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Costs and ancillary benefits of climate change mitigation some of the findings from the IPCC WG III contribution to the Third Assessment Report Terry Barker CLA WGIII University of Cambridge, UK Benefits and costs of mitigation • The primary benefits of mitigation are the avoided damages of climate change – but a comprehensive global and consistent economic assessment is not as yet possible. Benefits and costs of mitigation • The ancillary benefits are other benefits, • mainly environmental, as a side-effect of the mitigation policies and measures, e.g. reduced air pollution because of less fossil fuel burning. There are costs in reducing GHG emissions and increasing sinks. Costs of mitigation • There are wide differences in estimated costs • change between countries and sectors, depending on the – Modelling approach and assumptions adopted – Energy structures – No-regrets opportunities. The same costs appear differently depending on metric (trillions$, %GDP, or differences in growth rates). . are too pessimistic and Top-down cost estimates . bottom-up estimates do not include costs of overcoming barriers (calculated at 5-12% discount rates) Cost ($ / t Ceq) 100 Top-Down Model: Typical Cost Curve Include no regret options 0 Include no regret options Implementation, and Policy Costs to Overcome Barriers WGIII/SPM: Bottom-up Direct Costs Ceq. Emissions Reduction from Baseline Regional costs of Kyoto: Annex B • Macro-economic modelling studies: 0.1• • • 1.1% of 2010 GDP with emission trading (0.2-2% without) (reduced annual growth %: 0.1 to 0.2%/yr). Costs can be even lower (or net benefits) with efficient use of sinks, other GHG’s, CDM and JI and/or no-regrets opportunities. National cost estimates vary more widely. Economies in transition generally benefit. Regional costs of Kyoto: non-Annex B developing countries • • The same modelling studies suggest spillover effects of Annex B actions on non-Annex B countries: Most countries: slight losses or slight benefits due to changes in terms of trade, changes in costs of energy imports, relocation of industries. Oil-exporting developing countries: 0.05-0.2% reduction in 2010 GDP (but in worst case as much as 12% fall in projected oil revenues with emissions-permit trading, 25% without). Regional costs of Kyoto: non-Annex B developing countries Costs do not include effects of e.g. – actions related to sinks, other GHG’s, CDM and JI – use of OPEC’s market power – actions related to funding, insurance and the transfer of technology Estimated impact of Kyoto on the world oil price Source: Barker et al, 2001 Sectoral costs of efficient mitigation • • Estimates from macro-economic, sectoral modelling suggest that: Some industries are very likely to suffer an economic disadvantage: – coal, possibly oil and gas – some energy-intensive industries The economic losses are more immediate, more concentrated and more certain than the benefits. Sectoral benefits of efficient mitigation • • Estimates from macroeconomic, sectoral modelling also suggest that: some industries are likely to benefit: – renewable energy – services in general (most of GDP). Benefits are diffused over time & sectors. Effects of timing of mitigation on costs • ‘Quick fixes’ may incur much higher costs • Early action reduces risks of climate change. • Gradual near-term action reduces premature • retirement of existing capital stock and provides time for technological innovation. Stronger near-term action allows more deployment of low-emission technologies (and so making some of them cost-effective) & reduces costs of later action. The costs of global stabilisation • Costs appear differently depending on the • • unit of measurement. For some sectors, countries and periods costs could be high. Costs tend to rise as the stabilisation target declines, but are very sensitive to the baseline. Costs of stabilization rise as the stabilization level declines 20 18 (1348) (1239) 16 WG1, FUND 14 Trillions of 1990 US$ WRE Cumulative Carbon Emissions 1990 to 2100 (1043) WRE, FUND 12 WG1, MERGE 10 (714) WRE, MERGE 8 WG1, MiniCAM 6 WRE, MiniCAM Optimal, MiniCAM 4 2 0 450 550 650 750 Cost of emission reductions for stabilization varies widely due to models used and baseline assumptions % difference from baseline GDP % difference from baseline Note: The points shown are results from stabilization scenarios based on 6 SRES baseline scenarios, 6 models and many time periods from 2000 to 2100. Global GDP Reduction Relative to From Baseline in 2050 (%) Influence of baseline on stabilisation Costs to 2050 baseline 4.5% 4.0% A1 B A1T A2 TT B1 B2 A1F 1 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0% 450 550 650 750 Stabilization Level (ppm CO2) Source: Hourcade et al, 2001 GDP loss for 450ppm stabilisation is small compared to expected GDP level in 2100 GDP (trillion US$ 1990 prices) Global GDP 1990-2100 600 Growth in GDP 2000-2100: 500 3.03% per year 2.97% per year 400 Scenario A1B-AIM 300 [Average: 2.3% per year] 2.20% per year 200 reference 450ppm Scenario B2-WorldScan 100 0 1980 2000 2020 2040 2060 2080 2100 2120 years Note: Scenario runs are those that give the highest cost estimates for a given baseline Effects of stabilisation on GDP growth rates are small • The effects of stabilisation at 450ppm on global long-term GDP growth rates are expected to be small e.g. at most a reduction in growth rate from 3.03%/yr (without climate change mitigation) to 2.97 %/yr (stabilization at 450ppm) on average in the period 20002100. The reasons for small global long-term costs of mitigation • The small shares of fossil-fuel energy in global GDP (3 to 5%). • The ease of substitution to low-GHG-emission energy products and processes in the long-run when new technologies can be developed.