Synthesis Report - Summary for Policy Makers

Question 7

What is known about the potential for, and costs and benefits of, and time frame for reducing greenhouse gas emissions?

What would be the economic and social costs and benefits and equity implications of options for policies and measures, and the mechanisms of the Kyoto Protocol, that might be considered to address climate change regionally and globally?
What portfolios of options of research and development, investments, and other policies might be considered that would be most effective to enhance the development and deployment of technologies that address climate change?
What kind of economic and other policy options might be considered to remove existing and potential barriers and to stimulate private- and public-sector technology transfer and deployment among countries, and what effect might these have on projected emissions?
How does the timing of the options contained in the above affect associated economic costs and benefits, and the atmospheric concentrations of greenhouse gases over the next century and beyond?

There are many opportunities including technological options to reduce near-term emissions, but barriers to their deployment exist.

Q7.2-7

Significant technical progress relevant to the potential for greenhouse gas emission reductions has been made since the SAR in 1995, and has been faster than anticipated. Net emissions reductions could be achieved through a portfolio of technologies (e.g., more efficient conversion in production and use of energy, shift to low- or no-greenhouse gas-emitting technologies, carbon removal and storage, and improved land use, land-use change, and forestry practices). Advances are taking place in a wide range of technologies at different stages of development, ranging from the market introduction of wind turbines and the rapid elimination of industrial by-product gases, to the advancement of fuel cell technology and the demonstration of underground CO₂ storage.

Q7.3

The successful implementation of greenhouse gas mitigation options would need to overcome technical, economic, political, cultural, social, behavioral, and/or institutional barriers that prevent the full exploitation of the technological, economic, and social opportunities of these options. The potential mitigation opportunities and types of barriers vary by region and sector, and over time. This is caused by the wide variation in mitigative capacity. Most countries could benefit from innovative financing, social learning and innovation, institutional reforms, removing barriers to trade, and poverty eradication. In addition, in industrialized countries, future opportunities lie primarily in removing social and behavioral barriers; in countries with economies in transition, in price rationalization; and in developing countries, in price rationalization, increased access to data and information, availability of advanced technologies, financial resources, and training and capacity building. Opportunities for any given country, however, might be found in the removal of any combination of barriers.

Q7.6

National responses to climate change can be more effective if deployed as a portfolio of policy instruments to limit or reduce net greenhouse gas emissions. The portfolio may include -- according to national circumstances -- emissions/carbon/energy taxes, tradable or non-tradable permits, land-use policies, provision and/or removal of subsidies, deposit/refund systems, technology or performance standards, energy mix requirement, product bans, voluntary agreements, government spending and investment, and support for research and development.

Q7.7

Cost estimates by different models and studies vary for many reasons.

Q7.14-19

For a variety of reasons, significant differences and uncertainties surround specific quantitative estimates of mitigation costs. Cost estimates differ because of the (a) methodology⁶ used in the analysis, and (b) underlying factors and assumptions built into the analysis. The inclusion of some factors will lead to lower estimates and others to higher estimates. Incorporating multiple greenhouse gases, sinks, induced technical change, and emissions trading⁷ can lower estimated costs. Further, studies suggest that some sources of greenhouse gas emissions can be limited at no, or negative, net social cost to the extent that policies can exploit no-regret opportunities such as correcting market imperfections, inclusion of ancillary benefits, and efficient tax revenue recycling. International cooperation that facilitates cost-effective emissions reductions can lower mitigation costs. On the other hand, accounting for potential short-term macro shocks to the economy, constraints on the use of domestic and international market mechanisms, high transaction costs, inclusion of ancillary costs, and ineffective tax recycling measures can increase estimated costs. Since no analysis incorporates all relevant factors affecting mitigation costs, estimated costs may not reflect the actual costs of implementing mitigation actions.

Q7.14 & Q7.20

Studies examined in the TAR suggest substantial opportunities for lowering mitigation costs.

Q7.15-16

Bottom-up studies indicate that substantial low cost mitigation opportunities exist. According to bottom-up studies, global emissions reductions of 1.9-2.6 Gt C_eq (gigatonnes of carbon equivalent), and 3.6-5.0 Gt C_eq per year ⁸ could be achieved by the years 2010 and 2020, respectively. Half of these potential emissions reductions could be achieved by the year 2020 with direct benefits (energy saved) exceeding direct costs (net capital, operating, and maintenance costs), and the other half at a net direct cost of up to US$100 per t C_eq (at 1998 prices). These net direct cost estimates are derived using discount rates in the range of 5 to 12%, consistent with public sector discount rates. Private internal rates of return vary greatly, and are often significantly higher, affecting the rate of adoption of these technologies by private entities. Depending on the emissions scenario this could allow global emissions to be reduced below year 2000 levels in 2010-2020 at these net direct cost estimates. Realizing these reductions involves additional implementation costs, which in some cases may be substantial, the possible need for supporting policies, increased research and development, effective technology transfer, and overcoming other barriers. The various global, regional, national, sector, and project studies assessed in the WGIII TAR have different scopes and assumptions. Studies do not exist for every sector and region.

Q7.15 & Q7 Table 7-1

Forests, agricultural lands, and other terrestrial ecosystems offer significant carbon mitigation potential. Conservation and sequestration of carbon, although not necessarily permanent, may allow time for other options to be further developed and implemented. Biological mitigation can occur by three strategies: (a) conservation of existing carbon pools, (b) sequestration by increasing the size of carbon pools,⁹ and (c) substitution of sustainably produced biological products. The estimated global potential of biological mitigation options is on the order of 100 Gt C (cumulative) by year 2050, equivalent to about 10 to 20% of projected fossil-fuel emissions during that period, although there are substantial uncertainties associated with this estimate. Realization of this potential depends upon land and water availability as well as the rates of adoption of land management practices. The largest biological potential for atmospheric carbon mitigation is in subtropical and tropical regions. Cost estimates reported to date for biological mitigation vary significantly from US$0.1 to about US$20 per t C in several tropical countries and from US$20 to US$100 per t C in non-tropical countries. Methods of financial analyses and carbon accounting have not been comparable. Moreover, the cost calculations do not cover, in many instances, inter alia, costs for infrastructure, appropriate discounting, monitoring, data collection and implementation costs, opportunity costs of land and maintenance, or other recurring costs, which are often excluded or overlooked. The lower end of the range is assessed to be biased downwards, but understanding and treatment of costs is improving over time. Biological mitigation options may reduce or increase non-CO₂greenhouse gas emissions.

Q7.4 & Q7.16

The cost estimates for Annex B countries to implement the Kyoto Protocol vary between studies and regions, and depend strongly, among others, upon the assumptions regarding the use of the Kyoto mechanisms, and their interactions with domestic measures (see Figure SPM-8 for comparison of regional Annex II mitigation costs). The great majority of global studies reporting and comparing these costs use international energy-economic models. Nine of these studies suggest the following GDP impacts. In the absence of emissions trade between Annex B countries, these studies show reductions in projected GDP¹⁰ of about 0.2 to 2% in the year 2010 for different Annex II regions. With full emissions trading between Annex B countries, the estimated reductions in the year 2010 are between 0.1 and 1.1% of projected GDP. The global modeling studies reported above show national marginal costs to meet the Kyoto targets from about US$20 up to US$600 per t C without trading, and a range from about US$15 up to US$150 per t C with Annex B trading. For most economies-in-transition countries, GDP effects range from negligible to a several percent increase. However, for some economies-in-transition countries, implementing the Kyoto Protocol will have similar impact on GDP as for Annex II countries. At the time of these studies, most models did not include sinks, non-CO₂ greenhouse gases, the Clean Development Mechanism (CDM), negative cost options, ancillary benefits, or targeted revenue recycling, the inclusion of which will reduce estimated costs. On the other hand, these models make assumptions which underestimate costs because they assume full use of emissions trading without transaction costs, both within and among Annex B countries, and that mitigation responses would be perfectly efficient and that economies begin to adjust to the need to meet Kyoto targets between 1990 and 2000. The cost reductions from Kyoto mechanisms may depend on the details of implementation, including the compatibility of domestic and international mechanisms, constraints, and transaction costs.

Q7.17-18

Figure SPM-8: Projections of GDP losses and marginal costs in Annex II countries in the year 2010 from global models: (a) GDP losses and (b) marginal costs. The reductions in projected GDP are for the year 2010 relative to the models' reference case GDP. These estimates are based on results from nine modeling teams that participated in an Energy Modeling Forum study. The projections reported in the figure are for four regions that constitute Annex II. The models examined two scenarios. In the first, each region makes the prescribed reduction with only domestic trading in carbon emissions. In the second, Annex B trading is permitted, and thereby marginal costs are equal across regions. For each case or region, the maximum, minimum, and median values across all models of the estimated marginal costs are shown. For the key factors, assumptions, and uncertainties underlying the studies, see Table 7-3 and Box 7-1 in the underlying report.

Q7.18-19

Emission constraints on Annex I countries have well-established, albeit varied, "spill-over" effects ¹¹ on non-Annex I countries. Analyses report reductions in both projected GDP and reductions in projected oil revenues for oil-exporting, non-Annex I countries. The study reporting the lowest costs shows reductions of 0.2% of projected GDP with no emissions trading, and less than 0.05% of projected GDP with Annex B emissions trading in the year 2010¹². The study reporting the highest costs shows reductions of 25% of projected oil revenues with no emissions trading, and 13% of projected oil revenues with Annex B emissions trading in the year 2010. These studies do not consider policies and measures other than Annex B emissions trading, that could lessen the impacts on non-Annex I, oil-exporting countries. The effects on these countries can be further reduced by removal of subsidies for fossil fuels, energy tax restructuring according to carbon content, increased use of natural gas, and diversification of the economies of non-Annex I, oil-exporting countries. Other non-Annex I countries may be adversely affected by reductions in demand for their exports to Organisation for Economic Cooperation and Development (OECD) nations and by the price increase of those carbon-intensive and other products they continue to import. These other non-Annex I countries may benefit from the reduction in fuel prices, increased exports of carbon-intensive products, and the transfer of environmentally sound technologies and know-how. The possible relocation of some carbon-intensive industries to non-Annex I countries and wider impacts on trade flows in response to changing prices may lead to carbon leakage¹³ on the order of 5-20%.

Q7.19

Technology development and diffusion are important components of cost-effective stabilization.

Q7.9-12 & Q7.23

Development and transfer of environmentally sound technologies could play a critical role in reducing the cost of stabilizing greenhouse gas concentrations. Transfer of technologies between countries and regions could widen the choice of options at the regional level. Economies of scale and learning will lower the costs of their adoption. Through sound economic policy and regulatory frameworks, transparency, and political stability, governments could create an enabling environment for private- and public-sector technology transfers. Adequate human and organizational capacity is essential at every stage to increase the flow, and improve the quality, of technology transfer. In addition, networking among private and public stakeholders, and focusing on products and techniques with multiple ancillary benefits, that meet or adapt to local development needs and priorities, is essential for most effective technology transfers.

Q7.9-12 & Q7.23

Lower emissions scenarios require different patterns of energy resource development and an increase in energy research and development to assist accelerating the development and deployment of advanced environmentally sound energy technologies. Emissions of CO₂ due to fossil-fuel burning are virtually certain to be the dominant influence on the trend of atmospheric CO₂concentration during the 21st century. Resource data assessed in the TAR may imply a change in the energy mix and the introduction of new sources of energy during the 21st century. The choice of energy mix and associated technologies and investments -- either more in the direction of exploitation of unconventional oil and gas resources, or in the direction of non-fossil energy sources or fossil energy technology with carbon capture and storage -- will determine whether, and if so, at what level and cost, greenhouse concentrations can be stabilized.

Q7.27

Both the pathway to stabilization and the stabilization level itself are key determinants of mitigation costs.¹⁴

Q7.24-25

The pathway to meeting a particular stabilization target will have an impact on mitigation cost (see Figure SPM-9). A gradual transition away from the world's present energy system towards a less carbon-emitting economy minimizes costs associated with premature retirement of existing capital stock and provides time for technology development, and avoids premature lock-in to early versions of rapidly developing low-emission technology. On the other hand, more rapid near-term action would increase flexibility in moving towards stabilization, decrease environmental and human risks and the costs associated with projected changes in climate, may stimulate more rapid deployment of existing low-emission technologies, and provide strong near-term incentives to future technological changes.

Q7.24

Studies show that the costs of stabilizing CO₂ concentrations in the atmosphere increase as the concentration stabilization level declines. Different baselines can have a strong influence on absolute costs (see Figure SPM-9). While there is a moderate increase in the costs when passing from a 750 to a 550 ppm concentration stabilization level, there is a larger increase in costs passing from 550 to 450 ppm unless the emissions in the baseline scenario are very low. Although model projections indicate long-term global growth paths of GDP are not significantly affected by mitigation actions towards stabilization, these do not show the larger variations that occur over some shorter time periods, sectors, or regions. These studies did not incorporate carbon sequestration and did not examine the possible effect of more ambitious targets on induced technological change. Also, the issue of uncertainty takes on increasing importance as the time frame is expanded.

Q7.25

Figure SPM-9: Indicative relationship in the year 2050 between the relative GDP reduction caused by mitigation activities, the SRES scenarios, and the stabilization level. The reduction in GDP tends to increase with the stringency of the stabilization level, but the costs are very sensitive to the choice of the baseline scenario. These projected mitigation costs do not take into account potential benefits of avoided climate change (for more information, see the caption for Figure 7-4 of the underlying report).

Q7.25

Other reports in this collection