A number of IPCC activities based on SAR have developed cost methodologies and applied them to the appraisal of specific policies. Some of the main activities are the IPCC Technical Paper on Technologies, policies, and measures for mitigating climate change (IPCC, 1996c) and the UNEP report on Mitigation and Adaptation Cost Assessment Concepts, Methods and Appropriate Use, which was developed on the basis of an IPCC workshop in June 1997 (Christensen et al., 1998).

The IPCC Technical Paper (IPCC, 1996c) summarizes the information on mitigation technology costs provided by WGII SAR (IPCC, 1996b), and the chapter on policy instruments of WGIII SAR (IPCC, 1996b, Chapter 11). The aim of the Technical Paper was to provide a short overview of cost information to be used by climate change policymakers and by the Subsidiary Body for Scientific and Technical Advice (SBSTA) of the UN Convention on Climate Change.

The UNEP report (Christensen et al., 1998) defines and clarifies mitigation and adaptation cost concepts to be used in the field of climate change based on WGIII SAR (IPCC, 1996a). The aim is to overcome some of the variations in the cost concepts that were presented in various chapters of SAR and to develop a generic overview of cost concepts that are easier to use for practitioners in the field. The report includes chapters on general mitigation and adaptation cost concepts, sectoral applications, macroeconomic analysis, and special issues in costing studies for developing countries, and concludes on the applicability of the various cost concepts in the formulation of national climate change policies and programmes.

During the TAR process, a crosscutting issues paper was prepared (Markandya and Halsnaes, 2000). The purpose was to provide a non-technical guide to the application of cost concepts in the analysis of climate change policies by any of the working groups involved in the TAR. Costs of mitigation, adaptation, or GHG emissions are likely to be estimated and their implications discussed in many parts of the TAR. It is essential, therefore, that a common understanding of the use of different cost concepts is employed. The crosscutting paper proposed a set of definitions for these concepts. The paper also identified categories of costs and their relevance in the climate change area. In this chapter the crosscutting issues paper is taken as the point of departure, the ideas are developed further and an elaboration of some of them provided. The purpose, however, is the same: to ensure a common understanding of commonly used cost terms, and the role of cost analysis within the broader decision-making framework for climate change policies.

After SAR, extensive debates arose regarding suitable costing methods to quantify the relative indirect economic impacts of various policies in distinct regions, with no consensus on the most suitable methods to be employed. However, a consensus is now beginning to emerge on how to quantify some ancillary benefits (OECD, 2000), and Chapters 8 and 9 herein. In preparation for TAR, Burtraw et al. (1999) provide a synthesis of methodological issues relevant to the assessment of ancillary costs and benefits of GHG mitigation policies. The magnitude of potential ancillary benefits depends upon the regulatory, demographic, technological, and environmental baselines. The magnitude and scope of potential benefits of GHG mitigation policies can be expected to be greater in cases in which higher emission baselines obtain and lower for cases in which regulatory and technological innovation have been more long standing (Morgenstern, 2000).

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