IPCC Fourth Assessment Report: Climate Change 2007
Climate Change 2007: Working Group III: Mitigation of Climate Change

11.3.4 Regional cross-sectoral effects of greenhouse gas mitigation policies to 2025

Various estimates of cross-sectoral mitigation potential for specific regions have been published, usually as reports commissioned by governments. Unfortunately, however, the issue of attributing costs to cross-sectoral effects of greenhouse gas mitigation policies has not been reported extensively since the TAR, and literature on this topic is consequently sparse.

In one of the few studies to examine the sectoral effects of mitigation policies across countries, Meyer and Lutz (2002), using the COMPASS model, carried out a simulation of the effects of carbon taxes or the G7 countries, which include some of the biggest energy users. The authors assumed the introduction of a carbon tax of 1US$ per ton of CO2 in 2001 in all of these countries, rising linearly to 10 US$ in 2010, with revenues used to lower social security contributions. Table 11.6 shows the effects on output: the decline in petroleum and coal products will be highest, with the effects on construction being mild. The scale of the effects differs substantially between countries, depending on the energy intensities of the economies and the carbon content of this energy, with effects on output being much larger in US and Canadian industries.

Table 11.6: Impact on sectoral output of 1 US$/tCO2 tax in 2001 rising to 10 US$/tCO2 by 2010

 USA Japan Germany France Italy UK Canada 
% difference from business-as-usual gross output in 2010 
Food processing -2.02 -0.27 -0.32 -0.36 -0.29 -0.69 -1.83 
Petroleum and coal products -2.87 -0.33 -0.82 -0.50 -0.47 -2.42 -3.67 
Iron and steel -1.35 -0.28 -0.33 -0.45 -0.48 -0.82 -1.60 
Machinery -1.06 -0.22 -0.26 -0.29 -0.48 -0.72 -1.11 
Motor vehicles -1.41 -0.42 -0.33 -0.47 -0.40 -0.74 -1.92 
Construction -1.01 -0.02 -0.13 -0.21 -0.39 -0.78 -1.06 
All industries -1.74 -0.18 -0.32 -0.33 -0.35 -0.75 -1.71 

Source: Meyer and Lutz (2002)

One major cross-sectoral study (EU DG Environment, 2001) brings together low-cost mitigation options and shows their effects across sectors and regions. It shows how a Kyoto-style target (8% reduction of EU GHGs below 1990/95 by 2010) can be achieved for the EU-15 member states with options costing less than 20 US$/tCO2. The study assesses the direct and indirect outcomes using a top-down model (PRIMES) for energy-related CO2 and a bottom-up model (GENESIS) for all other GHGs. The synthesis of the results is presented in Table 11.7. This multi-gas study considers all GHGs, but assumes that the JI and CDM flexibility instruments are not used. The study shows the wide variations in cost-effective mitigation across sectors. The largest reductions compared to the 1990/95 baselines are in the energy and energy-intensive sectors, whereas there is an increase of 25% in the transport sector compared to 1990/95 emissions. Note also the large reductions in methane and N2O in the achievement of the overall target as shown in the lower panel of the table. The results are, however, dominated by bottom-up energy-engineering assumptions since PRIMES is a partial-equilibrium model. Consequently, the GDP effects of the options are not provided. These potentials can be compared to those at less than 20 US$/tCO2 in Table 11.3 above for the sectoral synthesis for the OECD. The EU potentials are similarly concentrated in the buildings sector, but with a larger share for industry, and a lower one for transport, reflecting the high existing taxes on transport fuels in the EU.

Table 11.7: Sectoral results from top-down energy modelling (PRIMES for energy-related CO2) and bottom-up modelling (of non-CO2 GHGs). The table shows the distribution of direct and total (direct and indirect) emissions of GHGs in 1990/1995, in the 2010 baseline and in the most cost-effective solution for 2010, where emissions are reduced by 8% compared to the 1990/1995 level. The top table gives the breakdown into sectors and the bottom table the breakdown into gases.

EU-15 Emission breakdown per sector (top-down) Direct emissions (MtCO2-eq) Direct and indirect emissions (MtCO2-eq) 
Emissions in 1990/95 Baseline emissions in 2010 Cost-effective objective 2010 Change from 1990/95 Change from 2010 baseline Emissions in 1990/95 Baseline emissions in 2010 Cost-effective objective 2010 Change from 1990/95 Change from 2010 baseline 
Energy supplya),b) 1190  1206 1054  -11% -13% 58 45 42 -27% -6% 
CO2 (energy-related)  1132 1161 1011 -11% -13%           
auto-producers 124  278  229   85% -18%           
utilities  836  772 667  -20% -14%           
other 172 111 115 -33%  4%           
Non-CO2 58 45 42 -27% -6% 58 45 42 -27% -6% 
Non-CO2 fossil fuelc) 95 61 51 -46% -16% 95 61 51 -46% -16% 
Industryb) 894  759 665  -26% -12% 1383 1282 1125  -19%  -12% 
Iron and steel  196  158 145  -26% -9% 253  200  183  -28% -9% 
Non-ferrous metals Chemicals  24  22 13  -47% -40% 66 42 30  -54% -28% 
Building Materials  243 121 81  -66% -33% 362 257 201  -44% -22% 
Paper and Pulp   201  212  208   3% -2% 237 240 232  -2% -3% 
Food, drink, tobacco Other industries 29 22  20  -32% -9% 69 106  92   34% -13% 
  46  35  26  -42% -24% 89 107  91  2% -15% 
 155 189 172  11% -9% 308 331 295 -4% -11% 
Transport 753 984 946 26% -4% 778 1019 975 25% -4% 
CO2 (energy-related) 735 919 887 21% -4% 760 953 916 21% -4% 
road 624  741 724  16% -2% 624 741 724  16% -2% 
train 9  2  -83%  -8% 34 36 31  -10%  -14% 
aviationd) 82  150 135  65% -10% 82 150 135  65%  -10% 
inland navigation 21  27 26 26% -2% 21 27 26 26% -2% 
Non-CO2 (road) 18 65 59 222% -10% 18 84 143 681% 70% 
Households 447 445 420 -6% -6% 792 748 684 -14% -9% 
Services 176 200 170 -3% -15% 448 500 428 -4% -14% 
Agriculture 417 398 382 -8% -4% 417 398 382 -8% -4% 
Waste 166 137 119 -28% -13% 166 137 119 -28% -13% 
Total 4138 4190 3807 -8% -9% 4138 4190 3807 -8% -9% 
 
Breakdown per gas Emissions in 1990/95 Baseline emissions in 2010 Cost-effective objective 2010 Change from 1990/95 Change from 2010 baseline 
CO2 energy-related 3068 3193 2922 -5% -8% 
CO2 other 164 183 182 11% -1% 
Methane 462 380 345 -25% -9% 
Nitrous oxide 376 317 282 -25% -11% 
HFCs 52 84 54 3% -36% 
PFCs 10 25 19 87% -27% 
SF6 -41% -53% 
Total 4138 4190 3807 -8% -9% 

Notes:

a) The direct CO2 emissions of energy supply are allocated to the energy demand sectors in the right-hand part of the table representing direct and indirect emissions. Refineries are included in the energy supply sector.

b) Industrial boilers are allocated to industrial sectors.

c) Non-CO2 GHG emissions from fossil fuel extraction, transport and distribution.

d) Due to missing data, emission data for aviation include international aviation, which is excluded in the IPCC inventory methodology.

Source: EU DG Environment, 2001.

http://europa.eu.int/comm/environment/enveco/climate_change/summary_report_policy_makers.pdf

Masui et al. (2005) report the effects of a tax and sectoral subsidy regime for Japan to achieve the Kyoto target by 2010, in which carbon tax revenues are used to subsidize additional investments to reduce greenhouse gases. The investment costs are shown in Table 11.8 for each sector. The table shows that about about 9 US$/tCO2 (3,400 Japanese Yen/tC) will be required as carbon tax and most of the investment will be in energy-saving measures in the buildings sector (Residential and Commercial). The macro-economic effects for this study are reported in Section 11.4.3.4.

Table 11.8: Carbon tax rate and required additional investments for CO2 abatement in Japan

Sector Subsidized measures and devices Additional money grant (billion US$/yr) 
Industrial sector Boiler conversion control, High-performance motor, High-performance industrial furnace, Waste plastic injection blast furnace, LDF with closed LDG recovery, High-efficiency continuous annealing, Diffuser bleaching device, High-efficiency clinker cooler, Biomass power generation 0.95 
Residential sector High-efficiency air conditioner, High-efficiency gas stove, Solar water heater, High-efficiency gas cooking device, High-efficiency television, High-efficiency VCR, Latent heat recovery type water heater, High-efficiency illuminator, High-efficiency refrigerator, Standby electricity saving, Insulation 3.33 
Commercial sector High-efficiency electric refrigerator, High-efficiency air conditioner, High-efficiency gas absorption heat pump, High-efficiency gas boiler, Latent heat recovery type boiler, Solar water heater, High-efficiency gas cooking device, High-frequency inverter lighting with timer, High-efficiency vending machine, Amorphous transformer, Standby electricity saving, Ventilation with heat exchanger, Insulation 1.83 
Transportation sector High-efficiency gasoline private car, High-efficiency diesel car, Hybrid taxi, High-efficiency diesel bus, High-efficiency small-sized truck, High-efficiency standard-sized track 1.00 
Forest management Plantation, Weeding, Tree thinning, Multilayered thinning, Improvement of natural forests 1.84 
Total 8.96 
Required carbon tax rate (US$/tCO2) 8.7 

Source: Masui et al. (2005).

Schumacher and Sands (2006) model the response of German GHG emissions to various technology and carbon policy assumptions over the next few decades using the SGM model for Germany. Accounting for advanced technologies such as coal IGCC, NGCC, CCS, and wind power, they show that emission reductions can be achieved at substantially lower marginal abatement costs in the long run with new advanced electricity generating technologies in place. In a scenario assuming a carbon price of 50 US$/tCO2 giving a 15% reduction of CO2 below baseline by 2020, they show that, with the new and advanced technologies, the electricity sector would account for the largest share of emissions reductions (around 50% of total emissions reductions), followed by other (non-energy-intensive) industries and households. The effects on gross output are very uneven across sectors: energy transformation is 9% below base, but other industry, services and agriculture (and GDP) are 0.7% below base by 2050.

The effects of different policy mixes on sectoral outcomes are shown in the US EIA (2005) analysis of the National Commission on Energy Policy’s (NCEP) 2004 proposals. These involve reductions in the US emissions in GHGs of about 11% by 2025 below a reference case, including an analysis of the cap-and-trade component, (involving a safety valve limiting the maximum cost of emissions permits to US$ (2003)8.50/tCO2 through to 2025) and a no-safety-valve case (in which the cost rises to US$(2003) 35/tCO2 and the GHG reduction to 15% by 2025). The effects on CO2 emissions by broad sector are shown in Figure 11.4. Note that the NCEP scenario includes the cap-and-trade scheme (with a safety valve) shown separately in the figure and that the no-safety-valve scenario is additional to the NCEP scenario. The NCEP scenario includes substantial energy efficiency policies for transportation and buildings. This explains the relatively large contributions of these sectors in this scenario. The cap-and-trade schemes mainly affect the electricity sector, since the price of coal-fired generation rises relative to other generation technologies. For discussion of macro-economic estimates of mitigation costs for the US from this study and others, see Section 11.4.3.1.

Figure 11.4

Figure 11.4: Carbon dioxide reductions by sector in the NCEP, Cap-Trade, and No-Safety Cases, 2015 and 2025

Notes: National Energy Modeling System, runs BING-ICE-CAP.D021005C BING-CAP.D021005A, and BING-NOCAP.D020805A. Note that NCEP includes technology mandates, and Cap-Trade is without technology mandates.

Source: US Energy Information Administration (EIA)(2005, p.15).