7

Economic instruments at the international level include: (i) international taxes or harmonized domestic taxes; (ii) tradable quotas; and (iii) joint implementation.

Economic instruments implemented at the national or international level require approaches to addressing concerns related to equity, international competitiveness, “free riding” (i.e., parties sharing the benefits of abatement without bearing their share of the costs) and "leakage" (i.e., abatement actions in participating countries causing emissions in other countries to increase).

With few exceptions, both taxes and tradable permits impose costs on industry and consumers. Sources will experience financial outlays, either through expenditures on emission controls or through cash payments to buy permits or pay taxes. Permits are more effective than a tax in achieving a specified emission target, but a tax provides greater certainty about control costs than do permits. For a tradable permit system to work well, competitive conditions must exist in the permit (and

the creation of futures contracts which would reduce uncertainty regarding future permit prices.

A system of harmonized domestic taxes on GHG emissions would involve an agreement about compensatory international financial transfers. To be effective, a system of harmonized domestic taxes also requires that participants not be allowed to implement policies that indirectly increase GHG emissions.

A tradable quota scheme allows each participant to decide what domestic policy to use. The initial allocation of quota among countries addresses distributional considerations, but the exact distributional implications cannot be known beforehand, since the quota price will be known only after trading begins, so protection against unfavorable price movements may need to be provided.

In applying economic instruments to limit GHG emissions at the international level, equity across countries is determined by the quota allocations in the case of tradable quota systems, the revenue-sharing agreement negotiated for an international tax, or the transfer payments negotiated as part of harmonized domestic taxes on GHG emissions.

1.2 Scope and Organization!

This Technical Paper provides a sectoral analysis of technologies and practices that will reduce growth in GHG emissions and of measures that can stimulate and accelerate the use of these technologies and practices, with separate consideration of broad economic policy instruments. The paper focuses on technologies and measures for the countries listed in Annex I of the FCCC, while noting information as appropriate for use by nonAnnex I countries. Analysis of these technologies and measures is provided in terms of a framework of criteria, which was authorized by IPCC-XII (Mexico City, 11-13 September 1996).

Technologies and measures are examined over three time periods, with a focus on the short term (present to 2010) and the medium term (2010-2020), but also including discussion of longer-term (e.g., 2050) possibilities and opportunities. Many of the data in the SAR were summarized as global values; for this report, data for the Annex I countries also are provided to the extent possible, as a group or categorized into OECD countries and countries with economies in transition. All of the information and conclusions contained in this report are consistent with the SAR and with previously published IPCC reports. The Technical Paper begins with a discussion of three energy end-use sectors commercial/residential/institutional buildings, transportation and industry. These discussions are followed by a section on the energy supply and transformation sector, which produces and transforms primary energy to supply secondary energy to the energy end-use sectors.? Technologies and measures that can be adopted in the agriculture, forestry and waste management sectors are then discussed. Measures that will affect emissions mainly in individual sectors (e.g., fuel taxes in the transportation sector) are covered in the sectoral discussions listed above; broader measures affecting the national economy (e.g., energy or carbon taxes) are discussed in a final section on economic instruments.

The paper identifies and evaluates different options on the basis of three criteria (see Box 2). Because of the difficulty of estimating the economic and market potential of different technologies and the effectiveness of different measures in achieving

emission reduction objectives, and because of the danger of double-counting the results achieved by measures that tap the same technical potentials, the paper does not estimate total global emissions reductions. Nor does the paper recommend adoption of any particular approaches. Each Party to the Convention will decide, based on its needs, obligations and national priorities, what is appropriate for its own national circumstances.

1.3

Sources of Information

The Technical Paper has been drafted in a manner consistent with the rules of procedure for IPCC Technical Papers agreed to at IPCC-XI (Rome, 11-15 December 1995) and further interpreted at IPCC-XII. The contributors and participating governments of the IPCC recognize that a simplification of the review process is necessary to enable the Technical Papers to be completed in a time frame that meets the needs of the Parties of the FCCC. Therefore, materials agreed to be appropriate for use in this Technical Paper are restricted to information derived from IPCC reports and relevant portions of references cited in these reports, and models and scenarios used to provide information in IPCC reports. In accordance with these requirements, information and studies that were not referenced or cited in any IPCC report are not included in the discussion. Important information on potential reductions from energy savings or as captured through particular measures is not always available in the literature; in the absence of such information, the authors of this report have in certain instances presented their own estimates and professional judgment in evaluating the performance of these measures.

The scope of this paper was guided by several UNFCCC documents prepared for the Ad Hoc Group on the Berlin Mandate (AGBM). including PCCC/AGBM/1995/4 and FCCC/AGBM/1996/2.

? Primary energy is the chemical energy embodied in fossil fuels (coal, oil and natural gas) or biomass, the potential energy of a water reservoir, the electromagnetic energy of solar radiation, and the energy released in nuclear reactors. For the most part, primary energy is transformed into electricity or fuels such as gasoline, jet fuel, heating oil or charcoal-called secondary energy. The enduse sectors of the energy system provide energy services such as cooking, illumination, comfortable indoor climate, refrigerated storage, transportation and consumer goods using primary and secondary energy forms, as appropriate.

Equity considerations

Administrative burden

Consistency with other public policies

Replicability

issues), and include elements from all three categories in the discussion of each technology and measure (see tables within respective sections). Because of the limited length and broad scope of the paper, every option cannot be evaluated using each detailed criterion listed. In particular, it is difficult to judge precisely the effectiveness of various instruments in achieving emissions reduction objectives, the economic costs at both the project and macro-economic levels, and other factors, such as other types of environmental effects resulting from the implementation of various options. In some instances, the authors were unable to quantify the cost-effectiveness or fully evaluate other cost considerations noted in the criteria for evaluation. Such cost evaluation could not be completed because costs depend on the specific technical option promoted and the means of implementation; evaluation of the costs of measures has not been well-documented by Annex I countries. and is not available in the literature at this time. Assessing the performance of any of the wide range of technologies and measures is further complicated by the need to consider implementation issues that can affect performance, and by the likelihood that the performance of measures will vary when combined into different packages.

The criteria used by governments for assessing technologies and measures-and the priority placed on each criterion-may

2.3GIC

5.7GtC

6.0GtC

CARBON DIOXIDE EMISSIONS

Figure 1: Major energy and carbon flows through the global energy system in 1990, EJ and Gt C (billion tons) elemental carbon. Carbon flows do not include biomass (SAR II, B.2.1, Figure B-2).

Gt C as CO2 (see Figure 1). In 1990, the three energy end-use sectors accounting for the largest CO2 releases from direct fuel use were industry (45% of total CO2 releases), transportation (21%) and residential/commercial/institutional buildings (29%). Transport sector energy use and related CO, emissions have grown most rapidly over the past two decades.

As shown in Tables A3 and A4 in Appendix A. Annex I countries are major energy users and fossil fuel CO, emitters,

although their share of global fossil fuel carbon emissions has been declining. Non-Annex I countries account for a smaller portion of total global CO, emissions than Annex I countries, but projections indicate that the share of the non-Annex I countries will increase significantly in all scenarios by 2050.

The mitigation potential of many of the technologies and measures is estimated using a range of baseline projections provided by the IPCC IS92 "a," "c." and "e" scenarios for 2010, 2020 and 2050 (see Tables Al-A4 in Appendix A). The IS92 scenarios (IPCC 1992, 1994) provide a current picture of global energy use and GHG emissions, as well as a range of future projections without mitigation policies, based on assumptions and trend information available in late 1991. By providing common and consistent baselines against which the authors compare percentage reductions in energy use and related GHG emissions, the scenarios make possible rough estimates of the potential emission reduction contributions of different technologies and measures. The rapid changes in national economic trends during the early 1990s for several of the Annex I countries with economies in transition were not captured in these scenarios, hence are not accounted for in quantitative elements of these analyses.

Across the IS92 scenarios, global energy needs are projected to continue to grow, at least through the first half of the next century. Without policy intervention, CO, emissions will grow, although this growth will be slower than the expected increase in energy consumption, because of the assumed "normal" rate of decarbonization of energy supply. However, the global decarbonization rate of energy will not fully offset the average annual 2% growth rate of global energy needs.