REPORTS - ASSESSMENT REPORTS
Synthesis Report - Question 7

Climate Change 2001: Synthesis Report


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Table 7-3: Results of model comparison from the Energy Modeling Forum.a
(a) Calculated losses (as % of total GDP) for various postulated trading regimes associated with meeting the Kyoto targets in Annex B countries.
Model
No Trading No Trading Annex I Trading
CANZ USA OECD
Europe
Japan CANZ USA OECD
Europe
Japan
ABARE-
GTEM
AIM
CETA
G-Cubed
GRAPE
MERGE3
MS-MRT
RICE

1.96
0.59

1.83

2.02
1.83
0.96

1.96
0.45
1.93
0.42

1.06
1.88
0.94

0.94
0.31

1.50
0.81
0.99
0.63
0.55

0.72
0.25

0.57
0.19
0.80
1.20
0.78

0.23
0.36

0.72

1.14
0.88
0.54

0,47
0.31
0.67
0.24

0.51
0.91
0.56

0.13
0.17

0.61
0.81
0.47
0.13
0.28

0.05
0.13

0.45
0.10
0.19
0.22
0.30
(b) Marginal abatement costs (in 1990 US$ per t C; 2010 Kyoto target).
Model CANZ USA OECD
Europe
Japan Annex I Trading
ABARE-
GTEM
AIM
CETA
Fund
G-Cubed
GRAPE
MERGE3
MIT_EPPA
MS-MRT
RICE
SGM
WorldScan

425
147


157

250
247
213
145
201
46

322
153
168

76

264
193
236
132
188
85

665
198


227
204
218
276
179
159
407
20

645
234


97
304
500
501
402
251
357
122

106
65
46
14
53
70
135
76
77
62
84
20
(c) Costs of Kyoto Protocol implementation for oil-exporting countries according to various models.b
Modelc Without Tradingd With Annex I Trading With "Global Trading"

G-Cubed

GREEN

GTEM

MS-MRT

OPEC

CLIMOX

-25% oil revenue

-3% real income

0.2% GDP loss

1.39% welfare loss

-17% OPEC revenue

n/a

-13% oil
revenue
"substantially
reduced loss"
<0.05%
GDP loss
1.15%
welfare loss
-10% OPEC
revenue
-10% some oil
exporters' revenues
-7% oil
revenue
n/a

n/a

0.36%
welfare loss
-8% OPEC
revenue
n/a
a. Table 7-3a derived from WGIII TAR Table TS-5, Table 7-3b from WGIII TAR Table TS-4, and Table 7-3c from WGIII TAR Table TS-6.
b. The definition of oil-exporting country varies. For G-Cubed and the OPEC models, it is the OPEC countries; for GREEN, a group of oil-exporting countries; for GTEM, Mexico and Indonesia; for MS-MRT, OPEC countries plus Mexico; and for CLIMOX, west Asian and north African oil exporters.
c. The models report impact on the global economy in the year 2010 with mitigation according to the Kyoto Protocol targets (usually in the models applied to CO2 mitigation by the year 2010 rather than greenhouse gas emissions to the period 2008-2012) achieved by imposing a carbon tax or auctioned emission permits with revenues recycled through lump-sum payments to consumers. No ancillary benefits, such as reductions in local air pollution damages, are taken into account in the results.
d. "Trading" denotes trading in emission permits between countries.
n/a = not available.

 
7.19

Emission constraints on Annex I countries have well-established, albeit varied, "spill-over" effects16 on non-Annex I countries.

  • Oil-exporting, non-Annex I countries: Analyses report costs differently, including, inter alia, reductions in projected GDP and reductions in projected oil revenues. The study reporting the lowest costs shows reductions of 0.2% of projected GDP with no emissions trading, and less than 0.05% of projected GDP with Annex B emissions trading in the year 2010.17 The study reporting the highest costs shows reductions of 25% of projected oil revenues with no emissions trading, and 13% of projected oil revenues with Annex B emissions trading in the year 2010 (see Table 7-3c). These studies do not consider policies and measures18 other than Annex B emissions trading, which could lessen the impact on non-Annex I, oil-exporting countries, and therefore tend to overstate both the costs to these countries and overall costs. The effects on these countries can be further reduced by removal of subsidies for fossil fuels, energy tax restructuring according to carbon content, increased use of natural gas, and diversification of the economies of non-Annex I, oil-exporting countries.
  • Other non-Annex I countries: They may be adversely affected by reductions in demand for their exports to OECD nations and by the price increase of those carbon-intensive and other products they continue to import. These countries may benefit from the reduction in fuel prices, increased exports of carbon-intensive products, and the transfer of environmentally sound technologies and know-how. The net balance for a given country depends on which of these factors dominates. Because of these complexities, the breakdown of winners and losers remains uncertain.
  • Carbon leakage: The possible relocation of some carbon-intensive industries to non-Annex I countries and wider impacts on trade flows in response to changing prices may lead to leakage on the order of 5-20%.19 Exemptions (e.g., for energy-intensive industries) make the higher model estimates for carbon leakage unlikely, but would raise aggregate costs. The transfer of environmentally sound technologies and know-how, not included in models, may lead to lower leakage and especially on the longer term may more than offset the leakage.
7.20

Some sources of greenhouse gas emissions can be limited at no, or negative, net social cost to the extent that policies can exploit no-regret opportunities. This may be achieved by removal of market imperfections, accounting for ancillary benefits (see Question 8), and recycling revenues to finance reductions in distortionary taxes ("double dividend").

  • Market imperfections: Reduction of existing market or institutional failures and other barriers that impede adoption of cost-effective emission reduction measures can lower private costs compared to current practice. This can also reduce private costs overall.
  • Ancillary benefits: Climate change mitigation measures will have effects on other societal issues. For example, reducing carbon emissions in many cases will result in the simultaneous reduction in local and regional air pollution. It is likely that mitigation strategies will also affect transportation, agriculture, land-use practices, and waste management and will have an impact on other issues of social concern, such as employment, and energy security. However, not all of the effects will be positive; careful policy selection and design can better ensure positive effects and minimize negative impacts. In some cases, the magnitude of ancillary benefits of mitigation may be comparable to the costs of the mitigating measures, adding to the no-regret potential, although estimates are difficult to make and vary widely.
  • Double dividend: Instruments (such as taxes or auctioned permits) provide revenues to the government. If used to finance reductions in existing distortionary taxes ("revenue recycling"), these revenues reduce the economic cost of achieving greenhouse gas reductions. The magnitude of this offset depends on the existing tax structure, type of tax cuts, labor market conditions, and method of recycling. Under some circumstances, it is possible that the economic benefits may exceed the costs of mitigation.

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