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.
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.
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