Climate Change 2001:
Working Group III: Mitigation
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7.1.2 Summary of the Second Assessment Report on Cost Issues

IPCC’s SAR published a separate volume on the economic and social dimensions of climate change (IPCC, 1996a). This report considered all aspects of climate change, including impacts, adaptation, and mitigation of climate change. The volume on economic and social dimensions was supplemented by a report from another working group of the IPCC that dealt with scientific and technical analyses of the impacts, adaptation, and mitigation of climate change (IPCC, 1996b). The Third Assessment Report (TAR) is structured in a different way. Impacts and adaptation are addressed together by one working group (WGII), and mitigation by another group (WGIII). All the technical areas, including scientific, engineering, economic, and social aspects of climate change impacts, adaptation, and mitigation, however, are integrated in the working groups.

The WGII SAR (IPCC, 1996b) reported a number of cost estimates for individual climate change mitigation technologies, but did not include specific subsections or extensive discussions on the cost assessment framework or methodological issues related to valuation issues. This section therefore only provides a short summary of the coverage of costing methodologies in the report of the social and economic dimensions by WGIII (IPCC, 1996a).

Costing methodologies were addressed as part of several chapters in the WGIII SAR (IPCC, 1996a). These included chapters on the decision-making framework, equity and social considerations, and intergenerational equity: discounting and economic efficiency. Furthermore, the report included two conceptual chapters on cost and methodologies, namely Chapter 5 (Applicability of Techniques of Cost–Benefit Analysis to Climate Change) and Chapter 8 (Estimating the Costs of Mitigating Greenhouse Gases). The first of these chapters included a general outline of analytical approaches applied to climate change cost assessment, with emphasis on cost–benefit analysis and further development of this framework to facilitate multi-attribute analysis. The analytical approaches presented were discussed in relation to different decision frameworks and valuation approaches.

Chapter 8 of the WGIII SAR (IPCC, 1996b) was a methodological introduction to a subsequent chapter on comparative assessments of the modelling results for mitigation costs. A taxonomy of the mitigation cost components applied in the models was presented, including the direct engineering and financial costs of specific technical measures, economic costs for a given sector, macroeconomic costs, and welfare costs. The importance of different assumptions, such as development patterns, technological change, and policy instruments, were then assessed in relation to cost concepts and modelling approaches. Some of the focal areas considered were “top-down” versus “bottom-up” models, double dividend issues and no regret options, long-term projections, and special issues related to mitigation-cost analysis for developing countries.

The WGIII SAR (IPCC, 1996a) also included an extensive review of the mitigation costs for different parts of the world based on top-down and bottom-up methodologies. The review, which was based on an assessment of several hundred studies, raised a number of important costing issues that are critical to the further development of cost concepts and models. These issues include, inter alia, model structure, assumptions on demographic and economic growth, availability and costs of technical options, timing of abatement policies, discount rate, and the effect of research and development (R&D).

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