IPCC Secretariat, WMO, 41, Av. Giuseppe-Motta, C.P. N° 2300, 1211 Geneva 2 SWITZERLAND PNUE UNEP SUMMARY FOR POLICYMAKERS SECOND ASSESSMENT REPORT, WORKING GROUP III Working Group III of the Intergovernmental Panel on Climate Change (IPCC) was established in November 1992 and charged with conducting "technical assessments of the socio-economics of impacts, adaptation and mitigation of climate change over both the short and long term and at the regional and global levels." Working Group III responded to this charge by further stipulating in its workplan that it would place the socio-economic perspectives in the context of sustainable development, and in accordance with the Framework Convention on Climate Change be comprehensive, cover all relevant sources, sinks and reservoirs of greenhouse gases and adaptation, and comprise all economic sectors. This report assesses a large part of the existing literature on the socio-economics of climate change and identifies areas in which a consensus has emerged on key issues and areas where differences exist.' The chapters have been arranged so that they cover several key issues. First, frameworks for socio-economic assessment of costs and benefits of action and inaction are described. Particular attention is given to the applicability of cost-benefit analysis, the incorporation of equity and social considerations, and consideration of intergenerational equity issues. Second, the economic and social benefits of limiting greenhouse gas emissions and enhancing sinks are reviewed. Third, the economic, social and environmental costs of mitigating greenhouse gas emissions are assessed. Next, generic mitigation and adaptation response options are assessed, methods for assessing the costs and effectiveness of different response options are summarized, and integrated assessment techniques are discussed. Finally, the report provides an economic assessment of policy instruments to combat climate change. In accord with the approved work plan, this assessment of the socio-economic literature related to climate change focuses on the economic literature; material from other social sciences is found mostly in the chapter on equity and social considerations. The report is an assessment of the state of knowledge - what we know and do not know - and not a The Framework Convention on Climate Change defines "climate change" to mean a change of climate which is attributed directly or indirectly to human activity that alters the composition of the global atmosphere and which is in addition to natural climate variability observed over comparable time periods. The question as to whether such changes are potential or can already be identified is analyzed in the Working Group I contribution to this IPCC Second Assessment Report (SAR). prescription for policy implementation. Countries can use the information in this report to help take decisions they believe are most appropriate for their specific circumstances. Climate change presents the decision maker with a set of formidable complications: considerable remaining uncertainties inherent in the complexity of the problem, the potential for irreversible damages or costs, a very long planning horizon, long time lags between emissions and effects, wide regional variation in causes and effects, an irreducibly global problem, and multiple greenhouse gases and aerosols to con-ider. Yet another complication is that effective protection of the climate system requires the global cooperation. Still a number of insights which may be useful to policy makers can be drawn from the literature; Analyses indicate that a prudent way to deal with climate change is through a portfolio of actions aimed at mitigation, adaptation and improving our knowledge. The appropriate portfolio will differ for each country. The challenge is not to find the best policy today for the next 100 years, but to select a prudent long term strategy and to adjust it over time in the light of new information. " Earlier mitigation action may increase flexibility in moving toward stabilization of atmospheric concentrations of greenhouse gases (U.N. Framework Convention on Climate Change, Article 2). The choice of abatement paths involves balancing the economic risks of rapid abatement now (that premature capital stock retirement will later be proved unnecessary) against the corresponding risk of delay (that more rapid reduction will then be required, necessitating premature retirement of future capital stock). The literature indicates that significant 'no regrets?' opportunities are available in most countries and that the risk of aggregate net damage due to 2 "No regrets" measures are those whose benefits, such as reduced energy costs and reduced emissions of local/regional pollutants equal or exceed their cost to society, excluding the benefits of climate change mitigation. They are sometimes known as "measures worth doing anyway." climate change, consideration of risk aversion and the precautionary The value of better information about the processes, impacts of and responses to climate change is likely to be great. In particular, the literature accords high value to information about climate sensitivity to greenhouse gases and aerosols, climate change damage functions, and variables such as determinants of economic growth and rates of energy efficiency improvements. Better information about the costs and benefits of mitigation and adaptation measures and how they might change in coming decades also has a high value. Analysis of economic and social issues related to climate change, especially A portfolio of possible actions that policymakers could consider, in accordance with applicable international agreements, to implement low cost and/or cost-effective measures to reduce emissions of greenhouse gases and adapt to climate change can include: implementing energy efficiency measures including removing institutional barriers to energy efficiency improvements; phasing out those existing distortionary policies which increase greenhouse gas emissions, such as some subsidies and regulations, non-internalization of environmental costs, and distortions in transport pricing; * implementing cost-effective fuel switching measures from more- to lesscarbon-intensive and carbon-free fuels such as renewables; implementing measures to enhance sinks or reservoirs of greenhouse gases such as improving forest management and land use practices; implementing measures and developing new techniques for reducing encouraging forms of international cooperation to limit greenhouse gas emissions, such as implementing coordinated carbon/energy taxes, activities implemented jointly, and tradeable quotas; promoting the development and implementation of national and international energy efficiency standards; promoting voluntary actions to reduce greenhouse gas emissions; implementing education and training, as well as information and advisory measures for sustainable development and consumption patterns for mitigating and adapting to climate change; planning and implementing measures to adapt to the consequences of climate change; undertaking research aimed at better understanding the causes and impacts of, and adaptation to, climate change; conducting technological research aimed at minimizing emissions of developing improved institutional mechanisms, such as improved insurance arrangements, to share the risks of damages due to climate change. Contribution of Economics ■ .Estimates of the costs and benefits of stabilizing greenhouse gas concentrations are sensitive, inter alia, to the ultimate target concentration, the emissions path toward this level, the discount rate, and assumptions concerning the costs and availability of technologies and practices. Despite its widespread use in economic policy evaluation, Gross Domestic Product is widely recognized to be a deficient measure of society's well-being, largely because it fails to account for degradation of the environment and natural systems. Other methodologies exist that try to take into account these |