Costs and effectiveness of the Copenhagen pledgesthe environmental benefits of action. • The economic crisis is not an excuse to delay action –Postpones the inevitable, requiring

Costs and effectiveness of

the Copenhagen pledges:Assessing global greenhouse gas

emissions targets and actions for 2020

Rob Dellink & Gregory Briner

Climate Change, Biodiversity and Development division

OECD Environment Directorate

[email protected], www.oecd.org/env/cc/econ

Ambitious action is affordable

• Ambitious action is economically rational

– Not cheap, but it is affordable compared with the cost of inaction.

– An ambitious stabilisation scenario could cost about 1/10th of a

percentage point of GDP growth each year to 2050, not considering

the environmental benefits of action.

• The economic crisis is not an excuse to delay action

– Postpones the inevitable, requiring larger emission cuts later.

– Crisis is an opportunity for structural reform, and for re-directing

investment.

• “Green growth” is about managing the restructuring the economy

– Climate policy (mitigation and adaptation) is a major part of a

green growth strategy

2

Key features of the ENV-Linkages model

– Computable General Equilibrium (CGE) model: full description of the

economy and equilibrium on all markets

– World divided into 12 regions

– Economy divided into 22 sectors (incl. 5 energy-intensive industries)

plus 5 electricity technologies

– Recursive-dynamic structure: horizon 2005-2050; vintages of capital

– Greenhouse gas emissions (CO2, CH4, N2O, HFCs, PFCs & SF6)

linked to economic activity

– Impacts of climate change not assessed: model only assesses the

costs of policies, without valuing their environmental benefits

– Baseline projection based on conditional convergence hypothesis and

includes short and long term effects of economic crisis

– No existing climate policies in baseline except EU-ETS until 2012

3

Business-as-usual developments4

100

110

120

130

140

150

160

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Ind

ex 2

005

= 10

0

GDP Baseline GHG Emissions Baseline

Declared targets - Annex I Parties5

Party Low pledge High pledge

New Zealand -10% from 1990 -20% from 1990

EU27 -20% " " -30% " "

Lichenstein -20% " " -30% " "

Switzerland -20% " " -30% " "

Norway -30% " " -40% " "

Iceland -30% " " -30% " "

Monaco -30% " " -30% " "

Japan -25% " " -25% " "

Russia -15% " " -25% " "

Ukraine -20% " " -20% " "

Belarus -5% " " -10% " "

Croatia -5% " " -5% " "

Australia -5% from 2000 -25% from 2000

Canada -17% from 2005 -17% from 2005

United States -17% from 2005 -17% from 2005

Declared actions - non-Annex I Parties6

Party Low pledge High pledge

Brazil -36% from BAU -39% from BAU

China Carbon intensity -40% from 2005 Carbon intensity -45% from 2005

India Carbon intensity -20% from 2005 Carbon intensity -25% from 2005

Indonesia -26% from BAU

Israel -20% from BAU

Korea -30% from BAU

Mexico -30% from BAU

South Africa -34% from BAU

Costa Rica Significant deviation from BAU

Maldives Carbon neutral

Marshall Islands -40% from 2009

Moldova -25% from 1990

Singapore -16% from BAU

From pledges to modelling scenarios7

Pledges

Modelling

scenarios

• Grouped countries into 12 regions

• Excluded LULUCF

• Converted targets to a common base year

• Translated carbon intensity pledges into

deviations from BAU emissions

• Assumed pledges met using economy-wide

emissions trading schemes

• Made assumptions on offsets

• Made assumptions on linking of carbon markets

• Assumed BAU for countries without pledges

From pledges to modelling scenarios8

Region Low & Fragmented scenario High & Linked scenario

Australia & New Zealand +10.5% from 1990 -11.5% from 1990

Canada +3% from 1990 +3% from 1990

EU27 & EFTA -20% from 1990 -30% from 1990

Japan -25% from 1990 -25% from 1990

Russia -15% from 1990 -25% from 1990

United States -3.5% from 1990 -3.5% from 1990

Non-EU Eastern Europe -16% from 1990 -16.5% from 1990

Brazil -36% from BAU -39% from BAU

China -0.2% from BAU -8.5% from BAU

India +45% from BAU +36% from BAU

Oil Exporting countries &

Middle East-8.5% from BAU -8.5% from BAU

Rest of the World -6% from BAU -6% from BAU

Pledges

Modelling

scenarios

How do Annex I targets in the

Copenhagen Accord add up?

9

Baseline

Low & Fragmented

High & Linked

Trajectory to 2oC according to IPCC(2007)

10

11

12

13

14

15

16

17

18

19

20

21

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

GH

G e

mis

sio

ns

(GtC

O2e

)

Panel A: Annex I

0 -0 -0 -

Excluding emissions from LULUCF

How do all targets and actions in the

Copenhagen Accord add up globally?

10

Baseline

Low & Fragmented

High & Linked

Trajectory to 2oC according to IPCC(2007)

30

32

34

36

38

40

42

44

46

48

50

52

54

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

GH

G e

mis

sio

ns

(GtC

O2e

)

Panel C: World

0 -

Consistent with

about 3oC

Excluding emissions from LULUCF

Costs of action in 2020:

Equivalent variation in real income

11

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

Aus

tral

ia &

N

ew Z

eala

nd

Braz

il

Can

ada

Chi

na

EU27

& E

FTA

Indi

a

Japa

n

Mid

dle

East

Non

-EU

Eas

tern

Eu

rope

an c

ount

ries

Res

t of t

he W

orld

Rus

sia

Uni

ted

Stat

es

Ann

exI

Non

-Ann

exI

Wor

ld

% c

hang

e re

lativ

e to

bas

elin

e

Real income impact (EV)

Low & Fragmented High & Linked

Excluding damages from climate change impacts and benefits from reducing impacts.

Ambitious target; w/o

international financingReduced fossil

fuel exports

Gross Domestic Product

12

…is not a good indicator of utility impacts

-2.0

-1.5

-1.0

-0.5

0.0

0.5

Aus

tral

ia &

N

ew Z

eala

nd

Bra

zil

Can

ada

Chi

na

EU

27

& E

FTA

Ind

ia

Jap

an

Oil

expo

rter

s &

Mid

dle

East

Non

-EU

Eas

tern

Eu

rope

an c

ount

ries

Res

t of t

he W

orld

Ru

ssia

Uni

ted

Stat

es

An

nex

I

No

n-A

nn

exI

Wor

ld

% c

hang

e re

lati

ve to

bas

elin

e

GDP impact


Potential fiscal revenues in 2020

13

…if market-based instruments are used

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

200.0

Aus

tral

ia &

N

ew Z

eala

nd

Bra

zil

Can

ada

Chi

na

EU27

& E

FTA

Indi

a

Japa

n

Oil

expo

rter

s &

M

iddl

e Ea

st

Non

-EU

Eas

tern

Eu

rope

an c

ount

ries

Res

t of t

he W

orld

Rus

sia

Uni

ted

Stat

es

bln

USD

Potential fiscal revenues


Output of energy-intensive industries in 2020

14

…if market-based instruments are used

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%A

ust

ralia

&

New

Zea

lan

d

Bra

zil

Can

ada

Chi

na

EU2

7 &

EFT

A

Indi

a

Japa

n

Oil

expo

rter

s &

M

iddl

e Ea

st

Non

-EU

Eas

tern

Eu

rope

an

coun

trie

s

Res

t of t

he

Wo

rld

Rus

sia

(4)

Un

ite

d S

tate

s

% c

hang

e re

lati

ve to

bas

elin

e

Output of energy-intensive industry


Sensitivity analysis on the ceiling on offsets

15

0.0

5.0

10.0

15.0

20.0

25.0

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

0 5 10 15 20 25 30 35 40 45 50 55 60 65

Off

set v

alue

in b

ln U

SD

GD

P im

pact

and

fis

cal r

even

ues

in %

Limit on offsets in %

Fiscal revenues (% of GDP) Fiscal revenues (% of GDP)

GDP impact (% change from BAU) GDP impact (% change from BAU)

Offset value (bln USD) Offset value (bln USD)


0.0

5.0

10.0

15.0

20.0

25.0

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

0 5 10 15 20 25 30 35 40 45 50 55 60 65

Off

set v

alue

in b

ln U

SD

GD

P im

pact

and

fis

cal r

even

ues

in %






0.0

5.0

10.0

15.0

20.0

25.0

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

0 5 10 15 20 25 30 35 40 45 50 55 60 65

Off

set v

alue

in b

ln U

SD

GD

P im

pact

and

fis

cal r

even

ues

in %






Impact of linking on mitigation costs

16

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

Aus

tral

ia &

N

ew Z

eala

nd

Bra

zil

Can

ada

Chi

na

EU

27

& E

FTA

Ind

ia

Jap

an

Oil

expo

rter

s &

Mid

dle

East

Non

-EU

Eas

tern

Eu

rope

an c

ount

ries

Res

t of t

he W

orld

Ru

ssia

Uni

ted

Stat

es

An

nex

I

No

n-A

nn

exI

Wor

ld

% c

hang

e re

lati

ve to

bas

elin

e

Real income impact in the High pledges scenarios

High & Linked High & Fragmented

Impact of linking on fiscal revenues

17

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Aus

tral

ia &

N

ew Z

eala

nd

Bra

zil

Can

ada

Ch

ina

EU27

& E

FTA

Indi

a

Japa

n

Oil

exp

ort

ers

&

Mid

dle

Eas

tN

on-

EU E

aste

rn

Euro

pea

n c

ou

ntr

ies

Re

st o

f th

e W

orl

d

Ru

ssia

Un

ited

Sta

tes

Ann

exI

Non

-Ann

exI

Wor

ld

% o

f G

DP

Potential fiscal revenues in the High pledges scenarios

High & Linked High & Fragmented

Preliminary assessment of

the pledges in the Copenhagen Accord

• Pledges for 2020 are not ambitious enough for the long-term goal of

remaining below 2°C average global temperature increase

– Emissions may stabilise, but concentrations will not

– More action is required after 2020, probably at higher costs

• Using market-based policy instruments helps to keep costs as low

as possible and creates fiscal opportunities

– Linking can reduce costs by 20%-25% for Annex I

– Revenues could be more than 1% of GDP (~400 bln USD)

• Crucial and uncertain assumptions:

– Allowing more offsets leads to lower costs and less fiscal revenues

– International financing of mitigation action

– No banking of AAUs, no emissions from LULUCF

18

Future research – this year

• Revise assessment of pledges by Brazil and Indonesia

• Assessing the impacts of major uncertainties on environmental

effectiveness, costs and potential revenues

– Surplus AAUs from Kyoto commitment period

– International financing of mitigation action in non-Annex I countries

– Additionality of domestic mitigation actions and offsets

– Conversion factors for offset credits

– Free allowances of permits

• Alternative indicators of costs

– More focus on sectoral impacts

– Unilateral versus multilateral costs

19

Future research – next year

• Major update of model baseline and regional aggregation

• Include LULUCF into the model

– Calculate land use and land use change

– Assess associated mitigation potential

– Address role of accounting rules for Annex I parties

– Role of REDD+ in domestic mitigation action and offset market

• Update analysis based on whatever happens in Cancun (or before or

after)

• Related major modelling projects

– Green Growth Strategy (2011)

– OECD Environmental Outlook (2012)

20

www.oecd.org

/env/cc/econ

[email protected]

[email protected]

21

Low & Fragmented: what costs & revenues?

Emissions target GDP in 2020 2020 revenues

(change in 2020 from 1990) (change from baseline) (if taxes/auctioned permits)

Australia & NZ 10.5% -0.4% 1.1% of GDP

Canada 3% -0.4% 1.4% of GDP

EU27 & EFTA -20% -0.2% 0.7% of GDP

Japan -25% -0.4% 1.2% of GDP

Non-EU E Europe -16% -0.3% 0.6% of GDP

Russia -25% -0.2% 0% of GDP

US -3.5% -0.2% 1.1% of GDP

Brazil

China

India

-36% from BAU

-0.2% from BAU <0.1% of GDP-0.2%

+45% from BAU

Oil Exporting -8.5% from BAU

-1.5% 8.6% of GDP

0.1% 0% of GDP

-0.9% 1.8% of GDP

Annex I -13% -0.3% 1.0% of GDP

0.0% 0.3% of GDPROW -6% from BAU

World+18% from 2005

(-11% from baseline)-0.3% 0.9% of GDP

non Annex I +48% from 2005


22

High & Linked: what costs & revenues?

Emissions target GDP in 2020 2020 revenues

(change in 2020 from 1990) (change from baseline) (if taxes/auctioned permits)

Australia & NZ -11.5% -0.6% 1.9% of GDP

Canada 3% -0.3% 1.3% of GDP

EU27 & EFTA -30% -0.3% 0.9% of GDP

Japan -25% -0.1% 0.6% of GDP

Non-EU E Europe -16.5% -1.5% 6.0% of GDP

Russia -25% -1.9% 7.4% of GDP

US -3.5% -0.2% 1.0% of GDP

Brazil

China

India

-39% from BAU

-8.5% from BAU 0.3% of GDP-0.3%

+36% from BAU

Oil Exporting -8.5% from BAU

-1.9% 9.9% of GDP

0.0% 0% of GDP

-0.9% 1.8% of GDP

Annex I -17% -0.3% 1.1% of GDP

-0.1% 0.3% of GDPROW -6% from BAU

World+13% from 2005


non Annex I +42% from 2005


23

Documents

Costs and effectiveness of the Copenhagen pledgesthe environmental benefits of action. • The economic crisis is not an excuse to delay action –Postpones the inevitable, requiring