INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE (IPCC) Working Group III: Mitigation of Climate Change SECTORAL ECONOMIC COSTS AND BENEFITS OF GHG MITIGATION PROCEEDINGS OF IPCC EXPERT MEETING HELD IN Eisenach, Germany 14-15 February 2000 Lenny Bernstein and Jiahua Pan Editors Published for the IPCC by RIVM Financial support for this publication was provided by the German Federal Ministry of Education, Science, Research and Technology and the Netherlands Government through the Technical Support Unit of the IPCC Working Group III. Programme committee: Terry Barker (UK), Lenny Bernstein (US), Ogunlade Davidson (WG III Co-Chair), Ken Gregory (UK), Steve Lennon (South Africa), Bert Metz (WG III Co-Chair), Jiahua Pan (WG III TSU), Leena Srivastava (India), Rob Swart (WG III TSU), and Julio Torres Martinez (Cuba) Local Organisation: Helmut Kühr (Germany) Supporting material prepared for consideration by the Intergovernmental Panel on Climate Change. This supporting material has not been subject to formal IPCC review process. Published by: RIVM for the IPCC ISBN: 90 - 6960 - 089 - 7 Cover Design by: Karin Janmaat (RIVM) IPCC WG III contact information: Technical Support Unit IPCC Working Group III RIVM Email: [email protected] http://www.rivm.nl/env/int/ipcc Preface Preface Assessment of the sectoral economic costs and benefits of greenhouse gas mitigation policies is a new feature of the IPCC Third Assessment Report (TAR). This topic is important because while macro-economic analyses of the impacts of greenhouse gas mitigation policies tend to show relatively modest effects, they may hide significantly larger effects for specific industries and/or regions. Since the literature on this topic is sparse, IPCC Working Group III decided to hold an expert meeting to elicit new, previously unpublished information. The Expert Meeting on the Sectoral Economic Costs and Benefits of GHG Mitigation was held in Eisenach, Germany, on 14 - 15 February 2000. We would like to thank the German Federal Ministry of Education, Science, Research and Technology, the IPCC Trust Fund and the Netherlands Government through the Technical Support Unit of the IPCC Working Group III for their financial support, and the programme committee and local organisers for all their efforts to make this meeting a success. While acknowledging the contribution of the others, Terry Barker, Lenny Bernstein, Helmut Kühr, Jiahua Pan and Rob Swart have taken the lion's share of the work. Thanks also go to José Hesselink and Rutu Dave for their help with proofreading of the proceedings. This report consists of a summary of the meeting sessions and the full papers covering the presentations at the meeting. A few papers that were submitted late to or distributed at the meeting are also included in this volume as additional input for information and wider coverage, as they address some sector specific issues related to costs and benefits from mitigation measures. The proceedings have gone through the following review process: (a) papers were revised by the authors based on the debate at the meeting sessions; (b) the summary report and revised papers were sent to all the participants for comments before publication; and (c) speakers and discussants revised their papers based on the comments received. In addition, some participants submitted their comments in writing after the meeting. These written comments are also incorporated in the appropriate parts of this volume. We believe that the findings from the meeting documented herein are highly relevant to the assessment of sectoral economic costs and benefits. We are sure that the materials will be used as valuable input to the Third Assessment Report. While this activity was held pursuant to a decision of Working Group III of the IPCC, such decision does not imply the Working Group or Panel endorsement or approval of the proceedings or any recommendations or conclusions therein. In particular, it should be noted that the views expressed in this volume are those of the authors and not those of IPCC Working Group III or other sponsors. Ogunlade Davidson Bert Metz Co-Chairs, IPCC Working Group III i Contents Contents Preface i Bert Metz and Ogunlade Davidson Part I Introduction and Summary Opening Remarks 2 Ogunlade Davidson Summary Report 4 Lenny Bernstein Session Proceedings 7 Terry Barker, Lenny Bernstein, Ken Gregory, Steve Lennon and Julio Torres Martinez Part II Fossil Fuels Impacts of the Kyoto Protocol on Fossil Fuels 37 Ulrich Bartsch and Benito Müller Discussion: Impact on Coal 54 Ron Knapp Discussion: Impact on Oil - an OPEC View 62 Davood Ghasemzadeh and Faten Alawahdi Discussion: Impact on Natural Gas Industries 69 Jonathan Stern Additional Submissions§ Climate Policy and Job Impacts: Recent Assessments and the Case of Coal 74 Seth Dunn and Michael Renner Fossil Fuel Implications of Climate Change Mitigation Responses 85 Jonathan Pershing Part III Renewable Energy The Impacts of Carbon Constraints on Power Generation and Renewable Energy Technologies 106 Patrick Criqui, Nikos Kouvaritakis and Leo Schrattenholzer Discussion: Biomass Energy Externalities 137 José R.. Moreira § Papers were submitted to and circulated but not discussed at the meeting. ii Contents Additional Submissions§ Impacts of Mitigation Measures on the Renewable Energy Sector in Africa 147 Garba G. Dieudonne Greenhouse Gas Mitigation: the Perspective of the Small Island Developing States 156 Oliver Headley Part IV Transport Mitigating GHG Emissions from the Transport Sector in Developing Nations: Synergy explored in local and global environmental agenda 164 Ranjan K. Bose Discussion: Climate Change Mitigation in the Transport Sector - Moving towards low-cost solutions 183 Seth Dunn Discussion: Transport Sector GHG Emissions Control and Developing Country Opportunities 191 José R.Moreira Discussion: Personal Transport 207 Michael Whinihan Part V Energy Intensive Indus tries Effects of Differentiating Climate Policy by Sector: A U.S. Example 209 Mustafa Babiker, Melanie E. Bautista, Henry D. Jacoby and John M. Reilly Costs and Benefits of CO2 Mitigation in Energy Intensive Industries of India 222 Somnath Bhattacharjee Additional Submissions§ Costs and Benefits of Mitigation in Energy Intensive Industries 230 Gina Roos A North American Steel Industry Perspective 237 Bruce A. Steiner Impacts on the U.S. Chemical Industry Related to Greenhouse Gas Mitigation 240 Paul Cicio The Kyoto Treaty and the Forest Products Industry 245 David Friedman The U.S. Cement Manufacturing Industry: Opportunities for Energy Efficiency 247 Dave Cahn, Michael Nisbeth, and Dale Lourda § Papers were submitted to and circulated but not discussed at the meeting. iii Contents Part VI Households and Services Ancillary Costs and Benefits of Mitigation Options in the Households and Tertiary Sectors 254 Gina Roos Impact of Greenhouse Gas Mitigation on the Insurance Industry 260 Oliver Zwirner Part VII Panel Discussion Sectoral Impact of Mitigation Measures: Key Issues and Policy Implications 271 Paul Cicio, Seth Dunn, Michael Grubb, José Moreira and Jonathan Pershing Part VIII Appendix A Meeting Programme 274 B List of Participants 277 iv PART I INTRODUCTION AND SUMMARY 1 Opening Remarks Opening Remarks Ogunlade Davidson Fellow Colleagues and Researchers, I am pleased and honoured by the organisers to perform this singular duty and privilege to open this Expert Meeting on a very important topic, Sectoral Economic Costs and Benefits of Greenhouse Gas (GHG) Mitigation. This meeting as all other Expert meetings of the Intergovernmental Panel on Climate Change (IPCC) is part of the long and tedious drafting process of the Third Assessment Report (TAR). The TAR is expected as the First and Second Assessment Reports to provide a comprehensive and up to date assessment of the policy-relevant scientific, technical and socio-economic aspects of climate change. In addition to Assessment Reports, the IPCC prepares Specific Reports in response to requests from the Parties to the Climate Change Convention or by IPCC itself and Technical Papers when the Parties need an international perspective on a specific topic. The TAR will be different from the others because it will have an integrated report of the entire three working groups, the Synthesis Report that is expected in 2001. This Report aims at addressing policy-relevant scientific, technical and economic questions that were formulated by policy- makers involved in the Climate Convention negotiations. Expert meetings are normally held when IPCC is convinced that there is a genuine desire to elicit new, previously unpublished information in areas where peer-reviewed literature is sparse or unavailable. Hence, the main purpose of this Expert meeting is to gather information that will contribute to the analysis of the economic effects of GHG mitigation which still poses a major problem for both researchers and policy-makers. Also, Expert meetings are expected to provide a forum for increased co-ordination among lead authors of the IPCC and other researchers on a specific topic as this important one being discussed here today. There is a growing awareness and appreciation worldwide that climate change policy should be seen as part of a broader development policy because of its effect on all aspects of our basic lives. Further, recent findings indicate that policies aimed at national development or mitigating local problems can mitigate climate change. Hence, integrating climate change into overall development policies is eminent. It was for this reason