtC in developed countries and the EIT region at costs rang- This section addresses recent patterns and trends in greenhouse
ing from –US$400 to –US$250/tC saved and by 80MtC in devel- gas (GHG) emissions by the transport sector, and the techno-
oping countries at costs ranging from -US$400 to US$0/tC logical and economic potential to reduce GHG emissions. The
saved. chapter focuses on areas where important developments have
occurred since the SAR. It does not attempt to comprehensive-
ly present mitigation options for transport, as was done there
3.3.7 Conclusions (Michaelis et al., 1996). For a discussion of barriers and market
potential with respect to advanced transportation technologies,
Energy demand in buildings worldwide grew almost 3% per the reader is referred to Chapter 5, especially Section 5.4.2. For
year from 1971 to 1990, dropping slightly after that as a con- a discussion of policies, measures and options, including
sequence of the significant decrease in energy use in the EIT behavioural strategies, the reader is referred to Chapter 6.
region. Growth in buildings energy use in all other regions of
the world continued at an average rate of 2.5% per year since Recent successes with key future technologies for motor vehi-
1990. This growth has been driven by a wide variety of social, cles such as fuel cell power trains and advanced controls for air
economic, and demographic factors. Although there is no pollutants (carbon monoxide, hydrocarbons, oxides of nitro-
assurance that these factors will continue as they have in the gen, and particulate matter) seem to promise dramatic changes
past, there is also no apparent means to modify most of the fun- in the way the transport sector uses energy and in its impacts
damental drivers of energy demand in residential and commer- on the environment. At the same time, the rapid motorization
cial buildings. However, there is considerable promise for of transport around the world, the continued availability of
improving the energy efficiency of appliances and equipment low-cost liquid fossil fuels, and the recent trend of essentially
used in buildings, improving building thermal integrity, reduc- constant fuel economy levels caused by demand for larger,
ing the carbon intensity of fuels used in buildings, reducing the more powerful vehicles, all point towards steadily increasing
emissions of HFCs, and limiting the use of HFCs to those areas GHG emissions from transport in the near future (e.g., WEC,
1998a; Ogawa et al., 1998). These are challenges that must be 3.4.3 Historic and Future Trends
met by the evolution of policies and institutions capable of
managing environmentally beneficial change in an increasing- Since the publication of the SAR, important advances have
ly global economy. been achieved in several areas of automotive technology.
Among the most significant are: (1) two global automotive
manufacturers are now selling hybrid automobiles 5-10 years
3.4.2 Summary of the Second Assessment Report ahead of what was anticipated just 5 years ago; (2) dramatic
reductions have been made in fuel cell cost and size, such that
The SAR’s chapter 21, Mitigation Options in the several manufacturers have announced that they will introduce
Transportation Sector (Michaelis et al., 1996), provides an fuel cell vehicles by 2005, 10-20 years ahead of what was pre-
overview of global trends in transportation activity, energy viously anticipated; and (3) improvements in fuels, engine con-
intensities, and GHG emissions, along with a comprehensive trols, and emissions after-treatment led to the production of a
review of economic, behavioural, and technological options for gasoline internal combustion engine vehicle with virtually zero
curtailing GHG emissions from the global transport sector. It emissions of urban air pollutants. This achievement, combined
concludes with an assessment of transport policies and their with regulations requiring low-sulphur fuels, may foreshadow
effects on GHG emissions. Its review of mitigation options for the development of acceptable emissions control systems for
transportation demand management, modal structure, and more energy efficient direct injection engines, although signif-
alternative fuels, and its analysis of transport policies are still icant hurdles remain. It may also reduce the incentive for
essentially up to date and are not repeated in this section. adopting alternative fuel vehicles, such as battery electric and
natural gas vehicles, which can also have lower greenhouse gas
Historically, transportation energy use and GHG emissions emissions. These developments could have profound effects on
have increased because reductions in energy intensities have future GHG emissions from road, rail, marine, and pipeline
not kept pace with increasing transport activity. The world’s transport. Also, since the publication of the SAR, the IPCC has
motor vehicle fleet grew at an average annual rate of 4.5% released a comprehensive report on the impacts of aviation on
from 1970 to 1990. Over the same period, light-duty vehicle the global atmosphere (Penner et al., 1999) that includes a pro-
fuel economy improved by 2% per year or less. Increases in jection of expected progress in reducing energy intensity and
vehicular fuel economy have also been accompanied by GHG emissions from commercial air transport, and adds great-
declining vehicle occupancy rates. It is noted below that the ly to the information about aviation’s effects on climate.
fuel economy of road passenger transport vehicles has lev-
elled off since the publication of the SAR, and no longer Worldwide, transport produces roughly 20% of carbon emis-
appears to be improving. Air travel and truck freight activity sions and smaller shares of the other five greenhouse gasses
have also grown more rapidly than energy intensities (energy covered under the Kyoto Protocol. According to IEA statistics,
use per passenger km) have declined. Since 1970, transport the transport sector’s share of world GHG emissions increased
energy use and GHG emissions have grown at an average from about 19% in 1971 to 22% in 1995 (Price et al., 1998)
annual rate of 2.4%. and 23% in 1997 (IEA, 1999c, p. II.67). Excluding emissions
from vehicle air conditioners (described in the Appendix),
The SAR concluded that by 2010 it might be technically feasi- CO2 from combustion of fossil fuels is the predominant GHG
ble to reduce energy intensities for new transport vehicles by
25% to 50% without reduction of performance or quality, by
adopting a variety of fuel economy technologies. It noted that
the economic potential would likely be smaller. The adoption 1800
Gas
of energy efficiency improvements throughout the sector was 1600
Electricity
estimated to be able to reduce transportation energy use in
1400 Petroleum
2025 by one-third versus projected levels.
1200 Coal
The SAR also extensively reviewed the life cycle GHG emis- 1000
Mtoe
sions from alternative fuels and concluded that only fuels 800
derived from biomass or electricity generated from substantial-
600
ly non-fossil sources could reduce life cycle GHG emissions
by more than 20% versus conventional gasoline internal com- 400
bustion engine vehicles. Compressed or liquefied natural gas 200
and liquefied petroleum gases are capable of reducing full fuel
0
cycle GHG emissions by 10% to 20% over gasoline-powered 1973 1996
light-duty vehicles, but emissions would actually increase if
these fuels were used to replace diesel engines in heavy-duty Figure 3.5: World transportation energy use, 1973 and 1996.
vehicles.
800
Other
World
Millions of Registered Vehicles

15% 700
USA
600
500
Air 12%
400
300
200
Road 100
73%
0
1946 1956 1966 1976 1986 1996
Figure 3.6: World transport energy by mode, 1996. Figure 3.7: Growth of world motor vehicle population, 1946-
1996.
produced by transport, accounting for over 95% of the annual Transport achieved major energy efficiency gains in the 1970s
global warming potential produced by the sector. Nitrous and 1980s, partly because of an economic response to the oil
oxide produced by vehicles equipped with catalytic convert- price increases of 1973 to 1974 and 1979 to 1980, and partly
ers, and methane emitted by internal combustion engines as a result of government policies inspired by the oil price
account for nearly all the remainder. Almost all of the carbon shocks. Driven principally by mandatory standards, the aver-
comes from petroleum fuels. Between 1973 and 1996, world age fuel economy of new passenger cars doubled in the USA
transportation energy use, of which petroleum-derived fuels between 1974 and 1984 (e.g., Greene, 1998). In Europe, sim-
comprise over 95%, increased by 66% (Figure 3.5). ilar improvements were achieved by a combination of volun-
Alternative energy sources have not played a significant role tary efficiency agreements and higher taxes on motor fuels.
in the world’s transport systems. Despite two decades of price From 1980 to 1995 the average sales-weighted fuel consump-
upheavals in world oil markets, considerable research and tion rates of passenger cars sold in Europe and Japan fell by
development of alternative fuel technologies, and notable 12%, from 8.3 l/100km to 7.3 l/100km (Perkins, 1998). All of
attempts to promote alternative fuels through tax subsidies and the decrease, however, occurred between 1980 and 1985
other policies, petroleum’s share of transport energy use has (Figure 3.8). Since 1985, the fuel economies of light-duty
not decreased (94.7% in 1973 and 96.0% in 1996) according vehicles sold in the USA and Europe have remained essential-
to IEA statistics (IEA, 1999c). ly constant.
On a modal basis, road transport accounts for almost 80% of Energy efficiency improvements in other modes have also
transport energy use (Figure 3.6). Light-duty vehicles alone slowed or stagnated over the past 10-15 years. Average energy
comprise about 50%. Air transport is the second largest, and
most rapidly growing mode, with about 12% of current trans-
port energy use according to International Energy Agency esti- l/100k
mates (IEA, 1999c).
9
The growth of transport energy use, its continued reliance on
petroleum and the consequent increases in carbon emissions are
driven by the long-term trends of increasing motorization of 8
world transport systems and ever-growing demand for mobili-
ty. Immediately after World War II, the world’s motor vehicle
fleet numbered 46 million vehicles, and 75% of the world’s cars 7
and trucks were in the USA. In 1996, there were 671 million
highway vehicles worldwide, and the US share stood at just
6
over 30% (Figure 3.7). Since 1970, the US motor vehicle pop- 1980 1982 1984 1986 1988 1990 1992 1994
ulation has been growing at an average rate of 2.5% per year,
Germany Austria Belgium France
but the population of vehicles in the rest of the world has been
Italy UK Sweden Average
increasing almost twice as rapidly at 4.8% per year (AAMA,
1998, p. 8). The same patterns of growth are discernible in sta- Figure 3.8: Weighted average fuel consumption of new pas-
tistics on vehicle stocks (ECMT, 1998). senger cars.
Table 3.6: Modal energy intensities, 1973 to 1994

(IEA, 1997d, Table 3.1).
Energy intensity Europe-8 Europe-8 USA USA Japan Japan

MJ per pass-km 1973 1993 1973 1994 1973 1994
Average, all modes 1.46 1.56 3.10 2.52 1.22 1.67

Car 1.65 1.73 3.10 2.59 2.20 2.46
Bus 0.58 0.71 0.79 1.03 0.54 0.73
Rail 0.58 0.48 1.81 2.15 0.17 0.19
Air 4.55 2.78 4.92 2.46 3.49 2.13
use per passenger-kilometre in Europe and Japan actually increased from 1381 kg to 1534 kg. At the same time, power
increased between 1973 and 1993/4, but declined by almost per kg increased 29% (Heavenrich and Hellman, 1999). In
20% in the USA (Table 3.6). Bus and rail modal energy inten- Europe, the average power per car increased by 27% between
sities generally increased, with the exception of rail travel in 1980 and 1995, from 51 to 65 kW (Perkins, 1998).
Europe. The energy intensity of commercial air travel, howev-
er, has declined consistently, achieving a 40%-50% reduction Because of the slowing down of energy efficiency gains, world
over the last 25 years. transportation energy use is now increasing at just slightly less
than the rate of growth in transportation activity. Given the rel-
On the freight side, trucking’s share of tonne km increased in atively close correlation between economic growth and the
every OECD country, included in a recent analysis of energy demand for transport (Table 3.7; see WEC, 1995b, Ch. 3.2 for
trends by the IEA (1997d, Figure 4.6), leading to an overall further details), it is reasonable to expect continued strong
increase in the energy intensity (MJ/t-km) of freight move- growth of transport energy use and carbon emissions, unless
ments. Unlike passenger modes, for freight, changes in modal significant, new policy initiatives are undertaken. The follow-
structure tend to dominate changes in modal energy intensities ing paragraphs review several studies of future transportation
in determining overall energy intensity (IEA, 1997d, p. 127). demand and energy use. A common theme of these and many
others is strong growth in transport energy use and the chal-
The slowing of energy efficiency improvements in recent years lenges it poses to reducing greenhouse gas emissions from the
has occurred despite the fact that new technologies with the sector.
potential to increase energy efficiency continue to be adopted.
In Europe, the market share of diesel cars increased from 7% Projections of future transport energy use under baseline
in 1980 to 17% in 1985 and 23% in 1995, due in part to lower assumptions reflect an expectation of robust growth in trans-
diesel fuel taxes (Perkins, 1998). In the USA, emissions and port activity, energy demand, and carbon emissions through
fuel economy standards increased the use of multipoint fuel 2020. The World Energy Council (WEC, 1995b) considered
injection from 16% of new light-duty vehicles in 1985 to 100% three alternative scenarios for transport energy demand
in 1999, and installation of 4- and 5-valve engines increased through 2020: (1) “markets rule”, (2) “muddling through”, and
from zero to 40% over the same period (Heavenrich and (3) “green drivers”. Of these, markets rule reflects a high-
Hellman, 1999, Table 4). Manufacturers also continued to sub- growth baseline future (2.8%/yr in the OECD, 5.2% in the rest
stitute lighter weight materials such as high-strength steel and of the world), muddling through a lower growth one
aluminium, and to reduce aerodynamic drag and tyre rolling (2.2%/year in OECD, 4.2% elsewhere). In the markets rule
resistance. Yet fuel economy stagnated because vehicles were scenario, world transport energy consumption grows 200% in
made larger and much more powerful. Between 1988 and the quarter century from 1995 to 2020. In the muddling
1999, the average mass of a new US light-duty vehicle through scenario, transport energy use grows by 100% by
Table 3.7: Annual growth in GDP and transport in OECD countries, 1975-1990
(WEC, 1995b, Table 3.2.1).
GDP Freight traffic Passenger traffic
OECD Europe 2.6% 2.8% 2.8%

USA 2.8% 2.6% 2.3%
Japan 4.2% 3.6% 2.6%
Table 3.8: Energy information administration projections of global transport energy use to 2020
(US DOE/EIA, 1999b, Tables E1, E7, E8, E9).
1996 2010 2020 Average annual

Millions of barrels per day percent change
Road 25.5 37.4 45.2 2.4

Air 4.0 6.6 9.6 3.7
Other 5.1 5.8 6.5 1.0
TOTAL 34.6 49.9 61.3 2.4
2020, with most of the shortfall from the markets rule scenario declines as travel shifts to high-speed rail and air. The projec-
occurring after 2010. In the green drivers scenario, transport tions assume that car, bus and conventional rail systems main-
energy use is nearly constant as a result of much higher energy tain their energy intensities at approximately 1990 levels
taxes and comprehensive environmental regulation. In all three through 2050. Energy intensity of the air mode (which by the
scenarios, growth in freight transport and air travel far outpace authors’ definition includes high-speed rail) is assumed to
the growth of passenger vehicle travel, so that the passenger decrease by 70% by 2050, substantially more than the Penner
car’s share of total transport energy use falls from about 50% et al. (1999)-report estimates. No change in the average carbon
in 1995 to 30% by 2020. content of transportation fuels is assumed.
A more recent WEC (1998a) report foresaw considerably slow- Projections such as these suggest that it will be very difficult to
er growth in transport energy use through 2020: 55% in a base attain a goal such as holding transport’s carbon emissions
case with an 85% increase in a higher economic growth case. below 1990 levels by 2010. Lead times for introducing signif-
In both cases, light-duty vehicles continued to dominate icant new technologies, combined with the normal lifetimes for
through 2020, accounting for 44% of global transport energy transportation equipment on the order of 15 years, imply that
demand in the base case. Still road freight and air travel gained sudden, massive changes in the trends and outlooks described
on highway passenger vehicles. Road freight increased from above can be achieved only with determined effort. At the
30% of transport energy demand in 1995 to 33% in 2020. Air same time, dramatic advances in transport energy technology
transport’s share grew from 8% to almost 13%. Global carbon have been achieved over just the past 5 years, and the potential
emissions from transport were expected to grow by 56% in the for further advances is very promising. By 2020 and beyond
base case, from 1.6GtC in 1995 to 2.5GtC in 2020. the world may see revolutionary changes in energy sources and
power plants for new transport equipment, provided that
The US DOE and US Energy Information Administration’s appropriate policies are implemented to accelerate and direct
(EIA’s) International Energy Outlook (1999b, p.115) foresees technological changes towards global environmental goals.
transportation’s share of world oil consumption climbing from
48% in 1996 to 53% by 2010 and 56% by 2020. The EIA
expects a 77% increase in total world transport energy use by 3.4.4 New Technology and Other Options
2020, an average annual global growth rate of 2.4% (Table
3.8). Road dominance of energy use is maintained by the rapid Significant energy efficiency technologies that less than ten
increase in vehicle stocks outside of the OECD. The world years ago were thought too “long-term” to be considered in an
motor vehicle population is projected to surpass 1.1 billion assessment of fuel economy potential through 2005 (NRC,
vehicles in 2020. The SAR (Michaelis et al., 1996, Table 21-3) 1992), are now available for purchase in at least some OECD
presented projections of future global vehicle stocks ranging countries. The US Partnership for a New Generation of
from 1.2 to 1.6 billion by 2030, rising to 1.6 to 5.0 billion by Vehicles (PNGV), the European “Car of Tomorrow” and
2100. Japanese Advanced Clean Energy Vehicle programmes have
helped achieve these striking successes. In December 1997, a
Projections of passenger travel, energy use, and CO2 emissions commercial hybrid electric vehicle was introduced in Japan,
to 2050 by Schafer and Victor (1999) show carbon emissions demonstrating a near doubling of fuel economy over the
rising from 0.8GtC in 1990 to 2.7GtC in 2050, driven by an Japanese driving cycle for measuring fuel economy and emis-
increase in travel demand from 23 trillion passenger-kilome- sions. In 1998, a practical, near zero-emission (considering
tres in 1990 to 105 trillion p-km in 2050. The model used is urban air pollutants) gasoline-powered passenger car was
based on constant travel budgets for time and money, so that as developed, and demonstrated. This achievement established
incomes and travel demand grow, passenger travel must shift to the possibility that modern emissions control technology, com-
faster modes in order to stay within time budget limits. As a bined with scientific fuel reformulation, might be able to
result, automobile travel first increases, and then eventually achieve virtually any desired level of tailpipe emissions at rea-
sonable cost using conventional fossil fuel resources. efit of hybrids is lost in long-distance, constant high-speed
Emissions problems now limit the application of lean-burn fuel driving.
economy technologies such as the automotive diesel engine.
Advanced technologies and cleaner fuels may achieve similar 3.4.4.2 Lower Weight Structural Materials
results for lean-burn gasoline and diesel engines in the near
future. Such advances in urban air pollutant emissions controls Mass reduction via materials substitution is a potentially
for fossil fuel burning engines reduce the environmental incen- important strategy for improving light-duty vehicle fuel econ-
tives for curbing fossil fuel use by road vehicles. Automotive omy, because it permits synergistic reductions in engine size
fuel cells also realized order of magnitude reductions in size without loss of performance. The use of alternative materials
and cost, and dramatic improvements in power density. The to reduce weight has been historically restrained by cost con-
status of these key technologies is reviewed below. siderations, manufacturing process technology barriers, and
difficulty in meeting automotive requirements for surface fin-
3.4.4.1 Hybrid Electric Vehicles ish quality, predictable behaviour during crash tests, or
repairability. The past few years have seen significant develop-
A hybrid electric vehicle combines an internal combustion ments in space frame structures, advanced new manufacturing
engine or other fuelled power source with an electric drivetrain technology for plastics and aluminium, and improved model-
and battery (or other electrical storage device, e.g., an ultraca- ling techniques for evaluating deformability and crash proper-
pacitor). Potential efficiency gains involve: (1) recapture of ties. Ford has displayed an advanced lightweight prototype that
braking energy (with the motor used as generator and captured is a mid-size car with a weight of only 900 kg, as compared to
electricity stored in the battery); (2) potential to downsize the vehicles weighing 1450 kg today. Even if some of the more
engine, using the motor/battery as power booster; (3) potential exotic weight-saving materials from Ford’s prototype were dis-
to avoid idling losses by turning off the engine or storing carded, a weight reduction of 30% or more appears possible.
unused power in the battery; and (4) increasing average engine With engine downsizing to maintain a constant ratio of kW/kg,
efficiency by using the storage and power capacity of the elec- this should produce a 20% fuel economy improvement. Some
tric drivetrain to keep engine operation away from low effi- aluminium-intensive luxury cars have already been introduced
ciency modes. Toyota recently introduced a sophisticated (for example, the Audi A8 and the new Volkswagen Lupo with
hybrid subcompact auto, the Prius, in Japan and has since 3l/100km consumption), and Ford is known to be considering
introduced a version into the US market. Honda also began the introduction of such a vehicle in the mass market.
selling in model year 2000 its Insight hybrid, a two seater.
Ford, GM, Daimler/Chrysler and several others have hybrids in According to Bouwman and Moll (1999), 85% of life cycle
advanced development. The most fuel-efficient hybrid designs vehicle energy use occurs in the vehicle use phase, with about
can boost fuel economy by as much as 50% at near-constant 15% accounted for in vehicle production and about 3% recov-
performance under average driving conditions. The added ered in recycling. Mass reductions of 30% to 40% via exten-
complexity of the dual powertrain adds significantly to the cost sive substitution of aluminium for steel have been incorporat-
of hybrids, and this could hinder their initial market penetration ed in the designs of advanced, high fuel economy prototypes,
in countries with low fuel prices, unless policies are adopted to improving fuel economy by 20% to 25%. Because the pro-
promote them. duction of aluminium requires more energy than production of
steel, and the recycling of aluminium auto bodies is more dif-
Hybrids attain their greatest efficiency advantage—potentially ficult given current recycling technology, the benefits of sub-
greater than 100%—over conventional vehicles in slow stop- stituting aluminium for steel must be assessed by a life cycle
and-go traffic, so that their first applications might be urban analysis of greenhouse gas emissions (efforts are being made
taxicabs, transit buses, and service vehicles such as garbage to improve aluminium recycling technology, however).
trucks. An assessment of the potential for hybridization to Analyses have shown that accounting for life cycle impacts
reduce energy consumption by medium-sized trucks in urban diminishes, but does not eliminate GHG emission reductions
operations concluded that reductions in l/100km of 23% to caused by the use of aluminium for mass reduction in motor
63% could be attained, depending on truck configuration and vehicles (Figure 3.9). The amount of reduction, however, is
duty cycle (An et al., 2000). sensitive to several key assumptions. Considering the total life
cycle emissions for a typical passenger car in the USA, Das
Testing the Toyota Prius under a variety of driving condi- (2000) concluded that higher net emissions in the production
tions in Japan, Ishitani et al.,(2000) found that the hybrid plus recycling stages would reduce the potential GHG benefits
electric design gave 40%–50% better fuel economy at aver- of aluminium in the vehicle use stage by 6.5% versus conven-
age speeds above 40 km/h, 70%–90% better in city driving tional steel auto bodies, but by 15.8% versus advanced, ultra-
at average speeds between 15 and 30 km/h and 100%–140% light steel body (ULSAB) designs.
better fuel economy under highly congested conditions with
average speeds below 10 km/h. Actual efficiency improve- Because the increased emissions come first in the production
ments achieved by hybrids will depend on both design of the stage, there is a “recovery” period before net emissions reduc-
vehicle and driving conditions. Much of the efficiency ben- tions are realized. Das (2000) found a recovery period of four
rather than the 16% to 20% range available in Japan and

Total Europe, but even this assumes some advances in after treat-
AL versus 491 ment technology. Engine costs, however, seem quite moderate,
Ultralight Recycling
Steel 340 Use in the range of US$200 to US$300 more than a conventional
583 engine.
Production
-432
Direct injection (DI) diesel engines have long been available for
heavy trucks, but recently have become more competitive for
AL versus 1129 automobiles and light trucks as noise and emission problems
Conventional have been resolved. These new engines attain about 35% greater
Steel 313
fuel economy than conventional gasoline engines and produce
1207
about 25% less carbon emissions over the fuel cycle. In light-
-392
duty applications, DI diesels may cost US$500 to US$1000
more than a comparable gasoline engine. Tightening of NOx and
-1000 -500 0 500 1000 1500 particulate emissions standards presents a challenge to the via-
Emission Reductions (kgC/vehicle) bility of both diesel and gasoline lean-burn engines, but one that
it may be possible to overcome with advanced emissions con-
Figure 3.9: Life cycle CO2-equivalent greenhouse gas emis- trols and cleaner fuels (e.g., Martin et al., 1997; Gerini and
sion estimates for automobile body materials. Montagne, 1997; Mark and Morey, 1999; Greene, 1999).
Further improvements in diesel technology also offer substantial
promise in heavy-duty applications, especially heavy trucks but
years versus steel but 10 years versus ultra-light steel auto-bod- also including marine and rail applications. Current research
ies (ULSAB) for an aluminium-intensive vehicle. An analysis programmes are aiming to achieve maximum thermal efficien-
by Clark (1999) of aluminium versus conventional steel, cies of 55% in heavy-duty diesels (compared to current peak
assuming fewer lifetime kilometres, found a cross-over point at efficiencies of about 40%-45%), with low emissions.
approximately eight years for a single vehicle, but at 15 years
for an expanding fleet of aluminium-intensive vehicles. In 3.4.4.4 Automotive Fuel Cells
comparison to ULSAB, the car fleet crossover point was found
to be at 33 years. In other OECD countries where lifetime Fuel cells, which have the potential to achieve twice the ener-
vehicle kilometres may be one-half, or less, the levels of the gy conversion efficiency of conventional internal combustion
USA, the cross-over points would be even farther in the future. engines with essentially zero pollutant emissions, have
Sensitivity analyses have shown that the results depend strong- received considerable attention recently, with most major man-
ly on key assumptions, especially the sources of energy for alu- ufacturers announcing their intentions to introduce such vehi-
minium production and lifetime vehicle miles. cles by the 2005 model year. The recent optimism about the
fuel cell has been driven by strong advances in technology per-
Bouwman and Moll (1999) obtained similar results in scenar- formance, including rapid increases in specific power that now
ios based on the growing Dutch passenger car fleet. A scenario allow a fuel cell powertrain to fit into a conventional vehicle
in which aluminium vehicles were introduced in 2000achieved without sacrificing its passenger or cargo capacities. While fuel
lower energy use than a steel scenario after 2010. By 2050, the cell costs have been reduced by approximately an order of
aluminium scenario energy use was 17% below that of the all magnitude, they are still nearly 10 times as expensive per kW
steel scenario. as spark ignition engines. Recent analyses project that costs
below US$40/kW for complete fuel cell drivetrains powered
3.4.4.3 Direct Injection Gasoline and Diesel Engines by hydrogen can be achieved over the next ten years (Thomas
et al., 1998). Hydrogen is clearly the cleanest and most effi-
Direct injection lean-burn gasoline engines have already been cient fuel choice for fuel cells, but there is no hydrogen infra-
introduced in Japan and Europe, but have been restricted in structure and on-board storage still presents technical and eco-
North America by a combination of tight emission standards nomic challenges. Gasoline, methanol or ethanol are possible
and high sulphur content in gasoline. Fuel sulphur levels will alternatives, but require on-board reforming with consequent
be drastically reduced in Europe and North America over the cost and efficiency penalties. Mid-size fuel cell passenger cars
next 10 years. The US EPA, for example, has proposed regula- using hydrogen could achieve fuel consumption rates of 2.5
tions that would set caps on sulphur content of 30 ppm for gasoline equivalent l/100 km in vehicles with lightweight, low
gasoline and 15 ppm for diesel fuel (Walsh, 2000). While drag bodies; comparable estimates for methanol or gasoline-
planned reductions in the sulphur content of fuels to the range powered fuel cell vehicles would be 3.2 and 4.0 l/100 km
of 10 to 30 ppm will allow direct injection gasoline engines to (gasoline equivalent), respectively. While gasoline is relative-
be introduced, it is not yet clear that the full fuel efficiency ly more difficult to reform, it has the benefit of an in-place
benefits can be retained at lower NOX levels. Preliminary eval- refuelling infrastructure, and progress has been made in
uations suggest that benefits may be in the 12% to 15% range reformer technology (NRC, 1999a).
The fuel economy of hydrogen fuel cell vehicles is projected to GHG emissions, depending on the energy sources used to gen-
be 75% to 250% greater than that of conventional gasoline erate electricity. Methanol produced from natural gas was esti-
internal combusiton engine (ICE) vehicles, depending on the mated to give a 50% reduction in full fuel cycle GHG emis-
drive cycle (Thomas et al., 1998). Primarily as a result of ener- sions. Wang (1999b, Table 4.4) projected direct hydrogen fuel
gy losses in reforming, comparable estimates of the fuel econ- cell vehicles to be 180% to 215% more energy efficient, and
omy benefit of methanol-powered fuel cells range from 25% to methanol fuel cell vehicles to be 110% to 150% more efficient.
125%. The GHG reduction potential of hydrogen or methanol These analyses attempt to hold other vehicle characteristics
fuel cells, however, requires a “well-to-wheels” analysis to constant but, of course, that is never entirely possible.
measure the full fuel cycle impacts. Both sources cited here
include emissions of all significant greenhouse gases produced 3.4.4.5 Fuel Cycle Emissions
in the respective processes. Assuming hydrogen produced by
local reforming of natural gas, Thomas et al. (1998, Figure 8) In considering the impacts of advanced technologies and alter-
estimated roughly a 40% reduction in well-to-wheels GHG native fuels on emissions of greenhouse gases, it is important
emissions for a direct hydrogen fuel cell vehicle versus a con- to include the full fuel cycle, since emissions in feedstock and
ventional gasoline ICE vehicle getting 7.8 l/100km (about 150 fuel production can vary substantially. The same fuel can be
g CO2 equivalent per km, versus 250). Wang (1999a, p. 4) con- produced from several feedstocks, and this too has important
cluded that direct hydrogen fuel cell vehicles, with hydrogen implications for greenhouse gas emissions. Finally, as Ishitani
produced at the refuelling station by reforming natural gas, et al. (2000) have demonstrated, the use of different drive
would reduce full fuel cycle GHG emissions by 55% to 60% cycles as a basis for comparison can also change the ranking of
versus a comparably sized 9.8 l/100km gasoline vehicle. various advanced technologies. Hybrid vehicles, for example,
Hydrogen could also be produced from methane in large-scale will perform relatively better under congested, low-speed dri-
centralized facilities. This could create opportunities for ving conditions. Table 3.9 shows a sample of results obtained
sequestering carbon but would also require an infrastructure by Wang (1999a) based on US assumptions for passenger car
for hydrogen transport. Hydrogen produced via electrolysis technologies expected to be available in the year 2010. In all
was estimated to produce 50% to 100% more full fuel cycle cases, carbon dioxide is the predominant GWP-weighted
Table 3.9: GHG emissions from advanced automotive technologies and alternative fuels
(Wang, 1999, App. B-II).
CO2-equivalent grams per km
Fuel cycle stage Greenhouse gas
Feedstock Fuel Operation CO2 N2O CH4 Total
Gasoline (reformulated) 15.6 52.7 228.9 282.2 5.7 9.4 295.6

Gasoline direct injection (DI) 12.6 42.1 184.3 225.6 5.7 7.7 237.6
Propane (from natural gas) 19.0 13.6 197.6 217.5 5.5 7.3 228.9
Compressed natural gas (CNG) 30.7 21.3 174.6 206.2 3.1 17.3 225.3
Diesel DI 10.6 27.2 161.6 191.7 3.3 4.5 198.4
20% biodiesel DI 11.7 32.7 132.7 169.1 3.7 4.3 176.1
Grid-Hybrid (RFG) 9.8 63.5 88.8 152.7 4.1 5.3 161.2
Hybrid (RFG) 8.6 27.5 123.3 148.3 5.7 5.4 158.5
Electric vehicle (EV, US mix) 12.3 145.2 0.0 152.1 0.6 4.8 156.6
Fuel Cell (Gasoline) 7.8 26.1 112.6 140.8 1.4 4.4 145.7
Hybrid. CNG 19.1 13.2 110.5 127.6 2.7 12.5 142.0
Fuel cell (methanol. NG) 8.1 17.9 83.1 105.0 1.2 3.0 108.5
Fuel cell (H2 from CH4)) 11.0 97.3 0.0 103.1 0.2 5.0 107.62
EV (CA mix) 10.4 51.1 0.0 58.5 0.2 2.8 61.1
Fuel cell (solar) 0.0 20.3 0.0 18.9 0.2 1.2 20,2
100-year global warming potentials

CO2 N2O CH4
1 310 21
greenhouse gas. Advanced direct injection gasoline engines 3.4.4.7 Aircraft Technology
appear to achieve nearly the same greenhouse gas emissions
reductions as spark-ignition engine vehicles fuelled by propane Several major technologies offer the opportunity to improve
or compressed natural gas. Direct-injection diesel vehicles the energy efficiency of commercial aircraft by 40% or more
show a reduction of one-third over advanced gasoline vehicles. (Table 3.10). The Aeronautics and Space Engineering Board of
The gasoline hybrid achieves almost a 50% reduction, while the National Research Council (NRC, 1992, p. 49) concluded
the grid-connected hybrid does no better because of the large that it was feasible to reduce fuel consumption per seat mile for
share of coal in the US electricity generation mix. The depen- new commercial aircraft by 40% by about 2020. Of the 40%,
dence of electric vehicle (EV) emissions on the power genera- 25% was expected to come from improved engine perfor-
tion sector is illustrated by the very large difference between mance, and 15% from improved aerodynamics and weight. A
EVs using California versus US average electricity. Fuel cell reasonable preliminary goal for reductions in NOx emissions
vehicles using gasoline are estimated by Wang (1999a) to was estimated to be 20%–30%.
achieve a 50% reduction in emissions, but hybrid vehicles
fuelled by compressed natural gas (CNG) do slightly better. An assessment of breakthrough technologies by the US
Fuel cells powered by hydrogen produced by reforming natur- National Research Council (1998) estimated that the blended
al gas locally at refuelling outlets are estimated to reduce fuel wing body concept alone could reduce fuel consumption by
cycle greenhouse gas emissions by almost two thirds, while 27% compared to conventional aircraft, assuming equal engine
those using hydrogen produced from solar energy achieve efficiency. The NRC report also identified a number of break-
more than a 90% reduction. Clearly, Wang’s (1999b) estimates through technologies in the areas of advanced propulsion sys-
differ substantially from those of Thomas et al. (1998) as noted tems, structures and materials, sensors and controls, and alter-
above. Such differences are common, as a result of differences native fuels that could have major impacts on aircraft energy
in the many assumptions that must be made in fuel cycle analy- use and GHG emissions over the next 50 years.
ses.
Noting that the energy efficiency of new production aircraft
3.4.4.6 Use of Biofuels has improved at an average rate of 1-2% per year since the
dawn of the jet era, the IPCC Special Report on Aviation and
Liquid and gaseous transport fuels derived from a range of bio- the Global Atmosphere concluded that the fuel efficiency of
mass sources are technically feasible (see Section 3.8.4.3.2). new production aircraft could improve by 20% from 1997 to
They include methanol, ethanol, di-methyl esters, pyrolytic oil, 2015 (Table 3.11), as a result of a combination of reductions in
Fischer-Tropsch gasoline and distillate, and biodiesel from aerodynamic drag and airframe weight, greater use of high-
vegetable oil crops (Section 3.6.4.3). Ethanol is commercially bypass engines with improved nacelle designs, and advanced,
produced from sugar cane in Brazil and from maize in the USA “fly-by-light” fibre optic control systems (Penner et al., 1999,
where it has been sold neat or blended for more than a decade. Ch. 7). Advanced future aircraft technologies including lami-
Ethanol is blended with gasoline at concentrations of 5-15%, nar flow concepts, lightweight materials, blended wing body
thereby replacing oxygenates more typically used in North designs, and subsystems improvements were judged to offer
America such as methyl-t-butylether (MTBE) and ethyl-t- 30%-40% to 40%-50% efficiency improvements by 2050,
butylether (ETBE) additives. ETBE production from bio- with the lower range more likely if reducing NOX emissions is
ethanol is also a promising market in Europe but the produc- a high priority. The purpose of these scenarios was not to
tion costs by hydrolysis and fermentation from cereals or sweet describe the technological or economic potential for efficien-
sorghum crops remain high (Grassi, 1998). cy improvement and emissions reductions, but rather to pro-
vide a “best judgement” scenario for use in assessing the
In Brazil the production of ethanol-fuelled cars achieved 96% impacts of aviation on the global atmosphere through 2050. A
market share in 1985 but declined to 3.1% in 1995 and 0.1% in
1998. Since the government approved a higher blend level
(26%) of ethanol in gasoline the production of ethanol has con- Table 3.10: Energy information administration aircraft tech-
tinued to increase achieving a peak of 15,307m3 in the 1997/98 nology estimates
harvesting season. This represented 42.73% of the total fuel
consumption in all Otto cycle engines giving an annual net car- Technology Year of % gain in
bon emission abatement of 11% of the national total from the introduction seat-km per kg
use of fossil fuels (IPCC, 2000).
Ultra-high bypass engine 1995 10
National fuel standards are in place in Germany for biodiesel Propfan engine 2000 23
and many engine manufacturers such as Volkswagen now Hybrid laminar flow 2020 15
maintain warranties (Schindlbauer, 1995). However, energy Advanced aerodynamics 2000 18
yields (litres oil per hectare) are low and full fuel cycle emis- Material substitution 2000 15
sions and production costs are high (see Section 3.8.4.3.2). Engine thermodynamics 2010 20
Table 3.11: Historical and future improvements in new production aircraft energy efficiency (%)
(Lewis and Niedzwiecki, 1999, Table 7.1).
Time period Airframe Propulsion Total percent per year
1950 to 1997 30 40 70 1.13

1997 to 2015 10 10 20 1.02
1997 to 2050 25 20 45 0.70
number of alternatives to kerosene jet fuel were considered. carbonate fuel cells at US$218/tC, though there is much uncer-
None were considered likely to be competitive with jet fuel tainty about costs at this time.
without significant technological breakthroughs. On a fuel
cycle basis, only liquid methane and hydrogen produced from A number of improvements can be made to conventional diesel
nuclear or renewable energy sources were estimated to reduce vessels in, (1) the thermal efficiency of marine propulsion
greenhouse gas emissions relative to jet fuel derived from (5%–10%); (2) propeller design and maintenance (2%–8%);
crude oil. (3) hydraulic drag reduction (10%); (4) ship size; (5) speed
(energy use increases to the third power of speed); (6)
In operation, aircraft seat-km per kg is also influenced by air- increased load factors; and (7) new propulsion systems, such as
craft size, and overall passenger-km per kg efficiencies depend underwater foils or wings to harness wave energy (12%–64%)
on load factors as well. Industry analysts (Henderson, 1999) (CAE, 1996). More intelligent weather routing and adaptive
have forecasted an increase in global load factors to 73% by autopilot control systems might save another 4%–7%
2018, but foresee only a small potential for increasing aircraft (Interlaboratory Working Group, Appendix C, 1999).
size, however, since most additional capacity is expected to be
supplied by increased flight frequencies. If average aircraft 3.4.4.9 Truck Freight
size could be increased, perhaps as a strategy for reducing air-
port congestion, further reductions in energy intensity could be Modern heavy trucks are equipped with turbo-charged direct-
achieved. injection diesel engines. The best of these engines achieve 45%
thermal efficiency, versus 24% for spark-ignited gasoline
3.4.4.8 Waterborne Transport engines (Interlaboratory Working Group, 1997). Still, there are
opportunities for energy efficiency improvements and also for
Opportunities for reducing energy use and GHG emissions lower carbon alternative fuels, such as compressed or liquified
from waterborne transport were not covered in the SAR. The natural gas in certain applications. By a combination of strate-
predominant propulsion system for waterborne transport is the gies, increased peak pressure, insulation of combustion cham-
diesel engine. Worldwide, 98% of freighters are powered by bers, recovery of waste heat, and friction reduction, thermal
diesels. Although the 2% powered by steam electric drive tend efficiencies of 55% might be achievable, though there are unre-
to be the largest ships and account for 17% of gross tonnage, solved questions about nitrogen oxide emissions (US
most are likely to be replaced by diesels within the next 10 DOE/OHT, 1996). For medium-heavy trucks used in short dis-
years (Michaelis, 1997). Still, diesel fuel accounted for only tance operations, hybridization may be an attractive option.
21% of international marine bunker fuel consumed in 1995 Fuel economy improvements of 60%-75% have been estimat-
(Olivier and Peters, 1999). Modern marine diesel engines are ed for smaller trucks with 5-7 litre engines (An et al., 1999).
capable of average operating efficiencies of 42% from fuel to With drag coefficients of 0.6 to 0.9, heavy trucks are much less
propeller, making them already one of the most efficient aerodynamic than light-duty vehicles with typical drag coeffi-
propulsion systems. The best modern low-speed diesels can cients of 0.2 to 0.4. Other potential sources of fuel economy
realize efficiencies exceeding 50% (Farrell et al., 2000). improvement include lower rolling resistance tyres and
reduced tare weight. The sum total of all such improvements
Fuel cells might be even more efficient, however, and might has been estimated to have the potential to improve heavy
possibly be operated on fuels containing less carbon truck fuel economy by 60% over current levels (Interlaboratory
(Interlaboratory Working Group, Appendix C, 1999). Design Working Group, 2000).
studies suggest that molten carbonate fuel cell systems might
achieve energy conversion efficiencies of 54%, and possibly 3.4.4.10 Systems Approaches to Sustainability
64% by adding a steam turbine bottoming cycle. These studies
do not consider full fuel cycle emissions, however. Farrell et al. Recognizing the growing levels of external costs produced by
(2000) estimated the cost of eliminating carbon emissions from the continuing growth of motorized transport, cities and
marine freight by producing hydrogen from fossil fuel, seques- nations around the world have begun to develop plans for
tering the carbon, and powering ships by solid oxide or molten achieving sustainable transport. A recent report by the ECMT
(1995) presents three policy “strands”, describing a progres- Table 3.12: Estimated costs of greenhouse gas mitigation
sion of scenarios intended to lead from the status quo to sus- options in Southern Africa
tainability. The first strand represents “best practice” in urban (Zhou, 1999; UNEP/Southern Centre, 1993).
transport policy, combining land-use management strategies
(such as zoning restrictions on low-density development and Measure Cost (US$/tC)
parking area controls) with advanced road traffic management
strategies, environmental protection strategies (such as tighter Paved roads –41.42
pollutant emissions regulations and fuel economy standards), Road freight to rail –31.47
and pricing mechanisms (such as motor fuel taxes, parking Petroleum and product pipelines –18.91
charges, and road tolls). Even with these practices, transport- Fuel pricing policies 0.00
related CO2 emissions were projected to increase by about one- Vehicle inspections 0.20
third in OECD countries over the next 20 years and by twice Rail electrification 111.94
that amount over the next 30 to 40 years. A second strand Compressed natural gas 1.37
added significant investment in transit, pedestrian, and bicycle Ethanol –186.5
infrastructure to shape land use along with stricter controls on
development, limits on road construction plus city-wide traffic
calming, promotion of clean fuels and the setting of air quality
goals for cities, as well as congestion pricing for roads and user sures in addition to technology. In Africa, in particular, options
subsidies for transit. The addition of this strand was projected that have been examined include: the reduction of energy
to reduce the growth in CO2 emissions from transport to a 20% intensity through expanding mass transit systems (e.g., modal
increase over the next 20 years. The third strand added steep shifts from road to rail), vehicle efficiency improvement
year-by-year increases in the price of fuel, full-cost externality through maintenance and inspection programmes, improved
pricing for motor vehicles (estimated at 5% of GDP in OECD traffic management, paving roads, and the installation of fuel
countries), and ensuring the use of high-efficiency, low-weight, pipelines (e.g., modal shift from road or rail to pipeline), pro-
low-polluting cars, vans, lorries, and buses in cities. Addition vision of infrastructure for non-motorized transport, and decar-
of the third strand was projected to reduce fuel use by 40% bonization of fuels through increased use of compressed natur-
from 1995 to 2015. al gas or biomass ethanol (Baguant and Teferra, 1996; Zhou,
1999). Mass movements of goods, passengers, and fuel
become more cost-effective as the volumes and load factors
3.4.5 Regional Differences increase, and for most African countries this is likely to be
achievable only after 2010 (Zhou, 1999). In studies conducted
Technical and economic potentials for reducing greenhouse for East and Southern Africa, these options were found to be
gas emissions will vary by region according to differences in implementable at little or no cost per tC (Table 3.12). Zhou
geography, existing transportation infrastructure, technological (1999) has estimated that investments in paving roads, rail
status of existing transport equipment, the intensity of vehicle freight systems and pipelines could reduce greenhouse gas
use, prevailing fuel and vehicle fiscal policies, the availability emissions in Botswana at negative cost (Table 3.12). Vehicle
of capital, and other factors. Differences in spatial structure, inspection programmes, as well as fuel decarbonization by use
existing infrastructure, and cultural preferences also influence of compressed natural gas and biomass ethanol were all esti-
the modal structure and level of transport demand. mated to be no cost to low-cost options. Bose (1999a) notes
that in developing countries mass transport modes and demand
Many developing countries and countries with economies in management strategies are an essential complement to techno-
transition are experiencing rapid motorization of their transport logical solutions because of three factors: (1) lack of leverage
systems but are not yet locked into a road-dominated spatial in global vehicle markets to influence the development of
structure. In addressing the transport problems of these appropriate transport technologies; (2) the relatively greater
economies, the World Bank (1996) has emphasized the impor- importance of older, more polluting vehicles combined with
tance of combining efficient pricing of road use (including slower stock turnover; and (3) the inability to keep pace with
external costs) with co-ordinated land use and infrastructure rapid motorization in the provision of infrastructure.
investment policies to promote efficient levels of transport
demand and modal choice. Without providing specific GHG
emission reduction estimates, the World Bank study notes that 3.4.6 Technological and Economic Potential
non-highway modes such as rail can reduce energy require-
ments by two-thirds versus automobiles and 90% versus air- This section addresses the technological potential to cost-effec-
craft, in situations where the modes provide competitive ser- tively increase energy efficiency in transport and thereby
vices. reduce GHG emissions. Most studies concentrate on light-duty
vehicles because of their 50% share of energy use and GHG
Studies of transport mitigation options in Africa and Asia have emissions, and on technology or fuel pricing policies.
emphasized behavioural, operational, and infrastructure mea- Technical efficiency improvements, in the absence of comple-
mentary fiscal policies, are subject to a “rebound effect” in that which sets standards to meet or exceed the highest energy effi-
they reduce the fuel cost of travel. Rebound effects in the USA ciency achieved among products currently commercialized
amount to about 20% of the potential GHG reductions (Greene, (MITI/ANRE, 1999). These require a 22.8% improvement over
1999). In Europe, where fuel prices are higher, rebound effects 1995 new gasoline car fuel economy in 1/km by 2010, and a
may be as large as 40% (Michaelis, 1997). Most assessments 13.2% improvement for gasoline light-duty freight vehicles
take the rebound effect into account when estimating technical (Minato, 1998). For diesel-fuelled vehicles the corresponding
efficiency impacts. Fewer studies address policies such as land requirements are 14.9% and 6.5% by 2005. Technological
use planning, investment in or subsidy of particular transport improvements in other modes are expected to produce efficien-
modes, or information. cy improvements of 7% for railways, 3% for ships, and 7% for
airlines over the same period (Minato, 1998). Cost-effective
An Asian four-country study of the technological and econom- technical potentials have also been reported by Kashiwagi et al.
ic potential to reduce GHG emissions considered five types of (1999), who cite 27.7 PJ of energy savings in Japan’s transport
options for GHG mitigation in transport: (1) improving fuel sector achievable at US$0.044/kWh, or less.
efficiency, (2) improving transportation system efficiency, (3)
behavioural change, (4) modal split changes, and (5) techno- There are significant barriers to the kinds of fuel economy
logical change (Bose, 1999b). The Indian study concluded that improvements described above, and substantial policy initia-
abatement costs for transport were high relative to options tives will be needed to overcome them. In Europe, for exam-
available in other sectors, and projected little change in trans- ple, the European automobile manufacturers’ association,
port for emissions constraints less than a 20% reduction from ACEA, and the European Union have agreed to voluntary stan-
the baseline. The Bangladesh study, using a different method- dards to reduce carbon emissions from new passenger cars by
ology, concluded that a wide array of near-term technology 25% over the next 10 years. The European standards will
options had no net cost, but that the cost of 4-stroke engines for require reducing average fuel consumption of new cars from
3-wheeled vehicles fell between US$48 and US$334/tC 7.7 to 5.8 l/100 km, creating a strong incentive to adopt
reduced, depending on the application. The Thailand study advanced fuel economy technologies. A survey of 28 European
found that lean-burn engines would improve efficiency by 20% countries identified 334 separate measures countries were tak-
at a negative net cost of US$509/tC. The Korean study also ing to reduce CO2 emissions from transport (Perkins, 1998).
concluded that several “no regrets” options were available,
including use of continuously variable transmissions, lean- At least nine recent studies have assessed the economic poten-
burn engines, and exclusive bus lanes. tial for technology to improve light-duty vehicle fuel economy
(Weiss et al., 2000; Greene and DeCicco, 1999; Michaelis,
Recognizing that transportation energy consumption and CO2 1997). The conclusions of eight of the studies are summarized
emissions increased by 16% from 1990 to 1995, and that carbon in the form of quadratic fuel economy cost curves describing
emissions may be 40% higher in 2010 than in 1990 if measures incremental purchase cost versus the improvement in fuel
are not taken, the government of Japan has strengthened energy economy over a typical 8.4 l/100 km passenger car (Figure
efficiency standards based on a “Front Runners” approach, 3.10). Most of the technology potential curves reflect a short-
2,400 UK DOT High-Cost
NRC High-Cost
Retail Price Increase, 1998 US$
1,900 Greene & Duleep
NRC Low-Cost
1,400 EIA NEMS Kyoto
UK DOT Low-Cost
900 5-Lab Advanced
OTA 2015
400 ACEEE Level 3
Sierra Research
-100
4.00 5.00 6.00 7.00 8.00 9.00
Fuel Consumption (l/100km)
Figure 3.10: Passenger car fuel economy cost curves.

Table 3.13: Estimated technological potential for carbon emissions reductions in the US transportation
sector
(Brown et al., 1998).
1990 2010 2020 2030
Business as usual (MtC) 432 598 665 741

Technology potential (%) 7–12 15–17 27–40
1990 2010
High
Baseline Efficiency efficiencya
Transport emissions (MtC) 432 616 543 513

Reduction (%) 12 17
a Includes US$50/tC permit cost.
run perspective, considering what can be achieved using only vehicle fuelled by compressed natural gas could reduce GHG
proven technologies over a 10-year period. The two most pes- emissions by almost two-thirds relative to the 1996 reference
simistic (which reflect a 1990 industry view of short-term tech- vehicle, and by 50% compared with an advanced 2020 internal
nology potential) indicate that even a reduction from 8.4 to 6.5 combustion engine vehicle. Other technologies capable of
l/100 km would cost nearly US$2000. The curves labelled 50%, or greater lifecycle GHG reductions versus the 1996 ref-
“ACEEE Level 3” and “UK DOT Low-Cost” are limited to erence vehicle included: gasoline and diesel hybrids, battery-
proven technologies, but allow substantial trade-offs in perfor- electric, and hydrogen fuel cell vehicles.
mance, transmission-management and other features that may
affect customer satisfaction. The curves labelled “5-lab” and A recent study by five of the US Department of Energy’s
“OTA 2015” include the benefits of technologies in develop- (DOE’s) National Laboratories (Interlaboratory Working
ment, but not yet commercialized (NRC, 1992; DeCicco and Group, 1997) assessed the economic market potential for car-
Ross, 1993; US DOE/EIA, 1998). The most optimistic of these bon reductions, using the EIA’s National Energy Modelling
suggest that an improvement to less than 5.9 l/100 km is pos- System. Transport carbon emissions were projected to rise
sible at an incremental cost of less than US$1000 per vehicle from 487 MtC in 1997 to 616 MtC by 2010 in the baseline
(1998 US$). The Sierra Research (Austin et al., 1999) curve is case. In comparison to the baseline case, use of cost-effective
intended to pertain to the year 2020, but reflects industry views technologies reduced carbon emissions by 12% in 2010 in an
about technology performance, and excludes certain key tech- “Efficiency” case (Table 3.13). More optimistic assumptions
nologies such as hybrids and fuel cell vehicles that could have about the success of R&D produced a reduction of 17% by
dramatic impacts over the next 20 years. 2010. The authors noted that lead times for cost-effectively
expanding manufacturing capacity for new technologies and
Three of the studies (OTA, 1995b; DeCicco and Ross, 1993; the normal turnover of the stock of transport equipment signif-
National Laboratory Directors, 1997) considered more icantly limited what could be achieved by 2010. Efficiency
advanced technologies such as those described above (e.g., improvements in 2010 for new transportation equipment were
direct-injection engines, aluminium-intensive designs, hybrid substantially greater (Table 3.14). New passenger car efficien-
vehicles, fuel cells). These concluded that by 2015, consump- cy increased by 36% in the “Efficiency” case and by 57% in
tion rates below 4.7 l/100 km could be attained at costs ranging the more optimistic case (Brown et al., 1998).
from under US$1000 to US$1500 per vehicle. These long-run
curves span a range similar to fuel consumption/cost curves for Eleven of the US DOE’s National Laboratories completed a
European passenger cars reported by Denis and Koopman comprehensive assessment of the technological potential to
(1998, Figure 3), except that the base fuel consumption rate is reduce GHG emissions from all sectors of the US economy
7 l/100 km as opposed to 8.5 in the USA, and improvements to (National Laboratory Directors, 1997). This study intentional-
the range of 4 to 5 l/100 km were judged achievable at incre- ly made optimistic assumptions about R&D success, and did
mental costs of 2000 to 700 ECU, respectively (1990 ECU). not explicitly consider costs or other market factors. The study
concluded that the technological potential for carbon emissions
A lifecycle analysis of the greenhouse gas impacts of nine reductions from the US transport sector was 40–70 million
hybrid electric and fuel cell vehicles was compared to a 1996 metric tons of carbon (MtC) by 2010, 100–180MtC by 2020
vehicle and an “evolved 2020” baseline vehicle for the year and 200–300MtC by 2030. These compare to total US trans-
2020 by Weiss et al. (2000). The study concluded that a hybrid portation carbon emissions of 473MtC in 1997 (note that this
Table 3.14: Projected transportation efficiencies of 5-Laboratory Study

(Interlaboratory Working Group, 1997).
2010
Determinants 1997 Baseline Efficiency HE/LCa
New passenger car l/100 km 8.6 8.5 6.3 5.5

New light truck l/100 km 11.5 11.4 8.7 7.6
Light-duty fleet l/100 kmb 12.0 12.1 10.9 10.1
Aircraft efficiency (seat-l/100 km) 4.5 4.0 3.8 3.6
Freight truck fleet l/100 km 42.0 39.2 34.6 33.6
Rail efficiency (tonne-km/MJ) 4.2 4.6 5.5 6.2
a HE/LC, high-energy/low-carbon.
b Includes existing passenger cars and light trucks
Table 3.15: Assumptions and results of three European studies
Dutch Hanover EU
Base and target years 1995, 2020 (25 years) 1990, 2010 (20 years) 1990, 2000 (10 years)
(length of scenario in years)
CO2 emissions in target year: 36.6–43.3 1.9 649.8

baseline (Mt)
Annual percentage growth in 0.4% to 1.4% per year 0.6% per year 1.7% per year
baseline emissions (Mt)
Solution scenario (I) Best technical means, (A) Local/regional, (R) Reasonable restrictive,
(II) Intensifying current policy, (B) National (T) Target orientation
(III) Non-conventional local
transport technologies
Base and target years 1995, 2020 (25 years) 1990, 2010 (20 years) 1990, 2000 (10 years)
(length of scenario, in years)
CO2 emission reduction (I) 11–13, (II) 3–11, (III) 18 (A) 0.16 and B) 0.34 (R) 84 and (T) 177
(transport sector - Mt)
Reduction of total (I) 30%, (II) 8%–25%, (III) 42% (A) 8% and B) 18% (R) 13% and (T) 25%
transport emissions (including
non-road transport) relative to
baseline in target year
Economic evaluation
Net annual costs Not quantified, though asserted to Not quantified Not quantified
be <E0 /tC
base year estimate differs from that for the Interlaboratory jections are attainable, it is probably not practical to reduce
Working Group). The report suggested the following techno- transport emissions below 1990 levels by the 2010–2015 time
logical potentials for carbon emissions reductions by mode of period. On the other hand, the studies reviewed generally indi-
transport over the next 25 years: (1) light-duty vehicles with cate that cost-effective reductions on the order of 10%–20%
fuel cells, 50%–100%; (2) heavy trucks via fuel economy versus baseline appear to be achievable. In addition, more
improvements, 20%–33%; and (3) air transport, 50%. It is dif- rapid than expected advances in key technologies such as
ficult to interpret the practical implications of these conclu- hybrid and fuel cell vehicles, should they continue, hold out the
sions, however, since no attempt was made by this study to prospect of dramatic reductions in GHG emission from road
estimate achievable market potentials. passenger vehicles beyond 2020. Most analyses project slower
rates of GHG reductions for freight and air passenger modes,
Three European studies of the technical-economic potential for to a large extent reflecting expectations of faster rates of
energy savings and CO2 reduction were reviewed by van Wee growth in activity.
and Annema (1999). Generally, the studies focused on techno-
logical options, such as improving the fuel efficiencies of con- Assessing the total global potential for reducing GHG emis-
ventional cars and trucks, promotion of hybrid vehicles, sions from transportation is hindered by the relatively small
switching trucks and buses to natural gas, and electrifying number of studies (especially for non-OECD countries) and by
buses, delivery trucks, and mopeds. Only the study for the lack of consistency in methods and conventions across
Hanover included investment in improved public transport as a studies. Not all studies shown in Table 3.16 cover the entire
major policy option. The results, summarized in Table 3.15, transportation sector, even of the countries included in the
suggest that emissions reductions of 8% to as much as 42% study. Most consider a limited set of policy options, (e.g., only
over business-as-usual projections may be possible. motor vehicle fuel economy improvement). In general, the
studies do not report marginal costs of GHG mitigation, but
The effects of a variety of fiscal and regulatory policies on CO2 rather average costs versus a base case. Keeping all of these
emissions from road passenger vehicles have been estimated limitations in mind, Table 3.16 summarizes the findings of sev-
for Europe over a 15-year forecast horizon (Jansen and Denis, eral major studies. For 2010, the average low GHG reduction
1999; Denis and Koopman, 1998). These studies, both using estimate is just under 7% of baseline total transport sector
the EUCARS model developed for the European Commission, emissions in 2010, with the higher estimates averaging a 17%
concluded that CO2 reductions on the order of 15% over a reduction. There is, however, considerable dispersion around
baseline case could be achieved in the 2011 to 2015 time peri- both numbers, indicative both of uncertainty and differences in
od at essentially zero welfare loss. Among the more effective methodology and assumptions. For studies looking ahead to
policies were fuel taxes based on carbon content, fuel con- 2020, the average low estimate is 15% and the average high
sumption standards requiring proportional increases for all estimate is 34% of baseline 2020 transport sector emissions.
cars, and the combination of fuel-consumption based vehicle Estimated (average rather than marginal) costs are generally
sales taxes with a fuel tax. When reductions in external costs negative (as much as -US$200/tC), indicating that fuel savings
and the benefit of raising public revenues are included in the are expected to outweigh incremental costs. There are some
calculation of social welfare impacts, the feebate (a policy positive cost estimates as high as US$200/tC, however. The
combining subsidies for fuel efficient vehicles and taxes on majority of the studies cited in Table 3.16 are based on engi-
inefficient ones) and fuel tax policy combination was able to neering-economic analyses. Some argue that this method tends
achieve CO2 reductions of 20% to 25% in the 2011 to 2015 to underestimate welfare costs because trade-offs between CO2
time period at zero social cost (Jansen and Denis, 1999). mitigation and non-price attributes (e.g., performance, com-
fort, reliability) are rarely explicitly considered (Sierra
Research, Inc., 1999).
3.4.7 Conclusions
Over the past 25 years, transport activity has grown at approx- 3.5 Manufacturing Industry
imately twice the rate of energy efficiency improvements.
Because the world’s transportation system continued to rely 3.5.1 Introduction
overwhelmingly on petroleum as an energy source, transport
energy use and GHG emissions grew in excess of 2% per year. This section deals with greenhouse gas emissions and green-
Projections to 2010 and beyond reviewed above reflect the house gas emission reduction options from the sector manu-
belief that transport growth will continue to outpace efficiency facturing industry14. Important are the energy intensive (or
improvements and that without significant policy interven- heavy) industries, including the production of metals (espe-
tions, global transport GHG emissions will be 50%–100% cially iron and steel, and aluminium), refineries, pulp and
greater in 2020 than in 1995. Largely as a result of this antici-
pated growth, studies of the technical and economic potential
for reducing GHG emissions from transport generally conclude
14 NACE codes 15 to 37.
that while significant reductions from business-as-usual pro-
Table 3.16: Estimates of the costs of reducing carbon emissions from transport based on various studies, 2010-2030
(Brown et al., 1998; ECMT, 1997; US DOE/EIA, 1998; DeCicco and Mark, 1998; Worrell et al., 1997b; Michaelis, 1997; Denis
and Koopman, 1998)
Quantity Reduction Cost in US$/MtC
Study Year of Application Year of Years in Country Low High Low High Low High
publication scenario future (MtC) (MtC) (%) (%)
OECD Working 1997 Light-duty road 2010 13 OECD 50 150 2.5 7.5 US$0 US$0
Paper 1 vehicle efficiency
US National Academy 1992 Vehicle efficiency 2010 18 USA 20 79 3.2 12.7 -US$275 -US$77
of Sciences
1992 System efficiency 2010 18 USA 3 13 0.5 2.1 -US$183 US$18
US DOE 5-Lab Study 1997 Transport sector 2010 13 USA 82 103 13.2 16.6 -US$157 US$6
US Energy Information 1998 Transportation 2010 12 USA 41 55 6.6 8.9 -US$121 US$163
Administration sector
Tellus Institute 1997 Transportation 2010 13 USA 90 90 14.5 14.5 -US$465 -US$465
efficiency
1997 Transportation 2010 13 USA 61 61 9.8 9.8 US$0 US$0
demand reduction
ACEEE 1998 Transport sector 2010 12 USA 125 22.6 -US$139
US DOE, Clean 2000 Transport sector 2010 10 USA 20 66 3.2 10.5 -US$280 -US$144
Energy Futures
European Council of 1997 Transport sector 2010 13 Austria 2 8.3

Ministers of Transport
1997 Transport sector 2010 13 Belgium 4 13.3
1997 Transport sector 2010 13 Czech R. 6 57.1
1997 Transport sector 2010 13 Netherlands 11 37.2
1997 Transport sector 2010 13 Poland 5 12.8
1997 Transport sector 2010 13 Slovak R. 1 16.3
1997 Transport sector 2010 13 Sweden 4 23.2
1997 Transport sector 2010 13 UK 22 14.3
Summary for 2010 Minimum/maximum 0.5 57.1 -US$465 US$163

average 6.7 16.9 -US$153 -US$62
Denis and Koopman 1998 Road pricing 2015 17 EU 25.0

1998 CO2 tax 2015 17 EU 13.0
1998 Purchase subsidy 2015 17 EU 14.0 US$0 US$0
+ CO2 tax
US Congress OTA 1991 Transportation 2015 24 USA 195 29.2 -US$180 US$195
efficiency
Summary for 2015 Minimum/maximum 13.0 29.2 -US$180 US$195

average 20.3
US DOE, Clean 2000 Transport sector 2020 20 USA 58 163 8.3 23.4 -US$234 -US$153
Energy Futures
ACEEE 1998 Transport sector 2020 22 USA 260 42.4 -US$164
United Nations 1997 Transport sector 2020 23 Industrialized 153 423 14.9 41.2
1997 Transport sector 2020 23 Transitional 72 126 18.2 31.8
1997 Transport sector 2020 23 Developing 297 450 28.4 43.1
OECD Working Paper 1 1997 Light-duty road 2020 23 OECD 100 500 4.3 21.7 US$0 US$0
vehicle efficiency
Summary for 2020 Minimum/maximum 4.3 43.1 -US$234

average 14.8 34.0
ACEEE 1998 2030 32 USA 401 58.8 -US$192

70.00
60.00
50.00
Primary energy demand (EJ)
40.00 Industrialized Countries

in Asia-Pacific
30.00 Africa
Latin America
Middle East
20.00
10.00
0.00
1971 1975 1980 1985 1990 1995
Figure 3.11: Development of industrial energy use in terms of primary energy (direct fuel use and indirect fuel use in power
plants) in the different world regions. Data from Price at al, 1998, 1999.
paper, basic chemicals (important ones are nitrogen fertilizers, Kashiwagi et al. (1996) dealt with industry emission reduction
petrochemicals, and chlorine), and non-metallic minerals options in IPCC (1996). In that chapter, processes, energy con-
(especially cement). The less energy intensive sectors, also sumption, and a range of emission reduction options (mainly
called light industry, are among others, the manufacture of for CO2) have been described on a sector-by-sector basis. For
food, beverages, and tobacco; manufacturing of textiles; wood the TAR, these options are summarized (see Section 3.5.3) and
and wood products; printing and publishing; production of fine estimates of potentials and costs for emission reduction are
chemicals; and the metal processing industry (including auto- quantified. The scope of TAR has been expanded to also
mobiles, appliances, and electronics). In many cases these include greater detail on non-CO2 greenhouse gases and the
industries each produce a wide variety of final products. Non- differences in regional emission profiles and emission reduc-
CO2 gases emitted from the manufacturing sector include tion opportunities.
nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluoro-
carbons (PFCs) and sulphur hexafluoride (SF6). Adipic acid,
nitric acid, HCFC-22 and aluminium production processes 3.5.2 Energy and GHG Emissions
emit these gases as unintended by-products. A number of other
highly diverse industries, including a few sectors replacing Emissions of carbon dioxide are still the most dominant con-
ozone- depleting substances, use these chemicals in manufac- tribution of manufacturing industry to total greenhouse gas
turing processes15. emission. These emissions are mainly connected to the use of
energy. In Figure 3.11 an overview is given of the energy con-
All direct emissions from manufacturing are taken into sumption of the manufacturing industry (see also Table 3.1).
account, plus emissions in the electricity production sector, as Energy use is growing in all regions except in the economies in
far as they are caused by electricity consumption by manufac- transition, where energy consumption declined by 30% in the
turing industry firms. period 1990 to 1995. This effect is so strong that it nearly off-
sets growth in all other regions. In industrialized countries
energy use is still growing at a moderate rate; electricity con-
15 sumption grows faster than fuel consumption. The strongest
Chapter 3 Appendix Options to Reduce Global Warming
Contributions from Substitutes for Ozone Depleting Substances elab- growth rates occur in the developing countries in the Asia-
orates on the sectors that would be affected by both the Montreal Pacific region. All developing countries together account for
Protocol and the Kyoto Protocol. 36% of industrial energy use. However, industry in industrial-
Table 3.17: Overview of greenhouse gas emissions by manufacturing industry (in MtCeq) in 1990 (1995 for the fluorinated gases).
Note that the accuracy is much less than 1 MtCeq
Sources: see notes.
Source OECD EIT Asia- Other DCs Total Trends after 1990
Pacific (% per year)
DCs
Fuel CO2f 546 454 461 105 1567 Stable (90-95)

Electricity CO2f 341 167 170 66 726 +1.2% (90-95)
CO2 from cementa 51 25 60 19 155
CH4a 8
N2Ob 34 13 13 4 65
HFC-23c 19 ~1 ~2 ~1 22 +2% (90-97)
PFCsd >11 >4 >4 31 Decreasing
SF6e 26 6 7 40 +4% (90-96)
Total 2614
a Olivier et al., 1996.

b Total N2O emissions are estimated to be 489 ktonnes (65MtCeq) (Olivier et al., 1999). Main industrial process that lead to emissions of N2O are the production
of adipic acid (38 MtCeq) and nitric acid (23 MtCeq).
c At present, the main HFC source from industrial processes is the emission of HFC-23 (trifluoromethane, with an estimated GWP of 11,700) as an unintended
by-product of HCFC-22 (chlorodifluoromethane) production. The weight percentage by-product is estimated to be 4%, 3%-5% (March Consulting, 1998) or
1.5%–3% (Branscome and Irving, 1999) of the HCFC-22 production. Some abatement takes place, but the fraction for 1995 is not known. Atmospheric mea-
surements of HFC-23 suggest an emitted by-product fraction of 2.1% (Oram et al., 1998). This leads to the reported 22MtCeq These are not inconsistent with
reported US -23 emissions of 9.5MtCeq in 1990 and 7.4 MtCeq in 1995 (US EPA, 1998) and for Europe of 9.5MtCeq. Regional breakdown and trend from
Olivier (2000). For other HFC emissions see the Appendix to this Chapter.
d Perfluorocarbons (PFCs) have the general chemical formula CxF2x+2.The manufacturing industry is thought to be responsible for all PFC emissions, mainly
CF4 and C2F6. On the basis of recent atmospheric concentration data, Harnisch (1998) estimates emissions of 10,500 tonnes and 2000 per year respectively
(20 MtCeq). Most of these emissions are the by-product of aluminium smelting; a smaller but growing contribution is from plasma etching in semi-conductor
manufacturing and use as solvent 1.4 - 4 MtCeq (Victor and McDonald, 1999; Harnisch et al, 1998). Some applications for higher carbon PFCs have also been
identified and may become significant. C3F8 (1.4MtCeq) is emitted as a result of various activities, like plasma etching, fire extinguishers and as an additive to
the refrigerant R-413a. Emissions of c-C4F8 (4MtCeq) may result from the pyrolysis of fluoropolymers, whereas C6F14 originates from use of this substance as
a solvent (5 MtCeq) (Harnisch et al., 1998; Harnisch, 2000). Regional breakdown is based on Victor and McDonald (1999) and is only for CF4 and C2F6.
e Maiss and Brenninkmeijer (1998) estimate the following breakdown of 1995 emissions (in tonnes SF6): switchgear manufacturers: 902; utilities and acceler-
ators: 3476; magnesium industry: 437; electronics industry: 327; “using adiabatic properties”: 390; other uses: 498; total 6076. The regional breakdown is
extrapolated from Victor and MacDonald (1999).
f Price et al., 1999.
ized countries on a per capita basis uses about 10 times as 1996). However, the statistics often do not allow us to make a
much energy as in developing countries. proper separation of these emissions.
The CO2 emissions by the industrial sector worldwide in 1990 Olivier et al., (1996) also report 91MtC of non-energy use
amounted to 1,250MtC. A breakdown of 1990/1995 emissions (lubricants, waxes, etc.) and 167MtC for feedstock use (naph-
is given in Table 3.17. However, these emissions are only the tha, etc.). Further work on investigating the fact of these car-
direct emissions, related to industrial fuel consumption. The bon streams is necessary; knowledge about emission reduction
indirect emissions in 1990, caused by industrial electricity con- options is still in an early stage (Patel and Gielen, 1999; Patel,
sumption, are estimated to be approximately 720MtC (Price et 1999).
al., 1998 and Price et al,. 1999). In the period 1990 to 1995
carbon emissions related to energy consumption have grown An overview of industrial greenhouse gas emissions is given in
by 0.4% per year. Table 3.17. The manufacturing industry turns out to be respon-
sible for about one-third of emissions of greenhouse gases that
Note that the energy-related CO2 in a number of sectors are are subject to the Kyoto Protocol. Non-CO2 greenhouse gases
partly process emissions, e.g., in the refineries and in the pro- make up only about 6% of the industrial emissions.
duction of ammonia, steel, and aluminium (Kashiwagi et al.,
Underlying Causes for Emission Trends A substantial part of industrial greenhouse gas emissions is
related to the production of a number of primary materials.
Unander et al. (1999) have analysed the underlying factors for Relevant to this is the concept of dematerialization (the reduc-
the development of energy consumption in OECD countries in tion of society’s material use per unit of GDP). For most indi-
the period 1990 to 1994. Generally, the development of energy vidual materials and many countries dematerialization can be
use can be broken down into three factors: volume, structure observed. Cleveland and Ruth (1999) reviewed a range of stud-
and energy efficiency. In the period examined, development of ies that show this. They suggest that it cannot be concluded to
production volume differed from country to country, ranging be due to an overall decoupling of economy and material
from a 2.0% growth per annum in Norway to a 1.4% per inputs, among other reasons because of the inability to measure
annum decline in Germany. The second factor is structure: this aggregate material use. Furthermore, they note that some ana-
is determined by the shares that the various sectors have in the lysts observe relinking of economic growth and material use in
total industrial production volume. A quite remarkable result is more recent years. They warn against “gut” feeling that techni-
that in nearly all countries, structural change within the manu- cal change, substitution, and a shift to the “information age”
facturing industry has an increasing effect on energy use, i.e. inexorably lead to decreased materials intensity and reduced
there is a shift towards more energy-intensive industrial sec- environmental impact.
tors. This is a contrast with earlier periods. Finally, Unander et
al. (1999) found – with some exceptions – a continuing decline
in energy intensity within sectors, be it at a lower pace than in 3.5.3 New Technological and Other Options for CO2 and
the period 1973 to 1986. For more results see Table 3.18. Energy
In the paper by Unander et al. (1999), energy intensity is mea- 3.5.3.1 Energy Efficiency Improvement
sured in terms of energy use per unit of value added. An indi-
cator more relevant to the status of energy efficiency in a coun- Energy efficiency improvement can be considered as the major
try is the specific energy consumption, corrected for structural option for emission reduction by the manufacturing industry. A
differences. Also, such an indicator shows a continuous down- wide range of technologies is available to improve energy effi-
ward trend, as can be seen in Figure 3.12. Similar results were ciency in this industry. An overview is given in Table 3.19.
obtained for the iron and steel industry (Worrell et al., 1997a). Note that the total technical potential consists of a larger set of
3.0
USA
Japan
Germany
Ratio of primary energy consumption and PPI-p
France
2.5 United Kingdom

Netherlands
Sweden
Australia
Average
2.0
1.5
1.0
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992
Figure 3.12: Development of the primary energy demand per unit of production in the pulp and paper industry (PPI-p) in OECD
countries.
Table 3.18: Average annual rates of change in manufacturing energy use, and the degree to which changes in volume, structure and energy intensity contribute to such change
208
Source: Unander et al. (1999).
Country Development in energy use Effect of volume development Effect of structural change Effect of energy intensity changes
on energy use in industry on energy use within sectors on energy use
1973-1986 1986-1990 1990-1994 1973-1986 1986-1990 1990-1994 1973-1986 1986-1990 1990-1994 1973-1986 1986-1990 1990-1994
Australia 0.3% 3.3% 0.8% 1.1% 3.2% 1.9% 0.0% 0.6% -0.4% -1.2% -2.1% 0.1%
Canada N/A 0.7% 0.8% 2.0% 1.7% 1.4% N/A -0.1% 0.4% N/A -0.8% -1.0%
Denmark -1.1% -3.3% 1.5% 2.1% -0.6% 0.9% -0.3% -0.1% 0.0% -2.9% -2.6% 0.7%
Finland 1.7% 3.3% 1.8% 2.9% 3.2% 1.6% -0.1% 0.3% 1.6% -2.0% -0.2% -1.5%
France -2.3% 1.3% 0.7% 1.2% 3.2% -0.5% -0.2% 0.1% 0.0% -3.3% -2.0% 1.2%
Germany -1.8% 0.6% -0.5% 1.1% 2.7% -1.4% -0.4% -0.5% 1.0% -2.6% -1.6% -0.1%
Italy -1.8% 3.8% -0.7% 3.4% 4.0% 0.2% 0.0% 0.2% 0.4% -5.2% -0.4% -1.4%
Japan -1.8% 3.5% -0.1% 3.2% 6.3% -0.4% -2.0% -0.2% 0.1% -3.0% -2.6% 0.2%
Netherlands -4.0% 4.4% 0.0% 1.8% 2.8% 0.6% 1.1% -0.4% 0.8% -6.9% 2.0% -1.5%
Norway 0.1% -0.9% 1.5% 0.5% -1.3% 2.0% 0.6% 2.2% 0.8% -1.1% -1.8% -1.3%
Sweden -1.4% 0.0% 0.0% 1.3% 1.5% 1.3% -0.4% 0.3% 2.8% -2.2% -1.9% -4.1%
UK -3.6% 0.0% -2.4% -0.7% 3.9% -0.2% -0.4% -0.3% -0.5% -2.6% -3.6% -1.6%
USA -1.9% 2.9% 1.9% 2.0% 3.0% 1.8% -1.1% -0.5% 0.1% -2.8% 0.5% 1.6%
Table 3.19: Overview of important examples of industrial energy efficiency improvement technologies and indications of asso-
ciated emission reduction potentials and costs. For an explanation see the legend below. Note that the scale is not linear. Cost
may differ from region to region. This overview is not meant to be comprehensive, but a representation of the most important
options.
Sources: Kashiwagi et al. (1996), De Beer et al. (1994), ETSU (1994), WEC (1995a or b), IEA Greenhouse Gas R&D
Programme (2000a), Martin et al. (2000).
Sector Technology Potential Emission Remarks

in 2010 reduction
costs
All industry Implementation of process control and - Estimate: 5% saving on primary energy
energy management systems demand worldwide
Electronic adjustable speed drives ++ In industrial countries ~30% of industrial
High-efficiency electric motors + * electricity demand is for electric drive systems
Optimized design of electric drive systems, +++ Not known for developing countries.
including low-resistance piping and ducting
Process integration, e.g., by applying + Savings vary per plant from 0%-40% of fuel
pinch technology demand; costs depend on required retrofit
activity.
Cogeneration of heat and power -
Food, beverages Application of efficient evaporation +

and tobacco processes (dairy, sugar)
Membrane separation ++
Textiles Improved drying systems ++

(e.g., heat recovery)
Pulp and paper Application of continuous digesters + Applicable to chemical pulping only; energy
(pulping) generally supplied as biofuels
Heat recovery in thermal mechanical pulping +++ Energy generally supplied as biofuels
Incineration of residues (bark, black liquor) +
for power generation
Pressing to higher consistency, e.g., by - Not applicable to all paper grades
extended nip press (paper making)
Improved drying, e.g., impulse drying or - Pre-industrial stage; results in a smaller paper
condensing belt drying machine (all paper grades)
Reduced air requirements, e.g., by humidity +
control in paper machine drying hoods
Gas turbine cogeneration (paper making) -
Refineries Reflux overhead vapour recompression +

(distillation)
Staged crude preheat (distillation) +
Application of mechanical vacuum pumps +
(distillation and cracking)
Gas turbine crude preheating (distillation) - Applicable to 30% of the heat demand of
refineries
Replacement of fluid coking by gasification +
(cracking)
Power recovery (e.g., at hydrocracker) -
Improved catalysts (catalytic reforming) +
(continued)

in 2010 reduction
costs
Fertilizers Autothermal reforming - *

Efficient CO2 separation (e.g., by using + * Saving depends strongly on opportunities for
membranes) process integration of old and new techniques.
Low pressure ammonia synthesis + * Site-specific: an optimum has to be found
between synthesis pressure, gas volumes to be
handled, and reaction speed
Petrochemicals Mechanical vapour recompression +

(e.g., for propane/propene splitting)
Gas turbine cogeneration - Not yet demonstrated for furnace heating
De-bottlenecking - Estimate: 5% saving on fuel demand
Improved reactors design, e.g., by + Not yet commercial
applying ceramics or membranes
Low pressure synthesis for methanol + * Site-specific: an optimum has to be found
between synthesis pressure, gas volumes to be
handled, and reaction speed
Other Replacement of mercury and diaphragm + * In some countries, e.g., Japan, membrane elec-
chemicals processes by membrane electrolysis trolysis is already the prevailing technology
(chlorine)
Gas turbine cogeneration -
Iron and steel Pulverized coal injection up to 40% - Maximum injection rate is still topic of
in the blast furnace (primary steel) research
Heat recovery from sinter plants and +
coke ovens (primary steel)
Recovery of process gas from coke ovens, -
blast furnaces and basic oxygen furnaces
(primary steel)
Power recovery from blast furnace +
off-gases (primary steel)
Replacement of open-hearth furnaces - * Mainly former Soviet Union and China
by basic oxygen furnaces (primary steel)
Application of continuous casting and - * Replacement of ingot casting
thin slab casting
Efficient production of low-temperature ++ Heat recovery from high temperature
heat (heat recovery from high-temperature processes is technically difficult
processes and cogeneration)
Scrap preheating in electric arc furnaces +
(secondary steel)
Oxygen and fuel injection in electric -
arc furnaces (secondary steel)
Efficient ladle preheating
Second-generation smelt reduction - First commercial units expected after 2005
processes (primary steel)
Near-net-shape casting techniques - Not yet commercial
Aluminium Retrofit existing Hall-Héroult process (e.g., -/+

alumina point-feeding, computer control)
Conversion to state-of-the-art +
PFBF technology
Wettable cathode +++ Not yet commercial
Fluidized bed kilns in Bayer process ++
Cogeneration integrated in Bayer process
(continued)

in 2010 reduction
costs
Cement and Replacement of wet process kilns -/+ *

other Application of multi-stage preheaters + No savings expected in retrofit situations
non-metallic and pre-calciners
minerals Utilization of clinker production waste heat -
or cogeneration for drying raw materials
Application of high-efficiency +
classifiers and grinding techniques
Application of regenerative furnaces + Costs of replacing recuperative furnaces by
and improving efficiency of existing regenerative furnaces are high (++)
furnaces (glass)
Tunnel and roller kilns for bricks - *
and ceramic products
Metal Efficient design of buildings, air - *

processing conditioning and air treatment systems,
and other and heat supply systems
light Replacement of electric melters by - *
industry gas-fired melters (foundries)
Recuperative burners (foundries) - *
Cross-sectoral Heat cascading with other industrial sectors +

Waste heat utilization for +
non-industrial sectors
Legend
Potential: = 0-10MtC; = 10-30MtC; = 30-100MtC; > 100MtC.
Annualized costs at discount rate of 10%: - = benefits are larger than the costs; + = US$0-US$100/tC ; ++ = US$100-US$300/tC; +++ > US$300/tC
An asterisk (*) indicates that cost data are only valid in case of regular replacement or expansion.
options and differs from country to country (see Section 3.5.5). and programmes to speed up the adoption of energy efficient
Especially options for light industry are not worked out in technologies in all major regions of the world. In that case
detail. An important reason is that these sectors are very energy consumption may stabilize at 1990 levels. The differ-
diverse, and so are the emission reduction options. ence between baseline and ecologically driven/advanced tech-
Nevertheless, there are in relative terms probably more sub- nology is approx. 70EJ, which is roughly equivalent to 1100
stantial savings possible than in heavy industry (see, e.g., De MtC. Of this reduction approx. 30% could be realized in
Beer et al., 1996). Examples of technologies for the light indus- OECD countries; approx. 20% in economies-in-transition, and
tries are efficient lighting, more efficient motors and drive sys- approximately 50% in developing countries. The high share for
tems, process controls, and energy saving in space heating. developing countries can be explained by the high production
growth assumed for these countries and the currently some-
An extended study towards the potential of energy efficiency what higher specific energy use in these countries.
improvement was undertaken by the World Energy Council
(WEC, 1995a). Based on a sector-by-sector analysis (support- Apart from these existing technologies, a range of new tech-
ed by a number of country case studies) a set of scenarios is nologies is under development. Important examples are found
developed. In a baseline scenario industrial energy consump- in the iron and steel industry. Smelt reduction processes can
tion grows from 136EJ in 1990 to 205EJ in 2020. In a state-of- replace pelletizing and sinter plants, coke ovens, and blast fur-
the-art scenario the assumption is that replacement of equip- naces, and lead to substantial savings. Near net shape casting
ment takes place with the current (1995 in this case) most effi- techniques for steel avoids much of the energy required for
cient technologies available; in that case industrial primary rolling (De Beer et al., 1998). Other examples are black liquor
energy requirement is limited to 173EJ in 2020. Finally, the gasification in the pulp industry, improved water removal
ecologically driven/advanced technology scenario assumes an processes for paper making, e.g., impulse drying and air
international commitment to energy efficiency, as well as rapid impingement drying, and the use of membrane reactors in the
technological progress and widespread application of policies chemical industry. A further overview is given in Blok et al.
(1995). Although some of these options already can play a role 3.5.3.4 Carbon Dioxide Removal
in the year 2010 (see Table 3.19), their full implementation
may take some decades. De Beer (1998) carried out an in-depth Carbon dioxide recovery from flue gases is feasible from
analysis for three sectors (paper, steel and ammonia). He con- industrial processes that are operated on a sufficiently large
cludes that new industrial processes hold the promise to reduce scale. Costs are comparable with the costs of recovering CO2
the current gap between industrial best practice and theoretical from power plant flue gases. See the discussion of these
minimum required energy use by 50%. options in Section 3.8.4.4.
3.5.3.2 Fuel Switching However, there are a number of sectors where cheaper recov-
ery is possible. These typically are processes where hydrogen
In general not much attention is paid to fuel switching in the is produced from fossil fuels, leaving CO2 as a by-product.
manufacturing industry. Fuel choice to a large extent is sector This is the case in ammonia production (note that some of the
dependent (coal for dominant processes in the iron and steel CO2 is already utilized), and increasingly in refineries. Costs
industry, oil products in large sectors in the chemical industry). can be limited to those of purification, drying and compression.
Nevertheless, there seems to be some potential. This may be They can be on the order of about US$30/tC avoided (Farla et
illustrated by the figures presented in Table 3.20 where – per al., 1995). Another example of carbon dioxide recovery con-
sector – the average carbon intensity of fuels used in industry nected to a specific process is the recovery of CO2 from the
is compared to the country with the lowest carbon intensity. calcination of sodium bicarbonate in soda ash production. The
This indicates that fuel switching within fossil fuels can company Botash in Botswana recovers and reuses 70% of the
reduce CO2 emissions by 10%–20%. However, it is not clear CO2 generated this way (Zhou and Landner, 1999). There are
whether the switch is feasible in practical situations, or what several industrial gas streams with a high CO2 content from
the costs are. However, there are specific options that combine which carbon dioxide recovery theoretically is more efficient
fuel switching with energy efficiency improvement. Examples than from flue gas (Radgen, 1999). However, there are no
are: the replacement of oil- and coal-fired boilers by natural- technical solutions yet to realize this (Farla et al., 1995).
gas fired combined heat and power (CHP) plant; the replace-
ment of oil-based partial oxidation processes for ammonia pro- 3.5.3.5 Material Efficiency Improvement
duction by natural-gas based steam reforming; and the replace-
ment of coal-based blast furnaces for iron production by natur- In heavy industry most of the energy is used to produce a lim-
al-gas based direct reduction. Daniëls and Moll (1998) calcu- ited number of primary materials, like steel, cement, plastic,
late that costs of this option are high under European energy paper, etc. Apart from process changes that directly reduce the
price conditions. In the case of lower natural gas prices this CO2 emissions of the processes, also the limitation of the use
option may be more attractive. of these primary materials can help in reducing CO2 emissions
of these processes. A range of options is available: material
3.5.3.3 Renewable Energy efficient product design (Brezet and van Hemel, 1997); mater-
ial substitution; product recycling; material recycling; quality
See Section 3.8.4.3 for an extensive assessment of renewable cascading; and good housekeeping (Worrell et al., 1995b). A
energy technology. review of such options is given in a report for the UN (1997).
Table 3.20: Specific carbon-emission factors for fossil fuel use in manufacturing industry
The figures are calculated on the basis of the IEA Energy Balances
Sector Specific carbon emission Lowest specific carbon emission found

(kg/GJ) (kg/GJ)
Iron and steel industry 23.6 19.8a

Chemical industry 19.1 15.3
Non-ferrous metals industry 19.2 15.3
Non-metallic minerals industry 20.4 16.7
Transportation equipment industry 17.3 15.3
Machine industry 17.7 15.5
Food products industry 18.4 15.6
Pulp and paper industry 18.5 15.3
Total industry 20.1 18.1
a Excludes Denmark (no primary steel production)

An interesting integral approach to material efficiency A study for the UN (1997) estimates that the effect of material
improvement is the suggestion of the “inverse factory” that efficiency improvement in an “ecologically-driven/advanced
does not transfer the ownership of goods to the consumers, but technology” scenario in the year 2020 could make up a differ-
just gives the right of use, taking back the product after use for ence of 40 EJ in world primary energy demand (approximate-
the purpose of reuse or recycling (Kashiwagi et al., 1999). ly 7% of the baseline energy use), which is equivalent to over
600 Mt of carbon emissions.
Some quantitative studies are available on the possible effects
of material efficiency improvement. For the USA, Ruth and
Dell’ Anno (1997) calculate that the effect of increased glass 3.5.4 Emission Reduction Options for Non-CO2
recycling on CO2 emissions is limited. According to these Greenhouse Gases
authors, light-weighting of container glass products may be
more promising. In addition, Hekkert et al. (2000) show that Non-CO2 gases from manufacturing (HFCs, PFCs, SF6, and
product recycling of glass bottles (instead of recycling the N2O) are increasingand. Furthermore, PFCs and SF6 have
material to make new products) is also a promising way to extremely long atmospheric lifetimes (thousands of years) and
reduce CO2 emissions. GWP values (thousands of times those of CO2) resulting in vir-
tually irreversible atmospheric impacts. Fortunately, there are
For packaging plastics it is estimated that more efficient design technically-feasible, low cost emission reduction options avail-
(e.g., use of thinner sheets) and waste plastic recycling could able for a number of applications. Since the SAR, implementa-
lead to savings of about 30% on the related CO2 emissions. tion of major technological advances have led to significant
Hekkert et al. (2000) found a technical potential for CO2 emis- emission reductions of N2O and the fluorinated greenhouse
sion reduction for the total packaging sector (including paper, gases produced as unintended by-products. For the case of flu-
wood, and metals) of about 50%. orinated gases being used as working fluids or process gases,
process changes, improved containment and recovery, and use
Worrell et al. (1995c) estimate that more efficient use of fertil- of alternative compounds and technologies have been adopted.
izer by, e.g., improved agricultural practices and slow release On-going research and development efforts are expected to
fertilizer, in the Netherlands may lead to a reduction of fertil- further expand emission reduction options. Energy efficiency
izer use by 40%. improvements are also being achieved in some refrigeration
and foam insulation applications, which use fluorinated gases.
Closed-loop cement recycling is not yet technically possible Emission reduction options by sector are highlighted below.
(UN, 1997). A more important option for reducing both ener- The Chapter 3 Appendix reviews use and emissions of HFCs
gy-related and process emissions in the cement industry is the and PFCs being used as substitutes for ozone-depleting sub-
use of blended cements, where clinker as input is replaced by, stances.
e.g., blast furnace slag or fly ash from coal combustion. Taking
into account the regional availability of such inputs and maxi- 3.5.4.1 Nitrous Oxide Emissions from Industrial Processes
mum replacement, it is estimated that about 5%–20% of total
CO2 emissions of the cement industry can be avoided. Costs of Adipic acid production. Various techniques, like thermal and
these alternative materials are generally lower than those of catalytic destruction, are available to reduce emissions of N2O
clinker (IEA Greenhouse Gas R&D Programme, 1999). Note by 90% – 98% (Reimer et al., 2000). Reimer et al. (2000)
that these figures are based on a static analysis for the year report costs of catalytic destruction to be between US$20 and
1990 (Worrell et al., 1995a). US$60/tN2O, which is less than US$1/tCeq. Costs of thermal
destruction in boilers are even lower. The inter-industry group
Some integral approaches give an overview of the total possi- of five major adipic acid manufacturers worldwide in 1991 to
ble impact of changes in the material system. Gielen (1999) has 1993 have agreed on information exchange and on a substan-
modelled the total Western European materials and energy sys- tial emission cut before the year 2000. These major producers
tem, using a linear optimization model (Markal). In a baseline probably will have reduced their joint emissions by 91%. It is
scenario emissions of greenhouse gases in the year 2030 are estimated that emissions from the 24 plants producing adipic
projected to be 5000 MtCeq. At a cost of US$200/tC 10% of acid worldwide will be reduced by 62% in the year 2000 com-
these emissions can be avoided through “material options”; at pared to 1990 (Reimer et al., 2000).
a cost of US$800/tC this increases to 20%. Apart from “end-of-
pipe” options, especially material substitution is important, Nitric acid production. Concentrations of N2O in nitric acid
e.g., replacement of petrochemical feedstocks by biomass production off-gases are lower than in the case of adipic acid
feedstocks (see also Chapter 4); steel by aluminium in the production. Catalytic destruction seems to be the most promis-
transport sector; and concrete by wood in the buildings sector. ing option for emission reduction. Catalysts for this purpose
At higher costs, waste management options (energy recovery, are under development in a few places in the world. Oonk and
plastics recycling) are also selected by the model. Gielen Schöffel (1999) estimate that emissions can be reduced to a
(1999) notes that in his analysis the effect of material efficien- large extent at costs between US$2 and US$10/tCeq.
cy of product design is underestimated.
3.5.4.2 PFC Emissions from Aluminium Production 3.5.4.3 PFCs and Other Substances used in Semiconductor
Production
The smelting process entails electrolytic reduction of alumina
(Al2O3) to produce aluminium (Al). The smelter pot contains The semiconductor industry uses HFC-23, CF4, C2F6, C3F8, c-
alumina dissolved in an electrolyte, which mainly consists of C4F8, SF6 and NF3 in two production processes: plasma etch-
molten cryolite (Na3AlF6). Normal smelting is interrupted by ing thin films (etch) and plasma cleaning chemical vapour
an “anode effect” that is triggered when alumina concentra- deposition (CVD) tool chambers. These chemicals are critical
tions drop; excess voltages between the anode and alumina to current manufacturing methods because they possess unique
bath result in the formation of PFCs (CF4 and C2F6) from car- characteristics when used in a plasma that currently cannot be
bon in the anode and fluorine in the cryolite (Huglen and duplicated by alternatives. The industry’s technical reliance on
Kvande, 1994; Cook, 1995; Kimmerle and Potvin, 1997). high GWP chemicals is increasing as a consequence of grow-
Several processes for primary aluminium production are in ing demand for semiconductor devices (15% average annual
use, with specific emissions ranging from typically 0.15 to growth), and ever-increasing complexity of semiconductor
1.34 kg CF4 per tonne Al16 depending on type of technology devices.
(determined by anode type and alumina feeding technology)
(IAI, 2000). Measurements made at smelters with the best Baseline processes consume from 15%-60% of influent PFCs
available technology (point feed prebake) indicate an emis- depending on the chemical used and the process application
sions rate as low as 0.006 kg CF4 per tonne Al (Marks et al., (etch or CVD). PFC emissions, however, vary depending on a
2000). Worldwide average emissions for 1995 are estimated to number of factors: gas used, type/brand of equipment used,
range from 0.26 to 0.77 kg CF4 per tonne Al (Harnisch et al., company-specific process parameters, number of PFC-using
1998; IEA, 2000). Manufacturers have carried out two surveys steps in a production process, generation of PFC by-product
on the occurrence of anode effects and associated PFC-emis- chemicals, and whether abatement equipment has been imple-
sions (IPAI, 1996; IAI, 2000). Based on 60% coverage of mented. Semiconductor product types, manufacturing process-
world production (no data on Russia and China) they estimates, and, consequently, emissions vary significantly across
ed a mean emission value of 0.3 kg CF4 per tonne Al in 1997. worldwide semiconductor fabrication facilities.
Emission reductions were achieved from 1990 to 1995 by con-
version to newer technologies, retrofitting existing plants, and PFC use by the semiconductor industry began in the early
improved plant operation. Industry-government partnerships 1990s. Global emissions from semiconductor manufacturing
also played a significant role in reducing PFC emissions. As of have been estimated at 4 MtCeq in 1995 (Harnisch et al., 1998).
November 1998, 10 countries (which accounted for 50% of Options for reducing PFC emissions from semiconductor man-
global aluminium production in 1998) have undertaken indus- ufacture include process optimization, alternative chemicals,
try-government initiatives to reduce PFC emissions from pri- recovery and/or recycling, and effluent abatement. A number
mary aluminium production (US EPA, 1999d). It has been esti- of emission reduction options are now commercially available.
mated that emissions could be further reduced via equipment For plasma-enhanced CVD chamber cleans, switching to PFCs
retrofits, such as the addition or improvement of computer con- that are more fully dissociated in the plasma or installing reac-
trol systems (a minor retrofit) and the conversion to point-feed tive fluorine generators upstream of the chamber is favoured.
systems (a major retrofit). One study estimated 1995 emis- For etch tools, PFC abatement is currently available (Worth,
sions could be reduced an additional 10%–50% (depending on 2000). However, the size of wafers being processed and the
technology type and region) with maximum costs ranging from design and age of the fabrication facility have a major impact
US$110/tCO2eq for a minor retrofit to nearly US$1100/tCO2eq on the applicability of PFC emission reduction technology. A
for a major retrofit (IEA, 2000). A second study estimates that recent study for the EU (Harnisch and Hendriks, 2000) esti-
1995 emissions could be reduced by 40% at costs lower than mated that 60% of projected emissions from this sector could
US$30/tCeq, by 65% at costs lower than US$100/tCeq and by be abated through the use of NF3 in chamber cleaning at
85% at costs lower than US$300/tCeq (Harnisch et al., 1998; US$110/tCeq. According to the same study another 10% are
15% discount rate, 10 year amortization). available through alternative etch chemistry at no costs and
about 20% through oxidation of exhausts from etch chambers
The development of an inert, non-carbon anode is being pur- at US$330/tCeq. The remaining emissions from existing sys-
sued through governmental and industrial research and devel- tems are assumed to be currently virtually unabatable.
opment efforts. A non-carbon anode would remove the source
of carbon for PFC generation, thereby eliminating PFC emis- Through the World Semiconductor Council, semiconductor
sions (AA, 1998). A commercially viable design is expected manufacturers in the EU, Japan, Korea, Taiwan (China), and
by 2020. the USA have set a voluntary emission reduction target to
lower PFC emissions by at least 10% by 2010 from 1995 (1997
for Korea and 1997/1999 average for Taiwan (China) baselines
(World Semiconductor Council, 1999). Members of the World
Semiconductor Council represent over 90% of global semicon-
16 C2F6 emissions typically are 10% of CF4 emissions. ductor manufacture.
3.5.4.4 HFC-23 Emissions from HCFC-22 Production are contributing to the reduction of emissions from this sector
(Mauthe et al, 1997; Causey, 2000).
HFC-23 is generated as a by-product during the manufacture of
HCFC-22 and emitted through the plant condenser vent. There Significant emissions may also occur during the manufacturing
are about 20 HCFC-22 plants globally. Additional new plants and testing of gas-insulated switch gear when the systems are
are expected in developing countries as CFC production plants repeatedly filled with SF6 and re-evacuated (Harnisch and
are converted to comply with the Montreal Protocol and Hendriks, 2000). Historically these emissions have been in the
demand for refrigeration grows. Although HCFC-22 is an range of 30%-50% of the total charge of SF6. The existence
ozone-depleting chemical and production for commercial use and appropriate use of state-of-the art recovery equipment can
will be phased out between 2005 and 2040, production as a help to reduce these emissions down to at least 10% of the total
feedstock chemical for synthetic polymers will continue. charge of SF6.
Technologies available to reduce emissions of HFC-23 have 3.5.4.6 Emissions of SF6 from Magnesium Production and
been reviewed by the Research Triangle Institute (RTI, 1996; Casting
Rand et al., 1999) and March Consulting Group (March
Consulting, 1998). Two emission reduction options were iden- In the magnesium industry, a dilute mixture of SF6 with dry air
tified. and/or CO2 is used as a protective cover gas to prevent violent
• Optimization of the HCFC-22 production process to oxidation of the molten metal. It is assumed that all SF6 used is
minimize HFC-23 emissions. This technology is readi- emitted to the atmosphere. 7% of global SF6 sales is estimated
ly transferable to developing countries. Process opti- to be for magnesium applications (SPS, 1997). Manufacturing
mization is relatively inexpensive and is demonstrated segments include primary magnesium production, die casting,
to reduce emissions of fully optimized plants to below gravity casting and secondary production (i.e., scrap metal recy-
2% of HCFC-22 production. Nearly all plants in devel- cling). Because of differing production processes and plant
oped countries have optimized systems. scale, emission reduction potential varies across manufacturing
• Thermal destruction technologies are available today segments. Emissions of SF6 in magnesium casting can poten-
and can achieve emissions reductions of as high as 99%, tially be reduced to zero by switching to SO, a highly toxic and
although actual reductions will be determined by the corrosive chemical used over20 years ago as a protective cover
fraction of production time that the destruction device is gas. Harnisch and Hendriks (2000) estimate that net costs of
actually operating. Cost estimates are 7 ECU/tC for the switching from SF6 to SO2-based cover gas systems are about
EU (March Consulting, 1998, 8% discount rate). US$1/tCeq, but as a result of the high toxicity and corrosivity of
SO2 much more careful handling and gas management is
3.5.4.5 Emissions of SF6 from the Production, Use and required. In many cases the specific usage of SF6 can be reduced
Decommissioning of Gas Insulated Switchgear by operational changes, including moderate technical modifica-
tions (Maiss and Brenninkmeijer, 1998). Companies may also
SF6 is used for electrical insulation, arc quenching, and current reduce SF6 emissions and save money by carefully managing
interruption in electrical equipment used in the transmission the concentration and application of the cover gas (IMA, 1998).
and distribution of high-voltage electricity. SF6 has physical A study is currently beingundertaken to identify and evaluate
properties that make it ideal for use in high-voltage electric chemical alternatives to SF6 and SO2 for magnesium melt pro-
power equipment, including high dielectric strength, excellent tection (Clow and Hillls, 2000).
arc quenching properties, low chemical reactivity, and good
heat transfer characteristics. The high dielectric strength of SF6 3.5.4.7. Some Smaller Non-CO2 Emission Reduction Options
allows SF6-insulated equipment to be more compact than
equivalent air-insulated equipment. An SF6-insulated substa- There are a number of small emission sources of SF6, some of
tion can require as little as 10% of the volume of an air-insu- which are considered technically unnecessary. For example,
lated substation. Most of the SF6 used in electrical equipment SF6 has been used as a substitute for air, hydrogen or nitrogen
is used in gas-insulated switch gear and circuit breakers. SF6 in in sport shoes and luxury car tyres to extend the lifetime of the
electric equipment is the largest use category of SF6 with glob- pressurized system. SF6 in sport shoes has been used by a large
al estimates of over 75% of SF6 sales going to electric power global manufacturer for over a decade under a patented
applications (SPS, 1997). Options to reduce emissions include process. Soundproof windows have been manufactured with
upgrading equipment with low emission technology, and SF6 in several countries in Europe.
improved handling during installation maintenance
and/decommissioning (end-of-life) of SF6-insulated equip- Small quantities of SF6 are used as a dielectric in the guidance
ment, which includes the avoidance of deliberate release and system of radar systems like the airborne warning and control
systematic recycling. Guidelines on equipment design to allow system (AWACS) aircraft and as a tracer gas for pollutant dis-
ease of gas recycling, appropriate gas handling and recycling persion studies. Small quantities of PFCs and SF6 are used in
procedures, features of gas handling and recycling equipment, medical applications such as retina repair, collapsed lung
and the impact of voluntary emission reduction programmes expansion, and blood substitution (UNEP, 1999).
Table 3.21: Overview of greenhouse gas emission reduction options in industry (excludes energy efficiency improvement, see
Table 3.19). Note that the scales are not linear.

in 2010 reduction
costs
All industry Fuel switching ? Rough estimate
Fertilizer, refineries Carbon dioxide removal + Excludes carbon dioxide removal from flue
gases
Basic materials Material efficiency improvement –/+/++ First estimate of potentials; option is not yet
industries worked out in detail
Cement industry Application of blended cements –

Chemical industry Nitrous oxide emission reduction + Excludes emission reduction measures taken
before the year 2000
Aluminium industry PFC emission reduction +/–
Chemical industry HFC-23 emission reduction +
Legend
Potential: = 0-10MtC; = 10-30MtC; = 30-100MtC; > 100MtC
Annualized costs at discount rate of 10%:
– = benefits are larger than the costs; + = US$0-100/tC; ++ = US$100-300/tC; +++ > US$300/tC
3.5.4.8 Summary of Manufacturing Industry GHG lower the energy efficiency index. The energy efficiency indices
Emission Reduction Options are scaled in such a way that if all processes were operated at the
best-practice level, the index would be 100.
An overview of greenhouse gas emission reduction options in
manufacturing industry due to fuel switching, carbon dioxide Results up to now are presented in Figure 3.13. Apart from cor-
removal, material efficiency improvements, and reduction of rection for structure, international comparison of energy effi-
non-CO2 greenhouse gases emissions practices is presented in ciency requires correction for statistical errors. A common
Table 3.21, which complements information from Table 3.19. source of error in the process industries is the double counting
of fuels (e.g., in the iron and steel industry double counting of
coke input to the blast furnace and blast furnace gas). After cor-
3.5.5 Regional Differences rection for such errors the energy efficiency indicators – like
those presented in Table 3.19 – show a typical uncertainty of
Differences in emission reduction potential are mainly caused 5% (Farla, 2000).
by differences in specific energy consumption of industrial
processes. In recent years attention was paid to developing Despite the remaining uncertainties, some conclusions can be
methods to compare energy efficiency levels on a physical basis drawn from these data. In general Japan and South Korea and
(Phylipsen et al., 1998a), in addition to methods that compare countries in Western Europe show the lowest energy efficiency
energy efficiency levels on a monetary basis (see, e.g., Schipper index (i.e., they are most efficient). Developing countries,
and Meyers, 1992). Energy efficiency indicators on a physical economies in transition and some OECD countries (like the
basis start from the level of energy consumption per unit of USA and Australia) show higher levels of this index. However,
product (e.g., expressed in GJ/t). However, countries may differ there are certainly exceptions; for instance, some developing
in the production structure per sector (i.e. differences in product countries show fairly low levels of the energy efficiency index
mix and associated differences in feedstocks used). Correction for some sectors. This may be explained by the fact that these
for such differences can take place by relating the specific ener- countries are developing at a high rate, and hence apply rela-
gy consumption level for each product to a best practice level, tively young and modern technology. In general the countries
resulting in a so-called energy efficiency index. The more effi- with the highest energy efficiency index will have the highest
cient the aggregate of processes in a sector in a country, the technical potential for energy efficiency improvement. The dif-
a. Petrochemical industry
180
160
140
120
Energy efficiency index
100
80
60
40
20
0
nce str
ia
rop
e ds via rea US
A
eric
a tal
Fra / Au Eu erlan dina /Ko m To
N any ed. eth can an hA
m/ M N /S Jap ut
lgiu Ge
rm UK So
Be
b. Ammonia production
50
45
40
Specific energy consumption (GJ/tonne)
35
30
25
20
15
10
0
taly ria ds d nad
a A alia sia esi
a ulf rica
e/I /A ust rlan relan Ca US str th
A on ianG me
nc eth
e
K/I Au u Ind ers
A
/Fra any N U So P uth
ium Ge
rm So
lg
Be
Figure 3.13a-b: Relative levels of energy efficiency for selected industrial sectors in various countries. The aggregate energy
efficiency index (EEI) is calculated as:
EEI = (Σi Pi ·SECi)/( Σi Pi · SECi,BP),
where Pi is the production volume of product i; SECi is the specific energy consumption for product i, and SECi,BP is a best-prac-
tice reference level for the specific energy consumption for product i. By applying this approach a correction is made in order to
account for structural differences between countries in each of the tracked industrial sectors. A typical statistical uncertainty for
these figures is 5%. Because of statistical errors higher uncertainties may occur in individual cases.
c. Iron and steel production

250
1991 1995
200
150
100
50
0
d
nce any ds lan UK US
A xic
o zil an rea ina Ind
ia
Fra erm erlan Po Me Bra Jap th
Ko Ch
st G Neth S ou
We
m er
For
d. Cement production
250
1988/89/90 1994/95
200
150
100
50
0
m nce any eland lands tugal Spain UK ngar
y
lan
d SR A co
US Mexi entin
a zil bia ica hina ndia orea
lgiu Fra Germ Ir r r Po er US Bra olom Amer C I K
Be the Po Hu Arg C h uth
Ne m u t So
For er
S o
Oth
Figure 3.13c - d: Relative levels of energy efficiency for selected industrial sectors in various countries. The aggregate energy
efficiency index (EEI) is calculated as:
e. Pulp and paper

200
1992 1994
180
160
140
120
100
80
60
40
20
0
Finland France Germany Netherlands Sweden UK USA Australia Japan
Figure 3.13e: Relative levels of energy efficiency for selected industrial sectors in various countries. The aggregate energy effi-
ciency index (EEI) is calculated as:
ferences in economic potential may be smaller, as a conse- leads to a reduction of 25% compared to the present average of
quence of the lower energy prices that often occur in the less 35.6GJ/t (Zhou and Hu, 1999). An analysis of future prospects
efficient countries. In this section a number of regional studies by Worrell (1995) shows that, in the case steel production grows
– mainly into energy efficiency in industry – are reviewed. from 93Mt in 1995 to 140Mt in 2020, energy consumption in the
Chinese steel industry is likely to grow. But the growth can be
3.5.5.1 China very moderate if modern technologies, like smelt reduction and
near-net-shape casting, are adopted. Also for two other impor-
Industry is responsible for 75% of commercial energy end-use in tant sectors, the building materials industry and the chemical
China (IEA, 1997d). The period from 1980 to 1996 has seen a industries, substantial technical saving potentials are reported
strong economic growth and growth of industrial production, (Zhou and Hu, 1999). Liu et al. (1995) report for the cement
but also a substantial decline of the energy/GDP ratio of about industry – consuming 10% of industrial energy use in 1995 – a
4% per year (China Statistical Yearbook). The share of energy potential for reduction of the specific energy consumption of
efficiency and structural change in this decline is uncertain, but 32% in the period 1990 to 2000; associated investments are esti-
it is clear that substantial energy efficiency improvement was mated at 105 billion yuan (~US$13 billion). Important econom-
obtained (Zhou and Hu, 1999; Sinton, 1996). Nevertheless, ically viable options are comprehensive retrofit of vertical kilns
Chinese industry is still substantially less energy efficient than (e.g., improving refractory lining) and wet kilns, and kiln diam-
most OECD countries (Wu and Wei, 1997), see also Figure 3.13. eter enlargement and retrofit. Similar savings can be reached
Within industry, the steel industry is most important, consuming when adding a pre-calciner to the kilns, which is, however, the
23% of industrial energy use in 1995 (IEA, 1997d). Zhou and most expensive option. All cost-effective measures add up to a
Hu (1999) analysed the differences between the Chinese and the 20% reduction of primary energy consumption compared to the
efficient Japanese iron and steel industry and identified a range base line energy use in 2010 (Sinton and Yang, 1998).
of measures to improve the specific energy consumption of the
Chinese steel industry. Important measures are the recovery of 3.5.5.2 Japan
residual gases (2.7GJ/t steel); boiler modification and CHP (2.1
GJ/t); improved feedstock quality (2.1GJ/t); wider application In Japan, industry accounts for nearly half of the final energy
of continuous casting (1.0GJ/t); and others (2.0GJ/t). The total demand. Industrial energy demand is stabilizing, mainly
because of the shift from heavy industry to sectors like electri- Table 3.22: Potential energy savings in energy intensive indus-
cal machinery, precision instruments, and motor vehicles. tries in Latin America. The table shows the percentage reduc-
tion of average specific energy consumption that can be
Substantial energy efficiency improvements have been achieved with additional investments (Pichs, 1998).
obtained, and Japan is now one of the most efficient countries
in the world (see also Figure 3.13). Nevertheless, there are still Short term/ Long term/
energy efficiency improvement potentials. Current technical small medium size
potential is 10%–12% in the iron and steel industry. Under the investments investments
influence of a carbon tax, the potential is 8% in the cement
industry and 10% in the chemical industry. Costs of saving Steel 5-7 5 – 13
energy are in the majority of the cases lower than energy pur- Aluminium 2-4 10 – 15
chase costs at a 5% discount rate (Kashiwagi et al., 1999). Oil 7 - 12 15 – 25
Kainuma et al. (1999) have carried out an analysis of various Fertilizer 2-5 20 – 25
policies using the AIM model and find maximum absolute Glass 10 - 12 15 – 20
reductions of industrial CO2 emissions of 15% (in the base case Construction 10 - 15 15 – 20
the absolute emission reduction is 3%). The increasing concern Cement 10 - 20 10 – 30
about the climate change issue has required setting a new high- Pulp and paper 10 - 15 10 – 16
er target to curb energy use to the FY 1996 level in FY 2010, Food 8 - 18 12 – 85
which requires an energy savings of approximately 10% of final Textile 12 - 15 15 – 17
demand in the industrial sector by the revision of the Energy
Conservation Law put into force in April 1999 (MITI, 1999).
3.5.5.3 Latin America

For the USA a series of studies have determined the static
In Latin American countries, industry consumes about 30% of potentials for three energy-intensive sectors. A study of the iron
final energy use. Energy intensity has increased, partly because and steel industry concludes that steel plants are relatively old.
of a deterioration of the energy efficiency in the heavy indus- A total of 48 cost-effective measures were identified that can
tries. Substantial energy efficiency improvement potentials are reduce carbon dioxide emissions per tonne of steel from this
reported, see Table 3.22. sector by 19% (Worrell et al., 1999). For the cement industry a
cost-effective potential of 5% excluding blending (30 tech-
As an example it is useful to give some information on indus- nologies) and 11% including blending was calculated (Martin
trial electricity use in Brazil. Industry accounts for 48% of et al., 1999). For the pulp and paper industry the cost-effective
electricity consumption in Brazil, about half of this is for elec- potential is 14% (16% including paper recycling) and the tech-
tric motors. Geller et al. (1998) report low-cost saving possi- nical potential 25% (37% including recycling) (Martin et al.,
bilities of 8%–15%. The use of energy-efficient motors is more 2000).
costly (typically 40% more investment than conventional), but
still simple payback times range from 1 to 7 years. Such motors For the important Canadian pulp and paper industry for 2010
could save about 3% of industrial electricity use. In addition, (compared to 1990) a technical potential for reduction of spe-
variable speed controls may save 4% of industrial electricity cific energy consumption of 38% was found; the cost-effective
use (Moreira and Moreira, 1998). potential is 9% (Jaccard, 1996). All these cost-effective poten-
tials are calculated from the business perspective (e.g., for the
3.5.5.4 USA and Canada USA a pay-back criterion of 3 years is used).
The manufacturing industry is responsible for one-third of total 3.5.5.5 Africa

USA energy use and for nearly half of total Canadian energy use.
A set of studies is available regarding possible developments of Typically the industry in Africa is characterized by slow
carbon dioxide emissions in this sector. A comparison of three replacement of equipment like motors, boilers, and industrial
of these studies was presented by Ruth et al. (1999); see Table furnaces. Small and medium enterprises are the most affected
3.23. All three studies do not present a technical or economic as a result of limited financial resources and skills. Greenhouse
potential, but take into account incomplete penetration of gas emission mitigation opportunities identified in past nation-
available technologies. The outcomes in the policy case for the al studies in Southern Africa (UNEP/Southern Centre, 1993;
USA range from a 2% carbon dioxide emission growth to a CEEZ, 1999; Zhou, 1999) are centred on retrofitting boilers
strong decline. The two studies for the USA rely on the same and motors, cogeneration using waste process heat, and intro-
model, but differ in the extent to which technologies are imple- duction of high efficiency motors on replacement. The costs
mented. Furthermore, there are differences in assumed struc- for implementing these measures are in the range of negative
tural development and the treatment of combined generation of to low per tonne of carbon.
heat and power.
Table 3.23: Change in carbon emissions from the industrial sector, 1990 to 2010, base and policy cases.
Source: Ruth et al. (1999)
USA – I USA – II ERG

(Interlaboratory (Bernow et al., 1997) (Bailie et al., 1998)
Working Group, 1997)
Base case, 2010 emissions fuel +20% +20% +25%

relative to 1990 Electricity +28% +24% +50%
Total +22% +23% +29%
Policy case, 2010 emissions Fuel +7% -13% +7%

relative to 1990 Electricity -6% -54% +28%
Total +2% -28% +11%
Table 3.24: Energy efficiency improvement potential in terms of reduction of aggregate specific energy consumption compared
to frozen efficiency. In the figures for Germany combined generation of heat and power is not included, in the Netherlands it is
(see Blok et al., 1995).
Germany (BMBF, 1995; The Netherlands United Kingdom

Jochem and Bradke, 1996) (De Beer et al., 1996) (discount rates vary by sector)
(discount rate 4%) (discount rate 10%)
Technical potential 1995/2005: 20% 1990/2000: 1990/2010 high-temperature

heavy industry: 25% industries: 45%
light industry: 40% low-temperature industries: 32%
1995/2020: 25% horizontal technologies (excluding
CHP): 15% (ETSU, 1994)
Economic potential 1995/2005: 7%.to 13% 1990/2000: 1990/2000

1995/2020: 16% to 20% heavy industry: 20% all industry 24% of CO2
light industry: 30% (ETSU, 1996)
3.5.5.6 Western Europe studies differ in starting points, methods of analysis, and com-
pleteness of the analysis. Some studies give technical or eco-
Industry in Western Europe is relatively efficient, as was nomic potentials, others take into account implementation rates
shown in Figure 3.13. For some countries results of detailed in an accelerated policy context.
studies into the technical and economic potential for energy
efficiency are shown in Table 3.24. These studies show that the Nevertheless, it may be concluded that in all world regions
economic potential for energy efficiency improvement typical- substantial potentials for energy efficiency improvement exist.
ly ranges from 1.4%–2.7% per year, whereas the technical This is also the case for regions like Western Europe and Japan
potential may be up to 2.2%–3.5% per year17. that – according to Figure 3.13 – were already fairly efficient.
For the other regions energy efficiency improvement potentials
Assessment of total potential for energy efficiency improvement generally are higher, although both detailed sector studies and
comprehensive overviews are lacking for most countries.
The previous overview gives results for a range of studies car-
ried out for a variety of countries. It should be noted that the In order to make an estimate of the worldwide potential of
enhanced energy efficiency improvement a number of assump-
tions are made. It is assumed growth of industrial production in
17The 1995 to 2020 potentials for Germany are lower on an annual physical terms to be 0.9% per annum in the OECD region;
basis, but this may be due to the long time-frame underestimating the 1.0% per annum in economies in transition; 3.6% per annum in
potential. the Asian developing countries; 3.9% per annum in the rest of
the world. Autonomous energy efficiency improvement is • CO2 (21%–25% of total CO2 emissions) from fossil
assumed to lead to a reduction of specific energy use by fuels used on farms, but mainly from deforestation and
0.5%–1.0% per year (assumption for the average: 0.75%). The shifting patterns of cultivation;
total is equivalent to the outcomes in terms of CO2 emissions • CH4 (55%–60% of total CH4 emissions) from rice pad-
in the SRES-B2 scenario. For calculating the potential of dies, land use change, biomass burning, enteric fer-
industrial energy efficiency improvement, it is assumed that mentation, animal wastes;
from the year 2000 the enhanced energy efficiency improve- • N2O (65%–80% of total N2O emissions) mainly from
ment is 1.5%–2.0% per year in the OECD countries (average); nitrogenous fertilizers on cultivated soils and animal
and 2%–2.5% per year in the other world regions. Starting wastes (OECD, 1998).
from the energy use and emission figures quoted in section
3.5.2, a potential of 300–500MtC is calculated for the year Direct emissions of greenhouse gases occur during agricultur-
2010 and 700–900MtC for the year 2020. These figures are al production processes from soils and animals and as a result
consistent with earlier estimates, e.g. WEC, 1995a). of meeting demands for heat, electricity, and tractor and trans-
port fuels. In addition, indirect N2O emissions are induced by
agricultural activities (Mosier et al, 1998b) and CO2 also
3.5.6 Conclusions results from the manufacturing of other essential inputs such as
machinery, inorganic fertilizers, and agrio-chemicals.
It once again becomes clear that enhanced energy efficiency Emissions occur at various stages of the production chain and
improvement remains the main option for emission reduction full life cycle analyses are necessary to identify their extent.
in the manufacturing industry. There are substantial differences
in the level of energy efficiency between countries and also In developing countries such as India, emissions mainly arise
potentials differ. For most OECD countries and for a number from ruminant methane, field burning of agricultural residues,
of developing countries extended inventories of emission and paddy cultivation. Mitigation is difficult to achieve but
reduction options in industry exist. However, the focus is still research into more frequent draining of paddy fields, reduction
very much on the heavy industrial sector. The total potential of in the use of nitrogenous fertilizers, and improved diets of cat-
energy efficiency improvement for the year 2010 can be esti- tle is ongoing. Cattle numbers are expected to increase 50% by
mated to be 300–500MtC for the year 2010. It seems possible 2020, which would largely offset any methane avoidance.
to develop new technologies to sustain energy efficiency
improvement in the longer term; if such innovations material- As for energy inputs, in many developing countries traditional
ize the potential can be 700 - 900MtC for the year 2020. The agriculture still depends on human labour and animal power
larger part of these emission reductions can be attained at net together with firewood for cooking. Modern agriculture in
negative costs. industrialized countries relies on direct fossil fuel inputs
together with embedded energy in fertilizers, and for transport
A category of options to which only limited attention was paid to markets. In the USA each food item purchased has been
in relation to greenhouse gas emission reduction is material effi- transported an average of over 2500km (Resources for the
ciency improvement. It is clear that substantial technical poten- Future, 1998) and even further in Europe and Australasia.
tials exist. These may be sufficient to attain emission reductions Recent data for OECD countries suggest the embodied energy
on the order of 600MtC in the year 2020 (UN, 1997). However, in food and drink is 42 GJ per person per year, being 10 times
a significant effort is needed in selection, development, and the energy content of the food (Treloar and Fay, 1998).
implementation of such options. For the shorter term the poten-
tial will be substantially smaller (e.g., 200MtC), because of the Increasing energy inputs to meet the growing needs for food
complexity of introducing these options. and fibre are shown in Figure 3.14. Demand has declined in
EITs, increased only slightly in Latin America and Africa in
For virtually all sources of non-CO2 greenhouse gases in the spite of population increases, and increased significantly else-
manufacturing industry, options are available that can reduce where. In developing countries the provision and uptake of
emissions substantially, in some sectors to near zero. However, “leapfrog” technologies to enable human energy to be replaced
the total contribution to the emission reduction is limited: by non-fossil fuel energy could be stimulated (Best, 1998).
approximately 100MtCeq emission reduction is possible at a
cost less than US$30/tCeq. Primary production methods used by farmers, foresters, and
fisheries are not energy intensive compared with the industrial
and transport sectors, so carbon dioxide emissions are compar-
3.6 Agriculture and Energy Cropping atively small, being 217MtC in 1995 (Table 3.1) from an annu-
al energy demand of around 3% of total consumer energy
3.6.1 Introduction (Table 3.25).
Agriculture contributes to over 20% of global anthropogenic The worldwide trend towards energy intensification (GJ/ha) of
greenhouse gas emissions as a result of: food and fibre production grown on arable land continues.
Table 3.25: Energy use in the agricultural sector in 1995 and annual growth rates in the preceding periods
(Price et al., 1998).
Fuel Electricity Primary energy use
Annual Annual Cons. Annual Annual Cons. Annual Annual Cons.

growth rate growth rate 1995 growth rate growth rate 1995 growth rate growth rate 1995
‘71-‘90 ’90-‘95 (EJ) ‘71-‘90 ‘90-‘95 (EJ) ‘71-‘90 ‘90-‘95 (EJ)
OECD Countries 2.3% 1.4% 2.36 1.8% 2.3% 0.20 2.2% 1.6% 2.97
EIT 4.4% -14.1% 1.04 4.7% -2.7% 0.22 4.5% -10.6% 1.71
DCs Asia-Pacific 2.8% 2.4% 1.25 7.9% 8.2% 0.59 4.8% 5.6% 3.03
Rest of the World 3.5% 13.1% 1.05 8.2% 11.6% 0.17 4.7% 12.6% 1.56
World 3.2% -1.4% 5.70 5.3% 4.6% 1.18 3.8% 0.8% 9.28
China, for example, began its “socialism marketing system” rent level by 2015, a 4 to 7 fold increase in current commercial
recently with the aim of changing agriculture from traditional to energy inputs into agriculture, particularly in developing coun-
more modern production methods (Zhamou and Yanfei, 1998). tries, is anticipated (Best, 1998). In order for agricultural produc-
As a result, total food production on the same land area is pro- tion to be undertaken in a more sustainable manner, one can use
jected to rise by around 15% and the standard of living for farm- husbandry methods and management techniques to minimize the
ers will be higher but also associated with higher risk. Without inputs of energy, synthetic fertilizers, and agrio-chemicals on
greater access to modern energy sources, food and fibre produc- which present industrialized farming methods depend. Any
tion is unlikely to increase (FAO, 1995). The energizing of the method of reducing these inputs in both developed and develop-
food production chain in terms of quantity and quality is neces- ing countries using new technologies must be considered.
sary for the attainment of global food security to meet demand
for more than one year. To meet the targets of the World Food Integrated assessment methodologies, which include both
Summit to reduce the undernourished population to half the cur- direct and indirect energy inputs, have been developed for
3.50
3.00 Economies in Transition
2.50 in Asia-Pacific
Africa
2.00 Latin America
Middle East
EJ
1.50
1.00
0.50
0.00
1971 1975 1985 1995
Year
Figure 3.14: Energy use in the agricultural sector from 1971 to 1995.
Table 3.26: Major sources of methane and nitrous oxide by region in 1995 (MtCeq/yr).
(Adapted from OECD, 1998)
Source Canada USA Europe Japan EIT Oceania World
CH4 animals 2.9 23.6 39.5 1.2 34.6 21.0 438.1

CH4 animal wastes 0.8 11.9 18.7 2.5 12.3 1.6 84.0
N2O fertilizer 2.4 21.0 15.0 0.7 18.9 4.1 112.4
N2O animal wastes 0.8 4.8 8.2 0.6 7.2 1.6 85.6
crops by Kramer et al. (1999) and for milk production by Wells quoted. Methane arises from conversion of tropical rainforests
(1999). Both studies analysed the complete production chain to pasture (120-480MtC/yr); rice paddies (120-600MtC/yr);
up to the “farm gate” and both identified fertilizer inputs as ruminants (390-600MtC/yr); and animal wastes (60-
being the major contributor of carbon emissions from the sys- 160MtC/yr). Nitrous oxide mainly arises from use of mineral
tem. For example, manufacturing nitrogenous fertilizers in nitrogenous fertilizers (140-200MtC/yr); use of organic fertil-
Germany has specific cumulative energy inputs of around izers (140-200 MtC/yr); and deforestation by burning and sub-
59MJ/kg of fertilizer (having been reduced by energy efficien- sequent cultivation (200-260MtC/yr) (Ahlgrimm, 1998).
cy methods from 78MJ/kg in 1970), whereas in the USA they Another estimate for total agricultural N2O emissions exceed-
remain at a higher level and have slightly increased (Scholz, ed 840MtCeq/yr (6.3 TgN/yr) but also included manure storage,
1998). animal droppings on pasture (Oenema et al., 1997), and culti-
vation of organic soils (Kroeze and Mosier, 1999). OECD
Spedding (1992) expounded the view that if abundant renew- regional sources give lower estimates (Table 3.26). Thus there
able energy supplies were to become available, then energy remains a high degree of uncertainty concerning the actual lev-
would be the only important natural resource since all other els of N2O emissions, since many countries have not yet adopt-
natural resources could be generated and all waste streams neu- ed the IPCC revised 1996 guidelines for national greenhouse
tralized. In theory even soil could be considered to be a dis- gas inventories for emissions from agricultural systems.
pensable resource since crops could be grown hydroponically
in nutrient solutions, though in practice this would not be fea- Strategies for reducing methane emissions from paddy rice
sible. Agricultural industries can contribute to a more sustain- and ruminant animals are being evaluated (Yagi et al., 1997),
able energy future by providing biomass products. Surplus as are techniques to reduce N2O emissions by better treatment
crop and animal waste products (where not used for soil of wastes, improved pasture and animal management, and
amendments or fertilizers) can be used as bioenergy sources. improved use of nitrogenous fertilizers. Reducing N2O emis-
Growing crops for energy is well understood, though usually sions has to be achieved in areas of intensive agriculture by
only economically viable where some form of government reducing the N surplus of the system. Improvements in mod-
incentive exists or the environmental benefits are fully recog- elling nitrogen and carbon fluxes for agricultural ecosystems
nized (Sims, 1997). Possible conflicts of land use for sustain- have recently been developed (see, for example, Li, 1998,
able food production, soil nutrient depletion, water availabili- 1999) and applied on the county level for the USA (Li 1995,
ty, and biodiversity need to be addressed. Li et al. 1996) and for China (Li et al., 1999). By considering
the specific interaction between agricultural management with
Farming, fishing, and forestry continue to grow in energy climate and soil conditions, the model simulations have
intensity to meet the ever-increasing global demands for food demonstrated large potentials for mitigating N2O and other
and fibre. The present challenge is to offset this trend by intro- greenhouse gas emissions by changing management practices.
ducing more efficient production methods and greater adoption These include adjusting fertilizer use in poor or rich soils;
of new technologies and practices. Whilst reducing energy altering timing of fertilizer or manure applications based on
intensity, agriculture must also become more sustainable in rainfalls; and altering timing and depth of tillage. Based on the
terms of reduced nutrient inputs, lower environmental impacts, modelled results for the USA and China, the most effective
and with zero depletion of the world’s natural resources such way to reduce agricultural N2O emissions and to ensure ade-
as fish and topsoil. This can only be successfully achieved if quate crop yields is to optimize fertilizer use in arable soils,
practical support is received from primary producers, and this particularly those which contain soil organic carbon greater
will only occur if other benefits are perceived (Section 3.6.4.5). than 3%. However, farmers will need to first accept this man-
agement practice if it is to be implemented. A full discussion
As to methane and nitrous oxide, accurate measurement of on the complexities of soil carbon is provided in the Special
these anthropogenic greenhouses gas emissions poses chal- Report on Land Use, Land Use Change, and Forestry (IPCC,
lenges as they arise from diffuse sources and wide ranges are 2000).
There is debate whether such process-based, spatially and tem- for organically grown food. If this demand continues it could
porally integrated models are ready to be used for country lead to reduced GJ/ha and also to lower GJ/t if yields can be
inventories and would be better than the IPCC methodology maintained, (though this is generally not the case for low input
(Frolking, 1998). Considerable uncertainty remains as a result farming). Conversely, in developing countries energy use (both
of the sensitivity of underlying assumptions (as discussed at GJ/ha and GJ/t) is increasing in attempts to increase yields
the European Federation of Clean Air and Environmental (t/ha) by substituting machinery for manual labour, developing
Protection Associations’ Second International Symposium on irrigation schemes, and improving crop storage systems to
Non-CO2 Greenhouse Gases, Noordwijkerhout, Netherlands, reduce losses. For example, Indian agricultural production has
8-10 September, 1999). Validation by independent atmospher- increased threefold since 1970 to 200Mt of food in 1998,
ic budget measurements is needed. whilst during this period animal energy/ha declined 35%, and
diesel and electricity inputs increased by over 15 times (Prasad,
Land clearance activities are covered in Chapter 4; the trans- 1999).
portation of products from the “farm gate” to the market or
processing plant in Section 3.4; and processing of the agricul- The development and introduction of biotechnology and gene
tural, horticultural, forest, or fish products in Section 3.5. technology could offer new chances to accelerate and support
the traditional plant and animal breeding procedures. However,
the conflict between food security and environmental risks is
3.6.2 Summary of the Second Assessment Report yet to be resolved. In developing countries uptake of transgenic
technologies would require support of the farmers in adopting
Little has changed in the industrialized agricultural sector dur- non-traditional techniques. If, following a comprehensive risk
ing the past few years apart from the continuing trends towards assessment, public confidence in producing genetically modi-
genetically modified crops and animals, and reduced chemical fied organisms is obtained, it could ultimately result in:
input production methods (Section 3.6.4.2). Farming systems
remain a major contributor of anthropogenic emissions, not • yield increases per hectare of food and fibre crops;
just from energy inputs but mainly from methane from rumi- • improved performance efficiency of livestock animals;
nants (cattle, goats and sheep), livestock wastes, rice paddy • reduced inputs of agrio-chemicals and fertilizers
fields, and nitrous oxide from the application of nitrogenous because of new resistant cultivars; and
fertilizers, and circulation of N within crop and livestock pro- • development of low input cultivars with improved
duction. Land use change activities, such as the clearance of nutrient and water use efficiency.
forests by burning and cultivation to provide more land for
agricultural production with subsequent soil degradation, are Energy inputs per unit of product could be reduced by around
also major contributors (Chapter 4). Carbon sequestration by 10%-20% as a result, and methane and nitrous oxide emissions
soils continues to be quantified and estimates refined further, also lowered. For energy crops, improvements through tradi-
including the effects from reducing organic matter losses by tional plant breeding techniques have barely begun.
changing to minimum tillage techniques. Improved farm man- Opportunities for developing high yielding crops more suitable
agement can result in lower emissions of CH4 and N2O and for energy purposes (such as high erucic acid oilseed rape)
increased soil carbon uptake. using genetic engineering techniques by transferring genes
through recombinant DNA technology also have potential
New energy saving technologies, such as ice bank refrigeration (Luhs and Friedt, 1998).
for milk cooling (CAE, 1996), continue to be developed, but
need to be widely implemented if they are going to have any More difficult to predict are changes in diet and food con-
significant effects on global greenhouse gas emissions. sumption based on availability, quality, health, and environ-
Methods to reduce emissions by the agricultural sector are out- mental decisions. New protein sources will also impact on land
lined in section 3.6.4. Energy crop production continues to pro- use as will the growing of new crops to provide biomaterials
vide a possible alternative land use where suitable land is avail- specifically for manufactured products.
able and markets exist for the products.
Social problems in rural areas continue to occur as does urban
drift, particularly in developing countries, resulting from
3.6.3 Historic and Future Trends unemployment caused by substitution of manual labour by fos-
sil fuel powered tractors and machinery. Rural economies are
Although on-farm energy intensity (GJ/ha) continues to also struggling financially (even in developed countries where
increase, energy inputs per unit of production (GJ/t) have tend- farm subsidies are available) because of current surpluses of
ed to decline in modern intensive industrialized agricultural many food and fibre commodities leading to low prices.
systems, mainly caused by increasing crop yields (IPCC, Therefore, limited funds are available for investment in more
1996). The current trend in OECD countries is towards less modern, less energy intensive equipment. Further evaluation of
intensive farming systems because of public concerns for ani- combining traditional manual techniques with modern crops
mal welfare, reduced chemical inputs, and increasing demand and scientific knowledge to improve sustainability is required.
Possible removal of agricultural subsidies in Europe and the 3.6.4.3 Energy Cropping
USA is a further threat to the future profitability of these rural
regions (which may then need to be stimulated through a gov- Other than traditional forest crops (see Chapter 4), a number of
ernment development plan), but could have beneficial effects annual and perennial species have been identified as having
in terms of reducing greenhouse gas emissions (Storey, 1997). high efficiency properties when converting solar energy into
However, it will also be an opportunity for unsubsidized ener- stored biomass which can then be converted into heat, electric-
gy crops to compete more successfully with the more tradi- ity or transport fuels with zero or very low carbon emissions
tional uses of the land. (Veenendal et al., 1997). (Conversion of biomass is described
in Section 3.8.4.3.2 and biofuels for transport in Section 3.4.4).
3.6.4 New Technological Options and Social and High yielding short rotation forest crops or C4 plants (e.g.,
Behavioural Issues sugar cane and sorghum) can give stored energy equivalents of
over 400 GJ/ha/yr at the commercial scale, leading to very pos-
3.6.4.1 Uptake of Management Techniques itive input/output energy balances of the overall system (El
Bassam, 1996). Ethanol production from maize and other cere-
These include use of conservation tillage techniques, improved als in the USA, from sugar cane in Brazil, and biodiesel from
soil, pasture, and livestock management, paddy field manage- oilseed rape in Europe, are being commercially produced but
ment, careful use of nitrogenous fertilizers, better tractor oper- are subject to commodity price fluctuations and government
ation, and irrigation scheduling as outlined in Table 3.27. support. The relatively low energy yields per hectare for many
oil crops (around 60 to 80GJ/ha/yr for oil) compared with
Crop production in heated greenhouses is particularly energy crops grown for cellulose or starch/sugar (200–300GJ/ha/yr),
intensive, and in many cases intended to satisfy luxury has led to the US National Research Council advising against
demands for vegetables grown out of season or cut flowers any further research investment (NRC, 1999b).
(Japan Resources Association, 1994). A range of options exist
to reduce the energy inputs (CAE, 1996). Liquid biofuels (see Section 3.4.4.6) when substituted for fos-
sil fuels will directly reduce CO2 emissions. Therefore, a com-
3.6.4.2 Uptake of New Technologies bination of bioenergy production with carbon sink options can
result in maximum benefit from mitigation strategies. This can
There is potential for improving yields of food, fibre, and ener- be achieved by planting energy crops such as short rotation
gy crops yet reducing inputs by using genetic selection or mod- coppice into arable or pasture land, which increases the carbon
ification. Animals can also be bred to convert feed more effi- density of that land, while also yielding a source of biomass.
ciently. Transgenetic technologies will be difficult to imple- Converting the accumulated carbon in the biofuels for energy
ment unless publicly supported. Following careful scientific purposes, and hence recycling it, alleviates the critical issue of
research, including life cycle assessment analyses, and strin- maintaining the biotic carbon stocks over time as for a forest
gent government controls over the release of genetically mod- sink. Increased levels of soil carbon may also result from grow-
ified organisms into the environment, then it may be possible ing perennial energy crops (IEA Bioenergy, 1999), but a
that future agricultural production systems will involve lower detailed life cycle assessment is warranted for specific crops
inputs of nutrients and energy. The extent of the uptake of such and regions.
developments will be largely based on assessments of risks,
benefits, and public perceptions and is hard to predict. Land needed to grow energy crops competes directly with food
and fibre production unless grown on marginal or degraded
Options to increase soil carbon levels are given in Table 3.27. land, or unless surplus land is available. For the USA and
Emissions of soil carbon of around 0.2–3tC/ha resulting from Europe. Hall and Scrase (1998) calculated there to be sufficient
cultivation can be reduced by using zero or minimum tillage land physically available to grow crops to supply all human
techniques. However, a reverse of land use activities would needs of food, fibre, and energy at current population levels,
soon lose any accumulated soil carbon. In Canada a group of 7 though the study did not include social, economic, and logisti-
energy companies are paying farmers (through an insurance cal constraints. Sufficient labour, water, and nutrients must also
company acting as an aggregator of credits), be available if a sustainable and economic bioenergy industry
CAN$1.50–13/ha/yr to change to zero tillage so they can claim is to be developed. On marginal lands, such as the increasing-
the resulting carbon credits for the effective accumulation peri- ly saline soils of Australia, growing short rotation eucalyptus in
od (Ag Climate, 1999). The return to farmers depends on the strips between blocks of cereal crops can help lower the water
recruiting and support programme costs, scientific proof of table and hence, under certain circumstances, reduce the soil
higher carbon gains, and the extent to which other on-farm car- saline levels to bring back the natural fertility. However, water
bon emission reduction activities are implemented. demands can be high for short rotation forest crops so the
resulting overall effects are yet to be determined. An addition-
al benefit is that the decentralization of energy production
using energy crops to supply local conversion plants creates
Table 3.27: Uptake of management techniques and new technologies to reduce greenhouse gas emissions in the agricultural sector
Management Techniques and technologies to be considered References

techniques
Conservation tillage Conventional tillage consumes 60% of the tractor fuel used in industrialized crop production and decreases soil carbon. Allmaras and Dowdy (1995)
Minimum and zero cultivation techniques save tractor fuel, conserve soil moisture, and reduce soil erosion. Uptake is Derpsch, 1998
continuing worldwide. Greater chemical weed control may be required. Benefits need to be achieved without reducing UNEP/Southern Centre (1993)
crop yields which is more likely under dry conditions as a result of moisture conservation. Animal powered versions Zhou (1999)
of conservation tillage used in developing countries can also reduce the manual drudgery. Cost of uptake in Botswana
is around US$31 – 38/tC saved. Globally 150-175MtC/yr sequestration is possible.
Soil carbon uptake Typical agricultural soils contain 100-200tC/ha to 1m depth. Overuse of soils leads to degradation, salinization, erosion, Lal and Bruce (1999)
and desertification, and will lead to lower organic matter contents with consequent carbon emissions. A change of land use Takahashi and Sanada (1998)
of intensively cultivated soils could result in increased organic matter and carbon sequestration till the soil finds a new Batjes (1998)
balance. Total sequestration potential of world cropland is around 750- 1000MtC/yr for 20-50 years from: erosion IPCC (2000)
control (80-120MtC/yr), restoration (20-30MtC/yr), conservation tillage and crop residue management (150-170MtC/yr),
reclamation of saline soils (20-40MtC/yr), improved cropping (180-240MtC/yr) and C offsets through energy crop
production (300-400MtC/yr).
Paddy rice Estimates have been corrected downwards to around 360MtC/yr. Emissions can be reduced by intermittent flooding and Ahlgrimm (1998)
greater use of inorganic fertilizers, but these benefits will be offset by increasing areas grown to meet increasing Neue (1997)
food demand. Mosier et al. (1998a)
Nitrogenous fertilizers Anthropogenic agricultural nitrous oxide emissions (over 800MtC/yr) released after application of N fertilizers as a result Augustin et al. (1998)
of nitrification and denitrification and from animal wastes, exceed carbon emissions from fossil fuels used in agriculture. Hendriks et al. (1998)
Measuring emissions is difficult (±85%) because of soil variability. Reductions resulting from use of N fertilizer Kramer et al. (1999)
strategies, slow release fertilizers, organic manures and nitrification inhibitors, could tentatively cut emissions by 30% on Kroeze and Mosier (1999)
a global scale. Costs would be between US$0 – 14/tC in Europe for 3-4MtC/yr. Genetically engineered leguminous plants
may have further potential.
Tractor operation Correct operation of tractors and size matching to machinery can save fuel, improve tyre life, reduce soil compaction, and Sims et al. (1998)
and selection save time. Behavioural change by driver education is required but with cheap diesel fuel there is little incentive.
Irrigation scheduling Applying water only as needed saves both water and energy for pumping. Cheap and accurate field soil moisture sensors Schmitz and Sourell (1998)
are necessary but not yet available.
(continued)
227
228
New technologies Techniques and technologies to be considered References
Ruminant enteric Average methane emissions of grazing animals in temperate regions are 76.8 kg/head/yr for dairy cattle; beef cattle, 67.5kg; Storey (1999)
methane deer, 30.6kg; goats, 16.5kg; and sheep, 15.1kg. Reduction is by either improving the productivity of the animal or reducing Ullyatt et al. (1999)
emissions by chemical, antibiotic control (vaccines) or biological methods (bacteriocins) without affecting animal
performance. Poor animal diet in developing countries produces higher methane per unit of production. A range of options
are being researched, but limited economic analysis of mitigation opportunities has been conducted other than in Europe
(15MtC/yr at US$0-14/tC). Selective breeding and magnesium licks may be cheap options. The reduction in ruminant livestock
numbers caused by reduced demand for meat, milk (for health reasons) and wool products may continue. Since the sources
of emissions are dispersed, they will be difficult to measure, and therefore challenging to include within an enforceable
trading regime.
Postharvest crop losses A reduction in postharvest crop losses could make a significant impact on energy use, particularly in developing countries Prasad (1999)
such as India, where average losses for cereals average 10% up to 25% loss of the harvested perishables including fruit,
meat, milk, and fish. Solar drying on the ground leads to vermin and pest losses. Storage in sealed buildings with natural
ventilation and solar heated air will reduce losses for minimal energy inputs. For fresh crops, refrigeration and heat
pumps are used to maintain the cool chain but energy inputs can be significant. Solar panels on refrigerated truck roofs
are technically feasible but not economic.
Global positioning Commercially available GPS and GIS systems are available to map then monitor the position of working tractors to Oliver (1999)
systems enable strategic applications of fertilizers and chemicals to be applied depending on crop yields and soil types. Plantation
forest mapping is also used to plan roads and harvests. Energy inputs can be saved as a result.
Controlled environment Crops grown in greenhouses can use less energy per production unit if the available growing area is increased and better CAE (1996)
control of heating and ventilation occurs. The effects on energy inputs of producing fish by aquacultural methods rather
than sea trawling needs investigation.
employment in rural areas (Grassi, 1998; El Bassam et al., 3.6.4.5 Behavioural Changes
1998; Moreira and Goldemberg, 1999).
Many farmers in both developed and developing countries will
Certain woody crops and also perennial grasses grown to pro- remain unlikely to change their traditional production methods
duce biomass have theoretically high dry matter yields, but in the short term unless there are clear financial incentives to
commercial yields are often lower than expected from those do so. Behavioural changes as a result of advisors educating
produced in small plot research trials. In Sweden, for example, members of farming communities to adopt new measures have
where 16,000 ha of coppice Salix species have been planted, rarely succeeded to date. Cultural factors have a strong influ-
around 2000ha were harvested for the first time during the win- ence on the general unwillingness to accept inappropriate
ters of 1996 to 1998 to yield only 4.2 oven dry t/ha/yr on aver- development and hence new ideas. Changing attitudes are
age (Larsson et al., 1998). With better management, genetic unlikely to occur unless farmers can also perceive personal co-
selection, and grower experience once viable markets for the benefits such as increased profitability, time saving, cost reduc-
product are established, it had been anticipated that commer- tions, improved animal health, increased soil fertility, and less
cial yields closer to 10 oven dry t/ha/yr would result. arduous tasks. Regulations in some form are the alternative
(OECD, 1998a) but would probably be difficult to monitor,
Correct species selection to meet specific soil and climatic site particularly in developing countries. Education of local exten-
conditions is necessary in order to maximize yields in terms of sion officers is needed to encourage the uptake of new methods
MJ/ha/yr (Sims et al., 1999). For example, the saccharose yield and more rapid implementation into the field. These barriers
of Brazilian sugar cane has increased 10% to 143kg/t of fresh are discussed in section 5.4.5.
cane (70% moisture content wet basis) since 1990. Methods of
identifying appropriate species based on non-destructive yield Dietary changes from meat to fish or vegetables could help
measurements and species fuelwood characteristics have been reduce emissions by 55MtCeq. in Europe alone (Gielen et al,
developed (Senelwa and Sims, 1998). Energy balance ratios 1999) and possibly release land for energy cropping.
for each unit of energy input required to produce solid fuels
from short rotation forest crops are up to 1: 30, and can be even
higher when crop residues are also utilized (Scholz, 1998). 3.6.5 Regional Differences
Woody crops normally require less energy inputs per hectare
than food crops. Comparative regional studies of agricultural emissions per unit
of GDP or per hectare or per capita would show significant dif-
Forest sinks are covered in Chapter 4 and also in the Special ferences but as a result of local farming systems, climate, and
Report on Land Use, Land-Use Change and Forestry (IPCC, management techniques employed, a useful comparison
2000), but there is a link between these low cost sinks and between regions is not possible. Standard methods for measur-
eventually using some of the biomass grown for energy pur- ing and reporting of agricultural emissions are being developed
poses. Once the limited area of available land is covered in and will enable more accurate and useful comparisons to be
forest sinks, no more planting will be possible and recycling of made between alternative production systems in the future
the carbon to displace fossil fuels may then become feasible. (Kroeze and Mosier, 1999).
Economic mechanisms to link a forest sink project with a bio-
fuel project have been suggested (Read, 1999). Developing countries are slowly moving towards using mod-
ern food and fibre production techniques. Economies in transi-
3.6.4.4 Crop and Animal Wastes tion are also implementing modern production methods
encouraged by foreign investors but many challenges remain.
Crop residues such as straw, bagasse, and rice husks, if not From a sustainability point of view, traditional methods may
returned to the land for nutrient replenishment and soil condi- well be preferable.
tioning, could be used more in the future for heat and power
generation, at times in co-combustion with coal, and in appro-
priate conversion equipment now that the technology is well 3.6.6 Technological and Economic Potential
proven. Wood residues used in small-scale biomass gasifiers
will become reliable and more cost effective in time, but at pre- A summary of the technical and market potential for reducing
sent have some operational risk attached, particularly under greenhouse gas emissions from the agricultural industry is
developing country conditions (Senelwa and Sims, 1999). given in Table 3.36. If agricultural production per hectare in
developing countries could be increased to meet the growing
Animal manures and industrial organic wastes are currently food and fibre demand as a result of a greater uptake of new
used to generate biogas. For example, in Denmark there are 19 farming techniques, modern technologies and improved man-
decentralized community scale biogas plants for electricity agement systems, then there would be less incentive for defor-
generation (Nielsen et al., 1998). Biogas can also be used for estation to provide more agricultural land.
cogeneration, direct heating or as a transport fuel.
3.7 Waste landfills depending upon local conditions. However, there are
no plausible scenarios in which landfilling minimizes GHG
3.7.1 Summary of the Second Assessment Report emissions from waste management. For yard waste, GHG
emissions are roughly comparable from landfilling and com-
The major emphasis in the SAR was on the reduction of green- posting; for food waste, composting yields significantly lower
house gases associated with industrial recycling in the metals, emissions than landfilling. For paper waste, landfilling causes
glass and paper industries. These topics are addressed in the higher GHG emissions than either recycling or incineration
industrial Section 3.5 of this chapter. There was a less system- with energy recovery (US EPA, 2000).
atic account of the methane emissions from landfills, or of the
consumer dimension of recycling, both of which will be 3.7.2.2 Recycling and Reuse
emphasized here.
Recycling involves the collection of materials during produc-
tion or at the end of a product’s useful lifetime for reuse in the
3.7.2 Historic and Future Trends manufacturing process. The degree of treatment varies from
simple remelting of glass, aluminium, or steel, to the breaking
Waste and waste management affect the release of greenhouse apart and reconstitution of paper or other fibres (e.g., textiles or
gases in five major ways: (1) landfill emissions of methane; (2) carpets), to depolymerization of plastics and synthetic fibres to
reductions in fossil fuel use by substituting energy recovery monomers, which are then used instead of petrochemicals to
from waste combustion; (3) reduction in energy consumption synthesize new polymers.
and process gas releases in extractive and manufacturing
industries, as a result of recycling; (4) carbon sequestration in In many cases, manufacturing products from recycled materi-
forests, caused by decreased demand for virgin paper; and (5) als is less energy intensive and associated with fewer GHG
energy used in the transport of waste for disposal or recycling. emissions than making products from virgin materials. This is
Except for the long-range transport of glass for reuse or recy- especially true for aluminium and steel, which are energy
cling, transport emissions of secondary materials are often one intensive and release significant process GHGs during produc-
or two orders of magnitude smaller than the other four factors tion (CO2 and PFCs). A US EPA analysis finds lower GHG
(Ackerman, 2000). emissions over the product life cycle from recycling than from
virgin production and disposal of paper, metals, glass, and plas-
3.7.2.1 Landfills tics under typical American conditions (US EPA, 2000).
Worldwide, the dominant methods of waste disposal are land- Overall energy consumption is lower for recycled paper than
fills and open dumps. Although these disposal methods often for virgin paper, yet there is some debate over life cycle GHG
have lower first costs, they may contribute to serious local air emissions between paper recycling (Blum et al., 1997;
and water pollution, and release high GWP landfill gas (LFG). Finnveden and Thomas, 1998; US EPA, 1998) and paper con-
LFG is generated when organic material decomposes anaero- sumption with energy recovery (Bystroem and Loennstedt,
bically. It comprises approximately 50%-60% methane, 40%- 1997; Ruth and Harrington, 1998; IIED, 1996). These conflict-
45% CO2 and the traces of non-methane volatile organics and ing analyses make different underlying assumptions concern-
halogenated organics. In 1995, US, landfill methane emissions ing the fuel displaced by energy released from paper incinera-
of 64 MtCeq slightly exceed its agricultural sector methane tion, the energy source for the electricity used in paper produc-
from livestock and manure. tion, how the recycled paper is utilized, and how much carbon
sequestration can be credited to uncut forests because of recy-
Methane emission from landfills varies considerably depend- cling. In all studies, landfilling of paper clearly releases more
ing on the waste characteristics (composition, density, particle GHGs than either recycling or incineration.
size), moisture content, nutrients, microbes, temperature, and
pH (El-Fadel, 1998). Data from field studies conducted world- The life cycle environmental impact and GHG emissions from
wide indicate that landfill methane production may range over recycling are usually higher than reusing products. This may
six orders of magnitude (between 0.003-3000g/m2/day) not hold true if the used materials have to be transported over
(Bogner et al,. 1995). Not all landfill methane is emitted into long distances. To address this issue, some countries such as
the air; some is stored in the landfill and part is oxidized to Germany, Norway, Denmark, and other European countries
CO2. The IPCC theoretical approach for methane estimation have standardized bottles for local reuse.
has been complemented with more recent, site-specific models
that take into account local conditions such as soil type, cli- 3.7.2.3 Composting and Digestion
mate, and methane oxidation rates to calculate overall methane
emissions (Bogner et al,. 1998). Composting refers to the aerobic digestion of organic waste.
The decomposed residue, if free from contaminants, can be
Laboratory experiments suggest that a fraction of the carbon in used as a soil conditioner. As noted above under landfilling,
landfilled organic waste may be sequestered indefinitely in GHG emissions from composting are comparable to landfilling
for yard waste, and lower than landfilling for food waste. These Net GHG emissions from WTE facilities are usually low and
estimates do not include the benefits of the reduced need for comparable to those from biomass energy systems, because
synthetic fertilizer, which is associated with large CO2 emis- electricity and heat are generated largely from photosyntheti-
sions during manufacture and transport, and N2O releases dur- cally produced paper, yard waste, and organic garbage rather
ing use. USDA research indicates that compost usage can than from fossil fuels. Only the combustion of fossil fuel based
reduce fertilizer requirements by at least 20% (Ligon, 1999), waste such as plastics and synthetic fabrics contribute to net
thereby significantly reducing net GHG emissions (see Section GHG releases, but recycling of these materials generally pro-
3.6). duces even lower emissions.
Composting of yard waste has become widespread in many 3.7.2.5 Waste Water
developed countries, and some communities compost food
waste as well. Small, low-technology facilities handling only Methane emissions from domestic and industrial wastewater
yard waste are inexpensive and generally problem-free. Some disposal contribute about 10% of global anthropogenic
European and North American cities have encountered diffi- methane sources (30-40Mt annually). Industrial wastewater,
culties implementing large-scale, mixed domestic, commercial mainly from pulp and paper and food processing industries,
and industrial bio-waste collection and composting schemes. contributes more than 90% of these emissions, whereas domes-
The problems range from odour complaints to heavy metal tic and commercial wastewater disposal contributes about 2 Mt
contamination of the decomposed residue. Also, large-scale annually. Unlike methane emissions from solid waste, most of
composting requires mechanical aeration which can be energy the methane from wastewater is believed to be generated in
intensive (40-70 kW/t of waste) (Faaij et al., 1998). However, non-Annex I countries, where wastewater is often untreated
facilities that combine anaerobic and aerobic digestion are able and stored under anaerobic conditions (SAR).
to provide this energy from self-supplied methane. If 25% or
more of the waste is digested anaerobically the system can be
self-sufficient (Edelmann and Schleiss, 1999). 3.7.3 New Technological and Other Options
For developing countries, the low cost and simplicity of com- 3.7.3.1 Landfill Management
posting, and the high organic content of the waste stream make
small-scale composting a promising solution. Increased com- LFG capture and energy recovery is a frequently applied landfill
posting of municipal waste can reduce waste management management practice. There have been many initiatives during
costs and emissions, while creating employment and other the past few years to capture and utilize LFG in gas turbines; a
public health benefits. number of such facilities are currently generating electricity. US
regulations now require capture of an average of 40% of all
Anaerobic digestion to produce methane for fuel has been suc- landfill methane nationwide. Yet even after compliance with
cessful on a variety of scales in developed and developing coun- those regulations, it remains profitable (at a carbon price of zero
tries. The rural biogas programmes based upon manure and agri- or negative cost) to capture 52% of the landfill methane. At a
cultural waste in India and China are very extensive. In industri- price of US$20/tCeq (in 1996 dollars), an additional 19% of the
al countries, digestion at large facilities utilizes raw materials methane could be captured, an amount that approaches the esti-
including organic waste from agriculture, sewage sludge, mated maximum practical attainable level (US EPA, 1999a).
kitchens, slaughterhouses, and food processing industries. Official estimates suggest that approximately half, or 35MtCeq,
of landfill methane could be recovered by 2000.
3.7.2.4 Incineration
Other studies have found that the methane yield from landfills
Incineration is common in the industrialized regions of Europe, is about 60-170 l/kg of dry refuse (El-Fadel et al., 1998). Some
Japan and the northeastern USA where space limitations, high landfills produce electricity from LFG by installing cost effec-
land costs, and political opposition to locating landfills in com- tive gas turbines or technologically promising, but still expen-
munities limit land disposal. In developing countries, low land sive fuel cells (Siuru, 1997). Later reports dispute this claim
and labour costs, the lack of high heat value materials such as (US EPA, 2000).
paper and plastic in the waste stream, and the high capital cost
of incinerators have discouraged waste combustion as an One study suggests that landfilling of branches, leaves and news-
option. paper sequesters carbon even without LFG recovery, whereas
food scraps and office paper produce a net increase in GHGs,
Waste-to-energy (WTE) plants create heat and electricity from even from landfills with methane recovery (US EPA, 1998).
burning mixed solid waste. Because of high corrosion in the
boilers, the steam temperature in WTE plants is less than 400 3.7.3.2 Recycling
degrees Celsius. As a result, total system efficiency of WTE
plants is only between 12%–24% (Faaij et al., 1998; US EPA, Many programmatic initiatives and incentives can boost the
1998; Swithenbank and Nasserzadeh, 1997). rate of recycling. The potential gains are quite large: if every-
one in the USA increased from the national average recycling and increase methane output. In Denmark, a number of biogas
rate to the per capita recycling rate achieved in Seattle, facilities have been running successfully, accepting livestock
Washington, the result would be a reduction of 4% of total US manure as well as wastes from food processing industries
GHG emissions (Ackerman, 2000). While often associated (Schnell, 1999). In Germany and Switzerland, pilot projects
with affluent countries, recycling is also an integral part of the compress the methane from biogas plants and supply it to nat-
informal economy of developing countries; innovative ural gas vehicles. Canadian engineers have completed a pilot
approaches to recycling have been adopted in poor neighbour- project using a mixture of waste-activated sludge, food waste,
hoods of Curitiba, Brazil, and in other cities. industrial sludge from potato processing, and municipal waste
paper. Methane production reached 50 l/kg of total solids, and
The literature on techniques for increasing the rate of recycling heavy metal contamination was found to be far below regula-
is too extensive for adequate citation here (see, for example, tory levels (Oleszkiewicz and Poggi-Varaldo, 1998). Woody
Ackerman (1997) and numerous sources cited there). One waste with high lignin content cannot be converted to methane,
much-discussed initiative is the use of variable rates, or pay- and yard waste is better handled by composting.
per-bag/per-can charges for household solid waste collection.
This provides a clear financial incentive to the householder to 3.7.3.4 Incineration
produce less waste, particularly when accompanied by free
curbside recycling (Franke et al., 1999). Strict packaging and New combustion technologies with higher efficiencies of ener-
lifetime product responsibility laws for manufacturers in gy production and lower emissions are currently being devel-
Germany have brought about innovations in the manufacture oped:
and marketing of a wide range of products. Other market
incentives such as repayable deposits on glass containers, lead • Fluidized bed combustion (FBC) is a very efficient and
acid batteries, and other consumer products have led to major flexible system that can be used for intermittent opera-
gains in recycled materials in many countries. Voluntary recy- tion, and can run with solid, liquid, or gaseous fuels.
cling programmes have met with a mixed range of success, Despite high operating costs, this low pollution com-
with commercial and institutional recycling of office paper and bustion technology is increasingly used in Japan, and
cardboard, and curbside recovery of mixed household materi- has also been used in Scandinavia and the USA (NEDO,
als generally having higher recycling rates. Countries such as 1999; http://www.residua.com/wrftbfbc.html).
Austria and Switzerland successfully require separation of
household waste into many disaggregated categories for high • Gasification (partial incineration with restricted air sup-
value recovery. ply) and pyrolysis (incineration under anaerobic condi-
tions) are two technologies that can convert biomass
3.7.3.3 Composting and plastic wastes into gas, oil, and combustible solids.
Gasification of biomass produces a gas with a heating
Increased composting of household food waste would reduce value of 10%-15% that of natural gas. When integrated
GHG emissions, but may be difficult to achieve in developed with electricity production, it can prove economically
countries, where an additional separation of household waste and environmentally attractive; it appears best suited
would be required. In low-income developing countries, the for clean biomass, such as wood wastes. Pilot projects
high proportion of food waste in household and municipal are now using pyrolysis for plastic wastes, and for
waste makes composting attractive as a primary waste treat- mixed municipal solid waste (MSW); they potentially
ment technology. have very high energy efficiency (Faaij et al., 1998).
Combined pyrolysis and gasification (Thermoselect)
Other new opportunities involve composting or anaerobic and combined pyrolysis and combustion
digestion of agricultural and food industry wastes. Livestock (Schwelbrenn-Verfahren) have also been developed
manure management accounts for 10% of US methane emis- and implemented.
sions; capture of about 70% of the methane from livestock
manure appears technologically feasible. Some 20% of the fea- • Co-incineration of fossil fuel jointly with waste leads to
sible methane capture is profitable under existing conditions, improved energy efficiency. Stringent emission stan-
with a carbon price of zero; 28% can be recovered at dards in some countries may limit the extent to which
US$20/tCeq and 61% at US$50/tCeq(US EPA, 1999a). co-incineration is possible (Faaij et al., 1998). In other
countries, emission standards for industrial combustion
Biogas facilities intentionally convert organic waste to processes are less tight than those for incinerators, lead-
methane; use of the resulting methane can substitute for fossil ing some to fear that co-incineration might produce
fuels, reducing GHG emissions. High ammonia content (e.g., higher emissions of air pollutants (Kossina and
in swine manure) can inhibit conversion of organic waste to Zehetner, 1998).
methane. This problem can be avoided by mixing agricultural
waste with other, less nitrogenous wastes (Hansen et al., 1998).
Wastes with high fat content can, on the other hand, enhance
3.7.3.5 Wastewater Treatment less than 5% will require incineration. Under this law methane
emissions are projected to drop by two-thirds by 2005, and by
Conventional sewage collection is very water intensive. 80% by 2015 (Angerer and Kalb, 1996).
Vacuum toilets, using less than 1 litre per flush, have long been
used on ships and have now been installed in the new ICE 3.7.4.2 USA
trains in Germany. Human waste collected in this way can then
be anaerobically digested. This process reduces GHG emis- The USA produces about 200 million tonnes of municipal
sions and water usage is minimal. Acceptance of this technol- waste each year. In 1997, 55% was landfilled, 28% was recy-
ogy has been slow because of cost (Schnell, 1998). cled or composted, and 17% was incinerated (US EPA, 1999b).
The 11.6Mt of methane emitted by landfills accounts for 37%
Modular anaerobic or aerobic systems are available (Hairston of anthropogenic methane emissions, or about 4% of national
et al., 1997). Anaerobic digestion has the advantage of gener- GHG emissions. US regulations now require the largest land-
ating methane that can be used as a fuel, yet many sewage fills to collect and combust LFG, which is projected to reduce
treatment plants simply flare it. The potential for energy gen- emissions to 9.1Mt in 2010 (US EPA, 1999a). There are more
eration is clearly very large. New York City’s 14 sewage plants, than 150 LFG-to-energy projects in operation, and 200 more in
for example, generate 0.045 billion cubic metres of methane development, promoted by government technical support and
every year, most of which is flared. Cities such as Los Angeles tax incentives (Kerr, 1998; Landfill, 1998).
sell methane to the local gas utility, and one New York plant
and the Boston Harbor facility were equipped with fuel cells in If all the material currently recycled in the USA were instead
1997. This new technology successfully provides needed elec- landfilled, national GHG emissions would increase by 2%,
tricity and heat, but is still expensive. even with the new LFG regulations (Ackerman, 2000). More
than 9,000 municipal recycling programmes collect household
Because of concerns about contamination of sewage sludge by materials, and numerous commercial enterprises also recycle
heavy metals, policies in many countries now encourage incin- material. Many innovative uses of recycled materials are
eration rather than soil application. However, the energy need- reducing emissions in manufacturing; for example, remanufac-
ed to dry the sludge for incineration leads to a net increase in ture of commercial carpet from recovered fibres lowers energy
GHGs. Alternatives to sludge incineration are anaerobic diges- inputs by more than 90%, and some products are now said to
tion, gasification, wet oxidation, and co-incineration with coal. have zero net GHG impacts (Hawken et al., 1999).
These technologies are under development and yield improved
energy efficiencies and low GHG emissions (Faaij et al., 1998). 3.7.4.3 Japan
With a large waste stream and very limited land area, Japan
3.7.4 Regional Differences relies heavily on both recycling and incineration as alternatives
to landfilling. Widespread participation in recycling recovers
Individual countries have adopted different strategies and inno- not only easily recycled materials such as metals and glass, but
vations in waste management that reduce GHG emissions. It is also large quantities of unconventional recycled materials, such
not possible to provide a comprehensive description in this as aseptic packaging (juice boxes).
chapter, but a sampling of different national and regional
strategies is summarized below. Japan has approximately 1,900 waste incineration facilities of
which 171 produce electric power with a capacity of 710MW.
3.7.4.1 Germany A major new commitment to create high efficiency waste to
energy facilities has been announced by the Japanese govern-
Germany promotes recycling through the world’s most strin- ment. In 1998 a corrosion resistant, high temperature, fluidized
gent return requirements for packaging and many other goods, bed WTE facility achieved 30% conversion efficiency to elec-
including automobiles; materials management is the responsi- tricity with low dioxin and stack gas emissions. The facility
bility of the manufacturer through the end of product life, can accept mixed municipal and industrial waste including
including ultimate disposal or reuse of the materials from plastics and recovers ash for road foundations and recyclable
which it is made. This has led to high recycling rates, but also metals (NEDO, 1999).
to high monetary costs, prompting ongoing controversy in
Germany and elsewhere. 3.7.4.4 India
Every year Germany generates about 30 million tonnes of solid Recycling is a very prevalent part of Indian society. Unskilled
municipal waste. German landfills emit yearly 1.2-1.9Mt of labourers, working in the informal economy, collect newspa-
methane, accounting for 25%-35% of Germany’s methane pers, books, plastic, bottles, and cans and sell them to com-
emissions and about 3%-7% of national GWP. To meet the pro- mercial recyclers. In recent years a shift from collecting for
visions of a 1993 law requiring that by 2005 all wastes dis- reuse to collecting for recycling has taken place. Because of
posed in landfills have to have a total organic carbon content of changing lifestyles and increased consumption of goods, the
use of recyclables has increased dramatically over the past few resources, and population increasing at 3% per annum, with the
years (from 9.6% in 1971 to 17.2% in 1995). Paper accounts most rapid growth in urban regions from migration, this poses
for 6% and ash and fine earth for 40%. Total compostable mat- a serious challenge for waste management in the future.
ter is over 42% of the waste stream.
An analysis of energy content of MSW generated in South
Plastic in the waste stream increased from 0.7% in 1971 to 4%- Africa alone indicates that if one-third were utilized for com-
9% in 1996, and is expected to grow rapidly. Though current bustion energy it would be equivalent to 2.6% of the total elec-
consumption is 1.8 kg/capita/yr compared to a world average tricity distributed in 1990 (529Million GJ) by the country’s
of 18 kg and a US average of 80 kg, India recycled between 40- largest utility, ESKOM. Technologies are not yet available on
80% of its plastics, compared to 10%-15% in developed the continent to make this a reality.
nations. There are about 2000 plastic recycling facilities in
India, which often cause serious environmental harm as a result Mitigating CH4 through extraction of landfill gas for energy
of outdated technology. Current per capita paper consumption use has been estimated to cost below US$10/tCeq in Africa
is 3.6 kg, compared to a world average of 45.6 kg. Paper con- (Zhou, 1999). Both incineration of MSW and extraction of
sumption is projected to increase to 8 kg by 2021. India landfill gas have significant potential to reduce emissions of
imports approximately 25% of its paper fibre as waste paper methane in Africa, and will provide the co-benefit of address-
from the US and Europe. ing the severe waste management problem on the continent.
Almost 90% of solid waste is deposited in low-lying dumps

and is neither compacted nor covered; 9% is composted. In 3.7.5 Technological and Economic Potential
1997, landfill emissions were India’s third largest GHG con-
tributors, equivalent to burning 11.6Mt of coal (Gupta et al., Economic analysis of waste management strategies yields
1998). widely varying results, with far less reliable standard cost esti-
mates than in fields such as energy production. In the USA, the
3.7.4.5 China most successful communities report that ambitious waste
reduction, recycling, and composting programmes cost no
China generated 108 million tonnes of municipal waste in more than waste disposal, and often cost significantly less (US
1996, an amount that is increasing every year by 8%-10%. In EPA, 1999c). Overall, average recycling costs appear to be
1995, the GEF approved an action plan and specific projects slightly above landfill disposal costs (Ackerman, 1997). Not all
for methane recovery from municipal waste (Li, 1999). waste management strategies have been fully analyzed for their
economic potential or distributional cost and benefit implica-
According to a survey of ten cities, the per capita waste gener- tions. The waste hierarchy (reduce, reuse, recycle, incinerate,
ation averages 1.6kg/day, but in some rapidly developing cities landfill) on which many countries’ waste policies are based has
in southern China, per capita waste production is almost as not been comprehensively evaluated on a country and materi-
high as in developed countries (e.g., Shenzhen, 2.62 kg/day). als specific basis (Bystroem and Loennstedt, 1997).
Between 60%-90% of Chinese municipal solid waste is high
moisture organic material with a low heat value. The composi- Integrated waste management that considers environmental
tion of waste is changing, with cinder and soil content decreas- protection, economic efficiency, social acceptability, flexibili-
ing while plastic, metal, glass and organic waste are increasing. ty, transparency, market-oriented recovery and recycling,
Kitchen waste has replaced coal cinder as the largest compo- appropriate economies of scale, and continuous improvement
nent, raising the water content. By the end of 1995, incinera- is being developed throughout Europe (Franke et al., 1999).
tion treatment capacity was 0.9% of total MSW.
Considering only GHG emissions, the most favourable man-
Estimates are that in 2010 China will produce 290 million agement options are those that reduce fossil fuels use in man-
tonnes of MSW. If 70% is disposed of in landfills with methane ufacturing as does recycling, or replace them as does incinera-
collection, the landfill gas recovered could be equivalent to 40 tion with energy recovery. There is, however, disagreement
to 280 billion m3 of natural gas (Li, 1999). over the most ecological waste disposal method. Some argue
for incineration of all solid waste in modern, energy recovering
3.7.4.6 Africa incinerators (Pipatti and Savolainen, 1996; Aumonier, 1996);
others advocate increased composting and anaerobic digestion
The average annual solid waste generation in Africa is estimat- of organic wastes (Ackerman, 1997; Dehoust et al., 1998;
ed to be about 0.3 to 0.5t/ capita and for a population for Africa Finnveden and Thomas, 1998; Ligon, 1999). The estimated
of about 740 million in 1997, the total continent’s annual gen- GHG emissions for different scenarios depend heavily on the
erated waste could be as much as 200 million tonnes. It is esti- parameter assumptions made in each model. If GHGs from
mated that anything from 30%–50% if the waste is not subject- waste disposal are the only concern, incineration with energy
ed to proper disposal, presenting severe health and environ- recovery is the most favourable solution. If economic and other
mental hazards (INFORSE, 1997). With few financial environmental factors (e.g., emissions of heavy metals) are
taken into account the answer is less clear. Also, if the whole fuel cells in the longer term. CO2 can be stored, for
life cycle and not just the disposal of the material is considered, example, in depleted gas fields.
recycled materials usually are associated with lower GHG • Increasing the use of nuclear power. Nuclear energy
emissions than virgin materials. Numerous technologies appro- could replace baseload fossil fuel electricity generation
priate to differing national needs are available at a range of in many parts of the world if acceptable responses can
technological complexities for reducing GHGs from waste. be found to concerns over reactor safety, radioactive
Many options are highly cost effective, and can lead to signif- waste transport, waste disposal, and proliferation.
icant reductions on the order of several per cent of national • Increasing the use of renewable sources of energy.
greenhouse gas emissions. Source reduction is indisputably the Technological advances offer new opportunities and
most environmentally sound and cost effective tool to reduce declining costs for energy from renewable sources
GHG emissions from solid waste. which, in the longer term, could meet a major part of
the world’s demand for energy.
3.8 Energy Supply, Including Non-Renewable and The chapter also noted that some technological options, such as
Renewable Resources and Physical CO2 Removal CCGTs, can penetrate the current market place, whereas others
need government support by improving market efficiency, by
3.8.1 Introduction finding new ways to internalize external costs, by accelerating
R&D, and by providing temporary incentives for early market
This section reviews the major advances in the area of GHG mit- development of new technologies as they approach commer-
igation options for the electricity and primary energy supply cial readiness. The importance of transferring efficient tech-
industries that have emerged since IPCC (1996). The global nologies to developing countries, including technologies in the
electricity supply sector accounted for almost 2,100MtC/yr or residential and industrial sectors and not just in power genera-
37.5% of total carbon emissions. Under business-as-usual con- tion, was noted.
ditions, annual carbon emissions associated with electricity gen-
eration, including combined heat and power production, is pro- The Energy Primer of the IPCC Second Assessment Report
jected to surpass the 4,000MtC mark by 2020 (IEA, 1998b). (Nakicenovic et al., 1996) gave estimates of energy reserves and
Because a limited number of centralized and large emitters are resources, including the potential for various nuclear and renew-
easier to control than millions of vehicle emitters or small boil- able technologies which have since been updated (WEC, 1998b;
ers, the electricity sector is likely to become a prime target under Goldemberg, 2000; BGR, 1998). A current version of the esti-
any future involving GHG emission controls and mitigation. mates for fossil fuels and uranium is given in Table 3.28a. The
potential for renewable forms of energy is discussed later.
3.8.2 Summary of the Second Assessment Report A variety of terms are used in the literature to describe fossil
fuel deposits, and different authors and institutions have vari-
Chapter 19 of the IPCC Second Assessment Report (1996) ous meanings for the same terms which also vary for different
gave a comprehensive guide to mitigation options in energy fossil fuel sources. The World Energy Council defines
supply (Ishitani and Johansson, 1996). The chapter described resources as “the occurrences of material in recognisable form”
technological options for reducing greenhouse gas emissions in (WEC, 1998b). For oil and gas, this is essentially the amount
five broad areas: of oil and gas in the ground. Reserves represent a portion of
these resources and is the term used by the extraction industry.
• More efficient conversion of fossil fuels. Technological British Petroleum notes that proven reserves of oil are “gener-
development has the potential to increase the present ally taken to be those quantities that geological and engineer-
world average power station efficiency from 30% to ing information indicates with reasonable certainty can be
more than 60% in the longer term. Also, the use of recovered in the future from known reservoirs under existing
combined heat and power production replacing sepa- economic and operating conditions” (BP, 1999). Resources,
rate production of power and heat, whether for process therefore, are hydrocarbon deposits that do not meet the crite-
heat or space heating, offers a significant rise in fuel ria of proven reserves, at least not yet. Future advances in the
conversion efficiency. geosciences and upstream technologies – as in the past – will
• Switching to low-carbon fossil fuels and suppressing improve knowledge of and access to resources and, if demand
emissions. A switch to gas from coal allows the use of exists, convert these into reserves. Market conditions can
high efficiency, low capital cost combined cycle gas either accelerate or even reverse this process.
turbine (CCGT) technology to be used. Opportunities
are also available to reduce emissions of methane from The difference between conventional and unconventional
the fossil fuel sector. occurrences (oil shale, tar sands, coalbed methane, clathrates,
• Decarbonization of flue gases and fuels, and CO2 stor- uranium in black shale or dissolved in sea water) is either the
age. Decarbonization of fossil fuel feedstocks can be nature of existence (being solid rather than liquid for oil) or the
used to make hydrogen-rich secondary fuel for use in geological location (coal bed methane or clathrates, i.e., frozen
Table 3.28a: Aggregation of fossil energy occurrences and uranium, in EJ
Consumption Reserves Resourcesa Resources Additional

1860-1998 1998 baseb occurrences
Oil
Conventional 4,854 132.7 5,899 7,663 13,562
Unconventional 285 9.2 6,604 15,410 22,014 61,000
Natural gasc
Conventional 2,346 80.2 5,358 11,681 17,179
Unconventional 33 4.2 8,039 10,802 18,841 16,000
Clathrates 780,000
Coal 5,990 92.2 41,994 100,358 142,351 121,000
Total fossil occurrences 13,508 319.3 69,214 142,980 212,193 992,000
Uranium – once through fuel cycled 1,100 17.5 1,977 5,723 7,700 2,000,000e
Uranium – reprocessing & breedingf 120,000 342,000 462,000 >120,000,000
a. Reserves to be discovered or resources to be developed as reserves

b. Resources base is the sum of reserves and resources
c. Includes natural gas liquids
d. Adapted from OECD/NEA and IAEA, 2000. Thermal energy values are reactor technology dependent and based on an average thermal energy equivalent of
500 TJ per t U. In addition, there are secondary uranium sources such as fissile material from national or utility stockpiles, reprocessing former military mate-
rials, and from re-enriched depleted uranium
e. Includes uranium from sea water
f. Natural uranium reserves and resources are about 60 times larger if fast breeder reactors are used (Nakicenovic et al., 1996)
Table 3.28b: Aggregation of fossil energy occurrences, in GtC
Consumption Reserves Resourcesa Resources Additional

1860-1998 1998 baseb occurrences
Oil
Conventional 97.1 2.7 118 153 271
Unconventional 5.7 0.2 132 308 440 1,220
Natural gasc
Conventional 35.9 1.2 82 179 261
Unconventional 0.5 0.1 123 165 288 245
Clathrates - - - - - 11,934
Coal 156.4 2.4 1,094 2,605 3,699 3,122
Total fossil occurrences 295.6 6.5 1,549 3,410 4,959 16,521
- Negligible volumes
a ,b and c see Table 3.28a
ice-like deposits that probably cover a significant portion of the ventional oil and gas deposits. The categories reflect the defi-
ocean floor). Unconventional deposits require different and nitions of reserves and resources given above, with the excep-
more complex production methods and, in the case of oil, need tion that resources are further disaggregated into resources and
additional upgrading to usable fuels. In essence, unconvention- occurrences so as to better reflect the speculative nature asso-
al resources are more capital intensive (for development, pro- ciated with their technical and economic feasibility (Rogner,
duction, and upgrading) than conventional ones. The prospects 1997, 2000a).
for unconventional resources depend on the rate and costs at
which these can be converted into quasi-conventional reserves. Table 3.28b presents the global fossil resource data of Table
3.28a in terms of their respective carbon content. Since the
3.8.3 Historic Trends and Driving Forces onset of the industrial revolution, almost 300GtC stored in fos-
sil fuels have been oxidized and released to the atmosphere.
Table 3.28a categorizes fossil deposits into reserves, resources The utilization of all proven conventional oil and gas reserves
and additional occurrences for both conventional and uncon- would add another 200GtC, and those of coal more than 1,000
GtC. The fossil fuel resource base represents a carbon volume Second Assessment Report and which may be key to achieving
of some 5,000GtC indicating the potential to add several times substantial reductions in greenhouse gas emissions in the com-
the amount already oxidized and released to the atmosphere ing decades.
during the 21st century. To put these carbon volumes into per-
spective, cumulative carbon emissions associated with the sta- On a global basis, in 1995 coal had the largest share of world
bilization of carbon dioxide at 450ppm are estimated to be at electricity production at 38% followed by renewables (princi-
670GtC. Figure SPM.2 combines the reserve and resource esti- pally hydropower) at 20%, nuclear at 17%, gas at 15%, and oil
mates with cummulative emissions for various reference and at 10%. On current projections, electricity production is
stabilization scenarios, taken from other chapters and the IPCC expected to double by 2020 compared to 1995 and energy used
WGI report. for generation to increase by about 80% as shown in Table 3.29
(IEA, 1998b).
Potential coal reserves are large – of that there is little doubt.
However, there is an active debate on the ultimate size of recov- • Coal is projected to retain the largest share with a 90%
erable oil reserves. The pessimists see potential reserves as lim- increase in use from strong growth in countries such as
ited, pointing to the lack of major new discoveries for 25 years India and China reflecting its importance there, steady
or so (Laherrere, 1994; Hatfield, 1997; Campbell, 1997; Ivanhoe growth in the USA but a decline in Western Europe.
and Leckie, 1993). They see oil production peaking around • Gas is projected to grow strongly in many world
2010. The optimists point to previous pessimistic estimates regions reflecting the increasing availability of the fuel,
being wrong. They argue that “there are huge amounts of hydro- with an overall increase of 160%.
carbons in the Earth’s crust” and that “estimates of declining • Nuclear power is projected to decline slightly on a
reserves and production are incurably wrong because they treat global basis after 2010. Capacity additions in develop-
as a quantity what is really a dynamic process driven by growing countries and in economies in transition roughly
ing knowledge” (Adelman and Lynch, 1997; Rogner, 1998a). balance the capacity being withdrawn in OECD coun-
They further point to technological developments such as direc- tries. Few new power stations will be built in many
tional drilling and 3D seismic surveys which are allowing more countries without a change in government policies.
reserves to be discovered and more difficult reserves to be IAEA projections for 2020 cover a range from a 10%
developed (Smith and Robinson, 1997). The optimists see no decline to an optimistic 50% increase in nuclear gener-
major supply problem for several more decades beyond 2010. ating capacity (IAEA, 2000a).
• Hydropower is projected to grow by 60%, mainly in
Estimates of gas reserves have increased in recent years (IGU, China and other Asian countries.
2000; Rogner, 2000a; Gregory and Rogner, 1998) as there is • New renewables have expanded substantially, in
much still to be discovered, often in developing countries that absolute terms, throughout the 1990s (wind 21% per
have seen little exploration to date. The problem in the past has year, solar PV more than 30% per year); these are pro-
been that there needed to be an infrastructure to utilize gas jected to grow by over tenfold by 2020, but they would
before it could have a market, and without an infrastructure, still supply less than 2% of the market.
exploration appeared unattractive. The development of CCGT
power stations (discussed below) means that a local market for
gas can more readily be found which could encourage wider 3.8.4 New Technological Options
exploration. In the longer term, it is estimated that very sub-
stantial reserves of gas can be extracted from the bottom of 3.8.4.1 Fossil Fuelled Electricity Generation
deep oceans in the form of methane clathrates, if technology
can be developed to extract them economically 3.8.4.1.1 Pulverized Coal
With uranium, there has only been very limited exploration in In a traditional thermal power station, pulverized coal (or fuel oil
the world to date but once more is required, new exploration is or gas) is burned in a boiler to generate steam at high temperature
likely to yield substantial additional reserves (Gregory and and pressure, which is then expanded through a steam turbine to
Rogner, 1998; OECD-NEA and IAEA, 2000) (see Table 3.28a). generate electricity. The efficiencies of modern power stations
can exceed 40% (lower heating value (LHV)), although the aver-
The other major supply of energy comes from renewable age efficiency, worldwide, of the installed stock is about 30%
sources, which meet around 20% of the global energy demand, (Ishitani and Johansson, 1996). The typical cost of a modern
mainly as traditional biomass and hydropower. Modern sys- coal- fired power station, with SO2 and NOx controls, is
tems have the potential to provide energy services in sustain- US$1,300/kW (Ishitani and Johansson, 1996). These costs vary
able ways with almost zero GHG emissions (Goldemberg, considerably and can be more than 50% higher depending on
2000). location. Less efficient designs with fewer environmental con-
trols are cheaper.
The following sections focus on energy supply and conversion
technologies in which there have been developments since the
Table 3.29: Past and projected global electricity production, fuel input to electricity
production and carbon emissions from the electricity generating sector
(Source: IEA, 1998b)
Global electricity generation (TWh)
1971 1995 2000 2010 2020
Oil 1,100 1,315 1,422 1,663 1,941

Natural gas 691 1,932 2,664 5,063 8,243
Coal 2,100 4,949 5,758 7,795 10,296
Nuclear 111 2,332 2,408 2,568 2,317
Hydro 1,209 2,498 2,781 3,445 4,096
Renewables 36 177 215 319 433
Total 5,247 13,203 15,248 20,853 27,326
Fuel input (EJ)
1971 1995 2000 2010 2020
Oil 11 13 14 15 18
Natural Gas 10 24 29 43 62
Coal 26 57 65 85 106
Nuclear 1 25 26 28 25
Hydro 4 9 10 12 15
Renewables 0 1 2 3 5
Total 53 129 146 187 230
CO2 emissions (MtC)
1971 1995 2000 2010 2020
Oil 224 258 273 307 350

Natural gas 158 362 443 662 946
Coal 668 1,471 1,679 2,185 2,723
Nuclear 0 0 0 0 0
Hydro 0 0 0 0 0
Renewables 0 0 0 0 0
Total 1,050 2,091 2,395 3,155 4,019
Average emissions per kWh
gC/kWh 200 158 157 151 147
The development of new materials allows higher steam tem- 3.8.4.1.2 Combined Cycle Gas Turbine (CCGT)
peratures and pressures to be used in “supercritical” designs.
Efficiencies of 45% are quoted in the Second Assessment Developments in gas turbine technology allow for higher tem-
Report, although capital costs are significantly higher at peratures which lead to higher thermodynamic efficiencies.
around US$1,740/kW (Ishitani and Johansson, 1996). More The overall fuel effectiveness can be improved by capturing
recently, efficiencies of 48.5% have been reported (OECD, the waste heat from the turbine exhaust in a boiler to raise
1998b) and with further development, efficiencies could reach steam to generate electricity through a steam turbine. Thus in
55% by 2020 (UK DTI, 1999) at costs only slightly higher than such a CCGT plant, electricity is generated by both the gas and
current technology (Smith, 2000). steam turbines driving generators. The efficiency of the best
available natural gas fired CCGTs currently being installed is
now around 60% (LHV) (Goldemberg, 2000) and has been works. These are energy transmission systems suited for the
improving at 1% per year in the past decade. Typical capital distribution of heat and/or cooling within areas with sufficient-
costs for a power station of 60% efficiency are around ly high heat/cooling load densities (Kalkum et al., 1993;
US$450-500/kW, including selective catalytic reduction (for Rogner, 1993). The expanded use of natural gas may provide a
NOx), dry cooling, switchyard, and a set of spares. Costs can basis for increased dispersed cogeneration. Industrial CHP uti-
be higher in some regions, especially if new infrastructure is lizes temperature differentials between the heat source and the
required. These costs have been falling as efficiencies improve process temperature requirements for electricity generation.
(IIASA-WEC, 1998). Together with high availability and short More recently, in some countries electricity market deregula-
construction times, this makes CCGTs highly favoured by tion has made it easier for large industrial users to generate
power station developers where gas is available at reasonable their own electricity as well as heat by being more easily able
prices. Developments in the liquefied natural gas markets to sell any surplus electricity (see Section 3.8.5.1). Conversely,
could further expand the use of CCGTs. Further improvements following deregulation in Germany and elsewhere, large grid
might allow electricity generating efficiencies of over 70% to CHP has suffered market loss as a consequence of existing sur-
be achievable for CCGTs within a reasonable period (Gregory plus generating capacity and independent generation. There is
and Rogner, 1998). good potential for cogeneration of biomass including bagasse
in developing countries such as India, where the market poten-
3.8.4.1.3 Integrated Gasification Combined Cycle (IGCC) tial is 3500MW. However, a heat demand is necessary for CHP
plants to be implemented successfully.
IGCC systems utilize the efficiency and low capital cost
advantages of a CCGT by first gasifying coal or other fuel. 3.8.4.1.5 Fuel Cells
Gasifiers are usually oxygen blown and are at the early com-
mercial stage (Goldemberg, 2000). Coal and difficult liquid Several types of fuel cell compete for early entry into a variety
fuels such as bitumens and tar can be used as feedstocks. of prospective markets (Gregory and Rogner, 1998). Proton
Biomass fuels are easier to gasify (Section 3.8.4.3.2), which exchange membrane, phosphoric acid, fuel cells (PAFCs) and
may reduce the cost and possibly the efficiency penalty as an solid oxide fuel cells are the current technology options. Each
oxygen plant is not required (Lurgi GmbH, 1989). Gas clean- type has its own distinctive characteristics such as operating
up prior to combustion in the gas turbine, which is sensitive to temperatures, efficiency ranges, fuel use, markets and costs18.
contaminants, is one of the current areas of development. The The potential advantages of fuel cells over gas turbines include
potential efficiency of IGCCs is around 51%, based on the lat- smaller unit sizes at similar efficiencies, the potential of a low
est CCGTs of 60% efficiency (Willerboer, 1997). Vattenfall, or quasi zero GHG emission technology at the point of use,
using a GE Frame 6 gas turbine, indicated a net efficiency of lower maintenance costs, less noise and, eventually, better eco-
48% in trials (Karlsson et al., 1998), and an efficiency of 50%- nomic performance.
55% was claimed to be achievable by using the latest gas tur-
bine design. With continuing development in hot gas cleaning The internal fuel is hydrogen, but some fuel cell types can use
and better heat recovery as well as the continuing development fuels such as CO, methanol, natural gas or even coal if exter-
of CCGTs, commercially available coal- or wood-fired IGCC nally converted to hydrogen at the plant via gasification and
power stations with efficiencies over 60% may be feasible by steam reforming or partial oxidation. Alternatively, some fuel
2020. cell designs perform the hydrogen conversion step internally as
an integral part of the technology.
In addition to the potential high efficiencies, IGCC offers one
of the more promising routes to CO2 capture and disposal by Hydrogen production from hydrocarbon fuels generates some
converting the gas from the gasifier into a stream of H2 and airborne emissions (NOx, CO, CO2 and NMVOCs) but these
CO2 via a shift reaction. The CO2 can then be removed for dis- are – with the exception of CO2 - orders of magnitude lower
posal before entering the gas turbine (see Section 3.8.4.4). The than those associated with combustion cycles. The electro-
resultant stream of H2 could be used in fuel cells and not just chemistry of most fuel cells demands the use of sulphur-free
in a gas turbine. natural gas, hence no SO2 emissions occur. CO2 emissions are
a function of the electrical efficiency and as such are compara-
3.8.4.1.4 Cogeneration ble with the efficient CCGT. Non fossil-derived hydrogen, e.g.,
by way of solar powered electrolysis or from methanol derived
Combined heat and power (CHP) generation can yield fuel from biomass, can be used with virtually zero GHG emissions.
energy utilization rates of up to 90% and can therefore be an
effective GHG mitigation option. CHP is possible with all heat
machines and fuels (including nuclear, biomass and solar ther-
mal) from a few kW-rated to 1000MW steam-condensing
power plants. At the utility level the employment of CHP is 18 Although primarily targetted for electricity generation in less
closely linked with industrial heat loads as well as the avail- densely populated rural areas (distributed generation), fuel cell man-
ability or development of district heating and/or cooling net- ufacturers have always had high aspirations for the transport market.
Proton exchange membrane (PEM) conversion efficiencies are 1 to 100 MW and, fuelled with natural gas, would produce the
currently at 45%-48%19 using hydrogen as the onboard fuel, lowest emissions of all fossil fuel electricity generating options
and are expected to approach 55%-60% in the near term future. of about 75–80gC/kWh.
The joint venture between the leading PEM fuel cell producer
and major automobile manufacturers aimed at mass producing 3.8.4.2 Nuclear Power
PEMs for vehicle propulsion targets to bring down costs to less
than US$500/kWe by 2000 and to less than US$250/kWe by 3.8.4.2.1 Present Situation
2010 (Rogner, 1998b). In the very long term, costs comparable
to current internal combustion engines of approximately Nuclear power is a mature technology with 434 nuclear reac-
US$50/kWe have been suggested (Lovins, 1996). tors operating in 32 countries in 1999, with a total capacity of
around 349GWe generating 2,398 TWh or some 16% of glob-
Phosphoric acid fuel cells (PAFCs) operate at around 200ºC al electricity generation in 1999 (IAEA, 2000b). In general,
and pressures up to 8 bar. At present, PAFCs, in particular the the majority of current nuclear power plants worldwide are
200 kW ONSI PC25, are commercially the most advanced fuel competitive on a marginal cost basis in a deregulated market
cells in the market place and have accumulated more than one environment20.
million hours of operating experience world-wide. Stationary
PAFC applications include the world’s largest fuel cell power The life cycle GHG emissions per kWh from nuclear power
plant of 11 MW in Goi, Japan, which was in test operation from plants are two orders of magnitude lower than those of fossil-
1991 to 1997, commissioned by Tokyo Electric Power fuelled electricity generation and comparable to most renew-
Company (TEPCO). Natural gas to electricity conversion was ables (EC, 1995; Krewitt et al., 1999; Brännström-Norberg et
36 to 38% efficient. Overall fuel effectiveness with waste heat al., 1996; Spadaro et al., 2000). Hence it is an effective GHG
utilization can be as high as 80%. Capital costs for an integrat- mitigation option, especially by way of investments in the life-
ed system, including a fuel processor based on natural gas, are time extension of existing plants.
expected to decline to about US$1,500/kWe by 2000. Long-
term costs will depend on manufacturing volumes, but indus- Whether or not nuclear power would be accepted in the market
try experts project costs below US$700/kWe by 2010 (Tauber place depends on new capacities becoming economically com-
and Jablonski, 1998) at electrical efficiencies of 50% and over- petitive and on its ability to restore public confidence in its safe
all fuel effectiveness of 90% for cogeneration. use.
Molten carbonate fuel cells (MCFC) operating at 650ºC open 3.8.4.2.2 Nuclear Economics
the possibility of using carbonaceous fuels and internal reform-
ing. With steam turbines in a bottoming cycle, the overall elec- Where gas supply infrastructures are already in place, new
trical efficiency could be as high as 65%. There are still major nuclear power plants at US$1700–US$3100/kWe
technical problems associated with MCFCs such as electrode (Paffenberger and Bertel, 1998) cannot compete against natur-
corrosion, the sintering of the structural fuel cell material, and al gas-fuelled CCGT technology at current and expected gas
sensitivity to fuel impurities. prices (OECD, 1998b). Nuclear power can be competitive ver-
sus coal and natural gas, especially if coal has to be transport-
The operating temperature of 1000ºC of solid oxide fuel cells ed over long distances or natural gas infrastructures are not in
(SOFCs) allows internal reforming and produces high quality place. Discount rates are often critical in tilting the competitive
by-product heat for cogeneration or for use in a bottoming balance between nuclear power and coal. A study (OECD,
cycle. The development of suitable materials and the fabrica- 1998b) surveyed the costs of nuclear, coal, and natural gas-
tion of ceramic structures are presently the key technical chal- fuelled electricity generation in 18 countries for plants that
lenges facing SOFCs. They are currently being demonstrated would go into operation in 2005. The results, estimated for
in a 100-kilowatt plant and are expected to be competitive with both 5% and 10% discount rates, showed that nuclear power is
traditional fossil-fired generation early in the 21st century. the least cost option in seven countries at a 5% discount rate
Installation costs will eventually reach about US$700/kWe (generating cost range US$0.025–0.057/kWh), but only in two
(EPRI, 1997) though other sources report US$1,620/kWe for countries at a 10% discount rate (generating cost range US$
the period 2005-2010 (OECD, 1998b). 0.039–0.080/kWh). In fully deregulated markets such as the
UK’s, rates of return in excess of 14% have been required at
Hybrid SOFC/CCGT systems have projected efficiencies of 72 which level new nuclear plant construction would not be com-
to 74%, and, depending on R&D progress, would represent the petitive at current fossil fuel market prices21.
ultimate fossil fuel based electricity generation (Federal
Energy Technology Center, 1997). Typical plant sizes would be
20Because of low operating costs and the fact that many nuclear
power plants are already fully depreciated.
19 21Rising coal and gas market prices such as observed for oil in 2000
For fuel cells all efficiencies cited are based on higher heating
values (HHV). would change the competitive position of nuclear substantially.
3.8.4.2.3 Waste Disposal 3.8.4.2.4 New Reactor Technologies
Technological approaches for safe and long-term disposal of The future of nuclear power will depend on whether it can
high-level radioactive waste have been extensively studied meet several objectives simultaneously – economics, operating
(Posiva Oy, 1999; EC, 1999). One possible solution involves safety, proliferation safeguards, and effective solutions to
deep geological repositories, however, no country has yet dis- waste disposal. While present new nuclear power plants
posed of any spent fuel or high-level waste in such a reposito- already incorporate unprecedented levels of safety based on in-
ry because of public and political opposition (NEA, 1999). depth designs, their economics need further improvement to be
Several countries are actively researching this issue. Long- competitive in most markets. Safe waste disposal for approxi-
term disposal of radioactive wastes should not be an intractable mately 1 million years is technically feasible (Whipple, 1996)
problem from a technical perspective, because of the small and would add US$0.0002/kWh to generating costs (Kadak,
quantities of storage space required (Goldemberg, 2000; 1999; Goldemberg, 2000). Disposal cost estimates for Sweden
Rhodes and Beller, 2000). Radioactive waste storage density are higher, i.e., US$0.0013. Proliferation is a political issue pri-
limits defined for storing light water reactor (LWR) fuel at marily, but can also be addressed by technology. Evolutionary
Yucca Mountain are about 41 m2/MWe of nuclear generating technology improvements of existing designs are important
capacity for a power plant over its expected 30 years of oper- elements for the near-term viability of nuclear power but may
ating life22 (Kadak, 1999). High level waste volumes can be not be sufficient to meet all the objectives optimally. For exam-
further reduced if spent fuel is reprocessed so that most of the ple, smaller grid sizes in developing countries demand smaller
plutonium and unused uranium is extracted for reuse. The unit size reactors. Therefore, new technology that addresses
remaining high-level waste is compacted and “vitrified” (melt- these objectives by integral design holds the key to the future
ed with other ingredients to make a glassy matrix), and placed of nuclear power.
into canisters that are appropriate for long-term disposal.
However, reprocessing of spent fuel and the separation of plu- Building on more than 40 years of experience with LWR tech-
tonium are often viewed as potentially opening the door for nology, major nuclear reactor vendors have now developed
nuclear weapons proliferation. For this and economic reasons, modified LWRs that offer both improved safety and lower cost
several countries therefore prefer once-through fuel cycles and (CISAC, 1995; Kupitz and Cleveland, 1999). These evolution-
direct disposal of spent reactor fuel. ary development efforts resulted in standardized designs for
which there can be a high degree of confidence that performance
Because of the low waste volumes, it may be plausible to accu- and cost targets will be met. All employ active but simplified
mulate high level radioactive wastes in a few sites globally safety systems, and some have some passive safety features.
rather than every country seeking national solutions
(Goldemberg, 2000) These international repositories would be One reactor in this category is the Westinghouse AP600, a 600
operated and controlled by an international organization which MWe pressurized water reactor (PWR). The design is simpler
would also assume the responsibility of safeguarding these than existing PWRs and modular, with about half the capacity
sites (McCombie, 1999a; 1999b; McCombie et al., 1999; of most existing PWRs—which allows some components to be
Miller et al., 1999). For the time being, most governments factory built and assembled faster onsite at lower cost than for
remain committed to identifying suitable high-level waste dis- plants that are entirely field constructed. The AP600 is expect-
posal or interim storage solutions within their own national tered to be safer than existing PWRs, constructed in three years,
ritories. and costs about 15% less than existing PWRs of the same
capacity (NPDP, 1998)23.
In the longer run, fundamentally new reactor configurations
may need to be developed that are based on innovative designs Other examples include the ABB/Combustion Engineering
that integrate inherent operating safety features and waste dis- System 80+ and the GE Advanced Boiling Water Reactor
posal using previously generated radioactive waste as fuel and, (ABWR)24. The System 80+ is a large (1,350 MWe) unit for
by way of transmutation, convert nuclear waste or plutonium which the estimated core damage frequency is two orders of
to less hazardous and short-lived isotopic substances (Rubbia, magnitude lower than for its predecessor. The ABWR has as a
1998). design objective stepped-up operating safety and a target capi-
tal cost that is 20% less than for BWRs previously built in
Present technology can be used to reduce the growth of the plu- Japan (NPDP, 1998). Two ABWRs are now operating in Japan.
tonium stocks by use of mixed plutonium/uranium oxide fuels Two more are under construction in Japan and also in
(MOX) in thermal reactors. Belgium, France, Germany, and Taiwan/China.
Switzerland use MOX fuels in existing reactors. Japan also has
been progressing its MOX utilizing programme. 23 In late 1999 the AP600 received Design Certification from the US
Nuclear Regulatory Commission.

22The actual high-level waste accumulated over 30 years amounts to 24Both designs received Design Certification from the US Nuclear
approximately 1 m3/MWe. Regulatory Commission in 1997.
In Europe, a Framatome/Siemens joint venture has developed would take a value of a US$100 to 250/tC for nuclear power to
the European pressurized water reactor (EPR), a 1,450 to 1,750 break even with natural gas combined cycle electricity (IEA,
MWe system designed to specifications endorsed by utilities in 1998a; Rogner, 2000b). Based on the current global electricity
Europe—with hoped-for economies of scale at this large unit mix, nuclear power avoids some 600MtC of carbon per year
size. The EPR is being offered on the international market. (Rogner, 1999).
One of the innovative designs is the pebble bed modular reac- The most recent projection of the International Atomic Energy
tor (PBMR) developed by the South African utility ESKOM. Agency (IAEA) is that in the absence of any policies with regard
The fundamental concept of the design is to achieve a plant to climate change, capacity in 2020 could be in the range
that has no physical process, however unlikely, that could 300GWe to 520GWe (from 349GWe in 1999). This means that
cause a radiation-induced hazard outside the site boundary. the share of nuclear power in total power generation could
This is principally achieved in the PBMR25. decline to 6% - 8% by 2020 (IAEA, 2000a). Compared to the ref-
erence case of the IEA World Energy Outlook (IEA, 1998b), the
The current ESKOM assessment is that the capital cost of a higher projection of IAEA would avoid the emission of 87MtC
production of 1000MWe block of 10 modules will be in 2010 and 281MtC in 2020 over and above the reference case
US$1,000/kWe (US$1,200/kWe for the prototype). The low assuming that nuclear power displaces coal-fired electricity26.
capital costs are the result of a much lower energy density of Maintaining the past nuclear share in global electricity genera-
the reactor core than present reactor technologies; the elimination would avoid annually 280MtC in 2010 and 550MtC in 2020
tion of heat exchangers; use of a direct helium turbine; the shift (again above the IEA reference case of approximately 600GtC).
of the containment from the plant periphery to the pebble fuel;
a high in-shop manufacturing component of the plant, and a 3.8.4.3 Renewable Energy Conversion Technologies
short construction period of 2 years. This would produce
attractive generating costs with unprecedented safety aspects. Natural energy flows vary from location to location, and make
As a base load station with a depreciation period of 20 years the techno-economic performance of renewable energy con-
and at a 10% discount rate, the expected cost of power would version highly site-specific. Intermittent sources such as wind,
be approximately US$0.018/kWh including the full fuel cycle solar, tidal, and wave energy require back-up if not grid con-
and decommissioning. These costs are low indeed and in part nected, while large penetration into grids may eventually
the result of engineering optimism. Other studies based on the require storage and/or back-up to guarantee reliable supply.
less advanced modular high temperature reactor (HTR) designs Therefore, it is difficult to generalize costs and potentials.
conclude that generating costs may range from US$0.020 to
US$0.034/kWh (Lako, 1996). Kadak (1999) estimates the unit 3.8.4.3.1 Hydropower
capital cost for a PBMR plant with some different design char-
acteristics at twice the ESKOM value, i.e., US$2,090/kWe Hydroelectricity remains the most developed renewable
which results in generating costs of US$0.033/kWh but still resource worldwide with global theoretical potential ranges
less than average present technology. from 36,000 to 44,000TWh/yr (World Atlas, 1998).
Approximately 65% of the technical hydro potential has been
3.8.4.2.5 GHG Mitigation Potential developed in Western Europe, and 76% in the USA. This indi-
cates a limit caused by societal and environmental barriers. For
Increased performance and lifetime extension of the currently many developing countries the total technical potential, based
existing nuclear reactors often present a zero-costs greenhouse on simplified engineering and economic criteria with few envi-
gas mitigation option. However, given current market condi- ronmental considerations, has not been fully measured. The
tions, new nuclear power capacity is a least-cost alternative in economic potential resulting from detailed geological and tech-
only some countries usually characterized by limited indige- nical evaluations, but including social and environmental
nous fossil resources or by large distances between resource issues, is difficult to establish because these parameters are
location and consumption centres. Under such circumstances strongly driven by societal preferences inherently uncertain
nuclear power is a zero cost mitigation option. If the optimistic and difficult to predict. A rate of utilization between 40% and
PBMR generating costs can be accomplished, this would cer- 60% of a region’s technical potential is therefore a reasonable
tainly imply negative mitigation costs. For new nuclear plants assumption and leads to a global economic hydro-electricity
of state-of-the art designs, a value of US$0 to 40/tC avoided potential of 7,000 to 9,000TWh/yr (see Table 3.30).
would put nuclear at par with coal-fired electricity, while it
26 The nuclear mitigation potential is based on the following assump-

25 The integrated heat loss from the reactor vessel exceeds the decay tion: between 2000 and 2020 nuclear capacities increase to the
heat production in the post accident condition, and the peak tempera- 520GWe of the high IAEA projection and substitute incremental coal
ture reached in the core during the transient is below the demonstrat- capacities with global average efficiencies of 39.4% and 44.1% in
ed fuel degradation point and far below the temperature at which the 2010 and 2020, respectively (compared to 33.1% and 35.1% in the
physical structure is affected. The prospect of a “core melt” scenario IEA World Energy Outlook (IEA, 1986)). The nuclear share in global
is therefore zero. electricity generation would then amount to 13%.
Table 3.30: Annual large hydroelectric development potential (TWh/yr)
Theoretical Technological Economic

potential potential potential
TWha TWhb TWha TWhb TWha TWhb
Africa 3,307 3,633 1,896 1,589 815 866

North America 5,817 5,752 1,509 1,007 912 957
Latin America 7,533 8,800 2,868 3,891 1,198 2,475
Asia (excluding former USSR) 15,823 14,138 4,287 4,096 1,868 2,444
Australasia 591 592 201 206 106 168
Europe 3,128 3,042 1,190 942 774 702
Former USSR 3,583 3,940 1,992 2,105 1,288 1,093
World 39,784 39,899 13,945 13,839 6,964 8,708
a World Atlas, 1999

b International Water Power & Dam Construction, 1997
Numerous small (<10MW), mini (<1MW) and micro gy on a sustainable basis (Hall and Rosillo-Calle, 1998a)
(<100kW) scale hydro schemes with low environmental depending on the economics of production and use as well as
impacts continue to be developed globally. The extent of this the availability of suitable land. In addition to energy crops
resource, particularly in developing countries such as Nepal, (Section 3.6.4.3), biomass resources include agricultural and
Oceania, and China, is unknown but likely to be of significance forestry residues, landfill gas and municipal solid wastes. Since
to rural communities currently without electricity. biomass is widely distributed it has good potential to provide
rural areas with a renewable source of energy (Goldemberg,
Large-scale hydropower plant developments can have high 2000). The challenge is to provide the sustainable manage-
environmental and social costs such as loss of fertile land, ment, conversion and delivery of bioenergy to the market place
methane generation from flooded vegetation, and displacement in the form of modern and competitive energy services (Hall
of local communities (Moomaw et al., 1999b). At the 18,200 and Rao, 1994).
MW Three Gorges dam under construction in China, 1.2 mil-
lion people have been moved to other locations. Another limi- At the domestic scale in developing countries, the use of fire-
tation to further development is the high up-front capital wood in cooking stoves is often inefficient and can lead to
investment which the recently privatized power industries are health problems. Use of appropriate technology to reduce fire-
unlikely to accept because of the low rates of return. wood demand, avoid emissions, and improve health is a no-
regrets reduction opportunity (see Section 4.3.2.1).
The remote locations of many potential hydro sites result in
high transmission costs. Development of medium (<50MW) to Agricultural and forest residues such as bagasse, rice husks,
small (<10MW) scale projects closer to demand centres will and sawdust often have a disposal cost. Therefore, waste-to-
continue. In countries where government or aid assistance is energy conversion for heat and power generation and transport
provided to overcome the higher investment costs/MW at this fuel production often has good economic and market potential,
scale, power generation costs around US$0.065/kWh will particularly in rural community applications, and is used wide-
result (UK DTI, 1999). Mini- and micro-hydro low head tur- ly in countries such as Sweden, the USA, Canada, Austria, and
bines are under development but generating costs at this scale Finland (Hall and Rosillo-Calle, 1998b; Moomaw et al.,
are likely to remain high, partly as a result of the cost of the 1999b; Svebio, 1998). Energy crops have less potential
intake structure needed to withstand river flood conditions. because of higher delivered costs in terms of US$/GJ of avail-
Even at this small scale, environmental and ecological effects able energy.
often result from taking water from a stream or small river and
discharging it back again, even after only a short distance. Harvesting operations, transport methods, and distances to the
conversion plant significantly impact on the energy balance of
3.8.4.3.2 Biomass Conversion the overall biomass system (CEC, 1999; Moreira and
Goldemberg, 1999). The generating plant or biorefinery must
Globally, biomass has an annual primary production of 220 bil- be located to minimize transport costs of the low energy densi-
lion oven-dry tonnes (odt) or 4,500 EJ (Hall and Rosillo-Calle, ty biomass as well as to minimize impacts on air and water use.
1998a). Of this, 270 EJ/yr might become available for bioener- However, economies of scale of the plant are often more sig-
Table 3.31: Projection of technical energy potential from biomass by 2050

(Derived from Fischer and Heilig, 1998; D’Apote, 1998; IIASA/WEC, 1998)
Region Population Total land Cultivated Additional Available Max.

in 2050 with crop Land in 1990 cultivated land area for Additional
production required in biomass amount of
potential 2050 production energy from
in 2050 biomassa
Billion Gha Gha Gha Gha EJ/yr
Developedb - 0.820 0.670 0.050 0.100 30
Latin America
Central & Caribbean 0.286 0.087 0.037 0.015 0.035 11
South America 0.524 0.865 0.153 0.082 0.630 189
Africa
Eastern 0.698 0.251 0.063 0.068 0.120 36
Middle 0.284 0.383 0.043 0.052 0.288 86
Northern 0.317 0.104 0.04 0.014 0.050 15
Southern 0.106 0.044 0.016 0.012 0.016 5
Western 0.639 0.196 0.090 0.096 0.010 3
Chinac - - - - - 2
Rest of Asia
Western 0.387 0.042 0.037 0.010 -0.005 0
South –Central 2.521 0.200 0.205 0.021 -0.026 0
Eastern 1.722 0.175 0.131 0.008 0.036 11
South –East 0.812 0.148 0.082 0.038 0.028 8
Total for regions above 8.296 2.495 0.897 0.416 1.28 396
Total biomass energy potential, EJ/yr 441d
a Assumed 15 odt/ha/yr and 20GJ/odt

b Here, OECD and Economies in Transition
c For China, the numbers are projected values from D’Apote (1998) and not maximum estimates.
d Includes 45 EJ/yr of current traditional biomass.
nificant than the additional transport costs involved (Dornburg being a valid cost which can then be used in economic analy-
and Faaij, 2000). The sugar cane industry has experience of har- ses. Table 3.31 shows the technical potential for energy crop
vesting and handling large volumes of biomass (up to 3Mt/yr at production in 2050 to be 396EJ/yr from 1.28Gha of available
any one plant) with the bagasse residues often used for cogener- land27. By 2100 the global land requirement for agriculture is
ation on site to improve the efficiency of fuel utilization (Cogen, estimated to reach about 1.7Gha, whereas 0.69-1.35Gha would
1997; Korhonen et al., 1999). Excess power is exported. In then be needed to support future biomass energy requirements
Denmark about 40% of electricity generated is from biomass in order to meet a high-growth energy scenario (Goldemberg,
cogeneration plants using wood waste and straw. In Finland, 2000). Hence, land-use conflicts could then arise.
about 10% of electricity generated is from biomass cogeneration
plants using sawdust, forest residues, and pulp liquors (Pingoud Several developing countries in Africa (e.g., Kenya) and Asia
et al., 1999; Savolainen, 2000). In other countries biomass (e.g., Nepal) derive over 90% of their primary energy supply
cogeneration is utilized to a lesser degree as a result of
unfavourable regulatory practices and structures within the elec-
27 Practical/technical constraints on the use of land for bioenergy such
tricity industry (Grohnheit, 1999; Lehtilä et al., 1997).
as the distance of a proposed biomass production site from energy
demand centres, the power distribution grid, or sources of labour are
Land used for biomass production will have an opportunity not considered here. Hence the estimate exceeds the 270EJ of Hall and
cost attributed to it for the production of food or fibre, the value Rosillo-Calle (1998a).
from traditional biomass. In India it currently provides 45% Liquid biofuels

and in China 30%. Modern bioenergy applications at the vil-
lage scale are gradually being implemented, leading to better Ethanol production using fermentation techniques is commer-
and more efficient utilization which, in many instances, com- cially undertaken in Brazil from sugar cane (Moreira and
plement the use of the traditional fuels (FAO, 1997) and pro- Goldemberg, 1999), and in the USA from maize and other
vide rural development (Hall and Rosillo-Cale, 1998b). For cereals. It is used as a straight fuel and/or as an oxygenate with
example, production of liquids for cooking, from biomass gasoline at 5%-22% blends. Enzymatic hydrolysis of lignocel-
grown in small-scale plantations, using the Fischer-Tropsch lulosic feedstocks such as bagasse, rice husks, municipal green
process (modified to co-produce electricity by passing uncon- waste, wood and straw (EPRI/DOE, 1997) is being evaluated
verted syngas through a small CCGT), is being evaluated for in a 1t/day pilot plant at the National Renewable Energy
China using corn husks (Larson and Jin, 1999). Biomass and Laboratory and is nearing the commercial scale-up phase
biofuel were identified by a US Department of Energy study (Overend and Costello, 1998). Research into methanol from
(Interlaboratory Working Group, 1997) as critical technologies woody biomass continues with successful conversion of
for minimizing the costs of reducing carbon emissions. Co-fir- around 50% of the energy content of the biomass at a cost esti-
ing in coal-fired boilers, biomass-fuelled integrated gasifica- mate of around US$0.90/litre (US$34/GJ) (Saller et al., 1998).
tion combined-cycle units (BIGCC) for the forest industry, and In Sweden production of biofuels from woody biomass (short
ethanol from the hydrolysis of lignocellulosics were the three rotation forests or forest residues) was estimated to cost
areas specifically recognized as having most potential. US$0.22/litre for methanol and US$0.54/litre for ethanol
Estimates of annual carbon offsets from the uptake of these (Elam et al., 1994). However, the energy density (MJ/l) of
technologies in the USA alone ranged from 16-24Mt, 4.8Mt, methanol is around only 50% that of petrol and 65% for
and 12.6-16.8Mt, respectively, by 2010. The near term energy ethanol. Using the available feedstock for heat and power gen-
savings from use of each of these technologies should cover eration might be a preferable alternative (Rosa and Ribeiro,
the associated costs (Moore, 1998), with co-firing giving the 1998).
lowest cost and technical risk.
Commercial processing plants for the medium scale production
Woody biomass blended with pulverized coal at up to of biodiesel from the inter-esterification of triglycerides have
10%–15% of the fuel mix is being implemented, for example, been developed in France, Germany, Italy, Austria, Slovakia,
in Denmark and the USA, but may be uneconomic as a conse- and the USA (Austrian Biofuels Institute, 1997). Around 1.5
quence of coal being cheaper than biomass together with the million tonnes is produced each year, with the largest plant
costs of combustion plant conversion (Sulilatu, 1998). having a capacity of 120,000 tonnes. Environmental benefits
However, major environmental benefits can result including include low sulphur and particulate emissions. A positive ener-
the reduction of SO2 and NOx emissions (van Doorn et al., gy ratio is claimed with 1 energy unit from fossil fuel inputs
1996). giving 3.2 energy units in the biodiesel (Korbitz, 1998).
Conversely, other older studies suggest more energy is con-
Gasification of biomass sumed than produced (Ulgiati et al., 1994).
Biofuels are generally easier to gasify than coal (see Section Biodiesel production costs exceed fossil diesel refinery costs
3.8.4.1.3), and development of efficient BIGCC systems is near- by a factor of three to four because of high feedstock costs even
ing commercial realization. Several pilot and demonstration when grown on set-aside land (Veenendal et al., 1997), and
projects have been evaluated with varying degrees of success they are unlikely to become more cost effective before 2010
(Stahl and Neergaard, 1998; Irving, 1999; Pitcher and Lundberg, (Scharmer, 1998). Commercial biodiesel has therefore only
1998). Capital investment for a high pressure, direct gasification been implemented in countries where government incentives
combined-cycle plant of this scale is estimated to fall from over exist. Biofuels can only become competitive with cheap oil if
US$2,000/kW at present to around US$1,100/kW by 2030, with significant government support is provided by way of fuel tax
operating costs, including fuel supply, declining from exemptions, subsidies (such as for use of set-aside surplus
3.98c/kWh to 3.12c/kWh (EPRI/DOE, 1997). By way of com- land), or if a value is placed on the environmental benefits
parison, capital costs for traditional combustion boiler/steam resulting.
turbine technology were predicted to fall from the present
US$1,965/kW to US$1,100/kW in the same period with current 3.8.4.3.3 Wind Power
operating costs of 5.50c/kWh (reflecting the poor fuel efficien-
cy compared with gasification) lowering to 3.87c/kWh. Wind power supplies around 0.1% of total global electricity
but, because of its intermittent nature and relatively recent
A life cycle assessment of the production of electricity in a emergence, accounts for around 0.3% of the global installed
BIGCC plant showed 95% of carbon delivered was recycled generation capacity. This has increased by an average of 25%
(Mann and Spath, 1997). From the energy ratio analysis, one annually over the past decade reaching 13,000MW by 2000,
unit of fossil fuel input produced approximately 16 units of with estimates of this increasing to over 30,000MW capacity
carbon neutral electricity exported to the grid. operating by 2005 (EWEA, 1999). The cost of wind turbines
Table 3.32: Assessment of world wind energy potential on land sites with mean annual wind speeds greater than 5.1m/s
(Grubb and Meyer (1993)
Region Percent of Population Gross electric Wind energy Estimated Assessed

land area density potential potential second order wind energy
potential potential
TWh TWh
% capita/km2 ×103/yr EJ/yra) ×103 /yr EJ/yra
Africa 24 20 106 1,272 10.6 127

Australia 17 2 30 360 3.0 36
North America 35 15 139 1,670 14.0 168
Latin America 18 15 54 648 5.4 65
Western Europe 42 102 31 377 4.8 58
EITs 29 13 106 1,272 10.6 127
Asia 9 100 32 384 4.9 59
World 23 - 498 5,976 53.0 636
a The energy equivalent in TWh is calculated on the basis of the electricity generation potential of the referenced sources by dividing the electricity generation
potential by a factor of 0.3 (a representative value for the efficiency of wind turbines including transmission losses) resulting in a primary energy estimate.
continues to fall as more new capacity is installed. The trend Denmark aims to provide 40%-50% of its national electricity
follows the classic learning curve and further reductions are generation from wind power by 2030 and remains the main
projected (Goldemberg, 2000). In high wind areas, wind power exporter of turbine technology (Krohn, 1997; Flavin and Dunn,
is competitive with other forms of electricity generation. 1997). China and India, based on recent wind survey pro-
grammes, have a high technical wind potential of 250–260GW
The global theoretical wind potential is on the order of and 20–35GW respectively, and are major turbine importers
480,000TWh/yr, assuming that about 3×107 km2 (27%) of the (Wang, 1998; MNES, 1998). However, following various gov-
earth’s land surface is exposed to a mean annual wind speed high- ernment incentives, both China and India now manufacture
er than 5.1 m/s at 10 metres above ground (WEC, 1994). their own turbines with export orders in place (Wang, 1998;
Assuming that for practical reasons just 4% of that land area AWEA, 1998).
could be used (derived from detailed studies of the potential of
wind power in the Netherlands and the USA), wind power pro- Wind power continues to become more competitive, and com-
duction is estimated at some 20,000 TWh/yr, which is 2.5 times mercial development is feasible without subsidies or any form
lower than the assessment of Grubb and Meyer (1993) (see Table of government incentives at good sites. In 1999, for example,
3.32). The Global Wind Energy Initiative, presented by the wind a privately owned 32MW wind farm constructed in New
energy industry at the 4th Conference of Parties meeting in Zealand on a site with mean annual wind speed of greater than
Buenos Aires (BTM Consult, 1998), demonstrated that a total 10m/s was competing at below US$0.03/kWh in the wholesale
installed capacity of 844GW by 2010, including offshore installa- electricity market (Walker et al., 1998). The rapidly falling
tions, would be feasible. A report by Greenpeace and the price of wind power is evidenced by the drop in average prices
European Wind Energy Association estimated 1,200GW could be (adjusted for short contract lengths). Over successive rounds of
installed by 2020 providing almost 3,000TWh/yr or 10% of the the British NFFO (non-fossil-fuel obligation), average ten-
global power demand assumed at that time (Greenpeace, 1999). dered kWh prices declined from 7.95p in 1990 to 2.85p
(US$0.043/kWh) in 1999 (Mitchell, 1998; UK DTI, 1999).
Many of the turbines needed to meet future demand will be These confirm the estimate of Krohn (1997) that wind generat-
sited offshore, exceed 2MW maximum output, and have lower ed electricity costs from projects >10MW would decline to
operating and maintenance costs, increased reliability, and a US$0.04/kWh on good sites. The global average price is
greater content of local manufacture. Shallow seas and plan- expected to drop further to US$0.027–0.031/kWh by around
ning consents may be a constraint. 2020 as a result of economies of scale from mass production
and improved turbine designs (BTM consult, 1999).
Various government-enabling initiatives have resulted in the EPRI/DOE (1997) predicted the installed costs will fall from
main uptake of wind power to date occurring in Germany, US$1,000 to US$635/kW (with uncertainty of +10% -20%),
Denmark, the USA, Spain, India, the UK and the Netherlands. and operating costs will fall from 0.01c/kWh to 0.005c/kWh.
Typically turbines in the 250 – 750kW range are being installed However, on poorer sites of around 5m/s mean annual wind
(Gipe, 1998). Significant markets are now emerging in China, speed, the generating costs would remain high at around
Canada, South America, and Australia. US$0.10-0.12/kWh (8% discount rate).
Table 3.33a: Key assumptions for the assessment of the solar energy potential
Region Assumed annual Assumed annual

clear sky irradiancea average sky
kW/m2 clearanceb, %
Min Max Min Max
NAM (North America) 0.22 0.45 0.44 0.88

LAM (Latin America and the Caribbean) 0.29 0.46 0.48 0.91
AFR (Sub-Saharan Africa) 0.31 0.48 0.55 0.91
MEA (Middle East and North Africa) 0.29 0.47 0.55 0.91
WEU (Western Europe) 0.21 0.42 0.44 0.80
EEU (Central and Eastern Europe) 0.23 0.43 0.44 0.80
FSU (Newly independent states of the former Soviet Union) 0.18 0.43 0.44 0.80
PAO (Pacific OECD) 0.28 0.46 0.48 0.91
PAS (Other Pacific Asia) 0.32 0.48 0.55 0.89
CPA (Centrally planned Asia and China) 0.26 0.45 0.44 0.91
SAS (South Asia) 0.27 0.45 0.44 0.91
a The minimum assumes horizontal collector plane; the maximum assumes two-axis tracking collector plane
b The maxima and minima are as found for the relevant latitudes in Table 2.2 of WEC (1994).
Since wind power is intermittent the total costs will be higher Photovoltaics
if back-up capacity has to be provided. In large integrated sys-
tems it has been estimated that wind could provide up to 20% The costs of photovoltaics are slowly falling from around
of generating capacity without incurring significant penalty. In US$5,000/kW installed as more capacity is installed in line
systems that have large amounts of stored hydropower avail- with the classical learning curve (Goldemberg, 2000). Present
able, such as in Scandinavia, the contribution could be higher. generating costs are relatively high (20 – 40c/kWh), but solar
The Denham wind (690kW)/diesel(1.7MW) system in Western power is proving competitive in niche markets, and has the
Australia uses a flywheel storage system and new power sta- potential to make substantially higher contributions in the
tion controller software to displace around 70% of the diesel future as costs fall. Photovoltaics can often be deployed at the
used in the mini-grid by wind (Eiszele, 2000). point of electricity use, such as buildings, and this can give a
competitive advantage over power from central power stations
3.8.4.3.4 Solar Energy to offset higher costs.
An estimation of solar energy potential based on available land Conversion technology continues to improve but efficiencies
in various regions (Tables 3.33a and 3.33b) gives 1,575 to are still low. Growing markets for PV power generation sys-
49,837 EJ/yr. Even the lowest estimate exceeds current global tems include grid connected urban building integrated systems;
energy use by a factor of four. The amount of solar radiation off-grid applications for rural locations and developing coun-
intercepted by the earth may be high but the market potential tries where 2 billion people still have no electricity; and for
for capture is low because of: independent and utility-owned grid-connected power stations.
(1) the current relative high costs; The size of the annual world market has risen from 60MW in
(2) time variation from daily and seasonal fluctuations, and 1994 to 130MW in 1997 with anticipated growth to over
hence the need for energy storage, the maximum solar 1000MW by 2005 (Varadi, 1998). This remains small com-
flux at the surface is about 1 kW/m2 whereas the annual pared with hydro, wind, and biomass markets. Industrial
average for a given point is only 0.2 kW/m2; investment in PV has increased with Shell and BP-Solarex
(3) geographical variation, i.e. areas near the equator receive establishing new PV manufacturing facilities with reductions
approximately twice the annual solar radiation than at 60° in the manufacturing costs anticipated (AGO, 1999).
latitudes; and
(4) diffuse character with low power such that large-scale Conversion efficiencies of silicon cells continue to improve
generation from direct solar energy can require significant with 24.4% efficiency obtained in the laboratory for monocrys-
amounts of equipment and land even with solar concen- talline cells and 19.8% for multicrystalline (Green, 1998; Zhao
trating techniques. et al., 1998), though commercial monocrystalline-based mod-
Table 3.33b: Assessment of the annual solar energy potential
Region Unused land Assumed for Solar energy

solar energyd potentiale
(Gha) (Mha) (EJ/yr)
Availablec Min Max Min Max
NAM (North America) 0.5940 5.94 59.4 181.1 7,410

LAM (Latin America and the Caribbean) 0.2567 2.57 25.7 112.6 3,385
AFR (Sub-Saharan Africa) 0.6925 6.93 69.3 371.9 9,528
MEA (Middle East and North Africa) 0.8209 8.21 82.1 412.4 11,060
WEU (Western Europe) 0.0864 0.86 8.6 25.1 914
EEU (Central and Eastern Europe) 0.0142 0.14 1.4 4.5 154
FSU (Newly independent states of the former Soviet Union) 0.7987 7.99 79.9 199.3 8,655
PAO (Pacific OECD) 0.1716 1.72 17.2 72.6 2,263
PAS (Other Pacific Asia) 0.0739 0.74 7.4 41.0 994
CPA (Centrally planned Asia and China) 0.3206 3.21 32.1 115.5 4,135
SAS (South Asia) 0.1038 1.04 10.4 38.8 1,339
World total 3.9331 39.33 39.33 1575.0 49,837
Ratio to the current primary energy consumption (425 EJ/yrf) - - - 3.7 117
Ratio to the primary energy consumption projectedg - - - 2.7 - 1.5 84 - 47
for 2050 (590-1,050 EJ/yr)
Ratio to the primary energy consumption projectedg - - - 1.8 - 0.8 57 - 26
for 2100 (880-1,900 EJ/yr)
c The “other land” category from FAO (1999)

d The maximum corresponds to 10% of the unused land; the minimum corresponds to 1% of the unused land
e The minimum is calculated as (9) = (2)×(4)×(7)× 315 EJ/a, where numbers in parentheses are column numbers in Tables 3.33a and 3.33b, 315 is a coefficient
of unit conversion; the maximum (10) is (3)×(5)×(8)× 315 EJ/yr
f Source: IEA (1998b)
g Source: IIASA/WEC (1998)
ules are obtaining only 13%-17% efficiency and multicrys- viable product now appears to be feasible with an efficiency of
talline 12%-14%. Modules currently retail for around around 15% and cost of around US$1500/kW (Green, 1998).
US$4,000 – 5,000/kW peak with costs reducing as predicted Recycling of PV modules is being developed at the pilot scale
by the Worldwatch Institute (1998) as a result of manufactur- for both thin film and crystalline silicon modules (Fthenakis et
ing scale-up and mass production techniques. Recent studies al., 1999).
showed a US$660M investment in a single factory producing
400MW (5 million panels) a year would reduce manufacturing Advances in inverters (including incorporation into the mod-
costs by 75%. KPMG (1999) and Neij (1997) calculated a ules to give AC output) and net metering systems have encour-
US$100 billion investment would be needed to reach an aged marketing of PV panels for grid-connected building inte-
acceptable generating level of US$0.05/kWh. gration projects either in government sponsored large scale
installations (up to 1MW) or on residential buildings (up to
Thin film technologies are less efficient (6%-8%) but cheaper 5kW) (IEA, 1998c; Moomaw et al., 1999b; IEA, 1999b;
to produce, and can be incorporated into a range of applications Schoen et al., 1997). Japan aims to install 400 MW on 70,000
including roof tile structures. Further efficiency improvements houses by 2000 (Flavin and Dunn, 1997) and 5000MW by
are proving difficult, whereas both cadmium telluride and cop- 2010. Simple solar home systems with battery storage and
per indium gallium selenide cells have given 16%-18% effi- designed for use in developing countries are being installed
ciencies in the laboratory (Green et al., 1999) and are close to and evaluated in South Africa and elsewhere by Shell
commercial production. New silicon thin film technology International Renewables with funding from the World Bank.
using multilayer cells, which combine buried contact technol- Integrated building systems and passive solar design is covered
ogy with new silicon deposition and recrystallization tech- in Section 3.3.4.
niques, enables manufacture to be automated. A commercially
A promising low-cost photovoltaic technology is the photo- Several ocean current prototypes of 5 to 50kW capacity have
sensitization of wide-band-gap semiconductors (Burnside et been evaluated with estimated generating costs of around
al., 1998). New photosensitizing molecules have been devel- US$0.06-0.11/kWh (5% discount rate) depending on current
oped in the laboratory, which exhibit an increased spectral speed, though these costs are difficult to predict accurately
response, though at low efficiencies of <1%. Arrays of large (EECA, 1996). The economics of tidal power schemes remain
synthetic porphyrin molecules, with similar properties to non-viable, and there have been environmental concerns raised
chlorophyll, are being developed for this application (Burrell et over protecting wetlands and wading birds on tidal mudflats.
al., 1999).
3.8.4.4 Technical CO2 Removal and Sequestration
Solar Thermal
Substantial reductions in emissions of CO2 from fossil fuel
In Europe 1 million m2 of flat plate solar collectors were combustion for power generation could be achieved by use of
installed in 1997, anticipated to rise to 5 million m2 by 2005 technologies for capture and storage of CO2. These technolo-
(ESD, 1996). Combined PV/solar thermal collectors are under gies have become much better understood during the past few
development with an anticipated saving in system costs, years, so they can now be seriously considered as mitigation
though these remain high at US$0.18-0.20/kWh at 8% discount options alongside the more well established options, such as
rate and 10 year life (Elazari, 1998). High temperature solar the improvements in fossil fuel systems described in Section
thermal power generation systems are being developed to fur- 3.8.4.1, and the substitutes for fossil fuels discussed in Sections
ther evaluate technological improvements (Jesch, 1998). The 3.8.4.2 and 3.8.4.3. Strategies for achieving deep reductions in
Californian “power tower” pilot project has been successful at CO2 emissions will be most robust if they involve all three
the 10 MW scale and is now due to be tested at 30MW with types of mitigation option.
100MW the ultimate goal (EPRI/DOE, 1997). Dish systems
giving concentration ratios up to 2000 and therefore perform- The potential for generation of electricity with capture and
ing at temperatures up to 1,500oC can supply steam directly to storage of CO2 is determined by the availability of resources of
a standard turbo-generator (AGO, 1998). Capital costs are pro- fossil fuels plus the capacity for storage of CO2. Fossil fuel
jected to fall from US$4,000/kW to US$2,500 by 2030 resources are described in Section 3.8.2 and published esti-
(Moomaw et al., 1999b) with other estimates much lower mates of CO2 storage capacity are discussed below. These
(AGO, 1998). show that capacity is not likely to be a major constraint on the
application of this technology for reducing CO2 emissions
3.8.4.3.5 Geothermal from fossil fuel combustion.
Geothermal energy is a heat resource used for electricity gen- The technology is available now for CO2 separation, for piping
eration, district heating schemes, processing plants, domestic CO2 over large distances, and for underground storage. This
heat pumps, and greenhouse space heating, but is only “renew- technology is best suited to dealing with the emissions of large
able” where the rate of depletion does not exceed the heat point sources of CO2, such as power plant and energy-intensive
replenishment. industry, rather than small, dispersed sources such as transport
and heating. Nevertheless, as is shown below, it could have an
The geothermal capacity installed in 20 countries was 7,873 important role to play in reducing emissions from all of these
MWe in 1998: this provided 0.3% (40TWh/yr) of the total sources.
world power generation (Barbier, 1999). Geothermal direct
heat use was an additional 8,700 MWth. This energy resource 3.8.4.4.1 Technologies for Capture of CO2
could be increased by a factor of 10 in the near term with much
of the resource being in developing countries such as Indonesia CO2 can be captured in power stations, either from the flue gas
(Nakicenovic et al., 1998). stream (post-combustion capture) or from the fuel gas in, for
example, an integrated gasification combined cycle process
3.8.4.3.6 Marine Energy (pre-combustion capture). At present, the capture of CO2 from
flue gases is done using regenerable amine solvents (Audus,
The potential for wave, ocean currents, ocean thermal conver- 2000; Williams, 2000). In such processes, the flue gas is
sion, and tidal is difficult to quantify but a significant resource scrubbed with the solvent to collect CO2. The solvent is then
exists. For example, resources of ocean currents greater than 2 regenerated by heating it, driving off the CO2, which is then
m/s have been identified, and in Europe alone the best sites compressed and sent to storage. This technology is already in
could supply 48TWh/yr (JOULE, 1993). Technical develop- use for removing CO2 from natural gas, and for separating CO2
ments continue but several proposed schemes have met with from flue gases for use in the food industry.
economic and environmental barriers. Many prototype systems
have been evaluated (Duckers, 1998) but none have yet proved The concentration of CO2 in power station flue gas is between
to be commercially viable (Thorpe, 1998). about 4% (for gas turbines) and 14% (for pulverized-coal-fired
plant). These low concentrations mean that large volumes of
gas have to be handled and powerful solvents have to be used, (Stevens et al., 2000). Although CO2 is not transported by ship
resulting in high energy consumption for solvent regeneration. at present, tankers similar to those currently used for liquefied
Research and development is needed to reduce the energy con- petroleum gas (LPG) could be used for this purpose (Ozaki,
sumption for solvent regeneration, solvent degradation rates, 1997).
and costs. Nevertheless, 80%-90% of the CO2 in a flue gas
stream could be captured by use of such techniques. CO2 exists in natural underground reservoirs in various parts of
the world. Potential sites for storage of captured CO2 are
In pre-combustion capture processes, coal or oil is reacted with underground reservoirs, such as depleted oil and gas fields or
oxygen, and in some cases steam, to give a fuel gas consisting deep saline reservoirs. CO2 injected into coal beds may be
mainly of carbon monoxide and hydrogen. The carbon monox- preferentially absorbed, displacing methane from the coal;
ide is reacted with steam in a catalytic shift converter to give sequestration would be achieved providing the coal is never
CO2 and more hydrogen. Similar processes can be used with mined. Another possible storage location for captured CO2 is
natural gas but then air may be preferred as the oxidant (Audus the deep ocean, but this option is at an earlier stage of devel-
et al., 1999). The fuel gas produced contains a high concentra- opment than underground reservoirs; so far only small-scale
tion of CO2, making separation easier, so a physical solvent experiments for preliminary investigation have been carried
may be better suited for this separation; the hydrogen can be out (Herzog et al., 2000); the deep ocean is chemically able to
used in a gas turbine or a fuel cell. Similar technology is dissolve up to 1800GtC (Sato, 1999). An indication of the
already in use industrially for producing hydrogen from natur- global capacities of the major storage options is given in Table
al gas (e.g., for ammonia production). The integrated operation 3.34. The capacities of these reservoirs are subject to substan-
of these technologies for generating electricity whilst capturing tial uncertainty, as purposeful exploration has only been con-
CO2 has no major technical barriers but does need to be ducted in some parts of the world so far. Other published esti-
demonstrated (Audus et al., 1999). mates of the global capacity for storage in underground
aquifers range up to 14,000GtC (Hendriks, 1994). Other meth-
The concentration of CO2 in a power station flue gas stream ods of CO2 storage have been suggested but none are compet-
can be increased substantially (to more than 90%) by using itive with underground storage (Freund, 2000).
oxygen for combustion instead of air (Croiset and
Thambimuthu, 1999). Then post-combustion capture of CO2 is Substantial amounts of CO2 are already being stored in under-
a very easy step, but the temperature of combustion must be ground reservoirs:
moderated by recycling CO2 from the exhaust, something • Nearly 1Mt/yr of CO2 is being stored in a deep saline
which has been demonstrated for use with boilers but would reservoir about 800m beneath the bed of the North Sea
require major development for use with gas turbines. as part of the Sleipner Vest gas production project
Currently, the normal method of oxygen production is by cryo- (Baklid and Korbol, 1996). This is the first time CO2
genic air separation, which is an energy intensive process. has been stored purely for reasons of climate protec-
Development of low-energy oxygen separation processes, tion.
using membranes, would be very beneficial. • About 33Mt/yr of CO2 is used at more than 74
enhanced oil recovery (EOR) projects in the USA.
Other CO2 capture techniques available or under development Most of this CO2 is extracted from natural CO2 reser-
include cryogenics, membranes, and adsorption (IEA voirs but some is captured from gas processing plants.
Greenhouse Gas R&D Programme, 1993). Much of this CO2 remains in the reservoir at the com-
pletion of oil production; any CO2 produced with the
After the CO2 is captured, it would be pressurized for trans- oil is separated and reinjected. An example of an EOR
portation to storage, typically to a pressure of 100 bar. CO2 scheme which will use anthropogenic CO2 is the
capture and compression imposes a penalty on thermal effi- Weyburn project in Canada (Wilson et al., 2000). In
ciency of power generation, which is estimated to be between this project, 5,000 t/d of CO2 captured in a coal gasifi-
8 and 13 percentage points (Audus, 2000). Because of the cation plant in North Dakota, USA will be piped to the
energy required to capture and compress CO2, the amount of Weyburn field in Saskatchewan, Canada.
emissions avoided is less than the amount captured. The cost of • At the Allison unit in New Mexico, USA, (Stevens et
CO2 capture in power stations is estimated to be approximate- al., 1999), over 100,000 tonnes of CO2 has been inject-
ly US$30-50/t CO2 emissions avoided (US$110-180/tC), ed over a three-year period to enhance production of
equivalent to an increase of about 50% in the cost of electrici- coal bed methane. The injected CO2 is sequestered in
ty generation. the coal (providing it is never mined). This is the first
example of CO2-enhanced coal bed methane produc-
3.8.4.4.2 Transmission and Storage of CO2 tion.
CO2 can be transported to storage sites using high-pressure The cost of CO2 transport and storage depends greatly on the
pipelines or by ship. Pipelines are used routinely today to trans- transport distance and the capacity of the pipeline. The cost of
port CO2 long distances for use in enhanced oil recovery transporting large quantities of CO2 is approximately US$1-3/t
Table 3.34: Some natural reservoirs which may be suitable for storage of carbon dioxide
(Freund, 1998; Turkenburg, 1997)
Reservoir type Storage option Global capacity

(GtC)
Below ground
Disused oil fields 100
Disused gas fields 400
Deep saline reservoirs >1000
Unminable coal measures 40
Above ground
Forestry 1.2 GtC/yr
Ocean
Deep ocean >1000
per 100km (Ormerod, 1994; Doctor et al., 2000). The cost of date. Their ability to contain CO2 for the necessary timescales
underground storage, excluding compression and transport, is less certain, but research is underway to improve under-
would be approximately US$1-2/tCO2 stored (Ormerod, standing of this aspect (Williams, 2000).
1994). The overall cost of transport and storage for a transport
distance of 300 km would therefore be about US$8/tCO2 If CO2 storage were to be used as a basis for emissions trading
stored, equivalent to about US$10/t of emissions avoided or to meet national commitments under the UNFCCC, it would
(US$37/tC). be necessary to establish the quantities of CO2 stored in a ver-
ifiable manner. Most verification requirements for geological-
If the CO2 is used for enhanced oil recovery (EOR) or enhanced ly stored CO2 can be achieved with technology available today.
coal bed methane production (ECBM), there is a valuable prod- Validation of CO2 storage in the ocean would be more difficult,
uct (oil or methane, respectively) which would help to offset the but it should be possible to verify quantities of CO2 stored in
cost of CO2 capture and transport. In some EOR or ECBM pro- concentrated deposits on the seabed.
jects, the net cost of CO2 capture and storage might be negative.
Other ideas for utilizing CO2 to make valuable products have 3.8.4.4.4 Applicability of Capture and Storage in Other
not proved to be as useful as sequestration measures, because of Industries
the amount of energy consumed in the process and the relative-
ly insignificant quantities of CO2 which would be used. The possibility of using CO2 capture and storage in the manu-
facturing industry is described in Section 3.5.3.4, including
If no valuable products were produced, the overall cost of CO2 capture of CO2 during production of hydrogen from fossil
capture and storage would be about US$40-60/t CO2 emissions fuels. Hydrogen is widely used for ammonia production and in
avoided (150-220/tC). As with most new technologies, there is oil refineries, but it can also be used as an energy carrier.
scope to reduce these costs in the future through technical Applications would be for small, dispersed, and/or mobile
developments and wider application. energy users where capture of CO2 after combustion would not
be feasible. Particular examples are in transport e.g., cars and
3.8.4.4.3 Other Aspects aircraft, and small-scale heat and power production.
Production of hydrogen from fossil fuels with CO2 storage
If CO2 is to be stored for mitigation purposes, it is important could be an attractive transition strategy to enable the wide-
that the retention time is sufficient to avoid any adverse effect scale introduction of hydrogen as an energy carrier
on the climate. It is also important to avoid large-scale acci- (Turkenburg, 1997; Williams, 1999).
dental releases of CO2. It is expected that these goals will be
achievable with underground storage of CO2 and may be 3.8.4.4.5 The Role of CO2 Capture and Storage in Mitigation
achievable with ocean storage. Oil and gas fields have of Climate Change
remained secure for millions of years, so they should be able to
retain CO2 for similar timescales, providing extraction of oil or Some CO2 could be captured from anthropogenic sources and
gas or injection of CO2 does not disrupt the seal. Deep saline stored underground at little or no overall cost, for example
reservoirs are generally less well characterized than oil and gas where the CO2 is already available in concentrated form, such
reservoirs because of their lack of commercial importance to as in natural gas treatment plants or in hydrogen or ammonia
manufacture. If the captured CO2 were to be stored in depleted the reduction potential will be reached mainly as networks are
hydrocarbon reservoirs, such as in enhanced oil recovery replaced.
schemes, or through enhanced production of coal bed methane,
the income produced would also help to offset the costs. Such Methane and other gases often occur with oil in the ground and
opportunities are available for early action to combat climate are brought to the surface during extraction. If there was no
change using technology which is available today. market for the gas, it was normally vented to the air, but since
the1960s methane has increasingly been utilized, compressed
Substantial quantities of CO2 from fossil fuel combustion and reinjected into the oil field to aid oil production or flared
could be captured in the future and sequestered in natural reser- rather than vented. Emissions can be reduced typically by 98%
voirs (Williams, 2000). Potentially, this approach could by such methods and these are now common. In Nigeria, where
achieve deep reductions in emissions of CO2. Edmonds et al. venting is still practised, Shell has made a commitment to end
(2000) have considered various possible strategies to achieve continuous venting by 2003 and continuous flaring by 2008,
stabilization of CO2 concentrations around 550-750 ppmv. It and has started to liquefy the gas for export.
has been shown that inclusion of the option of capture and stor-
age of CO2 offers significant reduction in overall cost com- Sulphur hexafluoride, SF6, used as an insulator in electrical
pared with strategies which do not include this option. transmission equipment, is covered in Section 3.5.
3.8.4.5 Emissions from Production, Transport, Conversion,

and Distribution 3.8.5 Regional Differences
Methane can be released during the production, transport and 3.8.5.1 Privatization and Deregulation of the Electricity Sector
use of coal, oil, and gas. Various techniques can be used to
reduce these emissions, some of which can be captured for use In many countries, state owned or state regulated electricity
as an energy resource (Williams, 1993; IEA Greenhouse Gas supply monopolies have been privatized and broken up to
R&D Programme, 1996, 1997; IGU, 1997, 2000; US EPA, deregulate markets such that companies compete to generate
1993, 1999a). electricity and to supply customers. These moves affect the
types of power station favoured. Traditional, large power sta-
With coal, methane is trapped in coal seams and surrounding tions (> 600MW) have had high capital costs and construction
strata in varying amounts and is released as a result of mining. periods of 4-7 years, which have led to high interest payments
Coal mines are ventilated to dilute the methane as it is released during construction and the need for higher planning margins.
to prevent an explosive build up of the gas. The diluted Under the new circumstances, the new power generators use
methane is then normally released to the atmosphere. The higher discount rates, seek lower overall costs, and try to min-
emissions can be reduced substantially by capturing some of imize project risks by preferring plants of smaller unit size.
the methane in a more concentrated form in areas of old work- They thus favour projects with low capital costs, rapid con-
ings in a mine or by drilling into the coal seams to release the struction times, use of proven technology, high plant reliabili-
methane prior to mining, then using it as an energy source. ty/availability, and low operating costs. CCGTs meet all of
Around 50% of emissions from coal mining could be prevent- these new criteria, and are favoured by generators where gas is
ed at costs in the range US$1-4/tCeq (IEA Greenhouse Gas available at acceptable costs. This could point the way for the
R&D Programme, 1996). development of new designs for other types of power station,
which need to be smaller with modular designs that are large-
With natural gas, leakage of methane occurs at exploration, ly factory built rather than site built. Economies of scale then
through transportation to final use. In North America and come from replication on an assembly line rather than through
Europe, the major source is from fugitive emissions, often size (see also Section 6.2.1.3).
leaked from above ground installations or old cast iron or steel
pipelines that were originally installed for coal- and oil- Community ownership of distributed renewable energy pro-
derived town gas. Vulnerable networks can be replaced with jects, particularly wind turbines and biogas plants, is becoming
polyethylene pipes. In Russia, the main sources of leakage are common in Denmark (Tranaes, 1997) and more recently in the
from exploration, compressors, pneumatic devices, and fugi- UK (UK DTI, 1999). The trend towards privately owned dis-
tive emissions. Techniques are being applied to reduce emis- tributed power supply systems, either independent or grid con-
sions including replacing seals, increasing compressor effi- nected, is likely to continue as a result of growing public inter-
ciencies, and replacing gas-operated pneumatic devices. est in sustainability and technical improvements in controls
Around 45% of global emissions from gas could be eliminated and asynchronous grid connections.
and produce a saving of US$5 billion (IEA Greenhouse Gas
R&D Programme, 1997). A further 10% of gas emissions In countries where privatization of transmission line companies
could be reduced at costs up to US$108/tCeq, and a further 15% is occurring, there is no longer any commercial rationale to con-
at costs up to US$135/tCeq. However, the cost of emission struct and maintain lines only to service a small demand. This
reduction for old distribution systems remains very high, and has historically often been a social investment by governments
and aid agencies. Where grid connections are already in place, incremental investment in such a plant will yield benefits but,
it is possible that disconnections may occur in the future where more often, it is investment in training the operators that is lack-
the lines are uneconomic. Then existing residents will have to ing and that will yield substantial gains. The extension of grids
choose between installing independent domestic-scale systems in regions such as India and Africa could allow better use to be
or establishing community-owned co-operative schemes. made of efficient power stations in order to displace less effi-
cient local units. In India, one trading scheme by three electric-
State owned utilities have been able to cross-subsidize other- ity companies resulted in an emissions reduction of 2MtC
wise non-competitive projects including nuclear and renewable (Zhou, 1998), and there are similar possibilities in southern and
technologies. Privatization of these utilities requires new meth- east Africa (Batidzirai and Zhou, 1998). The same study shows
ods of supporting technology implementation objectives. that there is a large scope in the subregion for exploiting
hydropower, sharing of natural gas resources for power genera-
In some cases, electricity tariffs and regulatory systems may tion, and utilization of wind power along the coastal areas.
need to be amended to include the benefits and costs of embed- These measures can displace coal-based generation which cur-
ded generation. This would enable renewable energy projects rently emits 30–40MtC in southern Africa alone.
to be sited on the distribution network at nodes where they
would bring most benefit to quality of supply (see Mitchell, An alternative to the extension of grids in developing countries
1998, 1999; and Chapter 6). One detrimental impact could be is to increase development of efficiently distributed power gen-
an increase of fossil fuel electricity generation caused by the eration. This is discussed further in the section below.
increased need to operate in load-following mode.
3.8.5.3 Distributed Systems
3.8.5.2 Developing Country Issues
Distributed power comprises small power generation or stor-
In the past there has been little incentive to explore for gas in age systems located close to the point of use and/or control-
developing countries unless there was an existing infrastruc- lable load. Worldwide, these include more than 100MW of
ture to utilize it. The development of CCGT technology now existing compressed ignition and natural gas-fired spark igni-
means that, if electricity generation is required, an initial mar- tion engines, small combustion turbines, smaller steam tur-
ket for the gas can be developed quite rapidly and this market bines, and renewables. Emerging distributed power technolo-
extended to other sectors as the infrastructure is built. gies include cleaner natural gas or biodiesel engines, microtur-
bines, Stirling engines and fuel cells, small modular biopower
Developing countries have a large need for capital to meet the and geopower packaged as cogeneration units, and wind, pho-
development of hospitals, schools, and transport and not just tovoltaics and solar dish engine renewable generation.
for energy in general or electricity in particular. In such cir- Increased integration of distributed power with other distrib-
cumstances, cheaper power stations are often built at lower uted energy resources could further enhance technology
efficiency than might otherwise be the case, for example improvement in this sector.
30%-35% efficiency for an old coal-fired design rather than
40%+ for a modern design. The low price of fuel in some of Interest is growing in generating power at point of use using
these countries can also make a cheaper, less efficient design independent or grid-connected systems, often based on renewable
economically more attractive. In India, coal-fired power station energy. These could be developed, owned, and operated by small
design has been standardized at 37.5% efficiency and capacity communities. The European “Campaign for Take-off” target for
of 250 and 500MW. Capital costs are US$884/kW whereas a 100 communities to be supplied by 100% renewable energy and
40% efficiency station would cost around US$977/kW. The become independent of the grid by 2010 will require a hybrid mix
coal price is US$25 - US$37/t, depending on location. Even at of technologies to be used depending on local resources (Egger,
the higher price, the increased capital costs for the higher effi- 1999). Local employment opportunities should result and the
ciency power station outweigh the economic benefits from its experience should aid uptake in developing countries.
lower fuel demand and hence lower emissions.
For small grid-connected embedded generation systems, power
Technology transfer of advanced power generation technolo- supply companies could benefit from improved power quality
gies including CCGT, nuclear, clean coal, and renewable ener- where the distributed sites are located towards the end of long
gy would lead to emission reduction and could be encouraged and inefficient transmission lines (Ackermann et al., 1999).
through the Kyoto mechanisms (see Chapter 6). In addition to Expensive storage would be avoided where a grid system can
limited capital resources that can make advanced technologies provide back-up generation.
unaffordable, many developing countries face skill shortages
that can impede the construction and operation of such tech-
nology. This is discussed more fully in Chapter 5. 3.8.6 Technological and Economic Potential
Electricity plants and boilers are sometimes not operated as Several studies have attempted to express the costs of power
efficiently as possible in developing countries. In some cases, generation technologies on a comparable basis (US DOE/EIA,
2000; Audus, 2000; Freund, 2000; Davison, 2000; (expressed as gC/kWh) are higher. This reflects the lower effi-
Goldemberg, 2000; OECD, 1998b). The OECD data are for ciencies of power stations currently being built in non-Annex I
power stations that are mainly due for completion in 2000 to countries. The costs of reducing greenhouse gas emissions in
2005 in a wide cross section of countries, and these show that the mitigation options varies both because of variability in the
costs can vary considerably between projects, because of costs of the alternative technology and because of the variabil-
national and regional differences and other circumstances. ity in the costs of the baseline technology.
These include the need for additional infrastructure, the trade-
off between capital costs and efficiency, the ability to run on Tables 3.35a-d also present estimates of the CO2 reduction
baseload, and the cost and availability of fuels. The costs of potential in 2010 and 2020 for the alternative mitigation
reducing greenhouse gas emissions will similarly vary both options. Baseline emissions of CO2 are used, derived from
because of variability in the costs of the alternative technology projections of world electricity generation from different ener-
and because of the variability in the costs of the baseline tech- gy sources (IEA, 1998b). The IEA projections essentially are
nology. Because of this large variation in local circumstances, enveloped by the range of SRES marker scenarios for the peri-
the generating costs of studies can rarely be generalized even od up to 2020. The IEA projections were used as the baseline
within the boundaries of one country. Consequently, costs (and because of their shorter time horizon and higher technology
mitigation potentials) are highly location dependent. The resolution. In the tables, it is assumed that a maximum of 20%
analysis in this section uses two principle sources of data, the of new coal baseline capacity could be replaced by either gas
OECD (1998b) data and the US DOE/EIA (2000) data. The lat- or nuclear technologies during 2006 to 2010 and 50% during
ter data are for a single country and may reduce some of the 2011 to 2020. Similarly, it is assumed that a maximum of 20%
variability in costs seen in multi-country studies. of new gas capacity in 2006 to 2010 and 50% in 2011 to 2020
could be displaced by mitigation options. These assumptions
Tables 3.35a-d are derived from the OECD (1998b) survey would allow a five-year lead-time (from the publication of this
which gives data on actual power station projects due to come report) for decisions on the alternatives to be made and con-
on stream in 2000 to 2005 from 19 countries including Brazil, struction to be undertaken. It is assumed that the programme
China, India, and Russia, together with a few projects for 2006 would build up over several years and hence the maximum
to 2010 based on more advanced technologies. Data from other capacity that could be replaced to 2010 is limited. After 2010
sources have been added where necessary and these are identi- it is assumed that there will be practical reasons why half the
fied in the footnote to the tables. The tables present typical new coal capacity could not be displaced. The rate of building
costs per kWh and CO2 emissions of alternative types of gen- gas or nuclear power stations that would be required using
eration expected for 2010. Tables 3.35a and 3.35b use a base- these assumptions should not present problems. For nuclear
line pulverized coal technology for comparative purposes. power, the rate of building between 2011 and 2020 would be
Table 3.35a contains data for Annex I countries (as defined in less than that seen at the peak for constructing new nuclear
the UN Framework Convention on Climate Change) in the plants. For gas, the gas turbines are factory made, so no prob-
OECD dataset, and Table 3.35b contains data for non-Annex I lems should arise from increasing capacity, and less would be
countries. In addition to coal, the table gives projected costs for required in terms of boilers, steam turbines, and cooling tow-
gas, nuclear, CO2 capture and storage, PV and solar thermal, ers than the coal capacity being replaced. For renewables such
hydro, wind, and biomass. In the baseline, costs and carbon as wind, photovoltaics (PV) and biomass, maximum penetra-
emissions are an average of the coal-fired projects in the tion rates were derived from the Shell sustainable growth sce-
OECD database for Annex I/non-Annex I countries respective- nario (Shell, 1996) and applied to replace new coal or gas
ly, with flue gas desulphurization (FGD) included in all Annex capacities. For wind and PV, these penetration rates imply sub-
I cases and in around 20% of the non-Annex I cases. Other stantial growth, but are less than what could be achieved if the
technologies are then compared to the coal baseline using cost industries continued to expand at the current rate of 25% per
data from the OECD database and other sources. In Tables year until 2020. For biomass, most of the fuel would be wood
3.35c and 3.35d, the baseline technology is assumed to be process or forest waste. Some non-food crops would also be
CCGT burning natural gas, and costs and emissions are simi- used. The introduction of CO2 capture and storage technology
larly calculated for Annex I and non-Annex I countries. would require similar construction processes as for a conven-
tional power plant. The CO2 separation facilities would need
In the tables, the first column of data gives the generation costs additional equipment but, in terms of physical construction,
in USc/kWh and the emissions of CO2 in grams of carbon per involve no more effort than, say, the establishment of a similar
kWh (gC/kWh) for the baseline technology and fuel, coal, and scale of biomass gasification plant. CO2 storage facilities
gas, respectively. The subsequent columns give a range of pos- would be constructed using available oil/gas industry technol-
sible generation options, and the costs and emissions for alter- ogy and this is not seen to be a limiting factor. Storage would
native technologies that could be used to reduce C emissions be in saline aquifers of depleted oil and gas fields. For CO2
over the next 20 years and beyond. Additionally, it might be capture and storage, it is assumed that pilot plants could be
noted that the non-Annex I baseline coal technology is cheap- operational before 2010, and the mitigation potential is put at
er than that for Annex I countries (both based on the costs of 2–10MtC each for coal and gas technologies. It is assumed,
power stations under construction) and that CO2 emissions arbitrarily, that these would be in Annex I countries. For 2020,
the total mitigation potential is put at 40–200MtC, split equal- capacities have been adopted in the market place, coal-fired
ly between coal and gas, and between Annex I and non-Annex integrated gasification combined cycle power stations would
I countries. Again, this is somewhat arbitrary, but reflects, on have similar costs but lower emissions than the pulverized fuel
the one hand, the potential to move forward with the technolo- (pf) power station (because of its higher efficiency). In many
gy if no major problems are encountered, and, on the other, the places, gas-fired CCGT power stations offer lower cost gener-
potential for more extended pilot schemes. It is assumed, for ation than coal at current gas prices and produce around only
simplicity, that fuel switching, from coal to gas or vice versa, half the emissions of CO2. Data on CO2 capture and storage
would not occur in addition to CO2 capture and storage, have been taken from IEA Greenhouse Gas R & D Programme
although this would be an extra option. studies (Audus, 2000; Freund, 2000; Davison, 2000). This
could reduce emissions by about 80% with additional costs of
The tables show that the reduction potential in 2020 is sub- around 1.5c/kWh for gas and 3c/kWh for coal pf and
stantially higher than in 2010, which follows from the assump- 2.5c/kWh for coal IGCC. In the EIA study, nuclear power is
tions used and reflects the time taken to take decisions and, more expensive than coal-fired generation, but generally less
especially in the case of renewables and CO2 capture and stor- than coal with carbon capture and storage. Wind turbines can
age, to build up manufacturing capacity, to learn from experi- be competitive with conventional coal and gas power genera-
ence, and to reduce costs. The tables show that each of the mit- tion at wind farm sites with high mean annual speeds. Biomass
igation technologies can contribute to reducing emissions, with can also contribute to GHG mitigation, especially where
nuclear, if socio-politically desirable, having the greatest forestry residues are available at very low costs (municipal
potential. Replacement of coal by gas can make a substantial solid waste even at negative costs). Where biofuel is more
contribution as can CO2 capture and storage. Each of the costly, either because the in-forest residue material used
renewables can contribute significantly, although the potential requires collection and is more expensive or because purpose
contribution of solar power is more limited. The potential grown crops are used, or where wind conditions are poorer, the
reductions within each table are not addable. The alternative technologies may still be competitive for reducing emissions.
mitigation technologies will be competing with each other to Photovoltaics and solar thermal technologies appear expen-
displace new coal and gas power stations. On the assumption sive against large-scale power generation, but will be increas-
about the maximum displacement of new coal and gas power ingly attractive in niche markets or for off-grid generation as
stations (20% for 2006 to 2010, 50% for 2011 to 2020), the costs fall.
maximum mitigation that could be achieved would be around
140MtC in 2010 and 660MtC in 2020. These can be compared Table 3.35e also gives estimated CO2 emissions and mitigation
with estimated and projected global CO2 emissions from power costs compared to either a coal-fired pf power station or a gas-
stations of around 2400MtC in 2000, 3150MtC in 2010 and fired CCGT. For the coal base-case, it is projected that in 2010
4000MtC in 2020 (IEA, 1998b). under assumptions of improved fossil fuel technologies, an
IGCC would offer a small reduction in emissions at positive or
In practice, a combination of technologies could be used to dis- negative cost. A gas-fired CCGT has generally negative miti-
place coal and natural gas fired generation and the choice will gation costs against a coal-fired pf baseline, reflecting the
often depend on local circumstances. In addition to the descrip- lower costs of CCGT in the example used. CO2 capture and
tion in the tables, oil-fired generation could also be displaced storage would enable deep reductions in emissions from coal-
and, on similar assumptions, there is a further mitigation poten- fired generation but the cost would be about US$100-150/tC
tial of 10MtC by 2010 and 40MtC by 2020. Furthermore, in depending on the technology used. Gas-fired CCGT with CO2
practice not all of the mitigation options are likely to achieve capture and storage appears attractive, but this is principally
their potential for a variety of reasons – unforeseen technical because switching to CCGT is attractive in itself. Nuclear
difficulties, cost limitations, and socio-political barriers in power mitigation costs are in the range US$50-100/tC when
some countries. The total mitigation potential for all three fos- coal is used as the base for comparison. It is uncertain whether
sil fuels from power generation, allowing for potential prob- there would be sufficient capacity available for wind or bio-
lems, is therefore estimated at about 50-150MtC by 2010 and mass to deliver as much electricity as could be produced by
350-700MtC by 2020. fossil fuel-fired plants, but certainly not at the low costs shown
in Table 3.35e.
In contrast to the OECD data which span a wide range reflect-
ing local circumstances, Table 3.35e presents costs for the If a gas-fired baseline is assumed, most of the mitigation
USA, mainly based on data used in the Annual Energy options are found to be more expensive. CO2 capture and stor-
Outlook of the US Energy Information Agency (US DOE/EIA, age appears relatively attractive, achieving deep reductions in
2000). By and large, the mitigation costs fall in the range of emissions at around US$150/tC avoided. Wind, biomass, and
costs given in Tables 3.35a-d. The electricity generating costs nuclear could be attractive options in some circumstances.
are based on national projections of utility prices for coal and Other options show higher costs. PV and solar thermal are
natural gas, while capital costs and generating efficiencies are again expensive mitigation options, and, as noted above, are
dynamically improving depending on their respective rates of more suited to niche markets and off-grid generation.
market penetration. The table indicates that once sufficient
Table 3.35a: Estimated costs of alternative mitigation technologies in the power generation sector compared to baseline coal-fired power stations and potential reduc-
256
tions in carbon emissions to 2010 and 2020 for Annex I countries
Technology pf+FGD, IGCC and CCGT pf+FGD+ CCGT+ Nuclear PV and Hydro Wind BIGCC
NOx, etc Super- CO2 CO2 thermal turbines
critical capture capture solar
Energy source Coal Coal Gas Coal Gas Uranium Solar Water Wind Biofuel
radiation
Generating costs (c/kWh) 4.90 3.6-6.0 4.9-6.9 7.9 6.4-8.4 3.9-8.0 8.7-40.0 4.2-7.8 3.0-8 2.8-7.6
Emissions (gC/kWh) 229 190-198 103-122 40 17 0 0 0 0 0
Cost of carbon reduction (US$/tC) Baseline -10 to 40 0 to 156 159 71 to 165 -38 to 135 175 to 1400 -31 to 127 -82 to 135 -92 to 117
Reduction potential to 2010 (MtC/yr) Baseline 13 18 2-10 - 30 2 6 51 9
Reduction potential to 2020 (MtC/yr) Baseline 55 103 5-50 - 191 20 37 128 77
see notes on page 258
Table 3.35b: Estimated costs of alternative mitigation technologies in the power generation sector compared to baseline coal-fired power stations and potential reduc-
tions in carbon emissions to 2010 and 2020 for non-Annex I countries
Technology pf+FGD, IGCC and CCGT pf+FGD+ CCGT+ Nuclear PV and Hydro Wind BIGCC
NOx, etc Super- CO2 CO2 thermal turbines
critical capture capture solar
Energy source Coal Coal Gas Coal Gas Uranium Solar Water Wind Biofuel
radiation
Generating costs (c/kWh) 4.45 3.6-6.0 4.45-6.9 7.45 5.95-8.4 3.9-8.0 8.7-40.0 4.2-7.8 3.0-8 2.8-7.6
Emissions (gC/kWh) 260 190-198 103-122 40 17 0 0 0 0 0
Cost of carbon reduction (US$/tC) Baseline -10 to 200 0 to 17 136 62 to 163 -20 to 77 164 to 1370 -10 to 129 -56 to 137 -63 to 121
Reduction potential to 2010 (MtC/yr) Baseline 36 20 0 36 0.5 20 12 5
Reduction potential to 2020 (MtC/yr) Baseline 85 137 5-50 220 8 55 45 13
Table 3.35c: Estimated costs of alternative mitigation technologies in the power generation sector compared to gas-fired CCGT power stations and the potential reduc-
tions in carbon emissions to 2010 and 2020 for Annex I countries
Technology CCGT pf+FGD+ CCGT+ Nuclear PV and Hydro Wind BIGCC

CO2 CO2 thermal turbines
capture capture solar
Energy source Gas Coal Gas Uranium Solar Water Wind Biofuel
radiation
Generation costs (c/kWh) 3.45 7.6-10.6 4.95 3.9-8.0 8.7-40.0 4.2-7.8 3.0-8 2.8-7.6
Emissions (gC/kWh) 108 40 17 0 0 0 0 0
Cost of carbon reduction (US$/tC) Baseline 610 to 1050 165 46 to 421 500 to 3800 66 to 400 -43 to 92 -60 to 224
Reduction potential to 2010 (MtC/yr) Baseline - 2-10 62 0.8 3 23 4
Reduction potential to 2020 (MtC/yr) Baseline - 5-50 181 9 18 61 36

257
Table 3.35d: Estimated costs of alternative mitigation technologies in the power generation sector compared to gas-fired CCGT power stations and the potential reduc-
258
tions in carbon emissions to 2010 and 2020 for non-Annex I countries
Technology CCGT pf+FGD+ CCGT+ Nuclear PV and Hydro Wind BIGCC

CO2 CO2 thermal turbines
capture capture solar
Energy source Gas Coal Gas Uranium Solar Water Wind Biofuel
radiation
Generation costs (c/kWh) 3.45 6.9-8.7 4.95 3.9-8.0 8.7-40.0 4.2-7.8 3.0-8 2.8-7.6
Emissions (gC/kWh) 108 40 17 0 0 0 0 0
Cost of C reduction (US$/t) Baseline 507-772 165 46 to 421 500 to 3800 66 to 400 -43 to 92 -60 to 224
Reduction potential to 2010 (MtC/yr) Baseline - 0 10 0.2 9 5 1
Reduction potential to 2020 (MtC/yr) Baseline - 5-50 70 4 26 21 6
Notes to Tables 3.35a-d

Costs are derived from OECD (1998b) for coal, gas and nuclear. The additional costs of CO2 capture and storage are derived from IEA Greenhouse Gas R & D Programme (Audus, 2000; Freund, 2000; Davison,
2000). For coal, the costs for CO2 capture and storage are given for pf power stations. Photovoltaic costs are taken from the World Energy Assessment (Goldemberg, 2000) and are based on today’s costs of
US$5,000 per peak kilowatt capacity at the high end, and US$1,000 per peak kilowatt capacity projected after 2015 at the low end. Data for hydropower are taken from Goldemberg (2000) and Ishitani and
Johansson (1996) in IPCC (1996). Data on wind power are based on today’s costs (Walker et al., 1998) and projected future costs are also given in Ishitani and Johansson (1996). Finally, for biofuels, the tech-
nology used is BIGCC with capital and operating costs assumed to be similar to those for coal IGCC. Fuel costs are set at US$0-2.8/GJ, based on either wood process and forest residues or specially grown crops
(from Table 3.35e). A 10% discount rate was used throughout. IEA (1998b) projections of electricity generation were used to estimate the potential CO2 reductions for each mitigation technology.
For Tables 3.35a and 3.35b, if gas infrastructures are in place and CCGT is a lower cost option than coal, it is assumed that natural gas is the fuel of choice. Hence no negative cost reduction options exist for nat-
ural gas to displace coal.
In estimating the maximum CO2 mitigation each technology could achieve, it was assumed that only newly planned or replacement of end-of-life coal or gas power stations could be displaced – no early retire-
ments of existing plant and equipment were assumed.
As a general rule, increasing the amount of abatement to be achieved will require moving to higher cost options. This will apply particularly to renewables as additional capacity might require moving to sites
with less favourable conditions.
pf+FGD: pulverized fuel + flue gas desulphurization.

Table 3.35e: Estimated costs of coal and gas baselines and alternative mitigation technologies in the US power generation sector
Technology pf+FGD, IGCC CCGT pf+FGD+ IGCC + CCGT+ Nuclear PV and Wind Biomass Biomass
NOx, etc. CO2 CO2 CO2 thermal turbines
capture capture capture solar
Energy source Coal Coal Gas Coal Coal Gas Uranium Solar Wind Forestry Energy
radiation residues crops
Generating costs (c/kWh) 3.3-3.7 3.2 – 3.9 2.9-3.4 6.3-6.7 5.7-6.4 4.4-4.9 5.0-6.0 9.0 – 25.0 3.3-5.4 4.0-6.7 6.4-7.5
Emissions (gC/kWh) 247 - 252 190-210 102-129 40 37 17 0 0 0 0 0
Cost of C reduction compared Baseline -80 to 168 -53 to 8 141-145 93-148 30-70 52-102 210 – 880 -16 to 85 12-138 107-170
to coal pf (US$/tC)
Cost of C reduction compared Baseline 326-613 250-538 134-176 124-304 434 –2167 -8 to 245 47-373 233-450
to gas CCGT (US$/tC)
Notes to Table 3.35e: Data derived from US DOE/EIA (2000) except for additional costs of CO2 capture and disposal which are from IEA Greenhouse Gas R & D Programme (Audus, 2000; Freund, 2000; Davison,
2000). Additionally, coal costs of US$1.07/GJ were used for coal-fired power stations; and gas costs of US$3.07/GJ were used for gas-fired power stations (from US DOE/EIA, 1999a). The alternative wind costs
come from high and low cases in the US DOE/EIA (2000) study. The costs of biomass-derived electricity used a fuel cost of US$2.8/GJ for purpose grown crops, whereas the fuel costs for biofuel wastes were
US$0-2/GJ. A 10% discount rate was used. It should be noted that the costs of renewables given in the table apply to specific conditions of availability of sunlight, wind, or crops. As production from renewables
increases, it may be necessary to move to sites with less favourable conditions and higher costs. The large-scale reliance on intermittent renewables may require the construction of back-up capacity or energy stor-
age at additional costs.
259
3.8.7 Conclusions In the scenarios that were constructed within the SRES emis-
sions of the six Kyoto Protocol greenhouse gases develop as
The section on energy sources indicates that there are many follows (in MtCeq, rounded numbers):
alternative technological ways to reduce GHG emissions,
including more efficient power generation from fossil fuels, 1990: 9,500
greater use of renewables or nuclear power, and the capture and 2000: 10,500
disposal of CO2. There are also opportunities to reduce emis- 2010: 11,500 – 13,800
sions of methane and other non-CO2 gases associated with 2020: 12,000 – 15,900
energy supply. In general, this new review reinforces the con-
clusions reached in the SAR, as discussed in Section 3.8.2. It was not possible to calculate the emission reduction poten-
tial of the short-term mitigation options presented in this
Chapter on the basis of the SRES scenarios, mainly because of
3.9 Summary and Conclusions lack of technological detail in the SRES. In order to come to a
comprehensive emission reduction estimate, it has been
The analysis in this chapter is based upon a review of existing ensured that for all the sectors the estimates are compatible
and emerging technologies, and the technological and economic with one of the scenarios, i.e. the B2-Message (standardized)
potential that they have for reducing GHG emissions. In many scenario. The emission reductions presented in Table 3.37 total
areas, technical progress relevant to GHG emission reduction 14% - 23% of baseline emissions in the year 2010 and to 23%
since the SAR has been significant and faster than anticipated. A - 42% of baseline emissions in the year 2020.29 If these per-
broad array of technological options have the combined potential centages also apply to the other scenarios - there is no obvious
to reduce annual global greenhouse gas emission levels close to reason why this would not be the case – it is concluded that in
or below those of 2000 by 2010 and even lower by 2020. most situations the annual global greenhouse gas emission lev-
els can be reduced to a level close to or below those of 2000 by
Estimates of the technical potential, an assessment of the range 2010 and even lower by 2020.
of potential costs per metric tonne of carbon equivalent (tCeq),
and the probability that a technology will be adopted are pre- The evidence on which this conclusion is based is extensive,
sented in Table 3.36 by sector. Specific examples and the esti- but is subject to the limitations outlined above. Therefore, the
mation methodologies are discussed more fully in the chapter estimates as presented in the table should be considered to be
for each sector. indicative only. Nevertheless, the main conclusion presented
above can be drawn with a high degree of confidence.
Available estimates of the technological potential to reduce
greenhouse gas emissions and its costs suffer from several Costs of options vary by technology, sector and region (see
important limitations: cost discussion in Table 3.37). Based upon the costs in a major-
• There are no consistent estimates of technological and ity of the studies, approximately half of the potential for emis-
economic potential covering all the major regions of sions reductions cited above for 2010 and 2020 can be
the world; achieved at net negative costs (value of energy saved exceeds
• Country- and region-specific studies employ different capital, operating and maintenance costs) using the social dis-
assumptions about the future progress of technologies count rates cited. Most of the remainder can be achieved at a
and other key factors; cost of less than US$100/tCeq.
• Studies make different assumptions about the difficulty
of overcoming barriers to the market penetration of The overall rate of diffusion of low emission technologies is
advanced technologies and the willingness of con- insufficient to offset the societal trend of increasing consump-
sumers to accept low-carbon technologies; tion of energy-intensive goods and services, which results in
• Most studies do not describe a range of costs over a increased emissions. Nevertheless, substantial technical
domain of carbon reduction levels, and many report progress has been made in many areas, including the market
average rather than marginal mitigation costs; and introduction of efficient hybrid engine cars, the demonstration
• Social discount rates of 5%-12% are commonly used in of underground carbon dioxide storage, the rapid advancement
studies of the economic potential for specific technolo- of wind turbine design, and the near elimination of N2O emis-
gies which are lower than those typically used by indi- sions from adipic acid production.
viduals and in industry.
28For comparison: the total commitment of Annex I countries accord-
A summary of the estimates of the potential for worldwide ing to the Kyoto Protocol is estimated to be 500MtC (SRES-scenario
emission reductions is given in Table 3.37. Overall, the total B2 as reference).
potential for worldwide greenhouse gas emissions reductions 29 Some double-counting in the emission reduction estimates occur,
resulting from technological developments and their adoption especially between electricity saving options and options in the elec-
are estimated to amount to 1,900-2,600MtC/yr by 201028 and tricity production sector. However, further analysis shows that the
3,600–5,050MtC/yr by 2020. effect of double-counting is just noise within the uncertainty range.
Table 3.36: Estimations of greenhouse gas emission reductions and cost per tonne of carbon equivalent avoided following the anticipated socio-economic potential uptake
by 2010 and 2020 of selected energy efficiency and supply technologies, either globally or by region and with varying degrees of uncertainty
Region US$/tC avoided 2010 2020 References; comments;

–400 –200 0 +200 relevant section of report
Potentiala Probabilityb Potentiala Probabilityb
Buildings / appliances
Residential sector OECD/EIT ◊◊◊◊◊ ◊◊◊◊◊ Acosta Moreno et al., 1996
Brown et al., 1998
Dev. cos. ◊◊◊ ◊◊◊◊◊ Wang and Smith, 1999
Commercial sector OECD/EIT ◊◊◊◊ ◊◊◊◊◊
Dev. cos. ◊◊◊ ◊◊◊◊◊
Transport
Automobile efficiency USA ◊◊◊◊ ◊◊◊ Interlab. Working Group, 1997
improvements Brown et al, 1998
Europe ◊◊ ◊◊ US DOE/EIA, 1998
ECMT, 1997 (8 countries only)
Japan ◊◊ ◊◊ Kashiwagi et al, 1999
Denis and Koopman, 1998
Dev. cos. ◊◊ ◊◊ Worrell et al., 1997b
Manufacturing
CO2 removal – fertilizer; Global ◊◊◊◊ ◊◊◊◊ Table 3.21

refineries
Material efficiency improvement Global ◊◊◊ ◊◊◊ Table 3.21
Blended cements Global ◊◊◊ ◊◊◊ Table 3.21
N2O reduction by chem. indus. Global ◊◊◊◊ ◊◊◊ Table 3.21
PFC reduction by Al industry Global ◊◊◊ ◊ ◊◊ Table 3.21
HFC-23 reduction by chem. Global ◊◊◊ ◊◊◊ Table 3.21

industry
Energy efficient improvements Global ◊◊◊◊◊ ◊◊◊◊ Table 3.19
(continued)
261
262
Region US $/tC avoided 2010 2020 References; comments;

Agriculture
Increased uptake of Dev. cos. ◊◊ ◊◊ Zhou, 1998; Table 3.27
conservation tillage and Dick et al., 1998
cropland management Global ◊◊ ◊◊◊ IPCC, 2000
Soil carbon sequestration Global ◊◊ ◊◊◊ Lal and Bruce, 1999
Table 3.27
Nitrogenous fertilizer OECD ◊◊◊ ◊◊◊ Kroeze & Mosier, 1999

management Table 3.27
Global ◊◊◊ ◊◊◊◊ OECD, 1999; IPCC, 2000
Enteric methane reduction OECD ◊◊ ◊◊◊ Kroeze & Mosier, 1999

Table 3.27
USA ◊◊ ◊◊◊ OECD, 1998
Reimer & Freund, 1999
Dev. cos. ◊ ◊◊ Chipato, 1999
Rice paddy irrigation and Global ◊◊ ◊◊◊ Riemer &Freund, 1999
fertilizers IPCC, 2000
Wastes
Landfill methane capture OECD ◊◊◊ ◊◊◊◊ Landfill methane USEPA, 1999
Energy supply
Nuclear for coal Global ◊◊ ◊◊◊◊ cTotals – See Section 3.8.6
Annex I ◊◊ ◊◊ Table 3.35a
Non-Annex I ◊◊◊ ◊◊◊ Table 3.35b
Nuclear for gas Annex I ◊ ◊ Table 3.35c
Non-Annex I ◊ ◊ Table 3.35d
(continued)
Region US$/tC avoided 2010 2020 References; comments;

Gas for coal Annex I ◊◊◊ ◊◊◊◊ Table 3.35a
Non-Annex I ◊◊◊◊ ◊◊◊◊ Tables 3.35b
CO2 capture from coal Global ◊◊ ◊◊ Tables 3.35a + b
CO2 capture from gas Global ◊◊ ◊◊ Tables 3.35c + d
Biomass for coal Global ◊◊◊◊ ◊◊◊◊ Tables 3.35a + b

Moore, 1998; Interlab w. gp. 1997
Biomass for gas Global ◊ ◊◊◊ Tables 3.35c + d
Wind for coal or gas Global ◊◊◊ ◊◊◊◊ Tables 3.35a - d
BTM Cons 1999;Greenpeace, 1999
Co-fire coal with 10% biomass USA ◊◊◊ ◊◊◊ Sulilatu, 1998
Solar for coal Annex I ◊ ◊ Table 3.35a

Non-Annex I ◊ ◊ Table 3.35b
Hydro for coal Global ◊ ◊◊ Tables 3.35a + b
Hydro for gas Global ◊ ◊◊ Tables 3.35c + d
Notes:
a Potential in terms of tonnes of carbon equivalent avoided for the cost range of US$/tC given.
= <20 MtC/yr = 20-50 MtC/yr = 50-100MtC/yr = 100-200MtC/yr = >200 MtC/yr
b Probabilityof realizing this level of potential based on the costs as indicated from the literature.
◊ = Very unlikely ◊ ◊ = Unlikely ◊ ◊ ◊ = Possible ◊ ◊ ◊ ◊ = Probable ◊ ◊ ◊ ◊ ◊ = Highly probable
c Energy supply total mitigation options assumes that not all the potential will be realized for various reasons including competition between the individual technologies as listed below the totals.
263
Table 3.37: Estimates of potential global greenhouse gas emission reductions in 2010 and in 2020.
264
Sector Historic emissions Historic Ceq annual Potential emission Potential emission Net direct costs per tonne of carbon avoided
in 1990 growth rate in reductions in 2010 reductions in 2020
(MtCeq/yr) 1990-1995 (%) (MtCeq/yr) (MtCeq/yr)
Buildingsa CO2 only 1650 1.0 700-750 1000-1100 Most reductions are available at negative net direct costs.
Transport CO2 only 1080 2.4 100-300 300-700 Most studies indicate net direct costs less than US$25/tC
but two suggest net direct costs will exceed US$50/tC.
Industry CO2 only 2300 0.4

-energy efficiency 300-500 700-900 More than half available at net negative direct costs.
-material efficiency ~200 ~600 Costs are uncertain.
Industry Non-CO2 gases 170 ~100 ~100 N2O emissions reduction costs are US$0-$10/tCeq.
Agricultureb CO2 only 210 Most reductions will cost between US$0-100/tCeq with
Non-CO2 gases 1250-2800 150-300 350-750 limited opportunities for negative net direct cost options.
Wasteb CH4 only 240 1.0 ~200 ~200 About 75% of the savings as methane recovery from
landfills at net negative direct cost; 25% at a cost of
US$20/tCeq.
Montreal Protocol 0 ~100 About half of reductions due to difference in study

replacement applications baseline and SRES baseline values. Remaining half of
Non-CO2 gases the reductions available at net direct costs below
US$200/tCeq.
Energy supply and (1620) 1.5 50-150 350-700 Limited net negative direct cost options exist; many
conversionc CO2 only options are available for less than US$100/tCeq.
Total 6,900-8,400d 1,900-2,600e 3,600-5,050e

a Buildings include appliances, buildings, and the building shell.
b The range for agriculture is mainly caused by large uncertainties about CH4, N2O, and soil-related emissions of CO2. Waste is dominated by landfill methane and the other sectors could be estimated with
more precision as they are dominated by fossil CO2.
c Included in sector values above. Reductions include electricity generation options only (fuel switching to gas/nuclear, CO2 capture and storage, improved power station efficiencies, and renewables).
d Total includes all sectors reviewed in Chapter 3 for all six gases. It excludes non-energy related sources of CO2 (cement production, 160MtC; gas flaring, 60MtC; and land use change, 600-1400MtC) and
energy used for conversion of fuels in the end-use sector totals (630MtC). Note that forestry emissions and their carbon sink mitigation options are not included.
e The baseline SRES scenarios (for six gases included in the Kyoto Protocol) project a range of emissions of 11,500-14,000MtCeq for 2010 and of 12,000-16,000MtCeq for 2020. The emissions reduction esti-
mates are most compatible with baseline emissions trends in the SRES-B2 scenario. The potential reductions take into account regular turnover of capital stock. They are not limited to cost-effective
options, but exclude options with costs above US$100/tCeq (except for Montreal Protocol gases) or options that will not be adopted through the use of generally accepted policies.
Hundreds of technologies and practices exist to reduce green- Process changes, improved containment, recovery and recy-
house gas emissions from the buildings, transport, and indus- cling, and the use of alternative compounds and technologies
trial sectors. These energy efficiency options are responsible have been implemented. Potential for future reductions exists,
for more than half of the total emission reduction potential of including process-related emissions from insulated foam and
these sectors. Efficiency improvements in material use (includ- semiconductor production, and by-product emissions from alu-
ing recycling) will also become more important in the longer minium and HCFC-22. The potential for energy efficiency
term. improvements connected to the use of fluorinated gases is of a
similar magnitude to reductions of direct emissions.
The energy supply and conversion sector will remain dominat-
ed by cheap and abundant fossil fuels but with potential for Agriculture contributes 20% of total global anthropogenic
reduction in emission caused by the shift from coal to natural emissions, but although there are a number of technology mit-
gas, conversion efficiency improvement of power plants, the igation options available, such as soil carbon sequestration,
adoption of distributedcogeneration plants, and carbon dioxide enteric methane control, and conservation tillage, the widely
recovery and sequestration. The continued use of nuclear diverse nature of the sector makes capture of emission reduc-
power plants (including their lifetime extension) and the appli- tions difficult.
cation of renewable energy sources will avoid emissions from
fossil fuel use. Biomass from by-products, wastes, and Appropriate policies are required to realize these potentials.
methane from landfills is a potentially important energy source Furthermore, on-going research and development is expected
which can be supplemented by energy crop production where to significantly widen the portfolio of technologies to provide
suitable land and water are available. Wind energy and emission reduction options. Maintaining these R&D activities
hydropower will also contribute, more so than solar energy together with technology transfer actions will be necessary if
because of the latter’s relatively high costs. the longer term potential as outlined in Table 3.37 is to be real-
ized. Balancing mitigation activities in the various sectors with
N2O and some fluorinated greenhouse gas reductions have other goals such as those related to development, equity, and
already been achieved through major technological advances. sustainability is the key to ensuring they are effective.
Augustin, J., W. Merbach, J. Kading, W. Schmidt, and G. Schalitz, 1998:

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World Semiconductor Council, 1999: Position Paper Regarding PFC Assessment of Business Sector Interests in Environmental Resource
Emissions Reduction Target. World Semiconductor Council, Fuiggi, Italy. Management. International Union for Conservation of Nature (IUCN),
Worldwatch Institute, 1998: Vital signs 1998. Worldwatch Institute, W.W. Botswana.
Norton & Co., New York, pp. 58-61.
Chapter 3 Appendix
Options to Reduce Global Warming
Contributions from Substitutes for Ozone-
Depleting Substances
Lead Authors:
Stephen O. Andersen (USA), Suely Maria Machado Carvalho (Brazil), Sukumar
Devotta (India), Yuichi Fujimoto (Japan), Jochen Harnisch (Germany), Barbara
Kucnerowicz-Polak (Poland), Lambert Kuijpers (Netherlands), Mack McFarland
(USA), William Moomaw (USA), Jose Roberto Moreira (Brazil)
Paul Ashford (UK), Paul J. Atkins (UK), James A. Baker (USA), Kornelis Blok
(Netherlands), Denis Clodic (France), Abid Merchant (USA), E. Thomas Morehouse
Jr. (USA), Sally Rand (USA), Robert J. Russell (USA), Remko Ybema (Netherlands)
Review Editors:
Ramon Pichs-Madruga (Cuba), Hisashi Ishitani (Japan)
CONTENTS
Executive Summary 281 A3.3 Foams 290
A3.3.1 Insulating Foams 290
A3.1 Introduction 282 A3.3.2 Insulating Foams in Appliances 291
A3.1.1 Past Trends 283 A3.3.3 Insulating Foams in Residential Buildings 291
A3.1.2 Projections 283 A3.3.4 Insulating Foams in Commercial Buildings 292
A3.3.5 Insulating Foams in Transportation 292
A3.2 Refrigeration, Air Conditioning, and Heat A3.3.6 Other Insulating Foams 292
Pumps 285 A3.3.7 Non-Insulating Foams 292
A3.2.1 Mobile Air Conditioning 286
A3.2.1.1 Estimates of Global HFC-134a A3.4 Solvents and Cleaning Agents 292
Emissions 286
A3.2.1.2 Strategies for Reducing Emissions A3.5 Aerosol Products 293
and Improving Energy Efficiency A3.5.1 Medical Applications 293
of HFC-134a Systems 286 A3.5.2 Cosmetic, Convenience, and Technical
A3.2.1.3 Strategies for Developing Efficient Aerosol Propellants 293
Alternative Air Conditioning
Systems 286 A3.6 Fire Protection 294
A3.2.1.4 Cost-Effectiveness of Reducing
Emissions from Vehicle Air A3.7 Developing Countries and Countries with
Conditioning 287 Economies in Transition 294
A3.2.2 Domestic Appliances 288 A3.7.1 Technology Selection 295
A3.2.3 Commercial Refrigeration 288 A3.7.2 Impact of Replacement Technology Options
A3.2.4 Residential and Commercial Air in Montreal Protocol MLF Projects 295
Conditioning and Heating 289 A3.7.2.1 Foams Sector 295
A3.2.5 Food processing, Cold Storage and Other A3.7.2.2 Refrigeration Sector 297
Industrial Refrigeration Equipment 289 A3.7.3 General Concerns and Opportunities 297
A3.2.6 Transport Refrigeration 289
A3.2.7 Summary of Alternative Refrigerant Use 290 References 298
Technological and Economic Potential of Greenhouse Gas Emissions Reduction, Appendix 281
EXECUTIVE SUMMARY
Hydrofluorocarbons (HFCs) and to a lesser extent perfluoro- al can reduce lifetime HFC emissions at moderate to low costs.
carbons (PFCs) have been introduced to replace ozone-deplet- Non-HFC alternatives include hydrocarbons, ammonia, and
ing substances (ODSs) that are being phased out under the carbon dioxide, or alternative technologies. Lifecycle climate
Montreal Protocol on Substances that Deplete the Ozone performance (LCCP) analysis of the entire system, including
Layer. HFCs and PFCs have a significant global warming direct fluid emissions and indirect emissions from carbon diox-
potential (GWP) and are listed in the Kyoto Protocol. This ide resulting from energy use by the device, provides a means
Appendix estimates consumption and emissions and assesses of assessing the net contribution of a system to global climate
alternative practices and technologies to reduce emissions. change. The LCCP calculations are very system specific and
Emissions as by-products of manufacturing are treated in the can be used to make relative rankings. However, since the
main part of Chapter 3. LCCP approach involves regional climate conditions and local
energy sources, the results cannot be generalized in order to
In the absence of the Montreal Protocol the use of chlorine- make globally valid comparisons.
containing compounds and especially CFCs would have
expanded significantly. However, because of this treaty, Insulating foams are anticipated to become the second largest
developed countries replaced about 8% of projected chloroflu- source of HFC emissions and HFC use is expected to grow
orocarbon use with HFCs, 12% with HCFCs, and eliminated rapidly as CFCs and HCFCs are replaced with HFC-134a,
the remaining 80% by controlling emissions, specific use HFC-245fa, and HFC-365mfc. Alternative blowing agents
reductions, or by using alternative technologies and fluids including the different pentanes and carbon dioxide have
including ammonia, hydrocarbons, carbon dioxide, water, and lower direct climate impact from direct emissions. However,
not-in-kind options. they also have lower insulating values than CFCs and HCFCs,
and hence may have higher indirect emissions from energy use
In 1997, the production of HFCs was about 125 kilotons if the foam thickness is not increased to offset the higher con-
(50MtCeq), and the production of PFCs amounted to 5 kilotons ductivity. Non-foam insulation alternatives such as mineral
(12MtCeq). The production of HFCs in 2010 is projected to be fibres are also used, and vacuum panels may play a role in the
about 370 kilotons or 170MtCeq and less than 12MtCeq for future.
PFCs, assuming current trends in use and regulations, substan-
tial investment in new HFC production capacity, and success of Other sources of HFC and PFC emissions are industrial solvent
voluntary agreements. Since most of the HFCs and some of applications, medical aerosol products, other aerosol products,
the PFCs are contained in equipment or products, annual emis- fire protection, and non-insulating foams. A variety of options
sions lag production when use is growing. are available to reduce emissions including increased contain-
ment, recovery, destruction, and substitution by non-fluorocar-
Refrigeration, air conditioning, and heat pumps are the largest bon fluids and not-in-kind technologies. There are no zero- or
source of emissions of HFCs. Improved design, tighter compo- low-GWP alternatives for some medical and fire protection
nents, and recovery and recycling during servicing and dispos- applications.
A3.1 Introduction have GWPs that are generally higher than those of the ODSs
they replace, ranging from 7,000 to 9,200 (IPCC, 1996). Table
Alternatives and substitutes for HFCs, perfluorocarbons A3.1 lists the atmospheric properties of the HFCs and HFC
(PFCs), and ozone depleting substances (ODSs) have recently blends considered in this Appendix.
been extensively evaluated. The Montreal Protocol Technology
and Economic Assessment Panel (TEAP) and its technical com- Most HFCs are used for energy-consuming applications such
mittees published a comprehensive assessment (UNEP, 1999b). as refrigeration, air conditioning and heat pumps, and building
Furthermore, reports were published within the framework of and appliance insulation. Life cycle climate performance
the joint IPCC/TEAP workshop (IPCC/TEAP, 1999) and the (LCCP) analysis is being used to estimate the net contribution
second non-CO2 greenhouse gases conference (van Ham et al., to climate change. It includes all direct greenhouse gas emis-
2000). sions and indirect emissions related to energy consumption
associated with the design and the operational modes of sys-
The HFCs that are projected for large volume use have global tems (UNEP, 1999b; Papasavva and Moomaw, 1998). The
warming potentials (GWPs) which are generally lower than LCCP is a very system specific parameter that can be used to
those of the ODSs they replace. The GWP of HFCs replacing make relative rankings. However, LCCP analysis involves
ODSs range from 140 to 11,700. HFC-23 with a GWP of regional differences – including different fuel sources – and
11,700 is used as a replacement for ODSs to only a very minor the related equipment operating conditions; the results can
extent. However, there are relatively large emissions of HFC- therefore not be generalized in order to make globally valid
23 from the HCFC-22 manufacturing process. The majority of comparisons.
HFCs have GWPs much lower than that of HFC-23. PFCs
Table A3.1: Atmospheric properties (lifetime, global warming potential (GWP)) for the HFC chemicals described in the
Appendix (IPCC, 1996; WMO, 1999)
Compound Chemical Lifetime (yr) GWP (100 yr) Lifetime (yr) GWP (100 yr)
formula (IPCC, 1996) (IPCC, 1996) (IPCC, 2000) (IPCC, 2000)
HFC-23 CHF3 264 11,700 260 12,000

HFC-32 CH2F2 5.6 650 5.0 550
HFC-125 CHF2CF3 32.6 2,800 29 3,400
HFC-134a CH2FCF3 14.6 1,300 13.8 1,300
HFC-143a CH3CF3 48.3 3,800 52 4,300
HFC-152a 1.5 140 1.4 120
HFC-227ea CF3CHFCF3 36.5 2,900 33 3,500
HFC-245faa CF3CH2CHF2 - - 7.2 950
HFC-365mfca CF3CH2CF2CH3 - - 9.9 890
HFC-43-10mee CF3CHFCHFCF2CF3 17.1 1,300 15 1,500
R-404A 3,260
(44% HFC-125,
4% HFC-134a,
52% HFC-143a)
R-407C 1,525
(23% HFC-32,
25% HFC-125,
52% HFC-134a)
R-410A 1,725
(50% HFC-32,
50% HFC-125)
R-507 3,300
(50% HFC-125,
50% HFC-143a)
a No lifetime or GWP listed in IPCC (1996)

Note: GWP values to be used by Parties for reporting any emissions and for any other commitments under the Kyoto Protocol are the 100 year GWP values from
IPCC (1996) (decision taken at CoP 3, 1997)
The energy efficiency of equipment and products can be was in insulating foams, fire protection, refrigeration, air con-
expressed in at least three ways: theoretical maximum effi- ditioning, and heat pumps, with more than half as aerosol
ciency, maximum efficiency achievable with current technolo- product propellants, non-insulating foam, solvent, and special-
gy, and actual efficiency for commercial scale production ized applications. However, by 1997, the global consumption
(often expressed as a range of values). Systems optimized for of fluorocarbons (CFCs, HCFCs and HFCs) had decreased by
a new refrigerant have been compared to sub-optimum systems about 50% as solvent, aerosol product, and non-insulating
with other refrigerants. Furthermore, appliance sizes and fea- foam applications switched to alternatives other than fluoro-
tures that influence energy performance vary between studies carbons. Refrigeration, air conditioning, and insulating foam
and test conditions, and methodologies are often significantly accounted for about 85% of the remaining total fluorocarbon
different. These factors have led to a wide range of energy effi- use. 80% of projected chlorofluorocarbon demand was avoid-
ciency claims in technical reports and commercial publica- ed by reducing emissions, redesign, and use of non-fluorocar-
tions. Ultimately, the performance and cost effectiveness of bon technologies. As CFCs, halons, and HCFCs are phased out
specific products from commercial scale production must be globally, the quantities of fluorocarbons are expected to con-
directly compared. Furthermore, costs reported in this appen- tinue to decline in the short term, but are expected to grow in
dix might not always be comparable because of differing esti- the longer term.
mation methods, including estimates based on both consumer
and producer costs.
A3.1.2 Projections
A3.1.1 Past Trends Future global HFC and PFC consumption and/or emissions as
substitutes for ODSs have been separately estimated by IPCC
Unlike anthropogenic greenhouse gases emitted as an immedi- (1995), Midgley and McCulloch (1999), and UNEP (1998a).
ate consequence of the burning of fossil fuels to generate ener- Midgley and McCulloch (1999) projected carbon-equivalent
gy, most HFCs and PFCs are contained within equipment or emissions of HFCs and PFCs (excluding unintended chemical
products for periods ranging from a few months (e.g., in by-product emissions) at 60MtCeq in 2000, 150MtCeq in 2010
aerosol propellants) to years (e.g., in refrigeration equipment) and 280MtCeq in 2020. Projected consumption data for 2000
to decades (e.g., in insulating foams). Thus, emissions signifi- and 2010 are primarily based on UNEP reports (UNEP, 1998f,
cantly lag consumption and, because HFC systems are rela- 1999b) and are shown in Table A3.2. Considering that emis-
tively new, emissions will continue to grow after 2010. sions lag consumption by many years, the Midgley and
McCulloch figures are much larger than the UNEP figures.
Both the quantities used and patterns of use of ODSs, HFCs, This discrepancy is consistent with the Midgley and
and PFCs are changing (see Figure A3.1) as ODSs are phased McCulloch scenario which was constructed to represent plau-
out under the Montreal Protocol (IPCC/TEAP, 1999; sible upper limits to future emissions (McFarland, 1999). HFC
McFarland, 1999). In 1986, less than half of total ODS use emissions in the SRES scenarios (IPCC, 2000) are 54MtCeq in
1600
1200
Quantity (kilo tonnes)
800
400
0
1980 1982 1984 1986 1988 1990 1992 1994 1996
CFCs halons HCFCs HFCs
Figure A3.1: Estimated global consumption of CFCs, halons, HCFCs, and HFCs (McFarland, 1999).
Table A3.2: Estimated and projected global HFC consumption and emission for different sub-sectors for 2000 and 2010
284
Sub-sector 2000 2010
HFC HFC HFC HFC HFC HFC HFC HFC

consumption consumption emission emission eonsumption consumption emission emission
kt/yr MtCeq/yr kt/yr MtCeq/yr kt/yr MtCeq/yr kt/yr MtCeq/yr
Refrigeration & A/Ca,b 102-112 47-50 40-44 18-19 195-255 106-139 82-124 42-64
Mobile A/Cc 64-74 23-26 31-35 11-12 58-79 21-28 37-54 13-19
Domestic refrigerationf 7 2.5 0.9 0.3 15-17 5.5-6.4 3.5-4.5 1.3-1.7
Comm. refrigerationd, e, f 19 15 5 4.5 46.5-64 39-54 19.5-31 16-26
Cold storaged 4.5 3 1.2 0.8 9-12 6-8 3-4 2-2.5
Industrial refrigerationd 1.5 1 0.3 0.2 3-4 2-2.7 0.6-0.8 0.4-0.5
Chiller A/C 2.5 1 0.2 0.1 3.5-4.5 2.3-3 0.5-0.7 0.3-0.5
Transport refrigerationd, e, f 3.3 1 1.3 0.7 17-23.5 8.5-12 10-14.5 5-7
Unitary air conditioning - - - - 43-51 22-25 8-14 4-7
Insulating foamsg 4+ 1.5+ <1 <0.5 115 29.5 20-40 5-10

Solvents/ cleaningh <2 <9 <2 <9 >2 <9 >2 <9
Med. aerosolh 1 <1 1 <1 <9 <4 <9 <4
Other aerosolh <15 <4 <15 <4 <20 <5 <20 <5
Fire protectiona,b,i 1.0 - 1.6 0.8 - 1.3 0.2-0.4 0.2 - 0.3 1.6 - 2.0 1.3 - 1.7
0.6 - 0.9 0.5 - 0.8
TOTAL 125-136 63-66 59-62 32-33 343-403 155-189 134-196 66-93
a Consumption and emission estimates are based on information contained in (UNEP, 1998a, 1999b); A/C = Air Conditioning
b The average growth has been estimated as 2.5% annually over the period 2000-2010
c See text and Table A3.3 for explanations
d The mix of refrigerants (both pure HFCs and HFC blends) is estimated based on information in (UNEP, 1998a, 1999b) for commercial, cold storage, industrial and transport applications
e 2010 emission factors have been defined as 7%-10% for commercial refrigeration, 12%-18% for transport refrigeration;
f Equipment life for domestic refrigeration is assumed to be 15 years or longer implying that no emissions at disposal will occur by the year 2010. Equipment life for commercial and transport refrigeration is
assumed to be 10 years with between 60% and 80% emitted (20%-40% recovery) at disposal
g Emissions for insulating foam were based on a methodology described in Gamlen et al., 1986
h Emissions of HFCs used as solvents and medical and other aerosol propellants occurs within one year of consumption (Gamlen et al., 1986)
i Emissions for the fire protection sector for 2000 are estimated to be 5% of the installed base (the same level as the average halon emission in the recent decade); for the year 2010 they are assumed to be 2.5%
of the installed base, as a result of improved design and service practices (IPCC/TEAP, 1999; UNEP, 1999b).
2000 and 130-136MtCeq in 2010. These values are higher than duction of economic incentives will be necessary, probably
those presented in Table A3.2 because of the top-down together with voluntary agreements and/or government regula-
approach used in SRES that does not adequately account for tions (as already exist in some countries) to achieve significant
delay between use and emissions in the 2000 to 2010 time- reductions in this sector.
frame. Considering this fact and given the options for substi-
tution, containment, etc., it is estimated that emissions in 2010 Carbon dioxide emissions associated with energy consumption
could well be about 100MtCeq below the SRES forecast at a by refrigeration, air conditioning, and heat pump equipment
marginal cost lower than US$200/tCeq. None of the scenarios are usually the largest contributions to global warming associ-
have considered the implications of new uses of HFCs or PFCs ated with cooling equipment (AFEAS, 1991; Papasavva and
other than as substitutes for ODSs. Moomaw, 1998). Japanese manufacturers estimate that energy-
related CO2 emissions represent an even larger fraction of life-
Projected consumption and emission estimates for HFCs by time emissions for their low leakage rate, small charge appli-
sub-sector for 2000 and 2010 are summarized in Table A3.2. ances. Thus, improvements in equipment energy efficiency are
often a cost-effective way to reduce greenhouse gas emissions
and to lower costs to consumers (March, 1998). Proper equip-
A3.2 Refrigeration, Air Conditioning, and Heat Pumps ment design, component performance, and the selection of the
most appropriate refrigerant fluid are the most important fac-
Most current and projected HFC consumption and emissions is tors contributing to energy efficiency. Examination of the
in this sector. HFC consumption in refrigeration and mobile LCCP of the system will determine which combination of
and stationary air conditioning in 1997 was, on a mass basis, operating efficiency and fluid choice yields the lowest overall
about 30% of projected developed country CFC consumption contribution to global warming.
in the absence of the Montreal Protocol (McFarland, 1999).
Most of the remaining 70% of projected consumption has been Hydrocarbons, carbon dioxide, and to a lesser extent, ammonia
eliminated by reducing leaks, reduced charge per application, are the most likely alternatives to HFC refrigerants. No ammo-
and improved service practices; the substitution by other fluids nia vapour compression units have capacity less than 50kW.
and new technologies played a lesser role (some substitution – Since both hydrocarbons and ammonia are flammable and
a few per cent – by HCFCs also took place). Globally, there is ammonia is toxic, their acceptance will depend on cultural
still a huge potential to further reduce HFC emissions. norms and specific regulations in each country. Hydrocarbons
Estimated consumption and emissions of HFCs for this sector are currently being used in about 50% of the refrigerators man-
for 2000 and 2010 are shown in Table A3.2. Emissions signif- ufactured in Europe and in some manufactured in Asia and Latin
icantly lag consumption because HFC systems are relatively America; their use in these products as well as in other refriger-
new so emissions will occur well after 2010. ation and air conditioning systems could increase. Large charges
can present a safety concern, and globally standardized mechan-
The primary options for limiting HFC emissions are the use of ical and electrical safety standards are being established.
alternative refrigerants and technologies, reduced refrigerant
charge, improved containment, recovery with recycling, and/or If safety is a concern, secondary loops containing a heat trans-
destruction. There are no globally representative estimates of fer fluid can be used. For modest cooling, such as water chill-
the cost effectiveness of improved containment and recovery. ing for residential air conditioning or industrial process chill-
In developed countries, recovery during servicing of small ing, there is no energy penalty from using a secondary loop.
domestic refrigerators captures a relatively insignificant pro- For medium temperature applications in food processing and
portion of HFCs, while end-of-life recovery is significant. For commercial refrigeration, secondary loops permit the safe use
medium-sized devices such as commercial units with substan- of ammonia and hydrocarbons, or enable minimization of an
tial leakage rates, recovery during both multiple servicing and HFC refrigerant charge, generally with a modest energy penal-
at the end of useful life is both significant. For very large units ty. If safety concerns require a secondary loop for low temper-
recovery both during servicing and at end of life is frequently ature applications in food processing and cold storage, in
done already because of the high economic value associated which normally the refrigerant is used as the direct heat trans-
with the large quantities of recovered fluids. fer fluid, a substantial energy penalty may ensue.
In developing countries, where low cost is important, the qual- Where they are required, the estimated cost of utilizing sec-
ity of equipment is often poor, resulting in high failure rates. ondary loops with ammonia and hydrocarbons to replace HFCs
Since the service sector in developing countries is normally not is estimated to exceed US$100/tCeq (Harnisch and Hendriks,
equipped with the tools for recycling, the emissions of refrig- 2000). Secondary loop systems designed to achieve compara-
erants during servicing and product disposal form a significant ble efficiency and demonstrated in Europe have up to a 15%
portion of the overall emissions. higher cost.
Recovery at theend of equipment life is likely to exhibit a poor An optimal transition strategy from ODSs to alternatives can
cost-effectiveness for smaller units. For these units, the intro- substantially lower costs and better meet development goals
Table A3.3: Estimated global HFC-134a emissions for vehicle air conditioning
Source: Baker (1999).
Year Vehicles w/134a Recycle at HFC-134a use HFC-134a emissions

A/C service/disposal
(million) (%) (kt) (kt)
2000 214-247 60 64-74 31-35

2010 464-530 60 58-79 37-54
for developing countries, especially in the refrigeration and air a smaller refrigerant charge and reduced leakage rates. Typical
conditioning sectors (Papasavva and Moomaw, 1997). The direct HFC emissions over a 10-year period in the USA are 1.4
Montreal Protocol Multilateral Fund (MLF) and the Global kg if recycling is undertaken during service and disposal and
Environment Facility (GEF) have just begun to coordinate 3.2 kg without recycling (Baker, 2000). Estimates for HFC-
financing of ozone and climate protection (IPCC/TEAP, 1999). 134a air conditioner emissions are included in Table A3.3.
To date, one project has been jointly funded by the MLF and
the GEF, which addresses energy efficiency in the replacement A3.2.1.2 Strategies for Reducing Emissions and Improving
of CFCs. Energy use forms a major problem for the stressed Energy Efficiency of HFC-134a Systems
energy supply system of capital-strapped developing countries.
Since the greatest growth in refrigeration and air conditioning Vehicle manufacturers and their suppliers are working to
is projected to occur in developing countries, it is important increase the energy efficiency and reduce the emissions of HFC-
that they select the most effective (in terms of costs and ener- 134a systems. Typical CO2 exhaust emissions resulting from air-
gy efficiency) non-ODS technology. Currently, customers in conditioner operation are in the range of 2% to 10% of total
developing countries make purchase decisions based on initial vehicle CO2 emissions (SAE, 2000). Comparison of reduced
cost with little consideration of energy consumption. emissions HFC-134 systems and CO2 systems have been pub-
lished (Petitjean et al., 2000; March, 1998). HFC-134a systems
can be redesigned for higher energy efficiency and smaller
A3.2.1 Mobile Air Conditioning refrigerant charge within 2–4 years, and manufacturers of
replacement parts could supply high-quality components within
HFC-134a replaced CFC-12 in virtually all vehicle air condi- 2–4 years (SAE, 2000). SAE (2000) estimates that improved
tioners produced after 1993/94. Motor vehicle air conditioning HFC-134a systems can be introduced faster and at lower incre-
uses HFC-134a refrigerant in an integrated system of compo- mental cost than carbon dioxide, hydrocarbon, and HFC-152a
nents that provide cooling, heating, defrosting, demisting, air systems.
filtering, and humidity control. It is technically and economi-
cally feasible to significantly reduce emissions of HFC-134a Lowering the demand for cooling and humidity control can
refrigerants: by recovery and recycling of refrigerant during reduce indirect emissions from fuel consumption and could
servicing and vehicle disposal; by using high quality compo- allow smaller air conditioning systems having reduced refrig-
nents with low leakage rates, hoses with lower permeation erant charges. This is accomplished by increasing thermal
rates, and improved connections; and by minimizing refriger- insulation and decreasing thermal mass in the passenger com-
ant charge. Efficiency improvements and smaller, lighter units partment, by sealing the vehicle body against unwanted air
can further reduce energy-related CO2 emissions. New sys- infiltration, by minimizing heat transfer through window glass,
tems using alternative refrigerants –carbon dioxide or hydro- and by controlling the compressor to minimize over-cooling
carbons– are being developed as described below (see Section and subsequent re-heating of air.
A3.2.1.3).
A3.2.1.3 Strategies for Developing Efficient Alternative Air
A3.2.1.1 Estimates of Global HFC-134a Emissions Conditioning Systems
Globally, 65%–75% of air-conditioned vehicles in service in Considerable activity is underway to develop alternatives to
2000 have HFC-134a air conditioners and it is predicted that HFC-134a air conditioning systems for vehicles. Prominent
between 2000 and 2010, 70%–80% of all new vehicles will efforts are the European “Refrigeration and Automotive
have HFC-134a air conditioners. This projection assumes a Climate Systems under Environmental Aspects (RACE)
continuation of current trends of mobile air conditioning Project” (Gentner, 1998), and the Society of Automotive
installed in vehicles in normally cool climates where air condi- Engineers/US EPA/Mobile Air Conditioning Society
tioning may not be necessary. When air conditioning systems Worldwide “Mobile Air Conditioning Climate Protection
were redesigned to use HFC-134a, vehicle manufacturers used Partnership” (SAE, 1999, 2000).
Two categories of alternative refrigerant candidates have in developing countries, where a wide range of recovery prac-
emerged for new systems: 1) transcritical carbon dioxide sys- tices is found. A UNDP survey of 1300 Brazilian garages found
tems and 2) hydrocarbon or HFC-152a systems. one-quarter of garages recycling HFC-134a (UNDP, 1999).
1. Transcritical CO2 systems require substantial new engineer- The current market value of HFC-134a recovered during ser-
ing, reliability, and testing efforts. These carbon dioxide sys- vice or disposal in the USA more than pays for the cost of
tems have potential energy efficiency that is comparable or bet- labour, equipment, and maintenance for shops servicing more
ter than HFC-134a systems and the lowest direct global warm- than 6 vehicle air-conditioning systems per week. By 2002 to
ing emissions of any candidate refrigerant. Prototype systems 2003 it is technically feasible to reduce system charge and
from several European vehicle manufacturers provided compa- leakage rates significantly. Recovery of 0.33 kg of HFC-134a
rable passenger cooling comfort in medium-sized vehicles, and will cost US$0.70 in large shops and US$1.50 in small shops.
one reported improved efficiency over HFC systems at the For large shops, recovery costs for improved, low-charge vehi-
Scottsdale Symposium (SAE, 1999). A CO2 system in a small cles are estimated at less than US$3.50/tCeq. Even for small
vehicle was less efficient, especially during idling (Kobayashi shops, the cost-effectiveness per tonne of carbon equivalent
et al., 1998). With a higher heat rejection temperature com- can then be calculated in the range of US$1.18-12.81/tCeq
pared to HFC-134a cycles, carbon dioxide systems can also depending upon the size of the charge (EPA, 1998).
efficiently operate in reverse mode to heat vehicle interiors.
New equipment and technician training will be required to Reduced Charge and Improved Containment
safely repair systems with operating pressures up to 6 times By 2002 to 2003, it is technically feasible to reduce system
higher than systems with HFC-134a. The first CO2 systems charge and leakage rates worldwide. It is estimated that the
could be commercially available within 4-7 years (SAE, 2000). vehicle charge in the US can be reduced from 0.9kg to 0.8kg
and that annual vehicle leakage could be reduced from 0.07
2. Hydrocarbon and HFC-152a systems, with secondary cool- kg/yr to 0.04kg/yr (UNEP, 1998a; Baker, 1998; Sand et al.,
ing loops to mitigate flammability risk, are under study and 1997; Wertenbach and Caesar, 1998). In Europe, refrigerant
development by several manufacturers in co-operation with charges average about 0.7 kg per vehicle (Clodic, 1999). For
suppliers (Baker, 2000; Ghodbane 1999; Dentis et al., 1999; the USA it is estimated (Baker, 2000) that emissions can be
SAE, 1999a). One prototype achieved a cooling performance reduced from 8% to 5% per year for a 10-year reduction of 1.2
at the 1999 Phoenix Forum comparable to HFC-134a systems kg/vehicle without recovery and recycling or 1.0kg with recov-
(Baker, 2000; Gentner, 1998; Ghodbane, 1999; SAE, 2000). ery and recycling. Two studies (Harnisch and Hendriks, 2000;
Systems using flammable refrigerants will require additional March, 1998) estimate that, in Europe, the cost per vehicle to
engineering and testing, development of safety standards and reduce leakage rates from 10% to 4%-5%/yr is only US$11-
service procedures, and training of manufacturing and service US$13.
technicians before commercialization, but would require fewer
technical breakthroughs than carbon dioxide systems. If Alternative Systems
proven safe to Original Equipment Manufactures (OEMs), it is Three authors have published estimates of the cost of emission
estimated that systems with flammable refrigerants could be reductions achieved through alternative vehicle air condition-
commercially implemented in the first vehicles in as little as 4- ing using carbon dioxide as the refrigerant (March, 1998;
5 years (SAE, 2000). Baker, 1999, 2000; Harnisch and Hendriks, 2000). These stud-
ies reported widely diverging results on the specific abatement
Highly efficient air conditioning and heating systems are par- costs of HFC emissions for the use of transcritical CO2 systems
ticularly important to the commercial success of electric, (from US$90 to >US$1000/tCeq). Differences in cost estimates
hybrid, fuel cell, and other low-emission vehicles to help over- can be traced back to a number of factors among which two are
come the limited power of such vehicles. most important: (1) the use of producer-costs versus consumer
costs and (2) differing assumptions about the existing degree of
A3.2.1.4 Cost-Effectiveness of Reducing Emissions from recovery of HFC-134a during servicing and at the end of life.
Vehicle Air Conditioning Of lesser importance were differing assumptions on the aver-
age fluid charge of an HFC air conditioning system, annual
Recovery and Recycle leakage rates, relative differential costs, and applied discount
It is estimated that recycling rates can be increased from 60% to rates. Once the results are normalized to common assumptions
90% within one to two years in developed countries (SAE, on the major factors, the abatement costs differ by only a fac-
2000). Recovery and recycling of HFCs can reduce emissions tor of two or less (see Table A3.4).
by more than 10 kt annually (Baker, 1999). About 50% of the
global fleet of HFC-134a air conditioned vehicles are in the As reported in Table A3.4, costs of avoiding HFC emissions
USA where recycling is mandatory, and 25% are in Japan, through alternative air conditioning systems vary between
where voluntary programme achieve a substantial recycling US$20 and US$2100/tCeq depending on the emission charac-
rate. The remainder are in Europe where recycling ranges from teristics of the reference HFC system (and on whether con-
zero in some countries to near 100% participation in others, and sumer or producer prices are used). Consequently in countries
Table A3.4: Abatement costs a of avoiding HFC emissions by using alternative systems (based on CO2 or secondary hydrocar-
bons) relative to different baseline HFC emission scenarios
Alternative system compared against Alternative system compared against

current HFC-134a systems improved HFC-134a systems with reduced leakage
rate
With recycling, without recycling, With recycling, without recycling

1.4 kg 10-year emission 3.2 kg 10-year emission 0.4 kg 10-year emission 2.0 kg 10-year emission
baselineb baseline baselineb baseline
(US$/tCeq) (US$/tCeq) (US$/tCeq) (US$/tCeq)
Producer Consumer Producer Consumer Producer Consumer Producer Consumer

cost cost cost cost cost cost cost cost
102-173 306-519 21-53 63-159 460-711 1380-2133 59-109 177-327
a Assuming:( i) equivalent energy efficiency for conventional and alternative systems, (ii) an increase of producer cost by US$60-90 per vehicle relative to
current HFC-systems, (iii) a discount rate of 4% per year, and (iv) a factor of 3 between consumer cost and producer cost (Crain, 1999).
b Incremental costs for the improved HFC system and for establishing and enforcing a recovery system are not included but assumed to be small compared to
additional costs of alternative systems.
where systems already exist to ensure HFC recycling during Product liability, export market opportunities, and regulatory
servicing and at the end of life, alternative air conditioning sys- differences among regions are likely to be significant factors in
tems will need to exhibit significantly reduced indirect emis- determining the choice between isobutane and HFC-134a sys-
sions in order to be cost-effective in abating greenhouse gas tems. Isobutane may well account for over 20% of domestic
emissions. appliances globally by the year 2010. Published estimates sug-
gest that isobutane systems are US$15 to US$35 more expen-
sive than HFC-134a systems (Juergensen, 1995; Dieckmann et
A3.2.2 Domestic Appliances al., 1999). These costs would translate into a cost effectiveness
of US$600/tCeq due to the relatively small refrigerant charge
In developed countries, the only replacements for the fluid (about 120 g of HFC-134a).
CFC-12 in refrigerators and freezers have been HFC-134a and
isobutane (R-600a). Developing countries have chosen the
same replacements, but some still utilize CFC-12; here, the A3.2.3 Commercial Refrigeration
complete conversion of new equipment from CFC-12 is not
expected until 2001-2002. Globally, in 1996 to isobutane was The primary refrigerants used in this sector are R-404A and
used in about 8% of new appliances (UNEP, 1998a). Isobutane HFC-134a; usage of R-407C and R-507 is relatively small.
accounts for a much higher and growing percentage in Hydrocarbons are being applied in smaller direct expansion
Northern European countries such as Germany, where it is used systems and in both small and large systems with a secondary
in virtually all new domestic appliances. It is estimated that loop, whereas ammonia is mainly applied in larger systems
isobutane currently is the coolant used in 45%-50% of domes- with secondary loops (UNEP, 1998a). Projected consumption
tic refrigerator and freezer sold in Western Europe. Projected and emissions of HFCs are shown in Table A3.2.
use and emissions of HFC-134a are shown in Table A3.2.
Historical emission rates of CFC refrigerants from the com-
HFC emission reductions achieved during servicing and mercial refrigeration sector were 30% or more of the system
through recovery of the refrigerant upon disposal of appliances charge per year. Regulations have resulted in improved system
are costly. Next to economic incentives, regulations (as already designs and service practices with significantly lower emis-
exist for CFC-containing appliances in several countries) sions in many countries (UNEP, 1998a; IEA, 1998). These
would probably be required to obtain significant emissions practices are being carried over to HFC systems and the emis-
reductions through HFC recovery (March, 1998). One study sions savings are reflected in the projections shown in Table
(Harnisch and Hendriks, 2000) reports a value of US$334/tCeq A3.2 (UNEP, 1999b). March (1998) estimated that refrigerant
for the recovery of HFCs from refrigerators; the larger part of emissions could be further reduced through better containment
this is the cost for the transport and collection scheme. and recovery by an additional 30% to 50% in 2010 for Europe.
In many developing countries, the supermarket refrigeration
units are often produced by small and medium enterprises to A3.2.5 Food Processing, Cold Storage, and Other
lower quality standards, leading to considerable emissions of Industrial Refrigeration Equipment
HFCs. The existing stock of supermarket refrigerators contin-
ues to operate with CFC-12 and HCFC-22. Owing to their long lifetime, three out of four CFC systems are
still in use in cold storage and food processing. The main non-
The use of hydrocarbons and ammonia as refrigerants in this CFC refrigerants used are ammonia, HCFC-22, HFC-134a,
sector is growing from a small base. Several large commercial HFC blends, and hydrocarbons, with significant regional dif-
refrigeration manufacturers are developing systems using car- ferences (see Section A3.4).
bon dioxide which are expected to enter the market shortly.
The HFC projections shown in Table A3.2 are based upon the In the industrial sub-sector all types of refrigerants are used,
assumption that less than 10% of the systems will use ammo- with HCFCs and ammonia currently representing the majority
nia, hydrocarbons, and carbon dioxide in 2010. of the refrigerant volume. Hydrocarbons hold a significant
market share in industrial sub-sectors that handle flammable
fluids. Since industrial refrigeration does not pose risks to the
A3.2.4 Residential and Commercial Air Conditioning and public, efficient ammonia and hydrocarbon systems are often
Heating used. The majority of the larger CFC systems used for cold
storage and food processing are still in operation and may keep
Most existing residential air conditioning and heating systems operating until 2010 to 2015.
(unitary systems) currently use HCFC-22 as the refrigerant; in
the manufacturing of new systems HCFC-22 is being displaced Ammonia has traditionally been used in the cold storage sector
by HFC blends, and to a lesser extent, by propane in some sys- because of its low cost and high efficiency. It has increased its
tems. In developed countries, the Montreal Protocol and more importance in Europe and Australia. In the USA it is estimated
stringent national regulations are leading to a replacement of to have a 90% market share in systems of 100kW cooling
HCFC-22 in virtually all new equipment, ultimately by 2010. capacity and above; however, the market share of ammonia in
The leading HFC alternatives are R-407C and R-410A (UNEP, industrial systems is much lower. In the developing countries,
1998a), the latter particularly for smaller units in the developed ammonia and HCFC-22 are expected to remain the most
countries at present. In developing countries, HCFC-22 will be important alternatives. Unfortunately, many of these systems
available for many more years and the use of HFC blends may exhibit low efficiency due to poor system design.
remain small. Split HC based air conditioning equipment is pro-
duced by some smaller European manufacturers; production of
these units is being announced by others. Estimated consump- HFC-134a has not been used much since the use of CFC-12
tion and emission amounts for 2010 are shown in Table A3.2. was traditionally small relative to HCFC-22. R-404A and R-
507 are currently the most commonly used HFCs in these sub-
In small water chillers, applying a variety of compressor types, sectors. However, their efficiencies are low compared to
there is emphasis on the use of R-407C. For large water chillers ammonia and HCFC-22 if the equipment is not very well
that apply centrifugal compressors, the primary alternatives to designed. R-410A is well suited for industrial applications,
CFCs are HFC-134a and HCFC-123. HCFC-123 is used in vir- with an insignificant market share at present, but it is estimat-
tually all low-pressure chillers since it has a very high energy- ed to grow significantly during the next decade (UNEP,
efficiency and so far no highly efficient, low-pressure non- 1998a). The HFCs are currently used in about 10% of new sys-
ODS alternative has become available (Wuebbles and Calm, tems in Europe and in 20% in other developed countries. The
1997). Certain existing high-pressure HFC equipment or new demand for HFCs is expected to grow by about 40% between
low pressure HFCs may take over the low-pressure market 2000 and 2010. It is expected that recovery and re-use will be
gradually in the near future (IEA, 1998). Ammonia chillers cost effective in this sector. Rough estimates are that the emis-
form an important replacement and they are already in use in sion rates are currently 6% per annum for new HFC systems,
some regions. In large chillers, there is some use of water as a and are expected to decrease further over the next decade.
refrigerant, particularly in Northern Europe, where the water
can also be used – in ice slurry form – as the cooling agent in
the secondary loop. Use of hydrocarbon refrigerants for A3.2.6 Transport Refrigeration
chillers is growing from a small base. Estimated consumption
and emissions of HFCs are shown in Table A3.2. Transport refrigeration relates to reefer ships, containers, rail-
cars, and road transport. The majority of reefer ships currently
Continued improvement in emissions reductions is anticipated. use HCFC-22; the vast majority of new containers are
In 1994, the annual emission rates from low-pressure CFC equipped with HFC-134a or R-404A, and also R-410A.
chillers were estimated at 7% and for high pressure CFC-12
chillers at 17% (UNEP 1998a); for current new low (HCFC- For road transport, new equipment uses HFC-134a, R-404A,
123) and high pressure chillers the emissions are estimated at and still a considerable amount (estimated 25%) of HCFC-22.
less than 2% and 8%, respectively. Owing to the mechanically and thermally harsh operating envi-
Table A3.5: Alternative refrigerant options for the specific refrigeration and air conditioning sub-sectors: buildings (domestic
and commercial refrigeration, residential and commercial air conditioners, chillers), industry (food processing and cold storage,
other industrial processes), transport (transport refrigeration and mobile air conditioning)
Refrigerant HFC-134a R-404A HFC HCs NH3 Absorp- HCFC CO2 H2O
options blends tion
Domestic refrigeration * *
Comm. refrigeration
Small (< 5 kW) * * * * *
Other (> 5 kW) * * *S *S * P
Residential A/C
Unitary A/C (<20 kW) * * * * P
Commercial A/C
Unitary A/C (>20 kW) * O/S O
Chillers
Centrifugal * O * * * O
Industrial
Food processing * * * * * *
Cold storage * * * * P
Other industrial * * * * * * P
Transport refrigeration * * * * * O/P
Mobile A/C * P P
Note: (* ) indicates current practice, (O) small number installed, (P) prototype installed, (S) includes secondary loop.
ronment, the emissions estimated from transport refrigeration A3.2.7 Summary of Alternative Refrigerant Use
are significant and exceed 25% of the charge annually in many
applications. One German manufacturer produces trucks An overview of the current pattern of refrigerant fluids by sub-
equipped with refrigeration systems using propane. sector and technology is provided in Table A3.5.
Although the use of ammonia on ships has a reasonable poten-

tial, its proliferation has not been significant. Carbon dioxide A3.3 Foams
has been tested for cooling containers; however, its future mar-
ket share is difficult to predict and cost indications are lacking. A3.3.1 Insulating Foams
HFC-134a and, in the near future, R-410A are forecast to be The global market for thermal insulation materials is large,
the most important refrigerants for transport refrigeration. It is complex, and has substantial regional variation. Since the
almost certain that all reefer ships will utilize R-410A. The prime purpose of insulation in addition to energy conservation
fraction of equipment using HFCs in the mid-1990s was about is to maintain appropriate ambient conditions within a defined
15% (UNEP, 1998a) and that fraction is expected to grow, e.g. space, insulation use is affected most by external climatic con-
one study (Harnisch and Hendriks, 2000) estimates the fraction ditions. However, in developing countries per-capita use is
in Europe to be 70% by 2010 and 100% by 2030. often lower than local climatic conditions would predict.
Increasing insulation use can therefore often go towards
In the developing countries, the use of HCFC-22 could con- improving comfort levels as well as saving energy use and
tinue until phase-out is required in 2040, after which HFC- resultant carbon dioxide emissions.
134a or other options developed by then may take over the
market. Climatic conditions, space constraints, local building code
requirements, and construction costs can all influence the
choice of insulation material. In mass markets polymeric
foams offer the best insulation performance at higher unit cost. polyurethane foams for appliances will be blown with hydro-
The thermal efficiency of foam is influenced by the choice of carbons and about 30% with HFCs by 2010. HFCs are more
blowing agent, and HFCs promise to yield a performance sim- likely to be selected where more stringent energy standards
ilar to that of previously used HCFCs (UNEP, 1998d). exist. In contrast, the investment related to the introduction of
a new blowing agent might play a determining role in devel-
In Europe, where construction applications dominate, the mar- oping countries. However, in practice, this effect has been
ket for insulation foams, polyurethane, extruded polystyrene, broadly offset by the supporting activities of the multilateral
and phenolic resins accounts for about 13% of the total insula- fund. Significant concern about hydrocarbon use exists in
tion market. Mineral fibres and expanded polystyrene have North America and Japan, related to product liability and
historically been the dominant materials in terms of volume process safety costs.
and mass (roughly 80%), primarily on grounds of lower unit
cost. However, performance characteristics are becoming an Vacuum panels may partly replace insulation foam in the future
increasingly important factor in material selection to meet the but the cost-effectiveness of this option is uncertain. A few
demands of greater prefabrication. domestic and commercial applications already use vacuum
insulation panels in combination with polyurethane foams.
In North America, the timber frame method of construction has These systems have up to 20% lower energy consumption than
contributed to a more widespread use of polyurethane (PU), those using CFC or HCFC blown foam insulation systems
polyisocyanurate (PIR), and extruded polystyrene foams. The (UNEP, 1998d).
PU and PIR systems also have better production economics
than in Europe because of higher line speeds and less stringent
thickness tolerance criteria. In Japan, the market is shaped by A3.3.3 Insulating Foams in Residential Buildings
strict fire codes and much of the construction is based around
concrete. PU spray foams have done particularly well in The use of HFC blown foams in the residential sector is
enclosed spaces and use of phenolic foam is preferred in some expected to be relatively limited because of the high cost-sen-
exposed applications because of its lower flammability com- sitivity of this market. However, it is preferable to base the
pared to other alternatives. In developing countries, the use of choice of insulation for all buildings on a proper consideration
foam for cold storage applications predominates. of the LCCP, including the comparative energy saving impacts
of alternative insulation materials, the potential emissions of
Where HFCs are used, they will be emitted during the manu- blowing agents, and the embodied energies of the insulating
facturing and over the life of the foam (25–50 years). Retention materials themselves. Where HFCs are used, the cost to
in the foam at end-of-life will generally depend on the thick- destroy the HFC will be determined primarily by the cost of
ness of the foam and the facings used. separating the construction materials. There are trends towards
prefabricated construction and requirements for recycling of
building materials in some regions that could lower these costs
A3.3.2 Insulating Foams in Appliances in time. Emissions of HFCs partially offset the benefits of low
energy consumption arising from their use.
Appliance foams are currently produced with either hydrocar-
bons or HCFC-141b. Foams produced with HCFC-141b gener- The use of hydrocarbon and carbon dioxide as blowing agents
ally provide 5%-15% more insulation per unit of thickness than for polyurethane and extruded polystyrene insulation foams is
those produced with other blowing agents. HFCs (primarily expanding. A recent European study (Harnisch and Hendriks,
“liquid” HFCs such as HFC-245fa and HFC-365mfc) are antic- 2000) estimated that by 2010 about 50% of all polyurethane
ipated to partly replace HCFCs because they produce foams and extruded polystyrene foams in this sector will be blown by
with similar insulating properties. The contribution of the foam hydrocarbons and carbon dioxide, respectively. It is estimated
to the overall energy efficiency of the appliance is important that substituting the remaining HFCs by hydrocarbon use in the
since the energy used to operate the appliance accounts for the mass markets of polyurethane foam production would cost
majority of the global warming impacts in most cases. between US$90 and US$125/tCeq. There is some concern
about the use of flammable hydrocarbons in the residential
Where HFCs are selected, options to reduce emissions include environment and indoor air quality could also be affected. The
the use of formulations that minimize the amount and GWP of replacement of HFCs by CO2/water blown polyurethane spray
the blowing agent used, and the end-life destruction of the systems is estimated to be available at a cost-effectiveness of
HFC. The latter is particularly important, since it is technical- about US$80/tCeq (Harnisch and Hendriks, 2000). In Europe,
ly possible to recover and destroy over 90% of the HFC blow- one major producer is converting its extruded polystyrene pro-
ing agent at an estimated cost-effectiveness of between US$30 duction lines to use CO2 as the blowing agent. The cost-effec-
and US$100/tCeq (AFEAS, 2000). tiveness of the use of CO2 as the blowing agent for extruded
polystyrene is estimated at US$40/tCeq (March, 1998) and at
A recent study for the European Commission (Harnisch and US$25/tCeq (Harnisch and Hendriks, 2000) for the remaining
Hendriks, 2000) estimates that in Europe about 70% of all manufacturers in Europe.
Fibrous insulation materials and expanded polystyrene are used HFC-134a and HFC-152a, hydrocarbons, propane, butane, and
extensively for residential construction in most parts of the world. dimethyl ether (DME) are all technically suitable and in use.
The increased thickness required to achieve a desired energy effi- These are frequently used in blends; for example, a blend of
ciency can cost more; however, builders have been willing to HFC-134a/DME/propane/butane is widely used in Europe
increase the cavity wall size substantially since the 1970s to com- (UNEP, 1998d). Some replacement of HFC use in this sector is
ply with increasing insulation standards in some regions. likely although concerns over the flammability of mixtures
may delay this process in some regions.
A3.3.4 Insulating Foams in Commercial Buildings

A3.3.7 Non-Insulating Foams
For commercial buildings, the choice of foam type and facings
is more likely to be based on lifetime costs (performance relat- Non-insulation HFC blown foams are expected to be used only
ed) than on initial cost. An additional factor is the increased in those applications where product or process safety are para-
use of prefabricated building techniques, particularly in mount, for example, integral skin foams for safety applica-
Europe. Both aspects suggest that HFC blown foams could tions. Harnisch and Hendriks (2000) project that HFCs will not
penetrate the commercial and industrial sectors to a greater be required for the production of non-insulation foams in
extent than the residential sector previously discussed. Europe. However, in view of different product specifications
Harnisch and Hendriks (2000) estimate that avoiding HFCs in elsewhere in the world, liquid HFCs could replace a significant
most mass applications by switching to hydrocarbon systems part of the current small use of HCFCs.
would cost in the region of US$90 to US$125/tCeq. For the
switch from HFC to CO2 use in extruded polystyrene, one
study estimates US$40/tCeq (March, 1998), whilst another A3.4 Solvents and Cleaning Agents
(Harnisch and Hendriks, 2000) estimates US$25/tCeq for the
remaining European manufacturers. Less than 3% of projected demand for CFCs solvents has been
replaced by HFCs and PFCs (McFarland, 1999).The high cost
Fibrous insulation materials and expanded polystyrene are of fluorocarbons, regulatory prohibitions on HFC and hydro-
used extensively for commercial construction and are expected fluoroethers and hydrofluoroesters (HFE) solvents, and invest-
to play a significant role in the future. However, whether this ment in emission reduction measures are expected to maintain
role will expand technically seems in doubt. carbon equivalent use and emissions in 2010 to current base-
line levels. Annual PFC solvent emissions are estimated at
3,000–4,000 tonnes (UNEP, 1999b; Harnisch et al., 1999) and
A3.3.5 Insulating Foams in Transportation HFC emissions are estimated to be 1,000–2,000 tonnes (UNEP,
1999b). These values convert to less than 7.5MtCeq for PFCs
Hydrocarbon blown foams and vacuum insulation panels are and less than 1 MtCeq for HFCs.
alternative options. Hydrocarbon blown foams have a some-
what lower insulating value per unit of thickness than HFC Perfluorocarbons (PFCs such as C5F12, C6F14, C7F16, and C8F18)
blown foams, and the vacuum insulating panels currently cost were introduced in the early 1990s as substitutes for ozone-
substantially more. Insulating performance is crucial in this depleting CFC-113 solvents and are also used in some applica-
sub-sector and serious thickness constraints exist, limiting the tions where ODS solvents were never used. HFC-43-10mee and
available options. its azeotropic blends with alcohol, hydrochlorocarbons, and
hydrocarbons were introduced in the mid-1990s to replace CFC-
113 and PFCs. HFE solvents became commercially available in
A3.3.6 Other Insulating Foams the late 1990s to replace PFCs, CFCs, HCFCs, and HFCs.
Another application of HFCs for insulating foams will be in HFCs and HFEs are used in specialized cleaning of delicate
industrial process applications, where an estimated 2500 materials, oxygen systems, and precision parts; as a flush fluid
tonnes will be used – primarily in process pipework. Owing to for particulate removal in precision cleaning; as a rinsing agent
high foam densities in this sector the differences in insulation in a co-solvent process for cleaning printed circuit boards and
performance between different blowing agents are small. For mechanical components; and to dry electronics and precision
Europe it is estimated (Harnisch and Hendriks, 2000) that in parts after aqueous or semi-aqueous processing. In some cir-
2010 hydrocarbons will have a market share of 50% of the pipe cumstances, HFC drying may have a lower LCCP than thermal
insulation production. drying. HFCs and HFEs are also replacing PFCs and CFC-113
as carrier fluids for specialized fluorocarbon lubricants, as
Both the building industry and the do-it-yourself market use dielectric and heat transfer fluids, in developing latent finger-
one-component foams in a variety of applications, including prints off porous surfaces, in rain repellent sprays for aircraft
sound and thermal insulation applications. The thermal con- windshields, and in other applications demanding unique sol-
ductivity of the foam, however, is not a critical requirement. vency properties (UNEP, 1998e, 1999b).
The four emission reduction options are: (1) changing produc- severe respiratory diseases, and emergency-room patients. Use
tion processes and product designs to avoid the need for fluo- is likely to accelerate, particularly as they may be more suitable
rocarbon solvents (e.g., “no-clean” soldering and aqueous for young children than the older DPIs (UNEP, 1999b). In
cleaning); (2) switching to lower GWP fluorocarbon or non- Scandinavian countries, government policies have led to
fluorocarbon solvents; (3) reducing emissions through process greater use of DPIs than of MDIs (IPCC/TEAP, 1999; UNEP,
improvements (UNEP, 1999b); and (4) utilizing solvent recov- 1999b; March, 1998).
ery and recycling where possible. Progress is being made in
each of these options. The abatement cost estimates to reduce future HFC emissions
by replacing MDIs with DPIs depend on the price of DPIs. The
One source estimates that process improvements could reduce cost per equivalent dose varies between products and coun-
fluorocarbon solvent emissions in the European Union by 20% tries, with some CFC-free MDIs being more expensive than
by 2010 at a cost effectiveness of about US$160/tCeq and that CFC-based MDIs and some DPIs more expensive than both
an 80% reduction could be achieved at about US$330/tCeq CFC- and HFC-based MDIs (ARCF, 2000). In Europe, prices
(March, 1998). are less as much as US$4 higher for a DPI than for a compa-
rable MDI (Harnisch and Hendriks, 2000). It is estimated that,
by 2010, the EU can reduce HFC emissions by 30% at a cost
A3.5 Aerosol Products of about US$460/tCeq and 50% at about US$490/tCeq (March,
1998), which translates to a differential cost of US$4 over
A3.5.1 Medical Applications MDIs; for one country in Europe there is no differential cost
(Harnisch and Hendriks, 2000). It is not currently medically
Metered dose inhalers (MDIs) form a reliable and effective feasible to replace MDIs by DPIs completely because approx-
therapy for asthma and chronic obstructive pulmonary disease imately 25% of MDI use is for patients who require medication
(COPD). be forced into their respiratory system (Öko-Recherche, 1999).
There are estimated to be 300 million patients with asthma and A3.5.2 Cosmetic, Convenience, and Technical Aerosol
COPD worldwide. Approximately 450-500 million MDIs are Propellants
used annually worldwide with asthma prevalence increasing as
urbanization of developing countries continues. It is estimated Global 1998 consumption and emissions of HFCs in non-med-
that 10,000 metric tons (tonnes) of CFC and 1000 tonnes of ical aerosol products was less than 15,000 tonnes (UNEP,
HFCs were used in MDIs worldwide in 1998 (UNEP, 1998b, 1998d) with two-thirds HFC-134a and one-third HFC-152a –
1999b). HFC-based MDIs are essential for the near-term CFC less than 4MtCeq. Emissions of HFCs are projected to not
phaseout, because other available options, including dry pow- exceed 20,000 tonnes in 2010 (IPCC/TEAP, 1999) or about
der inhalers (DPIs) (single or multi-dose), nebulizers (hand 5MtCeq (calculated assuming equal emissions of HFC-134a
held or stationary), orally administered drugs (tablets, cap- and HFC-152a). HFCs have replaced only about 2% of the
sules, or oral liquids), and injectable drugs, which are alterna- aerosol product market that would have used CFCs had there
tives for not using CFCs or HFCs, cannot currently replace not been the Montreal Protocol (McFarland, 1999).
CFC products for all patients (UNEP, 1999b). The transition to Hydrocarbon, dimethyl ether (DME), carbon dioxide, nitrogen
HFC MDIs began in 1995, and approximately 5% in 1998 and propellants, and not-in-kind alternative products have replaced
10% in 1999 contain HFC (UNEP, 1999b). HFC-based MDIs the remaining 98% of projected demand.
and DPIs are expected to help minimize the use of CFCs by
2005 in developed countries, while providing essential med- HFCs are used in aerosol products primarily to comply with
ication for patients. Important factors in the conversion to DPIs technical requirements or environmental regulations. HFC-
will include their acceptance by doctors, patients, insurance 134a is the propellant of choice for products that must be com-
companies, and medical authorities. pletely non-flammable. An example of HFC use based on a
technical requirement is non-flammable, far-reaching insecti-
Assuming the complete phase-out of CFC MDIs and a contin- cide products used on high-voltage power lines and transform-
ued growth rate in demand for asthma and COPD treatment of ers where workers cannot escape from wasps and hornets.
1.5%–3.0%/yr, it is estimated that HFC consumption and emis- HFC-152a is the propellant of choice to replace hydrocarbon
sions will be 7,500 to 9,000/yr – about 3–3.6MtCeq in 2010 aerosol propellants restricted in Southern California and in
(UNEP, 1999b). some applications where hydrocarbons and dimethyl ether are
too flammable but the flammability of HFC-152a is acceptable.
DPIs have been formulated successfully for many anti-asthma HFC-134a and HFC-152a are the propellants of choice for lab-
drugs. Dry powder inhalers are an immediately available alter- oratory, analytical, and experimental uses where chemical prop-
native free of CFCs and HFCs; however, they are not a satis- erties are important and flammability may be a concern.
factory alternative to the pressurized MDIs for some patients
with very low inspiratory flow (e.g., some small children and One source estimates that about 45% of HFC emissions from
elderly people, patients) with acute asthma attacks or with cosmetic and convenience applications where flammability is
an issue could be eliminated at a cost of US$70/tCeq and about About 5% of the existing and new halon applications are con-
70% could be eliminated at a cost of about US$130/tCeq sidered critical, with no technically or economically feasible
(March, 1998). alternatives. These critical uses include military vehicles, civil
and military aircraft, and other high-risk explosion scenarios
The aerosol product industry has every incentive to minimize involving unacceptable threat to humans, the environment, or
HFC use. HFCs cost more than other propellants and unneces- national security. Recovered and recycled halon is being used
sary HFC use has the potential to re-ignite consumer boycotts to meet these needs (IPCC/TEAP, 1999).
like the CFC boycotts in the early 1970s that led to national
bans on certain cosmetic products. Boycotts could threaten Relatively small, but important, quantities of HFCs and PFCs
sales of all aerosol products because consumers may not be are being used as substitutes for halon in fire protection. About
able to distinguish targetted HFC products from acceptable 20% of the systems that would have used halons in the absence
hydrocarbon products (UNEP, 1999b). of the Montreal Protocol currently use HFCs and only about
1% use PFCs (UNEP, 1998c, 1999b).
A “self-chilling beverage can” was designed to achieve refrig-
eration through the physics of expanding and emitting approx- Growth in HFC use is limited by high cost compared to other
imately 35–75g of HFC-134a directly to the atmosphere for choices. PFCs are not technically necessary as halon replace-
every beverage can chilled. The inventing company pledged ments except in rare and special circumstances (UNEP, 1999b).
not to manufacture or license the technology and to discourage However, relatively strong growth of HFC/PFC use in devel-
its use, the US government banned the use of HFCs in self- oping countries and countries with economies in transition is
chilling beverage cans (US Federal Register, 1999), and a num- being driven by aggressive marketing, and is producing a new
ber of HFC producers have stated publicly that they will not dependency that could lead to a rapidly growing market in
supply such an application. However, self-chilling cans using applications where other alternatives are available. Awareness
HFC-134a are marketed in at least one country and it is esti- campaigns involving fire protection experts and their cus-
mated that even a small market penetration could substantially tomers could help limit uses that are not technically justified
increase emissions of greenhouse gases (US Federal Register, (UNEP, 1999b).
1999).
The Montreal Protocol prompted various improvements in the
The UNEP/TEAP HFC and PFC Task Force (UNEP, 1999b) management of halons and their replacements, resulting in a
developed principles to guide the use of HFCs for aerosol fourfold decrease in annual emissions. Testing and training
products: with halon and HFC was eliminated and the unintended dis-
charges of systems were greatly reduced through intensified
• recommend HFCs be used only in applications where maintenance and operational improvements. With only 20% of
they provide technical, safety, energy, or environmental new fire protection systems using HFCs and with the fourfold
advantage that are not achieved by not-in-kind alter- decrease in emissions, HFC emissions are 5% compared to
natives; and those from halon systems before the Montreal Protocol (UNEP,
• select the HFC compound with the smallest GWP that 1999b; McFarland, 1999).
still meets the application requirements.
Emissions of HFC from the installed bank of fire protection
Application of these principles justifies the use of HFCs for equipment, including necessary emissions to suppress fires, are
some products in some circumstances but these “responsible estimated to be about 4%–6% per year (UNEP, 1999b). These
use” criteria are not satisfied when not-in-kind alternatives are emissions could be reduced by up to 50% through continued
technically and economically suitable. The above-mentioned improvements to eliminate unnecessary discharges and by
study (UNEP, 1999b) includes detailed evaluation of alterna- increased recycling of the HFCs (IPCC/TEAP, 1999). There
tives and substitutes for aerosol safety products (insecticides, are no estimates of the cost-effectiveness of such measures.
boat horns, noise-makers), cosmetic products (deodorants, hair
sprays, shaving creams), convenience products (room freshen-
ers, dust blowers, tyre inflators, foam caulk, and insulation), A3.7 Developing Countries and Countries with
and novelty products (foam party streamers, pneumatic pellet Economies in Transition
and bait guns).
Developing countries have until 2010 to phase out CFCs,
whereas some countries with economies in transition (EIT)
A3.6 Fire Protection have largely met the more stringent schedules of the developed
countries. However, both country groups are concerned that
A range of alternatives to halon with no or low GWP, such as any potential future restrictions on the use of HFCs in the
water-based technologies, dry powders, inert gases, and carbon developed countries might reduce the availability of these
dioxide, have displaced about 75% of previous halon use in substances to developing countries and EITs. This could limit
countries classified as developed under the Montreal Protocol. the possibilities for them to comply with their Montreal
Protocol obligations. Possible impacts are anticipated in the solvent applications, or in the fire extinguishing sector.
refrigeration, air conditioning, and foam sectors. It will be However, HCFCs and HFCs have been selected as significant
clear that the availability of HFC supplies to those developing alternatives to ODSs in the foam, refrigeration, and air condi-
countries and EITs that have selected HFC technologies is tioning sectors. Table A3.6 shows the quantities of controlled
essential for manufacturing if supplies and service to cus- substances (CFCs) that have been (or are in the process of
tomers are to be maintained. being) phased out in developing countries through projects
approved under the Montreal Protocol’s multilateral fund (to
It will be advantageous for both developing countries and date, over US$1 billion has been used to support these phase-
countries with economies in transition if they develop and pri- out activities). Table A3.6 also shows the replacement technol-
oritize consistent strategies that simultaneously address the ogy selected in the different refrigeration and foam sectors and
protection of the ozone layer and the mitigation of climate sub-sectors. Table A3.6 presents data for projects, approved by
change. Such strategies utilized to date include emission the Executive Committee of the MLF and listed under the
reductions, the selection of zero ODP and low GWP solutions Inventory of Approved Projects of the MLF Secretariat as of
wherever possible, as well as the optimization of the energy March 1999, see UNEP (1999b).
efficiency of products in conversion projects by the
Multilateral Fund (MLF) and the Global Environment Facility A3.7.2.1 Foams Sector
(GEF). The mechanisms that have guided developing countries
towards a successful implementation of the Montreal Protocol The present contribution of HFCs as a direct replacement tech-
should be studied within the framework of mechanisms that are nology for ODSs in projects approved under the MLF in the
being negotiated for the Kyoto Protocol. It can be emphasized foam sector is much less than 1% of the total tonnage of ODS
here that capacity building is seen as at least as important for replaced in this sector. Table A3.6 presents the breakdown of
the implementation of the Kyoto Protocol as it is for the ODS replaced in each of the foam sub-sectors. The contribu-
Montreal Protocol. tion of hydrocarbons is significant. The overall contribution of
zero-ODP and low-GWP technologies selected to replace
ODSs is close to 27,000 ODP tonnes or about 75% (see Table
A3.7.1 Technology Selection A3.6).
Certain non-ODP substitutes and alternative technologies to Wherever application of zero-ODP technologies was not feasi-
CFCs and HCFCs have become available in recent years for ble because of availability, safety, and safety-related costs, or
many applications. The selection of the substitute or alternative for energy-efficiency reasons, HCFCs (HCFC-22, -141b, and -
technology is based on a balance of maturity, availability, cost- 142b) have been selected as a transitional replacement in all
effectiveness, energy-efficiency, safety, and safety costs. The foam sub-sectors. In the medium term HCFCs are expected to
selection is also influenced by local circumstances, preferences be replaced by zero-ODP and low-GWP substitutes, such as
of enterprises, accessibility and cost-effectiveness of certain water, carbon dioxide or hydrocarbons, except in certain parts
technologies, joint venture partners and customers, availability of the rigid polyurethane foam sub-sector where HFC alterna-
of training, and regulatory compliance. This implies that devel- tives are expected to play an important role in the medium to
oping countries need access to the newest information and long term. Table A3.6 also presents the HCFC contribution; it
need to be part of an adequate technical review process so that amounts to about 25% of the total tonnage of ODSs replaced.
they can assess the choice of the most appropriate and inte-
grated environmental solutions. In addition, those developing While several mid-size and large domestic and commercial
countries that receive financial assistance from the MLF for the refrigeration companies have switched to hydrocarbons in the
conversion process and select HCFC-based technologies must rigid foam sector, most small and medium-sized enterprises
submit a thorough justification as to why these are preferred. (SMEs) in the developing countries have had more difficulties
This is because the countries have to take into account the deci- in this selection of hydrocarbons because of safety concerns
sions by the Montreal Protocol Parties that state that certain and related higher manufacturing costs. Next to large compa-
fluorocarbon-based technologies should be avoided if more nies, many of these SMEs have selected HCFC-141b as a tran-
environmentally friendly and acceptable technologies are sitional substance. All these companies will have to switch to
available, as well as the guidelines developed by the MLF the use of other, non-ODP substances when HCFC availability
Executive Committee for the implementation of these tech- cannot be guaranteed or HCFCs will be phased out according
nologies. to Montreal Protocol schedules. It is expected that a large part
of this SME sector will convert to HFC alternatives in the
medium to long term. With regard to HCFCs, questions on
A3.7.2 Impact of Replacement Technology Options in HCFC availability after 2003 are of serious concern to devel-
Montreal Protocol MLF Projects oping countries; these will be evaluated by the Technology and
Economic Assessment Panel, at the request of the Parties to the
HCFC- and HFC-based technologies have not been significant Montreal Protocol. With regard to HFCs, it should be men-
alternative choices in the phase-out of ODSs in aerosols and in tioned that enterprises are uncertain whether their businesses
Table A3.6: Replacement technology options in multilateral Fund-approved projects in developing countries (UNEP, 1999b)
296
Use sector (# projects) ODS Impact ODP tonnes to be eliminated according to technology selected
(ODP t)
HCFC HFC Hydrocarbons Other
Type (t) Type (t) Type (t) Type (t)
1-Refrigeration
a-Domestic (168)
Foam CFC-11 16,589 HCFC-141b 4,379 0 Cyclopentane 12,188 0
Refrigerant CFC-12 5,241 0 HFC- 4,553 Isobutane 688 0
134a/152a/blends
b-Commercial (161)
Foam CFC-11 2,432 HCFC-141b 1,648 0 Cyclopentane 784 0
Refrig (plus chillers) CFC-12 1,136 HCFC-22 4 HFC-134a 1,132 0 0
R-502 1 HCFC-22 1
c-Insulation foam (34) CFC-11 1,998 HCFC-141b/blends 636 0 Cyclopentane 849 H2O/CO2 513
CFC-12 8 HCFC-141b 8 0 0 0
2-Foam
a-Flexible molded (12) CFC-11 450 HCFC-141b 66 0 0 H2O/CO2/Me-Cl 384
b-Flexible slabstock (159) CFC-11 11,934 HCFC-141b 35 0 0 H2O/CO2/Me-Cl 11,899
c-Integral skin (84) CFC-11 2,573 HCFC-141b 597 0 Hexane/pentane 345 H2O/CO2 1,631
d-Polystyr./polyethyl. (63) CFC-11 1,204 0 0 Butane/ isobutane/ LPG/ 980 CO2/CO2-butane blend 224
Pentane / isopentane
CFC-12 6,280 HCFC-22/-142b 196 0 Butane/LPG/pentane 6,084 0
CFC-114 40 0 0 LPG 40 0
e-Rigid foam (238) CFC-11 10,938 HCFC- 7,144 HFC-134a 58 Cyclopentane 3,003 H2O/CO2 733
141b/-22/-142b
f-Multiple sub-sector (30) CFC-11 1,829 HCFC-141b 556 0 Butane 200 H2O/ CO2/ Me-Cl/ LCD 1,073
Note: Data have been reproduced from the data presented in UNEP (1999b) which were directly taken from the internal report “Inventory of Approved Projects”, as published by the Multilateral Fund Secretariat,
Montreal, March 1999.
will be impacted if, in the near future, certain developed coun- out through the multilateral fund under the Montreal Protocol.
tries decide to put certain (national) restrictions on the use of Likewise, financial assistance from the GEF is available for
HFCs, influencing their availability for the developing coun- countries with economies in transition. GEF financing is cur-
tries. rently available to improve energy efficiency and other reduc-
tions of greenhouse gas emissions. The Clean Development
A3.7.2.2 Refrigeration Sector Mechanism (CDM), guidelines of which are still being negoti-
ated within the Kyoto Protocol framework, might also provide
There are only a limited number of options to replace ODSs in opportunities to reduce HFC emissions.
this sector. HCFCs have been selected as an interim replace-
ment technology for ODSs, where non-ODP alternatives could Further opportunities exist in those parts of the refrigeration
not be applied, and their share represents about 24% of the total and air conditioning sector in which large emissions of HFCs
tonnage of ODSs replaced in the sector as a whole (see Table occur, and for equipment that will need thorough maintenance;
A3.6). this particularly applies to mobile air conditioning, commer-
cial, and transport refrigeration. Where emission reductions are
In refrigeration products the foam considered is exclusively possible, best-practices training is needed (UNDP et al., 1999).
rigid polyurethane foam. As a direct replacement for ODS
blowing agents in the foam, the contribution of HFCs is negli- Under the Multilateral Fund, enterprises are eligible for finan-
gible in the projects approved by the Multilateral Fund. In con- cial assistance for only one conversion. This makes it crucial
trast to this very small contribution, hydrocarbons have for an enterprise to choose a technology that is cost effective,
accounted for 53% of the total ODS replacement in the sector, environmentally acceptable, and globally sustainable. It is very
which includes both the refrigeration and the foam part; their important that developing countries and countries with
share is about 66% in the replacement of ODS foam blowing economies in transition examine opportunities for consistent
agents. In these projects, zero-ODP and low-GWP alternatives strategies to simultaneously protect the ozone layer and to mit-
could meet the requirements on availability, safety and safety igate climate change. Such opportunities, inter alia, may be in
related costs, and the stringent energy efficiency. the field of emission reductions, the direct transition to non-flu-
orocarbon low GWP alternatives where possible, as well as in
As shown in Table A3.6, the contribution of HFC-based tech- the field of enhancing energy efficiencies. It would be advan-
nology as a direct refrigerant replacement technology is close tageous if assistance given by the multilateral fund could be
to 21% of the total ODS replacement in the sector, if both the expanded to extra assistance from the GEF in terms of address-
refrigeration and the insulating foam part are included. Where ing the energy efficiency optimization aspect.
it concerns the refrigeration part, for both domestic and com-
mercial refrigeration, HFCs constitute about 89% of the refrig- To date, when funds were available, manufacturers in the
erant replacement. The conversion of refrigeration compo- developing countries have responded rapidly to the goals of the
nents and the refrigeration manufacturing plants is to a large Montreal Protocol, and to regulations in the developed coun-
extent determined by market availability and by market forces tries that prohibited import of products made with or contain-
(compressor suppliers); of course, there is also a direct relation ing ODSs. Uncertainties regarding the availability of HCFCs
to manufacturing and safety costs. and regarding the impact of possible restrictions on the use of
HFCs in certain developed countries may delay the implemen-
tation of the Montreal Protocol in EITs and developing coun-
A3.7.3 General Concerns and Opportunities tries; this aspect can be considered as an interlinkage between
the Montreal and Kyoto Protocols and it is the subject of fur-
For the developing countries, financial assistance is available ther study.
for agreed incremental costs associated with the ODS phase-
Harnisch, J., and C. Hendriks, 2000: Economic Evaluation of emission reduc-

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4
Technological and Economic Potential
of Options to Enhance, Maintain, and
Manage Biological Carbon Reservoirs
and Geo-engineering

PEKKA KAUPPI (FINLAND), ROGER SEDJO (USA)
Lead Authors:
Michael Apps (Canada), Carlos Cerri (Brazil), Takao Fujimori (Japan), Henry
Janzen (Canada), Olga Krankina (Russian Federation/USA), Willy Makundi
(Tanzania/USA), Gregg Marland (USA), Omar Masera (Mexico), Gert-Jan Nabuurs
(Netherlands), Wan Razali (Malaysia), N.H. Ravindranath (India)
David Keith (USA), Haroon Kheshgi (USA), Jari Liski (Finland)
Review Editors:
Eduardo Calvo (Peru), Birger Solberg (Norway)
CONTENTS
Executive Summary 303 4.3.3 Opportunities in Agricultural Lands 324
4.1 Introduction 305 4.4 Environmental Costs and Ancillary Benefits 326
4.4.1 Environmental Costs and Ancillary Benefits
4.2 Land Use, Land-Use Change, and Carbon in Forests 326
Cycling in Terrestrial Ecosystems 306 4.4.2 Environmental Costs and Ancillary Benefits
4.2.1 Historical Land-Use Change in the Tropics 306 in Agricultural Lands 327
4.2.1.1 Trends in Land Use and Changes in
Carbon Stocks 306 4.5 Social and Economic Considerations 327
4.2.1.2 Driving Forces for Land-Use 4.5.1 Economics 327
Change 308 4.5.2 Institutional Structures and Equity Issues 329
4.2.2 Land Use in the Temperate and Boreal
Zones 309 4.6 Market and Non-market Options to Enhance,
4.2.2.1 Historical and Present Land Use in Maintain, and Manage Carbon Pools 330
the Temperate and Boreal Zones 309 4.6.1 Introduction, Taxes, and Quotas 330
4.2.2.2 Driving Forces for Land Use 4.6.2 Carbon Offsets, Tradable Permits and
Change 311 Leakage 331
4.2.3 Forest Disturbance Regimes 311 4.6.3 Risks, Rights, and Practical Economics 332
4.2.4 Changes in Global Climate and Other
Indirect Human Effects 314 4.7 Biological Uptake in Oceans and Fresh-water
Reservoirs; and Geo-engineering 332
4.3 Processes and Practices that Can Contribute to
Climate Mitigation 315 4.8 Future Research Needs 334
4.3.1 System Constraints and Considerations 315
4.3.2 Opportunities in Forests 316 References 336
4.3.2.1 Wood Products 322
4.3.2.2 Managing Wetlands 324
Options to Enhance, Maintain, and Manage Biological Carbon Reservoirs and Geo-engineering 303
EXECUTIVE SUMMARY
Terrestrial ecosystems offer significant potential to capture and able balance between the two goals is constrained by distur-
hold carbon at modest social costs. The Intergovernmental bance history, site productivity, and target time frame. For
Panel on Climate Change (IPCC) Second Assessment Report example, options to maximize sequestration by 2010 may not
estimated that about 60 to 87GtC could be conserved or maximize sequestration by 2020 or 2050; in some cases, max-
sequestered in forests by the year 2050 and another 23 to 44 imizing sequestration by 2010 may lead to higher emissions in
GtC could be sequestered in agricultural soils. In this chapter, later years.
we describe and assess biological mitigation measures in ter-
restrial ecosystems, focusing on the physical mitigation poten- The effectiveness of C mitigation strategies, and the security of
tial, ecological and environmental constraints, economics, and expanded C pools, will be affected by future global changes,
social considerations. Also the so-called geo-engineering but the impacts of these changes will vary by geographic
options are discussed. region, ecosystem type, and local abilities to adapt. For exam-
ple, increases in atmospheric CO2, changes in climate, modi-
The mitigation costs through forestry can be quite modest, fied nutrient cycles, and altered disturbance regimes can each
US$0.1–US$20/tC in some tropical developing countries, and have negative or positive effects on C pools in terrestrial
somewhat higher (US$20–US$100/tC) in developed coun- ecosystems.
tries. The costs of biological mitigation, therefore, are low
compared to those of many other alternative measures. The In the past, land management has often resulted in reduced C
costs would be expected to rise, however, if large areas of land pools, but in many regions like Western Europe, C pools have
were taken from alternative uses. The technologies for pre- now stabilized and are recovering. In most countries in tem-
serving existing terrestrial C and enhancing C pools, while perate and boreal regions forests are expanding, although cur-
using biomass in a sustainable way, already exist and can be rent C pools are still smaller than those in pre-industrial or pre-
further improved. historic times. While complete recovery of pre-historic C
pools is unlikely, there is potential for substantial increases in
Increased carbon pools from management of terrestrial ecosys- carbon stocks. The Food and Agriculture Organization (FAO)
tems can only partially offset fossil fuel emissions. Moreover, and the UN Economic Commission for Europe (ECE)’s statis-
larger C stocks may pose a risk for higher carbon dioxide tics suggest that the average net annual increment has exceed-
(CO2) emissions in the future, if the C-conserving practices are ed timber fellings in managed boreal and temperate forests in
discontinued. For example, abandoning fire control in forests the early 1990s. For example, C stocks in the live tree biomass
or reverting to intensive tillage in agriculture may result in has increased by 0.17billion tonnes (gigatonnes = Gt) C/yr in
rapid loss of at least part of the C accumulated during previous the USA and 0.11GtC/yr in Western Europe, absorbing about
years. However, using biomass as a fuel or wood to displace 10% of global fossil CO2 emissions for that time period.
more energy-intensive materials in products can provide per- Though these estimates do not include changes in litter and
manent carbon mitigation benefits. It is useful to evaluate ter- soils, they illustrate that land surfaces play a significant and
restrial sequestration opportunities alongside emission reduc- changing role in the atmospheric carbon budget and, hence,
tion strategies as both approaches will likely be required to provide potentially powerful opportunities for climate mitiga-
control atmospheric CO2 levels. tion.
Carbon reservoirs in most ecosystems eventually approach In some tropical countries, however, the average net loss of
some maximum level. Thus, an ecosystem depleted of carbon forest carbon stocks continues, though rates of deforestation
by past events may have a high potential rate of carbon accu- may have declined slightly in the last decade. In agricultural
mulation, while one with a large carbon pool tends to have a lands, options are now available to recover partially the C lost
low rate of carbon sequestration. As ecosystems eventually during the conversion from forest or grasslands.
approach their maximum carbon pool, the sink (i.e., the rate of
change of the pool) will diminish. Although both the seques- Land is a precious and limited resource used for many purpos-
tration rate and pool of carbon may be relatively high at some es in every country. The relationship of climate mitigation
stages, they cannot be maximized simultaneously. Thus, man- strategies with other land uses may be competitive, neutral, or
agement strategies for an ecosystem may depend on whether symbiotic. An analysis of the literature suggests that C mitiga-
the goal is to enhance short-term accumulation or to maintain tion strategies can be pursued as one element of more compre-
the carbon reservoirs through time. The ecologically achiev- hensive strategies aimed at sustainable development, where
304 Options to Enhance, Maintain, and Manage Biological Carbon Reservoirs and Geo-engineering
increasing C stocks is but one of many objectives. Often, mea- A comprehensive analysis of carbon mitigation measures
sures can be adopted within forestry, agriculture, and other would consider:
land uses to provide C mitigation and, at the same time, also • potential contributions to C pools over time;
advance other social, economic, and environmental goals. • sustainability, security, resilience, permanence, and
Carbon mitigation can provide additional value and income to robustness of the C pool maintained or created;
land management and rural development. Local solutions and • compatibility with other land-use objectives;
targets can be adapted to priorities of sustainable development • leakage and additionality issues;
at national, regional, and global levels. • economic costs;
• environmental impacts other than climate mitigation;
A key to making C mitigation activities effective and sustain- • social, cultural, and cross-cutting issues as well as
able is to balance C mitigation with other ecological and/or issues of equity; and
environmental, economic, and social goals of land use. Many • the system-wide effects on C flows in the energy and
biological mitigation strategies may be neutral or favourable materials sector.
for all three goals and become accepted as “no regrets” or
“win–win” solutions. In other cases, compromises may be Activities undertaken for other reasons may enhance mitiga-
needed. Important potential environmental impacts include tion. An obvious example is reduced rates of tropical defor-
effects on biodiversity, effects on amount and quality of water estation. Furthermore, because wealthy countries generally
resources (particularly where they are already scarce), and have a stable forest estate, it could be argued that economic
long-term impacts on ecosystem productivity. Cumulative development is associated with activities that build up forest
environmental, economic, and social impacts could be assessed carbon reservoirs in the long run.
within individual projects and also from broader, national and
international perspectives. An important issue is “leakage” – an Marine ecosystems may also offer possibilities for removing
expanded or conserved C pool in one area leading to increased CO2 from the atmosphere. The standing stock of C in the
emissions elsewhere. Social acceptance at the local, national, marine biosphere is very small, however, and efforts could
and global scale may also influence how effectively mitigation focus not only on increasing biological C stocks, but also on
policies are implemented. using biospheric processes to remove C from the atmosphere
and transport it to the deep ocean. Some initial experiments
In tropical regions, there are large opportunities for C mitiga- have been performed, but fundamental questions remain about
tion, though they cannot be considered in isolation from broad- the permanence and stability of C removals, and about possi-
er policies in forestry, agriculture, and other sectors. ble unintended consequences of the large-scale manipulations
Additionally, options vary by social and economic conditions: required to have significant impact on the atmosphere. In addi-
in some regions, slowing or halting deforestation is the major tion, the economics of such approaches have not yet been
mitigation opportunity; in others, where deforestation rates determined.
have declined to marginal levels, improved natural forest man-
agement practices and, afforestation and reforestation of Geo-engineering involves efforts to stabilize the climate sys-
degraded forests and wastelands are the most attractive oppor- tem by directly managing the energy balance of the earth,
tunities. thereby overcoming the enhanced greenhouse effect. Although
there appear to be possibilities for engineering the terrestrial
Non-tropical countries also have opportunities to preserve energy balance, human understanding of the system is still
existing C pools, enhance C pools, or use biomass to offset fos- rudimentary. The likelihood of unanticipated consequences is
sil fuel use. Examples of strategies include fire or insect con- large, and it may not even be possible to engineer the regional
trol, forest conservation, establishing fast-growing stands, distribution of temperature, precipitation, etc. Geo-engineering
changing silvicultural practices, planting trees in urban areas, raises scientific and technical questions as well as many ethi-
ameliorating waste management practices, managing agricul- cal, legal, and equity issues. And yet, some basic inquiry does
tural lands to store more C in soils, improving management of seem appropriate.
grazing lands, and re-planting grasses or trees on cultivated
lands. In practice, by the year 2010 mitigation in land use, land-use
change, and forestry activities can lead to significant mitiga-
Wood and other biological products play several important tion of CO2 emissions. Many of these activities are compatible
roles in carbon mitigation: they act as a carbon reservoir; they with, or complement, other objectives in managing land. The
can replace construction materials that require more fossil fuel overall effects of altering marine ecosystems to act as carbon
input; and they can be burned in place of fossil fuels for renew- sinks or of applying geo-engineering technology in climate
able energy. Wood products already contribute somewhat to change mitigation remain unresolved and are not, therefore,
climate mitigation, but if infrastructures and incentives can be ready for near-term application.
developed, wood and agricultural products may become vital
elements of a sustainable economy: they are among the few
renewable resources available on a large scale.
4.1 Introduction A. Previous approach
Land is used to raise crops, graze animals, harvest timber and Natural
Sciences
fuel, collect and store water, create the by-ways of travel and
Ecology
the foundations of commerce, mine minerals and materials,
dispose of our wastes, recreate people’s bodies and souls,
house the monuments of history and culture, and provide habi-
tat for humans and the other occupants of the earth. Can land, Economics Social
and water, also be managed to retain more carbon, and thereby
mitigate the increasing concentration of atmospheric carbon
dioxide (CO2)? This chapter examines the present scientific
thinking on this question. B. Revised approach
Natural
The atmosphere now contains about 760 billion tonnes (giga- Sciences
tonnes = Gt) of carbon as CO2, an amount that has increased by
an average of 3.3 ± 0.2GtC each year throughout the 1990s,
Economicss Social
mostly from combustion of fossil fuels (IPCC, 2000a).
Atmospheric C represents only a fraction (~ 30%) of the C in
terrestrial ecosystems; vegetation contains nearly 500GtC,
while soils contain another 2000 GtC in organic matter and Figure 4.1: Evolution of approaches to carbon sequestration
detritus (Schimel, 1995; WBGU, 1998) as cited in in terrestrial ecosystems. Previous assessments (e.g., IPCC,
Intergovernmental Panel on Climate Change (IPCC) Special 1996) tended to focus on ecological processes and potentials,
Report on Land Use, Land-Use Change and Forestry and treated economic and social factors as constraints (A). A
(LULUCF) (IPCC, 2000a). Table 4.1 provides estimates of the slightly different viewpoint considers the three dimensions as
carbon stocks in terrestrial ecosystems now. mutually reinforcing and seeks to maximize the overlaps (B).
The Second Assessment Report (SAR) of the IPCC (1996) sug-

gested that 700Mha of forestland might be available for carbon
conservation globally – 138Mha for slowed tropical deforesta- that, over the next 50 years, an additional 0.4 and 0.8GtC could
tion, 217Mha for regeneration of tropical forests, and 345Mha be sequestered per year in agricultural soils, with the adoption
for plantations and agroforestry. The IPCC suggested that by of appropriate management practices.
2050 this area could provide a cumulative mitigation impact of
60 to 87GtC, of which 45 to 72GtC in the tropics. Towards the The current report, while supporting many of these earlier find-
end of this time interval, the mitigation impact could approach ings, provides a broader evaluation of the potential for man-
a maximum rate of 2.2GtC/yr. The cost of mitigation (exclud- agement of C stocks in the biosphere (Figure 4.1). Recent stud-
ing land and other transaction costs) was envisioned to be ies, for example, suggest that costs may often be higher than
about 2 to 8US$/tC. The SAR (IPCC, 1996) further suggested estimated earlier, particularly when opportunity costs of the
Table 4.1: Estimates of global carbon stocks in vegetation and soils to 1 m depth
(from Bolin et al., 2000; based on WGBU, 1998).
Biome Area Carbon stocks (GtC)

(million km2) Vegetation Soils Total
Tropical forests 17.6 212 216 428

Temperate forests 10.4 59 100 159
Boreal forests 13.7 88 471 559
Tropical savannas 22.5 66 264 330
Temperate grasslands 12.5 9 295 304
Deserts and semideserts 45.5 8 191 199
Tundra 9.5 6 121 127
Wetlands 3.5 15 225 240
Croplands 16.0 3 128 131
Total 151.2 466 2,011 2,477

land are included. In addition, the issue of “leakage” (where tems to arable lands. Such disruptions typically result in a large
actions at one site influence actions elsewhere, a problem not reduction of vegetation biomass and a loss of about 30% of the
considered by the SAR) is examined. This report considers C in the surface 1 metre of soil (Davidson and Ackermann,
forests, grasslands, croplands, and wetlands, and, where possi- 1993; Anderson, 1995; Houghton, 1995a; Kolchugina et al.,
ble, examines all C pools within them. Carbon mitigation is 1995). Globally, conversion to arable agriculture has resulted
evaluated as one of many services provided by ecosystems. in soil C losses of about 50GtC (Harrison et al., 1993;
The objectives of this chapter are to review progress made Scharpenseel and Becker-Heidmann, 1994; Houghton, 1995a;
since the IPCC-SAR, and to evaluate prospects for storing Cole et al., 1996; Paustian et al., 2000), and total emissions of
more carbon in ways that ensure the continued provision of C from land use change, including that from biomass loss, have
other goods and services from the varied and finite land amounted to about 122 ± 40GtC (Houghton, 1995b; Schimel,
resources. 1995). Most of the soil C losses occur within a few years or
decades of conversion, so that in temperate zones, where there
The aim of this chapter is not to assess specifically the impli- is little expansion of agricultural lands now, losses of C have
cations of the Kyoto Protocol (UNFCCC, 1997), a mandate largely abated (Cole et al., 1993; Anderson, 1995; Janzen et al.,
assigned to the IPCC Special Report on LULUCF (IPCC, 1998; Larionova et al., 1998). Tropical areas, however, remain
2000a). Rather, it seeks to provide a broader scientific view of an important source of CO2 because of widespread clearing of
the prospects and problems of land management for carbon new lands and reduced duration of “fallow” periods in shifting
sequestration, unconstrained by the limited scope of the Kyoto agriculture systems (Paustian et al., 1997b; Scholes and van
Protocol. Breemen, 1997; Woomer et al., 1997; Mosier, 1998).
This chapter begins by describing the current state of land use, The competition for land varies among countries and within a
the history of land use, ongoing changes in land use, pressures country. Land-use and forestry policies for C management may
driving these changes, and potential competition among be most successful when climate mitigation is considered
demands for land (Section 4.3). It then considers opportunities alongside other needs for land, including agriculture, forestry,
for enhanced C stocks, especially in forestry and agriculture agroforestry, biodiversity, soil and water conservation, and
(Section 4.4). Having identified possible C conservation mea- recreation. Forest fires, for example, are controlled, in many
sures, the physical, environmental, social, and economic parts of the world, not as a measure for carbon mitigation, but
impacts of these measures are examined; and assessment is simply because fire threatens areas of human settlement and
made of how they augment or compete with other services pro- the habitats of living organisms.
vided by land (Sections 4.5 - 4.7). How these options might be
evaluated and, where appropriate, encouraged (Sections 4.8 and Similarly, biodiversity and landscape considerations have
4.9) is also considered. Finally, the prospects for managing motivated protection of old-growth stands in temperate, bore-
marine ecosystems to increase carbon sequestration, and the al, and tropical rain forests from commercial logging. In many
possibility of managing the global ecosystem by ‘geo-engineer- cases such decisions have prevented C release into the atmos-
ing’ of the earth’s energy balance (Section 4.10) are considered. phere, even though C mitigation was not the initial intent
(Harmon et al., 1990). The impact of harvest restrictions on C
Land-use changes and the pressures that influence them vary pool in old-growth forests may be affected by “leakage”. If one
widely, especially between tropical and non-tropical regions. ecosystem is protected but timber demand remains constant,
Both of these regions are addressed. logging may simply be shifted to another, similar ecosystem
elsewhere, perhaps to a country where conservation priorities
are lower.
4.2 Land Use, Land-Use Change, and Carbon Cycling
in Terrestrial Ecosystems
4.2.1 Historical Land-Use Change in the Tropics
Terrestrial ecosystems provide an active mechanism (photo-
synthesis) for biological removal of CO2 from the atmosphere. 4.2.1.1 Trends in Land Use and Changes in Carbon Stocks
They act as reservoirs of photosynthetically-fixed C by storing
it in various forms in plant tissues, in dead organic material, Tropical forests were largely intact until colonial times, when
and in soils. Terrestrial ecosystems also provide a flow of har- large tracts were removed to provide raw materials for rail-
vestable products that not only contain carbon but also com- roads, ships, etc., in the period following the industrial revo-
pete in the market place with fossil fuels, and with other mate- lution. The loss of tropical forests escalated in the second half
rials for construction (such as cement), and for other purposes of the 20th century. According to the UN Food and
(such as plastics) that also have implications for the global car- Agriculture Organization (FAO, 1996), about 15.4 million ha
bon cycle. of natural tropical forests are lost each year. Of this, 42%
occurs in Latin America, 31% in Africa, and 27% in Asia.
Human activities have changed terrestrial carbon pools. The Brunner et al. (1998) estimated tropical deforestation at 19.1
largest changes occurred with the conversion of natural ecosys- million ha/yr during the period 1990 to 1995. There has, how-
Box 4.1. Stocks and Flows
The global carbon cycle consists of the various stocks of carbon in the earth system and the flows of carbon between these stocks. It
is discussed at length in IPCC WG I (Prentice et al., 2001) and IPCC Special Report on LULUCF (IPCC, 2000a) and is illustrated in
Figure 4.2.
Atmospheric CO 2
760 GtC
Wetlands Forests Grasslands, savannas, croplands Products

240 GtC 1146 GtC 765 GtC 5–10 GtC
Photosynthesis
Respiration
Acid rain
Decomposition
Particulates
Combustion
Trees
Coarse
woody
debris
Agro - Crops Products

forests
Litter
Peat
Roots Landfill
Water
Forest soil Agricultural soil
Figure 4.2: Different ecosystems, their components, and human activities. The carbon stocks associated with the different ecosystems
are stored in aboveground and belowground biomass, detrital material (dead organic matter), and soils. Carbon is withdrawn from
the atmosphere through photosynthesis (vertical down arrow), and returned by oxidation processes that include plant respiration,
decomposition, and combustion (vertical up arrow). Carbon is also transferred within ecosystems and to other locations (horizontal
arrows). Both natural processes and human activities affect carbon flows. Mitigation activities directed at one ecosystem component
generally have additional effects influencing carbon accumulation in, or loss from, other components. Estimates of ecosystem and
atmospheric C stocks are adapted from Bolin et al. (2000). Values for C stocks in some ecosystems are still very uncertain. Not shown
are estimates of C stocks in tundra (127GtC), deserts and semi-deserts (199GtC), and oceans (approx. 39,000GtC) (numbers are taken
from Special Report on LULUCF, Fig 1-1, page 30; IPCC, 2000a).
A consequence of the conservation of mass is that the net of all of the flows (measured as a rate variable in units such as tC/yr) into
and out of a given reservoir or stock (measured in units such as tC) during a period of time must equal the change in the stock (tC) in
that period. Conversely, a change in stock of a reservoir during a given period must exactly equal the integrated net difference in C
flows into and out of that reservoir during that period. Elsewhere in this text the word “pool” is sometimes used to represent the var-
ious reservoirs of carbon in the global carbon cycle. The word “sink” is used to indicate the net positive flow of carbon into a terres-
trial carbon pool.
The maximum rate of net ecosystem carbon uptake cannot occur at the same time as the maximum ecosystem carbon stock (see Figure
4.3). An ecosystem depleted of carbon by past events may have much higher rates of carbon accumulation than a comparable one in
which carbon stocks have been maintained. Ecosystems eventually approach some maximum carbon stock – a carrying capacity – at
which time the flows into the carbon pool are balanced by flows out of the carbon pool. Because C sink and C stock in ecosystems
cannot be maximized simultaneously, mitigation activities aimed at enhancing the sink and maintaining the biological carbon stock
coincide only partially (IGBP, 1998). (continued)
Box 4.1. continued
maximum C
soil & detritus (carrying capacity)
left onside
Ecosystem C maximum net

uptake rate
soils and detritus

losses exceed growth
Time since disturbance (age)
Figure 4.3: An example of net changes in ecosystem carbon stocks over time. Changes in individual ecosystem components take place
at different rates, but it is the net of the changes in all interconnected pools that determines the net flow to or from the atmosphere. In
the example, the accumulation of biomass initially is at a lower rate than the decomposition of the dead organic matter stock so the
stock of ecosystem C declines. Later in the cycle, dead organic matter stocks may increase, although other components have reached
a steady state. Maximum ecosystem stocks (highest value of ecosystem C) occur at a later time than the maximum rate of net carbon
uptake (steepest slope of the ecosystem C line).
Similarly, the maximum rate of C substitution cannot occur at the same time as maximum C conservation. High rates of carbon sub-
stitution, through use of forest products or biofuels, generally require high productivity and efficient manufacture and use of derived
products.
Carbon taken up by the biosphere may also accumulate in offsite pools – as products or in landfills – but it continues to oxidize at rates
that depend on the conditions of those pools. It is the net of many flows that defines the changes in carbon stocks of off-site pools as
well as of on-site pools. Carbon accumulation in off-site pools is an often overlooked, but a potentially important, form of sequestra-
tion.
ever, been a large increase in area devoted to forest planta- for most countries than those from aggregate estimates
tions. By 1990, there were 61.3 million ha under plantations (Makundi et al., 1998).
and the rate of establishment is now about 3.2 million ha/yr
(FAO, 1996). A review of scenarios of future land-use changes in the tropics,
and their implications for greenhouse gas (GHG) emissions,
As pointed out by the IPCC (IPCC, 1996) global estimates of shows a wide range of estimates, particularly for the first part
C emissions from deforestation have remained highly uncer- of the 21st century, where estimates differ by a factor of 14
tain and show high geographical variability. The magnitude of (Alcamo and Swart, 1998). These disparities reflect a lack of
forest regeneration (particularly secondary forest regrowth and agreement on the definition of deforestation, and a lack of
regrowth of abandoned lands) and forest degradation process- knowledge and agreement on the estimation of C emissions
es is not well documented. Improving the accuracy of these (Alcamo and Swart, 1998). These scenarios can be divided into
estimates remains an urgent and challenging task (Houghton et two groups: in one group emissions decline smoothly after
al., 2000). 1990; in the other group emissions increase for a few decades
after 1990.
Estimates of C emissions from land-use change and forestry
activities in the tropics during the1990s range from 1.1 to 4.2.1.2 Driving Forces for Land-use Change
1.7GtC/yr, with a best estimate of 1.6GtC/yr (Brown et al.,
1996b; Melillo et al., 1993; Bolin et al., 2000). These esti- The rates and causes of land-use change vary by region and
mates may change with improved information on biomass scale (Kaimowitz and Angelsen, 1998). Deforestation is often
densities and land-use conversion. Detailed studies for major considered a one way process, but the landscape is a dynamic
tropical countries in the early 1990s, studies that include for- mosaic of land uses and vegetation types, with transitions both
est regeneration and afforestation, show lower net emissions to and away from forest (Houghton et al., 2000). Natural fac-
tors, such as forest fires and pests, as well as socio-economic destructive pressures on forests. Technological development
processes, many of which are not seen at the local level, inter- provides efficient tools for land-use change and for high-value,
act in complex ways, complicating analysis. Understanding the alternative uses. Technology can also limit encroachment. As
causes of this mosaic of land-use and/or land-cover transitions seen by the “green revolution” in agriculture, technological
in order to understand and predict the net effect on deforesta- development can increase productivity on intensively managed
tion rates and C emissions remains a key research challenge. land, thereby releasing other land areas from agriculture
(Waggoner, 1994). Nevertheless, there is always the risk of
Conversion of forests to pasture and cropland has been the leakage (i.e., tendencies to transfer destructive operations from
most important proximal cause of tropical deforestation. Non- the developed to less developed areas and countries), or the
sustainable logging has been the leading factor in parts of possibility that technology development and transfer will have
Southeast Asia, whereas excessive harvest of wood fuel has positive spillover effects (Brown et al., 2000; Noble et al.,
been important only in specific sub-country regions and in 2000)
some African countries (Kaimowitz and Angelsen, 1998).
According to Bawa and Dayanandan (1997), the causes (corre- In many countries, especially those seeking development of
lates) of deforestation are many and varied, with complex frontier areas, subsidies are provided for activities promoting
interactions. Overall, Bawa and Dayanandan found that popu- economic development. Land clearing may be subsidized
lation density, cattle density, and external debt were the key directly or by providing property rights to cleared land.
factors. In Africa, the most important factors were extraction of Frontier development is often considered desirable for security
fuelwood and charcoal and demand for cropland; in Asia, it or where there is a disputed area.
was cropland; and in Latin America, it was cattle density.
Land-use change is driven largely by efforts perceived as “best
Most analyses of land-use change and forestry have concen- and highest” use of the land. But benefits of the land that are
trated on proximal reasons for land-use and/or land-cover non-market and/or external to the direct user (e.g., watershed
change; that is, on land uses such as agriculture, pasture, and protection, biodiversity, and carbon mitigation) may be ignored
timber extraction that replace forests. But Meyer and Turner by land managers. For example, the decision to convert forest-
(1992) have identified six “underlying” forces: (1) population, land to agriculture may ignore the many external and non-mar-
(2) level of affluence, (3) technology, (4) political economy, (5) ket benefits lost. Moreover, where long-term land rights are
political structure, and 6) attitudes and values. The influence of insecure, lands may be used to generate short-term benefits,
each varies by region and country. with disregard for long-term benefits.
The rate of population growth is now apparently declining, but Factors related to social structure and political economy have
the population, and hence the demand for food and other land not been studied widely, but studies at the country and region-
services, is still growing (Roberts, 1999). Population growth al levels suggest that deforestation is favoured by the follow-
has been widely cited as a major cause of deforestation (Myers, ing factors: growing landlessness and persistent inequalities in
1989), but the relationship between population and deforesta- access to land, insecure land tenure, land speculation, rising
tion is not simple. Population growth exerts increasing pres- external debt, large-scale expansion in commercial agriculture,
sure on resources, but whether these pressures lead to forest erosion of traditional systems of resource management and
degradation or to positive changes (e.g., afforestation, community control, and widespread migration of impoverished
improved forest management, and better technology) depends people to ecologically fragile areas (Hecht, 1985; Palo and
largely on social structure. Extensive migration may also lead Uusivuori, 1999; Tole, 1998).
to deforestation and soil erosion. Simplistic assumptions about
population and deforestation also do not apply where high pop-
ulation densities and/or growth rates are accompanied by for- 4.2.2 Land Use in the Temperate and Boreal Zones
est conservation and reforestation programmes. In India, for
example, deforestation rates have declined since 1980, despite 4.2.2.1 Historical and Present Land Use in the Temperate
population growth, owing to effective forest conservation leg- and Boreal Zones
islation (Ravindranath and Hall, 1994).
The temperate zone is the most populated zone of the world,
Patterns that affect land-use are changed by economic devel- while the boreal zone is quite sparsely populated. For thou-
opment. Affluence usually increases consumption, but it does sands of years forest area has diminished, particularly in the
not necessarily decrease terrestrial C stocks. The maintenance temperate zone, as forests were cleared for agriculture and pas-
of ecosystems tends to improve with increasing and better dis- ture. Clearing of the European Mediterranean region began ca
tribution of wealth, as well as with proper institutional struc- 5000 years ago; in Central Europe and in China deforestation
tures and sound development strategies. The demand for and occurred in early Medieval times; in parts of Russia and
interest in forests and their services is the driving force for the Mongolia forest clearing occurred in late Medieval times; and
technological and economic capacity to maintain forests. Also, in North America clearing occurred mainly in the 19th century
wealthy societies tend to be urbanized and this may reduce (Mather, 1990, see Figure 4.4). Since the mid 20th century the
net forest area of the temperate zone has no longer decreased (Nabuurs et al., 1997; Martin et al., 1998; Valentini et al.,
but has instead increased (Kauppi et al., 1992). The inner parts 2000; Schulze, 2000). For Canada, early estimates, based on a
of the boreal zone in Siberia, Alaska, and Canada have not static assessment, indicated a net sink of 0.08GtC/yr for the
been subject to significant land-use management. The opportu- mid-1970s (Kurz et al., 1992); whereas subsequent analyses,
nities present to store carbon in terrestrial ecosystems in the accounting for changes in forest disturbances over time (see
boreal and temperate zones are thus very much determined by section 4.2.3), indicated that Canadian forests became a small
historical land-use change and the associated losses of carbon net source of C (–0.068GtC/yr) by the early 1990s (Kurz and
(Kurz and Apps, 1999). Apps, 1999). Estimates of carbon accumulation in woody bio-
mass for the USA also show a large uncertainty. While the
Understanding the historic and current net sink of C in the tem- average rate for the USA C sink ranges from 0.020 to
perate and boreal zones is important to assessing the potential 0.098GtC/yr for the 1980s and 1990s (Birdsey and Heath,
of present and future management options. In general, esti- 1995; Turner et al., 1995; Houghton et al., 1999), atmospheric
mates of C flows have been based on a variety of methods and inversion models applied to the North American continent sug-
data, resulting in a wide range of reported values for C flows gest a sink of 1.7 ± 0.5GtC/yr, largely south of 51ºN (Fan et
per region. The confidence level in each separate value is al., 1998), but with very low levels of confidence (Bolin et al.,
therefore low. For example, for European forests the estimates 2000).
of the present C sink vary from almost 0 to 0.5 GtC/yr
In the less intensively managed forests of Russia and Canada,
changes in mortality associated with natural disturbances
appear to dominate over management influences (see Section
a. Europe 4.2.4). In European Russia, managed forest ecosystems were
100
estimated to be a sink of 0.051GtC/yr between 1983 and 1992,
80 Grass- and
but the less actively managed Siberian forest was a net source
% of total area
cropland Other of 0.081–0.12GtC/yr (Shepashenko et al., 1998). The available

60 estimates for Siberia differ even more than for the other regions
mentioned above, and their confidence level may be “low”
40 (Schulze et al., 1999).
20 Forest
Recent FAO statistics on 55 countries in the temperate and
0 boreal zones indicate a general increase in the forest carbon
b. North America stock (trees only) of 0.88GtC/yr (UN-ECE/FAO, 2000).
100 Changes in forest management and changes in the environment
have contributed to this trend. In Europe, the trend is consistent
80
with the observation of increased growth in individual stands
% of total area
60 noted by Spiecker et al. (1996). The FAO statistics indicate that

between the 1980s and 1990s both net annual increment and
40 timber fellings increased, but that the rate of change was lower
for fellings than for growth, resulting in a substantial increase
20 in the carbon sink from the 1980s to the 1990s (Kuusela, 1994;
Kauppi et al., 1992; Sedjo, 1992; Dixon et al., 1994; UN-
0
c. Tropics ECE/FAO, 2000). The carbon sink in live woody vegetation
100 was on the order of 10% of the fossil fuel CO2 emissions in the
USA and in western Europe, and higher in the 1990s than in the
80
% of total area
1980s (c.f. Kauppi et al., 1992).

60
These relatively high sequestration rates are not a result of
40 active policies aimed at climate mitigation, but less rather
appear to be related to general trends in land use and land-use
20 change. In the USA, Schimel et al. (2000) and Houghton et al.
(1999) estimate that the observed sink is a result mainly of
0
0 200 400 600 800 1000 1200 1400 1600 1800 2000 changes in land use and land management, rather than a
response to changes in the environment. The latest observa-
Figure 4.4: Indicative figure displaying historical changes in tions, based on forest inventory data (UN-ECE/FAO, 2000),
land use in three world regions. The presented values should are reflected in the Special Report on LULUCF (IPCC, 2000a).
not be taken as absolute, because the historical evidence is The IPCC (2000a) estimates that the total global terrestrial bio-
often only anecdotal (Mather, 1990; Kauppi et al., 1992; Palo pheric sink in the 1990s amounted to 0.7GtC/yr, despite a
and Uusivuori, 1999; Farrell et al., 2000). source from land-use change in the tropics of 0.9GtC/yr.
4.2.2.2 Driving Forces for Land-Use Change because of growing demand for industrial wood and low prof-
itability in agriculture (Sohngen et al., 1999). Early analyses
Land management decisions are influenced by many factors. In suggested that economic returns from plantations (in the trop-
the temperate zone, and in the European parts of the boreal ics as well as in the temperate and boreal zone) justify invest-
zone, these are mainly technological and economic. ment in a number of regions (Sedjo, 1983). Recent studies con-
Agricultural production is, for example, heavily influenced by firm that forest plantations are being established at a rate of
evolving technologies, economic opportunities, subsidies, and 600,000ha/yr (Pandey, 1992; Postel and Heise, 1988; UN-
restrictions on international trade. Forestry practices are simi- ECE/FAO, 2000). However, industrial plantation forestry is
larly influenced by economic returns, trade, and pressures from new in many tropical areas and yields vary considerably across
society (Clawson, 1979; Waggoner, 1994; Wernick et al., ecosystems. In many locations where plantations have only
1998). It is within these pressures and opportunities that carbon recently been established, little is known about the potential
mitigation possibilities may be found, and preferably they capabilities for increasing productivity as well as the potential
would be region specific. Table 4.2 gives an overview of some problems that may limit yields.
of the specific issues of importance in the temperate and bore-
al zone of the world.
4.2.3 Forest Disturbance Regimes
Competition for land between forestry and agriculture has
become less severe. Forest area is increasing in many regions The concept of “forest disturbance” refers to events such as
of the boreal and temperate zone, partly because agricultural forest fire, harvesting, wind-throw, insect and disease outbreak
yields have improved or because the profitability of marginal (epidemics), and forest flooding that cause large pulses of CO2
agriculture has declined. The ability to produce agricultural to be released into the atmosphere through combustion or
goods has grown faster than demand, resulting in a downwards decomposition of resulting dead organic matter. Stand-replac-
trend in prices (Alig et al., 1990; Waggoner, 1994). Much ing disturbances, such as crown fires and wind-throw, are asso-
abandoned agricultural land has reverted to forest, either natu- ciated with the sudden death of large cohorts of trees near one
rally or through deliberate planting. Superimposed over these another (Pickett and White, 1985; Kurz et al., 1995a, 1995b;
land conversions is a transition in forestry from a foraging and Kurz and Apps, 1999, see Box 4.2). Some disturbance agents,
gathering operation, dependent upon primary forest, through a such as pollution and some insects and disease outbreaks, may
stage of more intensively managed forest, to total forest result in large areas with productivity decline but only local
ecosystem management. The latter occurs when urbanized mortality (Hall and Moody, 1994). Disturbances play an
societies press for nature-oriented forest management. important natural part in the lifecycle and succession dynamics
Continuously improving technologies allow low-cost estab- of many forest systems. In boreal systems large-scale, natural,
lishment and higher productivity from planted and plantation stochastic forces tend to dominate the ecosystem dynamics,
forests (Sedjo, 1983; 1999a). In agriculture, also, practices are even when direct human influences are considered (Kurz et al.,
changing towards maintaining site fertility or decreasing the 1995b). The return interval of these disturbances, their intensi-
risk of erosion. ty, and their specific impacts are referred to as the disturbance
regime (Weber and Flanigan, 1997). Kurz et al. (1995b) and
Silvicultural practices have increased forest growth in many Price et al. (1998) (having compiled insect, fire, and harvest
boreal and temperate regions. The increasing concentration of data) showed that the disturbance regime of Canadian forests
atmospheric CO2 may also have contributed to the enhanced changed over the last quarter of the 20th century from about
growth of forests. 2.5Mha/yr prior to 1970 to 4Mha/yr between 1970 and 1990.
Using these data, Kurz and Apps (1999) showed that these
Incentives for planting forests are provided by a combination changes in the disturbance regime resulted in a switch of
of market factors and public policy. Remaining wild forests, Canadian forests from being a net sink of C to a small net
such as the public forests in the US National Forest System and source of C to the atmosphere.
in British Columbia, are becoming less accessible and have
increased harvesting restrictions. Subsidies to harvesting of Disturbances, both human-induced and natural, are major dri-
natural forests are also being withdrawn elsewhere. For exam- ving forces that determine the transition of forest stands, land-
ple, large subsidies for harvesting Russian forests were preva- scapes, and regions from carbon sink to source and back. The
lent during the Soviet era, largely through subsidized trans- current pattern of forest vegetation and its role in carbon
portation, but have now disappeared. The economic structures cycling reflects the combined effects of anthropogenic and nat-
are in transition and industrial production has declined. As a ural disturbances over a range of time scales. For C stocks with
result, harvests have fallen dramatically in Russia since the very slow turnover rates (such as soils and peat) the effects of
1990s (Nilsson and Shvidenko 1998). past disturbances on carbon cycling may reverberate for cen-
turies and millennia (Figure 4.5). For example, carbon contin-
Market forces, reflecting industrial needs for wood, have pro- ues to accumulate in young soils (such as those associated with
vided financial incentives for expansion of commercial forests the isostatic uplift following deglaciation in Canada and
(Sedjo and Lyon, 1990). This is a trend expected to continue, Finland), which appear to be actively accruing carbon (Harden
Table 4.2: Overview of biological carbon mitigation issues and opportunities in selected countries/regions
(Based, in part, on Sedjo and Lyon, 1990; Fujimori, 1997; Nilsson and Shvidenko, 1998; De Camino et al., 1999; Sohngen et al.
1999; Zhang, 1996)
Region Issues Options to store carbon arising from the issues
USA/Canada • Primary forest based forestry and second • Fire management

rotation forestry • Afforestation
• High tech forest industry • Efficient use of wood products
• Fierce environmental debates • Bioenergy
• Large impacts of natural disturbances • Farming practices (e.g., reduced tillage)
• Agriculture under pressure that restore soil C
(excess agricultural land)
Europe • Agriculture under pressure, afforestation • Nature-oriented forest management

of agricultural lands • Nature reserves
• Changing ownership • Afforestation
• Forest health problems • Efficient use of wood products
• Move towards nature-oriented forest management • Bioenergy
• High tech forest industry • Farming practices (e.g., reduced tillage)
• In eastern Europe, privatization of forest ownership that restore soil C
Russia • Transition to market economy • Natural regeneration on abandoned agricultural land

• Bad financial situation of forest service • Fire management
• Large impacts of natural disturbances • Capacity building
• Low levels of fellings • Farming practices that restore soil C
Japan • Plantation-based forestry and managed secondary • Efficient use of wood

forestry • Nature-oriented forests
• High tech forest industry • Reserves
• Forest health problems • Bioenergy
• Move towards nature-oriented management
China • Transition to market economy • Afforestation with plantations

• Transition from non-wood fibre sources to using • Protecting primary forests
wood fibre • Flood protection
• Floods resulting from loss of forest • Farming practices (e.g., reduced tillage) that
restore soil C
Australia/ • Plantation-based forestry and some primary forest • Fire management

New Zealand based forestry • Afforestation with plantations
• High tech forest industry • Efficient use of wood products
• Afforestation of agricultural lands • Bioenergy
• Halting deforestation
• Farming practices (e.g., more forages) that
enhance soil C
Argentina, Chile, • Plantation-based forestry and some primary forest • Afforestation with plantations
Brazil based forestry • Efficient use of wood products
• High tech forest industry developing • Bioenergy
• Plantations are not able to reduce deforestation • Halting deforestation
because they provide different set of products • Farming practices (e.g., reduced tillage) that
and services. enhance soil C
Mexico • Forestry largely based on native forests • Halting deforestation

• Large deforestation rates • Sustainable forest management of native forests
• Economic incentives favour agriculture/cattle • Social forestry
over forestry • Afforestation with local species
• Afforestation of degraded lands mostly for restoration • Bioenergy
Box 4.2. Disturbance, Age-class Distribution, and their Implications for Forest Carbon Dynamics
At the stand scale, disturbance events (both natural and anthropogenic) have three main impacts on the carbon budget (Apps and Kurz,
1993). First, they redistribute the existing carbon by transferring carbon from living material, above and below ground, to the dead
organic matter pools. Second, they transfer some of the carbon out of the ecosystem (e.g., into the atmosphere as combustion prod-
ucts, in the case of fire, and/or into the forest product sector as raw feedstock, in the case of harvest). Third, by opening the forest
canopy, the disturbance changes the site micro-environment and restarts the successional cycle for new stand development.
At the scale of forests (typically comprising many stands), the disturbance regime determines the age-class structure (e.g., the even-
age structure associated with stand-replacing disturbance regimes or the uneven-age structures associated with individual tree mortal-
ity and gap-phase replacement), and age-class structure of stands and trees making up the forest. The C stocks in a forest landscape,
and the changes in these stocks over time, are strongly influenced by the age-class distribution (Kurz et al., 1995b; Turner et al., 1995;
MacLaren, 1996; Apps et al., 2000; Bhatti et al., 2001). In managed plantation forests, the age-class distribution is controlled by the
management regime and harvest cycle (Heath and Birdsey, 1993; MacLaren, 1996), while in natural forests other mortality agents play
a major role. See Heath et al. (1996) and Kurz et al. (1995a) for examples.
Box 4.3. The Reduced Impact Logging Project, Carbon Sequestration Through Reduced Impact Logging
The RIL (reduced impact logging) project developed by Innoprise, a Malaysian company with forestry activities, and the New England
Power Company, USA, aims to save CO2 already stored in forest biomass by reducing damage to vegetation and soils during har-
vesting. The hope is to reduce damage by 50% compared to that of conventional harvesting. The techniques employed are modifica-
tions of conventional bulldozer harvesting techniques; including pre-felling climber cutting, directional felling, skid trail design, and
post harvest operations such as rehabilitation of log landings. Today the total project area amounts to 2,400 ha. The pilot research pro-
ject has quantified the carbon implications and costs on 1,415ha. They found that avoided emissions amounted to 65–90MgC/ha and
that the associated costs were US$3.55/MgC (Wan Razali and Tay, 2000).
et al., 1992). In these soils, losses from decomposition of accu-

mulated organic matter are exceeded by the inputs of fresh LD 1 <1 1 >1 1
organic debris (Liski et al., 1999). Human influences on the Steady-state Loss Steady-state Re-accu- New steady-state
disturbance regime include both direct effects, such as harvest- mulation
ing or inducing and/or suppressing natural disturbances (fires,
insects, flooding, etc.), and indirect influences from altering
Soil organic matter
the forest environment. Indirect influences include both cli- C

mate change and atmospheric pollution, and their effects on B
tree health and survival.
Disturbance
The different types of disturbances are often linked. For exam- A
ple, in some forest types the probability of fire may increase
following insect outbreaks because of increases in available
fuel (litter). In some cases salvage logging (recovering the
usable timber following a disturbance) can reduce the total area I II III IV V
of living forest that is disturbed in a given year by all agents
combined. It is common to try to replace natural disturbances Time
(such as wildfires) with commercial harvesting, using a com-
bination of protection and scheduled logging. In Sweden and Figure 4.5: Conceptual model of soil organic matter decom-
Finland, for example, logging has become the main distur- position and accumulation following disturbance (after
bance type; and large-scale natural disturbances resulting from Johnson, 1995; IPCC, 2000a). At steady state (I), carbon (C)
wildfire, insect outbreaks, or storms have been almost non- inputs from litter (L) equal C losses via decomposition (D)
existent for half a century (Lähde et al., 1999). (i.e., L/D = 1). After a disturbance, D often exceeds L resulting
in loss of C (II), until a new, lower steady state is reached (III).
Disturbances affect the carbon stocks of all components of Adoption of new management, where L exceeds D results in a
forested ecosystems. During and following a disturbance, car- re-accumulation of C (IV) until a new, higher steady state is
bon is transferred from living material, above and below reached (V). The eventual steady state (A, B, or C) depends on
ground, to the dead organic matter pools (Figure 4.2). In the the new management adopted.
case of a forest fire, part of the ecosystem carbon is released is particularly complex. These changes may result in both pos-
immediately into the atmosphere as combustion products. itive and negative feedbacks on C stocks (Houghton et al.,
Disturbed forest stands continue to release carbon into the 1998). For example, increases in atmospheric CO2 are known
atmosphere as the enlarged pools of dead organic matter tend to stimulate plant yields, either directly or via enhanced water-
towards a new steady-state condition (Bhatti et al., 2001). use efficiency, and thereby to enhance the amount of C added
Regrowth follows, but maximum uptake may not be achieved to soils (Schimel, 1995; Woodwell et al., 1998). Higher CO2
for some time (decades or more), and during much of this peri- concentrations may also suppress decomposition of stored C,
od decomposition of dead organic matter may exceed vegeta- because C/N ratios in residues may increase and because more
tive uptake. The corresponding re-sequestration of carbon C may be allocated below ground (Owensby, 1993; Morgan et
through regrowth can last 50 to 200 years or more. al., 1994; Van Ginkel et al., 1996; Torbert et al., 1997).
Predicting the long-term influence of elevated CO2 concentra-
Management of natural disturbance regimes can provide sig- tions on the C stocks of forest ecosystems remains a research
nificant C mitigation opportunities, e.g., through activities to challenge (Bolin et al., 2000; Prentice et al., 2001).
prevent or suppress disturbances. Such measures can signifi-
cantly enhance the strength of C sinks (Kurz et al., 1995a; Where plant growth is now limited by nitrogen (N) deficien-
Apps et al., 2000; Bhatti et al., 2001) and maintain existing C cies, increased deposition of N associated with intensified pro-
stocks, but only as long as the programmes are maintained. duction of bio-available N (Schindler and Bayley, 1993;
Other factors being equal, during periods of reduced distur- Vitousek et al., 1997) may accelerate plant growth. This may,
bance (e.g., with increasing suppression effort), C stocks tend eventually, enhance the carbon stock of the soil (Wedin and
to increase as biomass accumulates and litter production (in all Tilman 1996). Nadelhoffer et al. (1999) caution, however, that
forms) increases: forests act as a sink for atmospheric C (Bhatti the global impact of N deposition may be comparatively small.
et al., 2001). In contrast, with increasing disturbance (e.g., with Moreover, where the N fertilization effect increases growth,
reduction in suppression effort), the net losses of C from forest especially in the N-deficient northern forests, it also delays the
ecosystems can exceed inputs from photosynthesis (Figures hardening-off process, resulting in increased winter damage,
4.2 and 4.3) and the forests could become a net source of C. We and thus negating some of the growth enhancement (Makipaa
note that all forms of disturbance, not just highly visible fires, et al., 1999).
play a role in these dynamics. In a changing climate, the con-
trol of new pathogens and immigrant herbivores (especially Increased soil temperatures associated with increased atmos-
insects and disease), to which local forest ecosystems may be pheric CO2 have long been expected to result in increased soil
maladapted, may be critical to avoid emissions and maintain respiration (Schimel, 1995; Townsend and Rastetter, 1996;
existing forest C stocks. Woodwell et al., 1998). Data recently reported by Giardina and
Ryan (2000), however, suggest that decomposition of organic
Disturbances affect the carbon stocks in vegetation, in soil, and carbon in mineral soil layers is relatively insensitive to changes
in dead organic matter. All these stocks vary over time as a in air temperature. Modelling studies by Liski et al. (1998)
function of the history of disturbances (MacLaren, 1996; suggest similar results. Nevertheless, IPCC reviews (Bolin et
Bhatti et al., 2001; Kurz and Apps, 1999). With an increase of al., 2000; Prentice et al., 2001) conclude that existing terrestri-
widespread disturbance events the carbon stocks of living veg- al C sinks may gradually diminish over time, in part because of
etation decrease and the age-class distribution of the forest increasing losses via respiration.
shifts to younger stands containing less carbon. If forests are
disturbed at regular intervals (i.e., an unchanging, disturbance Over the long term, as climate gradually changes, the time
regime), the carbon stock of large tracts of forest can be rela- scales for adaptation of ecosystems to climatic conditions will
tively stable. become important. Vegetation types (and other organisms)
have adapted to the combination of site conditions, including
climate, where they now occur. It cannot be assumed that tree
4.2.4 Changes in Global Climate and Other Indirect growth will increase with climate change, or that the plant pop-
Human Effects ulations will remain optimally adapted to their current sites.
Analysis of provenance (seed source) data, in the light of glob-
Evaluating the long-term outcome of carbon mitigation activi- al change, indicates either no net increase in growth rate as a
ties will require estimating how carbon reservoirs will change result of warming or small decreases in growth rate. Trees may
in the future. Carbon stocks sequestered through mitigation be under more stress in a changed climate, leaving them more
activities today may be more or less secure, depending on how susceptible to insects and diseases.
the environment changes and how society adapts to those
changes. Estimating future C stocks in ecosystems is compli- The various processes of environmental change may occur
cated by our inability to predict the magnitude and impact of over different time periods and with varying intensity at differ-
impending changes in the environment. Some of the possible ent locations. Ecosystems that initially absorb C in response to
changes favour larger C stocks; others would lead to smaller higher atmospheric CO2 will become “saturated” or even later
stocks. The impact of global climate change on future C stocks release CO2 if increasing temperatures lead to enhanced
decomposition and respiration (Cao and Woodward, 1998; et al., 1998; Kurz and Apps, 1999; Bhatti et al., 2001) to sev-
Scholes et al., 1999). Fires and other disturbances could eral centuries (Campbell et al., 2000) and longer (Harden et al.,
increase in frequency and intensity if temperatures increase 1992).
and precipitation patterns change. The net impact of these, and
other global changes, is an area of active research (e.g., The net balance of C flows between the atmosphere and the
Hungate et al., 1997; Kauppi et al., 1997; Norby and Cotrufo, terrestrial biosphere also undergoes management-induced
1998; Woodwell et al., 1998). cycles that occur over long time scales (decades to millennia),
and that can cause the transition of terrestrial systems from
The effects of climate change on mitigation activities in the ter- sink to source and back (Harden et al., 1992). Of relevance for
restrial biosphere are difficult to anticipate, as they are depen- C mitigation are the human-induced changes that occur on an
dent on the timing and the specific spatial character and distri- annual to centennial time scale. This would include the harvest
bution of changes. Present climate scenarios are neither spa- cycle of managed, production forests.
tially nor temporally very precise, and averages over the scale
of typical global circulation climate models are inadequate for The intent of any mitigation option is to reduce atmospheric
estimating impacts on very specific, localized mitigation activ- CO2 relative to that which would occur without implementa-
ities. Moreover, the responses of ecosystems are dependent on tion of that option. Biological approaches to curb the increase
the ecological mechanisms, the climate change imposed, and of atmospheric CO2 can occur by one of three strategies (IPCC,
the management responses to these factors. For example, plant- 1996):
ing of species adapted to present conditions may be inappro-
priate for future conditions and the species might grow more • conservation: conserving an existing C pool, thereby
slowly under chronic climate change. Conversely, species preventing emissions to the atmosphere;
planted for an anticipated future climate may not be able to sur- • sequestration: increasing the size of existing carbon
vive current variations. pools, thereby extracting CO2 from the atmosphere;
and
Climate change can also affect the economic and social dimen- • substitution: substituting biological products for fossil
sions of land use and forestry. Currently, productive lands may fuels or energy-intensive products, thereby reducing
become less productive and less attractive for food and fibre CO2 emissions.
production. The current patterns of land use and disturbance
could change. Model results reported by Darwin et al. (1995, The benefits of these strategies show contrasting temporal pat-
1996) and others suggest, for example, that conversion from terns. Conservation offers immediate benefits via prevented
forestland to cropland is a significant adaptive response to cli- emissions. Sequestration impacts often follow an S-curve:
mate change in some regions. Protection from fire or insect accrual rates are often highest after an initial lag phase and then
and/or disease predation, in boreal regions especially, may decline towards zero as C stocks approach a maximum (e.g.,
become increasingly hard to maintain. Reliable estimates of Figure 4.3). Substitution benefits often occur after an initial
risks to, or enhancements of, mitigation activities carried out period of net emission, but these benefits can continue almost
today will require increased understanding of the interactions indefinitely into the future (Figure 4.6).
between the important ecological, economic, and social
impacts of climate change. As described in this chapter, the This section deals primarily with carbon conservation and
carbon stocks in terrestrial ecosystems respond to a combina- sequestration in the terrestrial biosphere, but acknowledges the
tion of ecological, economic, and social drivers. That will not complementarity and trade-offs among the three strategies.
change even if the global environment changes. Carbon sequestration in forest products is included here and
the substitution benefits of forest products are treated briefly.
The role of energy cropping is treated in greater depth in
4.3 Processes and Practices that Can Contribute to Chapter 3 (Section 3.6.4.3) and in the IPCC Special Report on
Climate Mitigation LULUCF (IPCC, 2000a). Here the discussion is restricted to
the secondary use of biomass products for energy (e.g., waste
4.3.1 System Constraints and Considerations products) and non-commercial uses (e.g., domestic heating,
cooking, etc.).
In terrestrial ecosystems the carbon cycle exhibits natural
cyclic behaviour on a range of time scales. Most ecosystems, The general goal of sequestration activities is to maintain
for example, have a diurnal and seasonal cycle. Often this ecosystems in the sink phase. However, if the system is dis-
means that the ecosystem functions as a source of C in the win- turbed (a forest burns or is harvested, or land is cultivated), a
ter and a sink for C in the summer, and this shows up in fluc- large fraction of previously accumulated C may be released into
tuations at the global scale, as shown by the annual oscillations the atmosphere through combustion or decomposition (Figure
in the global atmospheric CO2 concentration. Large-scale fluc- 4.2). When the system recovers from the disturbance, it re-
tuations occur at other temporal scales as well, ranging from enters a phase of active carbon accumulation. Thus, the distur-
decades (Braswell et al., 1997; Turner et al., 1997; Karjalainen bance history of terrestrial ecosystems involves in large C loss-
225
Displaced fossil fuels
200
Energy for products
Cumulative carbon [tC/ha}
175
Landfill
150
125 Short-lived products
100 Long-lived products
75 Trees
50
Litter
25
Soil
0
0 10 20 30 40 50 60 70 80 90 100
Time [years]
Figure 4.6: Cumulative carbon changes for a scenario involving afforestation and harvest. These are net changes in that, for
example, the diagram shows savings in fossil fuel emissions with respect to an alternative scenario that uses fossil fuels and alter-
native, more energy-intensive products to provide the same services (adapted from Marland and Schlamadinger, 1999).
es in the past (Houghton et al., 1999; Kurz and Apps, 1999), but carbon stocks lost in deforestation, desertification, and other
opportunities for C sequestration in the present. human-induced changes in land cover and land use over cen-
turies and millennia. The theoretical upper limit would thus
A comprehensive systems analysis is useful to fully evaluate correspond to the full recovery of lost biomass in ecosystems,
mitigation options. Factors to be considered may include: and to a steady state at the natural carrying capacity for bio-
ecosystem C stocks and sinks; sustainability, security, mass on earth. The technical potential for substitution is relat-
resilience, and robustness of the C stock maintained or created; ed to the sustainable production of harvestable biomass and its
temporal patterns of C accumulation; other land-use goals and substitution for fossil fuels and energy-intensive products.
related C flows in the energy and materials sector; and effects Clearly, each of these upper limits violates in practice the
on other non-CO2 GHGs. For example, one option might have ideals of development, equity, and sustainability. And yet,
both a high maximum C stock and a high or more sustained they help to appreciate that there are bounds on the role that
rate of sequestration, yet be incompatible with other demands managing the biosphere might play in carbon mitigation.
placed on the land. A second option may have a high maximum
C stock, but reach that level only very slowly. Still another
option may offer high short-term sequestration, but reach max- 4.3.2 Opportunities in Forests
imum C stocks very quickly. Yet another option might manage
production systems to maximize the flow of harvested carbon Many silvicultural and forest management practices have been
into products, thus maximizing the displacement of alternate, reported to enhance carbon mitigation (Lunnan et al., 1991;
energy-intensive products. Thus, while a wide array of prac- Hoen and Solberg, 1994; Karjalainen, 1996; Row, 1996;
tices may be technically possible, options that meet all criteria Binkley et al., 1997; Price et al. 1998; Birdsey et al., 2000;
may be much fewer, and a combination of complementary Fearnside, 1999; Anonymous, 1999; Nabuurs et al., 2000).
options may best accomplish C mitigation goals. Although sci- Measures suggested for forests include: protecting against
entists now recognize the value of system-wide analyses fires; protecting from disease, pests, insects, and other herbi-
(Cohen et al., 1996; Alig et al., 1997), rarely have mitigation vores; changing rotations; controlling stand density; enhancing
options been subjected to such comprehensive evaluations. available nutrients; controlling the water table; selecting useful
species and genotypes; using biotechnology; reducing regener-
An upper bound for the technical potential for global C miti- ation delays; selecting appropriate harvest methods such as
gation in the terrestrial biosphere, a physical upper limit, can reduced-impact logging; managing logging residues; recycling
be estimated for conservation, sequestration, and substitution wood products; increasing the efficiency with which forest
measures. The technical potential for conservation measures products are manufactured and used; and establishing, main-
would equal the current existing C stock of the world’s ecosys- taining, and managing reserves.
tems. This assumes that all ecosystems are threatened, but all
could be conserved by implementing protection measures. The Sampson et al. (2000) provide an overview of the potential
technical potential for sequestration would roughly equal the impacts of some different management alternatives on carbon
mitigation, and examine both additional benefits and some activities ranges from 0.02tC/ha/yr for forest fertilization to
possible unintended, negative effects of these practices. They 1.2tC/ha/yr for several practices combined in Loblolly pine
estimate that 10% of the global forest area could be technical- stands. However, they show that the impact of most practices
ly available by the year 2010, and that the global potential of is in the range of 0.3–0.7tC/ha/yr.
forest management practices could be 0.17GtC/yr. These
opportunities rise to 50% of the global forest area and Forest management and protection offer high mitigation poten-
0.7GtC/yr by the year 2040. Sampson et al. (2000) emphasize tial in some countries. For example, additional pools of 40-
win-win situations, but also indicate the low level of certainty 160tC/ha and 215tC/ha may be possible in Cameroon and the
associated with their estimates and the possibility for certain Philippines, respectively (Sathaye and Ravindranath, 1998).
negative impacts. Afforestation or plantation forest options have the potential to
increase carbon stocks by 70–100tC/ha in many places, and the
Nabuurs et al. (2000) also estimate the potential of a broad potentials for some commercial plantations may be even high-
range of forest-related activities (including protection from er: 165tC/ha for timber estates in Indonesia, 120 tC/ha for tim-
natural disturbance, improved silviculture, savannah thicken- ber forestry in India, and 236tC/ha for long rotation forestry in
ing, restoration of degraded lands, and management of forest the Philippines (Sathaye and Ravindranath, 1998). The sug-
products) at 0.6 GtC/yr over six regions in the temperate and gested opportunities for mitigation potential in 12 developing
boreal zone (Canada, USA, Australia, Iceland, Japan, and EU, countries are summarized in Table 4.3.
Figure 4.7). According to their estimates, alternative forest
management for C sequestration is technically feasible on 10% The study of Sathaye and Ravindranath (1998) suggests that,
(on average) of the forest area in each region examined. Figure in 10 tropical and temperate countries in Asia, about 300Mha
4.8 shows that the relative importance of the different practices may be available for mitigation options: 40Mha for conser-
for the various regions depends on the current situation in the vation, protection, and management; 79Mha of degraded for-
respective regions. est land for regeneration; and 181Mha of degraded land for
plantation forestry and, hence, for C sequestration (Sathaye
The analyses of Sampson et al. (2000) and Nabuurs et al. and Ravindranath, 1998). A further 172Mha was estimated to
(2000) estimate that the hectare-scale effectiveness of these be available in these countries for agroforestry. These esti-
5800
Emissions 1990 (MtCO2eq)
Annual sequestration through activities in forestry (low estimates)
4800
Annual sequestration through activities in forestry (high estimates)
3800
MtCO2eq/yr
2800
1800
800
-200
USA Canada Australia Iceland Japan EU

-1200
Figure 4.7: Indications of the magnitude of the carbon sink in case study countries for a set of forest management measures
(MtCO2eq, adapted after Nabuurs et al. 2000). The values for the three bars for Iceland are 2.6, 2.8, and 2.9, respectively. The
figure is based on the forest part of the model “Access to Country Specific Data” (ACSD). It was designed to provide insight into
the potential magnitude of carbon sequestration that may be achieved when alternative sets of management measures are adopt-
ed. Therefore, the exact numbers provided in this figure result from the assumptions chosen for a certain set of measures. The
estimates in this figure are tentative and only illustrative. In these studies all forestry activities under discussion were included,
but applied on average on some 10% of mostly the exploitable forest area.
Table 4.3: Mitigation options, mitigation potential, and investment cost per tonne of carbon (US$/tC) abated in selected coun-
tries (Sathaye and Ravindranath, 1998)
Mitigation option Mitigation Investment Mitigation option Mitigation Investment

potential cost1 potential cost1
(tC/ha) (US$/tC) (tC/ha) (US$/tC)
ASIA
China India
North & North West

Assisted natural regeneration2 13.0 1.3 Natural regeneration2 62.0 1.5
Plantation 55.0 1.3 Enhanced natural regeneration2 87.5 2.5
Agroforestry 15.0 16.3 Agroforestry 25.4 1.6
South, South West & North East Community woodlot 75.8 5.6
Assisted natural regeneration 13.9 3.5 Softwood forestry 80.1 7.3
Plantation3 71.0 5.0 Timber forestry 120.6 3.3
Agroforestry 6.0 9.8
Indonesia South Korea

Timber estate 165.0 1.9 Improved management of natural forest 99.4 6.0
Social forestry 94.0 1.1 Urban forestry 299.0 9.2
Reforestation4 214.0 0.9 Enhanced regeneration of
Private forests 99.0 2.1 L. leptolepsis 123.0 13.8
Afforestation 106.0 0.6 P. koraiensis 85.0 21.0
Mongolia Pakistan
Private forests 99.2 0.8 Intensified forest management
Natural regeneration 67.5 0.6 - Conifer forest – protection 41.6 0.1
Agroforestry 9.8 0.8 - Conifer forest – natural regeneration 33.8 8.8
(enhanced)
Bioenergy 80 - Reforestation4 39.1 19.3
Shelter belt 101.7 0.9 Riverain forest plantation 32.9 40.6
Commercial forest plantation 54.6 40.6
Watershed management 26.7 34.8
Agroforestry 29.7 1.6
Plantation on agricultural land2 7.5 0.7
Rangeland management. 20.0 17.4
Philippines Thailand
Forest protection plus sustainable 215.0 1.3
management Short rotation in:
Forest protection – total log ban 215.0 0.5 - Managed forests 185.5 2.5
Long rotation forestry 236.0 2.1 - Non protected areas 158.9 2.9
Urban forestry 90.0 5.3 Long rotation in community managed forests 169.0 3.2
Medium rotation in non protected areas 112.5 4.3
Forest protection and rotation forestry
for conservation in
- Protected area 38.6 7.5
- Community managed forests 38.1 10.7
Vietnam Myanmar
Forest protection 106.9 0.1 Natural regeneration 33.0 0.1
Degraded forest protection 64.3 0.2 Reforestation long4 155.0 0.8
Natural regeneration (enhanced) 57.1 0.8 Forest protection 47.0 1.6
Scattered trees 64.0 0.9 Reforestation short4 55.0 3.8
Reforestation short4 43.0 2.2 Bio electricity 78.0 21.4
Reforestation long 68.2 1.7
(continued)
Tabel 4.3: continued
Mitigation option Mitigation Investment Mitigation option Mitigation Investment

potential cost1 potential cost1
(tC/ha) (US$/tC) (tC/ha) (US$/tC)
AFRICA
Ghana Cameroon
Evergreen forest Evergreen forest
- agroforestry 13-88 1-6 - agroforestry 16-58 1-5
- slowing deforestation 35-140 1-2 - slowing deforestation. 40-160 1-2
Deciduous forest - forestation5 73-195 1-19
-slowing deforestation 35-140 1-2 Deciduous forest
- forestation5 31-154 1-27 - forestation5 27-169 21-19
Savannah Savannah
- agroforestry 29-61 4-12 - forestation5 36-170 1-31
1 Investment costs (US$/tC):This largely includes forest or plantation establishment costs incurred during the initial 2-3 years; discounted for only the initial 2-
3 year period. For forest protection, the costs include expenditure on erecting barriers for protection, training, and other organizational costs incurred during
the initial 2-3 year period. Mitigation potential is in pertuity, assuming one full cycle; rotation length for mitigation option subject to harvesting (such as short
and long rotation) and for others 40 years.
2 Natural regeneration of forest is increasing the biomass density to that of closed forests on partially degraded open forest areas; assisted or enhanced natural
regeneration would involve planting a (few) trees and/soil and water conservation activity to assist or enhance natural regeneration.
3 Plantations involve planting of one or more species at high densities.
4 Reforestation in a short rotation has a 5 to 15 year harvest cycle, reforestation in a long rotation has a 30-100 year harvest cycle.
5 Forestation includes both afforestation and reforestation.
100%
Savannah thickening
90%
Restoration of degraded lands
80%
contribution of each measure (%)
Forest protection: leaving primary forest

untouched
70% Forest protection: taking exploitable
forest out of production
60% Pest management
50% Fire management
40% Elongation of life time of wood products
Elongation of rotation length

30%
Thinning
20%
Fertilization
10%
0%
USA Canada Australia Iceland Japan EU15
Figure 4.8: Relative importance of each of the 10 forest management alternatives in the total potential sequestration as given in
Figure 4.7. These data give an indication of opportunities and do not necessarily represent national plans. For example, silvi-
cultural practices in Japan generally do not accompany fertilization and the figure for Japan is probably an overestimate.
Nevertheless it shows that opportunities vary among countries because of both the national situation, the mix of current forestry
practices, and/or the historic management. One common recommendation of which measures would yield the largest carbon
sequestration can therefore not be given (adapted from Nabuurs et al., 2000).
Table 4.4: Land categories and extent of availability for mitigation in selected developing countries
(Sathaye and Ravindranath, 1998)
Country Forest land for Degraded Degraded land Agroforestry Others Total Area under
conservation, forest land for plantation geographic forests
protection, and for regener- forestry area
management ation
(Mha) (Mha) (Mha) (Mha) (Mha) (Mha) (Mha)
Asia
China 19.2 105.2 75.9 932.6 134.0
India 36.9 41.3 96.0 329.0 63.3
Indonesia 30.5 193.0 144.7
Mongolia 2.4 1.6 156.6 17.5
Myanmar 3.3 6.9 65.8 49.3
Pakistan 0.5 0.3 2.6 1. 2 77.1 3.7
Philippines 6.6 2.5 0.60 29.8 6.5
South Korea 0.7 0.3 0.05 9.9 6.5
Thailand 17.8 4.4 51.1 14.0
Vietnam 10.5 6.0 2.50 32.5 19.0
Total 39.4 78.9 181.2 171.9 3.15 1877.4 458.5
Africa
Cameroon 1.6 7.3 1.6 46.0 36.0
Ghana 0.9 0.3 2.5 23.0 18.0
Total 2.5 0 7.6 4.1 0 69.0 54.0
Total (12 countries) 41.9 78.9 188.8 176 3.15 1946.4 512.5
mates are much larger than those in IPCC (1996) (Table Deforestation in the Brazilian Amazon is a significant source
4.4). of CO2 and, with 90% of the originally forested area still
uncleared, Brazil remains a large potential source of future
Current estimates suggest that the cumulative C mitigation emissions. The deforestation rate in Amazonia was estimated
potential of forests in 10 Asian countries is about 26.5GtC, to be 1.38 million ha/yr in 1990, corresponding to an emission
suggesting that the SAR estimates for the tropical region were of 251MtC/yr (Fearnside, 1997). The rate of deforestation has
conservative. China (9.7GtC) and India (8.7GtC) have particu- increased in recent years, to 2.91Mha/yr in 1995 and
larly large mitigation potentials in the forestry sector (Sathaye 1.82Mha/yr in 1996 (Fearnside, 1998). Reducing the defor-
and Ravindranath, 1998). estation rate by 50% would conserve 125MtC/yr. Thus, Brazil
alone offers a large potential for mitigation through slowing of
Latin America, which accounts for 51% of the global area of deforestation.
tropical forests (FAO, 1997), has an estimated mitigation
potential of at least 9.7GtC, an estimate based on analyses of What is the permanence of C sequestered by forest manage-
Mexico, Venezuela, and partly Brazil (Table 4.5). This total ment activities? Clearly, tree plantations that are harvested and
includes native forest management, protected areas, commer- not re-established do not contribute to long-term carbon
cial plantations, agroforestry, and restoration plantations. The sequestration, though they may reduce atmospheric C in the
technical potential C mitigation in forestry is estimated at short term. But, if a new forest is maintained so that harvest
about 4.8GtC for Mexico, 1.4GtC for Venezuela, and 3.5GtC equals net growth, the forest can both be a source of wood
for Brazil (Da Motta et al., 1999, Table 4.5). The feasible mit- products and still retain the captured C. In other words, the
igation potential, which is largely constrained by land tenure sequestration phase may be finite, lasting only a few decades,
policies and socio-economic pressures (land availability), is, but the conservation phase need not be finite. Although there is
however, often much lower than this technical potential. The an exchange of carbon between the atmosphere and the bio-
feasible socio-economic mitigation potential is about 50% less mass, a considerable pool of carbon can be permanently stored
than the technical potential in Mexico and about 44% lower in the steady-state biomass while wood products continue to be
than the technical potential in India (Ravindranath and produced. This C pool remains withdrawn from the atmosphere
Somashekar, 1995). as long as the forest exists. The substitution phase, which
Table 4.5: Biological GHG mitigation potential in Latin America
Option Land available in Unit C Total C Unit Total Reference

2030 (Mha) seques- sequestration(MtC) costb cost
Technical Economic tration Technical Economic (US$/tC)
potential potential (tC/ha) potential potential
Native forest management

Mexico 18.7 13.2 132 2465 1550 0.1-4 4930 Masera, 1995;
Masera et al., 1997a;
Masera and Ordóñez,
1997
Venezuela 9.8 75 735 9 6615 Bonduki and
Swisher, 1995
Brazil 60 18 735 1.8 1323 Da Motta et al., 1999
Protected areas
Mexico 6 4.9 89 535 470 1-6 1872.5 Masera, 1995;
Masera et al., 1997a,
Masera et al. 1995
and 1997b
Venezuela 4 94 376 4 1504 Bonduki and
Swisher, 1995
Brazil 151 18 2718 3 7650 Da Motta et al., 1999
Restoration plantations
Mexico 4.2 2.5 76 320 200 7 2240 Masera, 1995;
1997
Commercial plantations (includes energy plantations)

Mexico 6.6 2.4 208 1375 1075 5-7 8250 Masera, 1995;
Masera et al. 1995
and 1997b
Venezuela 4.9 52-62 295 17 5015 Bonduki and
Swisher, 1995
Brazil
degraded land
- Pulp 24 1.4 Da Motta et al., 1999
- Charcoal 180 0.7 Da Motta et al., 1999
- Timber 43 –9.5 Da Motta et al., 1999
‘–’ means profitable
Agroforestry
Mexico 1.9 1.5 53 100 80 2-11 650 Masera, 1995;
Masera et al., 1997a;
1997; De Jong et al.,
1995
Venezuela 1 27 27 20 540 Bonduki and
Swisher, 1995
Total
Mexico 37.4 24.5 4795 3375 17943
Venezuela 19.7 1433 13674
Brazila 211 3453 8973
a Unit carbon sequestration considers the difference between sustainable and unsustainable logging. Unit price is NPV(net of present value of benefits minus
present value of costs)
b Unit cost US$/tC is NPV.
begins at the onset of the first harvest, can be sustained. Each changing pressures on land use, and resource constraints. In
timber crop, in a cumulative manner, can substitute for fossil- many industrialized countries, adjusting forest management
fuel resources. The forest thus offers a sustainable alternative regimes and material flows in the forest products sector
to the unsustainable use of fossil-fuel resources (Schlamadinger (including substitution) appears most promising (Hoen and
and Marland, 1996). Solberg, 1994; Binkley et al., 1997).
Land owners are unlikely to manage their forest resources for To quantify accurately the effects of changes in forest manage-
C sequestration alone. In the absence of financial incentives, ment on the net transfer of C to the atmosphere, the whole sys-
any C sequestration will likely be incidental, or have the role tem could be considered (see Box. 4.1). Many earlier studies
of a by-product in the management of forests to produce val- focused on the immediate results of forest management mea-
ued goods and services (ITTA, 1983, 1994). In the tropical sures, e.g. the higher biomass growth rate following a silvicul-
biome, the optimal mix of management strategies will likely tural treatment or the protected stock of C if wildfire or logging
reflect a balance between various forest management systems is prevented. Global assessments based on these studies (e.g.,
and agricultural production. Existing policies for forest and Dixon et al., 1994; Brown et al., 1996b) have limitations.
agricultural land management, however, do not yet reflect eco- Estimates, in terms of tC/ha or tC/ha/yr, leave unanswered the
nomic incentives for C management and probably are not opti- critical questions of the timing, security, and sustainability of
mal (see for example Poore et al., 1989). these effects. Also, recent, more comprehensive studies indi-
cate the importance of complete accounting for all the C flows
The effectiveness of various strategies for C sequestration will in and out of the system and the analysis of long-term patterns.
depend on the initial status of the forest ecosystems. For lands For example, Schlamadinger and Marland (1996) showed that
without tree cover, afforestation permits large C gains per the positive effect of short-rotation plantations for fossil fuel
hectare (Dyson, 1977; Sedjo and Solomon, 1989). Industrial substitution is less than implied by the simple substitution of
plantation forests are already being created on a large scale and fossil fuels, because of the continued input of fossil fuels need-
expansion of this area for C sequestration is possible (Sedjo ed to operate the system. While the limitations of earlier stud-
and Sohngen, 2000). The establishment of forest plantations is ies are now evident, data for comprehensive analysis at the
generally the most reliable silvicultural method for afforesta- global scale are not yet available. This, in part, explains why
tion, reforestation, and sustainable regeneration (regeneration global-level estimates of the potential for C mitigation in
soon after cutting). Plantation establishment can enhance pro- forestry remain unchanged from those in SAR.
ductivity if desired species are planted on suitable sites.
Plantations can reduce the pressures to degrade natural forests 4.3.2.1 Wood Products
(Sedjo and Botkin, 1997). However, following the harvest of a
mature or old-growth forest, the land can remain a source of Wood products are an integral part of the managed forest
carbon for many decades, even when it is regenerated (Hoen ecosystem and the forest sector C cycle. They play three roles
and Solberg, 1994; Cohen et al., 1996; Schlamadinger and in the forest sector carbon cycle: (1) a physical pool of carbon,
Marland, 1996; Bhatti et al., 2001). Therefore, for primary and (2) a substitute for more energy-intensive materials and, (3) a
mature forests, conserving and protecting the existing C pools raw material to generate energy (Burschel et al., 1993;
is often the only mitigation option that yields near-term bene- Nabuurs and Sikkema, 1998; Harmon et al., 1996; Karjalainen,
fits. 1996; Matthews et al., 1996; Marland and Schlamadinger,
1997; Apps et al., 1999).
Because of the diversity in the current global forest status and
socio-economic situation, the optimal mix of mitigation strate- Wood removed from a forest by harvest, whether by thinning
gies will vary with country and region, in both the tropics and or clear-cut, can be viewed as a replacement for the natural
the non-tropics. For many countries, slowing or halting defor- mortality that would otherwise occur eventually (albeit at a
estation is a major opportunity for mitigation (e.g., Brazil: faster rate). Harvested wood provides renewable raw material
Fearnside, 1998, and Mexico: Masera, 1995). In countries such for use as fuel, fibre, and building materials; as well as income
as India, where deforestation rates have declined to marginal and employment for rural populations (Glück and Weiss,
levels, afforestation and reforestation in the degraded forest 1996). Globally, about 3.4 billion m3 of wood are harvested per
and non-forest lands offer large mitigation opportunities year, excluding wood that is burned on site (FAO, 1997).
(Ravindranath and Hall, 1995). Ravindranath and Hall (1995) Harvest rates are expected to increase at 0.5% per year
have shown the potential of using this degraded land and small (Solberg et al., 1996). Of the total harvest, about 1.8 billion m3
biomass gasifiers to sustainably produce electricity from is for fuelwood, used mainly in the tropics. The total fuelwood
woody biomass and displace 40 million tonnes of C annually. consumption in tropical countries increased from 1.3 to 1.7 bil-
In Africa an important opportunity for mitigation is in con- lion m3 during the period 1990 to 1995 (FAO, 1997; Nogueira
serving wood fuel and charcoal through improved efficiencies et al., 1998).
of stoves and charcoal kilns (Makundi, 1998). The selection of
mitigation strategies or projects in tropical countries, particu- If the fossil fuel based energy required to produce and transport
larly, will be determined by economic development priorities, forest products is less than that needed for alternative products,
then CO2 emissions will be avoided by the use of forest prod- Most of the forest harvest in the boreal and temperate zone is
ucts. Buchanan and Levine (1999) show, for example, that for industrial roundwood (i.e., cut logs). About one-half to two
when wood is used for building construction in place of brick, thirds of the roundwood finds its way into final products, and
aluminium, steel, and concrete, there can be net savings in CO2 the rest is used for energy or ends up as decomposing residues
emissions. For construction of small buildings in New Zealand, (e.g., Apps et al., 1999). The annual production of roundwood,
the carbon substitution effect was larger than the direct carbon according to FAO (1997) statistics, corresponds to a harvest
storage in wood building products (Buchanan and Levine, flux of about 1.6 billion m3, resulting in about 0.9 billion m3 in
1999). Forest products can also substitute in the marketplace final products. This represents a C flux of about 0.3GtC/yr into
for alternative materials, such as cement, that involve carbon the product pool.
emissions in their manufacture.
According to the SAR (IPCC, 1996), the current global stock
A systems approach has been used recently to recognize inter- of C in forest products is about 4.2GtC and the net sink is
dependencies among products and sectors. For example, 0.026GtC/yr. Other sources suggest a stock of 10-20GtC
Adams (1992) and Alig et al. (1997) examined the effects of (Sampson et al., 1993; Brown et al., 1996b) and a global sink
sequestering C in forests in the USA on the availability of agri- of 0.139GtC/yr (Winjum et al., 1998). There is a large uncer-
cultural land, and Sedjo and Sohngen (2000) used a sectoral tainty in the estimates. Even if the high end of the range is cor-
approach that explicitly recognized interrelations among vari- rect, the C sink in wood products appears small compared to
ous wood investment decisions, and between wood investment the current rate of C sequestration in boreal and temperate for-
and C sequestration activities. The systems approach also rec- est ecosystems. Whether the physical pool of carbon in wood
ognizes the joint product nature of industrial wood and carbon products in use acts as a sink depends on the relative rates of
sequestration. In a study in Argentina, for example, Sedjo input and output from the product pool, i.e., the difference
(1999b) found that timber alone does not generate sufficient between the production of new products and the decay of the C
returns to justify plantation investment, but the simultaneous stock in existing products (Apps et al., 1999).
sequestration of C can justify investment above some threshold
C price. The models do not yet incorporate a potential increase Options to increase physical sequestration of carbon in wood
in demand for wood as a fuel to displace fossil fuels. products include:
• Increasing consumption and production of wood prod-
In the developing world most fuelwood and charcoal use is ucts;
devoted to satisfying energy needs for cooking (Makundi, • Improving the quality of wood products;
1998). The potential for conservation of fuelwood is signifi- • Improving processing efficiency; and
cant, both through improved cooking stoves and by substitu- • Enhancing recycling and re-use of wood and wood
tion with liquefied or gasified biofuels. India, China, and some products.
African countries have large programmes for the distribution
of more efficient wood stoves. In India alone 28 million Several studies have been carried out on the impacts of these
improved stoves have been disseminated (Ravindranath and measures on the amount of carbon sequestered in wood prod-
Hall, 1995). The carbon mitigation costs of improved wood ucts. These studies generally conclude that the sink potential is
stoves in India range from US$0.10/tC abated (Luo and quite small at the national or global level (Karjalainen, 1996;
Hulscher, 1999) to US$12/tC abated (Ravindranath and Nabuurs, 1996; Marland and Schlamadinger, 1997).
Somashekar, 1995). A review of case studies in Asia showed
an average mitigation cost of US$0.8/tC abated in Thailand to Use of wood as a fuel reduces CO2 emissions from fossil fuels
US$1.7/tC in India, through programmes to encourage use of (Hall et al., 1991; Brown et al., 1996a; Nabuurs, 1996;
improved wood stoves (Hulscher et al., 1999). The experience Marland and Schlamadinger, 1997). Where the costs of grow-
with wood stoves shows that – when appropriately designed, ing biofuels on agricultural lands are higher than the costs of
implemented, and monitored – efficient stove programmes can using fossil fuel, some form of incentive may be required to
provide substantial benefits to local residents. There are no generate significant shifts to biofuels (Sedjo, 1997). The use of
estimates of the global potential for carbon conservation via abandoned forest products for energy rather than disposal as
this option, however, in India alone it is estimated that 20MtC waste can provide additional opportunities for displacing use
could be saved annually (Ravindranath and Hall, 1995). of fossil fuels (Apps et al, 1999). Chapters 3 and 6 provide fur-
ther discussion of the use of bioenergy within the energy sec-
There is also a significant potential for saving fuelwood and tor.
charcoal in a large number of small industries. Charcoal mak-
ing, brick making, pottery making, bakeries, etc. use fuelwood Micales and Skog (1997) estimate that of the total amount of
as their primary energy source in many areas. Fuelwood and carbon-based products disposed of in the USA in 1993, as
charcoal consumption in tropical countries is projected to either paper or wood products, 28TgC (out of a total domestic
increase from 1.34 billion m3 in 1991 to 1.81 billion m3 in 2010 harvest of approximately 123TgC/yr) will remain stored in
(FAO, 1993). landfills. Heath et al. (1996) and Karjalainen et al. (1994)
emphasize the increasing role of landfills as a store of C.
Production of methane through anaerobic decomposition Huggins et al., 1998; Solomon et al., 2000). At least a portion
deserves to be considered when evaluating the mitigation of C lost, however, can often be recovered by adopting man-
potential. agement practices that again favour higher C stocks (Cole et
al., 1997). The accumulation of C in soil can continue until a
While C sequestration in wood products can reach saturation, new steady state is reached, often after several or more
the C benefits of materials substitution can be sustained. decades. Most of the additional C is stored in the soil as organ-
Assuming a material substitution effect of 0.28tC/m3 of final ic matter. Apart from agroforests, agricultural lands store very
wood product (Burschel et al., 1993), and a flux corresponding little carbon in plant biomass (Table 4.1).
to a roundwood volume of 0.9 billion m3 annually, the substi-
tution impact of industrial wood products may be as large as There are two general ways of increasing C stocks in agricul-
0.25GtC/yr. Although this estimate is highly uncertain, it is tural lands: by changing management within a given land use
possible that for wood products the substitution impact is larg- (e.g., cropland, rice land, grazing land, or agroforests) or by
er than the sequestration impact. This substitution is additional changing from one land use to another (e.g., cropland to grass-
to the sinks in wood products mentioned before. land or cropland to forest) (Sampson et al., 2000). In this sec-
tion, we review briefly the possible ways of increasing C
4.3.2.2 Managing Wetlands stocks in agricultural lands, first within a land use and then by
a change in land use. We then review recent estimates of the
Globally, wetlands contain large reserves of organic carbon - potential for increasing C stocks in agricultural lands globally.
about 300 to 600GtC (Gorham, 1991; Eswaren et al., 1993; A more detailed assessment of management practices and cor-
Scharpenseel, 1993; Kauppi et al., 1997). A major portion of responding rates of C accrual is reported in the IPCC Special
this carbon is found in peat-forming wetlands (peatlands), Report on LULUCF (IPCC, 2000a).
often associated with forests, in both northern (302Mha,
397GtC) and tropical (50Mha, 144GtC) biomes (Zoltai and Croplands, as referred to here, are lands devoted, at least peri-
Martikainen, 1996). Over the long term, peatlands gradually odically, to the production of arable crops (wetland rice,
accumulate additional carbon, because decomposition is sup- because of its unique features, is discussed separately). Soil C
pressed under flooded conditions (Harden et al., 1992; Mitsch in these lands can often be preserved or enhanced by using
and Wu, 1995; Rabenhorst, 1995; Zoltai and Martikainen, farming systems with reduced tillage intensity, thus slowing the
1996; Kasimir-Klemedtsson et al., 1997). The beneficial effect rate at which soil organic matter decomposes (Bajracharya et
of this carbon accumulation, however, is at least partially off- al., 1997; Feller and Beare, 1997; Rasmussen and Albrecht,
set by release of methane, which is also a GHG (Gorham, 1997; Dick et al., 1998). Another way to promote higher soil C
1995). is to increase crop yields. This can be done by applying organ-
ic amendments, by effective use of fertilizers, by using
There are few opportunities to augment the accumulation of improved crop varieties, or by irrigating. These practices help
carbon in wetlands by improved management. Drainage of replenish soil organic matter by increasing the amount of crop
forested peatlands, largely concentrated in boreal regions, can residues returned to the soil (Raun et al., 1998; Huggins et al.,
enhance tree growth significantly, but the net ecosystem carbon 1998; Paustian et al., 1997b; Lal et al., 1998; Smith et al., 1997;
changes are less clear – some studies report large net gains Fernandes et al. 1997; Izac 1997). Further, soil C can often be
while others indicate large net losses of carbon to the atmos- increased by using practices that extend the duration of C fixa-
phere (see review by Zoltai and Martikainen, 1996). A more tion by photosynthesis; for example, cover crops, perennial for-
important mitigation measure, from the perspective of atmos- ages in rotation, and avoiding bare fallow tend to increase
pheric CO2, is the preservation of the vast carbon reserves organic C returns to soil (Lal et al., 1997; Singh et al., 1997a;
already present (van Noordwijk et al., 1997) in peatlands. Smith et al., 1997; Carter et al. 1998; Tiessen et al., 1998; Tian
Drainage of wetlands for agricultural or other uses results in et al., 1999; Paustian et al., 1997a, 2000). Farming techniques
rapid depletion of stored C (Kasimir-Klemedtsson et al., 1997). that reduce erosion (e.g., terracing, windbreaks, and residue
management) maintain productivity and also prevent loss of C
from agricultural soils. The net effect of soil erosion on atmos-
4.3.3 Opportunities in Agricultural Lands pheric CO2 is still uncertain, however, because the C removed
may be deposited elsewhere and at least partially stabilized (van
Most ecosystems, under constant conditions, eventually Noordwijk et al., 1997; Lal et al., 1998; Stallard, 1998).
approach a steady-state C stock that is dictated by manage-
ment, climate, and soil properties. But changes imposed on the Rice land, as the term is used here, refers to areas that are at least
ecosystem can alter the balance of C inputs and losses, shifting periodically flooded for wetland rice production. Carbon stocks
the ecosystem, eventually, to a new steady state (Paustian et in these systems can be preserved or enhanced by the addition of
al., 1997c). For example, after conversion of forests or grass- organic amendments (Singh et al., 1997b; Kumar et al., 1999)
lands to arable agriculture, losses of C often exceed inputs tem- and nutrient management (Yadav et al., 1998). Rice lands, how-
porarily, resulting in a net loss of C to the atmosphere until a ever, are an important source of methane and, from the stand-
new, lower equilibrium level is reached (Balesdent et al., 1998; point of overall radiative forcing, management effects on
methane emissions may be more important than effects on C bilitation may depend on the amelioration of the underlying
storage (Greenland, 1995; Sampson et al., 2000). Methane emis- causes of degradation. Specific rehabilitation practices include:
sions can be suppressed to some extent by soil amendments, introduction of new species (e.g., reforestation), addition of
altered tillage practices, water management, crop rotation, and nutrients, and organic amendments (e.g., Lal and Bruce, 1999;
cultivar selection (Minami, 1995; Kern et al., 1997; Neue, 1997; Lal et al., 1998; Izaurralde et al., 1997).
Yagi et al., 1997; Van der Gon, 2000). For more information on
CH4 and N2O emissions from land use, see Section 3.6. Various attempts have been made to estimate potential C stor-
age by improved management of agricultural lands. In the
Grazing lands refer to natural grasslands, intensively managed IPCC Second Assessment Report, Cole et al. (1996) estimated
pastures, savannas, and shrublands used, at least periodically, the potential for C storage in agricultural soils from improved
to graze livestock. One way to increase C stocks in these lands management of existing croplands, restoration of degraded
is to introduce new plant species. For example, the introduction lands, and conversion to grass or forestlands. By assuming that
of N-fixing legumes increases productivity, thereby favouring one-half to two-thirds of the estimated historic C loss from cul-
C storage (Fisher et al., 1997; Conant et al., 2001). Large tivated soils could be recovered in 50 years, they proposed
increases in soil C have been also reported from the introduc- potential soil C increases of about 0.4 to 0.6GtC/yr from better
tion of deep-rooted grasses in South American savannas (e.g., management of existing agricultural soils. According to their
Fisher et al., 1994), though the area over which these findings estimates, additional C could be stored by set-aside of surplus
apply is still uncertain (Davidson et al., 1995). Other manage- upland soils (0.015 to 0.03GtC/yr), restoration of wetlands
ment practices that can affect C storage include: changing (0.006 to 0.012GtC/yr), and restoration of degraded lands
grazing intensity and frequency (Manley et al., 1995; Ash et (0.024 to 0.24GtC/yr), yielding a combined potential of about
al., 1996; Burke et al., 1997, 1998); adding nutrients, especial- 0.44 to 0.88GtC/yr over a 50-year period. Later studies have
ly phosphorus (Barrett and Gifford, 1999); controlling fire provided similar estimates. Lal and Bruce (1999), using rates
(Burke et al., 1997; Kauffman et al., 1998); and irrigation of soil C gain from the literature, estimated global C storage
(Conant et al., 2001). potentials of 0.43 to 0.57GtC/yr in the next 20-50 years, from
erosion control, soil restoration, conservation tillage and
Agroforests include trees on farms as part of the agricultural residue management, and improved cropping practices. Batjes
landscape (Sampson et al., 2000). Unlike most other agricul- (1999), based partly on C gains estimated by Bruce et al.
tural systems, agroforests store C in the above and below (1999), proposed that an additional 14GtC (±7) could be stored
ground vegetation as well as in soil organic matter (Fernandes in agricultural soils over the next 25 years by improved man-
et al., 1997; Woomer et al., 1997). Examples of practices that agement of “degraded” and “stable” agricultural lands.
can enhance C stocks include: integrated pest management, Including “extensive grasslands” and “regrowth forests”
optimum tree densities, superior tree or crop cultivars, and bet- increased the estimate to 20GtC (±10), corresponding to an
ter nutrient management (Sampson et al., 2000). average rate of 0.58 to 0.80GtC/yr.
Land-use conversion involves transferring a given land area Sampson et al. (2000) recently completed a comprehensive
from one use to another. Where the shift is to a land use with assessment of potential net C storage from land management as
higher potential C storage, the conversion can result in part of the IPCC Special Report on LULUCF (IPCC, 2000a).
increased C stocks. For example, conversion of cropland to According to their estimate, improved management within a
grassland often increases soil C (e.g., Paustian et al., 1997b; land use could result in global rates of C gain, in 2010, of
Reeder et al., 1998; Potter et al., 1999; Post and Kwon, 2000). 0.125GtC/yr for cropland, <0.008GtC/yr for rice paddies,
Carbon stocks may also be enhanced by conversion of crop- 0.026GtC/yr for agroforestry, and 0.237GtC/yr for grazing
land to forests (reforestation, afforestation) or to agroforests land. Potential rates of C gain in 2010 for land use conversion
(e.g., Fernandes et al., 1997; Woomer et al., 1997; Falloon et were 0.391 GtC/yr for conversion of unproductive cropland
al., 1998; Post and Kwon, 2000). In some cases, cultivated and grasslands to agroforests, <0.004GtC/yr for restoring
lands can be restored as wetlands (Paustian et al., 1998; Lal et severely degraded land, 0.038GtC/yr for conversion of crop-
al., 1999), resulting in carbon gains, though this practice may land to grassland, and 0.004GtC/yr for conversion of drained
also result in higher net CH4 emissions (Willison et al., 1998; land back to wetland. Corresponding rates of potential C gains
Batjes, 1999; Sampson et al., 2000). for 2040 were consistently higher than those for 2010, often by
a factor of about 2, though confidence in these values was
Another form of land-use conversion is the rehabilitation of lower. Sampson et al. (2000) cautioned that their estimates
severely degraded lands. Severely degraded lands are those “are approximations, based on interpretation of available data”
where previous management has caused a drastic decline or and that, “for some estimates of potential carbon storage, the
disruption of productivity. Large areas of degraded lands occur uncertainty may be as high as ±50%”.
on lands previously used for agriculture; lands abandoned after
excessive erosion, over-grazing, desertification, or salinization Most of these estimates assume widespread, concerted adop-
(Oldeman, 1994; Lal and Bruce, 1999). Often the degradation tion of C-conserving practices, and all have high uncertainty,
was caused by social and economic pressures, and land reha- stemming in part from the difficulty of predicting adoption of
C-conserving practices. The various estimates, furthermore, following hurricane Mitch was apparently enhanced by loss of
cannot always be compared directly because of differences in forest cover. By reducing runoff, forests control erosion and
practices, scope, time-frame, and underlying assumptions. salinity. Consequently, maintaining forest cover can reduce sil-
Most of the more recent estimates, however, are within the tation of rivers, protecting fisheries and investment in hydro-
same order of magnitude as those presented in the SAR (Cole electric power facilities (Chomitz and Kumari, 1996).
et al., 1996).
Afforestation and reforestation, like forest protection, may also
Increases in soil carbon content in response to improved prac- have beneficial hydrological effects. After afforestation in wet
tices cannot continue indefinitely. Eventually, soil C storage areas, the amount of direct runoff initially decreases rapidly,
will approach a new equilibrium where C gains equal C losses then gradually becomes constant, and baseflow increases slow-
(Paustian et al., 2000). This new equilibrium will depend on ly as stand age increases towards a mature stage (Kobayashi,
the management practices adopted, as well as on soil type and 1987; Fukushima, 1987), suggesting that reforestation and
climatic conditions. Consequently, rates of C gain will dimin- afforestation help reduce flooding and enhance water conser-
ish with time, and estimates for a given year cannot be extrap- vation. In water-limited areas, afforestation, especially planta-
olated far into the future. tions of species with high water demand, can cause significant
reduction of streamflow, affecting inhabitants in the basin (Le
Once soils reach a new equilibrium, there is little further accu- Maitre and Versfeld, 1997). The hydrological benefits of
mulation of C. And if the C-conserving practice is discontinued afforestation may need to be evaluated site by site.
(e.g., reversion from no-tillage to intensive tillage), much of
the previously gained C may be lost back to the atmosphere as Forest protection may, however, have negative social effects,
CO2 (Dick et al., 1998; Stockfisch et al., 1999). Consequently, such as displacement of local populations, reduced income,
the C stocks stored in soils are not necessarily permanent and and reduced flow of subsistence products from forests.
irreversible. Conflicts between protection of natural ecosystems and their
other functions, such as production of food, fuelwood, and
roundwood, can be minimized by appropriate land use on the
4.4 Environmental Costs and Ancillary Benefits landscape (Boyce, 1995; Forman, 1995) and appropriate stand
management.
4.4.1 Environmental Costs and Ancillary Benefits in
Forests In arid and semi-arid regions, where deforestation is advancing
(Kharin, 1996) and leading to carbon loss (Duan et al., 1995),
Forests serve many environmental functions aside from carbon restoring forests by afforestation and proper management of
mitigation. Natural forests with various stages of stand develop- existing secondary forests can help combat desertification
ment, including old-growth forests with snags and fallen logs, (Cony, 1995; Kuliev, 1996). Afforestation of desertified lands
provide diverse habitats necessary for biodiversity (Harris, may be limited, however, by costs and insufficient knowledge
1984; Franklin and Spies, 1991). Stopping or slowing deforesta- of ecology, genetics, and physiology (Cony, 1995). In relative-
tion and forest degradation, therefore, not only maintains carbon ly arid regions, fuelwood plantations may reduce pressure on
stocks but also preserves biodiversity, as shown by studies in natural woodlands, thereby retarding deforestation (Kanowski
Belize (EPA/USIJI, 1998) and Paraguay (Dixon et al., 1993). et al., 1992).
Although plantations usually have lower biodiversity than nat- Agroforestry can both sequester carbon and produce a range of
ural forests (Yoshida, 1983: Kurz et al., 1997; Frumhoff and economic, environmental, and socioeconomic benefits. For
Losos, 1998), they can reduce pressure on natural forests, leav- example, trees in agroforestry farms improve soil fertility
ing greater areas to provide for biodiversity and other environ- through control of erosion, maintenance of soil organic matter
mental services (Sedjo and Botkin, 1997). Plantations can neg- and physical properties, increased N, extraction of nutrients
atively affect biodiversity if they replace biologically rich from deep soil horizons, and promotion of more closed nutri-
native grassland or wetland habitat, but non-permanent planta- ent cycling (Young, 1997). Thus, agroforestry systems improve
tions of exotic or native species can be designed to enhance and conserve soil properties (Nair, 1989; MacDicken and
biodiversity by stimulating restoration of natural forests Vergara, 1990; Wang and Feng, 1995). Examples of mitigation
(Keenan et al., 1997; Lugo, 1997; Parrotta et al., 1997a, projects that promote soil conservation through agroforestry
1997b). Measures to promote biodiversity of intensively man- include the AES Thames Guatemala project, and the Profator
aged plantations include the adoption of longer rotation times, project in Ecuador (Dixon et al., 1993; FACE Foundation,
reduced or eliminated clearing of understory vegetation, use of 1997).
native tree species, and reduced chemical inputs (Allen et al.,
1995; Da Silva Jr et al., 1995; Fujimori, 1997). We note that decisions to protect or enlarge forest cover on a
large scale could also have secondary climate consequences
Preserving forests conserves water resources and prevents through their feedbacks on the earth’s albedo, the hydrological
flooding. For example, the flood damage in Central America cycle, cloud cover, and the effect of surface roughness on air
movements (see, for example, Pielke and Avissar, 1990; Nobre more) is released into the atmosphere as CO2 per kgN used
et al., 1991; Garratt, 1993). Analyses by Bonan and Shugart (Flach et al., 1997; Janzen el al., 1998; Schlesinger, 1999). In
(1992) suggest that large-scale changes in vegetative cover in tropical areas where shifting cultivation is now practiced,
the boreal zone may be especially important, with potentially intensification of crop production may maintain higher C
global-scale impacts. In the boreal zone the albedo contrast stocks, by leaving more land under natural forest, but addition-
between forested and unforested land during the winter is par- al fossil fuel may have to be used to compensate for the fuel-
ticularly large (differences as large as 40%). Indications are wood previously collected from the fallow period (van
that the nature, magnitude, and even direction of climate Noordwijk et al., 1997). In some cases, the adoption of C-con-
changes driven by changes in surface vegetative cover will serving practices may reduce energy use. For example, using
depend on the nature, location, hydrological setting, etc. of the less intensive tillage may not only favour soil C gains, but also
vegetative change. permits savings in CO2 emission from fossil fuel combustion
(Kern and Johnson, 1993). An evaluation of the net benefit of
a C-sequestering practice, therefore, must consider energy use
4.4.2 Environmental Costs and Ancillary Benefits in in addition to changes in C stocks. Whereas the duration of soil
Agricultural Lands C gain in response to improved management may be finite,
savings in CO2 emissions from energy use continue indefinite-
Management strategies that conserve C in agricultural soils ly (Cole et al., 1997).
may have ancillary benefits quite apart from atmospheric CO2
removal. Foremost among these is a favourable effect on soil Aside from their secondary effects on GHG emissions, prac-
productivity. Numerous studies have shown a strong link tices that sequester soil C may also have other potential
between the organic C content of a soil and its quality for crop adverse effects, at least in some regions or conditions. Possible
production (e.g., Carter et al., 1997; Christensen and Johnston, effects include enhanced contamination of groundwater with
1997; Herrick and Wander, 1997). Consequently, a gain in soil nutrients or pesticides via leaching under reduced tillage (Cole
C may promote crop yields, and preserve or enhance future soil et al., 1993; Isensee and Sadeghi, 1996), and possible environ-
productivity (Cole et al., 1997; Rosenzweig and Hillel, 2000). mental effects from widespread application of manures or
For example, application of fertilizers to agro-pastoral systems sludges (Batjes, 1998). These possible negative effects, how-
in parts of South America may not only induce soil C accumu- ever, have not been widely confirmed nor quantified, and the
lation, but also enhance agricultural productivity (Fisher et al., extent to which they may offset the environmental benefits of
1997). Many of the practices advocated for soil C conservation C sequestration is uncertain.
– reduced tillage, more vegetative cover, greater use of peren-
nial crops – also prevent erosion, yielding possible benefits for
improved water and air quality (Cole et al., 1993). As a result 4.5 Social and Economic Considerations
of these benefits, adoption of practices that promote C conser-
vation in agricultural lands is often justified even without the 4.5.1 Economics
additional benefits arising from CO2 mitigation.
The method of calculating costs for forestry and agricultural
Soil carbon sequestration, however, may sometimes have some projects differs. Forestry almost always looks at private market
potential adverse effects on the emission of other GHGs, costs. However, many, if not most, forestry projects have pos-
notably nitrous oxide (N2O). Where the C accumulation itive externalities (or ancillary benefits) in the form of erosion
requires addition of higher amounts of N as fertilizer or control, water protection, flora and fauna habitat, non-timber
manure, it carries the risk of increased N2O emissions (Cole et forest products, water protection, and so forth (Makundi, 1997;
al., 1993; Batjes, 1998). Furthermore, some C-conserving Frumhoff et al., 1998; Trexler and Associates, 1998). For agri-
practices like reduced tillage may increase N2O emissions by cultural projects the approach is typically tied to the idea that
favouring higher soil moisture content (Cole et al., 1993; the carbon-sequestering projects are essentially productivity
MacKenzie et al., 1997; Ball et al., 1999), though this effect is enhancing and therefore can be viewed as “no regrets” activi-
not always observed (e.g., Jacinthe and Dick, 1997; Lemke et ties; these are actions that have benefits in themselves aside
al., 1999). Because the radiative forcing of N2O is about 310 from climate mitigation, which make the project socially desir-
times that of CO2 (kg per kg), when calculated over a 100-year able even without its carbon benefits. Such “no regrets” activ-
time frame (IPCC, 1996), even a small increase in N2O emis- ities generally take the form of soil management activities,
sions, if confirmed, can significantly offset gains from C which both generate increased sequestered carbon and improve
sequestration. agricultural productivity.
Carbon sequestration strategies may also have an effect on There are basically three different ways of estimating the costs
energy use and, hence, CO2 emission from fossil fuel use. of sequestration of forestry projects – point estimates, i.e., cost
Changes in fertilizer use, pesticides, and agricultural machin- for a particular level of output; partial equilibrium estimates,
ery may enhance or offset any gains in soil C because of CO2 e.g., a cost function construction with the prices of inputs being
released from fossil fuel. For example, roughly 1 kgC (or held constant; and more general equilibrium types of approach-
es, e.g., a market equilibrium model in which some other Market Equilibrium Models: This approach incorporates sec-
prices, such as the prices of land inputs and the relative price toral and general equilibrium interrelationships. It recognizes
of all other goods, are allowed to change owing to market that expanding the forest for carbon sequestration purposes
forces. Additionally, economic models can incorporate chang- has implications for current and future industrial forest pro-
ing climate conditions to estimate changes in economic vari- duction and prices, and for agricultural production and prices.
ables as the climate and ecosystem change. Early studies tend- These price and production changes then generate feedbacks
ed to look at individual projects, relating the private costs of through the market to the forest and agricultural sector behav-
establishing a project to the cumulative carbon sequestered iour. Alig et al. (1997), for example, examine the effects on
over the life of the project (see Sedjo et al., 1995). Many of the welfare costs of meeting alternative carbon sequestration tar-
point estimate type studies provide undiscounted private mar- gets by land re-allocations between agriculture and forestry in
ket cost point estimates of the carbon sequestration in the USA. This model explicitly treats agriculture and wood
afforestation projects. However, this approach usually reveals production as interrelated. Allocating more land to trees to
little about how costs might change if the project were expand- capture carbon has implications on the price and quantity of
ed to involve truly large land areas, as they do not recognize agricultural products, as well as on timber. Thus, the costs of
rising costs required to increasingly bid land away from alter- carbon plantations are found both in the price of establishing
native uses. These types of estimates tended to be biased down- the plantations and in the higher agricultural prices, and thus
wards, partly because the opportunity costs of the land (land involve welfare shifts across sectors. A different approach,
rents) were often ignored. also recognizing sectoral interrelationships, is that of Sedjo
and Sohngen (2000). This approach expands on earlier global
Point Estimates: The cost estimates of actually sequestering timber supply models by explicitly incorporating the interrela-
carbon obtained in point estimate type of studies tend to be tions between the industrial wood sector and carbon planta-
quite low; in the SAR (IPCC, 1996) a range was given of tions by recognizing the joint product nature of industrial
US$3-US$7 per tonne of carbon. Additionally, a large number wood and carbon. This approach finds that tree planting car-
of more recent point estimate country studies reported most bon sequestration activities tend to have a somewhat more
unit abatement costs in this low range, or lower. The earlier modest effect than anticipated, since the tree planting for car-
IPCC estimates for SAR were that of an investment of US$ bon purposes leads to an expected increase in future timber
168-220 billion required to mitigate 45-72GtC in the tropical supplies and a corresponding decrease in expected future
regions. More recent work provides estimates that the cumula- prices. Through the effects of price expectations on the timber
tive investment required for mitigating 26.53GtC to be market, carbon activities may discourage industrial timber
US$63.6 billion at an overall cost of US$2.4/tC (Sathaye and investments and thereby lose some of the carbon gains made
Ravindranath, 1998). The unit cost given in Table 4.3 shows from the initial project. This is a form of leakage not often rec-
that the investment cost of mitigation is generally quite low for ognized.
carbon conservation options in selected developing countries
and South Korea (e.g., US$0.10/tC in Vietnam, and US$1- 2/tC Climate Feedback Models: These market equilibrium models
in Cameroon and Ghana). The mitigation cost is lower than incorporate the impact of the climate-driven changing ecology
US$2/tC for the majority of the options in Indonesia, the into their assessment of the potential and costs. Perez-Garcia et
Philippines, Vietnam, and Mongolia. al. (1997) examine the effects of climate change, using a glob-
al trade model (CGTM). This approach imposes a global cir-
Partial Equilibrium: Partial equilibrium involves a more com- culation model (GCM) and a terrestrial ecosystem model on
plete estimation of a static cost function that estimates rising the world’s industrial wood economy, and estimates the wel-
costs (e.g., as a result of land price increases as one moves to fare effects on forest owners and forest consumers of such
lands with higher opportunity costs) associated with increased changes. Sohngen and Mendelsohn (1998) use a timber model
sequestration activities. These studies generate marginal cost of the USA to estimate the changes in the forest market sector
functions that tend to suggest most costs are higher than those that would be expected to occur with a climate warming using
of the simple point estimates. This is because, for example, they GCM and terrestrial ecosystem models. However, neither
include in the cost estimates the opportunity costs of the land, study considers the impacts of increased fuelwood demand to
and they recognize rising costs associated with additional plan- replace fossil fuels.
ning activity and, for some, because they apply a discount rate
to future physical carbon sequestered. The costs for modest In summary, most studies, of all methodologies, suggest that
amounts of carbon sequestered in specific areas are generally in there are many opportunities for relatively low-cost carbon
the US$20-US$100/tC range (Moulton and Richards, 1990; sequestration through forestry. Estimates of the private costs of
Adams et al., 1995; Parks and Hardie, 1997;Stavins, 1999; sequestration range from about US$0.10-US$100/tC, which
Plantinga et al., 1999). Costs tend to depend on the forest are modest compared with many of the energy alternatives (see
growth rates anticipated and the opportunity costs of the land. Table 3.9 and Figure 4.9). Additionally, it should be noted that
Where projects are small, land prices would be expected to be most forest projects have positive non-market benefits, thus
stable. However, in regions where projects are large, land increasing their social worth. However, as the studies have
prices, and hence sequestration costs, will tend to rise. become more sophisticated, incorporating both the full private
120
Forestry in OECD
countries
100
Costs per option (US$/tC)

Renewable energy
80
Forestry in eastern
60 Europe
Energy saving and

40
efficiency
20 Fuel switch
0 Forestry in developing
0 200 400 600 800 countries
Level of reduction (MtC)
Figure 4.9: Indicative curves of costs (US$/tC, cost of US$28/tC is equivalent to US$100 per tonne of CO2) of emission reduc-
tion or carbon sequestration by level of total reduction. The curves display how comparable options vary in costs between world
regions. However, costs per option are also reported to vary widely at comparable total levels of reduction. This is mainly
because cost studies have not been carried out in the same way. In some options net monetary profit may occur as well (i.e., costs
may be negative as well) (Brown et al., 1996a, Hol et al., 1999; Jepma et al., 1997; Sedjo et al., 1995).
opportunity costs of the land and market effects on land and well as bilateral aid organizations, could play a more important
resource prices, estimates of carbon sequestration costs have role in incorporating mitigation in their policy objectives. For
tended to rise. The cost estimates tend to vary for regions, with example, investment promotion agencies could be created to
high costs generally associated with high opportunity costs for assist in the co-ordination of investment into carbon projects
land. In the many regions that have low opportunity costs for (e.g., see Moura-Costa et al., 1999). Additionally, global pri-
land, including many subtropical regions, the costs tend to vate enterprises could be encouraged to include climate miti-
remain low. gation measures in their plans. Financial incentives may be
required to achieve broad participation.
4.5.2 Institutional Structures and Equity Issues In tropical countries, forestry is dominated by government-
based institutions, mostly the departments of forestry and agri-
In order to realize the mitigation potential in part or in full, it culture and/or those involved in environmental management
would be helpful to have a set of institutions to translate the (WRI, 1987). These departments may need support and new
policies and measures into avoided emissions or carbon insight in order to effectively incorporate mitigation policies
sequestration. In the United Nations Conference on and measures in their resource management activities. At a
Environment and Development (UNCED) held in 1992, the national level, there also exist some institutions involving
importance of sustainable forest management was emphasized NGOs that focus on conservation and forest expansion, as well
under the “Forest Principles.” Subsequently, the formulation of as those dedicated to encouraging sustainable agriculture. Such
criteria and indicators was worked out under the Helsinki and institutions may also include umbrella organizations involved
Montreal Processes, in which the maintenance and enhance- in developmental activities such as gender, poverty alleviation,
ment of forest resources to contribute to the global carbon etc. A few institutions, including non-governmental and espe-
cycle is described. The same is a criterion under the United cially those involved in nature conservation and environmental
Nations (UN-ECE/FAO, 2000). The three main types of neces- services, e.g., game reserves, tourism companies, and large-
sary institutions are global and/or regional, national and local, scale agricultural production, could also incorporate mitigation
and/or community based (IPCC, 2000b). At the global level, considerations in their efforts.
there exist government-based multilateral institutions such as
the United Nations Food and Agriculture Organization (FAO), At the local level, effective institutions include community
United Nations Environment Programme (UNEP), the World leaderships, religious institutions, schools, traditional organi-
Bank, and the International Tropical Timber Organization zations, and indeed the family. These institutions are essential
(ITTO). All of these institutions are involved in natural with regard to natural resource management and agricultural
resource management, and can play a significant role in inte- practices, as well as for introducing mitigation-type activities
grating mitigation objectives in tropical forest management. that do not contravene their basic needs to use their land and
Also, a wide array of non-governmental organizations (NGOs) natural resources for sustenance.
active in resource conservation and sustainable utilization, as
Public, NGO, and private institutions, at each spatial level the question of how the various instruments and policies are
where they exist, can focus on including GHG mitigation as likely to influence leakage of carbon flows outside the target-
one of their considerations, while they oversee the use of for- ted system.
est and land resources to meet the developmental aspirations of
those in tropical countries and elsewhere. For example, a Agricultural subsidies are common in many, if not most, coun-
recent study on sustainable livelihoods and carbon manage- tries. Agricultural subsidies and absent forestry subsidy poli-
ment discussed arrangements to facilitate the involvement of cies can often be viewed as discouraging forest production and
small-scale farmers and rural communities in carbon trading thus, inadvertently, discouraging some possibilities for carbon
(Bass et al., 2000). An optimal mix of conservation, sequestra- sequestration. Similarly, tax policies can promote or discour-
tion, and substitution will be incidental or arise from the opti- age certain types of land use. In some countries, however, sub-
mal management of forest resources for producing desired sidies do promote afforestation and reforestation. The move-
goods and services as shown under various tropical forest man- ment of land from agriculture to forests generally leads to gains
agement stipulations (ITTA, 1983, 1994). In the tropical in the forest sector and losses in the agricultural sector. The
biome, the most likely use of the optimal mix of management cost of any additional carbon storage can involve a change in
strategies will be based on optimal management of forestry and welfare across two sectors. Lower taxes for agricultural lands
agricultural resources in each country. For example, balance and subsidies for forest clearing may be part of the package of
between forest conservation, afforestation, reforestation, and instruments to promote development.
multiple land use of the forest and agricultural areas will pre-
determine the extent of utilization of the land-use sectors for To reach objectives for carbon sequestration, market mecha-
mitigation activities. However, the existing policies in manag- nisms are important, but an appropriate institutional setting is
ing forest and agricultural resources have been criticized as also useful. In some tropical countries the profitability of main-
non-optimal (see, for example, Poore et al., 1989). Optimal taining forests could be improved in order to prevent conver-
levels of substitution will be determined by the energy and sion to alternative uses of the land. Success could entail revis-
industrial policies of these countries, rather than by carbon ing policies that directly or indirectly subsidize cattle ranching
sequestration criteria. (as has been historically the case in Latin America) or agricul-
ture. Success in C sequestration could also entail technical and
The so-called “no regrets options” can be identified and pur- financial training and capacity building at the local level. It
sued (see Chapters 7 and 8 for a discussion of no regrets should be recognized, however, that in many tropical countries,
options). Analysis has suggested that adequately designed and particularly within Asia and Africa, forests are harvested and
implemented GHG mitigation options in forestry and agricul- used according to the subsistence needs of local communities.
ture could help advance the countries’ own development prior- In these cases, some have argued that approaches based on
ities, at the same time providing significant carbon sequestra- market mechanisms will not be effective. Also, non-timber for-
tion (see Sheinbaum and Masera (2000) for analysis at the est products are an important component of the total demand
country level). for forest products and could be considered.
It is clear that some measures aimed at sequestering C in the

4.6 Market and Non-market Options to Enhance, biosphere have relatively low cost compared to other
Maintain, and Manage Carbon Pools approaches for mitigating the atmospheric increase of CO2
(Section 4.5). However, to date only a small number of projects
4.6.1. Introduction, Taxes, and Quotas involving a small and varied group of stakeholders has been
initiated in the terrestrial biosphere. These projects (forest
There are a host of market and non-market options to manage expansion, forest management, soil carbon management, com-
carbon pools in the terrestrial biosphere. Some of the most rel- munity forestry, and agroforestry) have covered, worldwide, an
evant questions related to carbon sequestration deal with the area of 3.6 to 6.4 million hectares in 1999 (for an overview see
types of instruments, policies, and mechanisms that could play Brown et al., 2000). Incentives that would create projects
a role in promoting increased sequestration and how the vari- aimed at carbon sequestration in the biosphere on a large scale
ous arrangements would actually affect outcomes. Market are not yet in place.
mechanisms could be important in promoting or discouraging
carbon sequestration. Potential mechanisms might include An important change in motivating carbon sequestration has
taxes or subsidies for activities that affect carbon directly or been the creation of the Kyoto Protocol, in December 1997.
that affect activities with large carbon implications. The UK, Although few countries have yet to ratify the Kyoto Protocol,
for example, has proposed a “Climate Change Levy” to be it introduces ceilings and/or quotas for CO2 emissions for
adopted by the UK’s 2001 Budget. The Kyoto Protocol intro- Annex B countries. In addition, the Kyoto Protocol explicitly
duces flexible mechanisms allowing joint implementation, recognizes afforestation, reforestation, and deforestation
emissions trading, and the clean development mechanism. (ARD) as having carbon implications, and it provides credits
When dealing with terrestrial systems any policies that influ- (and debits) for these activities in meeting carbon-emissions
ence land use can affect carbon sequestration. Finally, there is targets. This arrangement has contributed to pressures to find
ways to give sequestered carbon value in the market place. A an approach allows the market to reallocate emission permits,
detailed explanation of how the Kyoto Protocol might influ- and thus emissions, to the users that receive the highest return
ence management of C stocks is given in the IPCC Special from the permits, thereby distributing carbon emissions per-
Report on LULUCF (IPCC, 2000a). mits to the most efficient users. This approach is beginning to
be contemplated in addressing the problem of increasing
Through setting emissions targets and introducing taxes on atmospheric carbon and is endorsed in the Kyoto Protocol.
CO2 emission in some countries, carbon gains monetary value
and could become a new product for the forestry sector. From Currently, there are a series of brokers prepared to trade carbon
existing emissions taxes this value is estimated at credits in the USA and Europe, e.g., Natsource and Canto
US$200/tCO2 in Norway and US$100/tCO2 in the Netherlands Fitzgerald (Stuart and Moura-Costa, 1998), and the Sydney
(Solberg, 1997; Nabuurs, 1998). In the case of the Netherlands, Futures Exchange in Australia is planning to begin trading in
this carbon value is equivalent to US$17.5/m3 of roundwood, the latter part of 20001). In addition to tradable carbon emis-
more than the stumpage value of wood as a raw material. sion permits, the door is open for consideration of an analogous
However, in the first trades of certified carbon credits, Moura- instrument, tradable “carbon offsets”. Activities, such as plant-
Costa and Stuart (1998) found that prices ranged between ing and protecting forests, could provide carbon sequestration
US$5–US$10/tC. More generally, Moura-Costa and Stuart services that could be sold or traded.
(1998) found that the average price for carbon credits for car-
bon sequestered in developing countries ranged from US$0.19 To date there is only limited experience with certified carbon
to US$12/tC, and that these differences are very much linked offset instruments. In the USA, the electrical power industry,
to uncertainty about long term policy. through the Edison Electric Institute (EEI - an association of
private electrical power companies), has formed the Utility
The Dutch Government is considering the introduction of CO2 Carbon Management Tree Program whereby the various mem-
certificates as part of a test of CO2 emissions trading. In this ber companies invest money into a project fund to develop or
system, each economic sector and each firm could achieve its purchase carbon offset credits (Sedjo, 1999a). Another market
targets partly through certificates. Funds generated from these approach has been created, the Certified Tradable Offsets,
certificates would be used to establish forests. issued by the Costa Rican government, and the first carbon-
backed securities worldwide (Stuart and Moura-Costa, 1998).
These offsets are like JI or CDM as defined in the Kyoto
4.6.2 Carbon Offsets, Tradable Permits, and Leakage Protocol, but would be tradable.
Markets created for carbon credits from management of the A potentially serious problem with carbon offsets is that there
biosphere, of course, will be heavily influenced by the many may be carbon leakage. Leakage refers to the situation in
other commodities produced by the biosphere (food, wood, which a carbon sequestration activity (e.g., tree planting) on
etc.). Food security may, for example, be a reason for a gov- one piece of land inadvertently, directly or indirectly, triggers
ernment to continue its policy of agricultural subsidies in the an activity which, in whole or part, counteracts the carbon
absence of forestry (carbon) subsidies. On the other hand, effects of the initial activity. It can be shown that most of these
some studies (e.g., Callaway and McCarl, 1996) have shown types of problems arise from differential treatment of carbon in
that when diverting agricultural subsidies to carbon payments, different regions and circumstances, and the problem is not
the net impact on the national budget could be zero. In tropical unique to carbon sequestration activities but pervades carbon
countries, the institutions and subsidies for forest clearing may mitigation activities in the energy sector as well.
remain as part of the package to promote economic develop-
ment. Only if the monetary value of carbon stocks and sinks is In land use, leakage can occur from either protection or plant-
recognized and paid for will markets be efficient in encouraging activities. Suppose, for example, that a forest or wetland
ing C sequestration. Some developing countries see markets that was to be cleared is instead protected. Protection of one
for C offsets as providing resources to facilitate capital inflows such forest or wetland may simply deflect the pressure to
to finance conservation and other activities. another piece of land that is not protected and will be cleared
instead. Leakage can occur across both spatial and temporal
An emerging instrument that is likely to have a large effect on boundaries. Additionally, a forest protected in one year is sub-
carbon sequestration is the tradable emissions permit. Tradable ject to the possibility of clearing in subsequent years.
permits to deal with environmental pollutants have precedents
in other areas. In the USA, for example, there is an active mar- A similar situation may also exist with activities such as tree
ket for sulphur emissions permits (Burtraw, 2000). Firms with planting. Trees provide at least two services: producing indus-
excess emissions permits can trade these to firms in need of trial wood and sequestering carbon. Trees planted for carbon
additional permits. Thus, incremental emissions are no longer sequestration, because they may eventually be used for wood,
free, but incur additional costs to the firm. Firms that have
excess permits can either sell those permits or forego the
opportunity of receiving a payment – an opportunity cost. Such 1 See International Herald Tribune, 31/08/1999.
can affect expectations about future industrial wood prices, there are no certain claims on the future use of the resource.
thereby influencing the planting decisions of forest products Because there is no long-term claim on the resource in the
companies. If carbon credits are provided to carbon forests but future, the result is that resources may be used wastefully in
not to industrial forests, and if some carbon forests are antici- excess of their economic optimum. Thus, deforestation and
pated to enter future timber markets, then forest industrial land clearing are a form of the open access problem (Hardin,
firms may reduce investments in new forests. Such a reduction 1968).
would partly offset carbon sequestered in the newly planted
carbon forest, thereby reducing the net total carbon that would The costs of carbon management may not be distributed in the
have accumulated by both industrial and carbon forests (Sedjo same way as the benefits. Carbon management options in
and Sohngen, 2000). This leakage effect would not occur if developing countries may have low market costs but high local
both industrial and carbon forests could expect to receive pay- social costs in land commitments, and the benefits that arise
ment for both their carbon and their wood. may not be shared with local peoples. Analysis of a forest pro-
tection project in Madagascar suggests that there are financial
Leakage from industrial forests, resulting from forests estab- benefits for local inhabitants and social benefits for the global
lished for carbon purposes, has been estimated by Sohngen and community, but short-term debits at the national level (Kremen
Sedjo (1999) to be about 40%, globally, assuming that all car- et al., 2000). Formal adoption of markets for forest carbon
bon forests are made available to the timber market. This com- could increase incentives for forest protection, especially if
pares with estimated leakages in the energy sector of about mechanisms assure that local peoples share in the benefits.
5%–20%. No estimates of leakage generated from protection Similarly, costs and benefits may be realized at different times;
activities are available, but it is suggested that it may vary by future benefits are often weighted against current costs. How
country and site, unlike planted forests that are linked through communities value present and future costs depends on wealth,
the global timber market. culture, and economic and environmental priorities.
The leakage problem may be addressed reasonably well with- International consensus on carbon management begins to have
in nations by caps imposed on total emissions, but leakage of important implications for national sovereignty and personal
emissions across national boundaries may still occur in the property rights, an issue brought to prominence by recent tur-
absence of global coverage. moil regarding international trade agreements (see Chapter 6
for a detailed discussion on policies, measures and instru-
Conceptually, a permanent net carbon offset should be equiva- ments).
lent to a tradable emissions permit. If a new activity perma-
nently reduces net atmospheric carbon by one tonne, the cli-
matic implications are the same as if the tonne of carbon was 4.7 Biological Uptake in Oceans and Freshwater
never released. Thus, a carbon-offset credit would be equiva- Reservoirs, and Geo-engineering
lent to a tradable emission credit. However, since carbon off-
set can quickly be liquidated, offset credits have greater liabil- The net primary production of marine ecosystems is roughly
ity problems. One approach might be treated on an annual (or the same as for terrestrial ecosystems (50GtC/yr for marine
decadal) basis as the rental of (perhaps temporary) carbon ecosystems and 60GtC/yr for terrestrial ecosystems), and there
sequestering services. Although different from carbon emis- are opportunities to increase the net carbon flow into the
sions permits, they nevertheless would expand the number of marine biosphere. There are fundamental differences between
“credits” available, and thus have a mitigating effect on the the two systems, however, as the marine biosphere does not
market price of the credits. A discussion of some of the options include large stores of carbon in the living and dead biomass.
is presented in IPCC (2000a). There are some 3 GtC in marine biota versus nearly 2500GtC
in terrestrial vegetation and soils (Table 4.1). The key to
increasing the carbon stocks in ocean ecosystems is thus to
4.6.3 Risks, Rights, and Practical Economics move carbon through the small reservoir of the marine biota to
the larger reservoirs of dissolved inorganic carbon (the “bio-
Protecting forestlands, grasslands, and other natural ecosys- logical pump”) in ways that will isolate the carbon and prevent
tems is often proposed as the best way to maintain large carbon its prompt return to the atmosphere. The biological pump
reservoirs at lowest cost. The cost of such an approach, how- serves to move carbon from the atmosphere to the deep oceans,
ever, may in fact be significant, although low in comparison as organisms take up CO2 by photosynthesis in the surface
with many of the options in the energy sector and attempts at ocean, and release the carbon when the organic material sinks
forest protection have failed in many parts of the world. The and is oxidized at depth.
incentives to convert often far outweigh the incentives to pro-
tect. This problem is often exacerbated by the absence of well- Several researchers have suggested that ocean productivity in
defined, enforceable property rights, either private or public, major geographical regions is limited by the availability of pri-
and the absence of other necessary institutions. In an open mary or micronutrients, and that productivity could be
access situation the incentives are to “use it or lose it”, since increased substantially by artificially providing the limiting
nutrients. This might involve providing nitrogen or phosphorus creating anoxic regions at depth (Coale et al., 1996; Frost,
in large quantities, but the quantities to be supplied would be 1996; Turner et al., 1996). There is much to be learned of the
much smaller if growth were limited by a micronutrient. In par- ecological consequences of large-scale fertilization of the
ticular, there is evidence that in large areas of the Southern ocean.
Ocean productivity is limited by availability of the micronutri-
ent iron. Martin (1990, 1991) suggested that the ocean could be Jones and Young (1998) suggest that the addition of reactive
stimulated to take up additional CO2 from the atmosphere by nitrogen in appropriate areas, perhaps in conjunction with trace
providing additional iron, and that 300,000 tonnes of iron nutrients, would increase production of phytoplankton and
could result in the removal of 0.8GtC from the atmosphere. could both increase CO2 uptake and provide a sustainable fish-
Other analyses have suggested that the effect may be more lim- ery with greater yield than at present.
ited. Peng and Broecker (1991) examined the dynamic aspects
of this proposal and concluded that, even if the iron hypothesis Chemical buffering of the oceans to decreases in pH associat-
was completely correct, the dynamic issues of mixing the ed with uptake of CO2 leads to an increase in dissolved inor-
excess carbon into the deep ocean would limit the magnitude ganic carbon that does not rely on alteration of the biological
of the impact on the atmosphere. Joos et al. (1991) reported on pump. Buffering of the oceans is enhanced by dissolution of
a similar model experiment and found the ocean dynamics to alkaline minerals. Dissolution of alkaline materials in ocean
be less important, the time path of anthropogenic CO2 emis- sediments with rising pH occurs in nature, but does so on a
sions to be very important, and the maximum potential effect time-scale of thousands of years or more (Archer et al., 1997).
of iron fertilization to be somewhat greater than reported by Intentional dissolution of mined minerals has been considered,
Peng and Broecker (1991). but the quantity (in moles) of dissolved minerals would be
comparable to the quantity of additional carbon taken up by the
Some of the concepts of iron fertilization have now been test- oceans (Kheshgi, 1995).
ed with 2 small-scale experiments in the equatorial Pacific
Ocean. In experiment IronEX 1 (November, 1993) 480 kg of Stallard (1998) has shown that human modifications of the
iron were added over 24 hours to a 64 km2 area of the equato- earth’s surface may be leading to increased carbon stocks in
rial Pacific. In IronEX 2 (May/June, 1995) a similar 450 kg of lakes, water reservoirs, paddy fields, and flood plains as
iron (as acidic iron sulphate) were added over a 72 km2 area, deposited sediments. Burial of 0.6 to 1.5GtC/yr may be possi-
but the addition occurred in 3 doses over a period of one week. ble theoretically. Although Stallard (1998) does not suggest
intentional manipulation for the purpose of increasing carbon
The IronEx 1 experiment showed unequivocally that there was stocks, it is clear that human activities are likely leading to car-
a biological response to the addition of iron. However, bon sequestration in these environments already, that there are
although plant biomass doubled and phytoplankton production opportunities to manage carbon via these processes, and that
increased fourfold, the decrease in CO2 fugacity (in effect the the rate of carbon sequestration could be either increased or
partial pressure of CO2 decreased by 10 micro atm) was only decreased as a consequence of human decisions on how to
about a tenth of that expected (Martin et al., 1994; Watson et manage the hydrological cycle and sedimentation processes.
al., 1994; Wells, 1994). In the IronEX 2 experiment the abun-
dance and growth rate of phytoplankton increased dramatical- The term “geo-engineering” has been used to characterize
ly (by greater than 20 and twice, respectively), nitrate large-scale, deliberate manipulations of earth environments
decreased by half, and CO2 concentrations were significantly (NAS, 1992; Marland, 1996; Flannery et al., 1997). Keith
reduced (the fugacity of CO2 was down 90µatm on day 9). (2001) emphasizes that it is the deliberateness that distinguish-
Within a week of the last fertilization, however, the phyto- es geo-engineering from other large-scale, human impacts on
plankton bloom had waned, the iron concentration had the global environment; impacts such as those that result from
decreased below ambient, and there was no sign that the iron large-scale agriculture, global forestry activities, or fossil fuel
was retained and recycled in the surface waters (Monastersky, combustion. Management of the biosphere, as discussed in this
1995; Coale et al., 1996; Cooper et al., 1996; Frost, 1996). chapter, has sometimes been included under the heading of
geo-engineering (e.g., NAS, 1992) although the original usage
These two experiments have demonstrated that week-long, of the term geo-engineering was in reference to a proposal to
sustained additions of iron to nutrient-rich, but iron-poor, collect CO2 at power plants and inject it into deep ocean waters
regions of the ocean can produce massive phytoplankton (Marchetti, 1976). The concept of geo-engineering also
blooms and large drawdowns of CO2 and nutrients. While the includes the possibility of engineering the earth’s climate sys-
results of these two experiments cannot be uncritically extrap- tem by large-scale manipulation of the global energy balance.
olated, they suggest a very important role for iron in the It has been estimated, for example, that the mean effect on the
cycling of carbon (Cooper et al., 1996). The consequences of earth surface energy balance from a doubling of CO2 could be
larger, longer-term introductions of iron remain uncertain. offset by an increase of 1.5% to 2% in the earth’s albedo, i.e.
Concerns that have been expressed relate to the differential by reflecting additional incoming solar radiation back into
impact on different algal species, the impact on concentrations space. Because these later concepts offer a potential approach
of dimethyl sulphide in surface waters, and the potential for for mitigating changes in the global climate, and because they
are treated nowhere else in this volume, these additional geo- Teller et al. (1997), because although the system mass would be
engineering concepts are introduced briefly here. less, the scatterers may be much more costly to fabricate.
However, it is unlikely that cost would play an important role in
Summaries by Early (1989), NAS (1992), and Flannery et al. the decision to deploy such a system. Even if we accept the
(1997) consider a variety of ways by which the albedo of the higher cost estimates of the NAS (1992) study, the cost may be
earth might be increased to try to compensate for an increase in very small compared to the cost of other mitigation options
the concentration of infrared absorbing gases in the atmosphere (Schelling, 1996). It is likely that issues of risk, politics
(see also Dickinson, 1996). The possibilities include atmos- (Bodansky, 1996), and environmental ethics (Jamieson, 1996)
pheric aerosols, reflective balloons, and space mirrors. Most will prove to be the decisive factors in real choices about imple-
recently, work by Teller et al. (1997) has re-examined the pos- mentation. The importance of the novel scattering systems is not
sibility of optical scattering, either in space or in the stratos- in minimizing cost, but in their potential to minimize risk. Two
phere, to alter the earth’s albedo and thus to modulate climate. of the key problems with earlier proposals were the potential
The latter work captures the essence of the concept and is impact on atmospheric chemistry, and the change in the ratio of
summarized briefly here to provide an example of what is envi- direct to diffuse solar radiation, and the associated whitening of
sioned. In agreement with the 1992 NAS study, Teller et al. the visual appearance of the sky. The proposals of Teller el al.
(1997) found that ~107 t of dielectric aerosols of ~100 nm (1997) suggest that the location, scattering properties, and
diameter would be sufficient to increase the albedo of the earth chemical reactivity of the scatterers could, in principle, be tuned
by ~1%. They showed that the required mass of a system based to minimize both of these impacts. Nonetheless, most papers on
on alumina particles would be similar to that of a system based geo-engineering contain expressions of concern about unexpect-
on sulphuric acid aerosol, but the alumina particles offer dif- ed environmental impacts, our lack of complete understanding
ferent environmental impact. In addition, Teller et al. (1997) of the systems involved, and concerns with the legal and ethical
demonstrate that use of metallic or optically resonant scatterers implications (NAS, 1992; Flannery et al., 1997; Keith, 2000).
can, in principle, greatly reduce the required total mass of scat- Unlike other strategies, geo-engineering addresses the symp-
tering particles required. Two configurations of metal scatter- toms rather than the causes of climate change.
ers that were analyzed in detail are mesh microstructures and
micro-balloons. Conductive metal mesh is the most mass-effi-
cient configuration. The thickness of the mesh wires is deter- 4.8 Future Research Needs
mined by the skin-depth of optical radiation in the metal, about
20 nm, and the spacing of wires is determined by the wave- This chapter suggests a host of future research needs. A com-
length of scattered light, about 300nm. In principle, only ~105t bination of statistical, ecological, and socio-economic research
of such mesh structures are required to achieve the benchmark would be helpful to better understand the situation of the land,
1% increase in albedo. The proposed metal balloons have the forces of land-use change and the dynamic of forest carbon
diameters of ~4 mm and a skin thickness of ~20nm. They are pools in relation to human activities and natural disturbance.
hydrogen filled and are designed to float at altitudes of ~25km. More precise information is needed about degradation or
The total mass of the balloon system would be ~106t. Because improvement of secondary and natural forests throughout the
of the much longer stratospheric residence time of the balloon world, but particularly in developing countries.
system, the required mass flux (e.g., tonnes replaced per year)
to sustain the two systems would be comparable. Finally, Teller Some specific examples are:
et al. (1997) show that either system, if fabricated in alumini- • assessment of land available for mitigation options
um, can be designed to have long stratospheric lifetimes yet based on socio-economic pressures and land tenure
oxidize rapidly in the troposphere, ensuring that few particles policies. Furthermore, it would be beneficial if the
are deposited on the surface. impact of market price of carbon mitigated on land
available for mitigation opportunities in different coun-
One of the perennial concerns about possibilities for modifying tries was understood;
the earth’s radiation balance has been that even if these meth- • implications of financial incentives and mechanisms on
ods could compensate for increased GHGs in the global and LULUCF sector mitigation potential in different coun-
annual mean, they might have very different spatial and tem- tries;
poral effects and impact the regional and seasonal climates in • comparative advantage (mitigation cost, ancillary ben-
a very different way than GHGs. Recent analyses using the efits, etc.) of LULUCF sector mitigation options over
CCM3 climate model (Govindasamy and Caldeira, 2000) sug- energy sector opportunities;
gest, however, that a 1.7% decrease in solar luminosity would • development and assessment of different approaches to
closely counterbalance a doubling of CO2 at the regional and developing baselines for LULUCF activities and com-
seasonal scale (in addition to that at the global and annual parison with other sectors; and
scale) despite differences in radiative forcing patterns. • socio-economic and environmental costs and benefits
of implementing LULUCF sector mitigation options in
It is unclear whether the cost of these novel scattering systems developing countries, including issues such as property
would be less than that of the older proposals, as is claimed by rights and land tenure.
Finally, an important consideration is the problem of leakages.

Research would help to determine the conditions under which
leakage is likely to be a serious problem and when it may be
less so. Estimates of the degree of leakage under varying cir-
cumstances could be made so that appropriate adjustments in
carbon credits can be made.
Batjes, N.H., 1998. Mitigation of atmospheric CO2 concentrations by

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5
Barriers, Opportunities, and Market
Potential of Technologies and Practices

JAYANT SATHAYE (USA), DANIEL BOUILLE (ARGENTINA)
Lead Authors:
Dilip Biswas (India), Philippe Crabbe (Canada), Luis Geng (Peru), David Hall†(UK),
Hidefumi Imura (Japan), Adam Jaffe (USA), Laurie Michaelis (UK), Grzegorz Peszko
(Poland), Aviel Verbruggen (Belgium), Ernst Worrell (Netherlands/USA), F. Yamba
(Zambia)
Mauricio Tolmasquim (Brazil), Henry Janzen (Canada)
Review Editors:
Michael Jefferson (UK), R. Sutamihardja (Indonesia)
† Professor David Hall, a close colleague, passed away in August 1999. He inspired us all through his vigorous support for bioenergy, and its
just uses in the developing world.
CONTENTS
Executive Summary 347 5.3.8.4 Social Structures and Identities 369
5.3.8.5 Discourse and Symbolism 370
5.1 Introduction 350 5.3.8.6 Ethics of GHG Mitigation: the
5.1.1 Summary of the Second Assessment Commons Dilemma 370
Report – Barriers and Opportunities 351 5.3.8.7 The Need for Social Innovation 370
5.1.2 Special Report on Technology
Transfer – Barriers and Opportunities 351 5.4 Sector- and Technology-specific Barriers
and Opportunities 373
5.2 Conceptual Framework for Understanding 5.4.1 Buildings 373
Barriers and Opportunities 352 5.4.1.1 Opportunities, Programmes, and
Policies to Remove Barriers 375
5.3 Sources of Barriers and Opportunities 355 5.4.2 Transport 376
5.3.1 Technological Innovation 355 5.4.2.1 Barriers to Mitigation 376
5.3.1.1 The Innovation Process 355 5.4.2.2 Opportunities for Mitigation 378
5.3.1.2 Barriers and Opportunities for 5.4.3 Industry 378
GHG Mitigation through 5.4.3.1 Programmes and Policies for
Technological Change 356 Technology Diffusion 379
5.3.1.3 The Context for Technological 5.4.4 Energy Supply 380
Change 358 5.4.5 Agriculture 384
5.3.2 Prices 358 5.4.6 Forestry 385
5.3.3 Financing 359 5.4.7 Waste Management 386
5.3.4 Trade and Environment 362 5.4.7.1 Barriers to Mitigation 386
5.3.5 Market Structure and Functioning 363 5.4.7.2 Programmes and Policies to
5.3.5.1 Demand Side of the Market 363 Remove Barriers 386
5.3.5.2 Supply Side of the Market 364
5.3.6 Institutional Frameworks 364 5.5 Regional Aspects 387
5.3.6.1 Achievement of Economic Potential 364 5.5.1 Developing Countries 387
5.3.6.2 Achievement of Socioeconomic 5.5.2 Countries Undergoing Transition to a
Potential 365 Market Economy in Central and Eastern
5.3.7 Information Provision 366 Europe and the New Independent States 388
5.3.8 Social, Cultural, and Behavioural 5.5.3 Developed Countries 389
Norms and Aspirations 367
5.3.8.1 Experience from Energy 5.6 Research Needs 390
Efficiency Programmes 367
5.3.8.2 Drivers of Consumption 368 References 391
5.3.8.3 Human Need and Motivation 368
Barriers, Opportunities, and Market Potential of Technologies and Practices 347
EXECUTIVE SUMMARY
The transfer of technologies and practices that have the poten- Technological and social innovation is a complex process of
tial to reduce greenhouse gas (GHG) emissions is often ham- research, experimentation, learning, and development that can
pered by barriers1 that slow their penetration. The opportunity2 contribute to GHG mitigation. Several theories and models
to mitigate GHG concentrations by removing or modifying have been developed to understand its features, drivers, and
barriers to the spread of technology may be viewed within a implications. New knowledge and human capital may result
framework of different potentials for GHG mitigation (Figure from R&D spending, through learning by doing, and/or in an
5.1). The “market potential” indicates the amount of GHG mit- evolutionary process. Most innovations require some social or
igation that might be achieved under forecast market condi- behavioural change on the part of users. Rapidly changing
tions, with no changes in policy or implementation of measures economies, as well as social and institutional structures offer
whose primary purpose is the mitigation of GHGs. The market opportunities for locking-in to GHG-mitigative technologies
potential can be close to zero as a result of extreme poverty, that may lead countries on to sustainable development path-
absence of markets, and remoteness of communities. The ways. The pathways will be influenced by the particular
inability of the poor or isolated communities to access modern socioeconomic context that reflects prices, financing, interna-
energy services reflects this situation. Because interventions to tional trade, market structure, institutions, the provision of
address poverty fall outside the immediate scope of this chap- information, and social, cultural and behavioural factors; key
ter, they receive only limited treatment here despite the intrin- elements of which are described below.
sic general importance of the subject.
Unstable Macroeconomic Conditions
In addition to the market potential, there is also the economic Such conditions increase risk to private investment and
potential and the socioeconomic potential to be considered. finance. Unsound government borrowing and fiscal policy lead
Eliminating imperfections of markets, public policies, and to chronic public deficits, reducing the availability of credit to
other institutions that inhibit the diffusion of technologies that the private sector. Trade barriers that favour inefficient tech-
are (or are projected to be) cost-effective for consumers (eval- nologies, or prevent access to advanced knowledge and hard-
uated using consumers’ private rate of time discounting and ware, can slow the diffusion of mitigation options.
prices) without reference to any GHG benefits they may gen-
erate would increase GHG mitigation to the level defined as Commercial Financing Institutions
the “economic potential”. The “socioeconomic” potential con- These institutions face high risks when developing “green”
sists of barriers derived from people’s individual habits, atti- financial products. Innovative approaches in the private sector
tudes and social norms, and vested interests in the diffusion of to address this and other issues include leasing, environmental
new technology. This potential represents the level of GHG and ethical banks, micro-credits or small grants facilities tar-
mitigation that would be achieved if technologies that are cost geted at low income households, environmental funds, energy
effective from a societal perspective are implemented. service companies (ESCOs), and green venture capital.
Finally, some technologies might not be widely used simply Distorted or Incomplete Prices
because they are too expensive from a societal perspective. The absence of a market price for certain impacts, such as envi-
This leads to the level of the “technical potential”, which can ronmental harm, can constitute a barrier to the diffusion of
be improved upon by solving scientific and technological prob- environmentally beneficial technologies. Distortion of prices
lems. Policies to overcome this category of barriers must be arising from taxes, subsidies, or other policy interventions that
aimed at fostering research and development (R&D). make resource consumption more or less expensive to con-
sumers can also impede the diffusion of resource-conserving
technologies.
Information as a Public Good

1 A barrieris any obstacle to reaching a potential that can be overcome
Generic information regarding the availability of different
by a policy, programme, or measure. kinds of technologies and their performance characteristics has
the attributes of a “public good” and hence may be underpro-
2An opportunity is a situation or circumstance to decrease the gap vided by the private market.
between the market potential of a technology or practice and the eco-
nomic, socioeconomic, or technological potential.
348 Barriers, Opportunities, and Market Potential of Technologies and Practices
Examples of Examples of actions to

Mitigation potential barriers overcome barriers
Physical potential
(theoretical upper-bound, may
shift over time)
Research,
development,
demonstration of
new technologies
Limited availability of Network creation

and knowledge about
Technological potential new technologies Community
(approached by implementing involvement in
technology that has already been policy-making
demonstrated)
Alternative
lifestyles
Education
Policy initiatives
Institutional
reform
Subsidy reform
Micro-credit
Rural
electrification
Co-operative
agreements
New measures
(taxes, incentives)
Multi- and
bi-lateral projects
Market potential
Achieved
(actual use of environmentally sound
technologies and practices)
Time
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 eco-
nomic and technological potential.
Lack of Effective Regulatory Agencies look of private investors, and the perceived risks of nuclear and
Many countries have on their books excellent constitutional hydropower plants have shifted fuel and technology choice
and legal provisions for environmental protection but the latter towards natural gas and oil plants, and away from hydro in
are not enforced. However, “informal regulation” under com- many countries. Co-generation is hampered by lack of infor-
munity pressure may substitute for formal regulatory pressure. mation, the decentralized character of the technology, the hos-
tile attitude of grid operators, the terms of grid connection, and
Lifestyles, Behaviours, and Consumption Patterns lack of policies that foster long-term planning. Firm public pol-
These have developed within current and historical socio-cul- icy and regulatory authority are necessary to install and safe-
tural contexts. Changes in behaviour and lifestyles may result guard harmonized conditions, transparency, and unbundling of
from a number of intertwined processes. Barriers take various the main power supply functions.
forms in association with each of the above processes.
Agriculture and Forestry
Conventional Policy Development Adoption of new technology is limited by small farm size,
This type of development is based on a model of human psy- credit constraints, risk aversion, lack of access to information
chology, where people are assumed to be rational welfare- and human capital, inadequate rural infrastructure and tenurial
maximizers, that has been widely criticized. Such a model arrangements, and unreliable supply of complementary inputs.
does not explain processes, such as learning, habituation, Subsidies for critical inputs to agriculture, such as fertilizers,
value formation, or the bounded rationality observed in human water supply, and electricity and fuels, and to outputs in order
choice. to maintain stable agricultural systems and an equitable distri-
bution of wealth distort markets for these products. In relation
Buildings to climate change mitigation, other issues such as lack of tech-
The poor in every country are affected far more by barriers in nical capability, lack of credibility about setting project base-
this sector than the rich, because of inadequate access to lines, and monitoring of carbon stocks pose difficult chal-
financing, low literacy rates, adherence to traditional customs, lenges.
and the need to devote a higher fraction of income to satisfy
basic needs, including fuel purchases. Waste Management
The principal barriers to technology transfer include limited
Measures to overcome these barriers that have been implement- financing and institutional capability, jurisdictional complexi-
ed include voluntary programmes, building efficiency standards, ty, and the need for community involvement. Climate change
equipment efficiency standards, state market transformation mitigation projects face further barriers owing to the unfamil-
programmes, financing, government procurement, tax credits, iarity with methane (CH4) capture and potential electricity gen-
accelerated R&D, and a carbon cap and trade system. eration, unwillingness to commit additional human capacity
for climate mitigation, and the involvement of diverse institu-
Transport tions at all levels.
The low relative cost of fuel, split incentives, a perception that
the car is more convenient or economical than alternatives, are Regional Considerations
some of the barriers that slow the use of mitigation technolo- Changing global patterns provide an opportunity for introduc-
gies in this sector. The car has also become charged with sig- ing GHG mitigation technologies and practices that are consis-
nificance as a means of freedom, mobility and safety, a symbol tent with development, equity, and sustainability (DES) goals.
of personal status and identity, and as one of the most impor- A culture of energy subsidies, institutional inertia, fragmented
tant products in the industrial economy. A combination of poli- capital markets, vested interests, etc., however, presents major
cies protecting road transport interests, rather than any single barriers to their implementation in the developing countries
policy, poses the greatest barrier to change. and those with economies in transition (EIT). Situations in
these two groups of countries call for a more careful analysis
Industry of trade, institutional, financial, and income barriers and
Barriers include the high transaction costs for obtaining reli- opportunities; distorted prices and information gaps. In the
able information, the use of capital for competing investment developed countries, other barriers such as the current carbon-
priorities, high-hurdle rates for energy efficiency investments, intensive lifestyle and consumption patterns, social structures,
lack of skilled personnel for small and medium-sized enter- network externalities, and misplaced incentives offer opportu-
prises (SMEs), and the low relative cost of energy. Information nities for intervention to control the growth of GHG emissions.
programmes, environmental legislation, and voluntary agree- Lastly, new and used technologies mostly flow from the devel-
ments have been used and tested in developed countries with oped to developing and transitioning countries. A global
varying rates of success in reducing barriers. approach to reducing emissions that targets technology being
transferred from developed to developing countries could have
Energy Supply a significant impact on future emissions.
The increasing deregulation of energy supply has raised partic-
ular concerns. Volatile spot and contract prices, short-term out-
5.1 Introduction An element that lies largely unexplored is the connection

between poverty and climate change mitigation. A large pro-
Technology transfer comprises a broad set of processes cover- portion of the world’s population lives in poverty, often outside
ing the flows of know-how, experience, and equipment for mit- a cash economy, and does not have access to modern fuels.
igating and adapting to climate change among different stake- Even when the poor are part of a cash economy, they are often
holders such as governments, private sector entities, financial deprived of access to financial instruments that require collat-
institutions, non-governmental organizations (NGOs), and eral. The literature on barriers and opportunities to address
research and/or education institutions (IPCC, 1996; IPCC, their need for fuels, and the consequent GHG emissions, is rel-
2000b). The term transfer encompasses diffusion of technolo- atively sparse. In this chapter, the limited material on barriers,
gies and technology co-operation across and within countries. opportunities, and interventions associated with the provision
It comprises the process of learning to understand, utilize, and of energy services to the poor is reviewed primarily in the sec-
replicate the technology, including the capacity to choose and tions on finance (Section 5.3.3), energy use in buildings
adapt it to local conditions, and integrate it with indigenous (Section 5.4.1) and agriculture (Section 5.4.5).
technologies.
Barriers to technology transfer have been described and classi-
The previous chapters (Chapters 3 and 4) have discussed the fied in many different ways. Reddy (1991) classifies barriers
characteristics of different technologies and practices, and by actors, consumers, energy providers, etc.; and others (Hirst
their potential and costs for the mitigation of climate change. and Brown, 1990; Evans, 1991; Hirst, 1992) by the type of bar-
Chapter 3 has identified numerous negative cost or “no rier, financing, pricing, etc. Technological and social changes
regrets” options whose full implementation is prevented by offer new opportunities for the diffusion of GHG-mitigative
various types of barriers. The focus of this chapter, thus, is on technologies. Rapidly changing economies and institutional
the various barriers that inhibit the process of technology and social structures offer opportunities for locking into GHG-
transfer, but not on technology programmes, which are cov- mitigative technologies that are likely to grow over the long
ered in Chapter 3. A “barrier” is any obstacle to reaching a term. Exploiting opportunities during a period of rapid change
potential that can be overcome by a policy, programme, or is typically easier than in a static environment. For example,
measure (Figure 5.1). This chapter describes the barriers that the Internet revolution means that many aspects of society and
lie below the “socioeconomic potential” line in Figure 5.1. the economy are being reshaped, offering opportunities to
Barriers to technology transfer may also be viewed as oppor- build environmental and sustainable development practices
tunities for intervention by the aforementioned stakeholders so into the emerging paradigms. At the more micro-level, the
that technologies can reach their full potential. An “opportuni- beginning of an investment cycle for power supply systems
ty” is thus any situation or circumstance to decrease the gap and house purchase by individuals and families is a period
between the “market potential” of a technology and the eco- when they are making major purchase decisions. Governments
nomic, socioeconomic, or technical potential. Barriers and can influence these decisions through various regulations,
opportunities tend to be context-specific, and can change over financial incentives and information at such times to make the
time and vary across countries. Policies, programmes, and new investment less-GHG intensive. Synergies exist between
measures may be used to take advantage of the opportunities GHG mitigation and other policy goals, e.g., reducing transport
to help overcome the barriers. The interventions are largely air pollution or conserving soils. Measures to address the latter
described and assessed in Chapter 6, although some types of offer opportunities for GHG mitigation also. While the chapter
interventions at the sectoral level are illustrated in Section 5.4 focuses broadly on both barriers and opportunities, Sections
of this chapter. 5.3.1 and 5.3.8 specifically review the models of, and experi-
ence with, technological and social innovation and the oppor-
Opportunities for climate change mitigation exist both in tunities offered for the diffusion of GHG-mitigative technolo-
reducing the intensity of greenhouse gas (GHG) emissions and gies. Synergies too are noted throughout, but particularly so in
the level of activities that cause these emissions. Reducing the the sectoral sections 5.4.4 through 5.4.7.
level of an activity, for instance vehicle travel, need not reduce
the services associated with it if a substitute like telecommut- The chapter focuses not only on the energy demand and supply
ing can satisfy the same need. GHG mitigation can thus be sectors, which have a rich literature in this field, but also on the
achieved without sacrificing consumer welfare. Opportunities agriculture, forestry, and waste sectors. In the introductory sec-
for such changes are equally important and need to be actively tions below, a conceptual framework for understanding the role
sought out. The interventions needed for achieving changes in of opportunities and barriers, and a review of the two earlier
the level of activity, however, can encompass the broad array Intergovernmental Panel on Climate Change (IPCC) reports
of macro and micro policies that affect consumers and produc- that have dealt with this topic, namely the Second Assessment
ers alike. In this chapter, the barriers, opportunities, and sec- Report (SAR) and the Special Report on Technology Transfer
toral interventions for both the GHG intensity and “activity” (SRTT) are presented. Section 5.3 then discusses the generic
changes are discussed. The broader macro-interventions are opportunities and barriers that apply across all sectors, which
discussed in Chapter 6. is followed by a discussion of the prominent barriers and
opportunities in appropriate sectors of the economy.
5.1.1 Summary of the Second Assessment Report – Capital Market Imperfections

Barriers and Opportunities Studies of implicit discount rates have shown that households
and firms behave as if they use rates substantially above the
The topic of barriers to the market penetration of environmen- market rate for long-term government bonds. Firms use dis-
tally sound technologies (ESTs) was treated in Section 1.5.3 count rates that reflect the riskiness of projects, and, as a result
(“Market failures and government responses”) of the Working of imperfect information, households and firms often face
Group (WG) III SAR, and also in Chapter 8, Sections 8.2.3 rationing in capital markets for credit and equity. Economists
(“Key factors affecting the magnitude of costs: Costs as a func- emphasize that timing, risk, capital constraints, and informa-
tion of baselines and policy strategies”), and 8.4.3 (“The top- tion or lack thereof should be dealt with separately. A discount
down vs. bottom-up modelling controversy: Some lessons rate should reflect investment timing questions, risk should be
from the energy field”) respectively. The latter sections dealt treated by converting costs and benefits into certainty equiva-
with the discussion of the differences between top-down and lents, and shadow pricing should address constraints on capi-
bottom-up modelling when estimating the costs of strategies to tal. Lack of information could be addressed through govern-
reduce or control GHG emissions. The primary question raised ment intervention (see Sections 5.3.3 for further discussion on
in the discussion in the SAR may be summarized as: Given financing).
market prices, do firms fail to take advantage of all the energy
efficiency opportunities available to them? Thus, a business
investment decision, considering private costs, may not under- 5.1.2 Special Report on Technology Transfer – Barriers
take all the available efficiency opportunities. Likewise, in the and Opportunities
modelling sections, the discussion focused on the existence of
the “no regrets” potential. Its existence implies that (1) market This IPCC Special Report was prepared in response to a
and/or institutional failures exist, and (2) cost-effective policies request made by the UN Framework Convention on Climate
targeted to correct these can be identified and implemented. Change through its Subsidiary Body for Scientific and
The SAR notes four categories of market imperfections that Technological Advice (SBSTA) to provide input on the issue of
explain the above phenomena, and the policies that could be “Development and assessment of methodological and techno-
used to address them. A more detailed discussion of these top- logical aspects of transfer of technology”. The focus of the
ics is included in other sections of this chapter. report is on transfer of technology, and it describes actions that
governments and other stakeholders can undertake to enhance
Information Dissemination technology transfer within and between countries. It empha-
Acquiring information is costly, and markets, on their own, do sizes that governments have a key role to play in initiating and
not provide an efficient level of disclosure of information. facilitating technology transfer, either directly or by creating an
Governments can amend this by providing information or insti- enabling environment for the private sector and community
tuting legislation and/or regulations that requires disclosure of involvement.
information, e.g., requiring energy performance labels on
household appliances (see Section 5.3.7 for further discussion While the technology transfer process can be complex and
on lack of information as a barrier). intertwined, certain stages can be identified. These include the
identification of needs, choice of technology, assessment of
conditions of transfer, agreement, and implementation.
Bureaucratic Structure and Limited Scope of Attention Evaluation and adjustment to local conditions, and replication
Economic and organizational theory has emphasized that large are other important stages.
organizations are not, in general, run by owners; that the man-
agers, even with best-designed incentives, do not in general Barriers to the transfer of ESTs arise at each stage of the
maximize the firm’s market value; and that among the princi- process. These vary according to the specific context from sec-
pal scarce factors within an organization are time and attention. tor to sector and can manifest themselves differently in devel-
Governments could provide information on energy efficiency oped and developing countries, and in EITs. These barriers
that managers could access with ease, which may yield private range from lack of information; insufficient human capabili-
returns higher than their marginal costs. (See Sections 5.3.5.2 ties; political and economic barriers, such as lack of capital,
and 5.4.3 for further discussion on barriers and opportunities in high transaction costs, lack of full cost pricing, and trade and
the industrial sector.) policy barriers; institutional and structural barriers; lack of
understanding of local needs; business limitations, such as risk
Returns to Scale and Network Externalities aversion in financial institutions; institutional limitations, such
Technologies or projects may require large infrastructure or as insufficient legal protection; and inadequate environmental
size in order to make them economic. The scale of such a pro- codes and standards.
ject, e.g., a natural gas-based transportation system, may deter
investment, although it may be cost-effective in comparison to The report further notes that there is no preset answer to
a gasoline-based system at some higher future oil price (see enhancing technology transfer. The identification, analysis,
Sections 5.3.5 for further discussion on network externalities). and prioritization of barriers should be country based, and
actions should be tailored to overcome specific barriers, inter- effective for users without reference to any GHG benefits they
ests, and influences of specific stakeholders in order to devel- may generate. Amelioration of this class of market and institu-
op effective policy tools. tional imperfections would increase GHG mitigation towards
the level that is labelled as the “economic potential”. The eco-
The thrust of the technology transfer report is on the identifi- nomic potential represents the level of GHG mitigation that
cation of actions that governments may pursue to overcome could be achieved if all technologies that are cost-effective
barriers that slow or prevent the transfer of technology either from consumers’ point of view were implemented. Because
within or across countries. This chapter of the TAR (Third economic potential is evaluated from the consumer’s point of
Assessment Report) provides an in-depth discussion of the lit- view, cost-effectiveness would be evaluated using market
erature on barriers and opportunities, and provides a frame- prices and the private rate of time discounting, and also take
work for differentiating between different types of potentials into account consumers’ preferences regarding the acceptabili-
and barriers to technology penetration. The framework also ty of the technologies’ performance characteristics.3
helps in identifying the role of research, development and
demonstration phases, and their linkage to the eventual market Of course, elimination of all of these market and institutional
acceptance of technology. The chapter also discusses the barriers would not produce technology diffusion at the level of
opportunities for technology penetration, but it limits the dis- the technical potential. The remaining barriers, which define
cussion on policies and measures to sectoral interventions. A the gap between economic potential and technical potential,
discussion of the broader policies and measures is found in are usefully placed in two groups separated by a socioeconom-
Chapter 6. ic potential. The first group consists of barriers derived from
people’s preferences and other social and cultural barriers to
the diffusion of new technology. That is, even if market and
5.2 Conceptual Framework for Understanding Barriers institutional barriers are removed, some GHG-mitigating tech-
and Opportunities nologies may not be widely used simply because people do not
like them, are too poor to afford them, or because existing
The opportunity to mitigate GHG concentrations by removing social and cultural forces operate against their acceptance. If,
or modifying barriers to the spread of technology may be in addition to overcoming market and institutional barriers, this
viewed as an association between different types or categories second group of barriers could be overcome, the “socioeco-
of barriers and different concepts of the potential for GHG mit- nomic potential” would be achieved. Thus, the socioeconomic
igation (Figure 5.1). Each concept of the potential represents a potential represents the level of GHG mitigation that would be
hypothetical projection that might be made today regarding the achieved if all technologies that are cost effective (on the basis
extent of GHG mitigation over time into the future. The bottom of a social rather than a private rate of discount) are imple-
line, labelled “market potential” indicates the amount of GHG mented, without regard to existing concerns about their perfor-
mitigation that might be expected to occur under forecast mar- mance characteristics, and without regard to social and cultur-
ket conditions, with no changes in policy or implementation of al obstacles to their use.
measures whose primary purpose is the mitigation of GHGs.
Finally, even if all market, institutional, social, and cultural
At the other extreme, the “technical potential” describes the barriers were removed, some technologies might not be wide-
maximum amount of GHG mitigation achievable through tech- ly used simply because they are too expensive. That is, the def-
nology diffusion. This is a hypothetical projection of the extent inition of socioeconomic potential includes the requirement
of GHG mitigation that could be achieved over time if all tech- that technologies be cost-effective. Elimination of this require-
nically feasible technologies were used in all relevant applica- ment would therefore allow a progression to the level of “tech-
tions, without regard to their cost or user acceptability. nical potential”, the maximum technologically feasible extent
of GHG mitigation through technology diffusion.
By definition, it can be said that whatever physical, cultural,
institutional, social, or human factors are preventing the An issue arises as to how to treat the relative environmental
progress from the market potential to the technical potential are costs of different technologies within this framework. Because
“barriers” to the mitigation of GHG via technology diffusion. the purpose of the exercise is ultimately to identify opportuni-
Since, however, the ultimate goal is to understand policy ties for global climate change policies, the technology poten-
options for mitigation, it is useful to group these barriers in a
way that facilitates understanding the kinds of policies that
would be necessary to overcome them. As these different cate- 3 The identification of “economic potential” with implementation of
gories of barriers are created, there is a corresponding creation technologies that are cost-effective from the consumer’s point of view
of intermediate conceptions of the potential for GHG mitiga- adopts, in effect, the economist’s view that economic potential corre-
tion. Starting at the bottom, it is possible to imagine addressing sponds to the elimination of market failures. Other analysts have used
barriers (often referred to as “market failures”) that relate to the phrase “economic potential” to incorporate a broader conception,
markets, public policies and other institutions that inhibit the similar to what is dubbed “socioeconomic potential” in this report
diffusion of technologies that are (or are projected to be) cost- (Jaffe and Stavins, 1994).
tials are defined without regard to GHG impacts. Costs and use them because they find them inferior on aesthetic or per-
benefits associated with other environmental impacts would be formance grounds. Other potential users will judge that the
part of the cost-effectiveness calculation underlying economic high private discount rates they believe are appropriate to this
potential only insofar as existing environmental regulations or kind of investment render the savings too small to justify the
policies internalize these effects and thereby impose them on high up-front cost. If, in addition to overcoming market and
consumers. Broader impacts might be ignored by consumers, institutional imperfections, these aspects of consumer prefer-
and hence not enter into the determination of economic poten- ences were ignored, the socioeconomic potential could then be
tial, but they would be incorporated into a social cost-effec- identified. Finally, even this level of GHG mitigation is small-
tiveness calculation. Thus, to the extent that other environmen- er than the technical potential, as illustrated in Figure 5.1,
tal benefits make certain technologies socially cost-effective, because many technologies that are available, such as rooftop
even if they are not cost-effective from a consumer’s point of solar photovoltaic electricity supplies, would not pay for them-
view, the GHG benefits of diffusion of such technologies selves in energy savings even at the social discount rate.
would be incorporated in the socioeconomic potential.
Table 5.1 begins with the baseline level of GHG mitigation that
The technical potential can be illustrated with reference to the could be achieved without policy intervention (market poten-
fuel cell as a power source for private vehicles. Current fuel tial), and then examines in more detail the nature of the barri-
cell technology, making use of hydrogen manufactured from ers and opportunities that are encountered as greater mitigation
natural gas, can offer GHG emission reductions of around is pursued, i.e., move towards the technical potential in Figure
50%-60% relative to conventional vehicles. This gives some 5.1. Identification of the nature of the barriers and opportuni-
indication of the current technical potential for mitigation. It is ties that separate each of the levels is necessary in order to for-
imaginable that in the future, fuel cell vehicles using hydrogen mulate policy responses to overcome the barriers. The barriers
or other fuels from non-fossil sources would have even lower to the achievement of economic potential are market and other
GHG emissions, on a full fuel cycle basis (Michaelis, 1997c). institutional failures in the markets for technology, and gov-
Thus, the technical potential of fuel cells for GHG mitigation ernment policies that distort these markets. These include mar-
is significant, and is expected to improve over time, as shown ket failures related to information and capital markets, subsi-
in Figure 5.1, through scientific discovery and technological dies for energy use. and trade barriers that inhibit the import of
development. However, the Energy Technology Support Unit energy-efficient technologies. In principle, policies can be
(ETSU, 1994) notes numerous challenges that would have to designed to address each of these market or government fail-
be overcome before such vehicles could enter widespread use ures.
and offer more substantial emission reductions. In other words,
the current market potential is very small at best. The large gap Identification of the opportunities to achieve economic poten-
between the market and technical potentials (at the present tial is important, because removal of these barriers in a cost-
time) can be understood in terms of specific barriers. Some of effective way would be desirable even if global climate change
these relate to technology performance and cost, while others (GCC) were not a policy concern. That is, if policies can be
have to do with fitting non-fossil fuels into the existing infra- devised to overcome market and institutional barriers to the use
structure. The need to improve the cost and performance of the of cost-effective technologies with desirable performance char-
technology would represent barriers separating the technical acteristics, consumers would be better off even before any con-
and socioeconomic potentials. To the extent that the diffusion sideration of GCC benefits. The barriers to the achievement of
of cost-effective fuel cells is or will be limited by rigidities in socioeconomic potential include social and cultural con-
the existing infrastructure, these could be considered barriers straints, as well as economic forces that cannot be character-
separating the economic and socioeconomic potentials for this ized as imperfections of markets or of other institutions.
technology. Policies to mitigate the market and institutional imperfections
separating market and economic potential constitute “no
The economic potential can be similarly illustrated, for exam- regrets” policies, i.e., policies that societies would not regret
ple, with reference to energy conservation opportunities in implementing no matter what is learned later about the severi-
buildings. Engineering-based analysis in the United States and ty of the GCC problem.
other countries indicates that measures such as replacing tung-
sten filament bulbs with compact fluorescent lamps (CFLs), The barriers to the achievement of socioeconomic potential
insulating hot water tanks, and introducing more energy-effi- include social and cultural constraints, as well as economic
cient refrigerators, could reduce residential electricity by about forces that cannot be characterized as imperfections of markets
40% and deliver a net saving to consumers (IPCC, 1996). To or of other institutions. Other barriers to socioeconomic poten-
the extent that achievement of these savings is limited by mar- tial relate to consumer preferences, including attitudes towards
ket and institutional imperfections (such as imperfect informa- uncertainty. Uncertainty about whether estimates of new tech-
tion or misplaced incentives), the savings they offer represent nologies and cost savings will actually come to pass limits the
the economic potential of these technologies. But even if all of adoption of new technologies; such hesitation in the face of
these imperfections were corrected, these technologies would uncertainty is completely rational given the irreversible nature
not be used in all possible applications. Some people will not of many energy-conservation investments (Hassett and
Table 5.1: Taxonomy of barriers and opportunities
Source of barrier and/or Examples of market and/or institutional Examples of social & cultural barriers
opportunity imperfections and opportunitiesa and opportunities
Prices Missing markets (market creation)

Distorted prices (rationalization of prices)
Financing Financial market imperfections (sector reform Long time and high transaction costs for small
or restructuring of economy) projects (pooling of projects)
Constraints of official development assistance
(ODA) (removing tied aid and/or better
targeting of ODA)
Trade and environment Tariffs on imported equipment and restrictive

regulations (rationalization of customs tariffs)
Market structure and Circumstances requiring rapid payback

functioning (fuel subsides)
Weaknesses of suppliers in market research
(form associations to support market research)
Institutional frameworks Transactions costs Institutional structure and design (restructuring

Inadequate property rights (improve land tenure) of firms)
Misplaced incentives National policy styles (shifting balance of authority)
Distorted incentives Lack of effective regulatory agencies (informal
regulation)
Information provision Public goods nature of information (increase

public associations)
Adoption externality (build demonstration projects)
Social, cultural, and Inadequate consideration of human motivations

behavioural norms and and goals in climate mitigation (modify social
aspirations behaviour)
Individual habits (targeted advertising)
a: Remarks in parenthesis indicate opportunities, e.g., missing markets denote an opportunity for the creation of markets.
Metcalf, 1993, 1994). Even putting aside the effects of uncer- (see Section 5.4 below). Hence, part of the gap between the eco-
tainty, private decision makers may utilize discount rates to nomic and socioeconomic potential represents the savings that
assess the value of future energy savings that are significantly could result from changes in the structure of such systems.
higher than the discount rates applied in the engineering-eco-
nomic calculations to indicate that particular technologies are The last set of barriers to achieving technical potential relate to
cost-effective. Such higher discount rates make the energy sav- the cost and performance of the technologies. These can be
ings less valuable and, hence, may lead to a conclusion that the improved upon by solving scientific and technological prob-
technologies are not cost-effective for a particular user. lems, so policies to overcome this category of barriers could be
aimed at fostering the research and development (R&D)
Socioeconomic potential also recognizes that the economic fea- process, either in the public or private sectors. In addition,
sibility of particular technologies is constrained by social struc- because production costs typically fall as experience with a par-
tures and cultural forces; it is possible to consider changing ticular technology accumulates, policies that foster adoption of
those structures because of GCC objectives. For example, if the new technologies can, over time, produce cost reductions and
land-use and transportation systems of the USA could be radi- performance improvements. The effect of such improvements
cally transformed, the potential for improvement of energy effi- would be to make the technologies more cost-effective and con-
ciency in the transportation sector would be much greater than sumer-favoured, thus moving both the economic and socioeco-
anything that could be achieved taking those structures as given nomic potentials towards the level of the technical potential.
Figure 5.1 provides illustrative examples of the barriers that climate change mitigation will depend on how well the seeds
separate one potential from another. Actions to overcome these of mitigative technological change can be planted and nur-
barriers need not necessarily take place in the order of the tured.
potentials. R&D could take place to approach the technical
potential at the same time that institutional and subsidy reforms As a prelude to the more detailed sectoral discussion in Section
are being carried out to approach the socioeconomic and eco- 5.4, this section provides a general overview of the process of
nomic potentials respectively. While the figure denotes a hier- technological innovation, and the different sources of barriers
archy in terms of the potentials, there is no hierarchy in the to the diffusion of new technology and practices, as well as the
interventions that might be pursued to overcome the barriers. policy opportunities that they represent. This section is orga-
Furthermore, an intervention may overcome more than one nized by the following categories: prices, financing, trade and
barrier that need not be in a hierarchical order either, e.g., the environment, market structure, institutional frameworks, infor-
provision of information could address all categories of barri- mation provision; and social, cultural and behavioural norms
ers. and aspirations. Within each of these areas, some of the barri-
ers represent failures or imperfections in markets, policies, or
Because some interventions may be more effective than others, other institutions that lie between the status-quo of the market
the gaps between the various potentials are likely to be reduced potential and the possible achievement of the economic poten-
to varying degrees as well. Thus, the gap between the socioe- tial. Other barriers are aspects of institutions or social and cul-
conomic and economic potential may completely disappear, tural systems that economists may not characterize as market
and yet that between the economic and market potential may imperfections, but which nonetheless limit diffusion of GHG-
remain in place. This indicates that while the market potential efficient technology. These latter barriers separate the econom-
has moved up, it still could be improved by removing what ic and socioeconomic potentials. Within each of the subsec-
economists refer to as market failures. tions below barriers and opportunities in both categories are
discussed.
5.3 Sources of Barriers and Opportunities

5.3.1 Technological Innovation
Barriers to climate change mitigation are inherent to the
process of development. Sustainable development in a partici- Many governments and firms have focused their strategies for
patory framework can minimize these barriers, but the GHG mitigation on encouraging technological innovation –
inequitable distribution of income and wealth forms a core fea- various processes of research, experimentation, learning, and
ture of barriers to effective implementation of any type of inter- technology development. Innovation may lead to improve-
vention, and those related to climate change are no exception. ments in technology performance, reductions in GHG emis-
The poor in any society bear a disproportionate burden of the sions per unit of service provided, or reductions in cost for low-
impact of externalities. Climate change affects them more, GHG technology, all of which can contribute to GHG mitiga-
because they often lack the infrastructure to withstand its tion. Innovation can help to raise the technological, socio-polit-
impacts. The poor also pay more as a proportion of their ical, economic, and market potentials for adoption of low-
income for energy services, and often tend to use traditional GHG technology, and for GHG mitigation. Identifying the bar-
fuels secured outside the formal market system. They are not riers to, and opportunities for, technological innovation
able to access subsidized fuels for instance, because they do depends on understanding the innovation process. Since the
not have the collateral to access these fuels and the equipment IPCC SAR, there has been a rapid growth of interest in the the-
to use them. Appropriate ways of financing would be one way ory of innovation, and in the development and application of
to overcome such barriers, provided they explicitly account for models to evaluate climate mitigation policies that take
the non-existence of markets for some segments of society. The account of endogenous technological change (Azar, 1996;
issue of segmentation is valid for firms as well. Small and Goulder and Mathai, 2000).
medium-sized firms for instance face information and market-
structure barriers that well-structured large firms can readily 5.3.1.1 The Innovation Process
overcome with the resources at their disposal.
Until the 1980s, policy analysts generally viewed innovation as
Lifestyles, behaviour, and consumption patterns all evolve as a linear process from R&D through to demonstration and
societies develop within their own socio-cultural contexts. deployment. Policies were focused on “science push” and
With the advent of global communications these factors are “demand pull” for new technologies (OECD, 1992). Over the
being increasingly influenced by changes that are taking place last twenty years there has been a growing recognition of the
in societies residing thousands of miles away. The communi- interconnectedness of the many processes involved in techno-
cation channels may be viewed as an opportunity to influence logical change, and the possibility of finding new insights or
the manner in which tomorrow’s society might develop in knowledge anywhere from the research lab to the customer ser-
countries where modern but resource-consumptive technolo- vice department.
gies and lifestyles have not taken root. Progress in achieving
Technological change can take many different forms including: experience developed by those involved in developing new
(1) incremental improvements in existing technology; (2) rad- technology and can also be viewed as “human capital”.
ical innovation to introduce completely new technology; (3) Increasing capital, again, tends to feed into higher levels of
changes in a system of linked technologies, and (4) changes in economic output and improved efficiency. Sometimes this may
the “techno-economic paradigm” involving widespread re- contribute to GHG mitigation, but more often the improvement
organization of production and consumption patterns (Freeman is in labour productivity, leading to increases in GHG emis-
and Perez, 1988). These four types of innovation have different sions. In so-called “new growth” theory economic models
dynamics. Thus, the first type is likely to occur continually (e.g., Grossman and Helpman, 1991, 1993), new knowledge
through the accumulation of experience, selection of success- may be assumed to result directly from R&D spending which,
ful techniques and adaptation to a changing economic, legisla- in turn, can be modelled as a result of the expected returns from
tive and socio-cultural context. The second and third types of the investment. In this framework, firms and research institutes
technological change involve more positive creativity, being are treated as rational investors in R&D. The size of their
linked to new information in the form of a discovery, idea, or investment will depend on the opportunity cost of capital and
invention; or to a creative application of an existing invention. the expected return from R&D. While new growth theory has
The fourth type, again, involves creativity but, because it generated useful insights into the sources of national differ-
involves a radical change in culture and markets, may also ences in competitiveness at an aggregate or sectoral level, it is
depend on these being “ripe” for change – on a general per- less useful for describing technology innovation for GHG mit-
ception of a major challenge requiring a radical response. igation.
Technology diffusion, the spread of existing technology In addition to R&D investment, knowledge capital can also be
through the population of potential users, can be distinguished accumulated through the process of “learning by doing”
from innovation – the first commercial application of a new (Arthur, 1994; Grubb, 2000). Empirical studies show that the
technology. At a local level, however, there may be little dif- cost of a generic technology such as solar photovoltaic cells
ference between the two. Wallace (1995) notes the importance tends to fall with the level of existing investment in that tech-
of an active and creative absorption process in the uptake of the nology, including spending on R&D (Christiansson, 1995;
new technology. Messner, 1996; Nakicenovic, 1996).
Technological change is a complex process. It occurs through An alternative to the neoclassical investment approach to inno-
a variety of interdependent mechanisms (Nelson et al., 1967; vation is that pioneered by Nelson and Winter (1982), to view
Rosenberg, 1982; Dosi, 1988; OECD, 1992; Rosenberg, 1994; technological change from the perspective of the firm, as a sto-
Lane and Maxfield, 1995), which can include: chastic process of search, imitation, experimentation, and
• assessment of needs and potential markets; learning (Winter et al., 2000). Recent developments in agent-
• basic research: a search for new information; based modelling adopt this type of “evolutionary” framework,
• creative generation of new ideas; helping to bring out the role of information networks, the
• learning from experience; importance of existing experience, and also some of the spatial
• exchange of new information, ideas, and experience aspects of technology development and diffusion.
through the scientific and technical literature, patents,
and a variety of other communication channels and net- Finally, several analysts have adopted models of technology
works including face-to-face contact and collaboration; competition and diffusion analogous to those used to represent
• experimentation to implement and test the new infor- species competition and diffusion in ecosystems. Regularities
mation and ideas; have been found, for example, in the market succession of
• development of new technology; technology in energy supply, transport, and the iron and steel
• demonstration and market testing of new technology; industry (Häfele et al., 1982; Grübler and Nakicenovic, 1991;
and Nakicenovic, 1996). However, no approach can hope to fore-
• selection of successful technology, under the influence see reliably the form of the next “wave” of technology in any
of the economic, social, legal, and physical context. of these sectors.
Because of the complexity of the technological innovation 5.3.1.2 Barriers and Opportunities for GHG Mitigation
process, there are many different ways of looking at it. A vari- through Technological Change
ety of theories or models may be helpful, depending partly on
specific circumstances. Barriers to GHG mitigation and opportunities for overcoming
them arise throughout the innovation system. They relate both
From the perspective of neoclassical economics, innovation to the rate of technological change and its direction. The pre-
can be seen as the result of a process of investment in “knowl- dominant concern of governments, firms, and researchers con-
edge capital”, in the form of R&D to develop both formal and sidering innovation policies has been to maximize the rate of
tacit knowledge (Griliches, 1979). The former includes the sci- technological change and its contribution to national competi-
entific literature and patents; the latter includes the skills and tiveness (e.g., Freeman, 1987; Dosi et al., 1988; Grossman and
Helpman, 1991). Environmental concerns are usually recog- marketing may depend on consumer acceptance of the new
nized but are rarely a major priority for national systems for technology. Other innovations, such as alternative fuel vehicles
innovation. Indeed, there may even be a concern that paying or compact fluorescent lights, depend on consumers accepting
more attention to innovation strategies about environmental different performance characteristics or even redefining their
objectives would be detrimental to competitiveness. preferences. While consumer preferences are often seen as bar-
riers to technological change, some of the most successful
There may be many opportunities to find synergies between firms are those that seize the opportunities they present, by
the goals of improving competitiveness and reducing GHG working with their customers in the development of new tech-
emissions. The most obvious of these opportunities are cases nology and services (Lane and Maxfield, 1995).
where GHG mitigation could reduce costs. A greater challenge
for businesses and governments is to seize opportunities to cre- One of the most obvious barriers to using innovation to address
ate new markets for low-GHG-emitting technology. One case GHG emissions is the lack of incentives. Economic, regulato-
of a successful strategy is the Danish development of wind tur- ry, and social incentives for reducing GHG emissions will also
bine technology (Kemp, 2000). act as incentives for innovation to find new means of mitiga-
tion. Another important type of barrier, which both slows tech-
Communication – among firms, between firms and users, and nological change in general and tends to skew it in particular
between firms and universities or government labs – is an directions, is that posed by “lock-in” (see Box 5.1). The ten-
important contributor to technological change. Most innova- dency for societies to lock in to particular clusters of technolo-
tions require some social or behavioural change on the part of gies and patterns of development can prevent new, low-GHG
technology users (Rosenberg, 1994). Product innovations, if emission technologies entering the market. Meanwhile, it is
they are noticeable by the user, demand a change in consumer important to recognize when previously locked-in technology
behaviour and sometimes in consumer preferences (OECD, is beginning to change, so that the opportunity can be grasped
1998a). Some product innovations – such as those that result in to introduce low-emission technology.
faster computers or more powerful cars – provide consumers
with more of what they already want. Nevertheless, successful
Box 5.1. Lock-In
Schumpeter (1928) emphasized the effectiveness of the capitalist system in encouraging experiments and in selecting successes. This
effectiveness can be ascribed partly to the capitalist’s ability to invest in risky endeavours, trading off uncertainty against the size of
the anticipated return. The competitive market system also introduces the element of “creative destruction” to the innovation process,
analogous to natural selection, ensuring that an innovation that does not meet the needs of the market does not survive. Yet, despite
their ability to select adequate technologies, markets sometimes “lock-in” to technologies and practices that are suboptimal because
of increasing returns to scale, which block out any alternatives (Arthur, 1988, 1994). The QWERTY English keyboard layout is often
mentioned as an example of an inefficient technology designed to solve a specific problem (to avoid keys sticking in mechanical type-
writers) but which has become “locked in” (David, 1985). It has been claimed that alternative keyboard designs could double typing
speeds, but these are not adopted because of the retraining costs that would be necessary for any change. Lock-in phenomena are famil-
iar in the energy sector, with technologies and design standards in applications ranging from power stations to light bulbs and urban
design to vehicles.
In many cases, a given technology helps to satisfy several different types of need. This is particularly evident in two of the most sig-
nificant areas of energy use: cars and houses. Any individual may have a variety of potentially conflicting objectives when choosing
a technology. This tendency of successful technologies to serve multiple needs contributes to lock-in by making it harder for compet-
ing innovations to replace them fully. Hence, many government attempts to introduce new, energy efficient or alternative fuel tech-
nology, especially in the case of the car, have failed because of a failure to meet all the needs satisfied by the incumbent technology.
If alternative fuel vehicles have difficulty entering a market dominated by gasoline cars, alternatives to the car face even greater bar-
riers. Owners have learned to associate their cars not only with personal mobility, but also with freedom, flexibility, fun, status, safe-
ty, a personal territory, and perhaps most powerful of all, a means of self-expression. Different owners may place emphasis on differ-
ent needs. To succeed without some form of enforcement, any replacement must satisfy at least several of these needs better than the
existing technology.
When a radical innovation does occur in a technology of fundamental importance, it may trigger an avalanche as a complex web of
technologies and institutions require redevelopment (Schumpeter, 1935; Freeman and Perez, 1988). Such a shift may now be occur-
ring with the spread of mobile information, communication, and networking technologies. Achieving substantial GHG mitigation may
depend on recognizing when such transformations are occurring, and taking advantage of them.
5.3.1.3 The Context for Technological Change The effects of physical infrastructure have been less studied,
being harder to measure than those of prices and regulations.
The wider context plays an important role in shaping techno- Infrastructure often acts as a constraint on changes in technol-
logical change and hence in determining the feasibility of GHG ogy and behaviour: existing road systems and settlement pat-
mitigation. There are several important elements or dimensions terns in many countries tend to encourage car dependency; the
of the context for technological change: existing supply networks for domestic and transport fuels make
• market conditions, including ease of entry for new it difficult for individual households or firms to adopt alterna-
firms and technologies; availability of capital; the tives. In this chapter, the role of infrastructure is considered in
degree of internalization of social and environmental relation to buildings, transport, and energy supply (see
concerns through taxes, subsidies, insurance, and other Sections 5.4.1 to 5.4.3).
mechanisms; and the degree of competitiveness,
including any oligopolistic practices or informal The social capital passed on from generation to generation
arrangements between government and the private sec- offers an opportunity for diffusion of GHG mitigation tech-
tor; nologies in traditional and modern societies alike. Societies in
• the legal system, including the system of intellectual which trust and civic co-operation are strong have significant
property rights; the allocation (e.g., among firms or positive impact on productivity, especially human capital pro-
between the public and private sector) of liability for ductivity, and provide stronger incentives to innovate and to
past and future environmental damage; freedom of accumulate physical capital. More investment in consultation
speech and information; and ease of litigation; and participation of the local population in decision making
• the physical infrastructure, including the design of about GHG mitigation technologies contribute both to infor-
cities and other settlements, transport systems, and util- mation sharing, to building trust, and civic co-operation. The
ities; and their flexibility in permitting the adoption of former may contribute to changes in beliefs, norms, and values
alternative technologies, lifestyles, and production sys- if participants are convinced that they are better off after effect-
tems; ing the change (Gibson et al., 1998).
• social and political structures, including the role of the
public in decision-making; the location of power in Reliance on market mechanisms alone, without an appropriate
institutional and social relationships; the presence of institutional framework that performs a co-ordinating function
formal or informal alliances, for example involving among sectors, is inadequate and may be destructive of social
government, industry, and the media; and the alloca- capital. Policy attention to learning by doing, and network
tions of roles within households and communities; externalities, together with policy stability and enforcement
• culture, including cultural diversity; the role of tech- favour the diffusion of GHG mitigation technologies.
nology and material consumption in establishing indi-
vidual identity, status, and social bonds; tendencies Addressing the last three dimensions listed above thus involves
towards competition and co-operation, conformity, and understanding human psychology, relationships, communities,
distinction; and institutions, and the process through which social norms and
• psychology, including awareness, understanding, and decisions are established. These aspects of climate mitigation
attitudes relating to climate change, its causes and are addressed in Sections 5.3.6 and 5.3.8 of this Chapter.
potential impacts, and to changes in technology and
lifestyles.
5.3.2 Prices
Of these dimensions, most attention has been paid in the liter-
ature, including the SAR, to the role of markets and legal sys- Prices can have an important influence on the consumption of
tems. Existing market and legal incentives can pose barriers to resources and hence on GHG emissions. There is extensive lit-
some kinds of technological change, as discussed in later sec- erature on the use of prices to reflect environmental and other
tions of this chapter. Changes in the market and legislative con- social costs associated with resource use. If such costs were
text can also provide opportunities for innovation. For exam- fully reflected in prices, they would encourage producers and
ple, the need to address local pollution through government consumers to adopt environmentally sustainable technologies
regulations may stimulate innovation that can contribute to and practices. Where an adequate legal framework exists, it
GHG mitigation. Porter and Van der Linde (1995a) argued that should be possible in principle for those suffering the effects of
environmental regulation of industries could also promote their pollution or climate change to seek compensation from those
competitiveness through accelerated innovation, although this responsible. In practice, markets in environmental and social
has been disputed by Palmer et al. (1995), who argues that damages function poorly, if at all, because transaction costs
most evidence is that regulation, as historically practised, has (e.g., the costs for victims to identify polluters and seek com-
not fostered competitiveness, and has encouraged innovation pensation) are high compared with the environmental and
only narrowly aimed at regulatory compliance (Berman and social costs suffered.
Bui, 1998; Xepapadeas and de Zeeuw, 1999).
Where environmental and social costs are not reflected in mar- of variation. On the other hand, several governments have used
kets (i.e., they are externalities), there are many ways in which taxation to introduce a price incentive for buying cars with
governments can internalize them, notably through environ- smaller engines, lower fuel consumption, and to encourage the
mental regulations and taxes. However, governments have to use of alternative fuel vehicles (IPCC, 1996; ECMT, 1997).
balance a large number of objectives and the outcome may not
be efficient in linking resource prices to GHG emissions. A
variety of different types of government policy tend to reduce 5.3.3 Financing
prices, in addition to the direct budgetary subsidies that are
often introduced to support employment in particular sectors or Many environmentally beneficial technologies require signifi-
to enable the poor to meet basic energy needs (OECD, 1997b). cant “up-front” investment. This investment will be typically
Examples include policies requiring electric utilities to provide offset, over time, by the environmental benefits, out-of-pocket
universal, low-priced access to grid systems or even to main- cost savings, or financial revenues associated with the new
tain supplies when consumers fail to pay their bills (EBRD, technology. There are, however, many circumstances where
1999; World Bank, 1999). In India, electricity has historically users are unable to purchase equipment that is financially
been subsidized for residential consumers, serving as a disin- viable to them or beneficial to the society, simply because they
centive for the adoption of efficient lighting and appliances do not have access to the private or government investment
(Alam et al., 1998). When energy subsidies are reformed or funds necessary to install the equipment. To the extent that pri-
removed, transitional or permanent supports are often required vate entities are not willing to provide funds to implement
for some of the former recipients (OECD, 1997b). For exam- investments that are financially viable and in addition reduce
ple, in Russia, the introduction of long-run marginal cost elec- GHG emissions, they constitute failures of capital and finan-
tricity pricing has led to pensioners being unable to afford their cial markets that must be overcome to reach the level of eco-
electricity bills, requiring support that amounts to 20%-35% of nomic potential. In contrast to private financiers, who are pri-
local authority budgets (Gritsevich, 2000). marily concerned about the risk-adjusted financial return, gov-
ernments are expected to evaluate desirability of investments
Government policies to address a wide range of environmental in a wider context of the well-being of the whole society,
and social problems can encourage GHG mitigation by including harms and benefits that some entities impose on oth-
increasing the prices of carbon-intensive energy sources or ers. To the extent that governments are not willing to finance
decreasing the prices of non-carbon options. Such policies investments that are socially desirable thanks to climate and
include pollution taxes and charges for the use of infrastructure other environmental benefits, they constitute policy failures
and services, subsidies for renewable energy, and regulations that prevents achievement of socioeconomic potential. All
requiring producers to sell electricity generated from low-car- these market and policy failures are aggravated in developing
bon sources. countries and low income transition economies, where they
interact with poverty and capital constraints.
The developers of new technologies often seek to recover their
investment in R&D through license fees for the use of their Commercial Banks
innovations. Such license fees may inhibit the adoption of the Notwithstanding the significant potential as a supplier of
best available technology for GHG mitigation in developing investment capital for climate-friendly technology transfer,
countries. commercial banks thus far have not developed large portfolios
of environmental loans (Delphi Int. Ltd. and Ecologic GMBH,
Energy price expectations can have a strong influence on 1997). Banks face high up-front cost of developing new,
investments in low-GHG technology. Where energy prices “green” financial products (e.g., energy-efficiency loans). To
fluctuate in unpredictable ways, investors may tend to delay bear these costs is often perceived risky by the bankers, given
investments in new technology, and be unwilling to adopt low- uncertain and policy-dependent future market conditions.
emission technology where this entails increased up-front Relatively low capital requirements and the long-term cash-
costs. The next section discusses the effects of risk on invest- flow profile of many climate friendly investments, as well as
ment. high transaction costs of servicing large numbers of small and
medium-sized projects, further reduce comparative attractive-
A substantial literature has developed on the tendency of con- ness of this sector to the commercial banks (Berry, 1995).
sumers and businesses to pay more attention to initial invest- Technologies such as energy efficiency or public transport
ments than operating costs, when considering technology often have low collateral value compared to their traditional
choices (Hassett and Metcalf, 1995; Jaffe and Stavins, 1995). alternatives, making it difficult for the banks to use some
In the past, prices for some types of appliance, such as refrig- financing instruments such as project finance.
erators, have tended to show little correlation with energy
intensity within a given range of size and performance charac- Even if the size of the loan for manufacturing or distributing
teristics (Greening et al., 1997). The prices of appliances and climate friendly technologies would justify the attention of
vehicles are influenced by many factors, not least their aes- bankers, the debt carrying capacity of such projects hinges
thetic features, and energy efficiency is usually a minor source upon the availability of financing for the end users, e.g., house-
holds to enable them to purchase those technologies. These negligible. Managing forests and harvesting their products and
down-stream projects most often require completely different services efficiently significantly improves financial return to
financial products, which commercial banks are often not able the standing forests versus logging. The marketable goods and
to offer (e.g., micro-credits or grants to low income households services of forests include pharmaceuticals (Simpson et al.,
with no assets). 1996), genetic resources (Rosenthal, 1997), and ecotourism
(Panayotou, 1997). An important factor stimulating financial
Different energy producers and consumers have varying access viability of sustainable forestry is the move of government,
to capital in financial markets, and at different rates of interest. world business, and consumer demand towards confining wood
In general, energy suppliers can obtain capital at lower interest procurement to environmentally sustainable sources.
rates than can energy consumers – thus, an “interest rate gap”.
Differences in these borrowing rates may reflect differences in Investors
the knowledge base of lenders about the likely performance of Individual and institutional investors send important signals to
investments, as well as the financial risk of the potential bor- companies in the pricing of new capital raised by the compa-
rower. At one extreme, electric and gas utilities are able to bor- nies and in on-going valuation of quoted companies. They can
row money at low interest rates. At the other extreme, low- also exert direct influence by using their rights as shareholders
income households may have essentially no ability to borrow and owners. The key concern for investors is the relationship
funds, resulting in an essentially infinite discount rate for valu- between environmental performance and investment perfor-
ing improvements in energy efficiency. The broader market for mance. Many investors remain unconvinced that the present
energy efficiency (including residential, commercial, and value of their portfolios may be affected by the future conse-
industrial consumers) faces interest rates available for efficien- quences of climate change. They also are not convinced that
cy purchases that are also much higher than the utility cost of environmental performance contributes to good financial per-
capital (Hauseman, 1979; Ruderman et al., 1987; Ross, 1990). formance.
“Green” Financial Institutions There is some empirical evidence, however, that investors do
In response to the difficulties faced by the emerging environ- value environmental performance of firms. Dasgupta et al.
mental business sector in accessing traditional financing insti- (1998) showed that capital markets in Argentina, Chile,
tutions, such as banks (Asad, 1997), a number of innovative Mexico, and the Philippines reacted positively (increasing the
approaches and specialized financial institutions have devel- firms’ market value) to the announcement of rewards and
oped. These include environmental project finance (Stewart, explicit recognition of superior environmental performance.
1993; Shaughnessy, 1995; Davis, 1996), green investment They found capital markets to react negatively (decreasing the
funds, leasing (Carter, 1996), environmental and ethical banks, firms’ value) to citizens’ complaints and to news of adverse
environmental funds (OECD, 1999b), and energy service com- environmental incidents (such as spills or violations of per-
panies (ESCOs). Not clearly defined property rights to GHG mits). Environmental regulators could harness market forces
emitting assets create obstacles to ESCOs and other similar by introducing structured programmes to release firm-specific
institutions, that invest in the assets of third parties and rely on information about environmental performance, and empower
a contracts with owners to recuperate the return (WB and IFC, communities and stakeholders through environmental educa-
1996). The growth of new “green” financial institutions hinges tion programmes. Lanoie et al. (1997) arrived at similar con-
upon the long-term market growth prospects for the environ- clusions, drawing on evidence from American and Canadian
mental business sector, which in turn depends fundamentally studies.
on the consistent and clear commitment by governments to cli-
mate policies (Delphi Int. Ltd. and Ecologic GMBH, 1997). Insurance Firms
Specific incentives, such as tax allowances, have been shown The potential of the insurance sector lies in its ability to diver-
to stimulate the market penetration by green investment funds sify its investment portfolio and to have its premium structure
in some developed countries (e.g., The Netherlands). reflect environmental risks (Delphi Int. Ltd and Ecologic
GMBH, 1997). The insurance industry may provide project
In the last years of the decade sustainable forestry has started to finance and insurance for preventive infrastructure projects,
attract private finance. Some new green financial institutions thereby enhancing their access to finance. The insurance indus-
have worked towards capturing values of standing forests try also provides strong financial incentives for loss prevention
through innovative financial mechanisms. Sustainable forestry and mitigation to their clients and the public, e.g., by means of
has provided attractive returns relative to stock markets. deductibles (UNEP, 1999). Some insurance companies have
Forestry investment funds have typically achieved annualized launched the “Insurance Industry Initiative for the
returns in excess of 14% over the last decade. This was in Environment”, in association with UNEP.
excess of the returns on the S&P 500 index for the equivalent
period (Ecosecurities, 1999). Forestry investments had lower User Charges
volatility than stock markets, and could provide solid long-term Generation of revenues from the users of public infrastructure
returns. However, to the extent that these involve wood planta- can be an important source of funds for financing GHG emis-
tion where logging is an important part, the climate benefits are sions reduction in the power and district heating sector and
other types of GHG emission-intensive infrastructure. most public environmental investments. Budget expenditure
Covering the costs of operation, maintenance, depreciation cal- cuts usually involve ceilings for investment expenditures, while
culated according to the international accounting standards, financing is made available for operation of existing technolo-
and eventually debt service for investments is essential for the gies or infrastructure. This often leads to continuing operation of
sustainability of infrastructure systems and important for inefficient and polluting assets, even if their replacement
attracting multilateral development banks (MDBs) and private through investment would bring a high rate of return.
finance (UNIDO, 1996; EBRD, 1999). In low-income coun-
tries this needs to take full account of affordability constraints. A barrier to efficient use of government funds is poor manage-
However, concern about the social impacts too often makes the ment of public investment programmes and government bud-
governments reluctant to adopt higher tariff levels, even gets (OECD, 1998b). This is sometimes a result of an under-
though evidence suggests consumers in many countries could developed civil society, and absence of government account-
afford and would be willing to pay more for improved service ability and transparency in budget preparation and implemen-
(Lovei, 1995; Gentry, 1997; AFDB, 1999). tation. Under these circumstances budgetary spending on envi-
ronmental infrastructure and biodiversity tends to be neglected
Government-created Disincentives to Private Investment (OECD, 1999a; Partridge, 1996). An important opportunity to
Government policies may themselves be a source of risk to pri- enhance government spending on climate friendly investments
vate investments, creating detrimental framework conditions is through revising public sector expenditure choices (de Moor,
for all, not only environmental, investments through unstable 1997; Pieters, 1997). Many developing countries and the coun-
fiscal policy and a macroeconomic environment. This leads to tries of the former Soviet Union could help both climate and
high interest rates, elevated inflationary expectations, and fluc- economic development by phasing out ongoing subsidies to
tuating exchange rates. The traditional response to these prob- loss-making state owned, or even private enterprises.
lems through fiscal consolidation and tight monetary policies
usually induces low liquidity in the enterprise and banking sec- Central and local governments have ample opportunities to
tor (EBRD, 1999). This liquidity constraint may be sharpened create new mechanisms and new sources of finance for cli-
by obstacles to trade and bank credit, barriers to entry, espe- mate-related environmental investment (Tlaie and Biller, 1994;
cially for SMEs and foreign firms, barriers to foreign direct Pearce et al., 1997). Budgetary resources can be used more
investments (FDIs) and to long-term foreign capital invest- cost-effectively (Lovei, 1995) and more creatively (Clements
ments, all of which could otherwise relieve capital shortages et al., 1995) to leverage private capitalization of public envi-
(EBRD, 1997b; EBRD, 1998; EBRD, 1999). Weak gover- ronmental investments (World Bank, 1994; Partridge, 1996;
nance, typically manifested by the lack of the rule of law, soft UNIDO, 1996; Gentry, 1997; Peszko and Zylicz, 1998).
budget constraints, absence of competition in government pro- Central governments can foster the use of economic instru-
curement, and corruption, may foster a perverse microeconom- ments (tariffs, taxes, fees, etc.) to achieve environmental goals
ic incentive structure that rewards private sector entities not for while generating budgetary revenues (Herber, 1997;
being competitive and efficient in using resources, but rather Schlegelmilch, 1999). In the area of biodiversity pricing,
for “seeking rents” through friendly and not transparent rela- instruments can result in a “double dividend”. They can pre-
tions with politicians (Gady and Ickes, 1998). vent the “tragedy of the commons” by limiting otherwise open
access to vulnerable natural reserves. Prices also generate rev-
Governments sometimes introduce distortions directly to enue to pay for the sustainable use of biodiversity resources
financial markets, constraining the private lending to invest- and for afforestation. Successful examples of these government
ments. Imprudent government borrowing can raise interest initiatives could be found in Latin America (Umana, 1996;
rates and crowd out bank loans from the “real” sector of the Lopez, 1997), OECD countries (OECD, 1996) and Central and
economy (OECD, 1998b). Also, excessive subsidies to envi- Eastern Europe .
ronmental investments may crowd out private sector financing
(Peszko and Zylicz, 1998). The risk of lending for investments Official Development Assistance
may additionally be increased by inadequate protection of There is a mixed experience with donor aid programmes
creditors. This occurs when an underdeveloped legal and insti- (Killick, 1997). Choice of beneficiary countries, sectors, and
tutional system does not make it easy for creditors to seize col- types of projects by the donor governments has often been dri-
lateral or initiate a turnover of management in the event of ven by the geopolitical interests of donors rather than environ-
default. mental or global priorities in the recipient countries. Bilateral
aid is often a tool to support friendly regimes or strengthen the
Government-created Disincentives to Public Investments spheres of influence (Alesina and Dollar, 1998). Tied aid still
Ill-designed taxation, as well as failures in budget planning and dominates bilateral programmes, whereby the contracts are
expenditure control may cause fiscal imbalances and high bud- available only to firms from the donor country (Michaelowa,
get deficits, which contribute to high country sovereign risk, 1996).
constrained access to foreign capital, and high cost of borrowing
by the government. Increased nominal interest rates and related Because of restrained competition tied aid may increase the
discount rates applied by the governments inhibit financing for costs of purchasing capital or providing services anywhere
from 10% to 50%, and host governments are usually required High tariffs on imported goods or policies that constrain entry
to co-finance these projects. Some host governments have of imported products into the market can prevent new and
found themselves locked in the expensive, capital intensive, GHG-efficient technology from entering the country. Since
and inappropriate technologies that additionally created depen- countries often rely on imports for high-efficiency equipment,
dency for maintenance and spare parts. Tied aid may distort the duties can raise the price of imported equipment considerably.
efficiency of technology choice, and crowd out good technolo- When both types of equipment are imported, the duty raises the
gies and viable business models (Graham and Hanlon, 1997). price differential between the two.
Tied aid has also had an impact on GHG emission reduction
projects in the context of the Activities Implemented Jointly An example of the limitations created by government regula-
(AIJ) pilot phase (Michaelowa et al., 1998). tion was a high import duty imposed on CFLs in Pakistan.
When this duty was reduced from 125% to 25% in 1990, the
Multilateral Development Banks price of CFLs dropped by almost half, and sales started to rise,
Sovereign guarantees required with most MDB lending leading to improved energy efficiency (US AID, 1996).
involve host governments in making budgetary commitments
that may be difficult to attain in many low income countries. Government regulations that prohibit foreign firms from bid-
Furthermore, strict adherence to sound banking principles (of ding on the construction of new industrial factories or power
not lower standards than in the highest-rated private banks) plants limit a country’s access to new foreign technology.
poses very high requirements for the internal financial viabili- Conditions that constrain the entry of imported products, while
ty of projects. It is not, clear, however that the MDBs can do beneficial in establishing a new industry or in achieving rapid
otherwise. They can provide low cost lending only as a conse- expansion of an existing one, can also lead to the use of obso-
quence of their high credit ratings. Maintenance of these high lete technology. The history of government intervention to
ratings requires very low exposure to default risk, which in turn address a severe paper shortage in India during the early 1970s
depends on sovereign guarantees and sound financial parame- illustrates this barrier. To address the shortage, the Indian gov-
ters of a project. ernment promoted the establishment of small paper mills that
could be quickly set up (Datt and Sundharam, 1998). This led
Another problem with MDB loans is a longer time for and to the import of inexpensive energy-intensive and highly-pol-
higher transaction costs of project preparation relative to the luting second-hand paper mills that were set up in many regions
typical GHG emissions reduction project size. It usually takes of the country. The inefficient mills grew to account for 50% of
1.5-2 years and several hundred thousand US dollars to devel- the country’s paper production. Then, in 1988, the government
op a project for financing. This can only be justified if the size removed the protection it had accorded the paper industry,
of a project is minimum US$10-15 million. MDBs are trying which led to the shutdown of many of these small, inefficient
to develop financial products that could reach small and medi- plants. The elimination of government protection will in the
um-sized environmental projects (ADB, 1999). Trust funds and long run increase GHG efficiency and economic productivity.
donor grants are used to lower project preparation costs.
Smaller businesses are targeted trough intermediaries (local The transfer of modern technology takes place mainly through
banks, leasing, ESCOs, or even NGOs) which “on-lend” MDB licensing of designs for local production, joint ventures, and
loans as a package of smaller financial products. Structural export and/or import. Practices of transnational corporations,
lending is used to finance multi-project programmes. and policies of countries can inhibit these modes of technolo-
gy transfer. Also, large fluctuations in exchange rates and infla-
Most of the financing difficulties discussed above are most tion can inhibit capital flows. The fuel economy of motor vehi-
severe in developing countries, where they interact with pover- cles across developing countries varies with the type of tech-
ty to severely constrain investment in GHG-efficient technolo- nology that is imported. Countries either import new (high fuel
gy. Less developed capital and financial markets call for inno- economy) or used (mostly lower fuel economy) motor vehi-
vative financing to enable low-income households to afford cles, manufacture vehicles with outmoded low fuel-economy
GHG-mitigating technologies. This offers an important oppor- technology (Ambassadors in India or the VW Bug in Mexico
tunity to integrate the broader objectives of development, equi- and Brazil, the VW Jetta in China), and/or manufacture mod-
ty, and sustainability (DES). ern vehicles with some domestic components (Nissan in the
Philippines, Maruti/Suzuki in India) (Sathaye and Walsh,
1992). Lack of suitable local firms to supply components and
5.3.4 Trade and Environment services, limited access to capital, and restrictions on repatria-
tion of foreign exchange are some of the conditions that slow
The barriers discussed in this section pertain to the whole the introduction of modern efficient vehicles (Davidson, 2000,
economy of a country, and constitute a type of market failure. Section 8, Transportation).
They inhibit the implementation of mitigation options indirect-
ly by maintaining conditions in which investments in energy There is not much empirical evidence for a relationship
efficiency and fuel switching are ignored, undervalued, or con- between trade and environmental regulation (Cropper and
sidered too risky by economic actors. Oates, 1992; Rauscher, 1999) though there is a little more in
the direction of the impact of trade on the environment (van subsection a variety of other barriers and opportunities related
Beers et al., 1997). This lack of empirical relationship is to the behaviour of market actors and the features of specific
caused by two reasons. First, it is most cost effective to use the markets are considered. The majority of these opportunities
same technology everywhere and, therefore, to operate every- and barriers affect the demand for higher energy efficiency, but
where according to the most stringent environmental regula- in many developing and transitioning countries there are also
tions (Levinson, 1994). Second, the industry cost of environ- problems on the supply side of markets.
mental regulation is too small relative to other costs, such as
labour, to weigh heavily in location decisions (Dean, 1992; In considering opportunities and barriers related to market
Jaffe et al. 1995; Markusen, 1999; Steininger, 1999). In partic- behaviour and features, it is important to recognize that con-
ular, there is little empirical evidence that developing countries sumers (broadly defined to include households, firms, and
tend to become pollution havens. This is because their produc- other actors) and producers and/or providers in specific mar-
tion is primarily for the domestic market, their comparative kets are in continual communication. In general, suppliers
advantage lies in less-polluting labor-intensive sectors, and deliver what they think consumers want. But in markets char-
weak environmental standards often go hand in hand with acterized by a high degree of inertia or aversion to risk on the
other factors that deter investment such as social capital weak- part of suppliers, there may be latent demand for higher levels
nesses (Frederikson, 1999; Markusen, 1999). There is no of energy efficiency than are readily available in the market.
empirical evidence of systematic FDI in polluting industries Suppliers may not expend the effort to cultivate the demand for
(Leonard, 1988). The environmental effects of trade liberaliza- more efficient products or to develop marketing approaches to
tion seem to be highly country- and policy-specific help overcome some of the barriers on the demand side (such
(Frederikson, 1999). as financing schemes).
There is also little evidence, both on theoretical and empirical The importance of particular barriers varies among specific
grounds, of a “race to the bottom” when other countries use markets. On the demand side, barriers tend to be greater with
environmental standards to retaliate against trade measures. A respect to households and small firms than with large compa-
globally optimal solution remains a combination of free-trade nies, who are more able to evaluate investments. Similarly, in
and co-operative environmental policies. This does not mean markets where the supply side is heavily comprised of small
that, as environmental resources become scarcer, free trade firms with low levels of technical, managerial, and marketing
may not generate negative environmental impacts under some skills, the barriers tend to be higher.
circumstances as suggested by theoretical models (Copeland
and Taylor, 1994; 1995). Little is known both theoretically and Network Externalities
empirically about the links among trade, environment, and Some technologies operate in such a way that any given user’s
innovation (Carraro, 1994, Steininger, 1999). There is also lit- equipment interacts with the equipment of other users so as to
tle evidence, both theoretical and empirical, in favour of the create what economists call network externalities (David, 1985;
Porter Hypothesis that stronger environmental regulation cre- Katz and Shapiro, 1986). For example, since vehicles must be
ates a long-term technological advantage (Jaffe, 1995; Ulph, refuelled, the attractiveness of vehicles using alternative fuels is
1997). Regulatory capture through which interest groups striv- very dependent on the availability of convenient sites for refu-
ing for protection against foreign competition lobby against elling. Furthermore, the development of a rich infrastructure
environmental standards and for environmental tariffs is a pos- devoted to distributing any given fuel is, in turn, dependent on
sible barrier to diffusion of technology. Capture is less likely there being sufficient vehicles using that fuel to generate a large
under a market-based instrument approach to environmental demand for that infrastructure. This need to create an interacting
policy, which regulates polluting substances than under a com- network of equipment and infrastructure can be a barrier to the
mand-and-control one, which regulates polluters. This is diffusion of new technology, in that a potentially superior tech-
because the former raises the cost of lobbying and decreases nology may have difficulty diffusing because of the lack of nec-
the agency problem as the regulated group is larger and more essary infrastructure, while the diffusion of the infrastructure is
heterogeneous under the former regime than under the latter impeded by the low diffusion of the new vehicles.
and has no incentive to hide information from the regulator
(Rauscher, 1999). Many international environmental agree- 5.3.5.1 Demand Side of the Market
ments allow for trade sanctions. Though, in a less than efficient
world, trade sanctions for environmental violations can be jus- The diffusion of GHG-efficient technology may be limited by
tified, the latter are discriminatory and may jeopardize diffu- “irrational” or less-than-rational behaviour of households and
sion of required technologies (Rauscher, 1999). firms. Such behaviour may be observed because of the way
individuals process and act on whatever information they may
have. The behaviour of an individual during the decision-mak-
5.3.5 Market Structure and Functioning ing process may seem inconsistent with their goals. More or
better information alone may be insufficient to change behav-
Market failures related to pricing, information and institution- iour, which is strongly influenced by habit or custom (Brown
al imperfections are discussed elsewhere in this section. In this and Macey, 1983).
Within organizations, various factors discourage or inhibit offices, personnel, equipment, budgets, and a legal character;
cost-effective decisions regarding new technology. For busi- institutions are systems of rules, decision-making procedures,
nesses, the priority of other investment opportunities (e.g., to and programmes that give rise to social practices, assign roles
maintain or expand market share and production capacity) may to participants in these practices, and guide their interactions.
cause the firm to reject cost-effective GHG-efficiency invest- Organizations may administer institutions (Young, 1994).
ment opportunities. Where energy costs are a small component Institutions exhibit substantial continuity and offer narrow and
of total production costs, management may not provide suffi- infrequent windows of opportunity for reform (Aghion and
cient support for energy efficiency investments. In addition, Howitt, 1998; Rip et al., 1998). Institutions operate in larger
within a firm, no single party or department may have clear and settings characterized by material conditions such as the nature
explicit responsibility for managing energy costs. of available technologies and the distribution of wealth, by
cognitive conditions such as prevailing values, norms, and
Another facet of behaviour that is often cited as a barrier to beliefs, and by transaction costs, costs of co-ordination, laws,
energy efficiency investments is the demand for a rapid pay- etc. (Young, 1994; Coase, 1998). The market is a “set of insti-
back that may be either explicit or implicit in behaviour. To tutions, expectations, and patterns of behaviour that enable vol-
some degree, the so-called high discount rate applied by con- untary exchanges” based on the willingness to pay of the par-
sumers could be seen as an aspect of “irrational” behaviour. ties to the exchange (Haddad, 2000). One major concern of the
However, the demand for a rapid payback is also related to par- new institutional economics is the boundary between the mar-
ticular features of energy-efficient products or services (such as ket on which transactions are negotiated and organizations
uncertain performance), specific circumstances related to such as the firm (Simon, 1991).
home and appliance ownership, the context in which these
products are placed, or to macro-economic conditions, such as On one level, all barriers can be considered institutional in ori-
high inflation or uncertain future energy prices. gin, because markets, firms, governments, etc. are all institu-
tions. In this section, however, the focus is on those barriers that
5.3.5.2 Supply Side of the Market derive from widespread or generic attributes of institutions. The
distinctions are necessarily arbitrary, and some overlap between
Limited Availability of Products or Services the discussion in this and other subsections is inevitable.
This may result from decisions and practices of manufacturers
and/or distributors. Firms that provide services related to ener- Institutions are a form of capital, social capital (Coleman, 1988).
gy efficiency may be few in number. Availability is typically Social capital, like natural and human capital, is at the same time
lower (and prices are higher) in rural areas than in large cities. an input and an amenity. As an input, it enhances the benefits of
To some extent, limited availability of products and services is investments in other factors and, thereby, shares the “shift” fea-
a “chicken and egg” problem, which tends to be most prob- ture of technology (World Bank, 1997). Social capital is a pub-
lematic in the early stages of market development for a more lic good and suffers, therefore, from underinvestment.
efficient product or service. Generally, weaknesses in social capital resulting from prevailing
beliefs, norms, and values are an important generic barrier to the
Weakness of Suppliers in Market Research effectiveness of institutions. At the microeconomic level, social
Firms may lack the resources or capability to do adequate mar- capital may be viewed as a social network, and as associated
ket research, thereby inhibiting the development of new prod- norms which may improve the functioning of markets and the
ucts or services for which there might be a demand. productivity of the community for the benefit of the members of
the association (Coleman, 1988; Putnam, 1993; World Bank,
Weakness of Suppliers in Product Development 1997; Young, 1999). At the macroeconomic level, social capital
Firms may be lacking in skills required for the development of includes the political regime, the legal frameworks, and the gov-
new products, or in capital for investment in new production ernment’s role in the organization of production in order to
capacity. Gaining access to advanced designs and/or manufac- improve macroeconomic performance as well as market effi-
turing techniques may also be a problem (related to interna- ciency (Olson, 1982; North, 1990). Institutions may remedy
tional technology flows). market failures due to asymmetric information through informa-
tion sharing (Shah, 1991). Societies in which trust and civic co-
Weak Marketing Capabilities of Suppliers operation are strong, a component of social capital, have signif-
Firms may lack the skills for adequate marketing of more effi- icant positive impact on productivity and provide stronger
cient products or services. incentives to innovate and to accumulate physical capital. Trust
and civic co-operation tend to affect human capital productivity
especially (Knack and Keefer, 1997).
5.3.6 Institutional Frameworks
5.3.6.1 Achievement of Economic Potential
Economic actors interact and organize themselves to generate
growth and development through institutions (and policy mak- High transaction costs and inadequate property rights
ing). While organizations are material entities possessing Substantial cost reductions may go unrealized when the trans-
action costs are high. Attempts to reduce transaction costs and among sectors. This may slow technology diffusion and there-
to clarify property rights may yield substantial long-term gains. fore growth (Aghion and Howitt, 1998).
Uncertain property rights, especially as far as intellectual prop-
erty rights are concerned, act to increase discount rates. Co-ordination Problems between Technology-producing
Procurement routines which include energy consumption as a Sectors
criterion, and accounting procedures which are adapted to the Some technologies, dubbed “general purpose technologies” (or
polluter-pays principle may need to be adopted to provide “GPTs”, Bresnahan and Trajtenberg, 1995), are characterized
appropriate incentives for production units to reduce energy by much initial scope for improvement, many varied uses,
consumption. Intellectual property rights encourage foreign applicability across many diverse sectors, and strong comple-
investment, but could also have a negative impact on the adap- mentarities among the uses in different sectors (Helpman,
tation of existing technologies to local conditions (Blackman, 1998). Development and diffusion of these technologies
1999). requires co-ordination between the sector or sectors producing
the GPT and the application sectors, because rapid develop-
Demonstration projects, advertising campaigns, testing and ment of the GPT is dependent on improvements in the tech-
certification of new technologies, subsidies to technological nologies in the application sectors, and vice versa.
consulting services, and science parks are ways for govern-
ments to enhance the flow of information on new technologies. Policy Uncertainty
This information is bound to be imperfect, because firms have Climate change uncertainties inhibit desirable investment in
no incentive to supply information about new technologies to new technologies and long-term capital goods. The resulting
late adopters, and technology suppliers are more concerned uncertainty about energy prices, especially in the short-term,
about market share than about technology diffusion seems to be an important barrier. Therefore, policy uncertainty
(Blackman, 1999). should not add to the incentive of holding off relatively irre-
versible investments. Policy stability is a virtue and institutions
Misplaced Incentives are patterns of routinized behaviour that stabilize perceptions,
In some situations, the incentives of the agent charged with pur- interpretations, and justifications (Giddens, 1984; O’Riordan
chasing a product or service are not aligned with those of the et al., 1998; Schmalensee, 1998). Lack of credibility of tech-
persons who would benefit from higher efficiency. An example nology forcing policy is a form of policy uncertainty as is illus-
is in rental housing where the tenant is responsible for the ener- trated by the example of the 1970 US automobile emissions
gy bill, so the landlord has little or no incentive to undertake standards (Box 5.2) (Rip and Kemp, 1998). Another form of
energy efficiency improvements or acquire more efficient policy uncertainty results from a crisis by crisis government
equipment. Other examples of misplaced incentives are present management style, or from the fact that issues are sometimes
in contracts which pay fees to architects and technical advisors championed by individuals and die off when these individuals
that are measured as a percentage of total project investment, leave the political scene.
and give rise to over-sizing and “gold-plating” without suffi-
cient attention to the (energy) performance of the investments. 5.3.6.2 Achievement of Socioeconomic Potential
Inefficient Labour Markets Vested Interests

These may prevent the efficient movement of skilled workers Organizations provide not only public goods to their members
Box 5.2. United States Automobile Emission Standards
Federal controls on US automotive air pollution (carbon monoxide, oxides of hydrogen, and hydrocarbons), inspired by a technology
forcing philosophy, were first applied to 1968 model cars in the US. In the following years, the standards were gradually made more
stringent (White, 1982). The 1970 Clean Air Act imposed stringent nationally uniform emission limitations on new motor vehicles
requiring 90% reductions over uncontrolled emissions by 1975-1976 with fines of up to US$10,000 per car and limited provision for
deadline extensions. The ambitious standards established proved to be difficult to achieve. By 1976, it became clear that many air qual-
ity areas were not going to meet the deadline for implementing the ambient standards (Ashford et al., 1985). The deadlines for achiev-
ing 90% reduction were repeatedly waived or statutorily postponed. The $10,000 fine was not credible (Stewart, 1981). The Clean Air
Act was amended in 1977, and moved away from technology forcing by introducing market incentives such as innovation waivers
(Ashford et al., 1985). Empirical results show, however, with very little ambiguity, significantly lower emissions from vehicles for
1968 and after, especially for the years in which emissions were tightened (White, 1982). Therefore, compliance was achieved despite
the fact that industry argued, or that compliance with the regulation was doubtful or thought to be impossible. Rapid diffusion of add-
on catalysts and minor modifications to the standard combustion engine were achieved but basic changes in engine technologies did
not materialize. Uncertainty about whether a deadline or a fine will be enforced gives the signal to industry that a technology devel-
oped may ultimately not be needed, and that adopting low-risk existing technologies i.e., technology diffusion is the way to go
(Stewart, 1981; Ashford et al., 1985).
but also selective incentives, i.e., private goods. These selec- heuristic search which gives rise to a set of new findings, blue-
tive incentives may be sufficient to maintain the organization prints, artifacts (“selection environment”), and which may
even if the public good it once provided is no longer needed. yield a protected space (“niche”) in which a new product can
Organizations that represent a narrow segment of society do survive more easily because of technology forcing. A national
not have an incentive to increase society’s output, but rather to innovation system provides long-term goals, predictions of
increase the share of output going to its members. These orga- long–run outcomes, creation of an actors’ network, adequate
nizations are themselves barriers by being rent-seeking coali- experimentation, and monitoring of outcomes, formulation of
tions which reduce efficiency and output, and increase the standards, tax and subsidies, etc. for alternative energy tech-
political divisiveness of society. Rent-seeking coalitions inter- nologies (Freeman and Soete, 1997; Rip and Kemp, 1998).
fere with an economy’s capacity to change because of their
slow decision-making processes, and because they increase the National policy styles, as routinized institutional methods to
complexity of regulation and the role of government (Olson, deal with issues, in which the balance of authority is shifted
1982). from formal institutions toward informal networks and associ-
ations may help achieve economic potential. This shift favours
A major barrier to the diffusion of technical progress appears the development of innovative policy formulation, and imple-
to lie in the existence of vested interests among economic mentation (Wynne, 1993; O’Riordan et al., 1998).
agents specialized in the old technologies and who may, there-
fore, be tempted to collude and exert political pressure on gov- Lack of Effective Regulatory Agencies
ernments to impose administrative procedures, taxes, trade bar- Many developing countries have excellent constitutional and
riers, and regulations in order to delay or even prevent the legal provisions for environmental protection but the latter are
arrival of new innovations that might destroy their rents not enforced (O’Riordan et al., 1998). However, “informal
(Olson, 1982). The duration of the delay will depend in part on regulation” under community pressure from e.g., non-govern-
the design of political institutions and in part on technological mental organizations, trade unions, neighbourhood organiza-
characteristics (learning by doing and knowledge externali- tions, etc. may substitute for formal regulatory pressure (Pargal
ties), and on the balance of power between innovators and and Wheeler, 1996). Informal regulation is correlated with the
incumbents. The more learning by doing and the more positive adoption of clean technologies (Blackman and Bannister,
knowledge externalities on the older technology, other things 1998). Differences in regulatory costs between the old and the
being equal, the lower the frequency of new innovations new technologies affect the rate of return on the new technolo-
(Jovanovic and Nyarko, 1994; Krusell and Rios-Rull, 1996; gy and the speed of diffusion of technologies (Millman and
Aghion and Howitt, 1998). Prince, 1989; Ecchia and Mariotti, 1994).
Firms’ Institutional Structures Reliance on Market Mechanisms when Inappropriate

Firms’ institutional structures shape their responses to techno- Organizations co-ordinate behaviour by promulgating stan-
logical opportunities and policies. Firms that tend to maximize dards and rules, and by offering certification that allows actors
stability and tend to rely on single–source internal analyses for to formulate stable expectations about the environment and
information are the least likely to be first adopters of a new about the behaviour of other actors. Markets perform such
technology. On the other hand, firms that maximize profitabil- functions incompletely or not at all. Thus, reliance on market
ity, and rely on multiple internal and external sources of infor- mechanisms, to the exclusion of the development of organiza-
mation were most likely to experiment with a variety of tech- tions needed to perform standard-setting and other co-ordina-
nologies, but unlikely to commit themselves to a single fuel or tion functions limits the spread of new technology by increas-
process (Braid et al., 1986; O’Riordan et al., 1998). A vertical- ing uncertainty and preventing the realization of co-ordination
ly integrated firm may be slower to absorb information and benefits.
respond to change than a firm where lateral transfers are possi-
ble (“smart workplaces”). An integrated firm also has less
incentive to innovate than a decentralized one (“Arrow 5.3.7 Information Provision
replacement effect”). On the other hand, as a lot of climate
change innovation research is of an applied nature, research is Consumers of energy-using technologies cannot make good
more productive when it is carried out by the firm itself than decisions regarding which technologies to employ unless they
when delegated to a research institution. Delegation of the possess the appropriate information. The need for information
research function to a specific entity within the firm increases creates three potential types of market failures with respect to
the incentive to acquire information, but also increases the energy-using technologies (Jaffe and Stavins, 1994).
probability of getting a suboptimal innovation (Aghion and
Howitt, 1998; DeCanio, 1998). Information as a Public Good
Generic information regarding the availability of different
Inadequate Attention to Institutional Design kinds of technologies and their performance characteristics
This lack of attention, for example, is especially connected to may have the attributes of a “public good”, and hence may be
the institutional context (“national innovation system”) for the underprovided by the private market. This relates both to infor-
mation that consumers need to acquire about specific tech- 5.3.8 Social, Cultural, and Behavioural Norms and
nologies, as well as to information that manufacturers need to Aspirations
acquire regarding the attributes and needs of consumers. This
problem is exacerbated by the fact that even after a technology Perhaps the most significant barriers to GHG mitigation, and
is in place and being used, it is often difficult to quantify the yet the greatest opportunities, are linked to social, cultural, and
energy savings that resulted from its installation, since usage behavioural norms and aspirations. In particular, success in
patterns and outside influences such as weather may have GHG mitigation may well depend on understanding the social,
changed. Knowing that this uncertainty will prevail can itself cultural, and psychological forces that shape consumption pat-
inhibit technology diffusion, as internal or external advocates terns.
for a new technology may doubt that they will be able to justi-
fy investment decisions after the fact. Firms supplying prod- 5.3.8.1 Experience from Energy Efficiency Programmes
ucts or services within a particular market learn from one
another with respect to understanding the market and operating Conventional policy development is based on a model of
effectively in it. The processes and networks by which this human motivation that has been widely criticized (Stern, 1986;
learning takes place, such as professional associations, confer- Jacobs, 1997; Jaeger et al., 1998). People are assumed to be
ences, publications, and informal networks are often weak in rational welfare-maximizers and to have fixed values, which,
developing countries and EITs. along with the information and means available to them, deter-
mine their behaviour. Practical analysis of energy efficiency
Adoption Externalities and other GHG mitigation options often makes the narrower
One of the mechanisms for the transmission of both generic assumption that people are cost-minimizers (Komor and
information and application-specific information may be the Wiggins, 1988). Such assumptions are undermined by experi-
process of technology adoption itself. That is, one way that a ence with energy efficiency programmes. It has long been rec-
user learns about a new technology is by seeing it used or com- ognized that consumers do not necessarily act on their stated
municating with other agents that have used it. In this case, the values (Maloney and Ward, 1973; Verhallen and van Raaij,
adoption of the new technology by a given user creates a posi- 1981), and fail to take up measures that appear on paper to be
tive information externality, by lowering the cost for others to economically worthwhile (Stern, 1986; Komor and Wiggins,
acquire useful information. This implies that the act of adop- 1988). Some of the reasons, such as energy price uncertainty
tion has social benefits that exceed its private benefits, and and transaction costs, have been discussed elsewhere in this
hence will be inadequately undertaken by private agents. chapter and are consistent with the conventional view of con-
sumers as “rational actors”. Another important influence on
Misplaced or “Split” Incentives behaviour is the source and quality of information on mitiga-
The third form of informational barrier arises in an institution- tion measures (the experiences of friends and family are trust-
al context in which investment decisions regarding energy ed more than the advice of industry, retail sales staff or gov-
technology must be made in an environment of “agency,” that ernment) (Anderson and Claxton, 1982; Stern, 1986; Komor
is, one economic agent must make an investment decision that and Wiggins, 1988). It is much harder for the “rational actor
affects the energy costs of some other agent. Examples include paradigm” to accommodate features of human behaviour such
contractors who build for others, and tenant-landlord situations as the gap between attitudes and action, the tendency to adopt
where investments are made by the landlord that reduce a ten- behavioural routines rather than to optimize continually the
ants’ energy costs (or vice versa). In these situations, the party limited number of variables that individuals typically take into
making the investment can recover that investment from the account in their choices, and the tendency for people to ratio-
party paying the energy costs only if the investor can credibly nalize their choices after the fact.
convince the consumer that the energy savings justify the
investment. That may not happen, however, because informa- The gap between current practice and the economic potential
tion is costly to convey credibly. has been characterized in this chapter as being caused by “bar-
riers”. However, Shove (1999) argues that the language of
The limitations that inadequate information places on decision- potentials, gaps, and barriers is itself an impediment to finding
making depend on the context. Institutions play an important socially viable solutions for energy saving, and that new, more
role both in transmitting information, and in determining the socially-sensitive approaches are needed to the analysis of
extent to which incentives exist to share and act on informa- measures, with researchers, industry actors, and policymakers
tion. There is therefore a close relationship between informa- working closely together. One of the greatest challenges for
tional and institutional barriers, as evidenced by the discussion GHG mitigation strategies is that, for most people, neither
of “misplaced incentives” in the previous paragraph and previ- energy saving nor GHG mitigation is a high priority (see for
ous subsection. Finally, in many situations it is difficult to example, Gritsevich, 2000). Consumers’ decisions about ener-
determine the extent to which apparently efficient decisions are gy use are often motivated less by cost-minimization than by
limited by inadequate information, or whether instead the improving comfort and convenience (Wilhite et al., 2000).
information is available but decision makers’ bounded ratio-
nality limits their ability to utilize information effectively.
5.3.8.2 Drivers of Consumption complex categorization of needs, divided into “having”,

“doing”, “being”, and “relating” needs, and emphasized the
If energy use, GHG mitigation, and cost-minimization are distinction between needs and “satisfiers”.
peripheral interests in most people’s everyday lives, it might be
helpful to consider what does shape their consumption pat- While some consumption may respond to perceived needs,
terns. The influences on human behaviour are complex, and much is habitual. Habit formation is an important barrier to
can be described and understood in many different ways. GHG mitigation as consumers may be unwilling or unable to
Insights can be found in several disciplines, including anthro- change their behaviour or technology choices. The continua-
pology, biology, economics, mathematics, sociology, philoso- tion of rising consumption levels has been widely observed and
phy, and psychology. Michaelis (2000a) summarizes some of was noted by Jean-Jacques Rousseau in 1755 (Schor, 1998;
the different drivers of consumption patterns. They include Wilk, 1999). What was once luxury rapidly becomes habit, and
then need. This is partly a social, as opposed to an individual
• demographic, economic, and technological change; psychological phenomenon, and will be discussed further in
• resources, infrastructure, and time constraints; the next section. Often, we may try to use inappropriate satis-
• motivation, habit, need, and compulsion; and fiers to meet particular needs (Max-Neef, 1991) – for example,
• social structures, identities, discourse, and symbols eating in response to feelings of loneliness. Consumption of
such ineffective satisfiers can become compulsive, especially
The first and second of these groups of influences are when they give a short-term feeling of relief but fail to satisfy
addressed elsewhere in the TAR and in this chapter, and will in the long term.
not be considered here. The current section focuses on the third
and fourth groups. It draws partly on an IPCC expert meeting There may be opportunities for GHG mitigation in identifying
held in Karlsruhe in March 2000 (German Federal Ministry of where low-GHG-emitting behaviour can help to meet needs
Environment, 2000b). It also considers the insights to be better than existing behaviour. Argyle (1987) finds from a
gained from viewing behavioural change as an innovation review of several studies that human happiness is influenced
process. mainly by health, the quality of family life, marriage, and
friendships. Having meaningful work is also important.
5.3.8.3 Human Need and Motivation Absolute levels of material wealth are relatively unimportant:
many studies have found that, once basic material and health-
Human need is central to sustainable development as defined care needs are met, happiness is largely independent of
by the Brundtland Report: sustainable development is develop- absolute income levels (Jackson and Marks, 1999; Inglehart,
ment that meets the needs of current generations without com- 2000), although relative income remains important as an indi-
promising the ability of future generations to meet their own cator of social status. Efforts to promote low-GHG consump-
needs (WCED, 1987). But the concept of human needs is con- tion patterns such as domestic energy conservation, cycling
troversial. The word “need” is used in many ways: as a strong- rather than relying on a car, living in higher density housing, or
ly felt lack or want; as a positive motivation or desire; and as a eating less meat might have the most success if they emphasize
necessary condition for something, such as survival, social ancillary benefits in terms of improving health, family life, and
acceptance, or health. The failure to distinguish these different community relationships rather than saving money.
meanings has confused efforts to agree on the morality of need-
fulfilment (Michaelis, 2000b). Sen (1980, 1993) has developed a concept, related to human
need, of the “capabilities” that individuals must have if they are
One major barrier to the success of many policies is the failure to “flourish” or to live a good life. Individuals require different
to take account of the full range of human motivations and capabilities depending on their personal circumstances and the
goals. For example, an engineer may design an energy-efficient community they live in. While the good life is to some extent
building that provides occupants with adequate shelter and subjective, it is also socially defined. Some aspects of energy-
warmth, but it may be hard to get people to live in it if it is in using behaviour may be very hard to change because they play
the wrong area, or lacks features normally associated with ade- important roles in culture-specific ideals of the good life, vary-
quate social status. Similarly, public transport may provide ing from country to country. Wilhite et al., (1996) describe the
fast, efficient mobility for certain trips, but young men may see cultural significance of lighting and heating in Norway, and of
car ownership as the only way to attract a girlfriend. Maslow bathing in Japan, suggesting that energy saving measures in
(1954) explained motivation in terms of human needs, which these areas would need to be very sensitive to cultural require-
he divided into categories: physiological needs, sense of ments. They also observe that other aspects of household
belonging, esteem, and “self-actualization”. He saw these cat- behaviour, such as washing clothes, are less culturally signifi-
egories as a hierarchy, arguing for example that we are only cant and may be easier to change. International differences in
concerned about self-esteem when we have had enough to eat. habitual behaviour in such areas might provide opportunities
While the idea of a hierarchy has been largely discredited for encouraging change through information and education
(Douglas et al., 1998), Maslow’s categorization of needs con- programmes emphasizing best practice.
tinues to be widely used. Max-Neef (1991) proposed a more
Moisander (1998) describes how motivation is shaped by both Isherwood, 1979; Tomlinson, 1990), their membership of par-
broad values and attitudes, and by more specific priorities, and ticular social groups or communities (Schor, 1998), and their
also how the ability to act depends on both personal capabili- relationship to their social and physical environment (Dittmar,
ties or resources, and external factors or opportunities. Surveys 1992).
of public attitudes in the United States find an increasing level
of concern about climate change, and agreement that action is Some of the consumption choices that have the greatest effect
needed to save energy and protect the environment (Kempton on GHG emissions, such as car and house ownership and inter-
et al., 1992; Kempton, 1997). One of the challenges for indi- national travel, are also among the most significant means of
viduals in acting on environmental values and attitudes is the establishing personal identity and group membership (Schor,
need to reconcile divergent objectives. This is all the more dif- 1998). Where such consumption patterns are closely connect-
ficult in the case of climate change, which is poorly understood ed to individual and collective identities, they may be particu-
by most people (Kempton, 1991, 1997; Lofstedt, 1992; Wilhite larly difficult to change, although the role of consumption in
et al., 1996). Moisander (1998) finds that being concerned society is changing.
about the environment provides some motivation for environ-
mentally friendly behaviour. But identity (as a “green con- Some argue that, with urbanization, conspicuous consumption
sumer”) and internalized moral ideals or imperatives play a may have become more important as a form of status display –
much stronger role. Identity and ethics, which play an impor- in small, close-knit communities it is unnecessary because
tant role in shaping consumption patterns, are largely social everybody knows each other (Kempton and Layne, 1994). The
phenomena and will be discussed in more detail in the next two status and group membership function of consumption has also
sections. been altered with the spread of television. Some viewers expe-
rience emotional attachments to TV characters as if they were
5.3.8.4 Social Structures and Identities real people; viewers also use the characters and situations they
see as reference points for their own lives, helping to shape and
Most of the perspectives discussed in the last section treat the reinforce their own values and identities (McQuail et al.,
individual as a self-contained person with intrinsic motiva- 1972). Those who watch a large amount of television increas-
tions. While this is a dominant assumption in modern Western ingly compare themselves with the portrayed lifestyles of the
societies, in many cultures, individuals are understood primar- super-rich, resulting in higher desired levels of consumption
ily in relation to others, and behaviour is largely explained in (Schor, 1998). While the media can pose a barrier to GHG mit-
terms of the social context (Hofstede, 1980; Cousins, 1989; igation by reinforcing current trends towards more GHG-inten-
Markus and Kitayama, 1991; Dittmar, 1992). In fact, the social sive lifestyles, it may also offer opportunities. Raising aware-
and cultural context of the individual is important in all soci- ness among media professionals of the need for GHG mitiga-
eties. It contributes to individuals’ moral ideals and identity, to tion and the role of the media in shaping lifestyles and aspira-
their areas of empowerment or constraint, and to the options tions could be an effective way to encourage a wider cultural
they perceive to be open to them. Social and cultural influences shift. The role of the media in GHG mitigation will be dis-
are mediated through the use of discourse and symbolism and cussed further in the next section.
through the actions of others. Individuals often conform to the
cultural norms of their community because of their needs for Ongoing developments in the media and communication tech-
safety, sense of belonging, love, and esteem. nology could also generate barriers and opportunities for GHG
mitigation. Many scenarios have been painted of the potential
Social structures help to shape consumption, for example, impacts of information and communication technology on
through the association of objects and activities with status society. The growth of Internet usage and other interactive
(Veblen, 1899; Hirsch, 1977) and class (Bourdieu, 1979). communication forms are widely expected to stimulate eco-
Social structures also allow some individuals to influence the nomic development and technological innovation (Cairncross,
consumption patterns of others. In many societies, women are 1997). However, they may also lead to increased social strati-
mainly responsible for purchasing food and clothing for other fication, social exclusion, and a decline in trust and social sol-
household members, while men are more influential over large idarity (or social capital) (Castells, 1998). Such developments
household expenditures (Grover et al., 1999). Individuals with- could have major implications for the feasibility of responding
in wider communities also influence each other’s consumption collectively to threats such as climate change. Fukuyama
patterns and habits in a wide variety of ways, depending on the (1999) argues that, although social capital has declined in
social structure and their respective positions within it. recent decades with the development of the information soci-
ety, similar declines occurred during previous economic and
Much human behaviour can be understood as an expression of technological upheavals and were followed by the creation of
identity or self-definition (Meyer-Abich, 1997). In modern new institutions, leading to new heights of morality and social
consumer societies, consumption patterns in particular are also solidarity. Cairncross (1997) even suggests that free communi-
used to establish and communicate identity. The combinations cation may lead to global peace. Slevin (2000) points to the
of goods people purchase help to confirm to themselves and development of personal web pages as a new, versatile, and
express to others their personalities and values (Douglas and sophisticated means of establishing personal identity. Inglehart
(1990) finds signs of the emergence of a new “postmaterial” relationship with nature, about justice and equity between
culture that emphasizes networking and communication rather human beings, and about the nature of the “good life”
than possessions. However, Castells (1998) believes that more (Michaelis, 2000b). In modern society, images of and narra-
investment is needed in education and science if societies are tives about the good life often emphasize individual indepen-
to reap social benefits from new information and communica- dence and material well-being. These values may appear to
tion technologies and respond to environmental and other chal- conflict with messages about the interdependence of people
lenges. around the world and the need to moderate the consumption of
natural resources.
5.3.8.5 Discourse and Symbolism
In addition to the perceived conflict with improving material
The spread of new communication technology may make it wellbeing, ethical arguments for GHG mitigation face several
increasingly difficult for governments to exert a direct influ- barriers including the perceived weakness of the evidence that
ence on social structure and culture. On the other hand, gov- climate change is happening; the difficulty in understanding
ernments, along with the business community and NGOs, con- the risks associated with low-probability extreme weather
tinue to have a substantial presence in the media and they all events; the difficulty in tracing climate change impacts to par-
contribute to the shaping of the public discourse on climate ticular emitters of GHGs; and the large physical and social dis-
change (see Box 5.3). Some of the essential features of that distance between GHG emitters and victims of climate change
course are the differing views on the risks and uncertainties (Pawlik, 1991). It seems that people are inclined to deny and
associated with GHG emissions; the costs and benefits of GHG remain passive about about those kinds of environmental nui-
mitigation; the allocation of blame for past and current emis- sances and risks that they believe to be uncontrollable (Pawlik,
sions; and the rights of the victims of climate change to com- 1990). From an institutional perspective, the “commons”
pensation. Disagreement on these various points poses an dilemma charaterizes situations in which people are unable to
important barrier to GHG mitigation, especially where media co-operate to achieve collective benefits, because they are
presentation tends to emphasize controversy. There are many unable to change the rules affecting their perverse incentives;
ways of helping to build of a common discourse, or narrative, these incentives are themselves institution-dependent (Ostrom,
about climate change, involving the various players taking all 1990; Ostrom et al., 1993). Current climate may be seen as an
available opportunities to meet, discuss, and work together for infrastructure which is used jointly by many people, which is
common goals. An important example is the growing develop- subject to many decision makers, including some in the public
ment of partnerships between transnational companies and sector, and whose benefits and costs are perceived differently
environmental NGOs, for example, to develop accreditation by different people because these are borne by many people
schemes for green products or to design environmental strate- who do not take the protection decisions. Lack of clear limits
gies. on using up resources such as current climate generates costs
(climate change) on all participants through unsustainable
The linking of symbols to fundamental values may also be exploitation because GHG concentrations and, therefore, cur-
important in shaping behaviour. Ger et al. (1998) compare the rent climate are stocks like fish and timber. Complex institu-
symbolism of consumption patterns, based on interviews and tional arrangements are required to overcome perverse incen-
observations in Denmark, Turkey, and Japan. They find that the tives (Ostrom et al., 1993). Commons dilemmas reflect persis-
symbolic attractions of resource-intensive consumption pat- tent conflicts among (not between) many individuals (produc-
terns are more powerful than those of more sustainable con- ers and consumers).
sumption patterns. The symbolic attachments are different
depending on the country and the subculture within the coun- 5.3.8.7 The Need for Social Innovation
try.
Given the complexity of the social, cultural, and psychological
Narrative and symbols carried by the mass media form a large drivers of human behaviour, there are no simple recipes for
part of the means through which ideas, arguments, and values behaviour change. However, there are considerable opportuni-
are transferred from the public to the private sphere, and ulti- ties to be grasped in taking advantage of the desire for change
mately may be integrated into individuals’ consciousness and and the willingness to experiment and learn on the part of indi-
identity. Moisander (1998) has observed that consumption viduals, communities, and institutions.
choices respond strongly to personal morals or ethics. It is in
shaping ethics that the public narrative can play a particularly There are many analogies between social and technological
strong role. change: the two processes are closely linked, equally funda-
mental to the development of consumption patterns, and the
5.3.8.6 Ethics of GHG Mitigation: the Commons Dilemma processes behind the development and diffusion of behaviour
patterns and cultures are similar to those of new technologies
There are several important ethical dilemmas both in the pub- (Michaelis, 1997a, 1997b; Grübler, 1998). They include:
lic discourse and in most people’s minds regarding GHG miti- • Development and discovery of new narratives, ideas,
gation. Essentially, they boil down to questions about human symbols, concepts, behaviours, and lifestyles;
Table 5.2: Strategies for risk management in social dilemmas and barriers to transformations of unsustainable behaviour (Vlek
et al., 1999)
Strategy Method Barrier
Provision of physical Adjusting /depleting /changing -Absence of physical or technical alternatives

alternatives, (re)arrangements behaviour options, enhancing -Failure to identify, or disbelief in feasible alternatives
efficacy -Unwillingness to make feasible alternatives available
-Inability to utilize available alternatives
Regulation-and-enforcement Enacting laws, rules; setting -Absence of pertinent laws or regulations

and/or enforcing standards, -Insufficient and/or ineffective law enforcement
norms -Disbelief in effectiveness of law or regulation
-Inability to abide by law or regulation
Financial-economic stimulation Rewards and/or fines, taxes, -Absence of financial incentives (rewards and punishments)
subsidies, posting bonds -Inconsistency of financial incentive systems
-Insufficient, ineffective financial incentives
-Incentive systems justifying squandering (“I paid for it”)
Provision of information, About risk generation, types -Lack of Knowledge (LoK) accumulating negative externalities
education, communication and levels of risk, others’ -LoK about own causal role and possible contribution to solution
reduction strategies perceptions and intentions, risk -LoK about others’ problem awareness and willingness to
reduction strategies co-operate
-Uninformed expectations about effects of proposed policies
Social modelling and support Demonstrating co-operative -Absence of invisibility of model behaviour by opinion leaders
behaviour, others’ efficacy -Fear of setting public examples and living by principles
-Inability to understand and follow visible model behaviours
-Failure of managers to provide needed social support
Organizational change Resource privatization, -Too large organization, too much diffusion of responsibility
sanctioning system, leadership -Organization form obscuring negative externalities
institution, organization for -Inefficient organization requiring unnecessary energy,
self-regulation materials, and labour
Changing values and morality Appeal to conscience, enhancing -Personal identity associated to material possessions and
“altruism” towards others and consumption
future generations, reducing -Importance of social superiority in spending capacity
“here and now” selfishness -View of “whole world as my playground”
-Basic attitude biased against (“hostile”) natural environment
-Inability to feel responsibility for future generations
• Exchange of ideas, behaviours, etc., among firms, com- important opportunity for GHG mitigation. New values and
munities, government organizations, etc.; behaviour patterns on the part of consumers (e.g., “ethical” or
• Experimentation with new ideas, behaviours, etc., pos- “green” consumption) can spread, encouraging producers to
sibly selecting those that could contribute to GHG mit- change production methods and management practice. The
igation and other policy objectives; media plays an important role in the exchange of ideas and in
• Replication of successful ideas, behaviours, etc.; and shaping the way new ideas are viewed, whether as exciting
• Selection by the contextual framework of markets, new opportunities, as threats, or as eccentric oddities. Alliances
laws, infrastructure, and culture. among powerful groups can encourage or inhibit experimenta-
tion and the replication of successful ideas. And the govern-
Barriers and opportunities take various forms in association ment can play a key role in setting the contextual framework to
with each of the above processes. The willingness of some encourage shifts in behaviour that would reduce GHG emis-
groups in society to take risks and to experiment provides an sions, as well as in removing bureaucratic and regulatory bar-
riers and providing support for local initiatives. Where the changes in technology and behaviour can proceed very rapidly
institutional structure and culture supports innovation, and (Michaelis, 1998).
where all contextual drivers point in the same direction,
Box 5.3. Narratives about Climate Mitigation
Discourse or narrative – the written and spoken word – is one of the most important ways in which governments, businesses, NGOs, and the
media influence each other and build agreement on policy directions. One of the most important barriers to GHG mitigation is the perception
by some participants in national and international discourses that mitigation efforts might be costly, or might conflict with values such as indi-
vidual freedom and equity. By analyzing these people’s discourse, new opportunities may be identified for developing GHG mitigation mea-
sures that are consistent with their core values. It may also be possible to build new coalitions among institutions and actors, to seek mutual-
ly satisfactory GHG mitigation strategies.
Discourse and narrative can take many forms, including history, science, philosophy, folklore, and “common sense”. Foucault (1961, 1975)
has shown how narratives become an instrument for wielding power. MacIntyre (1985) offers a way of thinking about narrative as part of our
cultural context or tradition, as something that we inhabit. Professional analysts, such as scientists and economists, are members of groups that
define themselves by such traditions and have their own narratives about the world. Our narratives co-evolve with our notions of “the good”,
our understanding of our selves, our conception of society, our science (conception of nature), and our understanding of God or the spiritual
dimension (Taylor, 1989; Latour, 1993). These understandings and conceptions are also central to our responses to climate change.
Analyzing discourses can provide essential insights into different people’s assumptions and beliefs about the world. Thompson and Rayner
(1998), Ney (2000) and Thompson (2000) have mapped out some of the essential features of the discourses that are used to describe and define
positions on climate change. They focus in particular on two axes of the discourses: their view of nature and their conception of society. For
example, some view the environment as robust, while others view it as fragile and vulnerable to human interference. Some believe that society
works best through market-based institutions, while others believe that there should be more explicit emphasis on egalitarian, participatory
approaches. Ney differentiates three main orientations: market-based, egalitarian, and contractarian or hierarchical. Some characteristics of
these orientations are summarized in Table 5.3. Of these three, the market orientation clearly dominates international negotiations as well as the
dialogue on climate change within many countries. It is also the source of the dominant discourse on climate mitigation policy within the IPCC.
Table 5.3: Discourses on climate change (adapted from Thompson and Rayner, 1998)
Discourse Hierarchical Market Egalitarian
Myth of nature Perverse, tolerant Benign, robust Ephemeral, fragile

Diagnosis of climate problem Population Pricing/market failure Profligacy
Policy bias Regulation Libertarian Egalitarian
Public consent to policy Hypothetical Revealed (voting) Explicit (direct)
Intergenerational responsibility Present>future Present>future Future>present
There are, in fact, many “axes” that can be used to map out discourses on climate change. Another important perspective is that of gender
(Grover et al., 1999; Hemmati, 2000). To some extent, the different axes can be correlated with those chosen by Ney, Rayner, and Thompson:
feminist discourses have tended to align themselves with egalitarian discourses and in opposition to the hierarchical and market discourses as
defined in Table 5.3.
While analyzing different positions can be a first step to resolving differences, something more is needed: we need to understand how the dia-
logues that underlie the climate debate have evolved over time, and might change in the future. In particular, we need to be more aware of the
links between our scientific understanding of nature, our political and economic structures, and our ethics. Michaelis (2000) finds traces in the
climate debate of a long-running process of development of alternative cultures or traditions in our society:
• The modern tradition, with roots in the 17th-18th century European Enlightenment, is built on a separation of humanity and nature, with
its central aims of economic and technological progress and its commitment to finding “the good” in the everyday working life. This tra-
dition is dominant in the words of government, business, and science. To a large extent, the different positions analyzed by Ney, Rayner,
and Thompson fall within the modern tradition. The climate debate within this tradition revolves around different ways of understanding
nature and society.
• The romantic tradition, a reaction to the early Enlightenment in the late 18th and early 19th century, is committed to the emotional life of
individuals, to romantic love and the family, and to an ideal harmony between humanity and nature. This tradition is dominant in the world
of entertainment, advertising, and individuals’ private lives. It views climate change as a problem caused by the modern tradition, and
tends to blame institutions such as businesses and governments which represent that tradition. However, narratives within the romantic
tradition tend not to recognize the role of romanticism in shaping the consumption patterns for which industry produces.
• The humanist tradition, with much older roots going back to ancient Greece, is maintained by academic and intellectual circles in mod-
ern society, and is committed to the search for “the good life”. Viewed from this tradition, the climate change problem appears to be
caused by the failure of the modern and romantic traditions to understand human nature, and the nature of the good life. Less emphasis
should be placed on material production and consumption, and more should be placed on developing family relationships, communities,
civic involvement, and opportunities for learning and contemplation.
Writers such as MacIntyre (1985), Gare (1995), and Latour (1993) see little hope within the modern tradition for solving the problems of our
time. MacIntyre advocates a revival of humanism. However, many social scientists have described the emergence of “postmodern” values,
which recognize the multiplicity of valid traditions and narratives. This recognition sometimes leads to nihilism, but it could also be the basis
for a renewed search for shared values and conceptions of the good life.
5.4 Sector- and Technology-specific Barriers and (IPCC, 2000a). Tropical forests are estimated to be net emit-
Opportunities ters, but temperate and boreal forests are net sequesters of car-
bon. CH4 emissions from livestock, rice paddies, biomass
GHG emissions from some sectors are larger than those from burning, and natural wetlands add up to 1.8GtCeq/yr with con-
others, and the importance of each GHG varies across sectors siderable uncertainty about these estimates. Below we describe
as well. Methane (CH4) for instance is a much bigger contrib- the sector-specific barriers to and opportunities for reducing
utor to emissions from agricultural activity than, for instance, the sectoral GHG emissions.
from the industry sector. Table 5.4 shows the carbon emissions
from energy use in 1995. Emissions from electricity generation
are allocated to the respective consuming sector. Carbon emis- 5.4.1 Buildings
sions from the industrial sector clearly constitute the largest
share, while those from agricultural energy use form the small- The buildings (residential and commercial) sector accounted
est share. In terms of growth rates of carbon emissions, how- for about a third of carbon emissions from fossil fuel combus-
ever, the fastest growing sectors are transport and buildings. tion in 1995. Its share of the total emissions has increased
With rapid urbanization promoting increased use of fossil fuels faster than in other sectors (Price et al., 1998). About half the
for habitation and mobility in many countries, the two sectors emissions in this sector are from fuel use in the commercial
are likely to continue to grow faster than others will in the sector, and the other half from the residential sector. Energy
future. use in the sector is for cooking, space conditioning, water heat-
ing, and lighting and appliances. Aside from the use of modern
Annual carbon emissions from land-use change were estimat- energy, biomass use constitutes a significant portion of the
ed in the IPCC Special Report on Land Use, Land-use Change energy supply, particularly in the developing world. The bulk
and Forestry at 1.6 ±0.8GtC/yr for the period 1989 to 1998 of households in rural areas use biomass for cooking, and water
Table 5.4: Carbon emissions from fossil fuel combustion (MtC)
Sector Carbon emissions Average annual growth rate (%)

and % share1
1995
1971 to 1990 1990 to 1995
Industry 2370 (43%) 1.7 0.4

Buildings
-- Residential 1172 (21%) 1.8 1.0
-- Commercial 584 (10%) 2.2 1.0
Transport 1227 (22%) 2.6 2.4
Agriculture 223 (4%) 3.8 0.8
All sectors 5577 (100%) 2.0 1.0
-- Electricity generation2 1762 (32%) 2.3 1.7
1 Emissions from energy use only; does not include feedstocks or carbon dioxide from calcination in cement production. Biomass = no emissions.
2 Includes emissions only from fuels used for electricity generation. Other energy production and transformation activities are not included.
Source: Price et al., 1999
and space heating. Much of the biomass (particularly for fire- acquisition of energy-efficient equipment for rental property.
wood, and charcoal combustion and charcoal production Where the tenant is responsible for the monthly cost of fuel
processes) in developing countries is used in an unsustainable and/or electricity, the landlord is prone to provide the least-
fashion and results in additions to anthropogenic emissions first-cost equipment without regard to its monthly energy use.
(CEEEZ, 1998). Fee structures for architects and designers are based on capital
cost of the building. Designing an energy efficient heating,
Barriers to the full realization of the opportunities for improv- ventilation, and air-conditioning system costs more, and
ing energy efficiency in this sector have been extensively stud- reduces the capital and operating costs of the building, both of
ied. The key barriers are traditional customs, lack of skills, which serve as a disincentive to architects for the design of
social barriers, misplaced incentives, lack of financing, market energy-efficient structures (Lovins, 1992). Also, in the build-
structure, administratively set prices, and imperfect informa- ings sector compensation to architects and engineers based
tion (Golove and Eto, 1996; Brown, 1997). directly or indirectly on a percentage of the costs of the build-
ing provides perverse incentives
Traditional Customs
Lack of appreciation in the design and manufacture of energy- Lack of Financing
using devices can inhibit their penetration. In the case of This refers to the significant restrictions on capital availability
improved biomass stoves it has been shown (ESD, 1995) that for low-income households and small commercial businesses.
despite savings on household charcoal budgets, improved Home mortgages for instance do not as a rule carry a lower
stove commercialization still remains a problem, because of interest rate for efficient homes, which have low annual ener-
inconsistent design and quality control in the manufacture of gy costs. In case of switching to modern cooking stoves (elec-
stoves. In some programmes (CEEEZ, 1998), field surveys tric, kerosene, or liquefied petroleum gas (LPG) for example)
showed that most users of improved cookstoves returned to train rural areas of developing countries, the barriers result from
ditional stoves, owing to a preference for speed in cooking with household income, accessibility to modern fuels, the relative
traditional stoves as compared to the former. cost of traditional and modern fuels, and cooking habits
(Soussan, 1987). For example, in view of both national and
Lack of Skills global benefits, use of low-cost electric stoves has been noted
Insufficient skills in the manufacture of efficient appliances as a viable substitute for improved biomass cookstoves, as they
can slow or stop their diffusion. For example, dissemination of can contribute effectively to preserve forests to enhance carbon
improved stoves could not be sustained (CEEEZ, 1998), sequestration (CEEEZ, 1998). Despite this realization, there
because of various reasons, among them being increased pro- has been a low level of switching from charcoal stoves to elec-
duction time arising from the complexity of the stove design. tric stoves. This is largely because of a lack of finance, result-
As a result, local producers switched to the production of ing from low monthly income of which 35 % to 45 % is spent
familiar items, which were easy for them to manufacture. on fuel (CEEEZ, 1998).
Behaviour and Style Market Structure

Despite the existence of demand-side management pro- This can imbue power to firms who may inhibit the introduc-
grammes, in most developed countries, and the availability of tion by competitors of energy-efficient equipment such as com-
more technologically efficient household devices (such as air pact fluorescent lighting (Haddad, 1994). The design, con-
conditioners) in the market place, changes in behaviour and struction and maintenance of buildings is largely fragmented.
style (associated with a desire to increase dwelling size) tend- This is in part cause by the lack of integration and communi-
ed to increase the demand for energy services (Wilhite et al., cation between sub-sectors, and in part a reflection of the
1996). Energy use for space heating increased in Norwegian diverse and large number of suppliers. This results in many
homes from 1960 to 1990 thanks to a doubling of dwelling area instances of building design, insulation, and energy-using
per capita (Hille, 1997) in spite of more stringent building devices that do not exhibit high levels of energy efficiency
codes and the doubling of thermal efficiency. (OTA, 1992). One response in Switzerland since 1978 has been
to ensure that architects are fully integrated into the selection
Another example is space cooling in Japan, where air condition- and construction of energy using devices in buildings
ers are technically very efficient, but space cooling demand is (Jefferson, 2000).
still increasing dramatically, because of changes in dwelling
size, changing tastes, and modern building design which does Administratively Set Prices
not support natural cooling (Wilhite et al., 1996). For most home These distort investment and the choice of energy forms and
owners, the lowest first cost is more important than a higher end-use equipment. Electricity has been historically subsidized
energy efficiency level when purchase decisions are made about to residential customers in India, and serves as a disincentive
an appliance or a home (Hassett and Metcalf, 1995). to faster penetration of efficient lighting and appliances (Alam
et al., 1998). In contrast to subsidies in the electricity industries
Misplaced Incentives of India, non-availability of subsidies in the commercial dis-
These result between landlords and tenants with respect to semination of improved cookstoves in Kenya has lead to dra-
Box 5.4. Commercial Dissemination of Improved Cook- 5.4.1.1 Opportunities, Programmes, and Policies to
stoves in Kenya Remove Barriers
One of the most successful improved cookstoves in Africa is the Technological and social changes bring about opportunities to
Kenya Ceramic Jiko (KCJ) (Karekezi, 1991). The KCJ was improve the efficiency of buildings and appliances. A change
introduced in Kenya in 1982 and mainly targets urban popula- in the production line for the manufacture of an appliance
tions who used charcoal. offers an opportunity for introducing new energy saving fea-
tures in an appliance. Likewise, when buildings are sold, a city
The KCJ is produced and marketed through the informal sector. government may have the opportunity to intervene and have
One of the key characteristics of this project was the ability to energy saving features installed prior to the registration of that
utilise existing production and distribution system for the tradi- sale. Targeting opportunities at a point where the stock is like-
tional stove to produce and market the KCJ. ly to turnover physically or contractually can reduce the per-
ceived and actual cost to producers and consumers.
The most important factor to the successful commercialization
of the KCJ is the conscious decision made by the project initia- Governments have designed policies, programmes, and mea-
tors not to provide subsidies. Although stove prices were initial- sures to tap these and other opportunities, and in the residential
ly high, the ensuing competition between producers reduced the and commercial buildings sector they fall into nine general cat-
price from as high as US$15.00 to a prices of US$2.50 in 1989 egories: voluntary programmes, building efficiency standards,
(Karekezi, 1991). Purchases made by high income groups in the equipment efficiency standards, state market transformation
earlier stove dissemination, however, effectively subsidized the programmes, financing, government procurement, tax credits,
stove development process thus making it available for lower accelerated R&D, and a carbon cap and trade system. The last
income groups (Otiti, 1991). three items are generic and are not dealt with in this section.
Voluntary programmes, such as Energy Star, which is operated

matic improvements in the marketing and distribution of by the United States Department of Energy (DOE) and
improved stoves as shown in Box 5.4. Environmental Protection Agency (EPA), exist for both resi-
dential and commercial buildings, and appliances (Harris and
Economic Pricing Casey-McCabe, 1996). The Energy Star programme works
Economic pricing in the electricity sector, particularly in devel- with manufacturers to promote existing energy-efficient prod-
oping countries and countries in transition, has been hampered ucts, such as residential buildings, personal computers, TVs,
by a lack of adherence to economic tariff setting (based on long- etc., and to develop new ones. Manufacturers can affix an eas-
run marginal cost (LRMC)). Attempts to rigorously follow this ily visible label to products that meet Energy Star minimum
concept, however, have resulted in social problems. For exam- standards. These programmes also facilitate the exchange of
ple, in Russia, a country in the process of transformation to a information between end-users on their experience with ener-
market economy, LRMC has led to pensioners not being able to gy-saving techniques.
afford their electricity bills, requiring subsidies amounting to
20%-35% of the budgets of local authorities (Gritsevich, 2000). Building efficiency standards focus primarily on the building
shell and/or the HVAC (heating, ventilation, and air condition-
Imperfect Information ing) system, and in commercial buildings also on lighting and
The lack of adequate and accurate information, and the limited water heating. Standards are being implemented in California
ability of users to absorb it adds to the cost of its provision to and other states in the USA, and also in Singapore and Malaysia,
consumers. Since energy costs are typically small on an indi- and have been proposed or are on the books in Indonesia, the
vidual basis, it is rational for consumers to ignore them in the Philippines, and Mexico (Janda and Busch, 1994).
face of information gathering and transaction costs. For
instance, Sony was able to reduce the standby power loss in Equipment standards require that all new equipment meet min-
TVs from 7-8 watts to about 0.6 watt, a saving of US$5 per imum energy efficiency standards. Standards on household
year per TV. One reason for consumers to not buy more effi- appliances and lighting have been in place in the US for over a
cient appliances, despite a label advertising this fact, is that decade and are expected to be tightened between 2000 and
consumers are wary or mistrustful because of past experience 2005 (McMahon and Turiel, 1997). About 30 developed and
with advertised misinformation (Stern and Aronson, 1984). developing countries and EITs have voluntary or mandatory
Kempton and Montgomery (1982) have shown that residential standards and labels in place on more than 40 household appli-
consumers systematically underestimate energy savings, ances (CLASP, 2000).
because they lack the ability to use the information to calculate
and compare savings with investment. Furthermore, Kempton Demand-side management (DSM) programmes provide
and Layne (1994) liken today’s energy bills to receiving a sin- rebates, targeted delivery of efficient appliances and lighting to
gle monthly bill for all groceries purchased with no identifica- low-income households, information campaigns, and the like.
tion of the cost of individual items. These were pursued vigorously in some states in the USA. The
deregulation of the US energy supply sector has reduced the Chapter 3 notes the existence of a range of technologies whose
emphasis on these programmes. Nevertheless, in several states use in cars could substantially reduce emissions, including
that previously had these programmes, public benefit funds for lightweight materials, gasoline direct injection engines, electric
energy efficiency have replaced the DSM programmes, and are hybrid drive-trains, and fuel cell-electric drive-trains.
typically charged to the electricity consumer on his electricity Considerable and unexpected progress has been made in com-
bill (Kushler and Witte, 2000). mercializing some of these technologies since the SAR.
Chapter 3 also reviews studies that estimate the socioeconom-
Financing programmes spread the incremental investment ic potential for energy efficiency improvements. The rapid
costs over time and reduce the first cost impediment to adop- emission growth from the sector, despite the considerable
tion of energy-efficient technologies. For commercial build- apparent mitigation potential, is mainly a result of a continuing
ings, ESCOs offer energy savings performance contracts that increase in demand for mobility of people and goods. The ener-
guarantee a fixed amount of savings and are paid through the gy intensity of personal travel is near-constant or increasing in
cost savings. many countries, with increasing use of sports utility vehicles
and people carriers, and rising vehicle weight and power in
Government procurement policies have accelerated the adoption most categories of vehicle (ECMT, 1997; Davis, 1999).
of new technologies in the USA and Sweden. In the USA, fed-
eral regulations regarding procurement were amended in 1997 In addition to energy efficient technologies, IPCC (1996,
to limit purchases to equipment that falls in the top 25% of ener- Chapter 21) noted an extensive range of options for reducing
gy efficiency for similar products (McKane and Harris, 1996). GHG emissions, including the use of alternative fuels, public
and non-motorized transport, and changes in transport and
To effectively enhance dissemination of improved cookstoves, urban planning.
policies, and measures need to be put in place. The introduc-
tion of affordable credit financing is widely recognized in 5.4.2.1 Barriers to Mitigation
Africa as one of the effective measures, which will go a long
way in removing the financing barrier. Assistance is still need- IPCC (1996, Chapter 21) noted many reasons why GHG miti-
ed in some locations on the design, introduction of centralized gation in the transport sector has proved difficult. Transport
small and medium-sized production centres, and marketing of activity is closely interwoven with infrastructure, lifestyles, eco-
energy efficient stoves, especially where biomass fuels are nomic development, and patterns of industrial production. Partly
commercialized – typically as part of small enterprise develop- because of these complex links, experts do not always agree on
ment. Further research and development work is also essential the best mitigation strategy. Climate change and energy saving
to increase the efficiency of improved biomass stoves. For is usually a minor factor in decisions and policy in the sector,
example, the British NGO, Energy for Sustainable and mitigation strategies may not be implemented if they seem
Development (ESD) is financing and supporting a team of to reduce the benefits provided by the transport system to indi-
Ethiopian professionals working in household management viduals and firms. Appropriate mixes of policies need to be
and supply. It has achieved remarkable success in developing designed for local situations. And policies can be very slow to
and commercializing two types of improved biomass cook- take effect because of the inertia of the infrastructure, technolo-
stoves through an iterative approach of needs assessment, gies, and practices associated with the existing transport system.
product design, redesign, and performance monitoring
(Farinelli, 1999). The team consists of consumers, stove pro- Stated preference surveys in the United States have shown that
ducers and stove installers, and pays attention to promotion, consumers would prefer to purchase energy efficient cars, and
technical assistance, and quality production. would be prepared to pay US$400-600 for each litre/100km
reduction in fuel consumption (Bunch et al., 1993; US DOE,
1995). This is about the amount that would be expected from
5.4.2 Transport the fuel savings over the life of the car (Michaelis, 1996b).
However, there is no evidence that this valuation of fuel econ-
Carbon emissions from fossil fuel use in the transport sector omy is reflected in the car market. There may be several rea-
are rising faster than those from any other sector (Price et al., sons. First, many vehicle purchasers have to work within bud-
1998). The transport modes responsible for most of the growth gets set by the size of loan they can obtain to buy a car, and
are car travel, road freight, and air transport. such budgets are likely to be set independent of the amount
they will have to spend on fuel. Where they have a number of
Vehicular air pollution is a major environmental problem in high priorities in their vehicle choice such as comfort, size,
many large urban centres in both developed and developing safety, and performance, they will spend their budgets on those
countries. Although urban air quality in developed countries priorities rather than on energy efficient technologies that
has been controlled to some extent during, the past two increase vehicle price. Second, vehicle manufacturers have no
decades, in many developing countries it is worsening and incentive to promote energy efficiency, and a strong interest in
becoming a major threat to the health and welfare of people selling more sports utility vehicles and mini-vans where their
and the environment (UNEP, 1992). profit margins are higher than for cars. The outcome can be
viewed as a rational response to consumer preferences subject port planners, construction firms and the financing institutions
to a budget constraint, but it has been repeatedly noted in (e.g., Stenstadvold, 1995).
European government-industry discussions that marketing
helps to shape those preferences (Dietz and Stern, 1993; A second aspect of the lock-in to car transport is the result of
Michaelis, 1996a). economies of scale, and a century of R&D and learning from
experience in car production. The real cost of owning and oper-
Cars may also provide a good example of the principal-agent ating a car has declined over the last half century while public
barrier. The first owner of a car may be more concerned with transport costs have risen. The declining number of people
its status value and other aspects, and less concerned with cost using buses, especially in rural areas, makes it uneconomic to
minimization than subsequent owners. Secondhand owners’ operate services without subsidies. Falling bus and train occu-
preferences for cost minimization do appear to be reflected in pancy levels also reduce their energy intensity advantage rela-
the secondhand car market, where more fuel efficient cars tive to cars, indeed, in some countries, trains consume more
tend to be more expensive (Daly and Mayer, 1983; Kahn, energy per passenger-km than cars (IPCC, 1996).
1986), reflecting perhaps half to three quarters of the value of
fuel savings they will offer (Michaelis, 1996a). The lack of A third source of lock-in is linked to personal safety. With
control of vehicle users over technology is exacerbated by the growing numbers of cars on the roads and declining numbers
concentration of the global car industry in Annex I countries, of pedestrians, the streets have become more dangerous. While
and in a small number of transnational companies (IPCC, travelling by car poses a higher risk of death or injury from
2000b). accidents than travelling by bus or train, a car does offer pro-
tection from personal assault.
While information on the fuel efficiency of vehicles is widely
available, it may not be easy to find or assimilate for the aver- Because of the social and economic importance of transport,
age purchaser. Labelling laws and information programmes most governments provide budgetary subsides for construction
have been introduced in many countries to overcome this and maintenance of transport infrastructure, and for transport
information gap (ECMT, 1997). Nevertheless, the fuel econo- services including many linked to car use (de Moor and
my information on labels is usually obtained in standard test Calamai, 1996; OECD, 1997b). Public finance for public and
cycles, the information from which may be inaccurate, under- non-motorized transport has been generally less readily avail-
estimating consumption in real driving conditions by 10%- able than for road building since the 1950s. Other government
20% (IPCC, 1996). instruments often support road transport, one example being
planning laws that require off-street parking to be provided in
Car technology is also a good example of “lock-in”. A century new urban developments. It is the combination of policies and
of development has put the gasoline engine, and the infrastruc- institutional relationships protecting road transport interests
ture to maintain it and supply its fuel, in a virtually unassail- that poses the greatest barrier to change, rather than any single
able position. Technologies based on alternative fuels, batter- type of instrument (OECD, 1997b).
ies, or fuel cells will have to compete with gasoline engine per-
formance and cost levels that continue to improve. People have distorted perceptions of the relative convenience
and cost of transport modes, usually justifying their habitual
The phenomenon of lock-in can also be seen to apply to road mode choices (Goodwin, 1985; OECD, 1997a). Bus users per-
transport more generally. Cars are preferred over other trans- ceive trains as more expensive and less convenient than they
port modes partly because of their intrinsic advantages in flex- really are, while train users have a similar misperception of
ibility, convenience, comfort, and privacy. A car makes it pos- buses. Car drivers believe that car use is cheaper and faster
sible to live in a suburban or rural area poorly served by pub- than it is.
lic transport, taking advantage of low house prices and pleas-
ant surroundings. However, there are also many sources of GHG mitigation efforts in freight transport also face many bar-
“positive returns to scale”, strengthening the incentives for riers. The energy intensity of road freight can be reduced by
using cars as their prevalence grows. improving fleet dispatching and routing, reducing the number
of empty trips, and improving driving skills. While freight
As car fleets have grown, modern western societies, cultures, firms continue to make substantial efforts to minimize fuel use
and economies are increasingly built around motorized road by trucks, speed, flexibility and responsiveness to customers is
transport. Car-oriented culture has charged cars with signifi- often a higher priority.
cance as a means of freedom, mobility and safety, a symbol of
personal status and identity, and as one of the most important Moving freight by rail instead of by road can offer considerable
products in the industrial economy. Car-oriented infrastructure energy savings in some countries (IPCC, 1996), mainly where
and settlement planning makes it hard to use any alternative long distances are involved and the freight can travel relative-
transport mode. Many attempts to encourage a shift in planning ly slowly. However, nearly all freight movements must start
provision away from cars, toward public and non-motorized and end by road, so that taking advantage of the low energy
transport also fail because of the strength of links among trans- intensity of rail freight entails a loss of convenience as either
containers must be loaded onto the train and unloaded for While several studies have found that people living in denser
delivery, or trucks must be carried “piggy-back”. Increasing and more compact cities rely less on cars (Armstrong, 1993),
rail freight depends on substantial investments in road-rail ter- energy savings alone are unlikely to motivate the shift away
minals. Meanwhile, it may be difficult for railways to operate from suburban sprawl to compact cities advocated by Newman
efficiently with high levels of both passenger and freight traf- and Kenworthy (1990). However, there is a growing concern to
fic owing to the different operating patterns entailed. reverse the decline in the environment and in communities in
city centres by moving away from zoning and car-based trans-
5.4.2.2 Opportunities for Mitigation port, and towards multi-function, high-density pedestrian
zones. There is a considerable opportunity for GHG mitigation
Some of the most promising opportunities for GHG mitigation in linking to this concern. In particular, there is scope where
in the transport sector are linked to the growing need for action infrastructure is developing rapidly to implement planning
to address a wider range of concerns about the sector’s social measures that encourage more sustainable transport patterns,
and environmental impacts. Several studies have evaluated avoiding the pollution, congestion, higher accident rates, and
environmental and social externalities associated with road GHG emissions associated with cars.
transport (IPCC, 1996; ECMT, 1997; OECD, 1997a). Some
have explored the effects of internalizing those costs through
fuel taxes and other measures (EC, 1996; Michaelis, 1996b; 5.4.3 Industry
ECMT, 1997). However, transport fuel taxes have proved very
unpopular in some countries, especially where they are seen as Under perfect market conditions, all additional needs for ener-
revenue-raising measures (MVA, 1995), and may be an ineffi- gy services are provided by the lowest cost measures for
cient means of internalizing environmental costs other than increased energy supply or reduced energy demand. There is
those associated with carbon dioxide (CO2) emissions. Charges considerable evidence that energy efficiency investments that
on road users, including parking fees in many towns and tolls, are lower in cost than the cost of marginal energy supply are
especially on motorways, have been accepted where they are not being made in real markets, suggesting that market barriers
earmarked to cover the costs of road provision (Michaelis, exist. A study of the industrial electric motor market in France
1997a). Several studies have explored the potential for adjust- has demonstrated the existence of barriers arising from deci-
ing the way existing road taxes, license fees, and insurance pre- sion-making practices, within an environment characterized by
miums are levied, and have found potential emissions reduc- lack of information and split incentives (de Almeida, 1998).
tions in the region of 10% in OECD countries (Wenzel, 1995; Barriers may exist at various points in the diffusion process of
Michaelis, 1996b). measures to reduce energy use and/or GHG emissions. The dif-
fusion process depends on many factors such as capital cost,
While it may be possible to adjust the price incentives in the operating cost savings, information availability, network con-
transport sector, overcoming the many forms of inertia and nections, imitation effects, and other factors (DeCanio and
lock-in is more difficult. Effective mitigation strategies would Laitner, 1997). All of these factors influence the probability of
entail combinations of measures, just as the status quo is cur- a firm adopting a given technology at a particular point in time.
rently maintained by a combination of forces (IPCC, 1996). Barriers may take many forms in this process, and should be
Often, the best opportunities for such concerted action arise at reviewed in the context of the industrial and business environ-
a local level, where the negative impacts of transport are most ment (e.g., multi-criteria optimization, firm size and structure,
keenly felt (Michaelis, 1997a). There are several positive market structure, opportunity, and information routes). While
experiences of change, such as a Scottish example where a barriers exist, it is important to note that ESTs and practices
public consultation process led to a large shift in local govern- may also represent a strategic and competitive advantage
ment spending towards public transport (Macaulay et al., through the development of new markets or new market oppor-
1993), initiatives to introduce toll rings around Norwegian tunities, as shown by various authors (Porter and Van der
cities, and the comprehensive transport strategies in Singapore Linde, 1995b; Reinhardt, 1999). This section focuses on barri-
(Ang, 1993), Curitiba (Rabinovitch, 1993), and other cities ers and opportunities in the industrial sector, and cites exam-
(IPCC, 1996). ples of successful approaches that have been used to remove
barriers.
Achieving the promise of new technology may depend on
international co-operation to develop larger markets for low- Decision-making Processes
GHG-emission vehicles through fiscal and regulatory mea- In firms, decision-making processes are a function of its rules
sures and public purchasing. During high oil price periods, car of procedure, business climate, corporate culture, managers’
importing countries have imposed restrictions and incentives personalities, and perception of the firm’s energy efficiency
on car importers to discourage the use of more energy-inten- (DeCanio, 1993; OTA, 1993) and perceived risks of the invest-
sive cars. Agricultural surpluses and foreign exchange short- ment, stressing the importance of firm structure, organization,
ages have been important stimuli for technology development and internal communication (Ramesohl, 1998). Energy aware-
in the past, in particular in the case of the Brazilian ethanol pro- ness as a means to reduce production costs seems not to be a
gramme. high priority in many firms, despite a number of excellent
examples in industry worldwide. For example, Nelson (1994) 40%. Especially for SMEs capital availability may be a major
reports on a (discontinued) successful programme at a major hurdle in investing in energy efficiency improvement tech-
chemical company in the USA, which resulted in large energy nologies because of limited access to banking and financing
savings with internal rates of return of over 100%. However, mechanisms. When energy prices do not reflect the real costs
such programmes are only reported in a relatively small num- of energy (without subsidies or externalities) then consumers
ber of plants. A recent analysis of the Green Lights programme will necessarily underinvest in energy efficiency. Energy
in the USA demonstrated the shortcomings in traditional deci- prices, and hence the profitability of an investment, are also
sion-making processes, as investments in energy efficient subject to large fluctuations. The uncertainty about the energy
lighting showed much higher paybacks than other investments. price, especially in the short term, seems to be an important
(DeCanio, 1998). These analyses demonstrate the need for a barrier (Velthuijsen, 1995). The uncertainties often lead to
better understanding of the decision-making process, to be higher perceived risks, and therefore to more stringent invest-
appropriately accounted in modelling and policy development. ment criteria and a higher hurdle rate.
Lack of Information Lack of Skilled Personnel

Cost-effective energy efficiency measures are often not under- A lack of skilled personnel, especially for SMEs, leads to dif-
taken as a result of lack of information on the part of the con- ficulties installing new energy-efficient equipment compared
sumer, or a lack of confidence in the information, or high trans- to the simplicity of buying energy (Reddy, 1991; Velthuijsen,
action costs for obtaining reliable information (Reddy, 1991; 1995). In many firms (especially with the current development
Sioshansi, 1991; OTA, 1993; Levine et al., 1995). Information toward “lean” firms) there is often a shortage of trained tech-
collection and processing consumes time and resources, which nical personnel, as most personnel are busy maintaining pro-
is especially difficult for small firms (Gruber and Brand, 1991; duction (OTA, 1993). In most developing countries there is
Velthuijsen, 1995). In many developing countries public capac- hardly any knowledge infrastructure available that is easily
ity for information dissemination is especially lacking (TERI, accessible for SMEs. Also, the position within the company
1997). The information gap concerns not only consumers of hierarchy of energy or environmental managers may lead to
end-use equipment but all aspects of the market (Reddy, 1991). less attention to energy efficiency, and reduced availability of
Many producers of end-use equipment have little knowledge of human resources to evaluate and implement new measures.
ways to make their products energy efficient, nor access to the
technology for producing the improved products. Equipment In addition to the problems identified above, other important
suppliers may also lack the information, or ways to assess, barriers include (1) the “invisibility” of energy efficiency mea-
evaluate, or disseminate the information. End-use providers are sures and the difficulty of demonstrating and quantifying their
often unacquainted with efficient technology. In addition, there impacts; (2) lack of inclusion of external costs of energy pro-
is a focus on market and production expansion, which may be duction and use in the price of energy, and (3) slow diffusion
more effective than efficiency improvements, to generate prof- of innovative technology into markets (Fisher and Rothkopf,
it maximization. In the New Independent States (NIS) firms are 1989; Levine et al., 1994; Sanstad and Howarth, 1994).
more directed towards increasing competitiveness, although Regulation can contribute to more successful innovation (see
there are examples where firms have used energy efficiency as above), but sometimes, indirectly, be a barrier to implementa-
a means to reduce production costs (Gritsevich, 2000). Also, a tion of low GHG emitting practices. A specific example is
lack of adequate management tools, techniques, and proce- industrial co-generation (CHP), which may be hindered by the
dures to account for the economic benefits of efficiency lack of clear policies for buy-back of excess power, regulation
improvements is an information barrier (see below). Finally, for standby power, and wheeling of power to other users (Box
other policies and regulations may limit access to energy-effi- 5.5 ). Co-generation in the Indian sugar industry was hindered
cient technologies. For example, import regulations for specif- by the lack of these regulations (WWF, 1996), while the exis-
ic projects and industries in China (Fisher-Vanden, 1998) and tence of clear policies can be a driver for diffusion and expan-
India (Schumacher and Sathaye, 1999) limited or imposed high sion of industrial co-generation, as is evidenced by the devel-
levies on the import of industrial technologies for some peri- opment of industrial co-generation in the Netherlands (Blok,
ods. 1993). Finally, firms typically under-invest in R&D, despite
the high paybacks (Nelson, 1982; Cohen and Noll, 1994), but
Limited Capital Availability recent analyses seem to suggest that public and private R&D
Energy efficiency investments are made to compete with other funding for sustainable energy technologies is decreasing in
investment priorities, and many firms have high hurdle rates developed countries (Kammen and Margolis, 1999).
for energy efficiency investments because of limited capital
availability. Capital rationing is often used within firms as an 5.4.3.1 Programmes and Policies for Technology Diffusion
allocation means for investments, leading to even higher hur-
dle rates, especially for small projects with rates of return from A wide array of policies, to reduce the barriers or the percep-
35% to 60%, much higher than the cost of capital (~15%) tion of barriers has been used and tested in the industrial sector
(Ross, 1986). In many developing countries cost of capital for in developed countries (Worrell et al., 1997), with varying suc-
domestic enterprises is generally in the range of up to 30%- cess rates. With respect to technology diffusion policies there
is no single instrument to reduce barriers; instead, an integrat- panies or other institution. The content of the agreement may
ed policy accounting for the characteristics of technologies, vary. The private partners may promise to attain certain energy
stakeholders, and countries addressed would be helpful. efficiency improvement, emission reduction target, or at least
try to do so. The government partner may promise to finan-
Selection of technology is a crucial step in any technology cially support this endeavour, or promise to refrain from other
transfer. Information programmes are designed to assist energy regulating activities. Many developed countries have adopted
consumers in understanding and employing technologies and VAs directed at energy efficiency improvement or environ-
practices to use energy more efficiently. Information needs are mental pollution control (EEA, 1997; IEA, 1997; Börkey and
strongly determined by the situation of the actor. Therefore, Lévêque, 1998; OECD, 2000). There is a wide variety in VAs,
successful programmes should be tailored to meet these needs. ranging from public and consumer recognition for participation
Surveys in western Germany (Gruber and Brand, 1991) and the in a programme (e.g., Energy Star Program in the USA) to
Netherlands (Velthuijsen, 1995) showed that trade literature, legally binding negotiated agreements (e.g., the Long-Term
personal information from equipment manufacturers and Agreements in the Netherlands). Voluntary agreements can
exchange between colleagues are important information have some apparent advantages above regulation, in that they
sources. In the United Kingdom, the ‘‘Best Practice’’ pro- may be easier and faster to implement, and may lead to more
gramme aims to improve information on energy efficient tech- cost-effective solutions. Initial experiences with environmental
nologies, by demonstration projects and information dissemi- VAs with respect to effectiveness and efficiency varied strong-
nation. The programme objective is to stimulate energy savings ly, although only a few ex-post evaluations are available as
worth US$5 for every US$1 invested (Collingwood and Goult, most voluntary approaches are recent (EEA, 1997; Worrell et
1998). In developing countries technology information is more al., 1997, Börkey and Lévêque, 1998). The Dutch long-term
difficult to obtain. Energy audit programmes are a more target- agreements on energy efficiency in industry have been evalu-
ed type of information transaction than simple advertising. ated favourably, and are expected to achieve the targets for
Energy audit programmes exist in numerous developing coun- most sectors (Universiteit Utrecht, 1997). The evaluation high-
tries, and limited information available from 11 different coun- lighted the need for more open and consistent mechanisms for
tries found that on average 56% of the recommended measures reporting, target setting, and supportive policies. Preliminary
were implemented by audit recipients (Nadel et al., 1991). evaluations show that VAs are most suitable for pro-active
industries, a small number of participants, mature sectors with
Environmental legislation can be a driving force in the adop- limited competition, and long-term targets (EEA, 1997). The
tion of new technologies, as evidenced by the case studies for evaluations also show that VAs are most effective if they
India (TERI, 1997), and the process for uptake of environmen- include clear targets, a specified baseline, a clear monitoring
tal technologies in the USA (Clark, 1997). Market deregulation and reporting mechanism, and if there are technical solutions
can lead to higher energy prices in developing countries available with relatively limited compliance costs (EEA,
(Worrell et al., 1997), although efficiency gains may lead to 1997). In some cases the result of a VA may come close to
lower prices for some consumers. those of a regulation, i.e., in the case of negotiated agreements
as used in some European countries. Outside developed coun-
Direct subsidies and tax credits or other favourable tax treat- tries, also some NICs, e.g., Republic of Korea, consider the use
ments have been a traditional approach for promoting activities of VAs (Kim, 1998), while the Global Semiconductor
that are socially desirable. An example of a financial incentive Partnership is an example of an international voluntary agree-
programme that has had a large impact on energy efficiency is ment to reduce PFC emissions.
the energy conservation loan programme that China instituted
in 1980. This loan programme is the largest energy efficiency
investment programme ever undertaken by any developing 5.4.4 Energy Supply
country, and currently commits 7% to 8% of total energy
investment to efficiency, primarily in heavy industry. The pro- There are two primary types of options available for reducing
gramme contributed to the remarkable decline in the energy emissions. One is to increase the efficiency of energy supply,
intensity of China’s economy. Since 1980 energy consumption and the second is to switch from carbon intensive fuels to low
has grown at an average rate of 4.8% per year (compared to or no carbon content sources of energy. The two options face
7.5% in the 1970s) while GDP has grown twice as fast (9.5% different categories of barriers and the most relevant are
per year), mainly thanks to falling industrial sector energy described in this section.
intensity. Of the apparent intensity drop in industry in the
1980s, about 10% can be attributed directly to the efficiency Energy Prices
investment programme (Sinton and Levine, 1994). Low prices are, in part, a consequence of direct and indirect
subsidies to producers, and the non-inclusion of external costs
New approaches to industrial energy efficiency improvement in their production and use (Watson et al., 1996; Harou et al.,
in developed countries include voluntary agreements (VA). A 1998). It is common in the energy supply sector to find price
VA generally is a contract between the government (or an other policies (public or private) which do not reflect the “full costs”.
regulating agency) and a private company, association of com- These full costs include environmental externalities, which, for
example, are not included in any coal transaction or gasoline riers as well. Often, cost estimations of new technologies do
prices in the United States. Producers and users of new energy not include items related to transaction costs or items associat-
technologies are not usually rewarded for the associated envi- ed with technology penetration (policy implementation costs).
ronmental benefits (World Bank, 1999). Both transaction costs and policy implementation costs are
additional expenses to technology transfer, limiting competi-
Lack of Consistency in the Evaluation of Energy Costs tiveness and market potential.
Closely related to the price barrier faced by clean fuels is the
selective evaluation of energy costs from different energy Legal and Regulatory Framework
sources. There is a need to make a comprehensive evaluation Many energy supply sources are subject to a lack of regulation
of all costs and benefits. other than for safety, inadequate tariffs for transport and distri-
bution, and no incentives to increase efficiency. For example,
Lack of Adequate Financial Support there is often no penalty for natural gas flaring. This reduces
Multilateral development banks, public banks, and private the motivation for improving the efficiency of the supply chain
banks generally do not offer soft credit, or programmes aimed of such sources.
specifically at energy technologies. This acts as a further barri-
er to capital-intensive energy projects. The absence, up until If electric utility companies sell electricity within a regulatory
now, of specific programmes and an administrative process system that allows them to recover all operating expenses,
adapted to this type of project has resulted in high transaction including taxes and a fair return for their investments, they will
costs and a lack of discussion of this key issue as a solution in show no interest in increasing their efficiency. Within this sys-
the climate change problem. The role of a multilateral system tem, utilities will be reimbursed the operational costs indepen-
could be especially important for the development of a dent of the quality of the service offered (US DOE, 1996).
hydropower programme, financing of regional interconnec-
tions, and developing small, sound environmental technologies Distributed electricity generators often face a complex bureau-
for energy supply like mini hydro, solar, and wind. cratic process for authorizing the construction and operation of
co-generation facilities. Complicated terms of grid connection,
Institutional Transformation and Reforms as well as technical, economic, and institutional rules limit
Privately-owned generation, transmission, and distribution access to the grid for distributed generators (Verbruggen,
entities are playing increasingly large roles in electric utility 1990,1992, 1996).
systems worldwide. Many national power utility systems have
been totally or partially privatized. Lack of Information
While lack of information on energy technology performance,
The liberalization of the power industry, which introduces technical, and economic characteristics is not a very significant
competition within the generation segment, could have a sig- barrier in the energy supply sector, this market failure is relat-
nificant impact on the viability of renewable sources. Some ed to market transparency. The inability of the private market
observers may argue that subsidies of any sort are antithetical to provide generic information (no transparency), and the pos-
to the concept of a deregulated market, and that the purpose of sibility that “in the field” operation of a technology may differ
liberalization is precisely to eliminate such subsidies and mar- from controlled environment operation by a technology pro-
ket distortion. In competitive markets where the process is ducer, both increase uncertainty and risk in an investment.
replaced by the market-driven decisions of generation compa- These problems are extensions of the information barrier4.
nies subsidies to renewable sources may become less accept-
able (Bouille, 1998). Developed countries generally have more capital and techno-
logical resources than do developing countries (World Bank,
Segmentation of the electricity chain may reduce the incentives 1999). This can greatly affect the decision-making process in
for electricity companies, especially electricity distribution developing countries, as they may not have the newest knowl-
companies, to act on end-use efficiency (Poole et al., 1995). edge to adequately assess new technology opportunities.
There are institutional and administrative difficulties associat- Decision-making Process and Behaviour
ed with the development of technology transfer contracts. Many organizations are interested in using the most economi-
These are necessary to qualify regional construction companies cally competitive technology, in terms of cost and availability
as partners in any undertaking. There is a need for greater of fuels, though not necessarily in terms of energy or carbon
regional co-operation among developing countries in both
research and development, and the development of an interna-
tional commercial contracting network, to improve technology 4 Any decision-making process is one where the decision maker
transfer. “buys” information to reduce uncertainty and risk in order to make a
“better” decision. Lack of information means, essentially, uncertain-
Along with the institutional difficulties of technology transfer ty. The lower the degree of information the higher the uncertainty and
projects, high transaction and implementation costs act as bar- the barrier to adoption of a specific technology.
efficiency. The most competitive investments offer short pay- Co-generation as a distributed technology is an example of this
back periods, minimize overall investment, and receive an type of barrier (Box 5.5). Another example of the “competi-
attractive rate of return. In such a framework, a relatively nar- tive” decision-making process as a barrier is typified in the
row range of technologies exists. Most of them are efficient in case of Argentina, where systems with shorter payback periods
the economic sense but not necessarily in relation to GHG (such as natural gas-fired systems) are favoured over others
emissions reductions or avoidance. This represents a signifi- (Box 5.6). Changes similar to those described in Box 5.6 are
cant barrier to both developed and developing countries. taking place in other developing and developed countries as
well.
Box 5.5. Combined (Cooling) Heating and Power or Cogeneration
Co-generation is applied in utility district heating and in distributed on-site power units. Most barriers to on-site co-generation are the
same barriers as the ones that impede the development of other types of distributed and/or independent power generation projects. The
most important barriers are related to information, technology character, regulatory and energy policy.
Informational barriers
The significant technological advances of recent years (Major, 1995; Rohrer, 1996) are not spread widely enough. This barrier is the
most stringent in developing countries and in small institutions and companies, especially when the latter have no technical back-
ground. When donors, international institutions, lending banks, etc. are not familiar with the co-generation technology, it will not be
implemented by developing and transitional economies (Dadhich, 1996; Nielsen and Bernsen, 1996). Additionally, the economics of
co-generation is relatively complex (Verbruggen et al., 1992; Hoff et al., 1996; Verbruggen, 1996). Optimization of co-generation pro-
jects requires extensive information about many determinants of profitability. This span of know-how makes its availability to small-
scale independent projects exceptional. Finally, uncertainty about the main determinants like fuel prices, fuel availability, regulatory
conditions, environmental legislation, contract terms with the power grid, etc. constitutes a significant barrier.
Decentralized character of the technology

Private investors impose high profitability standards on distributed generation projects. This payback gap is mainly due to a risk-averse
attitude regarding non-core business activities. The distances to the energy grids (electricity, natural gas) limit the capacity or co-gen-
eration opportunities. Unequal treatment with respect to fuel supplies, authorization and licensing arrangements, and environmental
and emissions regulation, constitutes an additional set of barriers that especially affect the small-scale distributed generation projects
and add to the costs of the technology (COGEN Europe, 1997).
The terms of grid connection

In several countries, the position and attitude of the grid operator have been hostile towards distributed generation initiatives (Rüdig,
1986; Dufait, 1996). Incumbent power companies sometimes impose heavy regulations on producers or industries that file for a con-
nection to the electricity grid, imposing technical prescriptions that cannot be set in standard packages. Tariff conditions are a partic-
ularly difficult issue, because the value of the kWh is dependent on time, place, quality, and reliability of supply, and differs for the
three types of power flows that can be exchanged: surplus power that the co-generator delivers to the grid, shortage or make-up power
bought by the co-generator at the grid, and back-up power (Verbruggen, 1990). Although there are widely accepted principles to fix
the tariff for the different transactions, theoretical and practical difficulties in defining and measuring the costs constrain the develop-
ment of contracts (Dismukes and Kleit, 1999). In many countries high tariffs on wheeling of electricity act as an additional barrier. In
several countries the opportunities for small-scale distributed power generation are improving because grid connection is provided at
neutral or even subsidized terms (the Netherlands and Japan; Blok and Farla, 1996).
Energy policy
Utility co-generation requires long-term planning from an integrated point of view (WEC, 1991). Very few nations own the intellec-
tual and administrative capacity to realize an integrated energy policy plan that preserves the place for district heating and related co-
generation. Some countries (e.g., Denmark) and international organizations have favoured the development of CHP (EC, 1997). Firm
public policy and regulatory authority is necessary to install and safeguard harmonized conditions, transparancy and unbundling of the
main power supply functions, and the position of independent players (Fox-Penner, 1990).
Box 5.6. Argentine Power Supply: Some Barriers Related to Institutional and Regulatory Topics
There is no doubt that the Argentine electric power system shows a trend towards the improvement of energy efficiency, both in final
consumption as well in electricity-supply activities. Rising competition levels within the electricity industry are favouring efficiency
in electricity generation. However, market trends show a rising dependency on natural gas to the detriment of the participation of non-
GHG emitting technologies.
Several obstacles will have to be overcome to modify this trend. These are related to the following aspects.
Spot and contract prices. Within a context of falling prices at the spot market, distributors have been reluctant to long-term fixed
price commitment. In fact, the indicator used to adjust the price at distribution level is the spot price. Should its supply be totally or
partially contracted, the distributor cannot transfer to retail rates the costs of their contracts if they have, occasionally, a higher price
than the spot. Long-term payback investment, with higher investment costs, major risks, and lower internal rate of return, are not
favoured by a context based on spot prices.
Volatility of prices. A system with important hydro generation capacity shows variation depending on hydrological conditions. Dry
and humid years represent important impacts on the income of hydroelectric generators and introduce an additional source of risk.
This volatility could potentially increase if the interconnection with the Brazilian system becomes a reality in the short term. The
Brazilian system is almost entirely supplied with hydroelectric generation, which has frequent surplus capacity. This surplus or non-
firm energy, with zero value, could enter the Argentine wholesale market and introduce a fantastic volatility in the spot price market
which would affect all generators.
Behaviour. Private investors are reluctant about options that imply higher risks, longer payback, lower internal rate of return, and high
investment per unit of capacity. The decision-making process clearly shows this behaviour: all the new capacity installed after the pri-
vatization process is based on open and combined cycle thermal power plants using natural gas as fuel. In the past, Argentine public
utilities, using lower discount rates, assuming higher risks, and making investments assisted by the multilateral financing system,
developed an important hydropower system that represented near 50% of the supply. The new context offers lower opportunities for
this “old” technology, and acts as a barrier to a more “costly” option from a private point of view.
Economics of the technologies. In the case of nuclear power plants, additional costs for waste treatment, plant decomissioning, and
insurance reduce the competitiveness of this technology. In the case of hydroelectric stations, the payments of royalties, the need for
insurance, and the transmission network expansion mechanism (payback in 15 years) increase the costs and decreases the possibili-
ties of such technologies in the decision-making behaviour described above.
Uncertainty and risk aversion discourage long-term invest- Inclusion of renewable energy in a wholesale electricity mar-
ments. Many forms of sustainable energy production require ket could affect price volatility for generators. Volatility is
long-term investment. Most multilateral and international lend- remarkably affected by hydroelectricity supply. Any mitigation
ing institutions are averse to technologically risky investments. action which increases the share of such a source in the elec-
As a result, both government and private entities may be reluc- tricity market will most likely contribute to further price
tant to invest in high-tech projects that entail high capital costs volatility, increasing the level of risk for the actors.
(ECOSOC, 1994).
Social and Cultural Constraints
The lack of performance data for newer energy technologies The environmental impacts and risks of technologies, such as
often results in an unwillingness on the part of smaller firms to nuclear power and hydropower generation, may not be accept-
risk purchasing these more expensive technologies. While they able to many social groups. The real or perceived environmen-
may offer greater future savings than traditional technologies, tal risks of such technologies pose a significant barrier to their
the lack of test data prompts fears that reported energy savings implementation (Bouille, 1998).
may not materialize in practice.
Cultural Aspects Related with Decentralized Systems in Rural
The uncertainty inherent in new technologies leads investors to Areas
use high discount rates, which would make investments that are There are cultural barriers that oppose the use of decentralized
clearly cost-effective from a global perspective seem systems in rural areas. Renewable energy is often promoted in
unattractive to private actors (Bouille, 1999). In the case of ener- rural areas to reduce local environmental impacts, and accom-
gy-efficiency investments, however, some may be for well-estab- plish social and welfare goals. While these technologies may
lished technologies with low technological and economic risk. be competitive, easy to operate, and adequate for the project
needs, technology diffusion is often confronted with cultural large. Improving soil management for crop production, for
barriers (Barnett, 1990). instance, can also improve water relations, nutrient retention,
and nutrient cycling capacity (Paustian et al., 1998). Retiring
In order to overcome cultural and social barriers, a project must surplus agricultural lands can result in improved water quality,
take into account the needs of potential users of the project reduced soil erosion, and increased wildlife habitat. As Izac
technology, and harmonize the diffusion strategy with local (1997) points out, however, farmers, who will be the ultimate
physical, human, and institutional resources. A project should decision makers about which mitigation option to adopt, have
also build local technical and institutional capabilities so the shorter planning horizons than national or international benefi-
project may be fully realized (Barnett, 1990). ciaries, and many mitigation options ask them to bear costs up
front while the benefits are longer term and to the society at
Capital Availability large.
There are substantial opportunities in developing countries for
expansion of electricity supply. While the capacity being Furthermore, in order to realize these opportunities a very large
installed is improving in efficiency, this process is slowed by proportion of farmers who pursue diverse agricultural practices
difficulties in accessing the necessary capital. Many ESTs will have to be convinced to adopt mitigation options.
require large up-front investments. In effect, the cost of pollu- Economic, cultural, and institutional barriers exist which
tion abatement is paid in advance. This is a serious obstacle for restrict the rate of adoption of such practices. Farmers who are
some technologies, particularly nuclear power generation and accustomed to traditional practices may be reluctant to adopt
large hydropower schemes. These technologies also have other new production systems. Crop price supports, scarcity of
constraints, however. A reduction in nuclear unit size and/or investment capital, and lack of economic incentives for
improved safety and maintenance features could help to over- addressing environmental externalities are some of the eco-
come this barrier. nomic barriers. Limited applicability of mitigation options to
different types of agriculture, negative effects on yield and soil
Co-generation or combined production of power and heat is a fertility for rice production, and the increased skilled labour
much more efficient process than the production of each of requirements are some of the other constraints. Among these
these energy sources alone. Implementation of co-generation, barriers the especially critical ones are highlighted here.
however, faces barriers such as shortages of capital. There is
also currently a lack of regulatory policies allowing commer- Farm-level Adoption Constraints
cialization of the excess electricity produced through access to Several generic constraints characterize the adoption of most
existing grid systems (Box 5.5). new agricultural technology. These include small farm size,
credit constraints, risk aversion, lack of access to information
and human capital, inadequate rural infrastructure and tenurial
5.4.5 Agriculture arrangements, and unreliable supply of complementary inputs.
Participatory arrangements that fully engage all the involved
The Special Report on Land use, Land-use Change, and actors may help to overcome many of these barriers.
Forestry (IPCC, 2000a) estimated a significant potential for
increasing carbon stocks in the agricultural sector. Improved Government Subsidies
management of cropland and grazing-lands, agroforestry, and Subsidies for critical inputs to agriculture, such as fertilizers,
rice paddies have the potential to sequester 398 MtC annually, water supply, and electricity and fuels, and to outputs in order
and the conversion of cropland to agroforestry practices and to maintain stable agricultural systems and an equitable distri-
grasslands can sequester an additional 428 MtC annually by bution of wealth can distort markets for these products. These
2010. These estimates are highly uncertain, however, and do types of subsidies prevail in both developed and developing
not include the impact on the net emissions of methane (CH4) countries. Low electricity prices in India, for example, provide
or nitrous oxide (N2O) from agricultural practices or wetlands a disincentive for the use of efficient pump sets, and encourage
and/or permafrost management. increased use of ground water, which depletes the water reser-
voirs. In the OECD, for example, high levels of farm subsidies
CH4 emissions from agriculture produce about eight per cent of have also contributed to the intensification of farm practices
the radiative forcing of all GHGs (Watson et al., 1996). CH4 and often provide incentives to increase fertilizer use, livestock
from manure can be captured and used for fuel; emissions from density, etc. (Storey, 1997).
ruminants can be reduced with better diets, feed additives, and
breeding; and emissions from rice paddies can be mitigated by Lack of National Human and Institutional Capacity and
nutrient management, water management, altered tillage prac- Information in the Developing Countries
tices, cultivar selection, and other practices (Mosier et al., Several of the Consultative Group on International Agricultural
1998). Research (CGIAR) systems are experiencing difficulty as their
funding slows. The systems have not transferred capacity to
Many of the mitigation options to address these opportunities national centres in the developing countries that they are
may provide multiple benefits to the farmer and society at expected to serve. The national centres also lack access to
information, and are not aware of technologies that suit their The Special Report on Land Use, Land-use Change and
local conditions (IPCC, 2000b). Forestry (IPCC, 2000a) notes significant opportunities for
forestry and other land-use change activities to sequester car-
Lack of Intellectual Property Rights bon. Afforestation and reforestation activities could capture
To some extent the reduced public funding on new technolo- between 197 to 584MtC/yr in all countries under the IPCC
gies has been replaced by the private sector’s contribution. “definitional” scenario between 2008 to 2012. The estimated
Private sector funding offers one approach to increasing invest- deforestation, however, would negate this sequestration poten-
ment for mitigation projects worldwide. Private plant breeding tial. Halting deforestation offers additional opportunity to
research has more than quadrupled in the USA in real terms reduce emissions. Forest management and agroforestry options
between 1970 and 1990. Its international role is, however, con- offer a potential to capture another 700MtC/yr by 2010.
troversial. Protection of intellectual property rights is weak, Capturing these opportunities, however, entails significant hur-
especially for commercially developed seed varieties dles of the types noted below.
(Deardorff, 1993; Frisvold and Condon, 1995, 1998; Knudson,
1998). On the other hand, hybridization will help to stimulate Lack of Technical Capability
more investment from the private sector at the risk of increas- In many developing countries, the national and state forest
ing the farmers’ dependency on the annual purchase of new departments play a predominant role in all aspects of forest pro-
seeds. There are also concerns that genetic resources that have tection, regeneration, and management. Currently lack of fund-
not been considered as privately-owned intellectual property ing and technical capabilities in most tropical countries limit
may get patented worldwide by private investors. generation of information required for planning and implemen-
tation of forestry mitigation projects. Apart from a few excep-
Several measures may be pursued to address the above barri- tions, developing countries do not have adequate capacity to
ers. These include participate in international research projects and to adapt and
• The expansion of internationally supported credit and transfer results of the research to the local level. Research on
savings schemes, and price support, to assist rural peo- forests has not only suffered from a lack of resources; it has not
ple to manage the increased variability in their environ- been sufficiently interdisciplinary to provide an integrated view
ment (Izac, 1997); of forestry (FAO, 1997). However, the majority of the forestry
• Shifts in the allocation of international agricultural research institutions do not function as R&D laboratories as they
research for the semi-arid tropics towards water-use do in industry, and the main focus is on research and not tech-
efficiency, irrigation design, irrigation management, nology development and dissemination. Unlike in the energy or
and salinity, and the effect of increased CO2 levels on transportation sectors, the technologies or even the management
tropical crops (Tiessen et al., 1998); systems are going to be forest type or country specific.
• The improvement of food security and disaster early
warning systems, through satellite imaging and analy- Lack of Capacity for Monitoring Carbon Stocks
sis, national and regional buffer stocks, improved inter- Forestry-sector GHG mitigation activities and joint implemen-
national responses to disasters, and linking disaster tation projects generally face a wide range of technical issues
food-for-work schemes to adaptation projects (e.g., that challenge their credibility. The twin objectives of using
flood barricades); forestry to mitigate climate change and managing forests sus-
• The development of institutional linkage between tainably do pose a challenge in monitoring and verifying ben-
countries with high standards in certain technologies, efits from carbon offset projects in the sector (Andrasko,
for example flood control; and 1997). While methods generally exist to monitor carbon stocks
• The rationalization of input and output prices of agri- in vegetation, soils and products, operational systems that
cultural commodities taking DES issues into consider- could be readily implemented for this purpose are lacking in all
ation which would lead to more efficient use of input countries (IPCC, 2000a). Monitoring and verification are key
resources. elements in gaining the credibility needed to capture the poten-
tial benefits of forestry sector response options, particularly in
reducing deforestation (Fearnside, 1997). While this is a gener-
5.4.6 Forestry ic barrier to deforestation reduction initiatives, it also repre-
sents an opportunity for transferring the technologies needed to
In addition to the several generic barriers that are discussed in monitor land-use change and carbon stocks and flows. Among
Section 5.3, the forestry sector faces land use regulation and the mitigation options, there is a higher degree of certainty on
other macroeconomic policies that usually favour conversion reforestation and/or afforestation, less on forest management,
to other land uses such as agriculture, cattle ranching, and and even less on forest conservation.
urban industry. Insecure land tenure regimes, and tenure rights
and subsidies favouring agriculture or livestock are among the Under the GEF-UNDP sponsored Asian Least-Cost Greenhouse
most important barriers for ensuring sustainable management Gas Abatement Strategy (ALGAS), the US Country Studies
of forests as well as sustainability of carbon (C) abatement. Program (Sathaye et al., 1997a), and other forestry sector
capacity building and analytical activities have identified miti-
gation options and technologies. Furthermore, the policies to resource, much of which can be recycled and reused (CPCB,
promote technology transfer have been identified (e.g., regula- 1998). Residential and commercial waste may be differentiat-
tions, financial incentives) and sometimes implemented (e.g., ed from industrial waste, a component of the latter being toxic
Mexico, Bolivia). Under the UNFCCC, each party is required and requiring special treatment. In all cases, there are options
to communicate a national inventory of GHG emissions by for bulk reduction at source. Thus, waste management entails
sources and sinks. A large portion of the parties has completed the three R’s – Reduction, Recycling and Reclamation – for
this task and is trying to understand forestry sector emissions recovery of usable components either directly (example: chem-
and removals by sinks, which has improved dramatically. Many ical recovery in pulp and paper mills) or indirectly through pro-
parties are taking steps to manage forest systems as C reservoirs cessing of waste (example: CH4 recovery from landfills and
(Kokorin, 1997; Sathaye et al., 1997a). from distillery effluents).
As a result of the UNFCCC and Kyoto Protocol, many devel- Wastes of various kinds including energy, raw materials, efflu-
oping and transitional countries are developing National ents, emissions, and solid wastes are omnipresent in different
Climate Change Action Plans (NCCAPs) which incorporate walks of life (ESCAP 1992, Debruyn and Rensbergen, 1994;
forestry-sector mitigation and adaptation options (Benioff et Doorn and Barlaz, 1995). Non-availability of appropriate tech-
al., 1997). ‘‘No regrets’’ adaptation and mitigation options nology is often perceived as a major impediment (Nyati, 1994;
have been identified that are consistent with national sustain- Narang et al., 1998). However, there are cases to cite that even
able development goals. Bulgaria, China, Hungary, Russia, the proven technologies do not penetrate into society as rapid-
Ukraine, Mexico, Nigeria, and Venezuela all have developed ly as their potential would suggest (Reddy and Shrestha, 1998;
very specific forestry sector climate action plans. Shrestha and Kamacharya, 1998).
The Russian Federation has a progressive forestry sector cli- 5.4.7.1 Barriers to Mitigation
mate change action plan (Kokorin, 1997), although its imple-
mentation is uncertain under the current economic conditions. One of the major driving factors in waste management is the
Based on current economic and climate change scenarios sev- economic environment. Market forces favour waste utilization
eral mitigation and adaptation scenarios have emerged: (1) cre- when there is a shortage of raw materials or their prices are
ating economic mechanisms to increase forestry sector effec- high. Waste utilization is directly influenced by the economic
tiveness and efficiency in logged (removal) areas, (2) provid- incentive for recovery of usable materials (Vogel, 1998). Apart
ing assistance for forestation in the Europe-Ural region, (3) from market forces, the other barriers (Painuly and Reddy,
promoting fire management and protection for central and 1996; Parikh et al., 1996; Mohanty, 1997) in waste manage-
northeastern Siberia, and (4) limiting clear-cut logging in ment relate to the following:
southern Siberia. These steps are significant since Russia con- • Lack of enabling policy initiatives, an institutional
tains approximately 22% of the world’s coniferous forests. mechanism, and information on opportunities for
reduction, recycling, and reclamation of waste;
Forestry mitigation projects are likely to be largely funded by • Organizational problems in collection and transport of
Annex I countries and implemented in non-Annex I countries waste from dispersed sources for centralized processing
and EITs. Technology, including management systems, is an and value addition; and,
integral part of all projects funded by bilateral or multilateral or • Lack of co-ordination among different interest groups,
commercial agencies. Thus, promotion of mitigation projects although there are several examples of successful ini-
also automatically promotes the flow of technology from donor tiatives taken through private sector and NGO efforts as
agencies or countries to host countries or agencies. In fact, well as business-to-business waste minimization and
technology transfer is already happening. Forestry sector recycling programmes.
options are of relatively low cost compared to those in the
energy sector (Sathaye and Ravindranath, 1998). But there are 5.4.7.2 Programmes and Policies to Remove Barriers
some problems and uncertainties regarding the incremental C
abated: its sustainability, measurement, verification, and certi- To overcome the barriers and to exploit the opportunities in
fication. All forestry sector GHG mitigation projects must waste management, it is necessary to have a multi-pronged
ensure that they meet accepted standards for sustainable forest approach which includes the following components:
management (Sathaye et al., 1997b). Independent verification • Building up of database on availability of wastes, their
of C abatement would help to increase the credibility and fund- characteristics, distribution, accessibility, current prac-
ing of forestry-sector mitigation projects. tices of utilization and/or disposal technologies and
their economic viability;
• An institutional mechanism for technology transfer
5.4.7 Waste Management though a co-ordinated programme involving the R&D
institutions, financing agencies, and industry (Schwarz,
Waste management represents an important challenge for the 1997); and
reduction of GHG emissions. Waste is also a potential
• Defining the role of stakeholders including local 5.5 Regional Aspects

authorities, individual house holders, NGOs, industries,
R&D institutions, and the government. There are many barriers and opportunities, from the ones
described before, which have a particular relevance to devel-
The efforts of local authorities in waste management could oping countries and EITs. The issues of sustainable and equi-
focus on: the separation and reclamation of wastes through table development resonate in these countries as they undergo
seperate collection of reusable wastes for recovery; provision a rapid transformation towards market-oriented systems that
of reclamation centres where the public can deliver wastes; are immersed in a global economy. Institutionally, the transfor-
arrangements for separation and reclamation at disposal sites mation in developing countries is significant, but it is often
and transfer stations (de Uribarri, 1998); arrangements for confined to specific sectors, such as the deregulation of the
waste disposal with by-product recovery; and landfilling of energy sector. On the other hand, the socialist economies are
residuals. Local authorities may enlist the support of the pub- undergoing a more radical shift of the whole economy. These
lic and individual householders as well as NGOs to store global patterns of change provide an opportunity for introduc-
recoverable wastes separately or deliver these to the reclama- ing GHG mitigation technologies and practices that are consis-
tion centres. Local authorities can also consult the industry on tent with DES goals. At the macro-level the change to a market
how wastes could be best ultilized to meet their raw material economy and the liberalization and opening of markets to for-
requirement. Industry can be encouraged to accept wastes as eign investment provides an opportunity to make significant
secondary raw materials (NWMC, 1990). improvements in the GHG intensity of the economy. Similarly,
the restructuring of the energy sectors also offers an opportuni-
R&D institutions could play an important role in waste utiliza- ty to introduce demand management and low or no GHG-emit-
tion by development and dissemination of viable technological ting energy sources. As the sections below note, however, a
alternatives including pilot scale demonstration, organizing culture of energy subsidies, institutional intertia, fragmented
technology transfer workshops, and dissemination of informa- capital markets, vested interests, etc. presents major barriers to
tion to industries. Land use and industrial estate planners can the introduction of such technologies and practices. The devel-
internalize waste utilization and/or minimization concerns in oped countries face different types of barriers and opportuni-
the process of siting industrial plants (Datta, 1999). The possi- ties that prevent or slow the penetration of GHG mitigation
bilities of siting industrial activities in such a way that wastes technologies. These barriers and opportunities are related to
from one unit could be used as raw material for another could their more affluent lifestyles. The sections below emphasize
be explored. The arrangement might reduce capital outlay and situations in the three groups of countries that call for a more
operating costs, and also facilitate transfer and processing of careful consideration of the barriers and opportunities they
products and/or raw materials. face.
Governments may introduce fiscal and regulatory measures for

reduction of wastes and promotion of waste utilization. These 5.5.1 Developing Countries
may include incentives to producers and users to accept
reduced packaging, incentives to consumers to return As a group, the developing countries are undergoing rapid
reclaimable wastes, incentives to local authorities to support urbanization, which leads to increased industrialization and
reclamation and/or waste utilization activities, incentives to motorization that has altered the manner in which people relate
industries using recovered materials, financial support to R&D to their environment (Rabinovitch, 1992). Much of their tech-
activities, awards to individuals and/or organizations for waste nology stock is derived from developed countries, and
utilization, and penalties for not adopting waste minimization increased globalization tends to expose even remote popula-
and/or utilization practices. tions to socio-cultural patterns observed in the developed coun-
tries. Yet, the majority of the population in these countries lives
Programmes for providing training and education on waste in rural areas, and often in absolute poverty. These underlying
minimization and utilization with an interdisciplinary approach attributes and phenomena create or emphasize barriers and
could be developed. Waste utilization as a profession has no opportunities that are particular to this group of countries.
fixed boundaries. Skills of psychology, economics, material
sciences, process design, and ecology are but some of the many Trade and Environment
requirements for the trained professional. A larger external debt and balance-of-payments (BoP) deficit is
a reality in many developing countries. If a GHG mitigation
Even the best planned, designed, and executed waste utiliza- technology has to be imported, it is likely to add to this debt and
tion programme would fail without the effective participation BoP deficit. Another barrier to the technology transfer process is
of the public. Education of the public on waste utilization the requirement in technology transfer contracts of “intellectual
issues, therefore, would play a vital role in ensuring the success property rights” (IPR), which guarantee that private firms are
of the programme. A public education programme would be compensated for sharing their technology. If IPR laws are not
aided by the identification of appropriate communication sys- effectively enforced, there is little incentive for private firms to
tems (AIT, 1997; ESCAP, 1997; Bhide, 1998). share their technology. However, patents and licensing fees can
be very expensive and in such situations, developing countries A Soviet-type economy has left a legacy of acute health effects
may prefer the lowest priced, albeit possibly less efficient tech- from local pollution. Having very scarce resources, the transi-
nology alternatives (Srivastava and Dadhich, 1999). tion economies have so far focused mainly on mitigating local
pollution rather than emissions of GHGs. However, wherever
Institutional Framework environmental policies were successful in the region, they have
Deregulation and privatization offer an opportunity for also brought important climate dividends. Some countries in
improving energy efficiency and reducing GHG emissions in the region (e.g., Poland) have introduced specific climate
the energy sector. Studies and scenario analyses show, howev- change mitigation policy instruments, such as charges on CO2
er, a consequent increase in emissions resulting from low fuel and CH4 emissions.
prices, displacement of hydro and nuclear plants by cheaper
fossil-fired capacity, and a change in attitudes and behaviour of At the end of first decade of the transition to a market econo-
the energy suppliers (Bouille, 1999). my, contrasts between different countries in the region have
outstripped bygone relative homogeneity. Central Europe and
Distorted Energy Prices the Baltic countries have made a successful leap in economic
Energy price subsidies have been in place in many developing reforms and restructuring, while countries of the former Soviet
countries in the name of reducing the financial burden on the Union (so called New Independent States - NIS) continue to
poor. This has spawned a culture of dependency on energy sub- struggle with economic recession and political instability
sidies that is gradually diminishing (Jochem, 1999). (EBRD, 1999). Recent empirical studies on the interrelation-
ship between environmental improvement and economic
Finance development in transition economies undertaken by the World
Lack of available capital and lack of finance at low interest Bank, EBRD, and OECD have demonstrated that countries that
rates is pervasive in developing countries. Together with the were more successful in economic development and structural
absence of standards or energy labeling schemes, these barriers reforms have generally also been more successful in curbing
support the proliferation of inefficient equipment and first- emissions through targeted environmental policies. Aggregated
cost-minimization philosophy. Additionally, low incomes and GDP among advanced reforming countries has been gradually
poverty constrain access to adequate finance, and oblige the increasing, while emissions of main air pollutants have contin-
purchase of inexpensive and often GHG-intensive equipment ued to decrease. Energy consumption has been stabilized and a
(Bouille, 1999). Provision of special funds targeted to the poor switch away from coal has been recorded mainly in Poland and
and government financing of the first cost of equipment are the Czech Republic causing GHG-intensity of GDP to
ways to increase the provision of energy services. decrease. In contrast, in the slower reforming countries in NIS,
falling output, rather than economic restructuring or environ-
Barriers mental protection efforts, appears to have been the main factor
Information gap hindering proper technology selection, lack of behind the decrease of energy use and emissions of pollutants,
adaptation and absorption capability, lack of access to state of the including GHGs (OECD, 1999a).
art technology, and the small scale of many projects (Jochem,
1999) are specific and important barriers in low income devel- In the more advanced economies of the region, economic
oping countries to effectively exploit the full potential benefit of reforms have helped generate resources for investment in
technology transfer. Lack of information also slows the decision- cleaner, more efficient technologies; reduced the share of ener-
making processes in developing countries. gy- and GHG-intensive heavy industries in economic activity;
and helped curb emissions as part of the shift towards more
efficient production methods (OECD, 2000). In some sectors,
5.5.2 Countries Undergoing Transition to a Market however, the transition has brought greater climate pressures.
Economy in Central and Eastern Europe and the For example, in those countries returning to economic growth,
New Independent States the use of motor vehicles for both passenger and freight trans-
port has increased rapidly.
The collapse of communism in Central and Eastern Europe and
the subsequent disintegration of the Soviet Union brought the Energy Pricing and Subsidies
region’s serious environmental problems to the attention of the Virtually all countries in the region have embarked on the lib-
international community. Although the countries in this vast eration of energy prices and elimination of energy subsidies.
area of the world are remarkably diverse, central economic Significant successes in this field have been achieved in
planning had created a common pattern of environmental prob- Central European and Baltic States. However, in NIS a sharp
lems which included wastefulness, pollution-intensive eco- reduction of explicit subsidies has resulted in an almost imme-
nomic systems, ill-designed and resource heavy technologies, diate build up of hidden subsidies to energy producers and
and perverse incentives encouraging increase of output rather users, such as arrears and non-monetary forms of payments for
than enhancing efficiency of resource use. A universal feature energy (EBRD, 1999).
was also the world’s highest energy and carbon intensity of
economies.
Finance and Income ers thus become predominant in limiting the choice of mitiga-
Lack of adequate access to capital for GHG emission reduction tion technologies in these countries.
technologies is perceived as a bottleneck in many countries in
the region (World Bank, 1998). However, in CEE financial and In the household sector, for instance, although a CFL offers a
capital markets are becoming mature enough to provide relatively short payback period, the large price differential
increasingly better access to credit for fuel switching or energy between the CFL and an incandescent bulb poses a significant
efficiency, especially given stable macroeconomic conditions first-cost barrier to consumers. Most programmes to promote
and relatively high energy prices. In these countries the main CFLs have focused on a subsidy to lower its first cost (Mills,
bottleneck to environmental finance is not the lack of finance, 1993; Meyers, 1998). Raising the efficiency of other consumer
but rather the lack of a “pull factor”. Lack of implementation appliances encounters barriers such as the relatively low ener-
of the Polluter Pays Principle, and weak enforcement of the gy cost, bundling of higher efficiency with other higher value
environmental and climate policy framework does not stimu- attributes, and lack of information about energy consumption.
late sufficient demand for investments that would bring main- Standards and labels are being implemented in several coun-
ly GHG reduction benefits, with little private financial return tries in order to overcome these barriers. While many commu-
(OECD, 1999b). In NIS, however, the weak policy framework nities and national governments have regulations for more effi-
is aggravated by the overwhelming lack of liquidity both in the cient construction, rising affluence has increased the demand
public and private sector. Limited financial resources, which for homes with a larger floor area, which negates efficiency
are available to authorities have not always been used in a cost- gains. Disincentives may also exist in the market structure,
effective way. Opportunities to leverage additional financing e.g., a building owner may not be interested in energy efficient
from public and private, domestic and foreign sources were designs if the user is responsible for paying for the energy
also underutilized (OECD, 2000). used.
Institutional Aspects In the transport sector, manufacturers are producing cars that
The countries in the region have undergone a rapid deregula- have more efficient engines and lower air resistance, but cou-
tion and privatization on a short time scale that has no prece- pled with higher weight and more power (and other options),
dence in the history of the world. This process in the Baltic and there has been little or no gain in vehicle fuel economy. Fuel
Central European countries has generally led to increased economy is also not an important criteria in most purchasing
resource efficiency and replacement of obsolete and GHG decisions (see Section 5.4.3). The movement of households to
intensive technologies. However, in a number of countries of suburban areas increases the distance traveled to work, and for
the former Soviet Union, particularly in Russia and Ukraine, leisure, and adds to a vehicle’s fuel consumption. The lock-in
the rapid pace of liberalization and privatization has not been of transport into motorized private transport is an important
matched by the development of institutions as well as a regu- barrier to new efficient forms of mass transport, while the well-
latory and incentive framework necessary to support a well- established gasoline-based infrastructure is a barrier to the
functioning market economy. Perverse incentives that had gen- introduction of new less GHG-intensive fuels and associated
erated many of the environmental problems of centrally technologies.
planned economies, such as rent seeking and lack of incentives
for efficiency and restructuring, now undermine restructuring Energy efficiency and GHG-intensity in industry still vary
of already private enterprises (EBRD, 1999). But successful widely among and within developed countries, suggesting the
economic policies have not been a panacea for successful existence of barriers. Decision makers do not have sufficient
GHG-mitigation improvements. Targeted environmental poli- information to evaluate GHG mitigation opportunities. The rel-
cies and institutions in Central Europe were required to harness ative high transaction costs reduce the changes of innovative
the positive forces of market reform, and ensure that enterpris- technologies. Output growth is slow or stagnant in the large
es and other economic actors improve their environmental per- energy-intensive industries. The resulting slow stock turnover
formance which are still weak in the NIS (World Bank, 1998). has slowed the penetration of new GHG mitigation technolo-
gies in these industries. As industries improve their labour pro-
ductivity, concentration on a few core activities has led to a
5.5.3 Developed Countries lack of skilled personnel to evaluate and implement new tech-
nology.
Compared to the developing countries and those undergoing an
economic transition, the GHG emissions in the developed The energy supply sector is undergoing changes in the regula-
countries originate increasingly from the energy used by tory structure in almost all developed countries. These changes
households and other consumers for personal activities. may not all be conducive to the goal of GHG mitigation.
Mitigation opportunities therefore lie increasingly in the area Increasing profitability through reduction of capital costs may
of personal transport, space conditioning, and other home use lead to less efficient power generation options, and reduce the
of energy, and in the energy used by the commercial sector, penetration rate of generally capital intensive renewable ener-
although opportunities exist in all sectors. Financial and gy technologies. In general, grid operators (i.e., utility compa-
income-related, social and behavioural, and institutional barri- nies) have put up high barriers against more efficient genera-
tion options like co-generation (CHP) through low buyback such as to support sustainable and equitable develop-
tariffs, high interconnection charges, or power quality demands ment? The IPCC-SRTT provides one framework for a
(Box 5.5). Deregulation experiences have differed with respect technology transfer process. Models of processes that
to the treatment of co-generation and renewable energy. reflect “real world” decision-making are needed, how-
ever, in order to identify and elaborate on the barriers
that prevent or slow the diffusion of mitigation tech-
5.6 Research Needs nologies. The models would also need to take alterna-
tive development pathways into consideration. An
The earlier chapters show a significant potential for GHG mit- improved understanding of technology transfer both
igation in energy and non-energy sectors. All types of barriers within and across countries would be required since the
limit this potential. These barriers are specific to a technology, actors and barriers tend to be very different.
sector, and region, and they evolve over time. Research would • What is the appropriate role for stakeholders in the
be useful in several areas to collect data, establish databases, above decision-making processes? The roles of govern-
improve methods, and develop computerized models that ments and other stakeholders change over time. This is
would help decision makers to devise improved policies and particularly important in sectors where the social, cul-
measures to address these barriers: tural, institutional, and market context is changing
rapidly. An identification of their emerging roles would
• What is the quantitative global and regional market help decision makers manage technology transfer bet-
potential for different categories of mitigation tech- ter.
nologies? Chapters 3 and 4 note the technical and • Does market globalization favour or hamper the diffu-
socioeconomic potential but a parallel quantitative esti- sion of mitigation technologies? Does environmental
mate for market potential is yet to be developed. Data regulation confer to firms and nations a long-term tech-
and models that explicitly incorporate barriers to nological advantage? Market globalization offers
achieving the market potential would be helpful. opportunity to plant seeds of mitigation technologies
• What mix of barriers prevents the adoption of major that are less GHG intensive, but it could also bring
mitigation technologies? Are social capital and related about proliferation of polluting technologies. It is
investment policies more or less important, and how important to understand the ongoing processes and to
might these vary across cultures and physical environ- determine ways to assist the transfer of less GHG-
ments? What are the decision processes that foster tech- intensive technologies.
nology transfer? Can technology transfer be managed
Bouille, D., 1998: Implications of Electric Power Sector Restructuring on

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6
Policies, Measures, and Instruments

IGOR BASHMAKOV (RUSSIAN FEDERATION), CATRINUS JEPMA
(NETHERLANDS)
Lead Authors:
Peter Bohm (Sweden), Sujata Gupta (India), Erik Haites (Canada), Thomas Heller
(USA), Juan-Pablo Montero (Chile), Alberto Pasco-Font (Peru), Robert Stavins
(USA), John Turkson† (Ghana), Huaqing Xu (China),
Mitsutsune Yamaguchi (Japan)
Scott Barrett (UK), Andrew Dearing (UK), Bouwe Dijkstra (Netherlands), Ed Holt
(USA), Nathaniel Keohane (USA), Shinya Murase (Japan), Toshio Nakada (Japan),
William Pizer (USA), Farhana Yamin (Pakistan)
Review Editors:
Dilip Ahuja (India), Peter Wilcoxen (USA)
CONTENTS
Executive Summary 401 6.3.2.4 Experience with Activities
Implemented Jointly 428
6.1 Introduction 404 6.3.3 Direct International Transfers 429
6.3.3.1 Financial Resources 429
6.1.1 Introduction and Key Questions 404 6.3.3.2 Technology Transfer 429
6.1.2 Types of Policies, Measures, and Instruments 404 6.3.4 Other Policies and Instruments 430
6.1.3 Policy Developments since the Second 6.3.4.1 Regulatory Instruments 430
Assessment Report 405 6.3.4.2 International and Harmonized
6.1.4 Criteria for Policy Choice 406 (Domestic) Carbon Taxes 430
6.1.5 The Political Economy of National 6.3.4.3 Standardization of Measurement
Instrument Choice 407 Procedures 431
6.1.5.1 Key Lessons from the Political 6.3.4.4 International Voluntary Agreements
Economy Literature 407 with Industry 431
6.1.5.2 Implications for Global Climate 6.3.5 International Climate Change Agreements:
Change Policy 408 Participation, Compliance, and Liability 432
6.3.5.1 Participation 432
6.2 National Policies, Measures, and Instruments 409 6.3.5.2 Compliance 432
6.2.1 Non-Climate Policies with Impacts on 6.3.5.3 Liability 433
Greenhouse Gas Emissions 409 6.4 Interrelations Between International and
6.2.1.1 Structural Reform Policies 409
6.2.1.2 Price and Subsidy Policies 410 National Policies, Measures, and Instruments 434
6.2.1.3 Liberalization and Restructuring of 6.4.1 Relationship Between Domestic Policies and
Energy Markets 410 Kyoto Mechanisms 434
6.2.2 Climate and Other Environmental Policies 412 6.4.2 Conflicts with International Environmental
6.2.2.1 Regulatory Standards 412 Regulation and Trade Law 435
6.2.2.2 Emissions Taxes and Charges 413 6.4.3 International Co-ordination of Policy
6.2.2.3 Tradable Permits 415 Packages 438
6.2.2.4 Voluntary Agreements 417 6.4.4 Equity, Participation, and International Policy
6.2.2.5 Informational Instruments 419 Instruments 438
6.2.2.6 Subsidies and other Incentives 421
6.2.3 Mixes of National Policy Instruments 422 6.5 Key Considerations 440
6.5.1 Price versus Quantity Instruments 440
6.3 International Policies, Measures, and 6.5.2 Interactions of Policy Instruments with
Fiscal Systems 441
Instruments 424 6.5.3 The Effects of Alternative Policy Instruments
6.3.1 International Emissions Trading 425 on Technological Change 441
6.3.2 Project-based Mechanisms (Joint 6.5.3.1 Theoretical Analyses 442
Implementation and the Clean Development 6.5.3.2 Empirical Analyses 442
Mechanism) 426
6.3.2.1 Joint Implementation (Article 6) 426 6.6 Climate Policy Evaluation 443
6.3.2.2 The Clean Development Mechanism
(Article 12) 426 References 444
6.3.2.3 Baselines 427
Policies, Measures, and Instruments 401
EXECUTIVE SUMMARY
The purpose of this chapter is to examine the major types of The economics literature on the choice of policies adopted
policies and measures that can be used to mitigate net concen- emphasizes the importance of interest-group pressures, focus-
trations of greenhouse gases (GHGs) in the atmosphere.1 ing on the demand for regulation. However, it has tended to
Alternative policy instruments are described and assessed in neglect the “supply side” of the political equation, which is
terms of specific criteria, on the basis of the most recent litera- emphasized in the political science literature of the legislators
ture. Naturally, emphasis is on the instruments mentioned in and government and party officials who design and implement
the Kyoto Protocol (the Kyoto mechanisms), because they regulatory policy, and who ultimately decide which instru-
focus on achieving GHG emissions limits, and the extent of ments or mix of instruments will be used. The point of compli-
their envisaged international application is unprecedented. In ance of alternative policy instruments, whether they are
addition to economic dimensions, political, economic, legal, applied to fossil fuel users or manufacturers, for example, is
and institutional elements are considered insofar as they are likely to be politically crucial to the choice of policy instru-
relevant to the discussion of policies and measures. ment. And a key insight is that some forms of regulation actu-
ally benefit the regulated industry, for example, by limiting
Any individual country can choose from a large set of possible entry into the industry or by imposing higher costs on new
policies, measures, and instruments to limit domestic GHG entrants. A policy that imposes costs on industry as a whole
emissions. These can be categorized into market-based instru- might still be supported by firms who, as a consequence, would
ments (which include taxes on emissions, carbon, and/or energy, fare better than their competitors. Regulated firms, of course,
tradable permits, subsidies, and deposit–refund systems), regu- are not the only group with a stake in regulation: opposing
latory instruments (which include non-tradable permits, tech- interest groups will fight for their own interests.
nology and performance standards, product bans, and direct
government spending, including research and development To develop reasonable assessments of the feasibility of
investment) and voluntary agreements (VAs) of which some fall implementing GHG mitigation policies in countries in the
in the category of market-based instruments. Likewise, a group process of structural reform, it is important to understand this
of countries that wants to limit its collective GHG emissions new policy context. Recent measures taken to liberalize ener-
could agree to implement one, or a mix, of instruments. These gy markets were inspired mainly by desires to increase com-
are (in arbitrary order) tradable quotas, Joint Implementation petition in energy and power markets, but they can have sig-
(JI), the Clean Development Mechanism (CDM), harmonized nificant emissions implications also, through their impact on
taxes on emissions, carbon, and/or energy, an international tax the production and technology pattern of energy and/or
on emissions, carbon, and/or energy, non-tradable quotas, inter- power supply. In the long run, the consumption pattern
national technology and product standards, VAs, and direct change might be more important than the sole implementa-
international transfers of financial resources and technology. tion of climate change mitigation measures (e.g. see Chapter
2, the B1 scenario).
Possible criteria for the assessment of policy instruments
include environmental effectiveness, cost effectiveness, distri- Market-based instruments–principally domestic taxes and
bution considerations, administrative and political feasibility, domestic tradable permit systems–are attractive to govern-
government revenues, wider economic effects, wider environments in many cases because they are efficient; they are fre-
mental effects, and effects on changes in attitudes, awareness, quently introduced in concert with conventional regulatory
learning, innovation, technical progress, and dissemination of measures. When implementing a domestic emissions tax, poli-
technology. Each government may apply different weights to cymakers must consider the collection point, the tax base, the
various criteria when evaluating policy options for GHG miti- variation or uniformity among sectors, the association with
gation, depending on national and sector-level circumstances. trade, employment, revenue, and the exact form of the mecha-
Moreover, a government may apply different sets of weights to nism. Each of these can influence the appropriate design of a
the criteria when evaluating national (domestic) versus inter- domestic emissions tax, and political or other concerns are
national policy instruments. likely to play a role also. For example, a tax levied on the ener-
gy content of fuels could be much more costly than a carbon
tax for the equivalent emissions reduction, because an energy
1In keeping within the defined scope of Working Group III, policies tax raises the price of all forms of energy, regardless of their
and measures that can be used to reduce the costs of adaptation to cli- contribution to carbon dioxide emissions. Yet, many nations
mate change are not examined. may choose to use energy taxes for reasons other than cost-
402 Policies, Measures, and Instruments
effectiveness, and much of the analysis in this chapter applies commitments cost-effectively. IET essentially allows Annex I
to energy taxes as well as to carbon taxes. Parties to exchange part of their assigned amounts (AAs). IET
implies that countries with high marginal abatement costs
A country committed to a limit on its GHG emissions can also (MACs) may acquire emissions reductions from countries
meet this limit by implementing a tradable permit system that with low MACs. Similarly, JI allows Annex I Parties to
directly or indirectly limits emissions of domestic sources. exchange emissions reduction units among themselves on a
Like taxes, permit systems pose a number of design issues, project-by-project basis. Under the CDM, Annex I Parties
including type of permit, sources included, point of compli- receive Certified Emissions Reduction (CERs)–on a project-
ance, and use of banking. To cover all sources with a single by-project basis–for reductions accomplished in non-Annex I
domestic permit regime is unlikely. The certainty provided by countries.
a tradable permit system that a given emission level for partic-
ipating sources is achieved incurs the cost of uncertain permit Economic analyses indicate that the Kyoto mechanisms could
prices (and hence compliance costs). To address this concern, reduce significantly the overall cost of meeting the Kyoto
a hybrid policy that caps compliance costs could be adopted, emissions limitation commitments. However, to achieve the
but the level of emissions would no longer be guaranteed. potential cost savings requires the adoption of domestic poli-
cies that allow the use the mechanisms to meet their national
For a variety of reasons, in most countries the management of emissions limitation obligations. If domestic policies limit the
GHG emissions will not be addressed with a single policy instru- use of the Kyoto mechanisms, or international rules that gov-
ment, but with a portfolio of instruments. In addition to one or ern the mechanisms limit their use, the cost savings may be
more market-based policies, a portfolio might include standards reduced.
and other regulations, VAs, and information programmes:
• Energy-efficiency standards have reduced energy use in In the case of JI, host governments have incentives to ensure
a growing number of countries. Standards may also that emission reduction units are issued only for real emission
help develop the administrative infrastructure needed to reductions, assuming that they face strong penalties for non-
implement market-based policies. The main disadvan- compliance with national emissions limitation commitments.
tage of standards is that they can be inefficient, but effi- In the case of CDM, a process for independent certification of
ciency can be improved if the standard focuses on the emission reductions is crucial, because host governments do
desired results and leaves as much flexibility as possi- not have emissions limitation commitments and hence may
ble in the choice of how to achieve the results. have less incentive to ensure that certified emission reductions
• VAs may take a variety of forms. Proponents of VAs are issued for real emission reductions only. The main difficul-
point to low transaction costs and consensus elements, ty in implementing project-based mechanisms, both JI and
while sceptics emphasize the risk of free riding, and the CDM, is to determine the net additional emissions reductions
risk that the private sector will not pursue real emis- (or sink enhancement) achieved. Various other aspects of these
sions reduction in the absence of monitoring and Kyoto mechanisms await further decision making, including
enforcement. monitoring and verification procedures, financial additionality
• Imperfect information is widely recognized as a key (assurance that CDM projects do not displace traditional devel-
market failure that can have significant effects on opment-assistance flows) and other additionalities, and possi-
improved energy efficiency, and hence emissions.
Information instruments include environmental
labelling, energy audits, and industrial reporting 2 The ability of two or more Annex I Parties to form a “bubble” under
requirements, and information campaigns are market- Article 4 of the Kyoto Protocol is sometimes classified as one of the
ing elements in many energy efficiency programmes. flexibility mechanisms as well. This mechanism allows a one time
redistribution of the emissions limitation commitments among the par-
A growing literature demonstrates theoretically, and with ticipants. Since such a redistribution is strictly a political decision this
numerical simulation models, that the economics of addressing mechanism is not discussed here.
GHG reduction targets with domestic policy instruments
3 Annex I Parties to the UNFCCC (as amended by decision 4/CP.3)
depends strongly on the choice of those instruments. The inter-
action of abatement costs with the existing tax structure and, include all 39 Parties (38 countries plus the European Economic
more generally, with existing factor prices is important. Community) listed in Annex B of the Protocol that will have quanti-
Policies that generate revenues can be coupled with policy fied emissions limitation or reduction commitments for the 2008 to
2012 commitment period, plus Turkey and Belarus, which are Parties
measures that improve the efficiency of the tax structure.
to the Convention but not listed in Annex B of the Protocol. To be pre-
cise, one should refer to the commitments of Annex I Parties listed in
Turning to international policies and measures, the Kyoto Annex B of the Kyoto Protocol. To avoid confusion, the term Annex I
Protocol defines three international policy instruments, the so- countries is used throughout this chapter to refer to Annex I Parties
called Kyoto mechanisms: international emissions trading listed in Annex B of the Protocol; Turkey and Belarus are understood
(IET), JI, and CDM.2 Each of these international policy instru- to be included within this umbrella term, but not within the group of
ments provides opportunities for Annex I Parties3 to fulfil their countries that will have limitation commitments.
ble means of standardizing methodologies for project base- ment and the amount of international co-operation that will actu-
lines. ally be sustained. Many multilateral environmental agreements
address the need to co-ordinate restrictions on conduct taken in
The extent to which developing country (non-Annex I) Parties compliance with the obligations they impose and the expanding
effectively implement their commitments under the United legal regime under the World Trade Organization (WTO) and
Nations Framework Convention on Climate Change (UNFC- General Agreement on Tariff and Trade (GATT) umbrella.
CC; referred to as the Convention in this chapter) may depend Neither the UNFCCC nor the Kyoto Protocol provides for spe-
on the effective implementation by developed country Parties cific trade measures in response to non-compliance. But several
of their commitments under the Convention related to the domestic policies and measures that might be developed and
transfer of financial resources and technology. The transfer of implemented in conjunction with the Kyoto Protocol could con-
environmentally sound technologies from developed to devel- flict with WTO provisions. International differences in environ-
oping countries is now seen as a major element of global mental regulation may have trade implications also.
strategies to achieve sustainable development and climate sta-
bilization. One of the main concerns in environmental agreements (includ-
ing the UNFCCC and the Kyoto Protocol) is with reaching
Any international or domestic policy instrument can be effective wider participation. The literature on international environmen-
only if accompanied by adequate systems of monitoring and tal agreements predicts that participation will be incomplete, and
enforcement. There is a linkage between compliance enforce- so further incentives may be needed to increase participation.
6.1 Introduction Box 6.1. Definitions of Selected National Greenhouse Gas

Abatement Policy Instruments
6.1.1 Introduction and Key Questions
• An emissions tax is a levy imposed by a government on each
The main purpose of this chapter is to discuss the various poli- unit of emissions by a source subject to the tax. Since virtual-
cies and measures in relation to the different criteria that can be ly all of the carbon in fossil fuels ultimately is emitted as CO2,
used to assess them, on the basis of the most recent literature. a levy on the carbon content of fossil fuels–a carbon tax–is
There is obviously a relatively heavy focus on the Kyoto instru- equivalent to an emissions tax for emissions caused by fossil
ments, because they focus on climate policy, have been agreed fuel combustion. An energy tax–a levy on the energy content
since the IPCC Second Assessment Report (SAR; IPCC, 1996, of fuels–reduces the demand for energy and so reduces CO2
Section 11.5), and the extent of their envisaged international emissions through fossil fuel use.
application is unprecedented. Wherever feasible, political eco- • A tradable permit (cap-and-trade) system establishes a limit
nomic, legal, and institutional elements are discussed insofar as on aggregate emissions by specified sources, requires each
they are relevant to the implementation of policies and measures. source to hold permits equal to its actual emissions, and
To make both theoretical and practical points the chapter offers allows permits to be traded among sources. This is different
occasional examples of policy instrument application, but the from a credit system, in which credits are created when a
effort in this regard is limited by the existing literature, which is source reduces its emissions below a baseline equal to an esti-
weighted towards the experience of industrialized countries.4 mate of what they would have been in the absence of the
emissions reduction action. A source subject to an emissions-
The chapter does not systematically discuss policies and mea- limitation commitment can use credits to meet its obligation.
sures typically used to encourage sector-specific technologies; • A subsidy is a direct payment from the government to an enti-
such policies and measures are described in Chapters 3, 4, and ty, or a tax reduction to that entity, for implementing a prac-
5. The emphasis is on the general description and assessment tice the government wishes to encourage. GHG emissions can
of policies and measures. be reduced by lowering existing subsidies that in effect raise
emissions, such as subsidies to fossil fuel use, or by providing
subsidies for practices that reduce emissions or enhance sinks
6.1.2 Types of Policies, Measures, and Instruments (e.g., for insulation of buildings or planting trees).
• A deposit–refund system combines a deposit or fee (tax) on a
A country can choose from a large set of policies, measures, commodity with a refund or rebate (subsidy) for implementa-
and instruments to limit domestic greenhouse gas (GHG) emis- tion of a specified action.
sions or enhance sequestration by sinks. These include (in arbi- • A VA is an agreement between a government authority and
trary order): (1) taxes on emissions, carbon, and/or energy, (2) one or more private parties, as well as a unilateral commit-
tradable permits5, (3) subsidies6, (4) deposit–refund systems, ment that is recognized by the public authority, to achieve
(5) voluntary agreements (VAs), (6) non-tradable permits, (7) environmental objectives or to improve environmental per-
technology and performance standards, (8) product bans, and formance beyond compliance.
(9) direct government spending and investment. Definitions of • A non-tradable permit system establishes a limit on the GHG
these instruments are provided in Box 6.1. The first four are emissions of each regulated source. Each source must keep
often called market-based instruments, although some VAs its actual emissions below its own limit; trading among
also fall into this category. sources is not permitted.
• A technology or performance standard establishes minimum
A group of countries that want to limit their collective GHG requirements for products or processes to reduce GHG emis-
emissions could agree to implement one, or a mix, of instru- sions associated with the manufacture or use of the products
or processes.
• A product ban prohibits the use of a specified product in a
4 While an exhaustive review of in-country experiences with policy particular application, such as hydrofluorocarbons (HFCs) in
instruments is beyond the scope of this chapter, other recent works refrigeration systems, that gives rise to GHG emissions.
have focused on this issue (Panayotou, 1998; Huber et al., 1999; • Direct government spending and investment involves gov-
Speck, 1999; Stavins, 2000). ernment expenditures on research and development (R&D)
measures to lower GHG emissions or enhance GHG sinks.
5 What makes a tradable permit a market-based instrument is the pos-
sibility of trading the permit, not the initial allocation of the permits
(unless such allocation is through auction). The SAR adopted the con-
vention of using “permits” for domestic trading systems and “quotas”
ments. These are (in arbitrary order):
for international trading systems. This convention is followed • tradable quotas;
throughout the chapter. • Joint Implementation (JI);
• the Clean Development Mechanism (CDM);
6 Sometimes taxes are combined with subsidies, known as • harmonized taxes on emissions, carbon, and/or energy;
“fee/rebate”. • an international tax on emissions, carbon, and/or energy;
Box 6.2. Definitions of Selected International Greenhouse Gas Abatement Policy Instruments
• A tradable quota system establishes national emissions limits for each participating country and requires each country to hold quota
equal to its actual emissions. Governments, and possibly legal entities, of participating countries are allowed to trade quotas.
Emissions trading under Article 17 of the Kyoto Protocol is a tradable quota system based on the assigned amounts (AAs) calcu-
lated from the emissions reduction and limitation commitments listed in Annex B of the Protocol.
• JI allows the government of, or entities from, a country with a GHG emissions limit to contribute to the implementation of a pro-
ject to reduce emissions, or enhance sinks, in another country with a national commitment and to receive emission reduction units
(ERUs) equal to part, or all, of the emissions reduction achieved. The ERUs can be used by the investor country or another Annex
I party to help meet its national emissions limitation commitment. Article 6 of the Kyoto Protocol establishes JI among Parties with
emissions reduction and limitation commitments listed in Annex B of the Protocol.
• The CDM allows the government of, or entities from, a country with a GHG emissions limit to contribute to the implementation
of a project to reduce emissions, or possibly enhance sinks, in a country with no national commitment and to receive CERs equal
to part, or all, of the emissions reductions achieved. Article 12 of the Kyoto Protocol establishes the CDM to contribute to sus-
tainable development of the host country and to help Annex I Parties meet their emissions reduction and limitation commitments.
• A harmonized tax on emissions, carbon, and/or energy commits participating countries to impose a tax at a common rate on the
same sources.7 Each country can retain the tax revenue it collects.
• An international tax on emissions, carbon, and/or energy is a tax imposed on specified sources in participating countries by an inter-
national agency. The revenue is distributed or used as specified by participant countries or the international agency.
• Non-tradable quotas impose a limit on the national GHG emissions of each participating country to be attained exclusively through
domestic actions.
• International product and/or technology standards establish minimum requirements for the affected products and/or technologies
in countries in which they are adopted. The standards reduce GHG emissions associated with the manufacture or use of the prod-
ucts and/or application of the technology.
• An international VA is an agreement between two or more governments and one or more entities to limit GHG emissions or to
implement measures that will have this effect.
• Direct international transfers of financial resources and technology involve transfers of financial resources from a national gov-
ernment to the government or legal entity in another country, directly or via an international agency, with the objective of stimu-
lating GHG emissions reduction or sink enhancement actions in the recipient country.
• non-tradable quotas; commitments that cover the emissions of six GHGs from a
• international technology and product standards; wide range of sources for the period 2008 to 2012 for 38 coun-
• international VAs; and tries and the European Economic Community (EEC; Annex I
• direct international transfers of financial resources and Parties). These commitments represent a 5.2% reduction from
technology. the 1990 emissions of the Annex I Parties, and a 10% to 20%
reduction from their projected emissions during the 2008 to
Box 6.2 defines some of the instruments most prominently dis- 2012 period.
cussed in the literature. The first five are often called market-
based instruments, although VAs can fall into this category Annex I Parties can meet their commitments through measures
also. to reduce domestic emissions, specified actions to enhance
domestic sinks, and co-operative action with other Parties
under Articles 4, 6, 12, or 17. Article 4 allows a group of Annex
6.1.3 Policy Developments since the Second Assessment I Parties to agree to reallocate their collective emissions reduc-
Report tion commitment and to fulfil this commitment jointly. Such an
arrangement is commonly referred to as a “bubble”. The mem-
In December 1997, Parties to the United Nations Framework bers of the EEC are the only countries, to-date, to indicate that
Convention on Climate Change8 negotiated the Kyoto Protocol they are likely to establish one “bubble” to meet their commit-
(UNFCCC, 1997). The Protocol established, for the first time, ments.
legally binding quantified emissions limitation and reduction
Article 6 defines JI for Annex I Parties, Article 12 establishes
7 A harmonized the CDM for projects in non-Annex I countries, and Article 17
tax does not necessarily require countries to impose a
tax at the same rate, but to impose different rates across countries allows emissions trading, a form of tradable quota, among
would not be cost-effective. Annex B Parties (see Box 6.2). The principles, modalities,
rules, and guidelines for these three Kyoto Protocol mecha-
8 That is, those countries that ratified the Convention, 186 countries as nisms remain to be finalized. The Fourth Session of
of September 2000. Conference of the Parties (CoP4) in Buenos Aires in November
1998 adopted a Plan of Action that includes development of this section is on the possible criteria for policy instrument
these principles, modalities, rules, and guidelines for adoption choice and evaluation.
at CoP6 at The Hague in November 2000.9
Evaluation criteria are required both for the ex-ante choice of
Annex I Parties have been implementing domestic policies to instruments and for the ex-post assessment of implementation
address their commitment under Article 4.2 of the Convention and performance. Each government may apply different
and evaluating possible policies to meet their more stringent weights to the criteria when it evaluates GHG mitigation poli-
commitments under the Protocol, taking into account the cy options.11 Moreover, a government may apply different
options afforded by the Kyoto mechanisms. Annex I Parties’ weights to the criteria when it evaluates national and interna-
national climate programmes are described in their National tional policy instruments, and the appropriateness of the crite-
Communications, which are compiled by the UNFCCC ria may vary depending on the degree of uncertainty about the
Secretariat and subjected to external expert review under the pollution abatement cost and pollution damage functions. This
Convention (UNFCCC, 1999, addenda 1-2). general remark should be kept in mind when the various
domestic and international policies, instruments, and measures
Structural adjustment and energy sector reforms have been discussed in this chapter are evaluated against the background
pursued in many countries. Although these are not GHG poli- of these criteria.
cies, they often have significant implications for GHG emis-
sions, increasing or reducing emissions depending upon the The criteria identified in SAR for the evaluation of policy
circumstances (see Section 6.2). options (Fischer et al., 1998) are:
• Environmental effectiveness. How well does the policy
achieve the environmental goal, such as a GHG emis-
6.1.4 Criteria for Policy Choice sions reduction target? How reliable is the instrument
in achieving that target, does the instrument’s effective-
Governments implement policies and measures to achieve par- ness erode over time, and does the instrument create
ticular objectives that they believe will not be achieved in the continual incentives to improve products or processes
absence of government intervention, possibly because exter- in ways that reduce emissions?
nalities or public goods are involved. Policies and measures • Cost-effectiveness. Whether the policy achieves the
can be generic, such as a general carbon tax or emissions trad- environmental goal at the lowest cost, taking transac-
ing, or sector-specific, such as a regulation applied to the con- tion, information, and enforcement costs into account.
struction sector, or a subsidy for green farming practices. The • Distributional considerations. How the costs of achiev-
objective of this chapter is to assess different types of policies ing the environmental goal are distributed across
and measures, not to provide a complete list of these, so sector- groups within society, including future generations.
specific policies and measures are discussed only in general • Administrative and political feasibility. This includes
terms. considerations such as flexibility in the face of new
Chapter 5 draws a distinction among five types of policy tar-

10 However, some concepts of “barriers” seem to imply combinations
gets, each of which refers to a different interpretation (defini-
tion) of the concept of “barriers” to technological change: mar- of instruments and levels or degrees of implementation. For example,
ket potential, economic potential, socioeconomic potential, if the problem is viewed as one of externalities, it is natural to use a
tax on the relevant externality, with the tax set equal to the marginal
technological potential, and physical potential. Policies and
social damages at the efficient level of control. On the other hand,
measures can differ in the type of potential they aim to reach, although categories of “potential” refer to targets (ends), categories of
but it is difficult to link specific policy instruments and specif- policy instruments refer to the means of achieving those ends.
ic potentials, because the potential achieved through virtually
any policy instrument depends upon the “degree” to which that 11 The choice of weights is strongly influenced by many national and
instrument is employed. For example, an emissions tax can be sector-level circumstances. These include government jurisdictional
set at various levels; depending upon the level at which the structure (e.g., sharing of government powers at various levels); geo-
emissions tax is set, it could have the effect (if perfectly imple- graphical and climate profile (e.g., area size, regional weather pat-
mented) of achieving any of the types of “potential” defined in terns, heating degree days and temperature distribution, annual tem-
Chapter 5.10 For this, among other reasons, the prime focus in perature variations, climate variability, latitude); economic setting
(e.g., gross domestic product (GDP), GDP/capita, and GDP by sec-
tor); international trade patterns, such as percentage of energy-inten-
sive exports; energy and natural resource base; demographics (e.g.,
9 The Plan of Action also includes work on the development and trans- population total and distribution, growth rate); land use and/or spatial
fer of technologies, the financial mechanism, implementation of patterns (e.g., distances driven/capita); industry and agriculture struc-
Articles 4.8 and 4.9 of UNFCCC, and preparations for the first session ture; building stock, and urban structure (e.g., home sizes); and envi-
of the CoP serving as the meeting of the Parties to the Kyoto Protocol. ronmental and/or health patterns (e.g., potential for highly variable
This involves, inter alia, decisions on rules that govern sink enhance- climate change mitigation impacts across different national regions
ment activities under Articles 3.3 and 3.4 of the Kyoto Protocol. and urban areas).
knowledge, understandability to the general public, tal organizations, and (to a lesser extent) labour and consumer
impacts on the competitiveness of different industries, organizations. The supply side consists of the legislators and
and other government objectives (such as meeting fis- the administration involved in the design and implementation
cal targets and reducing emissions of pollutants). of the environmental policies and measures.
The literature (e.g., OECD, 1997d) identifies some additional One key insight of this literature is that some forms of regula-
criteria, such as: tion can actually benefit the regulated industry, for example, by
• Revenues raised in the case of market mechanisms, for limiting entry into the industry or imposing higher costs on
instance, may constitute a second source of benefits new entrants (Rasmusen and Zupan, 1991; Stigler, 1971). In
from their use, over and above their direct environmen- the environmental arena, conventional regulation may provide
tal impact, depending on if and how the revenues are firms with rents that result from reductions in output and raised
recycled. prices as a consequence of regulation (Buchanan and Tullock,
• Wider economic effects include potential effects on 1975; Maloney and McCormick, 1982). Stricter standards for
variables such as inflation, competitiveness, employ- new pollution sources benefit existing firms by raising barriers
ment, trade, and growth. to entry (Nelson et al., 1993). Polluters’ self-interest may also
• Wider environmental effects, such as local air-quality help explain the prevalence of tradable permits that have been
improvement (usually referred to as the ancillary bene- allocated free (“grandfathered”) when market-based instru-
fits). ments have been used. Permits allocated free to existing firms
• “Soft” effects, which relate to the impact of environ- represent a transfer of rents from government to industry while
mental policy instruments on changes in attitudes and auctioned permits and emissions taxes generally impose a
awareness. heavier burden on polluters. Finally, VAs may be the preferred
• Dynamic effects, which relate to the impact on learn- policy approach from industry’s perspective, because these
ing, innovation, technical progress, and dissemination leave more of the initiative with the private sector (at least so
and transfer of technology. it is perceived), which may enhance industry’s chances of cap-
turing rents.
The above lists of criteria guide the discussion of national and
international policies and measures related to GHG abatement. Of course, it is important to recognize that industry may not act
However, the economics literature–particular theory develop- monolithically, since policies may have differential distribu-
ment–focuses more on the cost-effectiveness criterion than on tional impacts within a sector. A policy that imposes costs on
the other criteria mentioned, and there is a similar emphasis in industry as a whole might still be supported by firms that
this chapter, which is a review of the best available scientific would fare better than their competitors. For example, firms
literature. Wherever possible, literature on the potential equity that can achieve emissions reductions more cheaply may be
impact of policies and measures is referred to. In addition, spe- more supportive of market-based schemes, such as tradable
cific attention is paid to the political economy literature that permits, than their higher-cost competitors (Kerr and Maré,
describes policy choice (Section 6.1.5), the interactions of pol- 1997). In the realm of global environmental policy, the ban on
icy instruments with fiscal systems (Section 6.5.2), and the ozone-depleting chlorofluorocarbons (CFCs) under the
impacts on technological change (Section 6.5.3). Montreal Protocol was, for instance, supported by those who
expected to dominate the market for HFCs, then the leading
substitute chemicals (Oye and Maxwell, 1995).
6.1.5 The Political Economy of National Instrument
Choice Regulated firms are not the only group with a stake in regula-
tion; opposing interest groups will defend their own interests.
Some of the key lessons from the scholarly literature on polit- Environmental groups, for example, tend to favour stringent
ical economy can be applied to instrument choice in climate targets, although many have opposed market-based instruments
policy at the national level. Since much of that scholarship out of a philosophical concern that such policies give firms
focuses on policymaking in a limited set of developed nations, “licenses to pollute” or because of objections to attempts to
in particular in the USA, great care must be taken before apply- quantify or monetize the environmental damages from pollu-
ing any of these lessons to domestic politics generally. tion (Kelman, 1981; Hahn, 1989; Sandel, 1997). Some groups
draw an ethical distinction between taxes and tradable permit
6.1.5.1 Key Lessons from the Political Economy Literature systems, in which taxes are morally deficient because they put
a price on emissions but set no upper limit on allowable pollu-
A useful starting-point is to view the policy process (at least in tion, while permits ensure a set level of emissions (Goodin,
countries with strong legislatures) as analogous to a “political 1994). Other environmental groups support market-based poli-
market” (Keohane et al., 1999). The demand side of such a cies in the hope that the resultant cost savings will make a high-
“market” consists of the interest groups with a stake in the pol- er level of environmental quality politically attainable, and pos-
icy; in the environmental arena, such groups include regulated sibly in part because of their own self-interest in distinguishing
industries, producers of complementary products, environmen- themselves from other environmental organizations (Svendsen,
1999). The US Clean Air Act defines permits as “limited autho- interest groups involved in climate change policy. Five groups
rizations to emit”, to avoid limiting the ability to set lower seem particularly important: environmental organizations
emissions limits, which may also be a response to concerns of (especially in the USA and Europe), producers of carbon-based
the environmental lobby that air should not become private fuels (e.g., coal and oil producers), large users of fuel (e.g.,
property (Tietenberg, 1998). This indicates that the design of electric utilities), manufacturers of energy-using products (e.g.,
market-based instruments may be flexible enough to accommo- automobile manufacturers), and manufacturers of energy-effi-
date ethical concerns without undermining effectiveness. cient and GHG-abatement technologies (e.g., manufacturers of
efficient lighting). Environmental organizations in the USA
While the political economy literature emphasizes the impor- and Europe seem to be divided–some groups have embraced
tance of preferences of interest groups, it has tended to neglect market-based policies such as emissions permits and carbon
the “supply side” of the political equation: the legislators and taxes, while others object to such policies being applied with-
government officials who ultimately design and implement out restrictions. Some also object to the option of so-called
regulatory policy. Government actors may have their own exchanges of “hot air” (national quota surpluses not created by
interests and preferences with respect to policy instruments: active policies).
• ideology or past experience may favour one instrument
over another (Kneese and Schulze, 1975; Hahn and The range of industry sectors with large stakes in global cli-
Stavins, 1991); mate policy suggests an important point: the various regulato-
• legislators may prefer policies with (large but) hidden ry instruments that might be employed in climate change poli-
costs to those with (small but) visible ones (McCubbins cy would each act at different levels of regulation, creating dif-
and Sullivan, 1984; Hahn, 1987); and ferent points of compliance with very different implications for
• legislators responsible to local districts may emphasize interest groups. Examples are:
distributional concerns over efficiency (Shepsle and • a system of tradable carbon permits (or a carbon tax, for
Weingast, 1984). that matter) imposed at the mine mouth, wellhead, or
point-of-entry directly affects fuel producers (although
Finally, the environmental administration may prefer direct the true economic incidence of the policy would be
regulation over market-based instruments, not only insofar as shared by downstream firms and consumers according
they are more familiar with it, but also because it gives them to relative elasticities);
more control, and usually requires a relatively large adminis- • a CO2 tax, tradable emissions permit system, or emis-
trative capacity. sions standard directly affects power plants; and
• energy-efficiency or fuel-efficiency standards directly
These political factors, however, vary widely among coun- affect manufacturers.
tries. Whether or not a legislature exists, and if so whether in
a parliamentary or presidential system, affects the support for Industry groups–in particular, large producers and users of
particular policy instruments. Whether legislators are elected fuel–are also likely to focus their efforts on the allocation of
by district or by party list may affect the political support for carbon-reduction responsibilities, whatever the instrument. If a
different policy instruments as well. Factors such as the extent system of emissions standards is put into place, for example,
of interest-group organization and how groups interact with existing firms will benefit if tighter standards are imposed on
government are also critical–interest groups lobby legislators new sources, as has happened in a number of countries. Under
in some countries, sit on quasi-governmental decision-making an emissions tax, firms are likely to seek tax credits, differen-
bodies in others, are relegated to raising public awareness tial tax rates, or exemptions to relieve their tax burden. In a sys-
elsewhere, and in some countries are non-existent. Less tangi- tem of tradable permits, firms are likely to support the free
ble cultural and historical factors can also be critical in influ- allocation of permits to participants, rather than to sell them at
encing the choice of instrument. For example, a country’s auction or distribute them to the public (for subsequent sale to
experience with free markets generally may influence whether firms). For project-based mechanisms–CDM and JI–they
or not it chooses to use market-based policy instruments for would favour leaving much of the initiative with the private
environmental protection (Keohane, 1998). Finally, there are sector (Jepma and Van der Gaast, 1999). Industries that stand
clear political economy limitations of individually applied to profit from GHG abatement, including renewable energy
price, non-price, and regulatory policies that often lead to the sources, are likely supporters of climate policies (Michaelowa
linked or combined policy strategy that is observed in prac- and Dutschke, 1999a, 1999b).
tice.
From a political standpoint, the success of such efforts at the
6.1.5.2 Implications for Global Climate Change Policy distribution of the burdens (or rents) is likely to depend on the
political saliency of climate change policy. Taxpayers and
Since the political factors on the “supply side” are so hetero- organized “public-interest groups” are likely to oppose alloca-
geneous across nations, the focus here is on the demand for tion schemes that benefit firms and/or benefit existing firms at
regulations, building on the literature reviewed above to draw the cost of the newcomers, thus reducing the scope for compe-
conclusions about the likely preferences and positions of key tition. If such groups wield clout, and if public interest in cli-
mate policy is high, then mechanisms that appear to benefit 6.2.1 Non-Climate Policies with Impacts on Greenhouse
polluters at the expense of the public are less likely to be imple- Gas Emissions
mented.
6.2.1.1 Structural Reform Policies
In contrast, some environmental organizations have not
opposed the allocation of rents to industry, recognizing that During the 1990s, several countries, especially EITs and devel-
free allocation of permits may be the most likely path to imple- oping countries, implemented drastic market-oriented reforms
menting emissions reduction in some countries. Such conces- that have had important effects on energy use and energy effi-
sions on allocation of rents to the industry have allowed these ciency, and therefore on GHG emissions.12 Most countries
groups to secure other goals in return, such as continuous emis- have undergone what has been called the first generation of
sions monitoring–the US Acid Rain Program is a good exam- structural reforms: trade liberalization, financial deregulation,
ple (Kete, 1992; Svendsen, 1999). In summary, allocation tax reform, privatization of state-owned enterprises, and open-
schemes favourable to industry appear likely in practice, ing the capital account as part of a strategy to attract foreign
because the question of distribution is central to industry, investment. Some countries have also implemented macroeco-
including industries that will profit from climate policy, but it nomic stabilization packages that include fiscal discipline,
is only of secondary importance to environmental groups that independence of monetary policy from the public sector, and
do not support free allocation and to other groups that seek to exchange rate unification.
reduce GHG emissions. In the US Acid Rain Program, for
example, sulphur dioxide (SO2) emissions allowances worth The two largest countries in terms of population and coal
about US$5 billion per year were allocated free to electric util- reserves, China and India, have also started to reform their eco-
ities, in part because of interest group politics (Joskow and nomic systems towards a more free-market orientation,
Schmalensee, 1988). although at a slower pace than many other countries. Since
1978, energy use in China has increased, on average, 4%/yr.
Although the “supply side” is heterogeneous across nations, it However, the energy–output ratio in China fell 55% between
is likely that some governments will favour policies that raise 1978 and 1995.13 Garbaccio et al. (1999), using input–output
revenue while others will be more concerned with the distrib- tables, found that most of this reduction arose from technical
ution of costs across sources, regardless of the revenue impli- change, a result supported by other studies (Polenske and Lin,
cations. 1993; Sinton and Levine, 1994). An increase in energy-inten-
sive imports has also led to decreased energy use per unit of
GDP. Others have attributed the reduction to sectoral shifts in
6.2 National Policies, Measures, and Instruments the composition of output (Smil, 1990; Kambara, 1992). As
reform-induced changes aimed at increasing GDP may
Before policies and measures that aim to reduce, or remove increase the use of energy, the net effect on GHG emissions of
barriers that hamper, GHG emissions or enhance sequestration structural reform in China is an empirical problem that depends
by sinks are analyzed, it is necessary to understand the sub- on the choice of development strategies, technologies, and
stantial impact that other policies (such as the structural complementary policies.
reforms of trade liberalization and liberalization of energy mar-
kets) have had on GHG emissions in several developing coun- Future economic growth in all countries may be accompanied
tries, economies in transition (EITs), and some developed by increases in GHG emissions. Even if economic growth
countries. These policies, sometimes coupled with macroeco- increases energy efficiency (both in terms of production and
nomic, market-oriented reforms, set the framework in which consumption), the scale effect may dominate and GHG emis-
more specific climate policies would be implemented. sions may rise, depending on the extent to which other policies
Therefore, to assess correctly the feasibility of any particular and measures are implemented to curb emissions (Fisher-
policy, it is important to understand this new policy context. Vanden, 1999).
The effect of these reforms on energy use and GHG emissions
is not clear a priori. Impacts can differ widely among coun-
tries, depending on implementation strategies and the existence
of other regulatory policies designed to prevent the undesired
effects of free market operation in the presence of externalities,
information, and co-ordination problems. 12 For a description of the main reforms implemented in Latin
America see Lora (1997) and for EITs see Chandler (2000).
13 Energy-output ratios discussed here require a caveat about China’s

GDP statistics. China’s energy consumption in 1997 and 1998
decreased 0.6% and 1.6%, respectively, and its energy intensity dras-
tically declined 80% from 1985 to 1998. Many analysts consider sta-
tistics on Chinese GDP to be speculative (IEA, 1998b).
6.2.1.2 Price and Subsidy Policies The transport sector–to give an important example–is another
sector that receives subsidies detrimental to the environment.
Price signals can only influence demand and supply if they Transport is indirectly subsidized through infrastructure
actually reach economic agents and if those economic agents financing and through tax benefits, which enhance the trans-
have the opportunity to respond to them. In Russia, energy port volume. According to Shelby et al. (1997), energy subsi-
intensity increased by 30% between 1990 and 1998, while ener- dies were higher than those to transportation for the OECD
gy prices also increased tremendously (IEA, 1997b, p. 50).14 area. They also found for the USA that larger CO2 savings
Experience shows that it takes time for economic agents to could be achieved through reform of indirect rather than direct
adjust their behaviour to new price signals, not only because of transport subsidies, such as free parking and supporting the
capital stock turnover, but also because consumers often do not highway infrastructure. Reform policies to internalize external
have an accurate knowledge of their energy consumption, or the the effects will, according to one study, probably lower sector-
technical capacity to reduce it. Various types of energy market wide emissions by 10–15% (OECD, 1997c).16 These findings
reforms and the pace of energy price reforms are designed to are in line with the results from other work on internalizing the
create and clear channels for market signals to work. external cost of transportation (ECMT, 1998). The same stud-
ies also indicate that local communities can better carry out
It is a difficult policy challenge, and therefore a time-consum- policy reform in the transport sector, because transport subsi-
ing process, to bring prices into line with real costs. This is true dies may originate at the local level and local communities are
both in developing countries, where the poor pay a high cost more likely to value other ancillary benefits through policy
for low-quality energy services (or a low cost that is heavily reform (OECD, 1997c; ECMT, 1998). The transport sector is
subsidized) and in developed countries. Although data on ener- only mentioned as an example, because it is responsible for a
gy subsidies are incomplete, partly because such support is dif- large share of the national emissions in many countries.17
ficult to identify and measure, some evidence indicates that
subsidies on coal production, including transfers from both 6.2.1.3 Liberalization and Restructuring of Energy Markets
consumers and taxpayers, are declining in a number of OECD
and developing countries. Recent data suggest that the total Liberalization of energy markets gives the suppliers greater
producer subsidy estimates for the coal production of freedom in the extraction, processing, generation, transporta-
Germany, UK, Spain, Belgium, and Japan, which amounted to tion, and distribution or supply of energy products and the con-
over US$13 billion at the beginning of the 1990s, had declined sumers greater freedom to choose from different providers
to less than US$7 billion by 1996 (OECD, 1998a, 1998b). In (WEC, 1998). In the electricity subsector, the separation of
addition, case studies in the energy supply sector identified the transmission from generation followed the realization that only
following areas for potential subsidy reforms: removal of coal- transmission is a natural monopoly (Hunt and Shuttleworth,
producer grants and price supports; reforming subsidies to 1996). Recently, various measures have been taken to liberal-
investment in the energy supply industry; and regulatory ize energy markets. The EU, for instance, adopted rules to lib-
reform to eliminate non-tariff barriers to the energy trade eralize its electricity market (IEA, 1997a), which became oper-
(OECD, 1997a, 1997b). ational early in 1999 (although some EU countries, such as the
UK, had started earlier). It is expected that this will be fol-
An IEA (1999b) analysis of fossil energy subsidies in China, lowed soon by rules regarding a liberalization of the natural
Russia, India, Indonesia, Iran, South Africa, Venezuela, and
Kazakhstan–which accounted for 27.5% of the world’s total
energy demand in 1997–claimed that removing such subsidies 15The percentage reduction in energy consumption was calculated by
would lower CO2 emissions by 16% in these countries, adding the gross calorific value of the reductions of the different fuels
amounting to a 4.6% reduction in global emissions.15 under consideration and expressing the sum as a percentage of total
primary energy supply (TPES). As the calculations in this study did
not take into account the refinery sector (a 5% reduction in gasoline
14 The major reasons for such growth were: a shift from an energy- use can amount to a reduction in TPES of more than 5%), the number
intensive industrial structure to an even more energy-intensive indus- thus derived constitutes a lower bound to the true reductions in ener-
trial structure through maintaining the competitive advantages of gy consumption. Some country experts strongly criticized the
energy and raw materials production in parallel with a sharp reduction methodology and quantitative results of the study (Bashmakov,
of production in less energy-intensive industries; reduced share of 2000).
production-related energy consumption at the expense of heating,
16 In this regard the time element could be crucial. In fact, during the
ventilation, and air conditioning (HVAC) related energy consumption;
reduced GDP, industrial production, and industrial energy consump- time in which prices adjust, transport volumes may grow, but growth
tion with the background of a relatively stable energy consumption in may be retarded. Additional research is needed to establish these find-
the residential sector; lack of control and metering devices; non-pay- ings.
ment problem, which appeared partly as a reaction to the sky-rocket-
17 Other sectors, including electricity generation, mining, cement,
ing growth of energy prices; weak capital markets and high interest
rates to attract capital for energy-efficiency improvement projects (see agriculture, and forestry, can also involve significant GHG emissions
Bashmakov, 1998). but benefit from subsidies that increase emissions.
gas market.18 In the USA, as a result of changes in policies at are largely based on non-fossil fuels, like Brazil, Norway,
both federal and state levels, the generation and sales of elec- Sweden, and Switzerland, competition without environmental
tricity are being opened to competition. Liberalization of the regulation may well lead to increased CO2 emissions, as gas-
energy markets in developing countries and EITs has, in many fired power stations often will be the most economically attrac-
cases, been part of the macroeconomic restructuring in these tive option for the development of new capacity.21
countries. Both in Africa and Latin America, one of the main
driving forces behind the reform of the power sector is to In Japan, after liberalization of the power-generation market
attract private capital to expand and improve the sector. several independent power producers entered it. However,
around 85% of their fuels were coal and residual oil that,
Although these policies are mainly inspired by the wish to though inexpensive, emit more CO2 per unit of power generat-
increase competition in the energy and power markets, they ed. With the liberalization of the retail market, adopted in 2000
can have, through their impact on the choice of production for large power users, it is possible that the construction of an
technology, significant emissions implications. Energy restruc- atomic power or liquefied natural gas (LNG) plant, both of
turing may include regulation of the transmission monopoly, which require a longer lead time and a huge investment, will
environmental cost internalization, and system-benefit charges become difficult. This may lead to adverse effects in terms of
(SBCs; see Boxes 6.6 and 6.7). Several studies have examined CO2 emissions (Sagawa, 1998).
the effects on GHG emissions of the restructuring of the elec-
tricity industry, but the issue is far from resolved. Indications Several studies in the USA have tried to quantify the potential
are that the impacts can be either positive or negative (IEA, impacts of restructuring the electricity industry on GHG emis-
1998b). The degrees of the environmental effects of liberaliza- sions (see Lee and Darani, 1995; Rosen et al., 1995; US FERC,
tion of the electric utility industry are case specific and depend 1996; Palmer and Burtraw, 1997). The FERC study suggests
on pre-existing circumstances (e.g., fuel mix, vintage of plant, that there would be no significant increase in total CO2 and
taxation schemes, and other factors). They also depend on such nitrogen oxides (NOx) emissions. The other studies, however,
factors as national endowment of resources, the fuel mix, the suggest that the impact of a more open transmission grid on
vintage structure of generation capacity, scope for restructur- CO2 and NOx emissions could be substantial. A more recent
ing, and the size and speed of policy reform (OECD, 1999). In study by the US Department of Energy’s (DOE) Office of
short, energy-sector structural reform cannot, in itself, guaran- Policy found that the restructuring envisioned under the
tee a shift towards less carbon-intensive power generation.19 Comprehensive Electricity Competition Act (CECA) will lead
On the whole, however, it may provide for a more economi- to 145–220 megatonnes (Mt) less CO2 emissions in 2010 than
cally driven behaviour that would be more responsive to price would have occurred in the absence of an explicit policy to
signals placed on GHG emissions. reduce CO2 emissions from the electricity sector (US DOE,
1999).22
Finally, the impacts of energy-sector structural reforms can be
enhanced if appropriate additional policy measures are taken,20 There is a growth in literature that focuses on the impacts of
such as demand-side management (DSM). An example of the liberalization and restructuring of energy markets on the key
latter is the British Energy Savings Trust, which was set up 3 technologies of interest in the context of GHG reduction, such
years after restructuring the UK energy markets, in 1992, to as energy efficiency, co-generation, and renewables.23
finance DSM programmes run by regional electric companies.
According to an IEA study (IEA, 1999a), in the UK energy sec- 21In this regard, in Sweden the increase in carbon intensity was more
tor the structural reforms in the electricity, coal, and gas supply the result of the political choice to phase out some nuclear power
sectors reduced the share of electricity generated from coal plants than of a link to the creation of an exchange. More generally, it
from 65% in 1990 to 35% in 1997. This resulted from closure may well be that the long-term impact of the international power
of older coal-fired plants and the construction of combined exchange between Norway and Sweden will be that gas-fired power
cycle gas turbines. In countries where the electricity systems plants are added to the Nordic electricity system, causing coal-fired
generation to decline. For some general information on the relation-
ship between market deregulation and national mitigation commit-
18An EU Directive on Natural Gas was adopted by the European ments, see also Baron and Hou (1998).
Council of Ministers in May 1998 after publication in mid-1998;
member states will have 2 years to implement the Directive. 22 The DOE study incorporated policy proposals such as increasing
the renewable-energy portfolio standards (RPSs) and removing barri-

19While it led to reduced emissions in some countries, such as the UK ers to the use of combined heat and power technologies where they are
(Fowlie, 1999), it had the opposite effect in others, such as Australia. economical. In response to calls from environmentalists to reduce the
potential impacts of restructuring the electricity industry, some coun-
20 Another example is how liberalization of energy markets can reduce tries initiated specific policies aimed at increasing the role of renew-
mitigation costs, especially when permit trading is not allowed, inso- able energy in the electricity generation mix (Mitchell, 1995b, 1997;
far as, for instance, electricity trade makes it easier to fulfil mitigation Wolsink, 1996; Wiser, 1997, 1999; Wiser and Pickle, 1997; Novem,
commitments (see also Hauch, 1999). 1998; Haddad and Jefferis, 1999; Wiser et al., 1999).
6.2.2 Climate and Other Environmental Policies out specifying how it should be achieved, performance stan-
dards generally reduce losses through inflexibility when com-
Section 6.2.1 sets the general policy context in which any envi- pared to technology standards.
ronmental policy will operate. This section focuses on specific
policies to address climate change. The various policy instru- On the whole, energy efficiency standards have proved to be an
ments are assessed generically. In other words, there is not a effective energy conservation policy tool. Energy efficiency
sector-specific focus, because it is beyond the scope of this standards are widely used in over 50 nations and the number of
chapter. This may create some bias insofar as most sector-spe- standards is still growing.26,27,28 For appliance standards enact-
cific policies are technology oriented and of the command-and- ed in the USA, cumulative energy savings in 1990 to 2010 are
control type. estimated at 24 etajoules (EJ), consumer life-cycle costs sav-
ings at US$46 billion, and emission reductions at about
6.2.2.1 Regulatory Standards 400MtCO2. For an early estimate, see McMahon (1992). The
introduction of refrigerator and freezer standards in the EU is
Regulatory environmental standards set either technology stan- estimated to generate 300 TeraWatt hours (TWh) of cumulative
dards or performance standards, enforceable through fines and electricity savings during 1995 to 2010 (Lebo and Szabo,
other penalties24 (voluntary standards are discussed in Section 1996). Similar measures in Central and Eastern Europe are
6.2.2.4). They may attach to a product, a line of products (e.g., expected to save 60 TWh energy and to reduce emissions by 25
US Corporate Average Fuel Economy (CAFE) standards), or MtCO2 (Bashmakov and Sorokina, 1996). In Japan, the law
the provision of a service (e.g., Japan requires that firms concerning the rational use of energy was strengthened on 1
employ an energy manager).25 In this chapter regulatory stan- April 1999 and is expected to reduce, in combination with the
dards are distinguished from economic or market-based instru- industries’ voluntary actions plan, a maximum of 140 MtCO2
ments (taxes and fees, permits, subsidies). Although all regula- in industry, transportation, and other sectors in total
tory standards have consequences upon economic decision (Yamaguchi, 2000). Energy efficiency standards are especially
making, they differ from market-based instruments, which effective in countries with high and growing appliance owner-
operate by directly changing relative prices rather than by ship and in countries in which consumers’ energy awareness is
specifying technology or performance outcomes. low because of historically low energy prices.
Regulatory standards can be effective policies to address mar- The development of an effective regulatory standard requires
ket failures and barriers associated with information, organiza- national and, potentially, international, leadership to balance
tion, and other transactions costs. They also are widely used to the interests of manufacturers, consumers, environmental non-
require actors to account for environmental externalities and, if government organizations (NGOs), and other interest groups,
continually modified to account for technical progress, they while creating sufficient societal support and incentives for
can provide dynamic innovation incentives (see Section 6.5.3). successful implementation. While decisions to introduce regu-
The principal sources of inefficiency associated with some reg- latory standards are commonly made by legislatures, the devel-
ulatory standards derive from too narrow specifications of uni- opment and implementation of standards over time is often left
form behaviour in heterogeneous situations, weakness in con- to a less transparent public administration. Although the
trolling aggregate levels of pollution, and relatively more diffi- enforcement and monitoring of all policy instruments is costly
cult application to products other than component or turnkey
technologies. By requiring a certain level of performance with-
26 In the USA in 1997 standards set for appliances are estimated to
cover 75% and 84% of primary and delivered energy, respectively, in
23 See Mitchell (1995b); Weinberg (1995); Boyle (1996); Lovins the residential sector. Similarly, it is estimated that standards covered
(1996); Nadel and Geller (1996); Owen (1996); Brown et al. (1998); 49% of both primary and delivered commercial energy use in 1997
Eyre (1998); Patterson (1999). (EIA, 1999).
24 27 Technological progress provides a basis for regular updates of effi-

There is no general agreement on terms by which regulatory stan-
dards are classified. In the USA, technology standards are often called ciency standards. In Russia, for instance, 1976 standards for refriger-
command-and-control standards because they dictate particular tech- ators were improved by 50% in the 1980s and then in 1991 by an
nologies or best practices that limit the range of compliant behaviours. additional 50%. As a result, energy consumption of new units
In other nations, command and control normally refers to all regula- decreased by a factor of three (Bashmakov and Sorokina, 1996). The
tory standards because they command behaviour and control compli- American Society of Heating, Refrigeration, and Air Conditioning
ance therewith. Engineers updates its codes for residential and commercial buildings
on average every 10 years.
25 Mandatory standards are put in place by either specific legislation
28In France, successive building codes in the residential sector alone
or government regulation. See, for instance, the Comprehensive
National Energy Policy Act (USA, 1992), versus the Energy have generated 75% of the total energy savings over past 20 years.
Conservation in Buildings Requirement for Thermal Performance and After building codes were set in 1974 they were made stricter in
Heat–Water–Power Supply (Moscow City Government, 1999). 1982, 1988, and 1998 (IEA, 1996, p.38).
and subject to failures, including discriminatory treatment and Since every emitter faces a uniform tax on emissions per tonne
corruption, social science literature that examines the imple- of CO2eq (if energy, equipment, and product markets are per-
mentation of regulatory standards is more extensive. fectly competitive) this would result in the least expensive
reductions throughout the economy being undertaken first
Recent literature indicates that regulatory standards often pre- (IPCC, 1996, Section 11.5.1; Baumol and Oates, 1988). In the
cede market-based instruments and build institutional capacity real world, markets, especially energy markets, deviate from
in policy evaluation, monitoring, and enforcement (Legro et this ideal, so an emissions tax may not maximize economic
al., 1999). This is especially true in developing countries that efficiency. Rather, the efficiency of an emissions tax should be
lack both trained personnel and the financial resources to compared with that of alternative policy measures. Criteria
implement market-based instruments.29 Technology standards other than efficiency, such as distributional impacts, are likely
have provided the initial training ground for public officials to influence the design of the emissions tax where this is the
unfamiliar with any approach to environmental regulation. chosen policy. Although equity considerations could be, in the-
Russell and Powell (1996) found that developing countries ory, better addressed through other redistribution mechanisms,
with a better institutional capacity developed through experi- in practice most energy and emissions taxes apply differential
ence with regulatory standards generally are more successful in tax rates to different sources.
implementing market-based environmental policies than less
well-equipped countries. Cole and Grossman (1998) suggest An emissions tax, unlike emissions trading, does not guarantee
that when historical, technological, and institutional contexts a particular level of emissions. Therefore, it may be necessary
are taken into account, technology standards are efficient in the to adjust the tax level to meet an internationally agreed emis-
initial stages of environmental policy development. sions commitment (depending on the structure of the interna-
tional agreement; see Section 6.3). The main economic advan-
The use of regulatory standards to force the internalization of tage of an emissions tax is that it limits the cost of the reduc-
environmental costs has initial distributional consequences dif- tion programme by allowing emissions to rise if costs are unex-
ferent from those of environmental taxes or subsidies.30 pectedly high (IPCC, 1996, Section 11.2.3.1; see also Section
Regulatory standards reduce economic benefits previously 6.3.4.2).
shared by consumers, capital, and labour only to the extent of
compliance costs and/or output foregone. Unlike environmen- An emissions tax needs to be adjusted for changes in external
tal taxes or auctioned permits, regulatory standards do not circumstances, like inflation, technological progress, and
extract the value of environmental costs on inframarginal pro- increases in emissions (Tietenberg, 2000). Inflation increases
duction that continues after the policy is mandated. abatement costs, so to achieve a target emission reduction the
tax rate needs to be adjusted for inflation. Fixed emissions
Regulatory standards may also be used to correct barriers that charges in the transition economies of Eastern Europe, for
arise from information failures and can yield net benefits to example, have been significantly eroded by the high inflation
society if the costs associated with the regulation are less than (Bluffstone and Larson, 1997). Technological change general-
the losses due to informational barriers. ly has the opposite effect, reducing the cost of making emis-
sions reductions. Thus, technological change generally increas-
6.2.2.2 Emissions Taxes and Charges es the emissions reductions achieved by a fixed (real) tax rate.
New sources increase emissions. If the tax is intended to
An emission tax on GHG emissions requires domestic emitters to achieve a given emissions limit, the tax rate will need to be
pay a fixed fee, or tax, for every tonne of CO2eq of GHG released increased to offset the impact of new sources (Tietenberg,
into the atmosphere. Such a fee would encourage reductions in 2000).
GHG emissions in response to the increased price associated
with those emissions. In particular, measures to reduce emissions Implementation of a domestic emissions tax touches on many
that are less expensive than paying the tax would be undertaken. issues (Baron, 1996). Policymakers must consider the collec-
tion point, the tax base, the variation or uniformity among sec-
tors, the association with trade, employment, revenue, or R&D
29 This also applies to current climate policy. Under certain circum- policies, and the exact form of the mechanism (e.g., an emis-
stances it is preferable to adopt a more intensive regulatory standards sions tax alone or in conjunction with other policy measures).
phase by financing capacity building and hands-on-experience in the Each of these can influence the appropriate design of a domes-
flexible instruments for administrators in developing countries tic emissions tax.
(Montero, 2000c). The Activities Implemented Jointly (AIJ) pilot
phase might be considered a step in this direction.
6.2.2.2.1 Collection Point and Tax Base
30 Regulatory standards reverse the distributional effects of efficient
subsidies in that the incremental costs of regulation are borne not by Since GHG emissions caused by the combustion of fossil fuels
producers, but by the subsidy-financing tax base or those consumers are closely related to the carbon content of the respective fuels,
who must cross-subsidize the environmental goods (see Section a tax on these emissions can be levied by taxing the carbon
6.2.2.6). content of fossil fuels at any point in the product cycle of the
fuel (EIA, 1998).31, 32, 33 A producer–importer tax on the car- Opposition to increased environmental regulation in general
bon content of fossil fuels, coupled with a crediting scheme for often centres on concerns that firms might relocate and/or peo-
exports and non-combustion end-uses, closely replicates the ple might lose their jobs (Rosewicz, 1990).35 Emissions taxes
effect of a direct emissions tax on end-users (CCAP, 1998). are particularly vulnerable to this criticism since they require
Further, by focusing on producers and importers rather than firms not only to pay abatement costs, but also taxes on their
end-users, the number of regulated entities is dramatically unabated emissions (Vollebergh et al., 1997). Several recent
reduced. Fewer regulated entities lead to substantially lower papers, however, argue that emissions taxes are more cost-
monitoring and enforcement costs. Modelling studies show effective than direct regulation and may even lead to higher
that taxing fossil fuels on a basis other than carbon content–for employment (Wellisch, 1995; Hoel, 1998). The intuition is that
example, energy content or value–also reduces CO2 emissions, the right to emit pollution constitutes a rent. With mobile cap-
but usually at a higher cost for a given emissions reduction tar- ital markets, part of that rent accrues (inefficiently) to owners
get (IPCC, 1996, Section 11.5.1).34 of capital unless it is taxed (Schneider, 1998). By using the tax
revenue to offset labour taxes, employment can be higher than
6.2.2.2.2 Association with Trade, Employment, Revenue, and in similarly designed policies using direct (technology) regula-
Research and Development Policies tion (Hoel, 1998; see also Section 6.5.1). Chapters 8 and 9 refer
to various sources corroborating the evidence that using emis-
In an open economy, countries are often concerned about the sions and/or energy taxes to reduce distortionary labour taxes
impact of emissions taxes on tradable goods sectors (OECD, tends to increase employment.
1996a; IPCC, 1996, Section 11.6.4). In practice, therefore, cur-
rent carbon taxes generally tend to have a lower rate on the Even with an efficient outcome, the immediate profit losses to
tradable goods sectors, especially when they are energy inten- firms under an emissions tax might be considered “unfair” to
sive. When some trading partners do not undertake emissions firms in carbon-intensive industries. In that case, a portion of
reductions, for example, domestic emissions taxes on carbon- the tax revenue can be returned to firms (lump sum) to com-
intensive tradable goods might simply shift production to pensate them for lost profit without a loss of efficiency.
countries without such taxes. One solution is corrective taxes Bovenberg and Goulder (1999) estimate that only 15% of the
on imports and exports (OECD, 1997d). If this option is not revenue from an emissions tax would need to be refunded to
available (see Section 6.4.2), an emissions tax that is differen- industry to maintain existing profit.
tiated among various sectors in the economy may be preferred
(Hoel, 1996). Another solution, which Böhringer and In addition to reducing emissions and raising revenue, a carbon
Rutherford (1997) find to be more efficient, is sector-specific tax also influences innovation. This occurs alongside any dis-
wage subsidies to protect jobs in the carbon-intensive tradable tinct R&D policies that are undertaken (see also Section
goods sector. 6.2.2.6). Early work in this area indicated that auctioned per-
mits would provide the largest incentive to innovate, followed
by emissions taxes and then permits allocated free (Milliman
and Prince, 1989). More recent work demonstrates that with a
31Empirical work suggests that to focus on all six gases of the Kyoto large number of competitive firms and imperfect R&D mar-
Protocol (CO2, CH4, N2O, SF6, PFCs, HFCs) and not just the carbon kets, taxes may induce more innovation than auctioned per-
content of fuels reduces compliance costs substantially (Reilly et al., mits, although the welfare effects remain ambiguous (Fischer
1999). et al., 1998). The incentive for innovation is therefore a neces-
32 This assumes that “carbon removal and disposal” strategies (e.g.,
sary design consideration (Grubb et al., 1995; see Section
6.2.2.6). It has been suggested in this regard that the targetted
removing CO2 from stack gases and sequestering them in geological
formations or land use change involving afforestation and reforesta-
recycling of emissions taxes that support renewable energy and
tion) receive payments equivalent to the tax rate per tonne CO2eq energy efficiency activities may offer specific benefits (see
sequestered. It also assumes that non-energy GHG emissions are also Sections 6.2.2.6, 6.5.1, 6.5.2; IPCC, 1996).
subject to the tax or to policies for which the marginal abatement cost
is equal to the tax rate. In practice, both energy and carbon taxes have already been
adopted as responses to commitments under the UNFCCC. The
33One aspect that is also relevant is taxing net emissions versus gross European Commission (EC), for instance, has issued several
emissions. Land use changes are included in the Kyoto Protocol. A tax proposals designed to reduce emissions of CO2 from fossil
national Computable General Equilibrium (CGE) model in which fuel use. For example, Finland, Netherlands, Denmark,
emissions from the use of timber and carbon accumulation in the for-
est are taken into account, thus calculating net emissions, is given by
Pohjola (1999). If net emissions are taxed, Pohjola (1999) finds that
the carbon tax needed to reduce net emissions by the same amount as 35 A 1997 OECD study (OECD, 1997d) suggests that the evidence
emissions from fossil fuels is significantly lower. that more stringent environmental regulation is reflected in the pat-
tern of international trade in goods produced by traditionally pollut-
34 Energy taxes may be more efficient than taxes on carbon alone if ing activities is not yet clear. This conclusion could change, however,
there are negative externalities unrelated to CO2 associated with the if energy taxation or any comparable measure is introduced at a large
energy services delivered. scale.
Sweden, and Norway all have energy taxes based in part on panies for transportation fuels.38 Industrial non-energy sources
carbon content (Speck, 1999; see Section 6.1.3). Other coun- of GHG emissions also lend themselves, at least partially, to
tries that have recently introduced carbon or energy taxes to inclusion in a tradable permit system (Haites and Proestos,
help achieve their climate change commitments include 2000).
Slovenia, UK, Italy, Germany, and Switzerland. France is also
considering increasing energy taxes on industry for the same Permits equal to the emissions limit are distributed (gratis or
purpose. None of these countries have been able to introduce a by auction, usually to permit-liable entities) and each permit-
uniform carbon tax for all fuels in all sectors, because unilater- liable entity is required to hold permits equal to its actual GHG
al nature policies raise. In most cases for which an energy or emissions or actual sales of regulated substances as appropri-
carbon tax is implemented, the tax is implemented in combi- ate. Permits may be traded, at least domestically and at least
nation with various forms of exemptions (e.g., rebates, VAs). among permit-liable entities. Such a tradable permit system is
well known from the literature to be cost-effective if transac-
6.2.2.3 Tradable Permits tions costs are not prohibitively high and if there are no signif-
icant imperfections in the permit market and other markets per-
A country committed to a limit on its GHG emissions can meet taining to the emitting activities (see IPCC, 1996, p. 417).39
this limit by implementing a tradable permit system that direct-
ly or indirectly limits emissions of the domestic sources cov- Some sources of GHG emissions, such as methane emissions
ered by the commitment. The large number and diverse nature from livestock, as well as small sources, are very difficult to
of the sources covered by national limits on GHG emissions include in a tradable permit system because it is difficult to
raises issues of how to assign permit liability. If permit liabili- measure actual emissions (or an accurate proxy for actual
ty is imposed at the point of release to the atmosphere, a so- emissions). In practice, then, the emissions cap for the tradable
called “downstream” system, individual vehicle owners and permit system is less than the national emissions limit and
households would have to participate. some sources need to be addressed by other policies.40 For
example, a government that takes part in an international
Some emissions, such as HFCs, sulphur hexafluoride (SF6), agreement, such as the Kyoto Protocol, may establish an emis-
and energy-related CO2, can be controlled indirectly, with a so- sions cap for the tradable permit system on the basis of the ini-
called “upstream” system, by limiting substances that ulti- tial national limit or the ex post limit, taking into account its net
mately result in GHG emissions (see, e.g., IPCC, 1996; Bohm, transfers under the Kyoto mechanisms.41
1999).36 Since energy-related CO2 emissions are linked to the
carbon content of fossil fuels, the system could be implement- With a significant number of permit-liable entities it should be
ed by requiring fossil fuel producers and importers to hold per- possible to establish market institutions that have low transac-
mits equal to the carbon content of the fuels sold domestical-
ly.37 Permit liability for energy-related CO2 emissions could be
imposed at any point in the fossil fuel distribution chain and at
38 See NRTEE (1999) for a comprehensive overview of options for
different points for different categories of sources, for example
downstream for large industrial sources and on petroleum com- the design of a domestic GHG tradable permit system. Remember that
the liable point may differ from the point of allocation. See Matsuo
(1999) and Iwahashi (1998) on this.
36 HFCs and SF6 are manufactured gases used in a variety of applica-
39 Tradable permits have been used to implement a cap on SO emis-
tions and ultimately escape to the atmosphere. Limiting sales of these 2
gases in the country effectively limits the subsequent emissions. Cost- sions by electricity generators in the USA and on NOx and SOx emis-
effectiveness then requires that the prices of the regulated substances sions by large sources in the greater Los Angeles area (the Regional
rise to reflect the social marginal cost of abatement (see Section Clean Air Incentives Market (RECLAIM) Programme; e.g.,
6.4.1), so that the sources have the correct incentive to implement the Schmalensee et al. (1998); Stavins (1998a)).
appropriate abatement measures. 40 NRTEE (1999) suggests that coverage for different designs can
37 Virtually range from 30% to over 90% of total emissions. Given a satisfactory
all of the carbon content of fossil fuels is converted to CO2
solution to the monitoring problems, cost-effectiveness is improved
upon combustion. Thus, if there are no commercially viable CO2 cap-
by including as large a share of total emissions as possible in the trad-
ture and sequestration technologies, the CO2 emissions are closely
able permit system.
related to the carbon content of the fuel. If CO2 capture and seques-
tration is implemented, an upstream system based on the carbon con- 41 The national government could choose to be a net buyer or seller
tent of fossil fuels could still be implemented, but it should be com- using the Kyoto mechanisms. To achieve compliance, the cap for the
plemented by a system of credits for sequestered CO2. Some fossil domestic trading system should reflect the national limit after adjust-
fuel is used as a feedstock for products that sequester the carbon for a ment for these international transfers. Whether the domestic cap is
relatively long time. An upstream system should include provisions to based on the initial commitment (no government transfers under the
exempt the carbon sequestered in such products. A particular aspect mechanisms) or the ex post limit, permit-liable entities could be
that can be introduced is to specify a validity period of permits by allowed to acquire quotas under the Kyoto mechanisms, if allowed by
establishing gradual devaluation and an expiration date. By introduc- the rules governing those mechanisms, for use towards compliance
ing this dynamic incentives could be created. with their obligations under a domestic tradable permit system.
tion costs and that limit the scope for market power.42 The only same mechanisms are likely to be used by permit-liable entities
situation in which there might not be enough permit-liable enti- to deal with the risks of fluctuations in permit prices.
ties is in a small country with an oligopolistic market for fossil
fuels and an “upstream” trading system.43 In particular, if an The market value of the permits needed by a permit-liable enti-
exchange institution is used, transaction costs are likely to be ty is passed on to customers in the form of higher prices, to
small and market power (the possibility of one or more market employees through lower wages, to shareholders through
parties to manipulate market conditions in their favour, or to lower returns, and to suppliers through lower prices. To answer
try to achieve such a result by taking speculative positions) is how the costs are shifted to these different groups requires a
unlikely to have a noticeable influence on the transaction vol- comprehensive model of the economy with accurate values for
ume or final market prices (e.g., Smith and Williams, 1982; relevant price elasticities. Ultimately, the costs are borne by
Carlén, 1999).44 If the domestic tradable-permit system is inte- individuals, with the impact on a particular person reflecting
grated with an IET market (see Section 6.3.1)–which further his or her role as an employee, investor, and/or consumer of
increases cost-effectiveness–any remaining market power con- various products.46
cerns are greatly diminished.
Permits can be distributed to permit-liable entities (and/or oth-
Some analysts argue that to allow entities, in addition to per- ers) gratis or by auction.47 Gratis allocation requires a rule for
mit-liable participants, to participate in the market is desirable distributing the permits among the recipients. Since the permits
for several reasons. It allows the risks of changes in permit represent an asset transferred to the recipients it can be difficult
prices to be borne by the entities (e.g., private brokerage firms, to find a rule that is considered fair by all. An auction raises
traders, professional speculators, or arbitrators) best able to revenue. All of the revenue could be returned to permit-liable
bear those risks. It may also improve intertemporal efficiency entities, but this needs to be done in a manner that leaves them
if other entities have relevant information not heeded by per- with an economic incentive to reduce their emissions. The rev-
mit-liable participants. The behaviour of participants in the enue could also be used for a variety of other purposes.
permit market might need to be supervised in the same manner Compensation could be provided to industries, whether or not
as in other financial markets, regardless of whether they are they are permit-liable entities, or households that bear a dis-
permit-liable or not, to prevent abuses such as insider trading proportionate share of the impact. The revenue could also be
and efforts to manipulate the market. used to reduce existing distortionary taxes and so reduce the
net cost of the emission reduction policy (see Section 6.5.1).
Permit prices fluctuate, but this does not mean that prices of the The introduction of an emissions trading programme, like the
products of permit-liable entities fluctuate to the same extent. imposition of any new tax or regulation, imposes adjustment
Crude oil prices change daily, but the prices of various petrole- costs on the affected entities. This is true whether the permits
um products, such as gasoline, are much more stable. Forward are auctioned or distributed gratis. Moreover, some gratis allo-
contracts and options are used to transfer the risks of price fluc- cation rules discriminate against new entrants (IPCC, 1996;
tuations to sources willing and able to bear those risks.45 The Cramton and Kerr, 1998; Zhang, 2000).
46 This is true regardless of the domestic policy adopted to meet the

42 The number of participants in the trading programme could be GHG emissions limit. However, the total cost of meeting the limit,
small if a country chooses to make fossil-fuel producers and importers and the distribution of that cost, may differ with the policy adopted
permit-liable and there are very few such firms. This implies that the (see Section 6.5.1).
domestic market for fossil fuels is not competitive. If the country cre- 47 Auctioned
ated a competitive market for fossil fuels, the number of permit-liable permits are equivalent to a tax, if adjusted with a similar
entities would likely be sufficiently large to create a competitive mar- frequency, and are designed to achieve an equal emissions reduction
ket for permits as well. Sweden, which imports all its fossil fuel, has by the same sources. If, instead, tradable permits are allocated gratis
to certain entities, the same distribution is obtained as in the tax case
some 350 fossil fuel importers that are now liable to a carbon tax and
if the tax revenue is redistributed to these entities in the amount of the
that would be permit-liable should it choose to shift to a tradable per-
wealth of the permits otherwise allocated to them (IPCC, 1996, p.
mit system.
410). To redistribute the tax revenue it is necessary to confirm the total
43 Even under such circumstances a competitive permit market could amount of permits allocated. This means that the taxation system in
be created by restructuring the fossil fuel market. combination with the revenue redistribution inevitably involves a key
dimension of the permit trading system, so that the advantage of the
44 Although the US SO allowances are not traded on an exchange, taxation system in administrative costs diminishes significantly. If the
2
over 9.5 million allowances were transferred between economically scale of allocation for the permits in gratis is determined on the basis
unrelated parties in 1998 and brokerage commissions for a simple of historical factors, the allocation in gratis does not reduce efficien-
transaction are approximately 1% of the sale price. cy in emissions reduction. Tax exemption and reduction, however,
may reduce or even eliminate incentives for emissions reduction and
45 For crude oil and natural gas, the options are exchange-traded con- depreciate the efficiency factor embraced in the taxation policies,
tracts. Such transactions also occur in the SO2 allowance market; they because the scale of reduction or exemption is determined by the cur-
do not require exchange-listed contracts. rent emissions quantities.
Assuming compliance, permits are a more certain means than sure is administratively and politically feasible, especially if it
taxes of achieving quantified national emission limits. In addi- is used in a policy mix or in new policy areas (OECD, 1998a,
tion, a tradable permit system with auctioned permits is more p. 102). VAs are political feasible simply because most of the
likely to provide the efficient price signal than a tax rate set by industries seem to prefer VAs over other tools (Dijkstra, 1998;
the government. However, the certainty of achieving the emis- Svendsen, 1999). VAs may precede more formal arrangements;
sions levels provided by a tradable permit system incurs the the vast majority of GHG emissions reductions in the USA
cost of permit prices being uncertain. Some have argued in called for in the US Climate Change Action Plan come, for
favour of introducing a trigger price into a permit trading sys- instance, from voluntary initiatives to increase energy efficien-
tem to meet this concern, namely the absence of an upper cy. However, VAs may not be a satisfactory substitute for
bound on the price and hence on compliance costs (See e.g., mandatory efficiency standards (Krause, 1996).
Kopp et al., 1999a). When the permit price reaches the trigger,
additional permits are sold by the government to prevent the Sometimes the “voluntary” aspect of a VA is questioned, as the
price from rising further. Such a hybrid system fails to guaran- main motivation for industries to join the VA was to avoid the
tee particular emissions levels, but does limit the economic implementation of a carbon and/or energy tax and/or other
cost of the programme for its users.48 mandatory policy (Torvanger and Skodvin. 1999, p. 28).
Segerson and Miceli (1997) found that the level of abatement
6.2.2.4 Voluntary Agreements under a VA is closely related to the probability of regulatory
action in the absence of an agreement.
No international definition of a VA is universally accepted
(CEC, 1996; EEA, 1997; OECD, 1998a). VA is used here to Proponents of voluntary approaches point to the low transac-
mean an agreement between a government authority and one or tion costs, the merits of the consensus elements in the
more private parties, as well as a unilateral commitment that is approach, and the advantages of leaving the choice of abate-
recognized by the public authority, to achieve environmental ment measures to the participants. Although free riding is a
objectives or to improve environmental performance beyond concern with VAs, the risk can be addressed through the prop-
compliance.49 er design of the VA. Free riding can take place if firms that do
not comply or participate benefit from the agreement while
VAs may take a wide variety of different forms. The large-scale bearing no cost. Governments may encourage participation in
VAs in the field of GHG mitigation activities in Japan and the VA programmes and discourage free riders by providing incen-
Netherlands are referred to in Boxes 6.3 and 6.4. For a descrip- tives such as permits to use labels and other marketing claims.
tion of the US “market transformation” type VA and the As for possible abuse, some or all of the participants may use
German VAs, see Mazurek (1998) and Storey et al. (1999), and their initiating role in the process to create an agreement that
Eichhammer and Jochem (1998), respectively. Sometimes benefits them, and hence obstruct real abatement progress. It
these involve agreements between the government and a set of could also involve introducing measures that benefit some
firms, but in other cases industry associations represent mem- firms, and reinforces their market dominance.
ber firms. Sometimes the agreement only relates to general
issues, such as R&D activities, reporting on emissions, or ener- To assess the environmental effectiveness, the trade-off
gy efficiency, but in other cases specific quantified targets, between how ambitious the objectives are and how well they
such as emissions targets, are agreed upon. A few VAs are are attained should be recognized. There is a suspicion that if
legally binding once signed, but most are not.50 the goals are too ambitious, they will not be attained. As most
VAs are non-binding they may not attain ambitious goals
Although VAs are a relatively new environmental policy (EEA, 1997; OECD, 1998a). VA objectives may be less strin-
instrument, they are gaining popularity as a tool to cope with gent if environmental groups are left out off the negotiation
environmental issues. That in 1996 in the EU alone there exist- process. Since VAs are a relatively new policy instrument to
ed more than 300 VAs at least suggests this type of policy mea- cope with environmental issues, it is too early to determine
their effectiveness (OECD, 1998a, pp. 78–83).
From a methodological perspective, it is rather complex to

48 See Kopp et al. (1999b) for a discussion in the context of domestic assess the effectiveness of VAs because it is difficult to estab-
US policy; Roberts and Spence (1976) provide a theoretical discus- lish a counterfactual.51
sion.
49
Voluntary provisions also may accompany mandatory policies.
“For the purpose of this Communication Environmental
The Substitution Provision of the US Acid Rain (SO2
Agreements … can also take the form of unilateral commitments on
the part of industry recognized by the public authorities” (CEC, 1996, Emissions Trading) Program is the first example of a voluntary
p. 5).
50 In some countries (e.g., Denmark) negotiated agreements are 51 The issue of counterfactual baselines is revisited in Section 6.3.2.3
explicitly linked to favourable treatment under tax regimes. in the context of the Kyoto mechanisms.
Box 6.3. Keidanren Voluntary Action Plan on the Environment (See http://www.keidanren.or.jp/)
Keidanren (Japan Federation of Economic Organizations), the largest private and non-profit economic organization in Japan, announced
the “Keidanren Appeal on the Environment” in 1996, in which concrete courses of action for measures to cope with global warming were
specified. Following the Appeal, 37 trade associations set forth the “Keidanren Voluntary Action Plan on the Environment” in June 1997.
Although the above action plan is a unilateral commitment on the part of the industries, it should be considered an environmental agree-
ment.52 In fact it constitutes a major component of the Japanese government’s “Basic Principles for the Promotion of Measures Dealing
with Global Warming”; a follow-up survey is to be conducted every year and reported to the government councils, including the Industrial
Structure Council of the Ministry of International Trade and Industry, for third party review.
This action plan, which contributes to meeting the Japanese commitment under the Kyoto Protocol, has as its goal “to endeavour to reduce
CO2 emissions from the 28 industrial and energy-conversion sectors to below the levels of 1990 by 2010.” Under a baseline (or business-
as-usual) scenario these emissions are estimated to increase by 10%. The 28 sectors represent approximately 76% of CO2 emissions gen-
erated by all industry and energy-conversion sectors in Japan, which in turn generated 42% of Japan’s total CO2 emissions in 1990.
Each participating business sector made a social commitment by setting a numerical target (in terms of: size of CO2 or energy con-
sumption; emissions or index of CO2 emissions; or energy input per unit output), which was compiled and published by Keidanren.
For example, the Japanese Iron and Steel Federation set a target of reducing energy consumption in 2010 by 10% from the 1990 level
(57.22kt crude oil).
The second survey, presented just before CoP5, showed that CO2 emissions in fiscal year 1998 were 126MtC, or 2.4% less than 1990
and 6% less than 1997 levels. Keidanren stressed that to meet the emissions goal it would:
• continue to make annual surveys of emissions by participating associations;
• intensify co-operation between the government and other sectors, such as transportation, households, etc.;
• promote the construction of new nuclear power plants; and
• explore positively the utilization of the Kyoto mechanisms.
compliance provision within an emissions trading regime.53 after analyzing six case studies of European VAs, that, while
Voluntary compliance was characterized by adverse selection; there was quantitative evidence for environmental improve-
units that “opted in” to the programme tended either to have ment in most case studies, more sophisticated analysis would
low emissions below their permitted allocations, or to have low be necessary to distinguish between the effects of the VAs and
costs of abatement (Montero, 1999). While the VA kept aggre- those of other factors (EEA, 1997, pp. 84–85). In the same
gate costs low, the adverse selection increased aggregate emis- study it was recognized, however, that in five of the six cases
sions (Montero, 1999). This inevitable trade-off between the interviewed experts felt VAs incurred lower costs than
adverse selection and cost-savings means that the design of alternative instruments.
voluntary programmes will influence their net emissions
impact (Montero, 2000a). OECD has indicated various conditions under which VAs can
be implemented most effectively (EEA, 1997, p. 15; OECD,
The OECD (1998a) noted that no empirical evidence is avail- 1998a):
able on the cost-effectiveness of VAs. CEC (1996), however, • clear targets are set prior to the agreement;
argues that the flexibility of VAs provides room for industries • the agreement specifies the baseline against which
to find the most efficient way to achieve the targets, which improvements will be measured;
could be a major advantage. EEA (1997) recently concluded, • the agreement specifies reliable and clear monitoring
and reporting mechanisms;
• technical solutions are available to reach the agreed tar-
get;
52 This point of view is supported by the EC: “For the purpose of this
• costs of complying with the VA are limited and are rel-
Communication Environmental Agreements … can also take the form atively similar for all members of the target group; and
of unilateral commitments on the part of industry recognized by the • third parties are involved in the design and application
public authorities” (CEC, 1996, p. 5). of VAs.
53The SO2 emissions trading regime has been implemented in two
The EC, for instance, recommends prior consultation with
phases. The first phase (beginning in 1995) imposed annual emissions
caps (with trading) on the 263 dirtiest large electricity-generating
interested parties, a binding form, quantified and staged objec-
units. The Substitution Provision allowed units regulated only by the tives, the monitoring of results, and so on.
second phase (beginning in 2000) to voluntarily “opt in” in the first
phase. Owners of the first-phase plants could use these “substitution”
units to lower the compliance costs.
Box 6.4. Voluntary Agreements in the Netherlands
In the early 1990s, the Dutch government entered into agreements with all energy-intensive industries to improve energy efficiency.
The purpose was both to improve competitiveness by cutting energy costs and to reduce CO2 emissions. This win–win situation is
favoured by the Ministry of Economic Affairs, which was primarily responsible for the execution of the long-term agreement (LTA)
policy. Efficiency is usually defined as the ratio of relevant physical output to primary energy consumed. The target for most sectors
is to improve energy efficiency by 20% in 2000, compared to 1989. Most sectors were audited before entering into an agreement, to
ensure that the efficiency improvement was feasible. The coverage of industrial energy consumption is high, almost 90% when non-
energy consumption is excluded. There is a similar agreement with the horticultural greenhouse sector, which is the second largest
energy-consuming sector after the chemical industry. An intermediate organization co-ordinates the annual monitoring and runs pro-
grammes for technological support and R&D. The government publishes results annually. It is expected that, on average, the 2000
efficiency target will be reached.54 Based on interviews and analysis, 30%–50% of the efficiency improvement identified is imple-
mented because of LTA and related supporting policies (Glasbergen et al., 1997). The results for the LTA sectors in total manufactur-
ing industry through 1996 are depicted in Figure 6.1, together with general statistics (Van Dril, 2000).
index 1989 = 1
1.20
Materialization
1.15
1.10
CO 2 efficiency
1.05
LTA efficiency
Decrease of
1.00 coverage
0.95
0.90
1989 1990 1991 1992 1993 1994 1995 1996
CO 2 -relevant energy consumption LTA energy consumption
LTA physical production production value
Figure 6.1: Aggregated results of manufacturing industry LTAs and statistics.
As a general observation, LTA results diverge from the actual average of the entire manufacturing sector. Both the energy and output
indicators show significant deviations. The main explanations for the divergence are, first, that energy-intensive products such as pri-
mary materials have grown faster than average production value. In monitoring practice, there may be some bias towards adjusting
for energy-intensive products, to avoid negative effects on efficiency results. A second explanation is that statistics on the chemical
industries are unreliable and that no insight is provided by the entities responsible for monitoring. For example, no clear information
is available on the share of non-energy consumption and its impact on CO2 emissions.
6.2.2.5 Informational Instruments of the market potential to improve energy efficiency actually
being realized (Bashmakov, 1998).55
As Chapter 5 shows, information drives decisions. Information
gaps result in uncertainties, risks, and missed opportunities. Reliable data are a prerequisite for decision-making. At the
Poor information is widely recognized as a barrier to improved micro level, feasibility studies or business plans are used to
energy efficiency or reduced emissions (Tietenberg and explore opportunities to raise energy efficiency and energy
Wheeler, 2000). Markets are not always fully informed on the productivity. They are based on metering and energy audits in
quality of information and application of decision-support specific situations. At the macro level, detailed statistical data
technologies. In Russia, for instance, it is estimated that insti- on major aspects of energy consumption are the basis for devel-
tutional barriers and information limitations result in only 2% opment and evaluation of efficiency improvement policies, and
54 Ministry of Economic Affairs, Netherlands (1999): Long-term 55 OECD/IEA (1997) includes 47 case studies of successful energy-
agreements on energy efficiency, results (published annually). efficiency improvement projects and policies.
their success or failure (Japan Energy Conservation Center, Box 6.5. Public Education Component of Poland Efficient
1997). Comparisons between nations and companies and Lighting Project (OECD/IEA, 1997, p. 480)
benchmarking on energy efficiency indicators also raise aware-
ness and allow for better determination of efficiency potentials The IFC/GEF Poland Efficient Lighting Project (PELP) was
(see also OECD/IEA, 1997; Fenden, 1998, p. 203; Phylipsen et designed to reduce emissions of CO2 and other GHGs emitted by
al., 1998, p. 230; ADEME-European Commission, 1999). Also, Poland’s electricity sector by stimulating the Polish consumer
improved accessibility to new technology information enhances market for energy-efficient compact fluorescent lamps (CFLs).
technology transfer. Information-based policies can also be The public education component of PELP promoted the CFL sub-
used to reveal low levels of performance. sidy programme to the public by providing consumer information
on the benefits of energy-efficient lighting from a trustworthy,
Policy instruments to improve information are applied on three non-industry source. The generic PELP advertising bore the logos
levels. First, they are used to raise awareness of climate issues. and endorsement of four respected Polish organizations. The
Governments communicate their targets and policy measures PELP logo featured in advertisements and on participating prod-
to the public. The information may influence preferences to ucts, was promoted as a symbol by which consumers could iden-
contribute to GHG mitigation. Social marketing is becoming a tify energy efficient, high-quality products. PELP organized high-
crucial instrument in creating an appropriate social environ- level seminars for lighting professionals on technical and design
ment for GHG emissions reduction policies (Legro et al., aspects of energy-efficient lighting. Finally, to educate tomor-
1999). Second, governments stimulate research to analyze cli- row’s consumers on the benefits of CFLs, PELP created an ener-
mate issues and create mitigation opportunities that can be gy-efficiency curriculum for schools, and sponsored an art and
widely applied. R&D generates new information on possibili- essay competition for schools on energy-efficient lighting.
ties and determines the technical potential. Information on the
economic situation (prices, taxes, interests rates, etc.) in turn • broadcasting of special programmes on television and
constrains the technical potential to what is commercially fea- radio;
sible. Third, information instruments are used to help the • distribution of special brochures;
implementation of measures. They can assist the public in • creation of special easily accessible databases; and
making the right choices with respect to GHG mitigation. • public awareness programmes, such as “Energy
Conservation Day” and “Energy Conservation Month”,
There are several reasons for using instruments to further infor- which are implemented on a regular basis at the nation-
mation on climate issues. First, climate change involves com- al level in Japan and South Korea.
plex negative externalities, so the process of policymaking with
regards to GHG reduction needs broad support and understand- Publication of books and periodicals on energy-efficient tech-
ing. Second, information, once generated, can be widely used, nologies and systems, and energy efficiency success stories,
which is regarded as a reason for collective funding of its col- guidelines, and policies is another powerful information instru-
lection, dissemination, and use. Many of the possible ways to ment.56 Costs of information programmes vary according to
reduce GHG emissions are similar all over the world. Markets their scale, coverage of specific groups of customers, and use
for this information are not yet developed. of media.
6.2.2.5.1 Education Programmes 6.2.2.5.2 Labelling
Energy efficiency centres, government offices, utilities, equip- One instrument that is increasingly applied in the area of envi-
ment vendors, professional organizations and associations, ronmental policy is environmental and energy efficiency
educational channels, etc., deliver information on GHG reduc- labelling. Labelling programmes can be mandatory or volun-
tion. Improved data and metering, energy audits and monitor- tary.57 Mandatory energy efficiency labels have long been estab-
ing, workshops and exhibitions, campaigns in the mass media,
education and training, efficiency and environmental labelling,
publications and databases are all typical instruments used to 56 The Russian Center for Energy Efficiency, for instance, since 1993
enhance information dissemination. has published the “Energy Efficiency” quarterly bulletin. This stimu-
lated regional energy-efficiency legislation, policies, and programmes
Educational and training programmes may improve decision in Russia. The bulletin is available on the Internet at http://www.glas-
making and can have long-lasting effects. Consumer education net.ru/~cenef.
is an important social marketing tool in implementing DSM 57 Mandatory labelling programmes are under implementation not only
programmes (see Box 6.5).
at a national level (e.g., Energy Guide in the USA), but also interna-
tionally, such as “SAVE” in the EU. Voluntary labelling programmes
Information campaigns are used as marketing elements in most were also initially launched at the national level, such as “Blue Angel”
energy efficiency programmes. Typical examples of such cam- in Germany and “Power Smart” and “EcoLogo” in Canada, but then
paigns are: some were internationalized (e.g. the originally US “Energy Star” pro-
• publications and advertising; gramme for office equipment was introduced in Japan).
lished in the USA, Japan, and South Korea, and recently in the Table 6.1: Public expenditures as percentage of gross domes-
EU where they are part of appliance and automobile efficiency tic expenditures on R&D (1985–1995) (OECD, 1998a)
legislation. Labels and marketing may have a pervasive impact
on consumers’ behaviour and the introduction of clean tech- Country/ region 1985 1990 1995
nology. Boxes 6.5 and 6.7 provide some examples of such Public % Public % Public %
developments to illustrate how these phenomena work in prac- of total of total of total
tice. The strengths of energy efficiency and environmental
labelling are, first, that labels do not distort the market. Second, Overall OECD 43.0 37.8 34.5
in many instances they are voluntary for both the producer and USA 50.3 43.8 36.1
the consumer because the former is free to decide whether or Canada 48.9 44.3 37.7
not to join the system and the consumer is free to decide EU 44.4 40.9 33.1
whether or not to buy the labelled product. Voluntary labels are UK 42.2 35.5 33.3
a non-official instrument, and may be instituted without the France 52.9 48.3 –
usual delays associated with official policymaking. Third, Japan 21.0 – 22.4
labels are usually based on considerable information exchange Germany 37.6 33.9 37.1
among the various stakeholders, which may increase the over- South Korea – 17.0 18.2
all acceptance of the instrument. Czech Republic – 30.6 34.9
India 88.5 87.3 84.6
This is not to say, however, that energy efficiency and envi-
ronmental labelling do not have weaknesses. If all products
are labelled, the consumer must learn how to interpret the
label (e.g., do higher numerical values indicate a better or increases the average cost of production. In the short run, it is
worse product?). If products must meet a specified standard to also the case in an industry with heterogeneous firms. A sub-
qualify for a label, only part of the market will be covered by sidy may allow some firms to continue operating that would
the labelled product. Competing labels for the same product or not continue in the case of a tax (those with average variable
less reliable labels may easily undermine the trust of the con- costs above prices). Besides, a subsidy requires that revenue be
sumers in the labelling instrument. This may turn out to be an raised somewhere else in the economy, which can also produce
inherent limitation. dead-weight losses.
In sum, environmental labels represent an important tool to An emissions reduction subsidy, like an emissions tax, does not
create transparency in markets and thus give orientation to the guarantee a particular level of emissions. Therefore, it may be
consumer. The overall success of this instrument, however, necessary to adjust the subsidy level to meet an internationally
will probably depend on the solution to the following dilemma: agreed emissions commitment. In addition, criteria other than
if applied too strictly, market coverage may be too low for the efficiency, such as distributional impacts, are likely to influ-
label to be effective; if applied too leniently, the environmental ence the design of the emissions subsidy (or the combination
effectiveness may be limited. of subsidies and taxes in what is known as fee and/or rebate).
The distributional and competitiveness impacts help explain
6.2.2.6 Subsidies and Other Incentives why, in practice, some energy and emissions taxes are coupled
with tax exemptions or subsidies. Also, the use of subsidies for
6.2.2.6.1 Environmental Subsidies environmental purposes may cause problems under WTO
agreements on subsidies and countervailing measures.
A subsidy for GHG emissions reduction pays entities a specif-
ic amount per tonne of CO2eq for every tonne of GHG reduced 6.2.2.6.2 Research and Development Policies
or sequestered. Such a subsidy encourages implementation of
measures to reduce emissions or enhance sequestration that are Technological progress is mainly achieved in the private sec-
less costly than the subsidy. tor, through learning by doing, incorporating new findings
developed elsewhere into the production process, or through
Under certain circumstances, a uniform subsidy can lead to the firms own R&D activities. A major, and generally increasing,
same emissions reduction outcome as an equivalent uniform part of funding of R&D expenditures is initiated by and in the
tax. In theory, in an industry with homogeneous firms, both private sector itself (Table 6.1). Government funding of R&D
taxes and subsidies (set at the same levels) yield exactly the on energy has historically favoured nuclear and coal technolo-
same outcome in the short run. In general, a tax is more effi- gies (IEA, 1998a; OECD, 1998a). Research on renewable
cient than a subsidy because the subsidy can result in too many energy and energy-efficient technologies is gaining ground, but
firms in the industry, and thus an inefficient amount of both it is still a relatively small portion of R&D budgets in the
pollution and goods associated with the pollution (Kolstad, OECD. This is important when assessing what governments
2000). This is always the case in the long run because a sub- can do to promote innovation. Perhaps governments can pro-
sidy lowers the average cost of production, while the tax vide a reliable legal framework to protect research findings in
the area of energy efficiency improvement from being copied rately from green electricity. Whether renewable energy or
elsewhere without compensation.58 other environmental attributes should remain with the purchas-
er of the underlying commodity, or be sold to different entities,
6.2.2.6.3 Green Power is under debate. There are either plans for or limited experience
with tradable certificates in Belgium, Denmark, Italy,
Green power policies establish mechanisms through which part Netherlands, UK, and USA, and it is likely to grow in impor-
of the electricity supply (whether in a regulated or competitive tance (Benner, 2000; Rucker, 2000). Trading in renewable
environment) must come from designated renewable energy energy certificates promises greater liquidity and potentially
sources. Regulatory policy mandates include set-asides for lower costs to meet policy commitments and marketing claims.
renewables, renewable portfolio standards (RPSs), and various An example is given in Box 6.7.
kinds of subsidies created from SBCs or renewable energy
funds. The cost of compliance for policy mandates is borne by 6.2.2.6.4 Demand-side Management
all consumers. Despite this 100% participation, however, the
policies may or may not be effective in stimulating renewable Information programmes are often applied in combination with
energy generation, depending on how aggressive they are and other initiatives (such as rebating in DSM programmes, energy
how they are implemented. Some examples are given in Boxes audits, labelling, and regulation). In the US cumulative electric
6.6 and 6.8. To reduce the cost of compliance regulatory poli- utility DSM spending to date is about US$15–20 billion. Close
cy may be supplemented by tradable renewable energy certifi- to 60% of utility customers are served by such programmes.
cates as described in Box 6.7. Reductions in national electricity demand of 3%–4% percent
were achieved with these programmes (Hadley and Hirst,
Green power and green pricing programmes encourage con- 1995; Eto et al., 1996). Studies on the efficiency of DSM pro-
sumers to voluntarily pay a higher price for electricity generat- grammes find that a large proportion of the reported conserva-
ed from “green” (environmentally friendly) energy sources. tion impacts are statistically observable after accounting for
Green power products are offered by some suppliers where economic and weather effects (Parfomak and Lave, 1997).
electricity markets have been liberalized, while green pricing is
a green power option offered by the monopoly utility in juris- With utility restructuring and the emergence of electricity gen-
dictions where consumers are not yet permitted to choose their eration competition, the rationale of utility resource acquisition
retail provider (Swezey and Bird, 2000). Green power market- has been greatly diminished. The new generation of pro-
ing programmes are relatively new, dating from 1993, and are grammes funded by SBCs emphasizes permanent market trans-
being implemented in Australia, Canada, Germany, formation effects aimed at technology manufacturers, includ-
Netherlands, Switzerland, UK, and USA (Markard, 1998; ing financial incentives paid directly to manufacturers, guaran-
Crawford-Smith, 1999; Holt, 2000a, 2000b). teed minimum market sales for new energy efficient products,
and competitive technology procurement programmes.
In the USA, about 30 green power products are being market-
ed by 15 retailers in competitive states and about 140 electric
utilities offer a green pricing option that emphasizes wind or 6.2.3 Mixes of National Policy Instruments
photovoltaics (Holt and Wiser, 1998; Holt, 2000b). Market
penetration so far is low, a little over 1% on average, although Section 6.2.2 discusses various policy instruments to manage
it reaches as high as 4%–5% for a few utility programmes GHG emissions in isolation. Various authors (e.g., Bernstein,
(Wortmann et al., 1996; Holt, 2000a, 2000b). Of those who 1993; Richards, 1998; Stavins, 1998b) argue that to select the
switch suppliers in competitive markets, some 20%–95% best approach to attain the environmental goal, various cost
choose a green power product (the higher percentage results and other aspects must be taken into account. These include
from significant renewable energy subsidies in California). production costs, cost differences across sources, transaction
costs, monitoring and enforcement costs, implementation,
Wiser et al. (2000) assessed green power marketing pro- administrative costs, and other socio-economic conditions
grammes in the USA. They conclude that the collective impact idiosyncratic to each country. For these reasons, it can be antic-
of customer-driven demand for renewable energy has been ipated that in most countries GHG emissions will be managed
modest to date, but that it is too early to draw definitive con- using a portfolio of policy instruments, rather than a single pol-
clusions about the potential contribution of green power mar- icy instrument. Furthermore, the portfolio of instruments is
keting in the long run. likely to differ from country to country. Using a portfolio of
policy instruments enables a government to combine the
In support of green power marketing and of policies that man- strengths, while compensating for the weaknesses, of individ-
date renewable set-asides and RPSs, renewable energy certifi- ual policy instruments, thus improving overall effectiveness
cates (also called credits, labels, or tags) may be traded sepa- and efficiency.
Under some conditions a combination of market-based and

58 For some additional remarks see also Section 6.5.3. information policies and regulations can improve economic
Box 6.6. Examples of Policies to Promote Renewables in a Liberalized Power Market
Renewables Set-aside
The UK has been promoting wind and other renewable energy technologies through its Non Fossil Fuel Obligation (NFFO; see Mitchell,
1995a, 1997). The renewable NFFO sets aside a certain portion of the electricity market to be supplied by designated renewable energy
technologies under a competitive bidding framework. Within each technology band (wind, biomass, landfills, solar, etc.) developers sub-
mit bids of proposed projects and the projects with the lowest cost/kWh price are awarded power purchase contracts. Regional electric-
ity companies are mandated to purchase power from NFFO-awarded renewable electricity generators at a premium price. The compa-
nies are reimbursed for the difference between the NFFO premium price and the average monthly power pool purchasing price through
the Fossil Fuel Levy (Mitchell, 1995a). The main weakness of the NFFO is that the implementation rate of approved projects is very low,
because bids have such low cost/kWh that they do not allow the profitable operation of projects. Moreover, the intermittent character of
NFFO rounds has precluded the development of a steady domestic market for renewable technologies (Michaelowa, 2000).
Renewable Portfolio Standard (RPS)

The RPS has received considerable attention in the USA. The RPS is similar to the NFFO concept in the UK, in that both are competi-
tive least-cost mechanisms. Unlike NFFO there is no funding levy. Under RPS, all retail power suppliers are required to obtain a certain
minimum percentage (e.g. 5%) of their electricity from specified renewable energy sources. Efficiency is obtained by allowing the mar-
ket to determine the most cost-effective solution for each electricity retailer (Radar, 1996; Haddad and Jefferis, 1999). State legislatures
and/or public utility commissions have approved various versions of RPS in several US states (Wiser, 1999b).
Production Subsidy and/or System-benefit Charges (SBCs)

Another support mechanism to promote renewables in a liberalized electricity market is a fee/kWh on all energy users to support renew-
able energy development. This charge is often referred to as SBCs (Haddad and Jefferis, 1999). In California, a total of US$540 million
collected from 1998 up to 2002 from electricity customers is directed to support existing, new, and emerging renewable electricity gener-
ation technologies (California Assembly Bill, 1996, AB 1890, Ch. 854, Sec. 381). In addition, nine other states in the USA have estab-
lished SBC policies under the restructuring of their electric utility industries to promote the use of renewables (Wiser, 1999b). Unlike in
NFFO and RPS, there is no supplier obligation.
Box 6.7. Green Certificates for Wind Energy in the Netherlands
Support for wind energy in the Netherlands has included both R&D grants and a variety of market-stimulation mechanisms. These
have included an integrated programme for wind energy, which provided subsidies of 35–40% of investment costs for newly built tur-
bines. Electricity distribution companies raised environmental levies to purchase wind generated kiloWatt hours for high guaranteed
prices (about US$0.07; Wolsink, 1996). More recently, however, significant changes have occurred in the Dutch renewable energy pol-
icy, reinforced by the liberalization of the electricity market. Most of the direct subsidies are now eliminated and other market-orient-
ed and fiscal mechanisms introduced. One such mechanism is the green certificates market, which started in 1998. By law, local ener-
gy distribution companies must purchase renewable electricity from independent power generators. Distribution companies issue
green certificates to the renewable generators equal to the amount of renewable kiloWatt hours sold to the grid. The renewable gen-
erator can then sell these green certificates on an open market to distribution companies that want to sell green-certified electricity
(Schaeffer et al., 1999). Green electricity is exempt from energy taxes, which will be raised to about US$0.06/kWh in 2001. The tax
exemption makes wind energy competitive with electricity from conventional sources, and thus the subsidies are obsolete.
efficiency. Well-designed policies aimed at energy prices are exhibit large potentials for learning by doing. The most effective
economically most efficient when transaction costs are low and economically efficient approach to achieve lower energy
and/or cannot be substantially reduced through market transfor- sector emissions is to apply market-based instruments, stan-
mation policies. They also work best when the potential for dards, and information policies in combination. Policies to
technological learning by doing is small or known with reason- administer energy price changes provide a uniform signal to all
able certainty. Well-designed regulatory and incentives-based economic actors and overcome fragmentation. Standards and
policies aimed at factors other than energy prices are economi- information policies can move the economy closer to the fron-
cally most efficient when the transaction costs are large and can tier of production possibilities, which raises total factor produc-
be substantially reduced at low administrative cost. They also tivity.
work best when the potential for technological learning by doing
is large. Virtually all end-use markets for energy efficiency suf- Overriding non-economic reasons may also exist for combining
fer from high transaction costs and related market problems. different types of policy instruments to manage GHG mitiga-
Also, many energy efficiency and renewables technologies tion. First, the number and diversity of sources is large and even
Box 6.8. Renewable Energy Policy in India
Renewable energy (RE) sources were first recognized and incorporated in official policy documents in the early 1970s. Several nation-
al-level programmes for RE technologies have been initiated, for example, the National Project for Biogas Development (NPBD) with
a target of 1.5 million plants by 2001, a national programme for improved cook-stoves, a programme for mass demonstration of RE
sources like wind, solar, biomass, etc. The Ministry of Non-conventional Energy Sources (MNES) co-ordinates and implements the
RE policy at the national level with counter-part departments in the state governments. The Indian Renewable Energy Development
Agency (IREDA) operates a revolving fund for development, promotion, and commercialization of RE through the provision of soft
term financial assistance.
Under the New Strategy and Action Plan for RE, the following, two-pronged action plan was devised:
• High priority accorded to generation of grid-quality power from wind energy, small hydropower, bio-energy and solar energy.
• Rural energization programme is promoted through:
− electrification of villages through photovoltaic and biomass gasifier power systems,
− supply of solar lanterns to unelectrified households,
− use of solar water heating systems,
− rural energy programmes, for example, National Project on Biogas Development,
− production of energy from agricultural waste, etc.
Currently, a three-fold strategy has been pursued by the government for promotion of RE sources through private sector involvement.
These include:
• Providing budgetary resources by government for demonstration projects.
• Extending institutional finance from IREDA and other financial institutions for commercially viable projects, with private sector
participation; and external assistance from international and bilateral agencies.
• Promoting private investment through fiscal incentives, tax holidays, depreciation allowance, facilities for wheeling and banking
of power for the grid and remunerative returns for power provided to the grid. The emphasis has shifted from direct financial incen-
tives (e.g., subsidies) to indirect fiscal incentives (e.g., low interest loans, financing packages for consumers, reduced tariff and
taxes, viable power-purchase prices, etc.). Some fiscal incentives include: accelerated 100% depreciation on specified renewable
energy based devices/projects, 100% tax deduction from profits and gains for first five years of operation, and 30% for the next
five years for industrial undertakings set up for generation and/or distribution of power.
The new policy for RE tried to give a focus on commercialization and, market orientation and to encourage greater private sector
involvement. Despite this there exists significant unexploited potential. The main barriers are: high initial and transaction costs, under-
developed markets and market-support infrastructure for RE products, weak linkages between market development and R&D, prod-
uct development not responsive to users’ needs, and the pricing of conventional energy sources (TERI, 2000).
the most comprehensive instruments (an emissions tax or a trad- phase-down of leaded petrol in a number of European coun-
able permit system) is not suitable for all of these sources. tries. Econometric analysis has been employed to separate out
Second, the conditions needed to administer efficiently these the effects of individual policy instruments under such condi-
comprehensive instruments (e.g., a manageable number of par- tions, but this is not always possible (Katsoulacos and
ticipants, but enough to create a competitive market for a trad- Xepapadeas, 1996; Boom, 1998).
able permit system) may reduce the scope of their application.
Third, different policy instruments can be used to distribute the
mitigation-cost burden across sources in ways that lessen oppo- 6.3 International Policies, Measures, and Instruments
sition to the policy goal. Fourth, policy instruments have multi-
ple impacts, so different instruments and sets of impacts are pre- Although only Annex I Parties that have made commitments
ferred for different sources. Finally, governments have frequent- under the Kyoto Protocol’s Annex B have quantified emissions
ly adopted a portfolio of policies, rather than a single policy limitations, all Parties have committed to take climate change
instrument, to deal with complex environmental issues. considerations into account, to the extent feasible, in their rel-
evant social, economic, and environmental policies and actions
One important aspect in the policy analysis has been a shift of (UNFCCC, 1992, Article 4.1.f). It is recognized, however, that
attention from the assessment of single policy instruments to non-Annex I Parties’ efforts to take actions that contribute to
questions of the optimal policy mix (OECD, 1996b). Assessing national development and GHG emissions reduction may be
the performance of particular environmental policy instru- limited by capital constraints, lack of knowledge, or other fac-
ments from historical evidence is difficult because these were tors. The UNFCCC and the Kyoto Protocol, therefore, include
often combined in policy packages, as was the case with the several provisions that can help overcome such barriers, such
as the provision that: support compliance with their AAs after adjusting for trading,
• All Parties are “committed to promote and co-operate governments may use any of the domestic policy instruments
in the development, application and diffusion, includ- discussed in Section 6.2 above.
ing transfer, of technologies, practices and processes
that control, reduce or prevent anthropogenic emissions Limiting all transactions to multilateral and potentially anony-
of greenhouse gases not controlled by the Montreal mous trade on an exchange would help IET move in the direc-
Protocol in all relevant sectors, including the energy, tion of becoming efficient and non-discriminatory. Bilateral
transport, industry, agriculture, forestry and waste man- trading cannot be relied upon to reveal to others the true full
agement sectors” (UNFCCC, 1992, Article 4.1.c). transaction prices (including undisclosed side-payments),
• Parties agreed to establish a financial mechanism “for which is required to give all participants equal access to gains
the provision of financial resources on a grant or con- from trade. Non-anonymous trading may eliminate transac-
cessional basis, including for the transfer of technolo- tions between Parties who are in conflict with each other, thus
gy” (UNFCCC, 1992, Article 11.1). reducing market efficiency. Transparent, anonymous, and effi-
cient trading would be possible on a continuous stock-
Additionally, exchange kind of market (Bohm, 1998). The scope for the
• “The CDM created by the Kyoto Protocol creates an exertion of market power is small on such markets, contribut-
incentive for (entities in and governments of) Annex I ing to efficiency (Smith and Williams, 1982).
Parties to assist the development and implementation of
climate change mitigation projects that contribute to According to Article 17 in the Protocol, “any such trading shall
sustainable development in, and are approved by, a be supplemental to domestic actions for the purpose of meet-
non-Annex I Party” (UNFCCC, 1997, Article 12). ing quantified emission limitation and reduction commit-
ments.” How to implement this provision is still under
This section discusses the three Kyoto mechanisms: interna- debate.61 A restriction on free IET as a result of binding sup-
tional emissions trading (IET) (Article 17) in Section 6.3.1 plementarity requirements could prohibit equalization of the
(for some clarifying remarks, see also Section 6.1.3), and JI MACs across participating countries, and hence increase
(Article 6) and the CDM (Article 12) in Section 6.3.2. aggregate abatement costs.62
Thereafter, the section deals with international transfers
(Section 6.3.3) and with the various other international poli- It has also been argued that constraints on the use of IET and
cies, measures, and instruments (Section 6.3.4). the project-based Kyoto mechanisms (see also Section 6.3.2)
might accelerate technological innovation in Annex I countries
by increasing the relative price of alternative options for car-
6.3.1 International Emissions Trading bon mitigation. Limited analytical studies are inconclusive as
to whether such constraints will induce significant innovation,
If the Kyoto Protocol comes into force Annex I Parties will but do suggest that they could reduce the flow of technology to
have agreed to an allocation of AAs (here also called emission other countries.
quotas) of GHG emissions for the first commitment period,
2008 to 2012. Article 17 of the Protocol allows them to trade An initial quota allocation that turns out to exceed a baseline
part of these emission quotas among themselves in accordance projection for a country’s emissions–possibly relevant for
with rules currently being negotiated.59 some signatories of the Kyoto Protocol with substantial
changes in political and economic systems since 1990–implies
IET implies that countries with high marginal abatement costs that sales of AA units (AAUs) will exceed emission reductions
(MACs) may acquire emission reductions from countries with because of active climate mitigation policies, sometimes
low MACs. In principle, such trading tends to equalize MACs referred to as “hot air”. Restricting trade of “hot air”, as some
across these countries, so that an aggregate emissions reduc- Parties have proposed, would force larger reductions in emis-
tion can be attained cost-effectively.60 Parties have not yet
decided whether IET based on Article 17 will be restricted to
governments or whether legal entities also will be allowed to
61Each of the mechanisms, not just IET, includes a so-called supple-
participate with the approval of their national governments. To
mentarity provision, although the wording differs in the case of the
CDM. Some Parties have proposed rules to address supplementarity
that apply an overall limit on the use of the three mechanisms, rather
59 With sufficient incentives, some non-Annex I Parties may ask to than a separate limit for each mechanism.
join in IET, replacing their expected use of the CDM, which is dis-
cussed in Section 6.3.2.2 (Barros and Conte Grand, 1999; Bohm and 62For a preliminary estimate of the cost implications of the EU pro-
Carlén, 2000; Montero et al., 2000). posal for the definition of supplementarity, see Baron et al. (1999),
Bernstein et al. (1999), Criqui et al. (1999), and Ellerman and Wing
60 For illustrations of the potential gains from IET, see Bohm (1997),
(2000). See Woerdman (2000) and Michaelowa and Dutschke (1999a)
Manne and Richels (1999), and Weyant and Hill (1999). on additional reasons for supplementarity.
sions by countries that would otherwise import emissions quo- line is needed in addition to the Parties’ approval of the project.
tas during the first commitment period.63 In addition, con- Others argue that the host government has an incentive to
straints on hot-air trading, other things being equal, would ensure that ERUs are issued for real emission reductions only
make the Protocol less beneficial for some countries with “hot if the government is bound to strong and credible penalties for
air” allocations (Bohm, 1999). non-compliance (see also Section 6.3.5).
Emissions trading creates a risk that sellers of AAUs might not Numerous issues related to JI remain to be agreed, including:
undertake the emissions reductions that their sales require, in • host and project eligibility;
spite of the political costs of non-compliance and despite the • the possibility of awarding ERUs for emission reduc-
sanctions to be instituted. Several options that provide Annex I tions from JI projects prior to the start of the first com-
Parties with an incentive to transfer only part of their AAUs mitment period (see Parkinson et al., 1999);
that are surplus to their compliance needs are under considera- • monitoring, verification, and reporting requirements;
tion. Such options, called liability provisions, are discussed in • baseline updating frequency;
Section 6.3.5.3. Liability provisions are intended to enhance • ERU approval, registry, and trading conditions;
environmental integrity and are also necessary for the func- • supplementarity provisions; and
tioning of the market. • incentives for compliance.
6.3.2.2 The Clean Development Mechanism (Article 12)

6.3.2 Project-based Mechanisms (Joint Implementation
and the Clean Development Mechanism) The purposes of the CDM are to assist non-Annex I Parties to
achieve sustainable development and to contribute to the ulti-
Project-based mechanisms allow actions that reduce GHG mate objective of the Convention while assisting compliance
emissions from, or enhance sinks beyond, what would other- by Annex I Parties (UNFCCC, 1997, Article 12.2). The CDM
wise occur to receive “credits” for the emissions mitigated; allows a project to reduce emissions, or possibly to enhance
these credits can be used by Annex I Parties to help meet their sinks, in a country without a national commitment to generate
emissions limitation commitments. These mechanisms include certified emission reductions (CERs) equal to the reduction
technology transfer and provide opportunities for mutual co- achieved.65 Annex I Parties can use CERs to meet national
operation. JI involves emissions reduction or sink enhancement emissions limitation commitments. In contrast to JI, for which
projects in Annex I countries. CDM involves emissions mitiga- there is little peer-reviewed literature, the literature is rapidly
tion projects in non-Annex I countries.64 Central to these mech- growing on the CDM (Goldemberg, 1998; Michaelowa and
anisms is the operational definition of what emissions would Dutschke, 1998; TERI, 1998; Hassing and Mendis, 1999;
have been in the absence of the project; the baseline from which Jepma and van der Gaast, 1999; Haites and Yamin, 2000).
emission reductions (or sink enhancements) are measured. This
section focuses on setting the baselines for crediting. A process for independent review of the certification of the
emission reductions achieved is necessary for the credibility of
6.3.2.1 Joint Implementation (Article 6) the CDM. Article 12.4 establishes an executive board for the
CDM and Article 12.5 specifies that emission reductions must
Article 6 of the Kyoto Protocol allows an Annex I country to represent real, measurable, and long-term benefits related to
contribute to the implementation of a project to reduce emis- the mitigation of climate change and be certified by designat-
sions (or enhance a sink) in another Annex I country and to ed operational entities. The certification process and the
receive emission reduction units (ERUs) equal to part or all of respective roles of the operational entities and the executive
the emission reduction (sink enhancement) achieved. The board remain to be defined, but they will be critical.
ERUs received by the investor country can be used to help
meet its national emissions limitation commitment. The host government must approve proposed CDM projects.
As part of its approval process it will need to assess whether
In the case of JI, some analysts have suggested that an inde- the proposed project contributes to sustainable development
pendent authority responsible for approving the project base- (Matsuo, 1998; Begg, et al., 2000). Some Parties have pro-
posed criteria or procedures that the host government be
required to follow when determining whether a project con-
63 The EU proposal to address supplementarity, for example, includes tributes to sustainable development of the country (see also
a provision that limits the transfers of quotas and thereby limits the Thorne and La Rovere, 1999; Chadwick, et al., 2000; Begg, et
trade of “hot air”. Restricting trade of “hot air” allows these AAs to be al., 2000).
banked for use or sale during future commitment periods, thus reduc-
ing the cost of compliance from what it otherwise would be during the
future periods.
64 Whether sink-enhancement projects are eligible under the CDM is 65How CDM projects can be financed is still being negotiated. See
still being negotiated. Haites and Yamin (2000) for a summary of options.
Investments in CDM projects by Annex I governments could Numerous issues related to implementation of the CDM
lead to a reduction in their official development assistance remain to be negotiated, including:
(ODA).66 The effect of government investment in CDM pro- • host and project eligibility;
jects on the level of ODA will be difficult to determine since • eligibility of sequestration actions;
the level of ODA in the absence of CDM projects is unobserv- • demonstrating contribution to sustainable develop-
able. However, historical figures compiled by the OECD ment;
Development Assistance Committee could be used to try to • project financing arrangements;
deal with this. • monitoring, verification, and reporting requirements;
• baseline establishment;
Article 12.8 specifies that a share of the proceeds from CDM • CER certification, registry, and trading conditions;
projects will be used to cover administrative expenses and to • the share of proceeds for administrative expenses and
assist developing country Parties that are particularly vulnera- adaptation assistance;
ble to the adverse effects of climate change to meet the costs of • adaptation assistance fund administration;
adaptation. Articles 6 and 17 do not impose a comparable levy • supplementarity provisions;
on JI projects or international transfers of AAUs, although a • executive board composition and responsibilities;
number of developing countries have proposed that the levy be • process for designation of operational entities; and
applied to all three mechanisms. • penalties for non-compliance.
CDM projects can begin to create CERs upon ratification of 6.3.2.3 Baselines
the Kyoto Protocol. The advantage is that it supports develop-
ing countries obtaining access to cleaner technologies earlier. It Credible project-based mechanisms under the Kyoto Protocol
means that a supply of CERs should be available prior to the require the achieved net emission reduction (sink enhance-
start of the 2008 to 2012 commitment period when they can be ment) to be determined.69 The reduction is defined as the dif-
used by Annex I Parties.67 Parkinson et al. (1999) argue that ference between what emissions (sequestration) would have
creation of CERs during 2000 to 2007, which are credited been in the absence of the measure, the baseline, and actual
towards 2008 to 2012 compliance, increases the emissions tra- emissions (sequestration). Thus, the baseline is an estimate of
jectories of Annex I countries for 2000 to 2012. They estimate a situation that will never exist (Bohm, 1994; Jepma et al.,
that increased Annex I emissions offset 30–60% of the CERs 1998; Kerr, 1998; Begg et al., 1999).
created during 2000 to 2012.
Since the true baseline can never be observed, a baseline from
Some analysts argue that the CDM facilitates the transfer of which emission reductions are calculated may be estimated
CERs from low-cost emission reduction actions to Annex I through reference to emissions from similar activities and tech-
investors when they might subsequently be needed by the host nologies in the same country or other countries, or to actual
government to meet a future emissions limitation commitment. emissions prior to project implementation.70 Although this
However, this assumes a fixed stock of emission reduction judgement is exercised through review by qualified, indepen-
actions. In practice, the stock of possible emission reduction dent experts, possibly by stakeholders (such as environmental
(or possibly sink enhancement) actions changes over time in organizations), and by an entity with the final decision author-
response to turnover of the capital stock, technological change, ity, the baseline will be an approximation of the counterfactu-
and other developments. Rose et al. (1999) analyzes the opti- al.71 One way to reduce baseline uncertainty may be to limit
mal strategy for a host government given a dynamic stock of the crediting period or to issue credits for only a fraction of the
potential projects.68 estimated emission reductions. However, this reduces the
investors’ interest in financing the projects.
66 Therefore, some developing countries have proposed that a finan- Baseline determination requires a trade-off between the trans-
cial additionality requirement, which currently exists for the AIJ pilot action costs of certification and the environmental costs of
phase and states that ODA funds should not be invested in such pro- adverse selection, adjustments for increased emissions at other
jects, should be extended to include the CDM. This view is not nec-
essarily shared by all Parties.
69Note that the eligibility of sink enhancement projects under the
67 Estimates of the potential of the CDM are mounting (see, e.g., CDM is still being negotiated.
Austin et al., 1998; Ellerman and Decaux, 1998; Zhang, 1999a), but
70 Harrison and Schatzki (2000) examine how baselines are estab-
the estimates are very sensitive to the rules applied for the CDM and
the other Kyoto mechanisms. lished for several environmental and energy programmes in the USA.
68 Contractual options to address this concern are available as well; the 71 Parkinson et al. (2000) have estimated the range of uncertainty in
host government can insist on an option to acquire the right to future estimates of emissions reduction because of the counterfactual nature
CERs from a project without cost at a specified future date, such as of the baseline (based on a number of AIJ energy sector projects) to
2013. be between ±35% and ±60% depending on the project type.
Table 6.2: Characteristics of activities implemented jointly projects
Number of projects 94 Annex I countries: 68; non-Annex I countries: 26

Investors Public sector: 61; private firms: 32
Project types Renewable energy: 44%; energy efficiency: 38%; forestry or agriculture: 15%
Project life (years) 16.5a Range: 1 year to 60 years
Average emission reduction (tCO2eq) 1,658,320 Range: 13 × 106 to 57,467,271 (tCO2eq)
Average investment US$6,298,065 Range: US$73,000 to US$130,000,000
Total investment US$558,000,000b
Average cost of emission reductions Annex I: US$97/tCO2eq; excluding “expensive” projects: US$26/tCO2eq
Other: US$158/tCO2eq; excluding “expensive” projects: US$9/tCO2eq
Source: Woerdman and van der Gaast, 1999.

aAverage lifetime of projects considered.
bTotal investment in all projects considered.
locations caused by the project (leakage), moral hazard, and Baseline inflation would increase the number of credits creat-
changes over time in contextual economic, technological, and ed and raise the return to investors and/or the host firm or coun-
institutional conditions. Several options for baseline method- try. To minimize the risk of baseline inflation, an independent
ologies to try to deal with these trade-offs–including sectoral body with the authority to review certifications could be iden-
benchmarks, dynamic baselines, and selective eligibility of tified or created. In the case of the CDM the entity with the
project types–are discussed in the literature (Chomitz, 1998; authority to make the final decision will be the Operating
Hargrave et al., 1998; Jepma, 1999; Michaelowa and Entity, in accordance with the executive guidelines, or the
Dutschke, 1999a; NEDO, 2000). In addition, numerous Executive Board, or the CoP/MoP (Meeting of the Parties). In
IEA/OECD and other studies have been published on stan- the case of JI the entity will be the host government.74 The
dardization of baselines for specific sectors.72 process adopted by the independent body would also determine
the transaction costs involved in defining baselines.
Also several options for baseline determination have been pro-
posed in the literature (Chomitz, 1998; Hargrave et al., 1998; 6.3.2.4 Experience with Activities Implemented Jointly
Jepma, 1999; Michaelowa and Dutschke, 1999a; NEDO,
2000). Several of these proposals try to deal with the issues of Decision 1/CP5 of CoP1 in 1995 established a pilot phase for
adjustment for increased emissions at other locations (leakage) emissions reduction projects called Activities Implemented
and changes to the baseline over time. Jointly (AIJ). AIJ projects cannot create credits that can be
used by Parties to meet commitments under the Convention or
Regardless of the method used to develop the project baseline, the Kyoto Protocol. This is a crucial difference between AIJ
the partners involved in the project, excluding the JI host gov- and JI or CDM projects. Table 6.2 summarizes the characteris-
ernment, have an incentive to propose a baseline that yields as tics of AIJ projects.
large a reduction as possible (Bohm, 1994; Wirl et al., 1998).73
Dixon (1999) provides a comprehensive review of the experi-
ence with AIJ projects and the implications for JI and CDM
72 For example, recent OECD/IEA baseline study references are: projects, illustrating the valuable experiences gained in project
“Revised Framework for Baseline Guidelines”, “Multi-Project baseline development and monitoring. However, several
Emission Baselines: Iron and Steel Case Study”, “Multi-Project authors argue that AIJ projects may not be representative of
Emission Baselines: Final Cement Case Study”, “Multi-Project
Emission Baselines: Forestry Status Report”, “Multi-Project Emission
Baselines: Final Case Study on Energy Efficiency”, Multi-Project 74 The host government for JI projects has an incentive to minimize
Emission Baselines: Final Electricity Case Study”, and “Case-Studies baseline inflation only if it faces effective penalties for non-compli-
on Baselines for the Project-Based Mechanisms” (see ance. Otherwise the benefits from the project could exceed the penal-
http://www.oecd.org). ties because of non-compliance. If the penalties for non-compliance
by Annex I Parties are weak or poorly enforced, JI projects could be
73 Parties may not respond to these incentives, for instance, if such a subject to an international review process with authority to establish
response is incompatible with good business practices or would gen- the quantity of ERUs issued and/or the ERUs could be incorporated
erate public criticism. into the liability provisions (see Section 6.3.5.3).
future JI and CDM projects (JIQ, 1998; Trexler, 1998; other than ODA. For instance, the Japanese government is
Woerdman and van der Gaast, 1999). Others suggest that AIJ implementing the Green Aid Plan that aims to achieve both
projects provide limited guidance on how to establish baselines economic development and environmental protection in devel-
for emissions reduction or sequestration projects (Ellis, 1999; oping countries in Asia. Most developing countries maintain
Lile et al., 1999). that a sufficient level of financial resources is key to effective
implementation of Agenda 21 and is a priority issue to be
resolved to enable the implementation of the global consensus
6.3.3 Direct International Transfers reached at the UNCED.
The UNFCCC states that Annex II Parties (basically Annex I 6.3.3.2 Technology Transfer
Parties except for the Parties in Central and Eastern Europe) shall
provide new and additional financial resources, including the The transfer of environmentally sound technologies from
transfer of technology, needed by the developing country Parties developed to developing countries has come to be seen as a
to meet the agreed full incremental costs of implementing mea- major element of the global strategies to achieve sustainable
sures taken under the Convention and that are agreed between a development and climate change mitigation. Article 4.5 and
developing country Party and the international entity or entities other relevant provisions of the UNFCCC (UNFCCC, 1992)
referred to in Article 11 of the Kyoto Protocol (UNFCCC, 1997, clearly define the nature and scope of the technology transfer,
Article 11). So, the extent to which developing country Parties which includes environmentally sound and economically
effectively implement their commitments under the Convention viable technologies and know-how conducive to mitigating and
will depend on the effective implementation by developed coun- adapting to climate change. Technology transfer implemented
try Parties of their commitments under the Convention related to through the financial mechanism of the UNFCCC is to be “on
financial resources and transfer of technology. a grant or concessional basis”, on non-commercial terms. The
Parties included in Annex II “shall take all practicable steps to
6.3.3.1 Financial Resources promote, facilitate and finance, as appropriate, the transfer of,
or access to, environmentally sound technologies and know-
Sustainable development requires increased investment, for how to other Parties, particularly developing country Parties, to
which domestic and external financial resources are needed, enable them to implement the provisions of the Convention.”
particularly for developing countries (UN, 1992, Agenda 21, Article 10, paragraph (c) of the Kyoto Protocol (UNFCCC,
Chapter 34). In its Resolution 44/228 of 1989 giving a mandate 1997) reiterated that all Parties shall: “co-operate in the pro-
to the convening of the UN Conference on Environment and motion of effective modalities for the development, application
Development (UNCED) in Rio de Janeiro, the UN General and diffusion of, and take all practicable steps to promote, facil-
Assembly notes, inter alia: “that the largest part of current itate and finance, as appropriate, the transfer of, or access to,
emission of pollutants into the environment originates in devel- environmentally sound technologies, know-how, practices and
oped countries, and therefore recognizes that those countries processes pertinent to climate change, in particular to develop-
have the main responsibility for combating such pollution”, ing countries, including the formulation of polices and pro-
and that “new and additional financial resources will have to be grammes for the effective transfer of environmentally sound
channelled to developing countries in order to ensure their full technologies that are publicly owned or in the public domain
participation in global efforts for environmental protection.” and the creation of an enabling environment for the private sec-
Developed country Parties reaffirmed their commitments in the tor, to promote and enhance the transfer of, and access to, envi-
related provisions of the Kyoto Protocol. “The implementation ronmentally sound technologies.”
of these existing commitments shall take into account the need
for adequacy and predictability in the flow of funds and the Three conditions have to be fulfilled for an effective transfer of
importance of appropriate burden sharing among developed technologies. First, the technology holder country must be
country Parties” (UNFCCC, 1997, Article 11). willing to transfer the technology. Second, the technology must
fit into the demand of the recipient country. Third, the transfer
Accordingly, Agenda 21 (UN, 1992, Chapter 33, especially its must be made at reasonable cost to the recipient. The IPCC
15th Section) carries the consensus formulation that for devel- Special Report on Technology Transfer (IPCC, 2000) identifies
oping countries: “ODA is a main source of external funding, various important barriers that could impede environmental
and substantial new and additional funding for sustainable technology transfer, such as:
development and implementation of Agenda 21 will be • lack of data, information, and knowledge, especially on
required.” In practice, however, there has been a clear trend of “emerging” technologies;
a continuing decline in ODA levels since UNCED. Total ODA • inadequate vision about and understanding of local
dropped from 0.35% of total gross national product of the needs and demands; and
developed countries in 1991 to 0.29% in 1995, with further • high transaction costs.
declines in 1996 and 1997 (OECD, 1998c). Some developed
countries are contributing to solving the environmental prob- Some analysts argue with respect to the third item that the tech-
lems that developing countries face with financial resources nology should be provided on favourable terms and therefore on
non-commercial conditions, strictly separated from traditional would limit the domestic policy choices of individual coun-
technology transfers, and supported by government funding. tries. The second way is to adopt fixed national emission lev-
els (non-tradable emission quotas) for participating countries.
In fact, Agenda 21 (UN, 1992) states that “governments and These national emission limits can be considered performance
international organizations should promote effective modalities standards that each country must meet through domestic
for the access and transfer of environmentally sustainable tech- action. This leads to inefficiency because marginal emission
nologies (ESTs) by means of activities, including the formula- abatement costs differ among countries (IPCC, 1996, p. 404).
tion of policies and programmes for the effective transfer of
ESTs that are publicly owned or in the public domain.” The 6.3.4.2 International and Harmonized (Domestic) Carbon
major role of the government could be to supply EST research Taxes
and develop funds to transfer publicly owned technology to
developing countries. In this regard, the Commission on An international carbon tax, payable to an international agency,
Sustainable Development, at its fifth session, concluded that: “a or domestic carbon taxes harmonized across countries, offer
proportion of technology is held or owned by Governments and potentially cost-effective means of obtaining CO2 reductions
public institutions or results from publicly-funded research and (IPCC, 1996, 11.2.2.2).75 By associating a uniform price with
development activities. The Government’s control and influ- carbon emissions in every country, only reductions that cost
ence over the technological knowledge produced in publicly- less than the tax will be implemented, assuming that the tax is
funded research and development institutions opens up a poten- implemented perfectly. To provide a common price signal in all
tial for the generation of publicly-owned technologies that countries, the new carbon tax may need to be differentiated
could be made accessible to developing countries, and could be across countries to account for existing domestic fuel taxes and
an important means for Governments to catalyze private sector revenue constraints (Hoel, 1993). Providing a common price
technology transfer.” In all countries the role of publicly fund- signal to all sources subject to the tax also requires that all
ed R&D in the development of ESTs is significant. Through countries refrain from policies that directly or indirectly offset
both policy and public funding, the public sector continues to the tax (such as subsidies or regulations).
be an important driver in the development of ESTs.
The revenue raised by an international carbon tax must be
An additional role of the government is to make the legal pro- redistributed or used in an agreed manner. It is likely to be dif-
visions for the transfer of ESTs (including checking on abuse ficult to obtain an agreement on the share of the revenue that
of restrictive business practices (Raekwon, 1997)). Good gov- each country should receive. Harmonized domestic taxes avoid
ernance creates an enabling environment for private sector this difficulty by letting each country keep the revenue it col-
technology transfer within and across national boundaries. lects. In practice, it is difficult also to achieve agreement on
Although many ESTs are in common use and could be diffused minimum levels of harmonized carbon and/or energy taxes
through commercial channels, their spread is hampered by high enough to impact carbon emissions significantly. Political
risks such as those arising from weak legal protection and inad- pressures to combine tax proposals with exemptions for spe-
equate regulation in developed and developing countries. cific sectors contribute to this difficulty and, if accepted,
However, many technologies that can mitigate emissions or reduce the efficiency and effectiveness of the tax.
contribute to adaptation to climate change have not yet been
commercialized. Beyond an enabling environment, it will take International or harmonized taxes provide greater certainty
extra efforts to enhance the transfer of those ESTs (IPCC, about the likely costs of an emissions reduction programme,
2000). It should also be recognized that the effective transfer of compared with a similarly designed international emissions
ESTs requires substantial upgrading of the technological trading programme (Toman et al., 1999). This advantage can
capacities in the developing countries (TERI, 1997) (see also also be obtained by a hybrid policy, consisting of domestic
Chapters 5 and 10). emissions trading programmes coupled with a harmonized
“trigger price”, at which countries would sell additional per-
mits domestically (McKibbin and Wilcoxen, 2000). The hybrid
6.3.4 Other Policies and Instruments policy sets an upper bound on the marginal cost of abatement
(like a carbon tax), but otherwise operates like an emissions
6.3.4.1 Regulatory Instruments trading programme. For a discussion of the pros and cons of
such a hybrid system, see Sections 6.2.2.2 and 6.2.2.3.
There are two ways to apply regulatory instruments interna-
tionally. One is to establish uniform standards for various prod- The two major concerns about international price-based poli-
ucts and processes for adoption by countries that participate in cies are the emissions levels, and the feasibility of internation-
an international emission reduction agreement. There are sev- al agreement:
eral reasons why establishing uniform international standards
for GHGs reduction is unlikely; for example, it is difficult to
achieve agreement on the appropriate standards by affected 75 To improve efficiency a tax should be applied to as many sources
interest groups in participating countries, and such an approach of GHG emissions as feasible.
• The first concern is that price-based policies (taxes or establish international Environmental Management standards
hybrid systems) fail to guarantee particular emissions in its 14000 series. The first standard among them (ISO 14001,
levels if it is not possible to adjust the tax rate frequent- Environmental Management Standard or EMS) was published
ly to achieve emission reductions in accordance with the in 1996 (ISO, 1996).
set targets. If one assumes, for instance, that taxes are
the only instrument used to fulfil the Kyoto Protocol ISO environmental standards are framework standards and do
commitments, in practice they most likely cannot guar- not set any performance standards. They are flexible to facili-
antee that emissions commitments will be fulfilled tate application by a wide variety of organizations throughout
either in the aggregate and/or for individual countries. the world. An organization can select any environmental
• The second concern is that an international agreement aspects (such as emissions to air and/or water, ozone depletion,
involving international or domestically harmonized climate change, etc.) it considers important for its activities.
taxes may be more difficult to negotiate than one This means that the standards may be effective as tools to cope
involving emissions quotas. Wiener (1998) argues that with global warming if they are utilized for that purpose. In
the voluntary assent nature of international agreements December 1997, the Climate Technology Initiative (CTI) of the
means that nations must be made better off to partici- OECD and the ISO issued a Joint Statement concerning the
pate, unlike domestic policies for which individuals can potential contribution of international standards to climate
be coerced. While in theory international or domesti- change (ISO, 1998a). In 1998, ISO established a Climate
cally harmonized taxes can be combined with side Technology Task Force to review the application of the ISO
payments to compensate losers, in practice such side 14000 series to climate change (ISO, 1998b).
payments are difficult to negotiate and tend to intro-
duce dynamic inefficiencies since individual firms (and In January 2000, ISO’s Technical Management Board estab-
countries) do not bear the full social cost of their lished an Ad Hoc Group on Climate Change (AHGCC) to
activities (Mestelman, 1982; Baumol and Oates, 1988; develop a comprehensive ISO strategy for climate change.
Kohn, 1992).76 While ISO has not ratified a climate change strategy, the
AHGCC has identified several areas in which the development
Cooper (1998) takes the opposite position, arguing that taxes and use of ISO standards may help facilitate implementation of
are the more feasible international approach. He argues that the UNFCCC and its Kyoto Protocol, including (among oth-
because of their rising contribution to global emissions, the par- ers):
ticipation of developing countries is essential for the long-term • codes of practice and guidelines for accreditation bod-
success of a programme to stabilize GHG concentrations in the ies and operational entities;
atmosphere. He argues that it may be impossible to forge an • CDM project validation, verification, and/or certifica-
agreement between rich and poor countries on the allocation of tion standards; and
future quotas. Instead, “mutually agreed-upon actions”, such as • GHG measurement, monitoring, and reporting stan-
nationally collected emission taxes, are the logical alternative. dards.
6.3.4.3 Standardization of Measurement Procedures 6.3.4.4 International Voluntary Agreements with Industry
Several efforts are underway to standardize measurement pro- Several voluntary initiatives that have an international impact
cedures. For example, in the automotive industry, manufactur- have been identified. For instance, various multinational firms
ers from Europe, Japan, and the USA, jointly with respective have undertaken voluntary actions to cope with climate
governments, are trying to harmonize exhaust emission mea- change, including setting up emissions trading systems and
surement methods for heavy-duty diesel vehicles (such as actu- engaging in trades.
al running conditions, measurement equipment, and proce-
dures) by 2006. If successful, the automobile manufacturers’ A VA was concluded in July 1998 between the EC and the
association intends to ask their respective governments to man- European Automobile Manufactures Association (ACEA). The
date the outcome. EC subsequently negotiated a similar agreement with Japanese
and Korean car manufacturers. The agreements are expected to
Other international standards are set by the Organization for reduce CO2 emissions from new cars in 2008 by 25% below
International Standardization (ISO). The ISO has begun to the 1995 level. Implementation is contingent on several pre-
conditions, such as fuel quality improvement. The EC has been
engaged in discussions with European industry associations
76 Unlike side payments on a lump-sum basis, which remain efficient, regarding a possible VA on energy efficiency in televisions and
side payments and/or subsidies determined by emission levels are not videocassette recorders (EEA, 1997).
(because then the environmental impact of the original policy measure
would be reduced). In the case of a tradable quota regime, the side The United Nations Environment Program (UNEP) Statement
payments take the form of more generous quota allocations, which are by Financial Institutions on the Environment and Sustainable
efficient, unless they are tied to emission levels. Development and the UNEP Insurance Initiative may be clas-
sified as international VAs. Banks and insurance companies smaller value of k can be an important incentive for countries
that sign these initiatives have to pay attention to environmen- that consider joining the agreement to actually do so (because
tal protection in their management and in their product selec- they believe that free-riding doesn’t pay). It is therefore
tions and operations. These initiatives are not binding and no extremely important that this threat be credible. However, in
monitoring of conduct has been carried out. In addition, the ter- the vast majority of cases it will not be (Hoel, 1993; Carraro
ritorial distribution of the signing banks and insurance compa- and Siniscalco, 1993; Barrett, 1994).
nies is uneven; participation from developing countries and the
USA is rare, and no Japanese banks signed the Financial More importantly, the actual number of Parties to an agreement
Institutions Initiative. usually exceeds the minimum participation level, which is
another reason why the above threat mechanism cannot be
Some domestic VAs may evolve as de facto international VAs. used to deter free-riding. The minimum participation level
The Energy Star programme began in 1992 as a voluntary part- clause may rather serve as a co-ordinating device than as an
nership between the US DOE, the US Environmental actual incentive to join the agreement.
Protection Agency, product manufacturers, and others. Partners
promote energy efficient products by labelling them with the The point, however, is that while agreements must offer some
Energy Star logo and educating consumers about the benefits alternative means for deterring free-riding, often they do not.
of energy efficiency.77 A similar programme has started in The literature on international environmental agreements
Japan, and several European governments and manufacturers therefore predicts that participation will be incomplete, and it
are considering setting up similar programmes. No analyses of often is. One of the few agreements that disproves this general
the costs and impacts of these programmes are available. rule is the 1987 Montreal Protocol on Substances that deplete
the ozone layer (UNEP, 1987; revised and amended in 1990
and 1992). The revised Protocol contains provisions that con-
6.3.5 International Climate Change Agreements: trol trade between Parties and non-Parties to the regime.
Participation, Compliance, and Liability Coupled with the financial resources available to developing
countries Parties that are not available to non-Parties, the
6.3.5.1 Participation Party–non-Party trade provisions are widely cited as a major
factor in explaining the near universal participation in the
One of the concerns in the economics literature on environ- ozone regime (Rowlands, 1995). See also Chapter 10 for a fur-
mental agreements (including the UNFCCC and Kyoto ther discussion on participation in international regimes.
Protocol) has been with increasing participation. The most
obvious way in which international agreements seek to increase 6.3.5.2 Compliance
participation is by means of a minimum participation clause.
This is an article that specifies the agreement will not be bind- The bulk of environmental agreements cannot operate the
ing on any of its Parties until a large enough number of coun- financial “carrots” and/or trade restriction “sticks” illustrated
tries–and, sometimes, particular countries or types of coun- by the ozone regime (Wiser, 1999a). The key question therefore
tries–have ratified the agreement. The minimum participation becomes: how can compliance by all Parties be secured, given
clause effectively makes the obligations of each of its signato- the consensual basis of international law and the reluctance of
ries a (non-linear) function of the total number of signatories. Parties to endow international bodies with legal authority to
enforce the international commitments Parties have (freely)
The minimum participation clause can serve as a strategic undertaken against them? The UNFCCC has near universal
device, but this need not always be the case. Suppose that the participation based on the traditional consensual approach but-
minimum participation level is given as k+. Then, if the actual tressed by provisions that aim to facilitate developing country
number of signatories is k, and k < k+ – 1, accession by a non- participation through the provision of financial and technolog-
signatory neither costs this country anything nor confers upon ical resources. The general nature of the commitments con-
it any advantage. This is because the agreement would not yet tained in the Convention would, in any case, prove difficult to
be binding on this country. However, if k = k+ – 1, then acces- enforce. These factors explain why Parties have not endowed
sion has a non-marginal effect on the environmental problem, the supreme body of the Convention, the CoP, with the author-
for the accession will mean that all of the k+ countries must ity to impose legally binding consequences on a Party in the
undertake the measures prescribed by the treaty. One way to event of non-compliance. Thus at present, no legal body exists
sustain full co-operation would be to set k+ equal to the total to enforce compliance in the climate change context.
number of countries affected by an environmental problem
(i.e., all countries), while ensuring that every potentially par- The quantified, legally binding commitments of the Kyoto
ticipating country is better off with the agreement than without Protocol pose a different challenge (Werksman, 1998). In the
it. Obviously, the threat not to undertake any abatement for a period after Kyoto, the majority of Parties signalled a clear
desire to move towards a compliance system based on legally
binding consequences, even though the compliance provisions
77 See http://www.epa.gov/appdstar/estar/ of the Kyoto Protocol provide that legally binding conse-
quences can only be adopted by means of a formal amendment Executive Board. However, this does not deal with the question
to the Protocol. Be that as it may, UNFCCC negotiations on the of what happens if the certification has not been undertaken to
institutions and procedures of a compliance system for the acceptable standards or if there are other significant irregulari-
Protocol are well advanced. ties in issuance procedures. Since both JI and IET involve only
Parties with emissions limitation commitments, treatment of
Various suggestions have been put forward in the literature and quotas traded using these mechanisms must be addressed if the
by Parties for the kind of legally binding consequences deemed issuer does not achieve compliance.
appropriate in the climate regime (Corfee Morlot, 1998; Wiser
and Goldberg, 2000). These include the following (Grubb et With regard to JI, Article 6.4 of the Kyoto Protocol specifies
al., 1998; UNFCCC, 2000): that if compliance by an Annex I country is questioned under
• allowing a “true-up” or grace period with opportunity Article 8, any ERUs acquired from that country cannot be used
to buy quotas; to meet the buyer’s commitments under Article 3, until the
• payment into a national or international compliance question of non-compliance by the originating country is satis-
fund that would invest in quotas; factorily resolved (UNFCCC, 1997).
• issuing cautions and/or reports to motivate public pres-
sure; If the ERUs issued for JI projects are determined by an interna-
• suspending treaty privileges (such as voting or the right tional review process, they reflect corresponding reductions of
to nominate members for office); the host country’s emissions and hence do not contribute to its
• exclusion from access to the Kyoto mechanisms; and non-compliance. However, if the decision on the quantity of
• financial penalties and implementing trade sanctions. ERUs issued is left to the host government and the penalties for
non-compliance are weak or not effectively enforced, JI projects
As a result of the difficulties in agreeing any of these conse- could contribute to non-compliance by the host country. Since
quences, and their future enforceability, more attention has been any ERUs transferred must be deducted from the party’s AA,
paid to policy tools that prevent non-compliance. Again, sug- they could be made subject to the liability provisions for IET.
gestions in the literature and from the Parties focused on ensur-
ing that emissions trading must be transparent at both the Party Article 17 does not include any provisions to deal with quotas
and entity level78, and that emissions data, such as inventories, that have been transferred by a country that subsequently fails
are publicly available. The idea being that Parties and/or firms to meet its emissions limitation commitment. A number of
may fear the reputation consequences of being identified as pol- options and variants have been proposed in the literature
luters. Furthermore, trading could be authorized only for eligi- (Goldberg et al., 1998; Grubb et al., 1998; Haites, 1998;
ble Parties or entities, namely those meeting some minimum Baron, 1999; Zhang, 1999b). The proposals reflect various
standards on monitoring and reporting. Non-eligible Parties strategies, including seller and (its opposite) buyer liability, eli-
and/or entities could be suspended from the trading system. gibility requirements for buyer and sellers, limits on the quan-
tity of quota that can be sold, limiting sales to quantities sur-
Parties also could require that insurance be obtained for traded plus to estimated or actual compliance needs, or restoration of
tonnes of emissions reductions. An extra quota reserve held for default. These approaches can be grouped into those that aim
the premium payer could then be claimed if the traded tonnes to prevent or limit the risk of non-compliance, and those
fail to be verified as emission reductions. A similar proposal is designed to provide sufficient deterrence (either requiring the
to establish a “true-up” period or grace period (of some sever- defaulting party to face the regimes’ non-compliance system or
al months or years) after 2012; a party that is able to come into else harnessing the market to discount quotas from those
compliance at the end of this true-up period would be deemed Parties considered to be most at risk).
to have complied with the agreement. Several other possibili-
ties have been mentioned to enforce compliance with the These liability proposals differ in terms of their environmental
Kyoto targets in a situation with IET. effectiveness, impact on compliance costs of Annex I Parties,
and market liquidity. The proposals can change the ratio of
6.3.5.3 Liability domestic reductions to purchased quotas used for compliance
and the mix of quotas purchased. In this way they can change
Liability provisions prescribe how quotas transferred by a the distribution of costs across countries, including non-Annex
party that subsequently is not in compliance with its emissions I countries through the volume of CDM activity. In policy
limitation commitment are treated. Since the developing coun- terms, it is likely that the most effective strategy would aim to
try hosts of CDM projects do not have emissions limitation combine one or more of them. Details of how this may be
commitments, this is not an issue for CERs once they have undertaken, as well as on how many of the proposals would be
been certified and issued by the operational entity or the implemented in practice, are currently subject to international
negotiations.79
78 Given the wording of Article 17, the participation of legal entities
79For example, whether under a buyer liability system transferred
in IET based on Article 17 would require an explicit decision by
CoP/MoP (see also Section 6.3.1). quotas would be invalidated pro rata or in reverse chronological order.
6.4 Interrelations Between International and If IET under Article 17 is limited to Annex I governments, they
National Policies, Measures, and Instruments would need to trade AAUs or introduce a domestic emissions
trading scheme to equate their national MACs. Views differ as
6.4.1 Relationship Between Domestic Policies and Kyoto to whether national governments have the information to
Mechanisms equate the national MACs. Experimental evidence indicates
that governments have the necessary incentive when trading
It is important to consider ways in which international and with other governments.83 If both Annex I governments and
national (domestic) policy instruments are likely to comple- legal entities are allowed to engage in IET under Article 17,
ment or conflict with one another in achieving GHG emissions this difference of views becomes academic as long as the
reduction commitments at least cost. A substantial number of domestic policies allow the legal entities to use the three Kyoto
economic models suggest that use of the Kyoto mechanisms, mechanisms as part of their compliance strategy. Government
established by Articles 6, 12, and 17 of the Kyoto Protocol (see participation in the Kyoto mechanisms changes the AAs avail-
Sections 6.3.1 and 6.3.2), combined with efficient domestic able for emissions by domestic sources.
policies could significantly reduce the cost of meeting the
emissions limitation commitments in the Protocol.80 The For entities to equalize their MACs there must exist either a
results of these models rely on assumptions of perfect foresight fully comprehensive domestic taxation system, which reflects
or certainty over future levels of emissions and on fully effi- the international price of AAUs, or open access to the interna-
cient domestic mitigation policies in Annex I Parties. They also tional emissions market for sources of emissions and entities
assume that developing countries will respond to the market covered by domestic policies. In theory, several domestic poli-
signal given by the international market of CERs and generate cy regimes can be envisioned that would allow entities in
CDM projects accordingly.81 Moreover, these models implicit- Annex I countries to equalize their MAC so as to minimize the
ly assume that national economies are operating within an effi- total cost of reduction. The implications for different types of
cient market framework. However, when an inefficient market domestic policy instruments are as follows (Dutschke and
framework is assumed the conclusions may differ. This is an Michaelowa, 1998; Hahn and Stavins, 1999):84
area in which further research is necessary. • Domestic tradable permits. The domestic tradable per-
mit programme must cover virtually all emissions
Articles 6 and 12 of the Kyoto Protocol enable governments sources, the cap must be set equal to the national AA
and entities of Annex I countries to support JI projects in other after trading by the government, and the participants
Annex I countries and CDM projects in non-Annex I countries, must be allowed to engage in international exchanges
respectively, in return for emissions credits. Several countries using the Kyoto mechanisms.85 Participants would be
have suggested the participation of legal entities in IET, allowed to use CERs and ERUs from CDM and JI pro-
although Article 17 (on IET) does not mention the participation jects towards compliance with their domestic obliga-
of entities in IET other than Parties (see Australia et al. (1998) tions. The country could also host JI projects.
and United Kingdom of Great Britain and Northern Ireland Participants could also buy or sell AAUs under Article
(1998)). 17 if participation by legal entities was allowed.86
• Domestic emissions and/or carbon tax. The domestic
The following discussion assumes that any supplementarity emissions and/or carbon tax must cover virtually all
provisions are not binding.82 In addition, MAC refers here to emissions sources, and the tax must be set equal to or
the marginal social abatement costs. Also, in this discussion it
is assumed that the initial market is perfect and then how vari- 83 An experiment with emissions trading among government teams
ous factors influence this is assessed.
representing four Nordic countries revealed a trading efficiency of
97% (Bohm, 1997). Thus, their social MACs almost exactly equated
at the national level.
84 To explore the conditions under which different domestic policies

80 See Chapter 8 and Bernstein et al. (1999), Bollen et al. (1999), can minimize costs with the aid of the Kyoto mechanisms, Hahn and
Cooper et al. (1999), Jacoby and Wing (1999), Kainuma et al. (1999), Stavins (1999) examine pairs of countries with different combinations
Kurosawa, et al. (1999), Manne and Richels (1999), McKibbin et al. of domestic policies. The discussion here presumes that all Annex I
(1999), Nordhaus and Boyer (1999), Tol (1999), Tulpulé et al. (1999), Parties wish to implement domestic policies that enable all sources to
and Weyant and Hill (1999) for estimates of the cost savings resulting equalize their MACs.
from various international quota trading arrangements. All the models
assume efficient domestic policies, and international trading, within 85A similar system could be based on voluntary agreements in which
each region. The models typically have between four and 20 regions. sources are allowed to trade emission reductions in the form of AAUs,
ERUs, or CERs.
81 See Baron and Lanza (2000) for a review of modelling results on
the contribution of the Kyoto mechanisms. 86The permits used in the domestic tradable permit system could be
AAUs. Alternatively, the domestic permits could be freely exchange-
82 See Section 6.3.1 for a discussion of supplementarity. able for AAUs.
less than the national marginal cost of abatement after Thus, if access to the international mechanisms is limited to
trading by the government. Entities receive tax credits governments, the Kyoto mechanisms are likely to be used only
for CERs and ERUs, and for AAUs if participation by to reduce positive marginal domestic abatement costs. And,
legal entities is allowed under Article 17. The country since measures with positive costs under a regime with restric-
could also host JI projects.87 tions make up only a fraction of total mitigation under an effi-
• Non-tradable permits. Virtually all sources are covered cient domestic policy, the quantitative significance of the Kyoto
by non-tradable emissions limits, which allow the use mechanisms is greatly reduced. If access to the Kyoto mecha-
of quotas to achieve compliance. The total emissions nisms is given to individual sources, there arises the potential for
allowed under the permits must be equal to or less than a second principal-agent problem in that individual entities may
national AAs after trading by the government. Entities mitigate in ways that minimize private costs but fail to minimize
could use purchased CERs and ERUs–and AAUs if social costs in the national economy. In this case, both interna-
participation by legal entities is allowed under Article tional efficiency and domestic efficiency are jeopardized.
17–towards compliance with their emissions limits.
The country could also host JI projects to reduce emis-
sions below the emissions limits or to enhance sinks. 6.4.2 Conflicts with International Environmental
Regulation and Trade Law
If sources are subject to regulations, design or performance
standards, VAs, or taxes and at the same time there is no per- Compatibility of environmental protection with free trade
mit allocated to the source, and CERs, ERUs, or AAUs cannot and/or investment has been important in both the environmen-
be used for compliance, entities might still be allowed to trade tal and trade fields. The Committee on Trade and Environment
them on the international market, provided that the volume of the WTO has under discussion the relationships between the
sold does not exceed the volume of quotas acquired. Such provisions of the multilateral trading system and trade mea-
domestic policies are unlikely to equate MACs across sources sures for environmental purposes, including those pursuant to
and so will not result in the lowest cost of compliance with the multilateral environmental agreements (MEAs). Also under
national emissions limitation commitment. discussion are the relationships between environmental poli-
cies and measures with significant trade effects and the provi-
In practice, the combination of domestic policies and Kyoto sions of the multilateral trading system. Some analysts suggest
mechanisms necessary to achieve cost-effectiveness may not that the WTO is not an appropriate forum to resolve these ques-
be implemented for at least two reasons. First, use of the Kyoto tions and propose the establishment of a multilateral environ-
mechanisms may be restricted in some countries, either mental organization for this purpose (Esty, 1994).
because supplementarity restrictions are binding or because a
national government that imposes an emissions tax may limit The UNFCCC is one of more than 200 multilateral and bilat-
the use of the mechanisms towards compliance with tax liabil- eral international environmental agreements (MEAs) whose
ities to protect its revenue. compatibility with free trade and investment is debated
(UNEP, 1983, 1991). More than 20 MEAs incorporate explic-
Second, it is difficult to cover all sources and relevant sinks it trade measures.88 Other MEAs address the need to co-ordi-
with policies that provide an incentive to implement measures nate restrictions on conduct taken in compliance with obliga-
that equate MACs. Some sources are small and are excluded tions they impose and the expanding regime of trade and
for administrative reasons. Other sources, such as methane investment law under the WTO/GATT umbrella.89 UNFCCC
emissions by livestock, are difficult to include in a trading or Article 3.5 (UNFCCC, 1992), following GATT Article XX,
tax regime. Thus, the overall cost-effectiveness of the system stipulates that “Parties shall co-operate to promote a support-
will fall short of the theoretical ideal. ive and open international economic system that would lead to
When part of the GHG emissions reduction needed to realize

the Kyoto commitments offers net economic benefits to the 88 See Ward and Black (2000, p. 122). Some MEAs, like the 1973
national economy, the role of the Kyoto mechanisms changes Convention on International Trade in Endangered Species (CITES,
significantly. Relative to a theoretical scheme of complete and 1973), the 1989 Basel Convention on the Control of Transboundary
perfect trading, a purely national mitigation strategy would still Movements of Hazardous Waste (UNEP, 1989), or the 1987 Montreal
give rise to inefficiencies for individual countries or sources, as Protocol on Substances that Deplete the Ozone Layer Articles, 4.1,
a result of differentials in MACs. However, the advantages that 4.2, and 4.3, restrict trade in polluting products or products that con-
tain controlled substances (UNEP, 1987). Some, like Montreal
could be obtained from eliminating such inefficiencies through
Protocol Article 4.4, propose trade sanctions, but these are, however,
international mechanisms are more limited because of princi- not implemented, even on products manufactured with polluting sub-
pal-agent problems. stances.
89Agenda 21 (UN, 1992), Chapters 2.3, 2.11, 2.20 and 17; Principles
87Only sources or sinks not subject to the tax are likely to be approved 11 and 12 of the Rio Convention; Convention on Biodiversity, Article
as JI projects, to reduce the risk of double counting. 22.1.
sustainable economic growth and development in all Parties ... grammes) might apply taxes or environmental policies and
Measures taken to combat climate change, including unilater- measures in a way that arguably discriminates against WTO
al ones, should not constitute a means of arbitrary or unjusti- trade partners. Environmental regulations, taxes, or voluntary
fiable discrimination or a disguised restriction on internation- measures could be challenged as indirect forms of protection
al trade.” that fall disproportionately on imported products. Recent cases
suggest more cases could be argued under the agreement on
There are no presently cited cases of trade claims against mea- Technical Barriers to Trade (TBT) rather than GATT.93
sures enacted in widely subscribed MEAs like the CITES or
the Montreal Protocol. Neither the UNFCCC nor the Kyoto Trade-related environmental measures traditionally pose prob-
Protocol now provides for specific trade measures. The debate lems for the multilateral trading regime. Considerations of sov-
over conflicts between trade and MEAs stems from the ereignty favour the autonomy of WTO Parties to set health or
prospect that trade-related measures might be enacted to limit environmental standards for all products, domestic or imported,
trade in polluting products and in endangered species, or trade consumed in their national territories. Each country has broad
in goods created by means of polluting processes and produc- discretion to introduce its own policies and measures, including
tion methods (PPMs). MEAs could also require general or spe- energy efficiency standards and import restrictions, to protect its
cific trade measures to sanction non-Parties to the MEA or environment and/or its people’s health, subject to GATT Article
non-compliant MEA members. 3 (national treatment). However, more debatable is whether
GATT permits a government to place restrictions or bans on the
IET under Article 17 of the Kyoto Protocol has raised questions import of goods or services, themselves not dangerous or pol-
of WTO compatibility. Early analysis concludes that the rules luting, that are produced outside its borders through PPMs that
governing the transfer and mutual recognition of allowances do not meet its national environmental regulations or standards.
are not covered by WTO because they are neither products nor PPM issues may be characterized as “clean products produced
services (Werksman, 1999).90 However, several domestic poli- through dirty processes”. As MEAs increasingly utilize trade
cies and measures that may be taken in conjunction with the measures to prevent non-members from free-riding, the consis-
Kyoto Protocol might be considered to pose WTO problems, tency of such trade measures with the relevant GATT articles
such as excessively restricting trade regulations, GATT-incon- (Article XX, in particular) has been questioned when they are
sistent border charges, or illegal subsidies.91 based on the lack of corresponding PPM requirements in the
exporting countries (Murase, 1995, 1996). At present, the rela-
National programmes of permit distribution for emissions trad- tion between WTO-compatible environmental measures and
ing (see Section 6.2.2.3) or national environmental aid (subsi- MEAs remains unsettled. It is also unclear whether WTO law is
dies) might benefit domestic firms or sectors over importers or neutral in its treatment of alternative trade-related measures
foreign competitors (Black et al., 2000).92 In addition, a Party (e.g., standards, taxes, and subsidies).
or group of Parties (as part of the national implementation pro-
Prior to 1995, when GATT 1994 replaced GATT 1947 under
the WTO agreement, six panel reports involved environmental
issues related to trade measures under Article XX (Ahn, 1999).
90 Black et al. (2000) note that if emissions trading is treated as a The Appellate Body under the revised WTO dispute settlement
financial service, there is no clear policy reason to exclude non-Parties system has since decided two further cases.94 While none of
to the Kyoto Protocol from trading in these markets. these disputes challenged the environmental objectives pur-
91 For example, a Party might impose equivalent product-specific
energy-efficiency standards on domestic and imported refrigerators or
automobiles. Or a Party might ban the domestic production and 93 For example, when the EC concluded a voluntary agreement with
import of rice grown under methane intensive cultivation methods or ACEA to reduce CO2 emissions from automobiles in February 1999,
of wood harvested under non-sustainable forestry practices. the Commission asked non-EU automobile manufactures to conclude
Alternatively, a party might impose a tax on the carbon content of the same kind of agreements, fearing that the European car manufac-
domestic and imported fuels or the carbon consumed in the production turers might lose international competitiveness. As a result, in
of national and imported products. Finally, a Party might impose October 1999, the Japanese Automobile Manufacturing Association’s
countervailing duties against imports from nations that do not force voluntary commitment to follow the same standards was approved by
the internalization of GHG emissions costs on national producers. the EU. When the Japanese government enacted an amendment to
strengthen fuel efficiencies of automobiles, both European and
92 National energy policies have long been replete with distortionary American governments expressed their concern, through formal TBT
subsidies (Black et al., 2000, pp. 90–98). However, since even subsi- procedure, that it would become an invisible trade barrier for auto-
dies that encourage production below marginal factor costs have mobile export. Also, when the EC intended to propose a Directive on
rarely been GATT challenged, it is unlikely that national policies that Waste Electrical and Electronic Equipment, both the US and Japanese
fail to internalize full environmental costs will be GATT illegal, unless governments expressed the same concern.
they explicitly discriminate between national production and imports.
Energy efficiency subsidies to internalize environmental benefits are, 94 Perkins
(1999); see also United States -Standards for Reformulated
in principle, permissible under the GATT subsidies code. and Conventional Gasoline (World Trade Organization, 1996).
sued by the governments concerned, all rulings found that the law does allow compensating charges or border adjustments to
contested trade restrictions were in some respect discriminato- similar imported products to equalize the tax burden on domes-
ry or unnecessarily trade restrictive. However, more recent rul- tic production. While direct taxes (wages, incomes) may not be
ings, including those of the Appellate Body, have narrowed or compensated on imports or refunded on exports, certain indi-
rejected earlier panel interpretations that had held PPMs either rect taxes, such as sales taxes or excises, may be adjusted at the
per se inconsistent with the intent of GATT or highly restrict- border.98 Indirect environmental taxes levied on a locally pol-
ed by the terms of Article XX. luting product like imported fuel or gas guzzling automobiles,
as long as not in excess of charges imposed on like domestic
The GATT Panel rulings in the Tuna–Dolphin I dispute read products, would be WTO consistent. Analogous indirect taxes,
Articles XXb and XXg so as to preclude provisional justifica- equal to domestic taxes, imposed on non-locally polluting
tion for extraterritorial PPMs as inherently arbitrary measures imports produced through foreign process and production
destructive to the system of international trade.95 The panel in methods that were environmentally damaging have been
the Shrimp–Turtle dispute also explicitly held that the US approved in the GATT dispute settlement process.99
shrimp embargo belonged to the class of measures (PPMs) that
threatened the multilateral trading system and therefore violat- Nevertheless, some border charges on products manufactured
ed the terms of the Chapeau of Article XX. However, the WTO through GHG-intensive PPMs might be WTO inconsistent.
Appellate Body overruled the Panel’s view in the Although specific taxes on final products (e.g., fuels) and on
Shrimp–Turtle case. The WTO indicated implicitly that it does “goods physically incorporated” into final products (e.g., a
not categorically disallow the use of extrajurisdictional feedstock or catalyst) may be adjusted at the border, so-called
PPMs.96 Although the import restrictions in question applied to hidden taxes on inputs, such as transport, machinery, advertis-
shrimp harvesting practices and not to any characteristic of the ing, or energy entirely consumed during production, have not
shrimps themselves, the Appellate Body treated the measure as been legally adjustable. Current practice is not fully symmetri-
provisionally justifiable. It considered the legality of the spe- cal in its treatment of regulatory standards and taxes as envi-
cific restrictions, which were held to be invalid under the pro- ronmental instruments.100
hibition of the Chapeau of Article XX of discriminatory and
arbitrary measures. The US embargo was ruled overly broad,
its enforcement inflexible in considering the conservation 97 Nor is there yet guidance whether trade restrictions could be
effects of other nations’ shrimping practices, disparate in its enforced against a UNFCCC party with differentiated responsibilities
treatment of other nations, deficient in due process, and put under the MEA, even if WTO-legal restrictions against imports from
into effect without sufficient good-faith efforts to secure wider non-Annex I Parties would confuse the meaning of “differentiated
multilateral acceptance of its exclusionary programme (Berger, responsibilities”.
1999).
98 Economists have long noted the lack of precision of the categories
Although as yet there is no universally accepted interpretation direct and indirect taxes, as well as the dependence of the ability to
pass on the incidence of taxes to consumers (indirect taxes) on mar-
of the Shrimp–Turtle Appellate Body decision, some analysts
ket structure. However, the terms continue to be applied with reason-
suggest the holding implies PPMs no longer violate WTO by able ease in legal practice (Demaret and Stewardson, 1994, pp.
their very nature (Ahn, 1999). Others argue such a conclusion 14–16).
is premature legally or has been insufficiently debated and test-
ed in the scientific literature (Jackson, 2000). In either case, the 99 In the Superfund Tax case, US border charges on certain waste cre-
ruling did not refer to important questions relevant to the inter- ating feedstock chemicals used as inputs in the processing of import-
action of WTO and the UNFCCC and/or Kyoto Protocol. It is ed chemical derivative products were ruled to be legal. These border
unclear whether national PPMs need only be enacted by Parties charges, equal to taxes imposed on similar US feedstock, were held
to an MEA in their compliance programmes, or whether each valid even though there was no transboundary damage outside the
nation of origin (World Trade Organization, 1988). A border tax on
particular PPM, its mode of application, and/or its sanction
shrimp caught with turtle-unsafe methods and similar to a domestic
scheme are the subjects of multilateral accord. Nor is it certain tax on such products would seem to fall under this rule. Products that
how widely the multilateral agreement that supports the PPM have been produced through differential production methods, like
must be subscribed to make it WTO compatible.97 products that have different environmental qualities in themselves,
have usually been considered to be not “like products” and therefore
Parties to MEAs might base national climate programmes on allowable objects of differential, non-discriminatory taxes (Demaret
pollution taxes rather than product or PPM standards. WTO and Stewardson, 1994, pp. 34–41).
100 A limited amendment to the treatment of energy taxes was made
in the Uruguay 1994 Agreement on Subsidies and Countervailing

95 United States–Restrictions on Imports of Tuna (World Trade Measures. Border adjustments were allowed for those nations that
Organization, 1994). still imposed cumulative prior-stage indirect taxes on “energy, fuels,
and oil used in the production process”. This exception to the hidden
96See Shrimp–Turtle decision, paragraphs 121 and 187b (World Trade tax rule was intended to cover only a limited set of nations (Demaret
Organization, 1999); see also Perkins (1999, p. 119). and Stewardson, 1994, pp. 29–30).
6.4.3 International Co-ordination of Policy Packages Various partial equilibrium models have been designed to ana-
lyze ecological dumping, many using static or dynamic game
When developing domestic policies to meet their emissions theory. Early analyses used a Cournot setting, which models
limitation commitments under the Kyoto Protocol, some long-run competition among firms as a series of strategic
Annex I Parties may wish, or be under pressure, to impose less capacity or output choices. The general conclusion from these
stringent obligations on some industries to improve their com- early models is that the optimal tax (or any comparable domes-
petitiveness. The sensitivity of industry location to the strin- tic environmental policy instrument) would be set below mar-
gency of environmental regulation is called “ecological dump- ginal damage. As a consequence, environmental policies are
ing”. International co-ordination of environmental policies designed to try to protect domestic industries. If producers col-
may be needed to reach an economically efficient outcome in lude, however, the incentive for governments to engage in eco-
which it is impossible to make one country better off without logical dumping is reduced (Ulph, 1993).
making at least one other country worse off.
The ecological dumping conclusion could change completely
Under certain ideal conditions (e.g., perfect competition in all if governments act strategically in setting taxes, and if there is
markets) there is theoretically no need for international policy Bertrand competition (firms compete by choosing the price to
co-ordination (Oates and Schwab, 1988). However, such condi- charge, rather than the quantity to produce) instead of Cournot
tions do not hold if there is imperfect competition in goods mar- competition (Eaton and Grossman, 1986; Barrett, 1994;
kets or unemployment (Rauscher, 1991, 1994; Barrett, 1994; Conrad, 1996; Ulph, 1996). If, however, producers act strate-
Kennedy, 1994; A. Ulph, 1994; D. Ulph, 1994). If, and to what gically or can collude, then the outcome in terms of ecological
extent, international differences in environmental regulation dumping is not straightforward. Quantity-based environmental
have trade or even relocation implications obviously depends on regulation, if implemented unilaterally in a duopolistic case
a host of factors. These include country size, availability of with a domestic and foreign supplier, might actually benefit
alternatives, relative resource endowment, mobility of produc- domestic firms at the cost of domestic consumers (Kooiman,
tion factors, competition level, scope for innovation, possibility 1998). If both governments and producers act strategically,
of border-tax adjustment, chances of retaliation, and redistribu- again, the incentive for governments to distort the environ-
tion of environmental tax revenues (OECD, 1996a). mental policy is less than when only governments acted strate-
gically, so that the Bertrand outcome can be similar to the
Although it is clear that many factors affect the relationship Cournot outcome (Ulph, 1996).
between the stringency of pollution control policies (if imple-
mented unilaterally) and net exports, some authors have car- Ecological dumping also has been analyzed with the help of gen-
ried out rather straightforward empirical tests on the relation- eral equilibrium models of international trade involving exter-
ship between the two variables. Han and Braden (1996) exam- nalities (Rauscher, 1994). It was shown that in a second-best
ined 19 US manufacturing industries between 1973 and 1990 world for several market structures–monopoly power of the
with the help of regression analysis. They found the relation- exposed sector or oligopoly on an outside market (Elbers and
ship between pollution abatement costs and net exports to be Withagen, 1999)–ecological dumping might not (always) be ben-
negative in most of the sample period, but diminishing over eficial from a welfare point of view. This is contrary to the con-
time (with elasticities close to zero in many industries). Van clusions of some of the earlier partial equilibrium models,
Beers and Van den Bergh (1997), using a gravity model of
international trade and two measures of environmental strin- The most interesting case for analyzing policy co-ordination
gency, did not find a significant relationship between environ- needs is that in which national commitments have been decided
mental stringency and total exports for the “dirty” industries. internationally, but individual Parties may, but need not, co-ordi-
However, when they focused on the non-resource based, and nate their national policies to fulfil their commitments. This
therefore more “mobile”, industries only this relationship was would be the Kyoto Protocol case, after ratification. Hoel (1997)
significant. has addressed this case and argues that governments may tend to
subsidize indirectly particular imperfectly competitive industries
Early empirical research on the impact of environmental poli- selling on the international market. To prevent this from happen-
cy on trade found little evidence of a measurable relationship, ing, an argument can be made in favour of policy co-ordination,
partly because of low environmental taxes and partly through which is possible but not required in the Kyoto Protocol, except
data and statistical limitations. Therefore, many studies have insofar as the Kyoto mechanisms are concerned.101
concentrated on simulations of environmental tax regimes.
From a survey of these studies, IPCC’s SAR (IPCC, 1996) con-
cluded that estimates of the effects of environmental policies 6.4.4 Equity, Participation, and International Policy
(notably carbon taxes) on trade vary wildly, depending on Instruments
model parameters (such as energy demand elasticities and
assumptions regarding the substitutability of traded goods) and The participation of developing countries and EITs in the
the policy scenario examined (extent of reduction in emissions UNFCCC is important, since these countries are both large
and extent of international co-ordination). future emitters of carbon, and sources and potential sources of
low-cost abatement investments (McKibbin and Wilcoxen, Of course, a country’s participation in an allocation scheme
2000). Since the participation of regions with low marginal depends on net costs (the sum of transfer payments associated
abatement costs may be critical for aggregate cost and emis- with quota trade, plus direct mitigation costs), not just the
sions reduction, encouraging their participation may require a direction of income transfers. However, that the direction of
serious consideration of the equity implication of that policy transfers may change over time, especially for China and the
(Morrisette and Plantinga, 1991). Unlike efficiency, there is no transition economies, complicates the incorporation of equity
universal consensus definition of equity by which policy goals in quota system design (Edmonds et al., 1995). Although
instruments can be evaluated. Recent research on equity, how- quota allocation is referred to here, the analysis applies equiv-
ever, analyzed the welfare impacts of climate policy alterna- alently to redistributing international carbon tax revenues
tives to understand the participation incentives (for different (Pezzey, 1992; Rose et al., 1998).
countries and regions) of various policy instruments (Bohm
and Larsen, 1994; Edmonds et al., 1995; Rose et al., 1998). Bohm and Larsen (1994) explore the participation implications
of two of the more frequently discussed of the allocation
The types and structures of mechanisms adopted (such as uni- schemes listed in Table 6.3 (allocation by population and by
form taxes, tradable quota, or individual non-tradable targets) GDP) for a quota regime covering Western Europe and Eastern
affect the scope and timing of participation in some predictable Europe. Both of these allocations, and combinations thereof, lead
ways (Edmonds et al., 1995). For example, individual non- to substantial losses by the Eastern European countries, making
tradable targets based on the stabilization of national emissions their participation unlikely (Bohm and Larsen, 1994). Given the
would shift more than 80% of aggregate costs to non-OECD aggregate cost-savings associated with their participation, an
regions by 2020, making it unlikely that these regions would ideal allocation system would provide the minimum possible
participate in such an agreement (Edmonds et al., 1995). participation incentive to the Eastern European countries, while
maximizing potential abatement cost savings to the western
Alternatively, with a common global carbon tax and full par- countries. The authors identify this lower bound in terms of east-
ticipation, the burden of abatement costs would be distributed ern country quota-to-emissions ratios that would induce partici-
unevenly across the world and would change with time. A large pation, ranging among countries from 0.85 to 0.91. This incen-
burden would fall on OECD and economies in transition in the tive scenario results in zero net gains (losses) to the eastern coun-
early years, shifting to developing nations in later years tries, and net costs to each western country of 0.09% of GDP. In
(Edmonds et al., 1995). Transition economies would thus be the presence of wide disparity in current regional economic wel-
unlikely to participate in a common global carbon tax agree- fare, the perceived equity benefits of such a scenario may facili-
ment. If such nations were to participate in the short run, tate a more cost-effective agreement than any that might be
growth and changing economic and political circumstances achieved without Eastern European participation.103
may increase the probability of their dropping out of a tax
agreement when they face increasing net participation costs If quota allocations are used to induce participation by transi-
(Edmonds et al., 1995). tion economies and developing countries, the international
wealth transfers that occur as a result may cause fluctuations in
The equity implications of a global tradable quota system real exchange rates and international capital and trade flows
depend on quota allocation. The portion of global abatement (McKibbin and Wilcoxen, 1997a, 1997b). The magnitude of
costs borne by a country or group of countries depends on its these fluctuations and the extent to which they could be prob-
relative position in the quota market; net sellers of quota effec- lematic are uncertain. McKibbin and Wilcoxen (2000) suggest
tively receive income transfers from net buyers. Table 6.3 an alternative approach to the problem of equity versus partic-
describes the relative position of groups of countries in an ipation incentive, which includes both short-run emissions
international quota market, based on six possible initial alloca- quota and long-run emissions “endowments”. In this approach,
tions (Edmonds et al., 1995).102 the price of emissions quota is set through international nego-
tiation at regular intervals (they suggest every decade), and
each country issues as many quotas as necessary to keep the
price at the negotiated level. The price of emissions endow-
101Hoel (1997) uses a simple model of a group of identical countries ments, however, is flexible, and the quantity allowed per coun-
that interact through mobile real capital. Given the total stock of real try is fixed. Each participating country’s endowment prices
capital for the group of countries as a whole, he demonstrates that if reflect expected future prices of emissions quota.
competition in the goods markets is imperfect or if unemployment
exists, a lack of international policy co-ordination may lead to out-
comes that are not Pareto optimal. However, he finds there is no need
for policy co-ordination if after-tax wages are exogenous, but this
seems to be a rather strong assumption.
103GDP per capita in 1989 ranged from US$1,200–1,500 in Albania,
102 Rose et al. (1998) analyzed the welfare impacts of various tradable Turkey, Tajikistan, and Uzbekistan to more than US$20,000 in
permit allocations and obtained results that are consistent with many Switzerland, Luxembourg, and the Scandinavian countries (Bohm
of the results of Edmonds et al. (1995). and Larsen, 1994).
Table 6.3: Direction of income transfers in international emissions trading, six possible quota allocation schemes
Anticipated position of participating countries, 2005-2095
Tradable quota allocation OECD EITs China and other Rest of world
countries centrally-planned
Asian countries
Grandfathering Net sellers Net sellers Net buyers Net buyers
Equal per-capita emissions Net buyers Net buyers Net sellers early,
Net buyers post-2035
GDP-weighted emissions Net sellers Net effect small Net buyers Net effect small
and ambiguous and ambiguous
GDP-adjusted grandfathering Net buyers Net sellers Net effect small Net effect small
and ambiguous and ambiguous
No harm to developing nations Net buyers Net sellers early, net Net sellers Net sellers
buyers post-2035
No harm to non-OECD nations Net buyers Net sellers early, net Net sellers Net sellers
buyers post-2035
Source: Edmonds et al. (1995).

Notes: Under GDP-adjusted grandfathering, emissions rights have a baseline at current levels, adjusted for income growth. The “no harm” scenarios
allocate sufficient quota to the relevant countries to cover their own emissions and to generate enough revenue to cover economic costs of protocol par-
ticipation.
6.5 Key Considerations policies, like taxes, that limit cost uncertainty. In addition,
there is mounting evidence that rigid emission limits are not
This section deals with the most important aspects that could appropriate in the short run under a weak emissions reduction
be considered in designing climate change policy. regime (Newell and Pizer, 1998).
Recently, Pizer (1997a) argued that excluding uncertainty

6.5.1 Price versus Quantity Instruments might lead to policy recommendations that are too lax. Ebert
(1996) has argued that improving the information of the regu-
Optimal climate change policy–irrespective of whether it is lator is crucial, because decision makers always overestimate
national or international–under uncertainty and/or asymmetric abatement costs if they neglect that firms possess an abatement
information deviates from more typical analyses with best- option other than decreasing output–additional abatement tech-
guess parameter values and/or information symmetry, not only nology.
in terms of the stringency of policies, but also in terms of pol-
icy design (Weitzman, 1974). Depending on the degree of To increase the effectiveness and efficiency of domestic GHG
uncertainty and correlation between the marginal damage and emissions reduction policies, it is argued that governments
MAC curves, taxes could be a better or inferior alternative to could adopt policies that take a comprehensive approach, stim-
tradable permits (Watson and Ridker, 1984; Stavins, 1996).104 ulating the development of all kinds of new materials, materi-
Recent literature shows that taxes dominate quotas for the con- als substitution, product re-design, resource productivity, and
trol of GHGs when the environmental damage function is waste management strategies that can reduce GHG emissions.
rather flat (Hoel and Karp, 1998). Hoel (1998) and Pizer Moreover, governments could set long-term GHG emissions
(1997b) point out that the lack of a clear, short-term threshold reduction targets, since the optimal set of technical options at
for severe climate damages favours the use of market-based low GHG mitigation levels may not include options that are
efficient at high GHG emissions reduction levels.
104Montero (2000b) finds that under incomplete enforcement tradable

permits perform relatively better than taxes.
6.5.2 Interactions of Policy Instruments with Fiscal To achieve widespread benefits from a new technology, three
Systems steps are required (Schumpeter, 1942):
• invention, the development of a new technical idea;
It is important to consider how the domestic policy instruments • innovation, the incorporation of a new idea into a com-
examined in this chapter may interact with existing fiscal sys- mercial product or process and the first marketplace
tems, because such interactions can have significant effects on implementation thereof; and
the overall costs of achieving specified GHG emissions reduc- • diffusion, the typically gradual process by which
tion targets. A growing literature demonstrates theoretically, improved products or processes become widely used.
and with numerical simulation models, that the costs of
addressing GHG targets with policy instruments of all Rates of invention, innovation, and technology diffusion are
kinds–command-and-control as well as market-based affected by opportunities that exist for firms and individuals to
approaches–can be greater than anticipated because of the profit from investing in research, in commercial development,
interaction of these policy instruments with existing domestic and in marketing and product development (Stoneman, 1983).
tax systems.105 Domestic taxes on labour and investment
income change the economic returns to labour and capital, and Governments often seek to influence each of these directly, by
distort the efficient use of these resources. investment in public research, subsidies to research and tech-
nological development, dissemination of information, and
The cost-increasing interaction reflects the impact that GHG other means (Mowery and Rosenberg, 1989). Policies with
policies can have on the functioning of labour and capital mar- large economic impacts, such as those intended to address
kets through their effects on real wages and the real return to global climate change, can be designed to foster technological
capital (see, e.g., Parry et al., 1999). By restricting the allow- invention, innovation, and diffusion (Kemp and Soete, 1990).
able GHG emissions, permits, regulations, or a carbon tax raise For the impact of R&D policies on technology development
the costs of production and the price of output, thus reducing and transfer, see the IPCC Special Report on Technology
the real return to labour and capital, and exacerbating prior dis- Transfer (IPCC, 2000).
tortions in the labour and capital markets. Thus, to attain a
given GHG emissions target, before or after use of IET and To examine the link between policy instruments and techno-
other Kyoto mechanisms, all the instruments have a cost- logical change, environmental policies can be characterized as
increasing “interaction effect”. market-based approaches, performance standards, technology
standards, and voluntary agreements. All these forms of inter-
For policies that raise revenue for the government, carbon vention have the potential to induce or force some amount of
taxes and auctioned permits, this is only part of the story, how- technological change, because by their very nature they induce
ever. These revenues can be recycled to reduce existing distor- or require firms to do things they would not otherwise do.
tionary taxes. Thus, to attain a given GHG emissions target, Performance and technology standards can be explicitly
revenue-generating policy instruments have the advantage of a designed to be “technology forcing”, mandating performance
potential cost-reducing “revenue-recycling effect” as com- levels that are not currently viewed as technologically feasible
pared to the alternative, non-auctioned tradable permits or or mandating technologies that are not fully developed. The
other non-revenue-generating instruments (Bohm, 1998). For a problem with this approach can be that while regulators typi-
more complete theoretical discussion, see Chapter 7, and see cally assume that some amount of improvement over existing
Chapter 8 for the empirical results. technology will always be feasible, it is impossible to know
how much. Standards must either be made not very ambitious,
or else run the risk of being ultimately unachievable, which
6.5.3 The Effects of Alternative Policy Instruments on leads to great political and economic disruption (Freeman and
Technological Change Haveman, 1972). However, in the case of obstructed technolo-
gy, regulators know quite well the technology improvements
In the long run, the development and widespread adoption of that are feasible. Thus, although the problem of standards
new technologies can greatly ameliorate what, in the short run, being either too low or too ambitious remains a possibility, it
sometimes appear to be overwhelming conflicts between eco- does not make standards inherently incapable of implementing
nomic well being and environmental quality. Therefore, the some portion of the available technology base, and to do so
effect of public policies on the development and spread of new cost-effectively on the basis of cost–benefit tests.106
technologies may be among the most important determinants
of success or failure in environmental protection (Kneese and 106 There is, however, an interesting example in which ambitious stan-
Schultze, 1975). dards were finally achieved. New emission standards for passenger
cars (the so-called “Muskie” standard), when first enacted in the USA
in 1970, were thought to be too ambitious because no such technolo-
gies existed in the world. However, a technology breakthrough by two
105
For the basic analysis and economic intuition of this literature, see automobile manufacturers in Japan achieved the standard (Honma,
Kolstad (2000, pp. 281–284). 1978; OECD, 1978).
6.5.3.1 Theoretical Analyses On the basis of an analytical and numerical comparison of the
welfare impacts of alternative policy instruments in the pres-
Most of the work in the environmental economics literature on ence of endogenous technological change, Fischer et al. (1998)
the dynamic effects of policy instruments on technological argue that the relative ranking of policy instruments depends
change has been theoretical, rather than empirical, and the the- critically on firms’ ability to imitate innovations, innovation
oretical literature is considered first. The predominant theoret- costs, environmental benefit functions, and the number of
ical framework involves what could be called the “discrete firms that produce emissions.108 Finally, the study includes an
technology choice” model. In this, firms contemplate the use of explicit model of the final output market, and finds that it
a certain technology that reduces the marginal costs of pollu- depends upon empirical values of the relevant parameters
tion abatement and that has a known fixed cost (Downing and whether (auctioned) permits or taxes provide a stronger incen-
White, 1986; Jung et al., 1996; Malueg, 1989; Milliman and tive to adopt an improved technology.
Prince, 1989; Zerbe, 1970).
Finally, recent research investigates the combined effect of the
While some authors present this approach as a model of inno- pollution externality and the positive externality that results
vation, it is perhaps more useful as a model of adoption.107 The from learning-by-doing with mitigation technologies. Since the
adoption decision is one in which firms face a given technolo- benefit from learning occurs after the learning has taken place,
gy with a known fixed cost and certain consequences, and must a dynamic analysis is needed. Some analyses shown that
decide whether or not to use it; this corresponds precisely to dynamic efficiency (discounted least cost, aggregated over
the discrete technology choice model. Innovation, on the other time) requires that the incentive for emissions-mitigating inno-
hand, involves choices about research and development expen- vations be set higher than the penalty on emissions, especial-
ditures, with some uncertainty over the technology that will ly if account is taken of “leakage”. This is in contrast with the
result and the costs of developing it. Models of innovation conclusions of comparative static analysis upon which most
allow firms to choose their research and development expendi- environmental policy analysis is grounded (e.g., Baumol and
tures, as in Magat (1978, 1979), or incorporate uncertainty over Oates, 1988), under which the two incentives should be equal
the outcome of research (Biglaiser and Horowitz, 1995; in all time periods (for a formal analysis, see Read (1999,
Biglaiser et al., 1995). 2000)).
Several researchers have found that the incentive to adopt new 6.5.3.2 Empirical Analyses
technologies is greater under market-based instruments than
under direct regulation (Downing and White, 1986; Jung et al., Empirical analyses109 of the relative effects of alternative envi-
1996; Milliman and Prince, 1989; Zerbe, 1970). This view is ronmental policy instruments on the rate and direction of tech-
tempered by Malueg (1989), who points out that the adoption nological change are limited in number, but those available
incentive under a freely allocated tradable permits system focus on technological change in energy efficiency, and thus
depends on whether a firm is a buyer or seller of permits. For are potentially of direct relevance to global climate policy.
permit buyers, the incentive is larger under a performance stan- These studies can be considered within the three stages of tech-
dard than under tradable permits. nological change introduced above–invention, innovation, and
diffusion. It is most illuminating, however, to consider the
Comparisons among market-based instruments are less consis- three stages in reverse order.
tent. Downing and White (1986), who consider the case of a
single (sole) polluter, argue that taxes and tradable permit sys- Beginning, then, with empirical analyses of the effects of envi-
tems are essentially equivalent. On the other hand, Milliman ronmental policy instruments on technology diffusion, Jaffe
and Prince (1989) find that auctioned permits provide the and Stavins (1995) conducted econometric analyses of the fac-
largest adoption incentive of any instrument, with emissions tors that affected the adoption of thermal insulation technolo-
taxes and subsidies second, and freely allocated permits and gies in new residential construction in the USA from 1979 to
direct controls last. Jung et al. (1996) consider heterogeneous 1988. They examined the dynamic effects of energy prices and
firms, and model the “market-level incentive” created by vari- technology adoption costs on average residential energy-effi-
ous instruments. This measure is simply the aggregate cost sav- cient technologies in new home construction. The effects of
ings to the industry as a whole from adopting the technology.
Their rankings echo those of Milliman and Prince (1989). 108 Related to this is the finding of Parry (1998) that the welfare gain
induced by an emissions tax is significantly greater than that induced

107Zerbe (1970) couches his research in terms of adoption. Downing by other policies only for very major innovations. Also related is
and White (1986) frame their work in terms of innovation. Milliman Montero’s (2000c) conclusion that the relative superiority of alterna-
and Prince (1989) use one model to discuss both diffusion and inno- tive policy instruments in terms of their effects on firm investments in
vation, the latter being defined essentially as the initial use of the tech- R&D depends upon the nature of the underlying market structure.
nology by an “innovating” firm. Malueg (1989) presents the same This is implied by Laffont and Tirole (1996).
framework as a model of adoption. Jung et al. (1996) present their
109 For further literature references, see Chapter 8.
model as one of either adoption or innovation.
energy prices can be interpreted as suggesting what the likely Some recent empirical studies suggest that the response of rel-
effects of taxes on energy use would be, and the effects of evant technological change to energy price changes can be sur-
changes in adoption costs can be interpreted as indicating what prisingly swift. Typically, this is less than 5 years for much of
the effects of technology-adoption subsidies would be. They the response in terms of patenting activity and the introduction
found that the response of mean energy efficiency to energy of new model offerings (Jaffe and Stavins, 1995; Newell et al.,
price changes was positive and significant, both statistically 1999; Poppe, 1999). Substantial diffusion can sometimes take
and economically. Interestingly, they also found that equivalent longer, depending on the rate of retirement of previously
percentage cost subsidies would have been about three times as installed equipment. The longevity of much energy-using
effective as taxes in encouraging adoption, although standard equipment reinforces the importance of taking a longer-term
financial analysis suggest they ought to be about equal in per- view towards energy-efficiency improvements–on the order of
centage terms. This finding does, however, offer confirmation decades.
for the conventional wisdom that technology adoption deci-
sions are more sensitive to up-front cost considerations than to An optimal set of policies would be designed in such a way as
longer-term operating expenses. to achieve two outcomes simultaneously: release any obstruct-
ed emission and cost-reduction potentials from already avail-
In a study of residential conservation investment tax credits, able technologies through various market reforms that try to
Hassett and Metcalf (1995) also found that tax credit or deduc- reduce market distortions (see IPCC, 2000), and induce the
tions were many times more effective than “equivalent” accelerated development of new technologies. This approach
changes in energy prices–about eight times as effective in their allows significant carbon abatement over the near-term by dif-
study. They speculate that one reason for this difference is that fusing existing technologies, while at the same time preparing
energy price movements may be perceived as temporary. The new technologies for the longer term.
findings by Jaffe and Stavins (1995), and by Hasset and
Metcalf (1995) are consistent with other analyses of the rela-
tive effectiveness of energy prices and technology market 6.6 Climate Policy Evaluation
reforms in bringing about the adoption of lifecycle cost-saving
technologies. Up-front subsidies can be more effective than Theoretically, it is unnecessary to monitor and evaluate nation-
energy price signals (see, e.g., Krause et al., 1993; Howarth al policies and programmes to see whether Annex I Parties ful-
and Winslow, 1994; IPSEP, 1995; Eto et al., 1996; Golove and fil their Kyoto commitments, provided national communica-
Eto, 1995; IPCC, 1996, Executive Summary, p. 13). A disad- tions give a clear and reliable picture of the net impact of those
vantage of such non-price policies relative to administered actions on the net national GHG emissions and net uptake via
prices is that they have to be implemented on an “end-use by sinks. Indeed, national inventories, usually updated on an
end-use” or “sector by sector” basis in a customized fashion. annual basis, are the backbone of the monitoring system. Of
Also, an effective institutional and regulatory framework course, governments might want to monitor the impact of their
needs to be created and maintained to evaluate and ensure the own policies for domestic assessment purposes. To meet the
continued cost-effectiveness of such policies. international commitments, such monitoring, however, would
not be necessary if monitoring at the aggregate level were com-
This and other research on energy efficiency programmes also pletely reliable. However, this may not be true. Evidence sug-
highlights a major difference in the way energy price signals gests that there can be a considerable margin of error in the
and technology subsidies function. The technology adoption national data provided to the UNFCCC Secretariat within the
response to taxes may include a secondary increase in the framework of the national communications.
demand for energy services. This secondary effect takes two
forms: a direct effect that results from the increased utilization Over the past 25 years an extensive literature, including pro-
of energy-using equipment and capital stocks, and an indirect gramme evaluation, value-for-money audits, and comprehen-
effect from increased disposable income. Studies of such sive audits, has developed on the evaluation of government
demand effects suggest that the combined effects are general- programmes. Much of this literature is specific to the type of
ly not sufficient to offset more than a minor portion of emis- programme–low-income housing, training, employment cre-
sions reductions. ation, policing, transit, energy efficiency, etc.–and has little rel-
evance to the monitoring and evaluation of policies for climate
In addition, technology subsidies and tax credits can require change mitigation. However, the literature also includes
large public expenditures per unit of effect, since consumers numerous evaluations of energy-efficiency, DSM, emissions
who would have purchased the product even in the absence of trading, environmental taxes, and other programmes that could
the subsidy will still receive it.110 provide useful insights into the design, monitoring, and evalu-
ation of climate change policies.
110It may be possible to reduce the number of free-riders through

subsidy programme design.
Biglaiser, G., J.K. Horowitz, and J.Quiggin, 1995: Dynamic pollution regula-
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7
Costing Methodologies

ANIL MARKANDYA (UK), KIRSTEN HALSNAES (DENMARK)
Lead Authors:
Alessandro Lanza (Italy), Yuzuru Matsuoka (Japan), Shakespeare Maya (Zimbabwe),
Jiahua Pan (China/Netherlands), Jason Shogren (USA), Ronaldo Seroa de Motta
(Brazil), Tianzhu Zhang (China)
Contributing Author:
Tim Taylor (UK)
Review Editor:
Eberhard Jochem (Germany)
CONTENTS
Executive Summary 455 7.3.3.2 Ancillary Impacts 473
7.3.3.3 Technological Development and
7.1 Introduction 457 Efficiency Impacts 473
7.1.1 Background and Structure of the Chapter 457 7.3.4 Assumptions about Technology Options 474
7.1.2 Summary of the Second Assessment Report 7.3.4.1 Technological Uncertainty 474
on Cost Issues 457 7.3.4.2 No Regrets Options 474
7.1.3 Progress since the Second Assessment 7.3.5 Cost Implications of Alternative GHG
Report 458 Emission Reduction Options and
Carbon Sinks 476
7.2 Elements in Costing 458 7.3.6 Uncertainty 477
7.2.1 Introduction 459
7.2.2 Cost Estimation in the Context of the 7.4 Issues in Estimating Costs 477
Decision-making Framework 459 7.4.1 Relationship between Mitigation Costs and
7.2.2.1 Analytical Approaches 459 Development, Equity, and Sustainability 477
7.2.2.2 Cost Analysis and Development, 7.4.2 Income and Other Macroeconomic Effects 478
Equity, and Sustainability Aspects 460 7.4.2.1 Macroeconomic Indicators 478
7.2.2.3 Ancillary Benefits and Costs and 7.4.2.2 The Marginal Costs of Public Funds 479
Co-Benefits and Costs 460 7.4.2.3 Employment 479
7.2.2.4 Market Failures and External Cost 461 7.4.2.4 Inflation 480
7.2.2.5 Critical Assumptions in Studies of 7.4.2.5 Availability of Capital 480
Ancillary Benefits and Co-benefits 462 7.4.3 Valuation of Spillover Costs and Benefits 480
7.2.2.6 A Partial Taxonomy 462 7.4.3.1 Industrial Competitiveness and
7.2.3 Valuation Techniques for External Effects 463 Potential Reallocation of Industries 481
7.2.3.1 Impact Pathway Analysis 463 7.4.3.2 Technological Spillovers 481
7.2.3.2 Property Prices or the Hedonic 7.4.4 Equity 482
Method 463 7.4.4.1 Alternative Methods of Addressing
7.2.3.3 Contingent Valuation Method 464 Equity Concerns 482
7.2.3.4 Benefit Transfer 464 7.4.4.2 The Use of Average Damages 483
7.2.4 Implementation Costs and Barrier Removal 465 7.4.5 Estimating Future Costs and Sustainability
7.2.5 Discounting 466 Implications 483
7.2.6 Adaptation and Mitigation Costs and the
Linkages between Them 467 7.5 Specific Development Stages and Mitigation
Costs (Including Economies in Transition) 484
7.3 Analytical Structure and Critical Assumptions 468 7.5.1 Why Developing Countries Have Special
7.3.1 System Boundaries: Project, Sector, Problems in Their Mitigation Strategies 484
Macroeconomic 468 7.5.2 Why Economies in Transition (EIT) Have
7.3.2 Importance of Baselines 469 Special Problems in Their Mitigation
7.3.2.1 Development Patterns and Baseline Strategies 485
Scenario Alternatives 469 7.5.3 Development Projections 485
7.3.2.2 Multiple Baseline Scenarios 470 7.5.4 Broadening the National Decision-making
7.3.2.3 Baseline Scenario Concepts 470 Framework 486
7.3.2.4 Specific Baseline Issues Related to 7.5.5 Addressing the Specific Characteristics of
International Co-operative Markets and Other Exchange Processes in
Mechanisms for Greenhouse Gas Developing Countries 486
Emission Reductions 471 7.5.6 Suggestions for Improvements in the Costing
7.3.3 Cost Implications of Different Scenario Study Approach Applied to Developing
Approaches 472 Countries and Economies in Transition 487
7.3.3.1 Double Dividend 472
7.6 Modelling and Cost Assessment 488 7.6.6.2 Target Setting for Greenhouse Gas
7.6.1 Introduction 488 Emissions Reduction 492
7.6.2 Classification of Economic Models 488 7.6.6.3 International Co-operative
7.6.3 Top-down and Bottom-up Models 489 Mechanisms 493
7.6.4 Integrated Assessment Models 490 7.6.6.4 Critical Assumptions in the
7.6.5 Categorization of Climate Change Mitigation Energy Sector 493
Options 490
7.6.6 Key Assumptions of Importance to 7.7 Conclusions on Further Needs for Research 493
Costing Estimates 492
7.6.6.1 Tax Recycling 492 References 496
Costing Methodologies 455
EXECUTIVE SUMMARY
Using resources to mitigate greenhouse gases (GHGs) gener- absence of climate change interventions. It helps determine
ates opportunity costs that should be considered to help guide how expensive GHG emissions reduction might be. The base-
reasonable policy decisions. Actions to abate GHG emissions line rests on key assumptions about future economic policies
or increase carbon sinks divert resources from other uses like at the macroeconomic and sectoral levels, including structure,
health care and education. Assessing these costs should con- resource intensity, relative prices, technology choice, and the
sider the total value that society attaches to the goods and ser- rate of technology adoption. The baseline also depends on pre-
vices forgone because of the diversion of resources to climate sumptions of future development patterns in the economy, like
protection. In some cases, the benefits of mitigation could population growth, economic growth, and technological
exceed the costs, and thus society gains from mitigation. change.
This chapter addresses the methodological issues that arise in Second, climate change policies may have a number of side-
the estimation of the monetary costs of climate change. The impacts on local and regional air pollution associated, and indi-
focus is on the correct assessment of the costs of mitigation rect effects on issues such as transportation, agriculture, land
measures to reduce the emissions of GHGs. The assessment of use practices, employment, and fuel security. These side-
costs and benefits should be based on a systematic analytical impacts can be negative as well as positive and the inclusion of
framework to ensure comparability of estimates and trans- the impacts then can tend to generate higher as well as lower
parency of logic. One well-developed framework assesses climate change mitigation costs compared with studies that do
costs as changes in social welfare based on individual values. not include such side-impacts.
These individual values are reflected by the willingness to pay
(WTP) for environmental improvements or their willingness to Third, for a wide variety of options, the costs of mitigation
accept (WTA) compensation. From these value measures can depend on the regulatory framework adopted by national gov-
be derived measures such as the social surpluses gained or lost ernments to reduce GHGs. The more flexibility allowed by the
from a policy, the total resource costs, and opportunity costs. framework, the lower the costs of achieving a given reduction.
More flexibility and more trading partners can reduce costs, as
While the underlying measures of welfare have limits and a firm can search out the lowest-cost alternative. The opposite
using monetary values remains controversial, the view is taken is expected with inflexible rules and few trading partners.
that the methods to “convert” non-market inputs into monetary
terms provide useful information for policymakers. These Fourth, no regrets options are by definition actions to reduce
methods should be pursued when and where appropriate. It is GHG emissions that have negative net costs. Net costs are neg-
also considered useful to supplement this welfare-based cost ative because these options generate direct or indirect benefits
methodology with a broader assessment that includes physical large enough to offset the costs to implement the options. The
impacts when possible. In practice, the challenge is to develop existence of no regrets potential implies that people choose not
a consistent and comprehensive definition of the key impacts to exercise some carbon-reducing options because of relative
to be measured. In this chapter the costing methodology is prices and preferences, or that some markets and institutions do
overviewed, and issues involved in using these methods not behave perfectly. The presumption of effective policies that
addressed. capture large no regrets options reduces costs.
The costs of climate protection are affected by decisions on Fifth, there are two approaches to discounting—an ethical or
some key elements, the analytical structure, and the assump- prescriptive approach based on what rates of discount should
tions made. Among other key presumptions, these include the be applied, and a descriptive approach based on what rates of
definition of the baseline, assumption about associated costs discount people (savers as well as investors) actually apply in
and benefits that arise in conjunction with GHG emission their day-to-day decisions. For mitigation analysis, the country
reduction policies, the flexibility available to find the carbon must base its decisions at least partly on discount rates that
emissions of lowest cost, the possibility of no regret options, reflect the opportunity cost of capital. Rates that range from
the discount rate, the assumption of the rate of autonomous 4% to 6% would probably be justified in developed countries.
technological change, and whether revenue is recycled. The rate could be as high as 10%–12% in developing countries.
It is more of a challenge to argue that climate change mitiga-
First, defining the baseline is a key part of cost assessment. tion projects should face different rates, unless the mitigation
The baseline is the GHG emissions that would occur in the project is of very long duration. Note that these rates do not
reflect private rates of return, which typically must be greater Given these presumptions on structure, the costs of climate
to justify a project, at around 10%–25%. protection can be modelled and assessed at three levels:
• Project level analysis estimates costs using “stand-
Sixth, modellers account for the penetration of technological alone” investments assumed to have minor secondary
change over time through a technical coefficient called the impacts on markets.
“autonomous energy efficiency improvement” (AEEI). AEEI • Sector level analysis estimates costs using a “partial-
reflects the rate of change in the energy intensity (the ratio of equilibrium” model, in which other variables are pre-
energy to gross domestic product) holding energy prices consumed as given.
stant. The presumed autonomous technological improvement • Macroeconomic analysis estimates costs by consider-
in the energy intensity of an economy can lead to significant ing how policies affect all sectors and markets, using
differences in the estimated costs of mitigation. As such, many various macroeconomic and general equilibrium mod-
observers view the choice of AEEI as crucial in setting the els. The modeller confronts the trade-off between the
baseline in which to judge the costs of mitigation. The costs of level of detail in the cost assessment and complexity of
mitigation are inversely related the AEEI–a greater AEEI the the system. For example, a macroeconomic system tries
lower the costs to reach any given climate target. The costs to capture all direct and indirect impacts, with little
decrease because people adopt low-carbon technology unre- detail on the impacts of specific smaller scale projects.
lated to changes in relative prices.
Modelling climate mitigation strategies can be done using sev-
Other issues to be considered in the assessment of mitigation eral techniques, including input–output models, macroeco-
policies include the marginal cost of public funds, capital costs, nomic models, computable general equilibrium models, and
and side effects. Policies such as carbon taxes or auctioned models based on the energy sector. Hybrid models have also
(tradable) carbon-emissions permits generate revenues that can been developed to provide more detail on the structure of the
be recycled to reduce other taxes that are likely to be distor- economy and the energy sector. Two broad classes of integrat-
tionary. There has been considerable debate as to whether such ed assessment models can be identified: policy optimization
revenue recycling might eliminate the economic costs of such models and policy evaluation models. The appropriate use of
mitigation policies. Theoretical studies indicate that this result these models depends on the subject of the evaluation and the
can occur in economies with highly inefficient tax systems. availability of data.
Some empirical studies obtain the no-cost result, although
many such studies do not. Tax recycling reflects several com- Finally, the main categories of climate change mitigation poli-
plicated assumptions in the baseline and policy case regarding cies include market-oriented, technology-oriented, voluntary,
the structure of the tax system and the overall policy frame- and research and development (R&D) policies. Climate change
work, among others. Target setting and timing also affect cost mitigation policies can include elements of two or more policy
estimates. Reduction targets defined as percentage reductions options. Economic models, for example, mainly assess market-
of future GHG emissions create significant uncertainty about oriented policies and in some cases technology policies, pri-
GHG emission levels. marily those related to energy supply options. In contrast, engi-
neering approaches mainly focus on supply and demand-side
In addition, several issues on technology use in developing technology policies. Both approaches are relatively weak in the
countries and economies in transition (EITs) warrant attention representation of R&D policies.
as critical determinants for climate change mitigation potential
and related costs. These include current technological develop-
ment levels, technology transfer issues, capacity for innovation
and diffusion, barriers to efficient technology use, institutional
structure, and human capacity aspects.
Equity is another issue in evaluating mitigation policies. The

use of income weights is one approach to address equity.
Under this system each dollar of costs imposed on a person
with low income is given greater weight relative to the cost for
a person with a high income. This method is, however, con-
troversial and it is difficult to obtain agreement on the weights
to be used. An alternative method is to report the distribution-
al impacts separately. In this case it is important that all the
key stakeholders are identified and the distributional effects on
each reported. A third possibility is to use average damage
estimates and apply these to all those impacted, irrespective of
their actual WTP.
7.1 Introduction problems covered are:

• relationship to objectives of development, equity, and
7.1.1 Background and Structure of the Chapter sustainability (DES);
• income and other macroeconomic effects of mitigation
This chapter addresses the methodological issues that arise in and adaptation policies;
the estimation of the monetary costs of climate change. The • issues of spillovers;
focus here is on the correct assessment of the costs of mitiga- • treatment of equity; and
tion measures to reduce the emissions of greenhouse gases • treatment of future costs and sustainability issues.
(GHGs). The other two areas in which cost issues arise are the
estimation of the climate change impacts in monetary terms, Section 7.5 considers the special issues that arise in the esti-
and the assessment of measures to adapt to climate change. mation of costs in developing countries and economies in tran-
Working Group II (WGII) is charged with the responsibility to sition (EITs).
evaluate the impacts and adaptation measures. It is important,
though, that much of the discussion in this chapter is relevant Section 7.6 discusses the relationship between the cost assess-
to these areas. The basic principles of cost estimation certainly ment methodology and the models used to estimate mitigation
apply in all three areas. Moreover, some of the key issues in costs. Issues discussed include classification of models
cost estimation that arise in the assessment of impacts are also (Section 7.6.2), top-down and bottom-up models (Section
relevant to the estimation of the costs of mitigation. Hence, the 7.6.3) integrated assessment models (IAMs; Section 7.6.4),
relationship between the costs discussed by WGII and those categorization of climate change mitigation options (Section
discussed by WGIII is close. 7.6.5), and critical assumptions (Section 7.6.6).
The chapter begins by providing the background to this assess- The links between this chapter with others is as follows.
ment report; by giving a summary of the Second Assessment Section 7.1 overlaps with Chapter 10, Section 7.2 with Chapter
Report (SAR) and of the developments in the literature since 6, and Section 7.6 with Chapters 8 and 9.
SAR (IPCC, 1996a, 1996b). Section 7.2 discusses the elements
in any climate change cost estimation. It begins by setting out
the decision-making framework for mitigation decisions. 7.1.2 Summary of the Second Assessment Report on Cost
Unfortunately, this framework is complex, as it involves the Issues
application of different modelling techniques and assumptions.
Important within the framework are issues of ancillary and co- IPCC’s SAR published a separate volume on the economic and
benefits of climate change mitigation, evaluation techniques, social dimensions of climate change (IPCC, 1996a). This report
the treatment of barrier removal and implementation costs, dis- considered all aspects of climate change, including impacts,
counting, and the linkages between adaptation and mitigation. adaptation, and mitigation of climate change. The volume on
The conventional cost-effectiveness and the cost–benefit tools economic and social dimensions was supplemented by a report
used for making decisions to reduce GHGs, or to select adap- from another working group of the IPCC that dealt with scien-
tation measures, provide only part of the information required tific and technical analyses of the impacts, adaptation, and mit-
by the decision maker. The extensions that are currently being igation of climate change (IPCC, 1996b). The Third
discussed, and used in some cases, include the valuation of Assessment Report (TAR) is structured in a different way.
external effects, and considerations of equity and sustainabili- Impacts and adaptation are addressed together by one working
ty. The outline of the extended decision-making framework group (WGII), and mitigation by another group (WGIII). All
and its relationship to the cost methodology is discussed in the technical areas, including scientific, engineering, economic,
Sections 7.2.1 to 7.2.5. and social aspects of climate change impacts, adaptation, and
mitigation, however, are integrated in the working groups.
Section 7.3 discusses the critical assumptions made in the
application of the methodology to climate change problems. The WGII SAR (IPCC, 1996b) reported a number of cost esti-
The key issues are: mates for individual climate change mitigation technologies,
• different systems in which the cost analysis is carried but did not include specific subsections or extensive discus-
out–project sector and macro level; sions on the cost assessment framework or methodological
• determination of baselines; issues related to valuation issues. This section therefore only
• treatment of technological change; provides a short summary of the coverage of costing method-
• assessment of cost implications of including alternative ologies in the report of the social and economic dimensions by
GHG emission reduction options and carbon sinks; and WGIII (IPCC, 1996a).
• treatment of uncertainty.
Costing methodologies were addressed as part of several chapters
Section 7.4 covers the practical problems that arise in cost esti- in the WGIII SAR (IPCC, 1996a). These included chapters on the
mation, particularly relating to the linkages between the decision-making framework, equity and social considerations,
“micro” cost exercise and the broader “macro” picture. The and intergenerational equity: discounting and economic efficien-
cy. Furthermore, the report included two conceptual chapters on The UNEP report (Christensen et al., 1998) defines and clari-
cost and methodologies, namely Chapter 5 (Applicability of fies mitigation and adaptation cost concepts to be used in the
Techniques of Cost–Benefit Analysis to Climate Change) and field of climate change based on WGIII SAR (IPCC, 1996a).
Chapter 8 (Estimating the Costs of Mitigating Greenhouse The aim is to overcome some of the variations in the cost con-
Gases). The first of these chapters included a general outline of cepts that were presented in various chapters of SAR and to
analytical approaches applied to climate change cost assessment, develop a generic overview of cost concepts that are easier to
with emphasis on cost–benefit analysis and further development use for practitioners in the field. The report includes chapters
of this framework to facilitate multi-attribute analysis. The ana- on general mitigation and adaptation cost concepts, sectoral
lytical approaches presented were discussed in relation to differ- applications, macroeconomic analysis, and special issues in
ent decision frameworks and valuation approaches. costing studies for developing countries, and concludes on the
applicability of the various cost concepts in the formulation of
Chapter 8 of the WGIII SAR (IPCC, 1996b) was a method- national climate change policies and programmes.
ological introduction to a subsequent chapter on comparative
assessments of the modelling results for mitigation costs. A During the TAR process, a crosscutting issues paper was pre-
taxonomy of the mitigation cost components applied in the pared (Markandya and Halsnaes, 2000). The purpose was to
models was presented, including the direct engineering and provide a non-technical guide to the application of cost con-
financial costs of specific technical measures, economic costs cepts in the analysis of climate change policies by any of the
for a given sector, macroeconomic costs, and welfare costs. working groups involved in the TAR. Costs of mitigation, adap-
The importance of different assumptions, such as development tation, or GHG emissions are likely to be estimated and their
patterns, technological change, and policy instruments, were implications discussed in many parts of the TAR. It is essential,
then assessed in relation to cost concepts and modelling therefore, that a common understanding of the use of different
approaches. Some of the focal areas considered were “top- cost concepts is employed. The crosscutting paper proposed a
down” versus “bottom-up” models, double dividend issues and set of definitions for these concepts. The paper also identified
no regret options, long-term projections, and special issues categories of costs and their relevance in the climate change
related to mitigation-cost analysis for developing countries. area. In this chapter the crosscutting issues paper is taken as the
point of departure, the ideas are developed further and an elab-
The WGIII SAR (IPCC, 1996a) also included an extensive oration of some of them provided. The purpose, however, is the
review of the mitigation costs for different parts of the world same: to ensure a common understanding of commonly used
based on top-down and bottom-up methodologies. The review, cost terms, and the role of cost analysis within the broader deci-
which was based on an assessment of several hundred studies, sion-making framework for climate change policies.
raised a number of important costing issues that are critical to
the further development of cost concepts and models. These After SAR, extensive debates arose regarding suitable costing
issues include, inter alia, model structure, assumptions on methods to quantify the relative indirect economic impacts of
demographic and economic growth, availability and costs of various policies in distinct regions, with no consensus on the
technical options, timing of abatement policies, discount rate, most suitable methods to be employed. However, a consensus
and the effect of research and development (R&D). is now beginning to emerge on how to quantify some ancillary
benefits (OECD, 2000), and Chapters 8 and 9 herein. In prepa-
ration for TAR, Burtraw et al. (1999) provide a synthesis of
7.1.3 Progress since the Second Assessment Report methodological issues relevant to the assessment of ancillary
costs and benefits of GHG mitigation policies. The magnitude
A number of IPCC activities based on SAR have developed cost of potential ancillary benefits depends upon the regulatory,
methodologies and applied them to the appraisal of specific demographic, technological, and environmental baselines. The
policies. Some of the main activities are the IPCC Technical magnitude and scope of potential benefits of GHG mitigation
Paper on Technologies, policies, and measures for mitigating policies can be expected to be greater in cases in which higher
climate change (IPCC, 1996c) and the UNEP report on emission baselines obtain and lower for cases in which regula-
Mitigation and Adaptation Cost Assessment Concepts, Methods tory and technological innovation have been more long stand-
and Appropriate Use, which was developed on the basis of an ing (Morgenstern, 2000).
IPCC workshop in June 1997 (Christensen et al., 1998).
The IPCC Technical Paper (IPCC, 1996c) summarizes the 7.2 Elements in Costing
information on mitigation technology costs provided by WGII
SAR (IPCC, 1996b), and the chapter on policy instruments of 7.2.1 Introduction
WGIII SAR (IPCC, 1996b, Chapter 11). The aim of the
Technical Paper was to provide a short overview of cost infor- This section addresses a number of key conceptual issues relat-
mation to be used by climate change policymakers and by the ed to mitigation cost concepts, including definitions of private
Subsidiary Body for Scientific and Technical Advice (SBSTA) and social costs and methods to assess the side effects and equi-
of the UN Convention on Climate Change. ty aspects of mitigation policies. An overview is given of ana-
lytical approaches to assess mitigation costs, including a classi- are standard economic tools of cost–benefit analysis (Hanley et
fication and discussion of different modelling approaches and al., 1997). In some cases, however, the resources that are
critical assumptions. The issue of ancillary and co-benefits of affected do not have well-defined markets and hence lack iden-
climate change mitigation is discussed. Valuation techniques tifiable demand and supply schedules. Examples are changes
are presented, as is the treatment of barrier removal and imple- in air quality, or changes in recreational use of forests. In such
mentation costs. A review of recent developments in the field of cases other methods of measuring WTP and WTA are required.
discounting is then presented and the section concludes with an These have been developed recently and can now provide cred-
investigation of the linkages between adaptation and mitigation. ible estimates for a range of non-marketed resources, though
some debate remains over the application of such values to all
policy-relevant impacts.
7.2.2 Cost Estimation in the Context of the Decision-
making Framework There is also a relationship between WTP and WTA and the
conventional aggregate measures of economic activity such as
Actions taken to abate GHG emissions or to increase the size gross domestic product (GDP). The classic paper on this is
of carbon sinks generally divert resources from other alterna- Weitzman (1976), which showed that GDP less depreciation of
tive uses. The theoretically precise measure of the social costs capital (or “net national product”) is a measure of the net out-
of climate protection, therefore, is the total value that society put that represents the income on the economy’s capital stock
places on the goods and services forgone as a result of the when that economy is operating according to competitive mar-
diversion of resources to climate protection. A social cost ket rules. However, a competitive economy is also one that
assessment should ideally consider all welfare changes that maximizes the sum of consumer and producer surpluses.
result from the changes in resources demanded and supplied by Hence GDP is closely linked to consumer and producer surplus
a given mitigation project or strategy in relation to a specific maximization for commodities that operate through the market
non-policy case (see Hazilla and Kopp, 1990). The assessment place. However, the relationship breaks down if competitive
should include, as far as possible, all resource components and markets do not exist for all scarce resources. In this case, GDP
implementation costs. This means that both the benefits and the changes do not fully reflect changes in social welfare.
costs of a mitigation action should be included in the estima-
tion. In some cases, the sum of all the benefits and costs asso- A frequent criticism of this costing method is that it is
ciated with a mitigation action could be negative, meaning that inequitable, as it gives greater weight to the “well off”. This is
society benefits from undertaking the mitigation action. because, typically, a well-off person has a greater WTP or
WTA than a less well-off person and hence the choices made
The conceptual foundation of all cost estimation is the value of reflect more the preferences of the better off. This criticism is
the scarce resources to individuals. Thus, values are based on valid, but there is no coherent and consistent method of valua-
individual preferences, and the total value of any resource is tion that can replace the existing one in its entirety. Concerns
the sum of the values of the different individuals involved in about, for example, equity can be addressed along with the
the use of the resource. This distinguishes this system of values basic cost estimation. The estimated costs are one piece of
from one based on “expert” preferences, or on the preferences information in the decision-making process for climate change
of political leaders. It also distinguishes it from value systems that can be supplemented with other information on other
based on ecological criteria, which give certain ecological social objectives, for example impacts on key stakeholders and
goals a value in themselves, independent of what individuals the meeting of poverty objectives.
might want, now or in the future.
7.2.2.1 Analytical Approaches
The values, which are the foundation of the estimation of costs,
are measured by the applied welfare economic concepts of the Cost assessment is an input into one or more of the rules for
willingness to pay (WTP) of individuals to buy the resource, or decision making, which are discussed in more detail in Chapter
by the individuals’ willingness to accept (WTA) compensation 10 of this report. Economic approaches to decision making
to part with the resource. The WTP measure of value reflects include cost–benefit analysis, and cost-effectiveness analysis,
the maximum people are willing to pay to live in a world with and these approaches can be supplemented with multi-attribute
climate policy in force rather than not. WTA is the minimum analysis that facilitates an integrated assessment of economic
compensation people would accept to live without this climate impacts and other quantitative and non-quantitative informa-
policy (e.g., Willig, 1976; Randall and Stoll, 1980; Hanemann, tion. These approaches are briefly described in Box 7.1.
1991; Shogren et al., 1994). The concepts of WTP and WTA
therefore play a critical part in defining the social cost method. It should be recognized that some types of impacts can be mea-
sured in both monetary terms and physical terms. This applies,
WTP or WTA is most commonly approximated by the con- for example, to changes in air pollution as a result of the reduc-
sumer and producer surplus as revealed in the demand and sup- tions in GHGs.
ply schedules for the resources whose consumption and pro- There is a major difference between the economic approaches
duction is affected by the mitigation action. These measures and multi-attribute analysis in how the various dimensions of
the assessment are summarized. The economic approaches The above analysis of welfare focuses on the narrowly eco-
seek to provide aggregates to single measures based on an economic dimension. Even within this framework there are com-
nomic welfare evaluation, while multi-attribute analysis does plexities that make a full assessment difficult. In addition,
not provide an aggregation of the different dimensions of the however, issues of DES need to be taken into account.1
analysis.
A key question in broadening the analysis of costs to cover
7.2.2.2 Cost Analysis and Development, Equity, and these dimensions is whether they can be measured in the same
Sustainability Aspects units as the costs (i.e., in money). The authors take the view
that the methods to “convert” some of these other dimensions
The underlying objective behind any cost assessment is to into monetary terms are useful and should be pursued. These
measure the change in human welfare generated as the result of are discussed further in Section 7.2.3. At the same time, there
a reallocation or change in use of resources. This implies the is some controversy about the measurement of equity, of envi-
existence of a function in which welfare or “utility” depends on ronmental impacts and sustainability in monetary terms, as, for
various factors such as the amounts of goods and services that example, in the discussion on social cost-benefit analysis in
the individual can access, different aspects of the individual’s Ray (1984).2 This is because of disagreement about what val-
physical and spiritual environment, and his or her rights and ues should be attached to physical and social changes that are
liberties. Constructing a “utility function”, representing social of interest. Furthermore, it is generally accepted that not all
welfare, that is an aggregate measure of all such impacts for all these impacts can be put in monetary terms.3 Hence it is impor-
individuals involves a number of complexities and controver- tant, indeed imperative, that the cost methodology be supple-
sial equity issues that have been intensively studied by econo- mented by a broader assessment of the impacts with physical
mists (see, for example, Blackorby and Donaldson, 1988). values reported wherever possible. These questions are dis-
However, the sum of the individual WTPs and WTAs can be cussed further in Sections 7.3 and 7.4.
taken as a measure of the social welfare, which finesses these
difficulties to a considerable extent. There remain, however, 7.2.2.3 Ancillary Benefits and Costs and Co-Benefits and
issues that cannot be fully addressed in this WTP–WTA frame- Costs
work, most important of which are equity and sustainability.
The literature uses a number of terms to depict the associated
benefits and costs that arise in conjunction with GHG mitiga-
tion policies. These include co-benefits, ancillary benefits, side
Box 7.1. Decision-making Approaches benefits, secondary benefits, collateral benefits, and associated
benefits. In the current discussion, the term “co-benefits” refers
Cost–benefit analysis to the non-climate benefits of GHG mitigation policies that are
This measures all negative and positive project impacts and explicitly incorporated into the initial creation of mitigation
resource uses in the form of monetary costs and benefits. Market policies. Thus, the term co-benefits reflects that most policies
prices are used as the basic valuation, as long as markets can be designed to address GHG mitigation also have other, often at
assumed to reflect “real” resource scarcities. In other cases the least equally important, rationales involved at the inception of
prices are adjusted to reflect the true resource costs of the action. these policies (e.g., related to objectives of development, sus-
Such adjusted prices are referred to as shadow prices (Squire and tainability, and equity). In contrast, the term ancillary benefits
van der Tak, 1975; Ray, 1984). connotes those secondary or side effects of climate change mit-
igation policies on problems that arise subsequent to any pro-
Cost-effectiveness analysis
posed GHG mitigation policies. These include reductions in
A special case of cost–benefit analysis in which all the costs of a
local and regional air pollution associated with the reduction of
portfolio of projects are assessed in relation to a policy goal. The
policy goal in this case represents the benefits of the projects and
fossil fuels, and indirect effects on issues such as transporta-
all the other impacts are measured as positive or negative costs. tion, agriculture, land use practices, employment, and fuel
The policy goal can, for example, be a specified goal of emis- security. Sometimes these benefits are referred to as “ancillary
sions reductions for GHGs. The result of the analysis can then be impacts”, to reflect that in some cases the benefits may be neg-
expressed as the costs (US$/t) of GHG emissions reductions ative. From the perspective of policies to abate local air pollu-
(Sathaye et al., 1993; Markandya et al., 1998). tion, GHG mitigation may be an ancillary benefit.
Multi-attribute analysis
The basic idea of multi-attribute analysis is to define a frame- 1 Other issues that may need to be considered include incomplete
work for integrating different decision parameters and values in information, perceptual biases, and learning.
a quantitative analysis without assigning monetary values to all 2 Indeed, many of the comments on earlier drafts of this chapter took
parameters. Examples of parameters that can be controversial
different positions on this issue.
and very difficult to measure in monetary values are human
health impacts, equity, and irreversible environmental damages 3For some impacts, such as those on “sustainability”, the selection of
(Keeney and Raiffa, 1993). physical indicators is also a matter of controversy.
Climate Mitigation Policy
Ancillary:
Non-Environmental Effects
Impacts (+/-) Economic
Ancillary: System
Ecological
Environmental
Impacts (+/-) System
GHG
Institutions and
Direct:
Climate change Other Figure 7.1: Mechanism for the
Impacts (+/-) Pollutants Generation of Ancillary Impacts.
Please note that climate change
Mitigation Costs impacts are not discussed in this
Net Environmental
Benefits report, but in the Third Assessment
Report of Working Group II.
Figure 7.1 illustrates the generation of ancillary benefits to change mitigation to the achievement of sustainable develop-
GHG emission reduction policies.4 These policies operate ment and other policy objectives. Therefore, in this report, the
through the economic and institutional system within a country term “co-benefits” is used only when speaking generically
and lead to reductions in GHGs, changes in other pollutants, about the issue because of the limited availability of literature.
and mitigation costs. Changes in GHG emissions in turn lead The term “ancillary benefits” is used when addressing class (1)
to changes in air and water pollution, which ultimately extend and (2) literature. Class (1) literature appears to be the most
throughout the environment and feed back into the economy. extensive; it is this literature on the ancillary benefits of cli-
Then, depending on baseline conditions, technologies, and mate change mitigation that is primarily covered in this sec-
institutions, such as labour markets, tax systems, and existing tion.
environmental and other types of regulations (represented by
“institutions” in the economic system box), these feedbacks The discussion of ancillary impacts and/or co-benefits and
may become: costs, and the estimation of these are closely related to the con-
• environmental impacts (such as the value of changes in cept of external cost, which is discussed below.
conventional air or water pollution);
• non-environmental impacts (such as the value of 7.2.2.4 Market Failures and External Cost
employment effects); and,
• direct climate change impacts. The term external cost or externality is used to define the costs
that arise from any human activity when the agent responsible
There appear to be three classes of literature regarding the for the activity does not take full account of the impacts on oth-
costs and benefits of climate change mitigation: ers of his or her actions. Equally, when the impacts are positive
(1) literature that primarily looks at climate change mitiga- and not accounted for in the actions of the agent responsible
tion, but that recognizes there may be benefits in other they are referred to as external benefits. Consider first the fol-
areas; lowing example of external costs. Emissions of particulate pol-
(2) literature that primarily focuses on other areas, such as lution from a power station affect the health of people in the
air pollution control, and recognizes there may be ben- vicinity, but this is not often considered, or is given inadequate
efits in the area of climate mitigation; and weight in private decision-making, as there is no market for
(3) literature that looks at the combination of policy objec- such impacts. Such a phenomenon is referred to as an exter-
tives (climate change and other areas) and looks at the nality, and the costs it imposes are referred to as the external
costs and benefits from an integrated perspective. costs.
Each of these classes of literature may have their own preferred External costs are distinct from the costs that the emitters of the
terms, and for class (3) it seems to be “co-benefits”. TAR particulates take into account when determining their outputs,
acknowledges the relevance of all three, yet specifically wants costs such as the prices of fuel, labour, transportation, and
to make the case for an integrated approach, linking climate energy. Categories of costs that influence an individual’s deci-
sion-making are referred to as private costs. The total cost to
society is made up of both the external cost and the private
4 cost, which together are defined as social cost:
Various additional interrelationships are omitted from this graphic.
An example is that estimated health benefits might be lower if a GHG
mitigation policy reduces temperature increases, thereby creating less Social Cost = External Cost + Private Cost
ozone (O3).
The private cost component is generally taken from the market tions (the value of the reductions is exactly matched by the loss
prices of the inputs. Thus, if a project involves an investment of charge revenue). As a third example, consider the case in
of US$5 million, as estimated by the inputs of land, materials, which the regulator has a plan to tighten the controls on local
labour and equipment, that figure is used as the private cost. pollutants. Any GHG mitigation programme that reduces the
That may not be the full cost, however, as far as the estimation levels of these emissions has then to be valued relative to the
of social cost is concerned. If, for example, the labour input is costs of achieving the dynamic baseline, and not in terms of the
being paid more than its value in alternative employment, the benefits of reduced emissions themselves. To sum up, the val-
private cost is higher than the social cost. Adjustments to pri- uation of ancillary and/or co-benefits requires the policymaker
vate costs based on market prices to bring them into line with to look not only at the external costs of the pollutants, but also
social costs are referred to as shadow pricing. A fuller discus- at the net costs and benefits of measures being introduced to
sion of shadow pricing is given in Ray (1984). deal with them.
External costs typically arise when markets fail to provide a Externalities do not necessarily arise when there are effects on
link between the person who creates the “externality” and the third parties. In some cases, these effects may already be rec-
person who is affected by it, or more generally when property ognized, or “internal”, contained in the price of goods and ser-
rights for the relevant resources are not well defined. If such vices. Consider a stylized example, such as damages to vehi-
rights were defined, market forces and/or bargaining arrange- cles in an automobile accident. If each driver is fully liable for
ments would ensure that the benefits and costs of generating damages to other vehicles and one can reliably assess fault and
the external effect balanced properly. The failure to take into enforce liability, the damage in an accident would not be an
account external costs, however, may be a product not only of externality because the party at fault would fully recognize the
a lack of property rights, but also the result of a lack of full costs. Only if the drivers are not fully liable, or if fault cannot
information and non-zero transaction costs. be established, or if liability is not enforceable is there a justi-
fication for treating the damage to vehicles in the example as
7.2.2.5 Critical Assumptions in Studies of Ancillary Benefits an externality. The key idea is that such exceptions constitute a
and Co-benefits deviation from ideal institutions. In economic vocabulary, this
is referred to as market failure. For damage to be considered an
Policies aimed at mitigating GHGs, as stated earlier, can yield externality from the viewpoint of economic efficiency, some
other social benefits and costs (here called ancillary benefits kind of failure in markets or other institutions that causes indi-
and costs), and a number of empirical studies have made a pre- viduals to fail to take into account the social costs and benefits
liminary attempt to assess these impacts. It is apparent that the of their individual actions should be identifiable. From a prac-
actual magnitude of the ancillary benefits or co-benefits tical perspective, it is also important that such failures result in
assessed critically depends on the scenario structure of the an important misallocation of resources.
analysis, in particular on the assumptions about policy man-
agement in the baseline case (IPCC, 2000b; Krupnick et al., A full discussion of the empirical relevance of ancillary and/or
1996; Krupnick et al., 2000).5 This implies that whether a par- co-benefits is provided in Chapters 8 and 9.
ticular impact is included or not depends on the primary objec-
tive of the programme. Moreover, something that is seen as a 7.2.2.6 A Partial Taxonomy
GHG reduction programme from an international perspective
may be seen, from a national perspective, as one in which local A variety of effects may result from GHG policies that are sec-
pollutants and GHGs are equally important. ondary to the reduction in GHG emissions. Existing studies
have identified mortality and morbidity benefits associated
A second point is that the economic accounting of ancillary with collateral reductions in particulates, nitrogen oxides
benefits depends crucially on assumptions about the demo- (NOx), and sulphur dioxide (SO2) from power plants and
graphic characteristics, regulatory regime, and available tech- mobile sources as a major source of ancillary benefits.
nology and how these will evolve. For example, consider the Reduced private vehicle use and substitution of mass transit
case in which a government imposes a cap on emissions of sul- will reduce air pollution and congestion and may also reduce
phur. If a GHG mitigation programme is introduced it may transportation-related fatalities from accidents, although the
reduce the associated amount of sulphur produced, but other size of this effect and the degree to which it counts as an ancil-
activities may take up the slack and so result in no net change lary benefit are unclear.6 Substitution to mass transit may also
in emissions. Alternatively, consider the situation in which the involve additional costs, in terms of the opportunity cost of
government has a tax on emissions. If the tax is set equal to the
marginal damage from sulphur, a small mitigation programme
6 A major study in the early 1990s considered externalities throughout
will not generate any direct benefits in terms of sulphur reduc-
various fuel cycles for electricity generation in the USA. It concluded
that of the highest-valued endpoints (among many specifically defined
endpoints) were fatalities associated with the rail transport of coal and
5 See Burtraw et al. (1999) and reviews by Burtraw and Toman damage to roadway surfaces beyond those internalized in road fees
(1997), Ekins (1996), and Pearce (2000). (Lee et al., 1995).
Table 7.1: Ancillary Impacts
Ancillary Impact Expected sign
Reduction in particle pollution when fossil fuel use is reduced (+)

Increases in urban air pollution when diesel vehicles are introduced to substitute gasoline (–)
Increased availability of recreational sites when reforestation programmes are introduced (+)
Increases in household air pollution relative to a baseline when electrification rates are reduced (–)
Increases in technological efficiency when new technologies are adopted and unit costs fall (+)
Increases in welfare with a shift to carbon taxation and a reduction in unemployment (+)
Reductions in road-use related mortality when a shift from private to public transport takes place (+)
Reductions in congestion with a shift from private to public transport (+)
Decreases in employment when energy technologies that substitute the use of local fuels are introduced (–)
Increases in employment that result from GHG projects in which there is an excess need for labour (+)
Decline in employment because of decreased economic activity resulting from costs associated with GHG projects (–)
Savings in household time in poor rural households when fuel wood use is replaced by biogas energy (+)
time, and these ancillary impacts may also need to be consid- goods are broadly divided into use values and non-use values.
ered. Additional areas that might be considered include The former comprises those values that result from some direct
improvements in ecosystem health (for instance, from reduc- or indirect use to which the environment is put. Non-use val-
tion in nitrate deposition to estuaries), visibility improvements, ues arise when individuals have a WTP for an environmental
reduced materials damages, and reduced crop damages. resource even when they make no use of it, or never will make
any use of it, see Perman et al. (1999) for a discussion of this
At the same time, there may be ancillary costs of GHG mitiga- distinction.
tion, such as an increase in indoor air pollution associated with
a switch from electricity to household energy sources (such as The following methods have been developed and used in valu-
wood or lignite) or greater reliance on nuclear power with its ing environmental (and other) externalities. Further details can
attendant externalities. In developing countries pollution may be found in several books (Hanley et al., 1997; Bateman and
rise if electrification slows as a result of policy-induced Willis, 1999; Markandya et al., 2000).
increases in electricity prices relative to other fuels
(Markandya, 1994). A related cost stems from forgoing the 7.2.3.1 Impact Pathway Analysis
benefits of electrification, which include increased productive
efficiency and emergence of new technologies, to increases in Impact pathway analysis measures the losses of goods and ser-
literacy (Schurr, 1984). Table 7.1 offers an illustrative set of vices affected by environmental impacts which are themselves
examples of ancillary benefits (+) and costs (–). Under certain (or their substitutes) priced in the market. To identify these
conditions, some of these observed impacts do not necessarily losses, the effects of an action are traced from the release of
count as externalities from the standpoint of economic effi- pollutants and their dispersion in the ambient environment
ciency, depending on whether the market or institutions fail to through to their impacts on natural resources and on humans.
account for these impacts in the incentives they provide for Based on the changes of market prices of these goods and ser-
individual behaviour. vices caused by the environmental impacts, demand schedules
and the respective consumer surplus, measures can be estimat-
A taxonomy of the main externalities linked with the public ed to reflect the welfare losses. This method has been used
health impacts of air pollution, which was developed in the extensively to value the impacts of air pollution generated by
social cost of electricity studies and is likely to be relevant to electricity generation and transport (ExternE, 1995; 1997;
ancillary benefit estimation, is provided in Table 7.2. 1999). Its main limitations are (a) the physical data on the link-
ages are not always quantified and those that are can be highly
uncertain, (b) market prices are not available for all impacts,
7.2.3 Valuation Techniques for External Effects and (c) the more sophisticated analysis of price changes
requires a level of modelling that is not always possible.
The external effects described above cannot be valued directly
from market data, because there are no “prices” for the 7.2.3.2 Property Prices or the Hedonic Method
resources associated with the external effects (such as clean air,
or clean water). Hence indirect methods have to be adopted. Property prices vary according to the many attributes associat-
Values have to be inferred from individuals’ decisions in related with them. House prices, for example, reflect size, commer-
ed markets, or from directly eliciting the WTP for the environ- cial facilities, local infrastructure, and other attributes such as
mental good through questionnaires. Values of environmental environmental quality of the house location. From statistical
Table 7.2: A Sample of externalities assessed in studies of electricity generation
Health Materials Crops Forests Amenitya Ecosystems
Mortality Morbidity Timber Other
PM10 AM AM AM NE NE NE AM NE
SO2b AM AM AM AM AM AP AM AP
NOxb AM AM AM AM AM NA NE AP
Ozone AM AM AM AM NA NA NE NE
Mercury and other NA NA NE NE NE NE NE ?
heavy metals
Routine operationsc AM AM NE NE NE NE NE NE
Water pollutantsd NE NE NE NE NE NE AP
Noise NE NA NE NE NE NE AM NE
AM, assessed in monetary terms, at least in some studies. AP, assessed in physical terms and possibly partly in monetary terms. NA, not assessed, although they
may be important. NE, no effect of significance is anticipated.
a Effects of particulate matter less than 10 microns (PM ), NO , and SO on amenity arise with respect to visibility. In previous studies these have not been
10 x 2
found to be significant in Europe, although they are important in the USA.
b SO and NO include acid-deposition impacts.
2 x
c Routine operations generate externalities through mining accidents, transport accidents, power-generation accidents, construction and dismantling accidents,
and occupational health impacts. All these involve mortality and morbidity effects and are externalities to the extent that labour markets do not allow indi-
viduals to choose employment with different combinations of risk and reward.
d Water pollution effects include impacts of mining (including solid wastes) on ground and surface water, power-plant emissions to water bodies, and acid depo-
sition and its impacts on lakes and rivers (partly quantified).

Source: Developed from Markandya and Pavan (1999).
analyses of house prices, the contribution of environmental of work on reducing the biases that arise because such data do
quality to house price variations can be assessed, which is an not report actual transactions, this method arouses considerable
estimate of how much people are willing to pay for changes in scepticism among policymakers and its results are not always
environmental quality. This measure represents a use value for accepted.
that environmental change from which a demand function can
be estimated. The method has been used to value external Nevertheless, although such methods of valuation have prob-
effects such as noise, air quality, and visibility. The main limi- lems, there is often no suitable alternative and they provide
tation is that to work efficiently it requires the affected parties policymakers with important information for decision-making
to be well informed about the impacts and markets, so that purposes. As suggested above, both physical impacts and val-
decisions about location can be made freely and easily. For ues should be used in this process. In relation to climate
examples of relevant studies see ExternE (1999), Palmquist change, the estimation of external effects arises primarily in the
(1991), and Zabel and Kiel (2000). assessment of damages that result from such change, including
those in agriculture, forests, energy use, recreation, and health.
7.2.3.3 Contingent Valuation Method In relation to mitigation, the applications are primarily in valu-
ing the impacts of O3, NOx, SOx, particulate matter, and sec-
By asking people directly how much they are willing to pay for ondary particles. In adaptation, the valuation of external effects
a change in a provision of benefits from an environmental arises with respect to loss of land, changes to recreational facil-
resource, a hypothetical market can be created in which a ities, and changes to agriculture.
demand curve for ecological goods and services can be esti-
mated. This method is the only one by which non-use values 7.2.3.4 Benefit Transfer
can be estimated, since hypothetical markets can be created for
them. Since it is not based on revealed preferences, on which The valuation of improvements in environmental quality can
the other demand approaches are based, contingent valuation be expensive. As research budgets are tight, economists
may incur in various biases, from strategic answers to lack of explored the concept of “benefit transfer” as a cost-effective
information. Such biases are currently well documented and alternative to new non-market valuation studies (Desvousges et
techniques have been developed to reduce them. Contingent al., 1992; McConnell, 1992). The term benefit transfer reflects
valuation methods have been used to value the use and non-use its purpose: transfer the estimated economic value from one
of sites of special significance, health effects (including environmental good or site to another. Benefit transfer reduces
changes in the risk of death), and damages to ecosystems the need to design and implement a new and potentially expen-
(Bateman and Willis, 1999). Despite the considerable amount sive valuation exercise for the second site. A general four stage
process (Atkinson et al., 1992): costs, such as wind turbines, biomass combustion, and solar
• defines the purpose and desired precision of the benefit water-heating systems. The implementation of such low-cost
estimates; options in many cases implies that a number of current institu-
• develops the transfer protocol for the question in hand; tional failures and market barriers exist and that policies should
• identifies existing studies that satisfy the protocol; and be implemented to correct these.
• selects the appropriate statistical transfer method that
allows for efficient extrapolation of economic data. Following this, mitigation cost assessment, in addition to the
direct costs of the programmes, should consider implementa-
Consider the transfer of health risk estimates. For instance, an tions costs that arise in the following areas:
estimate of WTP for a given risk reduction from contaminated • financial market conditions;
water in Wyoming could be transferred to a reduced risk of • institutional and human capacities;
poor water quality in Mongolia, as long as the transfer proto- • information requirements;
col is satisfied. This protocol can be rather strict, however. For • market size and opportunities for technology gain and
a health risk, the researcher must first specify the commodity. learning; and
This includes defining the response (death or illness) and • economic incentives needed (grants, subsidies, and
causal agent (e.g., chemical), as well as understanding the taxes).
probability and severity of the risk and risk reduction methods,
the temporal dimensions of the risk, whether the risk is volun- Only some of these implementation conditions can be includ-
tary or involuntary, and the exposure pathways and exposure ed in the formal cost assessment carried out for individual mit-
levels. Once the risk is defined, the sample and site character- igation options. It is generally more complicated to design
istics have to be classified, including socioeconomic and loca- implementation programmes targeted to many individual
tion particulars. Finally, the protocol has to address the market actors (e.g., a demand-side management (DSM) scheme or a
and exchange mechanisms that define the frame of how risk is tradable carbon permits scheme) than those with centralized
reduced. Three elements are likely to matter–the set of risk project planning (e.g., large-scale power sector changes). In
reduction mechanisms (e.g., mitigation and adaptation this context it is important to distinguish between marginal and
options), the measure of value (e.g., WTP or WTA), and the non-marginal projects, since the latter may well induce signif-
exchange institution or “payment vehicle” (see Kask and icant price effects.
Shogren, 1992).
Implementation policies can be separated into small “margin-
al” efforts (which create an incentive to change specific behav-
7.2.4 Implementation Costs and Barrier Removal iour or introduce new technologies), and more general policy
efforts, like economic instruments or general educational pro-
All climate change policies necessitate some costs of imple- grammes (which work by changing the general market condi-
mentation, that is costs of changes to existing rules and regulations and the capability of the actors).
tions, making sure that the necessary infrastructure is available,
training and educating those who are to implement the policy Whether an implementation policy is “marginal” or “general”
as well those affected by the measures, etc. Unfortunately, such depends on the general market conditions, as well as on the
costs are not fully covered in conventional cost analyses. whole design of policy instruments targeted towards climate
Implementation costs in this context are meant to reflect the change mitigation. Given a “general” environment in which
more permanent institutional aspects of putting a programme energy and financial markets are efficient, competitive, and
into place and are different to those costs conventionally con- have little government intervention, and in which the institu-
sidered as transaction costs. The latter, by definition, are tem- tional context is perceived as favourable for climate change
porary transition costs. Considerable work needs to be done to mitigation programmes, the implementation policies need only
quantify the institutional and other costs of programmes, so take the form of information programmes, energy auditing, and
that the reported figures are a better representation of the true other specific regulation efforts. However, if energy prices are
costs that will be incurred if the programmes considered in heavily subsidized and financial markets are very limited, the
Chapter 6 are actually implemented. This section discusses the implementation policy may require general price reforms, spe-
issues of implementation and the associated costs further. cific grants, and other institutional changes.
Several economic and technical studies suggest that there is a Implementation policies of the “marginal” sort can be integrat-
large potential for climate change mitigation with no cost or ed relatively easily into project or sector-level mitigation
very low cost (see the review on mitigation costing studies assessment. Implementation assessment includes the costs of
given in Chapters 8 and 9 of this report). Low mitigation costs, different kinds of programmes for information, training, insti-
for example, may result from energy-efficiency improvements tution strengthening, and the introduction of technical stan-
relating to end-use savings, as well as from the introduction of dards. The most difficult part of such an assessment relates to
more efficient supply technologies. There is also potential for the behaviour of the target groups. A detailed amount of infor-
the introduction of renewable energy technologies with low mation is needed on the behaviour of specific actors, including
households and private companies, to design the most effective whereby conceptually funds can be invested in projects that
policy options. earn such returns, with the proceeds being used to increase the
consumption for future generations. Portney and Weyant
It is difficult to integrate general implementation policies, like (1999) provide a good overview of the literature on the issue of
price changes, into specific project and sector assessments. For intergenerational equity and discounting.
a DSM programme in the commercial lighting sector, imple-
mentation costs include information and training programmes, For climate change the assessment of mitigation programmes
institutional capacity building, and sometimes also “costs” of and the analysis of impacts caused by climate change need to
changing the market conditions (prices and taxes). The costs of be distinguished. The choice of discount rates applied in cost
general changes in market prices and tax systems can only be assessment should depend on whether the perspective taken is
assessed at the economy-wide level. The introduction of ener- the social or private case. The issues involved in the applica-
gy or carbon taxes or the removal of subsidies can cause sig- tion of discount rates in this context are addressed below.
nificant structural effects that, again, change energy demand
and technology choice. Thus, the proper full analysis of the For mitigation effects, the country must base its decisions at
implementation costs necessitates an economy-wide analysis least partly on discount rates that reflect the opportunity cost of
that involves, for example, the use of computable general equi- capital. In developed countries rates around 4%–6% are prob-
librium (CGE) models and intersectoral macroeconomic mod- ably justified. Rates of this level are in fact used for the
els. appraisal of public sector projects in the European Union (EU)
(Watts, 1999). In developing countries the rate could be as high
To a limited extent, such feedbacks can be integrated into a as 10%–12%. The international banks use these rates, for
project- or sector-level mitigation-cost assessment by the use example, in appraising investment projects in developing
of shadow prices. These shadow prices reflect underlying countries. It is more of a challenge, therefore, to argue that cli-
social valuations of the use of different goods and services by mate change mitigation projects should face different rates,
different agents. By estimating them in a suitable manner some unless the mitigation project is of very long duration. These
of the implementation costs, such as changes in government rates do not reflect private rates of return, which typically need
income or expenditure, or the higher value of foreign to be considerably higher to justify the project, potentially
exchange, can be captured in the cost analysis. Importantly, between 10% and 25%.
however, implementation costs assessed using shadow prices
do not pick up factors such as quantitative or physical con- For climate change impacts, the long-term nature of the prob-
straints on the use and allocation of some resources, particu- lem is the key issue. The benefits of reduced GHG emissions
larly financial ones. vary with the time of emissions reduction, with the atmospher-
ic GHG concentration at the reduction time, and with the total
A framework to assess implementation costs thus includes the GHG concentrations more than 100 years after the emissions
costs of project or policy design, institutional and human reduction. These are very difficult to assess.
capacity costs (management and training), information costs,
and monitoring costs. The costs of resources involved should, Any “realistic” discount rate used to discount the impacts of
in each case, be based on economic opportunity costs. increased climate change impacts would render the damages,
which occur over long periods of time, very small. With a hori-
zon of around 200 years, a discount rate of 4% implies that
7.2.5 Discounting damages of US$1 at the end the period are valued at 0.04 cents
today. At 8% the same damages are worth 0.00002 cents today.
The debate on discount rates is a long-standing one. As SAR Hence, at discount rates in this range the damages associated
notes (IPCC, 1996a, Chapter 4), there are two approaches to with climate change become very small and even disappear
discounting; an ethical, or prescriptive, approach based on (Cline, 1993).
what rates of discount should be applied, and a descriptive
approach based on what rates of discount people (savers as A separate issue is that of the discount rate to be applied to car-
well as investors) actually apply in their day-to-day decisions. bon. In a mitigation cost study, should reductions of GHG in
SAR notes that the former lead to relatively low rates of dis- the future be valued less than reductions today? It could argued
count (around 2%–33% in real terms) and the latter to relative- that this is the case, as the impacts of future reductions will be
ly higher rates (at least 6% and, in some cases, very much high- less. This is especially true of “sink” projects, some of which
er rates). will yield carbon benefits well into the future. Most estimates
of the cost of reductions in GHGs do not, however apply a dis-
The ethical approach applies the so-called social rate of time count rate to the carbon changes. Instead, they simply take the
discount, which is the sum of the rate of pure time-preference average amount of carbon stored or reduced over the project
and the rate of increase of welfare derived from higher per lifetime (referred to as flow summation) or take the amount of
capita incomes in the future. The descriptive approach takes carbon stored or reduced per year (flow summation divided by
into consideration the market rate of return to investments, the number of years). Both these methods are inferior to the
application of a discount rate to allow for the greater benefit of er person, say in the future, even when no new information has
present reductions over future reductions. The actual value, emerged. Policymakers of today try to commit future policy-
however remains a matter of disagreement, but the case for makers to a development path that is sustainable. But when the
anything more than a very low rate is hard to make (Boscolo et future actually arrives, these new policymakers deviate from
al., 1998). the sustainable path and reallocate resources that are efficient-
ly based on prevailing interest rates.
More recent analysis on discounting now examines rates that
vary with the time period considered. In surveys of individual Finally the case is made for calculating all intertemporal
trade-offs over time, Cropper et al. (1994) estimated a nominal effects with more than one rate. The arguments outlined above
rate of around 16.8%, based on a sophisticated questionnaire for different rates are unlikely to be resolved, given that they
approach to valuing present versus future risks. Most impor- have been an issue since well before climate change. Hence it
tantly, however, these authors found evidence that respondents is good practice to calculate the costs for more than one rate to
do not discount future lives saved at a constant exponential rate provide the policymaker with some guidance on how sensitive
of discount. Rather, median rates seem to be decline over time the results are to the choice of discount rate.7 A lower rate
(i.e., a rate is not constant over time but decreases as the time based on the ethical considerations is, as noted above, around
horizon lengthens). Using different econometric specifications 3%.
that allow the discount rate to decline over time, Cropper et al.
(1994) estimate that mean discount rates are greater for short
time periods relative to long time horizons. For example, fit- 7.2.6 Adaptation and Mitigation Costs and the Linkages
ting their data to a hyperbolic function suggests that mean dis- between Them
count rate is 0.80 for 1 year and 0.08 for 100 years. While the
pattern is consistent, the implied rates using linear discount rate Climate change puts society at risk. It is possible to prevent
functions are much larger: 34% for the initial period and about damages through mitigation and adaptation. Mitigation strate-
12% for the last period. gies against the risks of climate include curtailing GHG emis-
sions to lower the likelihood that worse states of nature will
Hyperbolic discounting implies that a person’s relative evalua- occur. Adaptation strategies to climate risk include the chang-
tion of two payments depends on both the delay between the ing of production and consumption decisions to reduce the
two payments and when this delay will occur–sooner or later. severity of a worse state in the scenario if it does occur (Ehrlich
For instance, people often have an impulsive preference for and Becker, 1972; Crocker and Shogren, 1999). A portfolio of
immediate reward. Some people prefer to receive US$1000 mitigation and adaptation actions jointly determines climate
today over US$1010 in a month’s time, and yet they also pre- risks and the costs of reducing them. Since individuals in their
fer US$1010 in 21 months to US$1000 in 20 months, even private capacity have the liberty to undertake adaptation to cli-
though both choices involve a month’s wait to obtain $10 more mate change on their own accord, modellers and policymakers
(see Lowenstein and Prelec, 1992). Theoretical support for need to address these adaptive responses when choosing the
hyperbolic discount rests on the idea that, while interest rates optimal degree of public mitigation. If this is not the case, then
from financial instruments can be used to identify appropriate policy actions are likely to be more expensive than they need
discount rates for time horizons of a few decades, they do not be, with no additional reduction in climate risk (see, e.g.,
apply to future interest rates for far distant horizons. These will Schelling, 1992).
be determined by future opportunity sets created by many fac-
tors, such as economic growth. The fact that the scope of these While most people appreciate that actions on adaptation affect
future opportunity sets for the far distant future is not known the costs of mitigation, this obvious point is often not
adds another layer of uncertainty into climate policy, which addressed in climate policymaking. Policy is fragmented–with
tends to drive discount rates down. mitigation being seen as addressing climate change and adap-
tation seen as a means of reacting to natural hazards. As a con-
Weitzman (1998) surveyed 1700 professional economists and sequence, the estimated costs of each can be biased (see Kane
found that (a) economists believe that lower rates should be and Shogren, 2000). Usually, mitigation and adaptation are
applied to problems with long time horizons, such as that being modelled separately as a necessary simplification to gain trac-
discussed here, and (b) they distinguish between the immediate tion on an immense and complex issue. One question that must
and, step by step, the far distant future. The discount rate be addressed is “How reasonable is this assumption?” Another
implied by the analysis falls progressively, from 4% to 0%, as is “What are the likely consequences of this assumption on the
the perspective shifts from the immediate (up to 5 years hence) estimated costs of mitigation?”
to the far distant future (beyond 300 years). Weitzman (1998)
suggests the appropriate discount rate for long-lived projects is
less than 2%. Finally, hyperbolic discounting has less support
if it leads to time-inconsistent planning, as argued by Cropper
and Laibson (1999). Time inconsistency arises when a policy- 7It is also useful to display graphically the time path of undiscount-
maker has an incentive to deviate from a plan made with anoth- ed costs, as discounting can obscure important information.
First, separability presupposes that the overall effectiveness mitigation and adaptation risk estimate that benefits are under-
and costs of mitigation do not depend on adaptation. However, estimated by 50% when adaptation is ignored (e.g., Swallow,
for this assumption to hold, the implicit presumption is that cli- 1996).
mate risk is exogenous–a risk beyond people’s private or col-
lective ability to reduce. The necessary economic conditions Third, uncertainty in cost is affected by interaction of the tech-
for this to hold are rather restrictive. In particular, climate risk nologies for risk reduction–mitigation and adaptation. By miti-
can be considered as exogenous only if markets are complete. gation, humans reduce the odds that a deleterious event hap-
A complete set of markets exists if people can contract to pens; by adaptation, they reduce the consequences when a dam-
insure against all risks from each conceivable state of nature aging event actually does occur. For the most part, climate
that might be realized (Marshall, 1976). Complete markets change literature contains models that deal with mitigation and
allow for perfect risk spreading and risk pooling such that the adaptation separately. This is unfortunate, since significant
only remaining risk is outside the control of human actions interactions are likely to exist between how people choose to
(e.g., phases of the moon). However, markets for climate risk mitigate and adapt (Shogren and Crocker, 1999). These risk-
are notorious incomplete or non-existent because of the high reduction strategies probably complement or negate each other.
cost of contracting (Chichilnisky and Heal, 1993). People Understanding the interaction between the two can help formu-
make private and collective adaptation decisions through the late better the analysis of mitigation costs. The benefits of mit-
markets that do exist and through collective policy actions. The igation will be lower if more people can adapt to the climate.
economic circumstances that influence these choices matter to
the level of risk, and addressing these conditions is essential for These results suggest that more it would be worthwhile to pay
the successful estimation of costs. People choose to create and more attention to the interaction of mitigation and adaptation,
reduce risk. How people perceive risk, the relative costs and and its empirical ramification. The challenge is to capture in a
benefits of alternative risk reduction strategies, and relative reasonable way the linkages between these sets of actions, and
wealth affect these choices. to establish how this interaction can impact the estimated costs
of climate protection. Even if a complete empirical application
Similar to income and substitution effects, adaptation can have of the portfolio of risk avoidance is currently unreachable, an
two effects on the costs of mitigation. First, more adaptation can understanding of which unmeasured links might be most valu-
lower mitigation costs because policymakers choose to move to able to decision makers in the future could indicate whether the
another point on the same mitigation cost curve - adaptation costs of mitigation are being underestimated.
does not alter the marginal productivity of mitigation, it induces
a shift along the cost curbe. Second, adaptation acting as a tech-
nical substitute or complement shifts the mitigation cost curve. 7.3 Analytical Structure and Critical Assumptions
For example, flood defences change land use and thereby
change costs and prices in an area, which impacts on mitigation 7.3.1 System Boundaries: Project, Sector,
costs. Whether adaptation causes a shift along the mitigation Macroeconomic
cost curve or a shift of the entire curve itself, or both, then
becomes a modelling question, and an empirical one to deter- Assessing climate change mitigation involves a comparison
mine the magnitude of the shift along and to a new cost curve. between a policy case and a non-policy case, otherwise
referred to as a baseline case. The two should, as far as possi-
Second, sectoral work in agriculture, forestry, and coastal areas ble, be defined in a way that the assessment can include all
shows that cost estimates are sensitive to the inclusion of adap- major economic and social impacts of the policies, spillovers,
tation (see, e.g., Sohngen and Mendelsohn, 1997; Sohngen et and leakages, as well as GHG emission implications. In other
al., 1999). Greater climate variability, for instance, can influ- words, the cases should be assessed in the context of a “system
ence how adaptation affects mitigation in agriculture. boundary” that include all major impacts. The system bound-
Increased levels of risk directly induce a nation to adapt more ary can be a specific project, include one or more sectors, or the
by switching its crop mix and crop varieties to those more tol- whole economy.
erant of drier or wetter conditions, and by modifying its weed
control strategies. The magnitude of this adaptation depends on The project, sector, and macroeconomic levels can be defined
how risk affects the perceived marginal productivity of mitiga- as follows:
tion (e.g., more or less effective soil sequestration per unit of • Project. A project level analysis considers a “stand-
area), and how mitigation and adaptation work with or against alone” investment that is assumed not to have signifi-
each other. Bouzaher et al. (1995), for example, estimate that cant impacts on markets (both demand and supply)
winter cover crops can be used to increase soil organic carbon beyond the activity itself. The activity can be the imple-
by expanding annual biomass production. They also show that mentation of specific technical facilities, infrastructure,
conservation tillage, the Conservation Reserve Program, and demand-side regulations, information efforts, technical
the Wetlands Reserve Program can increase soil carbon by standards, etc. Methodological frameworks to assess the
minimizing soil disturbance and targetting bottomland for project level impacts include cost–benefit analysis,
hardwood trees. For non-climate risk, models that account for cost-effectiveness analysis, and lifecycle analysis.
• Sector. Sector level analysis considers sectoral policies 7.3.2 Importance of Baselines
in a “partial-equilibrium” context, for which other sec-
tors and the macroeconomic variables are assumed to 7.3.2.1 Development Patterns and Baseline Scenario
be as given. The policies can include economic instru- Alternatives
ments related to prices, trade, and financing, specific
large-scale investment projects, and demand-side regu- The baseline case, which by definition gives the emissions of
lation efforts. Methodological frameworks for sectoral GHGs in the absence of the climate change interventions being
assessments include various partial equilibrium models considered, is critical to the assessment of the costs of climate
and technical simulation models for the energy sector, change mitigation. This is because the definition of the base-
agriculture, forestry, and the transportation sector. line scenario determines the potential for future GHG emis-
• Macroeconomic. A macroeconomic analysis considers sions reduction, as well as the costs of implementing these
the impacts of policies across all sectors and markets. reduction policies. The baseline scenario also has a number of
The policies include all sorts of economic policies, such important implicit assumptions about future economic policies
as taxes, subsidies, monetary policies, specific invest- at the macroeconomic and sectoral levels, including sectoral
ment projects, and technology and innovation policies. structure, resource intensity, prices and thereby technology
Methodological frameworks include various sorts of choice.
macroeconomic models such as general equilibrium
models, Keynesian models, and Integrated Assessment Macroeconomic issues that are particularly relevant to devel-
Models (IAMs), among others. oping countries (such as instability of output, constrained cap-
ital, and foreign exchange) similarly have important implica-
A “trade-off” is expected between the details in the assessment tions on GHG emissions through impacts on energy sector
and the complexity of the system considered. For example a investments and energy-intensive production sectors. These
project system boundary allows a rather detailed assessment of assumptions have important implications for the efficiency of
GHG emissions and economic and social impacts generated by policy instruments applied to climate change mitigation strate-
a specific project or policy, but excludes sectoral and economy- gies and thereby for implementation costs, which are discussed
wide impacts. Conversely, an economy-wide system boundary, in Section 7.2.3.
in principle, allows all direct and indirect impacts to be includ-
ed, but has little detail on the impacts of implementing specif- Economic policies have a number of direct and indirect
ic projects. impacts on GHG emitting sectors. It is generally expected that
successful economic policies generate increased growth and
The system boundaries may be selected on the basis of the spe- the emissions intensity of the economy then depends on the
cific scope of the study and the availability of analytical tools, mix of products produced as well as on the efficiency with
such as models. Many studies have been organized, in practice, which they are produced. Economic policies in some cases can
on the basis of the scope and structure of the modelling tools imply a more efficient use of resources, which means that the
applied. For example, climate change mitigation studies for the GHG emission intensity per unit of economic output decreas-
energy sector were frequently structured according to tradition- es. The tendency to increase GHG emissions alongside eco-
al modelling approaches used in that sector, which are often rich nomic growth is expected to be particularly “strong” in coun-
in detail on technologies, but do not include market behaviour. tries that presently have low energy consumption. The chal-
In contrast, macroeconomic models are often rich in detail on lenge is to pursue a development pattern in which economic
market behaviour and price relationships, but do not explicitly development is achieved alongside relatively low GHG emis-
include major GHG emitting sources and related technologies. sions and other environmental impacts.
Project assessment methodologies are generally very rich in Many macroeconomic and sectoral policies have important
detail and include an assessment of various direct and indirect consequences for future GHG emissions through the impacts
costs and benefits of the GHG reduction policy considered. on sectoral structure, resource intensity, prices, and thereby
The assessments are often conducted as very data-intensive technology choice. Macroeconomic issues like constrained
exercises, in which various project assessment tools and expert capital and foreign exchange can lead to low investments in the
judgements are combined. They require rather strong technical energy sector, to major energy-intensive production sectors, or
skills of the experts in the collection of data, to ensure consis- to the high utilization of pollution-intensive domestic fuels. In
tency in the structure and results of the analysis. the same way, uncertainty or macroeconomic instability has a
tendency to slow down investments because of the risk per-
A combination of different modelling approaches is required ceptions of foreign and national investors, and because of high
for an effective assessment of the options. For example, interest rates.
detailed project assessment has been combined with a more
general analysis of sectoral impacts, and macroeconomic car- As noted, GHG emissions are interlinked with general eco-
bon tax studies have been combined with the sectoral model- nomic development patterns and economic policies. These
ling of larger technology investment programmes. policies have an influence both on the baseline as well as on the
effectiveness of the mitigation options, and thereby on GHG In reality, this can only provide a partial insight into the costs
emission levels. It is useful to “decompose” the GHG emis- of climate change. Despite the large disparities in cost esti-
sion/GDP intensity factor into subcomponents that explain the mates likely to arise through the use of multiple baselines, they
implicit resource components behind the GHG emissions. One do allow the future to be framed within a much wider analyti-
way to achieve this for the energy sector is based on the so- cal perspective. Using a number of different development pat-
called Kaya identity (Kaya, 1989): terns is of particular importance to developing countries. Since
the major part of their infrastructure and energy systems is yet
GHG emissions GHG emissions energy
= x to be built, the spectrum for future development is wider than
GDP energy GDP in industrialized countries. A baseline scenario approach that
assumes current development trends to continue is therefore
The first component of the identity, GHG emissions per ener- not very useful in these countries (IPCC, 1996a, Chapter 8).
gy unit, reflects the GHG emission intensity of energy con-
sumption, which again reflects natural resource endowment The scenarios of the IPCC Special Report on Emissions
and relative prices of the different energy sources. The second Scenarios (IPCC, 2000a) show that alternative combinations of
factor (energy consumption per GDP unit) reflects both the driving-force scenario variables can lead to similar levels and
weight of energy-intensive processes in GDP and the efficien- structure of energy use and land-use patterns. Hence for a
cy of the resources used. The same approach can be used to given scenario outcome, for example in terms of GHG emis-
assess GHG emission intensities of other sectors, such as agri- sions, alternative pathways can lead to that outcome. The con-
culture, forestry, waste management, and industry. clusion is therefore that one and only one development path
does not exist and studies preferably should include multiple
Development may follow different paths in countries accord- baseline scenarios that facilitate a sensitivity analysis of the
ing to socioeconomic conditions, resources, national policies key scenario variables and assess the consequence of different
and priorities, and institutional issues. For instance, a rapidly development patterns.
growing economy develops a different composition of capital
stock and energy use pattern compared with a slowly growing 7.3.2.3 Baseline Scenario Concepts
country. A nation following development policies that empha-
size greater investments in infrastructure, such as efficient rail The literature reports several different baseline scenario con-
transport, renewable energy technologies, and energy efficien- cepts, including (Sanstad and Howart, 1994; Halsnæs et al.,
cy improvements, exhibits a low GHG emission trajectory. 1998; Sathaye and Ravindranath, 1998):
However, a nation with substantial coal resources, scarce cap- • efficient baseline case, which assumes that all resources
ital, and a low level of trade can be pushed towards a develop- are employed efficiently; and
ment path with high emissions. • “business-as-usual” baseline case , which assumes that
future development trends follow those of the past and
7.3.2.2 Multiple Baseline Scenarios no changes in policies will take place.
The above discussion identifies a number of reasons why the These different baseline scenario concepts represent different
establishment of a baseline case is very difficult and uncertain. expectations about future GHG emission development trends,
There are some additional reasons why this is so. The difficul- as well as different perspectives on the trade-offs between cli-
ty in predicting the evolution of development patterns over the mate change mitigation policies and other policies. The costs
long term stems, in part, from a lack of knowledge about the of a given GHG emissions reduction policy depend in a very
dynamic linkages between technical choices and consumption complicated way on numerous assumptions about future GHG
patterns and, in turn, how these interact with economic signals emissions, the potential for emissions reductions, technologi-
and policies. Technology and consumption patterns are cal developments and penetration, resource costs, and markets.
endogenous, their direction being determined at least partly by
political decisions. There are also many general uncertainties The different GHG emission profiles of the alternative base-
that impact on the establishment of a baseline case, for exam- line-scenario approaches depend on a number of assumptions.
ple political and social changes. These include economic growth, mix of products, GHG emis-
sions, intensity of energy production and consumption, and
The above considerations further emphasize the need for work other material use. A “business-as-usual” baseline case is often
on the basis of several alternative baseline scenarios character- associated with high GHG emissions, particularly if current
ized by different assumptions regarding development patterns main GHG emission sources, such as the energy industry, run
and innovation. This allows the mitigation or adaptation at low efficiency. Such a baseline case can reflect the continu-
assessments to create an estimate range for the costs associat- ation of current energy-subsidy policies (which implies rela-
ed with very different development paths. Indeed, the range of tively high energy consumption and thereby high GHG emis-
emission levels associated with alternative baseline scenarios sions) or various other market failures of particular importance
could well be greater than the difference between a certain for GHG emission intensive sectors, such as capital market
baseline and the corresponding active policy case. constraints. An efficient baseline case that assumes properly
7.3.2.4 Specific Baseline Issues Related to International

GHG
emissions
Co-operative Mechanisms for Greenhouse Gas
Business-as-usual Emission Reductions
baseline
The Kyoto Protocol of the United Nations Framework
Convention on Climate Change (UNFCCC) includes a number
of mechanisms for international co-operation about GHG
Efficient baseline emission reductions. The Protocol includes two project-based
mechanisms, namely the clean development mechanism
(CDM) and joint implementation (JI). The operational details
of these two mechanisms are discussed in a number of studies
which include a number of different arguments for baseline
case approaches. A number of these arguments are subsequent-
ly referred and discussed.
A number of studies suggest the use of a so-called standard

methodology for setting the baseline case for CDM and JI pro-
Time jects. Here, the baseline case serves as a metric for calculating
GHG emission reductions that originate from the approved
Figure 7.2: Greenhouse gas emission profiles of different base- projects and the main issue is therefore to specify GHG emis-
line case approaches. sions in the absence of the project. A number of specific com-
plexities arise in relation to the definition of baseline cases for
projects that do not include major new capital equipment, such
functioning markets, all other things being equal, can be as projects that include changes in operational practice, land
expected to reflect relatively high energy efficiency and there- use, land-use changes, and forestry projects.
by lower GHG emissions than a business-as-usual baseline
case. GHG emission profiles of the different baseline case Papers that evaluate alternative options for the baseline determi-
approaches are illustrated in Figure 7.2. nation of CDM projects include Michaelowa and Dutschke
(1998), Chomnitz (1999), Jepma (1999), Matsuo (1999), Parson
The GHG emission reduction potential of a given policy is to and Fisher-Vanden (1999), and Harrison et al. (2000). These
be measured as the difference between the GHG emissions in papers deal with various baseline issues including technology
the baseline case and the GHG emissions after the implemen- benchmarks, normative benchmarks that are politically chosen,
tation of the policy. Clearly, this difference depends on both the and historical benchmarks based on GHG emission trends.
baseline and the options chosen for the mitigation. High base- Other important aspects considered include assumptions about
line-scenario GHG emissions based on a business-as-usual sce- baseline development over the timeframe of the CDM project.
nario approach in some cases can imply that the net mitigation
costs measured per unit of GHG emission reduction are rela- He and Chen (1999) have suggested a set of criteria to estab-
tively low. Such a result, for example, can reflect that the mit- lish baseline cases from a micro level perspective. In this
igation scenario is assumed to imply a general efficiency approach, GHG emissions reduction projects are divided into
improvement of the energy systems compared with the base- three project categories:
line wich both reduces GHG emission and generates fuel cost • technology innovation, in which the GHG emission
savings. The total costs of achieving a given GHG emission reduction project should be compared with existing
level (e.g., defined in relation to 1990 emissions), however, can technologies;
be relatively high when the mitigation strategy is assessed in • new constructed plants, in which the GHG emission
relation to a business-as-usual baseline scenario that has a large reduction project should be compared with alternative
growth in GHG emissions. Conversely, GHG emission reduc- new advanced technologies; and
tion costs per unit of emission can be relatively high in relation • technology substitution, in which the GHG emissions
to an efficient baseline case, but total reduction costs of meet- reduction project should be compared with a newly
ing a target can be low. constructed existing plant.
It is important to emphasize consistency and transparency in A benchmark technology baseline to assess power-sector CDM
the definition of baselines, and in the reporting of any costs projects could include assumptions about the efficiency and
associated in moving from a given baseline case to a climate costs of power production technologies in a specific national or
change policy case. Furthermore, when reporting the range of regional area, or could be based on international standards. The
cost estimates for the different baselines, it is important also to actual definition of baseline technologies will has major impli-
provide information about the assumptions that underlie each cations on the GHG emission reduction “performance” of the
baseline. CDM project.
The choice of baseline case approach for CDM projects or JI between mitigation policies and general economic policies or
projects might have major implications on the global cost non-GHG environmental policies. These side effects can be
effectiveness of climate change mitigation projects. A baseline divided into three categories (IPCC, 1996a, Chapter 8):
scenario approach that uses internationally standardized tech- • A double dividend related to recycling of the revenue of
nology data implies that the GHG emission reduction potential carbon taxes in such a way that it offsets distortionary
and related costs are estimated to be similar for projects imple- taxes.
mented at quite different sites. Project host countries that have • Ancillary impacts, which can be synergies or trade-offs
a relatively low GHG emission intensity from their power sys- in cases in which the reduction of GHG emissions have
tem compared with the international baseline standard have a joint impacts on other environmental policies (i.e.,
relatively strong “market position” in this case, because the relating to local air pollution, urban congestion, or land
GHG emission reductions achieved with the particular CDM or and natural resource degradation). These are referred to
JI project will be assessed to be relatively high. Project host as ancillary or co-benefits and are discussed in Section
countries with a relatively high GHG emission intensity com- 7.2.2.
pared with the international standard will tend to have a weak- • Impacts on technological development and efficiency.
er market position than in the alternative approach, in which These include specific incentives to develop and pene-
the baseline case reflects specific national GHG emissions. trate new technologies, technology learning, and reduc-
Baseline cases that underestimate the reductions from a partic- tion of current barriers to efficiency improvements in
ular project in this way result in fewer projects than is justified. existing technical systems (part of these impacts are
This use of international benchmark technology standards can considered as part of the so called no regret potential,
tend to imply a loss in the global cost-effectiveness of CDM see Section 7.3.4.2 for a more detailed discussion).
or JI projects.
7.3.3.1 Double Dividend
Another drawback to using a baseline case not related to the
specific development context of the project host country is that The potential for a double dividend arising from climate miti-
it can be difficult to design the project such that it creates both gation policies has been extensively studied during the 1990s.
global (GHG emission reduction) and local benefits (improve- In addition to the primary aim of improving the environment
ments in the local environment, employment, and income gen- (the first dividend), such policies, if conducted through rev-
eration, and institutional strengthening). Such drawbacks, enue-raising instruments such as carbon taxes or auctioned
however, should be balanced against the expected decrease in emission permits, yield a second dividend, which can be set
transaction costs from using an international benchmark base- against the gross costs of these policies.
line case approach.
The literature demonstrates theoretically that the costs of
addressing greenhouse targets with policy instruments of all
7.3.3 Cost Implications of Different Scenario Approaches kinds–command-and-control as well as market-based
approaches–can be greater than otherwise anticipated, because
The costs of climate change mitigation policies are, by defini- of the interaction of these policy instruments with existing
tion, a net incremental cost relative to a given scenario, which domestic tax systems.8 Domestic taxes on labour and invest-
includes assumptions on both the baseline case and the policy ment income change the economic returns to labour and capi-
case. The following section presents a taxonomy of baseline tal and distort the efficient use of these resources.
cases and policy scenario cases and discusses these in relation
to cost assessments. The cost-increasing interaction reflects the impact that GHG
policies can have on the functioning of labour and capital mar-
In Section 7.2 it is stated that cost assessments should include, kets through their effects on real wages and the real return to
in principle, all costs and benefits related to the policies as well capital.9 By restricting the allowable GHG emissions, permits,
as any ancillary benefits and costs. The actual determination of regulations, or a carbon tax raise the costs of production and
impacts related to the policies, however, is open to interpreta- the prices of output, and thus reduce the real return to labour
tion and discussion, and the actual selection of system bound- and capital. If government revenues are to remain unchanged,
aries for the cost assessment will reflect specific assumptions labour or capital tax rates have to be raised, exacerbating prior
in the baseline as well as in the policy case scenario. distortions in the labour and capital markets. Thus, to attain a
given GHG emissions target, all instruments have a cost-
One way to evaluate the impact of different scenario structures increasing “interaction effect”.
on costs is to distinguish between the gross and the net costs of
climate change mitigation policies. Gross costs are here
8 For a very readable account of the basic analytics and economic
defined to reflect all direct and indirect costs and benefits of
intuition at the heart of this literature, see pages 281–284 in Kolstad
the mitigation policy, when this policy is considered as the pri- (2000).
mary policy objective. Net costs are the gross costs corrected
for side effects that result from potential synergies or trade-offs 9 See, for example, Parry et al. (1999).
For policies that raise revenue for the government (carbon 7.3.3.2 Ancillary Impacts
taxes and auctioned permits), this is only part of the story, how-
ever. These revenues can be recycled to reduce existing distor- The definition of ancillary impacts is given in Section 7.2.2.3.
tionary taxes. Thus, to attain a given GHG emissions target, As noted there, these can be positive as well as negative. It is
revenue-generating policy instruments have the advantage of a important to recognize that gross and net mitigation costs can-
potential cost-reducing “revenue-recycling effect”, as com- not be established as a simple summation of positive and neg-
pared to the alternative, non-auctioned tradable permits or ative impacts, because the latter are interlinked in a very com-
other instruments that do not generate revenue (Bohm, 1998). plex way. Climate change mitigation costs (gross and well as
In a simple, stylized representation of the economy, Bovenberg net costs) are only valid in relation to a comprehensive specif-
et al. (1994) and Goulder (1995a, b) suggest that in only a few ic scenario and policy assumption structure.
cases is the tax interaction effect fully offset by the revenue-
recycling effect. In theoretical, numerical analyses, the “inter- An example is transportation sector options that have an
action effect” is found to be larger than the “revenue-recycling impact on both GHG emissions and urban air pollution control
effect” (Parry et al., 1999), which means that the introduction programmes. GHG emission control policies, like vehicle
of an environmental policy, regardless of the policy instru- maintenance programmes, reduce both GHG emissions and
ment(s) used, has a net cost to the economy.10 It is also true, other pollution, but another option, like the introduction of
however, that under some circumstances the (cost-reducing) diesel trucks as a substitute for gasoline trucks, decreases GHG
“revenue-recycling effect” might exceed the (cost-increasing) emissions but increases NOx emissions and thereby local air
“interaction effect”. This could happen if, for example, the pollution. The gross and net costs assessed for these pro-
interaction effect was small, for example because of a suffi- grammes depend on specific baseline and policy case scenar-
ciently inelastic labour supply, or if some highly distortionary ios (specifically, the assumptions on urban air pollution control
pre-existing taxes could be lowered.11 policies are critical).
However, it is unclear whether the empirical findings of the It is important that assumptions about environmental control
interaction effect are due more to the assumptions invoked for policies outside the specific area of GHG emissions reduction
tractable general equilibrium analysis than to real-world con- be carefully specified in relation to the baseline as well as to
siderations (Kahn and Farmer, 1999). the policy case. If the baseline assumes that some environmen-
tal control policies are implemented in the time frame consid-
In summary, all domestic GHG policies have an indirect eco- ered, the side effects of the GHG reduction policy in relation to
nomic cost from the interactions of the policy instruments with these areas cover part of these environmental policy objectives.
the fiscal system, but in the case of revenue-raising policies The mitigation costs then eventually offset part of the control
this cost is partly offset (or more than offset) if, for example, cost in the baseline case. However, if the baseline case includes
the revenue is used to reduce existing distortionary taxes. specific flue-gas cleaning systems on power plants to control
Whether these revenue-raising policies can reduce distortions SO2 and NOx emissions that are already installed, then invest-
in practice depends on whether revenues can be “recycled” to ments in these plants are irreversible. In this case, the joint ben-
tax reduction. See Chapter 6 for the policy relevance of these efit of climate change mitigation programmes in the form of
estimated effects and Chapter 8 for model-based empirical avoided control cost on the other emissions is low, while the
studies. public health ancillary benefits may be substantial (see also the
discussion on ancillary and/or co-benefits in Section 7.2.2).
7.3.3.3 Technological Development and Efficiency Impacts
Assumptions about technological development and efficiency

10 The environmental policy should yield environmental benefits, in the baseline and mitigation scenarios have a major impact on
including some non-market benefits. A cost–benefit analysis of the
proposed policy compares these benefits with the estimated cost of the mitigation costs, in particular in bottom-up mitigation cost
policy. studies. Many of these studies structure the cost assessment
around an estimation of the costs and other impacts of intro-
11 The term “strong double dividend” has been used in the literature ducing technological options that imply lower GHG emissions.
for cases in which the revenue-recycling effect not only exceeds the The existence and magnitude of a potential for technological
interaction effect but also the direct (GDP) costs of reducing emis-
sions, thus making revenue-generating environmental policy costless. efficiency improvements depends on expectations about tech-
A revenue-recycling effect this large presupposes that the original tax nology innovation and penetration rates given consumer
structure is seriously inefficient (e.g., that capital is highly overtaxed behaviour and relative prices. These assumptions are discussed
relative to labour). This in itself calls for a tax reform the benefits of in more detail in Section 7.3.4.
which should not be ascribed to the introduction of a revenue-gener-
ating environmental policy, even if the two were made on one and the
same occasion (see SAR, Chapter 11). In this perspective, the term A number of cost studies assessed different parts of the three
“strong (or weak) double dividend” becomes redundant (see also above-mentioned side effects. The double dividend is assessed
Chapter 8). predominantly in macroeconomic studies on the basis of fairly
detailed modelling representation of tax systems and specific Many economists have emphasized that technological progress
labour market constraints that cover the short-to-medium term is driven by relative prices, and that people do not switch to
time horizon. Joint environmental impacts of climate change new technologies unless prices induce them to switch. New
mitigation policies are examined in various studies, including efficient technologies, according to this argument, then are not
macroeconomic studies, sectoral studies, and technology-spe- taken up without a proper price signal. People are also per-
cific engineering studies. Impacts of technological develop- ceived to behave as if their time horizons are short, perhaps
ment and efficiency are basically addressed in all sorts of stud- reflecting their uncertainty about future energy prices and the
ies, sometimes explicitly but sometimes implicitly. The lack of reliability of the technology. Also, factors other than energy
an integrated treatment of all three issues is, inter alia, a con- efficiency matter to consumers, such as a new technology’s
sequence of the different approaches to the technology charac- quality and features, and the time and effort required to learn
terisation in top-down models (macroeconomic) and bottom- about it and how it works. This issue has already been flagged
up models (technology- or policy-specific models), which are in relation to technology adoption and implementation costs,
further explained and discussed in Section 7.6. A few studies but it also has an uncertainty element to it.
exist, however, that attempt such an integration (see, e.g.,
Walz, 1999). The different viewpoints on the origin of technological change
appear in the assumed rate at which the energy-consuming capi-
tal can turnover without a change in relative energy prices.
7.3.4 Assumptions about Technology Options Modellers account for the penetration of technological change
over time through a technical coefficient called the “autonomous
7.3.4.1 Technological Uncertainty energy efficiency improvement” (AEEI). The AEEI reflects the
rate of change in energy intensity (the energy-to-GDP ratio)
Costing climate change policy is an uncertain business. This holding energy prices constant (see IPCC, 1996a, Chapter 8).
uncertainty often manifests itself in the choice of technologies The presumed autonomous technological improvement in the
to mitigate and adapt to risks from climate change. Firms and energy intensity of an economy can lead to significant differ-
nations can attempt to reduce risk by using more of the low-car- ences in the estimated costs of mitigation. As such, many
bon technologies presently on the shelf or they can invent new observers view the choice of AEEI as crucial in setting the base-
ones. How quickly people will switch within the set of existing line scenario against which to judge the costs of mitigation. The
technologies with or without a change in relative energy prices costs of mitigation are inversely related the AEEI– the greater the
is open to debate; how creative people are at inventing new AEEI the lower the costs to reach any given climate target. The
technologies given relative prices is also a matter of discussion. costs decrease because people adopt low-carbon technology of
their own accord, with no change in relative prices.
The key to addressing uncertainty is to capture a range of rea-
sonable behaviours that underpins the choice to adopt existing Modellers have traditionally based the AEEI on historical rates
or develop new low-carbon technology. Two key questions that of change, but now some are using higher values based on data
should be addressed are: from bottoms-up models and arguments about “announcement
• What explains the rate of adoption of existing low-car- effects”. For instance, some analysts have optimistically argued
bon technologies given the relative price of energy? that the existence of the Kyoto Protocol will accelerate the
• What explains the rate of invention of new low-carbon implementation of energy efficient production methods to 2%
technologies given relative prices? per year or more. Policymakers and modellers continue to
debate the validity of this assumption (see, e.g., Kram, 1998;
Which answers to these questions are accepted determines Weyant, 1998). A range of AEEIs has been adopted in the mod-
whether some weighted average of the estimates or a lower or elling literature (see Chapter 8 for more details). The AEEI has
upper estimate is used to guide policy. ranged from 0.4% to 1.5% per year for all of the regions of the
world, and has generated large differences in long-term project
For any given target and set of policy provisions, costs decline baselines (e.g., Manne and Richels, 1992). Edmonds and Barns’
when consumers and firms have more plentiful low-cost sub- (1990) sensitivity study confirms the importance of the AEEI in
stitutes for high-carbon technologies. Engineering studies sug- affecting cost estimates. However, as noted by Dean and
gest 20%-25% of existing carbon emissions could be eliminat- Hoeller (1992): “unfortunately there is relatively little backing
ed (depending on how the electricity is generated) at low cost in the economic literature for specific values of the AEEI ... the
if people switched to new technologies, such as compact fluo- inability to tie it down to a much narrower range ... is a severe
rescent light bulbs, improved thermal insulation, heating and handicap, an uncertainty which needs to be recognized.”
cooling systems, and energy-efficient appliances. The critical
issue is how this adoption of efficient technologies occurs in 7.3.4.2 No Regrets Options
practice and which sort of regulation and economic instru-
ments could eventually support this adoption. Chapter 5 of this No regrets options are by definition GHG emissions reduction
report assesses the literature regarding technology adoption options that have negative net costs, because they generate
and regulation frameworks. direct or indirect benefits that are large enough to offset the
costs of implementing the options. The costs and benefits F(Q,E) that represents the trade-off between Q and E. For a
included in the assessment, in principle, are all internal and given economy at a given time, each point on F shows the max-
external impacts of the options. External costs arise when mar- imum size of the economy for each level of GHG emissions,
kets fail to provide a link between those who create the “exter- and therefore it shows the loss in economic output measured by
nality and those affected by it; more generally, when property Q associated with reductions in GHG emissions level E. If the
rights for the relevant resources are not well defined. External economy is at a level below F then it is possible to increase the
costs can relate to environmental side-impacts, and distortions total production of Q and/or E. If O is taken as the starting point
in markets for labour, land, energy resources, and various of the economy in Figure 7.3 then all movements in the “trian-
other areas. By convention, the benefits in an assessment of gle” OO′O′′ increase environmental quality E and/or economic
GHG emissions reduction costs do not include the impacts output Q, but do not decrease either of these goods. Movements
associated with avoided climate change damages. A broader to positions outside this “triangle” imply a decrease in both eco-
definition could include the idea that a no regrets policy nomic activity Q and environmental quality E, or a trade-off in
would, in hindsight, not preclude (e.g., by introducing lock-in which one of these two goods decreases.
effects or irreversibilities) even more beneficial outcomes, but
this is not taken up in the mitigation literature. The no regret In estimating the costs, the crucial question is where the
concept has, in practice, been used differently in costing stud- baseline scenario is located with respect to the efficient pro-
ies, and has in most cases not included all the external costs duction frontier of the economy F. If the chosen baseline
and implementation costs associated with a given policy scenario assumes that the economy is located on the frontier,
strategy. as in the efficient baseline case, there is a direct trade-off
between economic activity and emissions reduction.
The discussion of “no regrets” potential has triggered an exten- Increased emissions reduction moves the economy along the
sive debate, which is particularly well covered in the SAR frontier to the right. Economic activity is reduced and the
(IPCC 1996a, Chapters 8 and 9). The debate is summarized costs of mitigation increase. If the economy is below the
rather simply in graphical form in Figure 7.3. frontier, at a point such as O, there is a potential for combined
GHG emissions reduction policies and improvements of the
Figure 7.3 illustrates the production frontier (F) of an economy efficiency of resource use, implying a number of benefits
that shows the trade-off between economic activity (Q) and associated with the policy.
emissions reduction (E). Each point on the curve shows the
maximum level of emissions reduction for a given level of eco- Returning to the implications for the cost of climate change
nomic activity. The economy is producing composite goods, mitigation, it can be concluded that the no regrets issue reflects
namely an aggregation of all goods and services Q and envi- specific assumptions about the working and efficiency of the
ronmental quality E, which here represent GHG emissions. economy, especially the existence and stability of a social wel-
Given such an assumption it is possible to construct a curve fare function, based on a social cost concept. Importantly, the
aggregate production frontier is uncertain, as it is dependent on
the distribution of resources and is changed by technological
development. Since it also involves the weighting of different
Economic
activity
goods and services by market valuations to form an aggregate,
it is also affected by personal and social preferences that influ-
Q
ence those valuations.
The critical question is how climate change mitigation policies

O'' can contribute to efficient and equitable development of the
economy.
In this way it can be argued that the existence of a no regret

potential implies:
• that market and institutions do not behave perfectly,
because of market imperfections such as lack of infor-
O O' mation, distorted price signals, lack of competition,
and/or institutional failures related to inadequate regu-
lation, inadequate delineation of property rights, distor-
tion-inducing fiscal systems, and limited financial mar-
F(Q,E) E kets;
Emission reduction • that it is possible to identify and implement policies
that can correct these market and institutional failures
Figure 7.3: Trade-off between emissions reduction and eco- without incurring costs larger than the benefits gained;
nomic activity. and
• that a policy decision is made to eliminate selectively over space and time to capture all potential intra- and intertem-
those failures that give rise to increased GHG emis- poral efficiencies. Providing a firm or nation with more flexi-
sions. bility to reach a given target and timetable also reduces costs.
In other words, the existence of market and institutional fail- The details as to how flexibility is achieved matter. Many
ures that give rise to a no regrets potential is a necessary, but advocates prefer emissions trading over carbon taxes because
not a sufficient, condition for the potential implementation of the quantity of carbon flowing into the atmosphere is fixed,
these options. The actual implementation also requires the thereby shifting risk from the environment to the economy in
development of a policy strategy that is complex and compre- the form of price uncertainty. However, some suggestions on
hensive enough to address these market and institutional fail- the design of emissions trading create relatively high transac-
ures and barriers. tion costs that would limit the cost savings of a trading system.
Furthermore, the key issue of how the emissions rights should
The costs that actually face private agents are different from be allocated has yet to be resolved (IPCC, 1996a; Jepma and
the social costs, and therefore the market potential (as defined Munasinghe, 1998).
in Chapter 5) may be very different from the potential based on
social costs. This implies that the actual implementation of no Another source of flexibility is to include carbon sinks in the
regrets options requires that it be possible to introduce policies policy framework. Recall that a carbon sink is a process that
that “narrow the gap” between the market potential and a destroys or absorbs GHGs, such as the absorption of atmos-
potential estimated on the basis of social costs. Cameron et al. pheric carbon dioxide by terrestrial (e.g., trees) and oceanic
(1999) give a systematic overview of market failures and mar- biota. The main anthropogenic sink is tree planting and other
ket barriers important to the implementation of no regrets forest management actions. Soils and other types of vegetation
options. also provide a potential sink. It is estimated that forests around
the world contain roughly about 1,146GtC in their vegetation
Returning to the implications for climate change mitigation and soil, with about twice as much in soil as in vegetation (See
cost, it can be concluded that the no regrets issues reflect spe- IPCC, 2000c). For the USA, forests are an important terrestri-
cific assumptions about the location of the economy in relation al sink, given that they cover about 750 million acres (about
to the efficient production frontier. Bottom-up studies have (in 300 million hectares). Land use changes in the USA have
most cases on the basis of a specific assessment of production increased the uptake of carbon to an estimated 200MtCeq.
practices in main GHG emitting sectors, such as the energy
sector) assumed that the economy in the baseline case operates A few studies found that carbon sequestration through sinks
below the optimal frontier and that mitigation policies imply an could cost as little as US$25/tonne C in the USA for 150MtCeq
increased efficiency of technologies. The costs of implement- (Stavins, 1999). But serious uncertainties remain about how to
ing mitigation policies are then partly offset by direct and indi- measure and account for estimates of net carbon. For example,
rect benefits, which sometimes are large enough to generate a how forest management activities affect soil carbon is
negative cost result. Top-down approaches, however, assume unknown, and since forest soils contain over 50% of the total
that the economy is efficient in the baseline case and mitigation stored forest carbon in the USA, this difference can have a sig-
policies therefore always imply a trade-off with other goods nificant impact on estimates. And some researchers have
and thereby have a positive cost. shown that sinks are not as effective as predicted when the
interaction of forest reserves and the timber market is account-
ed for. The more land that is set aside for carbon sinks, the
7.3.5 Cost Implications of Alternative GHG Emission quicker the cycle of harvesting on other forestland, and the less
Reduction Options and Carbon Sinks total net carbon sequestration. Some fear that these ambiguities
about sinks could divert attention from first-order priorities to
For a wide variety of options, the costs of mitigation depend on second-order technicalities (Jacoby et al., 1998).
what regulatory framework is adopted by national govern-
ments to reduce GHGs. In general, the more flexibility the To sum up, flexibility in the regulatory framework can play a
framework allows, the lower the costs of achieving a given major role in reducing the costs of GHG emissions reduction.
reduction. A stringent, inflexible carbon-mitigation policy The extent to which particular instruments can be adopted,
induces greater economic burden than a loose, flexible policy. however, depends on resolving serious political differences as
More flexibility and more trading partners can reduce costs. to how the burden of emissions reduction should be shared,
The opposite is expected with inflexible rules and few trading between developed countries themselves, and between both
partners. developed and developing countries. It is important also not to
underestimate the costs of implementing changes in regulato-
Flexibility can be measured as the ability to reduce carbon ry policy (see Section 7.2.3), especially in developing coun-
emissions at the lowest cost, either domestically or interna- tries. For some of the practical problems in using flexible
tionally, including “when and where” flexibility—which instruments in such countries, see Seroa da Motta et al.
assumes a world emissions budget could be spent optimally (1999).
7.3.6 Uncertainty12 Finally there are uncertainties in the estimated costs as well as
in the estimation of the ancillary benefits and/or co-benefits. As
A thread that runs through much of the discussion of costs is the literature on potential ancillary benefits is continues to
that of uncertainty. The whole exercise of estimating mitigation develop, current estimates of the net social impacts of various
costs is confounded by imprecise information about baselines, mitigation policies are necessarily incomplete. Private cost fig-
and the costs of mitigation and adaptation measures (especial- ures are generally more certain than the external ones, but
ly future costs). It is critical that such uncertainties be recog- some imprecision remains. As with baselines, a scenario
nized and conveyed to the policymakers in the most effective approach is recommended, with estimates prepared for a “low
manner possible. value”, a “mid value”, and a “high value”. Uncertainty about
the external costs is well recognized. As with the private costs,
As discussed above, uncertainty about baselines is best dealt again a scenario approach that gives a range from low, through
with by taking more than one baseline and reporting cost esti- mid, to high values is recommended. In both cases the scenario
mates for multiple baselines. Hence costs should not be given approach provides a sensitivity analysis for the costing exer-
as single values, but as ranges based on the full set of plausible cise.
baselines.
In the crosscutting paper on uncertainty (Moss and Schneider,
Technological uncertainty is another key area. As noted in 2000), a number of scales are proposed to assess the level of
Section 7.3.4.1, the autonomous rate of improvement in the imprecision in the reported impacts, costs, etc. One that has
energy-to-GDP ratio that underlies almost all models of cli- frequently been used for costing exercises is the three-point
mate economics is a clear example of an exogenous parameter scale that seeks to evaluate the degree of confidence in a par-
currently subject to uncertainty. This is not easy to overcome ticular result using a scale of: low, medium, and high confi-
by endogenizing technical change, as practical models current- dence levels. This has been expanded to a five-point scale,
ly available have difficulties in dealing with endogenous tech- which asks the researcher to select one of the following:
nical change. Thus, the way firms develop new technologies is • “very high confidence” (over 95% certain);
probably an issue surrounded by a greater uncertainty than • “high confidence” (67%–95% certain);
uncertainty on the consumer side. There is a moderate degree • “medium confidence” (33%–67% certain);
of consensus in the literature on these issues. As with baselines, • “low confidence” (5%–33% certain); and
a scenario approach is essential and results have to be reported • “very low confidence” (below 5% certain).
for both “optimistic” and “pessimistic” development paths.
This has not been applied to cost estimates, but it would useful
Taking a different approach, the way consumers adopt existing to establish whether it could be applied and, if so, whether it
lower carbon technologies and firms develop new ones can be would provide policymakers with better guidance as to the reli-
viewed as key sources of uncertainty in costing methodologies. ability of the results.
These assumptions are crucial, as different valuations are like-
ly to affect the conclusions. However, the ways in which guid-
ance and information about these two crucial issues are pro- 7.4 Issues in Estimating Costs
vided are radically different. Two different options are avail-
able from the consumer side. First, energy oriented macro- 7.4.1 Relationship between Mitigation Costs and
econometric models can provide a price elasticity to show how Development, Equity, and Sustainability
changes in the fuel mix are driven by relative prices. No spe-
cific direction of technological change can be derived from this A number of key concepts applied in cost assessment provide
class of model. However, differences in the results in terms of important insights about the DES aspects of mitigation policies
different energy structures (and different carbon impacts) could without intending to be comprehensive in coverage. This sec-
easily emerge. Second, engineering studies can provide some tion discusses a number of the important linkages between
indications about available lower energy technologies to show costing studies and DES approach.
the impact on energy demand and carbon emissions. Hence,
from the point of view of uncertainty there is no a priori rea- Chapter 1 states that a system’s capacity for mitigation depends
son to choose between bottom-up and top-down models. on a number of characteristics that must be considered in the
context of its unique position and aspirations including:
• a range of viable technical options;
• a range of viable policy instruments;
• resource availability and distribution; and
12 Uncertainty that is relevant to cost estimation arises from three • human and social capital.
sources. First, the intrinsic uncertainty of the climate system, second
uncertainty about the impacts, and third uncertainty about the costs.
This section only deals with the last of these. The broader issues are Each of these characteristics is interrelated with DES issues,
discussed in the crosscutting paper devoted exclusively to this topic but also has major impacts on mitigation costs. Thus, the inter-
(Moss and Schneider, 2000). action between DES aspects and mitigation costs is two-way.
DES policies have, on the one hand, major implications for external account balance, and the rate of inflation. As part of
economic structure and viability of policy instruments, as well the decision-making process, information on all these variables
for man-made, natural, and social capital. Mitigation policies, should be provided. Changes in GDP, however, have a special
on the other hand, have implications for the same DES issues. role in the analysis. As noted in Section 7.2.2, under certain cir-
The focus of this section is on the second of these feedback cumstances GDP is a valid welfare measure of the value of the
mechanisms. goods and services produced in an economy. In so far as this is
the case, changes in GDP in real terms (i.e., adjusting for price
The DES implications of mitigation policies are different changes) are also a valid measure of the costs of any mitigation
according to the geographical scale of the efforts. International policy. The major qualification is that prices should reflect
as well as national large-scale mitigation efforts can potential- social costs and that all activities that affect welfare should be
ly impose a large demand for exhaustible resources or can be included. To the extent that this is not the case a change in GDP
thought to impose irreversible damages on environmental is not an accurate measure of the costs of a programme. One
resources and these impacts should be reflected in mitigation common reason for divergence between GDP and welfare is
studies. Mitigation policies also have long-term implications the presence of external effects. Another is the failure to
on future climate change and thereby on intergenerational account for the economic value of leisure or household work.
equity. A number of issues related to how mitigation costing The macroeconomic models referred to in Section 7.6, and
studies address intergenerational equity issues are discussed in analyzed in detail in Chapter 8, do not report the costs of mar-
Section 7.4.5.13 ket-based programmes for GHG reduction at the microeco-
nomic level, but do so in terms of conventional GDP.14
Climate change mitigation policies implemented at a national
level will, in most cases, have implications for short-term eco- It must be recognized that the full set of adjustments to GDP
nomic and social development, local environmental quality, measures needed to obtain a correct welfare measure of the
and intragenerational equity. Mitigation cost assessments that costs is difficult to compute. If the policies have ancillary ben-
follow this line can address these impacts on the basis of a efits and/or co-benefits, then the overall costs of the measures
decision-making framework that includes a number of side- are less than any fall in GDP. This adjustment can be made
impacts to the GHG emissions reduction policy objective. The (using the methods discussed in Section 7.2.3) to the GDP
goal of such an assessment is to inform decision makers about measure if the data on the ancillary benefits are collected.
how different policy objectives can be met efficiently, given Other adjustments relate to changes in distributional effects
priorities of equity and other policy constraints (natural and the shadow pricing of goods and services for which prices
resources, environmental objectives). A number of internation- do not reflect social costs. Without a detailed microlevel analy-
al studies have applied such a broad decision-making frame- sis of which sectors are affected, however, these corrections are
work to the assessment of development implications of CDM not possible. Hence it has to be recognized that GDP changes
projects (Austin et al., 2000). are less accurate as measures of the true costs of mitigation
programmes, and that the use of multi-attribute and other sim-
The following sections highlight a number of key linkages ilar analyses is even more important for the assessment of such
between mitigation costing issues and broader development programmes.
impacts of the policies, including macroeconomic impacts,
employment creation, inflation, marginal costs of public funds, Several authors suggest the inclusion of more comprehensive
capital availability, spillovers, and trade. This leads to discus- welfare measures in macroeconomic studies to give a better
sion of a number of issues involved in an economic assessment reflection of social costs. The United Nations Commission for
of intergenerational equity aspects. Sustainable Development (UNCSD) has developed a system
for Green GDP accounting and a list of sustainable develop-
ment indicators that can be used to include part of the social
7.4.2 Income and Other Macroeconomic Effects cost aspects in GDP measures (UNCSD, 1999). The indicators
cover social, economic, environmental, and institutional DES
7.4.2.1 Macroeconomic Indicators aspects. A study by Håkonsen and Mathiesen (1997), based on
a CGE model, assessed large differences in welfare implica-
Major programmes of mitigation or adaptation, particularly tions of three mitigation policy cases, namely:
those that involve the use of instruments such as energy and • case A, in which carbon tax revenue is recycled lump-
carbon taxes, cause changes in the values of key macroeco- sum to the household;
nomic variables. These include growth in GDP, employment, • case B, in which carbon tax revenue substitutes labour
taxes; and
13 To some extent DES impacts overlap with ancillary impacts.
Examples are reductions in air pollution, changes in employment, etc.
The concept of DES is, however, wider than that of ancillary benefits, 14 A study that summarizes the macroeconomic level costs of alterna-
covering issues of long-term equity, social and economic develop- tive climate change policies in Germany and the USA, including the
ment, and sustainability. employment impacts, is Jochem et al. (2000).
• case C, in which the model includes ancillary benefits Commission uses a value of US$1.28 for the shadow price of
related to local air pollution and the transport sector. public funds.
Sen (1999) presents a broader perspective on economic devel- 7.4.2.3 Employment

opment and emphasizes that economic welfare is not the pri-
mary goal of development, but is rather an instrument to This section deals with the valuation of employment impacts
achieve the primary goal to enhance human freedom. Freedom, on a project basis. If a project creates jobs, it benefits society
at the same time, is instrumental in achieving development. to the extent that the person employed would otherwise not
The studies should consider a broad range of development have been employed or would have been employed doing
issues including impacts on economic opportunities, political something of lower value. Conversely, if the project reduces
freedoms, social facilities, transparency guarantees, and pro- employment there is a corresponding social cost. These bene-
tective security. fits depend primarily on the period that a person is employed,
what state support is offered during any period of unemploy-
7.4.2.2 The Marginal Costs of Public Funds ment, and what opportunities there are for informal activities
that generate income in cash or kind. In addition, unemploy-
As noted in Section 7.2.4 shadow prices have to be applied to ment is known to create health problems, which have to be
market prices when these prices do not reflect the true oppor- considered as part of the social cost.
tunity costs. Shadow prices have also been applied to the funds
used to finance mitigation programmes. Public expenditures, A physical measure of the extent of the employment created is
regardless of the benefits they confer, impose a cost on society, therefore an important task of any project assessment in an area
which reflects the “marginal excess burden” of a tax policy. where there is unemployment.16 The data that have to be esti-
The marginal costs of public funds should include the impacts mated are:
of eventually reduced distortions compared with existing tax • number of persons to be employed in the projects;
systems, as well as administration costs, compliance costs, the • duration for which they are employed;
excess burden of tax evasion, and avoidance costs incurred by • present occupations of the individuals (including no
the taxpayers. Slemrod and Yizhaki (1996) also suggest the formal occupation); and
distributional impacts of public funds collection be included. • gender and age (if available).
The marginal costs of public funds are critically dependent on This physical information can be used in the multi-attribute
the dead-weight loss associated with distortionary taxation, selection criteria discussed in Section 7.2.1 (Box 7.1). In addi-
which is dependent on the specific tax structure in place in the tion, however, it is possible to place some money value on the
non-policy case. To evaluate the true social cost of the funds it employment, or to deduct from the payments made to the work-
is necessary to estimate or know the marginal cost of public ers the value of the benefits of the reduced unemployment.
funds, that is the cost per dollar of finance, which is greater by
US$1 than the welfare cost of raising the tax revenue. In gen- Before considering the framework for such an evaluation, it is
eral there will not be one figure for this cost for the whole tax important to set out the theoretical reasons for arguing that
system. Each source of finance will have its own marginal cost. unemployment reduction has a social value. In neoclassic eco-
In general there will not be one figure for this cost for the nomic analysis, no social cost is normally associated with
whole tax system. Each source of finance will have its own unemployment. The presumption is that the economy is effec-
marginal cost15. If such a correction is not made, mitigation tively fully employed, and that any measured unemployment
policies underestimate the costs of reducing GHGs. results from matching the changing demand for labour to a
changing supply. In a well-functioning and stable market, indi-
Håkonsen (1997) has surveyed the theoretical discussion of the viduals can anticipate periods when they will be out of work,
marginal cost of public funds, and empirical estimates of the as they leave one job and move to another. Consequently, the
marginal costs have been made by the World Bank and others terms of labour employment contracts, as well as the terms of
(Devarajan et al., 1999, European Commission, 1998, Ruggeri, unemployment insurance, reflect the presence of such periods,
1999). and there is no cost to society from the existence of a pool of
such unemployed workers. However, these conditions are far
Estimates tend to suggest that the marginal costs of public from the reality in most of the developing and some of the
funds are larger in developing countries than in developed developed countries in which the GHG projects will be under-
countries. Devarajan et al.(1999) estimates that these costs taken. Many of those presently unemployed have poor
vary between US$0.48 and US$2.18 for developing countries prospects of employment.
and US$1.08 and US$1.56 for the USA. The European
16Account must also be taken of any divergence between the market
price and the social value of the output derived from the labour, both
15 It remains true, however, that if the system is optimally designed,
in its pre-project stage and as a result of the project (for details, see
the marginal costs of different fiscal instruments will be equalized. Ray, 1984).
In these circumstances, therefore, it seems entirely appropriate to be quite small. Hence, in the majority of cases it is sufficient
to treat the welfare gain of those made employed as a social to report any increase in inflation that results from the climate
gain. For developed economies this welfare gain is calculated change policy and use that information as a direct element in
as follows (Kirkpatrick and MacArthur, 1990): the decision-making process.
a. gain of net income as a result of a new job, after allowing
for any unemployment benefit, informal employment, 7.4.2.5 Availability of Capital
work-related expenses, etc.; minus
b. the value of the additional time that the person has at his or The capital costs of mitigation and adaptation programmes
her disposal as a result of being unemployed and that is lost may be underestimated if the true scarcity of capital is not
as a result of being employed; plus reflected in the costs incurred by the parties that implement the
c. the value of any health-related consequences of being programme. This can arise if capital is “rationed”, that is the
unemployed that are no longer incurred. demand for investment projects exceeds the supply. In such a
situation it is appropriate to apply a shadow price for capital,for
To calculate the social benefits (the unemployment avoided as the estimation of which the World Bank (1991) and others have
a result of the project), the welfare cost ((a) minus (b) plus (c)) made estimates. This adjustment is in addition to the adjust-
has to be multiplied by the period of employment created by ment for the marginal cost of public funds (Section 7.4.2.2).
the project.17 The above method can also be applied to obtain Moreover, when a shadow price for capital of greater than one
employment benefit estimates for projects in developing coun- is applied, it acts to ration capital when the discount rate
tries (see, e.g., Markandya, 1998). applied is low.
7.4.2.4 Inflation The above discussion assumes that the capital allocated to the
project is free to be used for any other project. What happens,
Price levels are always changing to reflect changes in the however, if capital is not “fungible” in this sense, but is made
relative scarcity of inputs and other factors. However, when available by a donor or third party for the specific purpose of
the overall cost of goods and services increases in a certain implementing climate change programmes? In these circum-
period, then the economy faces inflation. Two aspects of infla- stances the assessment of the programme from the national
tion need to be considered. First, for comparison at different viewpoint differs from its assessment from the viewpoint of the
points in time an adjustment should be made for any general third party. The national assessment could take the shadow
increase in the price level, that is the comparisons should be price of capital as zero if it genuinely could not be used for any
made in real terms. The appropriate deflator is a matter of other purpose. If, however, there were a number of alternative
judgement, but it should be based on a basket of goods con- projects to which the capital could be allocated, a comparison
sumed by the relevant group of consumers in the country. between them should be based on a shadow price of capital that
Also, any such adjustments do not preclude the possibility of reflects its scarcity relative to the investment opportunities
increases in “real prices”. It is quite possible that the costs and available. The party providing the finance, on the other hand,
benefits attached to some impacts increase slower (or faster) will have its own set of alternative projects to which the capi-
than the general price level. tal could be allocated and it may apply its own shadow price.
The important point is that the evaluation and ranking of pro-
The second issue relates to the welfare cost of any inflation jects from a domestic viewpoint may differ from their ranking
generated by the mitigation or adaptation activities. One of the from a donor perspective. When rankings differ, a compromise
main causes of inflation is when a country incurs a fiscal is usually reached, based on the relative bargaining strengths of
deficit (i.e., public expenditures exceed tax revenues) that is the two parties.
financed by printing money. Such an increase in inflation is
effectively a tax on money holdings, on assets denominated in
nominal terms, and on those with fixed money incomes. 7.4.3 Valuation of Spillover Costs and Benefits
The distributional consequences of the inflation tax are ger- In a world in which countries are linked by international trade,
mane to the decision-making process. There is no simple way, capital flows, and technology transfers GHG abatement by one
however, to estimate this welfare cost; doing so requires country has welfare effects on others. In some cases these
sophisticated measurements of losses in the consumption level impacts, or spillovers, are positive and in others negative.
that affect distinct income groups. Moreover, for most mitiga- Spillovers are a broad concept that has been used in relation to
tion and adaptation measures, the increase in inflation is likely a number of different international inter-linkages between
GHG emission reduction policies and impacts on industrial
competitiveness, reallocation of industry, and a development
17 Note that this method implies a social benefit for the employ- and implementation of technologies. This section provides a
ment that is likely to be much less than the product of the average short introduction to these main categories of spillovers as an
earnings and hours worked. introduction to Chapters 8 and 9 that include a review of econ-
omy-wide and sectoral studies on spillovers.
7.4.3.1 Industrial Competitiveness and Potential Consider four factors that affect location or trade effects. First,
Reallocation of Industries do the non-tradable sectors account for a substantial share of
carbon emissions? Second, are energy costs a small or large
GHG emission reduction policies potentially will have a major percentage of the total costs in key manufacturing sectors?
impact on industrial competitiveness because sub-sectors that Third, is the burden of meeting an emission reduction target
have relatively high GHG emission intensity or have relative- partially borne by non-participating countries because of
ly high reduction costs potentially can lose in competitive- changes mediated through international trade? For example,
ness. developed nations could demand fewer exports from non-par-
ticipating countries. This would shift the terms of trade against
The basic theoretical framework is that of a full employment, these countries, and they would bear some of the costs of
open economy, and no international capital mobility (Dixit and reducing GHGs. Fourth, how do resources shift across sectors
Norman, 1984). Within this model an emissions constraint because of carbon policy? For instance, there could be a shift
shifts the production possibility frontier inwards, as long as the from the energy-intensive sector to the domestic goods sector
constraint requires some “no regret” measures to be undertak- that is non-energy intensive. The aggregate impact could be
en. The spillover impact of this shift depends on whether the positive or negative depending on the potential returns from
emissions reductions have a greater impact on the production the non-energy intensive sector.
of the export good, or on the import competing good. If it is the
former, abatements turn the terms of trade in favour of the First, consider the “pollution havens” hypothesis, in which
country that undertakes abatement and against the country that firms are tempted to relocate to or to build new plants in
does not. In these circumstances the non-abating country suf- nations with lax environmental standards (see Dean, 1992;
fers some welfare loss, while the abating country could be bet- Summers, 1992; Esty, 1994; Jaffe et al., 1994). Palmer et al.
ter or worse off, depending on the size of the shift in terms of (1995) point out that the following must be considered:
trade relative to costs of abatement. Conversely, if emissions • whether the cost of complying with environmental reg-
have a greater impact on the production of the import-compet- ulation is a small fraction of total cost;
ing good, the terms of trade move in favour of the non-abating • whether the differences between the developed nation’s
country, which should have an increase in welfare. The analy- environmental regulations and those of most major
sis of industrial reallocation considered in the previous section trading partners are small or large; and
becomes further complicated when international capital mobil- • whether the firms of the developed nation build state-
ity is taken into account. Carbon constraints typically alter rel- of-the art facilities abroad regardless of the host
ative rates of return against abating and in favour of non-abat- nation’s environmental regulations.
ing countries. A flow from the former to the latter is then like-
ly, which shifts further inwards the production possibility fron- The evidence to date on pollution havens is not strong,
tier in the abating country. At the same time, it causes an out- although this may change in the future as international agree-
wards shift of the frontier in the non-abating country. ments on climate change come into force.
Modelling capital flows is notoriously difficult, however, and
no theoretical results can be obtained for the complex and In the context of climate change, cost estimates must consider
empirically relevant cases. Hence the indisputable need to use how carbon taxes affect trade flows in the short and long runs.
simulation models and to undertake primary empirical The “leakage effect” reflects the extent to which cuts in domes-
research. The welfare impacts of changes in international cap- tic emissions are offset by shifts in production and therefore
ital flows are seldom reported. Progress depends on the further increases in emissions abroad. The empirical question is
development of techniques such as decomposition analysis whether nations that are a net exporter in fossil fuel intensive
(Huff and Hertel, 1996)18 and multiple simulations in which products (e.g., steel) gain under Annex I-only carbon policies.
some variables are held constant to isolate their influence on Other developing nations might not gain because less capital
the final outcome. will be available as the income in the developed nations drops,
and it becomes more costly to import from developed nations
Seen from a more practical perspective the theoretical argu- the capital goods that promote growth (e.g., machinery and
ments about competitiveness and international capital flows transportation equipment). See Chapters 8 and 9 for any empir-
have at least two versions of what happens without specific ical evidence on the magnitude of leakage.
developing country targets: either domestic industry relocates
abroad, or the demand for domestic energy-intensive goods 7.4.3.2 Technological Spillovers
declines and the trade balance deteriorates; or both occur.
The theoretical discussion about spillovers emerging from
impacts on industrial competitiveness and industrial realloca-
tion is based on a comparative static framework. When extend-
18 Verikiosand Hanlow (1999) illustrate in a comparative static frame- ed to a dynamic context, the production possibility frontiers of
work how the welfare impacts of international capital mobility can be industries are assumed to shift outwards in a way determined
assessed using decomposition analysis. by technological change in different sectors as a reflection of
an endogenous feedback from GHG emission reduction poli- weighting the benefits and costs according to who is impacted.
cies on technological change. This is based on converting changes in income into changes in
welfare, and assumes that an addition to the welfare of those on
There are three routes by which technology policies in one a lower income is worth more an addition of welfare to richer
country affect development in other countries or specific sec- people. More specifically, a special form can be taken for the
tors. First, R&D may increase the knowledge base and this social welfare function, and a common one that has been
will be a general benefit for all the users of a technology. adopted is that of Atkinson (1970). He assumes that social wel-
Second, increased market access for low-CO2 technologies, fare is given by the function:
through niche-markets or preferential buyback rates in one
N
AYi 1− ε
W=∑
country may induce a generic improvement in technology in
others. Third, domestic regulations on technology perfor-
i=1 1− ε
mance and standards, whether imposed or voluntary can cre-
ate a strong signal for foreign industrial competitors. A paper
by Goulder and Schneider (1999) similarly argues that climate where:
change policies bias technical change towards emissions sav- W is the social welfare function,
ings. Yi is the income of individual i,
ε is the elasticity of social marginal utility of income or
The possibility of a positive technological spillover from GHG inequality aversion parameter, and
emission reduction policies has not been taken into account in A is a constant.
any of the global mitigation studies reviewed in Chapter 8. If
this materializes, it could cause further complex shifts of the The social marginal utility of income is defined as:
production possibility frontier, including an outwards shift in
the production of the affected goods. ∂W −ε
= AYi
∂Y i
7.4.4 Equity _
Taking per capita national income, Y , as the numeraire, and
7.4.4.1 Alternative Methods of Addressing Equity Concerns giving it a value of one gives:
A key issue in evaluating climate change policies is their ∂W −

impact on intragenerational equity, in which one impact indi- = AY −ε = 1
cator is the income distributional consequences of the policies ∂Yi
seen in a national context or across countries. Other related
equity issues are the distributional impacts of avoided climate and
change damages that emerge as a result of mitigation policies, ε
which is dealt with by the IPCC WGII TAR, and intergenera- _ 
∂W / ∂Y i
tional equity, which is discussed in Section 7.2.4. = Y 
_
Y 
There are essentially two ways to deal with intragenerational ∂W / ∂ Y  i 
equity. The first is not to deal with it at all in the benefit–cost
analysis, but to report the distributional impacts separately. In this way the marginal social welfare impact of income
These can then be taken into account by policymakers as they changes by individuals
_ is the elasticity of the ratio of the per
see fit, or the information can be fed into a multi-criteria analy- capita income Y and the income of individual i, Yi. The mar-
sis that formalizes the ranking of projects with more than one ginal social welfare impact of income changes by individual i
indicator of their performance. also can be denoted as SMUi, where SMUi is the social mar-
ginal utility of a small amount of income going to individual i
The second method of analysis is to use “income weights”, so relative to income going to a person with the average per capi-
that impacts on individuals with low incomes are given greater ta income. The values of SMUi are, in fact, the weights to be
weight than those on individuals with high incomes. Although attached to costs and benefits to groups relative to different
a number of analysts do not support the use of such weights, cost and benefit components.
some do and policymakers sometimes find an assessment that _
uses income weights useful. Hence they are included in this To apply the method, estimates of Y and ε are required. The
chapter. literature contains estimates of the inequality aversion parame-
ter (ε) in the range 1–2 (Murty et al. 1992; Stern, 1977 ). Some
The costs of different GHG programmes, as well as any relat- recent studies that estimate the value of ε for the Indian econ-
ed benefits, belong to individuals from different income class- omy (Murty et al., 1992) resulted in values in the range
es. Economic cost–benefit analysis has developed a method of 1.75–2.0.19
7.4.4.2 The Use of Average Damages tive. National perspectives and opportunities should be
addressed in another way.
A special case of the income distributional weights approach is
to estimate the money value of impacts for different groups of
individuals or countries and then apply the average damage to 7.4.5 Estimating Future Costs and Sustainability
all individuals and countries. The best example of this is the Implications
value attached to changes in the risk of death. These risks are
valued in terms of the statistical value of life, which caused Mitigation policies that are large in scale can have significant
much controversy in SAR (IPCC 1996a, Chapter 6). The long-term implications on future climate change and thereby
“value of a statistical life” (VSL) converts individual WTP to have implications for intergenerational equity. The issue is to
reduce the risk of death into the value of a life saved, when it model future changes in ecological systems and economic wel-
is not known which life that will be. For example, if each per- fare associated with different levels of climate change caused
son in a community has a WTP of US$10 to reduce the risk of by specific mitigation efforts.
death by one in a hundred thousand, then the collective WTP
of a group of 100,000 is US$1 million for a measure that Climate change offers an imposing set of complications for the
would, on average, save one life. Hence, the figure of US$1 policymaker–global scope, wide regional variations, the poten-
million is referred to as the VSL. This measure is one way of tial for irreversible damages or costs, multiple GHGs, a very
valuing changes in risks of mortality. Other ways include a long planning horizon, and long time lags between emissions
“human capital” approach, which values the loss of income and today and future impacts on ecosystem services. For the econ-
multiplies it by the change in risk, or a “life years lost” omist, to assess how these distant climate-induced changes in
approach, which takes the WTP for life years that could be lost ecosystem services might affect the economic wellbeing of cit-
as a result of changes in the survival probabilities an individual izens in the far distant future is no less imposing.
faces. Of these, the VSL has been used most commonly in
recent years. The human capital approach is not well founded The challenge rests in capturing accurately three general
in terms of welfare and the life years lost approach is still being issues: (1) how climate change might affect ecological sys-
developed. tems; (2) how these altered ecosystems might affect the
demand for different market and non-market goods and ser-
The VSL is generally lower in poor countries than in rich coun- vices; and (3) how this demand change affects the welfare of
tries, but it is considered unacceptable by many analysts to our descendants. The first two issues can only be dealt with by
impose different values for a policy that has to be internation- broad scenario analyses that consider alternative development
al in scope and decided by the international community. In patterns for ecological systems and the interactions with man-
these circumstances, analysts use average VSL and apply it to made systems. The third issue can be addressed by applying
all countries. Of course, such a value is not what individuals assumptions about the preferences of future generations,
would pay for the reduction in risk, but it is an “equity adjust- which, for example, can be assumed to reflect the preferences
ed” value, in which greater weight is given to the WTP of of present generations.
lower income groups. On the basis of EU and US VSLs and a
weighting system that has some broad appeal in terms of gov- Those who undertake studies of welfare losses brought about
ernment policies towards income distribution, Eyre et al. by climate change often focus on an assessment of the poten-
(1998) estimate the average world VSL at around 1 million tial welfare losses suffered by future citizens through climate
Euros (approximately US$1 million at 1999 exchange rates).20 change. Typically, such an assessment is based on measuring
the demand curve for people alive today under today’s climate
Formally, it can be shown that the use of average values for given the substitution possibilities implied by extant technolo-
damages implies income weights based on an elasticity of one, gies and knowledge constraints that define today’s opportunity
which, as can be seen from above, is broadly consistent with set. Essentially, these analysts ask, “If the climate of the future
government policies towards income redistribution enveloped us today, what would be our welfare loss?”
(Fankhauser et al., 1997; Eyre et al., 1998). The advantage of
this approach is that it addresses equity concerns while retain- The question often not asked is this: “Does the opportunity set
ing a valuation of damages that is broadly consistent with the of today’s citizens reflect, in any way, the opportunity faced by
efficiency approach. Such an approach may be a way to reflect citizens in 2050 or 2100?” A welfare loss based on today’s
the equal value of lives as seen from a global policy perspec- opportunity set may or may not be related to the potential cli-
mate-related loss in wellbeing to the citizens of the far distant
future. Climate change triggers direct changes in the opportu-
19 One reviewer has pointed out that different values of ε may be
nity set and relative prices, and indirect changes in the adapta-
appropriate for costs and benefits. tion of technology and supply. This is critical. More opportu-
20 The parameter from which the weights are derived is called the nities in the future will reduce the welfare loss; fewer opportu-
elasticity of the marginal utility of income. The greater this elasticity, nities could inflate the loss. The opportunities will depend on a
the greater the weight given to the WTP of poor households. complex mix of available substitutes, complementary recre-
ational and non-recreational activities, relative prices, transac- 7.5.1 Why Developing Countries Have Special Problems
tion costs, and preferences. These substitutes will be deter- in Their Mitigation Strategies
mined by the various different types of capital stock that con-
tribute to human wellbeing, including man-made capital, The term “developing countries” covers a wide variety of
human capital, natural capital, and social capital, as empha- countries with distinct differences in their economic, political,
sized by the sustainability literature. For a more elaborate dis- social, and technological levels. The group of countries termed
cussion on these issues see Chapter 1. “least developing countries” have very little basic infrastruc-
ture, the “newly industrialized countries” have a structure clos-
It is difficult to account for the opportunity sets of citizens in er to that of the developed countries, and others lie between
the far distant future and to predict the preferences of future these two extremes. Almost all developing countries have a rel-
generations, which adds a significant uncertainty to estimates atively low level of GHG emissions per capita at present, but
of future damages from climate change. Climate change might large countries like India, China, and Brazil will soon become
affect household resources, human resource investment prices very important in terms of their contribution to total global
and levels, endowments, preferences, labour market opportuni- emissions. It is therefore important to understand how these
ties, and natural environment, all of which influence our countries might participate in globally cost-effective policies.
descendant’s opportunity set–the basic materials needed for
attainment in life. These risks indirectly modify our heirs’ life Mitigation costs in a country depend critically on the underly-
chances by reducing and reallocating household resources or ing technological and socioeconomic conditions. Studies that
by constraining their choices or both. Our descendants may assess these costs make assumptions about current and future
shift resources towards a sick child and away from recreation. socioeconomic development patterns and the potential to
Their children might have to forego the life experience of fish- implement climate change mitigation policies. Developing
ing the same river as their ancestors. Faced with these conse- countries exhibit a number of specific complexities that are of
quences, individuals today might be willing to pay to prevent major importance to costing studies. Data are limited,
risks that restrict our heir’s opportunities. But this is a different exchange processes are constrained, markets are incomplete,
question. and a number of broader social development issues are poten-
tially important for future GHG emissions, such as living con-
When considering future generations’ opportunities the ditions of the poor, gender issues, and institutional capacity
impacts of today’s climate change investments on future gen- needs. Some of these difficulties arise particularly in relation to
erations’ opportunities should also be considered. Investments land-use sectors, but can also be important in relation to the
might, for example, enhance the capacity of future generations energy sector and transportation.
to adapt to climate change, but at the same time they potential-
ly displace other investments that could create other opportu- To sum up, a number of special issues related to technology use
nities for future generations. should be considered for developing countries as the critical
determinants for their climate change mitigation potential and
Two things are likely to be different in the future–the climate related costs. These include current technological development
and our heirs’ opportunities. Accounting for one change and levels, technology transfer issues, capacity for innovation and
not the other will not markedly advance our understanding of diffusion, barriers to efficient technology use, institutional struc-
expected benefits. The question should be “How could these ture, human capacity aspects, and foreign exchange earnings.
future effects be linked to existing models to value non-market
effects?” For the most part, the valuation question is how to The methodology of most current mitigation cost studies was
account for changes, both good and bad, of future opportuni- developed on the basis of approaches originally designed for
ties. Accounting for these decisions probably requires a new the market-based economies of developed countries. The appli-
model that focuses on the value of maintaining or enhancing cation of these methodologies in a developing countries con-
the future’s opportunities so as to maximize their life chances, text typically poses special problems relating to data, sectoral
whatever their preferences might be. coverage, activity projections, and assumptions about markets,
behaviours, and policy instruments. A simplified application of
these methodologies in developing countries can lead to a
7.5 Specific Development Stages and Mitigation Costs number of inaccuracies in mitigation studies:
(Including Economies in Transition) • Major GHG emission sources and drivers for future
emission can be overlooked. This is especially relevant
Developing countries and EITs exhibit a number of special for the land-use sectors.
characteristics that should be reflected in mitigation cost stud- • Mitigation studies may focus on specific technical
ies. There is a need for further development of the methodolo- options that are not consistent with national macroeco-
gies and approaches that reflect these issues; this section intro- nomic policy contexts and broader social and environ-
duces a number of distinct features for such economies and mental policy priorities.
concludes with a number of suggestions for the expansion of • The technical potential of specific options, for example
studies and methodology development. electricity saving options, may be overestimated
because consumer behaviour and power market failures Changes in the structure of GDP have to be given careful con-
are not captured. sideration. One important aspect that could be integrated into
• The impacts of using different policy instruments can- the scenario development are the changes in economic struc-
not be assessed because the studies do not include any ture and relative prices that emerge from structural adjustment
information on national institutional structure, taxes, programmes and other macroeconomic policies that many
and other regulation policies and various technology countries are currently undertaking. Another crucial issue, fol-
promotion programmes. lowing that, will be the development of energy intensive and
• Implementation issues, including institutional and heavily polluting industrial activities, such as steel and alu-
human capacity aspects and local market development, minium production. As the recent shift of heavy industries
are not represented. from the developed towards the developing countries reaches
its end, long-term economic output could come from services
and other less energy-intensive activities. In EITs the issue is
7.5.2 Why Economies in Transition (EIT) Have Special how fast and deep will the shift out of energy intensive indus-
Problems in Their Mitigation Strategies tries be, and what will replace it.
Estimating the costs of mitigation for EITs presents its own The basic uncertainty of long-term GHG emission projections
challenges, which can be described as past, present, and future. encourages analysts to use multiple baselines, each corre-
In the recent past, prices were not the rationing mechanism of sponding to a particular expectation of the future development
choice. The listed prices (where there were any) did not neces- pattern. Each development pattern may exhibit a unique emis-
sarily reflect the actual level of scarcity, since they were not set sions trajectory. A nation following development policies that
by supply and demand. As such, data based on listed prices emphasize greater investments in infrastructure, such as effi-
from which to construct marginal abatement cost curves is cient rail transport, renewable energy technologies, and ener-
sketchy at best, and completely missing at worst. gy-efficiency improvements will exhibit a low emissions tra-
jectory. However, a nation with substantial coal resources,
Today, problems still exist in the construction of such curves, scarce capital, and a low level of trade can be pushed towards
in that each transition economy has its own unique mix of fee a development path with high emissions.
markets and state control. The newer sources of data reflect a
mix of price and quantity rationing that needs to be better The spatial distribution of the population and economic activities
understood on a country-by-country basis. is still not settled in the developing countries. This raises the pos-
sibility of adopting urban and/or regional planning and industri-
Finally, using this data to estimate mitigation costs into the al policies to strengthen small and medium cities and rural
near or distant future depends on critical assumptions about development, and thus reduce the extent of the rural exodus and
how the political, legal, and economic institutions will evolve the degree of demographic concentration in large cities. In the
in these economies. Any estimates of mitigation costs into the same way, technological choices can substantially decrease the
twenty-first century made under the assumption that current energy demand and/or GDP elasticities. The preservation of a
institutions will be held constant are almost certainly not going certain cultural diversity, as opposed to the trend towards a glob-
to be correct. Hence, it is essential to devote a good deal of al uniformity of lifestyles, also favours less energy-intensive
effort to develop scenarios of evolution for these institutions housing, transportation, leisure, and consumption patterns, at
and their implications for economic development. least in some cases. One example is related to development poli-
cies that avoid low urban population density coupled with long
daily trips to work and large shopping centres by car.
7.5.3 Development Projections
It is a special challenge in costing studies to translate prefer-
The establishment of long-term projections for GHG emis- ences for biological and cultural diversity into a useful value
sions is particularly complicated and uncertain for both devel- measure. The market does not price most of the services pro-
oping countries and the EITs. These economies are often in a vided by biological or cultural diversity. Roughgarden (1995)
transition process in which important GHG emission sectors, argues that there is no need to quantify the benefits of these ser-
such as the energy sector, industry, and transportation, are vices, which are either so obvious or impossible to capture that
expected to play an increasing role. It is not possible, howev- measurement is unnecessary. Following this line of argument,
er, to project accurately the actual speed of this growth process “science” should dictate a target that could be used to establish
and/or the GHG emission intensity of these future activities. a safe minimum standard–a level of preservation that guaran-
Modelling tools and data are also very limited or even non- tees survival of the species or culture in question (Ciriarcy-
existent, and the only available information sources from Wantrup, 1952). This minimum standard approach puts an infi-
which to generate GHG emission projections are often the nite value on avoiding extinction. This view puts biological or
official national development plans that cover a time horizon cultural diversity beyond the reach of economic trade-offs, and
of 5–10 years only. the analyst attempts to find the least-cost solution to achieve
some set standard.
However, Epstein (1995) argues that preservation without rep- Markandya (1998) developed a framework to expand the cost
resentation of benefits is unacceptable. It is suggested that hard analysis with an assessment of the other impacts of climate
evidence is needed to prove that the biological and cultural change mitigation projects, such as employment, income dis-
preservation benefits dominate those from development. It is tribution, environmental changes, and sustainability indicators.
then logical to compare the costs and benefits when resources The suggestion is that monetary cost and benefit estimates be
are scarce, and an attempt should be made to balance the costs combined with physical indicators and qualitative information.
and benefits so that funds are allocated to their highest valued These include the impacts of projects on vulnerable groups, on
use. the environment more generally, and on sustainability in a
broader sense.
Estimating the social value of biodiversity and culture is a
major challenge. For biodiversity values there is no consensus Markandya and Boyd (1999) and Halsnæs and Markandya
as to the usefulness of the primary tool used to reveal the mon- (1999) assessed the implications for cost-effectiveness of using
etary value of these preferences–contingent valuation surveys. an expanded cost-analysis framework compared with a focus
These public opinion surveys use a sequence of questions to on direct costs. They examined a number of case studies,
put a monetary value on personal preferences. However, since including renewable energy options (biogas, solar water-heat-
people are responding to a survey rather than facing their own ing systems, photovoltaic streetlights, and wind turbines),
budget constraint and actually spending their own money, no DSM programmes, and a number of transportation sector
market discipline exists to challenge their statements (Brown options. The expanded cost assessment includes a specific val-
and Shogren, 1998). uation for the welfare impacts of increased employment, local
environmental improvements related to reduced non-GHG pol-
The above possibilities of alternative development patterns lutants, and income distribution weights. The conclusion is that
highlight the technical feasibility of low carbon futures in the in a number of cases the application of an expanded cost-
developing countries that are compatible with national objec- assessment framework has major implications for the cost-
tives. However, the barriers to a more sustainable development effectiveness ranking of mitigation projects compared with
in developing countries can hardly be underestimated, from their ranking on direct costs alone. In particular, large differ-
financial constraints to cultural trends in both developed and ences in cost-effectiveness are seen for a biogas plant in
developing countries, including the lack of appropriate institu- Tanzania, for which combined social costs considered in the
tional building. Any abatement-cost assessment relies on the expanded framework go down to minus US$30/tCO2 reduction
implicit assumptions taken in the baseline or mitigation sce- compared with a purely financial cost of plus US$20/tCO2.
narios with regard to the probability of removing these barri- This cost difference reflects a positive welfare impact on
ers. presently unemployed low-income families and the time saved
through reduced fuelwood collection. The case examples gen-
Since mitigation costs for different development patterns may erally suggest that the combined social costs of mitigation poli-
vary substantially, one way to reflect this in mitigation cost cies in developing countries in particular will be lower than the
analysis is to use a scenario-based range of mitigation costs purely financial costs, especially if the policies require present-
rather than a single mitigation cost (see also Section 7.3.6). ly unemployed labour and reduce the damages from local non-
GHG pollutants. Similar studies for EITs reveal great large
value of ancillary benefits in the form of reduced air pollution
7.5.4 Broadening the National Decision-making and increased employment, especially for carbon sink projects.
Framework
Although cost is a key component of the decision as to which 7.5.5 Addressing the Specific Characteristics of Markets
policies to select, it is not the only consideration. Other factors and Other Exchange Processes in Developing
enter the decision, such as the impacts of policies on different Countries
social groups in society, particularly the vulnerable groups, the
benefits of GHG limitation in other spheres, such as reduced air Climate change studies focus on the cost assessment of activi-
pollution, and the impacts of the policies on broader concerns, ties through their presentation on the markets. The GHG emis-
such as sustainability. In developing countries these other fac- sion sources considered, on this basis, are predominantly those
tors are even more important than in developed countries. GHG represented in official economic and sectoral statistics, and the
limitation does not have as high a priority relative to other prices used to value the resources are derived on a market
goals, such as poverty reduction, employment, etc., as it does in basis. Such information, however, is incomplete for developing
the wealthier countries. Indeed, it can be argued that the major countries for which markets are incomplete, property rights are
focus of policy will be development, poverty alleviation, etc., not well established, and a significant part of the exchange
and that GHG limitation will be an addendum to a programme process belongs to the informal economic sector. This section
designed to meet those needs. Accounting for the GHG compo- discusses the implications of these specific features for climate
nent may change the detailed design of a policy or programme, change studies.
rather than be the main issue that determines the policy.
GHG emissions in the energy and agriculture sectors are great- A number of important interrelationships and spillovers occur
ly influenced by present subsidies. Subsidy removal in the between the informal and formal sectors with regard to climate
energy sector, if supported by improvements in managerial change mitigation policies. An example is the potential to
efficiency, could reduce CO2 emissions and other pollutants by introduce advanced production technologies in the energy and
up to 40% in developing countries with very low or even neg- agriculture sectors that, on the one hand, use domestic
ative costs (Anderson, 1994; Halsnæs, 1996). It should be rec- resources (e.g., biomass) in a more sustainable way and, on the
ognized that general macroeconomic policies, such as structur- other, improve efficiency and create capacity in local compa-
al adjustment programmes, already include a number of sub- nies and institutions. The impact of introducing policy instru-
sidy removal policies. ments such as carbon taxes or energy subsidy removal also
depends on potential substitutions to non-commercial wood
Most major markets in developing countries are characterized fuels that might be unsustainable. Mitigation cost studies for
by supply constraints, but the labour market is an exception for developing countries should, as far as possible, include an
unskilled labour is frequently in excess supply. Examples of assessment of energy consumption and biomass potential in the
such supply constraints are seen in the financial sector, power informal sector and apply assumptions about price relations
production, and infrastructure development. This results from and substitution elasticities between the formal and informal
high transaction costs that originate from weak market link- sectors. Similarly studies should consider the capacity of enter-
ages, limited information, inadequate institutional set-ups, and prises in both the formal and informal sectors to adapt and
policy distortions. Such market imperfections make it difficult manage the advanced technologies that are suggested as cost-
to establish reliable parameters such as price elasticity of effective mitigation options in national programmes.
demand.
In many developing countries and EITs, commodity prices, 7.5.6 Suggestions for Improvements in the Costing Study
including those of energy resources, are regulated and are not Approach Applied to Developing Countries and
market determined. The consequent market distortions are often Economies in Transition
not adequately captured by models. There is therefore a need to
apply some price-correcting rules to reflect social costs. Climate change studies in developing countries need to be
strengthened in terms of methodology, data, and policy frame-
Traditional cost–benefit analysis suggests the use of shadow works. Although a complete standardization of the methods is
prices to correct for market distortions (see Section 7.2.3.1). not possible, to achieve a meaningful comparison of results it
Such a procedure is in line with the approach of CGE models. is essential to use consistent methodologies, perspectives, and
In both these approaches mitigation policies and related costs policy scenarios in different nations.
are assessed in relation to an “optimal resource allocation
case”, in which markets are in equilibrium and prices (and The following modifications to conventional approaches are
thereby cost) reflect resource scarcities. However, these condi- suggested:
tions are far from those currently found in these countries, so • Alternative development pathways should be analyzed
studies should consider how a transformation to the optimal with different patterns of investment in:
resource allocation case is likely to take place over a certain • infrastructure (e.g., road versus rail and water);
time frame. Developing countries are presently undergoing • irrigation (e.g., big dams versus small decentralized
market-oriented economic reforms. However, the price distor- dams, surface irrigation versus ground water irriga-
tions are only partially and gradually being remedied because tion);
of the high social costs associated with speedy reforms. The • fuel mix (e.g., coal versus gas, unclean coal versus
complexities in modelling this process cannot be underestimat- clean coal, renewable versus exhaustible energy
ed, and it should therefore be recognized that only part of the sources);
transformation can be captured. • employment; and
• land-use policies (e.g., modern biomass production
Integration of market transformation processes in cost studies and afforestation).
should include an assessment of barrier removal policies. Such • Macroeconomic studies should consider market trans-
policies include efforts to strengthen the incentives for formation processes in the capital, labour, and power
exchange (prices, capital markets, international capital, and markets.
donor assistance), to introduce new actors (institutional and • In the less developed of the developing countries, infor-
human capacity efforts), and to reduce the risk of participation mal and traditional sector transactions should be
(legal framework, information, and general policy context of included in national macroeconomic statistics. The
market regulation). Some of these policies can be reflected in value of the unpaid work of household labour for non-
cost studies, such as barrier removal policies that address mar- commercial energy collection is quite significant and
ket prices, capital markets, and technology transfers, while needs to be considered explicitly in economic analysis.
other areas like capacity building need to be addressed in a • Similarly, in such countries the traditional and informal
more qualitative way. sectors also account for an overwhelming proportion of
agriculture and land-use activities, employment, and Macroeconomic (Keynesian or Effective Demand) Models
household energy consumption; therefore, insofar as pos- Macroeconomic models describe investments and consump-
sible, these activities should be integrated into cost studies. tion patterns in various sectors, and emphasize short-run
• Non-commercial energy sources, essentially traditional dynamics associated with GHG emission reduction policies.
biomass, should be represented explicitly in the model Final demand remains the principal determinant of the size of
as this has a crucial influence on both future energy the economy. The equilibrating mechanisms work through
flows and GHG emissions. quantity adjustments, rather than price. Temporary disequilib-
• The costs of removing market barriers should be con- ria that result in underutilization of production capacity, unem-
sidered explicitly. ployment, and current account imbalances are possible. Many
macroeconomic models are available. They implicitly reflect
In addition to paying attention to these factors, it is important past behaviour in that the driving equations are estimated using
to bear in mind that perhaps the most serious limitation of cost econometric techniques on time-series data. As a consequence,
studies for developing countries is the paucity of data. Some macroeconomic models are well suited to consider the eco-
mitigation studies have tried to circumvent data problems by nomic effects of GHG emission reduction policies in the short-
making opaque assumptions or using estimates from data that to medium-horizon.
relate to different circumstances. It is preferable to use simpli-
fied approaches that provide insights into basic development Computable General Equilibrium Models
drivers, structures, and trade-offs than to use standardized CGE models construct the behaviour of economic agents based
international models in which the data and assumptions are on microeconomic principles. The models typically simulate
duplicated from industrial countries. markets for factors of production (e.g., labour, capital, energy),
products, and foreign exchange, with equations that specify
supply and demand behaviour. The models are solved for a set
7.6 Modelling and Cost Assessment of wages, prices, and exchange rates to bring all of the markets
into equilibrium. CGE models examine the economy in differ-
7.6.1 Introduction ent states of equilibrium and so are not able to provide insight
into the adjustment process. The parameters in CGE models
The costs of climate policy are assessed by various analytical are partly calibrated (i.e., they are selected to fit one year of
approaches, each with its own strengths and weaknesses. This data) and only partly statistically or econometrically deter-
section considers first the modelling options currently used to mined (i.e., estimated from several years of data). Hence it is
assess the costs of climate policy, and then the key assumptions difficult to defend the validity of some of the parameter values.
that influence the range of cost estimates. The focus is on the
general conceptual elements of cost assessment and on an eval- Dynamic Energy Optimization Models
uation of how model structures and input assumptions affect Dynamic energy optimization models, a class of energy sector
the range of cost estimates. models, can also be termed partial equilibrium models. These
technology-oriented models minimize the total costs of the
energy system, including all end-use sectors, over a 40–50 year
7.6.2 Classification of Economic Models horizon and thus compute a partial equilibrium for the energy
markets. The costs include investment and operation costs of
The models presented here are described and discussed in more all sectors based on a detailed representation of factor costs and
detail in Chapter 8, in which a review of the main literature on assumptions about GHG emission taxes. Early versions of
these models is presented. However, it is useful to present an these models assessed how energy demands can be met at least
overview of the main modelling techniques applied in this kind cost. Recent versions allow demand to respond to prices.
of analysis here. Another development has established a link between aggregate
macroeconomic demand and energy demand. Optimization
Input–Output Models models are useful to assess the dynamic aspects of GHG emis-
Input–output (IO) models describe the complex interrelation- sions reduction potential and costs. The rich technology infor-
ships among economic sectors using sets of simultaneous lin- mation in the models is helpful to assess capital stock turnover
ear equations. The coefficients of equations are fixed, which and technology learning, which is endogenous in some models.
means that factor substitution, technological change, and
behavioural aspects related to climate change mitigation poli- Integrated Energy-System Simulation Models
cies cannot be assessed. IO models take aggregate demand as Integrated energy-system simulation models are bottom-up
given and provide considerable sectoral detail on how the models that include a detailed representation of energy demand
demand is met. They are used when the sectoral consequences and supply technologies, which include end-use, conversion,
of mitigation or adaptation actions are of particular interest and production technologies. Demand and technology devel-
(Fankhauser and McCoy, 1995). The high level of sectoral dis- opment are driven by exogenous scenario assumptions often
aggregation, however, requires strong restrictions that limit the linked to technology vintage models and econometric fore-
validity of the model to short runs (5–15 years). casts. The demand sectors are generally disaggregated for
industrial subsectors and processes, residential and service cat- top-down models suggested the opposite. Understanding why
egories, transport modes, etc. This allows development trends this range of costs arises requires exploration of the differences
to be projected through technology development scenarios. in the two modelling approaches.
The simulation models are best suited for short- to medium-
term studies in which the detailed technology information The terms “top” and “bottom” are shorthand for aggregate and
helps explain a major part of energy needs. disaggregated models. The top-down label comes from the way
modellers apply macroeconomic theory and econometric tech-
Partial Forecasting Models niques to historical data on consumption, prices, incomes, and
A wide variety of relatively simple techniques are used to fore- factor costs to model the final demand for goods and services,
cast energy supply and demand, either for single time periods and the supply from main sectors (energy sector, transporta-
or with time development and varying degrees of dynamics tion, agriculture, and industry). Some critics complain, howev-
and feedback. The main content is data on the technical char- er, that aggregate models applied to climate policy do not cap-
acteristics of the energy system and related financial or direct ture the needed sectoral details and complexity of demand and
cost. supply. They argue that energy sector models were used to
explore the potential for a possible decoupling of economic
Limits of Economic Models Taxonomy growth and energy demand, which requires “bottom-up” or
The macroeconomic and CGE approaches can be further clas- disaggregated analysis of energy technologies. Some of these
sified as “top-down” methodologies, while the technology-rich energy sector technology data were, however, integrated in a
dynamic optimization/partial equilibrium, simulation, and par- number of top-down models, so the distinction is not that clear-
tial forecasting approaches can be considered “bottom-up” cut.
approaches. It is also noted that the dynamic optimization/par-
tial equilibrium, simulation, and partial forecasting approaches Macroeconomic models are often also detailed, but in a differ-
are sometimes collectively referred to as the family of engi- ent way to bottom-up models. Top-down models account for
neering–economic models. various industrial sectors and household types, and many con-
struct demand functions for household expenditures by sum-
While useful, this taxonomy has its limits. First, differences in ming “individual demand functions”. Such functions can facil-
parameter values among the models within a given category itate a reasonably detailed assessment of economic instruments
may be more significant than the differences in model structure and distributional impacts of climate change mitigation poli-
across categories. Second, many differences emerge between cies.
the theory underlying a particular model group and the actual
models. Third, most models are hybrid constructions linked to Another distinction between the top-down and bottom-up
provide greater detail on the structure of the economy and the approaches is how behaviour is endogenized and extrapolated
energy sector (Hourcade et al., 1998). A hybrid approach sheds over the long run. Econometric relationships among aggregat-
light on both the economic and technological aspects of reduced variables are generally more reliable than those among dis-
ing energy-related CO2 emissions, but it does have its draw- aggregated variables, and the behaviour of the models is more
backs. Consistent results require that a hybrid approach stable with such variables. It is therefore common to adopt high
remove all the inconsistencies across the linked models. This levels of aggregation for top-down models when they are
process is often cumbersome and time consuming. applied to long time frames (e.g., beyond 10–15 years). The
longer the period the greater the aggregation gap expected
between top-down and bottom-up models.
7.6.3 Top-down and Bottom-up Models
Top-down models examine a broad equilibrium framework.
Top-down and bottom-up models are the two basic approaches This framework addresses the feedback between the energy
to examine the linkages between the economy and specific sector and other economic sectors, and between the macroeco-
GHG emitting sectors such as the energy system. Top-down nomic impacts of climate policies on the national and global
models evaluate the system from aggregate economic vari- scale. As such, early top-down models usually had minimal
ables, whereas bottom-up models consider technological detail on the energy-consuming side of the economy. Specific
options or project-specific climate change mitigation policies. technologies were not directly captured. In contrast, bottom-up
IPCC SAR on economic and social dimensions (IPCC, 1996a, models mimicked the specific technological options, especial-
Chapter 8) includes an extensive discussion on the differences ly for energy demand. Attention to the detailed workings of
between top-down and bottom-up models. It concluded that the technologies required early modellers to pass over the feed-
differences between their results are rooted in a complex inter- backs between the energy sector and the rest of the economy.
play among the differences in purpose, model structure, and
input assumptions (IPCC, 1996a, Section 8.4.3). Top-down and bottom-up models also have different assump-
tions and expectations on the efficiency improvements from
In previous studies, bottom-up models tended to generate rela- current and future technologies. Bottom-up models often focus
tively low mitigation costs (negative in some cases), whereas on the engineering energy-gains evident at the microeconomic
level and detailed analysis of the technical and economic resented by simpler ones with relevant behavioural
dimensions of specific policy options. The sector-specific similarity;
focus generates lower costs relative to the top-down model, • scenarios as tools to explore a variety of possible
which captures the costs caused by the greater production costs images of the future; and
and lower investment in other sectors. • qualitative integrated assessments based on a limited,
heterogeneous data set, without using any models.
The basic difference is that each approach represents technolo-
gy in a fundamentally different way. The bottom-up models A review by Parson and Fisher-Vanden (1997) shows that
capture technology in the engineering sense: a given technique IAMs have contributed to the establishment of important new
related to energy consumption or supply, with a given techni- insights to the policy debate, in particular regarding the evalu-
cal performance and cost. In contrast, the technology term in ation of policies and responses, structuring knowledge, and pri-
top-down models, whatever the disaggregation, is represented oritizing uncertainties. They have also contributed to the basic
by the shares of the purchase of a given input in intermediary knowledge about the climate system as a whole. The review
consumption, in the production function, and in labour, capital, concludes that IAMs face two challenges, namely managing
and other inputs. These shares constitute the basic ingredients their relationship to research and disciplinary knowledge, and
of the economic description of a technology in which, depend- managing their relationship to other assessment processes and
ing on the choice of production function, the share elasticities to policymaking.
represent the degree of substitutability among inputs.
7.6.5 Categorization of Climate Change Mitigation

7.6.4 Integrated Assessment Models Options
Researchers have also assessed the costs of climate protection An overview of how the different modelling approaches address
by considering both the economic and biophysical systems, and the main categories of policies is given here in preparation for a
the interactions between them. IAMs do this by combining key discussion of the main assumptions behind study results. The
elements of biophysical and economic systems into one inte- main categories of climate change mitigation options include:
grated system. They provide convenient frameworks to com-
bine knowledge from a wide range of disciplines. These mod- 1. Market oriented policies:
els strip down the laws of nature and human behaviour to their • taxes and subsidies;
essentials to depict how increased GHGs in the atmosphere • emission charges;
affect temperature, and how temperature change causes quan- • tradable emission permits;
tifiable economic losses. The models also contain enough detail • soft loans; and
about the drivers of energy use and energy–economy interac- • market development and/or efforts to reduce transac-
tions to determine the economic costs of different constraints on tion costs.
CO2 emissions (see, e.g., Shogren and Toman, 2000).
2. Technology oriented policies:
IAMs fall into two broad classes: policy optimization and pol- • norms and standards;
icy evaluation models. Policy optimization models can be • effluent or user charges;
divided into three principal types: • institutional capacity building; and
• cost–benefit models, which try to balance the costs and • market development efforts (information, transaction
benefits of climate policies; cost coverage).
• target-based models, which optimize responses, given
targets for emission or climate change impacts; and 3. Voluntary policies:
• uncertainty-based models, which deal with decision • ecolabelling; and
making under conditions of uncertainty. • voluntary agreements.
Policy evaluation models include: 4. R&D policies:

• deterministic projection models, in which each input • research programmes; and
and output takes on a single value; and • innovation and demonstration.
• stochastic projection models, in which at least some
inputs and outputs take on a range of values. 5. Accompanying measures:
• public awareness;
Current integrated assessment research uses one or more of the • information distribution;
following methods (Rotmans and Dowlatabadi, 1998): • education;
• computer-aided IAMs to analyze the behaviour of com- • transport; and
plex systems; • free consultancy services.
• simulation gaming in which complex systems are rep-
While climate policies can include elements of all four poli- • Technology-driven models can assess various technol-
cies, most analytical approaches focus on a few of the options. ogy-oriented policies. Exogenous assumptions on
Economic models, for instance, mainly assess market-oriented behaviour and preferences, however, need to be sup-
policies, and occasionally technology policies related to ener- plied to explain market development. This separation
gy supply options. Engineering approaches primarily focus on of technology data and market behaviour can make
supply- and demand-side technology policies. Both of these implementation cost-assessment difficult.
approaches have opportunities to expand their representation • It is a challenge to integrate market imperfections in
of R&D policies. CGE and partial equilibrium models, because these
models tend to be structured around assumptions of
Table 7.3 shows the application of market-oriented, technolo- efficient resource allocation. Recent work modelled
gy-oriented and voluntary climate policies in different analyti- labour market imperfections in such models (see, e.g.,
cal approaches. The schematic overview covers a large number Welsch, 1996; Honkatukia, 1997; Cambridge
of applications in global, regional, national, and local analyses. Econometrics, 1998; European Commission, 1998).
Chapters 8 and 9 of discuss the actual details and specific • Key presumptions such as technological change, R&D
methods for different assessment levels. A few general conclu- policies and changes in consumer preferences are diffi-
sions on the representation of different climate policies in the cult to assess in both macroeconomic models and tech-
analytical approaches are: nology-driven models.
• Market-oriented policies can be examined by macro-
economic models, but only indirectly in technology- It is expected that the cost of climate change mitigation poli-
driven models through exogenous assumptions. Market cies–all else being equal–decreases with the number of policy
descriptions, however, are often stylized representa- categories and options included in the analysis. This means that
tions in many macroeconomic models, which makes it approaches that are either rich in detail (or facilitate great flex-
difficult to address transaction costs. ibility) in a number of policy areas can be expected to identify
Table 7.3: Application of climate change mitigation policies in different analytical approaches
Market-oriented Technology-oriented Voluntary-oriented

policies policies policies
Macroeconomic models
IO models All instruments difficulties CGE: Exogenous assumptions; Demand functions for ecological values
Keynesian with modelling of few examples with endogenous
CGE transaction costs assumptions
estimated
calibrated
Technology-driven Exogenous Exogenous, learning Qualitative assumptions

simulation and/or
scenario models
Sectoral models
Partial equilibrium All instruments Changes in capital stock Exogenous demand function for
ecological values
Technology-driven models All instruments modelled Exogenous assumptions on Investments reflect future expectations
optimization through changes in standards and R&D on ecological values and policies
simulation capital stock Leaning curves
Project assessment
approaches
Cost–benefit analysis All instruments Exogenous technology data Exogenous demand function for
ecological values
Cost-effectiveness analyses All instruments Vintage models
Technology assessment No instruments

relatively large mitigation potentials and relatively low costs torted the pre-existing tax the higher the welfare loss. This
compared with approaches that only address a few instruments means that a carbon tax can result in either a totally increased
or options. burden (welfare loss of the whole tax system) or a double divi-
dend (in which the total welfare loss of the tax system is lower
A number of studies have assessed climate change mitigation because the carbon tax substitutes other “burdensome” taxes).
costs given different regimes of global flexibility mechanism.21 In general, however, a larger benefit from a carbon tax is found
Climate change mitigation costs in these different policy in comparison with other instruments that meet the Kyoto
regimes depend on the specific definition of the policy instru- Protocol targets (e.g., permits issued gratis) than is found in
ment, and on assumptions about market scale, competition, and comparison between different methods of recycling.
restrictions. It is generally expected that climate change miti-
gation costs decrease with increasing supply of carbon-reduc- 7.6.6.2 Target Setting for Greenhouse Gas Emissions
tion projects.22 Restrictions on this supply, or market imper- Reduction
fections in global markets for carbon-reduction projects, have
a tendency to increase the “price” of the projects (Burniaux, The choice of targets and timing affects cost estimates.
1998; Mensbrugge, 1998). Emission reduction targets are related to baseline case assump-
tions, and can be defined in relation to a given base year, or in
relation to expected future development trends. Targets defined
7.6.6 Key Assumptions of Importance to Costing relative to base-year levels are accurate in terms of the target
Estimates for the future total GHG emissions, but the actual GHG emis-
sions reduction effort that is required is uncertain because
There are a number of sensitive issues in the debate about how future emission levels are unknown. Reduction targets defined
to interpret cost estimates generated by different models, as percentage reductions of future GHG emissions create
including assumptions about tax recycling, target setting, and uncertainty as to the GHG emission levels.
international co-operative mechanisms.
Figure 7.4 illustrates the different target-setting principles.
7.6.6.1 Tax Recycling Target setting related to base-year emissions compares the
GHG emissions level in the “dotted” line base-year emissions
Tax recycling issues revolve around two critical points con- and GHG emissions reduction case 2. In contrast, target setting
cerning the interactions between existing tax systems and a tax in relation to future GHG emissions compares the baseline case
system that integrates carbon taxes: line and GHG emission reduction case 1.
• Assumptions on the structure of the tax system in the
baseline and mitigation cases, which include assump- Climate change damages are related to the accumulated stock
tions on tax substitution generated by the recycled rev- of atmospheric GHG concentrations. As such, target setting for
enue of carbon taxes. These baseline assumptions have GHG reduction policies should reflect the long atmospheric
to be projected into the future for a considerable period lifetime of the gases. What matters is the accumulated GHG
if the revenue recycling is to be calculated correctly. emissions over several decades and the “technically correct”
• The total impact of the policy scenario that includes the GHG reduction targets imply that the targets were defined for
recycling of carbon taxes, in terms of both distribution a given time horizon.
and compensation.
The net cost of climate policy depends on (1) the structure of GHG
emissions
the tax system prior to the introduction of the mitigation policy
and (2) the nature of the mitigation policy (e.g., which sectors
are covered, what tax instruments are employed, and the way Baseline case
that revenues are recycled). Estimates of the size of the effect
are discussed in Chapter 8. This is closely related to the double- GHG emissions
Reduction, case 1
dividend literature, which is discussed in Section 7.3.3.1. As
noted there, the welfare loss (or burden) of a given climate pol-
icy depends on the structure of existing taxes. The more dis- Base year
level
21 As
GHG emissions
defined by the Articles 6, 12, and 17 of the Kyoto Protocol, these Reduction, case 2
studies include JI between Annex I parties, CDM between Annex I
and non-Annex I parties, and emissions trading between Annex I par-
ties. See the discussions about these mechanisms in Chapter 6. Time
22Carbon-reduction projects are projects supplied by the potential Figure 7.4: Baseline cases and target setting for GHG emis-
host countries, where the policy is to be implemented. sions reduction.
Target setting over the relevant time horizon involves a num- are between countries with a reduction commitment
ber of technical challenges. The time dimension of the emis- specified in the Kyoto Protocol (termed Annex B coun-
sions reduction should reflect the dynamic aspects, such as tries) and countries without such a commitment.
time and path dependence of emissions and climate change Another mechanism of the Kyoto Protocol is Article 17
damages. In addition, the costs of climate protection depend on that facilitates emissions trading among Annex B coun-
the “when” and “where” flexibility of specific emission targets. tries.
Many of these time dimensions have been considered in IAMs. • Boundaries on GHG emissions trading markets, for
example that set the minimum amount of domestic
The time flexibility involves several issues addressed in top- emission reductions for developed countries, specify a
down and bottom-up models. Assumptions about technological relationship between domestic GHG emissions reduc-
change are, as discussed in Section 7.3.4, critical in the studies, tion efforts and the GHG emissions reduction they can
and follow a simple “rule” that technological change over time implement in collaboration with international partners.
expands the range of available GHG emissions reduction
options. Technological change lowers the mitigation costs for a Mitigation costs usually fall with greater flexibility for interna-
long-term target relative to a short-term target. It is emphasized tional emissions trading. This suggests that constraints on trad-
that the mitigation costs and future technological change ing increase the costs of any emission target. Some critics point
depend on GHG emissions reduction policies initiated and out that this argument does not address the potential positive
planned over the short- and long-term horizons. This reflects impacts on technological development that can arise from
the point that technological change itself relates to R&D pro- implementing GHG emissions reduction policies domestically
grammes and to current technology implementation. in developed countries, such as incentives for innovation and
R&D.
The timing of mitigation policies also affects transition costs.
From a short-term perspective, mitigation is constrained by the 7.6.6.4 Critical Assumptions in the Energy Sector
existing capital stock, infrastructure, and institutional structure
related to technology. One key cost-determinant during the Table 7.4 provides an overview of the key assumptions behind
transition period is the turnover of capital stock. A time profile mitigation cost studies for the energy sector. It is based on SAR
for mitigation that requires early retirement of capital stock (IPCC, 1996a, Chapter 8) and Halsnæs et al. (1998). Some of
increases the costs of achieving any target. This is predomi- the new modelling areas that have important implications
nantly an issue for developed countries, in which the capital include assumptions on technology change, transaction costs
stock and infrastructure are well developed. and barrier removal policies, alternative demand projections
(including lifestyle), and ancillary benefits. Similarly, assump-
7.6.6.3 International Co-operative Mechanisms tions related to climate change mitigation policies with major
implications on costs include timing of the emissions reduction
Mitigation costs vary across countries with different resource policies, and extent and function of global markets for emis-
endowments, economic structure and development, institution- sions reduction projects.
al structure, and various other factors. These cost differences
provide the opportunity to create and capture the gains from The input assumptions are linked between the baseline case
exchange that arise through international co-operative flexibil- and the climate policy case in a complex way. There is the
ity mechanisms. Mechanisms such as international carbon potential for many assumption combinations in baseline and
trading can facilitate collaborative emission reductions across mitigation scenarios, and the full set of assumptions in these
countries and regions, and thereby minimize global control two scenarios impacts the assessment of mitigation potential
costs (see Chapter 6 for a detailed discussion on the issues and related costs.
involved in establishing such mechanisms).
An OECD workshop in September 1998 (Mensbrugghe, 1998)
The assumptions on international co-operative mechanisms concluded that the emissions reduction costs rely on baseline
include: assumptions. Factors that lead to high cost estimates include
• Sectors and GHGs, which are included in the mecha- high population and GDP growth rates, a relatively clean fuel
nisms. mix, and relatively high energy costs. Among model parame-
• Specific constraints on countries and regions included ters two areas were emphasized: the ability to substitute labour
in the trading regimes. for energy, and the interfuel substitution elasticity. Low elas-
• Specific constraints on different co-operative mecha- ticities lead to high costs.
nisms like those established by the Kyoto Protocol. The
Protocol includes two project-based mechanisms:
Article 6 on JI and Article 12 on CDM. Both JI and 7.7 Conclusions on Further Needs for Research
CDM aim to establish exchange institutions for projects
to reduce GHG emissions. JI projects are between It can be concluded generally that, since SAR (IPCC, 1996a,
Annex I countries of the UNFCCC, and CDM projects 1996b) was published, much progress has been achieved in the
Table 7.4: Input assumptions used in energy sector mitigation studies
Input assumptions Meaning and relevance
Population All else being equal, high growth increases GHG emissions.
Economic growth Increased economic growth increases energy-using activities and also leads to
increased investment, which speeds the turnover of energy-using equipment.
Various assumptions on GHG emissions and resource intensities can be used for
alternative scenarios.
Energy demand
– structural change Different sectors have different energy-intensities; structural change therefore
has a major impact on overall energy use.
– technological change This “energy-efficiency” variable influences the amount of primary energy
needed to satisfy given energy services required by a given economic output.
– “lifestyle” Explains structural changes in consumer behaviour.
Energy supply
– technology availability and cost Potential for fuel and technology substitution.
– backstop technology The cost at which an infinite alternative supply of energy becomes available; this
is the upper bound of cost estimates.
– learning Technology costs related to time, market scale, and institutional capacity.
Price and income elasticities of energy demand Relative changes in energy demand through changes in price or income,
respectively; higher elasticities result in larger changes in energy use.
Transaction costs Implementation, administration, scale of the activity.
Policy instruments and regulation

– instruments Economic versus regulatory measures.
– barriers Implementation costs, including costs of overcoming barriers either in the form
of institutional aspects or improvements in markets (including capacity building
and institutional reforms); behavioural assumptions.
Existing tax systems and tax recycling Recycling of carbon taxes; substitution of distortionary taxes decreases costs.
Ancillary benefits Integration of local and regional environmental policies in most cases generates
secondary benefits.
Social policy goals, like income distribution and employment, can result in
different policy rankings.
development of consistent and transparent approaches to assess able development, including development, environ-
climate change mitigation costs. This has facilitated under- ment, and social dimensions:
standing of the differences in mitigation cost results generated • assessment of macroeconomic impacts using differ-
by different modelling approaches, based on different assump- ent welfare measures,
tions. A number of new research topics have been considered • co-benefit studies, and
particularly important in the establishment of more information • assessment of equity impacts (intragenerational
about globally efficient and fair climate change mitigation equity impacts should be represented as detailed
policies. These issues include a better understanding of the studies of distributional impacts, and can be inte-
relationship between economic costs of climate change mitiga- grated as formal decision criteria in policy assess-
tion policies and the sustainable development implications in ments).
different parts of the world. Specifically, a number of key • Development of a framework for the assessment of
research issues for further work include: intra- and intergenerational equity aspects of climate
• Development and application of methodological change mitigation studies.
approaches for the integrated assessment of linkages • Integration of environmental impact assessments in cli-
between climate change mitigation costs and sustain- mate change mitigation studies. This will require the
development of consistent methodological approaches • Development of approaches to and conduct of studies

and empirical studies. for developing countries and EITs that better reflect the
• Establishment of approaches to conduct implementa- specific characteristics of these economies in imple-
tion cost analysis in both top-down and bottom-up menting climate change mitigation policies. Some of
models. the major research topics are:
• Implementation cost studies that reflect financial mar- • assessment of alternative development patterns and
ket conditions, institutional and human capacities, their relationship to development, social, and envi-
information requirements, market size and opportuni- ronmental sustainability dimensions;
ties for technology gain and learning, economic incen- • macroeconomic studies that consider structural
tives, and policy instruments. adjustment policies and market transformation
• Development of a systematic approach for reporting processes;
baseline assumptions and the costs of moving from one • studies of the informal sector and implications for
specific baseline case to a climate change mitigation GHG emissions and reduction policies;
policy. • non-commercial energy use; and
• Further development of a consistent analytical structure • specific implementation policy issues.
and a format for reporting the main assumptions that • Estimates of future costs and sustainability implica-
underlie costing results, including: tions that both reflect how climate change might affect
• main scenario drivers: economic growth, technolog- future ecosystems, how these altered ecosystems might
ical development, sectoral activity, and fuel prices; affect the demand for different goods, and how this
• behavioural assumptions; demand might affect the welfare of our descendants.
• flexibility of climate change mitigation policies,
including timing of the reduction policies, GHG
emissions included, and international co-operative
mechanisms; and
• assumptions about tax recycling options, side-
impacts of climate change mitigation policies, and
the potential implementation of no regrets options.
Cropper, M., and D. Laibson, 1999: The Implications of Hyperbolic

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8
Global, Regional, and National Costs
and Ancillary Benefits of Mitigation

JEAN-CHARLES HOURCADE (FRANCE), PRIYADARSHI SHUKLA (INDIA)
Lead Authors:
Luis Cifuentes (Chile), Devra Davis (USA), Jae Emonds (USA), Brian Fisher
(Australia), Emeric Fortin (France), Alexander Golub (Russian Federation), Olav
Hohmeyer (Germany), Alan Krupnick (USA), Snorre Kverndokk (Norway), Richard
Loulou (Canada), Richard Richels (USA), Hector Segenovic (Argentina), Kenji
Yamaji (Japan)
Christoph Boehringer (Germany), Knut Einar Rosendahl (Norway), John Reilly
(USA), Kirsten Halsnæs (Denmark), Ferenc Toth (Germany), ZhongXiang Zhang
(Netherlands)
Review Editors:
Lorents Lorentsen (Norway), Oyvind Christopherson (Norway), Mordechai Shechter
(Israel)
CONTENTS
Executive Summary 501 8.3 Interface between Domestic Policies and
International Regimes 536
8.1 Introduction 503 8.3.1 International Emissions Quota Trading
8.1.1 Summary of Mitigation Cost Analysis Regimes 537
in the Second Assessment Report 503 8.3.1.1 “Where Flexibility” 537
8.1.2 Progress since the Second Assessment 8.3.1.2 Impacts of Caps on the Use
Report 503 of Trading 539
8.1.3 Coverage 503 8.3.1.3 The Double Bubble 539
8.3.2 Spillover Effects: Economic Effects of
8.2 Impacts of Domestic Policies 504 Measures in Countries on Other Countries 539
8.2.1 Gross Aggregated Expenditures in 8.3.2.1 Impact of Emissions Trading 542
Greenhouse Gas Abatements in 8.3.2.2 Effects of Emission Leakage on
Technology-rich Models 504 Global Emissions Pathways 542
8.2.1.1 National and Regional Cost 8.3.2.3 Effects of Possible Organization of
Studies Assuming Large Potentials Petroleum Exporting Countries
for Efficiency Gains (the Impact Response 543
of No Regrets or Non-price Policies) 506 8.3.2.4 Technological Transfers and Positive
8.2.1.2 Bottom-up Costs Resulting from Spillovers 544
Carbon Pricing (Developed
Countries) 507 8.4 Social, Environmental, and Economic Impacts of
8.2.1.3 Country Studies for Developing Alternative Pathways for Meeting a Range of
Countries 510 Concentration Stabilization Pathways 544
8.2.1.4 Common Messages from Bottom-up 8.4.1 Alternative Pathways for Stabilization
Results 512 Concentrations 544
8.2.2 Domestic Policy Instruments and Net 8.4.2 Studies of the Costs of Alternative Pathways
Mitigation Costs 512 for Stabilizing Concentrations at a
8.2.2.1 Aggregate Assessment of Given Level 545
Revenue-raising Instruments 512 8.4.3 Economywide Impact of CO2 Stabilization
8.2.2.2 Mitigating Sectoral Implications: in the Post-SRES Scenarios 548
Tax Exemptions, Grandfathered 8.4.4 Reasons Why Energy-economy Models Tend
Emission Permits, and Voluntary to Favour Gradual Departure from Baseline
Agreements 519 in the Near-term 549
8.2.2.3 The Distributional Effects of 8.4.5 Critical Factors Affecting the Timing of
Mitigation 521 Emissions Reductions: The Role of
8.2.3 The Impact of Considering Multiple Gases Technological Change 550
and Carbon Sinks 522 8.4.5.1 ITC through Dedicated R&D 550
8.2.4 Ancillary Benefits 523 8.4.5.2 Learning by Doing (LBD) 551
8.2.4.1 The Evaluation of the Ancillary 8.4.5.3 The Distinction Between Action
Public Health Impacts 525 and Abatement 551
8.2.4.2 Summarizing the Ancillary
Benefit Estimates 525 References 553
8.2.4.3 Why Do Studies for the Same
Country Differ? 535
8.2.4.4 Conclusions 535
Global, Regional, and National Costs and Ancillary Benefits of Mitigation 501
EXECUTIVE SUMMARY
The United Nations Framework Convention on Climate Much of the difference in cost projections can be explained by
Change (UNFCCC) has as its ultimate goal the “stabilization of differences in these key variables.
greenhouse gas concentrations in the atmosphere at a level that
will prevent dangerous anthropogenic interference with the cli- Economic studies vary widely in their estimate of mitigation
mate system.” Whereas mitigation costs play only a secondary costs (both across and within countries). These differences
role in establishing the target, they play a more important role can be traced to assumptions about economic growth, the cost
in determining how the target is to be achieved. UNFCCC states and availability of existing and new technologies (both on the
that “policies and measures to deal with climate change should supply and demand side of the energy sector), resource endow-
be cost-effective so as to ensure global benefits at the lowest ments, the extent of “no regrets” options and the choice of pol-
possible costs.” This chapter examines the literature on the icy instruments.
costs of greenhouse gas mitigation policies at the national,
regional, and global levels. The net welfare gains or losses are Virtually all analysts agree on the existence of “no regrets”
reported, including (when available) the ancillary benefits of options. Such options are typically assumed to be included in
mitigation policies. These studies employ the full range of ana- the reference (no policy) scenario by economic modellers.
lytical tools described in Chapter 7, from the technologically Even so, the overwhelming majority of emission baselines
rich bottom-up models to more aggregate top-down models, show that emissions continue to rise well into the future. This
which link the energy sector to the rest of the economy. suggests that zero cost options are insufficient to reduce emis-
sions in the absence of policy intervention.
Models can also be distinguished through their level of geo-
graphical disaggregation. Global models, which divide the Mitigation costs to meet a prescribed target will be lower if the
world into a limited number of regions, can provide important tax revenues (or revenues from auctioned permits) are used to
insights with regard to international emissions trade, capital reduce existing distortionary taxes (the so-called “double divi-
flows, trade patterns, and the implications of alternative interna- dend”). The preferred policy depends on the existing tax struc-
tional regimes regarding contributions to mitigation by various ture. Most European studies find that cutting payroll taxes is
regions of the globe. National models are more appropriate for more efficient than other types of recycling. A significant num-
examining the effectiveness of alternative fiscal policies in off- ber of these studies conclude that, within some range of abate-
setting mitigation costs, the short-term effects of macro shocks ment targets, the net costs of mitigation policies can be close to
on employment and inflation, and the implications of domestic zero and even slightly negative. Conversely, in the USA, stud-
burden-sharing rules for various sectors of the economy. ies suggest that reducing taxes on capital is more efficient, but
few models report negative costs.
To cope with their wide range of diversity, the studies are
grouped into three categories. The first two focus on the near- Policies aimed at mitigating greenhouse gases can have posi-
to-medium term. In one of these, the focus is exclusively on tive and negative side effects (or ancillary benefits and costs,
domestic policies. In the other, the domestic/international not taking into account benefits of avoided climate change) on
interface is explored. The third category focuses on the long- society. Although this report overall emphasizes co-benefits of
term goals of climate policy and explores cost-effective imple- climate policies with other policies (to reflect the reality in
mentation strategies. That is, what is the least-cost emission many regions that measures are taken with multiple objectives
reduction pathway for accomplishing a prescribed goal? The rather than climate mitigation alone), the literature that focus-
major conclusions are summarized below. es on climate mitigation uses the term “ancillary benefits” of
specific climate mitigation measures. In spite of recent
For any class of models, the emissions baseline is critically progress in methods development, it remains very challenging
important in determining mitigation costs. It defines the size of to develop quantitative estimates of the ancillary effects, bene-
the reduction required for meeting a particular target. The fits and costs of GHG mitigation policies. Despite these diffi-
growth rate in carbon dioxide (CO2) emissions is determined by: culties, in the short term, ancillary benefits of GHG policies
• growth rate in gross domestic product (GDP); under some circumstances can be a significant fraction of pri-
• decline rate of energy use per unit of output, which vate (direct) mitigation costs. In some cases the magnitude of
depends on structural change in the economy and on ancillary benefits of mitigation may be comparable to the costs
technological development; and of the mitigating measures, adding to the no regrets potential.
• decline rate of CO2 emissions per unit of energy use. The exact magnitude, scale and scope of these ancillary bene-
502 Global, Regional, and National Costs and Ancillary Benefits of Mitigation
fits and costs will vary with local geographical and baseline example, Annex I emissions reductions result in lower oil
conditions. In some circumstances, where baseline conditions demand, which in turn leads to a decline in the international
involve relatively low carbon emissions and population densi- price of oil. As a response, non-Annex I countries may increase
ty, benefits may be low. For the studies reviewed here, the their oil imports and emit more than they would otherwise. Oil-
biggest share of the ancillary benefits is related to public importing non-Annex I countries may benefit, whereas oil
health. exporters may experience a decline in revenue.
Mitigation costs are highly dependent on assumptions about A second example of spillover effects involves the location of
trade in emission permits. Cost estimates are lowest when there carbon-intensive industries. A constraint on Annex I emissions
would be full global trading. That is, when reductions are made reduces their competitiveness in the international marketplace.
where it is least expensive to do so regardless of their geo- Recent studies suggest that there will be some industrial relo-
graphical location. Costs increase as the size of the emissions cation abroad, with non-Annex I countries benefitting at the
market contracts. In the case of Annex B trading only, the expense of Annex I countries. However, non-Annex I countries
availability of excess assigned amount units in Russia and may be adversely affected by the decline in exports likely to
Ukraine can be critical in lowering the overall mitigation costs. accompany a decrease in economic activity in Annex I coun-
Carbon trade provides some means for hedging against uncer- tries.
tainties regarding emissions’ baselines and abatement costs. It
also reduces the consequences of an inequitable allocation of The cost estimates of stabilizing atmospheric CO2 concentra-
assigned amounts. tions depend upon the concentration stabilization target, the
emissions pathway to stabilization and the baseline scenario
It has long been recognized that international trade in emission assumed. Unfortunately, the target is likely to remain the sub-
quota can reduce mitigation costs. This will occur when coun- ject of intense scientific and political debate for some time.
tries with high domestic marginal abatement costs purchase What is needed is a decision-making approach that explicitly
emission quotas from countries with low marginal abatement incorporates this type of uncertainty and its sequential resolu-
costs. This is often referred to as “where flexibility”. That is, tion over time. The desirable amount of hedging in the near
allowing reductions to take place where it is cheapest to do so term depends upon one’s assessment of the stakes, the odds,
regardless of geographical location. It is important to note that and the costs of policy intervention. The risk premium–the
where the reductions take place is independent upon who pays amount that society is willing to pay to reduce risk–is ulti-
for the reductions. The chapter discusses the cost reductions mately a political decision that differs among countries.
from emission trading for Annex B and full global trading
compared to a no-trading case. All of the models show signifi- The concentration of CO2 in the atmosphere is determined
cant gains as the size of the trading market is expanded. The more by cumulative rather than year-by-year emissions. A
difference among models is due in part to differences in their number of studies suggest that the choice of emissions pathway
baseline, the cost and availability of low-cost substitutes on can be as important as the target itself in determining overall
both the supply and demand sides of the energy sector, and the mitigation costs. A gradual near-term transition from the
treatment of short-term macro shocks. In general, all calculat- world’s present energy system minimizes premature retirement
ed gross costs for the non-trading case are below 2% of GDP of existing capital stock, provides time for technology devel-
(which is assumed to have increased significantly in the period opment, and avoids premature lock-in to early versions of
considered) and in most cases below 1%. Annex-B trading rapidly developing low-emission technology. On the other
would generally decrease these costs to well below 1 % of hand, more aggressive near-term action would decrease
GDP for OECD regions. The extent to which domestic policies environmental risks associated with rapid climatic changes,
relying on revenue recycling instruments can lower these fig- stimulate more rapid deployment of existing low-emission
ures is conditional upon the articulation of these policies and technologies, provide strong near-term incentives to future
the design of trading systems. technological changes that may help to avoid lock-in to carbon
intensive technologies, and allow for later tightening of targets
Emissions constraints in Annex I countries are likely to have should that be deemed desirable in light of evolving scientific
so-called “spillover” effects on non-Annex B countries. For understanding.
8.1 Introduction The third lesson is that some of the determinants of costs are
beyond the field of energy and environmental policy stricto
8.1.1 Summary of Mitigation Cost Analysis in the Second sensu. This is why SAR emphasizes the importance of devel-
Assessment Report oping multiple baseline scenarios to support policymaking.
This issue of the multiplicity of baseline scenarios is specifi-
Chapters 8 and 9 of Second Assessment Report (SAR) (IPCC, cally important for the developing countries and countries with
1996) reviewed the literature on costs of greenhouse gas economies in transition. These regions were underinvestigated
(GHG) mitigation prior to 1995. At that period, the debate was compared with the number of studies available for OECD
dominated by the differences in results from “bottom-up” (B- countries.
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 8.1.2 Progress since the Second Assessment Report
sector and a set of measures and macroeconomic parameters
like gross domestic product (GDP) and final household con- Since SAR, the most important advance is the treatment of new
sumption. topics related to linkages between national policies and the
international framework of these policies in the context of the
B-U models showed that energy efficiency gains of 10%–30% pre-Kyoto and post-Kyoto negotiation process. Of specific
above baseline trends could be realized at negative to zero net interest is the articulation between international emissions trad-
costs over the next two or three decades. However, the costs of ing systems and domestic policies (taxes, domestic emissions
stabilizing emissions at 1990 levels reported by T-D analysis trading, and standards). This link has been made in national
for Organization for Economic Co-operation and Development models and global models that provide a description of rela-
(OECD) countries were less optimistic, in the range –0.5% to tionships among various regions of the world. Some models
2% of GDP. SAR devoted much effort to explain the reasons represent solely GHG emissions trading, while others also
for these differences and their meaning for policymakers. B-U incorporate energy flows, trade of other goods, and capital
models identify negative-cost mitigation potentials because of flows. In this context, while SAR discussed only the carbon
the difference between the best available techniques and those leakage between abating and non-abating economies, an
currently in use; the key question is then the extent to which increasing number of studies have captured spillover effects
market imperfections that inhibit access to these potentials can (see Box 8.1) such as those triggered by trade effects and the
be removed cost-effectively by policy initiatives. T-D analyses modification of the capital flows.
focus on the overall macroeconomic effect of new incentive
structures, such as carbon taxes or subsidies for energy effi- A second evolution is the emergence of studies on the local and
ciency; their results reflect a judgement on the capacity of non- regional ancillary benefits of climate policies.
price policies (market reforms, information, capacity building)
to enhance the effectiveness of such signals to decarbonize the The third evolution is the development of studies on various
economy. The lesson is that, for a given abatement target, the abatement pathways towards given long-run concentration tar-
content of the policy mix (carbon tax, carbon-energy tax, or gets and on rules for emissions quota allocation among coun-
auctioned emissions trading system) is as important as the tries. These approaches, more dynamic in nature, capture the
assumptions regarding technology. consequences of various abatement timetables on the behav-
iour of carbon prices and on the sharing of the overall burden
A second lesson of SAR is that, for both B-U and T-D models, among countries. They provide basic information about the
the differences in cost assessment usually result from differ- equity of various designs of climate policies.
ences 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 achiev- 8.1.3 Coverage
ing this target from the same baseline scenario. This, in turn,
relates to: This chapter covers studies on global assessments of the net
• the structural features of the scenario (assumptions cost of GHG mitigation policies irrespective of the avoided
about population, the rate and structure of economic costs of climate change: total mitigation expenditure, and wel-
growth, consumption patterns, and technology devel- fare gains or losses resulting from the economic feedbacks of
opment paths); and mitigation policies and from their environmental co-benefits.
• its level of suboptimality (higher efficiency in the base-
line scenario results in higher mitigation-costs esti- A specific effort has been devoted to ensure a balanced repre-
mates for a given target, while the existence of market sentation of global models and national models. Global models
failure, which enhances GHG emissions, or of fiscal incorporate linkages between regions and countries; they can-
distortions provides a possibility for economic and not, however, represent very precisely the specific characteris-
environmental double dividends). tics of each country, such as differences in national fiscal poli-
cies, in regional arrangements, and in socioeconomic con-
straints. Results from these models are widely diffused within exports, and changes in consumer surplus that result from mit-
the scientific community through publications in international igation actions. In all the studies, it is customary to report the
journals, but are less utilized by national policymakers. The mitigation cost as the incremental cost of some policy scenario
second type of study uses models the scope of which is limit- relative to that of a baseline scenario. The total cost of mitiga-
ed to within the national frame. Results of such studies are tion is usually presented as a total net present value (NPV)
more frequently reported in local languages and are more using a social discount rate selected exogenously (the NPV
reflective of national debates and the specifics of the country in may be further transformed into an annualized equivalent).
question. They incorporate linkages with the rest of the world Many (but not all) report also the marginal cost of GHG abate-
economy, although in a more simplistic manner than the glob- ment (in US$/tonne of CO2-equivalent), which is the cost of
al models. the last tonne of GHG reduced. Chapter 7 discusses cost con-
cepts and discount rates in more depth.
The results of these studies group into three large clusters.
Section 8.2 reviews the studies that entail near-to-mid term Current B-U analysis can be grouped in three categories:
impacts of domestic mitigation policies on factors such as • Engineering economics calculations performed tech-
GDP, welfare, income distribution, and social and environ- nology-by-technology (Krause, 1995; LEAP (1995),
mental co-benefits at the local and national levels. Section 8.3 Von Hippel and Granada (1993); UNEP, 1994a; Brown
contains the results of mitigation studies that examine the inter- et al., 1998; Conniffe et al., 1997). The costs and reduc-
face between these domestic policies and the international con- tions from the large number of actions are aggregated
text: international trade regimes, and spillover effects of the into whole-economy totals in these studies. Each tech-
implementation of mitigation measures by a country or a block nology (or other action on energy demand) is assessed
of nations on other countries. Section 8.4 reviews studies that independently via an accounting of its costs and sav-
focus on social, environmental, and economic impacts of alter- ings (investment costs, operational and maintenance
nate pathways to meet a range of concentration stabilization cost, fuel costs or savings, and emissions savings).
pathways beyond the Kyoto Protocol. They encompass a Once these elements are estimated, a unit cost (per
longer time horizon and do not incorporate details of macro tonne of GHG reduction) is computed for each action.
economic policies, but highlight the question of technological The unit costs are then sorted in ascending order, and
change over the long run and the consequences of various sets thus the actions are ordered from least expensive to the
of national targets. most expensive, per tonne of abatement, to create a cost
curve. This approach requires a very careful examina-
tion of the interactions between the various actions on
8.2 Impacts of Domestic Policies the cost curve: it is often the case that the cost and GHG
reduction attached to an action depends on those of
Evaluation of the economic impacts of domestic mitigation other actions in the same economy. Although the sim-
policies can no longer be made independently of the linkages pler interactions are easily accounted for by careful
between these policies and the international framework. analysis, there exist many other instances in which
However, it is important to disentangle the mechanisms that complex, multi-measure interactions are very difficult
are themselves independent of the international regimes from to evaluate without the help of a more complex model
those specifically driven by the interplay between these that captures the system’s effects. As an example, con-
regimes and domestic policies. In addition, the existence of an sider simultaneously: (a) changing the mix of electrici-
international framework does not rule out the importance of ty generation, (b) increasing interprovincial trade of
domestic policies for addressing the specific problems of each electricity, and (c) implementing actions to conserve
country. electricity in several end-use sectors. As each of these
three actions has an impact on the desirability and pen-
This section basically relies on national studies, including inte- etration of each other action, such a combination
grated economic regions such as the European Union (EU), but requires many iterations that assess the three types of
it also reports the results of multiregional studies for the con- action separately, before an accurate assessment of the
cerned countries or region. full portfolio can be obtained.
• Integrated partial equilibrium models that facilitate the
integration of multiple GHG reduction options and the
8.2.1 Gross Aggregated Expenditures in Greenhouse Gas aggregation of costs. To achieve this, the majority of B-
Abatements in Technology-rich Models U studies use the whole energy system (MARKAL,
MARKAL-MACRO, MARKAL-MATTER, EFOM,
In technology-rich B-U models and approaches, the cost of MESSAGE, NEMS, PRIMES1). These models have
mitigation is constructed from the aggregation of technological the advantage of simultaneously computing the prices
and fuel costs. These include investments, operation and main-
tenance costs, and fuel procurement, but also included (and this
is a recent trend) are revenues and costs from imports and 1 For references see Table 8.1.
Table 8.1: List of the models referred to in this chapter
Model Region Reference
ABARE-GTEM USA/EU/Japan/CANZ In Weyant, 1999

ADAM Denmark Andersen et al., 1998
AIM USA/EU/Japan/CANZ In: Weyant, 1999
Japan Kainuma et al., 1999; Kainuma et al., 2000
China Jiang et al., 1998
CETA USA/EU/Japan/CANZ In: Weyant, 1999
E3-ME UK/EU/World Barker 1997, 1998a, 1998b, 1998c, 1999
ELEPHANT Denmark Danish Economic Council, 1997; Hauch, 1999
ECOSMEC Denmark Gørtz et al., 1999
ERIS Kypreos et al, 2000
G-Cubed USA/EU/Japan/CANZ In: Weyant, 1999
GEM-E3 EU Capros et al., 1999c
GEM-E3 Sweden Nilsson, 1999
GemWTrap France/World Bernard and Vielle, 1999a, 1999b, 1999c
GESMEC Denmark Frandsen et al., 1995
GRAPE USA/EU/Japan/CANZ In: Weyant, 1999
IMACLIM France Hourcade et al., 2000a
IPSEP EU Krause et al., 1999
ISTUM Canada Jaccard et al., 1996; Bailie et al., 1998
MARKAL World Kypreos and Barreto, 1999
Canada Loulou and Kanudia, 1998, 1999a and 1999b; Loulou et al., 2000
Ontario (Canada) Loulou and Lavigne, 1996
Quebec, Ontario, Alberta Kanudia and Loulou, 1998b; Kanudia and Loulou, 1998a; Loulou
et al., 1998
Canada, USA, India Kanudia and Loulou, 1998b
EU Gielen, 1999; Seebregts et al., 1999a, 1999b; Ybema et al., 1999
Italy Contaldi and Tosato, 1999
Japan Sato et al., 1999
India Shukla, 1996
MARKAL-MACRO World Kypreos, 1998
USA Interagency Analytical Team, 1997
MARKAL-MATTER EU Gielen et al., 1999b, 1999c
MARKAL and EFOM EU Gielen et al., 1999a; Kram, 1999a. 1999b
Belgium, Germany, Netherlands, Switzerland Bahn et al., 1998
Switzerland, Colombia Bahn et al., 1999a
Denmark, Norway, Sweden Larsson et al., 1998
Denmark, Norway, Sweden, Finland Unger and Alm, 1999
MARKAL Stochastic Quebec Kanudia and Loulou, 1998a
Netherlands Ybema et al., 1998
Switzerland Bahn et al., 1996
MEGERES France Beaumais and Schubert, 1994
MERGE3 USA/EU/Japan/CANZ In: Weyant, 1999
MESSAGE World Messner, 1995
MISO and IKARUS Germany Jochem, 1998
MIT-EPPA USA/EU/Japan/CANZ In: Weyant, 1999
MobiDK Denmark Jensen, 1998
MS-MRT USA/EU/Japan/CANZ In: Weyant, 1999
MSG Norway Brendemoen and Vennemo, 1994
MSG-EE Norway Glomsrød et al., 1992; Alfsen et al., 1995; Aasness et al., 1996;
Johnsen et al., 1996
MSG-6 Norway Bye, 2000
MSG and MODAG Norway Aaserud, 1996
NEMS + E-E USA Brown et al., 1998; Koomey et al., 1998; Kydes, 1999
Oxford USA/EU/Japan/CANZ In: Weyant, 1999
POLES USA, Canada, FSU, Japan, EU, Criqui and Kouvaritakis, 1997; Criqui et al., 1999
Australia, New Zealand
PRIMES Western Europe Capros et al., 1999a
RICE USA/EU/Japan/CANZ In: Weyant, 1999
SGM USA/EU/Japan/CANZ In: Weyant, 1999
SPIT UK Symons et al., 1994
SPIT Ireland O’Donoghue, 1997
WorldScan USA/EU/Japan/CANZ In: Weyant, 1999
CANZ: Other OECD countries (Canada, Australia, and New Zealand); FSU: Former Soviet Union.
of energy and of end-use demand as an integral part of (see also Chapter 9) in methodological differences, but in the
their routine. They are based on least-cost algorithms differences in assumptions. Finally, although most recent B-U
and/or equilibrium computation routines similar to results consider the abatement of a fairly complete basket of
those used in T-D approaches. They increasingly cover GHG emissions from all energy-related sources, a few essen-
both the supply and demand sides, and include mecha- tially focus on CO2 abatement only and/or on selected sectors,
nisms to make economic demands responsive to the such as power generation. In this chapter, only results are
changing prices induced by carbon policies. reported that have sufficient scope to qualify as GHG abate-
Furthermore, many implementations of these models ment costs in most or all sectors of an economy.
are multiregional, and represent explicitly the trading
of energy forms and of some energy intensive materi- To facilitate the exposition of the various results, the rest of this
als. subsection is divided into four parts, as follows:
• Simulations models (based on models such as ISTUM) • studies that assume a large potential for efficiency
that take into account the behaviour of economic agents gains, even in the absence of a carbon price;
when different from pure least cost. To accomplish this, • other B-U studies for Annex I countries or regions;
economic agents (firms, consumers) are allowed to • Annex I studies that account for trade effects; and
make investment decisions that are not guided solely by • studies devoted to non-Annex I countries.
technical costs, but also by considerations of conve-
nience, preference, and so on. Such models deviate 8.2.1.1 National and Regional Cost Studies Assuming Large
from least-cost ones, and so they tend to produce larg- Potentials for Efficiency Gains (the Impact of No
er abatement costs than least-cost models, all things Regrets or Non-price Policies)
being equal otherwise.
An important part of climate policy debates is underpinned by
The boundaries between these three categories is somewhat a lasting controversy between believers and non-believers in
blurred. For instance, NEMS and PRIMES do include behav- the existence of a large untapped efficiency potential in the
ioural treatment of some sectors, and MARKAL models use economy. If there, this potential could be realized at such a
special penetration constraints to limit the penetration of new small societal cost that it would be more than compensated by
technologies in those sectors in which resistance to change has cost savings that accrue from the efficiency improvements.
been empirically observed. Conversely, ISTUM has recently Options that have a negative net social cost add up to an over-
been enhanced to allow the iterative computation of a partial all negative cost potential that may be quite large. Figure 8.1 is
equilibrium (the new model is named CIMS). a sketch of the successive marginal costs of abatement, as a
function of GHG reduction relative to some baseline point A.
Several studies go further: they are based on partial equilibri- The total cost is simply the area between the curve and the hor-
um models in which energy service demands are sensitive to izontal axis. From A to B, marginal abatement costs are nega-
prices. Therefore, even the quantities of energy services may tive, and from B onwards, they are positive. The debate
increase or decrease in carbon scenarios, relative to the base revolves around the size of the total (negative) cost from A to
case. For these models report not only the direct technical B. The studies discussed in this subsection argue that the neg-
costs, but also the loss or gain in consumer surplus because of ative cost area is potentially quite significant, and compensates
altered demands for energy services. The results of this new
generation of partial equilibrium B-U models tend to be closer
than those of other B-U models to the results of the general Marginal cost
equilibrium T-D models, which are also discussed in this chap- of abatement
(US$/tC)
ter. Loulou and Kanudia (1999) argue that, by making demands
endogenous in B-U models, most of the side-effects of policy
scenarios on the economy at large are captured. When a partial
equilibrium model is used, the cost reported is the net loss of
social surplus (NLSS), defined as the sum of losses of produc-
ers and consumers surpluses (see Chapter 7).
D
As is apparent from the results presented below, considerable C

variations exist in the reported costs of GHG abatement. Some
of these differences result from the inclusion/exclusion of cer-
tain types of cost in the studies (e.g., hidden costs and welfare
losses), others from the methodologies used to aggregate the 0
B
costs, others from the feedback between end-use demand and Abatement of
prices, and still others from genuine differences between the A GHG emissions
energy systems of the countries under study. However, the
most significant cause of cost variations seems to lie not only Figure 8.1: A typical cost curve.
to a large extent for the positive costs incurred after point B. habits and modal switches towards rail and mass tran-
Most other B-U studies analyzed in the next subsection do not sit are considered to entail negative costs. This does not
even attempt to evaluate the relative positions of points A and consider enough the reality of consumers’ behaviour
B, since they optimize the system even in the absence of car- preferences for flexibility and non-promiscuity in trans-
bon constraint, and thus compute only the points beyond point portation modes, or even “symbolic” consumption
B. (such as the preference for high-power cars even in
countries with speed limits).
Krause (1995, 1996) identifies two main reasons why the neg-
ative cost area may be quite large: untapped potential for effi- These arguments should not be used to refute the very exis-
ciency gains mainly in end-use technologies, both on the tence of negative cost potentials. They indicate that the applic-
demand and on supply sides. Several major studies concretize ability of non-price policy measures apt to overcome barriers
this view in Europe as well as in North America (USA and to the exploitation of these potentials must be given serious
Canada). For Europe, the monumental IPSEP reports (summa- attention. Some empirical observations do confirm that active
rized in Krause et al. (1999)) conclude that emissions could be sectoral policies can result in significant efficiency gains, in
reduced by up to 50% below the 1990 level by 2030, at a neg- demand-side management for electricity end-uses for example.
ative overall cost. This involves the judicious implementation However, the many sources of gaps between technical costs
of technologies and practices in all sectors of the economy, and and economic costs cannot be ignored (see the taxonomy of
the application of a large number of government policies Jaffe and Stavins, 1994). The few existing observations
(incentives, efficiency standards, and educational). In the US, (Ostertag, 1999) suggest that the transaction costs may repre-
some of the 5-Lab studies (Brown et al., 1997a, 2000, particu- sent, in many cases, a large fraction of the costs of new tech-
larly the HE/LC scenario) indicate that the Kyoto reduction tar- nology, and there is always an uncertainty about the efficiency
get could be reached at negative overall cost ranging from and the political acceptability of the policies suggested in the
–US$7 billion to –US$34 billion. Another study based on the above studies. This issue is clearly exemplified by the set of
NEMS model (Koomey et al., 1998) indicates that 60% of the studies carried out in the USA and collected under the name
Kyoto gap could be bridged with an overall increase in the US “5-LAB studies”. In these, some scenarios produce positive
GDP. The latter study contrasts with another NEMS study incremental costs and others negative costs, depending on the
(Energy Information Administration, 1998) that indicates GDP aggressiveness with which efficiency measures are implement-
losses from 1.7% to 4.2% (depending on the extent of permit ed (Interlaboratory Working Group, 1997; Brown et al., 1998).
trading and sink options) for the USA to reach the Kyoto tar-
gets. Laitner (1997, 1999) further stresses the impact of effi- 8.2.1.2 Bottom-up Costs Resulting from Carbon Pricing
cient technologies on the aggregate cost of mitigation in the (Developed Countries)
USA. In Canada, the MARKAL model was used with and
without certain efficiency measures in various sectors (Loulou Contrary to the studies discussed above, the partial equilibrium
and Kanudia, 1998; Loulou et al., 2000): the results show costs studies reviewed in this section do not report negative costs.
of Kyoto equal to US$20 billion without the additional effi- This is because the least-cost algorithms employed, which are
ciency measures, versus –US$26 billion when efficiency mea- powerful to compute the incremental cost of the system with
sures are included in the database. Again in Canada, the and without a carbon constraint (i.e., point B in Figure 8.1),
ISTUM model was used (Jaccard et al., 1996, Bailie et al., demand a set of somewhat arbitrary parameters to be calibrat-
1998) considering a set of pro-active options. For example, in ed in such a way that they calculate a suboptimal baseline; but
the residential sector large emissions reductions of 17% to 25% such an operation demands resorting to a set of somewhat
relative to 1990 could be achieved as early as 2008 with many arbitary parameters and the results are less easy to interpret.
negative costs options, and beyond that level of reduction, the This is why the B-U studies reported hereafter explore only the
marginal costs is ranging from US$25 to US$89/tC. section of the cost curve with positive carbon prices (section
CD in Figure 8.1).
As extensively discussed in SAR, many economists argue that
the real magnitude of negative cost options is not so large if It is very hard to encapsulate in a short presentation the many
account is taken of: studies carried out with a B-U approach using a crosscutting,
• Transaction costs of removing market imperfections carbon-pricing instrument. Figure 8.1 summarizes a number of
that inhibit the adoption of the best technologies and these results, obtained with a variety of B-U models applied to
practices; a single Annex I country or region, ignoring the trade effects.
• Hidden costs, such as the risks of using a new technol- Included are those studies that contain enough information to
ogy (maintenance costs, quality of services); present the marginal abatement cost along with the level of
• “Rebound effect“ because, for example, an improve- GHG emission variation from 1990 (other studies that report-
ment in motor efficiency lowers the cost per kilometre ed only the total abatement cost are discussed separately). In
driven and has the perverse effect of encouraging more Figure 8.2, each point represents one particular reduction level
trips; and (relative to 1990) and the corresponding marginal cost of
• Real preferences of consumers: options such as driving reduction. Points that are linked together by a line correspond
350
USA Japan
300 EU Canada
Ireland Italy
Marginal Cost of tC (in 1990US$)
250
JAPAN 2 ECN-2 Note: Negative GHG reduction
implies an increase of emissions
from 1990 level. This increase
EIA implies a positive marginal cost
200 when it corresponds to a lower
YLKSGK increase than that would have
occurred in the absence of
climate policy.
150
GIEPIE
100 CAP 99
IAT
JAPAN 1
50
LOUKA
ESRI
TOS GKKR
0
-40% -20% 0% 20% 40% 60% 80%
GHG Reduction
[EIA]: Energy Information Administration, 1998. [JAPAN-1]: Kainuma et al., 2000.

[ESRI]: Conniffe, et al., 1997. [ECN-2]: Gielen et al., 1998.
[IAT]: Interagency Analytical Team, 1997. [LOUKA]: Loulou et al., 1998.
[TOS]: Contaldi and Tosato, 1999. [GKKR]: Gielen et al., 1999a
[CAP-99]: Capros, et al., 1999a [YLKSGK]: Ybema et al., 1999.
[JAPAN-2]: Kainuma et al., 1999. [GIEPIE]: Gielen and Pieters, 1999.
Figure 8.2: Country results with bottom-up studies using a crosscutting instrument.
to a multi-run study effected with the same model, but in which the other extreme of the spectrum some countries have
the amount of reduction was varied. fuelled their economy almost exclusively on
hydropower, nuclear power, and some gas, and will
Evidently, Figure 8.2 shows considerably discrepancies from thus find fewer opportunities to switch to less CO2-
study to study. These large variations are explained by a num- intensive fuels. This occurs for Norway (hydro), France
ber of factors, some of which reflect the widely differing con- (nuclear and hydro), Japan (nuclear and some fossil
ditions that prevail in the countries studied, while others result fuels), Switzerland (hydro and nuclear), and to some
from the modelling and scenario assumptions. These variations extent Canada (hydro and nuclear).
are discussed next, illustrated by examples from Figure 8.2. • Economic growth. An economy with high growth rate
faces the following dilemma. On the one hand, the
8.2.1.2.1 Cost Discrepancies that Result from Specific growth allows for a rapid capital turnover, and thus
Country Conditions many opportunities to install efficient or low-carbon
technologies. On the other hand, the same economy
• Energy endowment. Countries that are richly endowed requires more energy precisely because of its fast
with fossil fuels find it generally less expensive to growth. The net result is that such countries have a ten-
replace coal with gas, and thus have a greater potential dency to decrease markedly their energy intensity
than other countries to reduce emissions with readily
available means. (This assumes that the change is not
done very rapidly, so as to affect as little as possible the 2However, although the direct cost of switching away from coal may
turnover rate of the existing investments.) For instance, be relatively low, the indirect costs (including the political cost) of
this is the case for the USA (coal and oil products).2 At disrupting the coal sector may be high.
(energy per GDP), but to increase significantly their al equilibrium models, albeit simplified ones. In addi-
total emissions. For such countries, a net reduction of tion, these two models include behavioural considera-
GHG emissions below a base year’s emissions is usu- tions in the calculation of the equilibrium, which tend
ally costly. Typically, many fast-developing countries to raise the cost of abatement, compared to least-cost
in East and South East Asia are in this category. In the models such as MARKAL.
studies cited above, their emissions “reductions” are • Scenario variation. The variety of scenarios used is
often computed relative to the baseline rather than to a quite large, as a result of varying some or all of the rel-
fixed base year. evant elements. These include whether the technologies
• Energy intensity. The degree of energy intensity of an are allowed to penetrate freely or in a limited fashion
economy acts in opposing directions when the econo- (typically renewables, nuclear, and some new end-use
my wishes to achieve net emissions reductions: on the technologies), the basket of GHG gases considered
one hand, a high degree of energy intensity may occur (CO2 alone versus multigas studies), assumed econom-
because that the country has not yet implemented some ic growth, and sectoral scope (energy only versus
efficiency measures implemented elsewhere. On the whole economy).
other hand, such an economy may have been built on • Example. To illustrate the above comments, Figure 8.2
energy, and may thus find it hard to veer to a different, indicates that at a marginal cost of less than
less energy-intensive mode, in a short time. Its devel- US$100/tCO2eq, the US emissions would still be larger
opment path is somewhat frozen, at least in the short in 2010 than in 1990, according to the NEMS (Energy
term. The higher the carbon intensity, the more impor- Information Administration, 1998) and MARKAL
tant the time frame of abatement. Such a pattern is (Interagency Analytical Team, 1997) studies. Note that
observable in North America; despite its rapid capital NEMS predicts higher marginal costs than MARKAL
turnover in the industry, the large inertia in sectors such for the same emission level, as expected, since NEMS
as transportation is a determining factor of high abate- includes many behavioural considerations, whereas
ment cost when the required abatement implies short MARKAL is a least-cost model. Japan’s emissions
term actions on these sectors. would be reduced by 1% to 8% (AIM studies (Kainuma
• Other specific conditions. For example, Germany faces et al., 1999, 2000); Ireland’s (Conniffe et al., 1997) and
a very special situation because of the reunification in Italy’s (Contaldi and Tosato, 1999) emissions would
1990 to 1991. The East German part of the country also increase, whereas Canada’s emissions would
emits much less now than in 1990, and the country as a decrease by 6% (MARKAL study (Loulou et al.,
whole is able to effect significant reductions at essen- 1998)). The several European studies show a wide
tially zero or very low cost, up to a certain point, range of reductions, from relatively small reductions
beyond which its marginal cost may well accelerate (PRIMES study (Capros et al., 1999a)) to medium or
considerably. large reductions with the various MARKAL studies
(Gielen and Pieters, 1999; Gielen et al., 1999a; Ybema
8.2.1.2.2 Discrepancies in Results Due to Modelling and et al., 1999). These large variations are mainly
Scenario Assumptions explained by the modelling and scenario assumptions:
PRIMES marginal costs are expected to be larger than
• Policy assumptions. The results summarized in Figure MARKAL’s (just as NEMS costs were larger than
8.2 are based mostly on partial equilibrium models, MARKAL’s in the US case). In addition, scenario
which tend to approach general equilibrium computa- assumptions vary across studies: the number of gases
tions, such as AIM, NEMS, MARKAL, MARKAL- modelled, degree of efficiency of the instrument used
MACRO, PRIMES, CIMS, etc. Some of these models across the EU countries, and availability of internation-
allow evaluation of the impact on mitigation cost of the al permits trading.
redistribution of the proceeds of a carbon tax (the
results obtained with the AIM model for Japan Several studies are not represented in Figure 8.2, since only
(Kainuma et al., 1999, 2000) show very clearly that incremental or average costs were reported. For instance, a
suitable redistribution reduces the marginal cost of German study (Jochem, 1998) indicates reductions of 30% to
abatement). 40% in 2010 at average costs ranging from US$12 to US$
• Modelling differences. Some models include partial 68/tCO2eq. In Canada (Loulou and Lavigne, 1996), a measure
economic feedbacks in the form of demand elasticities, of the impact of demand reduction is obtained by running
as for example MARKAL (Loulou and Kanudia, MARKAL with and without elastic demands for energy ser-
1999a), and for these models the abatement marginal vices: the total cost is US$52 billion with fixed demands,
costs are generally lower than when demands are fixed, andUS$42 billion with elastic demands. Chung et al. (1997)
because it becomes unnecessary to tap the most costly arrive at much higher total costs for Canada, using a North
technological options. MARKAL-MACRO and NEMS American equilibrium level (the higher cost apparently results
include macroeconomic components in the computa- from fewer technological options than in MARKAL) A
tion of the equilibrium, and therefore qualify as gener- Swedish MARKAL study (Nystrom and Wene, 1999) find total
cost of 210 billion Swedish krona for a stabilization scenario, be achieved at a cost below US$ 25/tCO2 (See Table 8.2). The
against 640 billion Swedish krona for a 50% emissions reduc- magnitude of this “low cost potential” is like in the ALGAS
tion in 2010. This same study investigates the opportunity cost studies, influenced by the number of climate change mitiga-
of a nuclear phase out, and evaluates a rebound effect on the tion options included in the study. Individual studies indicate
demands of a 9% emissions reduction for Sweden. that some of the countries like Ecuador and Botswana experi-
ence a very steep increase in GHG emission reduction costs
8.2.1.3 Country Studies for Developing Countries when the reduction target approaches 25%. It must be noted
that these country studies primarily have assessed end use
Several recent studies have been carried out as part of interna- energy efficiency options and a few renewable options and
tionally co-ordinated country study programs conducted by the have not included major reduction options related to power
United Nation Environment Programme (UNEP) Collaborating supply which probably could have extended the low cost emis-
Centre of Energy and Environment (UNEP, 1999a–1999g), and sion reduction area. The studies for Hungary and Vietnam esti-
by the Asian Development Bank, United Nations Development mate a relatively small emission reduction potential, which
Programme (UNDP), and the Global Environment Facility primarily can be explained by the specific focus in the studies
(ALGAS, 1999c–h). Summaries and analyses appear in on end use efficiency improvements and electricity savings
Halsnaes and Markandia (1999). These recent studies supple- that do not include all potential reduction areas in the coun-
ment a number of earlier ALGAS studies of Egypt, Senegal, tries.
Thailand, Venezuela, Brazil, and Zimbabwe. The relevant
results on aggregate cost are presented as individual country The options in the low-cost part of the UNEP cost curves typ-
reports and summarized in ALGAS (1999) and in Sathaye et al. ically include energy efficiency improvements in household
(1998). National study teams undertook the UNEP and ALGAS and industry, and a number of efficiency or fuel switching
studies, using a variety of modelling approaches. The study options for the transportation sector. The household options
results reported in Table 8.2 are based primarily on energy sec- include electricity savings such as compact fluorescent light-
tor options, which are supplemented with a number of options
in the transportation sector, waste management, and from the
land-use sectors. The GHG emissions reductions are defined as Table 8.2: Emission reduction potentials achievable at or less
percentage reductions below baseline emissions in 2020 or than US$25/tCO2 for developing countries and two economies
2030, or as accumulated GHG emission reductions over the in transition
timeframe of the analysis. These analyses are very useful to
indicate the extent and cost of clean development mechanism Annual reduction relative to reference case
(CDM) potentials in all countries studied.
Country MtCO2/yr %
The ALGAS cost curves show a total accumulated CO2 emis-
sion reduction potential of between 10% and 25% of total Argentina (UNEP, 1999a) – 11.5
emissions in the period 2000 to 2020. The marginal reduction Botswana (UNEP, 1999c) 2.87 15.4
cost is below US$25/tCO2 (see Table 8.2) for a major part of China (ALGAS, 1999c) 606 12.7
this potential, and a large part of the potentials in many of the Ecuador (UNEP, 1999b) 12.7 21.3
country studies are associated with very low costs which even Estonia (UNEP, 1999g) 9.6 58.3
in some cases are assessed to be negative. The magnitude of Hungary (UNEP, 1999f) 7.3 7.6
the potential for low cost options in the individual country cost Philippines (ALGAS, 1999h) 15 6.2
curves depends on the number of options that have been South Korea(ALGAS, 1999d) 5.3 5.7
included in the studies. Countries like Pakistan and Myanmar Zambia (UNEP, 1999d) 6.09 17.5
have included relatively many options and have also assessed Brazil (UNEP, 1994) – 29
a relatively large potential for low-cost emission reductions. Egypt (UNEP, 1994) – 52
Senegal (UNEP, 1994) – 50
Most of the country studies have concluded that options like Thailand (UNEP, 1994) – 29
end-use energy efficiency improvements, electricity saving Venezuela (UNEP, 1994) – 24
options in the residential and service sectors, and introduction Zimbabwe (UNEP, 1994) – 34
of more efficient motors and boilers are among the most cost-
effective GHG emission reduction options. The studies have Cumulative reduction relative to reference case
included relatively few GHG emission reduction options relat-
ed to conventional power supply. Country MtCO2/yr %
The UNEP cost curves exhibit a number of interesting simi- Myanmar (ALGAS, 1999e) 44 23
larities across countries. All country cost curves have a large Pakistan (ALGAS, 1999f) 1120 23.7
potential for low cost emission reductions in 2030, where 25% Thailand (ALGAS, 1999g) 431 4.2
(and in some cases up to 30%) of the emission reduction can Vietnam (UNEP, 1999e) 1016 13.4
bulbs (CFLs) and efficient electric appliances and, for Zambia, Apart from the UNEP and ALGAS studies presented above,
improved cooking stoves. A large number of end-use efficien- several additional independent studies were carried out for
cy options have been assessed for electricity savings, transport large countries with the help of equilibrium models. Examples
efficiency improvements, and household cooking devices, but are the ETO optimization model (for India, China, and Brazil),
very few large scale power production facilities. the MARKAL model for India, Nigeria, and Indonesia, and the
AIM model for China. Table 8.3 reports the marginal costs (or
There are a number of similarities in the low cost GHG emis- other cost in some cases) for the abatement levels considered
sion reduction options identified in the ALGAS and UNEP in the studies (relative to baseline). Marginal costs vary from
studies. Almost all studies have assessed efficient industrial moderate to negative, depending on the country and model
boilers and motors to be attractive climate change mitigation used, for emission reductions that are quite large in absolute
options and this conclusion is in line with the conclusions of terms compared to the baseline emissions.
earlier UNEP studies (UNEP 1994b). A number of transporta-
tion options, in particular vehicle maintenance programmes These studies point out the interest of the same set of technolo-
and other efficiency improvement options, are also included in gies for most of the countries, such as efficient lighting, effi-
the low-cost options. Most of the studies have included a num- cient heating or air-conditioning (depending upon the region),
ber of renewable energy technologies such as wind turbines, transmission and distribution losses, and industrial boilers.
solar water thermal systems, photovoltaics, and bioelectricity.
The more advanced of these technologies tend to have medium Importantly, it should be emphasized that in the way these
to high costs in relation to the above mentioned low-cost studies are conducted, the potential for cheap abatement
options. A detailed overview of the country study results is increases in proportion the baselines. In reality, this may not be
given in the individual country study reports (UNEP 1999a-g; the case because, in cases of rapid growth, an acceleration of
ALGAS a-h, 1999). the diffusion of efficient technologies is expected, which
Table 8.3: Abatement costs for five large less-developed countries
Country China India Brazil China India Nigeria Indonesia
Reference Wu et al. Mongia et al. La Rovere et al., Jiang et al. Shukla Adegbulugbe et al. Adi et al.
(1994) (1994) (1994) (1998) (1996) (1997) (1997)
Span of study 1990–2020 1990–2025 1990–2025 1990–2010 1990–2020 1990–2030 1990–2020
Emissions in 1990 (MtCO2) 2411 422 264
Emissions in final year, 6133 3523 1446

baseline (MtCO2)
% change 154% 735% 447% 130% 650%
Emissions in final year, 4632 2393 495

mitigation (MtCO2)
% change 92% 467% 88% 53% 520%
% change: mitigation –40% –36% –80% –59% –20% –20% –20%

versus baseline, final year
Marginal cost in final year 32 –16 –7 28 28 <30

(US$/tCO2)
Average cost in final year <5

(US$/tCO2)
Annual cost in final year 47

(billion US$/yr)
would lower the magnitude of the negative cost potentials. A high, although the average abatement cost is reasonably low, or
second caveat to be placed is that an increase of the GDP per even negative. This is because the initial reductions of GHG
capita is consistent with the increase of wages and purchasing emissions may have a very low (or negative) cost, whereas
power parities which would increase the cost of carbon import- additional reductions have, in general, a much higher marginal
ed from these countries through CDM projects. cost. This fact is captured in the curve representing marginal
abatement cost versus reduction quantity, which starts with
8.2.1.4 Common Messages from Bottom-up Results negative marginal costs, as illustrated in Figure 8.1. The initial
portion of the curve (section A–B) exhibits negative cost
Clearly, the impact of policy scenarios has a large influence on options, which may add up to a significant portion of the reduc-
abatement costs. Certain studies propose a series of public tions targetted by a given GHG scenario. As the reduction tar-
measures (regulatory and economic) that tap deep into the get increases (section B–C–D of the curve), the marginal cost
technical potential of low carbon and/or energy-efficient tech- becomes positive, and also eventually the total mitigation cost
nologies. In many cases, such policies show low or negative if the reduction target is large enough. But there is systemati-
costs. A comparison with least-cost approaches is difficult cally a wedge between the marginal and total costs of abate-
because these evaluate systematically both the baseline and the ment, and this wedge is all the more important as the macro-
policy scenario as optimized systems and do not incorporate economic impacts of climate policies are driven in large part by
market or institutional imperfections in the current world. It the marginal costs (because the latter dictate the change in rel-
would be of great interest to conduct a more systematic com- ative commodity prices). They are driven only modestly by the
parison of the results obtained via the various B-U approaches, total amount of abatement expenditures.
so as to establish the true cause of the discrepancies in report-
ed costs. A timid step in this direction is illustrated in Loulou A crucial, albeit indirect, message, is the importance of inno-
and Kanudia (1999a). vation: indeed, B-U models depend on a reasonable repre-
sentation of emerging or future technologies. When this rep-
This leads to a general discussion about the extent to which resentation is deficient, the models present a pessimistic view
all these results suffer from a lack of representation of trans- of the costs of more drastic abatements in the long term. This
action costs, which are usually incurred in the process of issue is not one of the modelling paradigm, but rather of feed-
switching technologies or fuels. This category of transaction ing the models with good estimates of technical progress.
cost encompasses many implementation difficulties that are Some works are currently underway to make explicit the dri-
very hard to capture numerically. The general conclusion vers of technical change, such as learning-by-doing (LBD) or
from SAR (that costs computed using the B-U approach are uncertainty. These studies are discussed further in Section
usually on the low side compared to costs computed via 8.4.
econometric models, which assume a history-based behaviour
of the economic agents) is no longer generally applicable,
since some B-U models take a more behavioural approach. 8.2.2 Domestic Policy Instruments and Net Mitigation
Models such as ISTUM, NEMS, PRIMES, or AIM implicitly Costs
acknowledge at least some transaction costs via various
mechanisms, with the result that market share is not deter- Tapping the technical abatement potentials requires setting up
mined by visible (market-based) least-cost alone. Least-cost new incentive structures (taxes, emissions trading, technical
modellers (using MARKAL, EFOM, MESSAGE, ETO) also standards, voluntary agreements, subsidies) for production and
attempt to impose penetration bounds, or industry-specific consumption, i.e. climate policies. In the following, empirical
discount rates, which approximately represent the unknown models that measure net mitigation costs of climate policies are
transaction costs and other manifestations of resistance to reviewed in order to disentangle the reasons why certain poli-
change exhibited by economic agents. In both cases these cy packages have similar or different outcomes in various
improvements result in partially eschewing the “sin” of opti- countries. As a first step, the results are presented at an aggre-
mism and blur the division between B-U and T-D models. gated level; then the impact of measures meant to mitigate the
While the former, indeed, tend to be less optimistic when they sectoral and distributional consequences of climate policies is
account for real behaviours, it is symmetrically arguable that examined. Finally, in a third step, the ancillary benefits from
the latter underestimate the possibility of altering these the joint reduction of carbon emissions and other pollutants are
behaviours through judicious policies or better information. considered to complete the picture.
All this area still remains underworked.
8.2.2.1 Aggregate Assessment of Revenue-raising
A common message is the attention that must to be paid to the Instruments
marginal cost curve. Despite the limitations and differences in
results discussed above, B-U analyses convey important infor- Introducing a carbon tax (or auctioned tradable permits) pro-
mation that lies beyond the scope of T-D models, by comput- vides an incentive to change the technology over the short and
ing both the total cost of policies and their marginal cost. Very long term. Such policies generate tax revenues and the way
often, indeed, the marginal abatement cost of a given target is these revenues are used has major impacts on the social costs
of the climate policy. The reason is that these revenues are, in • direct cost to the regulated sector (sector’s changes in
principle, available to offset some or all of the costs of the mit- production methods or installation of pollution-abate-
igation policy. When emission targets go beyond the negative ment equipment);
cost potentials, there is a general agreement among economists • tax-interaction effect (prices are increasing);
(see Chapters 6 and 7) that if standards are used (or if emis- • revenue-recycling effect associated with using rev-
sions permits are allocated for free) the resultant social cost is enues to finance cuts in marginal tax rates.
higher than the total abatement expenditures. Producers pass
part of the marginal abatement cost on to consumers through When the revenues of carbon taxes are returned in a lump-sum
higher selling prices, which implies a loss of consumer surplus. fashion to households and firms, the tax-interaction effect is sys-
If the elasticity of supply is quite high, this might lead to a net tematically higher than the revenue-recycling effect. Also the
loss of producer surplus. However, if the elasticity of supply is net cost of climate policy is higher than its gross cost (while
fairly low, overall (or net) producer surplus can rise when poli- lower than that with a no-tax policy, see A1 and A2 in Figure
cies cause a restriction in output, because the policy-generated 8.3). However, it is possible to improve this result by targetting
rents per unit of production enjoyed by producers more than tax revenues to cuts in the most distortionary taxes; this can
compensate for the net decrease in sales. yield either a weak or a strong form of double dividend
(Goulder, 1995a). The weak double dividend occurs as long as
In the 1990s there was considerable interest in how revenue- there is a revenue-recycling effect due to the swap between car-
neutral carbon taxes may mitigate this effect on the economy bon taxes and the most distortionary taxes. Mitigation costs are
by enabling the government to cut the marginal rates of pre- systematically lower when revenues are recycled this way than
existing taxes, such as income, payroll, and sales taxes. The when they are returned lump sum. The strong double dividend is
possibility is a double dividend policy (Pearce, 1992), by both more difficult to obtain. It requires that the (beneficial) revenue-
(1) improving the environment and (2) offsetting at least part recycling effect more than offset the combination of the prima-
of the welfare losses of climate policies by reducing the costs ry cost and the tax-interaction effect. In this case, the net cost of
of the tax system (see the discussion in Chapter 7). The same abatement is negative (at least within some range). As discussed
mechanism occurs when nationally auctioned permits are used; in Chapter 7, this is possible if, prior to the introduction of the
for simplicity, the term carbon tax is used in the rest of this mitigation policy, the tax system is already highly inefficient
chapter, except when the distinction between these two instru- along non-environmental dimensions. In terms of Figure 8.3,
ments is necessary. the revenue-recycling effect is represented by the downward
shift from curve A1 to curve A2 or A3. If the shift is from A1 to
The starting point in a discussion of a double dividend is how A2, the weak double dividend occurs, but not the strong double
expensive it is to raise government income, that is, how big is dividend. If the shift is from A1 to A3, not only does the weak
the marginal cost of funds (MCF). A high MCF gives more double dividend occur, but the strong double dividend is real-
scope for a double dividend than a small MCF in the economy. ized as well, since the net costs are negative within a range.
This arises because the parameters that determine the magni-
tude of the double-dividend (see Chapter 7) are: While the weak form of double dividend enjoys broad support
from theoretical and numerical studies, the strong double divi-
dend hypothesis is less broadly supported and more controver-
sial. Indeed, reaching an economical dividend is impossible
Economic when the economy is at full employment and if all other taxa-
Cost tion is optimal (abstracting for the environmental externality).
A0 Therefore, it may be argued that the double dividend accrues
A1 from the tax reform, independently of the climate policy.
A However, empirical models capture the fact that, in the real
world, a carbon tax or auctioned emissions permits will not be
A2 implemented after the enforcement of an optimal fiscal reform.
To the contrary, introducing a new tax may be a sine qua non
condition to the fiscal reform. For a given carbon tax revenue,
A3 models help interpret the best way to recycle this revenue.
O Abatement
B
B’ Specific features of the tax systems and markets of the produc-
A : Gross cost tion factors (labour, capital, and energy) ultimately determine
A 0 : Net cost, case of a norm or a price-signal without recycling
A 1 : Net cost, case of a price-signal with lump sum recycling the presence or absence of a strong double dividend. For exam-
A 2 : Net cost, case of a norm or a price-signal with recycling through a distortionary ple, a double dividend is likely if production factors are very
tax rate reduction, weak version of the double dividend.
A 3 : Strong version of the preceding hypothesis. distorted by prior taxation or specific market conditions, if
there is a problem of trade-balance because of the import of
Figure 8.3: Carbon taxes and the costs of environmental poli- fossil energy, or if consumer choice is highly distorted because
cies. of tax-deducible spending provisions (Parry and Bento, 2000).
Table 8.4: Energy Modelling Forum Results: carbon tax and GDP losses in 2010 with lump-sum recycling (in 1990 US$)
Carbon tax in 2010 GDP losses in 2010 (%)
Model USA OECD-E Japan CANZ USA OECD-E Japan CANZ
ABARE-GTEM 322 665 645 425 1.96 0.94 0.72 1.96

AIM 153 198 234 147 0.45 0.31 0.25 0.59
CETA 168 1.93
G-Cubed 76 227 97 157 0.42 1.50 0.57 1.83
GRAPE 204 304 0.81 0.19
MERGE3 264 218 500 250 1.06 0.99 0.80 2.02
MIT-EPPA 193 276 501 247
MS-MRT 236 179 402 213 1.88 0.63 1.20 1.83
Oxford 410 966 1074 1.78 2.08 1.88
RICE 132 159 251 145 0.94 0.55 0.78 0.96
SGM 188 407 357 201
WorldScan 85 20 122 46
Source: Weyant (1999). The carbon tax required (either explicitly or implicitly) and the resultant GDP losses are calculated to comply with the prescribed limits
under the Kyoto Protocol for four regions under a no trading case: the USA, OECD Europe (OECD-E), Japan, and Canada, Australia, and New Zealand (CANZ).
Empirical studies try to gauge the impact of these many deter- in 2010 shows higher marginal abatement costs than one that
minants and to understand why the effects of a given recycling provides 8 years.
strategy (reducing payroll, personal income, corporate income,
investment income, or expenditure taxes) differ from one coun- Figures 8.4-a to 8.4-d show the incremental cost of reducing a
try to another. ton of carbon for alternative levels of CO2 reductions in the
USA, OECD Europe, Japan, and Other OECD countries
8.2.2.1.1 Net Economic Costs under Lump-sum Recycling (CANZ) when all reductions are made domestically. Note there
are two differences with the B-U studies:
The simplest way to simulate the recycling of a carbon tax or • these numerical experiments do not consider negative
of auctioned permits is through a lump-sum transfer. Such cost abatement potentials and presume that if an action
recycling does not correspond to any likely policy in the real is economically justifiable in its own right, it will be
world. However, these modelling experiments provide a useful undertaken independent of climate-related concerns;
benchmark to which other forms of recycling can be compared. and
In addition, they allow an easy intercountry comparison of the • because they incorporate demand elasticity and multi-
impacts of emissions constraint before the impacts of the many ple macroeconomic feedback, these marginal cost
types of possible recycling policies are considered. curves do not behave as those found in the B-U studies.
The comparative study carried out by the Energy Modeling

Forum (EMF, Stanford University) is very useful in this A first conclusion that could be drawn from Table 8.4 is that no
respect: EMF-16 (1999) examined the costs of compliance strict correlations occur between the necessary carbon tax to
with the Kyoto Protocol as calculated by more than a dozen reach a certain emission target and the GDP loss faced by a
modelling teams in the USA, Australia, Japan, and Europe country. While the carbon tax in Japan is systematically higher
(Table 8.4). Most of the models used are general equilibrium than that for the USA, most studies conclude lower GDP loss-
models. While not strictly comparable to the marginal techni- es in Japan than in the USA. In general, the carbon taxes are
cal abatement costs reported in Section 8.2.1, the magnitude of highest in OECD Europe and Japan, while the GDP losses are
the carbon tax used in these models is determined again by the highest in the USA and Other OECD countries. This absence
difference between the costs of marginal source of supply of strict correlation between marginal taxes and GDP losses is
(including conservation) with and without the target. As in the explained by the pre-existing energy supply, the structural eco-
B-U models, this parameter depends in turn on such factors as nomic features, and the pre-existing fiscal system. For
the size of the necessary emissions reductions, assumptions instance, if a country relies more on renewable energy, and is
about the cost and availability of carbon-based and carbon-free specialized in low carbon-intensive industry, the impact of a
technologies, the fossil fuel resource base, and short- and long- given level of carbon tax will be lower. However, as the burden
term price elasticity. Also important is the choice of base year: of emission reductions falls only on a few sectors, the carbon
a model that provides 3 years to adapt to a constraint beginning tax for a given target will be higher.
a. USA b. OECD Europe
450 1000
400
AIM AIM
350 CETA 800 MIT-EPPA
MIT-EPPA G-Cubed
300 G-Cubed ABARE-GTEM
ABARE-GTEM 600 Merge3
250 Merge3 MS-MRT
MS-MRT Oxford
200 Oxford RICE
RICE 400 SGM
150 SGM Worldscan
Worldscan
Carbon Tax (1990 US$/tC)

100 200
50
0 0
0 5 10 15 20 25 30 35 0 5 10 15 20 25 30 35
% Reduction in Carbon Emissions Relative to Reference % Reduction in Carbon Emissions Relative to Reference
c. Japan d. CANZ
1200 450
400
AIM AIM
1000
MIT-EPPA 350 MIT-EPPA
G-Cubed G-Cubed
Global, Regional, and National Costs and Ancillary Benefits of Mitigation
ABARE-GTEM ABARE-GTEM
800 300
MERGE3 MERGE3
MS-MRT MS-MRT
Oxford 250
RICE
600 RICE SGM
SGM 200
WorldScan
WorldScan
400 150

100
200
50
0 0
0 5 10 15 20 25 30 35 0 5 10 15 20 25 30 35 40
% Reduction in Carbon Emissions Relative to Reference % Reduction in Carbon Emissions Relative to Reference
Figure 8.4: Incremental cost (US$/tC) by regions.

515
A second observation from this comparison is that the lump- compare lump-sum recycling to private households and a
sum recycling of tax revenue never gives a strong double div- reduction in employers’ social security contributions. Welfare
idend, which is in accordance with theory and is confirmed by is measured by a combined index of commodity and leisure
country studies. This is the case in particular for Denmark consumption. When CO2 emissions are reduced by 20% (i.e.,
(Frandsen et al., 1995; Jensen, 1998; Gørtz et al., 1999), stabilizing emissions in 2000 at the 1990 level), welfare is
France (Bernard and Vielle, 1999a), Finland (Jerkkola et al., reduced by 1% with lump-sum recycling, but only by 0.3%
1993; Nilsson, 1999), and Norway (Brendemoen and when tax income is used to reduce social security contribu-
Vennemo, 1994; Johnsen et al., 1996; Håkonsen and tions. These authors also found ancillary benefits that decrease
Mathiesen, 1997). These studies demonstrate welfare losses of welfare losses even further (see Section 8.2.4 below).
the same order of magnitude as those of global models, rang-
ing from 0.14% to 1.2% for various levels of emissions abate- In this report, it is impossible to identify all the sources of dis-
ment ranging from 15% to 25% over a 10-year time period. crepancies in results across models. Only the differences
Only a very few studies conclude to some strong form of dou- between results concerning the USA and European economies
ble-dividend but do not explain the contradiction between this are considered. These discrepancies arise because labour taxes
result and lessons from analytical works. represent one of the most important sources of distortion in
European countries as a result of the pre-existing tax structure
8.2.2.1.2 Carbon Taxes and Reducing Payroll Taxes and of the type of labour-market regulation that prevails in
these countries. Note that a systematic outcome of these stud-
Figure 8.5 plots the range of the numerical findings for a wide ies is that an increase in employment is easier to obtain than an
set of countries. In comparison with the previous results, these increase in total consumption or social welfare, which leads
findings are far more optimistic. This confirms the theoretical some authors to discuss the employment double dividend as
results that the gross costs of meeting given abatement targets distinct from the efficiency dividend.
can be significantly reduced by using the revenue of carbon
taxes to finance cuts in the existing distortionary taxes, instead While studies conclude that the swap between carbon and pay-
of returning the revenues to the economy in a lump-sum fash- roll taxes reduces the net burden of climate policies but does
ion. Only a few studies provide results that allow for a system- not avoid net welfare losses in the USA (Goulder 1995b;
atic assessment of the attractiveness of payroll recycling Jorgenson and Wilcoxen, 1995; Shackleton et al., 1996), a
through comparing its welfare implication with that of lump- strong double dividend often occurs in Europe. As suggested by
sum recycling. For Norway, Håkonsen and Mathiesen (1997) theoretical analyses (Carraro and Soubeyran, 1996), these dif-
use a static computable general equilibrium (CGE) model to ferences can be explained by the differences both in taxation
2.50%
UK Ir
Black : Welfare Variation
2.00% Red : Private Households' Consumption
Den UK Blue : GDP Variation
P It
Sp
It
1.50% B
Ger B
EU
Den Lux
1.00% Sp
Welfare variation
Lux E.U. EU
Ir
P
EU Ger
0.50%
EU Ger
F
Nor F
F Ger
0.00% F
F
-0.50%
Nl
B F
-1.00% Nl
B: Belgium, Den: Denmark, Ger: Germany, F: France, Ir: Ireland, It: Italy, Lux: Luxembourg, Nl: Netherlands, N: Norway,
Sp: Spain, P: Portugal, UK: United Kingdom, EU: European Union
-1.50%
0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00%
GHG emissions reductions
Figure 8.5: Welfare variation with recycling through payroll taxes reduction.
systems and in the rigidities of the labour markets. Capros et al. The magnitude of the second dividend (the net economic ben-
(1999b) demonstrate (Figure 8.6) that the increase of employ- efit of tax recycling) is not independent of the abatement tar-
ment in the EU countries due to payroll tax reduction is far get. For a given fiscal system, it is determined by parameters
higher under the assumption of wage rigidities than under the for which sizes vary with the taxation levels (e.g., the elastici-
assumption of a classic flexible labour market. In the same way, ty of decarbonization in the production sector and in household
Bernard and Vielle (1999c) do not conclude to a strong double consumption, the crowding-out effect between carbon-saving
dividend in France, while Hourcade et al. (2000a) find a mod- technological change and non-biased technological change).
est increase in total consumption of households (up to 0.2% for Unfortunately, only a few studies report the range of taxes in
carbon taxes up to US$100/tC) because they incorporate struc- which the double-dividend hypothesis holds. Hourcade et al.
tural unemployment. This is also why the E3ME model (Barker, (2000a) found a curve similar to A3 in Figure 8.3; after an opti-
1999), econometrically driven and neo-Keynesian in nature, mum around US$100/tC, the double dividend tends to vanish
provides the most optimistic results; they indeed incorporate in the same way. Håkonsen and Mathiesen (1997) found that
the rigidities of the real labour markets. It systematically finds tax recycling is actually welfare improving in the range of a
a net increase in GDP in Europe (from 0.8% to 2.2%), except 5% to 15% reduction in CO2 emissions. Capros et al. (1999c)
for the Netherlands, with a maximum in the UK. The DRI and are more optimistic in this respect. They found that the final
LINK models, similar in nature to E3M3, do not find such a consumption of households in the EU is increases (about 1%)
gain for the US economy, but a loss of 0.39%. when the abatement target increases from 20% to 25%. The
marginal increase is, however, lower than when the abatement
The magnitude of the double dividend for the European coun- target increases from 5% to 10%.
tries is lower in general equilibrium models than in Keynesian
models: the welfare effects in different studies are between 8.2.2.1.3 Other Forms of Taxes Reduction
–1.35% and 0.57%. Even if these estimates cover different
emission reduction levels for different time periods, they con- Other forms of tax reductions, such as value-added tax (VAT),
firm the attractiveness of payroll recycling. In addition, it is capital taxes, and other indirect taxes have also been studied in
remarkable that negative figures are found for small economies addition to recycling via the national debt and public deficit
such as Belgium (Proost and van Regemorter, 1995) and reductions.
Denmark (Andersen et al., 1998) in the situation of a unilater-
al policy, which confirms the specific interest of these coun- Studies for the USA confirm that the nature of the existing fis-
tries in international coordination. cal system matters. While no study found a strong double div-
2.50%
Classical labour market
Real wage rate fix
Real wage rate according to the labour productivity
2.00%
1.50%
1.00%
0.50%
0.00%
Belgium Germany Denmark France Greece Ireland Italy Netherlands Portugal Spain United EU-11
Kingdom
-0.50%
Figure 8.6: Variation in employment.

idend for the USA in the case of labour-tax recycling, the get (–25%) for the same year (2010) with different types of recy-
Jorgenson–Wilcoxen model supports this notion when recycling. They generally conclude to a strong double dividend, and
cling takes the form of a reduction in capital taxes (Shackleton, they find a significantly more pessimistic variation in welfare
1998). The pre-existing marginal distortions from taxes on cap- (–4.2% against –0.7% in Almon (1991), –0.03% against +0.1%
ital are considerably larger than those from labour taxes. in Conrad and Schmidt (1996)) when the revenues of the car-
Consequently, according to Jorgenson (1997), if the revenues bon tax are used to lower public deficit rather than reduce social
were rebated to consumers in the form of reduced taxes on contribution. The results are less clear concerning the relevance
wage and salary incomes, the cost would be reduced to 0.6%, of recycling via a capital tax reduction in this country.
or by a factor of three compared to the lump-sum recycling
case. But if the taxes were rebated on capital income instead, For France, Schubert and Beaumais (1998) found, for a carbon
the loss would turn into a gain (0.19%). This higher attractive- tax of US$140/tC, that these tax recycling schemes are less
ness of capital taxation recycling is not found in European efficient in terms of welfare than recycling through payroll tax,
countries, with the exception of the Newage model for because they trigger no mechanism that enhances employment
Germany (Boehringer, 1997). and general activity. Bernard and Vielle (1999c) confirm this
result for the same country. In a short-run analysis for Sweden,
The other recycling modes have been scrutinized less systemat- Brännlund and Gren (1999) found that private income remains
ically, but yield in general less favourable results than labour- almost unchanged if a reduction in VAT is implemented,
and capital-taxation recycling. Figure 8.7 synthetises these because it compensates the regressive income effect of carbon
results. For Australia, McDougall and Dixon (1996) found that taxation. Nevertheless, as the income increase in this study is
for all the scenarios in which energy taxes were used to offset relatively important compared to the changes in prices, taxes
reductions in payroll taxes, rises in GDP and employment were can be raised without altering consumer behaviour in any con-
achieved. A decrease in GDP and employment resulted in the siderable way. But this balance may not be preserved in the
only scenario in which energy taxes were used to reduce the case of higher carbon taxes.
budget deficit. Fitz Gerald and McCoy (1992) found the same
type of result for repayment of national debt in Ireland (1% GDP There are few studies on mitigation costs and recycling for
loss). These results are also confirmed in the German case, developing countries, but China is one exception. Zhang (1997,
which is particularly interesting, because several models 1998) analyzed the implications of two scenarios under which
(Almon, 1991; Welsch and Hoster, 1995; Conrad and Schmidt, China’s CO2 emissions in 2010 will be cut by 20% and 30% rel-
1997; Boehringer et al., 1997) simulate the same emission tar- ative to the baseline. Gross National Product drops by 1.5% and
2.00%
1.00% Ger
UK Ger
0.00%
Ger
F Den
EU
Welfare Variation
N
-1.00%
Ir EU
Den
Text in : EU
-2.00%
Black : Welfare Variation
Red : Private Households' Consumption
Blue : GDP Variation
Point in : EU
-3.00% Black : Investment Recycling
Purple : Lump Sum Recycling
Green : Public Debt Reduction
Grey : Capital Tax Reduction EU
-4.00% Orange : VAT Reduction
Ger
Den: Denmark, Ger: Germany, F: France, Ir: Ireland. N: Norway, UK: United Kingdom, EU: European Union
-5.00%
0% 5% 10% 15% 20% 25% 30%
G h G R d ti
Figure 8.7: Welfare variation with different recycling policies.
2.8%, respectively, in 2010 relative to the baseline, and welfare, nomic shocks at the regional level); even with an inter-
measured in Hicksian equivalent variation (defined in Chapter nationally co-ordinated policy, their equity value will
7), drops by 1.1% and 1.8%. If part of the revenues raised by car- be lowered compared with the rest of industry.
bon taxes is recycled by equally reducing indirect taxes by 5% • Across households income groups. Carbon taxation
and 10%, respectively, for all sectors the welfare effect is increases the relative prices of energy services such as
markedly improved, and there may even be a gain. Garbaccio et heating, lighting, and transport. The resultant impact on
al. (1998) report an even more optimistic view from their simu- welfare is then more negative for low income levels
lations on a dynamic CGE model for China. Uniform emissions and people living in cold areas and in low density areas.
reductions of 5%, 10%, and 15% from baseline were studied, and It is also higher for high income groups and more ben-
carbon tax revenues recycled by reducing all other taxes propor- eficial for medium income groups in case of swap with
tionally. In all of the alternative scenarios, a very small decline in other taxation.
GDP occurs in the first year of the simulation. However, in each
case, GDP is increased in every year thereafter. The result arises Economic analysis can define the compensation necessary to
through a shift from consumption to investment brought about offset these negative distributional effects but, in the real
indirectly through the imposition of the carbon tax. Thus, a dou- world, winners cannot (or are not willing to) compensate
ble dividend may be achieved in China. losers. This is especially relevant when the losers suffer heavy
impacts and the winners enjoy only marginal gains, which
8.2.2.1.4 Conclusions: Interest and Limits of Aggregate leads to the so-called political mobilization bias (Olson, 1965;
Analysis Keohane and Nye, 1998) when the losers are more ready to
organize a lobbying and incur mobilization costs than the win-
A lesson from this section is that, despite their great diversity, ners (Williamson, 1996). Under such circumstances, policies
the findings of empirical models confirm the theoretical diag- yielding the largest aggregate net benefits may prove very dif-
nosis. Revenue-raising instruments such as carbon taxes or ficult to enforce. Economic models provide no answer to this
auctioned emissions permits are, if properly utilized, the most issue, but can try to frame the debate by providing the stake-
efficient instrument for minimizing the aggregate welfare loss- holders with appropriate information. This is the objective of
es (or maximizing the welfare gains) of climate policies. Sections 8.2.2.2 and 8.2.2.3.
It should be noted however, that, even if the only one available 8.2.2.2 Mitigating Sectoral Implications: Tax Exemptions,
study for China suggests that opportunities for revenue recy- Grandfathered Emission Permits, and Voluntary
cling exist in developing countries, no swapping generalization Agreements
can be made at this stage. While theoretical modelling and
empirical evidence suggest that such opportunities are available In all countries in which CO2 taxes have been introduced, some
in many OECD countries, developing countries in many cases sectors are exempt, or the tax is differentiated across sectors
start from a different fiscal baseline (e.g., fewer entrenched dis- (see, e.g., ECON, 1997). Typically, households pay the full tax
tortionary payroll taxes). They also have other potentially rate, whereas export-oriented industries pay either nothing or a
underused tax bases that may become more developed as their symbolic rate.3 Very few countries have actually implemented
economies grow at rates that typically exceed growth rates in a CO2 tax, and (unsurprisingly) tax exemptions are more sys-
OECD countries. In developing countries, direct welfare losses tematically analyzed in these countries, such as the
associated with a carbon tax may, therefore, reduce opportuni- Scandinavian countries. Concerns about the sectoral implica-
ties for mitigation within the fiscal reform policy envelope. At tions of revenue-raising policies have led to four types of
this stage, however, insufficient evidence exists either to con- responses being studied:
firm or to substantiate these hypotheses; studies to date have • exemption of the most carbon-intensive activities;
mainly concentrated on developed countries and their conclu- • differentiating the carbon tax across sectors;
sions may not be directly transferable. • compensation subsidies; and
• government’s free provision of emissions permits to
Beyond controversies about the capacity of government to firms on a grandfathering basis or on the basis of vol-
warrant fiscal neutrality, that is the fact that the total fiscal bur- untary agreements on sectoral objectives.
den remains unchanged, the adoption of carbon taxes or auc-
tioned permits confronts the fact that their enforcement must 8.2.2.2.1 Tax Exemption
be done in the heterogeneity of the real world, and can have
very significant distributive implications: Lessons from the few modelling exercises suggest that the effi-
• Across economic sectors. The carbon content of the ciency cost for the whole economy of offsetting the sectoral
steel, aluminium, cement, basic chemical, and transport
industries are, indeed, four to five times higher per unit
of value added than for the rest of industry. For unilat- 3 Some exceptions occur. For instance, in Norway emissions of CO2
eral initiatives, carbon taxes drastically impact the from oil and gas production have traditionally been charged the max-
competitiveness of these sectors (with potential eco- imum rate.
impacts of carbon taxes through tax exemptions are very high. UK, even if the impact on employment is weak. One of the rea-
Böhringer and Rutherford (1997) show for Germany that sons for this double dividend is the technical progress induced
exemptions to energy- and export-intensive industries increase by this policy.
the costs of meeting a 30% CO2 reduction target by more than
20%. Jensen (1998) has similar findings for Denmark with 8.2.2.2.4 Free Allocation of Emissions Permits
respect to a unilateral reduction of CO2 emissions by 20%
(Jensen, 1998). To exempt six production sectors that emit 15% Annex B countries are currently considering the creation of a
of Denmark’s total emissions implies significantly greater wel- market for GHG emissions on the basis of grandfathered quotas
fare costs (equivalent variation) than full taxation to meet the or of quotas delivered in function of voluntary agreements of
same abatement target. Namely, welfare loss of 1.9% and a car- sectors to given emissions targets (see Chapter 6). This option
bon tax on the non-exempted sectors of US$70/tCO2, against a does not generate revenue, but (contrary to tax exemptions)
welfare loss of 1.2% and a carbon price of US$40/tCO2 in the implies participation of the carbon-intensive industry to climate
no-exemption case (uniform taxes). A similar result is found in policy and does not transfer the full burden to households and
Hill (1999) for Sweden: the welfare costs of using exemptions the rest of industry. However, the welfare impacts are systemat-
are more than 2.5 times higher than in the uniform carbon tax ically found to be less favourable than under a full revenue-neu-
case for a 10% emission decrease. The high costs of tax tral taxation. Jensen (1998) found a welfare loss of 1.4% in
exemption are also confirmed by a US study (Babiker et al., Denmark and a permit price of US$110/tCO2, while a uniform
2000). tax to meet the same –20% target is only US$40 and the resul-
tant welfare loss is 1.2%. Bye and Nyborg (1999) investigated
8.2.2.2.2 Tax Differentiation the effects on welfare (total discounted utility) of both uniform
taxes and tradable permits issued freely compared to the current
Tax differentiation is studied in a CGE model for Sweden in system of tax exemptions. To keep total tax revenues unchanged
Bergman (1995), who compares its effect with a uniform tax for the government, the payroll tax is adjusted accordingly. They
for given emission targets. The tax rate applicable to the indus- found that a permit system gives a welfare loss of 0.03% com-
trial firms is set to one-quarter of the tax rate for non-industri- pared to the current system, while with uniform taxes there is a
al firms and households. The GDP loss increases slightly com- gain of similar size. The main reason is that payroll taxes must
pared to the uniform tax, but it is still quite small. However, the increase to maintain the budget balance when carbon taxes are
purchasing power of the aggregated incomes of labour and not used. There are similar findings for the USA. Parry et al.
capital is significantly reduced. Consequently, tax differentia- (1999) show that the net economic impact (after accounting for
tion does not seem to have as much of an adverse effect as full environmental benefits but not without climate benefits) of car-
tax exemption. The reason is that all sectors pay a carbon tax bon abatement is positive when permits are auctioned, but
when taxes are differentiated, while this is not the case for tax switches to negative when permits are grandfathered.
exemptions. Thus, the burden on sectors that pay the highest
carbon tax is not that large, and hence results in lower welfare Other allocation rules have been tested, but do not improve the
losses. result compared with grandfathered permits. For Denmark,
Jensen and Rasmussen (1998) examined the aggregate welfare
8.2.2.2.3 Compensating or Subsidizing Mitigation Measures loss (equivalent variation) of an emission target of 80% of
1990 levels from 1999 to 2040; they found 0.1% with a permit
Böhringer and Rutherford (1997) as well as Hill (1999) envis- auction, 2.0% for grandfathered permits, and 2.1% when the
age labour subsidies used to keep a given employment target. permits are given to firms in the proportion of market shares
They conclude that – compared to tax exemptions for energy- and sectoral emissions, similar to an output subsidy.
and export-intensive industries – a uniform carbon tax cum
wage subsidy achieves an identical level of national emission Such results are obtained because, in the case of free delivered
reduction and employment at a fraction of the costs. permits, the interactions with the tax system occur without the
compensating effect of tax-revenue recycled, as in the cases of
A second option is a special case of voluntary agreements. In environmental taxes and auctioned permits. Studies by Parry
most of the literature, voluntary agreements result from nego- (1997), Goulder et al. (1997), Parry et al. (1999), and Goulder
tiations on emission levels between public authorities and et al. (1999) show that the costs of quotas or marketable per-
firms adversely impacted by environment policies. Carraro and mits are higher if there are prior taxes on the production factors
Galeotti (1995) examined another form of voluntary agreement concerned than in if there are no such taxes. Quotas or permits
for European countries: firms receive financial benefits if they tend indeed to raise the costs of production and the prices of
have engaged in environmental research and development output. This reduces the real return to labour and capital, and
(R&D) spending. This option is justified because economic thereby exacerbates prior distortions in relevant markets and
tools may be inefficient in reaching the optimal R&D level, decrease the overall efficiency of the economy.
even in a pure and perfect market competition (Laffont and
Tirole, 1993). According to this study, a strong double dividend Bovenberg and Goulder (2001) found that avoiding adverse
could occur in all European countries except Belgium and the impacts on the profits and equity values in fossil fuel industries
involves a relatively small efficiency cost for the economy. 8.2.2.3 The Distributional Effects of Mitigation
This arises because CO2 abatement policies have the potential
to generate revenues that are very large relative to the potential A policy that leads to an efficiency gain may not improve over-
loss of profit for these industries. By enabling firms to retain all welfare if some people are in a worse position than before,
only a very small fraction of these potential revenues, the gov- and vice versa. Notably, if there is a wish to reduce the income
ernment can protect the firms’ profit and equity values. Thus, differences in a society, the effect on the income distribution
the government needs to grandfather only a small percentage should be taken into account in the assessment.
of CO2 emissions permits or, similarly, must exempt only a
small fraction of emissions from the base of a carbon tax. This An evaluation of the distributional incidence of higher energy
policy involves a small sacrifice of potential government rev- prices is significantly conditional upon the indicator used.
enue. Such revenue has an efficiency value because it can Distributional impacts appear to be higher when additional
finance cuts in pre-existing distortionary taxes. These authors costs are measured in terms of percentage of total household
also found a very large difference between preserving firms’ expenditures rather than income, and higher if current income
profits and preserving their tax payments. Offsetting produc- is considered instead of lifetime income. Lifetime income is
ers’ carbon tax payments on a dollar-for-dollar basis (through relevant in the sense that households can borrow or save, and
cuts in corporate tax rates, for example) substantially over- also move between different income classes. According to
compensates firms, raising their profit and equity values sig- Poterba (1991), a person had only a 41% chance of being in the
nificantly relative to the situation prior to the environmental same quintile of income distribution in 1971 and in 1978. This
regulation. This reflects that producers shift onto consumers percentage rises to 54% if the person initially belongs to the
most of the burden from a carbon tax. The efficiency costs of poorest quintile. However, current income is relevant to stud-
such policies are far greater than the costs of policies that do ies on the short-term intergeneration impact of a new tax. For
not overcompensate firms. example, an elderly person is more adversely affected by new
taxes on expenditures than are those on an income, even if sub-
8.2.2.2.5 Conclusions sequent generations pay the same lifetime tax bill under each
factor influencing the macroeconomy.
The costs of meeting the Kyoto targets are very sensitive to the
type of recycling used for the revenue of carbon taxes or auc- International competition limits the ability of firms to pass the
tioned permits. In general, however, modelling results show that tax onto prices, thus reducing the size of the indirect distribu-
the sum of the positive revenue-recycling effect and the negative tional effect. In the same way, the degree of production factor
tax-interaction effect of a carbon tax or auctioned emission per- substitution determines the extent to which the tax changes
mits is roughly zero. Thus, in some analyses the sum is positive, prices. Moreover, as the substitution is generally supposed to
while in others it is negative. In economies with an especially be limited in the short term, but increasing as existing plants
distortive tax system (as in several European analyses), the sum are replaced, the distributional effect of an environmental tax
may be positive and hence confirm the strong double-dividend changes over time. Last, but not least, the distributional effect
hypothesis. In economies with fewer distortions, such as in var- depends basically on the utilization of the tax revenue.
ious models of the US economy, the sum is negative. Another
conclusion is that even with no strong double-dividend effect, a Two British studies looked at distributional effects of climate
country fares considerably better with a revenue-recycling poli- policies. Barker and Johnstone (1993) investigated the distrib-
cy than with one that is not revenue recycling, like grandfa- utional effects of a carbon–energy tax. Revenues are recycled
thered quotas. Analyses of the US economy found that revenue through an energy efficiency programme and compared to
recycling reduces the cost of regulation by about 30%–50% for lump-sum transfers. The results show that the burden of a car-
a certain range of targets, while European analyses report cost bon–energy tax falls most heavily on low-income groups. At
savings that are even higher than 100%. the same time, for these low-income groups the potential gains
to be realized by increasing energy efficiency are higher to off-
However, at this stage insufficient evidence exists either to set this regressive outcome. Symons et al. (1994) investigated
confirm or to substantiate these results in the context of devel- other various assumptions of revenue recycling for the UK, and
oping countries. Studies to date have concentrated on devel- found that to introduce a carbon tax without recycling or with
oped countries and, while these studies are comprehensive and recycling through VAT or petrol excise-duty reductions is sig-
rigorous, their conclusions may not be directly transferable. It nificantly regressive. Conversely, recycling the carbon tax by a
can be argued that, in developing countries, direct welfare loss- combination of VAT rate reductions and benefits reforms
es typically associated with specific factor taxes (such as a car- directed towards poorer households results in favourable dis-
bon tax) may have fewer opportunities for mitigation within tributive effects.
the fiscal-reform policy envelope. Nevertheless, the complex
linkages between formal and informal sectors of the economy The conclusion is similar for other countries. For Ireland,
may show this intuition to be incorrect; the only existing study O’Donoghue (1997) found that carbon taxation is generally
for China reviewed here suggests that this may be the case but regressive, but that recycling the carbon tax through a fixed
further research is needed to confirm this more generally. basic income for all individuals allows the distributional
effects to become almost neutral. For Norway, Brendemoen nitrous oxide (N2O), perfluorocarbons, hydrofluorocarbons,
and Vennemo (1994) concluded that a global carbon tax of and sulphur hexafluoride (SF6) as gases subject to control. The
US$325/tC in 2000 and US$700/tC in 2025 (1987 prices) has Protocol also allows credit for carbon sinks that result from
no significant impact on the regional distribution of welfare. direct, human-induced afforestation and reforestation measures
For Australia, Cornwell and Creedy (1996) found that a carbon taken after 1990. This may have significant impacts on abate-
tax only affecting households (the input–output matrix is con- ment costs.
stant in their model) is clearly regressive, but can become neu-
tral if adequate recycling is implemented. In addition, the dis- A recent study (Reilly et al., 1999) estimated the mitigation
tributional differences across income are not affected much. costs for the USA and included consideration of all of these
On the other hand, Aasness et al. (1996) conclude for the same gases and forest sinks. The study assumes that the Kyoto
country that poor households are less favourably affected than Protocol is ratified in the USA and implemented with a cap and
rich households, because of smaller budget shares on consumer trade policy. The analysis considers the effects of including the
goods (which imply relatively more CO2 emissions) in the rich other gases in the Kyoto Protocol in terms of the effect on
households. Harrison and Kriström (1999) studied the general allowable emissions, reference emissions, the required reduc-
equilibrium effects of a scenario in Sweden in which the exist- tion, and the cost of control.
ing carbon taxes increase by 100% and labour taxes are
reduced to maintain constant governmental revenue, but with- For the USA, the authors estimate that base year (1990) emis-
out removing the existing exemptions from carbon taxes. All sions were 1,654MtCeq, converting non-CO2 gases to carbon
households lose from this carbon tax (with tax exemptions) equivalent units using 100-year global warming potential
increase. They point out that the distributional effects are very indices (GWPs) as prescribed in the Kyoto Protocol. This com-
dependent on the size of the household (the more affected pares with 1,362MtCeq for carbon emissions alone. The result
being those with children). In a study for 11 EU member states, is that allowable emissions are 1,539MtCeq in the multigas case
Barker and Kohler (1998) examined emission reductions of compared with 1,267MtCeq if other gases had not been includ-
10% below baseline by 2010. They concluded that the changes ed in the agreement.
would be weakly regressive for nearly all the member states if
revenues are used to reduce employers’ taxes, and strongly pro- The authors also projected emissions of other gases to grow
gressive if they are returned lump-sum to households. substantially through 2010 in the absence of GHG control poli-
cies, so that total emissions in the reference case reach
In summary, most studies show that the distributional effects of 2,188MtCeq compared with 1,838MtCeq of carbon only. The
a carbon tax are regressive unless the tax revenues are used combination of these factors means that the required reduction
either directly or indirectly in favour of the low-income groups is 650MtCeq in the multigas case compared with 571MtCeq if
(see also Poterba, 1991; Barker, 1993; Hamilton and Cameron, only carbon is subject to control. To analyze the impact of
1994; OECD, 1995; Cornwell and Creedy, 1996; Oliveira including the other gases in the Kyoto Protocol the authors
Martins and Sturn, 1998; Smith, 1998; Fortin, 1999). This consider three policy cases:
undesirable effect can be totally or partially compensated by a • Case 1, fossil CO2 target and control. This case
revenue-recycling policy if the climate policy is implemented includes only CO2 in determining the allowable emis-
through carbon taxes or auctioned permits. sions under the Kyoto Protocol and includes only emis-
sions reductions of CO2, unlike the requirements in the
Three other issues of distributional effects, not dealt with here, Kyoto Protocol that require consideration of multiple
are industry sector impacts, regional effects, and how people gases.
are affected by environmental damage. For instance, a tax on • Case 2, multigas target with control on CO2 emissions
CO2 emissions obviously leads to very different effects in ener- only. This case is constructed with the multigas target
gy-intensive industries than in sectors producing labour-inten- (expressed as carbon equivalents using GWPs) as
sive services (see Chapter 9). In addition, the poor household described in the Kyoto Protocol, but only carbon emis-
generally lives in the most polluted area and then benefits first sions from fossil fuels are controlled.
from the amelioration of air quality induced by GHG reduction • Case 3, multigas target and controls. The multigas
policy (see Section 8.2.4). Kyoto target applies and the Parties seek the least-cost
control across all gases and carbon sinks.
8.2.3 The Impact of Considering Multiple Gases and
Carbon Sinks Case 1 is thus comparable to many other studies that only con-
sider CO2 and provides an approximate ability to normalize
The overwhelming majority of T-D mitigation studies concen- results with other studies. For Case 1 the resultant carbon price
trate upon CO2 abatement from fossil fuel consumption, while is US$187 in 1985 price (US$269 in 1997 price). Case 2 illus-
an increasing number of B-U studies tend to incorporate all the trates that, if the USA does not adopt measures that take advan-
GHG emissions from the energy sector, but still not include tage of abatement options in other gases and sinks, the cost
emissions from the agricultural sector and sequestration. could be significantly higher (US$229 in 1985 price or
However, the Kyoto Protocol also includes methane (CH4), US$330 in 1997 price). In 1997 US$, the total cost in terms of
reduced output is estimated to be US$54 billion for Case 1, area of climate mitigation (illustrated in the centre panel of
US$66 billion in Case 2, and US$40 billion in Case 3. Figure 8.8), (3) literature that looks at the combination of pol-
icy objectives and examines the costs and benefits from an
By comparison with Case 1, the introduction of all gases and integrated perspective (illustrated in the bottom panel of Figure
the forest sink results in a 20% decline in the carbon price to 8.8). In this report, the term “co-benefits” is used when speak-
US$150 (1985 price, US$216 in 1997 price). ing generically about this latter perspective and when review-
ing class (3) literature. The term “ancillary benefits” is used
Cases 2 and 3 are comparable in the sense that they nominally when addressing class (1) and (2) literature. This section cov-
achieve the same reduction in GHGs (when weighted using ers primarily class (1) literature, which is the most extensive.
100-year GWPs). Thus, for a comparable control level, the
multigas control strategy is estimated to reduce US total costs Very few economic modelling studies that examine the impacts
by nearly 40%. on economic welfare of various GHG abatement policies
explicitly consider their ancillary consequences, i.e. effects
The Reilly et al. (1999) study did not conduct sensitivity analy- which would not have occurred in the absence of specific GHG
ses of the control costs, but noted the wide range of uncertain- policies. These range from public health benefits through
ties in any costs estimates. Both base year inventories and reduced air pollution to reduced CH4 from animal farms, and
future emissions of other GHGs are uncertain, more so than for through impacts on biodiversity, materials, or land use (see
CO2 emissions from fossil fuels. Moreover, some thought will Rothman, 2000).
be required to include other GHGs and sinks within a flexible
market mechanism such as a cap and trade system. Measuring Existing studies provide evaluations of net ancillary benefits
and monitoring emissions of other GHGs and sinks could add ranging from a small fraction of GHG mitigation costs to more
to the cost of controlling them and so reduce the abatement than offsetting them (see Burtraw et al., 1999, and reviews by
potential. Pearce, 2000; Burtraw and Toman, 1997; and Ekins, 1996).
Such variation in estimates is not surprising because the under-
lying features differ by sectors considered and the geographic
8.2.4 Ancillary Benefits area being studied; but this variation also reflects the lack of
agreement on the definition, reach, and size of these impacts
“Co-benefits”4 are the benefits from policy options implement- and on the methodologies to estimate them. This literature is
ed for various reasons at the same time, acknowledging that growing, particularly with respect to the impacts on public
most policies resulting in GHG mitigation also have other, health5,6, so a critical review of it is given in this section. Most
often at least equally important, rationales. “Ancillary bene- of the studies reviewed focus on public health, which is the
fits” are the monetized secondary, or side benefits of mitigation largest quantifiable impact; therefore this assessment also
policies on problems such as reductions in local air pollution focuses on it. Ancillary impacts to specific economic sectors
associated with the reduction of fossil fuels, and possibly indi- are reviewed in Chapter 9.
rect effects on congestion, land quality, employment, and fuel
security. These are sometimes referred to as “ancillary Most of the key ancillary benefits quantified to date are rela-
impacts” to reflect that these impacts may be either positive or tively short term and ‘local’, that is affecting the communities
negative. Figure 8.8 shows the conceptual framework for ana- relatively close to the sources of the emissions changes. In both
lyzing ancillary and co-benefits and costs. The figure shows these respects ancillary benefits can be thought of as offsetting
that climate and social/environmental benefits can be direct all or part of the welfare losses associated with the costs of
benefits, ancillary benefits, or co-benefits, depending on the reducing GHGs. In this regard the best measure of ancillary
objectives of the policies.
The term co-benefits is used in this report despite its limited lit- 5A number of possibly important side benefits are not amenable as
erature because it shows the case for an integrated approach, yet to either quantitative or economic analyses (e.g., ecosystem dam-
linking climate change mitigation to the achievement of sus- ages, biodiversity loss).
tainable development. However, there appear to be three class-
6In SAR, IPCC estimated that, for European countries and the USA,
es of literature regarding the impacts of climate change mitiga-
tion: (1) literature that primarily looks at climate change miti- benefits such as reduced air pollution could offset between 30% and
gation, but that recognizes there may be benefits in other areas 100% of the abatement costs (IPCC, 1996, p. 218). These estimates
were controversial and not supported by a standardized methodology.
(illustrated in the top panel of Figure 8.8); (2) literature that
After SAR, extensive debates arose regarding suitable costing meth-
primarily focuses on other areas, such as air pollution mitiga- ods to quantify the relative economic impacts of various policies in
tion, and recognizes there may be “ancillary benefits” in the distinct regions, with as yet no consensus on the most suitable meth-
ods to be employed (Grubb et al., 1999). However, a consensus is
now beginning to emerge on how to quantify some ancillary benefits.
4 See Chapter 7 for a more formal definition of ancillary and co-ben- See OECD, Proceedings from Workshop on the Ancillary Benefits
efits and costs of GHG mitigation. and Costs of Climate Change Mitigation (OECD, 2000).
impacts may be the percentage (or absolute) variation in wel- first normalizes ancillary benefits with carbon reductions, that
fare loss from considering a carbon tax (or other instrument) is, ancillary benefits per tonne of carbon reduced (e.g., Burtraw
that does not include direct climate-mitigation benefits. Few et al., 1999). The second is the average ancillary benefits per
studies provide such estimates (Dessus and O’Connor (1999), tonne as a fraction of the carbon tax. This latter measure is use-
is an exception). ful because it has some linkage to the net benefits question.
Private marginal carbon mitigation costs are equalized to the
Other metrics in the literature help to shed light on the size and tax in the models in the literature. Given that average mitiga-
uncertainty associated with ancillary impacts estimates. The tion costs are less than (or equal to) marginal costs, if the met-
Direct Benefits
Climate Climate
Policies Benefits
Climate Policies/ Social

change Projects Economic
Objectives System
Social/
Resource use
Environmental
Efficiency
Benefits
Ancillary Benefits
Ancillary Benefits
Climate Climate
Policies Benefits
DES Policies/ Social

Objectives Projects Economic
System
Social/
Resource use
Environmental
Efficiency
Benefits
Direct Benefits
Co-benefits
Climate Climate Climate

change Policies Benefits
Objectives
Policies/ Social
Projects Economic
System
DES Social/
Resource use
Environmental
Objectives Efficiency
Benefits
Figure 8.8: Conceptual framework for analyzing ancillary and co-benefits and costs.
ric equals more than one then the carbon policy modelled has • Some studies did not consider the “bounceback” effect
net private benefits even without counting the direct climate (i.e., the offsetting increase in conventional pollutants)
benefits. If (average) ancillary benefits are lower than private when a less carbon-intensive technology is substituted
marginal costs no claim for net benefits can be made. However, for a more intensive one in response to a carbon miti-
the lower the fraction, the less likely the policy will have net gation policy.
benefits. • Ancillary benefit estimates are very sensitive to
assumptions about the mortality risk coefficient and the
A few important caveats are, however, in order. The most value of statistical life (VSL). Routine values used in
important is that the relevant cost measure in the above fraction the literature can lead to a difference of 300% in ancil-
is social not private cost. In this case, marginal social costs are lary benefit estimates.
likely to exceed marginal private costs because of tax interac- • Burtraw et al. (1999) and earlier studies to reconcile US
tion effects. Thus, ancillary benefits may not exceed social and European estimates for the social costs of fuel
marginal cost even if the former exceeds private marginal cost cycles found that population density differences
(equal to the carbon tax). Second, ancillary benefit (cost) mea- between Europe and the USA account for 2 to 3 times
sures need to measure social welfare gains (or losses) if they larger benefit estimates in Europe. Also, the fact that
are to be comparable to losses on the mitigation side. But, much East Coast US pollution is blown out to sea while
many measures of ancillary benefits understate social welfare European pollution is blown inland can account for
gains and other benefits remain unmonetized or even unquan- large ancillary benefit differences.
tified, while in other cases, the ancillary benefits overstate wel- • With a cap on SO2 emissions, abatement cost savings
fare gains (say by counting all traffic fatality reductions as are considered ancillary benefits of a carbon policy
external benefits). Thus, reported ancillary benefits can under- unless the reductions are so large that the cap becomes
or overstate actual ancillary benefits. If this indicator is greater non-binding. When this happens, with SO2 effects on
than one, then the carbon policy has net private benefits even mortality being as large as they appear to be, ancillary
without counting the direct climate benefits. benefits increase in a discontinuous and rapid fashion,
as the health benefits begin to be counted.
The section reviews some of the recent studies estimating
ancillary benefits of GHG mitigation policies. The studies are
briefly described and examined for the credibility of their Kverndokk and Rosendahl (2000) review much of the recent
methods and estimates. ancillary benefit literature in the Nordic countries, UK, and
Ireland, concluding that benefits are of the same order of mag-
8.2.4.1 The Evaluation of the Ancillary Public Health nitude as gross (i.e., private) mitigation costs. They also con-
Impacts clude that the benefits should be viewed as highly uncertain,
because of the use of simplistic tools and transfers of
Studies estimating ancillary public health impacts from climate dose–response and valuation functions from studies done in
policies were examined, relying on three surveys of this litera- other countries. They point out that most of the Norwegian
ture (Ekins, 1996; Burtraw et al., 1999; Kverndokk and studies use expert judgement instead of established
Rosendahl, 2000) and on summaries of the older literature, dose–response functions and estimates of national damages per
supplemented by some of the newer studies. Table 8.5 provides tonne rather than distinguishing where emissions changes
a description of each study, as well as the estimates of ancillary occur and exposures are reduced. Also, they point out that large
benefits per tonne of carbon. Table 8.6 summarizes the model- differences in ancillary benefits per tonne across several
ling choices of the studies reviewed. Norwegian studies can be attributed to differences in energy
demand and energy substitution elasticities. If energy produc-
The Burtraw et al. (1999) review of US ancillary benefit stud- tion is reduced rather than switched to less carbon-intensive
ies of public health impacts linked to mitigation policies fuels, ancillary benefits will be far larger. Kverndokk and
applied to the electricity sector came to several important con- Rosendahl (2000) point out also that studies that feed environ-
clusions: mental benefits back into the economic model add significant-
• Estimates from early studies of ancillary benefits tend- ly to ancillary benefits.
ed to exceed later ones because of the former’s use of
more crude and less disaggregate modelling. 8.2.4.2 Summarizing the Ancillary Benefit Estimates
• Studies that did not factor into the baseline the reduc-
tions in conventional pollutants required under the 8.2.4.2.1 Presentation of the Studies
1990 Clean Air Act estimated benefits an order of mag-
nitude larger than the studies that did include the 1990 Figure 8.9 summarizes the ancillary benefits per tonne of car-
Clean Air Act in the baseline. Analyzing Ekins (1996), bon from 15 studies, along with available confidence intervals
Burtraw et al. (1999) found that whether the Second around the mid estimate. Multiple entries for a study on the
Sulphur Protocol is added to the baseline or not can Figure result from modelling of multiple policy scenarios.
alter the estimate of ancillary benefit by over 30%. Most of the studies focus solely on public health impacts.
Table 8.5: Scenarios and results of studies on ancillary benefit reviewed
526
Study Area and sectors Scenarios Average Key pollutants Major endpoints
(1996 US$) ancillary
benefits
(US$/tC;
1996 US$)
Dessus and O’Connor, 1999 Chile (benefits Tax of US$67 (10% carbon reduction) 251 Seven air pollutants Health—morbidity and mortality,
in Santiago only) Tax of US$157 (20% carbon reduction) 254 IQ (from lead reduction)
Tax of US$284 (30% carbon reduction) 267
Cifuentes et al., 2000 Santiago, Chile Energy efficiency 62 SO2, NOx, CO, NMHC Health
Indirect estimations for
PM10 and resuspended dust
Garbaccio et al., 2000 China – 29 sectors Tax of US$1/tC 52 PM10, SO2 Health
(4 energy) Tax of US$2/tC 52
Wang and Smith, 1999 China – power and Supply-side energy efficiency PM, SO2 Health
household sectors improvement
Least-cost per unit global-warming-
reduction fuel substitution
Least-cost per unit human-air-pollution-
exposure-reduction fuel substitution
Aunan et al. 2000, Hungary Energy Conservation Programme 508 TSP, SO2, NOx, CO, VOC, Health effects; materials damage;
Kanudia and Loulou , 1998a CO2, CH4, N2O vegetation damage
Brendemoen and Norway Tax US$840/tC 246 SO2, NOx, CO, VOC, CO2, Indirect: health costs; lost
Vennemo, 1994 CH4, N2O, Particulates recreational value from lakes and
forests, ; corrosion
Direct: traffic noise, road
maintenance, congestion,
accidents
Barker and Rosendahl, 2000 Western Europe Tax US$161/tC 153 SO2, NOx, PM10 Human and animal health and
(19 regions) welfare, materials, buildings and
other physical capital, vegetation
(continued)
Study Area and sectors Scenarios Average Key pollutants Major endpoints
(1996 US$) ancillary
benefits
(US$/tC;
1996 US$)
Scheraga and Leary, 1993 USA US$144/tC 41 TSP, PM10, SOx, NOx, Health – morbidity and mortality
CO, VOC, CO2, Pb
Boyd et al., 1995 USA US$9/tC 40 Pb, PM, SOx, SO4, O3 Health, visibility
Abt Associates and USA Tax US$30/tC 8 Criteria pollutants Health – mortality and illness;
Pechan-Avanti Group, 1999 Tax US$67/tC 68 Visibility and household soiling
(materials damage)
Burtraw et al., 1999 USA Tax US$10/tC 3 SO2, NOx Health

Tax US$25/tC 2
Tax US$50/tC 2
NMHC, non-methane hydrocarbons; PM, particulate matter; PM10, particulate matter less than 10 microns; TSP, total suspended particulate; VOC, volatile organic compounds; IQ, intelligence quotient
527
Table 8.6: Modelling choices of studies on valuation of ancillary benefits reviewed21
528
Study Baseline (as of 2010) Economic modelling Air pollution modelling Valuation Uncertainty treatment
Dessus and 4.5%/yr economic growth; Dynamic CGE Assumed proportionality Benefits transfer used: PPP Sensitivity tests on WTP
O’Connor, 1999 AEEI: 1% between emissions and of 80% US and energy substitution
Energy consumption: 3.6% ambient concentrations VSL: $2.1 mill. elasticities
PM: 1% VCB: $0.2 mill.
Pb: 4.1% IQ loss: $2500/point
CO: 4.8%
Cifuentes et al., 2000 For AP control, considers No economic modelling Two models for changes in Benefits transfer from US Parameter uncertainty
implementation of Santiago Only measures with private, PM2.5 concentrations: values, using ratio of through Monte Carlo
Decontamination Plan non-positive costs (1) Box model, which relates income/capita simulation.
(1998 to 2011) considered SO2 and CO2 to PM2.5 Uses original value for Reports centre value
(2) Simple model assumes mortality decreased by and 95% CI
proportionality between PM2.5 1 standard deviation
concentrations apportioned to dust, VSL = US$407,000 in 2000
SO2, NOx, and primary PM
emissions.
Models derived with Santiago-
specific data and applied to nation
Garbaccio et al., 2000 1995 to 2040 5.9% annual Dynamic CGE model; Emissions/concentration Valuation coefficients from Sensitivity analysis
GDP growth rate; carbon 29 sectors; coefficients from Lvovsky and Lvovsky and Hughs (1998);
doubles in 15 years; Trend to US energy/ Hughs (1998); three stack heights VSL: US$3.6 million (1995)
PM grows at a bit more consumption patterns; to RMB 82,700 Yuan
than 1%/yr Labour perfectly mobile; (RMB 8.3 yuan = $1) in
Reduce other taxes; 2010 (income elasticity = 1).
Two-tier economy explicit. 5%/yr increase in VCB to
US$72,000
Wang and Smith, 1999 No economic modelling Gaussian plume Benefit transfer using PPP.
VSL = US$123,700, 1/24
of US value
21 AEEI, Autonomous Energy Efficiency Improvement; PM

10, 2.5, particulate matter less than 10 or 2.5 microns, respectively; CGE, Computable General Equilibrium Model; PPP, Purchasing Power Parity;
W TP, Willingness To Pay; AP: air pollution; CAA: Clean Air Act; NAAQS: National Ambient Air Qaulity Standards; SIP: State Implementation Plan; CRF: concenrtration-response function; CL: confidence
level; VSLY and VSL: Value of Statistical Life Year, Value of Statistical Life; RIA: Regulatory Impact Analysis; VCB, value of a case of bronchitis.
(continued)
Aunan et al., 2000 Assumes status quo emissions Two analyses: bottom-up Assumes proportionality between Benefit transfer of US and Explicit consideration
scenario approach and emissions and concentrations European values using through Monte Carlo
macroeconomic modelling “relative income” = wage simulation
ratios of 0.16 Reports centre value and
low, high
Brendemoen and 2025 rather than 2010 Dynamic CGE Health costs of studies Assume independent and
Vennemo, 1994 2%/yr economic growth reviewed based on expert uniform distributions
1% increase in energy prices panel recommendations
1%–1.5% increase in electricity Contingent valuation used
and fuel demand for recreational values
CO2 grows 1.2% until 2000,
and 2% thereafter.
Barker and Rosendahl, SO2, NOx, PM expected to E3ME Econometric Model US$/emissions coefficients
2000 fall by about 71%, 46%, 11% for Europe by country from EXTERNE:
from 1994 to 2010 B1,500/t NOx for ozone
(B1= $1); NOx and SO2
coefficients are about
equivalent, ranging from
about B2,000/t to B16,000/t;
PM effects are larger

(2,000–25,000) Uses VSLY
rather than VSL: B100,000
(1990)
Scheraga and Leary, 1990 to 2010 7% growth Dynamic CGE

1993 rate carbon emissions
Range for criteria
Pollutants 1%–7%/yr
Boyd et al., 1995 Static CGE US$/emissions coefficients
(continued)
529
530
Abt Associates and 2010 baseline scenarios – Static CGE From Criteria Air Pollutant SO2 sensitivity – SO2
Pechan-Avanti Group, 2010 CAA baseline emission Modelling System (used in emissions may not go
1999 database for all sectors, plus at USEPA Regulatory Impact beyond Title IV
least partial attainment of the Analysis and elsewhere) requirements –
new NAAQS assumed. NOx sensitivity – NOx SIP
Benefits include coming closer call reductions not included
to attainment of these standards in final SIP call rule
for areas that would not reach
them otherwise. Includes NOx
SIP call
Burtraw et al., 1999 Incorporates SO2 trading and Dynamic regionally specific NOx and SO2. Account for Tracking and Analysis Monte Carlo simulation for
NOx SIP call in baseline electricity sector simulation conversion of NOx to nitrate Framework: the numbers CRF and valuation stages.
model with transmission particulates used to value these effects
constraints. The model are similar to those used
calculates market in recent Regulatory Impact
equilibrium by season and Analysis by the USEPA.
time of day for three
customer classes at the
regional level, with power
trading between regions.
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 glob-
al 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 pro-
jected 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 source–receptor matrix for four specific sectors (indus-
try, 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, 385,000–1,034,000) will occur annually as a result of additional particulate matter (PM) exposure under the baseline fore-
casts when compared with the climate policy scenario. From 2000 to 2020, the cumulative impact on public health related to the dif-
ference in PM exposure could reach 8 million deaths globally (90% CI, 4.4–11.9 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 immunodeficien-
cy 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 uncer-
tainty, the short-term public-health impacts of reduced PM exposure associated with greenhouse-gas reductions are likely to be sub-
stantial 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).
From Figure 8.9, it can be observed observed that: • significant divergence in estimates occurs across stud-
• midpoint estimates are mostly less than US$100/tC, but ies for the same country; and
range from less than US$2 up to almost US$500/tC; • uncertainty bounds are quite large for most of the stud-
• US estimates are the lowest while estimates from one ies that report them.
study for Chile and several for Norway are the highest
(the latter includes a broader range of benefits);
800
600
US$/tC
400
200
0
ry
ile
e
a
A
p
in
wa
wa
US
ga
Ch
ro
Ch
or
n
Eu
No
Hu
,N
W
UK
A,
US
Figure 8.9: Summary of ancillary benefits estimates in 1996 US$/tC.

1,000
Ancillary Benefits ($/tC)
100
AB=MC
AB=AC
10
Chile
Norway/W.Europe
USA
China
1
1 10 100 1,000
Tax ($/tC)
Figure 8.10: Ancillary benefits in 1996 US$/tC versus levels of carbon tax.
Figure 8.10 provides ancillary benefits per tonne estimates rising slightly, and in the Abt study the ratio of benefits to the
related to the size of the carbon tax (in 1996 US$/tC). Points on tax rate rises dramatically (Abt Associates and Pechan-Avanti
the diagonal line AB = MC indicate that marginal private mit- Group, 1999). This last result reflects that this analysis treated
igation costs (MC) equate to the tax. Some points fall on this the SO2 cap as non-binding considerably below the higher tax-
line; more appear above it than below, with the rate modelled. In addition, this study treated the National
Norwegian/Western Europe and the US studies split. If the Ambient Air Quality Standards as a cap, with abatement below
damage (benefit) function is linear, then average benefits these “caps” treated as benefits, but reductions above these
equate marginal benefits. Thus, points on the diagonal imply caps treated as saving abatement costs.
that the carbon tax is “quasi-optimal” (Dessus and O’Connor,
1999), in that the tax is optimal without considering either the 8.2.4.2.2 Evaluation of the Studies
direct climate mitigation benefits or any social costs over pri-
vate costs (such as deadweight losses from the tax interaction Almost all the studies analyze the effects of a GHG reduction
effect). Alternatively, it can be assumed that the private miti- policy through a tax on carbon. The ranges of the tax are from
gation cost function is quadratic (Total Cost=b(X2)), where X modest levels (RMB Y9/tC7) in 2010 for Garbaccio et al.
is carbon reduction. In this case, the tax rate equals marginal (2000), US$10/tC for Burtraw et al. (1999); up to high levels
private mitigation cost and average private mitigation cost is (US$254/tC for Dessus and O’Connor (1999), and US$840/tC
half marginal private mitigation cost. The heavy diagonal line for Brendemoen and Vennemo (1994). The US studies employ
equates ancillary benefits to average private mitigation cost. relatively modest taxes, between US$10/tC and US$67/tC.
Points above this line imply there are net benefits to carbon Only two studies consider alternative programmes: Aunan et
policy, with the same important caveats as above. More points al. (2000) considers a National Efficiency Programme, and
appear above the corresponding line (AB=AC) on the graph Cifuentes et al. (2000) considers energy efficiency improve-
than above the AB=MC line. ments. The level of abatement considered by these two studies
is relatively modest, however.
In the general case, a larger carbon tax should lead to progres-
sively smaller carbon reductions (if the marginal abatement Baseline
cost curve is upward sloping). For all but one study (Abt An analysis of ancillary benefits requires a time line and a clear
Associates and Pechan-Avanti Group, 1999), the ratio of ancil- definition of the key constituents of the baseline against which
lary benefits to the tax rate does fall. As for the change in ancil- the prospective scenario can be measured, including the eco-
lary benefits per tonne of carbon, Burtraw et al. (1999) show
this ratio falling dramatically in percentage terms with higher
carbon taxes. In contrast, Dessus and O’Connor (1999) show it 7 The exchange rate is US$1 vs Remminbi yuan (RMB Y) 8.3.
nomic, demographic, regulatory8, environmental9, and techno- Emissions and Environmental Media Modelling
logical conditions, and their implications for emissions or other All the studies in Table 8.5 account for the most important pol-
inputs to an ancillary benefit calculation. lutant affecting public health – particulates. Most, however, do
not consider secondary particulate formation from SO2 and
The importance of the baseline is evident in a review of previ- NOx, or do so in a very simplistic manner. In a developing
ous studies for the USA in Burtraw et al. (1999). Assessments country, direct particulate emissions are likely to be a large
varied in their estimates of ancillary benefits, chiefly because fraction of particulate mass, making the lack of attention to
they employed different assumptions regarding the regulatory secondary products less important. In developed countries,
baselines, that is the 1990 US Clean Air Act Amendments and, however, secondary products are likely to be far more impor-
especially, the tradable permit programme for SO2. Among tant than primary particulates. Omitting these products could
these baseline parameters, the most critical are the spatial loca- bias ancillary benefit estimates downwards; using proportion-
tion of emissions relevant to potentially exposed populations, ality assumptions or other simple approaches raises uncertain-
regulatory conditions, and available technologies ties and may carry biases. Only one study considered lead
(Morgenstern, 2000). The importance of the location of emis- emissions (Dessus and O’Connoer, 1999); few address ozone.
sion reductions and exposed populations means that highly dis-
aggregated models are the preferred tools of analysis. This may The Abt study (Abt Associates and Pechan-Avanti Group,
conflict with other goals for the analysis of GHG mitigation 1999) is the most comprehensive in its modelling of secondary
strategies. For example, large CGE models, which are used for particulate formation and dispersion. It found that 12 urban
cost estimation, operate at a different scale than the more local- areas in the USA would come into compliance with the recent-
ized models relevant to estimating ancillary benefits. ly promulgated standard for particulate matter less than 2.5
microns (PM2.5)10 for a carbon tax of US$67 (US$1996).
Economic Modelling Without this tax, these areas would not be able to meet the new
Most of the studies in Table 8.5 use static or dynamic CGE standard. With there being at best sparse information on the
models (one uses an econometric model) that provide T-D and actual PM2.5 concentrations in US urban areas, these estimates
sectorally aggregate estimates of ancillary benefits and/or should be viewed as highly speculative.
costs. The Burtraw et al. (1999) model stands out for the loca-
tion specificity of its economic model (although only for the Health Effects Modelling
electricity sector), which permits more credible modelling of Three recent studies (Hagler-Bailly 1995; Lee et al., 1995;
population exposure reductions than that from spatially aggre- European Commission, 1999) developed methods that set the
gate models. Another specific feature is its detailed represen- stage for much of the recent estimates of ancillary benefits.
tation of investment choices and their dependence on other However, studies that draw on this literature, but reduce its
factors covered in the model. Finally, several studies do not information to coefficients that link emissions directly to
use an economic model. Instead, they follow a B-U approach, health effects (or values) ignore spatial and demographic het-
positing some increase in energy efficiency or reduction in erogeneity. This is particularly so when such coefficients are
carbon and estimating the ancillary benefits that would result, generated for one country or region and then directly applied to
at a reasonably detailed spatial level. Such studies suffer from another, without taking into account local conditions. In the
not accounting for behavioural adjustments, such as energy absence of country-specific information, transfer of risk infor-
substitutions, which could alter their estimates of ancillary mation may be made between countries, with appropriate
benefits considerably. The high ratio of ancillary benefits to caveats to take into account underlying differences in health
the carbon tax for Garbaccio et al. (1999) appears to arise from status, access to care, and other important factors (see Box 8.2).
very optimistic assumptions about energy substitution elastic-
ities. Most of the studies rely on concentration–response functions
from the literature on health, and apply them using a standard
methodology (Ostro, 1996; EPA, 1999). The most important
health effects are premature mortality and chronic respiratory
8 For example, if they are implemented, the recent proposed tighten- effects.
ing of the US standards for ozone and particulates and associated
improvements over time imply that benefits from reductions in the Aside from differences in the base rates of the effects11, due to
criteria air pollutants that result from climate policies will be smaller local characteristics such as the age distribution of the popula-
in the future than if carried out now. tion and health care services, other factors help explain the dif-
9 ferent outcomes of the studies. First, some use PM10, while
Some environmental effects exhibit thresholds or non-linearities that
imply benefits do not move directly with reductions in local and
regional pollutants. Acidification is an interesting example because
damage may result only after critical load thresholds are violated. On 10 The new US PM
2.5 standard and the tighter ozone standard have
the other hand, recovery may not occur with a reduction in conven- been remanded to the EPA by the D.C. Court of Appeals and aspects
tional pollutants until some new threshold is achieved or after a sig- of the case are currently being heard by the US Supreme Court. Thus,
nificant time lag. these standards are not yet in effect (November 2000).
Box 8.2. The Impact of Air Pollution on Health Differs by Country
For any society, deaths at earlier ages result in more productive years of life lost than for those that occur at later ages. One study in
Delhi, India, found that children under 5 and adults over 65 years of age are not at risk from air pollution, because other causes of death
(notably infectious diseases) predominated in those who survive to reach these age groups (Cropper et al., 1997). However, people
between 15 and 45 years of age are at increased risk of death from air pollution relative to those in developed countries. Since the pop-
ulation distribution in India includes many more people in these middle age groups, the net impact on the country from air pollution
measured in terms of years of life lost is similar to that of a developed country.
others use fine particles (PM2.5), or serveral components of assume an income elasticity of willingness to pay (WTP) of 1.0
them (sulphates and nitrates). When the individual components are inconsistent with the admittedly thin literature. A number of
of PM2.5 are used, the implicit assumption is that their risk is studies found elasticities in the 0.2-0.6 range based on income
similar to that of PM2.5. To date, this has not been verified differentials within a country. Such elasticities, when applied to
(especially for nitrates, the secondary particulate product from transfers among countries, yield quite high values. Most of the
NOx emissions). Second, studies that look at age groups sepa- developing country ancillary benefit studies reported in Table
rately generally report higher impacts (Aunan et al. (2000), for 8.6 use an income elasticity of 1.0. The US Science Advisory
example, used a steeper dose–response coefficient for people Board has endorsed the idea of making adjustments for future
older than 65 years of age than that used by other studies). Very income growth within a country.
few consider the chronic effects on mortality, derived from
cohort studies (e.g., Pope et al., 1995) (Abt Associates and The state of the art of the valuation of air pollution-related mor-
Pechan-Avanti Group, 1999 is one, while others consider it for tality effects is currently in ferment, with serious questions
their “high estimate” only). Use of the latter results in estimates being raised about the inappropriateness of basing such valua-
of death three times larger than use of the time series studies. tion on labour market studies. Ad hoc adjustments for the short-
Also, few studies consider effects on child mortality. Finally, er life span of those thought to be most affected by air pollution
different studies consider different health endpoints, which is (the elderly and ill) have been made but more credible estimates
important for reconciling morbidity estimates. of willingness to pay await new research. Such efforts are more
likely to lower such estimates relative to current estimates than
Valuation of Effects raise them (see Davis et al., 2000 and Krupnick et al., 2000).
The most important monetary benefit is related to mortality
risk reductions, which can be expressed in terms of the VSL Environmental Externalities
(see Chapter 7). The VSL should ideally be indigenously esti- All the studies, except those in the USA, assume that improve-
mated (Krupnick et al., 2000)12 but almost of the studies build ments in public health count as externalities and, hence, as
on a consensus on the appropriate values to use (Davis et al., ancillary benefits. As noted in Krupnick et al. (2000), this
2000), given the state of research on valuation (albeit concen- assumption may not always hold. Burtraw et al. (1999) and Abt
trated in the UK and USA). Associates and Pechan-Avanti Group (1999) count the abate-
ment cost savings from reducing SO2 emissions in response to
A major difference in the treatment of values across the studies a carbon tax because SO2 emissions are capped in the USA.
is whether these values are adjusted for different income levels Similar adjustments are not made for SO2 and other pollutant
and increased for future income growth. Adjustments that taxation in Europe. Moreover, not all ancillary benefits are nec-
essarily externalities. In some cases, these effects may be
already “internalized” in the price of goods and services: for
11 Most of the concentration-response functions for health effects of example, where accident insurance against road fatalities
air pollution are based on relative risks models, which give the per- exists, much of this effect is already accounted for through pur-
centage increase in the number of health effects due to a change in air chasing insurance and the penalties for failure to obtain it.
pollution concentration. This percentage change needs to be applied to
the base rate of the effects (i.e. the number of effects observed with- Treatment of Uncertainty
out change in air pollution). For example, for the non-accidental mor- The uncertainty that surrounds the estimates of benefits is no
tality in the USA, this base rate is about 800/100,000. less than that associated with mitigation costs, extending from
12 Where there is a lack of local information on willingness to pay, one
physical modelling, through valuation, to modelling choices.
Several of the studies use Monte Carlo simulation, but others
option is to use studies from developed countries and “adjust” the esti-
mates for local conditions. This procedure is called benefit transfer:
use less sophisticated sensitivity analyses to characterize
“an application of monetary values from a particular valuation study uncertainties.
to an alternative or secondary policy-decision setting, often in anoth-
er geographic area than the one where the original study was per- Allowance for Ancillary Costs
formed” (Navrud, 1994). The problems of such transfers are discussed None of the studies reviewed in this assessment reported esti-
in greater detail in Davis et al. (2000). mates of ancillary costs. Some studies, such as Burtraw et al.
(1999), discuss the bounce-back effect associated with energy which in Burtraw et al. (1999) are about one-third of
substitution to natural gas and other less carbon-intensive those used by Abt Associates and Pechan-Avanti Group
fuels. However, even these studies, not surprisingly, estimate (1999).
positive net ancillary benefits from GHG mitigation policies. • The value of statistical life used to value mortality risk
The issue is whether the models were designed to capture reductions (about 35% lower in Burtraw et al. (1999)
ancillary costs. In general, our conclusion is no, except for fos- who adjust the VSL for the effects of pollution on older
sil fuel substitution in the power and transport sectors. From an people rather than on those of average age).
energy substitution perspective, substitution to nuclear power • Sectors included (Burtraw et al., 1999) are restricted to
or hydropower does not generate reported ancillary costs the electricity sector by 2010, and NOx emissions per
because these ancillary effects are not present in the studies. unit carbon are projected to be lower for this sector than
Other sources of ancillary costs were also left out of the mod- in the general US economy.
elling exercise, either because of model boundaries or through • Effect of carbon tax on SO2 emissions (Abt Associates
making some standard modelling choices. All the studies and Pechan-Avanti Group, 1999) finds that the US$67
examined effects on one country or region, and therefore do carbon tax is large enough to bring SO2 emissions sig-
not consider the leakage effect. None of the studies considered nificantly under an SO2 cap 60% lower than the current
health linkages that might result from slower income and cap. It also cuts NOx emissions enough to bring signif-
employment growth following the implementation of a GHG icant numbers of non-attainment areas under the
mitigation policy. national ambient standards. Burtraw et al. (1999) does
not find such a large effect.
8.2.4.3 Why Do Studies for the Same Country Differ? • Baseline emissions (Burtraw et al., 1999) do not
account for new, tighter ozone and PM standards, but
It is enlightening to consider why estimates of ancillary bene- Abt Associates and Pechan-Avanti Group (1999) do
fits (or costs) for two different studies of the same country dif- (while assuming only partial attainment of the stan-
fer. dards). This baseline assumption leaves lower emis-
sions of conventional pollutants to be controlled in the
In the case of Chile, Dessus and O’Connor (1999) estimate Abt Associates and Pechan-Avanti Group (1999) study
benefits of about US$250/tC, as compared to US$62/tC in than in the Burtraw et al. (1999) study.
Cifuentes et al. (2000). Half of the Dessus and O’Connor
(1999) benefits are attributable to effects on intelligence quo- 8.2.4.4 Conclusions
tient (IQ) associated with reduced lead exposure, an endpoint
not considered by Cifuentes et al. (2000) and by most studies. The diffusion of methods and key studies to estimate health
The large lead–IQ effect seems to be at variance with US and effects and their monetization has contributed to a reasonable
European studies that consider this and more conventional end- degree of standardization in the literature. However, some of
points. Also, the VSL used by Dessus and O’Connor (1999) is the differences in estimates result from different assumptions
more than twice as large as that used by Cifuentes et al. (2000; and/or methodologies used to estimate them:
US$2.1 million versus US$0.78 million by the year 2020). • Selection of concentration–response functions, such as
These choices were driven by alternative benefit transfer use of time series rather than the cohort mortality stud-
approaches: Dessus and O’Connor (1999) used 1992 purchas- ies.
ing power parity to transfer a mid estimate of US VSL, while • Consideration of more and/or different endpoints, such
Cifuentes et al. (2000) used 1995 per capita income differences as considering the lead effects on IQ.
and the exchange rate to transfer a lower bound US VSL. This • Use of different assumptions to perform benefit trans-
comparison illustrates that the choice of benefit transfer fers across countries and across time. For example,
approach in estimating ancillary benefits dominates by far the considering per capita income as opposed to purchasing
modelling choices (Dessus and O’Connor (1999) used a T-D power parity to perform the unit value transfer; choice
model while Cifuentes et al. (2000) used a B-U approach). of the income elasticity value.
• Defining the baseline differently: most of the literature
For the USA, Burtraw et al. (1999) found that for a US$25 car- on ancillary benefits systematically treats only govern-
bon tax, the ancillary benefits per tonne are US$2.30, while ment regulations with respect to environmental poli-
Abt Associates and Pechan-Avanti Group (1999) found that for cies. In contrast, other regulatory policy baseline
a slightly larger tax (US$30), the ancillary benefits per tonne issues, such as those relating to energy, transportation,
are US$8. For a US$50/tC tax, Burtraw et al. (1999) found and health, are generally ignored, as have baseline
ancillary benefits of only US$1.50/tC, while for an even larger issues that are associated to technology, demography,
tax (US$67), Abt Associates and Pechan-Avanti Group (1999) and the natural resource base.
estimated the ancillary benefits to be US$68/tC. These differ-
ences are explained by: Therefore, although the standard methodology is generally
• The effect of a unit change in particulate nitrates accepted and applied, a number of assumptions or judgements
(derived from NOx emissions) on the mortality rate can lead to estimates of ancillary benefits in terms of US$/tC
for a given country that differ by more than an order of magni- marginal abatement cost as the optimal level). However, Pizer
tude. The least standardized, least transparent and most uncer- (1997), building on a seminal work by Weitzman (1974),
tain component for modelling ancillary benefits is the link demonstrated that this is not the case if uncertainties about cli-
from emissions to atmospheric concentrations, particularly in mate damages and GHG abatement costs are considered.
light of the importance of secondary particulates to public Indeed, welfare losses due to an error of anticipation are not the
health. same in these two approaches, depending upon whether the
steepness of marginal abatement cost curve is higher or lower
Also, the above review reveals implicitly the lack of studies than the steepness of the damage curve. If the marginal abate-
estimating non-health effects from GHG mitigation policies ment cost curve is steeper, then it is preferable to agree on a
(damages from traffic crashes, the effects of air pollution on pre-determined level of taxation because if this level is either
materials, and air pollution effects on crops losses, which have too low or too high, the resulting welfare losses trough climate
been shown to be quite high in some regions). Depending upon impacts will not be dramatic. This is the case in most model-
the GHG mitigation policies selected, some of this damage ling efforts as long as there is no large probability of dramatic
could well be reduced, but the nature of this relationship non-linearity in climate systems over the middle term. This
remains a speculative matter. More information can be found policy conclusion can be reverted if one considers a high level
in sectoral studies reviewed in Chapter 9, but no comprehen- of risk-aversion to catastrophic events (which makes the dam-
sive evaluation can be derived from them. age curve steeper), or a large proportion of “no regret” policies
(which make the mitigation cost curve flatter). The main mes-
For all these reasons, it remains very challenging to arrive at sage, however, is that in a tax harmonization approach, the
quantitative estimates of the ancillary benefits of GHG mitiga- costs of complying with commitments on climate policies are
tion policies. Despite the difficulties, it can be said that the known in advance (but the outcome is not predictable), while
ancillary benefits related to public health accrue over the short in a quota approach the outcome is observable but there is an
term, and under some circumstances can be a significant frac- uncertainty about the resultant costs. In this respect, emissions
tion of private (direct) mitigation costs. With respect to this cat- trading is logically a companion tool to a system of emissions
egory of impacts alone mortality tends to dominate. The exact quotas, to hedge against the distributional implications of sur-
magnitude, scale, and scope of these ancillary benefits varies prises regarding abatement costs and emissions baselines.
with local geographical and baseline conditions; if the baseline
scenario assumes a rapid decrease in non-GHG pollutant emis- After the Berlin Mandate (1995), a quota co-ordination
sions, benefits may be low, especially in low density areas. Net approach was implicitly adopted and the focus of analysis was
ancillary costs (i.e., where the ancillary benefits are less than placed on linkages between emissions trading regimes and
ancillary costs) may occur under certain conditions, but the national policies. Contrary to the preceding period, very few
models reviewed here are generally not designed to capture works were devoted to the case of co-ordinated carbon taxes.
these effects. While most of the studies assessed above address Hourcade et al., (2000a) confirmed that, because of the exist-
ancillary benefits of explicit climate mitigation measures, it ing uneven distribution of income, discrepancies in pre-exist-
should be noted that in many cases, these ancillary benefits can ing taxation levels, and differences in national energy and car-
be expected to be as least as important as climate mitigation for bon intensities, a uniform carbon tax would result in very dif-
decision making. Hence, the terms co-benefits is also used in ferentiated losses in welfare across countries, unless appropri-
this report. Therefore, there is a strong need for more research ate compensation transfers operated. However, a differentiated
in the area of integrated policies addressing climate mitigation taxation does not minimize total abatement expenditures (rich
alongside other environmental, social or economic objectives. countries would have to tap more expensive abatement poten-
tials) and creates distortions in international competition. The
suggested solution, a uniform tax for carbon-intensive industry
8.3 Interface between Domestic Policies and exposed to international competition and a differentiated taxa-
International Regimes tion for households, has to be at least adapted to the Kyoto
framework which does not preclude the use of carbon taxes but
For every country, the costs of achieving a given level of abate- changes the condition of their applicability. However, the
ment will be dramatically affected by the interface between its underlying issue of how to minimize abatement expenditures
domestic policy and international regimes. Since a co-ordina- while guaranteeing a fair distribution of welfare costs still
tion on the basis of simple reporting mechanisms has not be remains.
adopted from the outset because it would not have been strin-
gent enough for UNFCCC objectives, some studies were Under the Kyoto framework, the interface between domestic
devoted to clarifying the differences between the two main policies and the international regime passes through three main
tools for co-ordinating climate policies: country emissions channels: the impact of international emissions permit trading
quotas or agreed carbon taxes. (under Article 17), international trading in project-related cred-
its (under Articles 6 and 12 (Read, 1999)) on abatement costs,
Theoretically, both solutions are equivalent in a world with and spillover effects across economies through commercial
complete information (the optimal quota leads to the same and capital flows.
Table 8.7: Energy Modelling Forum main results; marginal abatement costs (in 1990 US$/tC; 2010 Kyoto target)
Model No trading Annex I trading Global trading

USA OECD-E Japan CANZ
ABARE-GTEM 322 665 645 425 106 23

AIM 153 198 234 147 65 38
CETA 168 46 26
Fund 14 10
G-Cubed 76 227 97 157 53 20
GRAPE 204 304 70 44
MERGE3 264 218 500 250 135 86
MIT-EPPA 193 276 501 247 76
MS-MRT 236 179 402 213 77 27
Oxford 410 966 1074 224 123
RICE 132 159 251 145 62 18
SGM 188 407 357 201 84 22
WorldScan 85 20 122 46 20 5
Administration 154 43 18
EIA 251 110 57
POLES 135.8 135.3 194.6 131.4 52.9 18.4
Source: cited in Weyant, 1999; Council of Economic Advisors, 1998; EIA (Energy Information Administration), 1998; Criqui et al., 1999.
8.3.1 International Emissions Quota Trading Regimes they incorporate feedback on energy demand, oil prices, and
macroeconomic equilibrium. They give, however, an idea of the
8.3.1.1 “Where Flexibility” assumptions on technical abatement potentials retained for each
region in these exercises, the main difference with B-U analysis
Table 8.7 synthesizes marginal abatement costs for the USA, being that these exercises do not explicitly consider negative cost
Japan, OECD-Europe, and the rest of the OECD (CANZ) calcu- potentials (they are implicit in most optimistic baselines).
lated by 13 world T-D models co-ordinated by the Energy
Modeling Forum. It also includes the results obtained with the Despite the wide discrepancies in results across models, the
POLES model, which provides a multiregional partial equilibri- robust information is that, in most models, marginal abatement
um analysis of the energy sector, and two other studies of the eco- costs appear to be higher in Japan than in the OECD-Europe.
nomic impacts of Kyoto conducted by the US Government, the CANZ and the USA have comparable results, approximately
Administration’s Economic Analysis (Council of Economic two-thirds the European one, and much lower than in Japan.
Advisors, 1998), and a study by the Energy Information Admini-
stration (1998). These results cannot be directly compared with This means that Kyoto targets are likely to be unequitable. This
those of the B-U analysis reported in Section 8.2.1.1, because risk is confirmed by uncertainty analyses based on existing
Table 8.8: Energy Modelling Forum main results; GDP loss in 2010 (in % of GDP; 2010 Kyoto target)
No trading Annex I trading Global trading

Model USA OECD-E Japan CANZ USA OECD-E Japan CANZ USA OECD-E Japan CANZ
ABARE-GTEM 1.96 0.94 0.72 1.96 0.47 0.13 0.05 0.23 0.09 0.03 0.01 0.04
AIM 0.45 0.31 0.25 0.59 0.31 0.17 0.13 0.36 0.20 0.08 0.01 0.35
CETA 1.93 0.67 0.43
G-CUBED 0.42 1.50 0.57 1.83 0.24 0.61 0.45 0.72 0.06 0.26 0.14 0.32
GRAPE 0.81 0.19 0.81 0.10 0.54 0.05
MERGE3 1.06 0.99 0.80 2.02 0.51 0.47 0.19 1.14 0.20 0.20 0.01 0.67
MS-MRT 1.88 0.63 1.20 1.83 0.91 0.13 0.22 0.88 0.29 0.03 0.02 0.32
Oxford 1.78 2.08 1.88 1.03 0.73 0.52 0.66 0.47 0.33
RICE 0.94 0.55 0.78 0.96 0.56 0.28 0.30 0.54 0.19 0.09 0.09 0.19
models which provide a pretty wide range of outcomes that can ing, the Kyoto targets lead to a misallocation of resources, a
be interpreted as covering the uncertainties prevailing in the non-equitable burden-sharing (notwithstanding its mitigation
real world. This can be shown in the results of domestic cost of through double-dividend domestic policies analyzed in Section
carbon: from US$85 to US$410 in the USA, US$20 to US$966 8.2.2.1) and distortions in international competition. Even in
for the OECD-Europe, US$122 to US$1074 for Japan, US$46 the most optimistic models regarding abatement costs such as
to US$423 for CANZ. The variance remains significant if the Worldscan, trading offers the potential for countries with high
extreme values: domestic marginal abatement costs to purchase emissions per-
• from US$76 to 236/tC for the USA if one excludes mits in countries with low marginal abatement costs and hence
GTEM, Merge 3, and Oxford; a way of minimizing total abatement costs and of hedging
• from US$159 to US$276/tC for the OECD-Europe and against risks of a too high and unequitable burden.
from US$145 to US$250 for CANZ if one excludes
Worldscan, GTEM, and Oxford; and The full global trading scenarios presented in Tables 8.7 and
• a continuum from US$122 to US$645/tC for Japan if 8.8 assume non-restricted trade within Annex I and ideal CDM
Oxford is excluded. implementation that can exploit all cost effective options in
developing countries with unlimited trading. Beyond the fact
In terms of GDP losses, the ranking of impacts differs because that the price of carbon is drastically reduced, it is remarkable
of the various pre-existing structures of the economy and of the that the variance of results is far lower than in the no-trade sce-
energy supply and demand in various countries and because narios (between US$15/tC and US$86/tC). Uncertainty about
these studies do not consider the domestic policies targeted to costs persists, but this lesser variance arises because uncertain-
tackle these pre-exisiting conditions; the GDP losses are from ty is higher on each regional cost curve than on the aggregation
0.45% to 1.96% for the USA, from 0.31 to 2.08 for the EU, of the same regional cost curves, which is exploited in the case
from 0.25 to 1.88 for Japan. This variation is reduced under of full trading.
emissions trading; 0.31 to 1.03 for the USA, 0.13 to 0.73 for
the OECD-Europe, from 0.05 to 0. 52 for Japan. In the case of Annex I trading (without considering the CDM)
the price of permits ranges from US$20 to US$224/tC instead
This discrepancy in results reflects differences in judgements of US$15 to US$86/tC in the full trade case, which represents
about parameters such as technical potentials, emissions base- a far greater variance. This is mainly from the amount of so
lines, how the revenues of permits are recycled, and how near- called “hot air”14 retained in simulations. Some countries in
term shocks are represented. Another important source of uncer- Eastern Europe and the former Soviet Union have had a
tainty is the feedback of the carbon constraint on the demand for decline in emissions in the 1990s, resulting from the economic
oil; a drop in oil prices requires indeed higher prices of carbon dislocations associated with restructuring. As a result, their
to meet a given target since the signals not conveyed by oil emissions during the first commitment period are projected to
prices as to be passed through price of carbon which leads to a be lower than their negotiated target. If trading is allowed with-
totally different incremental cost of the carbon constraint. in Annex I, these excess emissions quota may be sold to coun-
tries in need of such credits. Hence, the assumption regarding
These uncertainties about mitigation costs are reflected in the the availability of “hot air” is important. This, of course, will
net welfare losses. The preceding discussion in Section 8.2 be governed in part by the rate of economic recovery, but also
demonstrated the many sources of a wedge between total abate- by the role of energy efficiency improvements and fuel switch-
ment costs and welfare losses, including the double dividend ing during the restructuring process.
from fiscal reforms and the very structures of the economy
(share of carbon intensive activities) and of the energy system. The main lessons from the above studies using T-D approaches
(namely that trade has a marked, beneficial effect on costs of
The wide range of cost assessments, far from resulting from meeting mitigation targets), are confirmed by a series of recent
purely modelling artefacts, help to capture the range of possi- studies using B-U approaches. These provide a more detailed
ble responses of real economies to emissions constraints and to information on the potentials for CDM projects. The
appreciate the magnitude of uncertainties that governments MARKAL, MARKAL-MACRO, and MESSAGE models have
have to face.13 They demonstrate that without emissions trad- been adapted and expanded to facilitate such multicountry
studies. In North America, Kanudia and Loulou (1998) report
MARKAL results for a three-country Kyoto study (Canada,
13 This is exemplified by two others studies of the economic impacts
USA, India). The total cost of Kyoto for Canada and the USA
of Kyoto conducted by the US Government. It is remarkable that GDP
amounts to some US$720 billion with no trade, versus US$670
losses span from virtually zero to 3.5% and are correlated with the
level of marginal abatement cost. The EIA assessment is the highest
because it accounts for near-term shocks, such as inflationary impacts
14 Hot air: a few countries, notably those with economies in transition,
of higher energy prices (requiring higher interest rates, which dampen
the investment), and for a 5-year delay in the response of agents). The have assigned amount units that appear to be well in excess of their
EIA estimates rise to 4.2% when the non-CO2 gases and carbon sinks anticipated emissions (as a result of economic downturn). This excess
are excluded from the analysis. is referred to as “hot air”.
billion when North American emissions and electricity trading ket, and most of the additional burden will fall on countries in
is unimpeded, and only US$340 billion when India is added to which the marginal cost curve is high because they have a less-
the permit trading. MARKAL studies in the Nordic states (see er potential for cheap abatement. This is typically the case for
Larsson et al. (1998) for Denmark, Sweden, and Norway, and Japan and most of the European countries (Hourcade et al.,
Unger and Alm (1999) for the same plus Finland) show the 2000b). The other possibility is for the market power to be con-
considerable value of trading electricity and GHG permits trolled by the carbon-importing countries; in this case, the risk
within the region when severe GHG reductions are sought. is that all or most of the trading will be of “hot air” at a very
Another MARKAL study computes the net savings of trading low price. Which of these alternatives will be realized cannot
GHG permits between Belgium, Switzerland, Germany, and be predicted but, in both cases, quantitative limits to trade lead
the Netherlands (Bahn et al., 1998) at about 15% of the total to outcomes that contradict the very objective of the supple-
Kyoto cost without trading. Another study (Bahn et al., 1999a) mentarity condition. Criqui et al. (1999) assessed the order of
shows that Switzerland’s Kyoto cost may be reduced drastical- magnitude at stake with the POLES model, and examined a
ly if it engages in CDM projects with Columbia, in which case scenario in which the carbon tax is US$60/tC with unrestricted
the marginal cost of CO2 drops to US$12/tC. This type of B-U trade. They found that the carbon prices under the concrete
analysis has also been extended to the computation of a global ceiling conditions proposed by the EU fall to zero (with no
equilibrium between Switzerland, Sweden, and the market left for the developing countries) if the market power is
Netherlands, using MARKAL-MACRO (Bahn et al., 1999b), held by the buyers. Alternatively, the carbon prices increase up
with the conclusion that GDP losses resulting from a Kyoto tar- to US$150/tC if the market power is held by the sellers, this
get are 0.2% to 0.3% smaller with trade than without. More risk being increased in the case of caps on hot air trading which
ambitious current research aims at building worldwide B-U increases the monopolistic power of Russia and Ukraine.
models based on MARKAL (Loulou and Kanudia, 1999a) or Böhringer (2000) assesses the economic implications of the
on MARKAL-MACRO (Kypreos, 1998). EU cap proposal within competitive permit markets. He con-
cludes that part of the efficiency gains from unrestricted permit
8.3.1.2 Impacts of Caps on the Use of Trading trade could be used to pay for higher abatement targets of
Annex-B countries which assure the same environmental
From the above results, it is seen that all OECD countries have effectiveness as compared to restricted permit trade but still
an interest in making the market as large as possible. Some leaves countries better off in welfare terms.
Parties to the UNFCCC, however, have suggested that the sup-
plementarity conditions of Articles 6.1.d, 12 and 17 of the 8.3.1.3 The Double Bubble
Kyoto Protocol be translated into quantitative limits placed on
the extent that Annex I countries can satisfy their obligations Here the case of the “double bubble” is examined, in which
through the purchase of emission quotas. The rationale for the countries belonging to the EU have a collective target, making
supplementarity condition is that, if the price of permits were use of the flexibilty to shift emission quota within the group
too low, this would discourage domestic action on structural and the remaining Annex I countries trade among themselves
variables (infrastructure, transportation) or on innovation apt to to reach their individual targets.
modify the emissions trends over the long run. These measures
are very often liable to high transaction costs and governments Figure 8.11 shows the incremental value of carbon emission
may prefer to import additional emissions permits instead of for the two groups and compares them with that of full Annex
adopting such measures. In other words, minimization of the I trading. Notice that for the USA, the tax is lower in the case
costs of achieving Kyoto targets may not guarantee minimiza- of the “double bubble” than with Annex I trading. The reason
tion of the costs of climate policies over the long run; this is the is that without the EU bidding for the Russian “hot air”, the
case when the inertia of technical systems is considered (Ha- demand for emission quotas falls as does its price. The EU on
Duong et al., 1999) and when one accounts for the long term the other hand is disadvantaged under such a scenario. With
benefits of inducing technical change through abatements in their access to low cost emission quotas limited, the incremen-
the first period (Glueck and Schleicher, 1995). tal value rises.
Some works have studied the consequences of enforcing the

supplementarity condition through quantitative limits: one of 8.3.2 Spillover Effects: Economic Effects of Measures in
the EMF scenarios imposed a constraint on the extent to which Countries on Other Countries
a region could satisfy its obligations through the purchase of
emission quota (the limit was one-third). In a world in which economies are linked by international trade
and capital flows, abatement by one economy induces spillover
However, the models cannot deliver any response without an effects and has welfare impacts on other economies. It matters
assumption about ex ante limits on carbon trading, resulting to understand the conditions under which both abating and
into a stable duopoly between Russia and Ukraine or into a non-abating economies will experience positive or negative
monopsony (Ellerman and Sue Wing, 2000). In the first case, impacts from the policy adopted in other groups of countries;
the price of carbon will be higher than in a non-restricted mar- it matters also to understand the results of these spillover
1000
985
Annex I Trading
900
Cost for the USA under
Double Bubble Regime
800 Cost for the OECD-Europe
under Double Bubble Regime
700
In 1990 US$/tC
600
500
407
400
300
228 224
200 192
163 172
106 100
100 84
65 53 59
45
28
0
AIM G-CUBED GTEM OXFORD SGM
Figure 8.11: The double bubble.
effects in terms of carbon leakage. Chapter 7 provides the basic In the real world, an emission constraint simultaneously affects
concepts of such an analysis and here some brief comments are both export and import goods, but this does change the nature
added to explain the strengths and weaknesses on the results of the mechanism. Increased production of emission-intensive
found by modelling exercises. goods in non-Annex I regions is stimulated by both increased
non-Annex I consumption and increased exports to Annex I
In static terms, without international capital mobility, the wel- regions. The net relative balance between these parameters is
fare costs of abatement for an open economy can be decom- influenced by the extent to which Annex I emission constraints
posed into two components (Dixit and Norman, 1984): fall on export competing industries (when the country is spe-
• costs that would be incurred if the economy were cialized in such industries) as opposed to import-competing
closed; and industries (when it imports carbon intensive goods). If a con-
• changes in the terms of trade, which are the first trans- straint predominantly affects export industries, it encourages
mission mechanism for spillover effects (see Chapter increased non-Annex I production for internal consumption. If
7). the constraint predominantly affects import-competing indus-
tries, increased non-Annex I production is mainly exported to
If they require to go beyond “no regrets” potentials, binding Annex I regions. Emissions leakage is beneficial to non-Annex
emissions constraint comes to increasing the cost of carbon- I economies only in the second case, since it is associated with
intensive products and, if emissions arise from the production an improvement in their terms of trade, whereas their terms of
of its export goods, the abating economy benefits from better trade deteriorate in the first case.
terms of trade. If, indeed, the importing economy cannot pro-
duce a perfect substitute easily, it will sell the same product at Another factor that affects the increase of emission-intensive
a higher price and increase its purchasing power of imported goods in non-Annex I regions is the effect of Annex I abate-
goods. The non-abating economy will symmetrically suffer a ment on the intermediate demand for fossil fuels. As discussed
welfare loss because of more expensive imports, while the net above, Annex I abatement will reduce fossil fuel prices. Lower
result for the abating economy depends on the size of improve- prices for fossil fuels will encourage the production of more
ment in the terms of trade relative to the production costs of emission-intensive goods and the use of more emission-inten-
abatement. The welfare impacts are more important in the sive production techniques in non-Annex I regions.15
economies that are very dependent on foreign trade.
So far, it was assumed that changes in the production structures the public discount rate) employed to mitigate adverse impacts
in both Annex I and Non-Annex I countries result only in can change the return to capital in a country relative to other
changes in final demand and in price structures. The introduc- countries.
tion of international capital mobility complicates the analysis
since, in addition to production costs and changes in the terms Models reviewed in this section have in common features that
of trade, carbon constraints alter the relative rates of return in must be clearly borne in mind when interpreting the results:
the abating and non-abating countries. If capital flows from the • They assume perfect competition in all industries.
first country to the second in response to these changes, there • Most of them use the so-called Armington specification
will be a further restriction of the production frontier (the set of that identical goods produced in different countries are
possible productive combinations) for the abating economy imperfect substitutes: it is known that the results may
and an outward shift for the other economy. Factor rewards in then be sensitive to the particular commodity and cho-
both countries are also affected. Part of the income from for- sen regional aggregation models (Lloyd, 1994).
eign investment accrues to the home economy and subtracts • All of the models, apart from the G-cubed model of
from income in the foreign economy; abating economies are McKibbin and Wilcoxen (1995), are long-term growth
affected by changes in income and factor prices that result from models with international trade, without explicitly
changes in international capital flows, with symmetric gains modelled financial markets that affect the macroeco-
for non-abating economies. nomic adjustment.17
• Emission reductions involve only carbon dioxide.18
No theoretical results for complex and empirically relevant • The bias in technological change is unaffected by the
cases can be obtained as to the extent that international capital emissions constraints and the production possibilities
mobility modifies the conclusions of the static analysis of the frontier always lies below the unconstrained frontier.
role of the trade effects. However, modelling results are seldom Under such a hypothesis, the aggregate impact is
reported on the welfare impact of changes in international cap- unlikely to be positive, but some economies may bene-
ital flows, although McKibbin et al. (1999) emphasize the fit from favourable changes in their terms of trade and
macroeconomic repercussions. It is still, indeed, impossible to from changes in international capital flows.
derive clear conclusions about the role of these changes,
because of the methodological difficulties in interpreting the Simulation studies covered in this report were conducted prior
results from complex CGE models. It is usually conceded that to and after the negotiation of the Kyoto Protocol. Pre-Kyoto
modelling international capital flows is one of the more con- studies consider more stringent emissions reduction targets for
tentious issues; technically indeed, such a modelling relies on Annex I regions than the average 5.2% actually adopted under
equalizing rates of return on capital across countries, but, the Protocol. The major findings are that Annex B abatement
because this makes capital flows too reactive, various “ad hoc” would result in welfare losses for most non-Annex I regions
devices are used to obtain less irrealistic outcomes. Differences under the more stringent targets. The magnitude of these loss-
in the riskiness of rates of returns are clearly relevant to explain es is reduced under the less stringent Kyoto targets. Some non-
most of the real behaviours, but how this can be “best” dealt Annex I regions that would experience a welfare loss under the
with in a deterministic model is an open question. Progress more stringent targets experience a mild welfare gain under the
depends on the further development of techniques.16 It depends less stringent targets.
also on progress in theoretical and empirical analyses to cap-
ture more effectively how the exchange rate of currencies Studies using a variety of more stringent pre-Kyoto targets
reacts to external payment deficits. This depends on the level include Coppel and Lee (1995; the GREEN model), Jacoby et
of confidence on the future economic expansion of each coun- al. (1997; the EPPA model), Brown et al.1997b) and Donovan
try and how monetary policies (including the determination of et al (1997; the GTEM model), and Harrison and Rutherford
(1999; the IIAM model). The last two models are based on the
Global Trade Analysis Project (GTAP) database (Hertel, 1997).
15 To the extent that increased non-Annex I emissions result from
more emission-intensive production techniques and increased produc- In these studies, most non-Annex I countries suffer deteriora-
tion of emission-intensive goods for internal consumption, policies to tion in their terms of trade and also welfare losses. Since the
control emission leakage by curbing the imports of emission-intensive analysis at the region or country level depends on the type of
goods into Annex I regions are likely to be counterproductive.
Curbing imports may restrict substitution options in Annex I
economies, requiring further cuts in output and exports that would
stimulate greater non-Annex I emission-intensive production. 17 In the G-cubed model such a mechanism is superimposed on the
structure of a long-term growth model.
16 These include techniques such as decomposition analysis (Huff and
Hertel, 1996) and multiple simulations, in which some variables are 18It is evident from simulations with the GTEM model (Brown et al.,
held constant to isolate their influence on the final results. Verikios 1999) that somewhat different results may be obtained if emission
and Hanslow (1999) employed such a framework to asses the welfare reductions involve a least-cost mix of the different GHGs identified
impacts of international capital mobility. under the Kyoto Protocol.
aggregation, it is difficult to give a comprehensive list of 8.3.2.1 Impact of Emissions Trading

exceptions. The reasons for these exceptions are, however,
easy to explain. Brazil and South Korea are, in many models, All of the above studies considered various forms of emissions
found to enjoy welfare gains from Annex I abatement policies trading for Annex I economies. It was universally found that
because, unlike other non-Annex I regions, they are net most non-Annex I economies that suffered welfare losses
importers of fossil fuels and have a high relative dependence under uniform independent abatement also suffer smaller wel-
on exports of iron and steel and non-ferrous metal products. In fare losses under emissions trading. This is also the case in all
addition, in Brazil these products are far less intensive in fossil of the studies for which results on movements in the terms of
energy than in many other economies.19 Brazil gains from trade are published (Coppel and Lee 1995; Harrison and
lower prices for fossil fuel imports and higher prices for Rutherford, 1999).
exports of iron and steel and non-ferrous metal products.
Conversely, non-Annex I regions with the greatest dependence Why are overall welfare losses to non-Annex I regions reduced
on fossil fuel exports, such as the Middle East and Indonesia, by emissions trading? A key point is that because the marginal
suffer the greatest deterioration. Non-Annex I regions that are and average cost of abatement for the aggregate Annex I is
net importers of manufacture goods that are fossil-fuel inten- lower under emissions trading than under uniform abatement,
sive also suffer a deterioration even if they benefit from lower a higher GDP is achieved for a given reduction in emissions.
oil prices. This means that the reduction in emissions is achieved through
a heavier reliance on substitution relative to output reduction
One of the most important conclusions is that a number of (substitution involves the substitution of less emission-inten-
those among non-Annex I regions that experienced a welfare sive for more emission-intensive Annex I produced inputs).
loss under the pre-Kyoto targets experience a welfare gain The heavier reliance on substitution means that there is a less
under the Kyoto targets. For example, in the GREEN model, severe decline in fossil fuel prices and a lower increase in the
India and the Dynamic Asian Economies experienced a loss in price of manufactured goods that are fossil-fuel intensive.
real income in the pre-Kyoto simulation (Coppel and Lee, There is also less increase in non-Annex I exports of fossil-fuel
1995). They experience a mild gain in real income under sim- intensive manufactured goods to Annex I regions under emis-
ulations of the Kyoto Protocol that involve varying degrees of sions trading than independent abatement. However, these
policy co-ordination among the non-Annex I regions (van der increased exports divert resources from activities in which the
Mensbrugghe, 1998). In pre-Kyoto simulations of the GTEM original non-Annex I comparative advantage was higher and
model (Brown et al., 1997b; Donovan et al., 1997), Chinese the overall result is less beneficial to most non-Annex I
Taipei, India, Brazil, and the Rest of America were all found to economies.
experience welfare losses; with Kyoto targets (Tulpulé et al.,
1999) these regions experience mild welfare gains. Some non-Annex I economies that experience welfare gains
under independent abatement also experience smaller gains
There is one key reason why some regions that experienced under emissions trading; however, the aggregate effect of
welfare losses under the more stringent targets experience mild emissions trading is found to be positive for non-Annex I
gains in welfare under the Kyoto targets: the changing balance economies: those that suffer welfare losses under independent
between substitution and output reduction with the level of abatement suffer smaller losses under emissions trading.
abatement. GDP losses or the required level of a carbon tax for
Annex I regions are, indeed, an increasing function of the level To summarize, despite a number of identifiable numerical dis-
of abatement and the milder Kyoto targets are expected to be crepancies, there is agreement that the mixed pattern of gains
achieved with a greater reliance on substitution relative to out- and losses under the Kyoto targets results in a more positive
put reduction than the more stringent targets. aggregate outcome than under the assumed and more stringent
pre-Kyoto targets. Similarities in the regions that are identified
A fairly similar regional pattern of non-Annex I welfare as gainers and losers are also quite marked. Oil-importing
changes is found in simulations of Kyoto targets in a number economies that rely on energy-intensive exports are gainers
of studies in which comparable pre-Kyoto target simulations (and more so if the exports’ carbon intensity is low), economies
are not available. These studies include Kainuma et al. (1999; that rely on oil exports experience losses, and the results are
the AIM model drawing on the GTAP database), McKibbin et more unstable for economies between these two extremes.
al. (1999; the G-Cubed model), Bernstein et al. 1999; MS-
MRT, drawing on the GTAP database), and Brown et al., 8.3.2.2 Effects of Emission Leakage on Global Emissions
(1999; the multigas (CO2, CH4, and NOx) version of GTEM) Pathways
and Böhringer and Rutherford (2001).
As discussed above, a reduction in Annex I emissions tends to
increase non-Annex I emissions, reducing the environmental
19 These calculations are based on version 3 of the GTAP database effectiveness of Annex I abatement. Emissions leakage is mea-
after reconciliation with energy data, mainly from the International sured as the increase in non-Annex I emissions divided by the
Energy Agency. reduction in Annex I emissions.
A number of multiregional models have been used to estimate result of Annex I abatement. If in the short term OPEC were to
carbon leakage rates (Martin et al. 1992; Pezzey 1992; reduce production to maintain prices in the face of lower
Oliveira-Martins et al. 1992; Manne and Oliveira-Martins, demand, the time path for Annex I carbon taxes may need to be
1994; Edmonds et al., 1995; Golombek et al., 1995; Jacoby et modified. See also Chapter 9.
al. 1997; Brown et al. 1999). In SAR (IPCC, 1996, p. 425) a
high variance in estimates of emission leakage rates was noted; A number of theoretical papers examined how a carbon tax
they ranged from close to zero (Martin et al. (1992) using the might alter the optimal timing of extraction of given reserves
GREEN model) to 70% (Pezzey (1992) using the of oil and, symmetrically, how significantly the potential sup-
Whalley–Wigle model). In subsequent years, some reduction ply response could alter the optimal time path of the price of
in this variance has occurred, in the range 5%–20%. This may carbon tax (Sinclair, 1992; Ulph and Ulph, 1994; Farzin and
in part arise from the development of a number of new models Tahovonen, 1996; Hoel and Kverndokk, 1996; Tahvonen,
based on reasonably similar assumptions and data sources, and 1997). However, the severity of the potential problem depends
does not necessarily reflect more widespread agreement about on a number of key parameter values and implementation
appropriate behavioural assumptions. However, because emis- issues. Although it has been assumed that OPEC can “Granger
sion leakage is an increasing function of the stringency of the cause” the world price of oil (Güllen, 1996), there is some
abatement strategy, this may also be because carbon leakage is question about the degree of cartel discipline that could be
a less serious problem under the Kyoto targets than under the maintained in the face of falling demand (Berg et al., 1997a).
targets considered previously. Any breakdown in the cartel would tend to increase the supply
of oil on the market, which in the short term may require a
Technically, there is a clear correlation between the sign and higher carbon tax to meet a given abatement target. On the
magnitude of spillover effects analyzed above and the magni- other hand, Bråten and Golombek (1998) suggest that imple-
tude of carbon leakage. It is important, however, to recognize menting an Annex I climate change agreement might be seen
those parameters that have a critical influence on results: by OPEC members as a hostile act and could strengthen the
• The assumed degree of substitutability between resolve to maintain cartel discipline. The OPEC response is
imports and domestic production. This is why models likely to be related to the size of its potential loss in revenue to
based on the Armington assumption that imports and OPEC and these potential losses would be smaller under
domestic production are imperfect substitutes produces Annex I emissions trading than under independent abatement.
lower estimates of emission leakage than models based
on the assumption of perfect substitutability. A number of empirical studies have tried to assess the signifi-
• The ease of substitution among technologies with dif- cance of the potential OPEC response within a game theoretic
ferent emissions intensities in the electricity and the framework. To do so, Berg et al. (1997b) resorted to a
iron and steel industries in Annex I regions. Cournot–Nash dynamic game in which parameter values are
• The assumed degree of competitiveness in the world oil based on empirical estimates. They also identify (non-OPEC)
market; this issue is considered in Section 8.3.2.3. “fringe” oil producers and other fossil fuel sources. A scenario
• The existence of an international carbon-trading sys- is examined in which a carbon tax is maintained at a level of
tem: for a given abatement strategy, emission leakage is US$10 per barrel of oil. Initially, OPEC cuts back on produc-
lower under emissions trading than under independent tion to try to maintain price, but this is partly offset by
abatement. This conclusion flows logically from the increased production by the fringe. Bråten and Golombek
discussion above on movements in terms of trade. (1998) derive a similar pattern of OPEC response in a static
Greater Annex I output reduction under independent model. Berg et al. (1997b) found that the optimal OPEC poli-
abatement stimulates greater emission-intensive pro- cy is not heavily influenced by intertemporal optimization in
duction in non-Annex I regions, through both higher shifting supplies from one time period to another to maximize
prices for emission intensive products and lower prices discounted net revenue.
for fossil fuels. Support for the above conclusions on
the impact of emissions trading is found in ABARE- If OPEC acts as a cartel, the extent of emissions leakage in
DFAT (1995), Brown et al. (1997b), Hinchy et al. response to Annex I abatement may be reduced (Berg et al.,
(1998), Brown et al. (1999), McKibbin et al. (1999), 1997b), because the resultant higher price for oil reduces the
Kainuma et al. (1999), and Bernstein et al. (1999). incentives for increased emission-intensive activity in non-
Annex I regions. Lindholt (1999) examined the Kyoto Protocol
8.3.2.3 Effects of Possible Organization of Petroleum in an enhanced version of the same model and assumed that an
Exporting Countries (OPEC) Response efficient tradable permit scheme is established between Annex B
countries. Whether or not OPEC acts as a cartel does not affect
In the preceding discussion, a competitive equilibrium in the the shape of the time path of permit prices, only their level
world economy was assumed. However, OPEC may be able to according to Lindholt (1999). A permit price of US$14/tCO2
exercise a degree of monopoly power over the supply of oil. would be required in 2010 if OPEC acts as a cartel, whereas it
The issue has been raised in the literature as to the possible would be US$24/tCO2 in a competitive oil market. The lower
nature of an OPEC response to reduced demand for oil as a permit price when OPEC acts as a cartel stems from OPEC cut-
ting back production to maintain a higher oil price, which slows of atmospheric change. This section focuses upon the mitiga-
the growth in emissions in Annex B countries. tion costs of different pathways towards a predetermined con-
centration ceiling. No policy conclusion should be derived
These studies mentioned demonstrate that whether or not from it before reading Chapter 10, which discusses mitigation
OPEC acts a cartel will have a modest effect on the loss of timing in the wider context of uncertainties, risks and impacts.
wealth to OPEC and other oil producers and the level of permit
prices in Annex B regions. A natural extension of this research
would be to trace through all the ramifications of cartel behav- 8.4.1 Alternative Pathways for Stabilization
iour by OPEC in the more complex CGE models discussed in Concentrations
this section.
A given concentration ceiling can be achieved through a vari-
8.3.2.4 Technological Transfers and Positive Spillovers ety of emission pathways. This is illustrated in Figure 8.12.
The top panel shows alternative concentration profiles for sta-
In a dynamic context, a progressive outward shift in the pro- bilization at 350-750ppmv. The bottom panel shows the corre-
duction possibilities frontier occurs over time as a result of sponding emission trajectories. In each case, two different
technical change. A strand of literature (Goulder and routes to stabilization are shown: the IPCC Working Group I
Schneider, 1999) argues that climate policies will bias techni- profiles (from IPCC, 1995) and Wigley, Richels and Edmonds
cal change towards emissions savings. In that case, there will (WRE) profiles (from Wigley et al., 1996).
be an outwards shift in the production possibilities frontier at
some points, and an inwards shift at other points relative to the
baseline. 1000
A S 1000
One potentially important related issue not captured in the 900
above models is that cleaner technologies, developed in
C02 concentration (ppmv)
response to abatement measures in industrialized countries,

800
tend to diffuse internationally. The question is to what extent
this will offset the negative aspects of leakage noted above and S 750
to amplify positive spillover. Grubb (2000) presents a simpli- 700
fied model, which represents this spillover effect in terms of its
S 650
impact on emissions per unit GDP (intensities). The results 600
suggest that, because the impact of cleaner technologies is
cumulative and global, this effect tends to dominate over time, S 550
500
provided the connection between industrialized and developing
country emission intensities is significant (higher than 0.1 on a S 450
400
scale where 0 represents an absence of connection and 1 a
complete convergence of intensities by 2100). At this stage,
2000 2050 2100 2150 2200 2250 2300 2350
empirical analysis is still lacking to derive a robust conclusion Year
from this result. A recent work by Mielnik and Goldemberg
(2000) suggests that the potential for technological leap-frog- 20
IS92a
ging in developing countries is important, but to what extent B
climate mitigation in Annex B accelerates this leap-frogging is
Antropogenic C02 emissions (GtC/yr)
still unclear. However, this demonstrates that the trickling

15
down of technical change across countries deserves more
attention in modelling exercises, all the more so since theoret-
ically it (see Chapter 10 of this report) demonstrates that tech-
nological spillovers may be a major stabilizing force of any cli- 10
mate coalition.
Current antropogenic
CO2 emissions
8.4 Social, Environmental, and Economic Impacts of 5
Alternative Pathways for Meeting a Range of S1000
S750
Concentration Stabilization Pathways S650
S550
0 S450
The appropriate timing of mitigation pathways depends upon 2000 2050 2100 2150 2200 2250 2300 2350
many factors including the economic characteristics of differ- Year
ent pathways, the uncertainties about the ultimate objective,
and the risks and damages implied by different rates and levels Figure 8.12: Alternative pathways to stabilization.
The choice of emission pathways can be thought of as a carbon risks of acting too slowly to reduce emissions with the risks of
budget allocation problem. To a first approximation, a concen- acting too aggressively.
tration target defines an allowable amount of carbon to be emit-
ted into the atmosphere between now and some date in the
future. The issue is how best to allocate this budget over time. 8.4.2 Studies of the Costs of Alternative Pathways for
A number of modellers have attempted to address this issue. Stabilizing Concentrations at a Given Level
Unfortunately, to model stabilization costs is a daunting task. It
is difficult enough to forecast the evolution of the energy and Some insight into the characteristics of the least-cost mitiga-
economic system to 2010. Projections over a century or more tion pathway can be obtained from two EMF studies (EMF-14,
are necessary, but must be treated with considerable caution. 1997; EMF-16, 1999) and from Chapter 2 in the SRES mitiga-
They provide useful information, but their value lies not in the tion scenarios (IPCC, 2000). In the first EMF study, modellers
specific numbers but in the insights. compared mitigation costs associated with stabilizing concen-
trations at 550ppmv using the WGI and WRE profiles (see
This section examines how mitigation costs might vary both Figure 8.12), Note that the WGI pathway entails lower emis-
with the stabilization level and with the pathway to stabiliza- sions in the early years, with less rapid reductions later on. The
tion. Also discussed are key assumptions that influence mitiga- WRE pathway allows for a more gradual near-term transition
tion cost projections. Important, this discussion begins with the away from carbon-venting fuels. Figure 8.13 shows that in
assumption that the stabilization ceiling is known with certain- these models the more gradual near-term transition of the two
ty and neglects the costs of different damages associated with examined results in lower mitigation costs.
different pathways (discussed in Chapter 10). Here, the chal-
lenge is to identify the least-cost mitigation pathway to stay The above experiment compares mitigation costs for two emis-
within the prescribed ceiling. In Chapter 10, the issue of decision pathways for stabilizing concentrations at 550ppmv. It
sion-making under uncertainty is discussed regarding the ulti- does not identify the least-cost mitigation pathway, however.
mate target and impacts of different pathways. Decision mak- This was done in the subsequent EMF (1997) study. The results
ing under uncertainty requires indeed examining symmetrical- are presented in Figure 8.14. In these studies the least-cost mit-
ly the costs of accelerating the abatement in case of negative igation pathway tends to follow the models reference case in
surprises about damages of climate change and adopting a pru- the early years with sharper reductions later on.
dent near-term hedging strategy. That is, one that balances the
20
FUND non-Annex I
Eastern European Countries and Former Soviet Union
OECD
15
Trillions of 1990 US$
10
CETA
5
MERGE MiniCAM
CPB/RIVM SGM
0
e
e
de
de
de
de
de
de
de
de
de
de
de
W rade
e
e
ad
ad
ad
ad
ad
RE trad
ad
ad
ad
ad
ad
ad
tra
tra
tra
tra
tra
tra
tra
tra
tra
tra
tra
-tr
-tr
-tr
-tr
-tr
-tr
-tr
-tr
-tr
-tr
-tr
t
-
GI
GI
GI
GI
GI
GI
o
o
o
o
RE
RE
RE
RE
RE
RE
-n
-n
-n
-n
-n
-n
-n
-n
-n
-n
-n
-n
W
W
W
W
GI
GI
GI
GI
GI
GI
RE
RE
RE
RE
RE
W
W
W
-5
Figure 8.13: Costs of stabilizing concentrations at 550ppmv; discounted to 1990 at 5%

100.0
CETA
90.0 FUND
MERGE
MiniCAM1
Reductions relative to the baseline (%)
80.0 MiniCAM2
RICE
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
Figure 8.14: Rate of departure from the baseline corresponding to least-cost mitigation pathway for a 550ppmv stabilization tar-
get.
The selection of a 550ppmv target was purely arbitrary and not 8.15. As would be expected, mitigation costs increase with
meant to imply an optimal concentrations target. Given the pre- more stringent stabilization targets.
sent lack of consensus on what constitutes “dangerous” inter-
ference with the climate system, three models in the EMF-16 In Chapter 2, nine modelling groups reported scenario scenario
study examined how mitigation costs are projected to vary results using different baseline scenarios. An analysis focused
under alternative targets. The results are summarized in Figure on the results of stabilizing the SRES A1B scenario at 550 and
20.00
18.00 WG 1, FUND
WRE, FUND
WG1, MERGE
16.00 WRE, MERGE
WG 1, MiniCAM
14.00 WRE, MiniCAM
Optimal, MiniCAM
12.00
Trillions US$
10.00
8.00
6.00
4.00
2.00
0.00
450 550 650 750
Atmospheric CO2 (ppmv)
Figure 8.15: Relationship between present discounted costs for stabilizing the concentrations of CO2 in the atmosphere at alter-
native levels.
14.0
A1B-550 AIM
A1B-550 MESSAGE
12.0 A1B-550-EA WorldScan
A1B-550 IMAGE
A1B-550 MiniCAM
A1B-550 MARIA
10.0
A1B-550 PETRO
A1B-550-DR WorldScan
8.0 Solid lines correspond to

a long term cost minimization
GtC
(LTCM) models and dashed

6.0 lines are based on models
assuming an external
trajectory for emissions
4.0
2.0
0.0
1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
Figure 8.16: Reductions in carbon emissions for the SRES A1B 550 case.
450ppmv provides additional insight into the relationship mon stabilization goal, there is still a lot of difference in the
between mitigation and baseline emissions. For the 550ppmv model results. A preliminary examination suggests that, in con-
case, there are eight relevant trajectories (see Figure 8.16) giv- trast to the non-optimization model results, a common charac-
ing the carbon reductions necessary to achieve a stabilization teristic among the LTCM models is that the near-term emis-
level of 550ppmv, where the models which impose a long-term sions pathways departs only gradually from the baseline.
cost minimization (LTCM) are represented as solid lines, and
the models which use an external trajectory as the basis for Figure 8.17 clarifies the results by converting the absolute
their mitigation strategy are presented as dashed lines. The first reduction to a percent reduction basis and averages them for
impression of Figure 8.16 is that even given common assump- the two classes of models. LTCM models show clearly a more
tions about GDP, population, and final energy use, and a com- gradual departure from the emissions baseline. Figure 8.17
100
Ext Path
90 LTCM
Ext Path 450
LTCM 450
80
Reductions relative to the baseline (%)
70
60
50
40
30
20
10
0
1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
Figure 8.17: Time path of emissions reductions.

4.50
A1
4.00 A1T
A2
3.50
B1
% Reduction baseline
3.00 B2
A1F
2.50
2.00
1.50
1.00
0.50
0
450 550 650 750
Stabilization
Figure 8.18: Global average GDP reduction in 2050 for alternative stabilization targets and six SRES reference scenarios.
also gives comparable results for the four cases with a reviewed here have not rigorously accounted for the economic
450ppmv target. The LTCM show a very similar decoupling effects of introducing new low-emission technologies, new
until 2030, when this decoupling increases rapidly, and revenue rising instruments or adequate inter-regional financial
exceeds the other models by 2050, earlier in the 450ppmv case and technology transfers, all elements which contribute to
than in the 550ppmv case. lower the costs as explained in the rest of the chapter.
The average GDP reduction in most of the stabilization sce-

8.4.3 Economywide Impact of CO2 Stabilization in the narios reviewed here is under 3% of the baseline value (the
Post-SRES Scenarios maximum reduction across all the stabilization scenarios
reached 6.1% in a given year). At the same time, some sce-
The economy-wide impact of stabilizing atmospheric CO2 narios (especially in the A1T group) showed an increase in
concentrations was assessed based on 42 post-SRES stabiliza- GDP compared to the baseline due to apparent positive eco-
tion scenarios developed using the AIM, ASF, MARIA, nomic feedbacks of technology development and transfer. The
MiniCAM, MESSAGE, and World SCAN models. These sce- GDP reduction (averaged across storylines and stabilization
narios were developed by applying various mitigation policies levels) is lowest in 2020 (0.99%), reaches a maximum in 2050
and measures to the six illustrative scenarios (baselines) pre- (1.45%) and declines by 2100 (1.30%). However, in the sce-
sented in the Special Report on Emission Scenarios (SRES). nario groups with the highest baseline emissions (A2 and
A1FI), the size of the GDP reduction increases throughout the
The economy-wide impact of CO2 stabilization was assessed modelling period.
on the basis of the difference in GDP in baseline scenarios and
corresponding stabilization cases in a given year. This differ- Due to their relatively small scale when compared to absolute
ence is expressed in percent (reflecting a relative GDP loss) GDP levels, GDP reductions in the post-SRES stabilization
and is positive when GDP in a baseline scenario is larger than scenarios do not lead to significant declines in GDP growth
in a stabilization case and is negative when GDP in a stabiliza- rates over this century. For example, the annual 1990-2100
tion scenario is larger. Such an approach to measuring effects GDP growth rate across all the stabilization scenarios was
of stabilization was selected since it better reflects the societal reduced on average by only 0.003% per year, with a maximum
burden of emission stabilization than absolute changes in GDP. reduction reaching 0.06% per year.
For example, a 1% reduction in the 2100 GDP of the SRES A1
world is equal to about US$5.5 trillion and is larger in absolute Figure 8.18 shows the relationship between the relative GDP
terms than a 2% or US$5.0 trillion reduction in the 2100 GDP reduction, the scenario group, and the stabilization level in
of the poor A2 world. Nonetheless, the relative level of effort 2050. The reduction in GDP tends to increase with the strin-
in the latter case would be much greater. It should be also gency of the stabilization target. But the costs are very sensi-
emphasized here that the GDP reduction itself represents a very tive to the choice of baseline scenario. The maximum relative
crude indicator of economic consequences of the CO2 stabi- reduction occurs in the A1FI scenario group, followed by the
lization. For example, most of the stabilization scenarios other A1 scenario groups and the A2 group, while the mini-
2.0
A1F1
% of baseline GDP 1.5
A2
1.0
A1
A1T B2
0.5
B1
0
0 10 20 30 40 50 60
% of baseline CO2
Figure 8.19: Average GDP and CO2 reductions in 550ppmv stabilization scenarios: year 2050 (labels identify different scenario
groups).
mum reduction occurs in the B1 group20. By 2100, the situa- There is more opportunity for reducing emissions cheaply at
tion slightly changes with GDP reductions in the A2 scenario the point of capital stock turnover.
group becoming relatively more pronounced.
Second, the models suggest that currently there are insufficient
Differences in relative GDP reductions in different scenario low-cost substitutes, on both the supply and demand sides of
groups are explained by the magnitude of corresponding CO2 the energy sector, for deep near-term cuts in carbon emissions.
emission reductions needed to achieve a particular stabilization With the anticipated improvements in the efficiency of energy
level. The emission reduction is apparently the largest in the supply, transformation, and end-use technologies, such reduc-
A1FI scenario group, which is also associated with the largest tions should be less expensive in the future.
GDP loss (Figure 8.19). Meanwhile, the smallest relative GDP
loss occurs in the A1T and B1 groups, which have low baseline Third, because of positive returns on capital, future reductions
emissions and accordingly require the smallest reductions to can be made with a smaller commitment of today’s resources.
reach the CO2 stabilization. For example, assume a net real rate of return on capital of 5%
per year. Further, suppose that it costs US$50 to remove a
Regional GDP reduction patterns in the post-SRES stabiliza- tonne of carbon, regardless of the year in which the reduction
tion scenarios are also generally explained by corresponding occurs. To remove the tonne today would cost US$50.
required reductions in CO2 emissions, which are determined by Alternatively, it only needs US$19 to be invested today to pro-
baseline emissions, the stabilization levels, assumptions about vide the resources to remove a tonne of carbon in 2020.
emissions trading mechanisms and about the relative contribu-
tion of regions to global CO2 emissions; reduction and associ- Finally, for higher near-term emissions, the size of the carbon
ated financial and technology transfer. In most of the baseline budget (to meet a prescribed emission target) is higher, reflect-
(SRES) scenarios starting from 2020, absolute CO2 emissions ing that the products of early emissions have a longer time to
in developing (non-Annex I) regions remain larger for the rest be removed from the atmosphere, and because the higher con-
of the 21st century than in the industrialized (Annex I) regions. centrations give higher oceanic and terrestrial sinks.
The fact that the least-cost mitigation pathway tends to follow

8.4.4 Reasons why Energy-economy Models Tend to Favour the baseline in the early years has been misconstrued by some
Gradual Departure from Baseline in the Near-term analysts as an argument for inaction. Wigley et al. (1996) note
that this is far from the case: First, all stabilization targets still
There are several reasons why the models tend to favour a require future capital stock to be less carbon-intensive than
more gradual departure from their reference path if used to under a business as usual (BAU) scenario. As most energy pro-
study a pre-determined concentration level. First, energy using duction and use technologies are long-lived, this has implica-
and energy producing capital stock (e.g., power plants, build- tions for current investment decisions. Second, new supply
ings, and transport) are typically long lived. The current system options typically take many years to enter the marketplace. To
was put into place on the basis of a particular set of expecta- ensure sufficient quantities of low-cost, low-carbon substitutes
tions about the future. Large emission reductions in the near in the future requires a sustained commitment to research,
term require accelerated replacement, which is apt to be costly. development and demonstration today. Third, any no regrets
measures for reducing emissions should be adopted immedi-
ately. Lastly, it is clear that one cannot go on deferring emission
20Please note that only one scenario was available for the GDP loss reductions indefinitely, and that the need for substantial reduc-
data for A1T-450, A1T-550, A1FI-450, A1FI-650, A2-450, and B2-650. tions in emissions is sooner the lower the concentration target.
8.4.5 Critical Factors Affecting the Timing of Emissions channel for technological change is R&D, ITC makes it prefer-
Reductions: The Role of Technological Change able to concentrate more abatement efforts in the future. The
reason is that technological change lowers the costs of future
As pointed out by Grubb (1997), there are several key assump- abatement relative to current abatement, making it more cost-
tions imbedded in the energy-economy models that influence effective to place more emphasis on future abatement.
the shape of the least-cost mitigation pathway. For a pre-deter- However, when the channel for technological change is LBD,
mined target, these relate to the determinants of technical the presence of ITC acts in two opposite directions. On the one
change; capital stock turnover and the inertia in the energy sys- hand, ITC makes future abatement less costly but, on the other
tem; discounting; and, the carbon cycle. When the target is hand, there is an added value to current abatement because
uncertain, they include in addition the probability attached to such abatement contributes to experience or learning and helps
each target and risk aversion (see Chapter 10) which tend to reduce the costs of future abatement. Which of these two
favour a more aggressive departure from current trends. effects dominates depends on the particular nature of assump-
tions and firms. In recent years, there has been a good deal of
The discount rate will not be discussed because it is less impor- discussion about the potential for ITC (e.g., Anderson et al.,
tant in cost-efficiency frameworks (when the target is pre- 1999). Proponents argue that such changes might substantially
determined) than in a cost-benefit one (when the discount rate lower, and perhaps even eliminate, the costs of CO2 abatement
reduces the weight of future environmental impacts, see policies. These discussions have exposed very divergent views
Chapter 10). Neither are the very few studies discussed which as to whether technological change can be induced at no cost,
try to assess different benefits in terms of environmental co- or whether a resource cost is involved. For example, in a 1995
benefits of reducing GHG emissions presented. Wigley et al. article, Porter and van der Linde (1995) contend that properly
(1996), for example, show pathway-related differentials up to designed regulation can trigger innovation that may partially or
0.2°C in global mean temperature and 4cm in global mean sea- more than fully offset the costs of compliance. Indeed, they
level (by 2100) for the WGI and WRE 550 stabilization path- argue that firms can actually benefit from more stringent regu-
ways. See Chapter 10 for an elaboration of these timing issues. lation than that faced by their competitors in other countries.
This part will rather insist on the key features of technical However, in an accompanying article, a strongly contrary view
change that are numerically of utmost importance. is put forward by Palmer et al. (1995). Examining available
data, they found that such offsets pale in comparison to expen-
To the extent that the cost of reducing emissions is lower in the ditures for pollution abatement and control.
future than at present, the overall cost of stabilizing the CO2
concentration is less if emissions mitigation is shifted towards 8.4.5.1 ITC through Dedicated R&D
the future. This shift occurs in all models. The extent of the
shift that minimizes the cost of limiting the concentration of Including R&D driven ITC in climate mitigation models leads
atmospheric CO2 depends, at least in part, on the treatment of to ambiguous results in terms of time profile and tax level in a
technological change. Without technological change, the prob- cost-benefit framework In a cost-effectiveness framework, the
lem is simple and the results of Hotelling (1939) apply. With optimal tax is lower in the case with R&D driven ITC and has
endogenous technological change, the problem becomes more to be set up early even if the effective resulting abatement
complex. shifts from the near-term to the more distant future. If there are
market failures in the R&D market (e.g., knowledge spillover),
This discussion of the determinants of technological change then subsidies for R&D are justified as it enhances social wel-
must begin with the acknowledgement that no adequate theory fare and raises the abatement level (Goulder and Schneider,
of endogenous technological change exists at present. Many 1999; Weyant and Olavson, 1999; Goulder and Mathai, 2000).
researchers have contributed to the field, but the present state
of understanding is such that present knowledge is partial and However, R&D driven-ITC can reduce the gross costs of a car-
not necessarily fully consistent. Although no complete theory bon tax under special circumstances. Specifically, if R&D has
of technological change exists, two elements have been identi- been substantially over-allocated towards the fossil fuel indus-
fied and explored in the literature: induced technological tries prior to the imposition of a carbon tax, the carbon tax can
change (ITC) and learning-by-doing (LBD). Work by Ha- reduce this allocative inefficiency and, as a result, its costs can
Duong et al. (1997), Grubb et al. (1995), Grubb (1997), and be quite low or even negative. A substantial prior misallocation
Kypreos and Barreto (1999) examined the implication of ITC, towards carbon-intensive industries could occur if there were
LBD, and inertia within the context of uncertainty and an prior subsidies towards R&D in the fossil fuel industries (with
imperative to preserve the option of concentration ceilings no comparable subsidies in other industries), or if there were
such as 450ppmv. They conclude that emissions mitigation can substantial positive spillovers from R&D in non-carbon indus-
be shifted from the future towards the present under appropri- tries (with no comparable spillovers in the fossil fuel indus-
ate circumstances. tries). Under other plausible initial conditions, however, R&D
driven-ITC raises, rather than lowers, the net social costs of a
Goulder and Mathai (1998) also explore how the effect on tim- given carbon tax because of the crowding out of R&D from
ing depends on the source of technological change. When the other sectors; to put it clearly the tax level for a given abate-
ment is lower than under the hypothesis of exogenous techni- that the traditional baseline scenario versus optimal policy run
cal change and part of this decrease is offset when all the gen- argumentation is not feasible. This follows directly from the
eral equilibrium effects are accounted. path dependence. The most important results are: greater con-
sistency of model results with the observed developments of
The same model has been employed to compare the costs of technological change;
achieving a given abatement target through carbon taxes and • new technologies first appear in niche markets with ris-
R&D subsidies (Schneider and Goulder, 1997; Goulder and ing market shares;
Schneider, 1999). If there are no spillovers to R&D, the least- • the time of breakthrough of new technologies can be
cost way to reach a given abatement target is through a carbon influenced by policy measures (taxes and R&D) if they
tax alone. The carbon tax best targets the externality from the are strong enough;
combustion of fossil fuels related to climate change, and thus • identification of key technologies, like photovoltaic
is the most cost-effective. However, if there are spillovers to modules or fuel cells, for public R&D investments is
R&D, the least-cost way to achieve a given abatement target is difficult; and
through the combination of a carbon tax and R&D subsidy. If • technological lock-in effects depend on costs.
spillovers are present, there is a market failure in the R&D
market as well as a (climate change related) market failure The most important conclusion for the timing of a mitigation
associated with the use of carbon. Two instruments (the R&D policy is that early emissions-reduction measures are prefer-
subsidy and the carbon tax) are needed to address the two dis- able when LBD is considered. This is confirmed unambigu-
tinct market failures most efficiently. In general, a R&D sub- ously by a macroeconomic modelling study (van der Zwaan et
sidy by itself does not offer the least-cost approach to reducing al., 1999/2000) which finds also lower levels of carbon taxes
carbon emissions. Results from this model are highly sensitive than those usually advocated.
to assumptions about the nature and extent of knowledge
spillovers. Further empirical work that sheds light on these These findings must be tempered by the fact that the models
spillovers would have considerable value. are not only highly non-linear systems, and therefore poten-
tially sensitive to input assumptions, but also the quantitative
8.4.5.2 Learning by Doing (LBD) values employed by modellers are typically drawn from suc-
cessful historical examples. Furthermore, the empirical foun-
LBD as a source of technical change was first emphasized by dations of LBD are drawn from observations of the relation-
Arrow (1962). Nakicenovic (1996) discussed the importance ship between cumulative deployment and/or investment in new
of LBD in energy technology, and Messner (1995) endogenizes technology and cost. This relationship is equally consistent
the learning process in energy models. LBD is a happy conse- with the hypothesis that a third factor reduced costs, in turn
quence of those investments in which learning is a result of leading to increases in demand. The authors restrict their find-
cumulative experience with new technologies. LBD typically ings to more qualitative assertions, because of the limitations
refers to reductions in production cost, in which learning takes of current models (Messner, 1997; Grübler and Messner, 1998;
place on the shop floor through day-to-day operations, not in Barreto and Kypreos, 1999; Seebregts et al., 1999a, 1999b).
the R&D laboratory. The LBD component of change is signif- The research so far has been limited to energy system models
icant too. Kline and Rosenberg (1986) discuss industry studies and ignored other forms of endogenous, complex changes that
that indicate that LBD-type improvements to processes in are important for emissions, like changes in lifestyles and
some cases contribute more to technological progress than the social institutions.
initial process development itself.
8.4.5.3 The Distinction Between Action and Abatement
LBD models use the installed capacity or cumulative use as an
indicator of accumulating knowledge in each sector. The abate- The key message from this discussion about technical change
ment costs are represented by the specific investment costs in is that a clear distinction has to be made between the timing of
US$/kWh. The models are global and therefore the diffusion action and the timing of abatement. As a result of inertia in
process is not represented. The optimization problems are non- technological innovation, short-term action is required to abate
convex, which raises a difficult computational problem to find more in the future, but a given amount of abatement at a given
an optimum. However, pioneering work at the International point in time is not a good measure of the effort. The necessi-
Institute for Applied Systems Analysis (IIASA) on the MES- ty of this distinction is reinforced by the consideration of iner-
SAGE model and additional developments based on models tia in capital stocks. Mitigation costs are influenced by assump-
like MARKAL and ERIS; (MATSSON), Kypreos and Barreto tions about the lifespan of existing plants and equipment (e.g.,
(1999), Seebregts et al. (1999a), (SKFB), Tseng et al. (1999), power plants, housing, and transport). Energy-related capital
and Kypreos et al. (2000) demonstrate progress in this direc- stock is typically long lived and premature retirement is apt to
tion. They show that several technologies are likely to play a be costly. For example, an effort to change the transportation
prominent role in reducing the cost of abatement, if ITC is infrastructure will not reduce carbon emissions significantly
indeed taken into account when computing the equilibrium. A for two decades or more. Hence, a drastic departure from the
problem with modelling endogenous technological change is current trend is impossible without high social costs and a
delay of action in this sector will require higher abatement electric cars and railways, both with comparable costs in a sta-
costs in the more flexible sectors to meet a given target. Lecocq bilized situation; however, a brutal transition from the first sys-
et al. (1999) found that these costs would be increased by 18% tem to the second may be economically disruptive and politi-
in 2020 for a 550ppmv target and by 150% for a 450ppmv tar- cally unsustainable. These issues are examined in more depth
get. in Chapter 10 because the selection of the ultimate target
depends upon the decision-making framework and upon the
This irreversibility built into technological change is far more nature of the damage functions. But, it matters here to insist on
critical when the uncertainty about the ultimate target is con- the fact that the more inertia is built into the technical system,
sidered. In this case indeed, many of the parameters that legit- and the less processes of learning by doing and induced tech-
imize the postponing of abatement play in the opposite direc- nical change have operated, the more costly corrections of tra-
tion. If indeed the concentration constraints turn out to be jectories in hedging strategies will be, for example, moving
lower than anticipated, there may be a need for abrupt reduc- from a 550ppmv concentration goal to 450ppmv (Ha-Duong et
tion in emissions and premature retirement of equipment. In al., 1997; see also Grubb et al., 1995; Grubb, 1997). This pos-
other words, even if the permanent costs of an option (in case sibility of switching from one objective to another is support-
of perfect expectation) are lower than those of an alternative ed by current material regarding climate damages, in particular
option, it may be the case that its transition costs are higher (Tol, 1996) if the rate of change is considered in the analysis
because of inertia. For example, two ideal transportation sys- and the delay between symptoms and the response by society
tems can be envisaged, one relying on gasoline, the other on (see Chapter 10).
Bahn, O., S. Kypreos, B. Bueler, and H. J. Luthi, 1999b: Modelling an

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9
Sector Costs and Ancillary Benefits of
Mitigation

TERRY BARKER (UK), LEENA SRIVASTAVA (INDIA)
Lead Authors:
Majid Al-Moneef (Saudi-Arabia), Lenny Bernstein (USA), Patrick Criqui (France),
Devra Davis (USA), Stephen Lennon (South Africa), Junfeng Li (China), Julio Torres
Martinez (Cuba), Shunsuke Mori (Japan)
Lee Ann Kozak (USA), Denise Mauzerall (USA), Gina Roos (South Africa), William
Rhodes (USA), Sudhir Sharma (India), Sharmila B. Srikanth (India), Clive Turner
(South Africa), Marcelo Villena (Chile)
Review Editor:
Tomihiro Taniguchi (Japan)
CONTENTS
Executive Summary 563 9.2.7 Construction 583
9.2.8 Transport 583
9.1 Introduction and Progress since the Second 9.2.8.1 Aviation 583
Assessment Report 565 9.2.8.2 Passenger Cars 584
9.2.8.3 Freight Trucks, Rail, and Shipping 585
9.2 Economic, Social and Environmental Impacts of 9.2.8.4 Co-benefits from Reduced Road
Policies and Measures on Prices, Economic Traffic 585
Output, Employment, Competitiveness and Trade 9.2.9 Services 586
Relations at the Sector and Sub-sector Levels 565 9.2.10 Households 586
9.2.1 Impacts from Multisectoral Studies 565 9.2.10.1 Distributional Effects of Mitigation 587
9.2.1.1 Effects of Carbon Taxes and 9.2.10.2 Electricity and Demand-side
Auctioned Emission Permits 565 Management 587
9.2.1.2 Reducing Subsidies in the Energy 9.2.10.3 Effects of Improvement in Energy
Sector 567 Efficiency 587
9.2.1.3 Sectoral Impacts of the Kyoto 9.2.10.4 Ancillary Benefits for Households 587
Mechanisms 568 9.2.10.5 The Asia Least-cost Greenhouse Gas
9.2.2 Coal 568 Abatement Strategy Studies 588
9.2.2.1 Costs for the Coal Sector of
Mitigation Options 570 9.3 International Spillovers from Mitigation
9.2.2.2 Ancillary Benefits for Coal Production Strategies 589
and Use of Mitigation Options 571 9.3.1 Technology Policies 589
9.2.3 Petroleum and Natural Gas 571 9.3.2 Tax and Subsidy Policies 589
9.2.3.1 Petroleum 571
9.2.3.2 Natural Gas 575 9.4 Why Studies Differ 590
9.2.3.3 Ancillary Benefits of GHG Mitigation 9.4.1 The Influence of Methods 591
in the Oil and Gas Industry 576 9.4.1.1 Top-down and Bottom-up Modelling 591
9.2.4 Non-fossil Energy 577 9.4.1.2 General Equilibrium and Time-series
9.2.4.1 Electricity Use and Production Econometric Modelling 591
Fuel Mix 577 9.4.2 The Role of Assumptions 591
9.2.4.2 Impacts of Mitigation on the 9.4.2.1 Baseline 591
Electricity Sector 578 9.4.2.2 Costs and Availability of Technology 592
9.2.4.3 Ancillary Benefits Associated with 9.4.2.3 Endogenous Technological Change 592
Mitigation in the Electricity Industry 579 9.4.2.4 Price Elasticity 592
9.2.4.4 Ancillary Costs Associated with 9.4.2.5 Degree of Aggregation 592
Mitigation in the Electricity Industry 579 9.4.2.6 Treatment of Returns to Scale 592
9.2.5 Agriculture and Forestry 579 9.4.2.7 Treatment of Environmental
9.2.5.1 Ancillary Benefits for Agriculture Damages 593
from Reduced Air Pollution 579 9.4.2.8 Recycling of Tax Revenues 593
9.2.5.2 Ancillary Benefits from Carbon 9.4.2.9 International Environmental Policy 593
Sequestration 580
9.2.6 Manufacturing 580 9.5 Areas for Further Research 593
9.2.6.1 Effects on Manufacturing from
Multisectoral Top-down Studies 581 References 595
9.2.6.2 Mitigation and Manufacturing
Employment 581
9.2.6.3 Mitigation Measures and Technology
Strategy 581
Sector Costs and Ancillary Benefits of Mitigation 563
EXECUTIVE SUMMARY
Policies adopted to mitigate global warming will have implica- coal whilst reducing CO2 and other emissions. The oil industry
tions for specific sectors, such as the coal industry, the oil and also faces a potential relative decline, although this may be
gas industry, electricity, manufacturing, transportation and moderated by (1) lack of substitutes for oil in transportation
households. A sectoral assessment helps to put the costs in per- and (2) substitution away from solid fuels towards liquid fuels
spective, to identify the potential losers, and the extent and in electricity generation. Modelling studies suggest that miti-
location of the losses, as well as to identify the sectors that may gation policies may have the least impact on oil, the most
benefit. However, it is worth noting that the available literature impact on coal, with the impact on gas somewhere between;
to make this assessment is limited: there are few comprehen- these findings are established but incomplete. The high varia-
sive studies of the sectoral effects of mitigation, compared with tion across studies for the effects of mitigation on gas demand
those on the macro gross domestic product (GDP) effects, and is associated with the importance of its availability in different
they tend to be for Annex B countries and regions. locations, its specific demand patterns, and the potential for gas
to replace coal in power generation.
There is a fundamental problem for mitigation policies. It is
well established that, compared to the situation for potential Particularly large effects on the coal sector are expected from
gainers, the potential sectoral losers are easier to identify, and policies such as the removal of fossil fuel subsidies or the
their losses are likely to be more immediate, more concentrat- restructuring of energy taxes so as to tax the carbon content
ed, and more certain. The potential sectoral gainers (apart from rather than the energy content of fuels. It is a well-established
the renewables sector and perhaps the natural gas sector) can finding that removal of the subsidies would result in substan-
only expect a small, diffused, and rather uncertain gain, spread tial reductions in greenhouse gas (GHG) emissions, as well as
over a long period. Indeed many of those who may gain do not stimulating economic growth. However, the effects in specific
exist, being future generations and industries yet to develop. countries depend heavily on the type of subsidy removed and
the commercial viability of alternative energy sources, includ-
It is also well established that the overall effects on GDP of ing imported coal; and there may be adverse distributional
mitigation policies and measures, whether positive or negative, effects.
conceal large differences between sectors. In general, the ener-
gy intensity and the carbon intensity of the economies will There is a wide range of estimates for the impact of imple-
decline. The coal and perhaps the oil industries are expected to mentation of the Kyoto Protocol on the oil market using glob-
lose substantial proportions of output relative to those in the al models and stylized policies. All studies show net growth in
reference scenarios, but other sectors may increase their out- both oil production and revenue to at least 2020 with or with-
puts yet by much smaller proportions. Energy-intensive sec- out mitigation. They show that implementation leads to a fall
tors, such as heavy chemicals, iron and steel, and mineral prod- in oil-exporting countries’ revenues, GDP, income or welfare,
ucts, will face higher costs, accelerated technical or organiza- but significantly less impact on the real price of oil than has
tional change, or loss of output (again relative to the reference resulted from market fluctuations over the past 30 years. Of the
scenario) depending on their energy use and the policies adopt- studies surveyed, the largest fall in the Organization of
ed for mitigation. Other industries, including renewables and Petroleum Exporting Countries (OPEC) revenues is a 25%
services, can be expected to benefit in the long term from the reduction in 2010 below the baseline projection, assuming no
availability of financial and other resources that would other- permit trading and implying a 17% fall in oil prices; the reduc-
wise have been taken up in fossil fuel production. They may tion in OPEC revenues becomes just over 7% with Annex B
also benefit from reductions in tax burdens, if taxes are used trading.
for mitigation, and the revenues recycled as reductions in
employer or corporate or other taxes. However, the studies typically do not consider some or all of
the following factors that could lessen the impact on oil pro-
Within this broad picture, certain sectors will be substantially duction and trade. They usually do not include policies and
affected by mitigation. The coal industry, producing the most measures for non-CO2 GHGs or non-energy sources of GHGs,
carbon-intensive of products, faces almost inevitable decline in offsets from sinks, and actions under the Kyoto Protocol relat-
the long term relative to the baseline projection. However, ed to funding, insurance, and the transfer of technology. In
technologies still under development, such as carbon dioxide addition, the studies typically do not include other policies and
(CO2) sequestration from coal-burning plants and in-situ gasi- effects that can reduce the total cost of mitigation, such as the
fication, could play a future role in maintaining the output of use of tax revenues to reduce tax burdens, ancillary environ-
564 Sector Costs and Ancillary Benefits of Mitigation
mental benefits of reductions in fossil fuel use, and induced models and studies. Large differences in results can arise from
technical change from mitigation policies. As a result, the stud- the use of different reference scenarios or baselines. The char-
ies may tend to overstate the overall costs of achieving Kyoto acteristics of the baseline can also markedly affect the quanti-
targets. tative results of modelling mitigation policy. For example, if
air quality is assumed to be satisfactory in the baseline, then the
The very likely direct costs for fossil fuel consumption are potential for air-quality ancillary benefits in any GHG mitiga-
accompanied by very likely environmental and public health tion scenario is ruled out by assumption. Even with similar or
benefits associated with a reduction in the extraction and burn- the same baseline assumptions, the studies yield different
ing of the fuels. These benefits come from a reduction in the results. As regards the costs of mitigation, these differences
damages caused by these activities, especially the reduction in appear to be largely a result of different approaches and
the emissions of pollutants that are associated with combus- assumptions, with the most important being the type of model
tion, such as sulphur dioxide (SO2), nitrogen oxides (NOx), adopted. Bottom-up engineering models assuming new tech-
carbon monoxide (CO) and other chemicals, and particulate nological opportunities tend to show benefits from mitigation.
matter. This will improve local and regional air and water qual- Top-down, general equilibrium models appear to show lower
ity, and thereby lessen damage to human, animal and plant costs than top-down, time-series econometric models. The
health and the ecosystem. If all the pollutants associated with main assumptions leading to lower costs in the models are that:
GHG emissions are removed by new technologies or end-of- • new flexible instruments, such as emission trading and
pipe abatement (for example, flue gas desulphurization on a joint implementation, are adopted;
power station combined with removal of all other non-GHG • revenues from taxes or permit sales are returned to the
pollutants), then this ancillary benefit will no longer exist. But economy by reducing burdensome taxes; and
removal of all pollutants is limited at present and it is expen- • anacillary benefits, especially from reduced air pollu-
sive, especially for small-scale emissions from dwellings and tion, are included in the results.
cars. Finally, long-term technological progress and diffusion are
largely given in the top-down models; different assumptions or
Industries concerned directly with mitigation are likely to ben- a more integrated, dynamic treatment could have major effects
efit from action. These include renewable electricity, producers on the results.
of mitigation equipment (incorporating energy- and carbon-
saving technologies), agriculture and forestry producing ener- It is worth placing the task faced by mitigation policy in an his-
gy crops, research services producing energy and carbon-sav- torical perspective. CO2 emissions have tended to grow more
ing research and development (R&D). The extent and nature of slowly than GDP in a number of countries over the last 40
the benefits will vary with the policies followed. Some mitiga- years. The reasons for such trends vary but include:
tion policies can lead to overall economic benefits, implying • a shift away from coal and oil and towards nuclear and
that the gains from many sectors will outweigh the losses for gas as the source of energy;
coal and other fossil fuels, and energy-intensive industries. In • improvements in energy efficiency by industry and
contrast, other less well-designed policies can lead to overall households; and
losses. • a shift from heavy manufacturing towards more service
and information-based economic activity.
These results come from different approaches and models. A These trends will be encouraged and strengthened by mitiga-
proper interpretation of the results requires an understanding of tion policies.
the methods adopted and the underlying assumptions of the
9.1 Introduction and Progress since the Second 9.2 Economic, Social and Environmental Impacts of
Assessment Report Policies and Measures on Prices, Economic
Output, Employment, Competitiveness and Trade
In the Second Assessment Report (SAR) and in the literature, Relations at the Sector and Sub-sector Levels
the benefits and costs of mitigation have largely been measured
in terms of macro concepts such as gross domestic product Studies of the impact of mitigation policies on sectors can be
(GDP) or total welfare; sectoral effects have not been consid- divided into those which adopt a general approach and cover
ered as a central issue. This chapter considers these sectoral all the sectors of the economy in question, and those which
implications. For a definition of co-benefits and ancillary ben- concentrate on one sector or group of sectors, leaving aside
efits and costs, see Chapter 7; for the macroeconomic effects of indirect effects on the rest of the economy. The general studies
mitigation policies, see Chapter 8. are discussed in 9.2.1, and the sector studies are considered in
the sections that follow.
The definitions of sectors adopted in this chapter is that of the
UN System of National Accounts (1993 ISIC). This is an inter- The studies can also be arranged according to the methodolo-
nationally agreed set of definitions, conventions, and accounts gy of the analysis:
which includes the division of the macro economy into indus- (1) top-down studies, that capture general effects on the econ-
trial sectors, such as manufacturing. The data for sectoral eco- omy and tend to consider price-driven policies such as car-
nomic models are usually arranged according to these bon taxes rather than technology policies;
accounts, and the results of the models reported below (in as (2) bottom-up studies that do not consider general effects but
much as they provide a comprehensive sectoral disaggregation examine technology-driven options1; and
of the macroeconomic effects) will follow these definitions. (3) financial cost-benefit analyses of individual mitigation
However, the energy sector is further subdivided in this chap- measures, which do not include impacts on social factors,
ter, since the mitigation effects are so important and distinct for but sometimes do include the ancillary benefits (e.g.,
the component industries, namely coal, oil and gas, and elec- ADB-GEF-UNDP, 1998a).
tricity.
The general studies tend to be top-down, although there have
When assessing the sectoral responses to mitigation policies been major comprehensive bottom-up studies (e.g., Krause et
and measures, a distinction can be made between commercial al., 1992). Many of the individual sector studies are bottom-
firms (partnerships or corporations) and persons (such as car up or cost-benefit. The top-down and bottom-up methodolo-
drivers and home-owners) as decision makers. Firms are gen- gies are compared in section 9.4.1.1.
erally expected to be more price-responsive in their fuel use,
because of better access to capital, information, and technolo-
gies, while persons generally value lifestyles more highly in 9.2.1 Impacts from Multisectoral Studies
their fuel use decisions. Although “sectors” are largely taken to
be industrial contributors to GDP, households and private These studies tend to use large-scale models as a framework
motorists are also responsible for large amounts of greenhouse for the analysis. Important differences between the studies
gas (GHG) emissions and are also covered in this chapter. arise from the type of model being used (computable general
equilibrium (CGE) or econometric), the method chosen for the
The effects of mitigation can be divided into the effects in the recycling of any tax revenues, and the treatment of the world
sector or region that undertake the mitigation policies and mea- oil market. Two topics, the effects of carbon taxes (and more
sures and the further, consequential effects, or spillovers, on recently traded emission permits) and the removal of energy
other sectors or regions. More investment in energy-efficient subsidies, have been assessed in some detail.
equipment or in technology to develop a renewable source of
energy may lead to technological spillovers on other sectors. 9.2.1.1 Effects of Carbon Taxes and Auctioned Emission
Such spillovers are considered below. Permits
This chapter continues with reviews of results from multisectoral Table 9.1 gives some details of studies of mitigation policies
studies (9.2.1), followed by those on each major sector in turn for which sectoral effects are available. These are all at a coun-
(coal, petroleum and gas, non-fossil-based energy, agriculture try or world-region level (e.g., the European Union). The table
and forestry, manufacturing, construction, transport, service also shows the outcomes of different policies on carbon diox-
industries, and households in Sections 9.2.2 to 9.2.11). Section ide (CO2) emissions, GDP and sectoral outputs. For some stud-
9.3 reviews the literature on sectoral spillover effects of mitiga- ies a range of outcomes is shown, corresponding to the range
tion in one country or region on the rest of the world. Ancillary published for GDP depending on some critical assumption,
benefits associated with particular sectors or with sectoral miti-
gation policies are covered in Sections 9.2.2 to 9.2.11. Section
9.4 considers why the macro and sectoral studies come to differ- 1 US National Academy of Sciences (1992) reviews a number of stud-
ent conclusions. Section 9.5 suggests areas for further research. ies on this debate.
Table 9.1: Some multisectoral studies of carbon dioxide mitigation
Region or China EU-6 EU-11 New UK USA USA USA

reference Zealand
country Garbaccio DRI Barker Bertram Cambridge CRA Jorgenson McKibbin
et al. (1994) (1999) et al. Econo- and DRI et al. et al.
(1999) (1993) metrics (1994) (1999) (1999)
(1998)
Funding body US Dept of EC EC NZ Min FFF-FOE Electric US EPA

Energy of Power
Environ- Research
ment Institute
Model DRI-models E3ME ESSAM MDM-E3 DRI JWS G-cubed
Model type Static CGE Macro Macro CGE Macro Macro Dynamic Dynamic
CGE CGE
Policy Carbon tax Carbon tax Carbon tax Carbon & Carbon tax Carbon Tax Emission Emission
energy taxes permits permits
Recycling mode All other Employer Employer Corporate Employer Lump- Personal Lump-
taxes taxes taxes tax taxes sum income sum
Industries 29 20-30 30 28 49 About 100 35 12
Fuel types 4 17 11 4 10 4 4 5
Period 1992 to 2032 1992 to 2010 1970 to 2010 1987 to 1997 1960 to 2010 1990 to 2010 1996 to 2020 1996 to 2020
Effect year 2032 2010 2010 1996/97 2010 2010 2020 2010
Model run 15% INT Mult-coord. 324 C72F11 $100/tC Personal Unilateral
US
CO2 -15% -15% -10% -46% -4.4% -15.3% -31% -29.6%
GDP +1% +0.9% +1.4% +4.6% +0.1% -2.3% +0.6% -0.7%
Output: coal -19% Energy -7% -8% -24% 0% -25% -52% -40%
: refined oil -2 -17 -22 -0 -6 -4 -16
: gas -4 -41 -4 -18 -25 -14
: electricity +3 (year 1) -3 -17 -1 -17 -12 -6
: agriculture +0 (year 1) -7 +3 +4 +0 +4 -1
: forestry .. .. .. +5 .. .. -1
: food, etc. +0 (year 1) Manufac- +2 +3 +0 +5 Nondur-
turing +1 ables –1
: chemicals +1 (year 1) +2 +6 -0 -0 ..
: steel +1 (year 1) +1 -26 -1 -5 -3 Durables –1
: construction +1 (year 1) .. +1 +0 +0 +1 ..
: transport +1 (year 1) -2 +0 +5 +0 -4 +1 -2
: services +0 (year 1) +1 +1 +6 +0 -2 +3 -0
: consumer’s
expenditure +0.8% +6.7% +0.1% -1.9% +0.7% -0.4%
Notes: (1) “Multisectoral models” are defined as those in which GDP is divided into production sectors. Definitions of sectors differ between studies.
(2) .. denotes not available or not reported.
such as the method chosen to recycle government revenues. • a shift from heavy manufacturing towards more service
The effects are shown as differences from the reference sce- and information-based economic activity.
nario or the base in the final year of the projection. Note that These trends will be encouraged and strengthened by mitiga-
the macroeconomic results of these studies are covered in tion policies.
Chapter 8.
9.2.1.2 Reducing Subsidies in the Energy Sector
Several conclusions are well established in this literature.
(1) The nature of the recycling of revenues from new taxes or Empirical and theoretical studies indicate that no regrets poli-
permit schemes is critical to the sectoral effects (and the cies can result from the removal of subsidies from fossil fuels
overall GDP effects - see Chapters 7 and 8 for a detailed or from electricity that relies on fossil fuels. The UN
discussion of the recycling literature). In some of the stud- Framework Convention on Climate Change (UNFCCC article
ies (e.g. Garbaccio et al., 1999, 2000), GDP is increased 4.2e (ii)) calls for Annex I Parties “to identify and periodically
above the reference scenario when rates for some burden- review its own policies and practices which encourage ...
some tax are reduced. Those studies that report reductions [greater emissions] than would otherwise occur”. The Kyoto
in GDP do not always provide a range of recycling options, Protocol calls for such Parties to “implement … measures ...
suggesting that policy packages that increase GDP have such as ... progressive reduction or phasing out of market
not been explored. imperfections, fiscal incentives, tax and duty exemptions and
(2) Reductions in fossil fuel output below the reference case subsidies in all greenhouse gas emitting sectors that run
will not impact all fossil fuels equally. Fuels have different counter to the objective of the Convention …”.
costs and price sensitivities, they respond differently to
mitigation policies, energy-efficiency technology is fuel The extent of the impact of reducing subsidies will depend on
and combustion device specific, and reductions in demand the specific characteristic of each country, the type of subsidy
can affect imports differently from output. Large effects on involved, and the international co-ordination to implement
gas output are discussed below in section 9.2.3.2. similar measures. Most countries introduce subsidies in order
(3) In most instances the relative decline in output does not to accomplish several policy objectives. In the case of energy,
imply an absolute decline of the sector; rather it implies a these are usually in order to:
decline in its rate of growth. This is particularly true for the • secure domestic energy supplies;
oil sector, where under present technology there is a cap- • ensure that power supply is sufficient to meet demand;
tive market in the use of oil for personal transportation, • provide access to energy for low-income households;
which is expected to increase substantially over the fore- • maintain or slow the loss of employment in mining
seeable future (this is not shown in Table 9.1, but reflected communities; and
in the literature). • retain the international competitiveness of domestic
(4) The sectoral results suggest that agriculture usually bene- industry.
fits2. The effects on manufacturing are mixed and the rea-
sons for these results are explored below. Finally, the ser- Coal subsidies have encouraged high production of coal in a
vice sectors generally increase their output as a result of number of industrial countries and high coal consumption in
the policy shifts; since services are such a large proportion numerous developing and transition economies (OECD,
of GDP, if the overall economy has higher output this usu- 1997c). For example, a complete measure of the total support
ally implies that services have higher output. to producers can be estimated in the form of the producer sub-
sidy equivalent (PSE), which has been calculated annually by
It is worth placing these results and the tasks faced by mitiga- the International Energy Agency (IEA) for several countries
tion policy in an historical perspective. CO2 emissions have since 1988 ( IEA, 1998b). DRI (1994) used revised versions of
tended to grow more slowly than GDP in a number of countries the IEA’s coal PSE estimates (shown in Table 9.2) to model the
over the last 40 years (Proops et al., 1993; Price et al., 1998; effects of removing subsidies. These subsidies tend to increase
Baumert et al., 1999). The reasons for such trends vary but GHG emissions and more general pollution.
include:
• a shift away from coal and oil, and towards nuclear and In recent years many countries have changed their energy pol-
gas as the sources of energy; icy, from a focus on energy self-sufficiency, to broader policy
• improvements in energy efficiency by industry and objectives, oriented towards encouraging economic efficiency
households; and and taking into account environmental problems. Subsidies are
currently under review by many countries, and in some cases
reforms have already taken place. Nevertheless, large subsidies
remain in both Annex I and non-Annex I countries.
2 The reason for the major reduction of –7% in the DRI (1994) results
for EU–6 agricultural net output is that the scenario contains a wide In theoretical terms, polluting activities, such as coal mining
range of environmental policies in addition to climate change policies, and coal burning, could be taxed in order to achieve economic
and many of these impinge heavily on agriculture. efficiency. Economic theory indicates that the optimal policy
Table 9.2: Producer subsidy equivalents for coal production in OECD countries in 1993
PSE per Total Budgetary Price Subsidized

tonne PSE support support production
US$/tce MUS$ Mtce
France 43 428 100% 0% 10.0

Germany 109 6688 40% 60% 61.5
Japan 161 1034 12% 88% 6.4
Spain 84 856 37% 63% 10.2
Turkey 143 416 100% 0% 2.9
UK 15 873 2% 98% 57.4
US 0 0 0 0 0
Note: PSE is Producer Subsidy Equivalent; tce = tonne of coal-equivalent; Mtce = million tce. 1 tce = 29.308 GJ
Source: OECD (1997c).
would be to replace those production and consumption subsi- 9.2.1.3 Sectoral Impacts of the Kyoto Mechanisms
dies with optimal taxes. According to global studies, even
without adding new taxes, removing the subsidies and trade The effects of the Kyoto Mechanisms at the sectoral level are
barriers at a sectoral level would create a win-win situation, complex. The available studies have looked at the effect of
improving efficiency and reducing the environmental damage international emissions trading, but there have been no com-
(Burniaux et al., 1992; Hoeller and Coppel, 1992; Larson and prehensive studies on the sectoral effects of the Clean
Shah, 1992, 1995; Anderson and McKibbin, 1997). It is a well- Development Mechanism (CDM) or joint implementation (JI).
established finding that removal of these subsidies would result Countries buying assigned amount units (AAUs), or funding
in substantial reductions in GHG emissions, as well as stimu- CDM and JI projects, may have less need to reduce fossil fuel
lating economic growth. Local studies also indicate that consumption. Therefore, the sectors in these countries that
removing support to the production and use of coal and other depend on fossil fuel production or use may experience small-
fossil fuels can result in substantial reductions in CO2 emis- er economic impacts (Brown et al., 1999). This would also
sions in the main coal-using countries, at the same time as reduce the impact on fossil fuel producers, both at the domes-
reducing the cost of electricity production (DRI, 1994; Shelby tic and international level. However, countries selling credits,
et al., 1994; Golub and Gurvich, 1996; Michaelis, 1996; or hosting JI and CDM projects, will have to generate these
OECD, 1997c, Appendix A). Table 9.3 is a review of the quan- AAUs or Certified Emission Reductions (CERs) through either
titative results of these case studies, along with the global stud- reduction of GHG emissions or enhancement of sinks. The
ies. Note, however, that these analyses adopt different method- economic impact on sectors within those countries will vary
ologies, so that the figures are not directly comparable. depending on the source of the credits. Some sectors will ben-
efit, while others may see reduced rates of growth. Until the
In spite of these results, it is not wise to generalize about the rules for implementation of the Kyoto mechanisms have been
environmental and economic effects of removing subsidies in decided, sectoral impacts of their use will remain speculative.
the energy industry (OECD, 1997c). For example, the effect of
removing subsidies to coal producers depends heavily on the
type of subsidy removed and the availability and economics of 9.2.2 Coal
alternative energy sources, including imported coal. Removing
some electricity sector subsidies may have very little effect on Coal remains one of the major global and long-term energy
GHG emissions or may even increase emissions, for example, resources and is likely to continue being so as long as eco-
when subsidies to electricity supply industry investment are nomically exploitable reserves are widely available. Though its
supporting the use of less polluting energy sources. Finally, relative importance has declined in industrialized countries
there may be cases where removing a subsidy to an energy- during the last century, mainly as a result of the advent of oil
intensive industry in one country would lead to a shift in pro- and gas, 36% of world electricity is generated from coal and
duction to other countries with lower costs or environmental 70% of world steel is produced using coal and coke. Global
standards, resulting in a net increase in global GHG emissions hard coal production in 1998 was about 3,750Mt, mostly used
(OECD, 1997c). The issue of carbon leakage is addressed in to generate electricity, with reserves estimated at in excess of
greater detail in Chapter 8. 1000 billion tonnes (WCI, 1999; IEA, 1998b, 1999). The
dependence on coal use in electricity generation in developing
countries is expected to continue. Depending on the efficiency
of this power generation and the degree of substitution for
Table 9.3: Summary results from case studies on energy subsidy removal
(note that subsidies are defined in various ways and are not comparable)
Study Subsidy or group of Monetary equivalent Decrease in annual Other economic effects
subsidies removed of distortion (US$ CO2 emissions relative of removing subsidies
million, various to reference scenarios
years, 1988 –to 1995) resulting from reforms
by 2010 million tonnes
Larsen and Global price subsidies to 215,000 1366a Enhanced economic growth.
Shah (1995) consumers of fossil fuels
(difference between domestic
and world prices)b
GREEN Global price subsidies to consumers 235,000 1,800 in 2000 Enhanced economic growth in
of fossil fuels (difference between 1,5000 in 2050 most regions, largest in CIS.
domestic and world prices)b Improved terms-of-trade for
non-OECD countries.
DRI Coal PSEs in Europe and Japan 5,800 10 (DRI estimate) Job loss in coal industry,
(1994) >50 (OECD estimate) increased coal trade.
Böhringer Coal in Germany 6,700 NQ Nearly 1% GDP increase. Job loss
in coal industry, increased coal
trade. Cost of using subsidies to
maintain jobs is 94–145,000 DM
per job/year. Reduces cost
of meeting CO2 target.
Australia State procurement/planning 133 0.3 Reduces cost of meeting CO2
target.
Barriers to gas and electricity 1,400 0.8 Reduces cost of meeting CO2
trade target.
Below-market cost financing NQ NQ
Italy Net budgetary subsidies to the 4,000 12.5 Reduces cost of meeting CO2
electricity supply industry (ESI) target/makes CO2 tax more
VAT below market rate 300 0.6 effective.
Subsidies to capital 1,500 3.3
Excise tax exemption for fossil 700 5.9
fuels use by ESI
Total net and cross-subsidies 10,000 19.2
Norway Barriers to trade NQ 8 for Nordic region
Russia Direct subsidies and price 3,600 120 1% drop in employment
control for coal
Price control/debt forgiveness 6,000 (about half caused by (but note that model included no
for electricity consumers shift from coal to other subsidy recycling mechanism).
fuels, half to reduced
final energy demand)
UK Grants and price supports for 2,500 0 to 40
coal and nuclear producers
VAT on electricity below 1,200 0.2
general rate
USA DFI (1993) analysis of federal 8,500c 10
subsidies
DJA (1994) analysis of federal 15,400c 64 GNP increased 0.2% if revenue
subsidies used to reduce capital taxes.
Source: OECD (1997c)

a The model used is comparative static: emission reduction is calculated using mostly 1991 market data.
b This measure of “subsidies” is a crude one, and does not necessarily indicate the existence of any particular government policy.
c The two studies analyze different sets of energy supports and use slightly different estimates for some of them: these figures are not a reliable indication of
total US federal energy subsidies. See Appendix A, Table 14, OECD (1997c) for details. Results are sensitive to assumptions regarding the future structure
of the US electricity supply industry.
NQ = not quantified
direct coal combustion, fuel substitution can assist in reducing rate. Whilst limited work has been undertaken in this area,
GHG emissions, for example when electrification reduces coal macro impacts identified by the IEA (1997a and 1999) and the
use by households (see Held et al., 1996; Shackleton et al., WCI (1999) include:
1996; and Lennon et al., 1994 for a discussion of the South • reduced economic activity in coal-producing countries
African electrification programme). owing to reduced coal sales;
• job losses in the coal mining, coal transport, and coal
The Special Report on Emissions Scenarios (Nakicenovic et processing sectors – especially in developing countries
al., 2000) suggests that there is a very large range in the glob- with high employment per unit of output;
al primary energy demand expected to come from coal even in • potential for the “stranding” of coal mining assets as
the absence of additional climate change policy initiatives. For well as coal processing assets;
example, in 2100, scenario A2 has a coal demand of some • closure of coal mines, which are very expensive to re-
900EJ, but scenario B1 has only 44EJ (the 1990 level is esti- open;
mated to be 85-100EJ). • higher trade deficits caused by reductions in coal
exports from developing countries;
GHG mitigation is expected to lead to a decline in coal output • reduction in national energy security resulting from an
relative to a reference case, especially in Annex B countries. increased reliance on imported energy sources where
Indeed the process may have already started; recent trends in local energy options are primarily coal based;
coal consumption indicate a 4% reduction in OECD countries • negative impacts of mine closure on communities
and a 12.5% increase in the rest of the world in 1997 versus where the mine is the major employer; and
1987 (WCI, 1999). The process may lead to higher costs, espe- • possible slowdown of economic growth during the
cially if the change is rapid, but there are also substantial ancil- transition from coal to other energy sources in countries
lary benefits. Chapter 3 discusses the wide variety of mitiga- with a heavy reliance on coal.
tion options that exist for the production and use of coal. These
involve reducing emissions directly from the coal mining Kamat et al. (1999) modelled the impact of a carbon tax on the
process, replacing coal with other energy sources or reducing economy of a geographically defined coal-based region, name-
coal utilization (directly through efficiency of coal combustion ly the Susquehanna River Basin in the USA. Their results indi-
or indirectly via the more efficient use of secondary energy cated that maintaining 1990 emissions with a carbon tax of
supplies). about US$17 per tonne of carbon could have a minor impact on
the economy as a whole, however, the negative impacts on the
Some of the options detailed in Chapter 3 could represent a energy sector could be considerable. In this regard the model
“win-win” situation for GHG mitigation and the coal sector. indicates a decrease in total output of the coal sector of approx-
For example, GHG mitigation can be achieved by reducing the imately 58%. Exports are also severely affected with resultant
coal sector’s own energy consumption, beneficiation and coal- production cutbacks and job losses.
bed CH4 recovery, whilst maintaining coal production. Other
options have clear, but often non-quantifiable, costs and/or At the global level, Bartsch and Müller (2000) report results
ancillary benefits attached to them. The study Asia least-cost that suggest a significant reduction in the OECD’s demand for
GHG abatement strategy (ALGAS)-India (ADB-GEF-UNDP, coal under a Kyoto-style scenario against a baseline scenario.
1998a) reports that Indian CO2 abatement would be primarily Coal demand is modelled to fall by 4.4mtoe3 per day from this
achieved by fuel switching and, to some extent, by a shift to baseline in 2010 and 2020. Knapp (2000) indicates a substan-
more expensive but more efficient technologies. The most tial potential for relocation of the steel industry from Annex B
affected sector is coal as its consumption is modelled to countries to the rest of the world as coal becomes more expen-
decrease in power generation, followed by the industrial and sive. Whilst compromising overall emission reduction objec-
residential sectors. The study concludes that this could lead to tives, this could be viewed as a positive equity contribution
a significant reduction in labour employment in the coal sector. with economic benefits for non-Annex B countries. Knapp also
For China, using a dynamic linear programming model, Rose indicates that the reduction in coal exports to Annex B coun-
et al. (1996) find that CO2 emissions may be reduced substan- tries for thermal power generation will severely impact some
tially by conserving energy and switching away from coal, coal-exporting countries. In particular Colombia, Indonesia,
without hindering future economic development. and South Africa will incur substantial losses in export income
with attendant job and revenue losses. These costs might, to an
9.2.2.1 Costs for the Coal Sector of Mitigation Options extent, be reduced through the use of the Kyoto CDM and tech-
nological innovation. The CDM might, for example, be used to
Apart from the direct loss of output there are numerous other transfer highly efficient clean coal technology to non-Annex B
costs for the coal sector associated with mitigation. These costs countries, as well as promote economic diversification to less
relate mainly to the impact of the long-term reduction in coal
consumption and hence coal production. In the short to medi-
um term, these impacts will be moderate as global coal con- 3 mtoe means million tonnes oil equivalent; 1 tonne oil equivalent
sumption is anticipated to continue to increase, albeit at a lower (toe) equals 45.37 GJ.
energy-intensive economic activity and the relocation of ener- 9.2.3 Petroleum and Natural Gas
gy-intensive industries. To achieve full benefits the latter
would have to be accompanied by efficiency improvements Petroleum and natural gas are discussed in a single section,
through the application of state of the art technology. because they are often produced in the same countries and mar-
keted by the same companies. In terms of value, petroleum is
Pershing (2000) notes that internal economic growth could off- the largest single commodity traded on the world market. Coal,
set the negative export impacts within 5 years for Colombia by comparison, is typically used in the country in which it is
and Indonesia, but not for South Africa. In this regard he produced. Approximately 55% of the oil produced worldwide
reports that South Africa could feel the greatest impacts of the is exported, compared with 20% for gas and 12% for hard coal.
major non-Annex B coal-exporting countries. In particular, he The three fuels have quite different patterns of demand and dif-
forecasts revenue losses for Indonesia and South Africa as ferent carbon contents per unit of useful energy.
being as high as 1% and 4% of gross national product (GNP)
respectively. Dunn (2000) reports that the coal industry has 9.2.3.1 Petroleum
been shedding jobs for several years now and this trend is like-
ly to continue in the coal industry as GHG mitigation actions Global production of crude oil in 1998 totalled 3,516Mt
take effect. Pershing (2000), however, suggests that such (approx. 147EJ). In 1997, 56% of oil was consumed in the
impacts may not materialize as a result of the implementation transport sector, up from 42% in 1973 (IEA, 1997b). The emis-
of the Climate Convention or Kyoto Protocol commitments. sion scenarios in the Intergovernmental Panel on Climate
For example, most projections are based on the use of macro- Change (IPCC) Special Report (Nakicenovic et al., 2000)
economic models - most of which do not take into account fos- show a wide range in demand for oil in 2100, from 0.5EJ in the
sil fuel distribution effects at the national level, or the use of A2 marker scenario to 248EJ in the illustrative scenario A1FI.
CO2 sinks or non-CO2 GHG mitigation options. Pershing also Cumulative oil use between 1990 and 2100 in scenario A1FI is
suggests that some of these impacts may be offset by other 29.6ZJ, about 200 times 1998 production, which is close to the
aspects of future energy and development paths. For example, combined conventional and unconventional resource base
in a world in which climate change mitigation policies have known today (see Chapter 3).
been taken, investment in non-conventional oil supply might
be deferred - lowering the impacts on conventional fuel Oil is exported by more than 40 countries worldwide with 11
exporters. of which are members of the Organization of Petroleum
Exporting Countries (OPEC). OPEC accounts for 76% of
9.2.2.2 Ancillary benefits for Coal Production and Use of world crude oil reserves, 41% of world production and 55% of
Mitigation Options world exports (BP Amoco, 1999). On the other hand, around
54% of the world’s downstream refining capacities are in the
The main ancillary benefits associated with reduction in coal OECD, which controls 30% of the world’s crude production.
burning, namely public health impacts, are considered in The petroleum industry is divided into two sectors, the
Chapter 8. However, there are also some ancillary benefits of “upstream” which involves finding and producing crude oil,
mitigation directly affecting the coal industry. Mitigation could and the “downstream” which involves refining crude oil into
increase energy efficiency in coal utilization (Tunnah et al., petroleum products and marketing those products to end-users.
1994; Li et al., 1995). The uptake of new, high efficiency, clean The distinction between OPEC and/or non-OPEC and
coal technologies (IEA, 1998b) could lead to enhanced skills upstream and/or downstream aspects of the market and indus-
levels and technological capacity in developing nations. try is useful in assessing the impact of mitigation on prices,
Further benefits include increased productivity as a conse- output and wealth.
quence of increased market pressures, as well as the extension
of the life of coal reserves. The costs of adjustment will be 9.2.3.1.1 The Global Oil Market
much lower if policies for new coal production also encourage
clean-coal technology. Mitigation also may favour coal pro- The market for crude oil is global, and a reduction in demand
duction in non-Annex B countries as a result of the migration will affect all exporters via the price mechanism. However, the
of energy-intensive industries to developing countries (carbon national economic impact of reduced demand varies greatly
leakage), although estimates of the scale of such leakage are depending on the actual cost of production of crude oil and the
highly dependent on the assumptions made in the models degree to which the economies of individual producer coun-
(Bernstein and Pan, 2000). There are also potential benefits in tries are dependent on oil exports. It should be noted that the
enhancing research and development (R&D) in the coal indus- cost of production for crude oil can be very different from the
try, especially in finding alternative and non-emitting applica- market price, which includes royalties paid to government,
tions for coal (IEA, 1999). transportation costs, and profit. Low-cost producers will be
able to tolerate declines in the price of crude oil better than
high-cost producers will. The more dependent a country is on
oil and gas exports, the more its economy will be impacted if
the value of these exports decreases.
Table 9.4: Costs of Kyoto Protocol implementation for oil exporting region/countriesa
Modelb Without tradingc With Annex-I trading With “global trading”
G-Cubed -25% oil revenue -13% oil revenue -7% oil revenue
GREEN -3% real income “substantially reduced loss” N/ad
GTEM 0.2% GDP loss <0.05% GDP loss N/a
MS-MRT 1.39% welfare loss 1.15% welfare loss 0.36% welfare loss
OPEC Model -17% OPEC Revenue -10% OPEC revenue -8% OPEC revenue
CLIMOX N/a -10% some oil exporters’ revenues N/a
Source: Pershing (2000)

a The definition of oil exporting country varies: for G-Cubed and the OPEC model it is the OPEC countries, for GREEN it is a group of oil exporting coun-
tries, for GTEM it is Mexico and Indonesia, for MS-MRT it is OPEC + Mexico, and for CLIMOX it is West Asian and North African oil exporters.
b The models are all considering the global economy to 2010 with mitigation according to the Kyoto Protocol targets (usually in the models, applied to CO2
mitigation by 2010 rather than GHG emissions for 2008 to 2012) achieved by imposing a carbon tax or auctioned emission permits with revenues recycled
through lump-sum payments to consumers; no ancillary benefits, such as reductions in local air pollution damages, are taken into account in the results. See
Weyant (1999).
c “Trading” denotes trading in emission permits between countries.
d N/a denotes “not available”.
Different top-down models have been used to study the effects ing countries (Table 9.4). Direct comparison of the model
of CO2 abatement on the oil market.4 Few macroeconomic results is difficult, because each model uses a different measure
models have explicitly examined the economic impact of CO2 of impact, and many use different groups of countries in their
abatement on energy-exporting countries. Most of the models definition of oil exporters. However, the studies all show that
(OECD’s computable general equilibrium model (GREEN), use of the flexibility mechanisms will reduce the economic
OPEC’s world energy model (OWEM), the IEA model, the cost to oil producers.
international integrated assessment model (IIAM), and
Whalley and Wigle’s model (WW)) cover different world geo- These and other studies show a wide range of estimates for the
graphic regions or country groupings. impact of GHG mitigation policies on oil production and rev-
enue. Much of these differences are attributable to the assump-
Wit (1995) surveys such models and concludes that they tions made about: the availability of conventional oil reserves,
should be treated with caution, as hardly any of the global the degree of mitigation required, the use of emission trading,
models have been constructed primarily to examine the eco- control of GHGs other than CO2, and the use of carbon sinks.
nomic impact of CO2-abatement policies on energy exporters. However, all studies show net growth in both oil production
The sensitivity of the parameters used in the surveyed models and revenue to at least 2020. As Pershing (2000) points out,
is high, which underlines the uncertainties with regard to the these studies show significantly less impact on the real price of
results. In three of the models (OWEM, GREEN, and WW) the oil than has resulted from market fluctuations over the past 30
CO2-abatement policies would result in the energy exporters years. This feature (well-established) is illustrated in Figure
suffering the greatest welfare losses. (See Chapter 7 for a dis- 9.1. This figure shows the projection of real oil prices to 2010
cussion on welfare losses.) The cumulative losses of a 1990 from the IEA’s 1998 World Energy Outlook (IEA, 1998b) and
CO2 emissions stabilization target range between 3% to 12% of the effect of implementing the Kyoto Protocol from the G-
GDP for energy exporting countries by 2010. cubed study (McKibbin et al., 1999, p. 326), the study which
shows the largest fall in OPEC revenues in Table 9.4. The 25%
Pershing (2000) also surveys a number of model results for loss in OPEC revenues in the non-trading scenario implies a
impacts of implementation of the Kyoto Protocol on oil export- 17% fall in oil prices shown for 2010 in the figure; this is
reduced to a fall of just over 7% with Annex B trading.
4 With the exception of Bartsch and Mueller (2000), all of the eco-
Many of the studies addressing the impact of CO2 mitigation
nomic studies discussed in this section assume adequate supplies of
on oil producers are worth describing in more detail.
conventional crude oil to 2020 and beyond, the generally accepted
position on the availability of this resource. However, there are ana-
Rosendahl (1996) uses a competitive dynamic model of the oil
lysts who predict oil supply shortages before that date (Campbell, market with oil as an exhaustible resource. A constant unit cost
1997). If such shortages were to develop, oil use, and therefore CO2 of extraction and fixed amount of the oil resource are assumed
emissions, would decline without the imposition of GHG mitigation in analyzing the impact of constant unit carbon tax. The model
policies. See Chapter 3 for an assessment of the literature on fossil finds that a US$12/barrel carbon tax would reduce global oil
fuel reserves and resources. wealth (defined as the net real value of accumulated oil pro-
70
year 2000 estimated price

60 G-Cubed: Kyoto Annex I trading
Real oil price US$(1990) per barrel
G-Cubed: Kyoto no trading

50
IEA (1998) Projection
40
30
20
10
0
1970 1975 1980 1985 1990 1995 2000 2005 2010
Note: The oil price shown is that of UK Brent deflated by the US GDP deflator. The year 2000 estimated price is based on actual prices January to August and
futures prices September to December.
Sources: IMF, International Financial Statistics, August 2000 and various earlier issues, IEA (1998b) and McKibbin et al. (1999).
Figure 9.1: Real oil prices 1970 to 2010 and the Kyoto target.
duction) by 33%–42% and non-OPEC oil wealth 40%–54%, by 8%, and the tax revenue would be collected by consuming
with the lower figure reflecting an assumed low price elastici- countries. The tax reduces CO2 emissions by 20% below the
ty of -0.55. Doubling the carbon tax would reduce global oil baseline levels over the first 50 years, and then eliminates fos-
wealth by 58%–74% and non-OPEC wealth by 70%–96%. The sil fuel combustion altogether by 2110; this comes about
average producer could lose about 10% of their wealth at the through an assumption of a falling real price for backstop (car-
low tax assumption (US$3/barrel) and around two-thirds of bon-free) technology. Lindholt (1999) follows up this study,
their wealth at the high tax assumption (US$24/barrel). The looking at the implications of a CO2 tradable auctioned permit
marginal carbon tax increase would reduce the producers’ scheme to meet (a) Kyoto-style targets interpreted as CO2 (not
price, or the resource rent, by 33%–50%, and increase the con- GHG) targets and (b) a global reduction below 1990 levels of
sumer price by 50%–67% of the tax increase. 5.2% with emissions held constant 2010 to 2100. OPEC’s pro-
duction in (a) is reduced by 10% relative to the baseline in
Berg et al. (1997) examine the effect of a global CO2 tax on the 2010 (the permit price is US$6.2/boe) rising sharply after 2040
global oil, gas and coal markets using Statistics Norway’s before falling to zero in 2070, but oil prices are maintained to
PETRO model. They use an optimizing, intertemporal equilib- 2010; in (b) the reduction is 22% by 2010. Again for 2010 most
rium model with three demand regions (OECD-Europe, rest- of the permit revenues go to Annex B countries.
OECD and non-OECD) and two supply regions (OPEC and the
competitive fringe). They find that in the first 40 years starting Donovan et al. (1997) model the economic impact of two CO2
in 1995, given a US$10/barrel oil-equivalent (boe6) carbon tax emission reduction scenarios compared to a reference case
and assuming OPEC exercised market power, OPEC’s oil with no limits on emissions. In their less stringent scenario,
wealth would be reduced by 20% and non-OPEC’s oil wealth Annex B countries stabilize their CO2 emissions from fossil
fuels at 1990 levels by 2010; in their more stringent scenario,
they reduce their emissions to 15% below 1990 levels by 2010.
5 Estimates of the price elasticity of crude oil demand for the long and Their model projections show oil use in 2010 reduced by 3.7%
short terms differ across regions and sectors. A survey (Huntington, and 5.9% respectively in the less severe and more severe sce-
1991) of inferred price elasticities from 11 world models found the narios. These relatively small reductions are attributed to the
OECD short-term elasticity to be –0.06 to –0.20 (average –0.12) and
fact that most oil is used in the transport sector where there is
the long-term elasticity to be –0.35 to –0.80 (average –0.47). The cor-
relatively little opportunity for substitution. In 2010, in the less
responding estimates for the non-OECD short-term elasticity are
–0.04 to –0.14 (average –0.11) and for the long term –0.17 to –0.54 stringent case, the value of oil exports from non-Annex B to
(average –0.30). The world average elasticity in the short term is Annex B countries declines by about 8%.
–0.10 and in the long term –0.38.
Jacoby et al. (1997) use an emissions predictions and policy
61 barrel oil equivalent (boe) equals 6.12GJ. analysis (EPPA) model, a CGE model derived from the OECD
GREEN model. The world is divided into 12 trading regions, 8 to simulate the effects of two Kyoto scenarios on the global oil
production sectors, including 5 energy sectors, and 4 con- market. The “most likely” scenario assumes the implementa-
sumption sectors, as well as government and investment section of the Protocol and its extension to the year 2020, with the
tors. Model results show that when a quantitative emissions policy instruments relying heavily on CO2 trading permits
reduction is applied to the OECD region, all other regions suf- among Annex B countries. Oil production declines by 3% in
fer welfare loss from the reduction in economic activity and 2010 and 5% in 2020, and global oil revenues fall by an aver-
energy use in OECD, as well as the associated adjustment in age of 12%. The model assumes supplies of conventional oil
prices of energy and the consequences on international trade. peaking in 2015 and a CH4 leakage tax raising the price of nat-
The welfare losses in energy exporting countries are no greater ural gas.7 The “global compromise” scenario assumes a global
than that in other regions owing to the influence of backstop agreement to be achieved after 2012 incorporating all countries
technologies on crude oil price and the net oil exports of the with world oil demand falling by 8% in 2020. Oil revenues fall
energy exporters. The OECD’s lower production of the back- by 19% in 2020 and by 32% in the absence of international
stop (carbon-intensive heavy oil) leads to increased demand for emissions trading.
crude oil; in addition the oil price is higher. Without the back-
stop technology constraint, the energy exporters suffer the A number of studies (Kassler and Paterson, 1997;
largest welfare loss of all the regions. Ghasemzadeh, 2000; Pershing, 2000) have considered how
impacts on oil producing countries might be alleviated. Options
Ghanem et al. (1998) use OWEM, an econometric model, to include: use of emissions trading and the CDM; removal of sub-
analyse the potential impacts of the Kyoto Protocol on OPEC sidies for fossil fuels that distort market behaviour; energy tax
members to 2020. The reference case for this study assumes a restructuring according to carbon content; increased use of nat-
real oil price of US$17.4/barrel (1997$) in 2000, growing at ural gas, since many oil exporters are also major gas exporters;
1.5%/year in real terms after that, and an average autonomous and efforts to diversify the economies of oil exporting countries.
energy efficiency improvement of 1%/year, with higher rates in
China and the economies in transition (EIT). The world econ- Finally, Pershing (2000) points out that studies of the impact of
omy is assumed to grow at 3.3%/year from 2000 to 2020. GHG mitigation policies on the oil industry typically do not
OPEC’s production in 2020 is projected at 51.6M barrels/day consider some or all of the following policies and measures
(crude + natural gas liquids), and its share of world oil produc- that could lessen the impact on oil exporters:
tion is projected at 51.2%. Two scenarios are examined: firm • policies and measures for non-CO2 GHGs or non-ener-
oil prices, i.e., remaining at the reference level, and soft oil gy sources of all GHGs;
prices, US$16.9/barrel from 2000 to 2020. World oil demand • offsets from sinks;
in 2020 is projected at 100.7M barrels/day in the reference • industry restructuring (e.g., from energy producer to
case, dropping to 81.1M barrels/day (OPEC at 33M supplier of energy services);
barrels/day) in the firm oil price case and 83.6M barrels/day • the use of OPEC’s market power; and
(OPEC at 37.8) in the soft price case. In the firm oil price case, • actions (e.g., of Annex B parties) related to funding,
OPEC has a cumulative loss in revenue compared to the base insurance, and the transfer of technology.
case of 20.6% (US$659bn), declining to 17.9% with trading. In addition, the studies typically do not include the following
The loss rises to 27.2% (US$870bn) when oil prices are lower. policies and effects that can reduce the total cost of mitigation:
• the use of tax revenues to reduce tax burdens or finance
Brown et al. (1999) use the global trade and environment other mitigation measures;
model (GTEM), a general equilibrium model of the world’s • ancillary environmental benefits of reductions in fossil
economy, to evaluate the impact of the Kyoto Protocol’s com- fuel use; and
mitments, with and without unrestricted international emis- • induced technical change from mitigation policies.
sions trading. The study does not consider the enhancement of As a result the studies may tend to overstate both the costs to
sinks or the use of the CDM as mitigation policies. GTEM oil exporting countries and overall costs.
seeks the minimum cost for mitigation of 3 GHGs (CO2,
methane (CH4) and nitrous oxide (N2O)) and up to 54 eco- 9.2.3.1.2 The US Oil Market
nomic sectors, covering 45 countries. GTEM results show that
trading significantly reduces the losses in oil production in The US Energy Information Agency (EIA, 1998), using
2010 for all countries or regions reported. Because of the many NEMS, an energy-economy model of the US, projects that
assumptions that have to be made and the sector-specific implementation of the Kyoto Protocol would lower US petro-
impacts of emissions trading, only low confidence can be leum consumption by 13% in 2010, and lower world oil price
assigned to specific numerical results, but the benefits of unre- by 16% relative to a reference case price of US$20.77/ barrel.
stricted international emissions trading for oil producing coun-
tries has been confirmed in many studies.
7 Methane has a Greenhouse Warming Potential (GWP) of 21 for a
Bartsch and Müller (2000) use CLIMOX, a global economic- 100 year time horizon, making even small leaks significant contribu-
environmental simulation model based on GREEN and GTAP, tors to potential impacts on climate.
Laitner et al. (1998) argue that an innovation-led climate strat- be more modest than in the past (IEA, 1998b). It is unlikely
egy would be beneficial to the US economy and manufactur- that there will be any significant switch from oil to natural gas
ing. However, they project a loss of 36,000 jobs in the US oil in the transport sector during this period. Residential use of
and gas extracting industry (11% of 1996 employment) and of natural gas for space and water heating is reaching saturation.
US$8.7bn (1993$) in contribution to GDP (about 18% of the But it is uncertain whether natural gas demand for electricity
1996 level) (US Department of Commerce, 2000; US Bureau generation will increase or decrease.
of Labor Statistics, 2000). Losses in the petroleum refining
industry are smaller, namely 1000 jobs (1% of 1996 employ- Natural gas has the lowest carbon content of the fossil fuels,
ment) and US$0.5bn in contribution to GDP (about 2% of the and it is generally assumed that its use will increase as the
1996 level). result of efforts to reduce CO2 emissions. Because of this and
the possibilities for substitution in the power generation sector
Sutherland (1998) reports on a study of the impact of high away from coal, Ferriter (1997) shows an increasing demand
energy prices on six energy-intensive industries, including for natural gas in the two carbon tax scenarios and the effi-
petroleum refining. Prices of refined petroleum products are ciency-driven scenario compared to the reference case.
increased in two steps: US$75/tC in 2005 and US$150/tC in Switching towards natural gas - especially high efficiency
2010. The mechanism of the price increase is not described; combined cycle and co-generation - is likely to be a very
thus there is no discussion of who receives the revenues or how important part of reaching Kyoto targets in some countries.
they are handled. The study finds that these price increases However, other studies (IEA, 1998b; IWG, 1997; EIA, 1998)
reduce the US demand for refined products by about 20%. The conclude that the emissions limits set by the Kyoto Protocol
cost of other energy sources is also increased, which along with will require reductions in total use of electricity and replace-
decreased demand, raises the cost of refining in OECD coun- ment of older generating capacity with non-fossil fuel units,
tries and intensifies the on-going shift of refining capacity from either renewables or nuclear, decreasing the demand for natur-
OECD to non-OECD countries. Shifting refining capacity to al gas.
non-OECD countries reduces employment in, and increases
imports by, OECD countries. Reductions in fuel use results in Another uncertainty is the growth in demand from gas in non-
reductions in the emissions of local air pollutants. Annex B countries. The IEA projects rapid growth in the use of
natural gas in many of the non-Annex B countries e.g.,
9.2.3.2 Natural Gas 6.5%/year in China, 5.8%/year in South and East Asia, and
4.9%/year in Latin America. Bartsch and Müller (2000) also
Global production of natural gas in 1998 totalled 2379bn cubic see a significant growth in gas demand in China and India to
meters (approx. 93 EJ). In 1997, 45% of natural gas was con- 2020, but Stern (2000) questions whether the investments in
sumed by industry, including for electric power generation, the necessary infrastructure can be made. The Kyoto Protocol’s
while 51% was consumed in other sectors, which include resi- provisions on JI and the CDM could lead to further growth of
dential, commercial, agriculture, public service, and unspeci- natural gas use in EIT and developing nations. However, until
fied uses (IEA, 1998b). The emission scenarios in the IPCC the details of these mechanisms are agreed, it will be difficult
Special Report on Emission Scenarios all show increased to estimate their impact on natural gas demand.
demand for natural gas in 2100, ranging from 127EJ in the B1
marker scenario to 578EJ in the A1FI illustrative scenario Recent general modelling studies by Donovan et al. (1997) and
(Nakicenovic et al., 2000). These scenarios are baseline sce- Bernstein et al. (1999) suggest that, in Annex B countries, poli-
narios, which do not include policies to limit GHG emissions. cies to reduce GHGs may have the least impact on the demand
for oil, the most impact on the demand for coal, with the impact
World gas demand has grown by 3.2%/year over the past 25 on the demand for natural gas falling in the mid-range. These
years, compared to 1.6%/year for oil and 0.6%/year for coal. results are different from recent trends, which show natural gas
Most of the growth has been in power generation where it grew usage growing faster than use of either coal or oil, and can be
by 5.2%/year. This growth has increased in recent years in explained as follows.
response to a variety of technological advantages and policy • Current technology and infrastructure will not allow
actions to reduce local air pollutants, particularly sulphur much switching from oil to non-fossil fuel alternatives
oxides (SOx), a trend that is expected to continue through 2010, in the transport sector, the largest user of oil, before
independent of policies to reduce GHG emissions (IEA, about 2020.
1998b). IEA projects that demand for natural gas will grow at • The electric utility sector, the largest user of coal, can
2.6%/year from 1995 to 2020, 1.7%/year in OECD countries switch to natural gas, but the rate of switching will be
and 3.5%/year in non-OECD countries. limited by regional natural gas availability.
• Given the above considerations, modelling studies sug-
The IEA’s projections to 2020 show that, while there is con- gest that Annex B countries are likely to meet their
siderable further scope for switching from coal or oil to natur- Kyoto Protocol commitments by reducing overall ener-
al gas in OECD countries, the contribution of fuel switching to gy use, which is likely to result in a reduction in natur-
the further growth of gas demand in these countries is likely to al gas demand.
Table 9.5: Changes in carbon dioxide emissions and gas demand from the reference case in alternative emissions abatement
studies
Change in CO2 Change in natural Ratio of changes Year Region

emissions gas demand in gas demand
(%) (%) to changes in
CO2 emissionsd
DRI (1992) -11.7 -7.2 0.62 2005 EC

Hoeller et al. (1991) -49.2 -27.4 0.56 2000 World
Bossier and De Rous (1992) -8.2 3.0 -0.37 1999 Belgium
Proost and Van Regemorter (1992) -28.8 15.3 -0.55 2005 Belgium
Burniaux et al.(1991) -53.6 0.0 0.0 2020 World
Barker (1995) -12.8 -6.2 0.48 2005 UK
Ghanem et al.(1998) -30.7 -20.1 0.65 2010 World
Baron (1996)a -8.5b -4.0 0.47 2000 USA
Birkelund et al. (1994) -10.7 -8.0 0.75 2010 EU
Bernow et al. (1997) -17.8 -5.4 0.30 2015 Minnesota
Gregory et al. (1992) -8.4 -5.2 0.62 2005 UK
WEC (1993) Scenario B -11.1 0.0 0.0 2020 World
Kratena and Schleicher (1998) -29.0 -36.4 1.26 2005 Austria
Mitsubishi Research Institute (1998) -11.3c 9.2 -0.81 2010 OECD
a Citing a study by US Congressional Budget Office (CBO)

b Estimated.
c Change in fossil fuel demand.
d Median ratio (Column 3): 0.47
Mean ratio: 0.26
Std.dev.of ratio: 0.64
Given the agreement in the modelling studies and the logic that emissions on the demand for natural gas, expressed as the ratio
can be used to support the conclusions, this finding is estab- in change in gas demand to the change in CO2 emissions. The
lished, but incomplete. results are highly variable; the mean ratio is 0.14 with a stan-
dard deviation of 0.88. Table 9.5 shows that some studies have
The GHG mitigation benefits of using natural gas depend on min- pointed towards stronger gas demand of CO2-abatement mea-
imizing losses in its use. CH4, the chief constituent of natural gas, sures compared to the reference cases.
is a GHG, and will be emitted to the atmosphere in natural gas
leaks, most of which occur in older, low pressure distribution sys- Longer term, natural gas would be the easiest of the fossil fuels
tems. CH4 losses also are often a by-product of coal production. to convert to hydrogen. This would significantly increase
A full comparison of the benefits of switching from coal to nat- demand for natural gas. For technical details see Chapter 3.
ural gas, a step often included in mitigation strategies, requires a
lifecycle analysis of CO2 and CH4 emissions for both fuels. 9.2.3.3 Ancillary Benefits of GHG Mitigation in the Oil and
Gas Industry
Brown et al. (1999) used GTEM, a general equilibrium model
described above, to evaluate the impact of the Kyoto Protocol’s If, as projected, GHG mitigation policies reduce the growth in
commitments, with and without unrestricted international demand for crude oil they will result in several ancillary bene-
emissions trading, on the production of natural gas. They found fits: the rate of depletion of oil reserves will be slowed; and air
the effect of emissions trading on projected natural gas pro- and water pollution impacts associated with oil production,
duction is mixed, with some countries seeing higher produc- refining and consumption will be reduced, as will oil spills.
tion rates and others, lower production rates. Because of the Reduced growth in demand for natural gas will have similar
many assumptions that have to be made and the sector-specif- benefits: slower rate of depletion of this natural resource, less
ic impacts of emissions trading, only low confidence can be air and water pollution associated with this industry, and less
assigned to specific numerical results. potential for natural gas explosions.
Table 9.5 summarizes a number of global economic modelling

studies which project the impact of measures to mitigate CO2
Table 9.6: Projected nuclear energy capacity (MW) varies across countries, from as little as 1% in Norway to 95%
in the Middle East, and 97% in Poland (EIA, 2000a). Nuclear
Country 1997 2007 2010 reactors are producing electricity with a global capacity of
around 351GWe (IAEA, 1997), with each having an average of
Japan 45248 49572 54672 nearly 800MWe of installed capacity. Half of this total is con-
South Korea 10316 19716 22716 centrated in three countries: the USA with 25%, and France
China 2100 9670 11670 and Japan with 12.5% each (IAEA, 1997, pp. 10-11).
Taiwan, China 5148 7848 7848
India 1845 3990 4320 Recent projections show that electricity use will grow 37% to
Pakistan 139 600 600 16.8bn MWh by 2010, and 76% to 21.6bn MWh by 2020.
North Korea 0 2000 2000 About two thirds of this growth will occur outside the devel-
Total 64796 93396 103826 oped countries (EIA, 2000b). The IPCC Special Report on
Emissions Scenarios (SRES) projections (Nakicenovic et al.,
Source: Hagan (1998) 2000) are similar, with worldwide electricity demand projected
to more than double between 1990 and 2020 in scenarios A1B,
A1F1 and B1, and to double between 1990 and 2020 in sce-
9.2.4 Non-fossil Energy narios A2 and B2. Beyond 2020, the growth in electricity
demand projected in the scenarios diverges. A1B shows the
This section covers the effects of mitigation on non-fossil-fuel- highest growth, more than 20 times between 1990 and 2100,
based energy production and use (electricity and biomass), and while B1 shows the lowest growth, slightly less than 6 times
the ancillary benefits and costs associated with mitigation between 1990 and 2100.
using non-fossil energy.
Much of this new power will be generated with fossil fuels.
9.2.4.1 Electricity Use and Production Fuel Mix Globally, use of gas for electricity generation is projected to
more than double by 2020. Global use of coal for generation is
World electricity demand in 1998 was 12.6bn MWh, about projected to grow by more than 50%, with about 90% of the
60% of which (7.5bn MWh) was consumed in the industrial- projected increase occurring in the developing countries. In
ized countries (EIA, 2000a). Fossil fuels used for electricity Asia, nuclear power is still expected to increase to meet the
generation account for about one third of the CO2 emissions increasing electric power demand mainly because of resource
from the energy sector worldwide (EIA, 2000b). Globally, constraint issues (Aoyama, 1997; Matsuo, 1997). Table 9.6
about 60% of all electricity is produced with fossil fuels. shows estimates of nuclear electrical generating capacity by
However, the fraction of electricity generated from fossil fuels region to 2010.
Nuclear electricity generation

1990
A1
A2 DCs REFs OECD
A3
2020
B
C1
C2
A1
A2
A3
2050
B
C1
C2
0 2000 4000 6000
6 8000 10000 12000
TWh
Scenario Definition
B Middle Course A3 High growth, Fossil phaseout
A1 High growth, Ample oil and gas C1 Ecologically driven, New renewables with nuclear phaseout Figure 9.2: Projection of world
A2 High growth, Return to coal C2 Ecologically driven, Renewables and new nuclear nuclear capacity to 2050 in TWh
(Nakicenovic et al., 1998)
Table 9.7: Change in shares (percentage points) of alternative energy sources in electricity generation under
stabilization relative to the baseline in 2010
Coal Oil Gas Nucleara Renewables
United States -18.1 -0.6 - 1.6 +14.1 + 6.3

European Union -21.2 -1.0 + 1.7 +16.3 + 4.2
Japan -10.8 -8.0 - 8.2 +18.3 + 8.6
Canada -12.4 -1.0 - 0.3 + 2.9 +10.8
Australia -50.5 +2.2 + 3.0 0.0 +45.4
New Zealand - 2.4 -0.1 -14.0 0.0 +16.5
Source: ABARE, 1995

a These results do not take into account any barriers to the expansion of nuclear power in the USA, Canada, the EU, and Japan.
Uncertainty is reflected in the wide range in the long-term pro- et al., 1999; Kainuma et al., 1999a, b and c; Kurosawa et al.,
jections for nuclear energy capacity. The World Energy 1999; MacCracken et al., 1999; McKibbin et al., 1999; Tulpule
Council (Nakicenovic et al., 1998; http://www.iiasa.ac.at/cgi- et al., 1999). However, the focus of the studies conducted with
bin/ecs/bookdyn/bookcnt.py) projects a range of 2,227 to these models has generally been on broader economy-wide
11,840 TWh in 2050 under six possible future energy scenar- impacts, and many do not report results for the electricity sector.
ios as shown in Figure 9.2. McKibbin et al. (1999) reported the price and quantity impacts
on electric utilities if the USA unilaterally implements its Kyoto
9.2.4.2 Impacts of Mitigation on the Electricity Sector commitments. Under this scenario, electricity prices in the USA
increase 7.2% in 2010 and 12.6% in 2020, while demand drops
Given the extensive use of fossil fuel in the production of elec- 6.2% and 9.5% in those years, respectively. The Australian
tricity, it is not surprising that a variety of proposals have been Bureau of Agricultural and Resource Economics (ABARE,
put forth to mitigate GHG emissions in this sector. Many coun- 1995) reported shifts in fuel share for Annex B under a policy
tries have proposed renewable technologies as one solution for where this group of countries stabilizes emissions at 1990 levels
GHG mitigation (Comisión Nacional de Energía, 1993; SDPC by 2000. They show that the share of coal in the generation of
et al., 1996; Piscitello and Bogach, 1997; European electricity for most Annex B countries would drop by 10% to
Commission, 1997). In some European countries such as 50%, with the combined shares for nuclear and renewables
Sweden and Austria, carbon taxes have been introduced. In increasing 14 to 46%.8 (See Table 9.7 for detailed results.) They
Japan, nuclear power is planned to supply 480TWh in 2010, or note that such a policy may require substantial structural
17.4% of total primary energy supply, to help meet the Kyoto changes in the industry and are likely to involve significant
target (Fujime, 1998). In contrast, in Sweden, a policy under costs, but do not elaborate or quantify.
debate to phase out nuclear power and restrict CO2 emissions
to 1990 levels by other means would result in significantly There are a number of analyses for the USA only that report
higher electricity prices (Anderson and Haden, 1997) detailed impacts on the electricity sector. Charles River
Associates (CRA) and Data Resources International (DRI)
In general, mitigation policies work through two routes. First, (1994) assessed the potential impact of carbon taxes of US$50,
they either mandate or directly provide incentives for increased $100, and $200 per tonne carbon, phased in to these levels over
use of zero-emitting technologies (such as nuclear, hydro, and 1995 to 2000. By 2010, imposition of such taxes has increased
other renewables) and lower-GHG-emitting generation tech- prices of electricity by 13%, 27%, and 55% for the US$50,
nologies (such as combined cycle natural gas). Or, second, $100, and $200 tax, while sales dropped 8%, 14%, and 74%,
indirectly they drive their increased use by more flexible respectively.
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 More recently, a group of studies assessing the impacts of the
fuels used to generate electricity towards increased use of the Kyoto Protocol on the US have reported electricity sector
zero- and lower-emitting generation technologies, and away impacts (EIA, 1998; WEFA, 1998; DRI, 1998). These studies
from the higher-emitting fossil fuels (Criqui et al., 2000). all use a flexible mechanism, such as tradable emissions per-
Quantitative analyses of these impacts are somewhat limited.

Table 9.1 presents published results from multisectoral models. 8 They note that their results should only be viewed as indicative of
Other multi-regional models used to assess the impacts of GHG the broad direction of the magnitude of impacts, and that they do not
reduction policies appear to have the capability to quantify these account for any barriers to the expansion of nuclear in the USA,
impacts on the electricity sector (Bernstein et al., 1999; Cooper Canada, the EU, and Japan.
mits, as the implementation policy. Taken together, the studies 9.2.4.4 Ancillary Costs Associated with Mitigation in the
reflect a range of assumptions about the level of emissions Electricity Industry
reductions that would need to come from the domestic energy
sector. The range of results for the EIA study for 2010 is sum- There are also ancillary costs associated with actions to miti-
marized here, however, the results from all three studies are gate GHGs in the electricity sector. The growth experienced by
generally consistent. Key impacts in 2010, all of which those who benefit from mitigation would be offset by a decline
increase as emissions reduction requirements increase, include in sales and employment for those who would have produced
the following. and constructed the facilities that would have been built with-
• Electricity prices were projected to increase 20% to out the mitigation activity. Similarly, there will be a loss of
86% above baseline levels. income and jobs for those that would have provided the fuel for
• Electricity demand was projected to decrease 4% to those facilities no longer being built (i.e., the coal industry).
17% below baseline levels. The specifics of the mitigation policy and action will effect
• Prices of natural gas were projected to increase by 35% whether the net effect of this shifting of economic activity will
to 206% over the baseline levels. Prices of coal for elec- be positive or negative.
tricity production were projected to increase to about
2.5 to 9 times the baseline levels. And, despite a 7% to There are also environmental issues associated with some of
40% decrease in fossil generation, fossil fuel expendi- the renewable technologies. For example, concern has been
tures increase 81% to 238% over baseline levels. raised about the ecological impacts of intensive cultivation of
• About 9% to 43% of total generation will shift away biomass for energy, the loss of land and other negative impacts
from coal relative to the baseline. The large shift over of hydro electricity development, and the noise, visual inter-
this limited time period would reflect significant struc- ference, and potential for killing birds associated with wind
tural changes and potentially large stranded costs. generation (Brower, 1992; Pimental et al., 1994; IEA, 1997a;
Roughly half of this is replaced by natural gas genera- Miyamoto, 1997; IEA, 1998a).
tion, while most of the remainder is not replaced as a
result of reduced demand. Renewable generation Nuclear power might be expected to increase substantially as a
beyond baseline levels generally does not enter the mix result of GHG mitigation policies, because power from nuclear
until at least 2020. fuel produces negligible GHGs. The construction of nuclear
None of the studies quantify the potential stranded costs asso- power stations, however, does lead to GHG emissions, but over
ciated with the premature retirement of existing generation. the lifecycle of the plant these are much lower than those from
comparable fossil fuel stations.
9.2.4.3 Ancillary Benefits Associated with Mitigation in the
Electricity Industry In spite of the advantages, nuclear power is not seen as the
solution to the global warming problem in many countries. The
The ancillary benefits expected from the increased use of new main issues are (1) the high costs compared to alternative com-
generating technologies adopted to achieve GHG mitigation bined cycle gas turbines, (2) public concerns about operating
would be sales and employment growth for those who manufac- safety and waste disposal, (3) safety of radioactive waste man-
ture and construct the new generation facilities. There could also agement and recycling of nuclear fuel, (4) the risks of nuclear
be income and employment growth in the production of fuels for fuel storage and transportation, and (5) nuclear weapon prolif-
this new generation. The ancillary benefits associated with use eration (Hagan, 1998). Whether the full potential for nuclear
of non-fossil energy for thermal applications would be similar. power development to reduce GHGs can be realized will be
determined by political and public responses and safety man-
Ancillary benefits of increased use of renewable sources have agement.
been described by several experts (Brower, 1992; Johansson et
al., 1993; Pimental et al., 1994; Miyamoto, 1997). These include:
• further social and economic development, such as 9.2.5 Agriculture and Forestry
enhanced employment opportunities in rural areas,
which can help reduce rural poverty and decrease the The sectoral effects of mitigation on agriculture and forestry
pressures to migrate to urban areas; are described in detail in Chapter 4. This section covers ancil-
• land restoration activities such as improvement of lary benefits for agriculture.
degraded lands and associated positive impacts on farm
economics, new rural development opportunities, pre- 9.2.5.1 Ancillary Benefits for Agriculture from Reduced Air
vention of erosion, habitats for wildlife; Pollution
• reduced emissions, in certain instances, of local pollu-
tants; GHG mitigation strategies that also reduce emissions of ozone
• potential for fuel diversity; and precursors, i.e., volatile organic compounds (VOCs) and nitro-
• elimination of the need for costly disposal of waste gen oxides (NOx), may have ancillary benefits for agriculture.
materials, such as crop residues and household refuse. Elevated concentrations of tropospheric ozone (O3) are damag-
ing to vegetation and to human health (EPA, 1997). GHG mit- (However, scenario B1 has only small increases in O3 emis-
igation strategies which increase efficiency in energy use or sions.) At the higher O3 concentrations the yield of soybeans
increase the penetration of non-fossil-fuel energy are likely to may decrease by 40%, and the yield of corn and wheat may
reduce NOx emissions (the limiting precursor for O3 formation decrease by 25% relative to crop yields at pre-industrial O3 lev-
in non-urban areas) and hence O3 concentrations in agricultur- els. Within a crop species, the sensitivity of individual cultivars
al regions. to O3 can vary (EPA, 1997), and it is possible that more resis-
tant strains could be utilized. However, this would impose an
Studies of the adverse impacts of O3 on agriculture were first additional constraint on agriculture.
conducted in the United States in the 1960s, with major stud-
ies in the 1980s (EPA, 1997; Preston et al., 1988) and later in An economic assessment of the impact of O3 on US agricul-
Europe (U.K. DoE, 1997) and Japan (Kobayashi, 1997). These ture, based on data from the NCLAN study, found that when
studies indicate that, for many crop species, it is well estab- O3 is reduced by 25% in all regions, the economic benefits are
lished that elevated O3 concentrations result in a substantial approximately US$1.9billion (bn) (1982 dollars) (Adams et
reduction in yield. The US Environmental Protection Agency al., 1989). Conversely, a 25% increase in O3 pollution resulted
(EPA) funded the National Crop Loss Assessment Network in costs of US$2.1bn (Adams et al., 1985). Two recent studies
(NCLAN) from 1980 to 1986, which developed O3 dose-plant found that crop production may be substantially reduced in the
response relationships for economically important crop species future in China owing to elevated O3 concentrations
(Heck et al., 1984a and b). Results of this study are shown in (Chameides et al., 1999; Aunan et al., 2000, forthcoming).
Figure 9.3. The basic NCLAN methodology was used in 9 China’s concerns about food security may make GHG mitiga-
countries in Europe between 1987 to 1991 on a variety of crops tion strategies that reduce surface O3 concentrations more
including wheat, barley, beans, and pasture for the European attractive than those that do not.
Crop Loss Assessment Network (EUROCLAN) programme.
EUROCLAN found yield reductions to be highly correlated 9.2.5.2 Ancillary Benefits from Carbon Sequestration
with cumulative exposure to O3 above a threshold of 30-40
parts per billion (ppb) (Fuhrer, 1995). Chapter 3 considers new technologies for using biomass, such
as sugar cane, to replace fossil fuels. Such mitigation may have
The World Health Organization (WHO) uses the AOT 40 stan- considerable associated benefits, particularly for sustainable
dard to describe an acceptable O3 exposure for crops. AOT 40 development in creating new employment (see 9.2.10.4
is defined as the accumulated hourly O3 concentrations above below).
40 ppb (80 mg/m3) during daylight hours between May and
July. Acumulative exposure less than 6000 mg/m3.h is neces- Alig et al. (1997) through modelling alternative carbon flux sce-
sary to prevent an excess of 5% crop yield loss (European narios using the forestry and agricultural sector optimization
Environment Agency, 1999). Observations indicate that this model (FASOM) estimated the welfare effects of carbon seques-
limit is exceeded in most of Europe with the exception of the tration for the US. They estimate total social welfare costs to
northern parts of Scandinavia and the UK (European range from US$20.7bn to $50.8bn. In the case of the agricultur-
Environment Agency, 1999). Median summer afternoon O3 al sector, the consumer’s surplus decreases in all scenarios.
concentrations in the majority of the eastern and southwestern
United States presently exceed 50 ppb (Fiore et al., 1998). As
shown in Figure 9.3 these concentrations will result in yield 9.2.6 Manufacturing
reductions in excess of 10% for several crops. IPCC Working
Group (WG)I (Chapter 4) predicts that, if emissions follow The effects of GHG mitigation on manufacturing sectors are
their SRES A2 scenario, by 2100 background O3 levels near likely to be very mixed, depending on the use of carbon-based
the surface at northern mid-latitudes will rise to nearly 80ppb. fuels as inputs, and the ability of the producer to adapt produc-
100
rice
Crop yield (%)
90
wheat
80 soybeans
alfalfa
70
corn
60
25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Seasonal average O3 (ppbv)
Figure 9.3: Effect of seasonal O3 concentrations on agricultural crop yields derived from a Weibull Parametric Fit of NCLAN
O3 exposure and yield data (Adams et al., 1989, adapted by Chameides et al., 1999)
tion techniques and to pass on increases in costs to customers. 9.2.6.2 Mitigation and Manufacturing Employment
Different manufacturing processes and technologies use car-
bon-based inputs in very different amounts in relation to out- Some mitigation policies would increase output and employ-
put. High carbon-intensive sectors (using the UN System of ment in the energy equipment industries. In 2010 under an
National Accounts 1993 ISIC, p. 594-5) include basic metals innovation scenario for GHG mitigation of 10% relative to
(aluminium, steel), other non-metallic mineral products 1990, GDP for the US is projected to increase by 0.02%
(cement, bricks, glass) and some chemicals (bulk chemicals). (Laitner et al. 1998). Wage and salary earnings are shown to
Low carbon-intensive sectors include office machinery (elec- rise in 2010 by 0.3% and employment (jobs) by 0.4%. From
tronics) and other chemicals (pharmaceuticals). Several large another perspective, these net job gains might be all provided
sectors (food, textiles, machinery, and vehicles) are somewhere by new small manufacturing plants in the USA; in that case,
between these extremes. the redirected investments in energy-efficient and low-carbon
technologies would produce additional employment equivalent
If the Kyoto Protocol is ratified, manufacturing sectors in to the jobs supported by about 6200 small manufacturing
Annex I countries can expect to face mitigation policies to plants that open in the year 2010. While these impacts are
meet national targets. The possible options for the firms are small in relation to the larger economy, it is because the scale
basically: (1) energy conservation (adoption of more efficient of investment is also relatively small. The anticipated extra
technologies), (2) shift to products with lower carbon intensi- energy-efficiency and renewable-energy investments in the
ties, (3) accept extra taxation or emission permits and the pos- year 2010 is less than 3% of US total investment in that year.
sible effect on profits and/or product sales and (4) shift pro-
duction abroad as foreign direct investment or joint ventures. 9.2.6.3 Mitigation Measures and Technology Strategy
Generally, adopting these options will create ancillary benefits Some bottom-up studies assess the relationships between cli-
and costs. Speculative ancillary benefits include: mate policy and technological strategy. For instance, the imple-
• the adoption of energy conservation technologies that mentation of a carbon tax or subsidies will strongly affect the
mitigates local air pollution similar to the case of trans- investment decisions in manufacturing sectors. Kainuma et al.
portation sector; (1999a) assess how a subsidy affects the adoption of energy
• the accumulation of scientific and technological knowl- conservation technologies to meet Kyoto targets using the
edge that contributes to the development of new prod- AIM/ENDUSE model of Japan. Figure 9.4 shows the contri-
ucts and processes; and bution of technologies undertaken by firms to reduce carbon
• the internationalization of manufacturing that stimu- emissions in 2010. Subsidies of US$30/tC compare with a car-
lates technology transfer to developing regions and bon tax of US$300/tC to meet Kyoto targets without subsidies
greater equity in wealth distribution. (using a rate of 100yen/$) (Kainuma et al., 1997, 1999a).
If production is transferred to non-Annex B countries, ancillary
costs include: For developing countries, environmental policy is often linked
• losses in Annex B manufacturing employment; and to technological improvement. Jiang et al. (1998) assess the
• increases in non-Annex B emissions. potential for CO2 emission reductions in China based on
advanced energy-saving technology options under various tax
Thus, the assessment of the effects of climate policy on manu- and subsidy measures. For example, they consider the adoption
facturing could take into account the interactions between sec- of advanced coking-oven systems by the iron and steel indus-
tors and economies. Multisectoral and multi-regional models try in China. Without changes in policy only 15.9% of existing
have been used to evaluate them (see 9.2.6.1 below). ovens will be replaced by advanced ones by 2010. With a car-
bon tax, but without a subsidy, the replacement share rises to
9.2.6.1 Effects on Manufacturing from Multisectoral Top- 62%. With a tax and subsidies for energy-saving technologies,
down Studies the share rises to 100%, i.e. the advanced ovens will be fully
adopted by the industry. They also mention that taxes with sub-
Manufacturing sectors show mixed results in the multisectoral sidies do not give the best solutions for other sectors. They
studies (see Table 9.1 above). Reflecting industrial and finan- conclude that a carbon tax with subsidy could have reduced
cial globalization, recent studies tend to involve international CO2 emissions by 110Mt of carbon-equivalent in 2000 and
trade on both goods and capital. In the main example, 360Mt in 2010, from the baseline case of 980Mt in 2000 and
McKibbin et al. (1999) evaluate the potential sectoral impacts 1380Mt in 2010.
of the Kyoto Protocol using the G-Cubed model, mainly focus-
ing on the real and the financial trading structure. In case of Energy-saving technologies across the sectors, such as materi-
unilateral action by the USA, the effects on manufacturing al and thermal recycling have a large potential to reduce carbon
industries show at most 1.4% and 1.2% decrease in quantity emission. Yoshioka et al. (1993) employed input-output analy-
and price, respectively, although the effects on the energy sis to evaluate the potential contribution of blast-furnace
industry sectors are large, e.g., 56% down in the coal mining cement to reduce CO2 emissions: improved technology for the
industry with a 375.6% price increase in 2020. utilization of 1 tonne of blast furnace slag to produce cement
CO2 reduction(MtC)
0.0 0.5 1.0 1.5 2.0 2.5
Steel Industry Coil adjustment equipment
Hot mill heating processor
High efficiency reheating furnace
Hot direct rolling
Hot charge rolling
Continuous caster
DC electric arc furnace
Scrap preheater
Waste plastic injection
Sintering machine/automatic ignition
Coke wet-type quenching
Next generation coke oven
Coke wet adjustment equipment
Coke oven/automatic combustion control
BOF gas recovery equipment
LDG latent heat recovery
Wet top pressure recovery turbines
Furnace slag heat recovery
Sintering machine/main heat recovery
Sintering machine/cooler heat recovery
Coke oven/heat recovery
Power generation/repowering
Share enlargement of electric arc furnace
Emission coefficient reduction of electricity
Cement Glinding process/vertical mill
Industry Pre-grinder
Fluidized bed sintering furnace
High efficiency clinker cooler
Improved kiln burner
NSP/SP method
Raw material/vertical mill
Waste heat power generation
Blast furnace slag cement
Fly ash cement
Pert-chemical High performance LDPE device
Industry High performance polypropylene device
High performance naphtha cranking device
Power recovery turbine
Combined cycle generation
Oxygen control device
High performance furnace
Paper/pulp High performance size press device
Industry High performance dryer hood device
Pre-drying/Impulse drying
High performance bearing dehydration device
High performance paper maker
Defuser bleaching device
Oxygen delignification device
High performance pulp washing device
Pre-filtration continuous cooking device
Direct caustification
High performance vapor drum
High performance black liquid boiler
Combined cycle generation
Oxygen control device
Source: Kainuma et al., 1999a.
DC: Direct Current; BOF: Basic Oxygen Furnace; NSP: New Suspension Preheater; LDPE: Low Density PolyEthylene; LDG: Linz & Donawitz Gas (The name of the
developer's company); NSP/SP: New Suspension Preheater/ Suspension Preheater
Figure 9.4: Contribution to carbon dioxide emission reduction by technology options in Japan in 2010.
could reduce CO2 by 0.85 tonnes. In the same manner, Ikeda et 2000). Measures to reduce traffic congestion also reduce CO2
al. (1995) estimated that the utilization of by-products in the emissions, since they involve either reducing the number of
steel and iron industry, and of steel scrap could reduce CO2 vehicles on the road or increasing the average speed and fuel
emissions by 2.4% in Japan in 1990. efficiency at which vehicles travel through urban areas.
Policies to reduce traffic congestion include: improvements in
mass transit, incentives for car pooling, and fees for entering
9.2.7 Construction city centres (Bose, 2000), as well as employer-based transport
management, parking management, park-and-ride pro-
This section is concerned with the impact of mitigation on the grammes, and road use pricing. One approach has been to
construction industry, rather than with the options for mitigat- assess the external (social) costs of transport, including contri-
ing energy use in buildings, which are considered in Chapter 3. bution to global warming, as a guide to the level of taxes or
One of the main products of the construction sector are build- user charges by transport modes that would internalize these
ings which require energy for a number of services such as costs, and hence improve the efficiency of the system (ECMT,
lighting, space heating and cooling, and electricity for equip- 1998).
ment. Energy consumption in buildings reaches nearly one-
third of total primary energy consumption in the US, and hence An “information society” based on a digital information net-
their importance for GHG emission reductions. Mitigation will work is sometimes projected to replace a substantial proportion
lead to changes in the materials used, and in design and heat of physical travel. However, historical data show that the tele-
control, all tending to increase the quantity (output) and graph and telephone did not affect the steady growth of trans-
improve the quality of buildings. Most renewable energy portation in France (see Figure 9.5). Mokhtarian et al. (1995)
investments, such as hydropower and electricity from biomass, conclude that telecommuting, one aspect of the information
also require inputs from the construction sector. society, does reduce transportation energy use. However, the
reductions are smaller than often assumed, because they are
Multisectoral modelling suggests that carbon tax and permit partially offset by increased household energy use, and because
policies will have little impact on construction output and some telecommuters do so only for part of their working day.
employment; this finding is established in the literature, but Care must be taken in extrapolating future reductions from the
incomplete. Table 9.1 shows that according to three different limited case studies currently available; the behaviour of early-
macroeconomic models (Garbaccio et al. 1999; Jorgenson et adapters may be different from that of later telecommuters. In
al., 1999; and Barker, 1999) construction will increase its out- the medium term, macro view, information technologies
put by about +1%. Two other models in the same table appear to be complementary to transportation (Gruebler,
(Bertram et al., 1993; Cambridge Econometrics, 1998) find 0% 1998); but in the longer term an “information society” could
variation in the construction output. significantly replace travel and associated impacts, although
this remains speculative.
9.2.8 Transport 9.2.8.1 Aviation
Transport energy use has been growing steadily worldwide, In 1999, in response to a request from the International Civil
with the largest increases occurring in Asia, the Middle East Aviation Organization (ICAO), the IPCC prepared a Special
and North Africa, and it is projected to grow more rapidly than Report, Aviation and the Global Atmosphere, which included a
energy use in other sectors through at least until 2020 comprehensive review of the potential impacts of aviation on
(Michaelis and Davidson, 1996; IEA, 1997b; Schafer, 1998; the climate system (Penner et al., 1999). The demand for air
Nakicenovic et al., 2000). There are few options available to travel, as measured in revenue passenger-kilometres, is pro-
reduce transport energy use which do not involve significant jected to grow by 5%/year for the next 15 years, but improve-
economic, social or political costs. Governments presently find ments in efficiency and operations are projected to hold the
it difficult to implement measures to reduce overall demand for growth in CO2 emissions to 3%/year. Aircraft also emit water
mobility (IEA, 1997b). Singapore is an exception to this gen- vapour, NOx, SOx and soot, and trigger the formation of con-
eral rule as a result of a comprehensive set of policies dating densation trails (contrails) and may increase cirrus cloudiness
from 1975 to limit traffic (Michaelowa, 1996). – all of which contribute to climate change (Penner et al.,
1999).
Almost all transport energy is supplied from oil, and the grow-
ing demand for transport seems inconsistent with macroeco- Penner et al. present several growth scenarios for aviation that
nomic studies that project decreased demand for oil as the result provide a basis for sensitivity analysis for climate modelling.
of GHG mitigation policies. Further research is needed to These scenarios, which assume the scope for switching from air
resolve this apparent inconsistency (Bernstein and Pan, 2000). travel to other modes of travel is limited, show radiative forcing
resulting from subsonic aircraft emissions growing from the
Local concerns, traffic congestion and air pollution, are cur- 1992 level of 0.05Wm-2 to between 0.13 and 0.56Wm-2 by
rently the key drivers for transport policy (Bernstein and Pan, 2050. The scenario with economic growth equal to the IS92a
102 100
102 10
Index, 1985=100
Communication
100 1
Transport
10-2 0.1
10-2 0.01
1975 1975 1975 1975 1975 1975 1975 1975 2000
Year
Figure 9.5: Historical trends in transport and communication volume indices for France (Source: Gruebler, 1998: Chapter 7).
reference scenario indicates that aviation may contribute 0.19 The need for further research in this area is explored at the end
Wm-2, or about 5% of anthropogenic radiative forcing, by 2050. of the chapter.
More supersonic aircraft would substantially increase this con-
tribution, although there is considerable uncertainty whether 9.2.8.2 Passenger Cars
any such fleet will be developed. The growth scenarios do not
consider air space and infrastructure limitations; however, Chapter 3, section 3.4 discusses the status of low-GHG-emis-
recent experience in both Europe and North America indicates sion technology for passenger cars. This section will discuss
that the air traffic system is reaching saturation. Penner et al. the effects of mitigation policies on the use of this technology
assume that by 2050 all currently identified improvements in and more generally on the use of passenger cars.
aircraft efficiency and operations will be implemented.
However, turnover time in the aviation industry is long. Government policies aimed at reducing passenger car fuel use,
Individual aircraft will be operated by commercial airlines for such as the US corporate average fuel economy (CAFE) stan-
25 years or more, and a successful product, including its deriv- dards, and the high tax placed on gasoline in many countries,
atives, will be produced for possibly 25 years or longer. Thus, have been in place for many years. These policies have been
the overall life of an aircraft type can exceed 50 years. driven by two considerations: the cost of importing crude oil,
and/or the desire to improve local environmental quality. The
Penner et al. (1999) conclude: auto industry has responded to these policies with the intro-
“Although improvements in aircraft and engine technology and duction of successive generations of technology to improve
in the efficiency of the air traffic control system will bring passenger car efficiency. However, total passenger car fuel use
environmental benefits, these will not fully offset the effects of has increased steadily as improvements in vehicle efficiency
increased emissions from the projected growth in aviation. have been overwhelmed by increases in car sizes and car traf-
Policy options to reduce emissions further include more strin- fic. The number of passenger cars in use worldwide has risen
gent aircraft emissions regulations, removal of subsidies and from 193 to 477 million between 1970 and 1995, and total
incentives that have negative environmental consequences, kilometres travelled have risen from 2.6 to 7.0 trillion vehicle-
market-based options such as environmental levies (charges kilometres between 1970 and 1995 (OECD, 1997b). While
and taxes) and emissions trading, voluntary agreements, growth in passenger car numbers has slowed in OECD coun-
research programmes, and substitution of aviation by rail and tries, it is expected to continue to rise at a rapid rate in the rest
coach. Most of these options would lead to increased airline of the world. Passenger car numbers in China are expected to
costs and fares. Some of these approaches have not been fully increase 20-fold from 1995 to 2015 (Dargay and Gately,
investigated or tested in aviation and their outcomes are uncer- 1997).
tain (Penner et al., 1999, p. 11).”
Because gasoline is already taxed at a very high level in many saving technology for commercial vehicles are no regrets mea-
countries, and the cost of fuel is a small portion of the total cost sures if applied at a low level, but incurred positive social costs
of driving, even fairly substantial increases in the cost of the if applied more broadly. Planting trees to offset transport emis-
fuel (as a GHG mitigation policy) may have little impact on sions, scrapping older cars, and accelerating the introduction of
vehicle use. The net present cost to the consumer of a tax energy efficiency technology for passenger cars and aircraft are
equivalent to US$300/tC is approximately 5% of the capital found to be low-to-medium cost measures. Scrapping older
cost of a typical new vehicle, assuming an initial cost of commercial vehicles, compulsory tuning of passenger car
US$20,000, 12,000 km/year, and a 10-year life (IEA, 1997b). engines twice a year, resurfacing highways, and increasing the
Furthermore, the users of company and/or government-provid- use of ethanol as a motor fuel are found to be high cost mea-
ed cars may not be responsive to the increase in fuel cost at all, sures.
a typical case of principal-agent problem (see Chapter 3 and
Chapter 6). Many parts of the developing world are faced with severe envi-
ronmental problems caused in part by a rapid growth in the use
Initiatives to improve fuel economy continue, often with the of personal vehicles (scooters, motor cycles, mopeds, and
express intention of reducing GHG emissions. European car cars). Many of these vehicles are old and poorly maintained,
manufacturers have voluntarily agreed to reduce the fuel con- use two-stroke engines, and operate on inadequate road sys-
sumption of new cars by 20% by 2010. In 1993, US car manu- tems. The result is traffic congestion, greater fuel consumption,
facturers entered into a partnership for a new generation vehi- and noise and air pollution that degrade the urban environment.
cle (PNGV) with the US government aimed at developing a Bose (1998) finds that improving public transportation to meet
passenger car with triple the current fuel economy (to about 80 as much as 80% of travel demand, and promoting cleaner fuels
miles per gallon), by 2004, with no increase in cost or loss of and improved engine technologies (i.e., phasing out two-stroke
performance compared with current vehicles. The incremental engines, increasing the share of cars equipped with three-way
costs of these vehicles have been estimated to be as low as catalytic converters, using unleaded gasoline, electric vehicles,
$2,500/car (DeCicco and Mark, 1997) to as high as more than and vehicles fuelled with compressed natural gas) in six Indian
$6,000/car (Duleep, 1997; OTA, 1995). Since these vehicles cities can significantly reduce both emissions and fuel con-
will be designed to meet the emissions standards anticipated to sumption. Total fuel savings for the six cities is 0.83mtoe (see
be in effect when they are produced, no ancillary local air pol- footnote 3) in 2010 to 2011, and automotive emissions are
lution benefit is expected. reduced 30%–80% compared with a baseline case.
However, much of the increase in fuel efficiency may be taken 9.2.8.3 Freight Trucks, Rail, and Shipping
up in increased demand for fuel if the lower operating costs are
translated into increased ownership and use of vehicles. In Freight transportation has been growing rapidly as a result of
addition, Dowlatabadi et al. (1996) find that increasing fuel the growth of international merchandise trade, which has sur-
economy to 60 miles per gallon had little beneficial effect on passed the growth in the world economy over the last two
urban ozone concentration, and could decrease the safety of decades (IEA, 1997b). EIA (1998) consider the impacts of car-
passenger cars unless offsetting steps were taken. Wang et al. bon fees to reduce US carbon emissions to 3% below 1990 lev-
(1998) estimate the capital investment required in the USA els, the amount estimated by the US administration as neces-
through to 2030 for fuel production and distribution to be (1) sary to meet its Kyoto Protocol commitments when reductions
US$100bn (1995$) or less if the fuel for PNGV cars is refor- in the emissions of other gases were taken into account. These
mulated gasoline or diesel, ethanol, methanol, liquefied petro- fees raise the cost of diesel fuel by US$0.68/gallon, but result
leum gas (LPG), or liquefied natural gas (LNG); (2) approxi- in only a 4.9% reduction in US freight truck travel, most of
mately US$150bn for di-methyl ether; and (3) in the order of which is a result of lower economic activity. US rail transport
US$500bn for hydrogen. No estimate was made of the cost of is projected to decline by 32%, largely as the result of a 71%
applying this technology outside the USA. reduction in the demand for coal. The cost of marine fuel is
projected to rise by US$0.84/gallon, nearly twice the reference
The Australian Bureau of Transport and Communications price, but domestic shipping is projected to decline by only
Economics (BTCE, 1996) examine the social costs of 16 mea- 10% (EIA, 1998).
sures to reduce GHG emissions from the transport sector. In the
longer term, five of these measures: (1) metropolitan road user 9.2.8.4 Co-benefits from Reduced Road Traffic
charges, (2) reduced urban public transport fares, (3) city-wide
parking charges, (4) labelling of new cars to inform buyers of Nations may choose to include GHG mitigation along with
their fuel efficiency, and (5) shifting inter-capital freight from improvements in urban air quality and other traffic-related
road to rail were found to be “no regrets” options, i.e., they had damages as objectives for policies designed specifically to
zero or negative costs to society as a whole. Together these reduce road traffic. The policies have co-benefits in terms of:
measures could reduce emissions from the Australian transport • reduced air emissions associated with less fuel use
sector by about 5% to 10% of total projected emissions. A car- (e.g., Ross, 1999), and therefore consequent reductions
bon tax on motor fuels and accelerated introduction of fuel- in the damages caused by these emissions;
• reduced congestion; this congestion can be expected to lower risks associated with
• fewer traffic crashes; such exposures, as well as lessen public health impacts of asso-
• less noise; and ciated pollutants more generally.
• less road damage.
The co-benefits from less noise and road damage are only like- 9.2.8.4.3 Road Traffic Crashes
ly to be large for substantial levels of mitigation (see ECMT,
1998 for valuations of these benefits for some European coun- Section 9.2.8.2 lists several options for transport policies to mit-
tries). igate GHGs. Some of these options, such as expanded reliance
on mass transit and shifts away from individual passenger vehi-
9.2.8.4.1 Air Pollution Associated with Road Traffic cles, can be expected to decrease the number of traffic crashes.
The total number of damages resulting from crashes is substan-
There are likely to be substantial GHG co-benefits from some tial. With respect to traffic deaths and disabilities, the World
policies mainly aimed at reducing air pollution; these are most- Bank reports that traffic crashes are already the leading cause of
ly considered in Chapter 8. death for young males and the 5th leading cause of death for
young females worldwide. About 75% of all deaths occur in
Today 3 out of 4 of the world’s highly dense megacities are in developing countries, although they have less than 1/4 of all
the rapidly developing countries, where traffic congestion is vehicles. If present trends continue to 2020, one fourth of all
often high, involving highly polluting and inefficient vehicle health costs in developing countries may be spent on treating
fleets (WRR, 1998). Because of this, reducing traffic and con- road injuries alone (Ross, 1999). However, policies that encour-
gestion will also lower potential exposures to known hazards age the use of smaller vehicles could have increased death and
from the burning of road fuels, especially to those living near injuries caused by traffic crashes (Dowlatabadi et al., 1996).
to congested roadways. Children are at high risk from the dam-
aging neurological effects of pollution. A recent report from the The extent to which these total damages may be affected by
WHO and the European Environment Agency estimates that various climate policies remains unknown, but is likely to be
21,000 deaths annually are tied with air pollution from traffic nontrivial and to vary in developed and developing countries.
in Central Europe (WHO, 1999). For instance, shifting travel from personal vehicles to mass
transportation for large populations in the megacities of Sao
The total of health damage costs from road traffic is signifi- Paulo and Shanghai (MacKenzie, 1997) has been projected to
cant. A recent study jointly produced by agencies of the Swiss, yield two sets of ancillary benefits:
French and Austrian ministries of health, environment, and (1) less net GHG emissions from transport, and
economy estimates that the annual number of deaths linked to (2) lower incidence of traffic-accident-related morbidity and
traffic based pollution in these countries exceeds those that mortality.
occur because of traffic crashes alone. This study uses a will-
ingness-to-pay approach to economically evaluate traffic-relat-
ed air pollution health effects. In all three countries, the total air 9.2.9 Services
pollution related health costs are US$49.7bn9, with $26.7bn
coming from road traffic-related pollution. As a percentage of Since services employ more people and since they are much
GDP, such costs in these countries range from 1.1%-5.8% more employment-intensive than energy and manufacturing,
(Sommer et al., 1999). A recent study from Sao Paulo employment usually increases as a result of GHG mitigation.
(Miraglia et al., forthcoming), estimated that by 2020, 35300 However, the effects are small and diffused, and there is hard-
avoidable deaths from air pollution will occur if current trends ly any literature on specific sectoral effects for the service
in transportation continue and about 150,000 children will be industries apart from the multisectoral studies reviewed in sec-
admitted to the hospital or visit the emergency room. tion 9.2.1 above.
9.2.8.4.2 Road Congestion

9.2.10 Households
The research done on the ancillary benefits of GHG mitigation
policies on road transport suggests that the value of the conse- The impact of mitigation on households comes directly
quent reduction in congestion may be one of the most signifi- through changes in the technology and price of household use
cant of such benefits (Barker et al., 1993). Traffic congestion of energy for heat, light, and power, and indirectly through
also contributes to increased exposure to pollutants by passen- macroeconomic effects, particularly on the income of house-
gers during periods of congestion, with levels inside private holds and the employment of their members. An important
vehicles found to be 2 to 8 times those in the surrounding air ancillary benefit for households is the potential improvement
(Fernandez-Bremauntz and Ashmore, 1995). Action to reduce in quality of indoor, local, and regional air.
Most studies analyze the effect of mitigation strategies on

9The original calculations are in euro and a rate of US$1=11 has been GDP, which is often taken as an indicator of welfare. However,
used for conversion.
this measure does not capture the effects on the distribution of 9.2.10.4 Ancillary Benefits for Households
income between households. There are some studies that look
at private consumption and other constructed indices of wel- A major ancillary benefit of GHG mitigation is reductions in
fare, but these are few in number. This literature concentrates the emissions of local air pollutants. Glomsro et al. (1990)
more on the developed economies, as these are the countries have indicated that improved health conditions as a conse-
that would be taking actions first to reduce the emissions. The quence of improved air quality, etc., could offset roughly two-
effect on developing economies is indirect through the trade thirds of the calculated GDP loss arising out of policies to
effects and energy price effect. reduce emissions. Alfsen et al. (1995) indicate a 6 to 10%
reduction in SO2 and NOx emissions by the year 2000 as a
9.2.10.1 Distributional Effects of Mitigation result of an energy tax of US$3/barrel in 1993 and increasing
by US$1 in each subsequent year to 2000.
These are mainly discussed in Chapter 8 (section 8.2.2.3).
There are a number of studies on the domestic income distrib- Transport sector mitigation could imply substantial price
utional effects of carbon taxation, mostly for developed coun- increases with associated negative political, economic, and
tries (Johnson et al., 1990; Chandler and Nicholls, 1990; social implications, such as hardship for low-income rural
Poterba, 1991; Bertram et al., 1993; Hamilton and Cameron, motorists without access to public transport (Koopman and
1994; Symons et al., 1994; Cornwall and Creedy, 1996). These Denis, 1995; Dargay and Gately, 1997). But the option of using
studies show a regressive effect of carbon taxes, but a progres- public transport could benefit the lower income sections of
sive effect if revenues are returned to disadvantaged groups. As society, especially in developing countries, along with associ-
the share of household expenditure on energy and the depen- ated reduction in emission of CO, NOx and SO2 (Bose and
dence on high-carbon fuels of the lower income groups is high, Srinivasachary, 1997). Lower fuel use by road transportation
the impact of a carbon tax would be disproportionately higher could have substantial health benefits in urban areas (Pearce,
on these lower income groups (Goldemberg and Johansson, 1996; Zaim, 1997).
1995; Yamasaki and Tominaga, 1997). Barker and Kòhler
(1998) review a number of studies on impact of carbon taxa- Some of the indirect benefits of GHG mitigation of fuel
tion on households. Their analysis of an EU carbon tax indi- switching and efficient devices in the household sectors, typi-
cates that taxation on domestic energy is regressive and taxa- cally in developing countries, include:
tion on road fuels is weakly progressive. They also show that • improved indoor air quality;
revenues recycled through employer taxes could increase dis- • higher quality of life (simplifying household chores,
posable income for all income groups in the study. better hygiene, and easier cleaning);
• reduced fuel demand with economic and time-saving
9.2.10.2 Electricity and Demand-side Management benefits to the household (one study in Tanzania report-
ed that women using wood as fuel spend 12 hours a
A number of studies point out that power sector deregulation week to collect it (Gopalan and Saksena, 1999));
and competition will improve the efficiency of operations as • increased sustainability of local natural resources; and
well as management, which will result in a reduction in elec- • reductions in the adverse effects of biomass use on
tricity rate charged to the end users (Hsu and Tchen, 1997). human health (WHO, 1992).
Demand-side management (DSM) instituted by electric utili- These points are particularly relevant in the case of biomass-
ties would increase electricity prices, but could lead to a reduc- burning stoves (Sathaye and Tyler, 1991; Smith 1996).
tion in total bills to participating customers (Hirst and Hadley, Gopalan and Saksena (1999) report that the level of exposure
1995), although the increased electricity prices could deter to key pollutants in rural households can be 10 to 100 times
companies from using these measures in a competitive market. higher than the health-related guidelines of the WHO.
Parker (1995) indicated that DSM measures could lead to job
creation from production and installation of equipment. The results of a study on potential fuelwood use in 2020 for
Austria, Finland, France, Portugal, and Sweden reveal that
9.2.10.3 Effects of Improvement in Energy Efficiency upstream emissions from fuel extraction are generally higher
for fossil fuels than biofuels (Schwaiger and Schlamadinger,
Improvements in the efficiency of energy production may have 1998). However, some research indicates that local negative
substantial impacts on households. Bashmakov (1993) reports environmental implications may be greater for use of wood
a reduction in energy bills for end users and a substantial than fossil fuel (Radetzki, 1997). An associated impact of
reduction in environmental costs for Russia. The study also increased diversion of land for growing wood would be on
reports that every rouble invested in energy efficiency gener- agriculture production and hence the commodity prices (Alig
ates 5 times more jobs than investments in energy production. et al., 1997). The economic benefits of afforestation also
On the other hand, Gaj et al. (1997) report a high social cost of include benefits from increase in supply of non-timber forest
economic transition caused by macroeconomic reforms, which products (Mors, 1991; ADB-GEF-UNDP, 1998a). These
indirectly reduce GHG emissions, because employment in options in developing countries would greatly increase the
non-competitive sectors is high in Poland. wood supply and address the forest degradation issue but via-
Table 9.8: Typology of potential international spillovers from mitigation strategies

Spillovers
Benefits from technology Impacts on energy industries Impacts on energy intensive Resource transfers to
improvement activity and prices industries sectors
Policies and Measures
Increase in the scientific

Public R&D policies knowledge base
Increase in know-how
"Market access" policies through experience, learning
for new technologies by doing
New cleaner industry/

Standards, subsidies
product performance
voluntary agreements
standards
Carbon leakages, positive
Carbon taxes impacts for activity, negative
Reduction of activity in fossil for envir. in receiving country
fuel industries
Price-induced technical Lower international prices,
Energy subsidy removal change and technology negative impacts for
diffusion exporters, Reduced distorsions in
positive for importers, industrial competition
possibility of a
Harmonized carbon taxes "rebound effect"
Distorsion in competition if
Domestic emission trading differentiated schemes
(grandfathered vs. auctioned)
Joint Implementation, Clean

Development Mechanism Technology transfer
Net gain when permit price

International emission trading is superior (not equal)
to average reduction costs
bility is an important issue as incomes are too low in rural areas • to evaluate the costs and effectiveness of measures
for sizeable numbers of the population to buy wood. available to reduce GHG emissions or enhance sinks;
and
Mitigation strategies in rural domestic energy use range from • to develop national action plan policy responses that
use of more efficient appliances, installation of PV solar, fuel- will be required to implement the measures that are
switching and use of bio-gas (ADB-GEF-UNDP, 1998a). Such identified.
strategies for developing countries are constrained by high cap-
ital costs (Biswas and Lucas, 1997). The ancillary benefits of The ALGAS country reports highlight the forestry sector
lower use of traditional biomass are decreased deforestation, and options: forest protection and reforestation will have both
lower loss of crop-nutrient from the system through use of agri- socio-economic benefits and environmental benefits. These
cultural residue as fuel (Bala, 1997). The ancillary environmen- forestry options will increase rural incomes, increase equity of
tal benefits that are associated with such strategies do not form income, and increase the availability of biomass (ADB-GEF-
a major factor in energy decisions of the household (Aacher and UNDP, 1998b, c, d and f). These studies also emphasize that
Kammen, 1996); it is the cost that is the important factor. And the forestry options would reduce the pressure on forested land
some mitigation measures at home, such as reduction of air and have indirect benefits of reducing soil erosion in hilly ter-
leaks, tend to worsen indoor air quality (Turiel, 1985). rain. However, some of the studies (ADB-GEF-UNDP 1998c
and e) indicate that these changes are short term and do not
9.2.10.5 The Asia Least-cost Greenhouse Gas Abatement have a significant effect.
Strategy Studies
The ALGAS-Bangladesh (ADB-GEF-UNDP, 1998d) study
ALGAS was a regional technical assistance project of the also reports that the options in the agricultural sector of reduc-
Asian Development Bank (ADB) which enabled 12 Asian ing CH4 emission from paddy fields and enteric fermentation
countries: in animals have direct benefits in terms of increased incomes,
• to prepare an inventory of anthropogenic emissions and and also improve foodgrain production and availability.
sinks of GHGs;
9.3 International Spillovers from Mitigation Strategies Box 9.1. International Technological Spillovers in the
National Energy Modelling System Model of the US Energy
International spillovers10 arise when mitigation in one country Sector
has an impact on sectors in other countries. The main factors
are: The rate of international spillovers largely depends on the nature
(1) improvement in the performance or reduction in the cost of of the technology, the degree of internalization of the market,
low-carbon technologies; and the competitive structure of the industry. The NEMS model
(2) changes in the international prices, exports and outputs of of the US energy sector is one of the rare models explicitly
fossil fuels, especially oil; and incorporating spillover effects. It is assumed, based on historical
(3) relocation of energy-intensive industries. experience, that power plant development outside the US will
also help to decrease costs in the USA. Thus, one unit installed
Table 9.8 shows how different policies and measures may give abroad is incorporated in the experience curve, but only up to a
rise to such spillovers. These effects may be included in the fraction of the same unit in the USA. The corresponding factor
design and assessment of policies, particularly in the search for (from 0 to 1) depends on the proximity of the country and firm
internationally equitable strategies. Chapter 8 considers the developing this power plant. It gives the measure of the expect-
macro aspects of spillovers; this section considers the sectoral ed international spillover rate (NEMS model documentation,
aspects. DOE-EIA; see Kydes, 1999).
9.3.1 Technology Policies (1) They will reduce the demand for carbon-based fuels, and
thus introduce a downward pressure on their prices e.g., in
In the sectoral perspective of this chapter, it appears that there the world price of crude oil;
are three routes by which technology policies in one country (2) They may reduce the industrial competitiveness of sectors
affect sectoral development in others (see Section 8.3.2.5 for a with higher costs in the mitigating country, raising com-
global perspective). First, R&D may increase the knowledge petitiveness and hence market shares for sectors in other
base and this will benefit every country. Second, increased countries;
“market access” for low-CO2 technologies, through niche-mar- (3) They may create an incentive to industrial relocation and
kets or preferential buyback rates in one country may induce a thus give rise to “carbon leakages”;
generic improvement in technology in others. Box 9.3.1 (4) However, they may also stimulate the development of
explains how this process can be modelled. Third, domestic alternative technological solutions.
regulations on performance and standards, whether imposed or
voluntary can create a strong signal for foreign industrial com- The effects of carbon taxation on international competitiveness
petitors (Gruber et al., 1997). For example, the ratio of emis- are reviewed by Ekins and Speck (1998) and Barker and
sion standards for carbon monoxide, hydrocarbons, and NOx Johnstone (1998). Clearly, a carbon tax will raise the cost of pro-
for automobiles in the EU relative to those in the US has been duction of some sectors of the economy, causing some consumers
reduced from a factor of more than 3 in the seventies to a fac- to switch from their products to the products of the sectors in
tor 1.5 to 2 in the nineties (Anderson, 1990; IFP, 1998). other countries, changing international trade. National losses
(and/or gains) for price competitiveness will be the net sum of the
sectors’ losses (and/or gains) for price competitiveness. The out-
9.3.2 Tax and Subsidy Policies come for a particular sector will depend on the policy instruments
used, how any tax revenue has been recycled, and whether the
Spillover effects from tax and subsidy policies for mitigation exchange rate has adjusted to compensate at the national level.
are less direct. The global economic impacts of the policies are The conclusions from these surveys are that the reported effects
examined, both in a theoretical and in a modelling perspective, on international competitiveness are very small, and that at the
in Chapter 8 (8.3.2.1 to 8.3.2.4). Their impacts on sectors are firm and sector level, given well-designed policies, there will not
also analyzed in section 9.2 above. The sectoral effects of these be significant loss of competitiveness from tax-based policies to
policies can be summarized as follows. achieve targets similar to those of the Kyoto Protocol.
These conclusions are confirmed by later studies, although in

10 Spillover effects can be defined as interdependencies between
general the effects of environmental taxation in one country on
sectors in other countries are not well covered by the literature.
countries, sectors or firms that take the form of technological syner-
Using an econometric model (E3ME), Barker (1998a) assesses
gies and flows of stimuli and constraints that do not entirely corre-
spond to commodity flows (Dosi, 1988). The concept originates in the policies reducing CO2 emissions in 11 EU member states at the
literature on technical change, in order to account for the non-appro- level of 30 industries and 17 fuel users, comparing unilateral
priability of scientific and technological knowledge, which reduces with co-ordinated policies. The carbon tax reduces imports of
the incentive to private R&D and thus motivates public investment in oil and increases imports of carbon-intensive products.
R&D (Arrow, 1962). However, the results for trade are negligible.
Table 9.9: Effects on sectoral output of Japan (in per cent) of an ad-valorem fuel tax
Change of output (%)

Sector Japan only OECD World
Agriculture 0.0998 0.0646 -0.0295

Forestry 0.1744 0.2044 0.0687
Mining 0.0488 0.1311 0.1415
Oil and coal -0.3983 -0.1212 0.6689
Chemistry -0.5143 -0.3929 -0.3884
Metal -0.1619 -0.1032 0.0126
Other manufacture -0.0604 -0.0065 -0.0500
Elec. water, gas -0.3081 -0.3145 -0.3080
Transportation 0.0548 0.0480 0.0364
other services 0.0349 0.0376 0.0364
Capital goods 0.0007 0.0797 0.1078
Source: Ban (1998).
Ban (1998) assesses the effects of an ad-valorem tax on coal general equilibrium, and energy-engineering), while specific
(20%), oil (10%), and gas (10%) using an applied general equi- sectoral studies use both top-down and engineering-economic
librium model (GTAP) with 12 world regions and 14 industry bottom-up models. Critical differences in the results come
sectors. He has three taxation cases, (a) Japan only, (b) OECD from the type of model used, and its basic assumptions.
only, and (c) the world, with revenues used to increase govern- Repetto and Austin (1997), in a meta-analysis of model results
ment expenditure. The results are all shown against a reference on the costs of mitigation for the USA, show that 80% of pre-
case for 1992. Table 9.9 shows the effects on the industrial out- dicted impacts come from choice of assumptions. They find
put in Japan: the effects are very small when the tax is for that four assumptions are critical in leading to lower costs of
Japan only, but they are even smaller when the taxation is at the mitigation. These are that:
OECD or world level, illustrating the size of the competitive- • the economy responds efficiently to policy changes at
ness effects. These results depend critically on the assumptions least in the long run;
adopted as Ban points out. • international joint implementation is achieved;
• revenues from taxes or permit sales are returned to the
There are other aspects to spillovers not well captured in exist- economy through reducing burdensome taxes; and
ing models. As energy efficiency is generally higher in Annex • any co-benefits from reduced air pollution are fully
B countries than in the rest of the world, some studies suggest included.
that relocation of industry to developing regions would They conclude that under reasonable assumptions, the predict-
increase global CO2 emissions (e.g., Shinozaki et al., 1998). ed economic impacts from the models for the USA in stabiliz-
However, this conclusion would be altered if the relocated ing CO2 emissions at 1990 levels through to 2020 would be
industry used up-to-date technologies rather than the average neutral or even favourable.
technology in developing countries. The international diffusion
of improved technologies in response to CO2 constraints is not Most early studies are focused on the costs, rather than on the
captured in existing models and would tend to counteract the benefits of mitigation11. More recently, top-down modellers
negative environmental aspects of spillovers. have studied the impact of using the revenues collected from
carbon taxes (or from auctions of carbon permits) to correct
economic distortions in some sectors of the economy (typical-
9.4 Why Studies Differ ly to reduce taxes on labour, taxes on incomes and profits, or
taxes on investment).
This section consolidates the explanations for the different
findings in both the macro studies reviewed in Chapter 8 and
the sectoral studies in this chapter. It extends and complements 11 More formally, the studies impose taxes on the carbon content of
the methodological discussion in the SAR (Hourcade et al.,
energy as a factor of production (with labour and capital as other fac-
1996, pp. 282-92), particularly in the role of assumptions lead- tors) in a production function; depending on the precise assumptions
ing to differing results. chosen this has the inevitable implication that output and GDP will
fall. See Boero et al. (1991), Hoeller et al. (1991), Cline (1992), Ekins
In assessing the economy-wide effects of mitigation, consider- (1995), and Mabey et al. (1997) for surveys of the assumptions and
able use has been made of top-down models (macroeconomic, results of the modelling in this area.
Table 9.10: A comparison of top-down and bottom-up modelling methodologies
Treatment Top-down Bottom-up
Concepts and terms Economics-based Engineering-based

Treatment of capital Homogeneous and abstract concept Precise description of capital equipment
Treatment of technical change Trends rates (usually exogenous) Menu of technical options
Motive force in the models Responses of economic groups via Responses of agents via discount rates
income and price elasticities
Perception of the market in the model Perfect markets are usually assumed Market imperfections and barriers
Potential efficiency improvements Usually low with assumption of all Opportunities for no regrets actions identified
negative cost opportunities utilized
Source: Bryden et al. (1995)
9.4.1 The Influence of Methods Their main differences being the assumptions made about the
real measured economy, aggregation, dynamics, equilibrium,
9.4.1.1 Top-down and Bottom-up Modelling empirical basis, and time horizons, among others.
The adoption of top-down or bottom-up methods makes a sig- The main characteristic of CGE models is that they have an
nificant difference to the results of mitigation studies (see 8.2.1 explicit specification of the behaviour of all relevant econom-
and 8.2.2 for discussion and results). In top-down studies the ic agents in the economy. In the mitigation applications they
behaviours of the economy, the energy system, and their con- have usually adopted assumptions of optimizing rationality,
stituent sectors are analyzed using aggregate data. In bottom- free market pricing, constant returns to scale, many firms and
up studies, specific actions and technologies are modelled at suppliers of factors, and perfect competition in order to provide
the level of the energy-using, GHG-emitting equipment, such a market-clearing equilibrium in all markets. Econometric
as power-generating stations or vehicle engines, and policy models have relied more on time-series data methods to esti-
outcomes are added up to find overall results. The top-down mate their parameters rather than consensus estimates drawn
approach leads easily to a consideration of the effects of miti- from the literature. Results from these models are explained
gation on different broad sectors of the economy (not just the not only by their assumptions but also by the quality and cov-
energy and capital goods sectors), so that the literature on these erage of their data. It is usually argued that CGE models are
effects tends to be dominated by this approach. more suitable for describing long-run steady-state behaviour,
while econometric models are more suitable for forecasting the
Table 9.10 compares the methodologies. They have a funda- short-run. However, the models have increasingly incorporated
mentally different treatment of capital equipment and markets. long-run theory and formal econometric methods, and several
Top-down studies have tended to suggest that mitigation poli- now include a mix of characteristics, from both resource allo-
cies have economic costs because markets are assumed to cation and econometric models; see Jorgenson and Wilcoxen
operate efficiently and any policy that impairs this efficiency (1993), McKibbin and Wilcoxen (1993, 1995), Barker and
will be costly. Bottom-up studies tend to suggest that mitiga- Gardiner (1996), Barker (1998b) and McKibbin et al. (1999).
tion can yield financial and economic benefits, depending on
the adoption of best-available technologies and the develop-
ment of new technologies. Some hybrid models include both 9.4.2 The Role of Assumptions
approaches (see Laroui and van Leeuwen, 1995, for an exam-
ple). 9.4.2.1 Baseline
9.4.1.2 General Equilibrium and Time-series Econometric A critical point for the results of any modelling is the definition
Modelling of the baseline (or reference or business-as-usual) scenario.
The SRES (Nakicenovic et al., 2000) explores multiple sce-
There are two main types of macroeconomic models used for narios using six models and identifies 40 scenarios divided into
medium- and long-term economic projections12: resource allo- 6 scenario groups. As OECD (1998) points out, among the key
cation models (i.e. CGE) and time-series econometric models. factors and assumptions underlying reference scenarios are:
• population and productivity growth rates;
• (autonomous) improvements in energy efficiency;
12 See Shoven and Whalley (1992), Dervis et al. (1982), Jorgenson • adoption of regulations e.g., those requiring improve-
(1995a, 1995b), Holden et al. (1994), Barro and Sala-i-Martin (1995) ments in air quality; if air quality is assumed to be sat-
for different methods of long-term modelling. isfactory in the baseline, then the potential for air qual-
ity ancillary benefits in any GHG mitigation scenario 9.4.2.4 Price Elasticity
is ruled out by assumption;
• developments in the relative price of fossil fuels; some In assessing the effects of mitigation, estimations of price-
of the underlying factors are supply-side issues, for induced substitution possibilities between fuels and between
example oil and gas reserves, development of gas disaggregate energy and other inputs can be crucial for model out-
tribution networks, the relative abundance of coal; comes. All such substitutions become greater as the time for
energy policies also play a role, particularly tax and adjustment increases. The problem is that estimates of substi-
subsidy policies; tution elasticities are usually highly sensitive to model specifi-
• technological change, such as the spread of combined cation and choice of sample period. There is little agreement on
cycle gas turbines; the order of magnitude of some of the substitution elasticities,
• supply of non-fossil fuel based electricity generation or even whether they should be positive or negative, e.g., there
(nuclear and hydro); and is debate whether capital and energy are complements or sub-
• the availability of competitively priced new sources of stitutes. If energy and capital are complements, then increasing
energy, so-called backstop fuels, for example solar, the price of energy will reduce the demand in production for
wind, biomass, tar sands. both energy and capital, reducing both investment and growth.
Differences in the reference scenarios lead to differences in the Most CGE models consider very different possibilities of sub-
effects of mitigation policies. Most notably, a reference sce- stitution, for example WW, Global 2100, and Nordhaus’s
nario with a high growth in GHG emissions implies that all the DICE/RICE models assume capital and labour as substitutes,
mitigation scenarios associated with that reference case may while GREEN assumes capital and energy as direct substitutes.
require much stronger policies to achieve stabilization.
9.4.2.5 Degree of Aggregation
Nevertheless, even if reference scenarios were exactly the
same, there are other reasons for changes in model results. There are many different products, skills, equipment, and pro-
Model specification and, more importantly, differences in duction processes; many important features are missed when
model parameters also play a significant role in determining they are necessarily lumped into composite variables and func-
the results. tions. A basic difference among models and their results is the
level of aggregation. Indeed, in practice, different goods have
9.4.2.2 Costs and Availability of Technology different energy requirements in production, and therefore any
changes in consumption and production patterns will affect
If any fuel becomes perfectly elastic in supply at a given price them differently. Hence, a highly aggregated model will miss
(i.e., the backstop technology), the overall price of energy will some potentially major interactions between output and energy
be determined independently of the level of demand, which use, which is precisely the purpose of the analysis. For exam-
will then become the critical determinant of mitigation costs. ple, sectoral disaggregation allows the modelling of a shift
Hence, the assumption of a backstop technology strongly towards less energy-intensive sectors, which might reduce the
determines mitigation costs. Models without a backstop tech- share of energy in total inputs. In the same way, when a carbon
nology will tend to estimate higher economic impacts of a car- tax is introduced, it could reduce the estimated costs of abate-
bon tax, because they rely completely on conventional fuels, so ment by allowing substitution effects of energy-intensive
that the tax rate has to rise indefinitely to keep carbon concen- goods by less energy-intensive goods.
trations constant, to offset the effects of economic growth.
9.4.2.6 Treatment of Returns to Scale
9.4.2.3 Endogenous Technological Change
Constant returns to scale represent a common assumption on
The treatment of technology change is crucial in the macro- the economic modelling of climate change. However, in prac-
economic modelling of mitigation. The usual means of incor- tice, economies of scale seem to be the rule rather than the
porating technical progress in CGE models is through the use exception. Indeed, there are several reasons for economies of
of time trends, as exogenous variables constant across sectors scale, see Pratten (1988), and Buchanan and Yoon (1994). For
and over time. These trends give the date of the solution. example, many electricity-generating stations benefit from
Technical progress usually enters the models via two parame- economies of scale, utilizing a common pool of resources
ters: (i) autonomous energy efficiency (AEEI) (if technical including fuel supply, equipment maintenance, voltage trans-
progress produces savings of energy, then the value share of formers, and connection to the grid. In spite of this fact, the
energy of total costs will be reduced); and (ii) as changes in impact of the effects of increasing returns and imperfect com-
total factor productivity. The implication of this treatment is petition (IC) in the modelling of climate-change strategies has
that technological progress in the models is assumed to be consistently been neglected in the literature. Most of the glob-
invariant to the mitigation policies being considered. If in fact al models, if not all, assume explicitly perfect competition, for
the policies lead to improvements in technology, then the costs example, see DICE/RICE, G-Cubed, Global 2100, GREEN,
may be lower then the models suggest. GTEM, WorldScan, and WW.
9.4.2.7 Treatment of Environmental Damages 9.4.2.9 International Environmental Policy
Most models are not able to incorporate the benefits of pre- Environmental policy to reduce climate change will be eco-
venting climate change (or of the costs of doing nothing). nomically efficient when the incremental cost of emission
Instead, modellers have only considered the economic impact reductions is equal in all complying countries. A way of
of meeting some emission standard, which implicitly assumes achieving cost savings in the abatement policy is to allow
(in the base situation) that climate change would have no eco- emission sources to contract with each other to meet required
nomic impacts. Nevertheless, the potential costs caused by cli- emission reductions. In this sense, flexible instruments such as
mate change are likely to be huge (even though some international emissions trading and JI are more efficient than a
favourable effects are also expected) regarding: loss of human situation in which each country has to achieve its own emission
well-being, damage to property including agriculture and reduction15. Usually, international emissions trading is mod-
forestry, ecosystem loss, and risk of disaster, see Nordhaus elled as if all countries set the same carbon tax rate, so that
(1991), Cline (1992, Chapter 3), Fankhauser (1995), cost-effective emission reductions are advantageous to under-
Fankhauser and Tol (1995). This situation has been caused to take in whatever country they arise. Hence, if models consider
some extent by two factors, the difficulties of economists in economic instruments for environmental regulation, the over-
valuing environmental impacts, and the scientific uncertainty all cost of controlling emissions should be lower as a conse-
of predicting the physical effects of climate change13. quence of cost savings in the control produced by these instru-
ments16.
9.4.2.8 Recycling of Tax Revenues
It is important to point out that this kind of modelling implicit-
Carbon taxes will generate significant tax revenues. The effects ly assumes an ideal scenario. However, in practice some prob-
of these revenues in the economy will depend on how this lems arise with the basic theory, involving the operation and
money is recycled into the economy (in practical terms, some design of the market. Some important considerations here are:
mechanism for recycling is always needed in order to avoid a • the degree of competition in the market (i.e., that nei-
general deflationary impact). If it is assumed that revenues will ther buyers nor sellers have sufficient weight to influ-
not be fully recycled, the models tend to find that any carbon ence the price of the permit);
tax will reduce GDP. Usually, modellers have tried to separate • high transaction costs derived from inadequate infor-
the economic impacts arising from this environmental policy mation;
from those arising from a tax cut, assuming that revenues will • fairness in allocating the emission permits (auctioning
be returned in the form of lump-sum rebates (an unrealistic versus “grandfathering”); and
assumption). The alternative is to assume that revenues col- • the institutional and administrative costs of implement-
lected from the carbon tax are used in correcting economic dis- ing the system (are the costs negligible?)17.
tortions in the economy, e.g., taxation of employment, which
would benefit society not only by correcting the externality but
also by reducing the costs of the distorting taxes (the so-called 9.5 Areas for Further Research
“double dividend”). Obviously, if the benefits from reducing
existing taxes on labour are incorporated into the modelling, The literature on sectoral economic costs and benefits is limit-
the projected economic impacts can be substantially more opti- ed and additional research would be beneficial in all areas.
mistic than if a lump-sum revenue recycling is assumed,
although the size of the effect depends on model specifica-
tion14. 15 In general terms, from the economists’ point of view, environmen-
tal regulation should rely on economic instruments instead of com-
mand–and-control policies, considering the cost-effective allocation
of the control responsibility of the former ones, which have proven to
13 In the same way, models should incorporate other benefits of limit-
be efficient in simple settings, see Bohm and Russell (1985), Baumol
ing GHG emissions, but again the complexity of modelling and valu- and Oates (1988), Montgomery (1972).
ing of these benefits are substantial. The ancillary benefits associated
with the abatement policies usually include reductions in damages 16See Tietenberg (1990), Barrett et al. (1992), Barrett (1991), Rose
from other pollutants jointly produced with GHGs (see Chapter 8 and and Tietenberg (1993). See also the studies reported to the OECD
Barker, 1993; Barker et al. 1993 and OECD 2000) but also include the expert workshop on Climate Change and Economic Modelling,
conservation of biological diversity. September 1998.
14 Nevertheless, in general the research on double dividend of envi- 17 In terms of the Kyoto Protocol, for example, a specific problem of
ronmental taxes has resulted in conflicting and confusing conclusions. modelling IET is the possibility that target emissions will be below
See Bohm (1997) for a clear statement of the issues and O’Riordan the base-year emissions. In the same way, variations from the full
(1997) for several reviews of theoretical and practical evidence of the unrestricted trading systems may change cost estimations. Two clear
dividends from environmental taxation. variations are: the definition of trading entities (i.e. bubbles), and the
limits of the amount of trading.
Specific issues identified in this chapter (not in order of prior- • Further study would be helpful to determine the degree
ity) include: to which employment growth in the industries that
• Additional research on the impacts of climate change would benefit from climate change policies (e.g.,
policies on the fossil fuel industries is needed. renewable energy) would offset the decrease in
Questions include: employment in industries that would suffer as the result
• the apparent anomaly between studies indicating of climate change policies (e.g., fossil fuels). These
significant decreases in the demand for oil in Annex studies could also consider frictional unemployment.
B countries, and studies indicating significant
increases in the demand for transportation fuels, the • More generally, an assessment is needed of how sec-
major user of oil; toral costs of mitigation can be minimized and distrib-
• whether in the medium term (10 to 30 years) uted more equitably, both at the national and the global
reserves of conventional oil are limited, which levels. Babiker et al. (2000) found that macroeconom-
would soften the impact of climate change policies, ic costs for the US increased when climate change poli-
or whether they are plentiful; and cies excluded one or more economic sectors. However,
• whether the demand for natural gas will decrease as this study did not indicate the benefits, if any, to the
a result of a general decrease in the demand for fos- protected sector.
sil fuels, or increase, as a result of fuel switching
from higher carbon content fuels and growth in • More research is needed on the ancillary and co- bene-
demand in non-Annex B countries. fits of GHG mitigation and other objectives of transport
policies (reductions in air pollution, lower levels of
• The impacts of climate change policies on the financial traffic congestion, fewer road crashes).
industries have not been analyzed. IPCC (2001) details
the potential impacts, positive and negative, of climate
change on the financial industries, but there appears to
be no literature evaluating the degree to which mitiga-
tion policies would affect these impacts.
• The applicability of existing climate policies, and their

impacts on the aviation industry and the shipping
industry have not been adequately studied. Further
analysis is needed to determine the efficiency, effec-
tiveness, and equity of various policy options, particu-
larly involving taxation, on limiting GHG emissions
from aviation and shipping. This would include the dif-
ficulties involved in changing the current treaty struc-
ture to allow for the taxation of aviation fuel. The
International Maritime Organization is studying GHG
emissions from shipping. The International Civil
Aviation Organization is currently analyzing policy
options for aviation and is expected to complete its
evaluation by September, 2001.
Barker, T., N. Johnstone, and T. O’Shea, 1993: The CEC Carbon/Energy Tax
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10
Decision-making Frameworks

FERENC L. TOTH (GERMANY), MARK MWANDOSYA (TANZANIA)
Lead Authors:
Carlo Carraro (Italy), John Christensen (Denmark), Jae Edmonds (USA), Brian
Flannery (USA), Carlos Gay-Garcia (Mexico), Hoesung Lee (South Korea), Klaus
Michael Meyer-Abich (Germany), Elena Nikitina (Russian Federation), Atiq Rahman
(Bangladesh), Richard Richels (USA), Ye Ruqiu (China), Arturo Villavicencio
(Ecuador/Denmark), Yoko Wake (Japan), John Weyant (USA)
John Byrne (USA), Robert Lempert (USA), Ina Meyer (Germany), Arild Underdal
(Norway)
Review Editors:
Jonathan Pershing (USA), Mordechai Shechter (Israel)
CONTENTS
Executive Summary 603 10.3.2.2 Technological and Policy Options
and Choices 636
10.1 Introduction 606 10.3.2.3 Choices and Decisions Related to
10.1.1 Chapter Overview 606 Lifestyles 637
10.1.2 Scope of the Problem 606 10.3.2.4 Interaction of Climate Policy with
10.1.2.1 The Problem Is Global 607 other Objectives 640
10.1.2.2 The Problem Is Long Term 607 10.3.2.5 Synergies, Trade-offs, and
10.1.2.3 Associated Human Activities Are No Regrets 640
Pervasive 608 10.3.2.6 Links to other Conventions 641
10.1.2.4 Uncertainty Is Pervasive 608 10.3.3 Technology Transfer 643
10.1.2.5 The Consequences Are Potentially 10.3.3.1 The View of Technology Transfer 643
Irreversible 609 10.3.3.2 Technology Transfer: International
10.1.2.6 The Global Institutions Needed to Aspects 644
Address the Issue Are only 10.3.3.3 Technology Transfer: National
Partially Formed 609 Aspects 646
10.1.3 Tools of Analysis and their Summary in the 10.3.4 Decision-making Frameworks for Sustainable
Second Assessment Report 609 Development and Climate Change 647
10.1.3.1 Tools of Analysis 609 10.3.4.1 Forms of Decision-making 648
10.1.3.2 Summary of the Second 10.3.4.2 Public and Private Decision-making 649
Assessment Report 609 10.3.4.3 Participatory Forms of Decision-
10.1.4 Progress since the Second Assessment making 650
Report on Decision Analytical Frameworks 612
10.1.4.1 Decision Making under Uncertainty 612 10.4 Policy-relevant Scientific Questions in Climate
10.1.4.2 Cost-effectiveness Analysis 614 Change Response 651
10.1.4.3 Tolerable Windows and Safe 10.4.1 Introduction 651
Landing Approaches 616 10.4.2 What Should the Response Be? The
10.1.4.4 Computational, Multiscenario Relationship between Adaptation and
Simulation Approaches 618 Mitigation 652
10.1.5 Robust Decision Making 618 10.4.2.1 Economic Considerations 654
10.4.2.2 Precautionary Considerations 655
10.2 International Regimes and Policy Options 620 10.4.2.3 Institutional Considerations 656
10.2.1 Introduction 620 10.4.3 When Should the Response Be Made? Factors
10.2.2 Coalition Formation 621 Influencing the Relationships between the
10.2.3 No Participation 622 Near-term and Long-term Mitigation
10.2.4 Unilateral Participation 624 Portfolio 657
10.2.5 Partial Agreements 624 10.4.4 Where Should the Response Take Place? The
10.2.6 Global Agreements 627 Relationship between Domestic Mitigation
10.2.7 Political Science Perspectives 628 and the Use of International Mechanisms 660
10.2.8 Implementation and Compliance 630 10.4.5 Who Should Pay for the Response? Mitigation
10.2.9 Monitoring, Reporting, and Verification 632 by Countries and Sectors: Equity and
Cost-effectiveness Considerations 668
10.3 Local and/or National Sustainable Development 10.4.6 Towards What Objective Should the Response
Choices and Addressing Climate Change 634 Be Targetted? High versus Low Stabilization
10.3.1 Introduction 634 Levels—Insights on Mitigation 673
10.3.2 Development Choices and the Potential for 10.4.7 Emerging Conclusions with Respect to
Synergy 635 Policy-relevant Scientific Questions 673
10.3.2.1 Decision-making Process Related
to Sustainable Development 635 References 678
Decision-making Frameworks 603
EXECUTIVE SUMMARY
Scope for and New Developments in Analyses for Climate paths that satisfy externally defined climate impact and emis-
Change Decisions sion cost constraints. Results indicate that a delay in near-term
effective emission reductions can drastically reduce the future
Climate change is profoundly different from most other envi- range of options for relatively tight climate change targets.
ronmental problems with which humanity has grappled. A Less tight targets offer more near-term flexibility.
combination of several features gives the climate problem its
unique feature, which include:
• public good issues that arise from the concentration of International Regimes and Policy Options
greenhouse gases (GHGs) in the atmosphere (and
require collective global action); Different mitigation policy options include the timing of
• the multiplicity of decision makers (ranging from glob- responses to climate change, the choice between mitigation and
al decision-making frameworks (DMFs) down to the adaptation responses, the role of technological innovation and
micro-level of firms and individuals); diffusion, the choice between domestic action and the adoption
• the heterogeneity of emissions; and of international mechanisms, the combination of climate
• the consequences of emissions around the world. change mitigation with actions towards other environmental or
socio-economic objectives, and others. The costs and benefits
Moreover, the long-term nature of climate change originates of these crucially depend on the characteristics of the interna-
because it is the concentration of GHGs that is important, tional agreement on climate change that is adopted. In particu-
rather than annual emissions; this feature raises the thorny lar, they depend upon two main features of the international
issues of intergenerational transfers of wealth and environmen- regime: the number of signatories, and the size of their quanti-
tal good and bad outcomes. Next, human activities associated tative commitment to control GHG emissions. The number of
with climate change are so widespread that narrowly defined signatories depends on how equitably the commitments of the
technological solutions are impossible and the interactions of participants are shared. Cost-effectiveness (minimizing costs by
climate policy with other broad socioeconomic policies are maximizing participation) and equity (the allocation of emis-
strong. Finally, large uncertainties or in some areas even igno- sions limitation commitments) are therefore strongly linked.
rance characterize many aspects of the problem and require a
risk management approach to be adopted in all DMFs that deal There is therefore a three-way relationship between the design
with climate change. of the international regime, the cost-efficiency of climate poli-
cies, and the equity of the consequent economic outcomes.
Experiments with cost–benefit models framed as a Bayesian Thus, it is crucial to design the international regime in a way
decision-analysis problem show that optimal near-term (next that increases both its efficiency and its equity. The literature
two decades) emission paths diverge only modestly with per- presents different strategies to optimize an international
fect foresight and even with hedging for low-probability, high- regime. For example, countries can be encouraged to partici-
consequence scenarios. Cost-effectiveness analyses seek the pate in an international group committed to specific emissions
lowest cost that will achieve an environmental target by equal- limits and targets if the equity (and therefore efficiency) is
izing the marginal costs of mitigation across space and time. increased by a larger agreement. This may include measures
Long-term cost-effectiveness studies estimate the costs to sta- like an appropriate distribution of targets over time, the linkage
bilize atmospheric carbon dioxide (CO2) concentrations at dif- of the climate debate with other issues (“issue linkage“), the
ferent levels. While there is a moderate increase in the costs use of financial transfers to affected countries (“side pay-
when passing from a 750 ppmv to a 550 ppmv concentration ments”), and technology transfer agreements.
stabilization level, there is a larger increase in costs passing
from 550 ppmv to 450 ppmv unless the emissions in the base-
line scenario are very low. The total costs of stabilizing atmos- Linkages to National and Local Sustainable Development
pheric carbon concentrations are very dependent on the base- Choices
line scenario: for example, for scenarios focusing on the local
and regional aspects of sustainable development costs are Government structures involved in the decision-making
lower than for other scenarios. Rather than seeking a single process vary considerably among countries. Institutional artic-
optimal path, the tolerable windows or safe landing approach- ulation remains one of the critical factors affecting the consol-
es seek to delineate the complete array of possible emission idation of an effective decision-making process related to sus-
604 Decision-making Frameworks
tainable development. Even if rules and regulations exist to sive technological facilities, but less effort was applied to the
assign competence, tasks, and responsibilities among the insti- digestion, absorption, and innovation of the introduced tech-
tutions involved, a considerable gap exists between what might nologies. Information can play a guiding role in technology
be desirable and what, for the most part, is practised. In this transfer. To enable sound decision-making, the up-to-date
context, policies related to sustainable development are no information on the current status of technology research and
longer seen as a hierarchical, government-controlled chain of development, the technical and economic evaluation of tech-
commands, but rather as an open process in which the princi- nologies, and the sources of technologies should be available.
ples of “good governance”–transparency, participation, plural-
ism, and accountability–become the key elements of the deci-
sion-making process. Key Policy-relevant Scientific Questions
A critical requirement of sustainable development is the capac- Answers to policy-relevant scientific questions need to draw
ity to design policy measures that exploit potential synergies on the vast material presented in this volume. These questions
between national economic growth objectives and environ- are concerned with the best possible current action with a view
mentally focused policies without hindering development and to a huge array of possible futures. Decisions need to be made
in accordance with national strategies. As also discussed in regarding the short-term balance of various types of actions
Chapters 1 and 2, climate change mitigation strategies offer a (mitigation, adaptation, information acquisition), their timing
clear example of co-ordinated and harmonized policies that (in absolute terms and relative to each other), their location (of
take advantage of the synergies between the implementation of mainly mitigation activities), the character and content of inter-
mitigation options and broader objectives. The potential link- national agreements, and the mode and broader policy context
ages between climate change mitigation issues and economic of implementation.
and social aspects have also brought an important shift in the
focus of mitigation analysis literature. The three perspectives Striking the appropriate balance between mitigation and adap-
introduced in Chapter 1 (cost-effectiveness, equity and sustain- tation will be a tedious process. The need for, extent, and costs
ability) illustrate this shift and broaden the array of options, for of adaptation measures in any region will be determined by the
example by including options for institutional and behavioural magnitude and nature of the regional climate change driven by
changes. From being confined to project-by-project or sector- shifts in global climate. How global climate change unfolds
based approaches, analyses and studies are increasingly con- will be determined by the total amount of GHG emissions that,
cerned with the use of broader policy issues as mechanisms to in turn, reflects nations’ willingness to undertake mitigation
reduce GHG emissions. Thus the alternative energy paths of measures. Balancing mitigation and adaptation efforts largely
low carbon futures in developing countries can be compatible depends on how mitigation costs are related to net damages
with national objectives. Although environmental concerns, (primary or gross damage minus damage averted through adap-
and climate change issues in particular, were not explicitly tation plus costs of adaptation). Both mitigation costs and net
addressed by macroeconomic and sectoral policies, analyzed damages, in turn, depend on some crucial baseline assump-
country cases show clear synergies between reform policies tions: economic development and baseline emissions largely
and environmental improvements. It is also important to under- determine emission reduction costs, while development and
line that for the elements that make up policies at different lev- institutions influence vulnerability and adaptive capacity.
els to operate in a mutually reinforcing manner, the creation of
appropriate communication and information channels should Options to mitigate climate change include actual emission
be given special attention. reductions and CO2 sequestration, investments in developing
technologies that will make future reductions cheap relative to
The private sector has played an important role in the develop- their current costs, institutional and regulatory changes to mod-
ment and transfer of energy efficiency technologies, which ify current decisions that distort in favour of GHG-emitting
reduce the emission of GHGs, and it is becoming increasingly action, and others. Their relative weight in an optimal near-
active in developing and transferring renewable energy tech- term portfolio of mitigation actions crucially depends on the
nologies. Large enterprises can establish research and develop- assumptions behind the various mitigation-cost estimates and
ment (R&D) institutions on their own or jointly with other about the preconditions and future availability of inexpensive
research centres to provide support to technological innovation technologies. Estimates of costs of drastic near-term reductions
and the integration of production and research. On the supply tend to be high, but the proper way to encourage technological
side, the government can play an important role in R&D and development remains heavily debated.
creating an enabling environment for technology transfer.
While introducing technologies to mitigate and adapt to cli- In principle, costs of near-term emission reductions could be
mate change, the developing countries should consider that the reduced by using international flexibility mechanisms to real-
introduction of such technology could generate economic ben- ize reductions where they are least expensive. While there is a
efits and promote sustainable development. In many cases of broad agreement on the cost-reducing effect of international
technology transfer, much attention was paid to the introduc- flexibility mechanisms, there are concerns about their implica-
tion of technologies and a high cost was paid to procure expen- tions for incentives to technological development as well as
about the political (domestic and international) and practical and controversial issue of climate change run the risk of neither
pitfalls of their implementation. In addition to costs, climate solving the climate problem nor improving prospects for sus-
change impacts and mitigation efforts raise a whole array of tainable development? This reports takes the view that by tak-
equity issues. ing into account the broader perspective of sustainable devel-
opment the portfolio of mitigation policies is enhanced. A cen-
Much of the debate about climate change mitigation revolves tral issue in linking development and climate concerns is tech-
around the broader issue of development and the unequal dis- nological transfer that could help less-developed countries
tribution of wealth among countries of the world. Views speed-up their development and control GHG emissions at rel-
diverge widely. Is climate change an opportunity to solve the atively low costs. Opportunities are ample, but barriers are sig-
problems of sustainable development and global distribution of nificant also.
wealth? Or would broadening the scope of the already complex
10.1 Introduction mulating decisions), decision analysis (aimed at providing

information for decision makers), and process analysis (inves-
10.1.1 Chapter Overview tigating procedures of decision making). The last two are
sometimes difficult to separate and they overlap in certain
The preceding chapters in this volume assess the scientific lit- areas, but the distinction is still useful.
erature on specific aspects of climate change economics and
policy. This chapter is intended to synthesize the most impor- DMFs relevant to the climate problem have several levels.
tant policy-relevant scientific results by taking several cuts They stretch from global and supranational fora through
across the material. This chapter begins with a presentation of national and regional institutions down to the micro-level of
the special features of climate change in the context of how companies, families, and individuals. At each level, it is useful
they affect decision-making in different frameworks. This is to distinguish two parts of these DMFs: institutions that pro-
followed by a list of analytical frameworks adopted by scien- vide the boundary conditions (jurisdictions, procedural rules,
tists to provide advice to decision makers and by an overview the body of earlier agreements, etc.) and processes that fall
of the most important new developments since the Second within these frameworks (negotiations, lobbying, persuasion).
Assessment Report (SAR). This section closes with notes on At the global level, for example, UNFCCC provides the insti-
decision-making processes and implications of uncertainty for tutional part and negotiations represent the process part of the
the robustness of choices. DMF.
Section 10.2 presents an assessment of key insights from the To keep the term comprehensive and flexible, decision-analy-
economics and political science literature into international sis frameworks (DAFs) are defined as analytical techniques
regimes and policy options. The chief issue addressed in the aimed at synthesizing available information from many (broad-
section is how international institutions for addressing climate er or narrower) segments of the climate problem to help poli-
change, such as the United Nations Framework Convention on cymakers assess the consequences of various decision options
Climate Change (UNFCCC), are simultaneously shaped by within their own jurisdictions. DAFs organize climate-relevant
and influence national policy choice. information in a suitable framework, apply a decision criterion
(based on some paradigms or theories), and identify options
Section 10.3 considers the problem of local and national cli- that are better than others under the assumptions that charac-
mate policy formulation in the broader context of sustainable terize the analytical framework and the application at hand. A
development objectives. The interactions of development and broad range of DAFs has been used to provide substantial
environmental policy objectives, particularly as they affect information for the various DMFs involved in climate deci-
non-Annex I nations, are discussed. sions at various levels. The most important ones are depicted
later in this section.
Section 10.4 looks at a series of policy-relevant scientific ques-
tions related to global and international climate policy in more The third domain is process-analysis frameworks (PAFs),
detail. It focuses on what has been learned from work that which involve assessments of the decision-making process and
examined decision making at the global scale. While much of provide guidance for decision making in two main areas. The
this literature is also cognizant of the regional decisions that first is concerned with institutional framework design, that is
accumulate to determine global aggregates, it is united by a how to build policy regimes that address the problem effec-
global focus, common to all of the work discussed in the sec- tively (Victor et al., 1998; Young, 1999). The second looks at
tion. It explores what is known about costs and benefits of procedures of decision making at various levels. The bulk of
actions, the timing and composition of policy responses, and the literature on climate change addresses global regime-build-
the influence of equity and fairness considerations on policy. ing in framework analysis and international negotiations in
Finally, some concluding remarks and an outline of future tasks procedure analysis (Kremenyuk, 1991). Pertinent lessons from
are presented in the closing section. this literature are assessed in Section 10.2.
The long tradition of using the terms decision analysis (and The objective in this chapter is to provide a critical appraisal of
frameworks) and decision making (and frameworks) largely policy-oriented analyses and to summarize the emerging
interchangeably, and both meaning scientific inquiries to serve insights in a form that allows policymakers to make informed
decision makers, has resulted in some confusion in the case of judgements within the various DMFs. It is clearly not intended
climate change. With a view to the political sensitivity of the to inflict any particular position upon the policymakers.
issue, it is important to clarify the terminology here at the
beginning of this chapter. Toth (2000) proposes a simple
scheme to make a clear distinction to recognize the fine bor- 10.1.2 Scope of the Problem
derline between a policy-relevant scientific assessment and
policy making proper. Climate change decision-making and Climate change is a problem that is inherently different from
decision analysis intended to support it can be structured in other environmental problems with which humanity has grap-
three major domains: decision making per se (the act of for- pled, because the assumption that prior experience with other
air-pollution problems is a good model upon which to base cli- vast quantities. Fifteen nations emit more than 75% of the
mate policy responses fails at many levels. At least six unique world’s annual carbon emissions.
features characterize the issue.
10.1.2.2 The Problem Is Long Term
10.1.2.1 The Problem Is Global
It is concentrations not emissions that matter
Public goods issues Climate change is related to the concentration of GHGs and not
Traditional environmental air-pollution problems have been to any individual year’s emissions. Carbon dioxide (CO2) con-
amenable to local solutions. The dirty air in a North American centrations are closely related to the net accumulation of emis-
city is of no direct consequence to a city in New Zealand. With sions over long periods of time. That is, it is the sum of emis-
climate change it is the emissions of all sources in all nations sions over time that determines the atmospheric concentration.
that determine the concentration of greenhouse gases (GHGs) Any individual year’s emissions are only marginally impor-
in the atmosphere. As a consequence, the climate change prob- tant1. Average residence times for GHGs can range up to thou-
lem is inherently a public goods problem. That is, the climate sands of years for some of the anthropogenic species.
that everyone enjoys is the product of everyone’s behaviour. Strategies to control net emissions must account for long peri-
No single individual or nation can determine the composition ods of time in a meaningful way. The ultimate objective of the
of the world’s atmosphere. Any individuals’ or nations’ actions UNFCCC is the “stabilization of GHG concentrations in the
to address the climate change issue, even the largest emitting atmosphere at a level that would prevent dangerous anthro-
nation acting alone, can have only a small effect. As a conse- pogenic interference with the climate system” (UNFCCC
quence, individuals and nations acting independently will pro- 1993, Article 2).
vide, together, fewer resources than all individuals and nations
would if they acted in concert. This characteristic provides an Intergenerational transfers are inevitable
important motivation for collective, global action. The consequences of climate change will be visited primarily
on those who are alive in the future. The present generation has
Multiplicity of decision makers inherited its atmosphere and associated climate from its ances-
Multiplicity of decision makers also implies that there are lim- tors. While individuals and governments make many decisions
its to collective actions. Decisions by actors at a wide range of that affect future generations, most of these decisions are under-
levels–global governmental organizations, nation states, taken inadvertently. It is impossible to avoid the intergenera-
regional governments, private individuals, multinational firms, tional wealth-transfer issue when addressing the climate prob-
local enterprises–all matter. The global nature of the problem lem. That most of the affected parties are not present to partic-
also implies that the full breadth of human social structures is ipate in the decision-making process raises complicated ethical
encompassed. This in turn implies that a diversity of policy questions. The implications of their absence are not immediate-
responses is needed. Policy responses that are effective and ly obviously. Future generations have a stake both in the envi-
appropriate in one social context may be completely inappro- ronmental resources, such as climate, that they inherit, and in
priate in another. other wealth that is passed down to them. Sacrifices that are
made by the present generation for the good of its descendants
Heterogeneity will alter the composition of wealth (e.g., environmental versus
Emissions and consequences are also heterogeneous around material) that is transferred from the present to the future, as
the world. This exacerbates the basic public goods nature of the well as the magnitude of the transfer. As climate change is
problem. Countries are distributed across a spectrum of high anticipated to be greater in the future than it is at present, those
emitters to low emitters and high impacts to low impacts. who live in the future will reap most of the benefits that accrue
Nations with high emissions and low expected impacts have a to near-term actions to limit emissions. Intergenerational asym-
high potential to control concentrations, but little incentive. On metry can lead to a form of public goods problem in which the
the other hand, nations with low emissions and high impacts willingness to undertake emissions mitigation in the near-term
have great incentive to control emissions, but little capability. may be less than would have been the case if the decision mak-
While side payments could, in principle, resolve this dilemma, ers lived infinitely. Also implied is a greater sensitivity to emis-
transaction costs may be significant and the present income sion-limitation costs than would be the case if the present gen-
distributions may lead to unacceptable outcomes. Furthermore, eration lived to benefit from its emissions-mitigation actions.
most of the people who will be directly affected by the prob-
lem have not been born yet, which limits their ability to nego- To limit the concentration of atmospheric carbon dioxide,
tiate. Both emissions and the capability to mitigate carbon global carbon emissions must eventually peak and then decline
emissions to the atmosphere are unevenly distributed around This result follows from the nature of the carbon cycle, as it is
the world. A dozen countries control 95% of conventional car-
bon-based energy resources–conventional oil, conventional
gas, and coal. Unconventional resources–deep gas, methane 1 Clearly, the time path of emissions over a longer time period does
hydrates, and shales–while presently expensive relative to con- affect the rate of change of concentrations and associated climate
ventional fuels, have an unknown distribution in potentially changes.
presently understood. While non-CO2 GHGs with relatively ances, to the transportation of goods and provision of services,
short life times, such as methane (CH4), have an atmospheric to the manufacture of materials, to the growth and harvest of
concentration that is stable with a stable rate of annual emis- crops, and to the generation of electric power. As a conse-
sion, CO2 does not. The cumulative net introduction of carbon quence, GHG emissions are greatly affected by other exoge-
emissions from terrestrial reservoirs, such as fossil fuels or bio- nous and non-climate-policy factors. Narrowly defined techno-
logical carbon, through (for example) energy production and logical solutions, such as were available to address the problem
use or land-use change, determines the long-term, steady state, of stratospheric ozone depletion, are impossible for the climate
atmospheric CO2 concentration. Carbon cycle models require issue. While no single technology provides a complete solution
net emissions to asymptotically approach zero, though the to the problem of controlling emissions of GHGs, a significant
process can take centuries. Most, but not all, emissions scenar- set of existing, emerging, and potential technologies is avail-
ios anticipate that, in the absence of a concern for climate able to mitigation climate change, as discussed in Chapters 2,
change, future GHG emissions will continue to rise rather than 3 and 42.
fall (IPCC, 2000b). Where reference emissions scenarios
exhibit increasing emissions over time, most of the emissions Policy interactions will be significant
mitigation required to stabilize the concentration of carbon Future emissions depend to a large degree on the rate and
must occur in the future, with the deviation from the profile direction of technological developments in a broad array of
required for stabilization growing with time. human endeavours. For example, China’s policies to stabilize
its population size, taken for reasons unrelated to climate
While emissions limitation is a policy response, it is not the change, will have a profound effect on Chinese emissions of
only policy response available to decision makers GHGs to the atmosphere. Policies to control non-GHG air pol-
In addition to emissions limitations, policymakers have a wide lutants can greatly affect GHG emissions. For example, mea-
array of other tools at their disposal including knowledge gath- sures to substitute natural gas and non-carbon-emitting energy
ering, research and development of technologies to reduce forms, such as solar and nuclear power, for coal in electricity
emissions and enhancing the resilience of societies experienc- generation to control local and regional air pollution can affect
ing climate change. The optimal and actual mix of policy GHG emissions as well. On the other hand, some policies that
responses will vary over time. reduce local air pollution, such as scrubbing power plants for
sulphur, can reduce power-plant efficiency and increase GHG
10.1.2.3 Associated Human Activities Are Pervasive emissions.
Control of greenhouse gas concentrations implies eventual 10.1.2.4 Uncertainty Is Pervasive

limitations on energy-related emissions
Energy is the single largest source of GHG emissions. It is There are many uncertainties regarding the magnitude of future
responsible for approximately 80% of net carbon emissions to climate change, its consequences and the costs, benefits and
the atmosphere. While net emissions of carbon are associated implementation barriers of possible solutions. Future emis-
with fossil fuel combustion, the carbon-to-energy ratio varies sions to the atmosphere are inherently uncertain and can only
between high-carbon fuels, such as coal, and low-carbon fuels, be explored on the basis of scenarios. The change in concen-
such as CH4, approximately by a factor of two. Technologies tration of GHGs that would result from a given emission rate is
such as hydroelectric power, nuclear fission, wind power, and much less uncertain. But the timing, extent, and distribution of
solar power are generally treated as if they have little or no climate change and sea level rise for a given concentration of
direct carbon emissions, though this may not be the case. For GHGs is not well known due to limitations in modelling cli-
example, CH4 may be released in the process of creating a mate change at the regional level. The impacts of climate
hydroelectric facility and carbon may be released in the manu- change on ecosystems and humanity is known with limited cer-
facture of cement used in nuclear power reactors. Technologies tainty. The potential for an unspecified, low-probability, but
do exist that can biologically sequester or physically remove catastrophic turn of events haunts the problem.
and store carbon. Thus, in principle, controlling energy-related
carbon emissions is possible for several sources of carbon While uncertainties are great, they are not distributed evenly
emissions without foregoing fossil fuel use. These technolo- throughout the problem. The cost implications of emissions
gies are discussed in Chapter 3. mitigation are better known than the more distant (in time)
potential benefits from mitigation. In part this is because of
Narrowly defined technological solutions are unavailable, but temporal proximity, but it is also because most of the costs
a broad development and deployment of technology is key to
controlling the cost of emissions limitation
Emissions of GHGs are associated with an extraordinary array 2 See also, for example, Energy Innovations, 1997; Interlaboratory
of human activities. CO2 emissions are associated with the Working Group on Energy Efficient and Low-Carbon Technologies,
combustion of fossil fuels and changes in land-use. They are 1997, 2000; Koomey et al., 1998; Bernow et al., 1999; Edmonds et
thus affected by activities that range from, for example, house- al., 1999; Geller et al., 1999; Laitner, 1999; Laitner et al., 1999;
hold heating and cooling to commercial lighting and appli- PCAST, 1999; Hanson and Laitner, 2000; Kim et al., 2000.
associated with emissions mitigation pass through markets, groups. Their quantitative nature and their ability to incorpo-
whereas many of the benefits do not. Some uncertainties will rate the global, long-term diversity of relevant human activi-
remain unresolved regardless of the decisions made. This fol- ties, the uncertainty, and the irreversibility characteristics of
lows directly from the fact that there is only one observed his- the problem mean that decision frameworks have been broad-
tory. All the other potential histories are counterfactual, and ly applied to the climate problem. This approach has several
therefore constructs from analytical tools that are limited in special cases, which have themselves received broad attention,
their veracity. In decision making terms the problem of climate including cost–benefit analysis and cost-effectiveness analysis.
change mitigation requires decision making under uncertainty. We review progress in these areas later in this section, after the
Given the long lead times of mitigation action, fully resolving SAR and the “tolerable window and/or safe landing” (TWSL)
uncertainties would make an adequate response infeasible. work.
10.1.2.5 The Consequences Are Potentially Irreversible Other tools have also been employed or have the potential to be
employed to help illuminate decision making. These include
Many global biogeochemical processes have long time scales. game theory, portfolio theory, public finance, culture theory,
Sea level changes as a consequence of changes in mean global and simulation exercises, and are discussed in the body of the
temperature can take more than 1000 years to play out. chapter.
Similarly, changes in the concentration of GHGs can rise rapid-
ly, but decline slowly. And, even if concentrations can be 10.1.3.2 Summary of the Second Assessment Report
reduced, the nature of the climate system is such that it might
not return to the same climatic state associated with an earlier SAR divided its discussion of DMFs into four sections–an
concentration. introduction, a discussion of the context of decision making, a
discussion of the tools for decision analysis, and concluded by
10.1.2.6. The Global Institutions Needed to Address the Issue considering the implications for national decision-making in
Are only Partially Formed the context of the UNFCCC. The chapter began by discussing
the features of climate change that distinguish it from other
The UNFCCC has been ratified by more than 170 parties and environmental problems. It then described decision analysis
entered into force in 1994. It provides the institutional founda- and the present state-of-the-art.
tions upon which international climate change negotiations
occur. It sets as its ultimate objective the stabilization of the Decision analysis uses quantitative techniques to identify the
concentration of GHGs in the atmosphere at levels that prevent “best” choice from among a range of alternatives. Model-based
dangerous anthropogenic interferences with the climate. decision analysis tools are often used as part of interactive
However, the UNFCCC establishes a process and does not cre- techniques in which stakeholders structure problems and
ate the institutions for implementing the objective. The objec- encode judgements explicitly in subjective-preference scales.
tive has not yet been quantified. The term “dangerous” is left It makes the major trade-offs explicit. Although decision analy-
open to interpretation by the parties. sis can generate an explicit value as a basis for choice, it is
based on a range of relevant monetary and non-monetary crite-
The Kyoto Protocol of December 1997, described in Chapter 1, ria. It is used to explore the decision and to generate improved
represents a further important step in the international regime options that are well balanced in the major objectives and that
formation under the UNFCCC. The Kyoto Protocol has are robust with respect to different futures. A review of the real
brought a number of new elements and broadened the context world limitations of quantitative decision models and the con-
of the decision-making process regarding implementation of sistency of their theoretical assumptions with climate change
climate change policy. Ultimately, further institutional devel- decision-making highlighted the following points:
opment is needed for the UNFCCC to meet its final objective. • There is no single decision maker in climate change. As
a result of differences in values and objectives, parties
that participate in a collective decision-making process
10.1.3. Tools of Analysis and their Summary in the Second do not apply the same criteria to the choice of alterna-
Assessment Report tives. Consequently, decision analysis cannot yield a
universally preferred solution.
10.1.3.1 Tools of Analysis • Decision analysis requires a consistent utility valuation
of decision outcomes. In climate change, many deci-
A wide variety of tools have been applied to the climate prob- sion outcomes are difficult to value.
lem. These are enumerated and briefly described in Table 10.1. • Decision analysis may help keep the information con-
In general, these tools help decision makers in several tent of the climate change problem within the cognitive
ways–choose a policy strategy, understand the implications of limits of decision makers. Without the structure of deci-
alternative policy strategies, understand the joint interactions sion analysis, climate change information becomes
of multiple, individual policy strategies. The tool can be cognitively unmanageable, which limits the ability of
employed by either a single decision maker or by stakeholder decision makers to analyze the outcomes of alternative
Table 10.1: Decision-making frameworks: compatibility with decision-making principles, and applicability at geopolitical levels and in climate policy domains
610
Decision analysis Description of the tool Applicability to Comment

frameworks problem
characteristics
Decision analysis Decision analysis is a formal quantitative technique for G, L, H, U, IR Virtues include quantification of results, reproducibility of
identifying “best” choices from a range of alternatives. analysis, ability to incorporate the full dimensionality of the
Decision analysis requires the development of explicit climate problem explicitly.
influence structures that specify a complete set of decision Limitations include the assumptions of:
choices, possible outcomes, and outcome values. 1. A single decision-maker, with well-ordered preferences, who
Uncertainty is incorporated directly in the analysis by is expected to be present throughout the period of analysis.
assigning probabilities to individual outcomes. 2. The number of alternatives is finite and therefore limited in practice.
3. Outcomes must be comparable–implying the need for aggregation
to a single set of common units, e.g. US$, lives, utility.
4. Rationality.
5. Uncertainties are quantifiable.
Cost–benefit analysis Estimates of the costs and benefits for selected decision G, L, H, U, IR 1. This is a special case of general decision analysis.
variables are derived. The “best” outcome is the one 2. Requires an explicit mechanism for valuing costs and benefits
with the highest net benefits. across time.
Cost-effectiveness analysis Accepts specific performance goals as given exogenously, G, L, H, U, IR 1. This is a special case of general decision analysis.
then minimizes the cost to achieve the desired performance. 2. Requires an explicit mechanism for valuing costs and benefits
across time.
3. Provides no information about the selection process. For example,
analysis might accept a fixed CO2 concentration ceiling as specified
exogenously, but cannot comment on the desirability of that choice.
Tolerable windows and/or Accepts specific performance goals as inequalities given G, L, H, U, IR 1. Provides no information about the selection process. For example,
Safe landing approach exogenously, then enumerates paths that are consistent analysis might accept a fixed CO2 concentration ceiling as specified
with the goals. exogenously, but cannot comment on the desirability of that choice.
2. The analysis does not provide a “best” path.
Game theory Provides information about the implication of multiple G, IN Technique is descriptive rather than prescriptive. It offers information
decision-makers’ choices, taking into account expectations about potential outcomes within a specific context.
that each has of their own actions on others, and others’
actions on them.
(continued)
Decision analysis Description of the tool Applicability to Comment

frameworks problem
characteristics
Portfolio theory Concerned with creating under a budget constraint an G, L, H, IN Application to climate change problem has been limited.
optimal composition of assets characterized by different
returns and different levels of risks. Decision options
Decisionmaking Frameworks
(portfolio elements) are represented by a probability

distribution of expected returns while risks are estimated on
the basis of the variability of expected returns, and only these
two factors determine the decision makers’ utility function.
The decision rule is to choose the efficient portfolio
compared to which no other portfolio offers higher expected
return at the same or lower level of risk or lower risk with
the same (or higher) expected return.
Public finance theory Encompasses a variety of research techniques including IN Examines trade-offs between efficiency and other criteria.
the theory of the second best.
Ethical and cultural Concerned primarily with the implications of alternative IN 1. Used to consider explicitly the interactions between policy
prescriptive rules social organizations. Has had limited application to the instrument choice and social structure.
climate problem. 2. It is non-quantitative.
Policy exercises, focus Includes a suite of research activities that have been used G, IN 1. Results are generally not reproducible.
groups, and simulation to assist in the decision-making process. In general, groups 2. Computer models may be used to assist in the exercise.
gaming examine potential outcomes by playing a role in a 3. Much of the value is pedagogical.
simulated decision-making environment.
Notes: G = global; LT = long-term; H = pervasive human activities; U = uncertainty; IR = irreversible; IN = relevant to institutional framing.
611
actions rationally. Quantitative comparisons among The Convention is, first and foremost, a framework for collec-
decision options (and their attributes) are implied by tive decision making by sovereign states. Given this collective
choices between options (the concept of “revealed pref- decision mechanism and the uncertainties inherent in the cli-
erence” in economics). Better decisions are made when mate problem, several recommendations emerge:
these quantitative comparisons are explicit rather than • decisions for actions under the UNFCCC are rather
implicit. being taken sequentially to benefit from the gradual
• The treatment of uncertainty in decision analysis is reduction in uncertainties;
quite powerful, but the probabilities of uncertain deci- • countries may implement a portfolio of mitigation,
sion outcomes must be quantifiable. In climate change, adaptation, and research measures;
objective probabilities have not been established for • they may adjust this portfolio continuously in response
many of the outcomes. In real-world applications sub- to new knowledge (the value of better information is
jective probabilities are used. potentially very large); and
• The large uncertainties and differences between parties • efficient distribution of the risks of losses related to cli-
may mean there can be no “globally” optimal climate- mate change may warrant new insurance mechanisms.
change strategy; nevertheless, the factors that affect the
optimal strategies for single decision makers still have
relevance to individual parties. 10.1.4 Progress since the Second Assessment Report on
Decision Analytical Frameworks
The lack of an individual decision maker, utility problems, and
incomplete information suggest that decision analysis cannot Much work has been conducted since SAR. Work has focused
replace the political process for international climate-change on a wide array of issues ranging from that which explores the
decision-making. Although elements of the technique have tools of analysis to that which employs those tools to shed light
considerable value in framing the decision problem and identi- on the problem of climate change. Researchers such as De
fying its critical features, decision analysis cannot identify Canio (1997), De Canio and Laitner (1997), De Canio et al.
globally optimal choices for climate change abatement. (2000a, 2000b, 2000c), Laitner and Hogan (2000), Laitner et
Decision analysis suffers fewer problems when used by indi- al. (2000), Peters and Brassel (2000), and Sanstad et al.
vidual countries to identify optimal national policies. (2000a, 2000b) have focused on integrated assessment,
endogenous technological change, and behavioural, social, and
The UNFCCC establishes a collective decision-making organizational phenomena (discussed in Chapter 8). Work has
process within which the parties negotiate future actions. also continued to examine the problems of cost–benefit, cost-
Although some features of the decision-making process are set effectiveness, and the interaction of uncertainty with decision
out in the Convention, many are still undecided. It becomes making. New approaches have also been developed, including,
important, then, to examine negotiation and compromise as the for example, tolerable windows and safe landing.
primary basis for climate change decisions under the
Convention. Important factors that affect negotiated decisions 10.1.4.1 Decision-making under Uncertainty
include the following:
• Excessive knowledge requirements in negotiated envi- Work has continued in the development of tools to understand
ronmental decisions may impede a collective rational the influence of uncertainty on decision making. The initial
choice. This difficulty could be reduced by making the work examined in SAR explores the problem of emissions-mit-
negotiation process itself more manageable through the igation objectives under a cost-effectiveness framework, but
use of tools like stakeholder analysis or by splitting the interaction between concentration limits and the date at
accords into more easily managed clusters of agree- which uncertainty is resolved influences the results. This inter-
ments. action occurs because in decision analysis no option can ever
• In the face of long-term uncertainties, sequential deci- be foreclosed before the date at which uncertainty is hypothe-
sion-making allows actions to be better matched to out- sized to be resolved. Any concentration ceiling implies a cumu-
comes by incorporating additional information over lative emissions limit. Thus preserving the option to stay below
time. Sequential decision-making also minimizes any arbitrary limit means adopting a hedging strategy. Grubb
harmful strategic behaviour among multiple decision (1997) characterizes the problem thus: “If we delay action in
makers. the belief that we are aiming at a 500ppmv target, for example,
• Improved information about uncertain outcomes may then after a couple of decades it may be simply too late to be
have very high economic value, especially if that infor- able to stabilize at 400ppmv, however urgent the problem then
mation can create future decision options. turns out to be; and even stabilization at 450ppmv might by
• There are currently no effective mechanisms for shar- then involve radical changes of direction that could prove eco-
ing the risks related to climate change and their associ- nomically very disruptive.”
ated economic burdens. International risk sharing could
yield substantial benefits for global economic and The core of the issue is the interplay between inertia and uncer-
social welfare. tainty; without inertia any trajectory could indeed be corrected
at no cost, but as inertia is important, changing course may be 18

very costly. Fortunately, the Convention embodies the dynam- Perfect foresight
16 Uncertainty resolved in 2020
ic nature of the decision problem in drafting climate as an
ongoing process, not a “once and for all” event. The UNFCCC 14 Reference case
scenario
(1993) requires periodic reviews “in light of the best scientific 12
information on climate change and its impacts, as well as rele- Hedging strategy
10
GtC
vant technical, social and economic information.”
8
Such a sequential decision-making process aims to identify 6
short-term strategies in the face of long-term uncertainties. The
4
next several decades will offer many opportunities for learning
Low probability,
and mid-course corrections. The relevant question is not “what 2 high consequence Scenario
is the best course of action for the next 100 years”, but rather 0
“what is the best course for the near-term given the long-term 1990 2010 2030 2050 2070 2090
objective?”
Figure 10.2: Optimal hedging strategy for low probability,
There have been several attempts to frame the issue. Figure high consequence scenario using a cost-benefits optimization
10.1 reports the results of an analysis by Ha-Duong et al. approach.
(1997). The authors use their model of the Dynamics of Inertia
and Adaptability for integrated assessment of climate-change
Mitigation (DIAM) to determine the least-cost emission path- finding the least-cost mitigation pathway in the face of uncer-
way given an uncertain concentration target. A defining feature tainty. Since a future political decision on a 450ppmv target
of their model is an inertia parameter that accounts for the time cannot be excluded, decisions prior to 2020 must be such that
scale of change in the global energy system. In their analysis they do not preclude the achievement of such a target.
they assign equal probability to a target of 450, 550, and
650ppmv. The solid 550ppmv line corresponds to the optimal One way to avoid the bias inherent in the framing of the emis-
pathway when the target is known to be 550ppmv from the out- sions control problem under uncertainty is to reframe the prob-
set. The analysis shows the optimal hedging strategy when lem as a decision tree structure within the context of cost–ben-
uncertainty is not resolved until 2020. The authors note that efit analysis rather than cost-effectiveness analysis. This was
“our results show that abatement over the next few years is the approach taken by the seven models used in an Energy
economically valuable if there is a significant probability of Modeling Forum (EMF; Manne, 1995) exercise on climate
having to stay below ceilings that would be otherwise reached change decision making under uncertainty (Weyant, 1997).
within the characteristic time scales of the systems producing The study focused on hedging strategies for low probability,
greenhouse gases.” high consequence scenarios in which uncertainty was not
resolved until 2020. Two parameters were varied: the mean
The degree of near-term hedging in the above analysis is sen- temperature sensitivity factor and the cost of damages associ-
sitive to the date of resolution of uncertainty, the inertia in the ated with global warming. The unfavourable cases were
energy system, and assumes that the ultimate concentration tar- defined as the top 5% of each of these two distributions. Two
get (once it has been agreed) must be met at all costs. The last surveys of expert opinion were used to choose the distribution
stems directly from the formulation of the problem as one of of these variables. For the opinion survey on climate sensitivi-
ty, see Morgan and Keith (1995), and for warming damages,
14 see Nordhaus (1994b). Figure 10.2 (Manne and Richels, 1995;
Manne 1995) shows what happens when the unfavourable case
13 650
Reference has a probability of 0.5 and the expected case a probability of
12 550A 0.95 (the two parameter values assumed for the unfavourable
11 550 case are shown in the surveys cited above as being in the upper
GtC
5% of each of the distributions of the two key parameters, i.e.,

10
climate sensitivity and climate damages). The dashed lines
9 show what happens if perfect foresight is available and can
8 Decide target
make today’s decisions in the full knowledge of which of these
in 2020 only outcomes will occur. The solid lines indicate the average
7 results from an economically efficient hedging strategy. The
450
analysis takes into account both the costs and benefits of emis-
2000 2020 2000 sions abatement. With a cost-benefit analysis, costs and bene-
fits are balanced at the margin. Seven EMF modelling teams
Figure 10.1: Optimal carbon dioxide emissions strategy, using have confirmed these results (Weyant, 1997). The reason for
a cost-effectiveness approach. so little hedging is the low probability of the extreme outcome,
that is 0.25%. If one were to increases this probability, the Hence the finding that a co-ordination through price is prefer-
desired degree of hedging would increase accordingly. able as long as the probability of dramatic non-linearity in cli-
mate systems is not large over the middle term. This policy
Another parameter for stochastic cost–benefit analysis is the conclusion can be reverted if the transaction costs of adopting
importance of non-linearity in the impacts and the date at co-ordinated taxation, high level of risk-aversion to cata-
which some threshold is likely to occur. Peck and Tiesberg strophic events, or a large amount of “no regrets” policies are
(1993) observed that optimal policies were more sensitive to considered. The main message, however, is that in a tax co-
uncertainty in the damage-function power parameter than to ordination approach costs are observable (while the outcome is
uncertainty in the scale parameter. Ha-Duong et al. (1999) con- not predictable), but in a quota approach the outcome is
firm this view and demonstrate that introducing thresholds in observable although there is an uncertainty about the resultant
the damage function leads to more significant decoupling from costs. In this respect, emissions trading is logically a compan-
current emissions trends for a given probability distribution. ion tool for a system of emissions quotas, to hedge against the
distributional implications of surprises regarding abatement
Ultimately, as recognized in the IPCC (1996c) one should try costs and emissions baselines.
and assess the option value of the information incorporated in
alternative emissions pathways, that is the capacity of society 10.1.4.2 Cost-effectiveness Analysis
to adapt to any new information. As pointed out by Ulph and
Ulph (1997), the environmental irreversibility has to be bal- There is an increased interest in cost-minimizing paths that
anced against the technological irreversibility, including the lead to alternative, stable steady-state concentrations of GHGs
crowding out between forms of technical progress. Ha-Duong in the atmosphere. This interest stems from the objective of the
(1998) finds, comparing Working Group I (WGI) and Wigley, UNFCCC–to stabilize the concentration of GHGs. Work has
Richels, Edmonds (WRE) strategies, that the magnitude of the focused primarily on the problem of stabilizing the concentra-
value of information is significant compared with the opportu- tion of CO2. The focus on CO2 reflects the importance placed
nity costs of abatement. On the basis of nine scenarios he found on this gas by the Intergovernmental Panel on Climate Change
that the information value of acting soon is, for most of them, Working Group I (IPCC WGI) and the distinctive characteris-
higher than that of acting later, if low and high damages are tic of CO2. As CO2 does not have an atmospheric sink, the net
assumed equally probable. emissions to the atmosphere must eventually decline indefi-
nitely to maintain any steady-state concentration (IPCC,
Whatever the approach, the basic message is quite similar. First 1996a). In contrast, GHGs such as CH4 and N2O, with atmos-
the costs and benefits of quick action have to be balanced pheric sinks, have steady-state concentrations associated with
against those of delayed action; second, to assume that the con- steady-state emissions. Cost-effective paths depend on many
centration target is known with certainty is an over-simplifica- factors including reference emissions, technical options for
tion of the decision problem. What is needed is an approach emissions limitation, the timing and rate of change of the avail-
that explicitly incorporates uncertainty and its sequential reso- ability of options, the discount rate, and assumed control mech-
lution over time. The desirable amount of hedging should anisms and their efficiency. The analysis conducted to date
depend upon assessment of the stakes, the odds, and the costs generally does not take into account that long-term emissions
of policy measures. The risk premium – the amount that soci- mitigation must take place against a background of climate
ety is willing to pay to reduce risk – ultimately is a political change that affects both the nature and composition of eco-
decision that differs among countries. nomic activity and the carbon cycle.
Uncertainty also affects the choice of policy instrument. In Both Manne and Richels (1997) and Edmonds et al. (1997)
principle many mechanisms can be employed to limit emis- examined the relationship between steady-state concentrations
sions, including, voluntary agreements among domestic and of CO2 and associated minimum costs. Both papers computed
international parties, regulation, taxes, subsidies, and quotas or the minimum cost of honouring a concentration ceiling. All
tradable permits (see Chapter 6). Economists have focused on cost calculations assumed that all activities throughout the
the potential role of taxes and quotas because these tools hold world pursued emissions mitigation based on a common mar-
potential for cost minimization. Although both instruments are ginal cost of carbon emissions mitigation. While real-world
equivalent in a world with complete information (the optimal implementation strategies are likely to be less efficient, the
quota leads to the same marginal abatement cost as the optimal choice of a cost-effective assumption for each period provides
tax level), Pizer (1999), building upon a seminal work by a unique benchmark for comparison purposes. Several assump-
Weizman (1974), demonstrated that this is not the case if tions regarding cost-effectiveness over time were examined.
uncertainties about climate damage and GHG abatement costs The two studies examined three cases:
are considered. • global emissions limited to a trajectory prescribed by
IPCC (1995), labelled WGI;
Indeed, welfare losses that result from imperfect foresight • global emissions limited to a trajectory prescribed by
depend on whether the steepness of the marginal abatement Wigley et al. (1996), labelled WRE; and
cost curve is higher or lower than that of the damage curve. • a model-determined minimum-cost emissions path.
should be relatively modest, but should rise steadily (at the rate
7
of interest plus the rate of carbon removal, approximately
WGI, MERGE
WGI, MiniCAM 1%/yr). The rise in marginal cost continues until it reaches the
6 WRE, MiniCAM marginal cost of a “backstop” technology, one capable of pro-
WRE, MERGE viding effectively unlimited emissions mitigation at a constant
Optimal, MiniCAM marginal cost.
5
All cost-effective policies minimize the cost of stabilization by
equalizing the marginal cost of mitigation across time and
Cost (US$1012)
4
space, that is, in all regions, across all human activities, and
across all generations, except to the extent that non-linearities,
3
non-convexities, and corner solutions exist. The implementa-
tion of real-world regimes to control net emissions to the
atmosphere is likely to be inefficient to some degree for a num-
2 ber of reasons, including, for example, the problems of “free
riding”; cheating; in some cases considerations of fairness and
equity; and monitoring, compliance, and transactions costs.
1
Some work has been undertaken to compare potential policy
regimes with respect to cost-effectiveness. For example,
0
450 500 550 600 650 700 750
Chapter 8 shows the difference in emissions mitigation require-
Atmospheric CO2 (ppmv)
ments between various potential implementations of the Kyoto
Protocol and more cost-effective paths. Edmonds and Wise
Figure 10.3: Relationship between present discounted costs (1998) examined the cost effectiveness of a strategy that sought
for stabilizing the concentration of carbon dioxide in the to minimize the costs of monitoring and verification, and pre-
atmosphere at alternative levels from two studies. Costs are mature retirement of capital stocks, while simultaneously
discounted at 5%/yr over the time period 1990 to 2100. addressing concerns about fairness and equity. They considered
Sources: Manne and Richels (1997) and Edmonds et al. a hypothetical protocol that focused on new investments in
(1997). energy technology. They assumed that Annex I nations required
new emissions sources to be carbon-neutral after a prescribed
date. Existing sources were treated as new after a fixed period
Costs were discounted over time at 5%/yr over the period 1990 following their initial deployment. Non-Annex I nations
to 2100. The results are displayed in Figure 10.3. remained unencumbered until their incomes reached levels
comparable to those in Annex I nations. The authors concluded
Costs are roughly an order of magnitude greater for concentra- that the regulatory regime could stabilize the concentration of
tion ceilings of 450ppmv than for the 750ppmv ceiling GHGs, and that the level at which concentrations stabilized is
between WGI, WRE, and optimal global emissions constraints. determined by the initial date of obligations. The hypothetical
Furthermore, costs decline sharply as the constraint is relaxed protocol is economically inefficient, however. That is, it does
from 450ppmv to 550ppmv. Relaxation of the constraint from not minimize the cost of achieving a concentration limit. The
650ppmv to 750ppmv reduces costs, but at a more modest rate. authors compare the hypothetical protocol, which uses a tech-
As discussed in Chapters 2, 7 and 8, it should be noted that the nology regulation to limit emissions, with an alternative cap-
total costs of stabilizing atmospheric carbon concentrations are and-trade regime that achieved the same emissions path. Costs
very dependent on the baseline scenario: for example, for sce- in the hypothetical protocol were approximately 30% greater
narios focusing on the local and regional aspects of sustainable than in those in the alternative cap-and-trade regime.
development costs are lower than for other scenarios.
Jacoby et al. (1998) also considered the problem of accession
Progress has also been made in examining the time path of the to the Kyoto Protocol. They reject the idea that there is such a
value of a tonne of carbon when the cost of stabilizing the con- thing as inter-temporal cost-effectiveness in the context of a
centration of CO2 is minimized. Peck and Wan (1996) demon- century-scale problem. Rather, they begin with the proposition
strated that the results of Hotelling (1931) could be applied to that a continuous process of negotiation and re-negotiation is
the problem of minimizing the cost to stabilize the concentra- required. They analyze a system of obligations based on per-
tion of CO2 and generalized. They show that to minimize pre- capita income that can lead to the stabilization of concentra-
sent discounted cost, the value of a tonne of carbon should rise tions of GHGs.
at the rate of interest (discount rate). This theorem ensures that
the marginal cost of emissions mitigation across both space A substantial body of work has considered the implication of
and time is equal after taking into account that carbon is natu- technology development and deployment on the cost of meet-
rally removed from the system. Thus, the initial marginal costs ing alternative emissions-mitigation obligations. This line of
investigation has a long tradition extending back to, for exam- can be derived by subtracting the anticipated non-Annex I
ple, Cheng et al. (1985). These are discussed in Chapter 83. emissions from the global total.
Recent studies, for example by Dooley et al. (1999), Edmonds
and Wise (1999), Grübler et al. (1999), PCAST (1999), Schock Results from the analysis depend strongly on the constraints
et al. (1999), and Weyant and Olavson (1999), have explored and model sensitivities. The tolerable windows approach (Toth
the potential role of a variety of technologies in both the near et al., 1997, 1999; Bruckner et al., 1999; Petschel-Held et al.,
term and the longer term. The principal conclusion of this body 1999) is formulated as a type of extended and generalized
of investigation is that the cost of emissions mitigation depends cost–benefit analysis for which two kinds of normative inputs
crucially on the ability to develop and deploy new technology. are required. First, with the help of climate-impact response
The value of successful technology deployment appears to be functions that depict reactions of climate-sensitive socioeco-
large with the value depending on the magnitude and timing of nomic and natural systems to climate change forcing, social
emissions mitigation and on anticipated reference scenario actors can specify their willingness to accept a certain amount
progress. of climate change in their own jurisdiction. Second, the same
social actors reveal their willingness to pay for climate change
10.1.4.3 Tolerable Windows and Safe Landing Approaches mitigation in terms of acceptable burden-sharing principles and
implementation schemes internationally, as well as in terms of
Considerable work since the SAR has explored the implica- tolerable utility, consumption, or Gross Domestic Product
tions for global emissions of GHGs of a set of constraints on a (GDP) loss in their own jurisdiction. An integrated climate-
variety of associated phenomena. This vein of research is economy model (e.g., Integrated Assessment of Climate
referred to as the tolerable windows and/or safe landing Protection Strategies - ICLIPS) can then determine whether
(TWSL) approach. See, for example, Alcamo and Kreileman there exists a corridor of emission paths over time that keeps
(1996a, 1996b) and Swart et al. (1998) for early work on the the climate system within the permitted domain.
safe landing approach and Toth et al. (1997) for early work on
the tolerable windows approach. The approach seeks to limit If the corridor does not exist, a willingness to accept more cli-
the emissions time-paths with implications for the near term mate change can be specified (e.g., as a result of resource trans-
and long term. While the tolerable windows and safe landing fers to increase the adaptive capacity in the most constraining
analyses differ somewhat in the detail of their implementation, region or sector on the impact side). Alternatively, willingness
they are similar in approach. We consider the safe landing to pay for emission reductions can be increased or more cost-
approach first. In a multimodel exercise four constraints on reducing flexibility instruments can be allowed on the mitiga-
emissions trajectories are considered: temperature change tion side. If the corridor does exist, it can be perceived as the
since 1990, maximum decadal rate of temperature change, sea room to manoeuvre for global climate policy over the long
level rise between 1990 and 2100, and maximum rate of sea term. The tolerable windows approach leaves the specification
level change. In addition, a limit on the rate of reduction of of climate-change mitigation regimes up to decision makers
emissions is set. involved in climate-change policy making at the global and
national levels. The primary goal of the ICLIPS integrated
Criteria Low Medium High assessment model (IAM) is to determine the implications of
Change in temperature from 1990 1.0°C 1.5°C 2.0°C different equity principles in burden sharing and of various
Decadal change in temperature 0.10°C 0.15°C 0.20°C implementation mechanisms on the existence and shape of the
Change in sea level 20cm 30cm 40cm emission corridor. Nevertheless, the model can also produce
Decadal change in sea level 2cm 3cm 4cm cost-effective emission paths.
Maximum reduction in emissions 2% 3% 4%
The German Advisory Council on Global Change (WBGU)
The safe landing interval is the range of emissions, given in proposed two climate change constraints based on geohistori-
CO2 equivalent emissions (Ceq), in 2010. This range is cal arguments: the tolerable magnitude of climate change is set
7.6–11.9GtCeq; 1990 emissions were 7.10GtC, and approxi- to 2°C compared to the pre-industrial era4 and the rate of tem-
mately 9.8GtCeq, equivalent, defined in terms of CO2, CH4, perature increase should not exceed 0.2 °C per decade. On the
and N2O only (Pitcher, 1999). Emissions for Annex I nations cost side, it is assumed that to reduce GHG emissions at a rate
faster than 4%/yr would be economically too painful to imple-
ment. These constraints are used to illustrate the application of
3
the tolerable windows approach. The results presented here are
See also Edmonds et al. (1994, 1996, 1997, 1999), Grübler and
based on an extended atmospheric chemistry–climate model.
Nakicenovic (1994), Christiansson (1995), Shukla (1995), Goulder
(1996), Energy Innovations (1997), Interlaboratory Working Group on
In addition to CO2, the model also includes CH4, N2O, chloro-
Energy-Efficient and Low-Carbon Technologies (1997, 2000),
Mattsson (1997), Grübler and Messner (1998), Koomey et al. (1998),
4 This 2 degree centigrade limit has also been adopted by the
Yamaji (1998), Bernow et al. (1999), Geller et al. (1999), Laitner
(1999), Laitner et al. (1999), Lako et al. (1999), Hanson and Laitner European Union as its provisional target for stabilizing greenhouse
(2000), and Kim et al. (2000). gas concentrations in the atmosphere under UNFCCC Article 2.
fluorocarbons (CFCs), and aerosols. One simplifying assump- How do near-term emissions affect the available flexibility
tion is that all GHG emissions are reduced at the same rate, over the long-term? The scenario presented in Figure 10.4(b)
except for CFCs, which follow the IPCC IS92a scenario paths. shows this. Here it is assumed simply that CO2 emissions fol-
For simplicity, energy-related global CO2 emissions are pre- low the baseline path according to the IPCC IS92a scenario
sented in Figure 10.4. until 2010. The result is a much narrower corridor: it implies
that the likelihood of a fast turnaround of emissions and per-
Figure 10.4(a) presents the basic emission corridor for the sistent reductions at relatively higher rates (3%–4%/yr) is sig-
WBGU window. It follows from the mathematical formulation nificantly higher.
of the model that at least one permitted emission path passes
through any arbitrary point in the corridor. However, not every The next analysis illustrates the implications of a fairness prin-
arbitrary path within the corridor is necessarily a permitted ciple for the Annex I emission corridor. The assumption is that
path. If emissions follow the upper boundary of the corridor in GHG emissions by non-Annex I countries follow the baseline
the first few decades after 1995, for example, this would entail path and these countries start emission reductions only when
a sharp turnaround and persistent emission reductions at the their per capita emissions reach those of Annex I levels on the
maximum annual rate (4%/yr) for many decades to come. basis of their 1992 populations. The resultant Annex I corridor
is presented in Figure 10.4(c). Obviously, the result is a rela-
tively narrow corridor.
(a) (b)
10 10
Energy related global CO2 emissions (GtC/yr)
8 Energy related global CO2 emissions (GtC/yr) 8
6 6
4 4
2 2
0 0
0 50 100 150 200 0 50 100 150 200
Years after 1995 Years after 1995
(c) (d)
10 10
Energy related Annex I CO2 emissions (GtC/yr)
Energy related Annex I CO2 emissions (GtC/yr)
8 8
6 6
4 4
2 2
0 0
0 50 100 150 200 0 50 100 150 200
Years after 1995 Years after 1995
Figure 10.4: Emission corridors under different assumptions on delaying reduction measures and equity principles.
Figure 10.4(d) shows the resultant emission corridor if the model, and/or the loss function to use in evaluating alternative
above two assumptions about future emissions are combined. outcomes (Lempert and Schlesinger, 2000).
This implies that the world community follows the baseline
emission path until 2010 and reduction obligations will be dis- These multiscenario simulation approaches offer the promise of
tributed between the Annex I and non-Annex I countries a powerful synthesis between the narrative, process-oriented
according to the case in Figure 10.4 (c). The result for Annex I methods of scenario-based planning (Schwartz, 1996; van der
countries emissions through the first half of the 21st century Heijden, 1996) and quantitative tools such as decision analysis,
looks like a straightjacket rather than an emission corridor with game theory, and portfolio analysis. From the quantitative meth-
ample choice. ods, multiscenario simulation draws systematic methods of han-
dling large quantities of data and normative descriptions of good
Importantly, Annex I corridors in Figures 10.4(c) and 10.4(d) decisions. From scenario-planning, multiscenario simulation
reflect the rigid implementation of emission quotas that result draws the insight that multiple views of the future are crucial to
from the specified equity principle. No cost divergence is con- allow groups to transmit and receive information about highly
sidered between Annex I and non-Annex I. The difference uncertain futures. Also scenario planning shows that groups can
between Figures 10.4(a) and 10.4(c) corridors indicates the often agree on actions to take in the face of deep uncertainty
potential to reduce abatement costs if Annex I countries are without agreeing on the reasons for these actions (Lempert and
allowed to “buy” part of the non-Annex I corridor. The eco- Schlesinger, 2000). For instance, multiscenario simulation can
nomic value of this transaction is the subject of many detailed adopt a meaningful cost–benefit framework for climate change,
energy-economy models (see Section 10.4). but at the same time acknowledge the deep uncertainty and dif-
fering values among stakeholders. These make it impossible to
It is clear that all these emission corridors are associated with fully quantify the costs and benefits or to assign widely accept-
the global climate window as specified by the Council. It is ed probabilities to many of the key outcomes of interest. Such
beyond the scope of this analysis to discuss arguments for and computational, multiscenario simulations are enabled by new
against whether the 2°C increase in global mean temperature computer technology–primarily large quantities of inexpensive
above the pre-industrial level and the rate of temperature memory; fast, networked processors; and powerful visualization
increase at no more than 0.2°C per decade are preferred or tools–and are only just becoming available.
realistic propositions. The objective for the tolerable windows
approach is to provide an assessment framework that can help
test any climate protection proposal formulated through 10.1.5 Robust Decision-making
selected climate attributes. The computed emission corridors,
nevertheless, can assist in deciding the magnitude and urgency Uncertainty is a feature that pervades discussions on climate
of the policy measures associated with them, and/or trigger change issues. IPCC SAR covered main areas of uncertainties,
rethinking the originally proposed climate change targets. The especially those related to:
presented example also shows how equity concerns can be • atmospheric concentrations of GHGs and their impact
analyzed in the tolerable windows approach, albeit in a terse on meteorological phenomena (IPCC, 1996a);
form. • the potential of technological options and the relation-
ships between climate change and the dynamics of nat-
10.1.4.4 Computational, Multiscenario Simulation ural systems (IPCC, 1996b); and
Approaches • socio-economic dimensions of climate change (IPCC,
1996c).
Computational, multiscenario simulation is a new analytic
approach to the assessment of climate change policy. Bankes Several sections in this report (1.5; 2.2; 7.2; 10.1) review new
(1993), Lempert et al. (1996), and Laitner and Hogan (2000) and complementary perspectives that facilitate a better under-
have employed this approach, as have Morgan and standing of the tensions between the limited capacity to predict
Dowlatabadi (1996), van Asselt and Rotmans (1997), and, to and the urgent need to act in a situation faced with high stakes
some extent, Yohe (1996). Also, the IPCC Special Report on of risk.
Emissions Scenarios (IPCC, 2000b) presented a large set of
very different baseline scenarios. The basic idea is to use com- The implications of uncertainty are global in scale and long-
puter simulation models to construct a range of a large number term in their impact; quantitative data for baselines and the
of fundamentally different scenarios of the future and, instead consequences of climate change are inadequate for decision
of aggregating the results using a probabilistic weighting, making. In recent years, researchers and policymakers have
make policy arguments from comparisons of fundamentally become increasingly concerned about the high levels of inher-
different, alternative cases. These methods are most useful ent uncertainty, and the potentially severe consequences of
under conditions of deep uncertainty. For example, when we decisions that have to be made.
do not have reliable information or widespread agreement
among the stakeholders about the system model, the prior Conventional frameworks for decision making on climate
probability distributions on the parameters of the system change policies presume that relevant aspects of the contextu-
al environment are to some extent predictable; therefore uncer- made. Adaptive management approaches to decision making
tainty can be reduced to provide decision makers with appro- start by accepting uncertainty as an inherent property of com-
priate information within appropriate time frames. plex systems. The issue here is not the problem of a “determin-
istic version of scientific uncertainty”—a temporary matter of
This anticipatory management approach is based on the imprecision which will be eradicated when enough research has
premise that it is possible to predict and anticipate the conse- been devoted to the questions (Wynne, 1994). The starting point
quences of decisions and hence to make a proper decision once is the acknowledgement that uncertainty emerges not only from
all the necessary information is gathered to make a scientific the long time-scales involved and/or the ability of models to
forecast. The prevailing image is that “given enough informa- predict long-term events, but mainly from the endemic uncer-
tion and powerful enough computers it is possible to predict tainty, indeterminacy, and ignorance related to the co-evolution
with certainty, in a quantitative form, which in turn makes it of natural and social systems. Furthermore, these methods
possible to control natural systems” (Tognetti, 1999). stress the relevance of values, ethical and social, and thus intro-
duce the need for public discourse and debate (Westra, 1997).
Anticipatory approaches have successfully managed a wide
range of decision problems in which the relative uncertainties A central concern in adaptive approaches is with the plurality of
are reducible, and the stakes or outcomes associated with the value systems and how multiple perspectives can inform the
decisions to be made are modest (Kay et al., 1999). A number decision process. Various attempts have been made to incorpo-
of uncertainty analysis techniques, such as Monte Carlo sam- rate a variety of perspectives in relation to uncertainty and to
pling, Bayesian methods, and fuzzy set theory, have been make uncertainty more explicit by expressing it in terms of risk.
designed to perform sensitivity and uncertainty analysis relat-
ed to the quality and appropriateness of the data used as inputs Parallel modelling (Visser et al., 2000) and computational,
to models. However, these techniques, suitable for addressing multiscenario simulation (Lempert et al., 1996; Morgan and
technical uncertainties, ignore those uncertainties that arise Dowlatabadi, 1996; van Asselt and Rotmans, 1997) are emerg-
from an incomplete analysis of the climate change phenomena, ing approaches based on the idea that multiple views of the
or from numerical approximations used in their mathematical future are crucial to allow groups to transmit and receive
representations (modelling uncertainties), as well as uncertain- information about highly uncertain futures.
ties that arise from omissions through lack of knowledge (epis-
temological uncertainties). Current methods thus give decision Rather than aggregate different scenario or model results using
makers limited information regarding the magnitude and probabilistic weights or using computer resources to increase
sources of the underlying uncertainties and fail to provide them the resolution of a single best-estimate model, analysts use
with straightforward information as input to the decision-mak- simulation models to construct different scenarios to compare
ing process (Rotmans and de Vries, 1997). different, alternative policy options based on their robustness
across the scenarios. Valuation is thus reframed as a process in
The management of uncertainties is not just an academic issue which uncertainty is not banished, but is managed, and values
but an urgent task for climate change policy formulation and are not presupposed but are made explicit.
action. Various vested interests may inhibit, delay, or distort
public debate with the result that “procrastination is as real a The analysis of multiple and diverse perspectives as a source of
policy option as any other, and indeed one that is traditionally uncertainty has been addressed by van Asselt and Rotmans
favoured in bureaucracies; and inadequate information is the (1997) within the framework of the Tool to Assess Regional and
best excuse for delay” (Funtowicz and Ravetz, 1990). Global Environmental and health Targets for Sustainability
(TARGETS) IAM. The authors introduce the idea of model
Funtowicz and Ravetz have proposed a highly articulated and routes–a chain of biased interpretations of the crucial uncertain-
operational scheme for dealing with the problems of uncertainties in the model–to analyze differences in future projections as
ty and quality of scientific information in the policy context. the outcome of divergent views and valuations, instead of mere-
By displaying qualifying categories of the information–numer- ly of low, high, and medium values. The approach distinguishes
al, unit, spread, assessment, and pedigree (NUSAP)–the two dimensions of perspectives: (1) a world view, which entails
NUSAP scheme provides a framework for the inquiry and elic- a coherent view of how the world functions, and (2) a manage-
itation required to evaluate information quality. By such means ment style, that is policy preferences and strategies. By combin-
it is possible to convey alternative interpretations of the meaning stereotypical views of nature and humanity as well as ethical
ing and quality of crucial quantitative information with greater attitudes with different management styles, the approach enables
quality and coherence, and thus reduce distortion of its mean- the analysis of “utopias” that result when views match the strate-
ing. gies and “dystopias” that result when they do not.
In recent years a good deal of analytical work has addressed Dystopias are useful with respect to communicating the role of
problem-solving strategies for different circumstances charac- uncertainty and its consequences for decision making. They
terized by the inherent uncertainties in the situation and the indicate the risk of decision making in uncertain conditions by
severity of consequences that arise from the decision to be showing to what kind of future the chosen strategies might
lead, in the event that the adopted worldview fails to describe regime: the number of signatories, and the size of their quanti-
the reality adequately. tative commitment to control GHG emissions.
Another promising avenue for managing uncertainties is the It is therefore impossible to assess the costs and benefits of
exploratory modelling methods (Lempert et al., 1996; Lempert the Kyoto Protocol or of other potential agreements on cli-
et al., 2000; Lempert and Schlesinger, 2000; and Robalino and mate change independently of the number of signatories of
Lempert, 2000) is discussed in Section 10.1.4.1. the agreement and of their abatement targets and/or policy
commitment. However, the number of signatories is endoge-
Robustness is not a new concept, but it is just recently, under nous and depends on the abatement targets and mitigation
the pressure of global environmental problems and the acceler- polices adopted in various countries. Hence the weakness of
ation of change, that such approaches have grown in formaliza- most of the available literature on costs and benefits of cli-
tion and sophistication (Rosenhead, 1990). Rooted in Savage’s mate change policies, which widely neglects the full interde-
maximizing the minimum regret (1954), Simon’s ideas of satis- pendency between policies, costs–benefits, and signatories
fying strategies (1959 a and b), and Lindbolm’s incremental (more generally, the structure of the international agree-
policies (1959), the search for robust strategies as a formal deci- ments). For example, studies analyze the costs of implement-
sion-making criterion has grown during the 1990s. However, it ing the Kyoto Protocol either through a set of domestic poli-
has always been more difficult to implement robustness, as cies and measures or through a system of international trad-
opposed to optimization, within an analytical method, except able permits, with a fixed number of signatories. But the
for in very special cases. A new development over the past few adoption of either policy crucially affects the number of sig-
years is that it is now becoming possible to implement robust- natories, which can be larger or lower under policies and mea-
ness as an analytical criterion using simulation models of the sures than under tradable permits. And the number (and iden-
type relevant to climate change policy. In conclusion, multisce- tity) of signatories crucially affects the costs and benefits of
nario simulation approaches, like multiple-model routes, different agreements.
exploratory models, or parallel modelling, show that uncertain-
ty is no longer a theoretical scientific concept, but a notion that Therefore, this section aims to provide an analysis of the effec-
might be usefully deployed by decision makers in arriving at tiveness of climate policies by focusing on the link between
their decisions (van Asselt and Rotmans, 1997). policy options on the one hand and the structure of the agree-
ments and international regimes on the other. Some of the most
This ability to analytically address robustness is closely tied to important theoretical results are reviewed first, and then the
the idea of adaptive decision strategies, that is, strategies that existing literature is revisited to see which information it pro-
can change over time in response to observations of the climate vides on the interdependencies described above. In particular,
and economic systems. (Adaptive decision strategies differ from can such an analysis show whether there exist the conditions
sequential strategies in that in the former information is endoge- for an agreement on climate change to be signed by all or
nous, that is, the type, rate, and quality of information gained almost all world countries (see Carraro, 1998; Carraro and
depends on both the unfolding scenario and policy choices Siniscalco, 1998; and Barrett, 1999 for a theoretical analysis of
whereas information is exogenous in the sequential strategies.) these conditions)? Also, would it show which countries can
Adaptive decision strategies are closely tied to the concept of play a leadership role with respect to achieving the largest pos-
robustness, because such strategies are most useful in situations sible coalition by proposing strategies, measures, and institu-
of deep uncertainty–where robustness, as opposed to optimiza- tions that help expand the number of countries that commit to
tion, appears to be the best decision-making criterion. control their emissions (see Grubb and Gupta, 2000)? Notice
that in this way we also analyze which strategies can be pro-
posed to reduce the costs of mitigation policies. But this is a
10.2 International Regimes and Policy Options quite different approach to those analyzed in the previous sec-
tions of this chapter and in Chapters 8 and 9. The reason is that
10.2.1 Introduction here a country’s goal is not to identify a new climate friendly
technology or an adequate redistribution of costs across sec-
Previous chapters provide some answers to the most relevant tors. Now the goal is to affect other countries’ behaviour to
policy questions related to the climate change problem. Issues increase the number of those that share the burden, and to share
such as the timing of optimal responses to climate change, the the burden more equitably.
role of technological innovation and diffusion, the choice
between domestic action and the adoption of “Kyoto mecha- The equity issue is also very important to understand which
nisms”, the importance of co- and ancillary benefits, etc., have countries are going to reduce and/or control5 their emissions.
been analyzed from different perspectives. However, it is
important to notice that the costs and benefits of all the above 5 When using the word “emission reduction”, reduction with respect to
options crucially depend on the characteristics of the interna- the baseline scenario is meant here. As a consequence, emissions in
tional agreement on climate change that is adopted. In particu- some countries can increase with respect to their 1990 level or other
lar, they depend upon two main features of the international baselines.
As a consequence, given what is said above, equity is crucial This section is devoted to the analysis of the above issues and
to assess adequately the costs of emission reductions at the also aims to provide a framework to understand how future
global and country level. It has been argued that some coun- negotiations on climate change can evolve, and how costs and
tries are allowed to reduce emissions less than other countries, benefits of climate policies are modified by these possible evo-
both within (Kram, 1998) and outside the European Union lutions.
(EU) bubble (Bosello and Roson, 1999; Metz, 1999; Rose and
Stevens, 1999). Even when applying the Kyoto mechanisms,
some countries will benefit from the agreements more than 10.2.2 Coalition Formation
other ones (Nordhaus and Boyer, 1999). It has also been argued
that some countries can exploit their monopolistic power in a If the goal is to understand which international regime is like-
future trading system (Burniaux, 1998). All these remarks ly to emerge to control GHG emissions, game theory is cer-
address the problem of optimal burden-sharing (the distribu- tainly the best tool. Indeed, game theory has been used exten-
tion of costs) of climate change control. This problem is strict- sively to analyze the possibility of coalition formation in the
ly related to the features of an international agreement on cli- presence of free riding (i.e., when parties have to agree on the
mate for two main reasons. First, increasing the number of par- provision of a public good). Early contributions (see Hardin
ticipating countries reduces the direct costs for each signatory; and Baden, 1977) characterized the environmental game
second, an agreement in which the burden is equitably shared among countries as a prisoners’ dilemma, inevitably leading to
is more likely to be signed by a large number of countries the so-called “tragedy” of the common property goods.
(Convery, 1999). Therefore, equity and the structure of the However, in the real world, at the same time, many interna-
international agreement (number and identity of signatories) tional environmental agreements on the commons were signed,
are strictly linked. However, the number of signatories affects often involving subgroups of negotiating countries and some-
and is affected by costs. Hence, equity and efficiency cannot be times involving economic and technological transfers and
separated. other links to other policies (trade, technological co-operation,
etc.). It was therefore necessary to develop new models to help
These remarks reinforce the previous basic statement. An understand the logic of coalition formation in the presence of
analysis of the costs and benefits of different policy options, spillovers, and the possibility to increase welfare by means of
and of the distribution of these costs and benefits across coun- appropriate mechanisms and strategies. These new models
tries, cannot be done independently of an analysis of the likely were developed in the 1990s within a non-co-operative game-
features of the prevailing international regime (i.e., of the theory framework, and provide interesting indications on the
incentives that lead countries to sign an international agree- likely outcomes of climate negotiations.
ment to control GHG emissions and to set quantitative emis-
sion targets). Consider first the case in which countries negotiate on a single
worldwide agreement. Most papers in the game-theory litera-
Notice that an analysis of the features of climate international ture on coalition formation applied to environmental agree-
agreements and of their repercussions on the choice of differ- ments (Hoel, 1991, 1992; Carraro and Siniscalco, 1992, 1993;
ent policy options (and vice versa) must take into account: Barrett, 1994, 1997b; Heal, 1994; Parson and Zeckhauser,
• basic features of the climate problem recalled in 1995) propose the following conclusions:
Section 10.1, and particularly the public-good nature of • the presence of asymmetries7 across countries and the
GHG abatement in the absence of a supranational incentive to free-ride makes the existence of global
authority; self-enforcing agreements, that is agreements which are
• scenarios that describe the future evolution of econom- profitable to all signatories and stable, quite unlikely
ic and environmental climate-related variables; (Carraro and Siniscalco, 1993);
• economic incentives for countries to sign an interna- • when self-enforcing international environmental agree-
tional agreement on climate change control, that is ments exist, they are signed by a limited number of
under what conditions, in terms of the number of coun- countries (Hoel, 1991, 1994; Carraro and Siniscalco,
tries, damaging effects of free-riding (leakage), struc- 1992; Barrett, 1994); and
ture of costs and benefits, can a coalition (i.e., a group • when the number of signatories is large, the difference
of signatories of the international agreement) emerge?6 between the co-operative behaviour adopted by the
• the political and institutional dimension of an interna- coalition and the non-co-operative one is very small
tional climate agreement, its history, the possibility of (Barrett, 1997b; Hammitt and Adams, 1996).
monitoring and sanctioning deviations, the links with
other agreements.
7 Herein countries are symmetric when they share the same produc-
6In the case of climate negotiations, possible coalitions are Annex B tion technologies, consumers’ preferences, institutions, etc., namely
Parties of Kyoto Protocol, the Umbrella Group, UNFCCC Parties, etc. when their payoff (welfare) functions are identical.
The results are robust with respect to different specifications of The specific results on the size of the coalitions depend on the
countries’ welfare function, and with respect to the burden- model structure and, in particular, on the slope of countries’
sharing rule8 used in the asymmetric case (Barrett, 1997a; reaction functions (i.e., on the presence of carbon leakage). If
Botteon and Carraro, 1997a). They suggest that the attempt to there is no or little leakage and countries are symmetric, then
negotiate effective emission reductions is unlikely to lead to a the Nash equilibrium of the multicoalition game is character-
coalition formed by all or by almost all countries, unless more ized by many small coalitions, each one satisfying the proper-
complex policy strategies, in which environmental policy ties of internal and external stability (this result is shown in
interacts with other policy measures, are adopted.9 This is why Carraro and Moriconi, 1998).
in the game-theoretic environmental economics literature two
main sets of instruments are proposed to expand environmen- The remaining question is therefore a policy one. Is a country’s
tal coalitions, that is to increase the number of signatories of an welfare larger when one or when several coalitions form? And
environmental agreement. These instruments are “economic what happens with environmental effectiveness? The answer is
and technological transfers” and “issue linkage”. The potential still uncertain, both because theory provides examples in
of these instruments is analyzed in Section 10.2.5, which deals which a single agreement is preferred, at least from an envi-
with partial agreements and ways to broaden them. ronmental viewpoint, to many small regional agreements (and
vice versa), and because empirical studies have not yet con-
Consider the case in which countries are free to sign the agree- vincingly addressed this issue. Moreover, the conclusion cru-
ment proposed by a group of countries or to propose them- cially depends on the choice of the equilibrium concept and on
selves a different agreement to the same or to other countries the size of leakage.
(Carraro, 1998). This may lead to the formation of multiple cli-
mate agreements, as happens with trade blocs (Bloch, 1997; Yi, The consequence of the results discussed above is that the
1997; Carraro and Moriconi, 1998). The multiplicity of coali- structure of the international environmental agreements is a
tions may allow region-specific agreements in which the char- crucial dimension of the negotiating process. If all countries
acteristics of countries in the region are better reflected by the negotiate on a single agreement, the incentives to sign are
contents of the agreement. Even in this case, game theory pro- lower than those that characterize a multiple-agreement nego-
vides a clear analysis of the outcome of climate negotiations. tiating process. But at the equilibrium, the environmental ben-
Despite the large number of equilibrium concepts,10 some con- efit (quality) may be higher.
clusions seem to be quite robust:
• the equilibrium coalition structure is not formed by a Can more precise conclusions be made on the likely coalition(s)
single coalition, but usually by many coalitions; that can emerge at the equilibrium? Can existing studies be
• the grand coalition, in which all countries sign the same used, albeit not in their design, to address the above issues, and
environmental agreement, is unlikely to be in equilibri- to increase our understanding of the implications of different
um; and policy strategies? In the next section, the aim is to provide, at
• coalitions of different sizes may emerge at the equilib- least partially, a synthesis, by exploring the outcomes of the
rium (even when countries are symmetric). combinations of different coalition structures (international
regimes) and of different policy options (with focus on differ-
ent degrees of adoption of emissions trading and other Kyoto
mechanisms). Table 10.2 summarizes the main combinations
8
for which impact is explored. The papers indicated in each cell
In the asymmetric case, the rule chosen to divide the gains from co-
are examples and do not cover the literature in total.
operation among the countries in the coalition (usually called burden-
sharing rule) plays a crucial role because it affects the likelihood that
each country decides to sign the agreement. The burden-sharing rule
is usually taken from co-operative game theory and Nash’s and 10.2.3 No Participation
Shapley’s is the most used. In contrast, in the symmetric case differ-
ent rules lead to the same outcome (equal shares). No participation constitutes the benchmark for evaluating the
costs and benefits of policies designed to control GHG emis-
9 Surveys of the above literature are proposed in Barrett (1997b),
sions under alternative coalition structures. It is usually named
Tulkens (1998), and Carraro (1999a). the baseline (or business as usual) scenario, because it identi-
fies the values of the main environmental and economic vari-
10 Unfortunately, game theory is far from achieving a well-defined ables when no coalition forms and no action, unilateral or co-
non-co-operative theory of coalition formation under the above gen-
operative, is adopted (IPCC SAR (IPCC, 1995) is a good
eral assumptions and definitions. Several stability concepts can be
used, but these unfortunately provide different equilibrium coalition
example of this approach). The construction of the baseline
structures. Among these are the concepts of equilibrium binding scenario is very important to assess both the profitability and
agreements (Ray and Vohra, 1997), α-stability and β-stability (Hart the stability (i.e., whether it is self-enforcing) of a coalition. A
and Kurz, 1983), sequential stability (Bloch, 1997), open-membership coalition is profitable when welfare after the coalition is
stability (Yi, 1997), and far-sighted stability (Chew, 1994; Mariotti, formed is larger than in the no participation case. A coalition is
1997). self-enforcing if there are no incentives to leave or enter the
Table 10.2: Coalition structures and policy options
Policy options
Domestic Co-ordinated Flexibility Free flexibility Flexibility Flexibility Flexibility

measures only carbon tax mechanisms mechanisms mechanisms mechanisms mechanisms with
with ceilings with banking with R&D monopoly power
No participation IPCC (1995)

Unilateral Jorgensen et al. (1993)

participation Barrett (1992)
EU only Carraro and Bosello and

Siniscalco Carraro (1999)
(1992) Barker (1999)
OECD only Burniaux et al. Capros (1998) Harrison and

(1992) Rutherford (1999)
Holtsmark (1998)
Capros (1998)
Annex-1 McKibbin et al. Mensbrugghe Ellerman Ellerman et al.(1998) Bosello and Nordhaus (1997) Burniaux (1998)
countries (1998) (1998) et al. (1998) Grubb and Vrolijk (1998) Roson (1999) Buonnano et al. Ellerman et al.
Buonnano Holtsmark (1998) Westkog (1999) (1999) (1998)
et al. (1999) McKibbin et al. (1998)
Coalition structure
Manne and Manne and Richels
Richels (1998) (1999a, 1999b)
Mensbrugghe (1998)
Nordhaus and Boyer (1999)
Shackleton (1998)
Double umbrella McKibbin et al. (1998) Ellerman et al.

Shackleton (1998) (1998)
All Nordhaus and Yang Ellerman et al. Bohm (1999) Bosello and Nordhaus (1997)
countries (1996) (1998) Ellerman et al. (1998) Roson (1998) Buonnano et al.
Buonnano et al. Manne and Richels Westkog (1999) (1999)
(1999) (1998; 1999a, 1999b)
Shackleton (1998)
623
coalition. The baseline scenario crucially affects these incen- measures) hardly depend on the coalition structure. Indeed,
tives also. If the no participation case is such that emissions only if leakage is large, and if climate policies have a large
decline and the target can be achieved easily through small impact on trade and financial flows, are the costs of domestic
emission reductions, then the incentives to join the coalition abatement policies significantly affected by the size of the
(sign the agreement) are much higher, so a coalition with many coalitions and by the agreed emission targets. Hence, it may be
countries is more likely to form (Barrett, 1997b). useful to compute the costs of unilateral participation as a
Symmetrically, if large emission reductions are necessary, benchmark case, which identifies costs that can be reduced
abatement becomes more costly, and incentives to free-ride only when coalition forms and the Kyoto mechanisms are
increase, which further increases the costs for co-operating implemented among signatory countries. Notice the impor-
countries (particularly if leakage is high). tance of a careful assessment of leakage and of trade and finan-
cial repercussions of climate policies (McKibbin et al., 1998).
A careful definition of the no participation case is therefore Notice also that the above arguments concern the costs but not
very relevant to assess the likelihood of large coalitions and the benefits of climate policies. Indeed, the climate benefits of
thus the efficiency of a climate agreement. But it is also very unilateral participation are likely to be zero or almost zero for
relevant in terms of equity. When the burden of emissions all or almost all countries (a possible exception is the USA),
abatement has to be shared equitably, it is important to distrib- given the global nature of the climate problem (Hoel, 1991;
ute emissions targets with reference to the baseline scenario. Bucholz and Konrad, 1994; Endres and Finus, 1998).
Each country therefore has an incentive to pretend that its own
baseline scenario implies larger emissions than is actually true A second reason to assess the cost of a unilateral participation
(Grubb, 1998; Bohm, 1999). In this way, the actual cost for the is that it could identify a series of low cost (or no cost) options
country would be lower. An optimistic scenario in which pre- (so called low hanging fruits or no regrets actions) that could
dicted emissions are lower than “true” emissions (as measured be implemented independently of the formation of a climate
ex-post) leads countries to agree on low emission-reduction coalition. It could also help identify policy mixes that help
targets, but forces countries to more reductions later and to pay restructure the fiscal system and public regulatory and incen-
abatement costs larger than expected. A pessimistic scenario tive schemes in such a way that emission abatement costs are
makes the agreement more difficult because larger emission more than compensated by other economic (non-environmen-
reductions have to be agreed, but countries find themselves in tal) benefits (the so-called double dividends).11
a better situation and pay lower costs ex-post. Hence, if a coun-
try succeeds in convincing the others that its own baseline There are also cases in which unilateral actions have been ana-
emissions are larger than the “true” ones, then this country lyzed from a very specific viewpoint. Examples are:
achieves relative benefits in terms of less-stringent emission • Bucholz and Konrad (1994) analyze the detrimental
targets and lower abatement costs. effect of pre-negotiation actions (more bargaining
power can be achieved by unilaterally increasing emis-
The definition of a baseline scenario has therefore a strategic sions before negotiating);
dimension and can hardly be defined as an “objective” evalua- • Endres and Finus (1998) examine the negative effects
tion of future economic and environmental cycles and trends. on negotiations of a higher environmental conscious-
It is therefore important to collect, as in Chapter 2, the largest ness in one country;
amount of information from different sources and to identify • Hoel (1991) analyzes the costs of unilateral actions;
the scenario more as an average of much scattered information, • Hoel and Schneider (1997) analyze the role of social
rather than as a subjective analysis of likely future events. This norms; and
may reduce the likelihood of strategic definitions of the base- • Porter and Van Linde (1995) focus on the advantage of
line scenario and may partly prevent the consequent impacts on being a leader by adopting emission reductions before
the equilibrium coalition and on the assessment of costs and the other countries.
benefits of climate policies.
10.2.5 Partial Agreements

10.2.4 Unilateral Participation
The case of partial agreements is most often analyzed in recent
An extensive literature analyses the costs and sometimes the empirical literature, for two reasons. First, as shown in Section
benefits of introducing policies to control GHG emissions in a 10.2.1, theory suggests that a partial coalition forms at the
single country (Hoel, 1991; Bucholz and Konrad, 1994; Porter equilibrium. Hence, the climate problem is neither a “tragedy
and Van Linde, 1995; Hoel and Schneider, 1997; Endres and of commons” nor a situation in which there are clear incentives
Finus, 1998). Given the arguments proposed in the to co-operative emission control. Second, the history of inter-
Introduction and the results summarized in Section 10.3.1, this national environmental negotiations is a history of partial
type of exercise may seem unreasonable. There are, however,
two main justifications for undertaking it. The first is that 11See Chapters 7 and 8, and Goulder (1995), Bovenberg (1997), for
domestic abatement costs (related to domestic policies and surveys of this literature.
agreements that are slowly broadened as more and more coun- tial (formed by a subgroup of the negotiating countries). In this
tries decide to join the group of signatories. In the case of cli- context, four questions need to be answered:
mate, in particular, the Kyoto agreement can be seen as a first (a) Are these partial coalitions effective?
partial climate agreement. Therefore, many papers have dealt (b) Are they too costly for the signatory countries?
with the costs and benefits of the Kyoto agreement and with (c) Can partial coalitions be enlarged by providing incen-
the possible strategies to increase the number of countries that tives for other countries to join? and
commit themselves to emission control targets (see the papers (d) Is there a distribution of emission targets and/or of abate-
gathered in OECD (1998), and in Carraro (1999b, 2000); see ment costs such as to increase the size of partial coali-
also Burniaux (1998), Capros (1998), Ellerman et al. (1998), tions and hence the effectiveness of a climate agreement?
Grubb and Vrolijk (1998), Holtsmark (1998), Manne and
Richels (1998), Mensbrugghe (1998), Carraro, 1999c), (a) The answer to the first question depends on two main factors:
Nordhaus and Boyer (1999), and the surveys by Metz (1999) the baseline scenario and the degree of leakage. If the baseline
and Convery (1999)). scenario is very ambitious and leakage is high, then countries
find it difficult to undertake large emissions reductions (decreas-
Two remarks are important. First, even if most recent analy- ing returns of scale in emission abatement are usually assumed),
ses deal with the Kyoto agreement, there are studies that try and also their effort is offset by the leakage effect (the increased
to compute the optimal coalition structures, in terms of both emissions by free-riding countries). Hence, a partial coalition is
participation and targets, independently of the decisions taken effective whenever there is no or little leakage, high pollution
in Kyoto (a recent attempt is in Nordhaus and Boyer (1999)). levels characterize the baseline scenario, and signatory countries
Usually the conclusion derived from these papers is that contribute a large share of the total emissions.
Kyoto is neither economically nor environmentally optimal.
However, the notion of optimality is not very useful when (b) For the second question, many studies try to assess the cost
analyzing coalition formation. Indeed, what matters is the for Annex I countries of achieving given emissions targets
notion of the stability of a coalition. This identifies which under alternative policy options. These policy options include:
countries have an incentive to join the coalition (sign the • the timing of the mitigation responses (see the special
agreement) for different membership and institutional rules, issue of Energy Economics edited by Carraro and
baseline scenarios, abatement costs (and therefore climate Hourcade (1999));
policies, including the degree of adoption of Kyoto mecha- • the degree of adoption of the Kyoto mechanisms and
nisms), and environmental benefits (and therefore impacts, their features, such as banking (see the papers in OECD
adaptation costs, etc.). (1998) and Carraro (1999d));
• the role of complementary industrial policies, mainly
Second, the Kyoto agreement can theoretically be interpreted designed to foster innovation (see Nordhaus, 1997;
as a partial (Carraro, 1998) or as a global agreement (Chander Schneider and Goulder, 1997; Kopp et al., 1998;
et al., 1999). It is interpreted as a global agreement when all Buonnano et al., 1999); and
countries are seen as committed to emission targets. Those in • the effects of uncertainty about climate impacts or
Annex B are committed to emission targets with respect to abatement costs (Carraro and Hourcade, 1999).
1990, the other ones are “committed” to emissions levels that
evolve as in the baseline scenario. This second interpretation is The main result can be summarized as follows. Despite their
nothing more than a “technical” interpretation, which is useful high variability, all the studies show that the Kyoto mecha-
to show that: nisms sensibly reduce the costs of compliance, whatever the
• optimal emissions targets are not necessary because the coalition structure. Hence, emissions trading, and more gener-
same optimal outcome can be achieved through an ally the application of the Kyoto mechanisms, can reduce over-
international, unrestricted emissions-trading scheme all mitigation costs without reducing the effectiveness of the
among all countries (Chander et al., 1999); and climate policy. Chapters 6 and 8 give an extensive overview of
• the resultant outcome can be profitable to all countries relevant studies.12
if an appropriate economic and technological transfer
scheme is adopted (Markusen 1975; Chander and
12 For example, Shogren (1999) notes that “it is estimated that any
Tulkens, 1995, 1997; Germain et al., 1997).
agreement without the cost flexibility provided by trading will at least
As a consequence, even a “partial”, suboptimal agreement like double the USA costs, … the key is to distribute emissions interna-
tionally so as to minimise the costs of climate policy”. Manne and
Kyoto can be transformed into a “global” optimal agreement
Richels (1999b) state that losses in 2010 are two and one-half times
(see Section 10.3.5). higher with the constraint on the purchase of carbon emission rights;
international co-operation through trade is essential if we are to
Away from this ideal world of perfectly competitive and inter- reduce mitigation costs (see also Glomstrod et al., 1992; Burniaux,
national market mechanisms, are the analyses of coalitions 1998; Capros, 1998; Ellerman et al., 1998; Mensbrugghe, 1998;
that, like the coalition formed by Annex I countries of the Hourcade et al., 1999; Nordhaus, 1999; Rose and Stevens, 1999; Tol,
UNFCCC or Annex B countries of the Kyoto Protocol, are par- 1999a, 1999b).
If assuming an even broader type of flexibility than incorpo- set. The possibility of using self-financed economic and tech-
rated in the Kyoto mechanisms (banking and borrowing and nological transfers to stabilize environmental agreements is
international emissions trading (IET) among all countries) then analysed in Carraro and Siniscalco (1993) and Hoel (1994),
compliance costs are further lowered. This result is shown in which show that these transfers may be successful only if asso-
Bosello and Roson (1999) for banking, Westskog (1999) for ciated with a certain degree of commitment. For example,
banking and borrowing, Manne and Richels (1999a, 1999b), when countries are fairly symmetric, only if a group of coun-
McKibbin et al. (1998), and many others for IET among all tries is committed to co-operation can another group of uncom-
countries. If in addition the incentives to innovation provided mitted countries be induced to sign the agreement by a system
by the Kyoto mechanisms are taken into account, then compli- of economic and technological transfers (Carraro and
ance costs are even lower (Buonnano et al. 1999). Siniscalco, 1993).13 This gives developed countries the respon-
sibility to lead the expansion of the coalition. However, the
However, all the above papers also show that the size of the amount of resources that would be necessary to induce large
coalition crucially affects the size of the benefits that derive developing countries to join the agreement may be such that
from the adoption of the Kyoto mechanisms. The larger the some developed countries perceive the economic costs of a cli-
number of participating countries, and the higher the variabili- mate agreement to be larger than its environmental benefit. In
ty of marginal abatement costs across them, the larger the ben- this case, the transfer mechanism would undermine the exis-
efits from emissions trading and the clean development mech- tence of the leader coalition and would therefore be ineffective.
anism (CDM). Hence, to reduce abatement costs and increase This is why countries in the leader coalition must be strongly
environmental benefits, policies, rules, and institutions should committed to co-operation on emission control.
be designed to achieve the largest possible coalition.
Another general conclusion emerges from the analysis carried
(c) The third question, how to broaden a climate coalition, is out in Carraro and Siniscalco (1993): both the existence of sta-
often related to the issue of links between a climate agreement ble coalitions and the possibilities of expanding them depend
and other international agreements. Indeed, two types of poli- on the pattern of interdependence among countries. If there is
cy options, based respectively on economic and technological leakage (i.e., a non-co-operating country expands its emissions
transfers and on issue linkage, are often proposed as the way to when the coalition restricts them, thus offsetting the effort of
achieve larger climate coalitions. These policies imply that the co-operating countries), then environmental benefits from
links must be established between different multilateral agree- co-operation are low, the incentive to free-ride is high, and
ments (e.g., agreements on both climate and free trade or tech- conditions for economic and technological transfers to be
nological co-operation). effective are unlikely to be met. If, on the contrary, there is no
leakage (i.e., the free-riders simply enjoy the cleaner environ-
First, consider economic and technological transfers. It is quite ment without paying for it, but do not offset the emission
natural to propose these transfers to compensate those coun- reduction by the co-operating countries), then environmental
tries that may lose by signing the environmental agreement. In benefits are larger, free-riding is less profitable, and transfers
other words, a redistribution mechanism among signatories, may achieve their goal to expand the coalition.
from gainers to losers, may provide the basic requirement for a
self-enforcing agreement to exist, that is the profitability of the A second policy strategy aimed at expanding the number of
agreement for all signatories. Therefore, if well designed, eco- signatories to a climate agreement is based on the idea of
nomic and technological transfers can guarantee that no coun- designing a negotiation mechanism in which countries do not
try refuses to sign the agreement because it is not profitable. bargain only on GHG reductions, but also on another interre-
Moreover, Chander and Tulkens (1995, 1997) and Chander et lated (economic) issue. For example, Barrett (1995, 1997c) and
al. (1999) show economic and technological transfers exist Kirchgässner and Mohr (1996) propose to link climate negoti-
such that not only is each country better off within a global ations to negotiations on trade liberalization, Carraro and
coalition than it is with no coalition at all (the no participation Siniscalco (1995, 1997) and Katsoulacos (1997) propose to
case), but also it is better off within a global coalition than it is link them to negotiations on R&D co-operation, and Mohr
in any subcoalition, provided the remaining countries behave (1995) proposes a link to international debt.
non-co-operatively (see also Markusen 1975; Germain et al.,
1997). This result is important because it implies that no coun- Again we must distinguish the profitability from the stability
try or group of countries has an incentive to exclude other problem. The idea of “issue linkage” was originally proposed
countries from the environmental coalition, that is the grand by Folmer et al. (1993) and Cesar and De Zeeuw (1996) to
coalition is optimal (but it may not be stable). solve the problem of asymmetries among countries. The intu-
ition is that some countries gain on a given issue, whereas other
Economic and technological transfers play a major role also countries gain on a second one. By “linking” the two issues it
with respect to the stability issue (Carraro and Siniscalco,
1993; Petrakis and Xepapadeas, 1996; Schmidt, 1997). Indeed,
it is not sufficient to guarantee the profitability of the environ- 13 This condition is less stringent when countries are asymmetric (see
mental agreement. Incentives to free-ride also need to be off- Botteon and Carraro, 1997a).
may be possible that the agreement in which the countries (2000), using again the RICE model, confirm the same results
decide to co-operate on both issues is profitable to all of them. and analyze different distributional rules in terms of their
The idea of “issue linkage” can also be used to achieve the sta- impacts on the equilibrium climate coalitions. They show that
bility goal. If countries that do not sign a climate agreement do the Kyoto Protocol could be sustained and possibly expanded
not enjoy the benefits that arise from signing simultaneously by adopting a more equitable sharing of the emission reduction
other multilateral agreements (e.g., those on technological co- commitments.
operation), then incentive for all countries to sign the linked
agreement is strong.
10.2.6 Global Agreements
This approach is likely to function when the negotiation on an
issue with excludable benefits (a “club good” in economic The difficulty of achieving a global agreement on climate
words) is linked to the climate negotiation (which, if success- change underlined in the previous sections depends on four
ful, typically provides a public good, that is a non-excludable main factors:
benefit). An example could be the linkage of environmental
negotiations with negotiations on technological co-operation • The heterogeneity of countries with respect to the caus-
whose benefits are largely shared among the signatories when- es of climate change, the impacts, and the mitigation
ever innovation spillovers to non-signatories are low (see and adaptation costs. This factor mainly influences the
Carraro and Siniscalco, 1997).14 profitability of the decision to sign a climate agree-
ment. Some countries may lose when signing the agree-
Therefore, issue linkage may be a powerful tool to address the ment, even when environmental benefits are fully
enlargement issue. If the developed countries (USA, EU, and accounted for. As shown by Chander and Tulkens
Japan above all) increase their financial and technological sup- (1995, 1997), there always exists a system of econom-
port to developing countries, and also make this support con- ic and technological transfers that may make all coun-
ditional on the achievement of given environmental targets, tries gain. But this again raises the equity problem and
then other countries are likely to be induced to join the envi- the related burden-sharing issue. Equity may have a
ronmental coalition (i.e., to sign a treaty in which they commit large impact on the existence and size of a climate
themselves to adequate emission reductions).15 coalition. As previously argued, and as argued by many
policymakers and scientists, the way in which the bur-
(d) The final question concerns the link between equity16 and den of controlling emissions is shared across countries
the size of a climate agreement and, as a consequence, between crucially affects a country’s decision to join a coalition.
equity and the agreement’s environmental effectiveness. It has On the one hand, if the burden is not equitably shared,
been shown that the use of different criteria to share the cost of some countries may not find it profitable to sign the
a given emission target crucially affects the size of the equilib- agreement. Profitability depends on two main factors:
rium coalitions, that is the number and identity of signatory (1) the distribution of costs within the coalition and (2)
countries (Barrett, 1997a; Botteon and Carraro, 1997a, 1997b; the size of the coalition. It is possible that there exists a
Eyckmans, 2000). For the Kyoto Protocol, Convery (1999) minimum size of the coalition above which it becomes
argues that without assigning generous emission targets to profitable. And these two factors are strictly interde-
Russia and Ukraine, these countries would not have signed the pendent. On the other hand, equity also affects free-rid-
agreement. Eyckmans (2000) proves the same conclusion by ing incentives. As in Section 10.2.5, in some cases it
simulating different equilibrium climate coalitions with the may be reasonable for some countries to transfer
Regional Integrated Model of Climate and the Economy resources to other countries to induce them to join the
(RICE). Indeed, without implementing the Kyoto mechanisms, coalition on which they would otherwise free-ride. In
Russia and Ukraine have an incentive not to ratify the protocol, this case, the final outcome is not equitable–free-riders
whereas with joint implementation (JI) and trading, and with would gain more than countries in the starting coali-
the possibility of exchanging excess GHG emissions, all coun- tion–but it may be environmentally and economically
tries find it profitable to ratify the protocol. Bosello et al. efficient.
• The strong incentives to free-ride on the global agree-
ment and the lack of related sanctions. When all coun-
14 An extension to the case of structurally asymmetric countries is pro-
tries agree to control emissions, a defecting country
vided in Botteon and Carraro (1997b), whereas information asymme- achieves the whole benefit, because its incidence on
tries are accounted for in Katsoulacos (1997).
global emission is marginal (with a few exceptions) and
15 It is, however, important to keep in mind the negative impact that pays no cost. Hence, a defection with respect to a large
such linkages may have on the (perceived) fairness of the envisaged coalition is the optimal strategy if there are no sanc-
enlarged regime: there are possible linkages that could easily be per- tions. However, credible sanctions are difficult to
ceived as “blackmail” on part of the Parties with strategic advantages. design (Barrett, 1994). Emissions themselves are hard-
ly a credible sanction, because countries are unlikely to
16 For equity principles see Chapter 1, Section 1.3 sustain self-damaging policies. Moreover, in this case,
asymmetries play a double role: some countries may The strongest form is that in which a central planner is
not gain from signing the environmental agreement, assumed to set optimal emissions levels for all world countries.
whereas some countries, even when gaining from envi- This optimal solution is often proposed as a benchmark for
ronmental co-operation, may lose from carrying out the actual negotiations and was often analyzed before Kyoto (see
economic sanctions (Barrett, 1997c; Schmidt, 1997). the collection of papers in Carraro (1999d)).
• The absence of environmental leadership. The process
of achieving a global agreement can be a sequential one More interesting is the attempt made by Peck and Teisberg
(Carraro and Siniscalco, 1993), in which case a group (1999) to model the negotiations between developed and
of countries take the leadership, start to reduce and/or developing countries to achieve a global agreement. This paper
control emissions and implement strategies such as to shows the potential for the achievement of co-operation to be
induce other countries to follow.17 The presence of low- achieved–the Pareto frontier is small, but not empty–but does
cost climate policies and equitable burden-sharing not analyse the incentives to actually sign the agreement.
(Schmidt, 1997) are again important elements for the However, the paper suggests a research direction that at least
formation of an initial profitable coalition. As said, our helps to identify the optimal emission reductions that are prof-
definition of profitability accounts for the environmen- itable for all negotiating countries.
tal benefits of emission control. Hence, benefits should
be increased by increasing the number of countries that The conclusions that can be derived from this type of empiri-
control emissions, but abatement costs should be mini- cal analyses are similar to those already mentioned for partial
mized by exploiting all possible opportunities (includ- agreements. In the scenario in which baseline emissions are
ing emissions trading). This is a prerequisite to achiev- lower, it is easier to achieve a global agreement because lower
ing a strong leader coalition that can exert its leadership emissions reductions are necessary (Barrett, 1997b) and conse-
through the design of better negotiation rules, the quently abatement costs are lower. Optimal emissions targets
implementation of transfer mechanisms, and the credi- are such that they equalize marginal abatement costs. This opti-
bility of international-issue linkages. A preliminary mal, cost-minimizing solution can also be achieved through an
model of the effects of leadership is given in Jacoby et unconstrained emissions-trading system (Chander et al., 1999).
al. (1998), who show how and when developing coun- Hence, either emissions targets are optimally set, or countries
tries may join a leader coalition formed by Annex I are allowed to trade emissions for any given set of targets
countries. through which a global consensus can be achieved. Of course,
• The focus on a single international climate agreement. these two options have different impacts on equity. As shown
As explained in Section 10.3.1, if countries may join by Bosello and Roson (1999), starting from the Kyoto targets,
different coalitions, which means that several agree- international unconstrained emissions trading among all coun-
ments can be signed by groups of countries in the same tries achieves optimality, but reduces equity.
way as countries form trade blocs, then the likelihood
that all or almost all countries set emission reduction
targets increases (Yi and Shin, 1994; Bloch, 1997; 10.2.7 Political Science Perspectives
Carraro, 1997, 1998). The outcome of negotiations in
which more agreements can be signed is usually a situ- Game theory and other rational-choice approaches are used fre-
ation with several small environmental blocs (Carraro quently in political science. However, political science research
and Moriconi, 1998), but this can be considered a step considers political processes in more detail and their findings
in the right direction. If all or almost all countries set complement the results presented above, at least on three major
emission reduction targets within their own bloc (e.g., issues. Although these extensions have important implications
regional environmental agreements are signed), then, in for the conclusions here, the basic insights remain the same.
a subsequent phase, negotiations among blocs may lead
to more ambitious emission reductions. While game theory analysis usually models states as unitary
actors, much political science research conceives of states as
Despite the warning that global agreements may be difficult to complex political systems. The behaviour of a complex actor
reach, many articles analyze the costs of agreements in which can be seen as a function of three main determinants: the inter-
all countries participate, in one form or another (see, e.g., nal configuration of preferences, the internal distribution of
Capros, 1998, Ellerman et al., 1998; Manne and Richels, 1998; influence and power, and the nature of political institutions
Shackleton, 1998; Bosello and Roson, 1999; Nordhaus and (which specify the decision rules). Domestic decision-making
Boyer, 1999). The weakest form, discussed in Section 10.2.4, processes often produce outcomes that differ significantly from
is that in which a few countries commit to emission reductions, those that maximize the net national welfare. Particularly rele-
but all accept trade emissions in a single international market. vant in this context are three findings that illustrate systematic
biases.
17 See Carraro (1999b) and Grubb (1999) for a more detailed analysis. First, in “baseline” circumstances, the measures that are most
easily adopted and implemented are those that offer tangible
benefits to a specific sector of the economy or organized seg- stakes exist, a political scientist expects government behaviour
ments of society, while costs are widely dispersed throughout to deviate to some degree from what national economic inter-
society (Underdal, 1998). For most conventional environmen- ests indicate. Such deviance may go both ways; the wish to pla-
tal-protection measures, costs are concentrated while benefits cate politically important domestic “clients” most often leads to
are indeterminate or widely dispersed, which indicates that— a more restrictive policy, while the momentum generated
unless the issue really mobilizes the general public—the odds towards the end of a successful international conference can
favour opponents to the measures, particularly in the imple- lead a lone “laggard” to go the extra mile to accommodate the
mentation phase. majority.
Second, (environmental) damage that hits the “social centre” Second, political science emphasizes (more and more) the rele-
of society tends to generate more political energy than damage vance of “social norms”, “social learning”, and the operation of
that affects the social periphery only. This bias is stronger the “social roles” in regime processes (Young, 1999). These
more skewed the distribution of economic and political approaches recognize that all international environmental
resources. This suggests, for example, that damage suffered regimes are “social institutions” that develop particular (social)
primarily by poor farming communities in developing coun- dynamics and induce behavioural consequences: the matter of
tries generates a less vigorous political response than damage social norms refers to behaviour that roots in considerations of
that hits the infrastructure of the “modern” sectors of the econ- legitimacy or authoritativeness. Actors, who regard the rules of
omy (e.g., as a consequence of extreme weather events). regimes as legitimate, often comply without engaging in
detailed calculations of the costs and benefits (of their doing
Third, domestic political processes often generate political “fric- so). One important effect of international regimes is that they
tion” that limits the scope for international package deals and initiate social learning processes. Already, the start of global
compensatory arrangements. Only compensation that benefits negotiating generally has resulted in the generation of new
the domestic actor(s) who are blocking a particular solution–or facts, ideas, and perspectives that reduce uncertainty and lead to
more powerful actors–will be fully effective. Only a subset of changes in the prevailing discourses, values, and actual behav-
the compensatory arrangements that make sense in terms of eco- iour of actors. The operation of social roles refers to the obser-
nomic criteria will pass the test of political feasibility. These vation that actors regularly take on new roles under the terms of
issues of national DMFs are explored in Section 10.1. institutional arrangements that shape identities and interests.
Most of the research reviewed above examines climate change Third, norms of fairness are assumed to serve as (1) frame-
policy in isolation, on its own merits only. In the real world, works of soft constraints upon the pursuit of self-interest, and
new issues enter a policy space that is already crowded by (2) as decision premises in situations in which interests provide
other problems competing for attention. In such an environ- no clear guidance. Studying international negotiations we can
ment, the priority given to a particular issue and the chances observe some rather general norms that are frequently invoked
that a particular option will be adopted depend on how well it and very rarely disputed—at least on principled grounds. These
combines with other salient concerns. As we have seen in, for norms seem to constitute a soft core of widely, though proba-
example, the acid rain case, policy confluence and synergy can bly not universally, accepted ideas about distributive fairness.
make a significant difference for some of the parties. However, This core is described in summary fashion below.
although the causal mechanism itself is well understood, it is
triggered by circumstances that occur more or less at random. The default option in international co-operation is the norm that
Thus, the aggregate net impact in terms of the climate change all parties shall have equal obligations, usually defined in rela-
regime cannot be predicted (even if issue linkage, as seen tive terms. The principle of equal obligations has a firm norma-
above, may be a powerful strategy). tive basis if all parties involved are roughly equal in all relevant
respects. This condition is never met in global negotiations,
The conventional assumption in game theory analysis is that although it usually applies to subgroups. When the range of
each party aims to maximize its own welfare, defined—when variance exceeds a certain threshold, attention shifts to some
dealing with environmental problems—in terms of damage and notion of equity. The common denominator for equity norms is
abatement costs. Political science research modifies this that costs and/or benefits be distributed in (rough) proportion to
assumption in three different directions. actor scores on the dimension(s) that led the parties to think
about differentiation in the first place. Several such dimensions
First, it introduces a distinction between the “basic game” itself can be identified, but in international co-operation attention
(i.e., the system of activities to be regulated) and the “policy focuses primarily on two. One is the role that each party played
game” through which decisions about regulations are made. in causing the problem or providing the good in question, the
The policy game generates its own stakes; certain kinds of other refers to the consequences that a particular obligation or
behaviour—notably behaviour that meets the expectations of project would have for the various parties involved. This gives
domestic “clients” and important others—are rewarded, while a matrix with four key principles (see Table 10.3). In a global
moves that violate these expectations are punished. setting, however, the range of variance in terms of criteria such
Governments also consider such political stakes. Where such as “guilt” or “capacity” is most often so large that even the
Table 10.3: Key principles of equity in the political science context
Focus on Object to be distributed

↓ Costs (obligations) Benefits
Cause of current state of affairs “Guilt” or responsibility Contribution (to solving the problem or
(for causing the problem) providing the good)
Consequences for actors Capacity (ability to pay) Need
notion of soft proportionality leads to “unfair” burdens upon the sociopolitical dimensions and processes that current game-the-
poorest countries. When the latter threshold is reached, atten- ory models neglect or are unable to capture adequately.
tion tends to shift to the simple principle of exemption; more Nevertheless, the policy-relevant conclusions from game theo-
precisely, exemption from any substantive obligation for which ry remain valid and useful for the policy process.
a party is not (fully) compensated.
This leaves a somewhat complex and elastic framework, but 10.2.8 Implementation and Compliance
the bottom line is clear enough. A global agreement has to be
at least roughly consistent with (1) the general pattern of dif- Since SAR, political science analysis in the field of effective-
ferentiation outlined in the preceding paragraph, and (2) the ness and implementation of international environmental agree-
combined implications of the equity principles of “guilt”, ments has focused on the process of implementation. That is,
“capacity”, and “need” (i.e., implications that can be derived how intent is translated into action to solve international envi-
from all three principles). ronmental problems and what are the real effects of these
efforts (Sand, 1992; Haas et al., 1993; Young, 1994, 1999;
These points are important to consider in the design of interna- Brown Weiss and Jacobson, 1998; Victor et al., 1998).
tional environmental regimes. Political scientists focus on Analysts distinguish “implementation” and “compliance”
Box 10.1. Definitions of Political Science Terms
Implementation
Implementation refers to the actions (legislation or regulations, judicial decrees, or other actions) that governments take to translate
international accords into domestic law and policy (Jacobson and Brown Weiss, 1995; Underdal, 1998; Brown Weiss, 1999). It includes
those events and activities that occur after authoritative public policy directives have been issued, such as the effort to administer the
substantive impacts on people and events (Mazmanian and Sabatier, 1983). It is important to distinguish between the legal implemen-
tation of international commitments (in national law) and the effective implementation (measures that induce changes in the behaviour
of target groups; see Zürn, 1996).
Compliance
Compliance is a matter of whether and to what extent countries do adhere to the provisions of the accord (Jacobson and Brown Weiss,
1995; Underdal, 1998). The concept of compliance includes implementation, but it is generally broader. Compliance focuses not only
on whether implementing measures are in effect, but also on whether there is compliance with the implementing actions. Compliance
measures the degree to which the actors whose behaviour is targetted by the agreement (whether they be local government units, cor-
porations, organizations, or individuals) conform to the implementing measures and obligations (Brown Weiss, 1999).
Effectiveness
Effectiveness measures the degree to which international environmental accords lead to changes of behaviour that help to solve envi-
ronmental problems, that is the extent to which the commitment has actually influenced behaviour in a way that advances the goals
that inspired the commitment (Victor et al., 1998).
Enforcement
Enforcement refers to the actions taken once violations occur. It is customarily associated with the availability of formal dispute set-
tlement procedures and with penalties, sanctions, or other coercive measures to induce compliance with obligations. Enforcement is
part of the compliance process (Brown Weiss, 1999).
(Chayes and Chayes, 1993, 1995; Mitchel, 1994; Jacobson and tional agreements have fallen short of their promise (Victor et
Brown Weiss, 1995; Cameron et al., 1996; Underdal, 1998; al., 1998). Moreover, as the policy agenda has grown more
Victor et al., 1998; Brown Weiss, 1999). See Box 10.1. for the demanding, international agreements play an ever greater role
definition of political science terms. in affecting and co-ordinating the behaviour of national gov-
ernments that have undertaken the international obligations
Although compliance is an important matter for the outcome of and became responsible for meeting them. These agreements
an agreement, it has to be distinguished from the effectiveness also influence the activities and responses of non-state actors
of the accord (Underdal, 1998; Victor et al., 1998; Brown (such as firms, individuals, scientists, interest groups, con-
Weiss, 1999; Young, 1999). This refers to the extent to which sumer and environmental groups), whose activities are affect-
the commitment actually influences behaviour in a way that ed by the international treaties after national governments
advances the goals that inspired the commitment. adopt rules and policies for domestic implementation of the
international regime. The importance of implementation has
Discussions are underway on how to enforce international increased, and climate change is a good example of this. The
commitments, that is to make parties to the international stakeholders come to play an increasing role in design and
treaties conform with their international obligations through implementation of the treaties (Michaelowa, 1998b; Victor et
application of various tools (penalties, sanctions, etc.). Some al., 1998; De La Vega Navarro, 2000), and to involve them
researchers argue that enforcement might be especially diffi- more broadly makes this process more effective.
cult in international systems and, thus, is often unlikely unless
a party persistently fails to comply.18 Besides, non-compliance Success or failure in the implementation of international envi-
is frequently the product of incomplete planning and miscalcu- ronmental agreements depends to a large extent on how they
lation rather than a wilful act (Victor et al., 1998). Thus, are implemented in countries, once the parties to the agree-
enforcement is often contrasted to the management of non- ments have returned back home. The process of domestic
compliance and implementation failures (non-compliance is a implementation of international environmental arrangements is
problem to be solved, not an action to be punished), which very important to the overall effectiveness of the treaty. Results
includes greater transparency, non-adversarial forms of dispute of attempts to develop co-operative solutions to international
resolution, technical and economic assistance, persuasion, and environmental problems are found in the domestic setting of
negotiation (Haas et al., 1993; Chayes and Chayes, 1995; the decision-making (Hanf and Underdahl, 1995; Hanf and
Sand, 1995; Downs et al., 1996; Zürn, 1996; Peterson, 1997; Underdal, 2000). Indeed, to understand what is likely to hap-
Victor et al., 1998; Vogel and Kessler, 1998). However, there pen at the international level, it is necessary to examine the
are also good reasons to consider coercive “enforcement” tech- underlying factors and processes, structures, and values at the
niques–in cases of severe violations they may be more effec- national level (Kawashima, 1997; Kotov et al., 1997;
tive. In this debate, standard solutions do not exist and a mixed Kawashima, 2000). These determine the manner in which
approach seems to be reasonable. national positions on negotiating international agreements are
arrived at and the ultimate agreements are then carried out. In
The challenge today is how decisions regarding compliance turn, the expectation is that what has happened or is happening
and implementation of the UNFCCC and its Kyoto Protocol in various international arenas influences these domestic
should be undertaken to make these international mechanisms processes and decisions within individual countries; thus,
more effective in solving the problems of both combatting national–international linkages within the decision-making
global climate change and changes in the behaviour of the tar- process are very strong.
gets (Victor and Salt, 1995; O’Riordan and Jäger, 1996;
O’Riordan, 1997; Soroos, 1997; Grubb et al., 1999). Two cru- The decision-making and policy-making processes pertaining
cial aspects of decision-making regarding implementation of to international co-operation in the environmental field may be
the international climate change regime are: represented as a sequence of three interrelated phases (Hanf
• how national governments have translated internation- and Underdal, 1995):
al commitments into national rules and policies, and • formation of national preferences and policy positions
promote changes in behaviour of stakeholders; and for international negotiation;
• how international institutions have aided monitoring of • translation of national preferences into international
implementation and compliance, adherence to commit- collective action; and
ments, and adjustment of international rules by the par- • implementation of international agreements at the
ties. national level.
Inadequate attention to implementation at both national and The first two phases are analyzed from both economic and
international levels is largely the reason why many interna- political science perspectives. As for the third phase, studies
demonstrate that there are no standard decisions or standard
implementation processes for the international environmental
18 This is why in Sections 10.2.2–10.2.6 the focus is on self-enforcing regimes. Even countries with similar political, economic, and
agreements. social systems adopt different approaches, and within countries
the implementation process varies markedly among different ideas. These actors create, collect, and disseminate scientific
sectors. It is expected that implementation of the climate knowledge and serve as centres for social learning processes.
change international regime will illustrate this conclusion, and Capacity building refers to asymmetries across countries and
the canvas for the decision-making process will be extremely their restrictive effects on an international commitment and to
intricate and complex. the possibilities of overcoming them. International institutions
can manage transfers of cognitive, administrative, and materi-
The literature on compliance and implementation indicates that al capacities to enable states to agree and comply with obliga-
a variance in the extent to which parties to international agree- tions. A broadly accepted management of non-compliance in
ments fulfil their obligations, and that the extent of national many cases can lead to more effective solutions to defection.
compliance also varies across international regimes (Jacobson This approach of flexible responses covers various instru-
and Brown Weiss, 1995; Downs et al., 1996; Brown Weiss, ments, such as dispute resolution, interacting measures of
1999; Young, 1999). assistance and persuasion, incentives, and greater transparency.
Participation by “target groups” (e.g., regulated industries) and
Signing (and ratification) of an international agreement consti- other non-governmental organizations (NGOs) reduces uncer-
tutes no guarantee that it will be implemented effectively and tainty, leads to more realistic agreements, and helps to ensure
complied with. Nor does the refusal to sign an agreement nec- that countries put them into practice.
essarily mean that an actor will act contrary to its terms.
Moreover, an actor may comply with some provisions (e.g.,
procedural obligations), but not with others (e.g., substantive 10.2.9 Monitoring, Reporting, and Verification
rules that require major behavioural change), and meet some
obligations partially (for example, by reducing emissions, but Studies confirm that in the past compliance of nearly all gov-
less and/or later than required by the agreement). It is neces- ernments with their binding international environmental oblig-
sary to note that rule-consistent behaviour may not always be ations has been quite high. However, this often reflects that the
induced by the treaty, or necessarily result from the existence commitments were fairly trivial, in many cases simply codify-
of a particular agreement. For one thing, some international ing rather than changing behaviour (Brown Weiss, 1999; Victor
agreements do not require that all actors change their behav- and Skolnikoff, 1999). But the effectiveness of these commit-
iour—some actors may already behave as prescribed by regime ments in reducing environmental problems was also low.
rules (Brown Weiss and Jacobson, 1998). Moreover, in some Incentives to cheat were few and the need for strict monitoring
cases for which behavioural change is prescribed, the required and enforcement was low. As efforts to tackle environmental
change may come about without any deliberate effort to meet problems intensified, as in the case of climate change, coun-
the obligation, and compliance without implementation occurs. tries’ commitments became more demanding and stringent, the
For example, the recent sharp economic recession in Russia costs and complexity of implementation increased, and thus
(more than a 50% decrease in Gross National Product (GNP) the incentives to cheat have grown. For this reason, stricter
during the 1990s) resulted in sufficient pollutant-emission monitoring and enforcement are increasingly essential to
reduction from industrial and other activities to meet (and even ensure that these commitments are implemented fully (Sand,
to “over-comply with”) the domestic targets set by a number of 1996; Victor and Skolnikoff, 1999). The historical record of
international agreements. Little effort was required on the part high compliance without much monitoring and enforcement is
of the government or non-government actors to honour these a poor indicator of what will be needed for more effective
commitments (Kotov and Nikitina, 1996, 1998). A number of international environmental protection in the future.
recent research efforts conclude that most domestic behaviour-
al change can be attributed to many exogenous factors, and is Although systematic reviews of implementation are common-
not induced directly by the international regime, but this place in many national regulatory programmes (Lykke, 1993),
change contributes to compliance with the regime goals and the systematic monitoring, assessment, and handling of imple-
targets (Levy et al., 1995). These specifics affect seriously mentation failures by international institutions is relatively rare
decision-making patterns regarding the implementation of the (General Accounting Office, 1992). Nonetheless, efforts to
climate change regime. provide such review are growing, and today formal mecha-
nisms for implementation review exist in nearly every recent
Recent research brings together several important paths that international environmental agreement. Such mechanisms are
can influence the variance in the extent to which parties fulfil incorporated into the UNFCCC structure as well (Victor and
their obligations (Haas et al., 1993; O’Riordan and Jäger, Salt, 1995). In addition, many informal mechanisms to review
1996; Zürn, 1996; Peterson, 1997; Victor et al., 1998). implementation and handle cases of non-compliance often
Enhancement of a contractual environment refers to the high operate in tandem with the formal mechanisms. Together, these
relevance of an institution’s transparency and credibility. An formal and informal mechanisms are termed by some
effective design introduces a shared set of norms and rules, researchers as “systems for implementation review”.
provides information about membership and compliance, and
helps to reduce transaction costs. Concern building describes An implementation review process is especially vital when
the potential influence of institutions on actors’ beliefs and decisions are undertaken regarding complex and uncertain
problems on the international environmental agenda. Such Nevertheless, much work needs to be done and decisions
problems as global warming are still poorly understood, and undertaken in this area soon. Assessments indicate the poor
involve a large number of stakeholders. Since regulation of the quality of data. National data of the member states for major
many diffused actors is often complex, governments cannot be GHGs are not comparable, accurate, or reliable outside the
sure in advance whether their efforts to put international com- energy sector (Lanchbery, 1997): emission figures given in
mitments into practice will be successful. Moreover, some gov- national inventories are often of poor quality (in many subsec-
ernments may intentionally violate their international obliga- tors, no estimates are made at all by some countries). This is
tions. Thus, there is a need to review implementation and han- not surprising given the rapid development of the climate issue
dle problems that arise. Implementation review can also make and the requirement for reliable inventories. However, it
it easier to identify problems with existing agreements, which impedes significantly the simplest reviews of implementation.
can aid the process of renegotiation and adjustment. However,
until recently implementation review has neither been the topic At the moment the reporting process may not be transparent
of much research nor high on the policy agenda. enough. Further decisions could be undertaken, both at nation-
al and international levels, to improve its effectiveness. That is,
International agreements that include procedures for gathering to improve and develop further the compilation methodologies,
and reviewing information on implementation and handling increase the transparency of the compilation process and its
implementation problems, as for the UNFCCC, are more like- reliability, and more work is needed that is specifically direct-
ly to be effective than those in which little effort is given to ed towards obtaining information for inventories, rather than
developing the functions of implementation review (Zürn, purely for scientific purposes. It is crucial that inventories of
1996; Victor et al., 1998). Agreements contain prescriptions for GHGs are accurate, reliable, and comprehensive. Otherwise, it
the governments to report regularly the data on their emissions is not possible to determine the state of the emissions, where
and implementation measures. This has made parties more they originate, and how they are changing.
accountable for the implementation of their commitments,
helped to direct assistance that facilitates compliance, and pro- As the climate change regime develops after Kyoto, the issues
vided information and assessments that make it easier to adjust of emissions measurement and verification, including the
agreements over time. release and absorption of carbon from changes in land use, rice
cultivation, and forest management, will become even more
Within the decision-making process regarding UNFCCC important. And it represents one of the toughest challenges for
implementation, today more attention is given to assessing the scientific community. By adding three additional gases and
national emissions, policy, and measures. The process of com- sinks, the Kyoto Protocol fulfils its ambition to be more com-
piling GHG emission inventories is well underway. Parties to plete, but at the same time it makes compliance more difficult,
the UNFCCC are obliged to compile and submit national com- and it complicates monitoring and verification (Corfee-Morlot
munications on how they are implementing the convention and Schwengels, 1994). In particular, it raises the need for fur-
(Green, 1995). These reports include inventories of GHG emis- ther modelling, a comprehensive new analysis, and better
sions, reports on policies and measures that the parties have inventories.
adopted to try to stabilize or reduce emissions, and (eventual-
ly) an account of the extent to which emission abatement has Targets agreed by Kyoto are challenging. However, to imple-
been successful. Since 1991, IPCC and the Organization for ment the commitments and to meet the targets it is necessary to
Economic Co-operation and Development (OECD) have built reach a common understanding of what they mean. Forecasts
effective guidelines for inventory reporting. All parties to the from different sources are often not comparable. For example,
convention must use this system of reporting to the UNFCCC data from the International Energy Agency (IEA) are different
regarding emissions by sources and removals by sinks. Within from national figures. Even different ministries in the same
this framework the governments are actively contributing to country, let alone in other countries, use different assumptions,
the international reporting process in submitting their national which significantly hampers the comparability of data.
reports. Experts regard data reported by them as the backbone Assumptions on burden sharing and cost-effectiveness analysis
of the IPCC international system, while the EU is also engag- become more difficult or even arbitrary. Thus, one of the first
ing its own system – Coordination-Information-Air (CORI- decisions regarding the steps of Kyoto Protocol implementa-
NAIR). Without good data, systems of implementation review tion should be to make the data and assumptions to be used
work poorly or not at all (Lanchbery, 1998). This system was more consistent.
intended to be applicable to all countries and for the main
emissions sector (that for energy-related CO2 emissions), and Verification and monitoring mechanisms are of particular
it makes use of energy flow statistics of the type that most importance to implement flexible mechanisms. Without a clear
developed countries collect routinely. Special methodologies definition, measurement, and inventory of emissions and emis-
and guidelines have been elaborated to convert the national sions reduction, binding targets cannot be achieved and flexi-
inventory systems reasonably well, certainly for energy-related ble mechanisms cannot be realized, as is stressed in various
emissions, into the IPCC format. In this and in other respects it parts of the Kyoto Protocol. Baseline calculations, monitoring,
is what is known largely as a “top down“ system. and verification play a crucial role in measuring emissions
reductions that result from JI and CDM projects, and thereby 10.3 Local and/or National Sustainable Development
ensure that these projects are based on real environment Choices and Addressing Climate Change
improvements (Jepma and Munasinghe, 1998). Decisions and
agreement among parties is urgently needed on firm rules 10.3.1 Introduction
based on accepted methodologies (e.g., benchmarking). The
same applies to emissions trading: rules that govern emissions- Chapter 1 presented three perspectives on climate change mit-
trading markets must be simple and transparent. Particularly igation: cost-effectiveness, equity, and sustainability. The first
important are rules on the total number of permits available in perspective dominates much of the assessments reviewed in
the market, the permit tenure (their duration), eligibility crite- the previous chapters and sections. It is also dominant in the
ria, the method of initial permit allocation, and the monitoring scientific literature on climate change mitigation. As discussed
mechanism. in Sections 1.3 and 1.4, other key perspectives are relevant for
mitigation assessment as well: equity and sustainability. This is
How to make the verification and enforcement system more especially relevant for the assessment of mitigative capacity at
effective? Several suggestions in this respect refer to environ- local and national levels, and certainly for incorporating cli-
mental agreements in general (Green, 1993). Different coer- mate change mitigation policies into national development
cive measures, such as trade sanctions and other penalties, agendas.
may be needed in cases of severe violations. To date, practice
shows that sanctions have been used rarely, but when applied Decision making related to climate change is a crucial aspect
they have often been effective (Victor, 1995). A looming chal- of making decisions about sustainable development, simply
lenge is to determine when and how sanctions can be made because climate change is one of the most important symptoms
compatible with international trade rules. Potential conflicts of “unsustainability”. Climate change could undermine eco-
between the sanctions that have sometimes been vital to inter- nomic activities, social welfare, and equity in an unprecedent-
national environmental co-operation and the free-trade rules ed manner, in particular both intra- and intergenerational equi-
that discourage sanctions have not been tested or settled. ty is likely to be worsened. Now it is widely recognized that
There are also suggestions to use, for reluctant countries, var- global environmental problems and the ability to meet human
ious compensations for the costs of implementing the treaties needs are linked through a set of physical, chemical, and bio-
(compensation for national reporting testifies to this logical processes that have an impact on global hydrological
approach). Other suggestions include bilateral funding pro- cycles, affect the boundaries and functioning of ecological sys-
grammes. Several funding programmes have been undertaken tems, and accelerate land degradation and desertification.
to support the compilation and reporting of national invento-
ries by the developing countries and countries with economies Despite the close links, climate change and sustainable devel-
in transition. opment have been pursued as largely separate discourses. The
sustainable development research community has not general-
Regimes that elicit the most co-operation have at their dispos- ly considered how the impacts of changing climate may affect
al more powerful carrots and sticks with which to enforce efforts to develop more sustainable societies. Conversely,
international obligations. Such tools are increasingly being methodological and substantive arguments associated with sus-
used, and they work—especially when the sanction is to with- tainable development are still absent in climate change dis-
draw financial assistance. The threat of cutting off finance has course. It is difficult to generalize about sustainable develop-
brought swift compliance. The combination of soft management policies and choices. Sustainable development implies
ment backed by strict enforcement when necessary has been and requires diversity, flexibility, and innovation. Policy choic-
effective. The most flagrant violations have been deterred and es are meant to introduce changes in technological patterns of
reversed only when strong incentives, including threats of natural resource use, production and consumption, structural
trade sanctions, have been applied (Chayes and Chayes, changes in the production systems, spatial distribution of pop-
1995). ulation and economic activities, and behavioural patterns.
Moreover, the process of integrating and internalising climate
Such market-based mechanisms as GHG emissions trading change and sustainable development policies into national
also may be regarded as a tool to make the UNFCCC imple- development agendas requires new problem-solving strategies
mentation easier and less costly for many developed countries. and decision-making approaches in which uncertainties need to
The Kyoto Protocol envisions creating a system of internation- be managed to produce robust choices.
ally tradable emissions rights that can be used to lower the cost
of cutting emissions of GHGs. The international use of market- In this section the dual structure of linkages between sustain-
based incentives is virgin territory. There are no direct histori- able development and climate change is discussed. The exis-
cal precedents, and there is much to be learned about the insti- tence of positive synergistic effects is reviewed, as is how spe-
tutions that will be needed to enable the successful internation- cific strategies, especially those related to lifestyle options and
al use of market-based systems. technology-transfer policies, could reinforce potential syner-
gies. Finally, the emergence of new and innovative decision
frameworks, in which extended peer community participation
is essential to incorporate into the decision process both the 10.3.2.1 Decision-making Process Related to Sustainable
plurality of different legitimate perspectives and the manage- Development
ment of irreducible uncertainties in knowledge and ethics, is
examined. Actions that steer the course of society and its economic and
governmental organizations are largely tasks of making deci-
sions and solving problems. This requires choosing issues that
10.3.2 Development Choices and the Potential for Synergy require attention, setting goals, finding or designing suitable
courses of action, and evaluating and choosing among alterna-
Chapter 1 provides a concise overview of sustainable develop- tive actions. The first three of these activities—fixing agendas,
ment as a context for climate change mitigation policy. As setting goals, and designing actions—are usually called prob-
argued there, the concept of sustainable development defies lem solving; the last, evaluating and choosing, is usually called
objective interpretation or operational implementation. decision making (Simon et al., 1986). Except for trivial cases,
However, it is precisely the diversity of interpretations that decision making generally involves complicated processes of
“makes up the biggest advantage of the concept: it is suffi- setting actions and dynamic factors that begins with the identi-
ciently rich and flexible to refract the full diversity of human fication of a stimulus for action and ends with a specific com-
interests, values and aspirations” (Raskin et al., 1998). So near- mitment to action (Mintzberg, 1994). The complexity of the
ly everyone can agree that sustainable development is a good decision-making process related to sustainable development
thing, and consensus has become possible over broad policy becomes even more problematic simply because the difference
areas in which previously people could not agree. Or, in the between the present state and a desired state is not clearly per-
words of O’Riordan (1993), “sustainable development may be ceived, so “we have a better understanding on what is unsus-
a chimera. It may mark all kinds of contradictions. It may be tainable rather than what is sustainable” (Fricker, 1998).
ambiguously interpreted by all manners of people for all man-
ners of reasons. But as an ideal it is nowadays as persistent a Much of the ambiguity arises from the lack of measurements
political concept as are democracy, justice and liberty.” that could provide policymakers with essential information on
the alternative choices at stake, on how these choices affect
Now, sustainability is perceived as an irreducible, holistic con- clear and recognizable social, economic, and environmental
cept in which economic, social, and environmental issues are critical issues. Such measurements could also provide a basis
interdependent dimensions that must be approached in a uni- for evaluating policymakers’ performance in achieving goals
fied framework. However, the interpretation and valuation of and targets. Management requires measurement and now, as
these dimensions give rise to a diversity of approaches. never before, government institutions and the international
Different disciplines have their own conceptual framework, community are concerned with establishing the means to
which translates into different variables, different pathways, assess and report on progress towards sustainable develop-
and different normative judgements. Economists stress the goal ment. “If we genuinely embrace sustainable development, we
to maximize the net welfare of economic activities, while must have some idea if the path we are going on is heading
maintaining or increasing the stock of economic, ecological, towards it or away from it. There is no way we can know that
and sociocultural assets over time. The social approach tends to unless we know what it is we are trying to achieve—i.e. what
highlight questions of inequality and poverty reduction, and sustainable development means—and unless we have indica-
environmentalists the questions of natural resource manage- tors that tell us whether we are on or off a sustainable devel-
ment and ecosystems’ resilience (Rotmans, 1997). Apart from opment path” (Pearce, 1998). Therefore, indicators are indis-
the weight placed on each of the critical dimensions, the impor- pensable to make the concept of sustainable development oper-
tant conclusion from this ongoing debate is that achieving sus- ational. They are particularly useful for decision making
tainable economic development, conserving environmental because they help (Hardi and Barg, 1997):
resources, and alleviating poverty and economic injustice are • understand what sustainable development means in
compatible and mutually reinforcing goals in many circum- operational terms (in this sense, measurement and indi-
stances. cators are explanatory tools, which translate the con-
cepts of sustainable development into practical terms);
While the overall literature on sustainable development is very • make policy choices to move towards sustainable
large, the literature that focuses on concrete policies to make development (measurement indicators create linkages
operational the concept of sustainable development is, howev- between everyday activities, and sustainability indica-
er, much smaller. This asymmetric coverage of the guidance tors provide a sense of direction for decision makers
and the operational principles for managing a sustainable when they choose among policy alternatives, that is
development path constitutes a non-negligible barrier to an they are planning tools); and
effective decision-making process, since policymakers lack • decide how successful efforts to meet sustainable
concise and relevant information that would allow them to development goals and objectives have been (in this
assess alternative development choices. sense measurement and indicators are performance
assessment tools).
The past few years have witnessed a rapidly increasing interest develop appropriate indicators, but also, most importantly, to
in the construction of sustainable development indicators to give them acceptability in the eyes of the international com-
assess the significance of sustainability concerns in economic munity (Gallopin, 1997).
analysis and policy. Different analytical frameworks have been
suggested to identify, develop, and communicate indicators of At the national level, several important steps to make opera-
sustainability. Hardi and Barg (1997), in an extensive survey of tional the concept of sustainable development have being
ongoing work on measuring sustainability, discuss the advan- undertaken. Different sets of thematic indicators are being used
tages and limitations of different approaches from the view- for each of the major issues in national environmental policy,
point of their practical applicability. The main differences reflecting differences in national endowment, level of develop-
among frameworks are (1) the ways and means by which they ment, and cultural traditions, as well as the heterogeneity with-
identify measurable dimensions, and select and group the in countries. The indicators generally cover every aspect of
issues to be measured; and (2) the concepts by which they jus- pollution control, nature conservation, resource depletion,
tify the identification and selection procedure. Some of the social welfare, health, education, employment, waste manage-
major frameworks are briefly summarized below. ment, etc.—in short, a compendium of all the components of
traditional development goals and conventional policy debate.
One of the most prominent is the Human Development Index Hence, factors that distinguish sustainable development from
developed by the United Nations Development Programme traditional development tend to be submerged under a sea of
(UNDP) to ranks a country’s performance on the criteria of age-old problems that are made no more readily soluble by
human development, instead of solely the economic perfor- bearing the name sustainable development (George, 1999).
mance. Though the index was not developed as a sustainable The point is that current definitions of indicators and the use of
development index, recent efforts have been made to supple- terminology are particularly confusing and some clarity and
ment it with an environmental dimension to encompass explic- consensus is required about the definition of what an indicator
itly the multiple dimensions of sustainability. Integrated envi- is, as well as in the definition of related concepts such as
ronmental–economic accounting is a framework that is rapidly threshold, index, target, and standard. This consensus cannot
gaining prominence. The basic idea of this approach is to be based solely on political agreement; logical and epistemo-
establish links between the conventional circular produc- logical soundness is also necessary (Gallopin, 1997).
tion–consumption economic accounting to the natural support
system through the extraction of resources in one direction and It is recognized (Hardi and Barg, 1997) that much work
the discharge of residuals in the other (Tietenberg, 1996). remains to be done. Some approaches lack causal linkages or
Another framework that is attracting a high level of interest is they tend to over simplify interlinkages and relations among
the multiple capital approach. This approach recognizes that a issues; others focus on the measurement of those segments of
country’s wealth is the combination of economic, environmen- sustainable development that can be expressed in monetary
tal, and social capital and these dimensions of capitals should terms; in some cases detailed calculations of indicators are
be preserved, enriched, or substituted if consumed. The World highly technical and difficult to handle. Fresh initiatives ori-
Bank’s Measure of the Wealth of Nations (World Bank, 1997) ented to capture complex interlinkages in the interactions
is the most notable application of this framework. The concept between human activity and the environment, especially those
of genuine savings is introduced in the World Bank approach related to pressure–state–response causalities, have been
to measure the true rate of saving of a nation after accounting undertaken in recent years (Meadows, 1998; Bossel, 1999).
for the depreciation of produced assets, the depletion of natur- Undoubtedly, all these efforts are needed to provide decision
al resources, investments in human capital, and the value of makers with information and operational criteria to assess cur-
global damages from carbon emissions. Lastly, the rent situations and evaluate strategic decisions. Furthermore,
Pressure–State–Response framework (OECD,1993; UNCSD, these efforts hold the additional promise of treating environ-
1996) focuses on the causal relationships between stress-gen- mental problems within a framework that the key institutions
erating human activities, changes in the state of the natural and and agencies in any government will understand.
social environment, and society responses to these changes
through environmental, general economic, and sectoral poli- 10.3.2.2 Technological and Policy Options and Choices
cies.
It is clear from the preceding discussion that governments’
Different sets of thematic indicators are devised for use at dif- commitments to sustainable development require indicators by
ferent scales. The broadest scale is the international or global which decision makers can evaluate their performance in
level. In this context, global conventions and protocols, such as achieving specific goals and targets. Furthermore, such indica-
the climate, biodiversity, desertification, and ozone agree- tors are essential, first to capture the complex interlinkages
ments, are extremely important. It is becoming increasingly between the basic building blocks of sustainable development
clear that unless specifically tailored indicators are developed (environment, economic activity, and the social fabric), and
and monitored, the implementation of these conventions is not second to balance the unavoidable trade-offs between the main
possible. Both the secretariats of the conventions and interna- policy issues related to each of these blocks (development,
tional agencies are working intensely not only to identify and equity, and sustainability).
It is difficult to generalize about sustainable development poli- choices in general, have a critical influence on sustain-
cies and choices. Sustainability implies and requires diversity, able development. After all, sustainability is a global
flexibility, and innovation. Thus, there cannot be one “rightful” project that requires big and small daily contributions
path of sustainable development that leads finally to a blissful from almost everybody (Bossel, 1998). Personal oppor-
state of sustainability (Bossel, 1998). Depending upon differ- tunities and freedom of choices are embedded in cul-
ences among individual countries (size, level of industrializa- tures and habits, but these are also shaped and support-
tion, cultural values, etc.) as well as on the heterogeneity with- ed by the products and services provided by the eco-
in countries, policy choices are meant to introduce changes in: nomic system, as well as by the organization and
• Technological patterns of natural resource use, produc- administration at all levels. Within the boundaries of
tion of goods and services, and final consumption. individual freedom, government policies can discour-
These encompass individual technological options and age unsound consumption styles and encourage more
choices as well as overall technological systems. sustainable social behaviour through the adoption of
Sustainable development on a global scale requires rad- financial incentives (subsidies), disincentives (taxes),
ical technological changes focused on the efficient use legal constraints, and the provision of wider choices of
of materials and energy for the sufficient coverage of infrastructure and services. This point is elaborated fur-
needs, and with minimum impact on the environment, ther in Section 10.3.2.3.
society, and future. This is of particular importance in
developing countries, in which a major part of the infra- The set of specific policies, measures, and instruments to mit-
structure needed can avoid past practices and move igate climate change and consequently promote sustainable
more rapidly towards technologies that use resources in development is quite large. These include generic policies ori-
a more sustainable way, recycle more wastes and prod- ented to induce changes in the behaviour of economic agents,
ucts, and handle residual wastes in a more acceptable or control and regulatory measures to achieve specific targets
manner. As discussed in Chapter 3, the range of oppor- at the sectoral level. A comprehensive discussion of various
tunities is extensive enough to cope with different aspects of different types of policies and measures is presented
development styles and national circumstances, but in Chapter 6. Here it is important to note, first, that sustain-
what is even more important, economic potential ability issues cannot be addressed by single isolated measures,
increases as result of the continuous process of techno- but they require a whole set of integrated and mutually rein-
logical change and innovation. A number of technolo- forced policies. Second, weights assigned to different policies
gies that less than 10 years ago were at the laboratory- depend on individual countries according to their national cir-
prototype stage are now available in the markets. Issues cumstances and specific priorities. Third, the cause–effect
on barriers and opportunities for technology develop- reaction in the process of policy implementation is not linear.
ment, transfer, and diffusion at the national level are Except in trivial cases, policies tend to disrupt existing pat-
discussed in Chapter 5 and Section 10.3.3 below. terns, social systems create and respond to changes within
• Structural changes in the production system. Economic themselves through feedback loops, and new patterns emerge
growth continues to be a widely pursued objective of as social, economic, and environmental aspects interact in the
most governments and, therefore, policy decisions on process of convergence towards the desired goals.
development patterns may have direct impacts on both
raw material and the energy content of production. 10.3.2.3 Choices and Decisions Related to Lifestyles
Structural changes towards services or a low energy-
intensity industrial base may or may not affect the over- There are two reasons why lifestyles are an issue of climate
all level of economic activity, but could have significant policy. First, consumption patterns are an important factor in
impacts on the energy content of goods and services. climate change since they have become an essential element of
• Spatial distribution patterns of population and eco- lifestyles in developed countries. If, for instance, people
nomic activities. Country-wide policies on the geo- changed their preferences from cars to bicycles, this would
graphical distribution of human settlements and pro- alleviate climate change and decrease mitigation costs consid-
ductive activities impact on sustainable development at erably. Second, many promising domains for substantial envi-
three levels: on the evolution of land uses, on mobility ronmental improvements through technological change also
needs and transport requirements, and on the energy require changes in lifestyle. With respect to traffic, for
requirements. These factors are of utmost relevance for instance, to reach sustainability beyond that of increases in
most developing countries, in which spatial distribu- efficiency requires changes in the modal split and ultimately in
tions of the population and of economic activities are urban planning (Deutscher Bundestag, 1994). Yet lifestyles
not yet settled. Therefore, these countries are in a posi- have been subjected to far less systematic investigation than
tion to adopt urban and/or regional planning and indus- technology (Duchin, 1998, p. 51). In SAR they were not dis-
trial policies directed towards a more balanced use of cussed at all.
their geographical space.
• Behavioural patterns that determine the evolution of The concept of lifestyle (Lebensführung) was introduced by
lifestyles. Consumption behaviours, and individual Weber (1922). Lifestyle denotes a set of basic attitudes, values,
and patterns of behaviour that are common to a social group, ware commodities being part of that (Tomlinson, 1990). In
including patterns of consumption or anticonsumption. It doing so an individual relates to him- or herself rather than to
seemed for a while that a change from environmentally less others. Consumers by now are “engaged in an ongoing enter-
benign to more benign consumption patterns had emerged by prise of self-creation, ... a ‘cultural project’ ... the purpose of
itself (Inglehart, 1971, 1977) in the 1970s. What really hap- which is to complete the self” by consumption (McCracken,
pened, however, was not a switch from one coherent and dom- 1988, p. 88). As far as consumption is responsible for climate
inant set of values to another, but an end of coherence through change, this means that people in developed countries (and
a pluralization of values (Mitchell, 1983; Reusswig, 1994; their fellow consumers in less-developed countries) aim for
Douglas et al., 1998). Current lifestyles reflect this patchwork self-realization at the expense of others.
of values. Some of these, however, are environmentally more
benign than others. The idea of promoting transfers from the The general rule is that human behaviour expresses one’s
latter to the former must take into account that lifestyles are not implicit or explicit self-definition (Meyer-Abich, 1997).
just a matter of behaving this or that way, but are basically an Moisander (in press) points out that this project of identity is
expression of people’s self-esteem (see below). Lifestyles, not limited to the paradigm of the rational, autonomous, and
therefore, are based on ideas with respect to the individual’s self-certain individual. In the consumer society “The ways in
identity. To this extent the issue is not only that individuals which people relate to their possessions can be seen as reflec-
need to change their behaviour, but that they need to change tions of how they view themselves and relate to their social and
themselves. This tends to be underestimated in policy consid- physical environment” (Dittmar, 1992, p. 125). They express
erations, but must be accounted for when such changes become who we are, even if they do so not necessarily in a consistent
relevant with respect to climate change. Otherwise discrepan- way. The “social life of things” (Appadurai, 1986) animates all
cies between people’s environmental consciousness and behav- kinds of commodities.
iour are deplored but not understood.
All this seems to imply that any attempt to change lifestyles
10.3.2.3.1 Lifestyles as an Expression of Identity intentionally is bound to fail. Intercultural experience, howev-
er, shows that “the Western conception of the person as a
As far as an individual’s behaviour can be explained in terms bounded, unique, more or less integrated motivational and cog-
of economic rationality, changes in lifestyles would seem to be nitive universe ... is ... a rather peculiar idea within the context
a matter of changing relative prices of commodities by eco- of the world’s cultures” (Geertz, 1979, p. 229). Although in the
nomic policy. In general, however, the rationality of human Western world even the modern state is supposed to have been
behaviour is beyond economic rationality. Examples from established by an agreement of independent, or decontextual-
India as well as from the USA are referred to by Douglas et al. ized individuals, the question “Who am I?” in other cultures is
(1998), who note that the majority of lifestyles are “not eco- generally answered by reference to the contexts in which one
nomically rational, but they are still culturally rational”. belongs. That is, to dependencies, and not by independence
Therefore “the social and cultural dimensions of human needs claims with respect to oneself. Western people tend to believe
and wants must be included in the theoretical approaches.” that they are what they are just for themselves, as if everybody
had only his or her first name, but even in Europe the idea of
In cultural anthropology human behaviour is interpreted in individual salvation after death, for instance, did not develop
terms of finding one’s place within the social universe by relat- before the 12th century (Ariès, 1977). In contrast, intercultural
ing oneself to others (not only to the proverbial Joneses next studies have shown that traditional Asian, African, Latin
door), that is by setting up distinctions in the community. In American, and even Southern European concepts of self indi-
doing so commodities are a means of discrimination. They cate an interdependent identity (Cousins 1989; Markus and
“constitute the visible part of culture as the tip of the iceberg Kitayama, 1991). This means “that behaviour is seen as con-
which is the whole of the social processes” (Røpke, 1999). Of text-bound and aimed towards a harmonious fit with the expec-
course, many goods satisfy needs as well, but they do even this tations and evaluations of others, who are continuously
because of their social capacity to make sense in the individ- involved in one’s definition of self” (Dittmar, 1992, p. 190).
ual’s social context. This explanation of human consumption The barrier of consumption-based identity at the expense of
behaviour—as advanced by Douglas and Isherwood (1979)— others might, therefore, be overcome by contextualizing the
seems to be considerably more comprehensive than a purely Western self in intercultural communication. Section
economic one. However, even if in their account “human 10.3.2.3.2. gives some indications of how this could be fos-
beings are conceived of as social, ... they are just as unpleasant tered politically.
pursuers of their own interests as they are in economics”
(Røpke, 1999). 10.3.2.3.2 Policies and Options for Change
Goods, however, make sense not only with respect to others. It Environmental education
has been observed in marketing research that people since the Although political attention is always in a process of change,
1960s have gradually passed from buying goods like food, public awareness of environmental disruption in general and
clothing, or housing to basically buying personality, the hard- climate change in particular is at a fairly high level in many
Decisio-nmaking Frameworks 639
developed countries, and has been rising over a long period. • common material goods (e.g., shared cars or household
This consciousness is generally ahead of the corresponding appliances); and
behaviour, yet (apart from governmental action): • common immaterial goods (e.g., environmental quality
• in many countries citizens initiatives offer bottom-up or collective actions, such as the liberation of a creek,
solutions for alternative consumption patterns (Georg, common attendance of public facilities, etc.).
1999); and
• environmental behaviour tends to cover consciousness Among the four combinations, so far economic analysis of
in low-cost situations, that is if the costs and inconve- consumption has been based mainly on only one, private mate-
nience are not much higher for the environmentally rial goods. Since marginal satisfaction with these is decreasing,
more benign solution (see Diekmann and Preisendörfer the neglected combinations have been reconsidered recently
(1992) for Germany and Switzerland). (Scherhorn, 1997). This is particularly relevant with respect to
climate change, because immaterial and common goods (irre-
Interestingly enough, these low-cost limits appear mainly to spective of their material basis) are or stimulate social activi-
be a matter of equity—not to pay too much more than one’s ties that promote the integrity of society. They either foster the
fellow citizens—because environmental legislation (for natural environment or endanger it much less than private and
everybody) is accepted beyond those limits. Politically, envi- material goods generally do in terms of production, consump-
ronmental consciousness can be promoted by environmental tion, and waste management. Material goods are not an end in
education. This includes primary schools as well as high themselves, so that their real utility is different from their mate-
schools, adult education, and particularly lecturer’s education rial reality. Politically, public education in consumer’s behav-
at the college and university level. Environmental education iour can promote the awareness that identities can be expressed
could be more effective than it has proved so far if it recog- by a broader plurality of goods than just material and private
nized that human behaviour hinges on lifestyle or self-aware- goods.
ness.
New deals in collective action
Decreasing marginal satisfaction with rising private material Climate is a common public good and the debate as to what
consumption extent “commons” can be appreciated in market-based
John Stuart Mill’s idea that in affluent societies people might economies is ongoing. Much of the discussion originally
prefer other forms of satisfaction to ever-increasing consump- derives from Olson’s (1965) argument that if people were ratio-
tion of purchased commodities is not prominent in contempo- nal egoists in the sense of liberal economics, individual ratio-
rary economics, but has not completely disappeared from eco- nality must lead to collective irrationality in large informal
nomic thought (see Harrod, 1958; Hirsch, 1977; Xenos, 1989). groups, because free riders could not be excluded. As non-irra-
Now there are indications that the marginal utility of those tional collective actions exist, human behaviour cannot only be
commodities is steadily decreasing with rising consumption motivated by rational egoism, the problem posed by Olson’s
(see Scherhorn, 1994; Inglehart, 1996). For instance, although analysis was to identify these other motivations. Udéhn (1993)
consumption in the USA has doubled since 1957, it is reported summarized the subsequent discussion comprehensively. The
that the average US citizen considers his or her happiness to main outcome confirms that human co-operation generally can-
have decreased since then (UNDP, 1998). Sanne (1998) reports not be explained economically, but only by taking into account
from Sweden that 87% of the people have a car, but 14% of social or personal commitments. Sen (1976/77, 1985) noted
these do not “need” it while only 47% consider it to be “nec- that such commitments can replace economic “rationality”, or
essary”. Similarly, 52% have a dishwasher, but 30% of these do utility maximization. He also argued, that commitments are
not “need” it and only 12% deem it “necessary”. The mismatch related to a person’s “identity” (discussed above as the key to
between economic consumption and the satisfaction of human lifestyles). These identities, however, are not fixed once and for
needs is shown by the Index of Sustainable Economic Welfare. all but develop through social intercourse. Correspondingly,
This ran parallel to GNP up to the 1970s, but rapidly departed one of the most consistent results of the debate on collective
after that (Nordhaus and Tobin, 1972; Daly and Cobb, 1989; action is that “co-operation increases dramatically if people are
Jackson and Marks, 1999). If these discrepancies became a allowed to communicate before being subjected to a social
political issue the personal relevance of consumption patterns dilemma” (Udéhn, 1993; see Dawes, 1980; Orbell et al., 1984;
could decrease. Politically, the introduction of a suitable index van de Kragt et al., 1986). This may be expected in market
of welfare and stimulation of public dialogue on the goals of behaviour as well, so that environmental commitments can
economic action could foster this. overcome price incentives. By co-operation in the common
interest there is also “reason to believe that appeals to the full
New emphasis on immaterial and common goods set of motivations and behaviours—accompanied by an analy-
Goods may be either common or private and either material or sis of bold options—can encourage lifestyle decisions that
immaterial, so four combinations arise: reduce pressures on the environment” (Duchin, in press).
• private material goods (e.g., house or car);
• private immaterial goods (e.g., well-being or creativi- Environmental legislation
ty); Democratic governments cannot go far beyond public con-
sciousness in environmental legislation. To the extent that peo- Over the past years, of the policy options to mitigate climate
ple deliberately pay higher prices for environmentally more change, technological options to limit or reduce GHG emis-
benign goods, as has been discussed above, governments can sions have received by far the most attention. Chapters 3 and 4
increase this threshold step by step. provide a comprehensive review of technologies and practices
to mitigate climate change. Energy efficiency improvements
Creative democracy (including energy conservation), switches to low carbon-con-
Better understanding (as the Olson debate has shown ) can lead tent fuels, use of renewable energy sources, and the introduc-
to the perception of common interests, but such understanding tion of more advanced non-conventional energy technologies
does not necessarily come about by itself. Its promotion is are expected to have significant impacts on curbing actual
rather an objective of “creative democracy” (Burns and GHG emission tendencies. Similarly, the adoption of new tech-
Ueberhorst, 1988). Generally, this is again a matter of educa- nologies and practices in agriculture and forestry activities, as
tion, particularly of political education. “Education and produc- well as the adoption of clean production processes, could make
tive employment ... would be worth while policy goals in rela- substantial contributions to the GHG mitigation effort.
tion to global climate change” (Douglas et al., 1998). Education Depending on the specific context in which they are applied,
implies formal and informal processes of creativity as well as these options may entail ancillary benefits, and in some cases
receptivity, so that not only schools and universities are to be are worth undertaking whether or not there are climate-related
addressed here. For instance, in Germany most cities have their reasons for doing so.
special Agenda 21 program, supported by citizens’ movements
and by an Agenda 21 office in local government. This stimu- The potential linkages between climate change mitigation
lates learning by doing. The administration is in charge here not issues and economic and social aspects have also brought an
simply to implement sustainability locally, but to promote important shift in the focus of mitigation analysis literature.
understanding as well as co-operation in the global interest of From being confined to project-by-project or sector-based
sustainability. A broad public dialogue can also encourage pub- approaches, analyses and studies are increasingly concerned
lic confidence in making changes for the advantage of nature, with broader policy issues as mechanisms to reduce the
the developing countries, and future generations. For behav- increase of GHG emissions. Fresh methodological develop-
ioural change, “arguably the most important obstacle is the dif- ments (UNEP, 1998) broaden climate change mitigation poli-
ficulty of imagining new scripts and removing the obstacles to cies by incorporating distributional impacts, negative side
actually living them” (Duchin, in press). If that public dialogue, effects, and the appropriate choice of instruments and institu-
therefore, is mainly concerned with such “new scripts”, even tional constraints, among others. This provides a somewhat
the discrepancy between environmental consciousness and different slant on the focus of climate change mitigation poli-
behaviour might finally disappear, so that people as consumers cies. More emphasis is now given to exploit mutually reinforc-
would no longer lag behind themselves as citizens. ing links among individual actions, to take advantage of the
potential interactions of mitigation options with other objec-
Research needs tives, and to supplement individual mechanisms with econom-
Lifestyle research is neglected compared to technology ic instruments of wider scope.
research, even where technological and lifestyle changes are
linked. Particularly, nature-saving lifestyles and the general 10.3.2.5 Synergies, Trade-offs, and No Regrets
process of self- and world-constitution through goods are enor-
mously understudied (see McCracken, 1988). The existence of ancillary benefits and synergies in imple-
menting mitigation options has been addressed in a preliminary
10.3.2.4 Interaction of Climate Policy with other Objectives way in IPCC (1996c). These issues are discussed in detail in
Chapters 7, 8 and 9. Some relevant findings are highlighted
The linkages between the social, economic, environmental, here. The adoption of more sustainable agricultural practices in
and political dimensions of sustainable development call for Africa (Sokona et al., 1999) illustrates clearly the mutually
policies that can serve multiple objectives, and requires that a reinforcing effects of climate change mitigation, environmen-
balance be struck when objectives conflict. These linkages are tal protection, and economic benefits. In fact, the introduction
often mutually reinforcing in the long run, but may sometimes or expansion of agroforestry and organic agriculture (i.e.,
be contradictory in the short term (OECD, 1999c). In this methods that intensify agricultural production while using less
regard, a critical requirement of sustainable development is a input), can improve food security and at the same time reduce
capacity to design policy measures that, without hindering GHG emissions. In agroforestry systems, trees are planted to
development and remaining consistent with national strategies, delineate plots of land, and further to fix nitrogen, causing the
could exploit potential synergies between national economic nutrients lower in the soil to rise up. The trees also prevent soil
growth objectives and environmentally focused policies. erosion, supply firewood and animal fodder, and constitute a
Climate change mitigation strategies offer a clear example of source of income. Organic farming improves the fertility of the
how co-ordinated and harmonized policies can take advantage soil through the addition of organic matter. The damage and
of the synergies between the implementation of mitigation diseases caused by insects are virtually eliminated through the
options and broader objectives. technique of “growing in corridors” and other holistic meth-
ods. Costly inputs are not used at all or are kept to a minimum, Greater synergies could be achieved if agencies with global
and the system is flexible. In addition, these methods restore and local agendas did business together, through effective link-
and maintain carbon levels in the soil. Hence, if practised on a age mechanisms that allow co-ordination and support in imple-
large scale, they could transform soils from carbon sources into menting tasks or functions that belong to different subsystems
carbon sinks. and involve different actors.
Energy efficiency improvements and energy conservation are 10.3.2.6 Links to other Conventions
other issues of economic and strategic concern. In developing
countries, energy demand (for electricity in particular) contin- Awareness of the complex system of interrelated cause-and-
ues to grow at a rate that is often hard to keep up with. The effect chains among climate, biodiversity, desertification,
adoption of environmentally sound technologies (ESTs) for water, and forestry has been growing in recent years. Now it is
both energy production and energy consumption would enable widely recognized that global environmental problems and the
these countries to lower the pressure on energy investments, ability to meet human needs are linked through a set of physi-
reduce public investments (in some cases by up to one-third cal, chemical, and biological processes. Climate change, for
(World Bank, 1994)), improve export competitiveness, enlarge example, alters the global hydrological cycle, affects the
energy reserves, and also avoid a large increase in GHG emis- boundaries and functioning of ecological systems, and acceler-
sions. Thus the alternative energy paths of low-carbon futures ates land degradation and desertification (Figure 10.5). These
in developing countries can be compatible with national objec- negative impacts in turn reinforce each other through feedback
tives. Such paths could prevent energy and/or GDP intensities loops, which results in a serious threat to land productivity,
from following the growth path of the developed world, in food supply, fresh-water availability, and biological diversity,
which energy demand and GDP elasticity first increased with particularly in vulnerable regions (Watson et al., 1998).
successive stages of industrialization, but since have sharply
decreased. Global environmental problems are addressed by a range of
individual instruments and conventions—UN Convention on
A large number of similar synergy effects can be found in Climate Change, Convention on Biological Diversity,
industry, transportation, and human settlement patterns. For Convention to Combat Desertification, and Forestry Principles.
example, more decentralized development patterns based on a Each of the instruments focuses on a specific issue and has its
stronger role for small- and medium-sized cities can decrease own defined objectives and commitments, with the exception of
the rural exodus, reduce needs for transportation, and allow the Forestry Principles, which has no binding legal agreement. A
use of modern technologies (biotechnology, solar energy, wind, great deal of interaction exists among the environmental issues
and small-scale hydropower) to tap the large reserves of natur- that these instruments address, and there is also a significant
al resources. Building upon the lending experiences of World overlap in the implementation of the instruments. They contain
Bank operations and sector programmes in a number of coun- similar requirements concerning (UNDP, 1997):
tries, Warford et al. (1996) provide evidence for the positive • common, shared, or co-ordinated governmental and
linkages between economic policies and the environment. civil institutions to enact the general objectives;
Although environmental concerns, and climate change issues • formulation of strategies and action plans as a frame-
in particular, were not explicitly addressed by macroeconomic work for country-level implementation;
and sectoral policies, the country cases analyzed show clear • collection of data and processing information;
synergies between reform policies and environmental improve- • new and strengthened capacities for both human
ments. In some cases when adverse side effects do occur, the resources and institutional structures; and
remedy is not to reverse the reform policies, but rather to intro- • reporting obligations.
duce specific complementary measures that address the nega-
tive effects.
Greater impact
Less impact
Finally, it is important to underline that for the elements that Ozone Depletion
Equal impact
constitute policies at different levels to operate in a mutually
reinforcing manner, the creation of appropriate communication
and information channels should be given special attention.
The topic of establishing effective and stable flows of commu- Climate Change Biodiversity Loss
nication among different stakeholders is seldom addressed in
connection with climate change mitigation. This is mainly
because policies related to climate change tend to treat mitiga-
tion options as isolated projects, each falling into a narrow area Desertification Water Forestry
in which potential synergies may be ignored or misunderstood.
As result, environmental policies risk resulting poorly struc-
tured interventions, with a limited scope of influence, and an Figure 10.5: Linkages among environmental issues (Watson et
overestimated cost-effectiveness (Eskeland and Xie, 1998). al., 1998).
Table 10.4: Overlapping requirements of the Parties to the Rio agreements (UNDP, 1997)
Climate Biological Desertification Forestry

change diversity principles
National inventories Article 4(b) Principle 12(a)
National and regional Article 4(b) “Strategies”

action plans Articles 6(a), 6(b) Articles 9, 10 Principles 3(a), 5(a), 6(b), 8(d),
8(h), 9(c)
Article 4(b) and Intergovernmental
Panel on Forests (IPF) Proposals for
Action
Legislation Preamble Article 8(k) Article 5(e) Principles 8(f), 13(d)
Research Article 5 Article 12(b) Articles 17, 19(b) Principle 12(a)
Public education Article 6 Article 13 Articles 5(d), 19 Principle 12(d)
Environmental impact Article 4(i), 4(d) Article 14 Principle 8(h)

Assessment
Public participation Article 6(i)(a)(iii) Article 9 Article 19(4) Principle 2(d)
Exchange information Article 7 Article 17 Article 16 Principles 2(c), 11, 12(c)
Training Article 6 Article 12(a) Article 19 Principles 3(a), 11, 12(b)
Reports Article 12 Article 26
Examine obligations; Article 7(e) Article 23 Principle 12(a)

assess implementation
Report steps to Conference Article 12 Article 26 Article 26

of the Parties (CoP)
Table 10.4 summarizes the actions and commitments of the Implementing the conventions involves the participation of
parties under the different instruments. The requirements rep- institutional structures with different responsibilities and con-
resent a significant burden, especially on developing countries, cerns, their policy agendas are generally limited in scope, and
in terms of human and financial resources. Table 10.4 illus- frequently their immediate objectives diverge. Further, envi-
trates the wide scope for overlaps between the instruments and ronmental issues are in general broadly diffused through dif-
the risks that their implementation will lead to a duplicative ferent government agencies, endowed with uneven resources
effort. in terms of both authority and material resources. This institu-
tional fragmentation, especially in developing countries,
It is recognized (UNDP, 1997) that global conventions and results in a lack of co-ordination and duplication of activities in
instruments “can be more efficiently implemented through a areas where common organizational procedures, flows of
greater understanding of the commonalities and overlaps information, and a set of coherent individual institutional
between them and a co-ordinated and harmonized approach to actions are required for effective policy actions. Reporting to
their implementation at the local, national, and international the respective conferences of the parties, setting up appropriate
levels. In other words, creating synergy among the instru- legislation, and formulation and periodical updating of nation-
ments and their requirements”. Indeed, linkages between al action plans are stipulated in the conventions. These need to
instruments provide opportunities to implement them in a move towards convergence on overlapping issues, seeking
mutual-reinforcing manner, avoiding duplication. At least consensus, and agree on policy frameworks within which the
three clusters of activities are likely to gain advantage from ultimate goals can be achieved with greater effectiveness.
potential synergies in implementing the conventions: the Therefore, the opportunities for synergies can be exploited by
development and strengthening of organizational structures, enhancing and strengthening linkage mechanisms between
capacity-building interventions, and data collection and infor- institutions, either at the implementation of specific tasks or
mation processing. functions or through the creation of more formal and perma-
nent links between different actors. The types of linkage mech- issues related to the role that the main stakeholders must play
anisms that might be most successful will depend on institu- in the formulation and implementation of policies that facilitate
tional, political, and economic factors in each specific case. technology transfer.
Concerning capacity building, the conventions and instruments 10.3.3.1 The View of Technology Transfer
emphasize the dimension of human resource development as a
basic condition for addressing the crucial questions related to The effectiveness of measures to mitigate or adapt to climate
the evaluation and implementation of policy options. Here, the change depends to a great extent on technological innovation
potential for synergies is considerable since different instru- and the diffusion of technologies. The transfer and/or diffusion
ments focus on enhancing the cross-transfer of professional of ESTs across and within countries is now considered a major
skills to bridge the gap between academic specialization and element of global strategies to achieve climate stabilization and
the job functions of professionals involved in multidisciplinary support sustainable development. At the same time, it is recog-
issues. A variety of complementary and overlapping areas nized that transferred technologies must meet the needs and
exists in seminars, courses, and workshops on planning tools priorities of specific local circumstances.
and methods, policy analysis, and shared fields, reflecting the
training needs under each convention. The term technology transfer is interpreted by some as a one-
time transaction that maintains the dependency of the recipient.
Data collection and management, analysis and processing of Some analysts therefore prefer the notion of technology co-
the information, and dissemination are the core of the conven- operation or technology diffusion, which is seen by them as
tions and instruments. This requires information systems to be reflecting a process of technical change brought about by dis-
set up so that information can be transposed into proper data- persed and uncoordinated decisions over time. Others still may
base structures to enable its archiving, retrieval, expansion, and see technology transfer as a two-way learning process that
application. Even though each convention addresses a specific might more appropriately be called technology communica-
set of problems, considerable overlap exists in the data require- tion. According to the definition used by IPCC (2000a), “tech-
ments. Information on land uses, forestry, agriculture, infra- nology transfer encompasses the broad set of processes that
structure, and population, among other areas, is common data cover the flows of knowledge, experience, and equipment for
needed across the instruments. Taking advantage of synergy in mitigating and adapting to climate change among different
information systems avoids redundancy and dispersion in data stakeholders. These include governments, international organi-
collection and management, especially in developing countries zations, private sector entities, financial institutions, NGOs and
where the technical competence and expenditure required are research and/or education institutions. It comprises the process
beyond the capacity of local agencies. of learning to understand, utilize, and replicate the technology,
including the capacity to choose it, adapt it to local conditions,
At the international level the institutions responsible for the and integrate it with indigenous technologies.” Technology
various instruments can also support synergy at the national transfer will therefore be used as a broad term including all
level by co-ordinating among themselves and helping to ensure aspects mentioned above.
that participant countries are not burdened by conflicting direc-
tives or timing in reporting requirements (UNDP, 1997). While technology transfer is now a common feature of all sec-
Moreover, the scope for linkages among international bodies of tors of human activity, some features are unique to the area of
scientific expertise, established under different conventions, is climate change, including:
evident. • scale, both in terms of geography, which may involve
all countries of the world, and the number of technolo-
gies, which could easily run into the thousands;
10.3.3 Technology Transfer • number of persons that might benefit from the success
of these efforts, since the whole world is expected to be
Technology transfer has broadly been discussed in the IPCC the beneficiary; and
Special Report on Technology Transfer (IPCC, 2000a). The • payback periods for the R&D expenditures, which may
report provides a framework for analysis of the complex and be too long to be of interest to the private sector.
multifaceted nature of the technology transfer process, empha-
sizing the sustainable development perspective. It examines These features determine technology transfer activities that
broad trends of technology transfer in recent years, explores could be evaluated at several levels—international, macro- or
the international political context, discusses policy tools for national, sector-specific, and project-specific levels—and that
overcoming key barriers and creating enabling environments, could follow different pathways according the interactions
and provides an overview of financing and partnerships. The among the stakeholders involved in the transfer process. Each
report also includes sectoral perspectives on the transfer of pathway represents different types of flows of knowledge,
adaptation and mitigation technologies. These perspectives are moneys, goods, and services among different sets of stake-
illustrated by a wide variety of case studies. This section high- holders. Each one has very different implications for the learn-
lights the main findings of the IPCC report, especially those ing that occurs and, ultimately, the degree of technology-as-
knowledge transfer that takes places beyond the simple hard- nology transfer in the future. To function effectively, trade and
ware transfers. investment require proper enabling frameworks. These include
a stable economic system, transparent and equitable legal
10.3.3.2 Technology Transfer: International Aspects and/or financial structures, sound environmental laws, uniform
non-discriminatory enforcement procedures, respect for local
10.3.3.2.1 International Technology Transfer Policy culture, safe and secure environment for workers and/or con-
tractors, and removal of unnecessary barriers to the movement
The legal, economic, and political issues that surround tech- of personnel and materials.
nology transfer have invariably found their place in every
international agreement that has anything to do with social, Beyond the issues concerning property rights and the process of
economic, and environmental topics. The Montreal Protocol on opening national economies, changes in the features of new
Substances that Deplete the Ozone Layer includes several pro- technologies (systematic character, the important role of users,
visions for technology transfer. The Multilateral Fund under increasing knowledge intensity) have significant implications
the Protocol is a key factor that has facilitated technology for technology transfer policy.19 In particular, many ESTs are
transfer to developing countries to comply with the Protocol still in the early stages of their development and have a com-
commitments. Several of the Rio Declaration principles paratively short track record, so private actors may be unwilling
address requirements for states to exchange scientific and tech- to accept the extra risks or costs involved in utilizing new tech-
nological knowledge and to promote a supportive and open nologies. In general, the spread of proven ESTs that should dif-
international economic system for the development, adaptation fuse through commercial transactions may be limited because
diffusion, and transfer of ESTs. Chapter 34 of Agenda 21, of existing barriers. Barriers to the transfer of ESTs arise at each
devoted to technology transfer, supports these principles with stage of the process, as discussed in detail in Chapter 5. These
more detailed proposals for action. The extent to which these vary according to the specific context, for example from sector
proposals have been implemented varies, and debate continues to sector, and can manifest themselves differently in developed
within the UN Commission on Sustainable Development. The countries, developing countries, and countries with economies
Convention on Biological Diversity specifically addresses in transition. Some of the key barriers are summarized in Box
access to and transfer of technology relevant to the conserva- 10.2. For the success of technology transfer, the parties con-
tion and the sustainable use of biological diversity, including cerned need to make common efforts to overcome the barriers
biotechnology. and create opportunities for the transfer and/or diffusion of
technology (Verhoosel, 1997). At present there is no easy
The UNFCCC requires the parties to the Convention “to pro- answer for overcoming barriers. Measures to be taken depend
mote and cooperate in the development, application, diffusion, on the specific barriers and the interests of different stakehold-
including transfer, of technologies, practices and processes that ers and are discussed in Chapters 5 and 6.
control, reduce or prevent anthropogenic emissions of green-
house gases” (Article 4.1.c). The Convention calls developed To improve the enabling environment for technology transfer
country parties to take all practical steps to promote, facilitate, and diffusion, governments could consider a number of actions
and finance, as appropriate, the transfer of, as well as access to, such as:
ESTs to other parties, particularly to developing country par- • Enact measures, including regulations, taxes, codes,
ties. The importance of technology transfer is also recognized standards, and removal of subsidies, to internalize the
in the Kyoto Protocol of the UNFCC. As further discussed in full environmental and social costs and reduce unfair
Section 10.3.3.2.2, flexible mechanisms under the Kyoto commercial risks.
Protocol provide strong incentives for technology transfer. • Reform legal systems. Uncertain, slow, and expensive
enforcement of contracts by national courts or interna-
Foreign direct investment (FDI) has proved an effective chan- tional arbitration, and insecure property rights can dis-
nel of international technology transfer. Levels of FDI, com- courage investment.
mercial lending and equity investment all increased dramati- • Reform administrative law to reduce regulatory risk
cally during the 1990s, to the point where official development and ensure that public regulation is acceptable to stake-
assistance (ODA) became less than one quarter of the total for- holders and subject to independent review.
eign finance available to developing countries by mid-decade • Protect intellectual property rights and licenses, and
(IPCC, 2000a). The growing role of FDI in technology transfer ensure the active use of patents.
is supported by various domestic and international develop- • Encourage financial reforms, competitive national cap-
ments, including the liberalization of markets, development of ital markets, and international capita flows that support
stronger domestic legal and financial systems, and tariff reduc- FDI. Governments can expand financial lending for
tions under the Uruguay Round of the General Agreement on ESTs through regulation that allows the design of spe-
Tariffs and Trade (GATT). In this context, issues related to
intellectual property rights, in particular the Agreement on
Trade Related Aspects of Intellectual Property, will play a 19 An overview of international technology transfer mechanisms is
prominent role in shaping both the flows and intensity of tech- given in Radosevic (1999).
Box 10.2. Main Barriers to Transfer of Environmentally Sound Technologies (IPCC, 2000a)
• Lack of full-cost pricing, which internalizes environmental and social cost.

• Poor macroeconomic conditions, which include underdeveloped financial sector, trade barriers (high tariffs and/or quantity
controls), high or uncertain inflation or interest rates, uncertain stability of tax and tariff policies, investment risk.
• Risk of change from existing technology to application of new technology, especially risk aversion and business practices in
financial institutions.
• Lack of data, information, knowledge, and awareness regarding the availability, characteristics, costs, and benefits of ESTs,
especially in the case of “emerging” technologies.
• Lack of markets for ESTs because of lack of confidence in economic or technical viability.
• High transaction costs of obtaining information, negotiating, contracting, and enforcing contracts.
• Lack of vision about and understanding of local needs and demands.
• Low private sector involvement because of lack of access to capital, in particular inadequate financial strength of smaller firms
to manufacture, purchase, and install new ESTs.
• Insufficient human and institutional capabilities.
• Lack of supporting legal institutions and frameworks, including codes and standards for the evaluation and implementation of
ESTs.
• Low, often subsidized, conventional energy prices that result in disincentives to adopt energy-saving measures and renewable
energy technology.
cialized credit instruments, capital pools, and energy MDBs have become aware of the role they can play in helping
service companies. to mobilize private capital to meet the needs of sustainable
• Simplify and make transparent program and project development and the environment, and of the potential to use
approval procedures and public procurement require- financial innovation to encourage environmental projects and
ments. initiatives. The World Bank has developed a number of initia-
• Promote competitive markets, liberalize trade policies, tives with potential support for environmental technology
and make investment policies transparent. transfer. An important new initiative is the Carbon Investment
• Encourage national markets for ESTs to facilitate Fund, which will provide additional finance for CO2 mitigating
economies of scale and other cost-reducing practices. projects in return for carbon offsets. Other MDBs, such as the
regional development banks in Africa, Asia, Latin American,
10.3.3.2.2 Mechanisms for Technology Transfer and the Caribbean region, can also play an important role in
developing systematic approaches to create enabling environ-
Technology intermediaries are needed to reduce barriers to ments for technology transfer, including South–South technol-
technology transfer associated with information, management, ogy transfer.
technology, and financing. These operate between users and
suppliers of technology and help to create links within net- The Global Environment Facility (GEF), the financial mecha-
works and systems (through bridging between institutions), nisms of the UNFCCC, is a key multilateral institution for the
and encourage interaction between the system. They also assist transfer of ESTs (Anderson, 1997). Although this is of a mod-
with undertaking research, evaluation, and dissemination tasks. est scale in terms of total investment and mainstream invest-
ODA programs mechanisms for technology transfer under the ment flows, GEF-supported projects are especially significant
UNFCCC, and multilateral development banks (MDBs) can for renewable energy technologies, such as wind, solar ther-
play a significant role in strengthening national institutional mal, solar photovoltaic home systems, and geothermal20.
and organizational structures for technological development
and innovation. The Kyoto Protocol mechanisms, in particular the project
based Joint Implementation (JI) and Clean Development
The 1990s have seen broad changes in the types and magni- Mechanism (CDM), can increase technology transfer. CDM
tude of international financial flows that drive technology and JI can provide financial incentives for ESTs and influence
transfer (IPCC, 2000a; French, 1998). ODA decreased and fell technology choice. As voluntary mechanisms, they require co-
below the committed levels (OECD, 1999a). However, it plays operation among developed and between developed and devel-
an important role in technology transfer, especially for the sec- oping country parties, as well as between governments, private
tors and areas that are commercially less attractive to FDI,
such as forestry, public health, agriculture, and coastal zone
management (OECD, 1997). Moreover, ODA is still critical 20 From 1991 to 1998, GEF approved grants of in total US$610 mil-
for the poorest countries, particularly when it is aimed at lion for 61 energy efficiency and renewable energy projects in 38
development capacities to acquire, adapt, and use foreign countries. An additional US$180 million in grants has been approved
technologies. for climate change projects (IPCC, 2000a).
sector entities, and community organizations. Project-based • establish a National System of Innovation—institution-
crediting can lead to tangible investments and to the develop- al and organizational structures to support technologi-
ment of local capacity to maintain the performance of these cal development and innovation21;
investments. These investments could incrementally assist • build and strengthen scientific and technical education-
developing countries to achieve multiple sustainable develop- al institutions and modify the form or operation of tech-
ment objectives, such as economic development, improvement nology networks;
of local environmental quality, minimization of risk to human • guide the advancement in science and technology and
health by local pollutants, and reduction of GHGs. Much about the direction of investment through industrial and tech-
the design and governance of the CDM, however, remains to nological policies, and provide suggestions and consul-
be resolved. There is a need to design simple, unambiguous tation to enterprises;
rules that ensure environmental performance in the context of • encourage enterprises to increase investment in R&D of
sustainable development, while also favouring investment. The ESTs through effective policies and create a favourable
multilateral oversight and governance provisions of the CDM, environment for the innovative activities of enterprises;
and the project-basis transactions, will raise the transaction • make efforts to increase R&D investments through the
cost of investment in CDM projects as compared to the cost of governmental budget to accelerate the formation of
mitigation through other means. Chapter 6 discusses these diversified investment and financing systems, includ-
aspects in more detail. ing different kinds of loans;
• give policy support to R&D to encourage the develop-
10.3.3.3 Technology Transfer: National Aspects ment of innovative technologies and products in the
field of climate change, including preferential tax poli-
10.3.3.3.1 Research and Development: Supply Side cies, import and export tax policies, and government
procurement policies;
Research and development (R&D) is a process of forming new • develop modalities for the transfer of public owned or
ideas and transforming them into products and services. supported ESTs;
Technology capacity at both the assessment and replication • provide funds for licensing of patented ESTs entities to
stages of the technology transfer process have to be under- encourage the private-sector to transfer ESTs they own
pinned by R&D. Central to this process are national systems of to developing countries.
innovation and international co-operation between public
research institutions and private-sector entities in R&D. 10.3.3.3.2 Technology Transfer: Demand Side
Governments have been investing for three decades in R&D
for ESTs in the energy sector. There may be a case for seeing With the tendency towards globalization and closer integration
whether results from this process have been used and dissemi- of most countries in the world economy, countries generally
nated sufficiently. Developing countries’ R&D efforts are often have two sources of technologies: they can either develop their
adaptive, following externally developed technology, which own technologies or procure technologies from other coun-
suggests the need for additional resources to develop indige- tries, adopting and developing them to fit the specific circum-
nous innovative capacity. The activities at all stages of techno- stances (Ding, 1998). When technology transfer is carried out
logical development and implementation are necessary to between developed and developing countries, it is important to
attain short-term and long-term technical results (Elliot and build up a mutual understanding. Developing countries not
Pye, 1998). In the field of climate change, R&D of mitigation only need technologies relevant to climate change mitigation,
and adaptation technologies can reduce the costs of implemen- but also those that are able to generate economic benefits and
tation of mitigation and adaptation measures, and provides promote social and economic development, recognizing differ-
decision makers with viable alternatives in the formulation of ences in social aspects (such as tradition and customs).
response strategies to climate change.
Besides the common problems of climate change, many devel-
The process of technological innovation includes not only oping countries are facing the challenges of poverty eradica-
research and development, but also innovation in the design of tion and economic development. Technology development and
products, technological processes, and manufacturing, and technology transfer are effective mechanisms in alleviating
innovation in management and market exploration. The private these problems. The introduction of technologies will help to
sector has played an important role in the development of ener- reduce the cost and shorten the time of technological develop-
gy-efficiency technologies, and is becoming increasingly ment. For developing countries, the transfer and diffusion of
active in developing renewable-energy technologies (Forsyth, appropriate technologies plays a key role in taking measures to
1999). The bulk of R&D and technology transfer in the energy mitigate and adapt to climate change, while pursuing the goal
sector is mainly driven by oil, natural gas, and power supply of sustainable development (Xu, 1998).
companies. Other energy supply technologies, such as coal,
nuclear, and renewable sources, are often dependent on gov-
ernments to preserve or increase their presence in the market. 21 National Systems of Innovation also have a broader role in creating
Governments can play an important role in R&D as follows: an enabling environment for the transfer of ESTs (see IPCC, 2000a).
The scope of technology transfer should not be limited to the and technical assistance. The local research community could
technology itself. The enabling environment of the technology be strengthened so that it can absorb the new science and tech-
should also be included. If technology transfer is to bring about nology into the local cultural and social fabric. Together with
economic and social benefits, local capacities to handle, oper- technology transfer, assistance could be provided to train tech-
ate, replicate, and improve the technology on a continuous nical personnel.
basis must be taken into account, as well as the institutional
and organizational circumstances. There is little developmental Information can play a guiding role in technology transfer.
benefit in a technological initiative that remains confined with- Decision making on technology transfer requires information
in a very narrow sphere of influence with scarce possibilities of on the current status of technology, research, and development,
replication on a significant scale and without decreasing technical and economic evaluations of the technologies, and
reliance on assistance from abroad. Technology transfer needs knowledge of the commercial sources of technologies. The
to build up strong links between: establishment of information systems is an important compo-
• its operational context (tools, machines, equipment, nent of institutional capacity building. These systems must also
processes); include information on technology assessment services, con-
• the organizational environment (management organiza- sultants, financial institutions, lawyers and accountants, and
tion, product operation, and technology infrastructure); technical experts. Local government, industrial associations,
and NGOs, and communities can work together in the development
• knowledge (experience, skills, vocational training, of these kinds of systems.
advanced training).
In general, small and medium-size enterprises (SMEs) lack the
In many cases of technology transfer, much attention was paid capability and resources to access all the information necessary
to the accelerated introduction of technologies and a high cost to make appropriate decisions. Technical support centres could
was paid to procure expensive technological facilities. be set up to provide technical assistance to the SMEs. Several
However, less attention was paid to the digestion, absorption, developed countries and international organizations have
and innovation of the introduced technologies, in other words, already developed schemes of this type, with significant suc-
to the supportive base for technological development. In some cess. Electronic information networks can accelerate the
cases, technology transfer to increase energy efficiencies exchange of information and therefore should be used more
achieved a one-off step of efficiency improvement, but disre- extensively. For example, the Greenhouse Gas Technology
garded that reversion to previous patterns of efficiency must be Information Exchange (GREENTIE), an initiative of the IEA
prevented and failed to ensure the basis for a continuing and and the government of Japan, aims to combine voluntary action
self-sustained path of improving efficiency in the future. In by governments with incentives for private dissemination of
conclusion, the process of development, application, and dis- technological information (Forsyth, 1998).
semination of technologies, and their accelerated commercial-
ization, is not simply a technical programme. It concerns a
wide range of issues, including policy formulation, personnel 10.3.4 Decision-making Frameworks for Sustainable
training, fund raising, and standardization; in general, an array Development and Climate Change
of interlinked factors are related to the sustainability and repli-
cation of technological innovation. (Yang and Xu, 1998; Decision making related to climate change is a crucial part of
Zhang, 1998; Xu, 1999). making decisions about sustainable development simply
because climate change is one the most important symptoms of
10.3.3.3.3 Capacity Building “unsustainability”. Indeed, global warming poses a significant
potential threat to future development activities and the eco-
Human and institutional capacity building is required at all nomic well being of a large number of human beings. Climate
stages in the process of technology transfer. Much of the focus change could also undermine social welfare and equity in an
on capacity building has been on enhancing scientific and tech- unprecedented manner. In particular, both intra- and intergen-
nical skills, capabilities, and institutions in developing coun- erational equities are likely to be worsened. Lastly, increasing
tries, as a pre-condition for assessing, adapting, managing, and anthropogenic emissions and accumulations of GHGs might
developing technologies (UNCTAD, 1995,1996). significantly perturb a critical global subsystem—the atmos-
phere. Policymakers routinely make macro-level decisions that
Successful technology transfer depends to a great extent on the influence both climate change mitigation and adaptation, but
quality of human resources of the recipients. In general, devel- are of a broader scope than strategies specifically related to cli-
oping countries lack qualified technical personnel and institu- mate change. These decisions relate to economic development,
tions. Therefore, it is important to build up local competence environmental sustainability, and social equity issues—which
and an infrastructure that can adapt and “internalize” technol- invariably have a much higher priority in national agendas than
ogy into the local specific conditions and traditions. The poten- does climate change (Munasinghe, 2000). In this context, eco-
tial users of new technologies should learn to use the technolo- nomic–environmental–social interactions could be identified
gies. The process of learning includes demonstration, training, and analyzed and effective sustainable development policies
formulated by linking and articulating them explicitly with cli- posed into a conceptually simple (if still practically challeng-
mate change policies. ing) problem, for which a rational solution can be constructed
and implemented within the existing framework of political
10.3.4.1 Forms of Decision-making power and technical expertise” (Jaeger et al., 1998). The role
of government institutions, as the relevant actors in the deci-
Despite the close links, climate change and sustainable devel- sion-making process, is to co-ordinate regulation through poli-
opment have been pursued as largely separate discourses. “The cy instruments to prevent individualistic behaviour from pro-
sustainable development research community has not general- ducing outcomes that are worse for all participants than the
ly considered how the impacts of a changing climate may feasible alternatives under optimal, rational choices (Clark,
affect efforts to develop more sustainable societies. Global 1998; Young, 1998).
warming is acknowledged as a problem, but is typically leaped
over in an effort to push governments towards specific policy By contrast, sustainable development is closer to the idea of
responses. Conversely, the concept of sustainable development institutions as arrangements that engender patterned practices,
and the methodological and substantive arguments associated which play a role in shaping the identity of participants and
with it are notably absent in the climate change literature” feature the articulation of normative discourses, the emergence
(Cohen et al., 1998). Despite the strong synergies between of informal communities, and the encouragement of social
policies oriented to climate change and national development learning. This category of social-practice institutional arrange-
objectives, different ways of thinking in approaching the two ments (Young, 1998) directs attention to processes through
problems lead to different social practices and decision-making which actors become enmeshed in complex social practices.
procedures, which makes it difficult to establish strong work- These subsequently influence their behaviour through the de
ing linkages between them. facto engagement in belief systems and normative preferences,
rather than through conscious decisions about compliance with
The main point here is that climate change and sustainable regulatory rules. From this point of view, control, legitimacy,
development are rooted in very different disciplines, which credibility, and appropriate decision-making processes become
results in distinct conceptual frameworks and policy assess- crucial issues in the construction of sustainable development
ments. The dominant natural science approach to climate practices.
change has constructed it as an environmental problem, which
can be identified and managed objectively by means of scien- With such dissimilar discourses it is not surprising that climate
tific rationality. This formulation has resulted in a number of change and sustainable development have been pursued as two
“value neutral” decision-making approaches and methods that separate agendas for the purposes of policy formulation and
represent only the technical dimension of a much more com- action. Moreover, while these issues have achieved a high level
plex set of decision-making problems (Jaeger et al., 1998). of public interest and visibility, climate change is the issue that
These are not especially helpful in deciding how to respond so far has formally been accepted for serious consideration in
politically, because they ignore the human dimensions of the government agendas. Sustainable development has not yet
problem and the difficult and locally differentiated politics of been able to translate its ideals into concrete objectives for
responding to it. In contrast, the human-centred sustainable problem solving and decision making. In this context, scien-
development approach to environmental problems is more tists are confronted with the urgent task of “reforming the rela-
politically and geographically sensitive, but it is analytically tionship between science research and policymaking” (Rayner
vague. This makes it difficult to define or implement in prac- and Malone, 1998b). This task implies a twofold effort. First,
tice (Cohen et al., 1998). the sustainable development discourse needs greater analytical
and intellectual rigor (methods, indicators, etc.) to make the
This distinction does not simply apply to the formalities, but concept advance from theory to practice. Second, the climate
has rather practical consequences on the systems of rules, deci- change discourse needs to be aware of both the restrictive set
sion-making procedures, social practices, and role of stake- of assumptions that underlie the tools and methods applied in
holders—the institutional arrangements that determine the the analysis, and the social and political implications of the sci-
processes of problem solving and decision making. Different entific constructions of climate change (Cohen et al., 1998).
disciplinary perspectives of climate change and sustainable
development can be associated with two major streams of insti- Over recent years a good deal of analytical work has addressed
tutional arrangements models, characterized as collective- the problem in both directions. Various approaches have been
action and social-practice models (Clark, 1998). A collective- explored to transcend the limits of the standard views of ratio-
action model, which reflects the mainstream thinking of cli- nality in dealing with issues of uncertainty, complexity, and the
mate policy literature, embodies the rational actor paradigm. contextual influences of human valuation and decision making.
Social actors are coherent identities that possess well-defined Jaeger et al. (1998) provide a useful discussion on the various
preference structures and seek to maximize payoffs through a attempts to create new interfaces between scientific rationality
process of weighting the benefits and costs associated with and a pluralistic society. As these authors remark, “a common
alternative choices in situations that involve strategic interac- theme emerges: the emphasis on cultural and social realities,
tion. According to this view, “climate change can be decom- which cannot be reduced to individual choices.” Now, it is rec-
ognized that sustainable development and climate change deal when the decision stakes reflect conflicting purposes among
not only with complex and poorly defined goals, but also that stakeholders. In this case, the “puzzle-solving exercises of nor-
the values at stake are plural and conflicting, and even the very mal science” are no longer applicable to the resolution of pol-
nature of each problem is successively transformed in the icy issues of risks and the environment. What is required here
course of exploration. Problems are no longer seen as external is an approach that allows:
constraints to the social progress, but as issues inherent to the • management of irreducible uncertainties in knowledge
structure itself of societies, so even the idea itself of finding a and ethics;
solution no longer applies, since problems are not solved but • plurality of different legitimate perspectives; and
managed (Tognetti, 1999). Therefore, the process of integrat- • extension of the peer community to all those with a
ing and internalizing climate change and sustainable develop- stake in the dialogue of the issue.
ment into national agendas requires new problem-solving
strategies in which decision making takes on a new complex- These are the elements of an emerging type of problem-solving
ion. It becomes a task of finding a partially undiscovered land- and decision making known as post-normal science
scape rather than charting a scientific course to an end point. (Funtowicz and Ravetz, 1993).
Decisions must be made about which of the systemic possibil-
ities to promote and which to discourage, how to deal with The main contribution of post-normal science to policy analy-
uncertainties, and what risks to take considering irreversible sis is to assert that when science is applied to policy issues, it
changes and potential bifurcation points. These decisions must cannot provide certainty for policy recommendations; and the
be informed by science, but in the end they are an expression conflicting values in any decision process cannot be ignored,
of human ethics and preferences, and of the sociopolitical con- even in the problem-solving work itself (Jaeger et al., 1998;
text in which they are made (Kay et al., 1999). Rayner and Malone, 1998b). The epistemological analysis of
the approach shows that the insertion of technocratic discourse
In a seminal work, Funtowicz and Ravetz (1993, 1994) provide into a broader social discourse and participation is not only
a fruitful approach to problem-solving and decision-making possible, but also necessary to improve the substantive quality
strategies in terms of uncertainties in knowledge and complex- of decisions. At the practical level, the post-normal concept
ities in ethics. Contrary to the traditional view that science is lays out a DMF for articulating new institutional arrangements
value-free, these authors claim that in any real problem of envi- in which power sharing between conventional decision-making
ronmental management, scientific facts and sociopolitical val- agents and extended peer communities is a key element (De
ues are inseparable dimensions. According to the degree of Marchi and Ravetz, 1999; Healy, 1999). This is not merely
both uncertainty and decision stakes, Funtowicz and Ravetz motivated by a “democratic sentiment”, but by the conviction
distinguish three sorts of problem-solving strategies: applied that the resultant decisions, although not necessarily economi-
science, professional consultancy, and post-normal science. cally the most efficient, will turn out to be better decisions,
judged by a broad range of competing social criteria (Rayner
When system uncertainties and decision stakes are both low, and Malone, 2000).
applied science is able to manage problems by means of stan-
dard routines and procedures. Here, problems are regarded as 10.3.4.2 Public and Private Decision Making
objective states that exist independently of values and percep-
tions. The existence of one best solution is assumed, and the Decision analysis largely addresses both sustainable develop-
task of analysts and decision makers is to work out the optimal ment and climate change at their most aggregated level as gov-
strategies by searching for the maximum utility among a num- ernment policy. The implicit assumption of the government as
ber of options (Mintzberg, 1994). Since consensus on the prob- a single decision maker has resulted in scant attention (even
lem definition and values at stake are assumed, the proposed neglect) being paid to how government policies and decisions
solutions speak for themselves, and the implementation just are connected to lower hierarchical levels at which policies
requires their translation from the technical language of scien- must be implemented. This issue raises two interconnected
tists to the pragmatic language of policymakers. questions: the first concerns the view of the government as a
homogeneous and unitary decision-making actor, and the sec-
Professional consultancy deals with problems for which uncer- ond relates to the links of government policies to everyday
tainties cannot be managed at a technical level, because of the decisions by concerned stakeholders.
more complex aspects of the problem and because the decision
stakes are also more complex, involving both stakeholders and Regarding the first question, government structures involved in
natural systems. In response to the public demand for more the decision-making process vary considerably among coun-
inclusive processes, problems are treated as risks, and if tech- tries. Some governments have established interministerial
niques and procedures from the applied science are required, committees to co-ordinate sustainable development policies,
judgement becomes a key element in the decision process. including climate change strategies, while others have assigned
responsibilities to more formal permanent commissions or
A third sort of problem-solving strategy emerges when uncer- even to a ministry created specifically to handle sustainable
tainties are of either an epistemological or ethical nature, or development policies. With many different institutions
involved in sustainable development issues, considerable con- issues, mainly because of their complexity, uncertainty, large
fusion often exists regarding who has the responsibility for pol- temporal and spatial scales, and irreversibility (van den Hove,
icy formulation, where the authority for making day-to-day 2000). As discussed in Section 10.3.4.3, innovative mecha-
decisions resides within the government, and how channels of nisms such as regulatory negotiations, mediations, stakeholder
communication and decision making should be achieved consultation, collaborative decision-making techniques, com-
between the different actors involved. Institutional articulation munity-based methods, and others, are currently being applied
remains one of the critical factors affecting the consolidation of by governments, institutions, and local administrations, as well
an effective decision-making process related to sustainable as by intergovernmental organizations. Rayner and Malone
development. Even if there exist rules and regulations that (2000) conclude that, whether policy innovation and behav-
assign competence, tasks, and responsibilities among the insti- ioural change are led locally or nationally, “they will be
tutions involved, a considerable gap exists between what might marked by a process of institutional learning that either moves
be desirable and what, for the most part, is practised. presently peripheral concerns about climate change to the core
of people’s daily concerns or, at least, palpably and convinc-
Concerning the interface between macro-policies and the real ingly links climate policies to these everyday concerns.”
decision-making levels, the situation is no more encouraging.
It is true that sustainable development and climate change are 10.3.4.3 Participatory Forms of Decision-making
primarily the responsibility of the government system simply
because national economy-wide policies have widespread A substantial body of work on participatory approaches to the
effects on the regulation of societal processes. As discussed decision making process has emerged in the 1990s. Theoretical
above (Section 10.3.2.2), government policies shape structural roots of this resurgence originate in the Frankfurt School of
changes in the production systems, affect the spatial distribu- Critical Theory and, more concretely, in Habermas’ ideas of
tion patterns of population and economic activities, influence discursive ethics (Habermas, 1979; O’Hara, 1996). Discursive
behavioural patterns of the population, and regulate interaction ethics views rationality as a social construction, inseparably
with the environment and resource-base system. However, as linked to and informed by the human experience of a social,
recognized (Jaeger et al., 1998; Rayner and Malone, 2000) all cultural, and ecological life world, which constitutes the con-
too often, especially in developing countries, the levers of state text of human experience. It presupposes no norms other than
power have a small impact on or even no connection with the the acceptance of a reasoned, reflective, and practical potential
local level, at which policies must be implemented by ordinary for discourse: that is, the mutual recognition and acceptance of
people living in face-to-face communities. others as “response-able” subjects (O’Hara, 1996). The main
contribution of discursive ethics is to offer a conceptual frame-
Recent tendencies at different levels are emerging as appropri- work for making visible the hidden normative assumptions,
ate responses to increase the legitimacy and competence of behaviours, and motivations that influence de facto decision-
local communities, associations, movements, and NGOs in the making and valuation processes.
public decision-making process. Increasing concern of local
populations directly affected by environmental problems, Despite the resurgence of interest in public participation, no
together with current tendencies towards decentralization and widely accepted consistent method has emerged to evaluate the
weakening of authoritarian practices, especially in many devel- success of individual processes or the desirability of many par-
oping countries, have opened a new political scenario for a ticipatory methods. Diverse perspectives together with coun-
more active participation of civil society in the public policy try-specific conditions favour different forms of participation.
formulation and decision process. Present trends towards reas- In most developed societies, participatory discourse has been
signing the setting of rules from government to the markets, motivated by public concerns on the rigid and constraining
together with the process of transferring the provision of ser- forms of technocratic decision-making practices, and their
vices from the public sector to private ownership, have rede- institutionalized forms of bureaucracy and social control.
fined the roles of social stakeholders. Within this context, sus- Following Beierle (1998), divergent models of the role of civil
tainable development policies are no longer seen as a hierar- society in decision making arise from differences of view on
chically, government-controlled chain of commands, but as an the nature of democracy. A managerial perspective acknowl-
open process in which the principles of “good governance”— edges public preferences as vital to the managerial role of
transparency, participation, pluralism, and accountability—are democratic institutions in identifying and pursuing the com-
becoming the key elements of the decision-making process. mon good, but public participation in decision making conveys
the threat of self-interested strategic behaviour. Under a plural-
Public involvement in decision making is not a completely new istic perspective there is no objective “common good”, but a
phenomenon. For instance, traditional participatory mecha- relative common good that arises out of the free deliberation
nisms, such as public hearings, notice and comment proce- and negotiation among organized interest groups. The role of
dures, and advisory committees, have been practised exten- the government is arbitration among these groups. Lastly, a
sively by US government agencies (Beierle, 1998). However, popular perspective calls for the direct participation of citizens
it is only lately that participatory forms of decision making as a mechanism to instil democratic values in citizens and
have acquired legitimacy and prominence in environmental strengthen the body politic. Each view provides different forms
of participation: the managerial perspective may favour infor- 10.4 Policy-relevant Scientific Questions in Climate
mation flow mechanisms, such as surveys or the provision of Change Response
right-to-know information; the pluralist perspective prefers
stakeholder mediation; and the popular perspective favours cit- 10.4.1 Introduction
izen advisory groups (Beierle, 1998).
In this section a selected set of key policy-relevant scientific
Participatory forms in decision making carry a distinct conno- questions is examined in some detail. It surveys new develop-
tation in developing countries. They are rooted in the idea of ments and new results to foster our ability to make critical
grassroots participation, promoted by international develop- choices in climate policy, such as striking the right balance
ment aid agencies since 1990 (UNDP, 1992). The concept is far between mitigation and adaptation, the timing and location of
from new, but in recent years it has received a different conno- actions, the costs of actions, and options to reduce and share
tation. Before, participation was considered as an extension of them. After a brief discussion of the broad climate policy port-
partnership between governmental institutions and develop- folio, the focus is on mitigation questions. The issues involved
ment institutions at the operational level. The scheme was ori- in these policy responses are structured as follows.
ented mainly to relieve the state of some of its executorial
responsibilities without any effective form of decisional decen- What should the response be? What are the most important fac-
tralization (Lazarev, 1994). Participatory development as it is tors to consider in crafting a short- to medium-term portfolio of
envisaged today aims to renew these ideas of partnership, but mitigation and adaptation actions, and in acquiring information
to give due recognition to the role of local populations by let- to resolve the large uncertainties? Drawing largely on IAMs,
ting them generate, share, and analyze information, establish Section 10.4.2 takes a closer look at the first two components.
priorities, specify objectives, and develop tactics (World Bank,
1996). It is viewed as a social learning process within which When should the response be made? The relationship between
stakeholders, by generating and internalizing their own aspira- the timing of various types of mitigation responses, their costs,
tions, themselves enable a social change process. and their social, economic, technological, and environmental
implications, raises a broad array of policy issues. The most
Impoverished and marginalized areas in developing countries important insights are summarized in Section 10.4.3.
have been the main targets for promoting participatory forms
of decision making. The rationale is straightforward: these seg- Where should the response take place? Closely related to the
ments of population are generally the less educated and less timing issue, the location of mitigation responses is a multifac-
organized, they are more difficult to reach, and the institutions etted concern also. While the environmental value of a given
that serve them are often weak. A range of participatory meth- amount of unreleased GHG is equal wherever its abatement
ods better adapted to work at the field level have been designed takes place, there are far-reaching implications of whether and
to engage and enable the poor to become active actors in devel- to what extent nations are allowed to use international flexibil-
opment programmes. These include workshop-based and com- ity instruments. The questions range from cost and efficiency
munity-based methods for collaborative decision making, concerns, to incentives for technological development, to
methods for stakeholder consultation, and methods for incor- implementation and verification problems. Section 10.4.4 sum-
porating participation and social analysis into project design. marizes some of the aspects.
Based on a World Bank (1996) survey of participatory meth-
ods, Table 10.5 summarizes some of relevant participatory Who should pay for the response? The location of the mitiga-
tools. tion action can largely be separated from the question of who
carries the costs. Numerous guidelines have been proposed for
Involving citizens in the decision-making process is not an burden sharing. They range from historical responsibility, to
easy task. It requires careful planning, thoughtful preparation, various equity principles, to efficiency and international com-
and flexibility to change procedures on the demand of affected petitiveness concerns. Some fundamental points are reviewed
stakeholders. The selection of a supportive and conducive in Section 10.4.5.
structure for public discourse is essential, not only to gain pub-
lic acceptance, but also to take advantage of the full potential Towards what objective should the response be targetted?
to articulate well-balanced decisions (Renn et al., 1993). Current analyses of climate change impacts, adaptations, and
Setting aside technical aspects and contextual differences, par- mitigation normally cover the range between 450 and
ticipatory forms of decision making are viewed as proper 850ppmv CO2-equivalent concentration or an increase of
mechanisms to achieve broader social goals (Beierle, 1998). between 1°C and 6°C in the global mean temperature.
These are to inform and educate the public, incorporate public Completing the circle that started with the discussion of how
values, assumptions, and preferences into decision making, the costs and benefits of balancing mitigation and adaptation
increase the substantive quality of decisions, foster trust in activities influence the choice of the climate and/or GHG sta-
institutions, and reduce conflict among stakeholders. bilization target, the issue of high versus low levels of stabi-
lization is raised again in Section 10.4.6.
Table 10.5: Participatory methods and tools (World Bank, 1996)
Method Tools
Collaborative decision making: Appreciation–influence–control (AIC)

Workshop-based methods AIC encourages stakeholders to consider the social, political, and cultural factors, along with the
technical and economic aspects, that influence a given project or policy. Activities focus on building
appreciation through listening, influence through dialogue, and control through action.
Objectives-oriented project planning (ZOPP)

The purpose of ZOPP is to undertake participatory, objectives-oriented planning that spans the life of the
project or policy work, while building stakeholder commitment and capacity with a series of workshops.
TeamUP
TeamUp builds on ZOPP, but emphasizes team building. It enables teams to undertake participatory,
objectives-oriented planning and action, while fostering a “learning-by-doing” atmosphere.
Collaborative decision making: Participatory rural appraisal (PRA)

Community-based methods PRA is a label given to a growing family of participatory approaches and methods that emphasize local
knowledge and enable people to undertake their own appraisal, analysis, and planning. It enables devel-
opment practitioners, government officials, and local people to work together in context-appropriate
programmes.
SARAR
The purpose of this participatory method is to (a) provide a multisectoral, multilevel approach to team
building through training, (b) encourage participants to learn from local experiences rather than from
external experts, and (c) empower people at the community and agency levels to initiate action.
Methods for stakeholder Beneficiary assessment (BA)

consultation BA’s general purposes are to (a) undertake systematic listening to “give voice” to poor and other hard-
to-reach beneficiaries, thereby highlighting constraints to beneficiary participation, and (b) obtain
feedback on development interventions.
Systematic client consultation (SCC)

SCC refers to a group of methods used by the World Bank to improve communication among
Bank staff, direct and indirect beneficiaries and stakeholders of bank-financed projects,
government agencies, and service providers, so that projects and policies are more demand-driven.
Methods for social analysis Social assessment (SA)

Objectives of SA are to (a) identify key stakeholders and establish the appropriate framework for their
participation, (b) ensure that project objectives and incentives for change are appropriate and acceptable
to beneficiaries, (c) assess social impacts and risks, and (d) minimize or mitigate adverse impacts.
Gender analysis (GA)

GA focuses on understanding and documenting the differences in gender roles, activities, needs, and
opportunities in a given context. It highlights the different roles and learned behaviour of men and
women based on gender attributes, which vary across culture, class, ethnicity, income, education, and time.
10.4.2 What Should the Response Be? The Relationship atmosphere at a level that would prevent dangerous anthro-
between Adaptation and Mitigation pogenic interference with the climate system” (UNFCCC,
1993, Article 2). In contrast, climate change adaptation aims to
The principal objective of mitigation activities is to reduce the reduce adverse consequences of climate change and to enhance
amount of anthropogenic CO2 and other GHG emissions in positive impacts, through private action and/or public mea-
order to slow down and thus delay climate change. Ultimately, sures (Box 10.3). Adaptation activities include behavioural,
this is to achieve “stabilization of GHG concentrations in the institutional, and technological adjustments. They capture a
Box 10.3. Mitigation and Adaptation
Mitigation consists of activities that aim to reduce GHG emissions directly or indirectly (e.g., by changing behavioural patterns, or by
developing and diffusing relevant technologies), by capturing GHGs before they are emitted to the atmosphere or sequestering GHGs
already in the atmosphere by enhancing their sinks.
Adaptation is defined as adjustments in human and natural systems, in response to actual or expected climate stimuli or their effects,
that moderate harm or exploit beneficial opportunities (see IPCC, 2001b)
wide array of potential strategies, such as coastal protection, rewarded locally. Consequently, there is no incentive to partic-
establishing corridors for migrating species, searching for ipate in international negotiations if a country considers itself
drought-resistant crops, altering planting patterns, forest man- to be able to adapt fully to climate change (Pielke, 1998).
agement, as well as personal savings or insurance that may
cover the damage expected by individuals (Toman and Emission reduction is recognized as attacking the immediate
Bierbaum, 1996). Adaptation is a central theme of WGII cause. However, the political and scientific discussion would
(IPCC, 2001b). certainly gain by broadening it beyond the issue of mitigation,
if only because past emissions of GHGs together with their
Whereas mitigation deals with the causes of climate change, long atmospheric lifetime leave the earth with unavoidable
adaptation tackles the consequences. As a result, the distribu- adverse climate change impacts, irrespective of current mitiga-
tion of benefits from mitigation and adaptation policies is fun- tion actions (see Smith, 1997; Jepma and Munasinghe, 1998;
damentally different in terms of damage avoided. Mitigation Rayner and Malone, 1998b).
will have only a long-term global impact on climate change
damage, while adaptation options usually generate a positive Even if mitigation efforts do succeed, adaptation strategies are
effect in a shorter term. Adaptation activities mainly benefit considered to be reasonable because ancillary benefits inde-
those who implement them, while gains from mitigation activ- pendent of climate change might result (Pielke, 1998).
ities accrue also to those who have not invested into the abate- Exploring adaptation strategies and the way in which people in
ment policies. Mitigation is plagued by the free-rider problem “homes, factories, and fields” can be empowered institutional-
and might create severe problems for decision making as ly and technologically to change their practice of living may,
opposed to adaptation, in which free-riding is much more lim- next to the generation of short-term benefits, contribute to sub-
ited. Hence, the output of mitigation activities can be viewed stantial emission reductions, as well as to the development of
as a global public good, while the output of adaptation mea- strategies to cope with general aspects of global change and
sures is either a private good in the case of autonomous adap- thus improve their ability to flexible (re)action. Hence, bottom-
tation or a regional or national public good in the case of pub- up analysis can be viewed as a necessary complementary tool
lic strategies (Callaway et al., 1998; Leary, 1999). Mitigation in examining climate impacts with respect to top-down
policies at the global scale are efficient only if all major emit- schemes employed in the derivation of national GHG emission
ters implement their accepted reduction commitments. In con- reduction targets conducted by expert groups (Rayner and
trast, most adaptation policies are carried out by those for Malone, 1998a).
whom averted damage exceeds the respective costs (Jepma and
Munasinghe, 1998). It is recognized increasingly that the impacts of global climate
change are not determined solely by the physical characteris-
What adaptation and mitigation actions have in common is that tics of events. They also depend on the society’s ability to
they both avoid climate change damages. So far the debate adapt to changing patterns of the geophysical environment, as
about climate change policy has been dominated by emission indicated by the analyses of documented impacts of historical
reduction activities. The strong bias towards mitigation climate hazards (Meyer et al., 1998). Larger damages and
schemes has resulted in a relatively poor incorporation of adap- higher losses of life are caused by extreme weather events in
tive response strategies into climate change analysis, although poor regions compared to similar events in affluent regions.
methods on how to evaluate and assess adaptive response Thus damages are not only a function of climatic change pat-
strategies have already been elaborated (Feenstra et al., 1998; terns. They are strongly influenced by economic, institutional,
Parry and Carter, 1998). The reasons for this are diverse. and technical development, which determine the capacity to
Adaptation has been associated with an attitude of fatalism and adapt to changing patterns, as well as by exogenous shifts in
acceptance. Putting too much emphasis on adaptation strate- socioeconomic conditions, such as population growth (Tol and
gies might raise the notions that mitigation efforts have little Fankhauser, 1998).
effect, that climate change is inevitable, and/or that mitigation
measures are unnecessary. Approaching the climate issue from The challenge is to find the right balance of adaptation and mit-
the adaptive side might inhibit concerted rational action by igation measures that represents an effective and complemen-
governments, as adaptation measures are conducted and tary response strategy to climate change. For this purpose it is
important to recognize the potential economic trade-off al., 1998). However, most IAMs do not balance the marginal
between mitigation and adaptation strategies. This trade-off costs of controlling GHG emissions against those of adapting
entails the use of scarce resources in mitigation activities, like explicitly to any level of climate change. Tol and Fankhauser
restructuring a nation’s energy system, versus adaptation (1998) give an overview of IAMs and their treatment of adap-
strategies, like protection against changing flood and/or tation strategies (Table 10.6). Tol et al. (1998) approximate that
drought patterns or sea-level rise. More generally, the trade-off about 7%–25% of the estimated global damage costs may be
implies greater or lesser stresses from climate change to be attributed to adaptation activities.
adapted to, depending on the level of mitigation effort. The
question then is to what extent governments should focus on Another observation is that adaptation options are typically
mitigation and adaptation strategies, recognizing that adapta- analyzed for a given amount of climate change independent of
tion and mitigation decisions would generally not be made by mitigation considerations (Fankhauser, 1996). Here the aim is
the same entities. This implies that the search for the best pos- to find the amount of adaptation necessary to minimize the net
sible combination of adaptation and mitigation strategies is a damage that results from a given level of climate change.
complex process. Analysts often include predetermined adaptation options in an
ad-hoc manner, and so there is a tendency to underestimate
Several approaches from different angles are possible to adaptive capacity. These analyses have been widely carried out
answer this question. From an economic point of view, the task and are reasonably well understood in the field of agricultural
is to compare the marginal costs and benefits of both strategies, and coastal impacts, at least in some developed countries
and—in an optimization framework—minimize the overall (Fankhauser, 1995a; Yohe et al. 1996; Mendelsohn and
welfare loss or macroeconomic costs. Following the heuristic Schlesinger, 1997; Mendelsohn and Neumann, 1999).
principle of precaution would imply precautionary investments
in both mitigation and adaptation to hedge against the uncer- In general, the integrated analysis of adaptation options is a
tainties involved in climate change. However, there is little rather complex process because all socioeconomic trends
guidance in the discussion of the precautionary approach affect the vulnerability to climate change and vulnerability
regarding how to operationalize critical levels of GHG emis- determines the optimal level of adaptation. Even without adap-
sions. Furthermore, the success of climate change policy tation, impact assessments vary depending on the socioeco-
depends on institutional structures and constraints that need to nomic development projected for the future. Studies that exam-
be analyzed with respect to the feasibility of mitigation and/or ine the avoided damage under different emissions reduction
adaptation strategies. targets (i.e., different costs of mitigation) and compare them
with the costs of adaptation options are yet to be developed.
10.4.2.1 Economic Considerations
Giving policy advice on the basis of the efficiency concept
From a global optimization perspective, the aim of coping with within the IAM framework is often difficult, partly because
climate change is to determine the optimal scope and amount IAMs capture only some elements of the potential coping
of adaptation and mitigation measures and thus to minimize the strategies and are, thus, biased towards mitigation activities,
resultant global welfare loss. In this context, the quantity of and partly because damage estimates still have a rather low
adaptation depends on the level of mitigation, but the perceived confidence (Tol, 1999a, 1999b). Nevertheless, IAMs are a use-
level and costs of adaptation influence the level of mitigation. ful tool in exploring the implications of new types of policies.
The task is then to set the share of mitigation and adaptation They help to manage scientific knowledge and give insights
costs within the overall costs, which include the residual dam- into the major driving forces for present and future develop-
age costs (Fankhauser, 1996; Jepma and Munasinghe, 1998). ment with respect to social, economic, and ecological struc-
In the IAMs, which use a cost–benefit framework, the optimal tures (Rotmans and Dowlatabadi, 1998).
mitigation and adaptation levels are theoretically resolved by
comparing the marginal costs of further action with the mar- The critical aspect of the efficiency approach is that it is only
ginal benefits of avoided damage. Many uncertainties charac- partially optimal because the level of climate change, which
terize this framework, such as sector- and country-specific depends on the level of mitigation, is exogenous (Callaway et
damage functions, and adaptation options and their costs are al., 1998). Thus, this approach does not take into account that
largely unknown, especially in developing countries. the emissions causing climate change are the result of exter-
Assumptions and data behind the mitigation cost functions dif- nalities and therefore are not optimal. From this perspective, to
fer widely as well, as explained in previous chapters. correct the emissions’ externality through mitigation is the first
answer. However, the need for adaptation measures remains
Integrated studies do not yet explicitly report adaptation costs valid because of the adverse climate change effects that are
and possible secondary benefits of adaptation strategies. In already unavoidable. Strategies that incorporate both mitiga-
fact, they take into account individual market adjustments dri- tion and adaptation are likely to be more efficient for limiting
ven by changes in relative prices and changing consumption, the damages of climate change than strategies that pursue only
investment, and production decisions to balance the private one or the other form of action.
marginal benefits and costs (private adaptation; Callaway et
Table 10.6: Adaptation in integrated assessment models
Model Adaptation Source
DICE Not explicitly considered Nordhaus (1994b)

RICE Not explicitly considered Nordhaus and Yang (1996)
CONNECTICUT Not explicitly considered Yohe et al. (1996)
SLICE Not explicitly considered Kolstad (1994)
AIM Not explicitly considered Morita et al. (1997)
MERGE 2, 3 Not explicitly considered Manne (1995)
CETA Not explicitly considered Peck and Teisberg (1992)
CETA revised
IMAGE 2.1 Land allocation: expansion or contraction and Alcamo (1994)
intensification or extensification
CSERGE(M) Not explicitly considered Maddison (1995)
CSERGE(F) Not explicitly considered Fankhauser (1995a, b)
FUND 1.5 Induced adaptation Tol (1996)
PAGE 95 Adaptation as policy variable Plambeck and Hope (1996)
MARIA Not explicitly considered Mori and Takahaashi (1997)
ICAM 2.0, 2.5 Induced adaptation Dowlatabadi and Morgan (1995)
MiniCAM 2.0 Induced adaptation Edmonds et al. (1994)
PGCAM Induced adaptation Edmonds et al. (1994)
DIAM Not explicitly considered Grubb et al. (1995)
FARM Production practices in agriculture and forestry, Darwin et al. (1996)
land, water, labour and capital allocation Darwin (1999)
AIM: Asian-Pacific Integrated Model

CETA: Carbon Emission Trajectory Assessment
CONNECTICUT: Connecticut
CSERGE: Centre for Social and Economic Research on the Global Environmnet
DIAM: Dynamics of Inertia and Adaptability for integrated assessment of climate-change Mitigation
DICE: Dynamic Integrated Model of Climate and the Economy
FARM: Future Agriculture Resource Model
FUND: Framework for Uncertainty, Negotiation and Distribution
ICAM: Integrated Climate Assessment Model
IMAGE: Integrated Model to Assess the Greenhouse Effect
MARIA: Multiregional Approach for Resource and Industry Allocation
MERGE: Model for Evaluating the Regional and Global Effects of greenhouse gas reduction policies.
MiniCAM: Mini Climate Assessment Model
PAGE: Policy Analysis for the Greenhouse Effect
PGCAM: Process Global Climate Assessment Model
RICE: Regional Integrated Model of Climate and the Economy
SLICE: Stochastic Learning Integrated Model of Climate and the Economy
Also, the efficiency criterion is often criticized because eco- are identified, but scientific evaluation of the potential damage
nomic efficiency is not necessarily the only aim decision mak- is not sufficiently certain, and actions to prevent these poten-
ers, economic agents, and governments wants to pursue, and it tial adverse effects need to be justified (Jonas, 1985;
does not account for ecological systems and subsistence agri- O’Riordan and Cameron, 1994; CEC, 2000). The precaution-
culture entirely outside the market sector. Distributional ary principle implies an emphasis on the need to prevent such
aspects of burden-sharing schemes and culturally determined adverse effects. It thus acknowledges societal risk preferences,
risk preferences also play an important role in resource-alloca- which are, plausibly, that humankind would rather be risk
tion decisions. averse than risk neutral or risk seeking if one considers, for
instance, future climate-induced loss of GNP (Pearce, 1994;
10.4.2.2 Precautionary Considerations Jaeger et al., 1998). Hence, attitudes towards risk play a key
role in decision making under uncertainty. However, one
In decision making, the precautionary principle is considered might also favour prevention to cure even where one is certain
when possibly dangerous, irreversible, or catastrophic effects about the damage.
With the precautionary principle, uncertainty about the damage tidimensionality of decision-making institutions (Jaeger et al.,
to be incurred does not serve as an argument to delay action. In 1998).
the face of great uncertainty, a precautionary approach might
even result in a more stringent emission-reductions target Although there are many country-specific differences in the
and/or adaptational response (Cantor and Yohe, 1998). relationships between national, regional, and local govern-
ments, most analysts consider local authorities to be the salient
The evaluation of uncertainty and the necessary precaution is political actors. In addition to acting on their own, local gov-
plagued with complex pitfalls. These include the global scale, ernments serve as an interface between citizens and the nation
long time lags between forcing and response, the impossibility state, and they are in regular contact with members of the com-
to test experimentally before the facts arise, and the low fre- munity. O’Riordan et al. (1998) suggest that, as the need for
quency variability with the periods involved being longer than more effective climate policy emerges, it might be useful to
the length of most records (Moss and Schneider, 2000). Some broaden the national response strategy to incorporate the local
of these uncertainty aspects may be irreducible in principle, levels and so stimulate the very effective informal institutional
and hence decision makers will have to continue to take action dynamics of individuals and households. The rise in the num-
under significant uncertainty, so the problem of climate change ber of informal networks of co-operation dispersed via schools,
evolves as a subject of risk management in which strategies are universities, religious communities and other social groups is
formulated as new knowledge arises (Jaeger et al., 1998). regarded as an important step towards including climate
change awareness into people’s everyday concerns. This is of
Aspects of uncertainty are associated with each link of the great importance, as the individual costs of contributing to cli-
causal chain of climate change, beginning with GHG emis- mate change are less than the consequent social costs, and thus
sions, covering damage caused by climate change, followed by individual agents generate a changing climate that is socially
a set of mitigation and adaptation measures (Jepma and suboptimal. Becoming aware of the gap between individual
Munasinghe, 1998). In particular, damage-function estimates and social rationality is assumed to stimulate effective mitiga-
are prone to low confidence as they involve uncertainty in both tion and adapation measures.
natural and socioeconomic systems. To quantify the impact of
climate change on flora and fauna needs consideration of many Striking the appropriate balance between mitigation and adap-
effects because of the complexity of the biological and ecolog- tation will be a tedious process. The need for, and extent and
ical systems. Similarly, the manner in which humans adapt to costs of adaptation measures in any region will be determined
climate change is not well known, socioeconomic modules are by the magnitude and nature of regional climate change as a
still at a stage of low disaggregation, and damage as a function local manifestation of global climate change. How global cli-
of vulnerability, adaptation and time-dependency is poorly mate change unfolds will be determined by the total amount of
understood (Tol et al., 1998; Tol, 1999a, 1999b). GHG emissions that, in turn, reflects nations’ willingness to
undertake mitigation measures. Toth (unpublished) points out
However, following the precautionary principle, uncertainty is that balancing mitigation and adaptation efforts largely
not an argument for delaying action, as the UNFCCC acknowl- depends on how mitigation costs are related to net damages
edges in Article 3.3: parties should “take precautionary mea- (primary or gross damage minus damage averted through adap-
sures to anticipate, prevent or minimize the causes of climate tation plus costs of adaptation). Both mitigation costs and net
change and mitigate its adverse effects. Where there are threats damages, in turn, depend on some crucial baseline assump-
of serious or irreversible damage, lack of full scientific cer- tions: economic development and baseline emissions largely
tainty should not be used as a reason for postponing such mea- determine emission reduction costs, while development and
sures...” (UNFCCC, 1993). Pursuing this principle, mitigation institutions influence adaptive capacity.
and adaptation measures are to be implemented before full
information is available and uncertainties regarding the scope Different levels of globally agreed limits for climate change (or
and timing of climate change are resolved. Yet, the question of for atmospheric GHG concentrations, as frequently discussed),
timing and extent of mitigation and/or adaptation policies entail different balances of mitigation costs and net damages
remains unquantified by the precautionary principle (Portney, for individual nations. Considering the uncertainties involved
1998). and future learning, climate stabilization will inevitably be an
iterative process. Nation states will determine their own
10.4.2.3 Institutional Considerations national targets based on their own exposure and their sensi-
tivity to other countries’ exposure to climate change. The glob-
In contrast to the single-actor paradigm, which assumes that al target emerges from consolidating national targets, possibly
society can be identified with a unique optimizing decision involving side payments, in global negotiations.
maker, GHG emissions are, in fact, controlled by a multitude Simultaneously, agreement on burden sharing and the agreed
of individual agents and multiple decision makers that influ- global target determines national costs. Compared to the
ence the transformation of individual to collective actions. expected net damages associated with the global target, nation
Thus far, decision analysis has strongly emphasized the most states might reconsider their own national targets, especially as
aggregated level of government policy and neglected the mul- new information becomes available on global and regional pat-
terns and impacts of climate change. This becomes the starting opment, the optimal allocation of resources over time (dis-
point for the next round of negotiations. It follows from the counting effect), and the carbon cycle premium (Wigley et al.,
above that establishing the “magic number” (i.e., the upper 1996). See Chapter 8 for a detailed discussion. Table 10.7 sum-
limit for global climate change or GHG concentration in the marizes the most important arguments brought forward in
atmosphere) will be a long policy process, hopefully helped by favour of modest and stringent emissions reduction in the near
improving science. term.
Mitigation and adaptation decisions related to anthropogeni- In addition to those emphasized by Wigley et al. (1996; see
cally induced climate change differ. Mitigation decisions above), other arguments are proposed that support less strin-
involve many countries, disperse benefits globally over gent near-term emission reductions as well. Most refer to the
decades to centuries (with some near-term ancillary benefits), significant inertia in economic systems. The first argument
are driven by public policy action, based on information avail- below is related to the economic lifetime of already installed
able today, and the relevant regulation will require rigorous capital stock. The second points to the possibility of low-cost
enforcement. In contrast, adaptation decisions involve a short- mitigation technologies becoming available in the future.
er time span between outlays and returns, related costs and
benefits accrue locally and their implementation involves local Wigley et al. (1996) refer to the inertia of the capital stock.
public policies and private adaptation of the affected social Researchers also identified other fields of inertia such as tech-
agents, both based on improving information. Local mitigation nological developments and lifestyles. The essential point of
and adaptive capacities vary significantly across regions and inertia in economic structures and processes is that it incurs
over time. A portfolio of mitigation and adaptation policies will costs to deviate from it and these costs rise with the speed of
depend on local or national priorities and preferred approaches deviation. Such changes are often irreversible. The costs stem
in combination with international responsibilities. from premature retirement of the capital stock, sectoral unem-
ployment, switching cost of existing capital, and rising prices
of scarce investment goods. Emissions reduction in the present
10.4.3 When Should the Response Be Made? Factors influences the marginal abatement cost in the future. The iner-
Influencing the Relationships between the Near- tia of technological development arises from the path depen-
term and Long-term Mitigation Portfolio dence. The capital stock can be divided into three parts. First,
end-use equipment with a relatively short lifetime can be
A broad range of mitigation responses can be conceived. replaced within a few years. Second, infrastructure, buildings,
However, the bulk of attention, in both the analytical and poli- and production processes can be replaced in up to 50 years.
cy arenas, has been devoted to reducing the emission of GHGs Structures of urban form and urban land-use can only be
from anthropogenic sources and to removing the CO2 (the most changed over 100 years. The demand and supply of goods and
important GHG) already in the atmosphere by enhancing the services in these three domains are interrelated in a complex
biophysical processes that capture it. The timing of these way (Grubb et al., 1995; Grubb, 1997; Jaccard et al., 1997).
efforts depends partly on the climatic constraints to be
observed and on the costs of these actions, which are subject to Technological Change
change over time. Even with an exact knowledge of the timing In the debate on weaker versus stronger early mitigation, the
and consequences of the future impacts of climate change, pol- modelling of technological change and the resultant costs of
icymakers will still be faced with difficult choices regarding the available mitigation technologies at any given time has far
the implementation of response options. This is because the more influence when there is explicit consideration of damages
costs, availability, and associated impacts of future mitigation from climate change. Many models assume an exogenous
options are uncertain, and the choices involve trade-offs with aggregated trend parameter, the rate of autonomous energy
important competing environmental and other social objec- efficiency improvement. Other authors indicate phenomena
tives. Chapter 8 (Section 8.1.4) discusses the costs of different such as inertia, lock-in, and the diversity of factors that affect
pathways towards a fixed stabilization objective, and notes fac- the rate of technological development and diffusion. Energy
tors which would favour a larger proportion of preparatory technologies are changing and improved versions of existing
activities relative to mitigation per se as well as factors that technologies are becoming available, even without policy
favour early mitigation. This section considers the wider con- intervention. Modest early deployment of rapidly improving
text relating to climate change risks and damages. technologies allows learning-curve cost reductions, without
premature lock-in to existing, low-productivity technology.
Inertia and Uncertainty Both the development of radically advanced technologies
Various attempts have been made over the past few years to require investment in basic research and incremental improve-
explore these questions. Arguments that favour a larger frac- ments in existing technologies (e.g., learning by doing) is need-
tion of preparatory activities (developing technologies, build- ed. Not only will new energy-system technologies be required
ing institutions, and the like), rather than emission reductions to stabilize concentrations of CO2, but also a host of peripher-
in the near-term mitigation portfolio, include losses from the al technologies to distribute, maintain, transport, and store new
early retirement of installed capital stock, technological devel- fuels. On the other hand, endogenous (market-induced) change
Table 10.7: Balancing the near-term mitigation portfolio
Issue Favouring modest early abatement Favouring stringent early abatement
Technology development • Energy technologies are changing and improved • Availability of low-cost measures may have substantial
versions of existing technologies are becoming impact on emissions rajectories.
available, even without policy intervention. • Endogenous (market-induced) change could accelerate
• Modest early deployment of rapidly improving development of low-cost solutions (learning-by-doing).
technologies allows learning-curve cost • Clustering effects highlight the importance of moving to
reductions, without premature lock-in to lower emission trajectories.
existing, low-productivity technology. • Induces early switch of corporate energy R&D from
• The development of radically advanced fossil frontier developments to low carbon technologies.
technologies will require investment in
basic research.
Capital stock and inertia • Beginning with initially modest emissions limits • Exploit more fully natural stock turnover by influencing
avoids premature retirement of existing capital new investments from the present onwards.
stocks and takes advantage of the natural rate of • By limiting emissions to levels consistent with low CO2
capital stock turnover. concentrations, preserves an option to limit CO2 concen-
• It also reduces the switching cost of existing trations to low levels using current technology.
capital and prevents rising prices of investments • Reduces the risks from uncertainties in stabilization
caused by crowding out effects. constraints and hence the risk of being forced into very
rapid reductions that would require premature capital
retirement later.
Social effects and inertia • Gradual emission reduction reduces the extent of • Especially if lower stabilization targets would be
induced sectoral unemployment by giving more ultimately required, stronger early action reduces the
time to retrain the workforce and for structural maximum rate of emissions abatement required
shifts in the labour market and education. subsequently and reduces associated transitional
• Reduces welfare losses associated with the need problems, disruption and the welfare losses associated
for fast changes in people’s lifestyles and living with the need for faster later changes in people’s
arrangements. lifestyles and living arrangements.
Discounting and • Reduces the present value of future abatement • Reduces impacts and (ceteris paribus) reduces their
intergenerational equity costs (ceteris paribus), but possibly reduces present value.
future relative costs by furnishing cheap
technologies and increasing future income levels.
Carbon cycle and • Small increase in near-term, transient CO2 • Small decrease in near-term, transient CO2
radiative change concentration. concentration.
• More early emissions absorbed, thus enabling • Reduces peak rates in temperature change.
higher total carbon emissions this century under
a given stabilization constraint (to be
compensated by lower emissions thereafter).
Climate change impacts • Little evidence about damages from multi-decade • Avoids possibly higher damages caused by faster rates
episodes of relatively rapid change in the past. of climate change.
could accelerate development of low-cost solutions and sustainability point of view, it might be unfair of the current
induces an early switch of corporate energy R&D from fossil generation to decide to take the benefits related to emissions
frontier developments to low carbon technologies. Chapter 8 for themselves and that future generations should carry the
presents a discussion on induced technological change. burden of reductions. This argument on intergenerational
equity is often emphasized to support early emission reduc-
Intergenerational Equity tion.
Assuming that current GHG emissions are too high from a
Representation of Damages rush towards an uncertain target now by taking an expensive

An important implication of the debate on spiky versus smooth path.
stabilization paths22 is that relatively high emissions in the near
term, especially for higher stabilization targets, may produce Some models focus on the problem of near-term mitigation
faster rates of climate change in the early 22nd century. There measures under long-term uncertain concentration targets,
is little reliable information on what kind and how much risk when the capital stock is inert. In these models, the equation
this would pose to some ecosystems and socioeconomic sec- for mitigation costs incorporates—beside the common perma-
tors. Nevertheless, it should be kept in mind that paths towards nent costs—an additional term to represent the transition costs,
the same ultimate environmental objectives might involve dif- which are indicators for the inertia of the system. The costs in
ferent environmental impacts for several decades. this field are typically calculated by comparing paths of imme-
diate and of delayed reduction (usually 20 years). The latter is
This line of research investigates whether the choice of emis- an approximation to the spiky path. In models that incorporate
sion paths that lead to the same concentration target makes a only one production sector, costs depend on the inertia of the
difference in damages. In nearly all IAMs, climate damages system, the delay of reduction measures, and the concentration
depend on the magnitude of temperature change, but not on its targets. For a concentration target of 450ppmv, mitigation costs
rate. Experts point out that, because of the difficulties or high- may rise by 70% if the inertia is high (50 years characteristic
er costs of adaptation in some impact sectors, net damages time), compared to the lower (20 years) inertia of an increase
could be higher for a relatively faster climate change. by 25%–32%. The transition costs are more important than the
Moreover, some large-scale geophysical systems, like ocean permanent costs until 2050, with a maximum of 1.4% of Gross
circulation, may also be sensitive to the rate of temperature World Product (GWP) in 2040 and decline to zero until 2070.
change (see IPCC, 2001a). To explore the former issue, Tol With respect to uncertain concentration targets, the results are
(1996; 1998a) used the Climate Framework for Uncertainty, most sensitive to inertia. Emissions reduction are double those
Negotiations and Distribution (FUND) model for different of corresponding cases with a certain concentration target; for
damage functions and conducted an extensive sensitivity example, 9%–14% compared to 3%–7% in 2020 under a
analysis with respect to the discounting rate, the power of the 550ppmv concentration goal (Ha-Duong et al., 1997; see also
damage function, the optimal temperature for the level variant, Grubb et al., 1995; Grubb, 1997). In a sectorally disaggregat-
and memory of damages in the rate variant. The results are ed model with two sectors of different inertias, the abatement
ambiguous, but the flat path (early mitigation) is preferable in levels are roughly the same, but the cost burden lies primarily
a significantly larger number of cases. This entails, for exam- in the more flexible sector. The costs are higher and the differ-
ple, early reductions for discount rates of 0% and 3%, but not ences are more distinctive in the delayed cases compared to the
for 10%. If the optimal temperature increase exceeds pre- immediate control cases. The sensitivity decreases with the
industrial levels by 3°C, early reduction is not required. Tol concentration target. Analysts, however, warn that such models
finds that impact costs for the spiky path are typically less than and results are still preliminary.
20% higher than those of the smooth path. However, the dif-
ferences are larger when impact costs also depend on the rate Possibilities to Reduce Near-term Costs
of change, when the exponent of the damage function is high- Chapters 8 discusses various possibilities to capture low-cost
er, and when the rate variant includes memory of damages. options, such as revenue recycling, integration of climate with
non-climate policies to achieve ancillary benefits, and the
Uncertainty with Respect to the Stabilization Target availability of no regrets options. Such possibilities would be
Looking beyond the question of optimizing the emission path in favour of near term actions. For example, revenue recycling
towards a specific concentration level, the main problem is that has been proposed as one instrument to reduce the costs of, and
we do not know today what will be the desirable stabilization thus in support, of near-term emission reductions. In addition
target. This kind of uncertainty, the expectation that it will be to the environmental considerations, this argument relates to
resolved over time, and the sequential nature of making miti- the numerous distortions from taxes and subsidies in virtually
gation decisions supports the arguments for timing mitigation all countries. Economy-wide effects of carbon taxes, and espe-
actions in a context of uncertainty, raising various issues cially the double-dividend issue, are highly debated. Much
including that of inertia. From this perspective, it may be wise enthusiasm has been given to “green taxes”, such as the carbon
to prepare the ground now for possibly deep and fast emission tax, which might reduce the inefficiency of the current tax sys-
reductions if resolution of the uncertainties would indicate that tems and lead to environmental improvements. Recent analy-
drastic climate protection measures are necessary, rather than ses show that the ultimate fiscal effect of substituting carbon
taxes for other distortionary taxes is roughly neutral
(Nordhaus, 1998), but the actual sign depends on the original
22 In a “spiky” emissions trajectory the emissions follow the baseline size of the distortions in the economy. It may be positive in
before declining sharply in order to meet a concentration stabilization economies with highly distorted tax systems and hence con-
target, while in a “smooth” trajectory the emissions diverge from the firm the double dividend hypothesis (see Chapter 8). It is like-
baseline early, allowing a more gradual decline of emissions eventu- ly to be negative in economies with less pre-existing distor-
ally. tions. In either case, revenue-recycling policies dominate other
measures considerably. Goulder (1995) and others report about Three general principles operate behind these arrangements:
30%–50% reductions in the cost of regulation, and many • first, voluntarism indicates the freedom of contracting,
European studies find cost reductions over 100%. i.e., the quantity-price combinations of exchange;
• second, supplementarity signifies the responsibility of
Annex I parties to fulfil part of their commitments
10.4.4. Where Should the Response Take Place? The within their own jurisdictions; and
Relationship between Domestic Mitigation and the • third, additionality means that projects in CDM and JI
Use of International Mechanisms have to be additional relative to the course of events in
their absence (i.e., it must be decided what would hap-
Inquiries into the options and costs to reduce GHGs, especial- pen anyway and what constitutes an additional project).
ly CO2, emissions indicate that the costs of reductions vary
substantially across sectors in any given national economy and, Ample attention has been paid to formulate principles for the
perhaps even more significantly, across countries. This implies design of where-flexibility instruments at the national and
that for uniformly mixing pollutants like GHGs the costs of international level. The principles in the literature
achieving any given level of environmental protection could be (Michaelowa, 1995; Watt et al., 1995; Carter et al., 1996;
reduced if emission reductions were undertaken at locations Matsuo, 1998, Matsuo et al., 1998; OECD, 1998; Ott, 1998;
where the associated costs are lowest. The concept has become EC, 1999) include:
known as “where-flexibility” in the climate policy literature. • Environmental effectiveness. All units traded should be
An institutional setting is required to exploit the opportunities backed by sound data and verifiable emissions reduc-
of where flexibility, which involves a great variety of private tions; the use of the mechanisms is a means to achieve
and public decision-makers who originate from different cul- emission commitments agreed under the Protocol and
tures, represent different constituencies (if any), and live in the mechanisms should be designed to improve envi-
systems with different social norms. Where-flexibility entails ronmental performance and compliance with these
linkages both to other international agreements (GATT, Second commitments.
European Sulphur Protocol, etc.) and to the legal systems of • Economic efficiency. This includes the cost-effective-
individual nations. As a result of its effects on relative prices, ness of the emission reductions required by the
the choice between the international or domestic strategy also Protocol, and over the longer term helping the commu-
affects technological change. nity of nations to address climate change in a least-cost
manner. It also requires the mechanisms to be adminis-
In principle, two different mechanisms achieve where-flexibil- tratively feasible, such that they do not impose exces-
ity: allowances and credit baseline. In the case of allowances, sive transaction costs on market actors. Economic effi-
each participant starts with an initial endowment of pollution ciency will also improve if the market for trading and
rights distributed by the government or through an auction. crediting is accessible to a wide range of potential play-
Emission rights must cover each unit of emission. This system ers.
has the character of emissions trading. Under a credit-baseline • Equity. While the main issue of equity under the Kyoto
system, each participant has a baseline (i.e., a counterfactual, Protocol is the determination of assigned amounts or
hypothetical emission trend) at the country, sector, or project emission targets, the design of the implementation
level. Some measures are undertaken to reduce emissions. The mechanism must also be perceived as equitable.
difference between the baseline and the factual emissions is Implementation of the mechanisms should not give an
credited by an institutional body and can be traded. This sys- unfair advantage to any party or group of parties to the
tem has the character of emissions reduction production. disadvantage of others (procedural equity). It should
also allow new entrants over time.
The Kyoto Protocol contains three instruments to make use of • Credibility. Only a credible market mechanism should
where-flexibility: IET embodies the allowance system, while be used by the parties and will be accepted by the pub-
CDM and JI reflect the credit-baseline system. The Kyoto lic. A mechanism of low credibility might be a source
Protocol on IET allows Annex I parties with commitments list- of various coalition formations at the negotiations and
ed in Annex B to trade emission allowances during the com- might undermine the will to comply with the commit-
mitment period. As for JI, Article 6 declares that Annex I par- ments.
ties with commitments listed in Annex B are allowed to trans-
fer or acquire emission reduction units that result from projects In creating a regime for flexible instruments, perhaps the most
during the commitment period (the reduction units are specific important lesson about multilateral agreements of the past two
to countries; these parties have national baselines). Finally, decades is that large and apparently “perfect” constructions
CDM as defined in Article 12 implies that, starting in 2000, have rarely been implemented quickly. Quite the contrary, the
Annex I parties listed in Annex B are allowed to acquire certi- most successful examples of international regime building are
fied emission reductions from projects within the jurisdictions based on a “piecemeal” approach, that is the stepwise evolution
of non-Annex I parties. of political and legal mechanisms (Ott, 1998). For current
DMFs, this might lead to a strategy with several phases that
bring together the national and international levels at the speed compliance. If the reduction costs are lowered by the use of
of progress in international regime building (Holtsmark and international mechanisms, then the nations might be willing to
Hagem, 1998). This would involve a two-stage game for IET accept deeper GHG-reduction commitments. This argument
(Ott, 1998), with a “twin cycle system” for JI (Heller, 1995) does not hold in countries with potential hot air when a coun-
that focuses on the learning process in creating an internation- try’s baseline (or projected future) emission is expected to be
al regime for JI. lower than its entitlement, so that a marketable good (emission
permit) is created without the need for any effective reduction
There are some new and important factors to consider in the effort whatsoever. Nevertheless, members of the so-called
design of the instruments (see Ott, 1998). The economic and “umbrella group”, including the USA, Japan, Australia, Russia,
ecological dimensions of climate change and its mitigation and others, have made it clear that the level of commitment
affect different constituencies, sectors, and cultural values of they accepted in Kyoto was contingent on the unfettered use of
the parties. Stakeholders range from states and international flexible mechanisms. In this sense they have already incorpo-
organizations to private companies and NGOs. Incentives rated the willingness to accept deeper emission reductions in
motivate both private and governmental participants to report their existing commitments for the first budget period.
the highest possible baselines of GHG emissions to secure the
largest amount of certified reduction credits. However, other Complementarity to Other Goals
processes create the opposite incentives. By using CDM and/or JI, climate protection can serve other
goals such as accelerating socioeconomic and technological
The implementation of these instruments can be seen as a fur- development, reducing regional and local pollution, and foster-
ther step towards a more flexible and market-oriented policy in ing integration and international understanding (Sun Rich,
international environmental policy, and as an extension of 1996). (See Chapter 1 for an extensive discussion of climate
national instruments to the international level. At the national change in the context of sustainable development and Section
level, some experience has already been accumulated with 10.3 above on linkages to other issues and international agree-
emissions trading, such as the Emission Trading Program ments.)
under the US Acid Rain Program, the Los Angeles Regional
Clean Air Incentives Markets, and the Norwegian Sulphur Motivation for Private Institutions
Trading programme introduced in 1999. Actual experience is Under JI and CDM, private institutions, such as enterprises and
much thinner internationally. Examples of the possibility for NGOs, are likely to be engaged, with the bulk of reduction
emission trading include the Montreal Protocol intended to measures probably taking place in the private sector. This
curb CFC emissions that deplete the ozone layer and the might lead to a further reduction of mitigation costs, because
United Nations Economic Commission for Europe (UNECE) private institutions tend to operate at higher efficiency than
Sulphur Protocol. state bureaucracies do.
Many plausible arguments support the use of international Technology Transfer

mechanisms, as outlined below. JI or CDM is often only possible if technology is transferred
from rich and energy-efficient regions to poor and energy-inef-
Static Eficiency ficient countries. This might have the favourable effect that
This argument is related to the positive allocative effects developing countries “leap-frog” over the inefficient develop-
caused by trade. The argument is fundamentally dependent on ment stages previously passed through by the developed coun-
the assumption of differences in the marginal reduction costs tries.
between countries in a well-defined market. This might lead to
gains arising from trade for both sides. Trade reduces the over- Domestic versus International Strategies
all costs of compliance with any specified set of international- Arguments to support a domestic strategy are often formulated
ly accepted reduction targets. Lile et al. (1999) and Edmonds as a critique to an international strategy. Some general criti-
et al. (1996) find the rationale for Annex I countries is that cisms focus on the question whether or not an international
reduction costs in developing countries are much lower than strategy is an adequate instrument to achieve the ultimate goal
their own. Ellerman et al. (1998) and Holtsmark and Hagem of the UNFCCC, that is stabilizing the GHG concentration.
(1998) arrive at similar conclusions. However, some bottom- Bush and Harvey (1997) emphasize two key requirements: to
up, project-based country studies that quantify national mitiga- sharply constrain GHG emissions in developing countries and
tion-cost curves and the consequences (e.g., Jackson (1995); to achieve significant GHG reduction in developed countries.
EC 1999)) identify lower mitigation costs in developed coun- The most frequent arguments in support of the domestic strat-
tries and thus smaller cost differences internationally. Table egy entail the following.
10.8 gives studies on the costs of Kyoto targets under different
flexibility arrangements. Dynamic Efficiency
Technological and social innovation are dynamic processes
Willingness to Accept Deeper Reduction Goals that can be accelerated through pressure from commitments in
This argument is related to the reduction of the overall cost of the Kyoto Protocol. The international strategy allows devel-
662
Table 10.8: Studies on costs of Kyoto targets under different grades of where-flexibility
In this table the essential results (welfare implications) are presented with respect to achieving the Kyoto targets under different institutional seetings for the use of flexibility instruments.
The following features are summarized in the table:
1. Reference and year of publication; footnote says where the reference is available
2. Welfare measure and scenario; the scenarios are not all with respect to the Kyoto-targets and the welfare measure is not the same in all studies
3. Different grades of “where-flexibility”
4. Comments on the study summarizes the most important features of the models used for the study.
Study Welfare measure Different grades Comments

and scenario No trade Double- Less than x%-Cap25 Annex 1 More than A 1 trade + Full/global
bubble23 A1 trade24 trade A1 trade26 CDM trade
McKibbin, %-change of GNP per USA: -.5 OECD G-Cubed( Global General Equilibrium
Shackelton and region in 2010; Jap: -.1 USA: -.5 Growth Model), fossil fuels only; with
Wilcoxen (1999) not Kyoto: Stab. at 1990 Aus: -2.2 Jap: -.3 monetary effects, no ‘no-regret’, 8
level OtherOECD Aus: -1.5 regions, 12 sectors, no terms of trade,
(OOECD): OOECD: -.9 capital flows, 1995$
-1.2 gain $90 bil27
US-unilateral
reduction: -.6
McKibbin, %-change of GNP per USA:-.3 USA:+.1 USA:-.2 USA:0

Shackelton and region in 2010; Jap:-.8 Jap:-.1 Jap:-.2 Jap:0
Wilcoxen (1998) not Kyoto: Stab. at 1990 Aus:-2.5 Aus:-1.3 Aus:-2 Aus:-.7
level OOECD:-1.4 OOECD:-1.2 OOECD:-.5 OOECD:-.2
Chi:0 Chi:0 Chi:0 Chi:-.5
LDC:+2.7 LDC:+1.8 LDC:+1.4 LDC:+.228
McKibbin, Ross, %-change of GNP per USA:-.6 USA:-.5 USA:-.2

Shackelton and Region in 2010; Jap:-.5 Jap:-.4 Jap:-.1
Wilcoxen (1999) not Kyoto: Stab. at 1990 Aus:-1.6 Aus:-.8 Aus:-.4
level OOECD:-1.3 OOECD:-.6 OOECD:-.2
Chi:-.1 Chi:-.1 Chi:-.4
LDC:+.7 LDC:+.7 LDC:0
Bernstein, Hicks Equivalent Variation USA: -.5 US: -.25 US: -.2 MS-MRT (Multi-sectoral, multi-regional
Montgomery, (HEV), %-change from Jap: -.6 Jap: - .25 Jap: 0 General Equilibrium Model) (GEM),
Rutherford and baseline per region, EU15: -.4 EU15: -.25 EU15 -.1 terms-of-trade, capital flows, leakage,
Yang (1999) Protocol costs OOE: -1. OOE: -.75 OOE: -.4 10 regions, 5 energy, 4 non-energy
SEA: -.2 SEA: 0 SEA: +.25 sectors, 1995$
OAS: .1 OAS: 0 OAS: +.2
Chi: +.3 Chi: +.3 Chi: +.25
FSU: -.4 FSU: +4.4 FSU: -.4
MPC: -1.4 MPC: -1.1 MPC: -.3
ROW: -.1 ROW: -.1 ROW: 0
23 Tulpulé (1998) defines the double-bubble as EU + EE; McKibbin, Ross, Shackleton and Wilcox (1999) defines it as European-OECD.
24 If less participants than the Annex 1 countries are assumed (e.g. without USA)
25 Special Case EU-Cap: purchases or sales of emissions by annex B countries may not exceed 5% of the weighted average of base year emissions and the assigned Kyoto emission budget
26 If more participants than only the Annex 1 countries are assumed (e.g. India, China)
272010 - 20 discounted at 5%
28 non-Annex 1 countries accept commitments consistent with the baseline emissions

(continued)
Bernstein, HEV US:-.56 US:-.43 US:-.36 US:-.32 US:-.14 MS-MRT GEM, GTAP4 Database,
Montgomery and Jap:-.64 Jap:-.52 Jap:-.23 Jap:-.18 Jap:-.03 10 regions, 3 fuels and electrical sectors,
Rutherford (1999) EU:-.45 EU:-.33 EU:-.25 EU:-.20 EU:-.05 2 goods
OOE:-.92 OOE:-.78 OOE:-.76 OOE:-.67 OOE:-.3
SEA:-.18 SEA:-.13 SEA:-.04 SEA:+.06 SEA:+.25
OAS:-.1 OAS:-.08 OAS:-.01 OAS:+.09 OAS:+.19
Chi:+.34 Chi:+.31 Chi:+.22 Chi:+.55 Chi:+.34
FSU:-.42 FSU:+.05 FSU:+4.44 FSU:+3.47 FSU:+.48

MPC:-1.39 MPC:-1.26 MPC:-1.15 MPC:-.92 MPC:-.36
ROW:-.1 ROW:-.0829 ROW:-.08 ROW:+.0130 ROW:+.03
US:-.34 Annex-I – B30: 30% ceiling for buyers;

Jap:-.31 this restricts imports of TP
EU:-.25
OOE:-.71 Annex-I – B50: 50% ceiling for buyers;
SEA:-.07 this restricts imports of TP
OAS:-.05
Chi:+.25 Annex-I – S50: 50% ceiling for sellers;
FSU:+2.18 this restricts exports of TP
MPC:-1.17
ROW:-.08 No Hot Air: The QUELRCS31 for FSU
and EE are set to their baseline values
US:-.35,
Jap:-.24
EU:-.24
OOE:-.75
SEA:-.05
OAS:-.02
Chi:+.22
FSU:+4.18
MPC:-1.15
ROW:-.08
US:-.43
Jap:-.30
EU:-.30
OOE:-.80
SEA:-.08
OAS:-.05
Chi:+.23
FSU:+4.57
MPC:-1.15
ROW:-.08
US:-.39
Jap:-.24
EU:-.25
OOE:-.82
29 Annex I - B10: 10% ceiling for buyers; this restricts imports of TP’s SEA:-.02
30 OAS:.03
limit of permit sales by each A1-region to 15% of its total sales under
Chi:+.26
unrestricted global trading FSU:+4.27
31 Quantified Emission Limitation or Reduction Commitments MPC:-1.23
ROW:-.03
(continued)
663
664

Cooper et al. Change in potential output US:-2.5 (-1.8) US:-1.(-.5) US:-1.4(-.8) Oxford Model, Energybased macroeco-
(1999) (GDP) in 2010 in % Ca:-3.9 Ca:-1. Ca:-1.2 nomic GEM, 6 fuels, 4 sectors, 22
Jp:-1.8 (-1.9) Jap:-.3(-.3) Jap:-.5(-.5) regions
Ge:-2.2(-2.4) Ger:-2.2(-4.9) Ger:-.8(-.9)
Fr:-2.2(-2.2) Fr:-2.2(-2.2) Fr:-.6(-.5)
It:-2.3 It:-2.3 It:-.7
UK:-1.9 UK:-1.8 UK:-1.
EU:-2.2 EU:-2.2 EU:-.7
Chi:+1.6 Chi:+.7 Chi:+.6
Rus:+0.9 Rus:-1.(+2.5 Rus:-1.4
income) (+4.income)
Tulpulé %-loss of GNP Annex 1: -1.2 Annex I: -.3 Annex I: -.3 GTEM, GTAP3-database, 19 regions,
(1998, 1999) Non-Annex I: 0 Non-Annex I: 0 Non-Annex I: 0 16 tradeables, S(y)=j(i), transport costs for
trade
Brown et al. % loss of GNP, global -.8 -.2 GTEM, GTAP 4 –database, 18 regions, 23
(1999) tradeables, 3 GHG GWP:1,21,310;
technological change rising with GHG-
penalty, ref-scen = no policy, 1992 $
Böhringer (1999) HEV, % of BAU income -.2 (28.51) -.15 (28.74) -.04 (29.03) global GEM, GTAP4 and OECD/IEA-data,
(CO2-emissions in 7 sectors, 11 Regions
bill. t CO2)
Manne and consumption WG1 8.7 tril 5.9 tril 3.2 tril
Richels (1997) loss 1990-2100
discounted 10% cut in 2010 4.4 tril 2.7 tril 1.9 tril
with 5% to
1990 in $ WRE 1.8 tril 0.9 tril 0.8 tril
Manne and annual US-Costs, 1990 bill. $ 85 (102) 51 (77), 15 % 23 (45) MERGE 3.0 (model for evaluating the
Richels (1998) in 2010 (2020) of potentials regional and global effects of GHG reduc-
available due to tion policies), 9 regions, leakage, Global
complexities of Trade (GT) non-AI restricted by baseline
flexibility bounds,
instruments
Manne and Kyoto Forever => K-constraints 87 (a) 55 49 23 (a) buyers market - sellers are price takers
Richels (1999b) through 21st c. for AI and (b) 61 15 % of (b) sellers market – buyers are price takers
baseline for NonAI 1/3 limitation of potential
(no leakage); satisfying Kyoto available
US GDP loss in bil $ obligations by
AI-countries
Capros (1998) costs only for regions and not * with 15% POLES for world level, extensive
Kyoto targets (15%), EU assessment for EU
(continued)
Holtsmark (1998) % loss of 1990 GDP USA:+.49 USA:+.48 USA:+.4 partial & static ACT, strategic OPEC,
per country Ca:+.51 Ca:+.5 Ca:+.42 3 regional gas markets, multi GHG,
EU32:-.05 EU:-.07 EU:-.04 national tax with marginal excess burden to
DK:+.59 DK:+.37 DK:+.25 account for double dividend hypothesis, no
Fin:0 Fin:0 Fin:0 “no regrets”, terms of trade
Swe:0 Swe:0 Swe:0
Nor:+1.36 Nor:+1.22 Nor:+1.26
Rus:+.17 Rus:+.16 Rus:-.4

OthEIT:-.07 OthEIT:-.07 OthEIT:-.27
AuNZ:+.24 AuNZ:+.17 AuNZ:+.17
Jap:+.09 Jap:+.08 Jap:+.07
N-AI:+.91 N-AI:+.46 N-AI:+.42
Holtsmark and Costs in % of 1990 GDP USA:+.29 USA:+.27 USA:+.18 partial & static ACT, strategic OPEC,
Hagem (1998) per country, Ca:+.46 Ca:+.42 Ca:+.3 3 regional gas markets, multi GHG,
EU targets are differentiated EU:-.12 EU:+.15 EU:-.11 national tax with marginal excess burden
as agreed in June 1998 DK:+.53 DK:+.23 DK:+.1 to account for double dividend hypothesis,
Fin:-.12 Fin:-.11 Fin:-.1 no “no regrets”, terms of trade
Swe:+.08 Swe:+.02 Swe:-.1
Nor:+1.23 Nor:+1.18 Nor:+1.23
Rus:-.18 Rus:-.17 Rus:-.33
OthEIT:-.15 OthEIT:-.14 OthEIT:+.33
AuNZ:+.06 AuNZ:-.36 AuNZ:-.12
Jap-.08: Jap:-.07 Jap:-.07
N-AI:+.13 N-AI:+.11 N-AI:+.08
Sands et al. (1998) US Costs; non-Kyoto-Targets, M90:+.2 M90:-.18 M90:-.09 SGM, IEA and Government-data, 7 regions,
4 policy scenarios: e.g.: M90+.1:+.07 9 prod sectors, input sectors, determines
1990 + 10% (M90+1) M90-.1:+.43 global C-tax, hot air
M95:+.07
Kainuma et al. % GDP loss per region; Asia USA:+.4 USA:+.3 USA:+.3 USA:+.3 USA:+.2 AIM, IEA, GTAP and IMF-data, 21
(1998), (1999) Jap:+.25 Jap:+.05 Jap:+.15 Jap:+.1 Jap:0 regions, 7 energy-, 4 non-energy goods,
EU:+.3 EU:+.4 EU:+.3 EU:+.15 EU:+.05
EEFSU:+.2 EEFSU:-2.2 EEFSU:-3.6 EEFSU:-2.7 EEFSU:-1.7
Chi:+.2 Chi:+.15 Chi:+.2 Chi:+.4 Chi:+.37
Ind:-.25 Ind:-.15 Ind:-.15 Ind:-.15 Ind:-.2
Kor:-.55 Kor:-.35 Kor:-.25 Kor:-.35 Kor:-.3
MEA:+.15 MEA:+.8 MEA:+.65 MEA:+.633 MEA:+.9
Mensbrugghe % GDP loss in bill. 1985 $ +.7 +.2 +.1 GREEN- A multi-sector, multi-region
(1998) dynamic general equilibrium model for
quantifiying the costs of curbing CO2 emis-
sions: 12 regions, 4 activities, autonomous
energy efficiency improvements (AEEI),
backstops, terms of trades
32 EU targets are differentiated as agreed in June 1998. (continued)

33 Annex I + China and India
665
666

Richels et al. (1996) 20% below 1990 CETA OECD:+2 OECD:+1.3

emissions until NOECD:+.3 NOECD:-.7
2010 and the stab. EPPA OECD: +5.2 OECD: +2
emissions at his NOECD:+1.1 NOECD:-.5
level; Annex 1 MERGE OECD:+2 OECD:+1.1
countries; trill. 1990 NOECD:+.3 NOECD:0
US$, OECD, MiniCAM OECD:+1.5 OECD:+.5
GDP loss NOECD:-.1 NOECD:-.2
Nordhaus and RICE-98; GDP loss in 1990$ US: 84 bil. US: 60 bil. US: 21 bil. RICE-98; 13 regions, no trade in goods,
Boyer (1999) Jap: 38 bil. Jp: 19 bil. Jap: 6 bil. IAM;
EU: 65 bil. EU: 36 bil. EU:15 bil.
CANZ: 19 bil. CANZ: 11 bil. CANZ: 4 bil.
Tol (1999a) consumption loss 1990-2100, No-AI: -.15 No-AI: -.2 lim. purch:34 No-AI: -0.15 No-AI: .5 No-AI: .45 Framework for Uncertainty, Negotiation
discounted with 5% to 1990, in OECD: 2.75 OECD: 2.25 No-AI:-.15 OECD: 2.1 OECD: 1.25 OECD: .9 and Distribution (FUND)-IAM;
trill. $; target:Kyoto forever EEfSU: .75 EEfSU: .6 OECD:2.45 EEfSU: .6 EEfSU: .4535 EEfSU: .35 9 regions, dynamic damage
EEfSU: .5
lim.sale:36
No-AI: .8
OECD: 1.9
EEfSU: -.15
lim. both:
No-AI: .65
OECD: 2.15
EEfSU: -.15
Kurosawa et al. GDP loss in bill. 1990 $ in 2010 US: US: US: GRAPE-IAM, 10 regions
(1999) Jap: Jap:10 Jap:
EU: 90 EU: 90 EU: 63
CANZ: CANZ: CANZ:
Criqui et al. (1999) Total Cost (GDP)in 1990 $ 56419 Mio. only for US and 16 583 Mio. 5808 Mio. (0.01) POLES
in 2010 (0.11) Asian countries (0.03)
Ellerman et al. Total Cost in bill. 1985 US$ +120 +88 +11 Emissions Prediction and Policy
(1998) Assessment (EPPA)-Model
Zhang (1998) Reductions in total abatement : 37USA:81 38USA:63.7 USA:85.2 12 regions, 6 GHG
costs compared to the no-trade- Jap:91 Jap:71.9 Jap:93.1
EU:2.3 EU:39.2 EU:0.2
OOECD: 33.5 OOECD:70.8 OOECD:45.3
OECD:82.4 OECD:66 OECD:86.5
39USA:81.1
Jap:77.4
EU:19.1
OOECD:68.8
OECD:79.6
34 Maximum Emissions are 110% of allotment (= commitment); i.e. restricts the quantitiy bought from abrought 35 Annex 1 plus Asia 3690% of allotment must be emitted => this restricts the quantity sold to others
37 No Hot Air: Trading in Hot-Air is not allowed, indicating that any effectuated trading in GHG emissions must represent real emission reductions 38 EU-Caps
3950% reduction from BAU scenario: The Maximum allowed acquisition from all three flexibility mechanisms are limited to 50% of the difference between the projected baseline emissions and the Kyoto targets in 2010
oped countries to lower this pressure and, as a result, less inno- (in terms of GHG reductions) than a lower number of individ-
vation would occur. Instead of innovation, inefficient technol- ually very effective projects (OECD, 1999a). A related delicate
ogy would be exported to developing countries. This argument balance should be reached between the requirement for rigor-
is strongly related to the endogenous growth argument. The ous monitoring and reporting efforts (to ensure environmental
problem from the scientific point of view is that so far no effectiveness) and the need to obtain cost-effective and pre-
model with Learning by Doing (LBD) includes regional disag- dictable emission benefits via simple procedures that encour-
gregation and trade. age such projects (OECD, 1999b).
Missing No Regrets Options The next problem is that each implemented project—especial-
This argument is related to the political, social, and economic ly a large one—affects the baseline in other parts of the econ-
barriers to making use of no regrets potentials in developed omy. Jackson (1995) warns that this might implicate a multi-
countries. The possibility to fulfil their commitments by using level system of baselines in the overall economy, sectors, and
CDM and/or JI might be more favourable for developed coun- projects. Clearly, projects have to be monitored. Thus the polit-
tries than to explore and utilize no regrets opportunities. The ical problem of creating guidelines for monitoring and the
potential of no-regrets in developing countries affects the prin- technical issue of registration arise. Furthermore, credible
ciple of additionality and is therefore a problem in accepting enforcement or penalization against cheating or non-fulfilling
CDM and JI projects (Rentz, 1998). parties needs to be established, probably in the form of a spe-
cial body for ascertainment (Janssen, 1999). A reliable basis of
Implementation international law for contracting is essential, especially among
This argument embraces two problem areas: implementation of private actors. Even if all these conditions are fulfilled, the
an institutional framework for instruments at the national and problem of corruption might make the instrument inefficient or
international levels, and compliance with the Kyoto Protocol flawed outright. With respect to such problems Barrett (1998)
targets. On the institutional side, there are several impediments raises the question whether the Kyoto Protocol will be imple-
to building a strong regime for functional international instru- mented at all by any parties if every party believes that other
ments. These are related to both institutional problems and parties do not obey the rules and follow their own commit-
market imperfections. ments.
The production character of CDM and JI requires a fixed base- Turning to the second problem area, the efficient allocation of
line to be defined. The baseline provides an incentive to cheat markets can be distorted by transaction costs associated with
by setting it unrealistically high so that the efficacy of the searching for partners, and the costs of contracting and negoti-
instrument decreases because no real reduction takes place. ations (see Stavins, 1995). Price distortions result when large
The possibility to cheat stems from the intricacies of fixing the nations and corporations exercise market power (Hahn, 1984;
baseline, which usually arise through vague guidelines (politi- Hagem and Westskog, 1998), or asymmetric information dis-
cal issue) and the general problems of forecasting (technical tribution between partners in JI or CDM projects is exploited
issue; see Michaelowa, (1995; 1998b). Begg et al. (1999) and by one of them (Hagem, 1996). It is well known that each of
Parkinson et al. (2001) examine the uncertainty associated these deviations from the ideal world of competitive markets
with baseline construction and propose it be managed through might lead to inefficient allocations. Other factors at work
conservative esimates, use of monitored data and verification, include the initial distribution of property rights, which might
and either baseline revision or limited crediting lifetimes. also reflect equity considerations.
Parson and Fisher-Vanden (1999) argue that the opportunity for
self-serving manipulation of project baselines will vary Corruption and Other Host Internal Problems
markedly among project types, and suggest a likely bias in any Corruption is an important problem in several countries on
project-based JI system (such as the CDM) towards project both sides of the JI and CDM relationships. The negative con-
types most resistant to baseline manipulation—retrofits and sequence of corruption is that institutional settings are under-
technological carbon management. They also propose a hybrid mined, especially when hard currency is involved. In many
domestic–international system for project certification to limit developing countries with weak democratic institutions, politi-
the scope for cheating. cians have strong incentives to maximize the financial flows
and to ignore potential negative consequences. Heller (1995)
In this context, an optimal baseline strategy is required that points out that higher financial inflows from donor countries
(first of all) takes into account the high volume of projects that might result in shrinking domestic environmental budgets, so
will be needed for the flexible mechanisms to achieve their that no real emissions reduction occurs.
main objective of an (overall) environmental effectiveness.
The balance is likely to be achieved by optimizing baseline Balance Between Domestic and International Strategies
stringency and minimizing project complexity (as long as the It is apparent from this section that the relationship between
ability to determine “what would have happened otherwise” is domestic mitigation and the use of international instruments
not compromised). The reasoning is that a higher number of remains an intricate one. Work by Hahn and Stavins (1995)
effective projects will be more beneficial for the environment indicates that the link between domestic implementation and
international mechanisms may seriously limit the ultimate eco- Some authors argue that equitable decisions generally carry
nomic potential of emissions trading. Most economic studies greater legitimacy and encourage parties with differing inter-
of trading assume that trade occurs whenever there is the ests to co-operate better in carrying out mutually agreed
potential to lower compliance costs. However, to the extent actions. One of the major obstacles to reaching a comprehen-
that some countries implement their domestic strategies sive agreement on global warming—setting GHG emission
through regulatory and tax measures, emissions permits limitation targets for individual countries—involves parties
obtained through international transactions may have limited that act as a “veto” because they regard particular arrange-
or no value in these countries. Moreover, Hahn and Stavins ments as unfair or unjust. Decisions that are widely accepted as
(1995) point out that domestic legislators may be concerned equitable are likely to be implemented with greater willingness
about the significant financial transfers implied by emissions than those enforced under conditions of mistrust (Rowlands,
trading and act to keep funds within their own borders. In 1997). Others find little evidence that fairness matters much.
another relationship, Montgomery (1997) raises the possibility Victor (1999) examines the relationships between fairness and
that domestic legislators may try to impose trade barriers in an the compliance with international environmental agreements
effort to limit the competitiveness consequence implied by the through the lessons learned about implementation and effec-
loss of capital and jobs that may accompany efforts to limit tiveness of numerous earlier treaties. His conclusion is that
emissions. equity concerns matter little in the success of negotiating and
implementing such agreements. Even for cases in which fair-
In summary, the literature on where-flexibility reveals abun- ness seems to play some role, willingness to pay had a stronger
dant opportunities to reduce the costs of emission reductions, role. Victor argues that if parties to an agreement take the trou-
but also raises concerns about the implementation. However, ble to deviate from the simplest across-the-board commit-
concerns as to whether the flexibility mechanisms of the Kyoto ments, then many criteria need to be considered in negotiating
Protocol can be implemented because of the possibility that commitments. Fairness might be one criterion, but is probably
some parties may be corrupt or may cheat are universal con- not the most important.
cerns. They apply not only to the countries involved in flexi-
bility mechanisms, but also to countries that take on any emis- In a broader context, equity and fairness are important ele-
sions reduction commitments (although flexibility instruments ments of the social dimension, while efficiency is a crucial fac-
are particularly sensitive to cheating). Given the various ways tor in the economic dimension of sustainable development. The
proposed to reduce the risks of their misuse, the Kyoto mech- impetus of sustainable development provides a crucial reason
anisms offer the double advantage of reducing the costs of cli- for finding efficient and equitable solutions to the problem of
mate change mitigation and fostering non-climate objectives as global warming, especially with regard to future generations.
well. The UNFCCC recognizes these two principles in Article 3.1.
Equity principles apply to both procedural and consequential

10.4.5 Who Should Pay for the Response? Mitigation by issues (Banuri et al., 1996). Procedural issues concern the
Countries and Sectors: Equity and Cost-effective- process of how decisions are made. The two aspects of proce-
ness Considerations dural equity involve the effective participation in decision-
making processes and the process itself, which should be the
Equity and efficiency considerations in the context of decision principle of equal treatment before the law. In this context, ref-
making that addresses global climate change are important for erence is made to Coase’s model of social cost (1960) in that
various reasons, including ethical concerns, effectiveness, sus- he assumes a situation of equal bargaining power among par-
tainable development, and implementation of UNFCCC itself ticipants and equal distribution of the costs of making the bar-
(Munasinghe, 1998; see also Chapter 1). Principles of justice gain with respect to the internalization of externalities. The
and fairness40 are important in themselves, in all types of philosophical notion of procedural equity is the “ideal speech
human interactions, and play a major role in practically all situation” (Habermas, 1981), a situation in which dialogue and
modern international agreements, including the UN Charter; decision making are free from inappropriate constraints such as
they emphasize the basic equality of all humans (Jepma and barriers to the acquisition of knowledge or financial resources.
Munasinghe, 1998). Transfer of these concepts to climate change negotiations
requires consideration of the influence of scientific informa-
40
tion, human resources, institutional capacities, and financial
The terms “justice” and “fairness” are often used as synonyms, assets on the bargaining, and a redistribution of these among
however, there are debates on the different notions of the terms.
participants to create procedural equity.
Following Albin (1995), justice means distributive justice, in the sense
of a general standard for allocating collective benefits and burdens
among the members of a community at local, national, or global lev- Consequential equity deals with the outcome of decision mak-
els. Principles of justice exist prior to and independently of any phe- ing, and with the distribution of costs and benefits of prevent-
nomenon to be judged. Fairness consists of individual perceptions of ing global warming (including future emission rights) and of
what is reasonable under the circumstances, often in reference to how coping with the climate change impacts and adaptation. The
a principle of justice regarded as pertinent should be applied. consequential decisions have implications for burden sharing
Table 10.9: Equity principles and burden-sharing rules
Equity principle Interpretation General operational rule
Egalitarian Every individual has an equal right to pollute Allow or reduce emissions in proportion to population
or to be protected from pollution
Sovereignty All nations have an equal right to pollute or to be Proportional reduction of emissions to given or existing
protected from pollution; current state of emissions emission levels’ or equal percentage of emission reductions
constitutes a status quo (“grand-fathering”)
Polluter pays Welfare losses corresponding to gains by emissions Share abatement costs across countries in proportion to
(eventually including historical emissions) emission levels
Ability to pay Mitigation costs vary directly with national Equalize abatement costs across nations (costs as proportion
economic well-being of GDP equal for each nation)
Horizontal All countries with similar features have similar Equalize net welfare change across nations–net cost of
emissions rights and burden-sharing responsibilities abatement as a proportion of GDP
Vertical Welfare losses vary positively with national economic Progressively share net welfare change across nations, net
well-being, welfare gains vary inversely with GDP gains inversely and net losses positively correlated with per
capita GDP
Utilitarian Achieving the greatest good (happiness) for Maximize net present value of the sum of individuals utility
the greatest number (maximize social welfare).
Compensation No nation should be made worse off Compensate net losing nations
Rawls’ maximin The welfare of the worst-off nations should Maximize the net benefit to the poorest nations
be maximized
Market justice The market is just Allocate emissions permits to the highest bidder
Consensus equity The negotiation process is fair Seek a political solution to emissions reduction
Convergence Equalize per capita emissions Converge to an upper boundary of emissions
Environmental The environment receives preferential treatment Maximize environmental values and cut back emissions
accordingly
among and within countries (intragenerational and spatial dis- 3. What background allocation of wealth would allow inter-
tribution) and between present and future generations (international bargaining about issues like (1) and (2) to be a
generational and temporal distribution). While actions to miti- fair process?
gate climate change have to be paid for by the present genera- 4. What is a fair allocation of emissions of GHGs over the
tion, benefits in the sense of avoided losses will affect genera- long term and during the transition to the long-term allo-
tions to come. This involves discounting future benefits to a net cation?
present value (Portney and Weyant, 1999). However, most of
the potentially affected parties are not present to participate in To answer these questions scientists have developed typologies
the decision making, so that the current generation has to dis- for the various distributional equity principles; these are under-
cuss equity issues within climate change. stood to be general concepts of distributive justice and fairness,
which often overlap. Associated burden-sharing rules, on the
In total, four kinds of questions frame the issue of justice in cli- other hand, represent an operational function to generate a spe-
mate change (Shue, 1993), of which the third (procedural equi- cific scheme to reduce GHG emissions or to bear the costs of
ty) provides the basis for a just process in determining the other climate change impacts. Table 10.9 gives an overview of gen-
three kinds of allocations. eral equity principles and accompanying operational rules
(Thompson and Rayner, 1998).
1. What is a fair allocation of the costs of preventing the
global warming that is still avoidable? Major devices to determine the order of equity principles are
2. What is a fair allocation of the costs of coping with the the following: Rose et al. (1998) distinguish between “alloca-
social consequences of the global warming that will not tion-based”, “outcome-based”, and “process-based” principles.
be avoided? The first group focuses on the initial allocation of property
rights of GHG emissions, such as the egalitarian, sovereignty, the corresponding outcomes. The demand for fairness arises
polluter pays, and ability-to-pay principles. The second group from the existence of communities (social solidarity) and from
of principles examines the outcome in terms of welfare publicly shared expectations of the conduct of community rela-
changes41 caused by emissions reduction efforts, such as the tions. As communities pursue manifold ways of organizing
horizontal, vertical, compensation, and utilitarian principles. institutional structures and social relations, there are different
The third category recognizes the libertarian, political consen- perceptions of what is equitable and fair (Rayner et al., 1999;
sus, and Rawls’ maximin as guiding principles to the process Rayner and Malone, 2000). Distinct moral principles generate
of emission allocation. Shue (1993) divides principles of jus- conflicting debates on how to share the burdens, even though
tice into “fault-based” and “no-fault” principles. The ability-to- there might be equally legitimate and justified claims.
pay, for example, is no-fault in the sense that guilt is irrelevant Therefore, it is very difficult to achieve a worldwide consensus
to the assignment of responsibility to pay. The richest should on just one justice principle. One way of reaching an accord
pay the highest rates no matter how they acquired what they might be to set up a combination of the diverse equity-based
own. In contrast, the polluter-pays principle, an economic prin- distribution proposals (Müller, 1998). Even if agreement on a
ciple that polluters should bear the cost of abatement without particular first principle is reached, the question of how reduc-
subsidy (Rayner et al., 1999), is based upon fault or, alterna- tions for each country should be generated would remain unre-
tively, upon an amoral rationale of causal responsibility, or solved because of the different reference bases against which
simply that the assignment of burden creates an incentive to equity cirteria could be applied, such as population, land area,
not pollute. Thus, fault need not be a moral issue. Rowlands GDP per capita, or emissions per capita. With respect to the
(1997) differentiates, among other things, according to aspects spatial distribution of GHG emissions limitation burdens,
of historical difference (if any). The classification is based on should the burdens be laid more on the production or on the
whether past usage has established present and future rights, be consumption side of CO2 emissions and what are the accom-
it the same (grandfathering) or be it a correction for injustices panying effects in terms of intragenerational equity (Rose and
from the past (natural debt). Agarwal and Narain (2000) outline Stevens, 1998)? In summary, manifold equity principles and
the concept of contraction and convergence. This is the entitle- different accompanying operational rules exist; these might
ment of GHG emissions budgets in terms of future emissions best be applied as a combination to respect more than just one
rights. Such a global future emissions budget is based on a equity position and thus enhance political feasibility.
global upper limit of atmospheric concentration of CO2, for
instance 450ppmv (contraction). This budget is then distrib- However, there is a strong bias towards the principle of effi-
uted as entitlements to emit CO2 in the future, and all countries ciency and its underlying utilitarian maxim. Also, it is impor-
will agree to converge on a per-capita emission entitlement tant to recognize that self-interest plays a crucial role in voting
(convergence). Level of contraction and timing of convergence for a specific operation rule, and that self-interests or, alterna-
are subject to negotiations with respect to the precautionary tively, particular preferences are at the core of economic con-
principle. siderations. Closely related to the concept of preferences is that
of willingness-to-pay. Developed countries usually have a
The Kyoto Protocol endorses the principle of differentiation much higher willingness-to-pay in terms of solving environ-
among countries (between Annex B and non-Annex B) and mental problems. This is partly because willingness-to-pay
within Annex B countries for emissions reduction targets. depends on the ability to pay. Consequently, it seems reason-
However, details of the form of JI and the endowment of GHG able that developed countries bear the primary burden involved
emissions rights remain to be established. Also, future negoti- in mitigating climate change (Victor, 1999), as endorsed in the
ations to determine national targets after 2012, as well as the Kyoto Protocol. Hence, economics in terms of efficiency is a
question of commitments for developing countries, need to be major aspect when negotiating emissions-limitation commit-
discussed. Accordingly, several proposals for the differentia- ments.
tion of national GHG reduction targets, as well as multiform
modelling exercises to explore the consequences of the differ- The problem of distributing emissions-limitation quotas is not
ent proposals, have been published recently. An overview is solved by economic principles either, because emissions trad-
given in Table 10.10. ing yields Pareto efficiency irrespective of the initial distribu-
tion of emission permits. Where-flexibility in emissions reduc-
The variety of equity principles reflects the diverse expectation follows Coase (1960), who addresses the assignment of
tions of fairness that people use to judge policy processes and property rights as an efficient solution to market failure. Under
the assumptions of perfect competition, a marketable emis-
sions permit scheme with full trading will be cost-effective no
41 matter how the permits are distributed. It will lead to an equal-
The comparison and aggregation of welfare in terms of monetary
units such as GDP across different countries is a controversial issue.
izing of the marginal costs of emissions reduction across all
Attempts have been made to incorporate equity considerations sources (Nordhaus, 1994a) and generate the same costs no mat-
through weighting the welfare changes, giving attention to the ter which burden-sharing rule is applied. Hence, there is no
unequal distribution of wealth among developed and developing efficiency–equity trade-off and no obstacle to considering
countries (Tol et al., 1999). equity issues within climate change while emphasizing cost-
Table 10.10: Selected studies of applied equity principles and burden-sharing rules
Reference Subject of investigation Geographical Results

mapping
Numerical results*
Torvanger and Godal Emission limitations that could occur Countries in Baltic Sov. Egal. Abil.
(1999) if burdens were to follow the Sea Region
all
• Sovereignty pinciple Denmark –6 18 –14
• Egalitarian principle (to fulfil the Estonia –6 –37 –4
Kyoto Protocol) Finland –6 27 –15
• Ability-to-pay principle (assuming Germany –6 8 –12
no increase in emissions) Iceland –6 45 –13
Latvia –6 23 –4
Lithuania –6 19 –3
Norway –6 29 –13
Poland –6 15 –1
Russia –6 112 –14
Sweden –6 –20 –4
* changes compared to 1990 levels, in per cent
Rose et al. (1998) Global, 9 Regions Sov. Egal. Hor. Vert.
• Sovereignty USA 8.2 67.7 9.5 17.3

• Egalitarian Can, W. Europe 5.6 29.8 7.0 3.3
• Horizontal Other OECD 1.5 12.5 3.8 8.2
• Vertical EEFSU 6.2 55.9 4.1 1.1
China 3.9 -25.4 1.2 0.0
Middle East 1.0 0.3 1.3 0.6
Africa 0.8 -36.3 0.8 0.0
Latin America 1.3 -10.6 1.3 0.1
Southeast Asia 2.1 -63.3 1.6 0.0
EEFSU: Eastern Europe and * net cost impacts in the year 2005, in billions
Former Soviet Union of 1990 US$
OECD/IEA (1994) Emission limitations following Global, 10 Regions Egal. Hor. Vert.
10% reduction in world emissions
according to North America 11 2.5 12
West/North Europe 7 2 12
• Egalitarian Pacific OECD 21 3 52
• Horizontal Central/E. Europe 25 39 6
• Vertical Former SU 11 8 4
East Asia 8 14 6
China 3 23 2
Middle East 23 24 13
Latin America 7 12 5
Africa 5 24 3
* in per cent
(continued)
Reference Subject of investigation Geographical Main features

mapping
Elzen et al. • the Brazilian proposal (revised Analysis extended • only allocation-based criteria
(1999, 2000) and original approach), as to global scale • accounting for historical emissions and/or a
application of polluter-pays principle per-capita approach favour developing countries
FAIR model • Brazilian methodology for • inclusion of all GHG and land use emissions
(Framework to Assess estimating historical emissions favours developed countries
International Regimes
for burden sharing)
• Triptych approach • energy-related CO2 emissions may still increase

Phylipsen et al. (1998) because of high growth in non-Annex I emissions,
Blok et al. (1997) especially in industrial sector
• energy efficiency plays a major role in emissions
Sector oriented reduction if combined with global diffusion of
technology
Byrne et al. (1998) Proposal for egalitarian principle 140 countries • achieving economic parity in 2050
on the basis of 1989 population Four income groups • increase in CO2 emissions for low-income
countries
• reduction in CO2 emission for upper-income
countries
Ringuis et al. (1998) Horizontal: OECD • none of the rules in which it is possible to allocate
equal weight, costs among countries and into economic and
CO2/capita, CO2/unit GDP, GDP/capita, social drivers equalizes costs across the OECD
GDP, CO2
Rowlands (1997) Historical (reactive and proactive) OECD • twin-track strategy: short term flat-rate approach,
Equality long-term differentiated approach
Efficiency
Note: EEFSU= Eastern Europe and Former Soviet Union
effectiveness. Equity rules play an important role when deter- (1991) see an advantage for developed nations who have
mining the initial distribution of emissions allowances, or the stronger market capacities.
compensation schemes, as cost-effectiveness might result in a
disproportionately high level of burden to certain groups of Montgomery (1997) points out that it is not only international
countries. Attempts can be made to provide resource transfers negotiators who must consider equity, but also domestic legis-
to compensate for the disadvantaged (Biermann, 1997). lators. In an attempt to limit the competitiveness consequences
Usually, it is assumed that mitigation costs are relatively high- implied by the loss of capital and jobs that may accompany
er in developed countries. Thus, trading reduces the costs to efforts to limit domestic emissions, legislators may act to
developed countries and provide a transfer to developing coun- impose trade barriers. This is another aspect of the need to link
tries. Yet, the magnitude of side payments needs to be consid- international equity and negotiations to the fairness concerns in
ered when evaluating alternative burden-sharing rules, because domestic implementations.
they often generate rather high transaction and/or administra-
tive costs (Burniaux, 1999). If, however, use of the flexibility This section shows that equity, opportunities for cost-effective-
mechanisms is restricted and equalization of marginal abate- ness, and flexibility are among the main criteria that a burden
ment costs throughout the countries cannot be fulfilled, the sharing rule should satisfy. While it is clear that Pareto opti-
choice of burden-sharing rule matters with respect to the aggre- mality is a broadly accepted efficiency principle, there is no
gate abatement costs. Furthermore, emissions trading is usual- agreement on a best equity principle. Therefore theories of jus-
ly perceived to take place in a perfect market with parties hav- tice do not generate one best solution for the international allo-
ing equal opportunities of involvement. Agarwal and Narain cation of emissions permits. It appears more important to
emphasize negotiating principles that are widely accepted, significantly smaller biological and geophysical impacts and
regarded as equitable, and politically feasible. Beckerman and thus induce smaller damages and adaptation costs.
Pasek (1995), for instance, propose to minimize the propor-
tionate loss of welfare in any voluntary agreement for public
goods and lay a smaller burden on the poorest participants. 10.4.7 Emerging Conclusions with Respect to Policy-rele-
vant Scientific Questions
Much of the debate about equity in climate change mitigation
deals with social, economic, and political issues, including Looking at the dilemmas covered in previous sections, the fol-
international economic development and the unequal distribu- lowing conclusions emerge:
tion of wealth within and among countries. Views diverge • a carefully crafted portfolio of mitigation, adaptation,
widely. Is climate change an opportunity to solve the large and learning activities appears to be appropriate over
problems of sustainable development and global distribution of the next few decades to hedge against the risk of intol-
wealth? Or would broadening the scope for the anyway com- erable magnitudes and/or rates of climate change
plex and controversial issue of climate change run the risk of (impact side) and against the need to undertake painful-
neither solving the climate problem nor improving prospects ly drastic emission reductions if the resolution of uncer-
for sustainable development. Helm (1999) presents an analysis tainties reveals that climate change and its impacts
of fair sharing of GHG limitation burdens by separating the cli- might imply high risks;
mate issue from the dispute about the global welfare distribu- • the nature of the climate change problem requires that
tion. In contrast, Rayner and Malone (2000) pursue a holistic mitigation action at any level needs to start in the near
approach to equity and address climate change as an arena in term, as well as the development of appropriate adapta-
which to debate a wide variety of economic and political tion strategies;
issues. In this context, equity is perceived as a basis for gener- • emission reduction is an important form of mitigation,
ating social capital, which is necessary, together with econom- but the mitigation portfolio includes a broad range of
ic, natural, and intellectual capital, for sustainability. other activities, including investments to develop low-
cost non-carbon energy, and to improve energy effi-
ciency and carbon management technologies to make
10.4.6 Towards what Objective Should the Response Be future CO2 mitigation inexpensive;
Targetted? High versus Low Stabilization Levels– • timing and composition of mitigation measures (invest-
Insights on Mitigation ment in technological development or immediate emis-
sion reductions) is highly controversial because of the
In a rational world, the ultimate level of climate and thus GHG technological features of energy systems, and the range
concentration stabilization would emerge from a political of uncertainties involved with, for example, their
process in which the global community would weigh mitiga- impacts of climate change;
tion costs and the averted damages associated with different • international flexibility instruments help reduce the
levels of stabilization. Also weighed would be the risks of trig- costs of emission reductions, but they raise a series of
gering systemic changes in large geophysical systems, like implementation and verification issues that need to be
ocean circulation, or other irreversible impacts. In reality, the balanced against the cost savings;
political process will inevitably be influenced by the distribu- • while there is a broad consensus on Pareto optimality as
tion of positive and negative effects of climate change, as well an efficiency principle, there is no agreement on the
as by the costs of mitigation among countries, largely deter- best equity principle for burden sharing. Efficiency and
mined by how risks, costs, environmental values, and devel- equity are important concerns in negotiating emissions
opment aspirations are weighed in different regions and cul- limitation schemes, and they are not mutually exclu-
tures. This process will be strongly influenced by new scien- sive. Therefore, equity will play an important role in
tific and technical knowledge and by experience gained in determining the distribution of emissions allowances
making and implementing policy. The climate change litera- and/or within compensation schemes that follow emis-
ture contains a diversity of arguments as to why either a low sions trading resulting in a disproportionately high
level or a relatively high level of stabilization is desirable level of burden to certain countries. Finally, it is more
(IPCC, 2001b). important to rely on politically feasible burden-sharing
rules than to select one specific equity principle.
Given the large uncertainties that characterize each component
of the climate change problem, it is impossible to establish a Finally, a series of potential large-scale geophysical transfor-
globally acceptable level of stabilized GHG concentrations mations that might exert a major influence on the desired level
today. Studies discussed in this section and summarized in of stabilization have been identified and examined more close-
Table 10.11 support the obvious expectations that lower stabi- ly in recent years. These imply thresholds that humanity might
lization targets involve exponentially higher mitigation costs decide not to cross because the potential impacts or even the
and relatively more ambitious near-term emissions reductions, associated risks are considered to be unacceptably high. Little
but, as reported by WGII (IPCC, 2001b), lower targets induce is know about these thresholds today. Most recent results and
Table 10.11: Selected studies on global mitigation costs for different stabilization targets 674
Study Scenarios & dimensions 450ppmv 550ppmv 650ppmv 750ppmv 850ppmv Notes
Nordhaus and billion 1990 US$ discounted (d) back

Boyer (1999) net impacts on global welfare 335.00 to 1950
RICE-98 difference from base (=0) IAM
mitigation 459.00
reduction in cl.damage 794.00
Valverde and in billion 1985 US$ 1985-2100, 5 year time

Webster (1999) 500a global emissions path (500ppmv) steps
MIT-EPPA 1.6 all nations equal % abatement d= 5%
OECD: no trade 272.50
OECD: trade: 272.40
Non-OECD: no trade: 216.30
Non-OECD: trade 216.20
Global: no trade: 488.90
Global trade 488.60
Manne and Richels billion of 1990 US$

(1999b) Kyoto followed by arbitrary reduc. 2400.00 consumption loss
MERGE 3.0 Kyoto followed by least-cost 900.00 through 2100
least cost 650.00 d=5% to 1990
Tol (1999c), FUND percentage of world income, median 2.1% average annual income
loss
9 regions, 5 sectors
in 2100
Ha-Duong et al. percentage of 1990 GWP d=3%

(1997) inertia of 50 years 1.1% average annual costs
DIAM period 2000–21000
Lecocq et al. (1998) percentage average annual costs

STARTS abatement costs as consumption loss period 2000-2100
compared to BAU in differential inertia in
A: flexible sector 1,5% sectors
B: rigid sector 0.4%
(continued)
Yohe and Wallace percent of GWP as costs 16.40 to 16.69 5.94 to 7.09 2.84 to 4.24 1.59 to 3.05 d, expected
(1996) in 1990, no benefit side present value
Connecticut one percentage point is 7 scenarios
~210 billion US$
Dowlatabadi (1998) percentage of GDP as costs 0.05 to 0.48 period: 2000–20025

ICAM-3 mitigation costs within 9 scenarios sequential learning
with different technical change in framework
energy sector mitigation costs for the
USA and Canada only
Richels a. Edmonds percentage of GWP as costs (400) (500) d=5%

(1995) Sc:500a: follow BAU through 2010 Gl 2100: 0.6 %; ERB: 0.7% stabilization in 2100
Global 2100 & ERB Sc: 500b: between 500a & stab. Gl 2100: 0.9 %; ERB: 0.95% Global 2100
Sc: Emission stabilization at Gl 2100: 1.15 %; ERB: 1.1% Manne/Richels
1990 level Gl: 0.9%; ERB:1.1% Gl:0.6%; ERB: 0.7% ERB: Edmonds-
Reilly-Barns (1992)
Plambeck, Hope in trillion US$ d= 5 %, 1990-2200

(1996) BAU + 100 GtC: 2.50 further scenarios not
PAGE95 BAU: 2.20 listed
here, e.g.: non-linear
etc.
Yohe and Jacobsen trillion 1990 US$ d=3 % through 2100

(1999) Connecticut annual control costs of 7 sc (Ramsey)
Minimum cost: Sc3 to Sc7 A: 10.13 to 44.40 A: 2.11 to 16.12 A: 0.36 to 7.24 cost study in terms of
Cost with Kyoto: Sc3 to Sc7 A: 10.47 to 47.04 A: 2.12 to 16.19 A: 0.40 to 7.26 deadweight loss, no opt
Minimum cost minus 10 % emis. B: 10.13 to 44.40 B: 2.11 to 16.12 B: 0.36 to 7.24 A: alt. sink
Cost with Kyoto minus 10 % B: 10.40 to 46.77 B: 2.13 to 16.16 B: 0.42 to 7.28 specifications
B: alt. emissions targets
for 2010
Manne (1995) trillion 1990 US$ (415 ppmv) d= 5 % to 1990

MERGE global damage 1.90
benefits of stab.as reduced dam. 2.50
costs of stab. 18.50
(continued)
675
676
Manne and Richels trillion 1990 US$

(1997) WGI: w/o where flex. 14.20 9.00 5.00 3.00 d=5% to 1990
MERGE 3.0 WGI: with where flex 7.00 4.00 2.00 1.2 1990-2100
WRE: w/o where flex 5.50 2.00 1.00 1.00 non-market and
WRE: with where flex 3.50 1.00 0.6 0.50 market damages
least cost: with where flex 0.60
WGI: Annex-1-trade 5.90
10% cut in 2010: A-1-trade 2.30
WRE: A-1-trade 0.90
Tol (1999d), trillion net present costs in US$

FUND 1.6 WGI: no trade 32.50 17.5 10.50 5% through 2050
WGI: trade 17.50 8.0 4.00 damage per year
WRE: no trade 34.00 16.0 10.00 in billion US$: 216
WRE: trade 13.00 4.0 2.00
Tol (1999a) in trillion US$ below 550

FUND 1.6 Minimum Cost 2.4 d= 5% per year to 1990
Min. Cost meeting Kyoto, trade 3.1 consumption losses p.a.
Min. Cost meeting Kyoto 3.7 period 1990-2200
2 % reduction, intern. trade 4.0
meeting Kyoto, trade 4.4
meeting Kyoto, no trade 14.6
the implications of the possibility of such thresholds are sum- The analytical tools to support the above decision-making
marized in Chapter 19 of WGII (IPCC, 2001b). Nevertheless, processes need to handle this double feature. They should pro-
currently estimated “danger zones” are in the domain of high vide policymakers with guidance to set long-term targets and
stabilization levels for most threshold events. to formulate short-term policies and measures. Some models
take a long-term view to explore deep future impacts of climate
Considering the special combination of features of the climate change, but this must not be interpreted as suggesting optimal
problem listed at the beginning of this chapter, it is obvious that strategies for the next 50-100-200 years. Other models explore
no “once forever” solution exists. Making long-term commit- what are the most promising near-term policies and how to
ments in any area where retraction is possible is problematic. implement them. Similarly, many studies and models reviewed
Making decisions that entail long-term and possibly irre- in this chapter consider the world as a whole or broken down
versible consequences due to long delays, inertia and similar into a few regions, at best. Others take a more detailed look at
system properties is even more difficult, especially under subnational and regional aspects. They shed light on the small-
severe uncertainties. Therefore, as emphasized in this chapter, er scale implications of climate change and its management
the most promising approach to climate policy is sequential strategies, often in the context of other social concerns charac-
decision-making. This process involves a regular reassessment terizing the country or region. Our assessment has found a
of the long-term climate risks (net damages from a given mag- healthy diversity of DAFs along both the long-term-short term
nitude of climate change) and their management objectives and the global-local axes. Nevertheless, the analytical capacity
(climate or GHG concentration stabilization) in the light of and thus quotable results are still badly missing in most devel-
newly available information. Short-term strategies are then oping countries. This is probably the most severe problem to be
crafted so that both GHG emissions and the underlying socioe- solved by the time the world community will prepare its next
conomic processes (resource use, technologies) evolve in a climate change assessment report.
direction which makes future course corrections in any direc-
tion the least expensive. The current structure of the interna-
tional climate regime is formulated in this vein: the UNFCCC
provides some, albeit vague, guidelines for long term stabiliza-
tion objectives while short-term goals are settled in and imple-
mented under protocols for each budget period.
Beierle, T., 1998: Public Participation in Environmental Decisions: An

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APPENDICES
I
List of Authors and Reviewers
692 List of Authors and Reviewers
A. List of Co-ordinating Lead Authors, Lead Authors, Contributing Authors, and Review Editors1
F. Ackerman Tufts University, United States of America

A.O. Adegbulugbe Obafemi Awolowo University, Nigeria
R.S. Agarwal Indian Institute of Technology Delhi, India
D. Ahuja Nat. Institute Advance Studies, India
G. Akumu Climate Network Africa (CAN), Kenya
J. Alcamo University of Kassel, Germany
M.A. Al-Moneef King Saud University, Saudi Arabia
E. Alsema University of Utrecht, Netherlands
M. J. Apps Natural Resources Canada, Canada
H. Audus International Energy Agency (IEA, Greenhouse Gas R&D Programme), United Kingdom
T. Banuri Stockholm Environment Institute Boston, USA (Pakistan)
T. Barker University of Cambridge, United Kingdom
R. Baron International Energy Agency, France
S Barrett London Business School, United Kingdom
I.A. Bashmakov Tsentr po Effektivnomu Ispolzovanlu Energii, Russian Federation
J. de Beer Ecofys, Netherlands
S. Bernow Tellus Institute, United States of America
L.S. Bernstein International Petroleum Industry Environmental Conservation Association (IPIECA),
United States of America
D.K. Biswas Ministry of Environment & Forests, India
K. Blok Ecofys, Netherlands
C. Bohringer Institute of Energy, Economics and the Rational Use of Energy, Germany
P. Bohm Stockholm University, Sweden
R.K. Bose Tata Energy Research Institute (TERI), India
D.H. Bouille Instituto de Economía Energética asociado a Fundación Bariloche (IDEE), Argentina
J. Byrne University of Delaware, United States of America
E. Calvo Comision Nac.de Cambio Clim., Consejo Nac. del Amb., Peru
P. Capros University of Athens, Greece
C. Carraro University of Venice, Italy
C. Cerri Universidade de Sao Paolo, Brazil
M.J. Chadwick United Kingdom
R. Christ IPCC Secretariat, Switzerland (Austria)
J.M. Christensen Risoe National Laboratory, Denmark
O. Christophersen Ministry of Environment, Norway
L. A. Cifuentes Catholic University of Chile, Chile
R. Costanza University of Maryland, United States of America
P.J. Crabbe University of Ottowa, Canada
P. Criqui Institut d’Economie et de Politique de l’Energie; Centre National de la Recherche
Scientifique (IEPE-CNRS), France
O.R. Davidson University of Cape Town, South Africa (Sierra Leone)
G.R. Davis Shell International, United Kingdom
D.L. Davis Carnegie Mellon University, United States of America
J. Davison IEA Greenhouse Gas R&D Programma, United Kingdom
A. Dearing World Business Council for Sustainable Development (WBCSD), Switzerland (UK)
E. Demiraj Bruci Hydrometeorological Institute, Albania
B. Dijkstra University of Heidelberg, Germany (Netherlands)
T. Downing University of Oxford, United Kingdom (USA)
J. Edmonds Pacific Northwest National Laboratory, United States of America
B.S. Fisher Abare, Australia
B.P. Flannery Exxon Research and Engineering Co., United States of America
E. Fortin Congrès International des Réseaux Electriques de Distribution (CIRED), France
P. Freund International Energy Agency (IEA, Greenhouse Gas R&D Programme), United Kingdom
1 Country in parenthesis: citizenship of contributor

List of Authors and Reviewers 693
T. Fujimori Japan Forest Technical Ass., Japan

C. Gay-Garcia Centro de Ciencias de la Atmosfere, Universidad Nacional Autonoma de Mexico (UNAM),
Mexico
L.J. Geng United Nations Development Programme (UNDP), Peru
A. Golub Center for Environmental Economics, Russian Federation
L..H. Goulder Stanford University, United States of America
D.L. Greene Oak Ridge National Laboratory, United States of America
K. Gregory Centre for Business and the Environment, United Kingdom
M. Grubb Imperial College of Science, Technology and Medicine, United Kingdom
S. Gupta Tata Energy Research Institute (TERI), India
E.F. Haites Margaree Consultants Inc., Canada
D.O. Hall King’s College London/University of London, United Kingdom
K. Halsnaes Riso National Laboratory, Denmark
J. Harnisch Ecofys, Germany
T.C. Heller Stanford University, United States of America
D. Herbert University of British Colombia, Canada
O. Hohmeyer University of Flensburg, Germany
E. Holt Climate Technology Initiative, United States of America
J.C. Hourcade Congrès International des Réseaux Électriques de Distribution (CIRED); Centre National
de la Recherche Scientifique (CNRS); École des Hautes Études en Sciences Sociales
(EHESS), France
H. Imura Kyushu University, Japan
H. Ishitani Graduate School of Engineering, University of Tokyo, Japan
A. B. Jaffe Brandeis University, United States of America
G. Jannuzzi Universidade Estadual de Campinas (UNICAMP), Brazil
H.H. Janzen Agriculture and Agri-Food Canada, Canada
T. Jaszay Technical University of Budapest, Hungary
C.J. Jepma University of Groningen, Netherlands
M. Jefferson Global Energy & Environmental Consultants, United Kingdom
K. Jiang Energy Research Institute, China
E. Jochem Frauhofer Institute for Systems and Innovation Research, Germany
R.O. Jones American Petroleum Institute, United States of America
S. Kartha Tellus Institute, United States of America
T. Kashiwagi Tokyo University of Agriculture & Technology, Japan
P.E. Kauppi University of Helsinki, Finland
D. Keith Carnegie Mellon University, United States of America
N. Keohane Harvard University, United States of America
A.M. Khan International Atomic Energy Agency, Austria
H.S. Kheshgi Exxon Research & Engineering Company, United States of America
A, Khosla Development Alternatives, India
A. Kollmus Tufts University Boston, USA (Switzerland)
L. A. Kozak Southern Company Services, United States of America
O.N. Krankina Oregon State University, United States of America (Russian Federation)
A.J. Krupnick Resources for the Future, United States of America
L. Kuijpers Technical University Eindhoven, Netherlands
S. Kverndokk Frischsenteret / Frisch Centre, Norway
A. Lanza International Energy Agency, France (Italy)
E. Lebre la Rovere Federal University of Rio de Janeiro, Brazil
H. Lee Korea Energy Economics Institute, South Korea
R. Lempert Organization for Research and Development (RAND), United States of America
S.J. Lennon ESKOM Engineering, South Africa
M. Levine Lawrence Berkeley National laboratory, United States of America
C. Li Complex Systems Research Center, United States of America
J. Li Energy Research Institute, China
J. Liski European Forest Institute, Finland
L. Lorentsen Ministry of Finance, Norway
R. Loulou McGill University, Canada
W.R. Makundi Lawrence Berkeley Laboratory/University of California, United States of America

(Tanzania)
A.J.G. Manders Centraal Planbureau (CPB), Netherlands
A. Markandya University of Bath, United Kingdom
G. Marland Oak Ridge Nat. Laboratory, United States of America
O. Masera Ceruti Instituto de Ecologia, Universidad Nacional Autonoma de Mexico (UNAM), Mexico
Y. Matsuoka Kyoto University, Japan
D. L. Mauzerall Princeton University, United States of America
R. S. Maya Southern Center for Energy and Environment, Zimbabwe
M. McFarland DuPont Fluoroproducts, United States of America
B. Metz National Institute for Public Health and the Environment (RIVM), Netherlands
I. Meyer Potsdam Institute For Climate Impact Research, Germany
K.M. Meyer-Abich Universitaet Essen, Germany
L. Michaelis Oxford Centre for the Environment Ethics & Society (OCEES), United Kingdom
E. Mills Lawrence Berkeley National Laboratory, United States of America
K. Minami National Institute of Agro-Environmental Sciences, Japan
K. Minato Japan Automobile Research Institute (JARI), Japan
J.F.B. Mitchell Hadley Centre, United Kingdom
J. P. Montero Catholic University of Chile, Chile
W.R. Moomaw The Fletcher School of Law and Diplomacy, United States of America
D. Moorcroft World Business Council for Sustainable Development, Switzerland
J. R. Moreira Biomass Users Network (BUN), Brazil
S. Mori Science University of Tokyo, Japan
T. Morita National Institute for Environmental Studies, Japan
M. Munasinghe University of Colombo, Sri Lanka
S. Murase Sophia University, Japan
M.J. Mwandosya Center for Energy, Environment, Science & Technology, Tanzania
G.-J. Nabuurs ALTERRA Research Institute of the Green Environment, Netherlands
A. Najam Boston University, United States of America (Pakistan)
T. Nakata Mitsui & Co. Ltd., Japan
N. Nakicenovic International Institute for Applied Systems Analysis (IIASA), Austria
E. Nikitina Russian Academy of Science, Russian Federation
J.B. Opschoor Institute for Social Studies, Netherlands
R.K. Pachauri Tata Energy Research Institute (TERI), India
J. Pan Chinese Academy of Social Sciences/TSU Working Group III IPCC, Netherlands (China)
J.K. Parikh Indira Gandhi Institute of Development Research (IGIDR), India
K. Parikh Indira Gandhi Institute of Development Research (IGIDR), India
A. Pasco-Font Grade, Peru
J. Pershing International Energy Agency, France (USA)
G Peszko Organization for Economic Cooperation and Development (OECD), France (Poland)
R. Pichs-Madruga Centro de Investigaciones de Economía Mundial (CIEM), Cuba
L. Pinguelli Rosa Federal University Rio de Janeiro, Brazil
H.M. Pitcher Pacific Northwest National Laboratories, United States of America
W. Pizer Resources for the Future, United States of America
S. E. Plotkin Argonne National Laboratory, United States of America
N. S. Prasad Centre For Wind Energy Technology (C-WET), India
L. K. Price Lawrence Berkeley National Laboratory, United States of America
A. Rahman Bangladesh Centre for Advanced Studies (BCAS), Bangladesh
A Rana National Institute for Environmental Studies, Japan (India)
S. Rand United States Environmental Protection Agency (US EPA), United States of America
P. D. Raskin Stockholm Environment Institute Boston, United States of America
N. H. Ravindranath Indian Institute of Science, India
S. Rayner Colombia University, United States of America
W. Razali Wan Mohd Forest Research Institute Malaysia (FRIM), Malaysia
J. Reilly Department of Agriculture, United States of America
W.J. Rhodes United States Environmental Protection Agency (US EPA), United States of America
K. Riahi International Institute for Applied Systems Analysis (IIASA), Austria (Iran)
R.G. Richels Electric Power Research Institute (EPRI), United States of America
J.B. Robinson University of British Columbia, Canada
R.A. Roehrl International Institute for Applied Systems Analysis (IIASA), Austria
H.H. Rogner International Atomic Energy Agency, Austria
G. Roos ESKOM Engineering, South Africa
K.E. Rosendahl Statistics Norway, Norway
W. Sachs Wuppertal Institute, Germany
A. Sagar Harvard University, United States of America (India)
P.H.N. Saldiva Harvard School of Public Health, United States of America
D. A. Sankovski ICF Consulting, United States of America
J. A. Sathaye Lawrence Berkeley Nat. Laboratory, United States of America
A. Schafer Massachusetts Institute of Technology, United States of America
R.A. Sedjo Resources for the Future, United States of America
H. Sejenovich Fundacion Barilloche, Argentina
R. Seroa da Motta Instituto de Pesquisa Econômica Aplicada (IPEA), Brazil
R. Sharma United Nations Environment Programme (UNEP), Kenya (India)
S. Sharma Tata Energy Research Institute (TERI), India
M. Shechter University of Haifa, Israel
J. Shogren University of Wyoming, United States of America
S. B. Shrikanth Tata Energy Research Institute (TERI), India
P. R. Shukla Indian Inst. of Management, India
R.E.H. Sims Massey University, New Zealand
V. I. Sokolov Russian Academy of Sciences, Russian Federation
B. Solberg Norwegian Forest Research Institute, Norway
L. Srivastava Tata Energy Research Institute (TERI), India
R.N. Stavins Harvard University, United States of America
R.T.M. Sutamihardja Ministry of Global Environment, Indonesia
R Swart National Institute for Public Health and the Environment (RIVM), Netherlands
K. Tanaka Global Industrial and Social Progress Research Institute (GISPRI), Japan
T. Taniguchi Global Industrial and Social Progress Research Institute (GISPRI), Japan
M.T. Tolmasquim Cidade Universitaria (Federal University of Rio de Janeiro), Brazil
J. Torres Martinez Ministerio de Ciencia, Cuba
T. Taylor University of Bath, United Kingdom
F. L. Toth Potsdam Institute for Climate Impact Research, Germany
J. Turkson RISOE National Laboratory, Denmark (Ghana)
C.R. Turner ESKOM Engineering, South Africa
A. Underdal Centre for Advanced Study, Norway
A. Verbruggen University of Antwerp, UFSIA, Belgium
D.G. Victor Council on Foreign Relations, United States of America
A. Villavicencio RISOE National Laboratory, Denmark (Ecuador)
M.J. Villena Cambridge University, United Kingdom (Chile)
H.J.M. de Vries National Institute for Public Health and the Environment (RIVM), Netherlands
Y. Wake Keio University, Japan
A. C. Walter State University of Campinas, Brazil
J.P. Weyant Stanford University, United States of America
P. Wilcoxen University of Texas, United States of America
J.J. Wise Mobil Oil Corporation, United States of America
E. Worrell Lawrence Berkeley National Laboratory, United States of America (Netherlands)
H. Xu Energy Research Institute, China
M. Yamaguchi Keio University, Japan
K. Yamaji University of Tokyo, Japan
F. D. Yamba University of Zambia (Lusaka), Zambia
F. Yamin University of London, United Kingdom (Pakistan)
J. R. Ybema ECN Policy Studies, Netherlands
R. Ye State Environmental Protection Administration, China
G. Yohe Wesleyan University, United States of America
T. Zhang Tsinghua University, China
Z. Zhang University of Groningen, Netherlands

P. Zhou Energy, Environment, Computer and Geophysical Applications Group (EECG Consultants),
Botswana
D. Zhou Energy Research Institute, China
F. Zhou Energy Research Institute, China
B. List of Reviewers
Armenia
K. Ter-Ghazaryan Ministry of Nature Protection
Australia
I. Jones University of Sydney

A. Fuller Australian Government
Austria
B. Amon University of Agricultural Sciences

G. Klaassen International Institute for Applied Systems Analysis
K. Radunsky Federal Environment Agency
L. Schrattenholzer International Institute for Applied Systems Analysis
D.M. Tripold Federal Ministry for Agriculture, Forestry, Environment and Water Management
Belgium
P. Boeckx Gent University

J. Franklin Solvay Research and Technology
D. Seed BNFL
Benin
E. Ahlonsou Service Meteorologique National
Brazil
J. Goldemberg University of Sao Paolo

R. Schaeffer Federal University of Rio de Janeiro
M. Silvia Muylaert Federal University of Rio de Janeiro
M. Tolmasquim Federal University of Rio de Janeiro
S. Trindade SE_T International Ltd.
Canada
R. Desjardins Agriculture and Agri-Food Canada

P. Edwards Meteorological Service of Canada
M. Everell Government of Canada
L. Gagnon Hydro-Quebec
R. Grafton University of Ottawa

P. Hall Canadian Forest Service
B. Jacques Environment Canada
N. Macaluso Environment Canada
D. MacDonald Alberta Department of Environment
J. Masterton Government of Canada
J. Robinson University of British Columbia
W. Smith Environment Canada
J. Stone Environment Canada
China
E. Lin Chinese Academy of Agricultural Sciences

H. Xu Energy Research Institute of SDPC
T. Teng Chinese Academy of Social Sciences
Y. Xu Tsinghua University
T. Zhang Tsinghua University
Cuba
M. Castellanos Ministry of Science, Technology and Environment

R. Pichs-Madruga Centre for World Economy Studies/ Vice-Chair IPCC WG III
J. Torres Ministry of Science, Technology and Environment
G. Trueba Ministry of Science, Technology and Environment
Finland
P. Hakkila VTT Energy

R. Korhonen VTT Energy
P. Kortelainen Finnish Environment Institute
R. Pipatti VTT Energy
I. Savolainen VTT Energy
France
N. Campbell Elf-Atochem SA
J-Y. Caneill Electricité de France
H. Connor-Lajambe Helio International
C. Cros Agency for the Environment and Energy Resources
M. Darras Gaz de France
B. Lesaffre Ministère de l’Aménagement du Territoire et de l’Environnement
P. Meunier Interministerial Task Force on Climate Change
A. Michaelowa Hamburg Institute for International Economics
M. Petit Ecole Polytechnique
Germany
H-J. Ahlgrimm Federal Agricultural Research Center

P. Burschel Technical University Munich
A. Freibauer University of Stuttgart
E. Jochem Fraunhofer Institut für Systemtechnik und Innovationsforschung (FhG – ISI)
H. Kohl Federal Ministry for the Environment, Nature Conservation and Nuclear Safety
K. Kristof Wuppertal Institute for Climate Environment Energy

M. Lindner Potsdam Institute for Climate Impact Research
K. Lochte Baltic Sea Research Institute Warnemünde
P. Radgen Fraunhofer Institute Systems and Innovations Research
S. Ramesohl Wuppertal Institute for Climate Environment Energy
B. Schärer Umweltbundesamt
S. Sicars Sitec
F. Toth Potsdam Institute for Climate Impact Research
M. Treber Germanwatch e.V.
M. Weber Technical University Munich
India
K. Chatterjee Climate Change Centre

M. Murty Institute of Economic Growth
Italy
M. Contaldi National Environmental Protection Agency

A. Raudner National Environmental Protection Agency
Japan
A. Amano Kwansei Gakuin University

K. Asakura Central Research Institute of Electric Power Industry
S. Baba Ministry of Foreign Affairs
Y. Fujii University of Tokyo
N. Goto University of Tokyo
T. Hakamata National Institute of Agro-Environmental Sciences
H. Hasuike The Institute of Applied Energy
Y. Hosoya The Tokyo Electric Power Company
T. Imai The Kansai Electric Power Company
A. Inaba National Institute for Resources and Environment
M. Inoue Global Environmental Affairs Office, Ministry of Economy, Trade and Industry
Y. Ishida Global Industrial and Social Progress Research Institute
T. Jung Institute for Global Environmental Strategies
H. Kazuno Climate Change Division, Ministry of Foreign Affairs
M. Kokitsu Global Industrial and Social Progress Research Institute
H. Kuraya Office of Research and Information, Ministry of the Environment
N. Matsuo Global Industrial and Social Progress Research Institute / Institute for Global
Environmental Strategies
K. Nakane Hiroshima University
I. Nouchi National Institute of Agro-Environmental Sciences
Y. Ogawa Institute of Energy Economics
A. Rana National Institute for Environmental Studies
I. Sadamori Global Industrial and Social Progress Research Institute
T. Saito Senshu University
S. Sato Chubu Electric Power Company
R. Shimizu Global Environment Division, Ministry of Foreign Affairs
N. Soto University of Tokyo
K. Tanaka Global Industrial and Social Progress Research Institute
Y. Tanaka Ministry of Agriculture, Forestry and Fishery
Y. Uchiyama University of Tsukuba
H. Watanabe Global Industrial and Social Progress Research Institute
K. Yamaji University of Tokyo

K. Yamazaki Chubu Electric Power Company
S. Yokoyama National Institute for Resources and Environment
Kenya
G. Akumu Climate Network Africa

E. Kimuri Ministry of Tourism, Trade and Industry
P. Mbuthi Ministry of Energy
J. Ng’ang’a University of Nairobi
J. Njihia Consultant
W. Nyakwada Kenya Meteorological Department
P. Oballa KEFRI
K. Senelwa Moi University
Korea
J-S. Lim Kwangwoon University
Mexico
N. Montes National Autonomous University of Mexico

C. Sheinbaum Pardo National Autonomous University of Mexico
A. de la Vega Navarro National Autonomous University of Mexico
Netherlands
G. Addink Utrecht University

A. Baede Royal Netherlands Meteorological Institute
M. Beeldman Netherlands Energy Research Foundation
M. Berk National Institute for Public Health and the Environment
H. Bersee Ministry of Housing, Spatial Planning and the Environment
M. Davidson Centre for Energy Conservation and Environmental Technology Delft
D. Gielen Netherlands Energy Research Foundation
B. Hare Greenpeace International
J. van der Jagt Utrecht University
K. Jardine Greenpeace International
T. Kram Netherlands Energy Research Foundation
K. Mallon Greenpeace International
B. Metz IPCC WGIII Co-chair
L. Meyer Ministry of Housing, Spatial Planning and the Environment
J. Pan IPCC WGIII TSU
S. van Rooijen Netherlands Energy Research Foundation
J. van Soest Centre for Energy Conservation and Environmental Technology Delft
R. Swart IPCC WGIII TSU
R. Tol Vrije Universiteit Amsterdam
A. Webb Netherlands Agency for Energy and the Environment
E. Woerdman University of Groningen
R. Ybema Netherlands Energy Research Foundation
New Zealand
J. Barnett University of Canterbury

S. Kerr Motu Economic Research
P. MacLaren New Zealand Forest Research Institute Ltd.
D. Payton Ministry of Foreign Affairs and Trade
H. Plume Ministry for the Environment
P. Read Massey University
A. Reisinger Ministry for the Environment
R. Sims Massey University
M. Storey Agriculture New Zealand
A. Stroombergen Infometrics Consulting
Nigeria
G. Ayoola University of Agriculture
Norway
K. Alfsen Center for International Climate and Environmental Research Oslo (CICERO)
T. Asphjell The Norwegian Pollution Control Authority (SFT)
K. Brekke Statistics Norway
O. Christophersen Ministry of Environment
T. Gulowsen Greenpeace Nordic
P. Haugan University of Bergen
H. Kolshus Centre for International Climate and Environmental Research Oslo (CICERO)
H. Leffertstra The Norwegian Pollution Control Authority (SFT)
L. Mathiesen Norwegian School of Economics and Business Administration
S. Mylona The Norwegian Pollution Control Authority (SFT)
P. Neksa Foundation for Scientific and Industrial Research
M. Pettersen The Norwegian Pollution Control Authority (SFT)
J. Petterson Foundation for Scientific and Industrial Research
A. Thorvik Statoil
A. Torvanger Centre for International Climate and Environmental Research Oslo (CICERO)
Poland
H. Gay EnergSys Ltd.
Portugal
S. Dessai Euronatura
P. Martins Barata Euronatura
E. de Oliveira Fernandes University of Porto
Saudi Arabia
M. Al-Sabban Government of Saudi Arabia

Singapore
J. Ruitenbeek Economy and Environment Program for Southeast Asia
Slovenia
A. Kranjc Ministry of Environment, Hydrometeorological Institute

Z. Stojic EkoNova
South Africa
G. Downes ESKOM
W. Poulton ESKOM
C. Turner ESKOM
M. Veeran-Rambharos Generation Environmental Management
B. Vrede Eskom
M. de Wit CSIR Environmentek
Spain
F. Hernández Consejo Superior de Investigaciones Científicas, Institute of Economics and Geography
Sweden
U. Dethlefsen Vattenfall Utveckling AB

L. Eidenstein Vattenfall Utveckling AB
C. Ekström Vattenfall Utveckling AB
S-O. Ericson Vattenfall Utveckling AB
H. Fernqvist Volvo Car Corporation
K. Maunsbach Vattenfall Utveckling AB
B. Svensson Vattenfall Utveckling AB
Switzerland
C. Albrecht Swiss Secretariat for Economic Affairs

O. Bahn Paul Scherrer Institute
J. Romero Office fédéral de l’environnement, des forêts et du paysage
Ukraine
V. Demkin Kyiv Mohyla Academy
United Kingdom
H. Audus IEA Greenhouse Gas R&D Programme

P. Ashford Caleb Management Services
K. Begg University of Surrey
W. Bjerke International Primary Aluminium Institute
S. Boehmer-Christiansen University of Hull
D. Colbourne Calor Gas Ltd

E. Cornish The Uranium Institute
P. Costa EcoSecurities Ltd.
J. Davidson IEA Greenhouse Gas R&D Programme
N. Eyre Energy Saving Trust
P. Freund IEA Greenhouse Gas R&D Programme
J. Gale IEA Greenhouse Gas R&D Programme
J. Grant International Petroleum Industry Environmental Conservation Association
M. Grubb Imperial College
M. Harley English Nature / Countryside Council for Wales / Scottish Natural Heritage
S. Holloway British Geological Survey
R. Knapp World Coal Institute
G. Leach Stockholm Environment Institute
N. Mabey World Wide Fund for Nature
F. MacGuire Friends of the Earth England, Wales and Northern Ireland
A. McCulloch University of Bristol
M. Mann Department of Environment, Transport and the Regions
A. Meyer Global Commons Institute
B. Müller Oxford Institute for Energy Studies
A. Murphy Shell International
S. Parkinson University of Surrey
J. Skea Policy Studies Institute
M. Tight University of Leeds
D. Warrilow Department of the Environment, Transport and the Regions
USA
F. Ackerman Tufts University

R. Alig Forestry Sciences Laboratory
S. Archer National Science and Technology Center
K. Arrow Stanford University
C. Artusio Office for Science and Technology Policy
P. Backlund Office for Science and Technology Policy
S. Baldwin Office for Science and Technology Policy
W. Barbour Environmental Protection Agency
D. Bassett US Department of Energy
D. Bauer National Research Council
S. Bernow Tellus Institute
G. Blomquist University of Kentucky
E. Boedecker US Department of Energy
E. Boes National Renewable Energy Laboratory
G. Boyd Argonne National Laboratory
M. Brown Oak Ridge National Laboratory
S. Brown Winrock International
C. Campbell Petroplan Inc.
R. Caton Alchemy Consulting Inc.
F. de la Chesnaye US Environmental Protection Agency
D. Clark University of California
B. DeAngelo Environmental Protection Agency
S. DeCanio University of California
M. Delmas University of California
J. Dowd US Department of Energy
R. Downs Office of Science and Technology Policy
L. Drake Massachusetts Institute of Technology
R. Eckaus Massachusetts Institute of Technology
A. Farrell Carnegie Mellon University
K. Fisher-Vanden Dartmouth College

B. Flannery Exxon Research and Engineering Co.
L. Flejzor US Department of State
R. Fleagle University of Washington
J. Frankel Harvard University
K. Friedman US Department of Energy
R. Friedman Heinz Center
G. Frisvold University of Arizona
W. Fulkerson University of Tennessee
W. Gore Boehringer Ingelheim Pharmaceuticals Inc.
J. Gowdy Rensselaer Polytechnic Institute
K. Green US Department of Transportation
L. Greening Consultant
B. Haddad University of California
S. Hadley Oak Ridge National Laboratory
J. Hammitt Harvard School of Public Health
D. Hanson Argonne National Laboratory
M. Hanson Energy Center of Wisconsin
D. Harrison National Economic Research Associates
H. Herzog Massachusetts Institute of Technology
E. Holt US Department of Energy
J. Hrubovcak US Department of Agriculture
H. Jacoby Massachusetts Institute of Technology
J. Johnston ExxonMobil Research and Engineering Company
P. Karpoff US Department of Energy
J. Kerstetter Washington State University
G. Kelly Global Climate Coalition
H. Khesghi ExxonMobil Research and Engineering Company
R. Kopp Resources for the Future
L. Kozak Southern Company Services
F. Krause International Project for Sustainable Energy Paths
S. Laitner Environmental Protection Agency
H. Lee Harvard University
P. Lydon Berkeley University
T. Lyon Indiana University
T. Marx General Motors Corporation
B. McCarl Texas A&M University
S. McDonald Pacific Northwest National Laboratory
B. McNutt US Department of Energy
R. Mendelsohn Yale School of Forestry and Environmental Studies
H. Miller Air Transportation Associaton of America, Inc.
J. Miotke Director Office of Global Change, US Department of State
J. Moore TA Engineering Inc.
R. Morgenstern Resources for the Future
A. Mosier US Department of Agriculture
T. Muir Office of Science and Technology Policy
B. Murry Center for Economics Research
R. Newell Resources for the Future
A. Nicholls Pacific Northwest National Laboratory
M. Offutt White House Office of Science and Technology Policy
W. Orr Prescott College, Nasa Program
P. O’Rourke Sparber & Associates
W. Pizer Resources for the Future
S. Plotkin Argonne National Laboratory
R. Prince US Department of Energy
P. Quinlan Office of Science and Technology Policy
R. Randall The Rainforest Regeneration Institute
J. Reilly Massachusetts Institute of Technology

A. Rose Penn State University
M. Rose University of Michigan
N. Rosenberg Pacific Northwest National Laboratory
M. Ross University of Michigan
D. Rothman Columbia University
M. Ruth Boston University
A. Sanstad Lawrence Berkeley National Laboratory
S. Schneider Stanford University
K. Segerson University of Connecticut
A. Serchuk Center for Renewable Energy and Sustainable Technology
W. Shadis TA Engineering Inc.
M. Sheehan Osterberg & Sheehan
J. Sheffield Oak Ridge National Laboratory / University of Tennessee
J. Shiller Ford Motor Company
W. Short National Renewable Energy Laboratory
J. Shortle Penn State University
T. Siddiqi Global Environment and Energy in the 21st century
L. Silverman US Department of Energy
K. Skog USDA Forest Products Laboratory
K. Smith North Carolina State University
W. Smith US Environmental Protection Agency
A. Solomon Executive Office of the President
J. Solomon Praxair Inc.
T. Terry US Department of Energy
J. Tester Massachusetts Institute of Technology
T. Tietenberg Colby College
M. Toman Resources for the Future
R. Tuccillo Executive Office of the President
Th. Vanderspurt ExxonMobil Research and Engineering Company
C. Walker US Agency for International Development
M. Walsh Oak Ridge National Laboratory
E. Watts US Department of Energy
L. Weber Office of Science and Technology Policy
M. Weiss Massachusetts Institute of Technology
H. Wesoky Federal Aviation Administration
N. Young Air Transportation Association of America, Inc.
Venezuela
L. Pérez Ministerio del Ambiente y de los Recursos Naturales / Ministerio de Energia y Minas
IGO/NGO
A. Alexiou United Nations Educational, Scientific and Cultural Organisation

R. Baron International Energy Agency
L. Bernstein International Petroleum Industry Environmental Conservation Association
G. Brennand Organisation of the Petroleum Exporting Countries
J. Corfee Morlot Organisation for Economic Cooperation and Development
J. Crayston International Civil Aviation Organisation
D. Ghasemzadeh Organisation of the Petroleum Exporting Countries
J. Grant Int’l Petroleum Industry Environmental Conservation Association
B. Hare Greenpeace International
V. Kagramanian International Atomic Energy Agency
A. Khan International Atomic Energy Agency
K. Mallon Greenpeace International

D. Mansell-Moullin International Petroleum Industry Environmental Conservation Association
D. O’Connor Organisation for Economic Co-operation and Development
L. Schipper International Energy Agency
W.-J. Schmidt-Küster FORATOM – European Atomic Forum
J. Wise International Petroleum Industry Environmental Conservation Association
F. Unander International Energy Agency
D. Wallace International Energy Agency
II
Glossary
708 Glossary
Glossary1 Administrative costs

The costs of activities of the project or sectoral activity direct-
AAs ly related and limited to its short-term implementation. They
See assigned amounts. include the costs of planning, training, administration, moni-
toring, etc.
AAU
See assigned amount unit. Afforestation
Planting of new forests on lands that historically have not con-
Activities Implemented Jointly (AIJ) tained forests2. See also Deforestation and Deforestation.
The pilot phase for joint implementation, as defined in Article
4.2(a) of the United Nations Framework Convention on AIJ
Climate Change, that allows for project activity among devel- See Activities Implemented Jointly.
oped countries (and their companies) and between developed
and developing countries (and their companies). AIJ is intend- Alliance of Small Island States (AOSIS)
ed to allow Parties to the United Nations Framework The group was formed during the Second World Climate
Convention on Climate Change to gain experience in jointly Conference in 1990 and comprises small island and low-lying
implemented project activities. There is no crediting for AIJ coastal developing countries that are particularly vulnerable to
activity during the pilot phase. A decision remains to be taken the adverse consequences of climate change, such as sea level
on the future of AIJ projects and how they may relate to the rise, coral bleaching, and the increased frequency and intensi-
Kyoto Mechanisms. As a simple form of tradable permits, AIJ ty of tropical storms. With more than 35 states from the
and other market-based schemes represent important potential Atlantic, Caribbean, Indian Ocean, Mediterranean, and Pacific,
mechanisms for stimulating additional resource flows for the AOSIS share common objectives on environmental and sus-
global environmental good. See also Clean Development tainable development matters in the UNFCCC (United
Mechanism, and emissions trading. Nations Framework Convention on Climate Change)
process.
Adaptation
Adjustment in natural or human systems to a new or changing Alternative development paths
environment. Adaptation to climate change refers to adjust- Refer to a variety of possible scenarios for societal values and
ment in natural or human systems in response to actual or consumption and production patterns in all countries, including
expected climatic stimuli or their effects, which moderates but not limited to a continuation of today’s trends. In this
harm or exploits beneficial opportunities. Various types of Report, these paths do not include additional climate initiatives
adaptation can be distinguished, including anticipatory and which means that no scenarios are included that explicitly
reactive adaptation, private and public adaptation, and assume implementation of the UNFCCC or the emission tar-
autonomous and planned adaptation. gets of the Kyoto Protocol, but do include assumptions about
other policies that influence greenhouse gas emissions indi-
Additionality rectly.
Reduction in emissions by sources or enhancement of removals
by sinks that is additional to any that would occur in the Alternative energy
absence of a Joint Implementation or a Clean Development Energy derived from non-fossil fuel sources.
Mechanism project activity as defined in the Kyoto Protocol
Articles on Joint Implementation and the Clean Development
Mechanism. This definition may be further broadened to Ancillary benefits
include financial, investment, and technology additionality. The ancillary, or side effects, of policies aimed exclusively at
Under financial additionality, the project activity funding shall climate change mitigation. Such policies have an impact not
be additional to existing Global Environmental Facility, other only on greenhouse gas emissions, but also on resource use
financial commitments of Parties included in Annex I, Official efficiency, like reduction in emissions of local and regional air
Development Assistance, and other systems of co-operation. pollutants associated with fossil fuel use, and on issues such as
Under investment additionality, the value of the Emissions transportation, agriculture, land-use practices, employment,
Reduction Unit /Certified Emission Reduction Unit shall sig- and fuel security. Sometimes these benefits are referred to as
nificantly improve the financial and/or commercial viability of “ancillary impacts” to reflect that in some cases the benefits
the project activity. Under technology additionality, the tech- may be negative. From the perspective of policies directed at
nology used for the project activity shall be the best available
for the circumstances of the host Party.
2 For a discussion of the term forest and related terms such as
afforestation, reforestation, and deforestation (ARD): see the IPCC

1The terms that are independent entries in this glossary are highlight- Special Report on Land Use, Land-Use Change and Forestry,
ed in bold and italics in text as cross-references. Cambridge University Press, 2000.
Glossary 709
abating local air pollution, greenhouse gas mitigation may Assigned amount unit (AAU)
also be considered an ancillary benefit, but these relationships Equal to 1 tonne (metric ton) of CO2-equivalent emissions cal-
are not considered in this assessment. See also co-benefits. culated using the Global Warming Potential.
Anthropogenic emissions Average cost

Emissions of greenhouse gases, greenhouse gas precursors, Total cost divided by the number of units of the item for which
and aerosols associated with human activities. These include the cost is being assessed. With greenhouse gases, for exam-
burning of fossil fuels for energy, deforestation and land-use ple, it would be the total cost of a programme divided by the
changes that result in net increase in emissions. physical quantity of emissions avoided.
Annex I countries/Parties Banking

Group of countries included in Annex I (as amended in 1998) According to the Kyoto Protocol [Article 3 (13)], Parties
to the United Nations Framework Convention on Climate included in Annex I to the United Nations Framework
Change, including all the developed countries in the Convention on Climate Change may save excess emissions
Organisation of Economic Co-operation and Development, allowances or credits from the first commitment period for use
and Economies in transition. By default, the other countries in subsequent commitment periods (post-2012).
are referred to as Non-Annex I countries. Under Articles 4.2
(a) and 4.2 (b) of the Convention, Annex I countries commit Barrier
themselves specifically to the aim of returning individually or A barrier is any obstacle to reaching a potential that can be
jointly to their 1990 levels of greenhouse gas emissions by the overcome by a policy, programme, or measure.
year 2000. See also Annex II, Annex B, and Non-Annex B
countries. Barrier removal costs
The costs of activities aimed at correcting market failures
Annex II countries directly or at reducing the transactions costs in the public
Group of countries included in Annex II to the United Nations and/or private sector. Examples include costs of improving
Framework Convention on Climate Change, including all institutional capacity, reducing risk and uncertainty, facilitat-
developed countries in the Organisation of Economic Co-oper- ing market transactions, and enforcing regulatory policies.
ation and Development. Under Article 4.2 (g) of the
Convention, these countries are expected to provide financial Baseline
resources to assist developing countries to comply with their A non-intervention scenario used as a base in the analysis of
obligations, such as preparing national reports. Annex II coun- intervention scenarios.
tries are also expected to promote the transfer of environmen-
tally sound technologies to developing countries. See also Benefit transfer
Annex I, Annex B, Non-Annex I, and Non-Annex B coun- An application of monetary values from a particular valuation
tries/Parties. study to an alternative or secondary policy-decision setting,
often in a geographic area other than the one in which the orig-
Annex B countries/Parties inal study was performed.
Group of countries included in Annex B in the Kyoto Protocol
that have agreed to a target for their greenhouse gas emissions, Biofuel
including all the Annex I countries (as amended in 1998) but A fuel produced from dry organic matter or combustible oils
Turkey and Belarus. See also Annex II, Non-Annex I, and produced by plants. Examples of biofuel include alcohol (from
Non-Annex B countries/Parties. fermented sugar), black liquor from the paper manufacturing
process, wood, and soybean oil.
AOSIS Biological options
See Alliance of Small Island States. Biological options for mitigation of climate change involves
one or more of the three strategies: conservation - conserving
Assigned amounts (AAs) an existing carbon pool, and thereby preventing emissions to
Under the Kyoto Protocol, the total amount of greenhouse gas the atmosphere; sequestration - increasing the size of existing
emissions that each Annex B country has agreed that its emis- carbon pools, and thereby extracting carbon dioxide from the
sions will not exceed in the first commitment period (2008 to atmosphere; and substitution - substituting biological products
2012) is the assigned amount. This is calculated by multiplying for fossil fuels or energy-intensive products, thereby reducing
the country’s total greenhouse gas emissions in 1990 by five carbon dioxide emissions.
(for the 5-year commitment period) and then by the percentage
it agreed to as listed in Annex B of the Kyoto Protocol (e.g.,
92% for the European Union; 93% for the USA).
710 Glossary
Biomass response than plants that produce a four-carbon compound (C4)

The total mass of living organisms in a given area or volume; during photosynthesis; mainly of tropical origin, including
recently dead plant material is often included as dead biomass. grasses and the agriculturally important crops maize, sugar
Biomass can be used for fuel directly by burning it (e.g., cane, millet and sorghum.
wood), or indirectly by fermentation to alcohol (e.g., sugar) or
extraction of combustible oils (e.g., soybeans). Carbon leakage
See leakage.
Bottom-up models
A modelling approach that includes technological and engi- Carbon tax
neering details in the analysis. See also top-down models. See emissions tax.
Bubble CDM
Article 4 of the Kyoto Protocol allows a group of countries to See Clean Development Mechanism.
meet their target listed in Annex B jointly by aggregating their
total emissions under one “bubble” and sharing the burden. CER
The European Union nations intend to aggregate and share See certified emission reduction.
their emissions commitments under one bubble.
Certified emission reduction (CER)
Cap Equal to 1 tonne (metric ton) of CO2-equivalent emissions
See emissions cap. reduced or sequestered through a Clean Development
Mechanism project, calculated using Global Warming
Capital costs Potentials. See also emissions reduction units.
Costs associated with capital or investment expenditure on
land, plant, equipment, and inventories. Unlike labour and CFCs
operating costs, capital costs are independent of the level of See chlorofluorocarbons.
output for a given capacity of production.
CH4
Capacity building See methane.
In the context of climate change, capacity building is a process
of developing the technical skills and institutional capability in Chlorofluorocarbons (CFCs)
developing countries and Economies in transition to enable Greenhouse gases covered under the 1987 Montreal Protocol
them to participate in all aspects of adaptation to, mitigation and used for refrigeration, air conditioning, packaging, insula-
of, and research on climate change, and the implementation of tion, solvents, or aerosol propellants. Since they are not
the Kyoto Mechanisms, etc. destroyed in the lower atmosphere, CFCs drift into the upper
atmosphere where, given suitable conditions, they break down
Carbon cycle ozone. These gases are being replaced by other compounds,
The term used to describe the flow of carbon in various forms including hydrochlorofluorocarbons and hydrofluorocarbons,
(e.g., as carbon dioxide) through the atmosphere, ocean, ter- which are greenhouse gases covered under the Kyoto Protocol.
restrial biosphere, and lithosphere.
Clean Development Mechanism (CDM)
Carbon dioxide (CO2) Defined in Article 12 of the Kyoto Protocol, the Clean
A naturally occurring gas, and also a by-product of burning Development Mechanism is intended to meet two objectives:
fossil fuels and biomass, as well as land-use changes and other (1) to assist Parties not included in Annex I in achieving sus-
industrial processes. It is the principal anthropogenic green- tainable development and in contributing to the ultimate objec-
house gas that affects the earth’s radiative balance. It is the ref- tive of the convention; and (2) to assist Parties included in
erence gas against which other greenhouse gases are measured Annex I in achieving compliance with their quantified emis-
and therefore has a Global Warming Potential of 1. sion limitation and reduction commitments. Certified emission
reductions from Clean Development Mechanism projects
Carbon dioxide fertilization undertaken in non-Annex I countries that limit or reduce
The enhancement of the growth of plants as a result of greenhouse gas emissions, when certified by operational enti-
increased atmospheric carbon dioxide concentration. ties designated by Conference of the Parties/Meeting of the
Depending on their mechanism of photosynthesis, certain Parties, can be accrued to the investor (government or indus-
types of plants are more sensitive to changes in atmospheric try) from Parties in Annex B. A share of the proceeds from the
carbon dioxide concentration. In particular, plants that produce certified project activities is used to cover administrative
a three-carbon compound (C3) during photosynthesis; includ- expenses as well as to assist developing country Parties that are
ing most trees and agricultural crops such as rice, wheat, soy- particularly vulnerable to the adverse effects of climate change
beans, potatoes and vegetables, generally show a larger to meet the costs of adaptation.
Glossary 711
Climate change Climate Change. The first session of the Conference of the
Climate change refers to a statistically significant variation in Parties (CoP-1) was held in Berlin in 1995, followed by CoP-
either the mean state of the climate or in its variability, persist- 2 in Geneva 1996, CoP-3 in Kyoto 1997, CoP-4 in Buenos
ing for an extended period (typically decades or longer). Aires, CoP-5 in Bonn, and CoP-6 in The Hague. See also
Climate change may result from natural internal processes or CoP/MoP and Meeting of the Parties.
external forcings, or to persistent anthropogenic changes in the
composition of the atmosphere or in land use. Note that United Consumer surplus
Nations Framework Convention on Climate Change, in its A measure of the value of consumption beyond the price paid
Article 1, defines “climate change” as “a change of climate for a good or service.
which is attributed directly or indirectly to human activity that
alters the composition of the global atmosphere and which is in CoP
addition to natural climate variability observed over compara- See Conference of the Parties.
ble time periods”. United Nations Framework Convention on
Climate Change thus makes a distinction between “climate CoP/MoP
change” attributable to human activities altering the atmos- The Conference of the Parties of the United Nations
pheric composition, and “climate variability” attributable to Framework Convention on Climate Change will serve as the
natural causes. Meeting of the Parties (MoP) the supreme body of the Kyoto
Protocol, but only Parties to the Kyoto Protocol may partici-
Climate Convention pate in deliberations and make decisions. Until the Protocol
See United Nations Framework Convention on Climate enters into force, MoP cannot meet.
Change.
Cost-effective
CO2 A criterion that specifies that a technology or measure delivers
See carbon dioxide. a good or service at equal or lower cost than current practice,
or the least-cost alternative for the achievement of a given tar-
CO2-equivalent get.
The concentration of carbon dioxide that would cause the
same amount of radiative forcing as the given mixture of car- Deforestation
bon dioxide and other greenhouse gases. Conversion of forest to non-forest3.
Co-benefits Demand-side management

The benefits of policies that are implemented for various rea- Policies and programmes designed for a specific purpose to
sons at the same time – including climate change mitigation – influence consumer demand for goods and/or services. In the
acknowledging that most policies designed to address green- energy sector, for instance, it refers to policies and programmes
house gas mitigation also have other, often at least equally designed to reduce consumer demand for electricity and other
important, rationales (e.g., related to objectives of develop- energy sources. It helps to reduce greenhouse gas emissions.
ment, sustainability, and equity). The term co-impact is also
used in a more generic sense to cover both the positive and Dematerialization
negative side of the benefits. See also ancillary benefits. The process by which economic activity is decoupled from
matter–energy throughput, through processes such as eco-effi-
Co-generation cient production or industrial ecology, allowing environmental
The use of waste heat from electric generation, such as exhaust impact to fall per unit of economic activity.
from gas turbines, for either industrial purposes or district heat-
ing. Deposit–refund system
Combines a deposit or fee (tax) on a commodity with a refund
Commercialization or rebate (subsidy) for implementation of a specified action.
Sequence of actions necessary to achieve market entry and See also emissions tax.
general market competitiveness of new technologies, process-
es, and products. Desertification
Land degradation in arid, semi-arid, and dry sub-humid areas
Compliance resulting from various factors, including climatic variations
See implementation. and human activities. Further, the United Nations Convention
to Combat Desertification (UNCCD) defines land degradation
Conference of the Parties (CoP) as a reduction or loss, in arid, semi-arid, and dry sub-humid
The supreme body of the United Nations Framework
Convention on Climate Change, comprising countries that
have ratified or acceded to the Framework Convention on 3 See footnote 2.
712 Glossary
areas, of the biological or economic productivity and complex- Emissions cap

ity of rain-fed cropland, irrigated cropland, or range, pasture, A mandated restraint, in a scheduled timeframe, that puts a
forest, and woodlands resulting from land uses or from a “ceiling” on the total amount of anthropogenic greenhouse gas
process or combination of processes, including processes aris- emissions that can be released into the atmosphere. The Kyoto
ing from human activities and habitation patterns, such as: (i) Protocol mandates caps on the greenhouse gas emissions
soil erosion caused by wind and/or water; (ii) deterioration of released by Annex B countries/Parties.
the physical, chemical and biological or economic properties
of soil; and (iii) long-term loss of natural vegetation. Emissions factor
An emissions factor is the coefficient that relates actual emis-
Double dividend sions to activity data as a standard rate of emission per unit of
The effect that revenue-generating instruments, such as a car- activity.
bon tax or auctioned (tradable) carbon emission permits, can
(1) limit or reduce greenhouse gas emissions and (2) offset at Emissions permit
least part of the potential welfare losses of climate policies An emissions permit is the non-transferable or tradable alloca-
through recycling the revenue in the economy to reduce other tion of entitlements by a government to an individual firm to
taxes likely to be distortionary. In a world with involuntary emit a specified amount of a substance.
unemployment, the climate change policy adopted may have
an effect (a positive or negative “third dividend”) on employ- Emissions quota
ment. Weak double dividend occurs as long as there is a rev- The portion or share of total allowable emissions assigned to a
enue-recycling effect; that is, as long as revenues are recycled country or group of countries within a framework of maximum
through reductions in the marginal rates of distortionary taxes. total emissions and mandatory allocations of resources.
Strong double dividend requires that the (beneficial) revenue
recycling effect more than offset the combination of the prima- Emissions reduction unit (ERU)
ry cost and in this case, the net cost of abatement is negative. Equal to 1 tonne (metric ton) of carbon dioxide emissions
See also interaction effects. reduced or sequestered arising from a Joint Implementation
(defined in Article 6 of the Kyoto Protocol) project, calculated
Economic potential using Global Warming Potential. See also certified emission
Economic potential is the portion of technological potential reduction and emissions trading.
for greenhouse gas emissions reductions or energy efficiency
improvements that could be achieved cost-effectively through Emission standard
the creation of markets, reduction of market failures, increased A level of emission that under law or voluntary agreement may
financial and technological transfers. The achievement of eco- not be exceeded.
nomic potential requires additional policies and measures to
break down market barriers. See also market potential, socio- Emissions tax
economic potential, and technological potential. Levy imposed by a government on each unit of CO2-equiva-
lent emissions by a source subject to the tax. Since virtually all
Economies in transition (EITs) of the carbon in fossil fuels is ultimately emitted as carbon
Countries with national economies in the process of changing dioxide, a levy on the carbon content of fossil fuels – a carbon
from a planned economic system to a market economy. tax – is equivalent to an emissions tax for emissions caused by
to fossil fuel combustion. An energy tax – a levy on the energy
Ecosystem content of fuels – reduces demand for energy and so reduces
A system of interacting living organisms and their physical carbon dioxide emissions from fossil fuel use. An ecotax is
environment. The boundaries of what can be called an ecosys- designated for the purpose of influencing human behaviour
tem are somewhat arbitrary, depending on the focus of interest (specifically economic behaviour) to follow an ecologically
or study. Thus, the extent of an ecosystem may range from very benign path. International emissions/carbon/energy tax is a tax
small spatial scales to, ultimately, the entire earth. imposed on specified sources in participating countries by an
international agency. The revenue is distributed or used as
Ecotax specified by participating countries or the international agency.
See emissions tax
Emissions trading
EITs A market-based approach to achieving environmental objec-
See economies in transition. tives that allows those reducing greenhouse gas emissions
below what is required to use or trade the excess reductions to
Emissions offset emissions at another source inside or outside the country.
In the climate change context, emissions refer to the release of In general, trading can occur at the intracompany, domestic,
greenhouse gases and/or their precursors and aerosols into the and international levels. The Second Assessment Report by the
atmosphere over a specified area and period of time. Intergovernmental Panel on Climate Change adopted the con-
Glossary 713
vention of using “permits” for domestic trading systems and FCCC

“quotas” for international trading systems. Emissions trading See United Nations Framework Convention on Climate
under Article 17 of the Kyoto Protocol is a tradable quota sys- Change.
tem based on the assigned amounts calculated from the emis-
sion reduction and limitation commitments listed in Annex B Final energy
of the Protocol. See also certified emission reduction and Energy supplied that is available to the consumer to be con-
Clean Development Mechanism. verted into usable energy (e.g., electricity at the wall outlet).
Energy conversion Flexibility mechanisms

See energy transformation. See Kyoto Mechanisms.
Energy efficiency Forest

Ratio of energy output of a conversion process or of a system A vegetation type dominated by trees. Many definitions of the
to its energy input. term forest are in use throughout the world, reflecting wide dif-
ferences in bio-geophysical conditions, social structure, and
Energy intensity economics4. See also afforestation, deforestation and refor-
Energy intensity is the ratio of energy consumption to eco- estation.
nomic or physical output. At the national level, energy intensi-
ty is the ratio of total domestic primary energy consumption or Fossil fuels
final energy consumption to Gross Domestic Product or phys- Carbon-based fuels from fossil carbon deposits, including coal,
ical output. oil, and natural gas.
Energy service Fuel switching

The application of useful energy to tasks desired by the con- Policy designed to reduce carbon dioxide emissions by switch-
sumer such as transportation, a warm room, or light. ing to lower carbon-content fuels, such as from coal to natural
gas.
Energy Tax
See emissions tax. Full-cost pricing
The pricing of commercial goods – such as electric power –
Energy transformation that includes in the final prices faced by the end user not only
The change from one form of energy, such as the energy the private costs of inputs, but also the costs of externalities
embodied in fossil fuels, to another, such as electricity. created by their production and use.
Equivalent CO2 G77/China

See CO2-equivalent. See Group of 77 and China.
ERU GDP
See emissions reduction unit. See Gross Domestic Product.
Externality General equilibrium analysis

See external cost. General equilibrium analysis is an approach that considers
simultaneously all the markets and feedback effects among
External cost these markets in an economy leading to market clearance. See
Used to define the costs arising from any human activity, when also market equilibrium.
the agent responsible for the activity does not take full account
of the impacts on others of his or her actions. Equally, when the Geo-engineering
impacts are positive and not accounted for in the actions of the Efforts to stabilise the climate system by directly managing the
agent responsible they are referred to as external benefits. energy balance of the earth, thereby overcoming the enhanced
Emissions of particulate pollution from a power station affect greenhouse effect.
the health of people in the vicinity, but this is not often consid-
ered, or is given inadequate weight, in private decision making GHG
and there is no market for such impacts. Such a phenomenon is See greenhouse gas.
referred to as an externality, and the costs it imposes are
referred to as the external costs.
4 See footnote 2.
714 Glossary
Global warming Gross World Product (GWP)

Global warming is an observed or projected increase in global An aggregation of the Gross Domestic Products of the world.
average temperature. Note that GWP also stands for Global Warming Potential.
Global Warming Potential (GWP) Gross Domestic Product (GDP)

An index, describing the radiative characteristics of well- The sum of gross value added, at purchasers’ prices, by all res-
mixed greenhouse gases, that represents the combined effect ident and non-resident producers in the economy, plus any
of the differing times these gases remain in the atmosphere and taxes and minus any subsidies not included in the value of the
their relative effectiveness in absorbing outgoing infrared radi- products in a country or a geographic region for a given period
ation. This index approximates the time-integrated warming of time, normally 1 year. It is calculated without deducting for
effect of a unit mass of a given greenhouse gas in today’s depreciation of fabricated assets or depletion and degradation
atmosphere, relative to that of carbon dioxide. Note that GWP of natural resources
also stands for Gross World Product.
Gross National Product (GNP)
GNP GNP is a measure of national income. It measures value added
See Gross National Product. from domestic and foreign sources claimed by residents. GNP
comprises Gross Domestic Product plus net receipts of prima-
GPP ry income from non-resident income.
See Gross Primary Production.
Gross Primary Production (GPP)
Greenhouse effect The amount of carbon fixed from the atmosphere through pho-
Greenhouse gases effectively absorb infrared radiation emit- tosynthesis.
ted by the earth’s surface, by the atmosphere itself from these
same gases, and by clouds. Atmospheric radiation is emitted to Group of 77 and China (G77/China)
all sides, including downwards to the earth’s surface. Thus, Originally 77, now more than 130 developing countries that act
greenhouse gases trap heat within the surface–troposphere sys- as a major negotiating bloc in the UNFCCC (United Nations
tem. This is called the natural greenhouse effect. Atmospheric Framework Convention on Climate Change) process.
radiation is strongly coupled to the temperature of the level at G77/China is also referred to as non-Annex I countries in the
which it is emitted. In the troposphere the temperature gener- context of the United Nations Framework Convention on
ally decreases with height. Effectively, infrared radiation emit- Climate Change.
ted to space originates from an altitude with a temperature of,
on average, –19°C, in balance with the net incoming solar radi- GWP
ation. However, the earth’s surface is kept at a much higher See Global Warming Potential, Gross World Product.
temperature of on average +14°C. An increase in the concen-
tration of greenhouse gases leads to an increased infrared opac- Harmonized emissions/carbon/energy tax
ity of the atmosphere, and therefore to an effective radiation Commits participating countries to impose a tax at a common
into space from a higher altitude at a lower temperature. This rate on the same sources. Each country can retain the tax rev-
causes a radiative forcing, an imbalance that can only be com- enue it collects. A harmonized tax would not necessarily
pensated for by an increase in the temperature of the sur- require countries to impose a tax at the same rate, but impos-
face–troposphere system. This is the enhanced greenhouse ing different rates across countries would not be cost-effective.
effect. See also emissions tax.
Greenhouse gas (GHG) HFCs

Greenhouse gases are those gaseous constituents of the atmos- See hydrofluorocarbons.
phere, both natural and anthropogenic, that absorb and emit
radiation at specific wavelengths within the spectrum of Hydrofluorocarbons (HFCs)
infrared radiation emitted by the earth’s surface, the atmos- Among the six greenhouse gases to be curbed under the Kyoto
phere, and clouds. This property causes the greenhouse effect. Protocol. They are produced commercially as a substitute for
Water vapour (H2O), carbon dioxide, nitrous oxide, methane chlorofluorocarbons. HFCs largely are used in refrigeration
and ozone (O3) are the primary greenhouse gases in the earth’s and semiconductor manufacturing. Their Global Warming
atmosphere. Moreover, there are a number of entirely human- Potentials range from 1300 to 11,700.
made greenhouse gases in the atmosphere, such as the halo-
carbons and other chlorine- and bromine-containing sub- IEA
stances, dealt with under the Montreal protocol. Beside carbon See International Energy Agency.
dioxide, nitrous oxide and methane, the Kyoto Protocol deals
with the greenhouse gases sulphur hexafluoride, hydrofluo- IGO
rocarbons, and perfluorocarbons. See Intergovernmental Organization.
Glossary 715
Implementation Integrated assessment

Implementation refers to the actions (legislation or regulations, A method of analysis that combines results and models from
judicial decrees, or other actions) that governments take to the physical, biological, economic, and social sciences, and the
translate international accords into domestic law and policy. It interactions between these components, in a consistent frame-
includes those events and activities that occur after the issuing work to evaluate the status and the consequences of environ-
of authoritative public policy directives, which include the mental change and the policy responses to it.
effort to administer and the substantive impacts on people and
events. It is important to distinguish between the legal imple- Interaction effect
mentation of international commitments (in national law) and The result or consequence of the interaction of climate change
the effective implementation (measures that induce changes in policy instruments with existing domestic tax systems, includ-
the behaviour of target groups). Compliance is a matter of ing both cost-increasing tax interaction and cost-reducing rev-
whether and to what extent countries do adhere to the provi- enue-recycling effect. The former reflects the impact that
sions of the accord. Compliance focuses not only on whether greenhouse gas policies can have on the functioning of labour
implementing measures are in effect, but also on whether there and capital markets through their effects on real wages and the
is compliance with the implementing actions. Compliance real return to capital. By restricting the allowable greenhouse
measures the degree to which the actors whose behaviour is gas emissions, permits, regulations, or a carbon tax raise the
targeted by the agreement, whether they be local government costs of production and the prices of output, thus reducing the
units, corporations, organizations, or individuals, conform to real return to labour and capital. For policies that raise revenue
the implementing measures and obligations. for the government, carbon taxes and auctioned permits, the
revenues can be recycled to reduce existing distortionary taxes.
Implementation costs See also double dividend.
Costs involved in the implementation of mitigation options.
These costs are associated with the necessary institutional Intergovernmental Organization (IGO)
changes, information requirements, market size, opportunities Organizations constituted of governments. Examples include
for technology gain and learning, and economic incentives the World Bank, the Organization of Economic Co-operation
needed (grants, subsidies, and taxes). and Development (OECD), the International Civil Aviation
Organization (ICAO), the Intergovernmental Panel on Climate
Income elasticity Change (IPCC), and other UN and regional organizations. The
The percentage change in the quantity of demand for a good or Climate Convention allows accreditation of these IGOs to
service, given a 1% change in income. attend the negotiating sessions.
Industrial ecology International emissions/carbon/energy tax

The set of relationships of a particular industry with its envi- See emissions tax.
ronment; often refers to the conscious planning of industrial
processes so as to minimize their negative interference with the International Energy Agency (IEA)
surrounding environment (e.g., by heat and materials cascad- Paris-based energy forum established in 1974. It is linked with
ing). the Organization for Economic Co-operation and Development
(OECD) to enable member countries to take joint measures to
Industrialization meet oil supply emergencies, to share energy information, to
The conversion of a society from one based on manual labour co-ordinate their energy policies, and to co-operate in the
to one based on the application of mechanical devices. development of rational energy programmes.
Inertia International product and/or technology standards

Property by which matter continues in its existing state of rest See Standards.
or uniform motion in a straight line, unless that state is changed
by external force. In the context of climate change mitigation, JI
it is associated with different forms of capital (e.g., physical See Joint Implementation.
man-made capital, natural capital, and social non-physical cap-
ital, including institutions, regulations, and norms). Joint Implementation (JI)
A market-based implementation mechanism defined in Article
Infrastructure 6 of the Kyoto Protocol, allowing Annex I countries or com-
The basic installations and facilities upon which the operation panies from these countries to implement projects jointly that
and growth of a community depend, such as roads, schools, limit or reduce emissions, or enhance sinks, and to share the
electric, gas and water utilities, transportation, and communi- Emissions Reduction Units. JI activity is also permitted in
cations systems. Article 4.2(a) of the United Nations Framework Convention
on Climate Change. See also Activities Implemented Jointly
and Kyoto Mechanisms.
716 Glossary
Known technological options Market barriers

Refer to technologies that exist in operation or pilot plant stage In the context of mitigation of climate change, conditions that
today. It does not include any new technologies that will prevent or impede the diffusion of cost-effective technologies
require drastic technological breakthroughs. or practices that would mitigate greenhouse gas emissions.
Kyoto Mechanisms Market-based incentives

Economic mechanisms based on market principles that Parties Measures intended to use price mechanisms (e.g., taxes and
to the Kyoto Protocol can use in an attempt to lessen the poten- tradable permits) to reduce greenhouse gas emissions.
tial economic impacts of greenhouse gas emission-reduction
requirements. They include Joint Implementation (Article 6), Market equilibrium
the Clean Development Mechanism (Article 12), and The point at which demand for goods and services equals the
Emissions Trading (Article 17). supply; often described in terms of the level of prices, deter-
mined in a competitive market, that “clears” the market.
Kyoto Protocol
The Kyoto Protocol to the United Nations Framework Market penetration
Convention on Climate Change was adopted at the Third Market penetration is the share of a given market that is pro-
Session of the Conference of the Parties (COP) to the United vided by a particular good or service at a given time.
Nations Framework Convention on Climate Change in 1997 in
Kyoto, Japan. It contains legally binding commitments, in addi- Market potential
tion to those included in the UNFCCC. Countries included in The portion of the economic potential for greenhouse gas
Annex B of the Protocol (most OECD countries and countries emissions reductions or energy efficiency improvements that
with Economies in transition) agreed to reduce their anthro- could be achieved under forecast market conditions, assuming
pogenic greenhouse gas emissions (carbon dioxide, methane, no new policies and measures. See also economic potential,
nitrous oxide, hydrofluorocarbons, perfluorocarbons, and socio-economic potential, and technological potential.
sulphur hexafluoride) by at least 5% below 1990 levels in the
commitment period 2008 to 2012. The Kyoto Protocol has not Methane (CH4)
yet entered into force (November 2000). Methane is one of the six greenhouse gases to be mitigated
under the Kyoto Protocol.
Land use
The total of arrangements, activities, and inputs undertaken in Methane recovery
a certain land-cover type (a set of human actions). The social Method by which methane emissions, for example from coal
and economic purposes for which land is managed (e.g., graz- mines or waste sites, are captured and then reused either as a
ing, timber extraction, and conservation). fuel, or for some other economic purpose (e.g., reinjection in
oil or gas reserves).
Leakage
The part of emissions reductions in Annex B countries that may Meeting of the Parties (to the Kyoto Protocol) (MoP)
be offset by an increase of the emission in the non-constrained Conference of the Parties to the United Nations Framework
countries above their baseline levels. This can occur through (1) Convention on Climate Change serving as the meeting of the
relocation of energy-intensive production in non-constrained Parties to the Kyoto Protocol. It is the supreme body of the
regions; (2) increased consumption of fossil fuels in these regions Kyoto Protocol.
through decline in the international price of oil and gas triggered
by lower demand for these energies; and (3) changes in incomes Mitigation
(and thus in energy demand) because of better terms of trade. An anthropogenic intervention to reduce the sources or
Leakage also refers to the situation in which a carbon sequestra- enhance the sinks of greenhouse gases. See also biological
tion activity (e.g., tree planting) on one piece of land inadver- options, geo-engineering.
tently, directly or indirectly, triggers an activity, which in whole
or part, counteracts the carbon effects of the initial activity. Mitigative capacity
The social, political, and economic structures and conditions
Macroeconomic costs that are required for effective mitigation.
Usually measured as changes in Gross Domestic Product or
growth in Gross Domestic Product, or as loss of “welfare” or Montreal Protocol
loss of consumption. The Montreal Protocol on Substances that Deplete the Ozone
Layer was adopted in Montreal in 1987, and subsequently
Marginal cost pricing adjusted and amended in London (1990), Copenhagen (1992),
The pricing of commercial goods and services such that the Vienna (1995), Montreal (1997) and Beijing (1999). It controls
price equals the additional cost that arises from the expansion the consumption and production of chlorine- and bromine-con-
of production by one additional unit. taining chemicals that destroy stratospheric ozone, such as
Glossary 717
chlorofluorocarbons, methyl chloroform, carbon tetrachlo- tice and the economic potential, socio-economic potential, or
ride, and many others. technological potential.
MOP Opportunity cost

See Meeting of the Parties (to the Kyoto Protocol). Opportunity cost is the cost of an economic activity forgone by
the choice of another activity.
N2O
See nitrous oxide. Ozone
Ozone, the triatomic form of oxygen (O3), is a gaseous atmos-
National Action Plans pheric constituent. In the troposphere it is created both natural-
Plans submitted to the Conference of the Parties by Parties ly and by photochemical reactions involving gases resulting
outlining the steps that they have adopted to limit their anthro- from human activities (“smog”). Tropospheric ozone acts as a
pogenic greenhouse gas emissions. Countries must submit greenhouse gas. In the stratosphere it is created by the inter-
these plans as a condition of participating in the United action between solar ultraviolet radiation and molecular oxy-
Nations Framework Convention on Climate Change and, gen (O2). Stratospheric ozone plays a decisive role in the
subsequently, must communicate their progress to the stratospheric radiative balance. Its concentration is highest in
Conference of the Parties regularly. The National Action Plans the ozone layer.
form part of the National Communications, which include the
national inventory of greenhouse gas sources and sinks. PAMs
See Policies and Measures.
Nitrous oxide (N2O)
One of the six greenhouse gases to be curbed under the Kyoto Pareto criterion / Pareto optimum
Protocol. A requirement or status that an individual’s welfare could not
be further improved without making others in the society
Non-Annex I Parties/Countries worse off.
The countries that have ratified or acceded to the United
Nations Framework Convention on Climate Change that are Pareto improvement
not included in Annex I of the Climate Convention. The opportunity that one individual’s welfare can be improved
without making the welfare of the rest of society worse off.
Non-Annex B countries/Parties
The countries that are not included in Annex B in the Kyoto Performance criteria
Protocol. See standards.
No regrets options Perfluorocarbons (PFCs)

See no regrets policy. Among the six greenhouse gases to be abated under the Kyoto
Protocol. These are by-products of aluminium smelting and
No regrets policy uranium enrichment. They also replace chlorofluorocarbons
One that would generate net social benefits whether or not in manufacturing semiconductors. The Global Warming
there is climate change. No regrets opportunities for green- Potential of PFCs is 6500–9200 times that of carbon dioxide.
house gas emissions reduction are defined as those options
whose benefits such as reduced energy costs and reduced emis- PFCs
sions of local/regional pollutants equal or exceed their costs to See perfluorocarbons.
society, excluding the benefits of avoided climate change. No
regrets potential is defined as the gap between the market Policies and Measures (PAMs)
potential and the socio-economic potential. In United Nations Framework Convention on Climate
Change parlance, policies are actions that can be taken and/or
No regrets potential mandated by a government–often in conjunction with business
See no regrets policy. and industry within its own country, as well as with other coun-
tries–to accelerate the application and use of measures to curb
Optimal policy greenhouse gas emissions. Measures are technologies,
A policy is assumed to be “optimal” if marginal abatement processes, and practices used to implement policies, which, if
costs are equalized across countries, thereby minimizing total employed, would reduce greenhouse gas emissions below
costs. anticipated future levels. Examples might include carbon or
other energy taxes, standardized fuel efficiency standards for
Opportunity automobiles, etc. “Common and co-ordinated” or “harmo-
An opportunity is a situation or circumstance to decrease the nized” policies refer to those adopted jointly by Parties.
gap between the market potential of any technology or prac-
718 Glossary
Pool Purchasing Power Parity (PPP)

See reservoir. Estimates of Gross Domestic Product based on the purchasing
power of currencies rather than on current exchange rates.
PPP Such estimates are a blend of extrapolated and regression-
See Purchasing Power Parity. It also stands for polluter-pays- based numbers, using the results of the International
principle. Comparison Program. PPP estimates tend to lower per capita
Gross Domestic Products in industrialized countries and raise
Precautionary Principle per capita Gross Domestic Products in developing countries.
A provision under Article 3 of the United Nations Framework PPP is also an acronym for polluter-pays-principle.
Convention on Climate Change, stipulating that the Parties
should take precautionary measures to anticipate, prevent or QELRCs
minimize the causes of climate change and mitigate its adverse See quantified emission limitation or reduction commit-
effects. Where there are threats of serious or irreversible dam- ments.
age, lack of full scientific certainty should not be used as a rea-
son for postponing such measures, taking into account that Quantified emission limitation or reduction commitments
policies and measures to deal with climate change should be (QELRCs)
cost-effective so as to ensure global benefits at the lowest pos- The greenhouse gas emissions reduction commitments, in per-
sible cost. centage terms relevant to base year or period, made by devel-
oped countries listed in Annex B of the Kyoto Protocol. See
Present value cost also targets and timetables.
The sum of all costs over all time periods, with future costs dis-
counted. Radiative forcing
Radiative forcing is the change in the net vertical irradiance
Price elasticity (expressed in Watts per square meter: Wm-2) at the tropopause
The responsiveness of demand to the cost for a good or service; due to an internal change or a change in the external forcing of
specifically, the percentage change in the quantity consumed of the climate system, such as, for example, a change in the con-
a good or service for a 1% change in the price for that good or centration of carbon dioxide or the output of the Sun. Usually
service. radiative forcing is computed after allowing for stratospheric
temperatures to readjust to radiative equilibrium, but with all
Primary energy tropospheric properties held fixed at their unperturbed values.
Energy embodied in natural resources (e.g., coal, crude oil, Radiative forcing is called instantaneous if no change in
sunlight, uranium) that has not undergone any anthropogenic stratospheric temperature is accounted for.
conversion or transformation.
Rebound effect
“Primary market” and “secondary market” trading Occurs because, for example, an improvement in motor effi-
In commodities and financial exchanges, buyers and sellers ciency lowers the cost per kilometre driven; it has the perverse
who trade directly with each other constitute the “primary mar- effect of encouraging more trips.
ket”, while buying and selling through the exchange facilities
represent the “secondary market”. Reforestation
Planting of forests on lands that have previously contained
Private costs forests but that have been converted to some other use5. See
Categories of costs influencing an individual’s decision-mak- also afforestation and deforestation.
ing are referred to as private costs. See also social cost, exter-
nal cost, and total cost. Regulatory measures
Rules or codes enacted by governments that mandate product
Producer surplus specifications or process performance characteristics. See also
Returns beyond the cost of production that provide compensa- standards.
tion for owners of skills or assets that are scarce (e.g., agricul-
turally productive land). See also consumer surplus. Renewables
Energy sources that are, within a short timeframe relative to the
Project costs earth’s natural cycles, sustainable, and include non-carbon
Project costs are all the financial costs of a project such as cap- technologies such as solar energy, hydropower, and wind, as
ital, labour, and operating costs. well as carbon neutral technologies such as biomass.
5 See also footnote 2.

Glossary 719
Research, development, and demonstration SF6

Scientific and/or technical research and development of new See sulphur hexafluoride.
production processes or products, coupled with analysis and
measures that provide information to potential users regarding Sinks
the application of the new product or process; demonstration Any process or activity or mechanism that removes a green-
tests, and feasibility of applying these products processes via house gas, an aerosol, or a precursor of a greenhouse gas or
pilot plants and other pre-commercial applications. aerosol from the atmosphere.
Reserves Social costs

Refer to those occurrences that are identified and measured as The social cost of an activity includes the value of all the
economically and technically recoverable with current tech- resources used in its provision. Some of these are priced and
nologies and prices. See also resources. others are not. Non-priced resources are referred to as exter-
nalities. It is the sum of the costs of these externalities and the
Reservoir priced resources that makes up the social cost. See also private
A component of the climate system, other than the atmosphere, cost, external cost, and total cost.
which has the capacity to store, accumulate or release a sub-
stance of concern, e.g. carbon, a greenhouse gas or a precur- Socio-economic potential
sor. Oceans, soils, and forests are examples of reservoirs of car- The socio-economic potential represents the level of GHG mit-
bon. Pool is an equivalent term (note that the definition of pool igation that would be approached by overcoming social and
often includes the atmosphere). The absolute quantity of sub- cultural obstacles to the use of technologies that are cost-effec-
stance of concern, held within a reservoir at a specified time, is tive. See also economic potential, market potential, and tech-
called the stock. nology potential.
Resources Source
Resources are those occurrences with less certain geological A source is any process, activity or mechanism that releases a
and/or economic characteristics, but which are considered greenhouse gas, an aerosol, or a precursor of a greenhouse gas
potentially recoverable with foreseeable technological and eco- or aerosol into the atmosphere.
nomic developments.
Spillover effect
Resource base The economic effects of domestic or sectoral mitigation mea-
Resource base includes both reserves and resources. sures on other countries or sectors. In this report, no assess-
ment is made on environmental spillover effects. Spillover
Revenue recycling effects can be positive or negative and include effects on trade,
See interaction effect. carbon leakage, transfer, and diffusion of environmentally
sound technology and other issues.
Safe landing approach
See tolerable windows approach. Stabilization
The achievement of stabilization of atmospheric concentra-
Scenario tions of one or more greenhouse gases (e.g., carbon dioxide or
A plausible and often simplified description of how the future a CO2-equivalent basket of greenhouse gases).
may develop, based on a coherent and internally consistent set
of assumptions about key driving forces (e.g., rate of technol- Stabilization analysis
ogy change, prices) and relationships. Note that scenarios are In this report this refers to analyses or scenarios that address
neither predictions nor forecasts. the stabilization of the concentration of greenhouse gases.
Sequestration Stabilization scenarios

The process of increasing the carbon content of a carbon reser- See stabilization analysis.
voir other than the atmosphere. Biological approaches to
sequestration include direct removal of carbon dioxide from Stakeholders
the atmosphere through land-use change, afforestation, refor- Person or entity holding grants, concessions, or any other type
estation, and practices that enhance soil carbon in agriculture. of value or interest that would be affected by a particular action
Physical approaches include separation and disposal of carbon or policy.
dioxide from flue gases or from processing fossil fuels to pro-
duce hydrogen- (H2) and carbon dioxide-rich fractions and Standards
long-term storage underground in depleted oil and gas reser- Set of rules or codes mandating or defining product perfor-
voirs, coal seams, and saline aquifers. mance (e.g., grades, dimensions, characteristics, test methods,
and rules for use). International product and/or technology or
720 Glossary
performance standards establish minimum requirements for ted by a country or region in a given time period. See also
affected products and/or technologies in countries where they quantified emission limitation or reduction commitments.
are adopted. The standards reduce greenhouse gas emissions
associated with the manufacture or use of the products and/or Tax-interaction effect
application of the technology. See also emissions standards, See interaction effect.
regulatory measures.
Technological potential
Stock The amount by which it is possible to reduce greenhouse gas
See reservoir. emissions or improve energy efficiency by implementing a
technology or practice that has already been demonstrated. See
Storyline also economic potential, market potential, and socio-econom-
A narrative description of a scenario (or a family of scenarios) ic potential.
that highlights the main scenario characteristics, relationships
between key driving forces, and the dynamics of the scenarios. Technology
A piece of equipment or a technique for performing a particu-
Structural change lar activity.
Changes, for example, in the relative share of Gross Domestic
Product produced by the industrial, agricultural, or services Technology or performance standard
sectors of an economy; or more generally, systems transforma- See standard.
tions whereby some components are either replaced or poten-
tially substituted by other ones. Technology transfer
The broad set of processes that cover the exchange of knowl-
Subsidy edge, money, and goods among different stakeholders that lead
Direct payment from the government to an entity, or a tax to the spreading of technology for adapting to or mitigating cli-
reduction to that entity, for implementing a practice the govern- mate change. As a generic concept, the term is used to encom-
ment wishes to encourage. Greenhouse gas emissions can be pass both diffusion of technologies and technological co-oper-
reduced by lowering existing subsidies that have the effect of ation across and within countries.
raising emissions, such as subsidies to fossil fuel use, or by pro-
viding subsidies for practices that reduce emissions or enhance Tolerable windows approach
sinks (e.g., for insulation of buildings or planting trees). These approaches analyse greenhouse gas emissions as they
would be constrained by adopting a long-term climate - rather
Sulphur hexafluoride (SF6) than greenhouse gas concentration stabilization - target (e.g.,
One of the six greenhouse gases to be curbed under the Kyoto expressed in terms of temperature or sea level changes or the
Protocol. It is largely used in heavy industry to insulate high- rate of such changes). The main objective of these approaches
voltage equipment and to assist in the manufacturing of cable- is to evaluate the implications of such long-term targets for
cooling systems. Its Global Warming Potential is 23,900. short- or medium-term “tolerable” ranges of global greenhouse
gas emissions. Also referred to as safe landing approaches.
Supplementarity
The Kyoto Protocol states that emissions trading and Joint Top-down models
Implementation activities are to be supplemental to domestic The terms “top-down” and “bottom-up” are shorthand for
actions (e.g., energy taxes, fuel efficiency standards, etc.) aggregate and disaggregated models. The top-down label
taken by developed countries to reduce their greenhouse gas derives from how modellers applied macroeconomic theory
emissions. Under some proposed definitions of supplementar- and econometric techniques to historical data on consumption,
ity (e.g., a concrete ceiling on level of use), developed coun- prices, incomes, and factor costs to model final demand for
tries could be restricted in their use of the Kyoto mechanisms goods and services, and supply from main sectors, like the
to achieve their reduction targets. This is a subject for further energy sector, transportation, agriculture, and industry.
negotiation and clarification by the parties. Therefore, top-down models evaluate the system from aggre-
gate economic variables, as compared to bottom-up models
Targets and timetables that consider technological options or project specific climate
A target is the reduction of a specific percentage of greenhouse change mitigation policies. Some technology data were, how-
gas emissions from a baseline date (e.g., “below 1990 levels”) ever, integrated into top-down analysis and so the distinction is
to be achieved by a set date, or timetable (e.g., 2008 to 2012). not that clear-cut.
For example, under the Kyoto Protocol’s formula, the European
Union has agreed to reduce its greenhouse gas emissions by 8% Total cost
below 1990 levels by the 2008 to 2012 commitment period. All items of cost added together. The total cost to society is
These targets and timetables are, in effect, an emissions cap on made up of both the external cost and the private cost, which
the total amount of greenhouse gas emissions that can be emit- together are defined as social cost.
Glossary 721
Trace gas from quantifiable errors in the data to ambiguously defined

A minor constituent of the atmosphere. The most important concepts or terminology, or uncertain projections of human
trace gases that contribute to the greenhouse effect are, inter behaviour. Uncertainty can therefore be represented by quanti-
alia, carbon dioxide, ozone, methane, nitrous oxide, perfluo- tative measures (e.g., a range of values calculated by various
rocarbons, chlorofluorocarbons, hydrofluorocarbons, sul- models) or by qualitative statements (e.g., reflecting the judge-
phur hexafluoride, methyl chloride, and water vapour. ment of a team of experts).
Tradable quota system UNFCCC

See emissions trading. See United Nations Framework Convention on Climate
Change.
Trade effects
Economic impacts of changes in the purchasing power of a Value added
bundle of exported goods of a country for bundles of goods The net output of a sector after adding up all outputs and sub-
imported from its trade partners. Climate policies change the tracting intermediate inputs.
relative production costs and may change terms of trade sub-
stantially enough to change the ultimate economic balance. Value
Worth, desirability, or utility based on individual preferences.
Umbrella Group The total value of any resource is the sum of the values of the
A set of largely non-European developed countries who occa- different individuals involved in the use of the resource. The
sionally act as a negotiating bloc on specific issues. values, which are the foundation of the estimation of costs, are
measured in terms of the willingness to pay (WTP) by individ-
United Nations Framework Convention on Climate uals to receive the resource or by the willingness of individu-
Change (UNFCCC) als to accept payment (WTA) to part with the resource.
The Convention was adopted on 9 May 1992 in New York and
signed at the 1992 Earth Summit in Rio de Janeiro by more Vision
than 150 countries and the European Economic Community. Picture of a future world, usually a desired future world.
Its ultimate objective is the “stabilization of greenhouse gas
concentrations in the atmosphere at a level that would prevent Voluntary agreement
dangerous anthropogenic interference with the climate sys- An agreement between a government authority and one or
tem”. It contains commitments for all Parties. Under the more private parties, as well as a unilateral commitment that is
Convention Parties included in Annex I aim to return green- recognized by the public authority, to achieve environmental
house gas emission not controlled by the Montreal Protocol to objectives or to improve environmental performance beyond
1990 levels by the year 2000. The convention entered in force compliance.
in March 1994. See also Conference of the Parties and Kyoto
Protocol. Voluntary measures
Measures to reduce greenhouse gas emissions that are adopt-
Uncertainty ed by firms or other actors in the absence of government man-
An expression of the degree to which a value (e.g., the future dates. Voluntary measures help make climate-friendly products
state of the climate system) is unknown. Uncertainty can result or processes more readily available or encourage consumers to
from lack of information or from disagreement about what is incorporate environmental values in their market choices.
known or even knowable. It may have many types of sources,
III
Acronyms, Abbreviations, and
Chemical Compounds
724 Acronyms, Abbreviations, and Chemical Compounds
Acronyms, Abbreviations, and Chemical Compounds
AAUs Assigned Amount Units FGD Flue Gas Desulphurization

ABWR Advanced Boiling Water Reactor GATT General Agreement on Trade and Tariff
ACEA European Automobile Manufacturer’s GDP Gross Domestic Product
Association GEF Global Environment Facility
ADB Asian Development Bank GHGs Greenhouse Gases
AEEI Autonomous Energy Efficiency GNP Gross National Product
Improvement GWP Global Warming Potential / Gross World
AIJ Activity Implemented Jointly Product
ALGAS Asia-Least-Cost Greenhouse Gas H2O Water vapour
Abatement Strategy HC Hydrocarbons
ARD Afforestation, Reforestation and HCFC Hydrochlorofluorocarbon
Deforestation HDI Human Development Index
ASF Atmospheric Stabilization Framework HFCs Hydrofluorocarbons (hydrogenated
BAU Business-As-Usual Fluorocarbons)
BIGCC Biomass Integrated Gasification Combined HFE Hydrofluoroethers
Cycle HVAC Heating, Ventilation and Air Conditioning
BOP Balance-Of-Payments IA Integrated Assessment
BWR Boiling Water Reactor IAEA International Atomic Energy Agency
C Carbon IAMs Integrated Assessment Models
C2F6 Perfluoroethane / Hexafluoroethane ICAO International Civil Aviation Organization
CAC Command and control ICE Internal Combustion Engine
CAFE Corporate Average Fuel Economy IEA International Energy Agency
CANZ Canada, Australia and New Zealand IET International Emissions Trading
CBA Cost Benefit Analysis IGCC Integrated Gasification Combined Cycle
CCGT Combined Cycle Gas Turbine IGCCS Integrated Gasification Combined Cycle or
CDM Clean Development Mechanism Supercritical
CEA Cost-Effectiveness Analysis IMO International Maritime Organization
CERs Certified Emission Reduction IPCC Intergovernmental Panel on Climate Change
CF4 Perfluoromethane / Tetrafluoromethane IPR Intellectual Property Rights
CFCs Chlorofluorocarbons IS92 IPCC 1992 Scenario
CFL Compact Fluorescent Lamps ISIC International Standard Industrial
CGE Computable General Equilibrium Classification
CH4 Methane ISO International Standardization Organization
CHP Combined Heat and Power IUCN International Union for the Conservation of
CO Carbon-monoxide Nature and Natural Resources
CO2 Carbon-dioxide JI Joint Implementation
COP Conference of Parties LESS Low CO2 – emitting Energy Supply System
CSD Commission for Sustainable Development LNG Liquid Natural Gas
DCs Developing Countries LPG Liquefied Petroleum Gas
DES Development, Equity, and Sustainability LWR Light Water Reactor
DMF Decision Making Framework MAC Marginal Abatement Cost
DSM Demand Side Management MDB Multilateral Development Banks
EBRD European Bank for Reconstruction and MEA Multilateral Environmental Agreements
Development MNCs Multinational Corporation
EEA European Environmental Agency N Nitrogen (element)
EITs Economies In Transition N2 Nitrogen (gas)
EMS Environmental Management Standard N2O Nitrous oxide
ERUs Emission Reduction Units Na3AlF6 Cryolite
ESCOs Energy Service Companies NACE Nomenclature des Activites dans la
ESTs Environmentally Sound Technologies Communaute Europienne (Index of
EU European Union Business Activities in the European Union)
FAO United Nations Food and Agricultural NGOs Non-Governmental Organizations
Organization NH3 Ammonia
FBC Fluid Bed Combustion NH4+ Ammonium ion
FDI Foreign Direct Investments NICs Newly Industrialized Countries
Acronyms, Abbreviations, and Chemical Compounds 725
NMHC Non-Methane Hydrocarbon SOx Sulphur oxides

NMVOCs Non-Methane Volatile Organic Compounds SPM Summary for Policymakers
NO Nitric oxide SRES Special Report on Emissions Scenarios
NO2 Nitrogen dioxide SRLULUCF Special Report on Land-Use, Land-Use
NOx The sum of NO and NO2 Change and Forestry
O2 Oxygen SRTT Special Report on Methodological and
O3 Ozone Technological Issues in Technology Transfer
ODA Official Development Assistance TAR Third Assessment Report
ODS Ozone Depleting Substances TPES Total Primary Energy Supply
OECD Organization for Economic Co-operation UNCED United Nations Conference on Environment
and Development and Development
OPEC Organization of Petroleum Exporting UNDP United Nations Development Programme
Countries UNEP United Nations Environment Programme
PEM Proton exchange membrane UNFCCC United Nations Framework Convention on
PFC Perfluorocarbon Climate Change
PPM Processes and Production Method or Parts VA Voluntary Agreements or Value - Added
Per Million VAT Value Added Tax
PPP Purchasing Power Parity or Polluter Pays VOC Volatile organic compound
Principle WCED World Commission on Environment and
PV Photo Voltaic Development
PWR Pressurized Water Reactor WEC World Energy Council
QELRCs Quantified Emission Limitation or WG I Working Group One of the IPCC
Reduction Commitments WG II Working Group Two of the IPCC
R&D Research and Development WG III Working Group Three of the IPCC
SAR Second Assessment Report of the IPCC WHO World Health Organization
SBSTA Subsidiary Body for Scientific and WTA Willingness to Accept compensation
Technological Advice WTO World Trade Organization
SF6 Sulfur hexafluoride WTP Willingness to Pay
SMEs Small and Medium Sized Enterprises WWF World Wide Fund for Nature
SO2 Sulphur dioxide
IV
Units, Conversion Factors, and
GDP Deflators
728 Units, Conversion Factors, and GDP Deflators
Units
SI (Systeme Internationale) Units
Physical Quanitty Name of Unit Symbol
length metre m
mass kilogram kg
time second s
thermodynamic temperature kelvin K
amount of substance mole mol
Fraction Prefix Symbol Multiple Prefix Symbol
10-1 deci d 10 deca da

10-2 cent c 102 hecto h
10-3 milli m 103 kilo k
10-6 micro µ 106 mega M
10-9 nano n 109 giga G
10-12 pico p 1012 tera T
10-15 femto f 1015 peta P
1018 eta E
1021 zeta Z
Special Names and Symbols for Certain SI-Derived Units
Physical Quantity Name of SI Unit Symbol for SI Unit Definition of Unit
force newton N kg m s-2

pressure pascal Pa kg m-1 s-2 (=N m-2)
energy joule J kg m2 s-2
power watt W kg m2 s-3 (=J s-1)
frequency hertz Hz s-1 (cycles per second)
Decimal Fractions and Multiples of SI Units Having Special Names
Physical Quantity Name of Unit Symbol for Unit Definition of Unit
length ångstrom Å 10-10 m = 10-8 cm

length micron µm 10-6 m
area hectare ha 104 m2
force dyne dyn 10-5 N
pressure bar bar 105 N m-2 = 105 Pa
pressure millibar mb 102 N m-2 = 1 hPa
mass tonne t 103 kg
mass gram g 10-3 kg
column density Dobson units DU 2.687×1016 molecules cm-2
Stream function Sverdrup Sv 106 m3 s-1
Units, Conversion Factors, and GDP Deflators 729
Non-SI Units
°C degree Celsius (0 °C = 273 K approximately)

Temperature differences are also given in °C (=K) rather than the more correct form of “Celsius degrees”.
ppmv parts per million (106) by volume
ppbv parts per billion (109) by volume
pptv parts per trillion (1012) by volume
yr year
Btu British Themal Unit
MWe megawatts of electricity
tce tonnes of coal equivalent
toe tonnes of oil equivalent
boe barrels of oil equivalent
The units of mass adopted in this report are generally those which have come into common usage and have deliberately
not been harmonized, e.g.,
kt kilotonnes (103 tonnes)

GtC gigatonnes of carbon (1 GtC = (109 tonnes C = 3.67 Gt carbon dioxide)
PgC petagrams of carbon (1 PgC = 1 GtC)
MtN megatonnes (106 tonnes) of nitrogen
TgC teragrams of carbon (1 TgC = 1 MtC)
TgCH4 teragrams of methane
TgN teragrams of nitrogen
TgS teragrams of sulphur
Conversion Factors1
C - CO2 Conversion Factor

C/CO2 = 1/3.67
General Conversion Factors for Energy
To: TJ Gcal Mtoe MBtu GWh
From: multiply by:
TJ 1 238.8 2.388 x 10-5 947.8 0.2778

Gcal 4.1868 x 10-3 1 10-7 3.968 1.163 x 10-3
Mtoe 4.1868 x 104 107 1 3.968 x 107 11630
Mbtu 1.0551 x 10-3 0.252 2.52 x 10-8 1 2.391 x 10-4
GWh 3.6 860 8.6 x 10-5 3412 1
1 Energy related conversion factors are taken from World Energy Outlook 2000, International Energy Agency, Paris.
Conversion Factors for Mass
To: kg t lt st lb
From: multiply by:
kilogram (kg) 1 0.001 9.84 x 10-4 1.102 x 10-3 2.2046

tonne (t) 1000 1 0.984 1.1023 2204.6
long ton (lt) 1016 1.016 1 1.120 2240.0
short ton (st) 907.2 0.9072 0.893 1 2000.0
Pound (lb) 0.454 4.54 x 10-4 4.46 x 10-4 5.0 x 10-4 1
Conversion Factors for Volume
To: gal US gal UK bbl ft3 l m3
From: multiply by:
US Gallon (gal) 1 0.8327 0.02381 0.1337 3.785 0.0038

UK Gallon (gal) 1.201 1 0.02859 0.1605 4.546 0.0045
Barrel (bbl) 42.0 34.97 1 5.615 159.0 0.159
Cubic foot (ft3) 7.48 6.229 0.1781 1 28.3 0.0283
Litre (l) 0.2642 0.220 0.0063 0.0353 1 0.001
Cubic metre (m3) 264.2 220.0 6.289 35.3147 1000.0 1
Specific Net Calorific Values
Crude Oil* Petroleum Products* Coal*
toe/tonne toe/tonne toe/tonne
Saudi Arabia 1.0160 Refinery gas 1.150 Peoples’s Rep. of China 0.500
United States 1.0286 LPG 1.130 United States 0.646
Former USSR 1.0050 Ethane 1.130 India 0.477
Iran 1.0190 Motor Gasoline 1.070 South Africa 0.564
Venezuela 1.0685 Jet Fuel 1.065 Australia 0.597
Mexico 1.0115 Kerosene 1.045 Russia 0.444
Norway 1.0260 Naphtha 1.075 Poland 0.543
People’s Rep. of China 1.0000 Gas/Diesel Oil 1.035 Kazakhstan 0.444
United Kingdom 1.0415 Fuel Oil 0.960 Ukraine 0.516
UAE 1.0180 Other Products 0.960 Germany 0.604
* for selected countries * selected products – average * steam coal production for selected
values countries
Units, Conversion Factors, and GDP Deflators 731
Gross Caloric Values Conventions for Electricity
Natural Gas* Figures for electricity production, trade and final consumption
are calculated using the energy content of the electricity (i.e. at
kJ/m3 a rate of 1TWh = 0.086Mtoe). Hydro-electricity production
(excluding pumped storage) and electricity produced by other
Russia 37579 non-thermal means (wind, tide, photovoltaic, etc.) are account-
United States 38416 ed for similarly using 1TWh = 0.086 Mtoe. However, the pri-
Canada 38130 mary energy equivalent of nuclear electricity is calculated
Netherlands 38220 from the gross generation by assuming a 33% conversion effi-
United Kingdom 39518 ciency, i.e. 1TWh = (0.086 / 0.33) Mtoe. In the case of elec-
Indonesia 40600 tricity produced from geothermal heat, if the actual geothermal
Algeria 42000 efficiency is not known, then the primary equivalent is calcu-
Uzbekistan 37889 lated assuming an efficiency of 10%, so 1TWh = (0.086 / 0.1)
Saudi Arabia 38000 Mtoe.
Norway 40460
* for selected countries (production).

Note: to calculate the net heat content, the gross heat content is
multiplied by 0.9.
GDP Deflators and Changes in Consumer Prices

(Per cent)
1982-1991 1992-2001 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
GDP deflators
Advanced economies 4.8 2.0 3.2 2.7 2.2 2.2 1.8 1.7 1.4 1.0 1.5 1.9
United States 3.7 2.0 2.4 2.4 2.1 2.2 1.9 1.9 1.2 1.5 2.0 2.3
Japan 5.8 2.5 4.3 3.5 2.7 3.0 2.5 1.9 2.0 1.6 1.7 1.7
European Union 1.8 - 1.7 0.6 0.2 -0.6 -1.4 0.3 0.3 -0.9 -0.8 0.9
Other advanced economies 8.7 2.4 3.8 3.8 3.3 3.4 2.9 2.1 1.5 0.3 1.3 2.2
Consumer prices
United States 4.1 2.5 3.0 3.0 2.6 2.8 2.9 2.3 1.6 2.2 2.5 2.5
European Union 5.7 2.5 4.6 3.8 3.0 2.9 2.5 1.8 1.4 1.4 1.8 1.8
Japan 1.9 0.7 1.7 1.2 0.7 -0.1 0.1 1.7 0.6 -0.3 0.1 0.9
Other advanced economies 8.8 2.8 3.8 3.4 3.3 3.8 3.2 2.4 2.6 1.0 2.5 2.4
Developing countries 45.7 20.3 36.1 49.8 55.1 22.9 15.1 9.5 10.1 6.5 5.7 4.7
Regional groups
Africa 19.6 24.4 47.1 38.7 54.8 35.5 30.0 13.6 9.2 11.0 9.6 6.1
Asia 9.7 7.6 8.6 10.8 16.0 13.2 8.2 4.7 7.6 2.5 2.6 3.0
Middle East and Europe 21.2 24.7 26.5 26.6 33.3 38.9 26.6 25.3 26.0 20.3 16.2 9.4
Western Hemisphere 166.9 47.4 109.1 202.6 202.5 34.4 21.4 13.0 9.8 8.8 7.7 6.4
Analytical groups
By source of export earnings
Fuel 13.7 21.4 22.1 26.2 31.8 43.2 31.9 16.1 15.6 12.0 10.5 8.8
Nonfuel 51.2 20.3 38.0 53.0 58.0 20.8 13.5 8.9 9.6 6.0 5.2 4.3
By external financing source
Net creditor countries 2.8 3.6 4.3 5.5 4.0 5.8 3.9 1.9 1.8 1.4 3.3 4.1
Net debtor countries 47.7 20.9 37.4 51.6 57.2 23.5 15.5 9.8 10.4 6.7 5.8 4.7
Official financing 34.3 24.0 59.3 37.4 64.8 30.9 22.4 11.2 8.2 10.4 7.6 4.4
Private financing 54.6 21.0 38.0 57.1 61.4 21.4 13.9 9.2 10.0 5.7 5.1 4.3
Diversified financing 22.5 19.2 24.6 28.5 26.2 33.0 26.1 13.3 12.5 11.5 10.7 8.6
Net debtor countries by debt-

servicing experience
Countries with arrears and/or
rescheduling during 1994-1998 100.1 49.8 113.6 204.3 219.9 38.7 19.8 10.4 16.6 11.6 8.1 6.0
Other net debtor countries 27.5 11.0 14.0 14.1 18.6 18.0 13.9 9.6 8.3 5.0 5.0 4.3
Countries in transition 15.5 118.4 788.9 634.3 273.3 133.5 42.4 27.3 21.8 43.7 19.5 14.2
Central and eastern Europe … 74.8 278.3 366.8 150.4 72.2 32.1 38.4 18.7 20.5 19.4 12.3
Excluding Belarus and Ukraine … 34.0 104.8 85.1 47.5 24.8 23.3 41.4 17.0 10.9 10.7 7.1
Russia … 156.1 1,734.7 874.7 307.4 197.4 47.6 14.7 27.7 85.9 20.5 15.9
Transcaucasus and Central Asia … 193.8 949.2 1,428.7 1,800.7 265.4 80.8 33.0 13.1 15.5 16.3 17.9
Memorandum
Median inflation rate
Developing countries 9.5 7.0 9.9 9.3 10.6 10.1 7.1 6.3 5.7 4.0 4.0 3.6
Countries in transition 11.9 155.2 839.1 472.3 131.6 39.2 24.1 14.8 10.0 8.1 7.9 5.2
Source: IMF (2000) World Economic Outlook, International Monetary Fund, Washington DC.
V
List of Annex I, Annex II, and
Annex B Countries
734 List of Annex I, Annex II, and Annex B Countries
List of Annex I Countries, UNFCCC List of Annex II Countries, UNFCCC
Australia
Australia Austria
Austria Belgium
Belarus a/ Canada
Belgium Denmark
Bulgaria a/ European Union
Canada Finland
Croatia* France
Czech Republic a/ * Germany
Denmark Greece
European Union Iceland
Estonia a/ Ireland
Finland Italy
France Japan
Germany Luxembourg
Greece Netherlands
Hungary a/ New Zealand
Iceland Norway
Ireland Portugal
Italy Spain
Japan Sweden
Latvia a/ Switzerland
Liechtenstein* Turkey
Lithuania a/ United Kingdom of Great Britain and Northern Ireland
Luxembourg United States of America
Monaco*
Netherlands
New Zealand
Norway
Poland a/
Portugal
Romania a/
Russian Federation a/
Slovakia a/*
Slovenia a/*
Spain
Sweden
Switzerland
Turkey
Ukraine a/
United Kingdom of Great Britain and Northern Ireland
United States of America
Note: Party included in Annex I means a Party included in Annex I to the Convention, as may be amended, or a Party which has made a
notification under Article 4, paragraph 2(g), of the Convention.
a/ Countries that are undergoing the process of transition to a market economy.
* Countries added to Annex I by an amendment that entered into force on 13 August 1998, pursuant to Decision 4/CP.3 adopted at
CoP 3.
Source: Annex I to the United Nations Framework Convention on Climate Change, p. 29.
Annex II to the United Nations Framework Convention on Climate Change, p. 30.
List of Annex I, Annex II, and Annex B Countries 735
List of Annex B Countries, Kyoto Protocol
Party Quantified emission limitation or

reduction commitment
(percentage of base year or period)
Australia 108
Austria 92
Belgium 92
Bulgaria* 92
Canada 94
Croatia* 95
Czech Republic* 92
Denmark 92
Estonia* 92
European Community 92
Finland 92
France 92
Germany 92
Greece 92
Hungary* 94
Iceland 110
Ireland 92
Italy 92
Japan 94
Latvia* 92
Liechtenstein 92
Lithuania* 92
Luxembourg 92
Monaco 92
Netherlands 92
New Zealand 100
Norway 101
Poland* 94
Portugal 92
Romania* 92
Russian Federation* 100
Slovakia* 92
Slovenia* 92
Spain 92
Sweden 92
Switzerland 92
Ukraine* 100
United Kingdom of Great Britain and Northern Ireland 92
United States of America 93
* Countries that are undergoing the process of transition to a market economy.

Source: Annex B to the Kyoto Protocol to the Convention on Climate Change, p.28.
VI
List of Major IPCC Reports
738 List of Major IPCC Reports
Climate Change—The IPCC Scientific Assessment

The 1990 Report of the IPCC Scientific Assessment Working Group (also in Chinese, French, Russian, and Spanish)
Climate Change—The IPCC Impacts Assessment

The 1990 Report of the IPCC Impacts Assessment Working Group (also in Chinese, French, Russian, and Spanish)
Climate Change—The IPCC Response Strategies

The 1990 Report of the IPCC Response Strategies Working Group (also in Chinese, French, Russian, and Spanish)
Emissions Scenarios
Prepared for the IPCC Response Strategies Working Group, 1990
Assessment of the Vulnerability of Coastal Areas to Sea Level Rise–A Common Methodology
1991 (also in Arabic and French)
Climate Change 1992—The Supplementary Report to the IPCC Scientific Assessment

The 1992 Report of the IPCC Scientific Assessment Working Group
Climate Change 1992—The Supplementary Report to the IPCC Impacts Assessment

The 1992 Report of the IPCC Impacts Assessment Working Group
Climate Change: The IPCC 1990 and 1992 Assessments

IPCC First Assessment Report Overview and Policymaker Summaries, and 1992 IPCC Supplement
Global Climate Change and the Rising Challenge of the Sea

Coastal Zone Management Subgroup of the IPCC Response Strategies Working Group, 1992
Report of the IPCC Country Studies Workshop, 1992
Preliminary Guidelines for Assessing Impacts of Climate Change, 1992
IPCC Guidelines for National Greenhouse Gas Inventories

Three volumes, 1994 (also in French, Russian, and Spanish)
IPCC Technical Guidelines for Assessing Climate Change Impacts and Adaptations
1995 (also in Arabic, Chinese, French, Russian, and Spanish)
Climate Change 1994—Radiative Forcing of Climate Change and an Evaluation of the IPCC IS92 Emission
Scenarios, 1995
Climate Change 1995—The Science of Climate Change – Contribution of Working Group I

to the Second Assessment Report, 1996
Climate Change 1995—Impacts, Adaptations, and Mitigation of Climate Change: Scientific-Technical Analyses –
Contribution of Working Group II to the Second Assessment Report, 1996
Climate Change 1995—Economic and Social Dimensions of Climate Change – Contribution of Working Group III
to the Second Assessment Report, 1996
Climate Change 1995—IPCC Second Assessment Synthesis of Scientific-Technical Information Relevant to Interpreting
Article 2 of the UN Framework Convention on Climate Change
1996 (also in Arabic, Chinese, French, Russian, and Spanish)
Technologies, Policies, and Measures for Mitigating Climate Change – IPCC Technical Paper I
1996 (also in French and Spanish)
List of Major IPCC Reports 739
An Introduction to Simple Climate Models used in the IPCC Second Assessment Report – IPCC Technical Paper II
Stabilization of Atmospheric Greenhouse Gases: Physical, Biological and Socio-economic Implications –

IPCC Technical Paper III
Implications of Proposed CO2 Emissions Limitations – IPCC Technical Paper IV

The Regional Impacts of Climate Change: An Assessment of Vulnerability – IPCC Special Report, 1998
Aviation and the Global Atmosphere - IPCC Special Report, 1999
Land Use, Land Use Changes and Forestry - IPCC Special Report, 2000
Methodological and Technological Issues in Technology Transfer - IPCC Special Report, 2000
Emissions Scenarios - IPCC Special Report, 2000
Climate Change 2001: The Scientific Basis, 2001
Climate Change 2001: Impacts, Adaptation, and Vulnerability, 2001
Climate Change 2001: Mitigation, 2001.
ENQUIRIES: IPCC Secretariat, c/o World Meteorological Organization, 7 bis, Avenue de la Paix, Case Postale 2300, 1211 Geneva 2, Switzerland
VII
Index
742 Index
Index1 Anaerobic digestion 231-234

Ancillary benefits
in agriculture 327, 579-580
A in coal sector 571
Abatement policies see National and international policies conceptual and empirical evaluation 58, 60, 523-536
Activities Implemented Jointly (AIJ) 362, 413, 427-429 definition 9, 21
Adaptation in forestry 326-327,
actions/responses 651-657 meaning and relevance in energy sector studies 494
costs, see Costs methodological aspects 51-55, 460-463
choices 52 in oil and gas industry 576
decisions 69, 468 in scenario evaluation 472-473
definition 653 sectoral 62-66, 565-594
ecosystems 314 Annex B countries 57-58, 60, 65, 136, 330, 493, 520, 543-544,
linkages 459 570, 573-575, 578, 590, 594, 625, 662, 670
measures 457, 477, 480, 612, 646, 653 Annex I countries 24, 34, 36, 60, 62, 65, 79, 89-91, 95, 97, 124,
options 107, 386, 465, 653 152-154, 160, 254-257, 260, 377, 386, 425-428,
policies 69, 127, 142, 457, 653 434, 493, 506, 531, 539, 581, 618, 625, 628, 661
programmes 480 Annex II countries 60
projects 365 Asia 39, 87, 97, 132, 139, 155, 157-158, 182, 187, 199,
scenarios, see Scenarios 233-234, 243-244, 246-248, 285, 306, 309, 317-318, 320,
strategies 123, 147, 467, 653-673 323, 330, 429, 509, 570, 575, 577, 583, 588, 645, 665-666, 671
synergies and conflicts with mitigation 108-109 Assigned cmounts 60, 405, 502, 660
technologies 643, 646 Autonomous Energy Efficiency Improvement (AEEI) 222, 474,
Adaptive capacity 21, 71, 77-78, 104, 107-108, 398, 616, 654, 656 528, 574, 592, 657, 665
Additionality 43, 50, 304, 427, 660, 667 Average costs see Costs
Administrative costs see Costs Avoided climate change 21, 58, 475, 482, 501
Afforestation 25, 37, 42-43, 83, 157, 160, 305-330,
361, 385, 414, 487, 522, 587 B
Africa 35, 47, 97, 99, 132, 155, 157-159, 175-178, 184, 187, 199, Banking 49, 361-362, 379, 424, 623, 625-626
220, 222, 234, 243-244, 246-248, 253, 306, 309, 319-320, Barriers 44-48, 350-390, 465-466
322, 330, 375-376, 410-411, 570-571, 583, 640, 645, 671 definition 12
Agenda 21 91, 429-430, 435, 640, 644 economic 179, 351, 384, 667
Agricultural sector 28, 39, 177, 222-230, 328, 330, 384-385, financial 33, 44, 46-48, 350-351, 354-355, 359-363, 374-377,
522, 579-580, 588 379, 381, 383, 386, 388-389, 410, 413, 469,
lands 8, 41-43, 83, 306, 312, 323-327, 330, 384 569, 643, 645-646
productivity 327 income 48, 349
soils 35, 39, 41, 227, 305, 324-325, 327 information provision 354-355, 366
Agroforestry 305-306, 317-321, 325-326, 330, 384-385, 640 institutional 44, 352-353, 367, 384, 389, 419
Allowances 50, 57, 69, 360, 409, 416, 436, 660, 672-673 market 54, 179, 378, 465, 476, 488
Alternative development pathways 53, 78, 95-98, 390, social, cultural, and behavioural norms 355, 367
487, 545-548 technology-specific 47, 373-387
Aluminium 38, 41, 192, 194-195, 203-220, 230, 265, 323, trade 44, 46, 158, 353, 366, 568, 645, 668, 672
334, 485, 519, 581 Baseline see Scenario
America Benchmark 124, 334, 471-472, 514, 614, 622, 624, 628
Central 97, 326 Benefit transfer see Valuation techniques
Latin 132, 155, 158, 175-178, 187, 220, 222, 244, Biodiversity 21, 35, 42, 91, 93, 96, 138, 142, 224, 306,
246-248, 285, 306, 320-321, 330, 361, 409, 411, 575, 671 309, 326, 361, 435, 486, 523, 636, 641
North 97, 195, 197, 220, 243, 246-248, 252, 29, Biofuels see Renewable energy
309, 507, 509, 538, 584, 671 Biological carbon reservoirs see Carbon sinks
South 97, 157, 159, 327 Biological options see Carbon sinks
Biomass see Renewable energy
Biomass integrated gasification combined cycle (BIGCC) 245,
1 256-258
This index refers to the main occurrences of key terms in the chap-
ters of this Report and the Technical Summary, excluding the Biotechnology see Technology
Summary for Policymakers, Executive Summaries, reference lists and Borrowing 44, 360-361, 626
title pages; numbers in bold refer to the main discussion on the term Bottom-up models see Models
in the report. Bubble 127-128, 405, 539-540, 621, 665
Index 743
Building(s sector) 26, 28-30, 33, 41, 47, 83, 100, 175-176, 179, negotiations 66, 91, 123, 621-622, 626
182-189, 211, 213, 228, 247-248, 261, 264-265, 290-292, policies see National and international policies
323, 350, 353, 358, 373-376, 404, 412, 526, 549, 583, 657 Coal 26-29, 31-32, 36, 39-41, 62-63, 65, 158-159, 197, 210, 229,
Burden sharing 69, 123-128, 131, 140, 155, 160, 429, 237, 245, 250-259, 265, 381, 388, 408-411,
616, 633, 651, 656, 668-673 421, 462, 508, 565-571, 646
clean coal 36, 253, 487, 570-571
C coal-bed methane see Methane
Capacity coal-fired power 40, 253, 256, 259
building 23, 33, 36, 71, 89, 91, 105, 144, 161, 181, 295, demand 570, 575, 585
312, 330, 413, 466, 487, 490, 494, 503, 632, 643, 647 gasification 250
human 48, 53, 349, 466, 484-485, 487 price 253, 569
institutional 35-36, 87, 384, 413, 466, 484, 490, 494, 647 production 36, 410, 562, 568, 570-571, 576
Capital sector 63, 508, 563, 568-571
availability 53, 374, 379, 384, 478 switching/substitution 181, 212-213, 262-263
costs 180, 238-240, 242, 245, 249, 252-255, 383, 389, 480, 588 technologies 39, 237-240, 421, 571
flows 58, 362, 480-481, 503, 536, 539, 541, 662 Coastal Areas 253, 468
human 44, 48, 81, 93-94, 103, 356, 358, 364, 384, 483-484, 636 Co-benefits, see also Ancillary benefits
international 439, 481, 487, 540-541 conceptual framework for analysis of 523-524
natural 93-94, 107, 484 definition 21, 51
physical 93, 358, 364, 526 methodological aspect 460-462, 472-473
social 86, 93-94, 96, 102-103, 358, 363-364, 369, 390, from reduced road traffic 585-586
477-478, 484, 636, 673 Cogeneration 41, 47, 185, 209-211, 220, 229, 238-240,
Carbon/Carbon dioxide 244, 253, 379, 381-382, 384, 390, 411, 575
accumulation 41, 307-308, 310, 315, 324, 414 Combined cycle gas turbine (CCGT) 235, 238-240, 253-259
atmospheric 42, 305, 331-332, 476, 607, 615 Commercial financing institutions 46, 347
budget 42, 61-62, 313, 545, 549 Commercial sector 29-30, 184, 187-188, 261, 373, 389
capture see Carbon sequestration Commercialization 129, 287, 374-375, 384, 424, 647
credits 226, 331-332, 335 Common good 639, 650
storage 41, 149, 323, 325, 330 Commons 90-91, 361, 370, 621, 624, 639
flows 307, 330 Compliance 49-50, 67-68, 231, 295, 358, 365, 380, 404, 408,
intensity 22, 26, 63, 88-89, 132, 135-136, 154-155, 412-415, 417-418, 422, 425-427, 432-435, 437, 479, 514,
160, 183, 188-189, 212, 388, 411, 509, 542, 563 533, 550, 615, 625-626, 630-634, 648, 660-661, 667-668
leakage 49, 58-59, 61, 65, 331, 503, 539-543, 568, 571, 622 Composting 230-232, 234
offsets 245, 331, 645 Computable General Equilibrium models see Models
pool 41, 307 CoP (Conference of the Parties of the UNFCCC) 35, 282, 406,
removal 26, 149, 159, 249-252, 414, 615 428, 432-433, 642
sequestration 31, 35, 41, 58, 61, 98, 132, 152, 158, 160, Consistency 71, 203, 209, 381, 436, 469, 471, 551, 609
179-180, 225, 227, 230, 249-252, 262, 265, 305-335, 374, Constraints see Barriers
476, 580 Consumer surplus 463, 504, 506, 513
sinks 44, 51, 63, 85, 90, 305-335, 457, 459, 476, 522, Consumption patterns 46, 48, 68, 71, 135, 187, 355-356,
538, 572, 641 367-373, 470, 485, 488, 503, 528, 637-639
stock 307, 310, 314 Contingent valuation see Valuation techniques
substitution 308, 323 Contraction and Convergence 90, 670
tax see Tax Co-operative mechanisms see Kyoto Mechanisms
Clean Development Mechanism (CDM) 50, 53, 57, 60, 82, 86, 89, Cost-benefit analysis 51, 67, 160, 460, 613
91-92, 105, 128, 297, 331, 404-405, 425-428, 431, Cost curves 55, 81, 200-201, 485, 510, 513-514, 538
433-434, 471-472, 478, 492-493, 510, 512, 538-539, 568, Cost effectiveness 20, 49, 283, 285, 288, 293, 472, 615
570, 574-575, 626, 634, 645-646, 660-667 Costing methodologies 51, 53, 457-498, 523
Certified Emission Reductions (CERs) 50, 405, 426-427, 568, 660 Costs
CFCs 29, 40, 124-126, 183, 281, 283, 286, 289, 292-295, 407, 617 abatement/mitigation 22, 43, 50, 55-58, 61-62, 68-69, 81-82,
CH4 see Methane 149, 160-161, 180, 200, 255, 260, 287-288, 323, 328,
Chlorofluorocarbons see CFCs 413-414, 425, 430, 434-435, 438-440, 457-594, 551-552,
CITES 435-436 614, 618, 624-626, 628-629, 661, 669, 672-675
Climate adaptation 52, 69, 427, 458, 467, 470, 625, 627, 654, 673
agreement 621, 624-628 administrative 416, 422, 593, 672
convention see UNFCCC aggregate 59, 61, 82, 418, 439
models 121, 315
744 Index
assessment 51, 54, 81, 457-460, 465-466, 472-473, Development, Equity and Sustainability (DES) 19, 21, 41, 48,
477, 486, 488, 503 53, 71, 77-109, 120, 123, 142-143, 161,
average 203, 509 316, 362, 385, 387, 457, 460, 477-478, 636
gross 53-55, 57-58, 472, 516, 550 Differentiated responsibilities 19, 77, 86, 437
implementation 40, 52, 381, 457, 459, 465-466, 469, Discount rate/discounting 87, 43-44, 52, 70, 80, 82, 211, 214-216,
474-475, 494 220-221, 240, 242, 246, 249, 258-259, 288, 328, 351-353,
macroeconomic 135, 150, 152, 458, 594, 654 360, 364, 457-459, 466-467, 480, 504, 541, 550,
marginal 53, 55, 60, 67, 203, 351, 442, 478-479, 614-615, 657-659, 669
506-507, 509, 511-512, 525, 615, 654, 670 Distributional effects 56, 77, 85, 87, 413, 478, 519, 521-522, 587
national 54, 69, 503-552, 656 Domestic
net 52-53, 180, 215, 439, 462, 472-474, 503, 513 action 430, 539, 620
opportunity 21, 43, 51, 77, 81, 83, 108, 305, emissions trading see Emissions Trading
328-329, 466, 479, 614 policy instruments 50, 425, 434, 441, 512
potential 260, 593 Double Bubble 127-128, 539-540
private 52, 328, 351, 435, 461-462, 477, 525, 532 Double dividend 52-53, 55-56, 361, 458, 472-473, 492, 513,
opportunity 21, 43, 51, 77, 81, 83, 108, 305, 3 516-520, 538, 593, 659, 665
28-329, 466, 479, 614 Driving forces/drivers see Scenario
regional 503-552
sectoral 62, 565-594 E
sequestration 328-329 Ecological dumping 438
social 243, 332, 358-359, 435, 459, 462, 476, 478, Econometric analysis 424
486-487, 512, 525, 532, 550-551, 583, 585, 644, 656 Economic
transaction 52, 354, 358-359, 364-365, 381, accounting 462, 636
422-424, 429, 465, 494, 512, 593, 645, 660, 667 activity 27, 57, 63, 82, 90, 94, 106, 139-142, 388,
Countries with Economies in Transition (EITs) 26-28, 38, 53, 459, 463, 475, 567, 570-571, 574, 579, 585, 614, 636-637
175, 183, 187, 199, 222, 246, 294-297, 351, agents 94, 366, 410, 488, 506, 512, 591, 637, 655
367, 375, 386-387, 409, 411, 438, 440, 457, benefits 63, 182, 253, 379, 413, 435, 570, 580, 587, 591,
484-487, 495, 503, 634, 644 640, 646
Crop cost 43, 56, 81, 149, 440, 458, 490, 494, 507, 514, 591, 593, 626
cultivars/species/varieties 324-325, 580 effects 33, 49, 60, 407, 488, 539, 548, 568-569
energy 38, 41, 63, 179, 225-229, 265 efficiency 67, 234, 413, 462-463, 567, 655, 660
forest 226, 229, 322, impacts 84, 306, 441, 458-459, 504, 523, 537-538,
oil/fibre/food 197, 225, 229 544, 568, 589-590, 592-593
price support 384 incentives 35, 160, 182, 285, 288, 312, 322, 384, 465, 495, 621
production 226, 327, 384 models 54, 328, 356, 434, 488-489, 491, 519, 565
residues 229, 324, 579 policies 52, 94, 389, 422, 469, 472, 504, 641
rotation 325 potential see Potential
tropical 53, 385 returns 311, 441, 472
yields 224, 225, 324, 327, 580 Economies in Transition see Countries with Economies in
Cropland see Agriculture Transition
Ecosystems 19, 37, 41, 43-44, 54, 65, 77, 96, 224, 305-307,
D 309-311, 313-316, 322-324, 326, 332, 356, 464,
Debt 309, 359, 361, 387, 517-518, 569, 626, 670 483, 495, 608, 635, 659
Decision-makers/decision-making 66-69, 103-105, 408, Education 62, 70, 87, 103, 106, 227, 229, 350, 360, 368,
459-463, 605-677 370-371, 387, 420, 490, 636, 638-640, 642-643, 652, 658
Decoupling 19-20, 24, 79, 89, 98-103, 207, 489, 548, 614 Elasticity
Deforestation 42-43, 83, 90-91, 96, 101, 222, 224, 229, 305-306, energy demand 641
308-309, 312, 316, 319-320, 322, 326, 330, 332, 385, 588 fuel substitution 493, 517
Demand-Side Management (DSM) 374-376, 411, 420, 422, income 482-483, 534-535
443-465-466, 486, 507, 587 price 477, 487, 513-514, 573, 592
Dematerialization 122, 131, 154, 159, 207, see also Decoupling Electricity
Demography/Demographic change 58, 144, 535 costs 246
Desertification 96, 227, 316, 325-326, 634, 636, 641-642 demand 150, 209, 422, 577, 579
Development electricity generation 39, 63, 180, 235, 237-252, 253-2549, 264,
paths 71, 96, 98, 122, 151, 470, 477, 503, 571 383, 410-411, 422-423, 462-464, 568, 577-578, 608
patterns 99, 147, 458, 469-470, 483-484, 486, 495, 637, 641 industry 244, 383, 411, 579
production 40, 188, 205, 232, 237-238, 260, 568, 579
Index 745
savings 412, 510-511 improvements 25, 34, 38, 41, 60, 63, 68, 132, 135, 155, 159-160,
sector 65, 159, 235, 252, 375, 411, 420, 525, 530, 182, 184-185, 188, 190-192, 198, 203, 207, 211-213,
533, 535, 568, 578-579 219-222, 265, 360, 365, 376, 379-380, 422, 470, 510,
supply 101, 235, 252, 384, 422, 568-569 532, 538, 567, 587, 591, 640-641, 665
use 26, 188, 220, 247, 577 index 216-219
Emissions indicators 216, 420
anthropogenic 225, 265, 374, 425, 588, 644, 647 levels 216
cap 415 measures 47, 188, 379
permits 331-332, 408, 536, 670 options 41, 265, 510
quotas 426, 431, 536, 614 potential 38, 41, 188, 221, 265, 376
targets 23, 331, 417, 520, 624-625, 628, 675 programmes 367, 420, 443
tax see Tax regulations 34
trends 85, 182, 264, 539, 614 standards 50, 181, 200, 375, 412, 436
Emissions trading 50, 58-60, 330-331 technologies 140, 193
as part of a flexible instruments regime 660-661, 668, 670, trends 183, 192
672-673 Energy use
cost saving through 512, 536, 537-539, 542-543 domestic 588
definition 405 final 25, 155-156, 220, 547
international 50, 82, 425-426, 430, 433-434, 440, 493, household 187, 583
503, 568, 574, 576, 593, 626 primary 27, 175-178, 182-183, 186-188, 223
national/domestic 415-418, 430, 434, 503, 593 total 26
Emission Reduction Units (ERUs) 50, 82, 405, 426-435, 660 transport 65, 190-193, 203, 583
Employment effects 461, 479 trends in 16, 27
Energy see also Energy efficiency and Energy Use Environmental
conservation 25, 68, 140, 142, 159-160, 220, 290, 353, agreements 50-51, 363, 417-418, 432, 435, 621-622,
368, 380, 412, 420, 526, 581, 640-641 626, 628, 630-631, 634, 668
consumption 27, 54, 87, 102, 132, 144, 149, 152, 155-156, 175, benefits 44, 58, 224, 245, 327, 353, 359, 381, 436,
183-184, 187, 192, 194, 200, 205-207, 211, 216-221, 230, 473, 520, 523, 525, 574, 584, 588, 625-628
248, 250, 282, 285-286, 291, 365, 380, 388-389, 409-410, costs 44, 326-327, 334, 352, 378, 413, 427, 436, 587
412, 418-419, 469-470, 487-488, 490, 528, 570, 583, 641 degradation 123, 138
content 27, 49, 63, 175, 222, 234, 245, 404, 414, 563, 637 effectiveness 13, 49, 59, 406, 417, 421, 433, 539,
costs 21, 47, 364, 367, 374-375, 381, 419, 481, 493 542, 622, 627, 660, 667
cropping 222-229, 315 goals 42, 108, 193, 361
demand 29, 129, 148, 156, 158, 175, 189, 192-193, 207, 213, impacts 36, 40, 42-44, 62, 142, 224, 243, 305, 334, 353,
219, 222, 237, 244, 350, 378, 410, 438, 466, 477, 485, 363, 378, 383, 460-461, 463, 469, 474, 550, 565, 593
488-489, 494, 504, 525, 537, 569-570, 641 labelling 50, 420-421
final 25, 144, 148-149, 155-156, 158, 219-220, 547, 569 legislation 47, 380, 382, 639-640
intensity 26, 55, 63, 131-133, 135, 154-155, 160, 175, 188, 190, performance 360, 389, 404, 417, 646, 660
192-193, 198-199, 207-208, 220, 224-225, 359, 376-377, policy 150, 363, 407, 412-413, 417, 420, 424, 438,
380, 409-410, 474, 508-509, 563 442, 473, 484, 503, 581, 593, 606, 622, 636, 661
markets 49, 181, 409-411, 413, 488 protection 23, 46, 145, 150, 181, 199, 225, 234, 366,
prices 26, 46, 84, 131, 219, 359, 364-365, 379-380, 388-389, 375, 388, 408, 429, 432, 435, 441, 580, 632, 640, 660
410, 412, 423, 442-443, 465, 474, 521, 529, 538, 575, 645 quality 22, 53, 100, 138-142, 407, 441, 463-464, 475,
products 410, 488 478, 584, 639, 646
savings 46-47, 184, 200, 203, 220, 245, 353-354, 367, regulation 51, 193, 358, 362-363, 390, 411, 413-414,
375-380, 383, 411-412 435, 438, 481, 521, 593
service companies 46, 360, 645 risks 62, 225, 360, 383, 502
supply sector 28, 39, 47, 179-180, 376, 380-381, 389, 410 services 326, 329
subsidies see Subsidies taxes see Tax
system 23, 61, 66, 129, 144, 159, 213, 488-489, 504, 538, Environmentally Sound Technologies (ESTs) 45-47, 50, 59, 61,
550-551, 591, 613, 654 348, 351, 378, 384, 429-430, 641, 643-646
tax see Tax Equity 19-23, 51, 53, 66-71, 84-97, 103-104, 482-483, 667-673
Energy efficiency consideration in scenarios 138-142, 145
activities 414 egalitarian approach 372
gains 26, 179, 181, 191-192, 503 in decision-making analysis 615-618, 620-621, 627-630, 660
in international policy instruments 438-439
in stabilization analysis 155-156, 483, 494, 634, 658
746 Index
in sustainable development 84-97 G

institutional structure and 329 Game theory 438, 609-610, 618, 621-622, 628-630
intergenerational 70, 87, 133, 466, 478, 482 General Equilibrium Analysis 473
international 142, 161, 672 Geo-engineering 37, 41, 43-44, 71, 332-334
methodological considerations 477-478, 482-483 Global warming 37, 62, 65, 77, 90, 106, 136, 159, 179, 191,
principles and interpretations 669-673 196, 205, 281-282, 285, 287, 291, 418, 431, 522, 579,
Europe 30, 33, 36, 38-39, 132, 191-192, 200, 206, 215-216, 583, 613, 633, 647-648, 668-669
224, 226-229, 252, 261, 287-293, 507, 514, 516-517, 525, Global Warming Potential (GWP) 136, 179, 191, 206,
529, 534, 569, 580, 584, 638, 661, 213-214, 230, 233, 281-282, 291, 293-295,
Central 42, 309, 388-389, 586 297, 522, 574, 659, 664, 674-675
Eastern 57, 97, 133, 158, 247-248, 312, 361, 388, Globalization 138, 141, 144, 387, 390, 581, 646
412-413, 429, 439, 538, 671-672 Governance 22, 87, 94, 96, 106, 137-138, 141-142,
Western 42, 97, 216, 221, 237, 242, 246-248, 288, 361, 430, 646, 650
303, 310, 439, 505, 526, 532, Government
Externalities 46, 48, 106, 327, 351, 355, 358-359, 363, authority 404, 417
366-367, 371, 378-380, 384, 406, 409, 412, 414, 420, borrowing 44, 361
438, 462-464, 534, 654, 668 expenditure 590
funding 421, 430
F host 426-428, 433
Fairness 20, 77-78, 87, 593, 606, 615, 617, 627, 629, 668-672 interventions 28
Fertilizer 30-31, 39, 213, 216, 220, 222-224, 227, 231, investment 359, 427
261-262, 327, 384 national 405, 415, 435
Final energy see Energy objectives 407
Financial sector 487, 645 offices 420
First Assessment Report 77, 121 officials/actors 408, 652
Fiscal systems 53, 407, 441, 475 policy/policies see also National and international policies 26, 58,
Flexibility mechanisms see Kyoto mechanisms 88, 106, 175, 181, 191, 237, 293, 353, 359, 361, 483,
Foreign direct investment (FDI) 180, 363, 581, 644-645 507, 569, 584, 637, 649-650, 656,
Forests 35, 37, 41-43 procurement 47, 361, 375-376, 646
boreal 305, 373 regulations 35, 285, 358, 362, 412, 535
crops 226, 229 revenues 49, 472, 567
conservation 43, 309, 330, 385 spending 49, 361, 378, 404
disturbance 311 subsidies see Subsidies
fires 306, 309 Grassland 324-326
management 37, 41-43, 129, 309-312, 316-322, 329-330, Green financial institutions 46, 360
385-386, 476, 633, 653 Greenhouse Gas (GHG)
natural 311, 313, 322, 326, 334 concentrations 19, 54, 501, 608, 616
residues 243-245, 259 emissions 19, 21, 27, 37, 60, 71, 97, 123, 139, 175-300, 409, 492
temperate 42, 305 mitigation 36, 40, 54, 58, 65, 77, 184, 199, 242, 531
tropical 37, 43, 305-306, 320, 373 policies see National and international policies
Forestry (sector) 19, 35, 40, 42-43, 46, 48, 63, 68, 224, stabilization of GHG concentrations see Stabilization
384-386, 579-580, 588, 566, 590 Gross Domestic Product 26, 89, 98, 131, 175, 406,
barriers for mitigation in 385-386 459, 503, 565, 616
carbon storage capacity of 251 Gross National Product 429, 518, 571, 632
investment 360 GWP see Global Warming Potential
mitigation options 305-334
Fossil fuel reserves see Reserves H
Free Riding 50, 417, 615, 621 Halocarbons 37, 126, 129, 214-215, 281-297
Fuel HFCs 26, 37, 40, 175, 179, 182-183, 189, 205, 213,
cells 26, 36, 39, 79, 158-160, 180, 194-198, 201, 203, 231, 215, 281-297, 404, 407, 414-415
233, 235, 239-240, 253, 353, 377, 551 Hot air 57, 408, 425-426, 538-539, 661, 663, 665-666
mix 53, 245, 411, 477, 487, 493, 577 Households (sector) 33, 46, 56, 62-63, 389, 418,
switching 28, 38, 40, 182, 212, 216, 255, 264, 362, 389, 424, 565, 586-587, 656
510, 538, 570, 575, 587, 594 ancillary impacts on 463
Full-cost pricing 34, 645 barriers and opportunities 373-375
distributional impact on 84, 87, 102, 567
Index 747
economic impact on 516-517, 519-522, flows 180, 645

see also Residential and Building sectors foreign 365, 387, 409, 541
Human welfare see Welfare foreign direct see FDI 581, 644
Hydrocarbons see Non-Methane Volatile Organic Compounds green 360
Hydrochlorofluorocarbons see HCFCs opportunities 364, 480
Hydrofluorocarbons see HFCs policies 199, 390, 645
Hydropower see Renewable energy portfolio 80, 360
priorities 47, 349, 379
I private 44, 94, 347, 359/361, 393, 424, 427
Income classes 482, 521; see also Distributional effects public/government 361, 444, 496, 589
Income elasticity 528, 534-535 R&D 49, 70, 356, 359, 442, 551, 589, 646, 657-658
Induced technological change 60-62, 550-551, 658
Industrial ecology 99 J
Industrialization 27, 387, 637, 641 Joint Implementation (JI) 49-50, 66, 82, 105, 330-331, 385,
Industry see also Manufacturing 404-405, 425-428, 433-435, 471-472, 492-493, 568,
heavy 27, 211-212, 220-221, 380 575, 590, 593, 627, 634, 645, 660-661, 667, 670
light 205, 211, 221
sector 27-28, 34, 38, 47, 131, 177, 184, 206-222, K
351, 373, 378-380, 672 Kaya identity 88, 131, 142, 470
Inertia 48, 70, 376, 378, 509, 539, 550-552, 612-613, 657-659, 677 Kyoto Protocol
and uncertainty 612, 657, 677 accession to 615
in capital stock 70, 550, 657, 659 Annex B countries of 424, 625
in energy/economic systems 66, 550, 613, 657 commitment 24, 49, 152-153, 160, 418, 433, 667, 670
in technological system/innovation 539, 550 costs for sectors 63-65, 567, 571, 578, 581
in transport system 376 costs of compliance 55-57, 58-59, 60, 88-89, 514-522, 541-543
institutional/social 48, 70, 349 coverage of GHGs 136, 191, 205-206, 260, 281-282
Inflation 53, 364, 407, 413, 428, 478, 480, 645 implementation of 51, 57, 615, 633, 667
Information mechanisms 49-50, 181, 297, 405-406, 416, 424-438,
campaigns 50, 375, 420 634, 644, 645, 6687
dissemination 351, 379-380, 420 mechanisms see Clean Development Mechanism, International
imperfect 47, 50, 351, 353, 374-375, 402 Emissions Trading, Joint Implementation
lack of 379 targets 36, 60, 127-128, 152, 521, 537-543, 581, 661, 666
Innovation 47, 49, 53, 99, 138, 140-141, 149, 363, 407,
414, 421, 625-627, 634, 637, 650, 667 L
definition 441 Land
policies 68, 356, 469, 634 clearance 225
research 366 management 35, 41-42, 310-311
social see social innovation tenure 48, 309, 334, 354, 385
technological 26, 62, 68, 179-181, 355-358, 369, 425, Land use 19, 21-22, 26, 35, 39, 42-43, 122, 135, 159-160,
458, 471, 551, 570, 620, 643, 646-647 199-200, 224-227, 306-331, 476, 523, 633, 672
Instruments see National and international policies change 19, 27, 43, 82-83, 334, 384-385, 608
Insurance 46-47, 64, 83-84, 91, 360, 383, 432-433, 574, 653 regulation 48
Integrated assessment 13, 66, 71, 145, 223, 457, 459, 469, Landfill management see Waste management
490, 494, 572, 612-613, 616, 655 Landscape 306-308, 325-326
Intellectual Property Rights 35-36, 358, 365, 385, 387, 644 Latin America see America
Interaction effect 441, 472-473, 532 Leakage see carbon leakage
Interest rates 360-361, 388, 410, 467, 469, 538, 645 Learning by doing 358, 366, 551, 640, 657
Internal combustion engine (ICE) 190, 194, 196, 201, 225, 289 LESS (Low CO2 Emitting energy Supply System) 129
International agreements 67, 105, 431-432, 481, 620-621, 626, Liability 90-91, 288, 291, 332, 358, 415, 426, 428, 432-433, 462
631-633, 660-661, 668 Liberalization/privatization of energy markets 252-253, 410-411
International Emissions Trading (IET) see Emissions Trading Lifestyle 26, 48, 142, 159, 349, 493-494, 637-640
International trade 44, 49, 57-58, 77, 82, 94, 158, 311, 332, 406, Liquid natural gas (LNG) 411, 585
414, 418, 435-438, 480-481, 504, 539, 541, 574, 581, 589, 634 Liquid petroleum gas (LPG) 187, 250, 296, 374, 585
Investments Local air pollution 53, 64, 460, 472-473, 523, 585, 608
capital 243, 245, 359, 384, 585 Lock-In 47, 62, 70, 180, 357, 377-378, 551, 657-658
costs 100, 243, 319, 376, 383, 423, 504, 551 Logging 101, 306-322, 360, 386
decisions 62, 323, 351, 367, 506, 549, 581 Low-carbon energy 22, 25, 135-136, 159-160
748 Index
M Monetary value 331, 486

Macroeconomic Montreal Protocol 40, 183, 205, 215, 281-286, 293-295,
analysis 458, 469 425, 432, 435-436, 644, 661
conditions 44, 389, 645 Morbidity 462, 464, 526-527, 534, 586
costs see Costs Mortality 310-311, 313, 322, 462-464, 483, 525536, 586
effects 452, 457, 478, 565 Multilateral Environmental Agreements (MEAs) 50, 435-437
indicators 452, 478 Multinational Firms 431, 607
policy 484
Management techniques 223, 226-227, 229 N
Manufacturing 27, 30, 38-39, 62-63, 181, 203- 222, National and international policies
247-248, 261, 282-297, 419, 481, 567, 580-581, 646 climate change 44, 52, 80, 403-443, 465, 478, 482,
Marginal Abatement Costs see Costs 567, 594, 620, 648
Market climate change mitigation 21-22, 51, 53-54, 460, 470, 474-475,
capital 351, 470 487-489, 493-495, 571, 634, 640
deregulation 239, 380, 411 economic 52, 94, 389, 422, 469, 472, 504, 641
distortions 443, 487 energy efficiency standards 50, 181, 200, 375, 412, 436
equilibrium 328 energy 404, 436, 592
failure 50, 362, 372, 381, 402, 461-462, 503, 551, 670 environmental control 473
forces 297, 311, 328, 360, 386, 462 environmental labels 421
imperfections 53, 55, 69, 351, 354-355, 475, 487, 491-492, fiscal and regulatory measures 378, 387
503, 507, 567, 591, 667 industrial 330, 485, 625, 637
labour 70, 474, 484, 487, 491, 517, 534, 658 policy instruments 12, 19, 21, 48-50, 53, 77, 79, 82, 103-104,
liberalization 139, 173 108-109, 129, 137, 160, 388, 404-442, 477-478,
penetration 194, 255, 260, 294, 351, 360, 422 494-495, 512-522, 589, 648
potential 44, 189, 201, 229, 239, 243, 247, 350-398, macroeconomic 48, 385, 485, 487
406, 419, 476 market-based 49, 407-408, 440
power 59-60, 64, 416, 425, 539, 573-574, 667 performance standards 12, 49, 82, 404, 430-431, 435, 441
peform 389 pollution control 438, 473
research 354, 364 price 380
structure 33, 44, 47, 354-355, 363, 374, 378, 389, 437, 442 regulatory 203, 384, 408-409
value 287, 351, 360, 416 research and development 54, 414, 421
Material sectoral 52, 469, 507, 636, 641
efficiency 30, 38, 212-213, 216, 222, 261 structural reform 409
substitution 38, 197, 212-213, 324 subsidies see Subsidies
Measures see National and international policies taxes see Taxes
Methane (CH4) 22, 124, 183, 373, 384, 522, 574, 608 technology 54, 482, 491, 565, 589
clathrates 27, 235, 237 voluntary agreements 34, 47, 49-50, 285, 380, 404, 417-419,
coal-bed 29, 36, 179-180, 235, 250-252 431, 434, 441, 490, 512, 519-520, 584, 614
emissions 48, 90, 224, 228, 230-233, 325, 415, 435 National Climate Change Action Plans 386
landfill 31, 36, 230-231, 262, 264 Natural gas 25-27, 36, 39, 41, 47, 61-62, 65, 122, 149-150,
recovery 36, 231, 234, 264 158-160, 179, 190, 203, 212, 236-240, 258-265,
Misplaced incentives 33, 46-48, 353-354, 365, 367, 374 381-383, 411, 571, 574-576, 578-579, 594, 608, 646
Mitigation Net primary production 332
action 51, 91, 383, 459, 609, 651, 673 Newly industrialized countries (NICs) 484
policies see National and international policies NGOs 21, 46, 106-108, 329, 362, 370, 387, 412, 643, 650, 661
potential 41, 53, 55, 135, 242255, 315-324, 334, 376, 484, Nitrous oxide (N2O) 26, 183, 205, 327, 384, 522, 574
scenarios 21-22, 24-25, 96, 115-161, 486, 493, 545, 592 No regrets
strategy 20, 78, 85, 376, 435, 471, 547, 589 biological opportunities 42, 327
Mitigative capacity 21, 43, 71, 77, 79, 103-109, 634 definition 21
Model measures 55, 60, 549, 585
bottom-up 54, 131, 145, 474, 488-490, 590-512, 507-508 options 21, 52-53, 330, 350, 386, 474-476, 585, 640, 659, 667
Computable General Equilibrium 488, 591 policies 353, 506-507, 567, 614
Input-Output 54 potential 53, 55, 351, 475, 667
Integrated Assessment 66, 457, 469, 490, 655 sectoral opportunities 28, 200
Keynesian 469, 517 Non-CO2 Greenhouse Gases 60, 205-206, 213, 216,
macroeconomic 54, 466, 469, 478, 488-489, 571-572, 591 222-225, 282-297
top-down 54, 66, 131, 474, 477, 489-490, 572, 581, 590-591 Non-Annex B Countries 58, 61, 502, 570-571, 575, 581, 594
Index 749
Non-Annex I countries 20, 25, 50, 55, 60-61, 71, 82, 87-92, 97, distorted 48, 354
105, 133, 135, 153-155, 160, 254, 258, 386, elasticity 477, 487, 514, 573, 592
405, 426, 434, 541, 567, 617-618 incomplete 46, 347
Non-governmental organisations see NGOs market 44, 83, 240, 351-352, 460- 466, 479, 487
Non-Methane Volatile Organic Compounds (NMVOCs) 125-127, mechanism 571
239, 526-527 permit prices 49, 59, 416-417, 543-544
Nuclear power 26, 36-37, 39-41, 65, 158, 181, 240-242, relative 58, 100, 473-474, 483-485, 654, 660
254-259, 411, 508, 577-579, 608 shadow 460, 466, 479, 487
spot 383
O volatility of 383
Official Development Assistance (ODA) 180, 354, 361-362, Primary energy see Energy
427, 644 Privatization 252-253, 312, 371, 383, 388-389, 409
Opportunities 20, 26, 29, 33-38, 40-44, 46-48, 50, 60, 66, 71, 91, Producer surplus 459, 513
agricultural lands 324-326 Project assessment 52, 469, 479, 491
barriers and 350-390 Property rights 35-36, 53, 103, 486, 667, 670
definition 44 inadequate 364-365
energy efficiency improvement 185 land 309, 332, 334, 354
forestry 316-324 see also Intellectual property rights
future generations 483-484 Public good 46, 66, 364, 366, 621, 627, 639, 653
for mutual cooperation 426 Purchasing Power Parity 87, 528, 535
Opportunity cost see Costs
Optimal policy 19, 125, 424, 551, 567 Q
Organization of Petroleum Exporting Countries (OPEC) 59-60, Quality of life 26, 89, 93, 101, 587
63-64, 543-544, 571-574, 665 Quotas see Emissions quotas
Ozone 37, 40, 85, 281-297, 464, 529, 533, 579, 644, 661
Depleting Substances (ODS) 40, 283-297 R
layer protection 40, 174 Radiative forcing 79, 147, 324, 327, 334, 384, 583-584
precursors 579 Rebound effect 33, 101, 200, 507, 510
tropospheric 85 Recreation 306, 464, 484
Reforestation 25, 43, 83, 159-160, 318-326, 385, 522, 588
P Regeneration 250, 305, 308, 312, 316-319, 322, 385
Perfluorocarbons see PFCs Regulatory agencies 46, 354, 366
Petroleum 28, 235-238 543, 571-576, 585 Regulatory measures see National and international policies
PFCs 26, 38, 175, 205-206, 213-215, 282297, 414 Renewable energy 26, 36, 39, 41, 43, 47, 68, 129, 149, 157-160,
Photosynthesis 306-307, 314, 324, 332 212, 242-249, 262-264, 389-390, 421-424, 485-486, 594,
Photovoltaics 40, 79, 129, 158, 187, 247, 253-255, 422, 511 640, 645
Plantations 245, 311-312, 319-322, 326, 328 biofuels 38, 40, 157, 197, 209, 226, 245, 258, 308, 323, 587
Policies and Measures see National and international policies biogas 229, 231-232, 252, 424, 463, 486
Policy making/Policy makers 81, 106, 109, 364, 606, 616, 631 gasification 39, 63, 132, 209, 211, 232-233, 239, 245,
Pollutants 21, 51-52, 58, 65, 71 254-257, 563
air 579, 586-587, 593 geothermal 249
ancillary benefits from, see Ancillary benefits hydropower 5, 36, 39-41, 47, 237, 242-243, 254-259,
environmental 461-463 265, 381, 424, 508, 641
Polluter Pays Principle 389 marine 249
Pollution havens 363, 481 solar 26, 41, 99, 159-160, 247-249, 256-259, 424, 641
Post-SRES scenarios see Scenarios wind 41, 158, 245-246, 265, 423-424
Potential Research and Development see National and international policies
economic 26, 40-41, 44, 47, 99, 175-265, 281-297, Reserves
352-353, 364-367, 637, 668 definition 4
market 44, 189, 201, 229, 243, 247, 350-398, 406, 419, 476 fossil fuel 6, 27-29, 36-37, 63, 158, 179, 235-237, 543,
physical 243, 406 568, 572, 576, 592, 594
socioeconomic 28, 30, 44, 261-265, 353-355 land/forest/nature 312, 316, 324, 329, 476
technological 40, 44, 104, 175-265, 347-348, 352-353, 406 Residential sector 30, 184, 187-188, 261, 291-292, 373, 507
Poverty Eradication 86, 88, 93-94, 106, 646 Resilience 43, 96, 123, 316, 608, 635
Precautionary Principle 84, 149, 655-656, 670 Resource
Precautionary approach see Precautionary principle consumption 26, 46, 98, 101, 347
Prices definition 4
750 Index
exhaustible 478 Special Report on Methodological and Technological Issues in

management 309, 329, 635 Technology Transfer (SRTT) 19, 350-351, 633-634
Revenue recycling 52, 60, 82, 492, 514-519, 593, 659 Spillovers 58-60
Rice production 35, 324, 384 definition 589
Risk economic 536, 539-540, 543-544, 550, 565
management 66, 371, 656 technological 480-482, 589-590
reduction 52, 465, 468 Split incentives 367, 378
Rural areas 100, 225-229, 243, 373-374, 383, 579, 588 Stabilization 19, 21-22, 24-26, 28-29, 61-62, 66-71, 89,
95-98, 122-137, 147-160, 409, 439, 544-550, 578,
S 607-612, 615, 651-652, 656-659, 673-675
Safe landing 66-67, 122, 609-612, 616-618 scenarios see Scenarios
tolerable windows 66-67, 122, 124, 131, 610, 612, 616-618 targets 61-62, 69-70, 148, 151-152, 158-160, 546,
Scenario 120-161 548-549, 658-659, 673-674
adaptation 386 Stakeholders 21, 48, 51, 330, 350-352, 360, 380, 387, 390,
baseline 24, 52, 61, 122, 133-136, 149156, 183-184, 421, 427, 459, 519, 609, 618, 631, 633, 641,
469-472, 536, 548, 570, 624-625 643-644, 648-652, 661
Business As Usual (BAU) 38, 121, 201, 549, 622, 664, 674-675 Standards 33-34, 47, 49-50, 81, 195-200, 232, 285-289,
driving forces (drivers) 23, 122, 142-149, 180-183, 189, 192-193, 291-292, 365-366, 371, 385-389, 404-408, 422-423,
236-237, 308-311, 315, 368-372, 377, 411, 471-472, 490-491, 512-513, 528-533, 584-585, 644-645
484, 488, 490, 495, 512, 565, 654 environmental 363, 412, 431, 436, 481, 568
mitigation 21-22, 24-25, 96, 120-161, 545, 592 mandatory 191, 375, 412
post-SRES 24, 26, 61, 120, 130, 143, 147-160, 548-549 performance 49, 82, 404, 412, 430-431, 435, 441
reference 23, 25, 61, 63, 121-122, 567, 584, 592, 616 uniform 430
SRES see Special Report on Emissions Scenarios voluntary 200, 412
stabilization 124, 131, 133-134, 152, 155, 510, 544-548 Storyline 23-24, 143-145, 149, 151
Second Assessment Report (SAR) 21, 26-27, 33, 35, 38-41, Structural change 34, 154, 207-208, 219, 494, 501
55, 59, 66-78, 97-98, 120, 182, 190, 225, 230, 235, Subsidies 20, 34-36, 46, 48-49, 61, 63, 91, 100, 181, 191, 245-246,
305-306, 322-323, 350-351, 376, 457-458, 466, 489, 309, 358-366, 374-375, 379-381, 384-385, 387-388, 410-414,
493, 503, 507, 523, 543, 565, 609-612 421-424, 436-437, 465-466, 490, 519-520, 550-551, 567, 637
Secondary benefits see Ancillary benefits agricultural 226, 330-331
Sequential decision making 62, 84 budgetary 359, 569
Sequestration see Carbon sequestration direct 34, 380, 423, 569
Service sector 188, 285 energy 48, 359, 387-388, 410, 422, 565, 569
SF6 26, 175, 205-215, 252, 414-415, 522 fossil fuel 63, 91, 563
Silvicultural practices 43, 311, 319 government 384
Sinks see Carbon sinks Sulphur Dioxide see SO2
Small and Medium-scale Enterprises (SMEs) 47, 295, 361, Sulphur Hexafluoride see SF6
379, 647 Supplementarity 425-427, 434-435, 539
SO2 65, 215, 237, 239, 245, 409, 415-418, 462, Supply Side 49, 159, 363-364, 407-409, 646
464, 473, 525-535, 587 Sustainability 19-23, 43, 48, 51, 53, 66, 68, 71, 84-86, 90-103,
trading 530 108, 123, 198-199, 316, 361-362, 385-386, 460,
emissions 147, 239, 409, 415, 417-418, 525, 534-535 477-478, 483-484, 495, 634-637, 640
Social Sustainable development 19-23, 35, 42, 44, 68, 71, 77-109,
benefits 51, 68, 332, 367, 370, 462, 480, 647 137-143, 376, 386, 425-430, 486, 494, 523, 634-650, 673
capital see Capital pathways 44, 347
costs see Costs policies 23, 68, 142, 634, 637, 647, 649-650
goals 42, 94, 140, 651
impacts 42, 315, 361, 468-469, 477, 652 T
innovation 13, 26, 44, 69, 71, 350, 370, 661 Tax
structures 22, 46, 48, 137, 350, 354, 368-369, 607 carbon 49, 52, 55-56, 64, 82, 84, 122, 124, 150, 156, 159-160,
Solar energy see Renewable energy 406, 408, 430-441, 492, 509, 512-551, 566, 570-593, 623, 659
Space Heating 29, 39, 182, 188, 211, 235, 249, 374, 583 carbon, effects 11, 17, 56, 496, 522, 555-556, 562, 565,
Special Report on Emissions Scenarios (SRES) 19, 21, 23-25, 570, 587, 597, 659
28-29, 33-34, 37, 60-61, 90, 96-98, 120-160, 260, carbon, implementation 581
283-285, 470, 545-549, 570, 577, 580, 591, 618 carbon, international 430, 439
Special Report on Land Use, Land Use Change and Forestry carbon, domestic 400, 430
(SRLULUCF) 224, 306-307, 310, 315, 324-325, 331, 332 carbon, global 439, 522
Index 751
carbon, revenues 439, 519, 558 Turbines 39, 180-181, 231, 238-240, 243, 245-246,
credits 34, 47, 375, 380, 408, 435, 443 249-250, 252-259, 411, 423, 465, 486, 511, 579, 592
differentiation 520
distortionary 52-53, 55-56, 416, 441, 472-473, U
494, 513, 516, 521, 659 Umbrella Group 621, 661
domestic 49, 430, 437, 441, 472 Uncertainty
emission 49, 181, 404, 406, 408, 413-414, 421, and lack of information 381-382
424, 431, 435, 442, 488 and policy 365-367
energy 49, 61, 63, 82, 180, 193, 414-415, 417,423, and robust decision making 618-620
518, 526, 566, 587 in cost estimates 260-261, 467-469, 507, 512, 536-538, 575, 578
environmental 413, 437-438, 443, 520, 593 in data sources 175-179, 216-219
exemptions 38, 56, 245, 421, 519-520, 522 in decision-making analysis 608, 648-657, 666-667
harmonized /international 404, 430-431 definition 477
interaction effect see Interaction effect role of 83-84
policy 47, 100, 203, 479 technological 474
recycling 492, 494-495, 517-518 valuation of ancillary benefit 528-531, 534
reduction 53, 404, 473, 517-518 Unemployment see Employment effects
reform 56, 409, 473, 513 United Nations Conference of Environment and Development
revenue 55, 57, 150, 405, 414, 416, 478-479, 513, (UNCED) 329, 429
516, 521, 573, 589 United Nations Framework Convention on Climate Change
Technological (UNFCCC) 19-21, 23, 50-51, 54, 60, 62, 68,
development 37-38, 53, 69, 88, 98, 137, 142, 151, 235, 309, Article 2/Ultimate objective 77, 607, 616, 661, 677
353, 441, 472-475, 484, 493, 495, 501, Article 3 77, 81, 83, 86, 433, 668
645-647, 651, 657, 661, 673 Article 4 86, 424-425, 429, 567, 644
potential see Potential Article 10 429
progress 66, 99, 136, 149, 159, 183, 211, 372, 412-413, Article 12 426
421, 474, 551, 592 critical issues 103
Technology conflict with other international agreements 435-438
advanced 183, 211, 213 decision making process 612-613
appropriate 35, 243, 386 financial mechanism 645
biotechnology 39, 179, 225, 316, 641, 644 implementation 631-634
carbon sequestration 179 national communications to 184, 386, 406, 443
co-operation 350, 643 Urban air pollution see Local air pollution
diffusion 44, 46, 71, 352, 356, 365, 367, 379, 384, 441-442, 643 Urbanization 183, 187, 293, 369, 373, 387
Environmentally Sound (ESTs) 58-59 User charges 360, 490, 583, 585
obsolete 362
transfer 19, 35-36, 41, 48, 53, 67-69, 149-150, 180-181, V
350-352, 380-381, 386-388, 390, 429-430, 581, 643-647 Valuation techniques 459, 463
Terrestrial ecosystems 41, 305-306, 310, 315, 332 Benefit Transfer 464, 528-529, 534-535
Tolerable window approach see Safe landing Contingent Valuation Method 452, 464, 529
Top-down models see Models Value of statistical life (VSL) 483, 525, 528-529, 534-535
Total Cost see Costs Values 22, 28, 37, 42, 46, 51, 66, 71
Tradable emissions permits 79, 82 biodiversity 486
Tradable permit systems 49, 407, 442 community 102
Tradable quotas 49, 404 cultural 637, 661
Transparency 48, 51, 87, 234, 361, 381, 421, 471, 479, democratic 651
631-633, 650 economic 139, 144
Transportation (sector) 28, 38, 47, 65, 131, 177, 179, 189-203, environmental / ecological 123, 144, 384, 491, 520, 673
213, 376, 378, 389, 410, 479, 571, 573, 575, 585, 587 institutional 101
air 65, 190-191, 193, 203, 376 monetary 460, 534
hybrid gasoline-electric vehicles 38, 173 non use 463-464
road 47, 179, 191, 289, 377-378, 586 physical 460, 464
subsidies 410 recreational 529
waterborne 198 shift in 139
Tropical socio-political 649
biome 322, 330 use 463
countries 8, 35, 42-43, 308, 322-323, 329-331, 385
752 Index
Volatile Organic Compounds (VOCs) see Non-Methane Volatile pollution 461, 576
Organic Compounds quality 327, 384, 465
Voluntary agreements 34, 47, 49-50, 82, 181, 183, 281, 285-404, supply 384
417, 419, 431, 434, 441, 490, 512, 519-520, 584, 614 treatment 233
Vulnerability 87, 104-105, 107, 654, 656 use 424
wastewater see Waste
W water conservation 306, 319, 326
Waste 26, 35-36, 38-40, 43, 48, 65 water resources 42, 326
animal 224, 229 Welfare 19-20, 51-58, 64, 69-70, 78, 83, 93, 350, 414,
disposal 230, 234-235, 241, 387, 579 438-439, 442, 463, 503-504, 513, 516-526, 550,
forest 179, 254 565, 580, 586-587, 621-622, 628-629, 662-674
heat 180, 198, 220, 238, 240 animal 225
management 35-36, 39, 43, 48, 65, 213, 230-231, 233-234, cost 328, 480
304, 386-387, 425, 440, 470, 510, 579, 636, 639 economic 131, 155, 439, 460, 479, 483, 639, 647
organic 230-231 gain 442, 480, 541-542
plastic 233 global 78, 126
radioactive 241 human 85, 87, 98, 101, 460, 463, 516, 614, 654
solid 230-232, 233, 243, 254-255, 464 loss 64, 203, 481, 483, 492, 520, 524, 540-542, 572, 574, 654
utilization 386-387 measure 478, 662-666
wastewater treatment 231-233 social 98, 203, 459-460, 475, 483, 516, 612, 634-636
waste-to-energy facilities 36, 39, 243 Willingness To Accept 51, 459, 616, 661
Water 35, 40-43, 48, 65, Willingness To Pay 51, 364, 459, 528, 534, 616, 668
availability 138, 142, 141, 224, 655 Wind energy see Renewable energy
demand 326 World Trade Organisation (WTO) 50-51, 421, 435-437
management 325, 384
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SUMMARY FOR POLICYMAKERS

CLIMATE CHANGE 2001: MITIGATION

A Report of Working Group III

Based on a draft prepared by:

The Nature of the Mitigation Challenge 3

Options to Limit or Reduce Greenhouse Gas Emissions and Enhance Sinks 5

The Costs and Ancillary Benefits of Mitigation Actions 9

Ways and Means for Mitigation 11

Introduction timing and costs of mitigation depend on different national cir-

10 650 10 A1T 10 750

Historic gas emissions

Conventional resources (upper estimate)

but two suggest net direct costs will exceed US$50/tC.

Industry CO2 only 2,300 0.4

Total 6,900–8,400d 1,900–2,600e 3,600–5,050e

14Annex B countries: Group of countries included in Annex B in the

CLIMATE CHANGE 2001: MITIGATION

A Report of Working Group III

In order to be effective, however, a portfolio approach requires

Technological improvement is a critical element in all the gen-

Scenario Population Economy Environment Equity Technology Globalization

Figure TS.1: Qualitative directions of SRES scenarios for different indicators.

10 650 10 A1T 10 750

There is no single path to a low emission future and countries

300 Middle East

6.000 Middle East

Figure TS.4: World CO2 emissions by region, 1971-1998.

Historic gas emissions

Conventional resources (upper estimate)

Region US$/tC avoided 2010 2020 References, comments, and

Commercial sector OECD/EIT ◊◊◊◊ ◊◊◊◊◊

Dev. cos. ◊◊◊ ◊◊◊◊◊

Blended cements Global ◊◊◊ ◊◊◊ Table 3.21

N2O reduction by chem. indus. Global ◊◊◊◊ ◊◊◊ Table 3.21

PFC reduction by Al industry Global ◊◊◊ ◊ ◊◊ Table 3.21

HFC-23 reduction by chem. Global ◊◊◊ ◊◊◊ Table 3.21

Region US $/tC avoided 2010 2020 References, comments, and

Nitrogenous fertilizer OECD ◊◊◊ ◊◊◊ Kroeze & Mosier, 1999

Enteric methane reduction OECD ◊◊ ◊◊◊ Kroeze & Mosier, 1999

Annex I ◊◊ ◊◊ Table 3.35a

Non-Annex I ◊◊◊ ◊◊◊ Table 3.35b

Nuclear for gas Annex I ◊ ◊ Table 3.35c

Non-Annex I ◊ ◊ Table 3.35d

Region US$/tC avoided 2010 2020 References, comments, and

Gas for coal Annex I ◊◊◊ ◊◊◊◊ Table 3.35a

Non-Annex I ◊◊◊◊ ◊◊◊◊ Tables 3.35b

CO2 capture from coal Global ◊◊ ◊◊ Tables 3.35a + b

CO2 capture from gas Global ◊◊ ◊◊ Tables 3.35c + d

Biomass for coal Global ◊◊◊◊ ◊◊◊◊ Tables 3.35a + b

Biomass for gas Global ◊ ◊◊◊ Tables 3.35c + d

Solar for coal Annex I ◊ ◊ Table 3.35a

Non-Annex I ◊ ◊ Table 3.35b

Hydro for coal Global ◊ ◊◊ Tables 3.35a + b

Hydro for gas Global ◊ ◊◊ Tables 3.35c + d

Technological options Barriers and opportunities Implications of mitigation policies on sectors

Technological options Barriers and opportunities Implications of mitigation policies on sectors

Opportunities: Information technologies are creating new

Technological options Barriers and opportunities Implications of mitigation policies on sectors