Climate Change 2001: Working Group III: Mitigation

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8.2.4 Ancillary Benefits

“Co-benefits”⁴ are the benefits from policy options implemented for various reasons at the same time, acknowledging that most policies resulting in GHG mitigation also have other, often at least equally important, rationales. “Ancillary benefits” are the monetized secondary, or side benefits of mitigation policies on problems such as reductions in local air pollution associated with the reduction of fossil fuels, and possibly indirect effects on congestion, land quality, employment, and fuel security. These are sometimes referred to as “ancillary impacts” to reflect that these impacts may be either positive or negative. Figure 8.8 shows the conceptual framework for analyzing ancillary and co-benefits and costs. The figure shows that climate and social/environmental benefits can be direct benefits, ancillary benefits, or co-benefits, depending on the objectives of the policies.

The term co-benefits is used in this report despite its limited literature because it shows the case for an integrated approach, linking climate change mitigation to the achievement of sustainable development. However, there appear to be three classes of literature regarding the impacts of climate change mitigation: (1) literature that primarily looks at climate change mitigation, but that recognizes there may be benefits in other areas (illustrated in the top panel of Figure 8.8); (2) literature that primarily focuses on other areas, such as air pollution mitigation, and recognizes there may be “ancillary benefits” in the area of climate mitigation (illustrated in the centre panel of Figure 8.8), (3) literature that looks at the combination of policy objectives and examines the costs and benefits from an integrated perspective (illustrated in the bottom panel of Figure 8.8). In this report, the term “co-benefits” is used when speaking generically about this latter perspective and when reviewing class (3) literature. The term “ancillary benefits” is used when addressing class (1) and (2) literature. This section covers primarily class (1) literature, which is the most extensive.

Very few economic modelling studies that examine the impacts on economic welfare of various GHG abatement policies explicitly consider their ancillary consequences, i.e. effects which would not have occurred in the absence of specific GHG policies. These range from public health benefits through reduced air pollution to reduced CH₄ from animal farms, and through impacts on biodiversity, materials, or land use (see Rothman, 2000).

Existing studies provide evaluations of net ancillary benefits ranging from a small fraction of GHG mitigation costs to more than offsetting them (see Burtraw et al., 1999, and reviews by Pearce, 2000; Burtraw and Toman, 1997; and Ekins, 1996). Such variation in estimates is not surprising because the underlying features differ by sectors considered and the geographic area being studied; but this variation also reflects the lack of agreement on the definition, reach, and size of these impacts and on the methodologies to estimate them. This literature is growing, particularly with respect to the impacts on public health^{5, 6} , so a critical review of it is given in this section. Most of the studies reviewed focus on public health, which is the largest quantifiable impact; therefore this assessment also focuses on it. Ancillary impacts to specific economic sectors are reviewed in Chapter 9.

Most of the key ancillary benefits quantified to date are relatively short term and ‘local’, that is affecting the communities relatively close to the sources of the emissions changes. In both these respects ancillary benefits can be thought of as offsetting all or part of the welfare losses associated with the costs of reducing GHGs. In this regard the best measure of ancillary impacts may be the percentage (or absolute) variation in welfare loss from considering a carbon tax (or other instrument) that does not include direct climate-mitigation benefits. Few studies provide such estimates (Dessus and O’Connor (1999), is an exception).

Other metrics in the literature help to shed light on the size and uncertainty associated with ancillary impacts estimates. The first normalizes ancillary benefits with carbon reductions, that is, ancillary benefits per tonne of carbon reduced (e.g., Burtraw et al., 1999). The second is the average ancillary benefits per tonne as a fraction of the carbon tax. This latter measure is useful because it has some linkage to the net benefits question. Private marginal carbon mitigation costs are equalized to the tax in the models in the literature. Given that average mitigation costs are less than (or equal to) marginal costs, if the metric equals more than one then the carbon policy modelled has net private benefits even without counting the direct climate benefits. If (average) ancillary benefits are lower than private marginal costs no claim for net benefits can be made. However, the lower the fraction, the less likely the policy will have net benefits.

A few important caveats are, however, in order. The most important is that the relevant cost measure in the above fraction is social not private cost. In this case, marginal social costs are likely to exceed marginal private costs because of tax interaction effects. Thus, ancillary benefits may not exceed social marginal cost even if the former exceeds private marginal cost (equal to the carbon tax). Second, ancillary benefit (cost) measures need to measure social welfare gains (or losses) if they are to be comparable to losses on the mitigation side. But, many measures of ancillary benefits understate social welfare gains and other benefits remain unmonetized or even unquantified, while in other cases, the ancillary benefits overstate welfare gains (say by counting all traffic fatality reductions as external benefits). Thus, reported ancillary benefits can under- or overstate actual ancillary benefits. If this indicator is greater than one, then the carbon policy has net private benefits even without counting the direct climate benefits.

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 methods and estimates.