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Climate change is a global challenge and requires a global solution. Through analysis and dialogue, the Center for Climate and Energy Solutions is working with governments and stakeholders to identify practical and effective options for the post-2012 international climate framework. Read more

 

Developing Countries & Global Climate Change: Electric Power Options in Brazil

Developing Countries & Global Climate Change: Electric Power Options in Brazil

Prepared for the Pew Center on Global Climate Change
May 2000

By:
Roberto Schaeffer, Federal University of Río de Janeiro
Jeffery Logan, Battelle, Advanced International Studies Unit
Alexandre Salem Szklo, Federal University of Río de Janeiro
William Chandler, Battelle, Advanced International Studies Unit
João Carlos de Souza Marques, Federal University of Río de Janeiro

Press Release

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Foreword

Eileen Claussen, President, Pew Center on Global Climate Change

Brazil is the fifth largest country in the world and its economy is roughly equal to that of all other South American countries combined. Yet, its greenhouse gas emissions are less than one-third of the continent's total due to the dominant role of hydropower. Total energy consumption is less than one-tenth the level in the United States and per capita carbon emissions are just 0.5 tons, compared to approximately 1.0 ton in Argentina and Mexico.

Brazil is already considered an environmental leader among developing countries and plays a significant role in the international climate change debate. Whether it is able to stay on this path will depend in part on its energy choices over the next fifteen years. This report describes the context for new power sector investments and presents three alternative policy scenarios for 2015. The report finds that:

  • Construction of new hydroelectric plants is increasingly expensive and controversial due to social and environmental impacts. As a result, many new investors may favor natural gas-fired combined-cycle plants. Under a business-as-usual trajectory, carbon dioxide emissions will grow from 3.4 million tons in 1995 to 14.5 million tons in 2015, mainly due to this shift to natural gas.
  • Further tightening of local environmental regulations and adoption of renewable energy policies could reduce carbon dioxide and sulfur dioxide emissions by 82 percent and 75 percent, respectively, by 2015 compared to the baseline scenario, at little additional cost.
  • Creating a carbon-free power sector would require an additional $25 billion in cumulative costs by 2015 — about 15 percent more than the business-as-usual scenario — and would expand the use of renewable energy resources.
  • Wind power potential could be harnessed — increasing from zero to 2 percent of total installed capacity by 2015 — depending on the extent of government subsidies.

Developing Countries and Global Climate Change: Electric Power Options in Brazil is the fifth of a series commissioned by the Center for Climate and Energy Solutions to examine the electric power sector in developing countries, including four other case studies of Korea, India, China, and Argentina.

The Pew Center was established in 1998 by the Pew Charitable Trusts to bring a new cooperative approach and critical scientific, economic, and technological expertise to the global climate change debate. We believe that climate change is serious business, and only through a better understanding of circumstances in individual countries can we hope to arrive at a serious response.   

Executive Summary

Brazil generates over 90 percent of its electricity by capturing the energy in falling water. Per capita carbon emissions in Brazil are less than half the world average, largely because of the country's heavy reliance on hydropower, which produces few greenhouse gas emissions. Many of the country's new power plants, however, will likely use natural gas since many investors view hydroelectric plants as increasingly costly, controversial, and risky.

This study analyzes the options for meeting power demand in the Brazilian power sector through 2015. Meeting this demand at least-cost — including the estimated costs of environmental impacts — is a topic of great concern for decision-makers in government and industry. The electric power choices Brazil makes may influence the global response to climate change out of proportion to its emissions, as Brazil is considered an environmental leader among developing countries.

Current reforms in the power sector have been designed mainly to cut costs by introducing competition in electricity generation. Other objectives include reducing government investment in power plant construction and the risk of electricity shortages. These reforms have catalyzed institutional changes in Brazil: privatization, elimination of tariff equalization across regions, and the introduction of supply contracts between power generation and distribution utilities.

The authors begin with a brief review of Brazil's economic and energy situation, then turn to a detailed account of the nation's electric power sector. The report presents results of regional electric power demand forecasts through 2015 and assessments of available energy resources and technologies. An analysis using a linear programming model determines the least-costly combinations of power supply technologies that meet projected power demand.

Three policy cases were devised to test economic and environmental policy measures against a baseline: advanced technologies, local environmental control, and carbon elimination. Least-cost modeling simulated these scenarios through changes in emissions fees and caps, costs for advanced technologies, demand-side efficiency, and clean energy supplies.

The authors conclude that, without alternative policies, new additions to Brazil's electric power sector will shift rapidly from hydroelectricity to combined-cycle natural gas plants. Greenhouse gas emissions will thus increase rapidly, although the absolute quantities will remain relatively low. While combined-cycle natural gas plants generate power with 60 percent less carbon dioxide emissions than coal units, greenhouse gas emissions will still rise rapidly as the gas plants replace hydropower facilities that are nearly carbon-free. Specifically, the scenarios produced the following results:

Baseline Scenario. This scenario assumes that institutional reform such as privatization and increased competition among generators is successfully implemented over the coming decade. The installed capacity grows from 56 gigawatts in 1995 to 94 gigawatts in 2015, an increase of 68 percent. Natural gas plants increase from essentially zero to 11 percent of installed capacity over the period of analysis. Energy efficiency and cogeneration play important roles in limiting an even greater reliance on fossil fuel power generation. The total cost of meeting demand is $183 billion,1 which includes capital, fuel, and operation and maintenance costs. Carbon dioxide emissions rise more than four-fold from 3.4 million tons of carbon in 1995 to 14.5 million tons in 2015. However, the intensity of CO2 emissions in Brazil remains low, even in 2015, as hydropower still accounts for 74 percent of total generation. Sulfur dioxide and particulate emissions grow proportionately with power generation, while nitrogen oxides increase five-fold to reflect the greater use of natural gas in power generation turbines.

Advanced Technology Scenario. The advanced technology scenario simulates capital cost reductions for power plant equipment due to technological progress driven by government incentives. Environmental costs are also at least partially accounted for in the least-cost analysis by including some of the external costs of emissions, hydropower construction, and nuclear decommissioning that are normally ignored. Wind power increases from zero to almost 2 percent of total installed capacity by 2015 due to the environmental fees imposed on fossil-fuel use. The total cost of this scenario is $181 billion, 1.6 percent less than the baseline, mainly due to the cheaper costs of building and operating combined-cycle power plants in the later years. This figure does not include the research, development, and deployment costs needed to improve technologies. Carbon dioxide emissions drop slightly from the baseline, reaching 13.3 million tons of carbon in 2015. Sulfur dioxide emissions decline by approximately 50 percent due to the elimination of diesel generators after 2005.

Local Environmental Control Scenario. In this scenario, renewable energy policies and the use of higher environmental externalities influence the technologies employed. The environmental costs of pollution are assessed at a higher value than in the technology scenario, and cost reductions for cleaner, advanced technologies are also assumed. Hydropower plays a larger role in this scenario, rising to over 88 percent of total installed capacity. The environmental and social impacts of expanding hydroelectric power production this much are difficult to estimate, but could be significant. Biomass capacity rises from 2 percent in the 2015 baseline case to 5 percent. The cost of this scenario is $179 billion. Carbon dioxide emissions drop from 3.4 million tons of carbon in 1995 to 2.6 million tons in 2015. Sulfur dioxide emissions decline substantially, while particulate emissions increase due the growth in biomass combustion for power generation.

Carbon Elimination Scenario. In the carbon elimination scenario, Brazil installs electric power generation technologies that produce no net carbon dioxide emissions and only minor impacts on watersheds and landscapes. Installed capacity in 2015 reaches 97 gigawatts, and hydropower continues to account for over 80 percent of installed capacity. Renewable energies account for 97 percent of power generation in 2015, with biomass accounting for over 16 percent. The remaining 3 percent is generated from existing nuclear power plants. The total cost of the expansion is $208 billion, 14 percent above the baseline scenario. Carbon emissions cease and sulfur dioxide emissions drop, but particulate emissions rise five-fold due to the heavy reliance on biomass.

Conclusions

Brazilian power supply will continue to rise at appreciable rates over the next two decades regardless of the country's current economic difficulties. Reforms under way in the power sector, however, will greatly influence how power demand is met and the emissions that result. Hydropower will continue to play a dominant role through 2015, although its relative share will most likely decrease.

Carbon emissions more than quadruple in the baseline scenario to 14.5 million tons, but remain extremely low in absolute terms. (For comparison, the U.S. power industry released approximately 550 million tons of carbon dioxide in 1998.2) This output is equivalent to the emissions from 10 large coal-fired power plants. Biomass and wind power might play a larger role in Brazil's power future if the government focuses on developing advanced technologies and accounts for at least some of the costs to the environment. Coal-based technologies are not competitive with other forms of power generation, allowing Brazil to largely avoid the tradeoff between improving the quality of the local environment and reducing global greenhouse gas emissions.

In the local environmental control and carbon elimination scenarios, there is a strong interdependence between electricity generation based on sugar cane bagasse and ethyl alcohol production for automotive use. By accounting for the environmental impacts of local pollutants or restricting power generation options to those with no carbon dioxide emissions, sugar cane bagasse becomes feasible, making it the power generation technological option that is most widely used in both scenarios after hydropower. This indicates that Brazil has the potential to service the electricity market without carbon emissions if the market or the international community can support the 14 percent higher costs.

In all four scenarios, energy efficiency and cogeneration play an important role in the least-cost power solution. Saving electricity through increased efficiency offsets the need for new supply and has enormous potential in Brazil's industrial sector. Efficiency also reduces the environmental burden associated with electricity production and transmission (most likely via natural gas combined-cycle plants) without compromising the quality of services that end users demand.

Carbon dioxide emissions from Brazil's power sector will remain low in absolute terms over the next two decades. Brazil appears able to play a unique role within the context of the UN Framework Convention on Climate Change by fostering economic growth that does not sacrifice local or global environmental quality. Achieving cleaner development would serve as a powerful example for other developing countries. 

Alexandre Salem Szklo
Jeffrey Logan
João Carlos de Souza Marques
Roberto Schaeffer
William Chandler
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Developing Countries & Global Climate Change: Electric Power Options in China

Developing Countries & Global Climate Change: Electric Power Options in China

Prepared for the Pew Center on Global Climate Change
May 2000

By:
Zhou Dadi, Beijing Energy Efficiency Center
Guo Yuan, China Energy Research Institute
Shi Yingyi, Beijing Energy Efficiency Center
William Chandler, Battelle, Advanced International Studies Unit
Jeffrey Logan, Battelle, Advanced International Studies Unit

Press Release

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Foreword

Eileen Claussen, President, Pew Center on Global Climate Change

With annual releases of over 918 million metric tons of carbon dioxide into the atmosphere, the People's Republic of China takes center stage among developing countries in the climate change debate. If China could achieve significant emission reductions from the business-as-usual scenario, particularly within the electric power sector, it could be considered a major advance in addressing climate change. Yet the task is daunting. Decision-makers must have a better understanding of the paths that are possible for electric power investment in China, and the impacts of these investments.

This report is designed to improve that understanding. It describes the context for new power sector investments and presents five alternative policy scenarios through 2015. The report presents concrete policy strategies that could enable China to meet growing electricity demand while continuing economic growth, and reducing sulfur dioxide and greenhouse gas emissions.

The principal drivers of the technology choices for the next fifteen years are:

  • Growing awareness that under a business-as-usual path, carbon emissions from thermal plants will increase from 189 million tons in 1995 to 491 million in 2015, and sulfur dioxide emissions from 8.5 million to 21 million due to the heavy reliance on coal-fired power generation.
  • Increasing demand-side energy efficiency by 10 percent from business-as-usual projections could reduce carbon dioxide and sulfur dioxide emissions by 19 and 13 percent, respectively, in 2015, while lowering cost to 12 percent below the baseline.
  • Expanding the availability of low-cost natural gas through market reforms could reduce emissions of carbon dioxide and sulfur dioxide in the power sector by 14 and 35 percent, respectively, and increase cost by only 4 percent relative to the baseline.
  • Accelerating the penetration of cleaner coal technologies could help China reduce sulfur dioxide and particulate emissions, but the associated impact on carbon emissions would be minimal and would increase costs by 6 percent relative to the baseline.

Developing Countries and Global Climate Change: Electric Power Options in China is the fourth of a series commissioned by the Center for Climate and Energy Solutions to examine the electric power sector in developing countries, including four other case studies of Korea, India, Brazil, and Argentina.

Executive Summary

China plays a leading role among developing nations in the field of energy and climate policy. The nation now ranks second in the world in energy consumption and greenhouse gas emissions. The electric power sector alone could consume as much as one billion tons of coal in 2015, and emit 300 million additional tons of carbon per year. Chinese decisions affecting energy development and emissions mitigation will significantly impact world climate. However, China currently has no formal plans to reduce its greenhouse gas emissions for their own sake.

China has changed dramatically since the country adopted economic reforms in the late 1970s. The nation's economy has grown and living standards have improved for over two decades. Although income per capita remains far less than in industrialized countries, its gross domestic product is large enough to affect the global economy. As the country's economy improves, China's influence will continue to grow.

China has fueled this robust growth with plentiful supplies of domestic coal. In 1997, the country consumed nearly 1.3 billion tons of coal, (accounting for three-quarters of all commercial energy demand), the highest in the world. Heavy reliance on coal has also caused severe environmental problems, including acid rain in southern China, deadly particulate levels in most cities, and increasing concentrations of greenhouse gases in the global atmosphere. Yet, for two decades energy use has grown only half as fast as the economy. According to official statistics, China has recently been far more successful than the United States in improving energy efficiency.

The power sector currently accounts for more than one-third of China's annual coal consumption. Coal-fired thermal power plants generate over 75 percent of the nation's electric power and are among the largest sources of air pollution in China. Continued growth in economic output and living standards implies that electric power demand will grow rapidly in the foreseeable future. How to meet demand at least cost — including local environmental impacts — is a topic of great concern for decision-makers in government and the power industry.

This analysis, which explores China's electric power options, has three primary goals:

  • Assess the current and future state of the power sector
  • Determine the least-cost combination of technologies to meet projected power demand through 2015 under various scenarios
  • Evaluate policies that could minimize both economic and local environmental costs.

This report begins with a brief review of China's economic and energy situation, then turns to a detailed account of the nation's electric power sector. The paper assesses available energy resources and generation technologies, and results of regional electric power demand forecasts through 2015. Results are presented from an analysis using a linear programming model to determine least-cost combinations of power supply technologies that meet projected power demand in 2015. The authors constructed a baseline and five policy cases to test economic and environmental policy measures, including sulfur dioxide and carbon dioxide controls, natural gas reform, clean coal investment mechanisms, and increased energy efficiency. The model simulated these scenarios by applying emissions caps, fees, cost reductions, increased fuel availability, improved plant performance, or lower demand estimates that then influence the selection of alternative technologies.

The authors conclude that without a strong environmental policy, China's electric power mix will become even more coal-dependent, with dramatic increases in emissions of sulfur dioxide, oxides of nitrogen, particulates, and carbon dioxide. These emissions would have serious effects on human health, property, and ecosystems.

When policy measures such as fuel availability, technical performance, and full-cost accounting are considered, however, the mix of electric power generation technologies — if not necessarily the fuels — changes significantly. The six scenarios produced the following results:

Baseline case. Power generating capacity and power consumption are expected to nearly triple by 2015 from their values in 1995, requiring some $449 billion in total costs. In the baseline scenario, coal then provides 85 percent of power, and coal use for power generation alone would reach 1 billion tons per year. Emissions of sulfur dioxide and carbon dioxide from the power sector would reach roughly 20 million tons and one-half billion tons per year, respectively. This scenario assumes that the current environmental policy remains the same, which appears increasingly unlikely.

Sulfur emissions control case. Annual sulfur dioxide emissions from the power sector could be cut to 12.7 million tons by 2015 — a 40 percent reduction from the baseline level — by imposing fees ranging from $360-$960 per ton of sulfur released. Total costs using the sulfur fees would rise by 4 percent. Sulfur control policies would reduce total coal use very little but greatly increase coal washing and flue gas desulfurization. These options cost less in China than alternatives such as nuclear power, hydropower, and advanced coal technologies that reduce sulfur emissions by a comparable amount. Achieving sulfur reductions would also require stricter regulatory enforcement. However, greenhouse gas emissions would change little as a result of stricter sulfur dioxide emissions control.

Carbon control case. This scenario tested the effect of reducing carbon emissions in the power sector by 10 percent, or 50 million tons per year, by 2015. The study simulates these reductions by assuming the construction of new, less carbon-intensive power plants; it does not consider alternatives to lower emissions in existing plants. A 10 percent reduction from the baseline would add an additional $20 billion to total costs by 2015, an increase of about 4 percent. Greater reliance on washed coal, hydropower, nuclear power, and fuel switching to natural gas would be the cheapest ways of reducing emissions. Moderate carbon taxes were also tested in this analysis, but they were not found to be particularly effective in encouraging fuel switching. Only very high taxes — over $75 per ton of carbon — produced significant emissions reductions.

Natural gas case. China currently uses very little natural gas for power generation. For change to occur, the government would need to establish new policies and reforms to increase the availability of natural gas. This scenario simulates the impact of policies to boost gas use in the power sector. Increased availability of low-cost natural gas in the power sector — combined with improved turbine efficiency and a $300 fee per ton of sulfur dioxide emissions — could cut carbon and sulfur dioxide emissions by about 14 and 35 percent, respectively, from the baseline. Natural gas power in this scenario is cheaper than coal-fired power only along the coastal regions (where coal is relatively expensive), but gas would need to be available for $3 per gigajoule. This value is lower than some forecasts, but still higher than gas prices in Europe and North America. The power sector would consume approximately 65 billion cubic meters of gas, accounting for roughly half of China's total gas demand in 2015.

Clean coal case. A set of scenarios tested the effect of reducing the cost of advanced coal technologies such as integrated gasification combined-cycle (IGCC) or pressurized fluidized bed combustion (PFBC) to help them capture additional market share relative to the baseline. A 40 percent reduction in capital costs for IGCC and PFBC, combined with a mid-level sulfur dioxide emissions fee of $300 per metric ton, would reduce carbon dioxide and sulfur dioxide emissions by 9 and 75 percent, respectively. However, approximately $140 billion in additional investment — perhaps through international cooperation on technology transfer and clean development — would be required to subsidize the cost of building these plants.

Efficiency scenario. This scenario tested the effect of reducing electric power use by 10 percent compared to the baseline. Such a reduction would lower carbon and sulfur dioxide emissions by 19 percent and 13 percent, respectively, in 2015, and save $55 billion in investment and fuel costs by postponing the need for 52 gigawatts of coal-fired generation capacity. The analysis did not consider the required policies or costs to lower power demand.

These scenarios revealed two important findings:

1. Policy options exist to reduce carbon emissions substantially in the Chinese power sector at relatively low incremental cost. Emissions reductions of more than 10 percent compared to projected baseline emissions in 2015 can be achieved for less than 5 percent of the total cost of power. Continued improvement in demand-side efficiency is a particularly attractive option to lower carbon emissions.

2. Not all of these reductions will be achieved for reasons that are in China's own interest, such as reducing sulfur dioxide emissions. Consequently, cooperation with other countries would be required to achieve more dramatic results.   

Guo Yuan
Jeffrey Logan
Shi Yingyi
William Chandler
Zhou Dadi
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Innovative Policy Solutions to Global Climate Change Conference

Promoted in Energy Efficiency section: 
0

April 25-26, 2000 - Washington, D.C.

This conference featured high-level speakers presenting innovative policy measures being implemented by industrialized country governments and the private sector. Conference topics were common policy approaches (taxes, trading, negotiated agreements), cross-cutting issues (competitiveness and trade), energy and transportation sector policies, and state and local programs.  A conference summary is available in PDF format.

Featured speeches are available in PDF format:

  • John Prescott, Deputy Prime Minister, United Kingdom
  • Jan Pronk, Minister of Housing, Spatial Planning and the Environment, The Netherlands
  • Robert Hill, Minister for the Environment and Heritage, Australia
  • Theodore Roosevelt, IV, Managing Director, Lehman Brothers, Inc.
  • Rodney Chase, Deputy Group Chief Executive, BP Amoco

Conference Press Release

Hosts:

The conference was co-hosted by the Pew Center on Global Climate Change and the Chatham House / Royal Institute of International Affairs (RIIA), a leading institute for the analysis of international issues, based in London. The Royal Institute of International Affairs (RIIA), also known as Chatham House, is a leading institute for the analysis of international issues. Founded in 1920 in London, RIIA stimulates debate and research on political, business, security, and other key issues in the international arena, such as energy and environmental policy issues, primarily through its research, meetings, conferences, and publications. Visit http://www.riia.org for more information.

Roundtable Sponsors:

The Developing Country Perspectives Roundtable was co-sponsored by the Pew Center and the Shell Foundation Sustainable Energy Programme. The Sustainable Energy Programme (SEP) is the major grant-making programme of the Shell Foundation, both of which will be formally launching on June 5th, 2000. SEP provides grants to groups working in the public interest on projects that tackle two fundamental energy-related issues: the environmental impact of our dependence on fossil fuels, and the link between energy and poverty in developing countries. More information can be found at www.shellfoundation.org.

Press Relase: Corporate and Government Leaders Focus On Global Climate Change At Washington Conference

For Immediate Release:
April 12, 2000

Contact: Kelly Sullivan, 202-289-5900
             Katie Mandes, 703-516-4146

Corporate and Government Leaders Focus On Global Climate Change At Washington Conference

Developing Country Perspectives Roundtable To Conclude The Conference

WASHINGTON, D.C. — Senior decision-makers and leaders will gather on April 25th and 26th in Washington, D.C. to participate in the "Innovative Policy Solutions to Global Climate Change" Conference. The international conference will discuss the proactive initiatives governments and the private sector are implementing in industrialized countries and key questions related to program design and implementation.

The Pew Center on Global Climate Change and the Chatham House/Royal Institute of International Affairs will host the conference at the Willard Inter-Continental Washington Hotel. Featured speakers are:

  • John Prescott, Deputy Prime Minister, United Kingdom
  • Jan Pronk, Minister of Housing, Spatial Planning and the Environment, The Netherlands
  • Robert Hill, Minister for the Environment and Heritage, Australia
  • Theodore Roosevelt, IV, Managing Director, Lehman Brothers, Inc.
  • Rodney Chase, Deputy Group Chief Executive, BP Amoco


Governments and the private sector are beginning to address the climate change challenge because they recognize that the problem and its consequences cannot be ignored. The conference will highlight the measures that are being implemented to address global climate change," said Eileen Claussen, President of the Pew Center on Global Climate Change. She will deliver the opening and closing remarks at the conference.

The conference also includes various discussion panels on the climate change problems. State and local policies to help alleviate climate change, energy and transportation policies, and competitiveness and trade effects on climate change are among the topics the international gathering will address.

The conference will conclude with a Roundtable Discussion, co-sponsored by the Pew Center and the Shell Foundation Sustainable Energy Programme. The Developing Country Perspectives on climate change discussion will be chaired by Bakary Kante of the United Nations Environment Programme and will feature Luiz Gylvan Meira Filho, Espen Ronneberg and other distinguished individuals from various developing countries. There is no fee to register for the Roundtable.

The Pew Center was established in May 1998 by the Pew Charitable Trusts, one of the nation's largest philanthropies and an influential voice in efforts to improve the quality of the U.S. environment. The Pew Center is conducting studies, launching public education efforts, promoting climate change solutions globally and working with businesses to develop marketplace solutions to reduce greenhouse gases. The Pew Center is led by Eileen Claussen, the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs.

The Pew Center includes the Business Environmental Leadership Council, which is composed of 21 major, largely Fortune 500 corporations working with the Center to address issues related to climate change. The companies do not contribute financially to the Center, which is solely supported by charitable foundations.

For more information on the Innovative Policy Solutions conference, the Developing Country Perspectives Roundtable, or on the Pew Center on Global Climate Change, please visit the Center's web site at www.c2es.org.

Press Release: International Climate Change Conference Draws Deputy Prime Minister and Other High-Level Speakers

For Immediate Release
March 30, 2000

International Climate Change Conference Draws Deputy Prime Minister and Other High-Level Speakers

The Pew Center on Global Climate Change and The Royal Institute of International Affairs will co-host an international conference on Innovative Policy Solutions to Global Climate Change. Government officials, business executives, and individuals from the non-governmental and academic communities will gather in Washington D.C. on April 25 and 26 to discuss progressive yet pragmatic solutions to climate change being undertaken in industrialized countries.

The conference will feature:

  • John Prescott, Deputy Prime Minister, United Kingdom;
  • Jan Pronk, Minister for Housing, Spatial Planning and the Environment, The Netherlands;
  • Robert Hill, Minister for the Environment and Heritage, Australia;
  • Rodney Chase, Deputy Group Chief Executive, BP Amoco; and
  • Theodore Roosevelt, IV, Managing Director, Lehman Brothers, Inc.

Panel topics will include common policy approaches (taxes, trading and negotiated agreements), crosscutting issues such as competitiveness and trade, energy and transportation sector policies, and state and local level programs.
The Pew Center will also co-sponsor with the Shell Foundation Sustainable Energy Programme a roundtable discussion on Developing Country Perspectives to climate change. Bakary Kante of the United Nations Environment Programme has been invited to chair the discussion, which will feature Luiz Gylvan Meira, Espen Ronneberg and other distinguished individuals from various developing countries. There is no fee to register for the Roundtable.

To register, contact Pilliod Meeting Planning at +1 (202) 544-7900.

Press Release: International Conference to Examine Innovative Policy Solutions to Global Climate Change

For Immediate Release:
February 10, 2000

Contact: Kelly Sullivan,  202-289-5900
             Katie Mandes, 703-516-4146

International Conference to Examine Innovative Policy Solutions to Global Climate Change

Environmental Officials and Business Executives from Around the World to Gather in Washington, D.C. to Discuss their Climate Change Mitigation Policies

WASHINGTON, D.C. — The Pew Center on Global Climate Change and the Chatham House/Royal Institute of International Affairs will host an international conference to discuss what industrialized country governments and the private sector are doing to address the serious issue of global climate change.

The conference will be held April 25 and 26 at the Willard Inter-Continental Washington Hotel and will feature innovative policy measures currently being implemented to address global climate change. High-level government officials and senior business executives will present their views and help launch thoughtful and provocative discussion among the conference panelists and the audience. Speakers will include:

  • John Prescott, Deputy Prime Minister, United Kingdom;
  • Jan Pronk, Minister for Housing, Spatial Planning and the
           Environment, The Netherlands;
  • Robert Hill, Minister for the Environment and Heritage,
           Australia;
  • Rodney Chase, Deputy Group Chief Executive, BP Amoco.

T opics of discussion during the 1 1/2 - day conference will include common policy approaches (taxes, trading and negotiated agreements), cross-cutting issues such as competitiveness and trade harmonization, energy and transportation sector policies, and state and local level programs.

Eileen Claussen, President of the Pew Center on Global Climate Change and former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs, will deliver the conference's opening and closing remarks.

The Pew Center was established in May 1998 by the Pew Charitable Trusts, one of the nation's largest philanthropies and an influential voice in efforts to improve the quality of America's environment. The Pew Center supports businesses in developing marketplace solutions to reduce greenhouse gases, produces analytical reports on the science, economics and policies related to climate change, launches public education efforts, and promotes better understanding of market mechanisms globally.

The Pew Center includes the Business Environmental Leadership Council, which is composed of 21 major, largely Fortune 500 corporations all working with the Pew Center to address issues related to climate change. The companies do not contribute financially to the Pew Center - it is solely supported by contributions from charitable foundations.

For more information on the Innovative Policy Solutions To Global Climate Change Conference, visit the Pew Center web site at www.c2es.org.

Getting Real on Climate

Address by Eileen Claussen, President, Pew Center on Global Climate Change

Berlin, Germany

February 3, 2000
Thank you very much. I am delighted to be here, and to take part in these very important discussions about how we can move forward to address what may be the most important global issue of the 21st century.

Whenever I appear before an international group such as this, with people from different countries who speak different languages, I am reminded of a joke I first heard long ago. We all know that if you can speak three languages, you're trilingual. And if you can speak two languages, you're bilingual. But what are you if you can speak only one language? Why, you're American, of course.

Today, I would like to speak to you as an American, but as an American who has been in close contact with others around the world on the topic of global climate change. And I would like to base my remarks on an American expression. That expression is "reality check." It means taking a moment to reflect on what is really happening in the world. And it means being truthful with ourselves and others about what we are capable of achieving. A reality check is an affirmation of yet another American expression-an expression that our mothers repeated again and again while we were young. "Honesty is the best policy," they would tell us. And, of course, there was no doubt that they were right. They were our mothers, after all.

And the reality is that honesty is the best policy when we are addressing the issue of global climate change. It was honesty about the risks of a changing climate that brought 150 nations together to negotiate a framework for reducing greenhouse gas emissions around the world. In the same way, today we all need to be honest about what we can achieve and when-and about how best to move forward so that future generations don't look back and wonder why we couldn't work together to meet this global challenge.

In the time that I have with you tonight, I want to talk about some of the issues that the United States, Germany and other nations need to be more honest about in order to achieve real progress in addressing the challenge of climate change. I also would like to offer a realistic view of what is happening on this issue in the United States-in both the public and private sectors, as well as among the media and the general public. And I will close with some recommendations about how to move the global dialogue on this issue forward and achieve real progress.

Getting Real: What We Can Achieve

So let us begin with a few reality checks. From my perspective, there are three issues that our governments need to be more honest about as the world addresses the challenge of climate change in the months and years ahead. The first is the timeframe in which the world can achieve entry into force of the Kyoto Protocol. The German government-which, to its infinite credit, has been out front on this issue for years-is urging entry into force in 2002. Although this is surely an admirable goal, the honest truth is that it is unlikely to happen.

While it is certainly true that many European countries are anxious and willing to ratify the Protocol in the near term, some of them-such as the Netherlands-have said that the United States must ratify at the same time. Ratification by non-European countries such as Japan, Canada and Australia also is unlikely without U.S. action on this issue. And here is the reality check: Given the current mood and political situation in Washington, U.S. ratification of the Kyoto Protocol-in the near term at least-is about as likely as hell freezing over. And if hell did freeze over, I am certain that many in the U.S. Congress would make every effort to attribute it to nothing more than normal climatic variations.

Another reason why entry into force in 2002 is unlikely is the sheer volume of work that remains to be done. We should not diminish the complexity or the importance of establishing environmentally effective, private sector-friendly rules for the Kyoto mechanisms; or of determining how to handle the sequestration of carbon in trees or soils; or of establishing a compliance regime that is both meaningful and fair. It is absolutely essential that these issues be addressed in an honest and an effective way. The system we create is likely to be in place for many, many years. Completing all of these jobs this year to give countries the time that would be required for entry into force in 2002 is both unrealistic and unlikely.

The second thing that our governments need to be realistic and honest about is the ability to meet the targets in the Kyoto Protocol if entry into force comes later in this decade. Reality check number two, therefore, is this: For the United States at least, meeting the targets in the existing timeframe will be impossible.

Even if we saw a profound shift in Washington on this issue in the next one or two years, the United States will not be able to achieve the Kyoto targets as they are currently drawn for the simple reason that administrative process in our county can be enormously time-consuming. For the Kyoto Protocol to become U.S. law, the Senate would have to grant its advice and consent; both Houses of Congress would have to pass implementing legislation that would then have to be signed by the President; and a designated Agency would have to draft rules and regulations that would have to go through formal notice and comment procedures before they could be finalized and then implemented.

Given that such legislation and regulation would clearly result in regional and sectoral economic impacts, the odds of all this activity occurring by 2008 are very small indeed.

Lest you think that my doubts are reserved to my own country, I firmly believe that the United States will not be alone in its inability to move fast enough to meet the Kyoto targets. Surely, there is much effort on this issue in Europe and elsewhere, but even in the countries that have fully embraced the importance of reducing emissions, it is not a given that the targets can be met, particularly with current programs. And I would venture to say that the likelihood that these targets will be met will decrease as people and governments become convinced that the United States will not be able to meet its targets.

This brings up the third issue that we all must be realistic and honest about, which is the serious engagement of the developing world. The reality, whether we like it or not, is that most developing countries are unlikely to agree to binding emission reduction targets that would take effect in this decade. This is based in part on their fear that emission limitations would place unacceptable constraints on their economic development. It is also based on their view that, even among environmental issues, climate change is less of a priority than such things as reducing local air and water pollution.

But the developing world's opposition to targets cannot be allowed to hide the fact there is movement on this issue among these countries. For example:

Privatization of the electricity sector is moving forward in India, where competition is expected to increase the use of natural gas and lower greenhouse gas emissions.

Korea is beginning to plan for opening up its power sector to competition, again with a projected increase in the use of natural gas.

And China, which has dramatically lowered its energy consumption per unit of output over the last decade, is on a path to continue making significant energy-saving improvements over the decade to come.

In these and other developing nations, investment decisions made in the power and transportation sectors in the coming years will have a significant impact on global greenhouse emissions for decades to come. And the reality is that many opportunities exist for lowering these countries' emissions from a business-as-usual trajectory. In other words, binding commitments for these countries may not be possible, but significant action to lower emissions from their expected path may very well be. Indeed, this is already happening in some countries.

So there they are-three issues that the governments of the United States, Germany and other nations need to get real about in order to push this discussion forward. The timeframe for entry into force. Whether the existing Kyoto targets can be met. And the serious engagement of the developing world. If we follow our mothers' advice and are honest with one another about these issues, I believe we will go a long way to ushering in the next phase in the global effort to meet the challenge of climate change-a phase that will move us from rhetoric to reality and from discussion to action.

The View from the U.S.

Just as it is important to understand what is truly happening on this issue in developing countries, I believe it is also critical that everyone clearly understand the current situation in the United States. While there is still bickering within and outside the U.S. government about: 1) whether climate change is even real; and 2) what the United States should do about it and when, the reality is that the American news media is devoting more attention than ever before to the topic of climate change, the American people accept that it is something that demands our government's attention, and American businesses are moving ahead on their own in the absence of government action.

Let me talk briefly about the news media first, because I believe this is a very important development. Based in part on the growing consensus among scientists that global climate change is real-and in part as well on the fact that 1997, 1998 and 1999 were the three hottest years on record-the U.S. news media has devoted increasing attention to this issue over the last year or two.

In a television news report just last month, CBS correspondent Jim Axelrod reviewed some of the likely effects of global climate change-including rising sea levels and shifts in water resources. He also made note of a likely increase in global temperatures that he suggested, rightly or wrongly, was already evident in the early January hot spell that hit much of the country and had residents of Washington, DC, jogging in shorts and t-shirts. The correspondent concluded his report with this observation:

"Such thoughts used to be called "doom and gloom" by many. Now, however, a growing number of scientists are hearing the critics, looking at the data, and saying it's a forecast that can't be ignored."

The U.S. television networks are not alone in drawing fresh attention to the risks of global climate change. The Washington Post, in a January editorial entitled "Warming to Reality," issued its own warning that-quote-"reckless inaction in the face of global warming is the costliest of all options." And, in the American news media's turn-of-the-century rush to identify the critical issues of the new millennium, global climate change was always front and center.

No doubt in response to the news media's increasing attention to this issue, the American public is more willing than ever to accept that global climate change poses a real threat and that action is needed to avert a crisis.

A September 1998 survey conducted for the World Wildlife Fund revealed that nearly 60 percent of Americans believe global warming is happening now, and another 26 percent believe it will happen in the future. According to the survey, fully three-quarters of Americans want the United States to take action to reduce emissions of carbon dioxide as a way to address the problem.

In an effort to determine whether these opinions carry over into the realm of national decisionmakers and opinion leaders who influence U.S. policy, the Pew Center did its own survey in March 1999. We conducted nearly 450 interviews with staff members in Congress, industry association leaders, corporate decisionmakers in the affected industries, media representatives, economists, scientists and policy experts across the country-in short, a fairly comprehensive sample of the wide assortment of quote-unquote "elites" who are in a position to influence U.S. action-or inaction-on this topic.

What did we find? Well, to our surprise, we found that these elites are even more likely than the general public to believe that global warming is happening now. We also found broad support among elites for U.S. action to reduce carbon dioxide emissions. Even the Kyoto Protocol-the target of often-harsh criticism from many in Congress--attracted strong bipartisan support. More than one-third said the agreement actually would help our economy and create new jobs because we would develop new technologies that would help reduce our greenhouse emissions.

Business Accepts the Challenge

The belief that progress on this issue can be compatible with sustained economic growth in the United States-and may even contribute to that growth-is one reason there is increasing acceptance among U.S. businesses of the need for strong action to reduce emissions.

In late 1999, as many of you may know, the Ford Motor Company announced it was resigning from a coalition of oil companies, auto makers, electric utilities and others who stubbornly argue that we still don't have enough evidence to know whether or not global warming is real-and that we shouldn't do anything serious about it until more is known. Word of Ford's decision was followed closely by the news that Daimler Chrysler also would be leaving the group known as the Global Climate Coalition. The companies' moves were seen as an indication of the growing acceptance of the reality and the urgency of this issue-even in the nation's corporate boardrooms-and as yet another sign of a growing consensus for rational action to reduce U.S. greenhouse gas emissions.

But the fact is that many American businesses have long been way ahead of the U.S. government-and even ahead of the media and the general public-in their willingness to acknowledge and work on the issue of global climate change. This progressive stance became obvious when a large group of mostly Fortune 500 companies became affiliated with my organization, the Pew Center on Global Climate Change, to help forge a consensus response to the problem.

The Pew Center's Business Environmental Leadership Council now includes 21 companies with combined annual revenues of more than $550 billion. Working together, these companies developed a joint statement asserting that in the new millennium-quote-"one of our most important challenges at home and abroad will be addressing global climate change as we work to sustain a growing global economy."

"One of our most important challenges." That is an enormously powerful statement coming from these companies, which include such household names as American Electric Power, Boeing, BP Amoco, Lockheed Martin, Shell International, Toyota, Enron, United Technologies and Whirlpool. And, in making this statement, these companies announced publicly that they:

1) Accepted that there was enough known about the science of global climate change to warrant action;

2) Would establish their own emission reduction targets--and meet them;

3) Viewed the Kyoto Treaty as a first although incomplete step to addressing the issue internationally; and

4) Believed that addressing climate change can be compatible with sustained economic growth in the United States.

Some of the member companies of our Business Environmental Leadership Council already have announced their emission reduction targets, all of which are at least as stringent as those in the Kyoto Protocol. One large company affiliated with the Pew Center, DuPont, has established a goal of reducing emissions to 65-percent below 1990 levels by 2010, with an additional commitment of obtaining 10 percent of its energy needs from renewable sources. This is a stunning target, far in excess of the 7-percent reduction required for the United States as a whole in the Kyoto Protocol.

The commitment of DuPont and these other companies is an important reminder that there are many steps industry can and should be taking now to reduce greenhouse gas emissions. Unfortunately, however, the fact that these forward-thinking companies are acting of their own volition and without a clear sense that their actions will be rewarded in the marketplace is a reminder of something else. And that something else is the lack of leadership the U.S. government has taken on this issue, particularly at home, where a government framework for reducing U.S. emissions is sorely needed.

The U.S. Government: A Lack of Leadership

The U.S. government's lack of leadership is especially unfortunate because the United States is the largest emitter of greenhouse gases in the world--responsible for 25 percent of global emissions in a nation that comprises less than 5 percent of the global population. If leadership on this issue should come from anywhere, it should come from the United States.

But leadership is not coming from the United States. It is rare both in Washington and on the presidential campaign trail for the discussion of this issue to get past the question of whether to support the Kyoto Protocol or whether to declare it dead. What the discussion has not touched on-and should-is the further development and implementation of programs that would change the expected trajectory of our nation's greenhouse gas emissions. The U.S. Congress, in particular, appears determined to let absolutely nothing happen that would even remotely suggest that the United States is concerned about this issue. Virtually every budget item that deals with emission reductions is viewed by many in Congress as a quote-unquote "backdoor" attempt to implement the Kyoto Protocol and is therefore voted down or pushed aside.

What, you may ask, is driving the U.S. government's reluctance to deal with this issue in a serious way? I would like to suggest that there are two issues at the heart of the debate. And, while these issues are significant, my belief is that they have not been framed in ways that are honest or open to solution. The first issue relates to the economic costs of action to reduce emissions; the second centers on developing country participation. In my view, these are the chief stumbling blocks to serious action on this issue in the United States. Only by confronting them head-on will we be able to mount an effective response to the challenge of global climate change-both in the United States and throughout the world.

So let me begin with the economics. There is a popular joke in the United States that says economists have predicted nine of the last five U.S. recessions. And it is hard to argue with the premise of the joke when one looks at the varying predictions that have been made about the potential impacts of achieving the Kyoto targets on the U.S. economy. Interest groups across the ideological spectrum have produced markedly different results from economic models that are often not that different in their structure but that use very different assumptions to achieve the results these groups want to achieve. And the only result that is truly achieved is confusion.

How do we get beyond this confusion? We get beyond it by admitting that the models we are using-even when stripped of assumptions that bear no resemblance to reality-are not infallible. The complexity and time frame of the climate change problem stretches the capabilities of even the most sophisticated economic models on the benefits side. And the ability of models to quantify the value of reducing the risks of climate change is still in its infancy. On the cost side, models are still confronted with a series of challenges, the most important of which is anticipating the pace and direction of technological progress. As far as I know, no economic model would have predicted the information technology or communications revolutions that we are now witnessing. Nor have any models anticipated the decoupling of economic growth and carbon emissions that has occurred in the United States in recent years.

I am not mentioning these things to suggest there will be no costs to the United States should it act decisively to reduce emissions. There is almost always a cost associated with major changes to the economy. What I would like to suggest is that a fixation with 10 or 20-year-out predictions of increases or decreases in the U.S. GDP really misses the mark. To argue, as some have done, that the costs will be catastrophic and that entire industrial sectors will immediately be wiped out is as dishonest as the assertion that the economy can effortlessly achieve major emission reductions at no cost. What the United States should be concerned about are the impacts that are likely to occur in certain industries, certain labor categories, and certain regions of the country. The question is how these impacts can be minimized over time--and with careful transitional planning.

The second issue that has become a roadblock to progress in the United States is that of developing country commitments. I call this the "fairness issue." Is it fair, people ask, for the United States to have to abide by the Kyoto targets while competitors such as China, India and Mexico get a quote-unquote "free ride?" One fear is that American jobs will be lost to these and other countries because their production costs will be lower. But lost in the debate is the reality that fairness demands a decisive U.S. response for two reasons. First, because the United States is responsible, both historically and currently, for more emissions than anyone else. And second, because the United States has the ability to pay the costs of reducing our emissions.

Also lost in the debate about global climate change in the United States-and this may be even more important-is the question of what the problem actually is, and how it can most effectively be addressed. As I suggested earlier, emissions in developing countries will grow as these nations industrialize, and the infrastructure that will support this growth--for power generation and transportation, in particular--will set in place the global emissions trajectory for decades to come. So the real issue is not how to pressure these countries into accepting binding emission reduction targets in this decade. Rather, the issue should be how to influence the character of this infrastructure investment so that it becomes more climate friendly. We should look to our export credit agencies and to private investors for the tools to accomplish these objectives.

Moving Forward

So what is the world to do? We have all these difficult issues on the table, and yet we all understand-or at least most of us do-that we need to start acting to address this global challenge as soon as possible. I already have laid out some of the steps I believe need to be taken in order for this discussion to move forward and in order for Germany, the United States and other nations to move from discussion to action. These include being honest about the Kyoto targets and timetables even while working to complete the Kyoto framework; devoting more attention to encouraging progress on this issue in the developing world; and fostering discussion in the United States and elsewhere of some of the fairness and economic issues that must be resolved in order to build support for strong and decisive action.

But what about the Kyoto Protocol itself? I would not be honest if I didn't tell you there are many voices in the United States that have proclaimed that Kyoto is dead-some of them with the same satisfaction as the characters in the American movie "The Wizard of Oz" who dance and sing to celebrate the demise of the wicked old witch. But I believe it is important for all of us to remember that while some of those who have said Kyoto is dead come from industries that would be negatively affected by any regime to control greenhouse gases, others have much less, if anything, at stake. At issue for these critics are the complexity of the Kyoto framework, and the stringency of its targets and timetables.

Of course, the reality about the fate of the Kyoto Protocol is that it is unlikely to be cast aside even if it does not deliver on its first set of emission reduction targets. But at the same time, we all must accept that Kyoto remains a work in progress.

This leads me to one final reality check: Making the Kyoto Protocol into an agreement that can deliver on the promise of reducing the risk of global climate change will, in all likelihood, take longer than from now until the meeting this November in The Hague. The delegates should do what they can at that meeting, but they cannot and should not expect that all of these issues will be resolved. And, just because it takes longer than everyone hoped does not mean the Kyoto framework is not valuable and ultimately viable. In fact, I believe that structuring the framework more definitively into one that has realistic timetables and targets and is environmentally effective, economically sound, and-yes-fair will go a long way to improving its chances of success, whether we have agreement this year, next year or the year after that.

In the meantime, I am not suggesting that the governments of the world stand around and wait for a better document on which to base their work on this issue. The reality is that the United States and other governments should be implementing substantive programs now that seriously respond to the overall Convention goal of stabilizing atmospheric concentrations of greenhouse gases at levels that will prevent dangerous interference with the climate system. And it is heartening to see the initiatives that have been taken by Germany since the negotiation of the Kyoto Protocol.

A priority for the United States, I believe, should be to design a straightforward system that will recognize and give credit to corporations that want to take early action to reduce greenhouse gas emissions. Put very simply, these companies need to know that reducing their emissions now won't put them at a competitive disadvantage down the line.

In addition to addressing the early action issue, the United States must start planning seriously for how it will reduce greenhouse gas emissions over the long haul. I cannot state more emphatically that what is most important now is the trying. In the United States, in Germany, and throughout the world, we need to experiment with different approaches to reducing greenhouse gas emissions-for example, by testing both national and company-specific emissions-trading regimes, or by imposing carbon taxes. We need to establish clear procedures for inventorying and verifying emission reductions, something that many in the private sector are already working on. And we must begin to build the capabilities and the institutions we will need when a full-fledged international regime does come into effect.

These will not be easy or painless goals to achieve, but the reality is that we need to achieve them. There is no escaping our responsibility to address the challenge of global climate change in an effective and, of course, an honest way. We all have a higher authority to answer to on this issue. That's right, our mothers. And we all need to work together to make them proud.

Thank you very much.

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Press Release: Report Shows International Emissions Trading Can Reduce the Costs of Climate Change

For Immediate Release:
December 14, 1999

Contact: Kelly Sullivan/Laurie Casaday
202-289-5900

Report Shows International Emissions Trading Can Reduce the Costs of Climate Change
Broader Participation in Trading Yields Greater Benefits

WASHINGTON, D.C. - A new report released today by the Pew Center on Global Climate Change highlights the importance of international emissions trading in reducing the costs of climate change. An international greenhouse gas emissions trading regime would significantly lower global mitigation costs, the report states.

The report, International Emissions Trading & Global Climate Change: Impacts on the Costs of Greenhouse Gas Mitigation, finds that compliance costs for parties limiting their greenhouse gas emissions can be lowered by providing greater flexibility in trading mechanisms, such as allowing trading across emissions sources, and allowing trades to occur over time.

"As policy-makers explore ways to meet the global challenge of climate change, emissions trading should be high on their agenda," said Eileen Claussen, President of the Pew Center on Global Climate Change. "Greenhouse gases released anywhere in the world can contribute to changes in global temperatures. International emissions trading capitalizes on this by allowing the lowest cost emissions reductions to occur first."

While broader participation in trading is likely to yield greater benefits, any amount of trading will lower the costs for those participating, the report states.

"If a climate policy regime is in place that allows emissions trading, all parties, with or without obligations, are better off trading than not," said Claussen, who noted that issues of program design and institutional structure must be addressed carefully to realize the full economic potential of trading regimes.

The report is the first in a series designed to explore how economic models address the climate change issue. It was researched and written by Jae Edmonds, Mike Scott, Joe Roop and Chris MacCracken of Battelle of Washington, D.C. for the Pew Center on Global Climate Change.

A number of global economic models have been used to access the effects of emissions trading. The models conclude that:

  • Costs of controlling carbon emissions would be significantly lower if emissions trading is permitted than if each nation has to meet its emissions reduction responsibilities alone. The broader the trade possibilities, the lower the costs of control.
  • All parties with greenhouse gas emissions mitigation obligations benefit from trade.
  • Given a regime that allows trading, parties without obligations will be better off trading than not trading.
  • Because the costs of fuels could be affected by emissions control and emissions trading, countries and regions may be affected whether or not they participate in emissions reductions and emissions trading.
  • Gains from trade are sensitive to the difference between the base case and target emissions and to the difference in marginal (incremental) abatement costs between countries.
  • The actual cost savings from trade in emissions are likely to be less than the theoretical savings shown in most analyses performed with integrated assessment models because these models do not include the various measurement, verification, trading and enforcement costs that would and should characterize any real trading system.

"International trade holds the potential of reducing costs of controlling world emissions of greenhouse gases because the nations of the world experience very different costs for achieving emissions reductions on their own," Claussen said.

A complete copy of the report is available on the Center's web site, www.c2es.org.

The Pew Center was established in May 1998 by the Pew Charitable Trusts, one of the nation's largest philanthropies and an influential voice in efforts to improve the quality of American's environment. The Pew Center is conducting studies, launching public education efforts, promoting climate change solutions globally and working with businesses to develop marketplace solutions to reduce greenhouse gases. The Pew Center is led by Eileen Claussen the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs.

The Pew Center includes the Business Environmental Leadership Council, which is composed of 21 major, largely Fortune 500 corporations working with the Pew Center to address issues related to climate change. The companies do not contribute financially to the Pew Center, which is solely supported by contributions from charitable foundations.

International Emissions Trading & Global Climate Change: Impacts on the Cost of Greenhouse Gas Mitigation

International Emissions Trading & Global Climate Change:  Impacts on the Cost of Greenhouse Gas Mitigation

Prepared for the Pew Center on Global Climate Change
December 1999

By:
Jae Edmonds, Michael J. Scott, Joseph M. Roop, and Christopher N. MacCracken, Battelle, Washington, DC

Press Release

Download Entire Report (pdf)

Foreword

Eileen Claussen, President, Pew Center on Global Climate Change

Several factors influence the costs of greenhouse gas mitigation. This report illustrates the importance of one such factor—international emissions trading—in reducing the costs of carbon control. The authors find that an international greenhouse gas emissions trading regime will significantly lower global mitigation costs. Specifically, the report finds:

  • The costs of controlling carbon emissions would be significantly lower if trade is permitted than if each country is required to meet its obligations alone.
     
  • Providing greater flexibility in trading mechanisms—for example, allowing trading among various greenhouse gases and across emissions sources, and allowing trades to occur over time—lowers the costs.
     
  • Emissions trading reduces the potential for "leakage" of jobs, industry, and emissions compared to a control case with no trading because changes in world fuel prices would be moderated through the availability of trading.
     
  • While broader participation in trading is likely to yield greater benefits, any amount of trading will lower the costs for those participating. If a climate policy regime is in place that allows emissions trading, all parties—with or without obligations—are better off trading than not.
     
  • Issues of program design and institutional structure must be addressed carefully to realize the full economic potential of trading regimes.
     
  • By making transparent the core structure and assumptions of economic models, the Pew Center hopes to provide policy-makers and consumers of economic information with tools to better understand the important assumptions driving the models’ projections of costs.
     

This report is the first in a series designed to explore how economic models address the climate change issue. The first phase of this effort will make a direct and significant contribution to economic modeling in the following four areas: (1) review of existing models and identification of their key assumptions; (2) investigation of the models’ theoretical frameworks; (3) encouraging best practices in modeling specific aspects of the climate change issue; and (4) integrating innovative modeling practices into a state-of-the-art assessment of the costs of climate change and the policies used to address it.

The second phase of the Pew Center’s economics program will focus on how businesses react to climate change—and policies to ameliorate it—in the context of sound business strategy and practice. The Center is in a unique position to provide insight into the inner working of firms through the participation of our Business Environmental Leadership Council.

The Center and authors appreciate the valuable input of several reviewers of previous drafts of this paper, including Ev Ehrlich, Judi Greenwald, Eric Haites, Elizabeth Malone, and others.

Executive Summary

One of the earliest and most robust findings of economics is that, where relative costs of performing an activity differ among individuals, business firms, or regions, there are almost always potential gains from trade. In today’s jargon, trade can always be win-win. Traditional approaches to addressing environmental problems have generally not taken advantage of this potential. Rather, command and control regulatory policy instruments have been the tools of choice. While these tools can be effective in reaching an environmental goal, they can also be expensive. Recently environmental policy-makers have begun to explore ways of obtaining more environmental benefits per dollar expended, and the use of emissions trading has been on the cutting edge of these efforts. Because climate change is an issue that requires a sustained policy commitment over the course of a century, attention to the cost of policy intervention is especially important. This paper explores the degree to which trade among parties to an international agreement can reduce the cost of greenhouse gas reductions.

International trade holds the potential of reducing costs of controlling world emissions of greenhouse gases (GHGs) because the nations of the world experience very different costs for achieving emissions reductions on their own. However, the potential gains from trade, like the costs of compliance themselves, may be very unevenly distributed across the world’s participants. While all of the parties to an agreement stand to gain collectively under trade in emissions rights as compared with "independent compliance" (i.e., each country meeting its obligations alone), non-participants in the agreement may either benefit or not depending on their own particular circumstances. The detailed rules for trading affect how effective trading could be, as well as the level of gains that would be captured in practice. Details of the trading rules will influence both the total gains from trade and distribution of such gains. Key issues include definitions of the emissions rights to be traded, the rules for crediting carbon sinks, and regulations governing participation in the trading framework. In addition, there are economic uncertainties, such as the behavior of countries that have significant market power in supplying emissions credits, and the transaction costs associated with trading and enforcement. These effects could significantly increase the costs of mitigation compared to the most favorable case and could reduce the amount and benefits of trading.

A number of global economic models have been used to estimate the effects of emissions trading. Empirical results derived from these models can be summarized as follows:

  • Costs of controlling carbon emissions would be significantly lower if trade in carbon emissions allowances were permitted than if each nation had to meet its emissions reduction responsibilities alone. The broader the trade possibilities, the lower the costs of control.
     
  • All parties with GHG emissions mitigation obligations benefit from trade. Both permit buyers and permit sellers will benefit.
     
  • Parties without obligations may be better or worse off under a trading regime relative to a regime that does not allow trading. However, given a regime that allows trading among parties with obligations, parties without obligations will be better off trading (i.e., selling emissions reductions) than not trading.
     
  • Because the costs of fuels could be affected by emissions control and emissions trading, countries and regions may be affected whether or not they participate in emissions reduction and in emissions trading. Parties without obligations may be either better off or worse off after obligations are established for others. For example, if emissions trading is prohibited, the prices paid to fossil fuel producers are reduced, and the energy-exporting countries are worse off relative to a no-control case. Emissions trading mitigates this effect. Results for other non-participating regions are more ambiguous.
     
  • Gains from trade are sensitive to the difference between the base case and target emissions and to the difference in marginal (incremental) abatement costs among countries. For any limit to emissions, the higher the future level of emissions is expected to be without intervention, the more difficult and costly mitigation is expected to be. Although the gains from trade depend on the differences between countries’ marginal abatement costs, not their absolute level, the analysis in this paper shows that the gains from trade are larger for more ambitious emissions targets.
     
  • The actual cost savings from trade in emissions are likely to be less than the theoretical savings shown in most analyses performed with integrated assessment models because these models do not include the various measurement, verification, trading, and enforcement costs that would characterize any real trading system. Programs must be carefully designed to assure that the potential gains from trade are realized.
Christopher N. MacCracken
Jae Edmonds
Joseph M. Roop
Michael J. Scott
0

Developing Countries & Global Climate Change: Electric Power Options in India

Developing Countries & Global Climate Change: Electric Power Options in India

Prepared for the Pew Center on Global Climate Change
October 1999

By:
P.R. Shukla, Indian Institute of Management, Ahmedabad
William Chandler, Battelle, Advanced International Studies Unit
Debyani Ghosh, Indian Institute of Management, Ahmedabad
Jeffrey Logan, Battelle, Advanced International Studies Unit

Download Entire Report (pdf)

Foreword

Eileen Claussen, Executive Director, Pew Center on Global Climate Change

The electric power sector in India is characterized by low per capita energy use, rapid growth in demand, heavy losses in transmission and distribution, and tariffs well below average costs. Coal dominates usage, which combined with hydropower represents 85 percent of generated power. The power sector is responsible for half of India's carbon dioxide emissions, which were 92 million tons in 1995. Even with the prospect of market and industrial reforms, the 'business-as-usual' path for India in 2015 increases both generating capacity and carbon dioxide emissions by around 150 percent over 1995 levels. But the scenarios modeled in this study show that growth in emissions can be reduced to only 60 percent greater than 1995 if progressive sustainable development policies are implemented.

What are the drivers that will influence future technology choices in India?

  • The ability of India's power producers to fuel-switch and lower carbon dioxide emissions is heavily dependent on the availability and cost of alternative fuels (especially natural gas). In the scenario simulating stricter local environmental controls, this restriction steers decision-makers to sulfur control equipment and does not necessarily lead to reductions in coal use. On the other hand, striving to attain sustainable development goals can reduce costs and capacity needs, and achieve the most dramatic reductions in carbon dioxide emissions.
  • Market reforms can lower costs by 11 percent and carbon emissions by 7 percent through a reduction in the need to build more power plants through increased supply efficiency and earlier availability of new technologies.
  • More widespread adoption of cost-effective energy efficiency measures could also reduce carbon emissions by 23 percent and sulfur dioxide emissions by 60 percent, by reducing demand for power by around 15 percent.

Developing Countries and Global Climate Change: Electric Power Choices in India is the third in a series examining the electric power sectors in developing countries, including four other case studies of Korea, China, Brazil, and Argentina. The reports findings are based on a lifecycle cost analysis of several possible alternatives to current projections for expanding the power system.

The Pew Center was established in 1998 by the Pew Charitable Trusts to bring a new cooperative approach and critical scientific, economic, and technological expertise to the global climate change debate. The Pew Center believes that climate change is serious business and a better understanding of circumstances in individual countries helps achieve a serious response.

Executive Summary

Electricity consumption in India has more than doubled in the last decade, outpacing economic growth. The power sector now consumes 40 percent of primary energy and 70 percent of coal use. This sector is the single largest consumer of capital, drawing over one-sixth of all Indian investments over the past decade. Despite these huge expenditures, electricity demand continues to outstrip power generating capacity, leaving a 12 percent electricity deficit and a 20 percent peak power shortage.

The government has assumed the predominant role in electricity supply in the post-independence era. State electricity boards (SEBs) and power corporations plan and govern power plants financed with state funds. SEBs in particular are wide open to political influence and tariff distortions. Operational inefficiencies grew in the absence of competition and financial discipline, undermining the power sectors financial health. By the early 1990s, the sector was overdue for sweeping reforms to enhance revenues and mobilize investment in the short run, and to change ownership and the regulatory structure in the long run. Reforms underway fall broadly into the categories of SEB corporatization, privatization of power corporations, unbundling (vertical divestiture), and regulatory restructuring.

Despite enhanced competition from other fuels, coal remains the mainstay of power generation in India. The present power technology mix relies on domestic coal to provide three-fifths of the countrys power; large hydroelectric dams provide about one-quarter. Gas-fired power has grown from almost nothing to one-twelfth of total generation in the last decade due to the reduced risk associated with lower capital requirements, shorter construction periods, diminished environmental impacts, and higher efficiencies. Nuclear power contributes less than 3 percent to total generation and renewables (other than large hydro) just over 1 percent. India has a significant program to support renewable power, exemplified by wind power capacity that rose from 41 megawatts in 1992 to 1,025 megawatts in 1999.

Power transmission and distribution has suffered from losses amounting to over one-fifth of generated electricity, more than double the level of most countries. An institutional restructuring process began in 1989 to consolidate various suppliers and distributors under an agency called "Powergrid." Faced with unreliable power supply, many industries have invested in on-site power generation that now accounts for 12 percent of total capacity.

The phenomenal rise in agricultural electricity consumption is due to greater irrigation demand by new crop varieties and the very low price of electricity provided to that sector. The average electricity tariff in India is 20 percent below the average cost of supply. The gap is mainly due to subsidized rates for agriculture. Industrial consumers pay higher costs and provide a cross-subsidy that was worth over US$5 billion in 1997, equal to almost half of power sector investments that year.

Concerns about the environmental impacts of power plant projects have grown in the past twenty years. The power sector contributes about half of Indias carbon, sulfur, and nitrogen oxide emissions. Hydroelectric projects also have generated social concerns. Dam construction has forced the relocation of many Indians, a problem the government has handled poorly. Managing environmental and social impacts has therefore drawn considerable attention in policy-making, project development, and operations. 

Debyani Ghosh
Jeffrey Logan
P.R. Shukla
William Chandler
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