system will be critically dependent on the choice of emissions time path, consumption patterns, resource and technology availability and the choice of policy instruments. The cost of the abatement programme will be influenced by the rate of capital replacement, the discount rate and the effect of research and development. Failure to adopt policies as early as possible to encourage efficient replacement investments at the end of the economic life of plant and equipment (i.e., at the point of capital stock turnover) impose an economic cost to society. Implementing emissions reductions at rates that can be absorbed in the course of normal stock turnover are likely to be cheaper than enforcing premature retirement now. The choice of abatement paths thus involves balancing the economic risks of rapid abatement now against the risks of delay. Mitigation measures undertaken in a way that capitalize on other environmental benefits could be cost-effective and enhance sustainable development. Movement of polluting activities which lead to an increase in global greenhouse gas emissions can be lessened through coordinated actions of groups of countries. 7.7 While very few studies of the costs to stabilize atmospheric concentrations of greenhouse gases have been published, some estimates of the costs of various degrees of emissions reductions are available in the literature. Mitigation cost estimates vary widely, depending upon choice of methodologies, underlying assumptions, emission scenarios, policy instruments, reporting year, etc. 7.8 Despite significant differences in views, there is agreement that energy efficiency gains of perhaps 10% to 30% above baseline trends over the next two to three decades can be realized at negative to zero net cost. With longer time horizons, which allow a more complete turnover of capital stocks and which give research, development and demonstration, and market transformation policies a chance to impact multiple replacement cycles, this potential is much higher. The magnitude of such "no regrets" potential depends upon the existence of substantial market or institutional imperfections that prevent cost-effective emission reduction measures from occurring. The key question is then the extent to which such imperfections and barriers can be removed cost-effectively by policy initiatives. 7.9 OECD countries: Although it is difficult to generalize, top-down" analyses suggest that the costs of substantial reductions below 1990 CO2 emissions levels could be as high as several percent of GDP. In the specific case of stabilizing emissions at 1990 levels, most studies estimate that annual costs in the range of minus 0.5 percent of GDP (equivalent to a gain of about $60 billion in total for OECD countries at today's GDP levels) to plus 2 percent of GDP (equivalent to a loss of about $240 billion) could be reached over the next several decades. However, studies also show that appropriate timing of abatement measures and the availability of low-cost alternatives may substantially reduce the size of the overall bill. Some bottom-up studies show that the costs of reducing emissions by 20% in developed countries within two to three decades are negligible to negative. Other bottom-up studies suggest that there exists a potential for absolute reductions in excess of 50 % in the longer term, without increasing and perhaps even reducing total energy system costs. 19 See box I in the Summary for Policymakers of IPCC Working Group III for a discussion of topdown and bottom-up models. 7.10 Countries with economies in transition: The potential for cost-effective reductions in energy use is apt to be considerable but the realizable potential will depend upon what economic and technological development path is chosen, as well as the availability of capital to pursue different paths. A critical issue is the future of structural changes in these countries that are apt to change dramatically the level of baseline emissions and the emission reduction costs. 7.11 Developing countries: Analyses suggest that there may be substantial low-cost fossil fuel carbon dioxide emission reduction opportunities for developing countries. Development pathways that increase energy efficiency, promote alternative energy technologies, reduce deforestation and enhance agricultural productivity and biomass energy production can be economically beneficial. To embark upon this pathway may require significant international cooperation and financial and technology transfer. However, these are likely to be insufficient to offset rapidly increasing emissions baselines, associated with increased economic growth and overall welfare. Stabilization of carbon dioxide emissions is likely to be costly. 7.12 Cost estimates for a number of specific approaches to mitigating emissions or enhancing sinks of greenhouse gases vary widely and depend on site-specific characteristics. This is true for renewable energy technologies, for example, as well as carbon sequestration options. The latter could offset as much as 15-30% of 1990 global energy-related emissions each year in forests for the next 50 years. The costs of carbon sequestration, which are competitive with source control options, differ among regions of the world. 7.13 Control of emissions of other greenhouse gases, especially methane and nitrous oxide, can provide significant cost-effective opportunities in some countries. About 10% of anthropogenic methane emissions could be reduced at negative or low cost using available mitigation options for such methane sources as natural gas systems, waste management, and agriculture. Costs differ between countries and regions for some of these options. Subsidies, Market Imperfections and Barriers 7.14 The world economy and indeed some individual national economies suffer from a number of price distortions which increase greenhouse gas emissions, such as some agricultural and fuel subsidies and distortions in transport pricing. A number of studies of this issue indicate that global emissions reductions of 4 to 18% together with increases in real incomes are possible from phasing out fuel subsidies. 7.15 Progress has been made in a number of countries in cost-effectively reducing imperfections and institutional barriers in markets through policy instruments based on voluntary agreements, energy efficiency incentives, product efficiency standards and energy efficiency procurement programs involving manufacturers, and utility regulatory reforms. Where empirical evaluations have been made, many have found that the benefit-cost ratio of increasing energy efficiency was favourable, suggesting the practical feasibility of realizing "no regrets" potentials at negative net cost. Value of Better Information and Research 7.16 The value of better information about the processes, impacts of and responses to climate change is likely to be great. Analysis of economic and social issues related to climate change, especially in developing countries, is a high priority for research. Further analysis is required concerning effects of response options on employment, inflation, trade, competitiveness and other public issues. 8.1 The scientific, technical, economic and social science literature does suggest ways to move forward towards the ultimate objective of the Convention. Possible actions include mitigation of climate change through reductions of emissions of greenhouse gases and enhancement of their removal by sinks, adaptation to observed and/or anticipated climate change, and research, development and demonstration to improve our knowledge of the risks of climate change and possible responses. 8.2 Uncertainties remain which are relevant to judgement of what constitutes dangerous anthropogenic interference with the climate system and what needs to be done to prevent such interference. The literature indicates, however, that significant "no regrets" opportunities are available in most countries and that the risk of aggregate net damage due to climate change, consideration of risk aversion and the precautionary approach, provide rationales for actions beyond "no regrets". The challenge is not to find the best policy today for the next 100 years, but to select a prudent strategy and to adjust it over time in the light of new information. 8.3 The literature suggests that flexible, cost-effective policies relying on economic incentives and instruments as well as coordinated instruments, can considerably reduce mitigation or adaptation costs, or can increase the cost-effectiveness of emission reduction measures. Appropriate long-run signals are required to allow producers and consumers to adapt cost-effectively to constraints on greenhouse gas emissions and to encourage investment, research, development and demonstration. 8.4 Many of the policies and decisions to reduce emissions of greenhouse gases and enhance their sinks, and eventually stabilize their atmospheric concentration, would provide opportunities and challenges for the private and public sectors. A carefully selected portfolio of national and international responses of actions aimed at mitigation, adaptation and improvement of knowledge can reduce the risks posed by climate change to ecosystems, food security, water resources, human health and other natural and socio-economic systems. There are large differences in the cost of reducing greenhouse gas emissions, and enhancing sinks, among countries due to their state of economic development, infrastructure choices, and natural resource base. International cooperation in a framework of bilateral, regional or international agreements could significantly reduce the global costs of reducing emissions and lessening emission leakages. If carried out with care, these responses would help to meet the challenge of climate change and enhance the prospects for sustainable economic development for all peoples and nations. DRAFTING TEAM FOR THE SYNTHESIS 1. Bert Bolin (Chairman of the IPCC and Chairman of the Drafting Team) 2. IPCC, 1992: 3. IPCC, 1994: REFERENCES (i) Cimate Change, The IPCC Scientific Assessment (i) Climate Change 1992, The Supplementary Report to the IPCC Scientific Assessment (ii) Climate Change 1992, The Supplementary Report to the IPCC Impacts Assessment Climate Change 1994, Radiative Forcing of Climate Change and an 4. IPCC, 1995: (i) Climate Change 1995, The IPCC Synthesis (ii) Climate Change 1995, The Science of Climate Change (iii) Climate Change 1995, Scientific-Technical Analyses of Impacts, Adaptations, and Mitigation of Climate Change (iv) Climate Change 1995, The Economic and Social Dimensions of Climate Change |