WG III Mitigation - Technical Summary

Climate Change 2001: Mitigation

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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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