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Working Group III: Mitigation


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9.2 Economic, Social, and Environmental Impacts of Policies and Measures on Prices, Economic Output, Employment, Competitiveness, and Trade Relations at the Sector and Sub-sector Levels

Studies of the impact of mitigation policies on sectors can be divided into those which adopt a general approach and cover all the sectors of the economy in question, and those which concentrate on one sector or group of sectors, leaving aside indirect effects on the rest of the economy. The general studies are discussed in 9.2.1, and the sector studies are considered in the sections that follow.

The studies can also be arranged according to the methodology of the analysis:

  1. top-down studies, that capture general effects on the economy and tend to consider price-driven policies such as carbon taxes rather than technology policies;
  2. bottom-up studies that do not consider general effects but examine technology-driven options1 ; and
  3. financial cost-benefit analyses of individual mitigation measures, which do not include impacts on social factors, but sometimes do include the ancillary benefits (e.g., ADB-GEF-UNDP, 1998a).

The general studies tend to be top-down, although there have been major comprehensive bottom-up studies (e.g., Krause et al., 1992). Many of the individual sector studies are bottom-up or cost-benefit. The top-down and bottom-up methodologies are compared in Section 9.4.1.1.

9.2.1 Impacts from Multisectoral Studies

These studies tend to use large-scale models as a framework for the analysis. Important differences between the studies arise from the type of model being used (computable general equilibrium (CGE) or econometric), the method chosen for the recycling of any tax revenues, and the treatment of the world oil market. Two topics, the effects of carbon taxes (and more recently traded emission permits) and the removal of energy subsidies, have been assessed in some detail.

9.2.1.1 Effects of Carbon Taxes and Auctioned Emission Permits

Table 9.1 gives some details of studies of mitigation policies for which sectoral effects are available. These are all at a country or world-region level (e.g., the European Union). The table also shows the outcomes of different policies on carbon dioxide (CO2) emissions, GDP and sectoral outputs. For some studies a range of outcomes is shown, corresponding to the range published for GDP depending on some critical assumption, such as the method chosen to recycle government revenues. The effects are shown as differences from the reference scenario or the base in the final year of the projection. Note that the macroeconomic results of these studies are covered in Chapter 8.

Table 9.1: Some multisectoral studies of carbon dioxide mitigation
Region or
reference
country
China

Garbaccio
et al.
(1999)
EU-6

DRI
(1994)
EU-11

Barker
(1999)

New
Zealand
Bertram
et al.
(1993)

UK

Cambridge
Econo-
metrics
(1998)
USA

CRA
and DRI
(1994)
USA

Jorgenson
et al.
(1999)
USA

McKibbin
et al.
(1999)
Funding body
US Dept of
Energy
EC
EC
NZ Min
of
Environ-
ment
FFF-FOE
Electric
Power
Research
Institute
 
US EPA
Model
 
DRI-models
E3ME
ESSAM
MDM-E3
DRI
JWS
G-cubed
Model type
Static CGE
Macro
Macro
CGE
Macro
Macro
Dynamic
CGE
Dynamic
CGE
Policy
Carbon tax
Carbon tax
Carbon tax
Carbon &
energy taxes
Carbon tax
Carbon tax
Emission
permits
Emission
permits
Recycling mode
All other
taxes
Employer
taxes
Employer
taxes
Corporate
tax
Employer
taxes
Lump-
sum
Personal
income
Lump-
sum
Industries
29
20-30
30
28
49
About 100
35
12
Fuel types
4
17
11
4
10
4
4
5
Period
1992 to 2032
1992 to 2010
1970 to 2010
1987 to 1997
1960 to 2010
1990 to 2010
1996 to 2020
1996 to 2020
Effect year
2032
2010
2010
1996/97
2010
2010
2020
2010
Model run
15%
INT
Mult-coord.
324
C72F11
$100/tC
Personal
Unilateral
US
CO2
GDP
-15%
+1%
-15%
+0.9%
-10%
+1.4%
-46%
+4.6%
-4.4%
+0.1%
-15.3%
-2.3%
-31%
+0.6%
-29.6%
-0.7%
Output: coal
-19%
Energy -7%
-8%
-24%
0%
-25%
-52%
-40%

   : refined oil

-2

 

-17

-22

-0

-6

-4

-16

   : gas

 
 

-4

-41

-4

-18

-25

-14

   : electricity

+3 (year 1)

 

-3

-17

-1

-17

-12

-6

   : agriculture

+0 (year 1)

-7

+3

+4

+0

 

+4

-1

   : forestry

..

..

..

+5

..

..

..

-1

   : food, etc.

+0 (year 1)

Manufac-
turing +1

+2

+3

+0

 

+5

Nondur-
ables -1

   : chemicals

+1 (year 1)

 

+2

+6

-0

 

-0

..

    steel

+1 (year 1)

 

+1

-26

-1

-5

-3

Durables ­1

   : construction

+1 (year 1)

..

+1

+0

+0

 

+1

..

   : transport

+1 (year 1)

-2

+0

+5

+0

-4

+1

-2

   : services

+0 (year 1)

+1

+1

+6

+0

-2

+3

-0

   : consumer’s
     expenditure

+0.8%

 
 

+6.7%

+0.1%

-1.9%

+0.7%

-0.4%

Notes:
(1) “Multisectoral models” are defined as those in which GDP is divided into production sectors. Definitions of sectors differ between studies.
(2) .. denotes not available or not reported.

Several conclusions are well established in this literature.

  1. The nature of the recycling of revenues from new taxes or permit schemes is critical to the sectoral effects (and the overall GDP effects - see Chapters 7 and 8 for a detailed discussion of the recycling literature). In some of the studies (e.g. Garbaccio et al., 1999, 2000), GDP is increased above the reference scenario when rates for some burdensome tax are reduced. Those studies that report reductions in GDP do not always provide a range of recycling options, suggesting that policy packages that increase GDP have not been explored.
  2. Reductions in fossil fuel output below the reference case will not impact all fossil fuels equally. Fuels have different costs and price sensitivities, they respond differently to mitigation policies, energy-efficiency technology is fuel and combustion device specific, and reductions in demand can affect imports differently from output. Large effects on gas output are discussed below in Section 9.2.3.2.
  3. In most instances the relative decline in output does not imply an absolute decline of the sector; rather it implies a decline in its rate of growth. This is particularly true for the oil sector, where under present technology there is a captive market in the use of oil for personal transportation, which is expected to increase substantially over the foreseeable future (this is not shown in Table 9.1, but reflected in the literature).
  4. The sectoral results suggest that agriculture usually benefits2. The effects on manufacturing are mixed and the reasons for these results are explored below. Finally, the service sectors generally increase their output as a result of the policy shifts; since services are such a large proportion of GDP, if the overall economy has higher output this usually implies that services have higher output.

It is worth placing these results and the tasks faced by mitigation policy in an historical perspective. CO2 emissions have tended to grow more slowly than GDP in a number of countries over the last 40 years (Proops et al., 1993; Price et al., 1998; Baumert et al., 1999). The reasons for such trends vary but include:

  • a shift away from coal and oil, and towards nuclear and gas as the sources of energy;
  • improvements in energy efficiency by industry and households; and
  • a shift from heavy manufacturing towards more service and information-based economic activity.

These trends will be encouraged and strengthened by mitigation policies.


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