Bangkok, 4 May 2007– A
new assessment by the Intergovernmental
Panel on Climate Change (IPCC) concludes
that the world community could slow and
then reduce global emissions of greenhouse
gases (GHGs) over the next several decades
by exploiting cost-effective policies and
current and emerging technologies.
Based on the most up-to-date, peer-reviewed
literature on emissions modelling, economics,
policies and technologies, today’s report
reveals how governments, industry and the
general public could together reduce the
energy and carbon intensity of the global
economy despite growing incomes and population
levels.
"Climate change will touch every corner
and every community on this planet but equally,
overcoming climate change can touch on every
facet of the global economy in a wealth
of positive ways. Measures to reduce emissions
can, in the main, be achieved at starkly
low costs especially when compared with
the costs of inaction. Indeed some, such
as reducing emissions by 30 per cent from
buildings by 2020, actually contribute positively
to GDP, said Executive Director Achim Steiner
of the UN Environment Programme (UNEP) which,
together with the World Meteorological Organization,
established the IPCC.
"It is now up to governments to introduce
the mechanisms and incentives to unleash
the ingenuity and creativity of the financial
and technological markets in order to realize
these economic, social and environmental
gains," he said.
According to "Climate Change 2007:
Mitigation of Climate Change", without
additional action by governments the emissions
from the basket of six greenhouse gases
covered by the Kyoto Protocol will rise
by 25 to 90% by 2030 compared to 2000. (The
six gases are carbon dioxide, methane, nitrous
oxide, sulphur hexafluoride, PFCs and HFCs.)
By adopting stronger climate change policies,
however, governments could slow and reverse
these emissions trends and ultimately stabilize
the level of greenhouse gases remaining
in the atmosphere. For example, stabilizing
GHG levels at 445 – 490ppm (parts per million)
– the most ambitious target that was assessed
– would require global CO2 emissions to
peak by 2015 and to fall to 50 - 85% of
2000 levels by 2050. This could limit global
mean temperature increases to 2 – 2.4°C
above pre-industrial levels.
Stabilizing GHG levels at 535 - 590ppm
would require global CO2 emissions to peak
by 2010 – 2030 and return to -30% to +5%
of 2000 levels by around 2050. This could
limit the temperature increase to 2.8-3.2°C.
If emissions peak later, more warming can
be expected. By way of comparison, the current
(2005) level of GHGs is about 379ppm.
The report’s Summary for Policymakers (SPM)
was finalized and adopted this week by representatives
from 105 countries. The full set of underlying
chapters, written by 168 authors (some 40%
of whom are from developing and transition
countries) and reviewed by hundreds of other
experts, will be available shortly.
The report addresses ways of reducing emissions
from key sectors:
The energy supply sector – The IPCC concludes
that no single economically and technologically
feasible solution would on its own suffice
for reducing GHG emissions from the energy
sector. Instead, governments would need
to promote a range of options.
For example, they could encourage natural
gas over more carbon-intensive fossil fuels
as well as mature renewable energy technologies
such as large hydro, biomass combustion
and geothermal. Other renewable sources
include solar assisted air conditioning,
wave power and nanotechnology solar cells,
although they all still require more technological
or commercial development. Yet another option
could be carbon capture and storage technology;
CCS involves capturing carbon dioxide before
it can be emitted into the atmosphere, transporting
it to a secure location, and isolating it
from the atmosphere, for example by storing
it in a geological formation.
Irrespective of climate change, over $20
trillion is expected to be invested in upgrading
global energy infrastructure from now until
2030. The additional cost for altering these
investments in order to reduce greenhouse
gas emissions would range from negligible
to an increase of 5 – 10%.
Buildings – Approximately 30% of the projected
baseline emissions in the residential and
commercial sectors – the highest rate amongst
all sectors studied by the IPCC – could
be reduced by 2030 with a net economic benefit.
Energy consumption and embodied energy in
buildings can be cut through greater use
of existing technologies such as passive
solar design, high-efficiency lighting and
appliances, highly efficient ventilation
and cooling systems, solar water heaters,
insulation materials and techniques, high-reflectivity
building materials and multiple glazing.
Government policies such as continuously
updated appliance standards and building
energy codes could further contribute.
By producing co-benefits and lower life-cycle
costs, emissions cuts in the buildings sector
could even have net economic benefits rather
than costs. However, particular attention
would have to be paid to removing the market
barriers (such as lack of proper incentives
and access to information) that have prevented
many of the available technologies from
being widely adopted.
Transport – Because the demand for vehicles,
vehicle travel, and fuel use is significantly
price inelastic, efficiency improvements
risk being overwhelmed by the rapid growth
in transport until revolutionary new technologies
are introduced. New and emerging technologies
that could help reduce emissions range from
directed-injection turbocharged (TDI) diesels
and improved batteries for road vehicles
to regenerative breaking and higher efficiency
propulsion systems for trains to blended
wing bodies and unducted turbofan propulsion
systems for airplanes. Biofuels also have
the potential to replace a substantial part
of the petroleum now used by transport.
Providing public transport systems and
their related infrastructure and promoting
non-motorised transport can further reduce
emissions. Transportation demand management
(TDM) strategies for reducing traffic congestion
and air pollution can also be effective
in reducing private-vehicle travel if rigorously
implemented and supported.
Industry – The greatest potential for reducing
industrial emissions is located in the energy-intensive
steel, cement, and pulp and paper industries
and in the control of non-CO2 gases such
as HFC-23 from the manufacturing of HCFC-22,
PFCs from aluminium smelting and semiconductor
processing, sulphur hexafluoride from use
in electrical switchgear and magnesium processing,
and methane and nitrous oxide from the chemical
and food industries.
While existing technologies can significantly
reduce industrial GHG emissions, new and
lower cost technologies will be needed to
meet long-term emissions objectives. Technology
transfer is essential to accelerating the
transition to clean technologies in developing
countries. More broadly, by revising their
policies government could motivate companies
to invest in low-emissions plants and technologies.
Agriculture – Options for reducing agricultural
GHG emissions are cost competitive with
non-agricultural options (such as energy
and transportation) in achieving long-term
climate objectives. Sequestering carbon
in the soil represents about 89% of the
mitigation potential. The most prominent
options are improved management of crop
and grazing lands (e.g. improved agronomic
practices, nutrient use, tillage and residue
management), restoration of organic soils
that are drained for crop production, and
restoration of degraded lands. Lower but
still significant reductions are possible
with improved water and rice management;
set-asides, land use change (e.g. conversion
of cropland to grassland) and agro-forestry;
and improved livestock and manure management.
Forests – Arresting today’s high levels
of deforestation and promoting afforestation
could reduce or reverse greenhouse gas emissions
from the forestry sector. In the longer
term, the best way to maintain or increase
the ability of forests to sequester carbon
is through sustainable forest management,
which also has many social and environmental
benefits. Its contribution to minimizing
climate change justifies further investments
in improving the conservation and sustainable
use of forests. A comprehensive approach
to forest management can ensure an annual
sustained yield of timber, fibre or energy
that is compatible with adapting to climate
change, maintaining biodiversity and promoting
sustainable development.
Wastes – Post-consumer waste contributes
less than 5% of global GHG emissions. A
wide range of mature, environmentally effective
technologies are available to reduce emissions
and provide co-benefits involving public
health, environmental protection and sustainable
development. Collectively, these technologies
can directly reduce GHG emissions (in particular
by recovering gases emitted from landfills
but also through improved landfill practices
and engineered wastewater management) or
avoid generating GHGs (through controlled
composting of organic waste, state-of-the-art
incineration and expanded sanitation coverage).
Fortunately, 20-30% of projected wastes
emissions for 2030 can be reduced at negative
cost and 30-50% at low costs.
How can public policy ensure lower emissions?
Governments can play a major role in motivating
the private sector to invest in innovative
technologies by providing companies with
incentives that are clear, predictable,
long term and robust.
Government policies can be counterproductive.
Direct and indirect subsidies for fossil
fuel use and agriculture remain common practice,
although those for coal have declined over
the past decade in many OECD and in some
developing countries. In addition, government
funding for many energy research programs
declined after the 1970s oil shocks and
have remained at these lower levels.
Fortunately, there are many ways that public
policy can promote the development, deployment
and diffusion of new technologies. The IPCC
finds that Governments are successfully
using a wide range of policies and measures
that address climate change, including regulations
and standards, taxes and charges, tradable
permits, voluntary agreements, subsidies,
financial incentives, research and development
programs, and information instruments. The
most effective policy mix will vary from
country to country. If integrated with other
government policies, climate change policies
can contribute to sustainable development
practices in both developed and developing
countries.
For their policies to be effective, however,
Governments would need to pay special attention
to identifying and removing barriers to
innovation. These can include market prices
that do not incorporate externalities such
as pollution, misplaced incentives, vested
interests, lack of effective regulatory
agencies and imperfect information.
Because no one sector or technology can
address the entire mitigation challenge,
the best approach is to adopt a diversified
portfolio of policies and to address all
major sectors. Some of the cheapest options
for reducing emissions involve electricity
savings in buildings, fuel savings in vehicles
and increased soil carbon content in agriculture.
Because energy supply is the largest contributor
to emissions, policies to promote a shift
to less carbon-intensive energy sources
are particularly effective.
How much will it cost?
Economists use models to estimate the economic
impacts of efforts to reduce emissions.
Economic modelling relies on a wide range
of assumptions, which are critical to a
model’s conclusions about the cost of stabilizing
GHG levels. Key assumptions involve the
discount rate; the emissions baseline, related
technological change and resulting emissions;
the stabilization target and level; and
the portfolio of available technologies.
Economic models produce lower cost estimates
when they use baselines with slowly rising
emissions and when they allow technological
change to accelerate as carbon prices rise.
Costs are also reduced when the Kyoto Protocol’s
flexibility mechanisms are more fully implemented.
If revenues are raised from carbon taxes
or emission schemes, costs may be lowered
if the new revenues open the door to tax
reforms or are used to promote low-carbon
technologies and remove barriers to mitigation.
Some models even give positive GDP gains
because they assume that economies are not
functioning optimally and that climate change
mitigation policies can help to reduce imperfections
in the economy.
Many economic models report the costs of
reducing emissions in terms of "GDP
losses". For example, by the year 2030
the global average macro-economic cost of
ensuring that GHG levels eventually stabilize
at 445 – 710ppm ranges from less than 3%
to a gain of 0.6%. This translates into
an annual reduction in the GDP growth rate
of less than 0.12% to less than 0.06%. This
small loss should be compared to projections
that the global economy will likely expand
dramatically over the next several decades.
(By 2030 the global average macro-economic
cost of ensuring that GHG emissions will
eventually stabilize at between 445 and
710ppm is estimated to be between a 3% decrease
in global GDP and a small increase compared
to the baseline. This should be compared
to projections that the global economy will
likely expand dramatically during this period
of two-and-a-half decades.)
Economists use cost-benefit analysis to
compare the costs of action to the costs
of inaction (that is, of climate change
damages). They quantify climate change damages
in monetary terms as the social cost of
carbon (SCC) or time-discounted damages.
Due to large uncertainties in quantifying
non-market damages, however, it is difficult
to estimate SCC with confidence. As a result,
SCC estimates in the literature vary a great
deal and are likely to be understated.
Comparing SCC estimates with the carbon
prices for different levels of mitigation
(see below) shows that SCC is at least comparable
to, and possibly higher than, carbon prices
for even the most stringent scenarios assessed
by the IPCC. In other words, the cost of
stabilizing GHG concentrations at low levels
tends to be comparable to, or lower than,
costs of inaction.
It is also important to remember that climate
policies can bring many win-win benefits
that may not factored into cost estimates.
These include technological innovation,
tax reform, increased employment, improved
energy security and health benefits from
reduced pollution. As a result, climate
policies offering significant co-benefits
can offer a true no-regrets GHG reduction
policy in which substantial advantages accrue
even if the impact of human-induced climate
change itself would turn out to be less
than current projections suggest.
The price of carbon
A carbon price reflecting the true cost
of GHG emissions will provide signals to
individual firms and households to cut emissions
and stimulate the research and development
of low-carbon technologies.
Emissions trading (or cap-and-trade) systems
have been a subject of particular interest
to researchers and policymakers alike. The
volume of allowed emissions – the "cap"
– determines the carbon price and the environmental
effectiveness of this instrument, while
the distribution of trade allowances or
permits can affect its cost effectiveness
and competitiveness.
Uncertainty about the actual price of carbon
makes it difficult to estimate the total
cost of meeting emission reduction targets
in this manner (the reverse holds true for
carbon taxes: the costs are clearer but
the reductions less so). Carbon prices can
also be created implicitly by regulations,
taxes and charges.
While a positive carbon price would by
itself create signals for producers and
consumers to significantly invest in lower
carbon products, technologies and processes,
additional incentives related to direct
government funding and regulations are also
important.
Cap-and-trade systems, then, may offer
an attractive, market-based approach to
limiting greenhouse gas emissions. But because
the operational details are vital to the
success or failure of such systems, governments
would need to experiment and gain experience
in order to build the most effective systems
possible.
Michael Williams
Satwant Kaur
Nick Nuttall
