9 Sectoral Costs and Ancillary Benefits of Mitigation
9.1 Differences between Costs of Climate Change Mitigation
Evaluated Nationally and by Sector
Policies adopted to mitigate global warming will have implications for specific
sectors, such as the coal industry, the oil and gas industry, electricity, manufacturing,
transportation, and households. A sectoral assessment helps to put the costs
in perspective, to identify the potential losers and the extent and location
of the losses, and to identify the sectors that may benefit. However, it is
worth noting that the available literature to make this assessment is limited:
there are few comprehensive studies of the sectoral effects of mitigation, compared
with those on the macro GDP effects, and they tend to be for Annex I countries
and regions.
There is a fundamental problem for mitigation policies. It is well established
that, compared to the situation for potential gainers, the potential sectoral
losers are easier to identify, and their losses are likely to be more immediate,
more concentrated, and more certain. The potential sectoral gainers (apart from
the renewables sector and perhaps the natural gas sector) can only expect a
small, diffused, and rather uncertain gain, spread over a long period. Indeed
many of those who may gain do not exist, being future generations and industries
yet to develop.
It is also well established that the overall effects on GDP of mitigation policies
and measures, whether positive or negative, conceal large differences between
sectors. In general, the energy intensity and the carbon intensity of the economies
will decline. The coal and perhaps the oil industries are expected to lose substantial
proportions of their traditional output relative to those in the reference scenarios,
though the impact of this on the industries will depend on diversification,
and other sectors may increase their outputs but by much smaller proportions.
Reductions in fossil fuel output below the baseline will not impact all fossil
fuels equally. Fuels have different costs and price sensitivities; they respond
differently to mitigation policies. Energy-efficiency technology is fuel and
combustion device-specific, and reductions in demand can affect imports differently
from output. Energy-intensive sectors, such as heavy chemicals, iron and steel,
and mineral products, will face higher costs, accelerated technical or organizational
change, or loss of output (again relative to the reference scenario) depending
on their energy use and the policies adopted for mitigation.
Industries concerned directly with mitigation are likely to benefit from action.
These industries include renewable and nuclear electricity, producers of mitigation
equipment (incorporating energy- and carbon-saving technologies), agriculture
and forestry producing energy crops, and research services producing energy
and carbon-saving R&D. They may benefit in the long term from the availability
of financial and other resources that would otherwise have been taken up in
fossil fuel production. They may also benefit from reductions in tax burdens
if taxes are used for mitigation and the revenues recycled as reductions in
employer, corporate, or other taxes. Those studies that report reductions in
GDP do not always provide a range of recycling options, suggesting that policy
packages increasing GDP have not been explored. The extent and nature of the
benefits will vary with the policies followed. Some mitigation policies can
lead to net overall economic benefits, implying that the gains from many sectors
will outweigh the losses for coal and other fossil fuels, and energy-intensive
industries. In contrast, other less-well-designed policies can lead to overall
losses.
It is worth placing the task faced by mitigation policy in an historical perspective.
CO2 emissions have tended to grow more slowly than GDP in a number
of countries over the past 40 years. The reasons for such trends vary but include:
- a shift away from coal and oil and towards nuclear and gas as the source
of energy;
- improvements in energy efficiency by industry and households; and
- a shift from heavy manufacturing towards more service and information-based
economic activity.
These trends will be encouraged and strengthened by mitigation policies.
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