220.127.116.11 Critical Assumptions in the Energy Sector
Table 7.4 provides an overview of the key assumptions
behind mitigation cost studies for the energy sector. It is based on SAR (IPCC,
1996a, Chapter 8) and Halsnæs et al. (1998). Some of the new modelling
areas that have important implications include assumptions on technology change,
transaction costs and barrier removal policies, alternative demand projections
(including lifestyle), and ancillary benefits. Similarly, assumptions related
to climate change mitigation policies with major implications on costs include
timing of the emissions reduction policies, and extent and function of global
markets for emissions reduction projects.
The input assumptions are linked between the baseline case and the climate
policy case in a complex way. There is the potential for many assumption combinations
in baseline and mitigation scenarios, and the full set of assumptions in these
two scenarios impacts the assessment of mitigation potential and related costs.
An OECD workshop in September 1998 (Mensbrugghe, 1998) concluded that the emissions
reduction costs rely on baseline assumptions. Factors that lead to high cost
estimates include high population and GDP growth rates, a relatively clean fuel
mix, and relatively high energy costs. Among model parameters two areas were
emphasized: the ability to substitute labour for energy, and the interfuel substitution
elasticity. Low elasticities lead to high costs.
|Table 7.4: Input assumptions used in energy sector
|Meaning and relevance
|All else being equal, high growth increases GHG emissions.
|Increased economic growth increases energy-using activities and also leads
to increased investment, which speeds the turnover of energy-using equipment.
Various assumptions on GHG emissions and resource intensities can be used
for alternative scenarios.
|Different sectors have different energy-intensities; structural change
therefore has a major impact on overall energy use.
|This energy-efficiency variable influences the amount of primary
energy needed to satisfy given energy services required by a given economic
|Explains structural changes in consumer behaviour.
technology availability and cost
|Potential for fuel and technology substitution.
|The cost at which an infinite alternative supply of energy becomes available;
this is the upper bound of cost estimates.
|Technology costs related to time, market scale, and institutional capacity.
|Price and income elasticities of energy demand
|Relative changes in energy demand through changes in price or income,
respectively; higher elasticities result in larger changes in energy use.
|Implementation, administration, scale of the activity.
|Policy instruments and regulation
|Economic versus regulatory measures.
|Implementation costs, including costs of overcoming barriers either in
the form of institutional aspects or improvements in markets (including
capacity building and institutional reforms); behavioural assumptions.
|Existing tax systems and tax recycling
|Recycling of carbon taxes; substitution of distortionary taxes decreases
|Integration of local and regional environmental policies in most cases
generates secondary benefits.
|Social policy goals, like income distribution and employment,
can result in different policy rankings.