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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.