Executive Summary

7.1 Introduction

7.1.1 Background and Structure of the Chapter
7.1.2 Summary of the Second Assessment Report on Cost Issues
7.1.3 Progress since the Second Assessment Report

7.2 Elements in Costing

7.2.1 Introduction
7.2.2 Cost Estimation in the Context of the Decision-making Framework

7.2.2.1 Analytical Approaches
7.2.2.2 Cost Analysis and Development, Equity, and Sustainability Aspects
7.2.2.3 Ancillary Benefits and Costs and Co-benefits and Costs
7.2.2.4 Market Failures and External Cost
7.2.2.5 Critical Assumptions in Studies of Ancillary Benefits and Co-benefits
7.2.2.6 A Partial Taxonomy

7.2.3 Valuation Techniques for External Effects

7.2.3.1 Impact Pathway Analysis
7.2.3.2 Property Prices or the Hedonic Method
7.2.3.3 Contingent Valuation Method
7.2.3.4 Benefit Transfer

7.2.4 Implementation Costs and Barrier Removal
7.2.5 Discounting
7.2.6 Adaptation and Mitigation Costs and the Linkages between Them

7.3 Analytical Structure and Critical Assumptions

7.3.1 System Boundaries: Project, Sector, Macroeconomic
7.3.2 Importance of Baselines

7.3.2.1 Development Patterns and Baseline Scenario Alternatives
7.3.2.2 Multiple Baseline Scenarios
7.3.2.3 Baseline Scenario Concepts
7.3.2.4 Specific Baseline Issues Related to International Co-operative Mechanisms for Greenhouse Gas Emission Reductions

7.3.3 Cost Implications of Different Scenario Approaches

7.3.3.1 Double Dividend
7.3.3.2 Ancillary Impacts
7.3.3.3 Technological Development and Efficiency Impacts

7.3.4 Assumptions about Technology Options

7.3.4.1 Technological Uncertainty
7.3.4.2 No Regrets Options

7.3.5 Cost Implications of Alternative GHG Emission Reduction Options and Carbon Sinks
7.3.6 Uncertainty

7.4 Issues in Estimating Costs

7.4.1 Relationship between Mitigation Costs and Development, Equity, and Sustainability
7.4.2 Income and Other Macroeconomic Effects

7.4.2.1 Macroeconomic Indicators
7.4.2.2 The Marginal Costs of Public Funds
7.4.2.3 Employment
7.4.2.4 Inflation
7.4.2.5 Availability of Capital

7.4.3 Valuation of Spillover Costs and Benefits

7.4.3.1 Industrial Competitiveness and Potential Reallocation of Industries
7.4.3.2 Technological Spillovers

7.4.4 Equity

7.4.4.1 Alternative Methods of Addressing Equity Concerns
7.4.4.2 The Use of Average Damages

7.4.5 Estimating Future Costs and Sustainability Implications

7.5 Specific Development Stages and Mitigation Costs (Including Economies in Transition)

7.5.1 Why Developing Countries Have Special Problems in Their Mitigation Strategies
7.5.2 Why Economies in Transition (EIT) Have Special Problems in Their Mitigation Strategies
7.5.3 Development Projections
7.5.4 Broadening the National Decision-making Framework
7.5.5 Addressing the Specific Characteristics of Markets and Other Exchange Processes in Developing Countries
7.5.6 Suggestions for Improvements in the Costing Study Approach Applied to Developing Countries and Economies in Transition

7.6 Modelling and Cost Assessment

7.6.1 Introduction
7.6.2 Classification of Economic Models
7.6.3 Top-down and Bottom-up Models
7.6.4 Integrated Assessment Models
7.6.5 Categorization of Climate Change Mitigation Options
7.6.6 Key Assumptions of Importance to Costing Estimates

7.6.6.1 Tax Recycling
7.6.6.2 Target Setting for Greenhouse Gas Emissions Reduction
7.6.6.3 International Co-operative Mechanisms
7.6.6.4 Critical Assumptions in the Energy Sector

7.7 Conclusions on Further Needs for Research

References

Co-ordinating Lead Authors:
Anil Markandya (UK), Kirsten Halsnaes (Denmark)

Lead Authors:
Alessandro Lanza (Italy), Yuzuru Matsuoka (Japan), Shakespeare Maya (Zimbabwe), Jiahua Pan (China/Netherlands), Jason Shogren (USA), Ronaldo Seroa de Motta (Brazil), Tianzhu Zhang (China)

Contributing Author:
Tim Taylor (UK)

Review Editor:
Eberhard Jochem (Germany)

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