Working Group III: Mitigation

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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 include:

  1. Market oriented policies:
    • taxes and subsidies;
    • emission charges;
    • tradable emission permits;
    • soft loans; and
    • market development and/or efforts to reduce transaction costs.


  2. Technology oriented policies:
    • norms and standards;
    • effluent or user charges;
    • institutional capacity building; and
    • market development efforts (information, transaction cost coverage).


  3. Voluntary policies:
    • ecolabelling; and
    • voluntary agreements.


  4. R&D policies:
    • research programmes; and
    • innovation and demonstration.


  5. Accompanying measures:
    • public awareness;
    • information distribution;
    • education;
    • 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 policies–all else being equal–decreases 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 projects.22 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
  Market-oriented policies Technology-oriented policies Voluntary-oriented policies
Macroeconomic models      
IO models
All instruments difficulties
with modelling of
transaction costs
CGE: Exogenous assumptions;
few examples with endogenou
Demand functions for ecological values


simulation and/or
scenario models
Exogenous Exogenous, learning Qualitative assumptions

Sectoral models
Partial equilibrium All instruments Changes in capital stock Exogenous demand function for
ecological values
Technology-driven models All instruments modelled
through changes in
capital stock
Exogenous assumptions on
standards and R&D
Leaning curves
Investments reflect future expectations
on ecological values and policies


Project assessment
Cost–benefit analysis All instruments Exogenous technology data Exogenous demand function for
ecological values
Cost-effectiveness analyses All instruments Vintage models  

Technology assessment
No instruments    

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