Government Procurement Programmes

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Governments could establish procurement requirements for products that minimize GHG emissions in their manufacture and use. If drawn flexibly, government purchasing criteria would stimulate suppliers to develop low GHG-emitting products that met both governmental and larger market needs.

A variety of potential sector-specific measures, discussed briefly below and in Table 8, could encourage improvements in energy efficiency and reductions in process-related emissions (SAR II, 20.5; SAR III, 11). In addition, economy-wide instruments (e.g., phaseout of energy subsidies and adoption of carbon taxes) could affect emissions in the sector by encouraging processes that are less energy- or fossil fuel-intensive. These economy-wide instruments are not discussed here, because they are covered in Section 9, Economic Instruments.

Tax incentives could be designed for OECD Annex I country firms to encourage continued innovation in energy-efficient and low GHG-emitting processes. Most industrial processes have a relatively short lifetime, on the order of a decade or less, while facilities are used for several decades. Hence, there are large opportunities to rapidly introduce low-emitting technology into the manufacturing process as part of normal capital-stock turnover. Under present circumstances, where GHGs are uncosted externalities, there are no compelling reasons beyond profit maximization for companies to choose a lower GHGemission strategy over a higher one when they are planning new processes or products. Even when it is cost-effective to introduce low GHG-emitting technologies, there may be barriers to doing so. Hence, there is a need for additional incentives to encourage firms in OECD Annex I countries to utilize the natural cycle of capital stock replacement to introduce less GHGintensive technology and production facilities to achieve further reductions. Perhaps accelerating depreciation taxes might encourage such a shift.

In addition, financial incentives that encourage industry to adopt combined heat and power facilities, use more renewables, or use more secondary materials could accelerate a further lowering of emissions. Even if incentives are not provided, removing impediments to industrial cogeneration of electricity and beat would be effective.

4.3.2.1

Regulatory Programmes

Emissions Standards and Offsets

Setting industry- and product-specific GHG emission standards, like the energy-efficiency standards for appliances or vehicles, can bring about more certain compliance. Efficiency or performance standards can help to overcome a variety of barriers and shift production to lower GHG-emitting industrial practices. These barriers can include lack of information about high-efficiency products, financial analyses or investment criteria that overemphasize investment costs and de-emphasize operating costs, or difficulty in obtaining more efficient products through suppliers. However, reaching agreement about the appropriate standards for different types of equipment in different applications can be difficult, while monitoring and enforcement costs may be high and may raise the price to consumers. Moreover, use of regulations could run counter to the recent emphasis on use of flexible approaches.

Voluntary agreements in the United States and Europe have been effective in achieving energy and GHG reductions in industries that have been encouraged to manufacture or install efficient lighting, computers, office equipment and building shells. These include negotiated but voluntary targets for achieving emissions reductions, voluntary adoption of high-efficiency products or processes, cooperative RD&D efforts, and agreements to monitor and report emissions reductions based on voluntary actions. Voluntary agreements with industry groups to improve general environmental quality could be expanded to include GHG reduction (e.g., expansion of government-industry environmental covenants in The Netherlands), as could the ISO 14000 process. 13 Domestic and international supplier requirements that

DISO 14000 is an independently certifiable environmental management system established by the non-governmental International Standards Organization.

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specify low GHG content also could be developed. These private agreements could be modeled on the no-CFC specifications of many electronics firms prior to the 1995 phaseout. The potential for emissions reductions has been estimated with reasonable certainty by the U.S. Environmental Protection Agency for HFCand aluminum-related GHGs, and for the "Green Lights" and Energy Star Programs. Public relations or other economic benefits (such as potential for manufacture and sale of new products) accrue to participating companies and are essential in promoting voluntary actions by firms.

4.3.4 Research, Development and Demonstration

RD&D is needed in the near term in order to create and commercialize new industrial technology and to reach future emissions goals in the 2020 to 2050 time frame. For example, if

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processes. Much of this change will involve restructuring these economies, as heavy industry is replaced by alternative manufacturing. In addition, since most of the growth in industrial energy use is likely to be in the non-Annex I countries in the coming decades, the greatest reductions in the growth rate of future GHG emissions can be achieved by introducing new technology and industrial processes early in these emerging industrial economies.

Tradable permits and joint implementation could be useful mechanisms to achieve GHG reductions within the industrial sector by providing investment capital in energy-efficient manufacturing and process technology. These measures are discussed more fully in Section 9.

Opportunities also exist for companies in OECD Annex I countries to create GHG reducing joint ventures with companies and governments in Annex I countries with economies in transition, as well as in non-Annex I countries.

4.3.5.2 Barriers to International Initiatives

Technology transfer of modern industrial capacity to nonAnnex I countries and Annex I countries with economies in transition is being impeded by disagreements over intellectual property rights and a lack of available capital and hard currency. Other barriers include a lack of capacity and basic environmental legislation, and institutional factors in the host countries. There are currently legal and treaty impediments to implementing cooperative actions among firms to reduce greenhouse gases. Many countries have anti-trust laws to prevent price collusion and monopolistic behavior by firms. Within the World Trade Organization, there is concern about environmental protection as a potential restraint on free trade. These restrictions need to be examined to determine how environmental benefits, like GHG reductions, can be achieved by firms without compromising the intended goals of these rules. As the private sector takes on a larger role in addressing GHG

The IPCC IS92 scenarios indicate that total energy and CO, for the industrial sector of Annex I countries are projected to rise from approximately 122 EJ and 2.1 Gt C in 1990 to 165 EJ (141–181 EJ) and 2.7 Gt C (2.1–3.1 Gt C) in 2010, and to 186 EJ (154-211 EJ) and 2.9 Gt C (2.1-3.5 Gt C) in 2020, reaching 196 EJ (140-242 EJ) and 2.6 Gt C (1.4–3.7 Gt C) by 2050. Projected average annual growth in both energy use and emissions is close to 1% per year greater for the world as a whole, indicating the growing importance of the industrial sector in non-Annex I countries.

Annex I countries could lower their industrial sector CO2 emissions by 25% relative to 1990 levels, by simply replacing existing facilities and processes with the most efficient technological options currently in use (assuming a constant structure for the industrial sector). This upgraded replacement would be cost-effective if it occurred at the time of normal capital stock replacement. This seems within the realm of both technological and economic feasibility (SAR II, SPM 4.1.1). It is difficult to estimate potential emissions reductions compared to the IS92 scenarios for Annex I countries with economies in transition and non-Annex I countries; however, such reductions are likely to be significant due to the existing energy-intensive facilities and the potential to implement more efficient practices and technologies as growth occurs in these regions.

14Chapter 11 of SAR III uses the term "joint implementation" to include "activities implemented jointly" and that usage is continued

here.

The energy supply sector consists of a sequence of elaborate and complex processes for extracting energy resources, converting these into more desirable and suitable forms of energy. and delivering energy to places where the demand exists. Global energy consumption has grown at an average annual rate of approximately 2% for almost two centuries, although energy growth varies considerably over time and among regions (SAR IL, SPM 4.1). If past trends continue, energy-related GHG emissions are likely to grow more slowly than energy consumption in general and energy sector requirements in particular, due to a gradual trend toward the decarbonization of energy supply. Across the range of the IPCC IS92 scenarios, energy-related CO2 emissions are projected to increase from 6 Gt C in 1990 to 7-12 Gt C by 2020 and to 6-19 Gt C by 2050, of which the energy sector accounts for 2.3-4.1 Gt C (1.4-2.9 Gt Cin Annex D) by 2020 and 1.6-6.4 Gt C (1.0-3.1 Gt C in Annex 1) by 2050, respectively.

The availability of fossil reserves and resources as well as renewable potentials is unlikely to pose a major constraint to long-term energy supply (SAR II, B.3.3). Similarly, the availability of uranium and thorium is unlikely to place a major constraint on the future development of nuclear power. There is also a large long-term potential for renewable energy resources, although the costs of achieving a significant portion of this potential are uncertain and depend on many factors ranging from RD&D activities and early technology adoption in niche markets to suitable geographic locations (SAR II, B.5.3.1). Table 9 summarizes global energy reserves and resources in terms of both their energy and carbon content as well as renewable potentials (SAR II, B.3.3.1).

Energy supply technologies and energy infrastructures have inherently long economic lifetimes, and fundamental transitions in the energy supply sector take many decades. This means that technical measures and policies will take considerable time to implement. However, within a period of 50-100 years, the entire energy supply system will be replaced at least twice. It is technically possible to realize deep emission reductions in the energy supply sector in step with the normal timing of investments to replace infrastructure and equipment as it wears out or becomes obsolete (SAR II, SPM 4.1.3).

The mitigation potentials of the individual options identified in this assessment are not additive, because the realization of some options is mutually exclusive or may involve doublecounting. Thus, a systematic approach is required to assess the potential impacts and feasibility of combinations of individual mitigation measures and policies at the energy system level, while ensuring regional and global balance between demands and supplies. To assess the long-term technical potential of combinations of measures at the energy systems level, in contrast to the level of individual technologies, numerous scenarios of potential energy system futures have been constructed.

In one such exercise, variants of a Low CO2-Emitting Energy Supply System (LESS) were analyzed in the SAR (SAR II, SPM 4.1.4). The LESS constructions are "thought experiments" exploring many combinations of technical possibilities of reducing global CO2 emissions to about 4 Gt C by 2050 and to about 2 Gt C by 2100 (SAR Syn.Rpt., 5.8). The literature provides strong support for the feasibility of achieving the performance and cost characteristics assumed for energy technologies in the LESS constructions, although uncertainties will exist until more RD&D has been carried out and the technologies have been tested in the market (SAR II, SPM 4.1.4; SAR Syn.Rpt., 5.9). In another scenario exercise conducted in 1993, the World Energy Council presented an "ecologically driven" scenario, in which similar emissions reductions were obtained (SAR II, 19.3.1.4). These exercises are, by their nature, speculative and involve assumptions about mitigation potentials, short- and long-term costs of technologies, and their full socioeconomic and environmental consequences. Additional scenario development and analysis are required to establish the internal consistency of various assumptions over time, including possible interactions between such assumptions as those that might relate the evolution of systems for energy use, economic growth, land use and population (IPCC 1994, II, SPM).

Promising approaches to reduce future emissions, not ordered according to priority, include more efficient conversion of fossil fuels; switching to low-carbon fossil fuels; decarbonization of flue gases and fuels and CO, storage; switching to nuclear energy; and switching to renewable sources of energy (SAR II, SPM 4.1.3). Each of these options has its unique characteristics that determine cost-effectiveness, as well as social and political acceptability. Both the costs and the environmental impacts should be evaluated on the basis of full life-cycle analyses. The technical potential for CO2 emission reductions of selected mitigation technologies is explored in Box 3.

This section is based primarily on SAR II, Chapter 19, Energy
Supply Mitigation Options (Lead Authors: H. Ishitani, T. Johansson,
S. Al-Khouli, H. Audus, E. Bertel, E. Bravo, J. Edmonds, S.
Frandsen, D. Hall, K. Heinloth, M. Jefferson, P. de Laquil III, J.R.
Moreira, N. Nakicenovic, Y. Ogawa, R. Pachauri, A. Riedacker, H.-
H. Rogner, K. Saviharju, B. Sorensen, G. Stevens, W.C. Turkenburg,
R.H.Williams and F. Zhou), SAR II, Chapter B, Energy Primer
(Lead Authors: N. Nakicenovic, A. Grubler, H. Ishitani, T.
Johansson, G. Marland, J.R. Moreira and H-H. Rogner); and SAR
III, Chapter 11, An Economic Assessment of Policy Instruments for
Combatting Climate Change. It also draws to a lesser extent on the
SAR II and III SPMs.