7.6.5 Categorization of Climate Change Mitigation Options
An overview of how the different modelling approaches address the main categories
of policies is given here in preparation for a discussion of the main assumptions
behind study results. The main categories of climate change mitigation options
- Market oriented policies:
- taxes and subsidies;
- emission charges;
- tradable emission permits;
- soft loans; and
- market development and/or efforts to reduce transaction costs.
- Technology oriented policies:
- norms and standards;
- effluent or user charges;
- institutional capacity building; and
- market development efforts (information, transaction cost coverage).
- Voluntary policies:
- ecolabelling; and
- voluntary agreements.
- R&D policies:
- research programmes; and
- innovation and demonstration.
- Accompanying measures:
- public awareness;
- information distribution;
- transport; and
- free consultancy services.
While climate policies can include elements of all four policies, most analytical
approaches focus on a few of the options. Economic models, for instance, mainly
assess market-oriented policies, and occasionally technology policies related
to energy supply options. Engineering approaches primarily focus on supply-
and demand-side technology policies. Both of these approaches have opportunities
to expand their representation of R&D policies.
Table 7.3 shows the application of market-oriented, technology-oriented
and voluntary climate policies in different analytical approaches. The schematic
overview covers a large number of applications in global, regional, national,
and local analyses. Chapters 8 and 9
of discuss the actual details and specific methods for different assessment
levels. A few general conclusions on the representation of different climate
policies in the analytical approaches are:
- Market-oriented policies can be examined by macroeconomic models, but only
indirectly in technology-driven models through exogenous assumptions. Market
descriptions, however, are often stylized representations in many macroeconomic
models, which makes it difficult to address transaction costs.
- Technology-driven models can assess various technology-oriented policies.
Exogenous assumptions on behaviour and preferences, however, need to be supplied
to explain market development. This separation of technology data and market
behaviour can make implementation cost-assessment difficult.
- It is a challenge to integrate market imperfections in CGE and partial equilibrium
models, because these models tend to be structured around assumptions of efficient
resource allocation. Recent work modelled labour market imperfections in such
models (see, e.g., Welsch, 1996; Honkatukia, 1997; Cambridge Econometrics,
1998; European Commission, 1998).
- Key presumptions such as technological change, R&D policies and changes
in consumer preferences are difficult to assess in both macroeconomic models
and technology-driven models.
It is expected that the cost of climate change mitigation policiesall
else being equaldecreases with the number of policy categories and options
included in the analysis. This means that approaches that are either rich in
detail (or facilitate great flexibility) in a number of policy areas can be
expected to identify relatively large mitigation potentials and relatively low
costs compared with approaches that only address a few instruments or options.
A number of studies have assessed climate change mitigation costs given different
regimes of global flexibility mechanism.21
Climate change mitigation costs in these different policy regimes depend on
the specific definition of the policy instrument, and on assumptions about market
scale, competition, and restrictions. It is generally expected that climate
change mitigation costs decrease with increasing supply of carbon-reduction
Restrictions on this supply, or market imperfections in global markets for carbon-reduction
projects, have a tendency to increase the price of the projects
(Burniaux, 1998; Mensbrugge, 1998).
|Table 7.3: Application of climate change mitigation
policies in different analytical approaches
|All instruments difficulties
with modelling of
|CGE: Exogenous assumptions;
few examples with endogenou
|Demand functions for ecological values
|Changes in capital stock
|Exogenous demand function for
|All instruments modelled
through changes in
|Exogenous assumptions on
standards and R&D
|Investments reflect future expectations
on ecological values and policies
|Exogenous technology data
|Exogenous demand function for