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Southeast Asia and the Economics of Global Climate Stabilization

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Southeast Asia and the Economics of Global Climate Stabilization SOUTHEAST AsIA AND THE ECONOMICS OF GLOBAL CLIMATE STABILIZATION ASIAN DEVELOPMENT BANK SOUTHEAST AsIA AND THE ECONOMICS OF GLOBAL CLIMATE STABILIZATION David A. Raitzer, Francesco Bosello, Massimo Tavoni, Carlo Orecchia, Giacomo Marangoni, and Jindra Nuella G. Samson ASIANASIAN DEVE DEVELOPMENTLOPMENT BANK BANK Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) © 2015 Asian Development Bank 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Tel +63 2 632 4444; Fax +63 2 636 2444 www.adb.org; openaccess.adb.org Some rights reserved. Published in 2015. Printed in the Philippines. ISBN 978-92-9257-304-1 (Print), 978-92-9257-305-8 (e-ISBN) Publication Stock No. RPT157821-2 Cataloging-In-Publication Data David A. Raitzer, Francesco Bosello, Massimo Tavoni, Carlo Orecchia, Giacomo Marangoni, and Jindra Nuella G. Samson Southeast Asia and the economics of global climate stabilization. Mandaluyong City, Philippines: Asian Development Bank, 2015. 1. Climate change. 2. Southeast Asia. 3. Mitigation. 4. Environment. 5. Energy. I. Asian Development Bank. The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The mention of specific companies or products of manufacturers does not imply that they are endorsed or recommended by ADB in preference to others of a similar nature that are not mentioned. By making any designation of or reference to a particular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area. This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) https://creativecommons.org/licenses/by/3.0/igo/. By using the content of this publication, you agree to be bound by the terms of said license as well as the Terms of Use of the ADB Open Access Repository at openaccess.adb.org/termsofuse This CC license does not apply to non-ADB copyright materials in this publication. If the material is attributed to another source, please contact the copyright owner or publisher of that source for permission to reproduce it. ADB cannot be held liable for any claims that arise as a result of your use of the material. Attribution—In acknowledging ADB as the source, please be sure to include all of the following information: Author. Year of publication. Title of the material. © Asian Development Bank [and/or Publisher]. https://openaccess.adb.org. Available under a CC BY 3.0 IGO license. Translations—Any translations you create should carry the following disclaimer: Originally published by the Asian Development Bank in English under the title [title] © [Year of publication] Asian Development Bank. All rights reserved. The quality of this translation and its coherence with the original text is the sole responsibility of the [translator]. The English original of this work is the only official version. Adaptations—Any adaptations you create should carry the following disclaimer: This is an adaptation of an original Work © Asian Development Bank [Year]. The views expressed here are those of the authors and do not necessarily reflect the views and policies of ADB or its Board of Governors or the governments they represent. ADB does not endorse this work or guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. Please contact [email protected] or [email protected] if you have questions or comments with respect to content, or if you wish to obtain copyright permission for your intended use that does not fall within these terms, or for permission to use the ADB logo. Photo credits: ADB photo library (except for photo on page 10). Note: In this publication, “$” refers to 2005 US dollars. Contents Abbreviations xiii Foreword xv Acknowledgments xvii Executive Summary xix 1 Introduction 1 1.1 Southeast Asia Matters to Climate Change 3 1.2 Purpose, Structure, and Audience for this Report 4 1.3 Climate Change Should Matter to Southeast Asia 5 1.3.1 Global warming scenarios suggest a substantially hotter planet 5 1.3.2 Southeast Asia will be strongly affected by continued climate change 5 1.3.3 Climate inaction poses economy-wide risks 9 2 Greenhouse Gas Emissions in Southeast Asia 10 2.1 Regional Circumstances 12 2.1.1 The region is changing rapidly 12 2.1.2 Deforestation in selected countries is driving most regional emissions to date 13 2.1.3 Development has been energy intensive 15 2.1.4 Emissions from fossil fuels are rapidly rising 15 2.2 Policy Context 17 2.2.1 A new global agreement aims to stabilize climate change 17 2.2.2 Economy-energy–environment models can inform policy choices 18 2.2.3 Different modeling approaches provide different insights 20 2.3 Knowledge of Mitigation Economics to Date 20 2.3.1 Despite previous studies, knowledge gaps remain for Southeast Asia 20 3 Methodology 23 3.1 Study Objectives 25 3.2 Scenario Matrix 25 3.2.1 Global scenario overview 25 3.2.2 Scenario definition for 2010–2020 25 3.2.3 Scenario definition for 2020–2050 26 3.2.4 Scenario variants on REDD 27 3.3 Overview of the Low-Carbon Modeling Framework 28 iii iv Contents 3.4 The Intertemporal Computable Equilibrium System Model 30 3.4.1 Basic structure 30 3.4.2 Land-use emissions 31 3.4.3 The multigas carbon market 32 3.5 The World Induced Technical Change Hybrid Model 32 3.5.1 Basic structure 32 3.5.2 Land-use emissions 35 3.6 Integration of World Induced Technical Change Hybrid and Intertemporal Computable Equilibrium System Models 35 3.7 Harmonized Assumptions for Business-as-Usual Scenario 36 3.8 Quantification of Co-Benefits of Climate Action 38 3.8.1 Approach to co-benefit quantification 38 3.8.2 Quantification of reductions in population exposure to pollution 38 3.8.3 Quantification of mortality responses to pollution reduction 39 3.8.4 Valuation of averted mortality 39 3.8.5 Transport congestion reduction 39 3.8.6 Transport accident reduction 40 3.9 Limitations of Analysis 40 4 Results 42 4.1 Business as Usual 44 4.1.1 Rapid growth leads to a carbon-intensive future 44 4.1.2 Structural transformation drives emissions growth 45 4.2 Business as Usual Implies Substantial Climate Change Damage 48 4.2.1 A computable general equilibrium approach offers new insights on climate change impacts 48 4.2.2 Additional nonmarket impacts add substantially to costs of inaction 50 4.2.3 Integrated modeling of RCP8.5 through year 2100 shows large damage 50 4.3 Emissions Mitigation Scenarios 51 4.3.1 Substantial mitigation is needed for climate stabilization 51 4.3.2 Moderate carbon prices are needed to trigger abatement 52 4.3.3 Southeast Asia benefits from a global carbon market 53 4.3.4 Energy efficiency, low-carbon energy, and land-use drive abatement responses to carbon prices 54 4.3.5 Land-use emissions drop strongly under all stabilization scenarios 56 4.3.6 Energy sector transformation drives long-term abatement 57 4.3.7 Advanced energy technologies require research investment 58 4.3.8 Investment in low-carbon power matches divestment in fossil fuels 60 4.3.9 The electricity sector has large changes due to climate policies 61 4.3.10 Policy costs depend on REDD and advanced energy technologies 63 4.3.11 Welfare is less affected by climate policy than is gross domestic product 63 4.3.12 Delayed mitigation leads to higher policy costs 66 4.3.13 Co-benefits are substantial 68 4.3.14 Initial abatement costs lead to much greater long-term benefits 69 Contents v 4.4 National Comparison Using the ICES Model 71 4.4.1 All countries in the region have substantial abatement potential 71 4.4.2 Selected countries have carbon emissions permit export potential 71 4.4.3 Co-benefits are largely dependent on transport sector characteristics 72 4.4.4 Policy costs vary substantially among countries 73 4.4.5 Unit costs of emission reductions are small to moderate 73 4.4.6 Effects by sector vary among the countries 74 5 Policies to Realize Mitigation Potential 75 5.1 Climate Change Mitigation is in the Interest of the Region 77 5.1.1 Countries in the region have made important commitments to address GHG emissions 77 5.1.2 More ambitious mitigation is economically justified 78 5.1.3 Initiating international carbon markets soon can benefit the region 81 5.2 Controlling Deforestation is Essential to Medium-Term Mitigation 81 5.2.1 If deforestation continues, mitigation becomes much more expensive 81 5.2.2 Progress is being made to address deforestation, but more is needed 82 5.2.3 Getting incentives right is critical to reducing deforestation 84 5.2.4 Institutions need reform for REDD to be effective 84 5.3 Long-Term Mitigation Depends on Energy System Transformation 85 5.3.1 Rapid improvement in energy efficiency is essential 85 5.3.2 Energy efficiency improvement can be accelerated, compared with current targets 88 5.3.3 Fossil fuel pricing reform can stimulate energy efficiency improvement 89 5.3.4 Ambitious plans to expand renewable energy by countries in the region are important 90 5.3.5 Advanced energy technologies should be a long-term priority 92 5.3.6 Research and absorptive capacity need greater investment 97 5.3.7 Energy and transport infrastructure investments can facilitate deep decarbonization 98 6 Conclusions 104 Appendixes 108 Appendix 1: Model Calibration 108 A.
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