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Stuhilizution of Ammospheric Greenlwuse Gases. Plusical. Biloghat und Sen mures moment Implications

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• As in IPCC94 (Chapter 1)
# Profiles that allow emissions to follow IS92a until at least the year 2000 (Wigley, et al., 1996)

Table 3. Total anthropogenic CO2 emissions accumulated from 1991 to 2100 inclusive (GIC). All values were calculated using the carbon budget for the 1980s (IPCC94: Chapter 1) and the Bem carbon cycle model.

basic science, engineering, and institutional arrangements likely to differ. Technical gains that reduce the costs of unconshould reduce the cost of carbon-free technologies (and uncon. ventional fossil fuels relative to carbon-free altematives will ventional fossil fuels).

increase transition costs by increasing the cost differential

between fossil fuels and carbon-free altematives, whereas techThe degree to which cumulative emissions exceed conventional nical changes that reduce the costs of carbon-free technologies crude oil and natural gas resources gives some indication of the have the opposite impact. contribution these fuels make to total energy consumption (see Table 9 of the IPCC Technical Paper on Technologies, Policies Differences between the costs of available fossil fuels affect and Measures for Mitigating Climate Change (IPCC TP P&M. transition costs in a similar manner. 1997) for estimates of global energy reserves and resources”). If cumulative emissions associated with a stabilization target are equal to or lower than the cumulative emissions that would 3.2.1.4 The Emissions Pathuay result from the combustion of conventional oil and gas resources, these fuels will probably be an important component As indicated in Figure 5 and described in Section 2.2.1.2, the of total energy supply during the transition period to carbon- same concentration target (see Figure 4) can be achieved free alteratives. On the other hand, if cumulative emissions through several emission puthways. Emissions in the near-term associated with a stabilization target are significantly greater can be balanced against emissions in the long-term. On the than the cumulative emissions that would result from the other hand, higher early emissions decrease the options to combustion of conventional crude oil and natural gas resources, adjust emissions later on. In Figure 3. the dashed lines (the these fuels will probably be a relatively small component of WRE profiles) show higher emissions in the early years, total energy supply during the transition period. The cost differ- although a more rapid transition from increasing to decreasing ence between fossil fuels and carbon-free alteratives will be emissions. The pathways associated with the solid lines (the S smaller in the latter case. While the cost premium for carbon- profiles) allow higher emissions later on, but have lower emisfree alternatives is likely to be smaller for higher stabilization sions in the early years. Thus, as explained in Section 2.2.1.2. levels, total energy demand is higher so the net effect on transi- for a given stabilization level, there is a “budget" of allowable tion costs is not clear.

accumulated carbon emissions and the choice of pathway to

stabilization can be viewed as a problem of how to best (i.e.. However, we cannot predict how the absolute level of the cost with the greatest economic efficiency and least damaging differential between unconventional fossil fuels and carbon-free impacts) allocate this carbon budget over time. alternatives will change over time. Technical change will probably reduce the costs of unconventional fossil fuels and The differences in the emission paths for the same stabilization carbon-free alternatives, but the rate of technical change is level are important because costs differ among pathways. SAR

WGIII identifies the following factors that affect the costs of

alterative pathways: (a) the treatment of existing and future The focus here is on resources because they represent the quantities. capital stock: (h) the prospects for technical progress; (c) the both known and unknown, that remain to be combusted.

discount rale; and (d) the carbon budget.

Stabilization of Amospheric Greenhouse Gases: Physical, Biological and Socio-economic Implications

35

Capital stock, capital stock turnover and new investments Abatement costs at any point in time rise with the quantity of

emissions abated at that time. The suite of abatement technoloMitigation costs depend on the lifespan of existing plants and gies described in SAR WGII can be considered as forming a equipment. The lifespan for energy producing and using capital “supply curve”. Clearly, it is cheapest to take the least expenstock (for example, power plants, bousing and transport) is not sive measures first and to work up the "supply curve" using fixed. It is influenced by factors such as maintenance costs and more costly measures as required to meet the objective. reliability, which tend to change over time. Nevertheless, energy-related capital stock is typically long-lived and prema- Technical change is likely to reduce abatement costs over time. ture retirement is apt to be costly. To avoid premature The rate of this reduction may depend on the stabilization level retirement, mitigation efforts can be spread more evenly over and emission pathway. Stabilization levels and emission pathtime and space. To reduce the cost of any stabilization target, ways that imply more immediate reductions may stimulate SAR WGIII stresses the need to focus on new investments and development of new, lower carbon technologies: "oduced techreplacements at the end of the economic life of plant and equip dology development. This increases long-run flexibility and medt (.e., at the point of capital stock turnover).

lowers the long-run costs of a carbon constraint, but at a near

term price. According to this argument, rather than wait for The focus on new investment does not imply "doing nothing”. technology development to lower future mitigation costs, early Acting too slowly - not even undertaking low cost measures — emission constraints induce the private sector to undertake appromay increase the costs of a stabilization path by requiring more priate research and development, including the switching of rapid action later on. This may include the need to retire, prema- research and development investment away from exploration and turely, capital stock that is constructed in the interim. For development of carbon-intensive resources and technologies. example, deferring mitigation for a couple of decades would allow global fossil fuel emissions to increase significantly (e.g., Induced (endogenous) technical change depends on the stimuIS 920 and several other scenarios). But to stabilize concentra lation of innovation by price signals, which is likely to be cions below 450 ppmv, emissions would have to be brought greatest in well functioning markets. In the early stages of techback down to 1990 levels by about 2040 and lower thereafter.nology development, it is difficult to establish ownership of This might require society to replace much of the stock research results; therefore the private sector often is reluctant to constructed in the interim, and these costs need to be weighed invest in adequate research and development. The prospects of against any economic benefits gained from the deferment. future markets is unlikely to overcome this problem entirely.

This well knowo market failure is often used to justify governThe optimal rate at which capital stock is replaced reflects meat involvemeot in research and development, and such broader questions about the inertia of energy systems. For research and development may be very important in promoting example, different investments bave different time implications. the development of technologies early on. Constructing new, very long-lived, carbon-intensive infrastructure may raise the costs of limiting emissions many decades Government research and development and emission from now. Discouraging investments such as inefficient build- constraints are not the only levers policy makers can exercise to ings, or other urban infrastructure that may encourage a wide influence the rate of technology development, diffusion and range of carbon-intensive activities, could be important now in dissemination. Tax incentives and the support of protected" lowering the long-run costs of stabilizing atmospberic conceo- markets, such as premium payments for renewable energy, may trations even at higher levels. However, the issue of inertia and also encourage the private sector to invest in carbon-free energy bow it affects different investments is not well understood. and the development of associated industries. Technology diffu

sion and dissemination may also be inhibited by market failures As indicated by Figure 5, a 450 ppmv limit would require and require specific policies to overcome. reductions in global emissions starting very soon, while higher limits would delay the need for restrictions. While emissions In reality, a mix of all these measures – greatly increased increases in some countries can be offset by declines within government research and development, support for technology others over some period of time, emission growth must eventu- distribution, explicit market supports, and appropriate emission ally be curtailed in all regions to meet the limit.

constraints — probably will act together to stimulate the techpology needed to lower the costs of stabilizing atmospheric

CO2 conceotration. The literature assessed in SAR WGIII does Technical progress

not give a clear indication as to the appropriate mix of policies

and the implications for emission pathways. The cost of a stabilization path also depends on bow technology affects the cost of abating emissions at a point in time and over time. In general, the cost of an emission pathway increases with International cooperation the amount of emissions that must be abated at any point in time. However, technological changes sbould reduce the unit The least expensive mitigation options are often associated with cost per unit reduction over time.

new investments. To take advantage of these opportunities, a 36

Stabilization of Atmospheric Greenhouse Gases: Physical, Biological and Socio-economic Implications

cost-effective approach would adopt low cost mitigation measures next decade. Projections over a century or more must be treated wherever new investments are made throughout the world. with considerable caution. Nevertheless, such exercises can Mechanisms such as emissions trading or joint implementation provide useful information. The value however, lies not in the may be used to implement this strategy in a manner that facilitates specific numbers, but in general results that are useful for policy the distribution of mitigation costs among countries while making. promoting cost effectiveness. This approach, commonly referred to as "where” Dexibility, works because the climate benefits of CO2 emission reductions do not depend on their location. 3.2.2.1 Studies Available at the Time of the SAR WGIII

Until recently, proposals for dealing with climate change Discount rate

tended to focus on emissions rather than concentrations: for

example, returning emissions to 1990 levels by 2000, or a With regard to mitigation costs (the subject of this section), a 20 per cent reduction by 2005. As a result, few analyses had positive discount rate lowers the present value of the costs examined the economics of stabilization at the time of SAR incurred. This is because it places a lower weight oo invest- WGIII. Those that had are reviewed in Chapters 9 and 10 of ments made in the future. Indeed, the further in the future an SAR WGIII and are described below. (Subsequently a economic burden (bere, emission reductioos) lies, the lower the Qumber of additional studies have been undertaken, but, in present value of costs. In a wider context, discounting reduces accordance with the guidelines for Technical Paper preparathe weight placed on future environmental impacts relative to tion, they are not reviewed bere,) the benefits of current energy use. Its use makes serious challenges, such as rapid switching of energy systems in the future, Several authors have explored the cost-effectiveness of a seem easy in terms of present dollars and may affect consider- particular CO2 concentration target. For example, Nordhaus ation of intergenerational equity.

(1979) and Manne and Richels (1995) identify least-cost mitigation strategies for meeting a range of alternative

concentration targets. They found that the least-cost mitigaCarbon budget

tion path initially involves modest reductions from the

emissions baseline. Higher concentration targets allow Carbon emissions may follow different pathways to meet a emissions to follow the baseline for longer periods. certain stabilization target (as shown by Figures 5 and 6). If no major disruption of the processes that govern the uptake of CO2 Richels and Edmonds (1995) and Kosobud, et al., (1994) by the ocean and the land biosphere occurs, the long-term total examined alternative emission pathways for stabilizing cumulative emissions for a given stabilization pathway are essen- atmospheric concentrations. Their results indicate that tially independent of the pathway towards a stabilization target pathways involving modest reductions in the early years, (see Figure 6 and Section 2.2). However, the allocation of emis- followed by sharper reductions later on, are less expensive sions in time depends on the pathway. Emissions in the next (in terms of mitigation costs) tban tbose tbat decades can be notably bigber for pathways that follow IS92a require substantial reductions in the short-term given their initially (see Figures 6 and 7). Thus, the requirements for higher assumptions concerning technical change, capital stock cost carbon-free alternatives are reduced in the short-term and turnover, discount rate and the effect of the carbon budget. stronger emission reductions are delayed into the future. The timing of emission reductions is known as “wben"

flexibility. However, there are risks associated with emission pathways that follow IS92a initially. Higher earlier emissions and implied Higber stabilization targets allow more flexibility in the rate higher concentrations and rates of concentration increase may of departure from the baseline. However, regardless of the disrupt the physical and biogeochemical processes governing the rate of departure from the baseline, a stabilization pathway flow of carbon. This may mean that emissions must be lower than is not a "do nothing" or "wait and see” strategy. First, each expected to meet a certain stabilization target. In addition, higher concentration path still requires that future capital equipearlier emissions will lead to faster rates of climate change, which ment be less carbon-intensive than under a scenario with no may be costly. Pathways that imply higher emissions initially carbon limits. Given the long-lived nature of energy producmay bave a more rapid transition from increasing to decreasing ing and energy using equipment, this has implications for emissions, which tends to increase mitigation costs.

current investment decisions. Second, new supply options typically take many years to enter the marketplace. To have

sufficient quantities of low cost, low carbon substitutes in 3.2.2 Modelling the Costs of Stabilizing Co,

the future would require a sustained commitment to Concentrations

research, developmeot and demonstration today. Third, any

available no-regrets measures for reducing emissions are Modelling mitigation costs is a daunting task. It is difficult to assumed to be adopted immediately, which may require forecast the evolution of the energy-economic system over the government action.

Stabilization of Ammospheric Greenhouse Gases: Physical, Biological and Socio-economic Implications

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3.2.2.2 Limitations of Existing Studies

between emissions consistent with a given stabilization target

and some baseline, ignoring the ecological or marine feedbacks Two aspects of the above studies arouse considerable debate: can increase or decrease the emissions and mitigation costs the goal, and the reliance on highly simplified models of the associated with a stabilization level. Given the scientific uncer. energy-econ

nic system. With regard to the former, the aut ors tainties the carbon models, the uncertainty from oceanic and stress that their focus has been on mitigation costs, with partic- terrestrial feedbacks is likely to be 1100 GTC or more. ular attention to the least-cost path for meeting a particular concentration target. They emphasize that it is also important to In practice, we do not know the appropriate stabilization level, examine the environmental consequences of choosing one and this makes the appropriate strategy still more complex. emission path over another. Different emission paths imply not Stronger research and development policies, which are relaonly different mitigation costs, but also different benefits in tively cheap compared with the potential costs of rapid terms of averted environmental impacts, as well as the injection reductions in emissions, appear a good investmeat against a of novel environmental issues, such as those that might occur if wide range of outcomes. In addition, early mitigation, particbiomass fuels become more important.

ularly at the point of new investment, reduces the exposure of

the economy to the possibly very high costs of discovering The analyses are also limited by their treatment of uncertainty. that we need to achieve a lower stabilization target thas Uncertainty regarding the ultimate target is likely to persist for expected initially. Fuller implementation of no-regrets and some time. Under these conditions, policy makers must identify low cost measures belp, not only to reduce impacts, but also to a prudent near-term hedging strategy that balances the risks of prepare economies for stabilization. acting too slowly against the costs of acting too aggressively. Although several of the studies cited in SAR WGIII attempt to assess the robustness of the near-term control decision to the 3.3 Integrating Information on Impacts and Mitigation long-term concentration target, they do not analyse the effects

Costs of uncertainty explicitly.

3.3.1 Introduction Some critics also dispute the methodologies that underlie these studies. They question the extent to which the models, which by Balancing the costs, impacts, and risks associated with stabinecessity simplify the energy economic system, capture the full lization at different levels and by different pathways is an complexity of capital stock, its interlinkages and other sources extremely complex task, and one that ultimately must include of inertia in the system. For example, existing models do not a number of political judgements about levels of acceptable simulate the linkages among investments. Some investments risk, different kinds of risks, and the weight to be given to we take today, like roads, last for a very long time and create a different kinds of impacts (from both mitigation and climate wbole network of interlocking investments (e.g., the spatial change) on different people, in different countries, and at pattern of industrial facilities and bousing) that may affect the different times. costs of emission constraints for years to centuries.

As noted earlier, sensible greenhouse policy requires decision The models also simplify the process of technological change. makers to consider the costs and other implications of climate The models assume that the rate of technological change is change policy measures together with what such measures independent of the extent of emission controls. As noted earlier, might buy in terms of reducing the undesirable consequences of if emission constraints induce technological innovation, the global climate change. In Section 3.1, we discussed the issue of optimal level of emission reductions may be higher than other- impacts and how they may be reduced by adopting a lower wise. The notion of endogenous technological change is stabilization target. In Section 3.2, we discussed mitigation important – one that deserves more attention than it bas costs associated with limiting anthropogenic CO2 emissions to received. It should be noted, however, that the size of the effect achieve stable atmospheric concentrations. This section is far from clear.

discusses possible insights from integrating this and other rele vant information contained in this paper.

3.2.3 Other Key Considerations

3.3.2 The Need for Consistency and a Broad Perspective The choice of concentration target and route to stabilization is a very complex decision. Significant uncertainty persists It is important that the issues raized particularly in Sections 3.1 regarding the proportion of the carbon budget that leads to and 3.2 be applied consistently to both mitigation costs and stabilization. As noted in Section 2.2.1.3, the generation of climate impacts. Some important examples include: models employed in SAR WGI simplified representations of biospheric plus oceanic uptake and ignore the potential for Inertia. The inertia of the climate system means that emissions climate change to affect the rate of terrestrial and marine now may generate impacts for many years — or in the case of uptake. Because mitigation costs depend on the difference sea level rise, perhaps centuries. Greenhouse gases have a long present time, the question of what constitutes dangerous inter(a) Deforestation may account for as much as 20 per cent of ference" with the climate system is unresolved. Because of the

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Stabilization of Amospheric Greenhouse Gases: Physical, Biological and Socio-economic Implications

atmospheric lifetime, and even draconian emissions changes 3.3.3 Portfolio Analysis would affect concentrations only slowly. Inertia in the existing capital stock that emits greenhouse gases also means that it Numerous policy measures are available to reduce risks to would be very expensive to reduce emissions very rapidly. Both future generations from climate change. These inc'ude: (a) kinds of inertia emphasize the need for forward thinking, analy. reductions in emissions to slow climate change; (b) research sis, and action in terms of trajectories towards long-term goals, and development op new supply and conservation technologies to minimize sbocks to the system.

that reduce future abatement costs; (c) continued research to

reduce critical scientific uncertainties; and (d) investment in Technology development and other forms of innovation and adap actions that assist buman and natural systems to adapt to tation bave implications for both mitigation costs and impacts. climate change. The issue is not one of “either-or" but one of Research and development directed at both mitigation and adap- finding the right blend (portfolio) of options. At a given point in tation can be very beacficial. Deferring mitigation may allow time, policy makers must decide bow much effort and financial greater time for development of cheaper mitigation technologies, support is allocated towards mitigation; bow much towards but less time for adaptation to the corresponding impacts. public researcb and development and market incentives to

foster technology development; bow much towards reducing Time preferences are apother important factor. The delay climate-related uncertainties; and bow much towards helping between emissions and consequent impacts means that a posi- societies adapt to climate change. These and other options tive discount rate tends to reduce the present weight of impacts outlined in SAR WGIII are summarized in the box across. relative to abatement costs, and thus tends to favour a lesser overall degree of mitigation

A key to selecting an optimal portfolio is understanding bow

the optioos interact. Particularly important is the relation Climate surprises. There may be surprising outcomes in between research and development investments and mitigaclimate change, and thresholds in pbysical, biological or socio- tion costs. In general, research and development investments economic systems that may be crossed – not taking early reduce future mitigation costs. One example contained in action makes such events more difficult to deal with.

SAR WGIII suggests that extensive development of econom

ically-competitive alternatives to fossil fuels could reduce the Non-climate external impacts. We also need to consider the mitigation costs for a 20 per cent reduction in CO2 emissions synergy between greenbouse gas mitigation strategies and the (below 1990 levels) by approximately two-thirds. Such mitigation of other environmental externalities, such as local air savings could free up resources needed to address the threat of pollution, urban congestion, or land and natural resource degra- climate change or to meet other societal needs. Conversely, dation. This may extend the range of mitigation options that can embedded in all of the IS92 scenarios are expectations about be considered as no-regrets measures or as measures that entail technical progress on both the supply- and demand-sides of low pet costs.

the energy system. These advances will not occur unless there

are sustained research and development programmes on a Other greenhouse gases and sources. An integrated analysis variety of fronts — both in the public and private sectors. also must account for greenhouse gases other than CO2 from fossil fuels:

Reducing scientific uncertainty also reduces costs. At the

fossil fuel emissions at preseat (though its relative coatri- high cost of being wrong in either direction, the value of inforbution is expected to decline), and reforestation may make mation about climate change is likely to be great. The literature important contributions to absorbing CO2;

indicates that information about climate sensitivity to green

house gases and aerosols, climate change impact functions, and (b) Analysis shows that methane in particular could be an variables such as the determinants of economic growth and

important greenbouse gas, for which there may be a rates of eacrgy efficiency improvements, is most valuable. number of cheap optioos for mitigation; and

Reliance on a portfolio of actions also applies within each cate (c) Attention must also be given to nitrous oxide and balocar- gory. For example, mitigation costs for some greenhouse gas boas, particularly given the very long lifetime of these gases. sources are less expensive than others. SAR WGIII suggests

that there may be many relatively inexpensive options for Because these are all very complex issues — particularly relat- controlling industrial sources of methane and halogenated ing to impacts and the many uncertainties surrounding ways of compounds, although agricultural sources of methane and N20 quantifying them — economics alone cannot provide unique may be more difficult. Reducing emissions using the least answers concerning the correct balance in emission pathways. expensive options first reduces the total costs of mitigation. The Nor, for the same and additional reasons, is it possible to reach poteotial for reducing CO2 emissions by slowing deforestation clearly quantified conclusions about "optimum" stabilization and absorbing CO2 by reforestation also may offer opportunilevels

ties for lowering the costs of reducing Co, concentrations.

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