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Implications for the South

These results are summarized in Table 5.1 and Figure 5.16. If nothing is done to transfer resources and technology, then the high (1) and medium (3) cost cases show that the South would pay between two and ten times more than its 'share' (relative to its obligation-to-pay as determined in Chapters 4 and 6.

Case 1 (high costs) is especially interesting. Here, the northern economies would likely engage in a massive burst of technological innovation in response to rising energy prices and competitive pressures within the North. A dramatic move toward ecologically sustainable growth implies a shift to a 'fourth wave' of industrial capitalism. The changes in store would be on a par with earlier technological revolutions (fossil fuelled factories, mass production lines, information systems).

This transformation would likely reduce the North's marginal production costs in most goods and services relative to the South which would be left far behind in technological and economic terms. Consequently, the North's carbon abatement costs could be well below those assumed in this chapter, especially in Case 1. Thus, by assuming 'frozen' technological costs over time, I may have overstated greatly the share of global costs that the North would pick up. Only if one assumes that the South achieves low carbon abatement costs that are equal to those of the North (Case 2) can the South come out ahead under its own steam. There is little reason, however, to believe that the South has either the financial resources or the institutional capability to match the North and the East in achieving such a rapid transition.

Table 5.1 Summary of incremental abatement and protection costs

  Region
North East South Global
High cost curve Case 1        
NPV ($billion) 2990 1667 920 5577
Annuity ($billion/year) 195 108 60 363
% of total 54% 30% 16% 100%
Low cost curve: Case 2        
NPV ($billion) 162 83 -949 -704
Annuity ($billion/year) 10.6 5.4 -62 -46
% of total n/a n/a n/a n/a
Medium cost curve Case 3        
NPV ($billion) 162.3 82.5 494 738.8
Annuity ($billion/year) 10.6 5.4 32.1 48.1
% of total 22% 11 % 67% 100%
Obligation to pay        
% of total 73% 20% 7% 100%

This table shows the incremental cost of carbon abatement and coastal protection costs, before redistribution according to obligation to pay.
Sources: Costs from Discounted incremental costs box in this chapter; obligation to pay, see Chapter 6.

Figure 5.16 Summary of incremental C-abatement/coastal costs, bill$/y

In the high and medium cost cases, the South is burdened disproportionately (16 and 67 per cent respectively versus its obligation-to-pay of 7 per cent). Dealing with this maldistribution of cost is the subject of the next chapter.

 

Notes and references

1 For a review of scenario methods in the energy context, see S Encel and N Conner, Alternatives in Energy Policy and the Use of Scenarios - A Pilot Project, End of Grant Report No. 813; National Energy Research, Development and Demonstration Programme, Canberra, June 1988; and for the same in the context of global climate change, see L Lave and D Epple, 'Scenario Analysis,' in: R Kates, l Ausubel and M Berberian (ed), Climate Impart Assessment, John Wiley, New York, 1985, pp 511-528

2 This section is derived from W. Nitze, The Greenhouse Effect: Formulating a Convention, Royal Institute of International Affairs, London, 1990, pp vii-ix. Nitze is a former US State Department official who played a key role in the US participation in the IPCC. In this reference, he predicted accurately the structure and content of the treaty

3 J Sebenius, Negotiating a Regime to Control Global Warming, John F Kennedy School of Government paper G-90-10, Harvard University, Cambridge, Massachusetts, 1990. Emphasis in original

4 M Grubb, 'The Greenhouse Effect: Negotiating Targets', international Affairs, volume 66, no 1, 1990, p 85

5 Emission rates, sinks, mean atmospheric residence time of gases, their relative radiative forcing, frequency saturation, chemical synergisms and many other aspects of the gases are still obscure. For estimates and projections of past and projected land use and agricultural emissions, see US Agency for International Development, Greenhouse Gas Emissions and the Developing Countries: Strategic Options and the USAID Response; report to Congress, Washington DC, July 1990; and IPCC Agriculture, Forestry and Other Human Activities working group report in World Meteorological Organisation, UN Environment Programme, Climate Change, The IPCC Response Strategies, Intergovernmental Panel on Climate Change, Island Press, Washington DC, 1991, pp 73-128

6 See W Fischer, A Convention on Greenhouse Gases: Towards the Design of a Verification System, Forschungszentrum Julich GmbH, Julich, Germany, October 1990

7 For cogent argument for a comprehensive approach, see D Lashof, Approaching greenhouse gases comprehensively: the value and limits of GWPs; paper presented to the Workshop on Global Warming Potential Indices, Boulder, Colorado, November 14,1990; end 'Comprehensive Approach to Environmental Policy,' paper to the Informal Seminar on US Experience, held at US Department of State, Washington DC, 3 February 1990

8 S Barrett, 'Economic Instruments for Global Climate Change Policy', London Business School report to Environment Directorate OECD, Paris, 1990, p 2

9 The reliability of carbon emissions (as against fossil fuel usage) should not be overstated. A number of factors reduce the reliability of fuel usage as the basis for carbon estimates including varying carbon content, combustion efficiency, oxidation time lag, data reporting deficiencies, etc. The 5-10% reliability estimate is taken from G Marland and R Rotty, Carbon Dioxide Emissions from Fossil Fuels: A Procedure for Estimation and Results for 19501981, Energy Office of Energy Research, US Department of Energy, DOE/NBB-0036, Washington DC, June 1983, in CDIAC, Production of CO2 from Fossil Fuel Burning by Fuel Type, 1860-1982, Carbon Dioxide Information Center, Oak Ridge National Laboratory, Tennessee, NDP-006, September 1984

10 W Nordhaus suggests such discounting in his Contribution of Different Greenhouse Gases to Global Warming: a New Technique for Measuring Impact, (mimeo), Economics Department, Yale University, February 11, 1990

11 For discussion of possible unexpected, unpleasant effects, see W Broecker, 'Greenhouse Surprises,' in D Abrahamson et al, The Challenge of Global Warming, Island Press, Washington DC, 1989, pp 196-212; and M Hoffert, 'Climate Sensitivity, Climate Feedbacks, and Policy Implications,' in I Mintzer (ed), Confronting Climate Change, Risks, Implications, and Responses, Cambridge University Press, 1992, pp 33-54

12 W Cline, Estimating the Benefits of Greenhouse Warming Abatement, Institute for International Economics report to OECD Environment Directorate, May 1991, pp 2223

13 As the Academy notes:

The uncertainties associated with mitigating global climate change and its attendant costs are ... at least as great as - and probably greater than - the uncertainties associated with other forms of investment that could be undertaken today. Accordingly, the investor averse to risk might conclude that costly mitigation actions should not be undertaken. However, the payoff from mitigation actions now will be greatest if the magnitude of global climate change and the associated costs turn out to be high, even if that is judged to be a contingency of low probability ... [S]uch investment may still be worthwhile as insurance against an uncertain but possibly costly contingency. How do these considerations influence the discount rate? The precise answer is not at all straightforward, unless the uncertainty itself is related in a particular way to the passage of time. Roughly speaking, however, one can say that where an uncertain outcome (the future payoff from mitigation actions) is negatively correlated with overall economic prospects (as measured by future gross world product per capita), and where the uncertainty grows exponentially with time, some deduction from the discount rate used to evaluate mitigation actions is warranted. How much? That depends in detail on the nature of the uncertainty, an issue that remains to be clarified, and on the degree of our aversion to risk.

US National Academy of Sciences, National Academy of Engineering, Institute of Medicine, Policy Implications of Greenhouse Warming, Report of the Mitigation Panel, Committee on Science, Engineering, and Public Policy, National Academy Press, Washington DC, 1991, pp 2-14; see also, F Krause, J Koomey, D Olivier et al, Energy Policy in the Greenhouse, volume 2, Least Cost Insurance Against Climate Risks, International Project for Soft Energy Paths, El Cerrito, California, forthcoming 1993

14 McKinsey and Co, Protecting the Global Environment: Funding Mechanisms, Ministerial Conference on Atmospheric Pollution and Climatic Change, Noordwijk, November 1989, pp 18-24

15 The original regression is found in W Nordhaus, 'To Slow or Not to Slow, The Economics of the Greenhouse Effect,' (mimeo), Economics Department, Yale University, February 5,1990; The cost schedule used in this study is taken from W Nordhaus, 'A Sketch of the Economics of the Greenhouse Effect,' American Economic Review, volume 81, no 2,1991, pp 146-148

16 Reddy's marginal cost curve for supplying Karnataka's energy services needs is summarised in G Dutt, End-Use Energy Strategies for Sustainable Development, India as a Case Study, Office of the Environment, Asian Development Bank, Manila, January 1991, pp 5759; see also Chapter 8 in this volume

17 See for example R Williams, 'Low-Cost Strategies for Coping with CO2 Emission Limits (A Critique of 'CO2 Emission Limits: an Economic Cost Analysis for the USA' by Alan Manne and Richard Richels,' The Energy Journal, volume 11, no 3,1990, pp 35-59

18 See Riso National Laboratory, Analysis of Abatement Costing Issues and Preparation of a Methodology to Undertake National Greenhouse Gas Abatement Costing Studies, phase one report, Denmark, August 1992. For a summary of national studies completed or under way as of early 1992, see UN Environment Programme, Country Study Report, report to the Intergovernmental Panel on Climate Change, April 14, 1992

19 A selection of the studies reviewed in search of relevant marginal cost data included: P Hoeller, A Dean and I Nicolaisen, 'Macroeconomic implications of reducing greenhouse gas emissions: a survey of empirical studies'; OECD Economic Studies, No.16, Spring 1991, pp 45-78; US Department of Energy, The Economics of Long-Term Global Climate Change: A preliminary assessment; report of an Interagency Task Force, DOE/PE-0096P, Washington DC, September 1990; D Dudek and A LeBlanc, 'Offsetting new CO2 emissions: a rational first greenhouse policy step', Contemporary Policy Issues, volume 8, July 1990, pp 29-42; J Swisher, A Case Study of Utility Costs for Reducing CO2 Emissions, (mimeo), Civil Engineering Department, Stanford University, no date, and his Prospects for International Trade in Environmental Services: An Analysis of Carbon Emission Offsets, dissertation thesis, Stanford University Civil Engineering Department, 1991; A Cristofaro, 'The cost of reducing greenhouse gas emissions in the United States', (mimeo), December 4, 1990; S Barrett, 'Economic Instruments for Global Climate Change Policy,' London Business School report for Environment Directorate OECD, Paris, 1990; J Whalley and R Wigle, The International Incidence of Carbon Taxes; (mimeo), paper to conference on 'Economic Policy Responses to Global Warming', Rome, October 1990; D Jhirad, 'Power sector innovation in developing countries: implementing multifaceted solutions', Annual Review of Energy, volume 15, 1990, pp 365-398; M Levine et al., Energy Efficiency, Developing National, and Eastern Europe: An Analysis of Key issues, report to the US Working Group On Global Energy Efficiency, Lawrence Berkeley Laboratory, March 1991; G Dutt, End-Use Energy Strategies for Sustainable Development, India as a Case Study, Office of the Environment, Asian Development Bank, Manila, January 1991; V V Desai, K Nyman, Industrial Energy Conservation: Notes on Three Country Studies, Energy Planning Unit, Asian Development Bank, Manila, circa 1986; Energy Research Institute of State Planning Commission, Institute for Techno-Economic Economics and Energy System Analysis of Tsinghua University, Regional Study of Environmental Considerations in Energy Development Project, People's Republic of China, Interim Report ADB TA 5357-Regional, Beijing, March 1991; Asian Development Bank, China, Energy Conservation, Final Report, Beijing, December 1990; M Philips, Energy Conservation Activities in Africa and Eastern Europe; International Institute for Energy Conservation, Washington, September 1990; M Philips, Energy Conservation Activities in Latin America and the Caribbean; International Institute for Energy Conservation, Washington, June 1990; M Philips, Energy Conservation Activities in Asia; International Institute for Energy Conservation, Washington, September 1990; M Cherniack, Thailand Electricity Mission; Mission Report; International Institute for Energy Conservation, Washington, December 1990; E Larson (ed), Report on the 1989 Thailand Workshop on End-Use-Oriented Energy Analysis; International Institute for Energy Conservation, Washington, April 1990

20 Good summaries of the varying methods and underlying assumptions of these two schools are found in J Darmstadter, The Economic Cost of CO, Mitigation: A Review of Estimates for Selected World Regions, Energy and Natural Resources Division, Resources for the Future, Washington DC, January 1991; and M Grubb, Energy Policies and the Greenhouse Effect, volume 1, policy appraisal, Royal Institute of International Affairs, London, 1990

21 For the GEF cost data, see Global Environment Facility, Economic Costs of Carbon Dioxide Reduction Strategies, Working Paper 3, September 1992, p 53; for the China estimates, see M Levine, 'China's Energy System: Historical Evolution, Current Issues, and Prospects,' in Annual Review of Energy and Environment, volume 17, 1992, p 430

22 For a similar approach to levelized costs, see E Barbier, J Burgess, and D Pearce, 'Technological Substitution Options for Controlling Greenhouse Gas Emissions, 'in R Dornbusch and J Poterba, Global Warming: Economic Policy Responses, MIT Press, Cambridge, Massachusetts, 1992, p 111. A summary US application of this approach is found in E Rubin et al, 'Realistic Mitigation Options for Global Warming,' Science, volume 257, July 10, 1992, pp 148-266. For a formal explanation of levelized cost, see J White et al, Principles of Engineering Economic Analysis, John Wiley and Sons, New York, 1977

23 As argued by N Birdsall and J Dixon, Some Economics of Global Climate Change: The View from the Developing Countries, draft paper, World Bank, April 30,1991, P 2

24 These are given on p xxxiii of the IPCC Policymakers Summary in World Meteorological Organisation, UN Environment Programme, Climate Change, The IPCC Response Strategies, Intergovernmental Panel on Climate Change, Island Press, Washington DC, 1991. The IPCC give rates for 1985,2000, and 2025. These estimates (in T C/capita per year) were interpolated by geometric growth rate between 1985 and 2000 to 1995 as follows: North America, 5.33; Western Europe, 2.22; OECD Pacific, 2.69; Non-OECD Europe, 3.56; Africa, 0.32; Centrally Planned Asia, 0.6; Latin America, 0.61; Middle East, 1.57; South and East Asia, 0.27

25 See R Watson et al, 'Greenhouse Gases and Aerosols,' in Intergovernmental Panel on Climate Change, Climate Change, The IPCC Scientific Assessment, Cambridge University Press, New York, 1990, p 15. See also Intergovernmental Panel on Climate Change, Climate Change, The IPCC Response Strategies, op cit (endnote 24), pp 29-31 for additional information on the assumptions underlying these scenarios, including non-CO2 greenhouse gas reductions required to achieve these targets

26 Ibid

27 For temperature rise, see scenario D in Figure 9 (p xxii) and for sea level rise, scenario D in Figure 14 (p xxx)), in 'Policymakers' Summery,' in Intergovernmental Panel on Climate Change, Climate Change, The IPCC Scientific Assessment, ibid

28 J Houghton, 'Scientific Assessment of Climate Change: Summary of the IPCC Working Group I Report,' in J Jager and H Ferguson (eds), Climate Change: Science, Impacts and Policy, Cambridge University Press, New York, 1991, P 38

29 See B. Solomon and D. Ahuja, 'International reductions of greenhouse-gas emissions, An equitable and efficient approach,' Global Environmental Change, December 1991, p 347

30 1987 population estimates are from Population Reference Bureau, 'Population Data Sheet 1987,' Washington DC, 1987; carbon sink estimates and oceanic! terrestrial spread are from R Watson et al, 'Greenhouse Gases and Aerosols,' in Intergovernmental Panel on Climate Change, Climate Change, The IPCC Scientific Assessment, op cit (endnote 25), PP 5,13; land area estimates are from World Resources Institute, World Resources 1990-1991, Oxford University Press, New York, 1990, Table 17.1; see also B Bolin, 'How Much CO2 Will Remain in the Atmosphere?' in B Bolin et al (eds), The Greenhouse Effect, Climatic Change, and Ecosystems, Wiley and Sons, New York, 1981, pp 94-155; and B Bolin et al, 'The Global Biogeochemical Carbon Cycle,' in B Bolin et al (eds), The Global Carbon Cycle, Wiley and Sons, New York, 1979 pp 1-56

31 G Pearman, 'Greenhouse Gases: Their Role in Climate Change,' in Association for Science Cooperation in Asia, Workshop on Greenhouse Gases and Climate Change, An Asian Perspective, Melbourne, June 17-21, 1991, p 26

32 P Tans, I Fung and T Takahashi, 'Observational Constraints on the Global Atmospheric CO2 Budget', Science, volume 247, 23 March 1990, pp 14311438

33 F Krause, W Bach and J Koomey, Energy Policy in the Greenhouse, From Warming Fate to Warming Limit: Benchmarks for a Global Climate Convention, International Project for Sustainable Energy Paths, El Cerrito, California, September 1989, pp 1-6-4,5

34 M Ince, The Rising Seas, Earthscan Publications, London, 1990, p 59

35 L Edgerton, The Rising Tide, Global Warming and World Sea Levels, Island Press, Washington DC, 1991, p 74

36 I Gilbert and M Poletti, 'Policy Related Observations on the Assessment of the Costs of Climate Change,' paper to workshop on a Comprehensive Approach to Climate Change Policy, Centre for International Climate and Energy Research, Oslo, July 1, 1991, p 12

37 M. Asaduzzaman, 'Global Climate Change and Coastal Zone Management in Bangladesh,' in T Siddiqi and D Streets (eds), Responding to the Threat of Global Warming, Options for the Pacific and Asia, Argonne National Laboratory and Environment and Policy Institute, East West Center, Workshop Proceedings, ANL/EAIS/TM-17, June 21, 1989, Honolulu, p 5-51

38 See J Godfrey, 'Climate Change and Sea Level Rise,' in Association for Science Cooperation in Asia, Workshop on Greenhouse Gases, op cit (endnote 31), pp. 17-21, 1991

39 A Pittock, 'Global Climate Change and the Development of Regional Climate Change Scenarios,' in ibid, pp 4.2-3

40 G Quraishee, 'Global Warming and Rise in Sea level in the South Asian Seas Region,' in T. Siddiqi and D Streets (ed), Responding to the Threat of Global Warming, Options for the Pacific and Asia, Argonne National Laboratory and Environment and Policy Institute, East West Center, Workshop Proceedings, ANL/EAIS/ TM-17, June 21, 1989, Honolulu, p 5-27

41 See A Wijkman and L Timberlake, Natural Disasters, Arts of God or Acts of Man?, Earthscan, London, 1988

42 GEMS Monitoring and Assessment Research Centre, 'Natural Disasters,' Environmental Data Report, Blackwell, Oxford, 1991, pp 361-382

43 See K Smith,'The Risk Transition'; International Environmental Affairs, volume 2, no 3, 1990, pp 227-251; and K Smith,'Risk Transition and Global Warming', Journal of Energy Engineering, volume 116, no 3, December 1990, pp 178188

44 Ministry of Transport and Public Works, Tidal Waters Division, Rising Waters: Impacts of the Greenhouse Effect for the Netherlands; Ministry of Transport and Public Works, The Hague, January 1991, p 31

45 This estimate is found in Appendix D,'A World Wide Estimate of Basic Coastal Protection Costs,' and are summarized on p 15 of Report of the Coastal Zone Management Group, Strategies for Adaptation to Sea Level Rise, Intergovernmental Panel on Climate Change Response Strategies Working Group, November 1990; See also Table 5.5 in Coastal Zone Management Working Group report in World Meteorological Organisation, UN Environment Program, Climate Change, The IPCC Response Strategies, op cit (endnote 24), p 153

46 R Warrick and A Rahman, 'Future Sea-Level Rise: Environmental and Socio-Political Considerations,' in I Mintzer (ed), Confronting Climate Change, op cit (endnote 11), pp 106-107

47 As argued by the Villach Experts Conference, 'Developing Policies for Responding to Climatic Changes,' Policy Issues Workshop, November 9,1987, Bellagio, Italy, p 25

48 M Marry, Climate Change and World Agriculture, Earthscan Publications, London, 1990, pp 108-119

49 M Parry and M Swaminathan, 'Effects of Climate Change on Food Production,' in I Mintzer (ed), Confronting Climate Change, op cit (endnote 11), p 124

50 See W Cline, The Greenhouse Effect, Institute of International Economics, Washington DC, 1992


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