gas emissions. Many of the technologies being developed would need initial support to enter the market, and to reach sufficient volume to lower costs to become competitive.

5.10 Market penetration and continued acceptability of different energy technologies ultimately depends on their relative cost, performance (including environmental performance), institutional arrangements, and regulations and policies. Because costs vary by location and application, the wide variety of circumstances creates initial opportunities for new technologies to enter the market. Deeper understanding of the opportunities for emissions reductions would require more detailed analysis of options, taking into account local conditions.

Industrial Process and Human Settlement Emissions

5.11 Large reductions are possible in some cases in process-related greenhouse gases including CO2, CH, N2O, halocarbons and SF, released during manufacturing and industrial processes, such as production of iron, steel, aluminum, ammonia, cement and other materials. Measures include modifying production processes, eliminating solvents, replacing feedstocks, materials substitution, increased recycling, and reduced consumption of greenhouse gas-intensive materials. Capturing and utilizing methane from landfills and sewage treatment facilities, and lowering the leakage rate of halocarbon refrigerants from mobile and stationary sources also can lead to significant greenhouse gas emission reductions.

Agriculture, Rangelands, and Forestry

5.12 Beyond the use of biomass fuels to displace fossil fuels, the management of forests, agricultural lands, and rangelands can play an important role in reducing current emissions of carbon dioxide, methane, and nitrous oxide and enhancing carbon sinks. A number of measures could conserve and sequester substantial amounts of carbon (approximately 60-90 GtC in the forestry sector alone) over the next 50 years. In the forestry sector, measures include sustaining existing forest cover; slowing deforestation; natural forest regeneration; establishment of tree plantations; promoting agroforestry. Other practices in the agriculture sector could reduce emissions of other greenhouse gases such as methane and nitrous oxide. In the forestry sector, costs for conserving and sequestering carbon in biomass and soil are estimated to range widely but can be competitive with other mitigation options.

Policy Instruments

5.13

The availability of low carbon technologies is a prerequisite for, but not a guarantee of, the ability to reduce greenhouse gas emissions at reasonable cost. Mitigation of emissions depends on reducing barriers to the diffusion and transfer of technology, mobilizing financial resources, supporting capacity building in developing countries and countries with economies in transition, and other approaches to assist in the implementation of behavioural changes and technological opportunities in all regions of the globe. The optimum mix of policies will vary from country to country, depending upon their energy markets, economic considerations, political structure and societal receptiveness. The leadership of national governments in applying these policies will contribute to responding to the adverse consequences of climate change. Policies to reduce net greenhouse gas emissions appear more easily implemented when they are

designed to also address other concerns that impede sustainable development (e.g., air pollution, soil erosion). A number of policies, many of which might be used by individual nations unilaterally, and some of which may be used by groups of countries and would require regional or international agreement, can facilitate the penetration of less greenhouse gas-intensive technologies and modified consumption patterns. These include, inter alia (not ordered according to priority):

5.14

Putting in place appropriate institutional and structural frameworks;

Energy pricing strategies - for example, carbon or energy taxes, and reduced energy subsidies;

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 agriculture and transport pricing;

Tradable emissions permits;

Voluntary programs and negotiated agreements with industry;

Utility demand-side management programs;

Regulatory programs including minimum energy-efficiency standards, such as for appliances and fuel economy;

Stimulating research, development and demonstration to make new technologies available;

Market pull and demonstration programs that stimulate the development and application of advanced technologies;

Renewable energy incentives during market build-up;

* Incentives such as provisions for accelerated depreciation and reduced costs for consumers;

Education and training; information and advisory measures;

Options that also support other economic and environmental goals.

The choice of measures at the domestic level may reflect objectives other than costeffectiveness such as meeting fiscal targets. If a carbon or carbon-energy tax is used as a policy instrument for reducing emissions, the taxes could raise substantial revenues and how the revenues are distributed could dramatically affect the cost of mitigation. If the revenues are distributed by reducing distortionary taxes in the existing system, they will help reduce the excess burden of the existing tax system, potentially yielding an additional economic benefit (double dividend). For example, those of the European studies which are more optimistic regarding the potential for tax recycling, show lower and, in some instances, slightly negative costs. Conversely, inefficient recycling of the tax revenues could increase costs. For example, if the tax revenues are used to finance government programs that yield a lower return than the private sector investments foregone because of the tax, then overall costs will increase. The choice of instruments may also reflect other environmental objectives such as reducing nongreenhouse pollution emissions or increasing forest cover or other concerns such as specific impacts on particular regions or communities.

6.1 Equity considerations are an important aspect of climate change policy and of the Convention and in achieving sustainable development". Equity involves procedural as well as consequential issues. Procedural issues relate to how decisions are made while consequential issues relate to outcomes. To be effective and to promote cooperation, agreements must be regarded as legitimate, and equity is an important element in gaining legitimacy.

6.2 Procedural equity encompasses process and participation issues. It requires that all Parties be able to participate effectively in international negotiations related to climate change. Appropriate measures to enable developing country Parties to participate effectively in negotiations increase the prospects for achieving effective, lasting, and equitable agreements on how best to address the threat of climate change. Concern about equity and social impacts points the need to build endogenous capabilities and strengthen institutional capacities, particularly in developing countries, to make and implement collective decisions in a legitimate and equitable

manner.

6.3 Consequential equity has two components: the distribution of the costs of damages or adaptation and of measures to mitigate climate change. Because countries differ substantially in vulnerability, wealth, capacity, resource endowments, and other factors listed below, unless addressed explicitly, the costs of the damages, adaptation, and mitigation may be borne inequitably.

6.4 Climate change is likely to impose costs on future generations and on regions where damages occur, including regions with low greenhouse gas emissions. Climate change impacts will be distributed unevenly.

6.5 The intertemporal aspects of climate change policy also raise questions of intergenerational equity because future generations are not able to influence directly the policies being chosen today that could affect their well-being, and because it might not be possible to compensate future generations for consequent reductions in their well-being. Discounting is the principal analytical tool economists use to compare economic effects that occur at different points in time. The choice of discount rate is of crucial technical importance for analyses of climate change policy, because the time horizon is extremely long, and mitigation costs tend to come much earlier than the benefits of avoided damages. The higher the discount rate, the less future benefits and the more current costs matter in the analysis.

6.6

The Convention recognizes in Article 3.1 the principle of common but differentiated responsibilities and respective capabilities. Actions beyond "no regrets!" measures impose costs on the present generation. Mitigation policies unavoidably raise issues about how to share the

17

In common language equity means "the quality of being impartial" or "something that is fair and just."

18

"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."

costs. The initial emission limitation intentions of Annex I Parties represent an agreed collective first step of those parties in addressing climate change.

6.7

Equity arguments can support a variety of proposals to distribute mitigation costs. Most of them seem to cluster around or combine approaches: equal per capita emission allocations and allocations based on incremental departures from national baseline emissions (current or projected). The implications of climate change for developing countries are different from those for developed countries. The former often have different urgent priorities, weaker institutions, and are generally more vulnerable to climate change. However, it is likely that developing countries' share of emissions will grow further to meet their social and developmental needs. Greenhouse gas emissions are likely to become increasingly global, even whilst substantial percapita disparities are likely to remain.

6.8 There are substantial variations both among developed and developing countries that are relevant to the application of equity principles to mitigation. These include variations in historical and cumulative emissions, current total and per-capita emissions, emission intensities and economic output, projections of future emissions and factors such as wealth, energy structures, and resource endowments.

6.9 A variety of ethical principles, including the importance of meeting people's basic needs, may be relevant to addressing climate change, but the application of principles developed to guide individual behaviour to relations among states is complex and not straightforward. Climate change policies should not aggravate existing disparities between one region and another nor attempt to redress all equity issues.

7.

7.1

ECONOMIC DEVELOPMENT TO PROCEED IN A SUSTAINABLE MANNER

Economic development, social development and environmental protection are interdependent and mutually reinforcing components of sustainable development, which is the framework for our efforts to achieve a higher quality of life for all people. The UNFCCC notes that responses to climate change should be coordinated with social and economic development in an integrated manner with a view to avoiding adverse impacts on the latter, taking into full account the legitimate priority needs of developing countries for the achievement of sustainable development and the eradication of poverty. The Convention also notes the common but differentiated responsibilities and respective capabilities of all Parties to protect the climate system. This section reviews briefly what is known about the costs and benefits of mitigation and adaptation measures as they relate, inter alia, to the sustainability of economic development and environment.

Social Costs of Climate Change

7.2 Net climate change damages include both market and non-market impacts as far as they can be quantified at present and, in some cases, adaptation costs. Damages are expressed in net terms to account for the fact that there are some beneficial impacts of climate change as well, which are, however, dominated by the damage costs. Non-market impacts, such as human health, risk of human mortality and damage to ecosystems, form an important component of

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available estimates of the social costs of climate change. The estimates of non-market damages, however, are highly speculative and not comprehensive and are thus a source of major uncertainty in assessing the implications of global climate change for human welfare.

7.3 The assessed literature quantifying total damages from 2 to 3°C warming provides a wide range of point estimates for damages given the presumed change in atmospheric greenhouse gas concentrations. The aggregate estimates tend to be a few percent of world GDP, with, in general, considerably higher estimates of damage to developing countries as a share of their GDP. The aggregate estimates are subject to considerable uncertainty, but the range of uncertainty cannot be gauged from the literature. The range of estimates cannot be interpreted as a confidence interval given the widely differing assumptions and methodologies in the studies. Aggregation is likely to mask even greater uncertainties about damage components. Regional or sectoral approaches to estimating the consequences of climate change include a much wider range of estimates of the net economic effects. For some areas, damages are estimated to be significantly greater and could negatively affect economic development. For others, climate change is estimated to increase economic production and present opportunities for economic development. Equalizing the value of a statistical life at the level typical of that in developed countries would increase monetized damages several times, and would further increase the share of the developing countries in the total damage estimate, Small islands and low lying coastal areas are particularly vulnerable. Damages from possible large-scale catastrophes, such as major changes in ocean circulation, are not reflected in these estimates.

Benefits of Limiting Climate Change

7.4

The benefits of limiting greenhouse gas emissions and enhancing sinks are (a) the climate change damages and adaptation costs avoided and (b) the indirect economic and environmental benefits associated with the relevant policies such as reductions in other pollutants jointly produced with greenhouse gases, biological diversity conserved and technological innovation driven by climate change response.

Adaptation Costs

7.5 Many options are available for adapting to the impacts of climate change and thus reducing the damages to national economies and natural ecosystems. Adaptive options are available in many sectors, ranging from agriculture and energy to health, coastal zone management, off-shore fisheries and recreation. Some of these provide enhanced ability to cope with the current impacts of climate variability. Systematic estimates of the costs of adaptation to cope with impacts on agriculture, human health, water supplies, and other changes are not available. Where adaptation measures are technically feasible, costs of adaptation, for example to sea level rise, could be prohibitively expensive for some countries without external assistance

Mitigation Costs and Benefits

7.6

The costs of stabilizing atmospheric concentrations of greenhouse gases at levels and within a time frame which will prevent dangerous anthropogenic interference with the climate