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I have shown that the incremental cost of abatement and coastal protection in the South that is justifiably the responsibility of the North is of the order of $30 billion per year. To these costs should be added a substantial sum for human resource development needed to realize the South's carbon abatement potential, perhaps as much again; plus approximately $100 million per year for technical assistance, training, and information provision (at least for the first five years of the Convention), and another $100 million for the costs of monitoring and verifying compliance with emission commitments by parties to the treaty (see Chapter 14).

These cost estimates are indicative and should be treated with caution. Because these figures are based on 'soft' estimates, these conclusions are not robust. They are based on many intervening assumptions and variables, changes in which would require radical revision in the numbers cited (see box). Many of the potential uncertainties may operate in opposite directions, thereby cancelling out each other. Some (such as marginal cost estimates and addition of non-CO2 greenhouse gases) may combine to enhance each other's effect on the incremental cost, increasing it dramatically.

Summary of uncertainties

• Present and future per capita carbon intensity (+20%)
• CO2 fossil fuel usage estimate error (5-10%)
• Aggregation errors
• Population projections (10%)
• Sink estimates (50%)
• Allocation rule for notional distribution of sinks (25-50%)
• 2025 permissible emissions target uncertainty (10-20%)
• Take-up rate of efficiency, substitution, renewables (10-20%)
• Cost of autonomous energy efficiency increase (20-50%)
• Levelized marginal cost schedules (differences of 100%) in current estimates; impact of 100% from innovation and diminishing returns on future cost ignored)
• Benefits (avoided coastal and agricultural costs) (25-50%)
• Discount rate (1-2% vs 5% vs 10%1
• Obligation to pay index used to determine the South's obligation (10% due to periodic readjustment)
• Treatment of non-CO2 fossil fuel greenhouse gases
• Trade impacts of abatement costs
• Intersectoral adjustment, human resource development, and institutional change costs

Note: author's estimates of the range of positive and negative uncertainty for variables is shown in ()

It is hard, however, to see that revisions will decrease the cost estimates provided here by a substantial amount. These estimates can be used reasonably as baseline figures of the likely magnitude of the financial flows involved in implementing the emission reduction commitments should the Climate Change Convention be successful.

The marginal abatement cost estimates, trade impacts, and human resource development costs are three particularly potent variables that need much more research before these estimates of incremental cost can be treated with confidence. It is also important that the emissions data base used in this chapter be updated and that the capital requirements be linked to a macroeconomic model that will enable the direct costs to be matched with indirect trade effects on the economic welfare of different nations and national groupings. Developing such a modelling capability to support policy making and the negotiations on the protocols of the Convention is of great importance.

Enough is known now, however, for action to start. Bilateral and regional activities can commence immediately (see Chapter 14). Indeed, such initiatives are a pressing priority as they would demonstrate the feasibility and logic of carbon taxes, traceable permits and abatement services.


Notes and references

1 See UN Development Programme, Human Development Report 1990, Oxford University Press, New York, 1990

2 See K Smith et al., Indices for a Greenhouse Gas Control Regime that Incorporate Both Efficiency and Equity Goals; report to Environmental Policy and Research Division, World Bank, Environment and Policy Institute, Honolulu, Hawaii, May 21, 1991; and Chapter 4 of this book

3 M Grubb, J Sebenius, A Magalhaes and S Subak, 'Sharing the Burden,' in I Mintzer (ed), Confronting Climate Change, Risks, Implications, and Responses, Cambridge University Press, New York, 1992, p 321

4 See T Hyder, 'Climate Negotiations The North/South Perspective,' in I Mintzer (ed), Confronting Climate Change, ibid, p 328

5 W Nitze, 'Criteria for Negotiating a Greenhouse Convention that Leads to Actual Emissions Reductions,' International Challenges, volume 11, no 1, 1991, p 15; see also A K N Reddy, 'Barriers to improvements in energy efficiency,' Energy Policy, December 1991, pp 953-961

6 World Resources Institute, World Resources, 1992-93, Oxford University Press, New York, 1992, pp 8; 236-7

7 G Piel, 'Agenda 21 A New Magna Carta,' Earth Summit Times, September 14, 1992, p 11

8 Scientists and technicians from UN Development Programme, Human Development Report, 1992, Oxford University Press, New York, 1992, p 190; population data from World Resources, World Resources, 1992-93, op cit (endnote 6), p 76

9 L Lunde, The North/South Dimension in Global Greenhouse Politics, Conflicts, Dilemmas, Solutions, Report 9, Fridtjof Nansen Institute, Lysaker, Norway, 1990, p 17

10 Table 1475, US Department of Commerce, Statistical Abstract of the United States, recent annual editions, Washington DC

11 See the survey in S Barrett, 'Economic Instruments for Global Climate Change Policy', London Business School for Environment Directorate, OECD, Paris, 1990; a more accessible version is found in Barrett's 'Global Warming, The Economics of a Carbon Tax,' in D Pearce (ed), Blueprint 2, Greening the World Economy, Earthscan Books, London, 1991, pp 38-39. See also Price Waterhouse Government Liaison Services, Consultancy Report to Department of Arts, Sport, The Environment, Tourism and Territories on Carbon Tax, Canberra, ACT, June 1991

12 For a summary of eight carbon tax studies, see S Barrett, 'Global Warming, The Economics of a Carbon Tax,' in D Pearce (ed), Blueprint 2, ibid, pp 38-39

13 See J Epstein and R Gupta, Controlling the Greenhouse Effect: Five Global Regimes Compared; Brookings Occasional Papers; The Brookings Institution, Washington, DC, 1990; D Victor, 'Limits of market-based strategies for slowing global warming: The case of traceable permits', Policy Sciences, volume 24, 1991, pp 199-222; A Markandya, 'Global Warming, The Economics of Tradeable Permits,' in D Pearce (ed), Blueprint 2, op cit (endnote 11), pp 53-62

14 For reviews of this experience, see E Meidinger, 'On Explaining the Development of 'Emissions Trading' in US Air Pollution Regulation', Law and Policy, volume 7, no 4, October 1985, pp 447-477; and T Tietenberg, 'Transferable Discharge Permits and the Control of Stationary Source Air Pollution: A Survey and Synthesis'; Land Economics, volume 56, no 4, November 1980, pp 391416

15 M Grubb and J Sebenius, Participation, Allocation and Adaptability in International Tradeable Emission Permit Systems for Greenhouse Gas Control, forthcoming in OECD workshop proceedings on greenhouse gas traceable permits, Paris, June 1991, p 4.

16 J Swisher and G Masters, International Carbon Emission Offsets: A Tradeable Currency for Climate Protection Services, Technical Report309, Department of Civil Engineering, Stanford University, Stanford, California, 28 February 1989

17 Joel Swisher, personal communication, June 22,1992

18 W Makundi et al provide detailed estimates of current, committed and delayed carbon uptake and emissions in southern forests in Carbon Emissions and Sequestration in Forests: Case Studies From Seven Developing Countries, Lawrence Berkeley Laboratory, LBL-32119, UC-402 (draft), August 1992

19 See J Swisher and G Masters,'A Mechanism to Reconcile Equity and Efficiency in Global Climate Protection: International Carbon Emission Offsets,' Ambio, volume 21, no 3, April 1992, pp 154-159

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