Climate Change 2001:
Working Group III: Mitigation
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1.2.5 Distributional Impacts and Equity Considerations

It is important to consider more than the aggregate (worldwide) benefits and costs of such policies in examining and evaluating mitigation options. Considerations of the national, intranational, industrial, and intergenerational distributions of the benefits and burdens of mitigation policies–as well as considerations of the historical contributions to the accumulation of GHGs–are crucial to develop equitable climate policies. The WGII report (IPCC, 2001) indicates that the impacts of climate change vary substantially across regions of the globe. Indeed, climate impacts can differ even on the scale of a few miles depending on geography, terrain, and other natural conditions. The costs of the economic impacts of climate policies are distributed unevenly as well, although the distribution of these impacts depends on the types of mitigation policies introduced. It is important to consider the distribution of cost impacts of different potential policies across nations, socioeconomic groups, industrial sectors, and generations.

The distribution of the economic impacts of mitigation policies across economic sectors is examined in Chapter 9. Policies such as carbon taxes or carbon caps are designed to limit carbon use and are likely to cause production, output, and employment to fall in the coal and oil extraction industries. The impact on the natural gas industry is less clear. On the one hand, a carbon tax raises the cost of supplying natural gas, which tends to imply reduced demands, output, and employment in this industry. On the other hand, this tax raises the price of coal by a larger percentage, inducing shifts in demand from coal to natural gas. The impact of mitigation policies on renewable energy sources is likely to vary by resource and region but are likely to lead to larger markets for renewables. Mitigation policies are expected to lead to structural changes in manufacturing, especially in the developed countries. Sectors that supply energy-saving equipment and low-carbon technologies are likely to benefit from these policies. Sectors that rely intensively on carbon-based fuels are expected to suffer price increases and a loss of output.

Chapter 8 indicates results that concern the distribution of impacts across household income groups. According to most studies, mitigation policies that imply higher energy prices impose higher cost-burdens (relative to income) on less affluent households than on richer households. This reflects that the poor tend to spend a larger share of their income on energy. Equity considerations suggest that mitigation policies can overcome these distributional consequences by including provisions that reduce the costs they impose on the lowest-income groups.

For the most part, existing studies of the impacts across household groups (or socioeconomic groups, more broadly) apply to developed nations. There is a severe need for studies that consider the distributional impacts within developing countries. In addition, nearly all the studies lack the detail necessary to consider impacts in socioeconomic dimensions other than income. As a result, important costs to various groups within the general population may be overlooked. Important costs may also be hidden by aggregation. This is especially relevant in studies of the impacts of climate change and mitigation activity in developing countries, since existing studies may overlook major impacts to the most vulnerable individuals. Section 1.3 discusses the issue of equity in more detail and from a broader perspective.

1.2.6 Sustainability Considerations

Sustainability considerations are typically not the primary motivation for studies carried out from the “cost-effectiveness perspective”. Besides the distributional effects of climate policies, their implications for other environmental concerns can also be calculated. For example, the implied impact of climate policies on sulphur, particulate emissions, or land uses can be calculated. Sulphur emissions in some scenarios may be so high that they have major health impacts, and the land-use requirements for a global energy industry based on a very large biomass could potentially crowd out agriculture, forestry, and the recreational use of land.

As indicated in Chapter 2, the benefits and costs from a given mitigation policy depend on the baseline circumstances to which the policy is applied. The uncertainties as to what the baseline circumstances might be are vast, in the light of which it is important to evaluate the impacts of given policies relative to a range of baseline scenarios rather than to a single baseline scenario.

Human welfare and the state of the environment (which may be a determinant of human welfare, but one that is the focus of this assessment report) depend both on the baseline path and on the policy-induced departures from the baseline. A striking conclusion from Chapter 2 is that the differences in human welfare across plausible baselines can be greater than the welfare impacts of mitigation policies. That is, the nature of the baseline–which reflects a wide range of human decisions and policies outside of the climate-policy arena–can be more important than the departures from that baseline caused by climate policy. The lower the level of baseline GHG emissions, the smaller is the effort required to achieve any specific emissions or concentration target. This does not eliminate the importance of policy actions to mitigate climate change, but it reveals the importance of developments that occur outside what is typically regarded as “climate policy”.

It is not surprising that changes in the economy resulting from climate policy may be small compared to changes that may occur in response to other trends in the economy and to other policies. This is so because most the GHG emissions occur in energy production, which forms a relatively low percentage of the economy (no more than 5%–10%). In principle, rearranging energy use as one element of a mitigation strategy need not be a major shock to the economy if it is done efficiently. Important also is that the costs of mitigation are likely to vary substantially among nations because of both differences in baseline emissions trends and differences in flexibility to accomplish the emissions reductions required (see also Schneider (1998) on this subject).

Deciding what counts as “climate policy” is not always straightforward, as discussed in Chapter 2. In many policy discussions, climate-change mitigation policy is assumed to involve actions for which the primary target is a reduction in GHG concentrations. These include efforts directly aimed at reducing carbon emissions, at expanding carbon sinks, at reducing emissions of other GHGs (like methane and nitrous oxide from agriculture), and at promoting the development of new technologies and production processes that rely less on carbon-based fuels (see Chapters 3 and 4). If this is the domain of mitigation policy, then other (anticipated) actions that do not fall in this category need to be regarded, by default, as part of the baseline. However, other activities have important consequences for climate change. For example, policies oriented towards local air pollution–such as controls on hydrocarbon emissions from automobiles–affect levels of emissions of CO2 as well as the formation of tropospheric ozone, and thus have consequences for climate. Moreover, as discussed below, some policies, such as poverty alleviation, may ultimately have significant implications for the emissions of GHGs and are therefore extremely important to climate change.

The implications of different baseline assumptions about the future of the world reflect, in part, different assumptions about the sustainability of economic, biological, and social systems. Bringing them to bear on the analyses of mitigation opens the possibility that climate policies can be assessed within alternative worlds and that how climate policies might effect various measures of sustainability can be examined explicitly. This kind of analysis can support, though, only a limited treatment of sustainable development. A more in-depth treatment has been attempted by researchers working from the perspective of “envisioning transitions to sustainability”; their perspective is described in Section 1.4.

In addition to the direct benefits of GHG mitigation represented in terms of reductions in impacts resulting from climate change, the cost-effectiveness perspective also considers benefits from reductions in other pollutants4 that may accompany the GHG emission reductions. Given the focus on climate change mitigation as the primary objective the term used most often is “ancillary benefits” (see also Chapter 8). The term “co-benefits” is used for situations where climate change and other environmental or socioeconomic objectives are equally important. That notion comes more naturally from the sustainability perspective and reflects that most policies designed to address GHG mitigation also have other, often at least equally important, rationales, e.g. related to development, equity and sustainability.

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