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The Kyoto Mechanisms and Global Climate Change

The Kyoto Mechanisms and Global Climate Change: Coordination Issues and Domestic Policies

Prepared for the Pew Center on Global Climate Change
September 2000

Erik Haites, Margaree Consultants Inc.
Malik Amin Aslam, ENVORK Research And Development Organisation

Press Release

Download Entire Report (pdf)

Executive Summary

The Kyoto Protocol sets greenhouse gas emissions limits for 2008-2012 for 38 developed coun-tries. Developing countries have no emissions limits. The Protocol also creates three "mechanisms" that enable countries to reduce the cost of meeting their emissions limits. The nations of the world are now negotiating the detailed rules for implementing the Protocol, including the three Kyoto Mechanisms.

A number of countries have made specific proposals to restrict the use of the Mechanisms to achieve environmental or equity objectives. Other countries are arguing for an unrestrictive approach to improve economic efficiency. In addition, the lack of integration among the three Mechanisms may inadvertently restrict or bias their use. Finally, the extent to which countries may avail themselves of the Mechanisms depends both on the rules for the Mechanisms and on the domestic policies adopted by the developed countries to meet their commitments.

This report evaluates proposed rules for implementing the Kyoto Mechanisms in terms of their implications for equity, environmental integrity, and economic efficiency, and discusses coordination of domestic policies with the Kyoto Mechanisms. The authors conclude that:

The Kyoto Mechanisms have the potential to dramatically reduce the costs of meeting the Kyoto commitments. The Kyoto Protocol allows nations to fulfill part of their emissions reduction obligations by purchasing emissions reductions from other nations. Because greenhouse gases (GHG) lead to global effects, it does not matter, from an environmental perspective, where GHG reductions occur. However, because countries and businesses face widely differing control costs, it matters greatly from an economic perspective where GHG reductions occur. Hundreds of analyses using a wide array of economic models agree that the costs of controlling GHG emissions are significantly lower if emissions trading is permitted than if each nation has to meet its emission reduction responsibilities domestically. The broader the trade possibilities, the lower the costs of control.

The rules should allow substitution among the different Mechanisms. Some countries have proposed limiting substitution (fungibility) among the three Mechanisms. Others argue that the Protocol does not allow full fungibility. To limit such substitution, the rules governing use of the Mechanisms would have to be very restrictive. Even then countries could develop means to circumvent the restrictions. It would be better to simply allow substitution among the Mechanisms.

The rules for International Emissions Trading should allow "legal entities" (emitters, emissions brokers, etc.) to participate. Legal entities should be allowed to participate in emissions trading, just as they are allowed to participate in Joint Implementation, the Clean Development Mechanism, and international trading of other goods and services. If governments rather than legal entities trade, the potential efficiency gains of trading cannot be realized because governments do not know the compliance costs faced by the emitters. If the international rules don't allow legal entities to participate, individual governments could circumvent those rules, if they wish, by establishing internationally tradable "obligations to transfer." Rather than encourage the development of complex legal devices, countries should simply agree to allow legal entities to participate in emissions trading.

Lack of harmonization among the three Mechanisms may inadvertently restrict their use. There will be differences in design among the Mechanisms because their purposes vary. For example, only one of the three Mechanisms is designed to promote sustainable development in developing countries. However, an important objective of each of the Mechanisms is to allow legal entities and nations to use the most cost-effective means available to comply with their domestic and international obligations. Differences in rules among Mechanisms that are unrelated to differences in their purposes reduce economic efficiency and should be minimized to the extent possible.

Significant penalties for non-compliance and effective enforcement of those penalties are crucial to the environmental integrity of emissions trading. If the penalties for non-compliance with national emissions limitation commitments are relatively weak, emissions trading enables a country to benefit financially through non-compliance. Such behavior reduces the value of the allowances held by governments and legal entities. Liability proposals seek to limit the extent of such non-compliance by limiting sales to allowances expected to be surplus to the seller's compliance needs. Liability proposals differ in their environmental effectiveness, their economic efficiency, and their impact on the timing of transactions. Negotiators should adopt rules that are maximally effective in encouraging compliance with minimal increase in cost or environmental risk.

The Mechanisms are most amenable to use by countries that adopt domestic cap and trade systems. Countries will need to implement domestic policies to control emissions by different sources if they are to meet their emissions limitation obligations. The cost of compliance with domestic policies can be minimized by giving sources access to the Kyoto Mechanisms to the extent allowed by the international rules. Use of the Mechanisms is easiest to structure for participants in a domestic cap and trade system. However, the Mechanisms could be used, albeit with some difficulty, by countries that adopt emissions taxes or that specify the means of compliance through some types of regulations or negotiated agreements.

Erik Haites
Malik Amin Aslam

Press Release: Design of Kyoto Mechanisms Is Critical To Overall Success - Pew Insight, Recommendations

For Immediate Release:
September 11, 2000

Contact: Katie Mandes, 703-516-0606
             Dale Curtis, 202-777-3530
             In Lyon: Lisa McNeilly, +44 773 005 2254

Design of Kyoto Mechanisms Is Critical To Overall Success: Pew Center Report Provides Insights, Recommendations

Lyon, France — As international negotiators develop rules to implement the Kyoto Protocol, they can lower the costs of meeting their commitments by making sure that certain provisions strike the right balance between economic efficiency, environmental integrity and global equity. Likewise, domestic climate change policies will need to mesh well with the international rules.

Those are the views of the Pew Center on Global Climate Change, which today released a report with recommendations on the Kyoto Mechanisms: International Emissions Trading, Joint Implementation and the Clean Development Mechanism (CDM). The report, entitled Kyoto Mechanisms and Global Climate Change: Coordination Issues and Domestic Policies, examines the institutional and regulatory implications of the Mechanisms and ways to unlock their full potential.

The report was authored by two leading experts on the Kyoto Mechanisms: Erik Haites of Margaree Consultants Inc. in Toronto, and Malik Amin Aslam of ENVORK: Research & Development Organization in Pakistan.

"The Kyoto Mechanisms were designed to lower the costs of achieving emissions reductions," said Eileen Claussen, President of the Pew Center. "However, there are numerous proposals on the table that could severely limit the use of the Mechanisms or even encourage non-compliance with the Kyoto commitments. The report we are releasing today is intended to help the negotiators strike the right balance between environmental integrity, global equity, and economic efficiency."

Making the Mechanisms Work

The Kyoto Protocol sets greenhouse gas emissions limits for 38 developed countries, to be achieved by the 2008-2012 time period. Negotiators meeting in Lyon, France, this week are working on detailed rules for implementing the Protocol, including the three Mechanisms. Governments hope to reach agreement at the Sixth Conference of Parties (COP6) in The Hague in November.

A number of countries have proposed limiting the use of the Mechanisms to achieve environmental or equity objectives, such as those preventing the participation of private companies in emissions trading or those restricting substitution among allowances. In addition, the lack of integration among the Mechanisms may inadvertently restrict or bias their use. The extent to which countries avail themselves of the Mechanisms also depends in part on the domestic policies developed countries adopt to meet their commitments.

To avoid the economic efficiency losses that will result if the Mechanisms are restricted in these ways, the report says decision-makers can, without losing environmental benefits:

  • Craft rules that allow substitution among the allowances created by each Mechanism to improve economic efficiency by equating prices across the three Mechanisms;
  • Develop rules for International Emissions Trading that allow legal entities — like private companies, or emissions brokers -- to participate subject to the approval of their national governments;
  • Heed the caution that binding supplementarity rules could increase costs, thereby increasing the risks of noncompliance; and
  • Allow private entities easy access to the Kyoto Mechanisms through domestic cap-and-trade systems, since other domestic mitigation options will diminish the potential economic benefits.

Further, significant penalties for non-compliance and effective enforcement of those penalties are crucial to the environmental integrity of emissions trading. If these penalties are relatively weak, negotiators should adopt a liability rule that is maximally effective in encouraging compliance with a minimal increase in costs or environmental risk.

This report complements two others previously released by the Pew Center: International Emissions Trading & Global Climate Change (1999) and Market Mechanisms & Global Climate Change (1998). A complete copy of this report, and information on all previous Pew reports, is available on the Pew Center's web site,

The Pew Center was established in May 1998 by the Pew Charitable Trusts, one of the United States' largest philanthropies and an influential voice in efforts to improve the quality of the environment. The Pew Center is a nonprofit, non-partisan and independent organization dedicated to providing credible information, straight answers and innovative solutions in the effort to address global climate change. 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 largely of 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.

Press Release: Report Reviews National Climate Change Programs of Five EU Countries and their Kyoto Targets

For Immediate Release :
June 21, 2000

Contact: Juan Cortinas, 202-777-3519
             Katie Mandes, 703-516-4146
             Leonie Edwards, +44 02-07-457-2345 (London)

Report Reviews National Climate Change Programs of Five EU Countries and their Kyoto Targets:   Germany, United Kingdom, The Netherlands, Austria, and Spain Examined

London, UK — Of five European Union countries reviewed in a newly-released report, only the United Kingdom is currently on track to achieve its Kyoto Protocol emissions reduction target. Germany will not achieve its target based on current measures alone but strong political commitment and further measures, including recent proposals put forth by the government, could put the country within reach of its goal. The Netherlands, Austria, and Spain are not expected to meet their Kyoto targets based on their current programs.

The Pew Center on Global Climate Change report, "The European Union and Global Climate Change: A Review of Five National Programmes," is co-authored by John Gummer, MP, former UK Environment Minister and Chairman of Sancroft International Ltd., and Robert Moreland, also of Sancroft, an environmental consulting firm. The report examines the climate change programs of Germany, United Kingdom, The Netherlands, Austria, and Spain, presents the national emissions reduction targets to which the countries committed under the Kyoto Protocol, and draws conclusions on the likelihood of success taking into consideration the political will and obstacles in each country.

"As we approach the third anniversary of the Kyoto Protocol and continue working to address the questions raised but not answered in the agreement, it is worth examining whether these countries are on track to deliver their promised reductions," said Eileen Claussen, President of the Pew Center on Global Climate Change. "This is especially true given the current discussions advocating ratification by 2002."

Following are some country-by-country findings:

The largest GHG emitter in the EU, Germany's reduction target is 21 percent below its 1990 levels. Emissions are currently 17 percent below, largely due to dramatic reductions in the former East Germany. The main elements of the current program include eco-taxes, voluntary agreements with industry, policies to reduce coal production and use, and to promote co-generation, district heating, natural gas, and renewable energy. Despite likely additional programs and strong political commitment, reductions are unlikely to continue at the same pace, and it will be difficult for Germany to reach its Kyoto target.

United Kingdom
The United Kingdom has committed to reducing its emissions by 12.5 percent below 1990 levels. Emissions are currently down 14.6 percent, due primarily to fuel switching from coal to natural gas, but further switching will have diminishing returns. To stay on track, the UK program encourages renewable energy, co-generation, and district heating; employs eco-taxes to support fuel-efficient vehicles and to reduce domestic fuel use and energy use by businesses (through a revenue-neutral levy); and is working with industry to find ways to introduce an emissions trading system. Deputy Prime Minister John Prescott now has direct responsibility for the issue and his strong personal commitment will help the UK maintain political support for climate change action.

The Netherlands
The Netherlands Kyoto target is to reduce overall emissions 6 percent below 1990 levels. Current CO2 emissions have increased by 17 percent, calling into question the country's ability to meet its target despite its strong political commitment and intention to purchase half its reductions through emissions trading. The government has introduced a wide range of measures but they have not reversed the trend of growing emissions, a result of the high-energy use of its economic base and the country's strong economy.

Austria's Kyoto Protocol commitment is to reduce greenhouse gas emissions by 13 percent from 1990 levels. Per capita emissions are already low, due to heavy use of hydropower and biomass energy and strong support for public transportation. CO2 emissions have increased by around 8 percent and the government has devised a policy package to reverse this increase. The difficulty lies in the potential for diminishing returns from furthering its renewables, energy savings, and transportation policies; also, public opinion is that Austria has no great problem from most emission sources and consequently could react against tougher measures.

Because of its need for economic growth and its relatively low level of per capita emissions, Spain's target is to limit its emissions increase to 15 percent above 1990 levels. With current emissions already 11 to 13 percent over, the country is unlikely to meet its target without additional action. Environmental concern in Spain is generally lower than elsewhere in the EU. As the largest net recipient from the EU budget, pressure from net contributor states (particularly Germany, The Netherlands, and the UK) is a lever that may help ensure further action on climate change by the Spanish government.

A complete copy of this report is available on the Pew Center's web site,

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. Eileen Claussen, former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs, is the President of the Pew Center. 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.

Kyoto: The Best We Can Do or Fatally Flawed?

Kyoto -- The Best We Can Do or Fatally Flawed?

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

The Royal Institute of International Affairs Conference
London, England

June 20, 2000

Thank you very much. It is a pleasure to be here as your final keynote speaker. Being last is both a curse and a blessing. On the one hand, it is very hard to say something new and exciting when you are last, now that so much has been said already. On the other hand, we all know that we tend to remember best the things we heard last. So it is in that spirit that I shall try to be three things at once in my remarks: humorous (to keep you awake); articulate (so that what I say can be recalled); and thoughtful (so that what I say is actually worth recalling.)

The title of my remarks today is The Kyoto Protocol: The Best We Can Do or Fatally Flawed? Having been presented with this either/or choice, I couldn't help thinking of a quote from Woody Allen. "More than any other time in history," he said, "mankind faces a crossroads. One path leads to despair and utter hopelessness. The other, to total extinction. Let us pray we have the wisdom to choose correctly."

Facing a similarly agonizing choice of declaring the Kyoto Protocol either the best we can do or fatally flawed, I have decided that I will not make a choice at all. And that leaves open two possibilities. The first is to reconfigure the title of my remarks by replacing the "or" with an "and" so it would read, The Kyoto Protocol: The Best We Can Do and Fatally Flawed. But I simply do not believe this is the case.

Instead, my preference is to call my remarks The Kyoto Protocol: Neither the Best We Can Do nor Fatally Flawed. And with that, perhaps we can move on to what is really important, and that is that the Protocol exists. We did it, we have it, and we need to work on it so it can be an effective instrument for getting us where I think we all agree we want to be: on a path toward reducing atmospheric concentrations of greenhouse gases.

Not the Best We Can Do

So allow me to begin with a brief discussion of some of the Protocol's most serious problems. We all know that for an international accord such as this to be effective, it must have the support of as many countries as possible. This is because every country has some degree of responsibility for the problem we are dealing with--although, of course, some countries have much more responsibility than others—and because everyone needs to play at least some part in the solution.

But while we all know that international support is important, I think sometimes we forget how important it is as we try to move as quickly as possible to reach a deal. And so we create a treaty that reflects our beliefs about what should happen to address the matter at hand but that overlooks the reality of what can happen—or what countries around the world are honestly willing and able to achieve.

At the same time that a treaty must aim for truly global participation, it also must achieve a relatively high degree of compliance. The issues of participation and compliance, in fact, are closely linked. To achieve maximum participation, it is essential to insure that the requirements in the agreement are realistic—in other words, that the Parties to an agreement can accomplish what the agreement requires. This is not to say that the requirements must be easy, that they must be achieved by all Parties in the same way, or that they must be equal in stringency for all Parties. But what is clear is that they must be achievable. If they are set too high, this inevitably will discourage participation because some may choose to opt out rather than be declared out of compliance, and the global agreement that we all so strongly desire will become less global and therefore less effective in meeting our ultimate goal.

A third important issue I want to touch on, after participation and compliance, is measurability. As important as making sure that a treaty's objectives are reasonable—and that nations have the ability and the will to achieve them—is the challenge of insuring that compliance with the treaty's objectives is measurable. The measurability issue reminds me of a story I recently heard about a group of managers who were given the assignment of measuring the height of a flagpole. And so they bring out their tape measures and their pens and paper, and they struggle for a time with their ladder, never quite able to set it up against the flagpole without it falling down on their heads. Just then, along comes an engineer who sees what they're trying to do. And, he walks over, pulls the flagpole out of the ground, lays it flat, measures it from end to end, gives the measurement to one of the managers, and then walks away.

After the engineer is gone, one manager turns to another and laughs. "Isn't that just like an engineer! We're looking for the height and he gave us the length!"

Whether you think it is funny or not, the story does shed some light on the challenge we face in structuring international treaties with measurable goals. We need to make absolutely certain we are able to measure our progress in achieving the treaty's goals, or else we will start to look like the group of managers around the flagpole. We don't have the luxury of waiting for an engineer to amble by and show us what we are doing wrong. It is our job to be the engineers and to develop the necessary systems that will help us assess whether or not our objectives are being met.

The Kyoto Protocol: A Realistic Assessment
So now that we have talked about participation, compliance and measurability, the next question is this: how does the Kyoto Protocol stand up to these relatively simple criteria? Let's start with participation and compliance. On the test of insuring global buy-in and participation by setting reasonable and achievable objectives, the Protocol unfortunately falls short.

The goals for the United States are a case in point. With all due respect to my former colleagues in the current Administration who negotiated the agreement, it is highly unlikely that the U.S. will be able to meet its Kyoto target of reducing emissions by 7 percent below 1990 levels between 2008-2012. It doesn't take an engineer to see that a 7-percent reduction is overly ambitious in a country where emissions already have grown to more than 11 percent above 1990 levels and are likely to continue to rise.

Adding to the challenge of meeting the target, there has been little to no effort on the part of government leaders in the U.S. to encourage a national dialogue on how we go about reducing our emissions when we finally come around to understanding and accepting that we must. Indeed, it is rare both in Washington and in the current presidential campaign 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 U.S. greenhouse gas emissions.

Many in the U.S. Congress, for example, appear determined to let little if anything happen that would even remotely suggest that the United States is concerned about this issue. Virtually every budget item and every piece of legislation that so much as mentions the possibility of climate change, let alone our responsibility to address it, 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.

Yet another factor in the inability of the U.S. to meet the Kyoto targets is the thorny issue of administrative process. Even if we saw a profound shift in Washington on the topic of climate change in the next one or two years (and I am not optimistic that this can happen), the United States would not be able to achieve the Kyoto targets as they are currently drawn for a very simple reason: administrative process in our country is enormously time-consuming.

For the Kyoto Protocol to become U.S. law, the President would have to submit it to the Senate; 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 put in place. Given that such legislation and regulation would clearly result in regional and sectoral economic impacts, the odds of all this activity occurring in enough time to enable the U.S. to meet the Kyoto target are very small indeed.

Lest you think my doubts about achieving the Kyoto targets are reserved exclusively for my own country, I firmly believe that the United States will not be alone in its inability to move fast enough to meet the targets. Surely, there is much effort on this issue here in Europe and elsewhere. And those that are taking seriously the challenge of reducing their countries' emissions should be applauded.

But with all due respect to the many officials with whom I negotiated global environmental agreements in my government past (you will note that I am being unusually respectful in this speech), it is clear that few national governments will be able to stand up in 2008, 2010 or 2012 and say that their targets have been met. In some countries, as in the U.S., it may be a lack of will or a lack of effort that leaves the targets unachieved. While in others, it may be the simple fact that these are very tough targets indeed. In fact, in a report that the Pew Center will be releasing tomorrow on the efforts of five European governments to meet their targets, only one government, that of the United Kingdom, is definitely on track to fulfill its obligation, and only one other, Germany, is in a position in which it "might" meet its target.

Once again, I will say that there is nothing wrong with ambitious targets, but they do have to be grounded in reality. And the fact that it is becoming increasingly clear that the targets in the Kyoto Protocol cannot and will not be met on the established timetable in the United States and elsewhere suggests to me that the Protocol has overreached. And, in overreaching, it runs the enormous risk of undermining the support it needs to encourage a truly global and effective response to the climate change problem.

Overreaching has other problematic effects as well. By adhering to unrealistic targets that will be very difficult, if not impossible, to meet, we provide the Protocol's opponents (and there are many of them) with additional ammunition in their effort to shoot the treaty down. We all know that the economic arguments that have been used in the United States to reduce support for the Protocol are based on the costs of complying with the Kyoto target and timetable. The more unrealistic the target is—considering the short timetable for action—the more costly it will be to meet it. And the more ammunition the treaty's opponents will have in order to work against it.

I am not saying this to endorse or to lend credibility to the often-dire predictions of those who argue against U.S. ratification of the Protocol on economic grounds. Many of the assumptions in the economic models that are used to develop the cost estimates are unrealistic (they are unable to anticipate technological progress; they model the old economy rather than the more flexible "new economy"), and the results they yield cannot entirely be trusted. I remember reading somewhere that partisan analysts use economic data the way a drunkard uses a lamppost: for support rather than illumination. And surely this is the case with many published economic analyses on the Kyoto Protocol.

The potential economic costs of complying with the Kyoto Protocol form the basis of one of the two major arguments against the treaty in the United States. The other main stumbling block, as you all know, revolves around the issue 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 Brazil get a quote-unquote "free ride?"

My answer is that fairness demands a decisive U.S. response for three reasons. First, because the United States is responsible, both historically and currently, for more emissions than anyone else. Second, because the United States has the ability to pay to reduce its emissions, while many other countries plainly do not. And finally, because we have significant opportunities for emission reductions that are achievable at a relatively low cost.

As you might suspect, these answers are not enough to turn Kyoto's critics in the U.S. into adoring fans of the treaty—although it is always worth trying. And, once again, I wonder if it is the treaty's targets and timetable that are the real issue here—if the sheer impracticality of meeting the targets according to the Kyoto schedule, together with the potential costs involved, are fueling U.S. resentment of the fact that there are no targets for the developing world.

The importance of realistic targets and timetables in an accord such as Kyoto cannot be overestimated. But they aren't the only problem. Earlier, I mentioned the issue of measurability, and I believe the Kyoto Protocol falls short in this area as well.

Let's put aside for a moment the issue of how to determine whether and when different countries are in compliance with the accord. This is what we commonly think of as measurability, and it is a major topic in and of itself. But what I want to talk about today is the fact that the Protocol is not clear on exactly what we should measure—or what counts toward the targets. And, in the absence of an understanding of what counts, I believe it is difficult, perhaps even impossible, to know whether the targets we are setting are realistic or not.

Consider the issue of carbon sequestration. The Kyoto Protocol includes land use changes and forestry among the allowable practices that can help to promote sequestration, but it does so unevenly. Sometimes the treaty awards credits towards national commitments for increasing carbon stored through forest and land management, and sometimes it does not. Sometimes it charges decreases in carbon stocks as a result of deforestation against national commitments, and sometimes it does not. And sometimes it is simply unclear what is included and what is not.

One result is that different countries have interpreted the language in the treaty differently, and this has affected their assessments of whether and how they will be able to reach their targets. A second result is that the system creates perverse incentives. For example, in counting afforestation, deforestation and reforestation, it provides an incentive for cutting and replanting, rather than conservation and preservation. But both results are obviously unacceptable, and they need to be remedied.

Also wrapped up in the issue of "what counts" is the important question of what the word "supplemental" means in defining how much of a country's emission budget can be fulfilled by activities outside of its border; and the role of what is called "hot air." And this lack of clarity provides an incentive to tinker with the mechanisms and definitions so that the targets can be met.

Ideally, these issues would have been decided (at least at some level) before the negotiation of specific targets so that a common understanding could be reached. But, as it is, we are debating these issues after the fact—and countries still have very little to go on in terms of planning exactly how and when they can achieve their targets. And so this is yet another area where the Protocol could have done—and must do—a better job.

Still a Keeper

But the question remains: is the Kyoto Protocol fatally flawed? And, despite the obvious problems I have identified in my remarks, I say the answer is no. Appropriately enough, considering our venue here in the land of Shakespeare, the term "fatal flaw" derives from the bard's tragedies, whose heroes often had many good qualities but one aspect of their character—be it excessive pride or an inability to act decisively—that led to their eventual downfall. Certainly, the Kyoto Protocol has its flaws, as I have stated. But none of them—I believe—should lead to its downfall.

Moreover, the good qualities of the Kyoto Protocol vastly outweigh its flaws. Chief among these good qualities is that it provides a viable and rational framework for global action to mitigate climate change. How does it do this? It establishes multi-year budget periods to accommodate sudden shifts in the economy or even the weather. It sets binding targets so there is a better chance of achieving compliance. It allows countries to reduce emissions in cost-effective ways that can actually contribute to economic development and growth—thanks to such provisions as emissions trading, the Clean Development Mechanism and Joint Implementation. It aims to keep carbon emissions from ever reaching the atmosphere by promoting carbon sequestration. And it includes all greenhouse gases, permitting a more comprehensive and cost-effective response to the problem.

All of these are important achievements. What is even more important as we look ahead to COP VI this fall, however, is that we correct the flaws in the Kyoto framework so that it can stand the test of time. This means putting the issue of targets and timetables aside while we configure the framework in such a way that it makes sense. The question we should be asking is not how to structure the Protocol in such a way that we will be able to achieve the targets we have already set. That gets it backwards. Rather, we should be asking how we could structure the Protocol so that it provides the basis for a sustained and successful effort to mitigate global climate change. That should be our goal.

In the end, the Kyoto framework will make sense to the extent that it defines exactly what counts toward any targets we set. It will make sense to the extent that it is business friendly--because business will make the investments, develop the technologies and make many of the reductions that are needed to solve the problems we face. It will make sense to the extent that it allows for short-term and long-term activities that achieve measurable results. And it will make sense to the extent that it handles such issues as sequestration and hot air in ways that contribute to the overall goal of reducing atmospheric concentrations of greenhouse gases.

If, after insuring that the framework reflects these priorities, we need to renegotiate the targets or the timetables—and I suspect we will--then so be it. Right now, as I said, it is the framework that we must pay close attention to because it will be with us for as long as we are working to address this issue. The initial targets, by contrast, will mark but a moment in time. Twenty years from now, it will matter very little where or when we set them—only that they provided a starting point in the global effort to achieve measurable progress against a problem that will in all likelihood be with us for generations to come.

The Kyoto Protocol, I will repeat, may not be fatally flawed, but it can certainly be improved upon. And, having come this far with the Protocol, we have a responsibility to future generations to go even farther. We have a responsibility to make it better—the best we can do.

Thank you very much. I welcome your questions.

Land Use & Global Climate Change: Forests, Land Management, and the Kyoto Protocol

Land Use & Global Climate Change: Forests, Land Management, and the Kyoto Protocol

Prepared for the Pew Center on Global Climate Change
June 2000

Bernhard Schlamadinger, Joanneum Research, Austria
Gregg Marland, Environmental Sciences Division, Oak Ridge National Laboratory, USA

Press Release

Download Entire Report (pdf)


Eileen Claussen, President, Pew Center on Global Climate Change

Allowing nations to receive credit under the Kyoto Protocol for using lands and forests to store carbon has been, and will continue to be, controversial until key issues are settled. The Protocol sets forth a partial system for including land-use change and forestry, and negotiators are left with the difficult task of closing potentially important gaps in the rules. Without specific crediting rules, countries can posture for interpretations that could allow them to weaken commitments made under the Protocol. With this situation in mind, the Pew Center commissioned this report to identify key issues in the debate regarding terrestrial carbon.

Report authors Bernhard Schlamadinger and Gregg Marland examine how forests and other lands can be managed to slow the rate of increase in atmospheric carbon dioxide levels, review how the Kyoto Protocol deals with forests and other land uses, and identify outstanding issues that must be resolved if the Protocol is to be implemented.

The report finds the following:

  • Forests and the way we manage them provide significant opportunities to assist in climate control efforts.
  • The Kyoto Protocol includes land use, land-use change, and forestry, but it does so selectively: sometimes awarding credits for increasing carbon stored through forest and land management, and sometimes not; sometimes charging decreases in carbon stocks (e.g., as a result of deforestation) against national commitments, and sometimes not. As currently crafted, the system is only a partial one and requires further clarification and practical, effective implementation methodologies if potential benefits from land management are to be realized.
  • A climate control effort that includes forests needs to account for carbon dioxide both released and absorbed, and it needs to do so in a balanced manner that only rewards activities that contribute to slowing the rate of increase of atmospheric carbon dioxide.

While not a panacea, storing carbon could be an important part of a menu of options aimed at slowing the build-up of atmospheric carbon dioxide levels.

The authors have been part of the writing team for the Intergovernmental Panel on Climate Change’s Special Report on Land Use, Land-Use Change, and Forestry, and acknowledge the importance of discussions and interactions with other experts during that process in helping shape this report. Discussions within IEA (International Energy Agency) Bioenergy, Task 25 (Greenhouse Gas Balances of Bioenergy Systems) were also an important source of ideas and feedback. The Pew Center and authors are grateful to Don Goldberg, Mark Trexler, Kristiina Vogt, and Murray Ward, who reviewed the manuscript in draft form, and to Sandra Brown for her guidance as an expert consultant on this report. 

Executive Summary

There is increasing concern that the Earth's climate is changing because of the rising concentration of greenhouse gases in the atmosphere. The United Nations Framework Convention on Climate Change (UNFCCC), drafted in 1992, expresses this concern, and the Kyoto Protocol, negotiated in 1997, sets forth binding targets for emissions of greenhouse gases from developed countries. The Kyoto Protocol represents considerable progress in building a global consensus on how to confront the growth of greenhouse gas concentrations in the atmosphere, but it also contains many ambiguities and leaves many issues that need to be resolved before it can be implemented.

The Kyoto Protocol sets quantitative targets for countries to reduce their emissions of greenhouse gases to the atmosphere, but it recognizes that the same goal can be achieved by removing greenhouse gases from the atmosphere. There are opportunities to reduce the rate of build-up of atmospheric carbon dioxide (CO2 ) through land management activities, referred to as Land Use, Land-Use Change, and Forestry (LULUCF) activities. These opportunities include slowing the loss of carbon from plants and soils — e.g., through reduced rates of deforestation — and encouraging the return of carbon from the atmosphere to plants and soils — e.g., by planting trees (afforestation and reforestation) or improving management of forests or agricultural soils.

This paper explores whether LULUCF activities provide the same long-term benefit for the climate system as does reducing emissions from fossil-fuel combustion; sketches the development of international negotiations on LULUCF issues; looks at the consensus negotiated so far on this issue; and examines the ambiguities of the Kyoto Protocol, the issues yet to be resolved, and the decisions yet to be made before the Protocol can serve as an effective international instrument. An effective instrument would encourage countries to manage the terrestrial biosphere in a way that minimizes net emissions of greenhouse gases while serving other goals such as sustainable development.

Important issues when designing incentives for land-based climate-change mitigation are whether net carbon sequestration can be considered permanent; whether there will be excessive leakage — a phenomenon where, for example, efforts to protect or increase forests in one place hastens their loss elsewhere; whether the potential for LULUCF activities is sufficiently large to offer real opportunity for reductions in atmospheric CO2; and whether analytical techniques permit an accurate measure of carbon gained or retained (or lost) in terrestrial ecosystems.

LULUCF activities differ from emission reductions from fossil fuels because their overall potential is limited by the lands available and the amount of carbon that can be stored per unit of land (“saturation”); and because carbon offsets in the biosphere are at risk of being lost at a later time, whereas emission reductions from fossil fuels not burned in one year do not generally trigger greater emissions in a subsequent year (“permanence”). Saturation is relevant especially in the long term (several decades). Options for addressing the lack of permanence of terrestrial carbon stocks exist and are discussed in this paper.

Several articles of the Kyoto Protocol address land management issues. Article 3.3 provides that some LULUCF activities — afforestation, reforestation, and deforestation (ARD) — will be accounted for in determining compliance with national commitments to reduce greenhouse gas emissions. Many negotiators did not want to sanction credits without actions. Consequently, credits in the LULUCF sector are restricted not just to ARD, but to those ARD activities that are directly human-induced, and then only to activities that are initiated after January 1, 1990. Article 3.4 outlines the procedure for including additional LULUCF activities in commitment periods after the first (i.e., after 2012), and in the first commitment period provided that activities have taken place since 1990.

Implementation of these articles is confounded by a lack of definitions for words like “reforestation” and “forest,” and the implications of choosing among commonly used definitions are very large. The precise definitions of terms and the rules for taking account of carbon emissions and removals due to LULUCF activities will have different impacts on different countries depending on: 1) the nature of their forests, 2) whether or not the LULUCF sector is currently a source (net emitter) or sink (net remover) for atmospheric CO2, and 3) the expected emissions balance of the LULUCF sector over the coming decades. The LULUCF provisions in the Kyoto Protocol can only be implemented once the accounting rules have been determined. Inevitably there is a problem when the commitments have already been agreed to, but agreement on the opportunities and rules for meeting those commitments has not yet been fully reached.

Implementation of the LULUCF provisions of the Protocol raises at least six principal issues for domestic LULUCF activities:

  • What is meant by a “direct human-induced” activity?
  • What is a forest and what is reforestation?
  • How will uncertainty and verifiability be dealt with?
  • How will accounts deal with the issues of (non)permanence (sequestration reversed by emissions at a later date, e.g. if a new forest is destroyed by a catastrophic event) and leakage?
  • Which activities beyond ARD, if any, will be included, and what accounting rules should apply?
  • Which carbon pools and which greenhouse gases should be considered?

The last point includes the issue of whether and how to consider that harvested materials from forests can result in an increasing stock of carbon in long-lived wood products and landfills. The Kyoto Protocol does recognize that greenhouse gas emissions will be reduced when sustainably-produced biomass products are used in place of fossil fuels or energy-intensive materials. Biomass fuels, for example, can be used in place of fossil fuels, and construction wood can be used in place of other, often more energy-intensive, materials such as steel or concrete.
In addition to encouraging certain domestic LULUCF activities, the Protocol, through Articles 6 and 12, provides for mitigation projects in other countries and trading of emission credits. When projects involve only developed countries (Article 6), emission reductions or enhancement of sinks that are credited to one country are subtracted from the assigned amount of the other, and there is no change in the global total of assigned amounts. Projects involving both developed and developing countries (Article 12), referred to as clean development mechanism (CDM) projects, result in an increase in the global total of assigned amounts because credits are added to the assigned amounts of developed countries whereas, in the absence of emission limits in developing countries, no subtraction takes place elsewhere. It is therefore critical that the credits result from real emission reductions, or sink enhancements, that go beyond what would have happened without the project. Herein arises the concept of “additionality.”

Article 12 of the Kyoto Protocol does not specifically include or exclude LULUCF projects. At least two important, project-level issues for LULUCF remain to be addressed:

  • Will LULUCF activities in developing countries be accepted in the CDM and, if so, which activities?
  • What accounting mechanisms are appropriate if LULUCF projects in developing countries can generate emission credits but there is no responsibility for debits if the carbon is subsequently lost?

The potential for increasing carbon stocks in the terrestrial biosphere might be limited compared to total greenhouse gas emissions, but their impact could be considerable in relation to the reductions necessary for compliance in the first commitment period (2008-2012). However, not all changes in carbon stocks in the biosphere are treated equally in the Protocol, some yield credits or debits and some do not. It is inevitable that a system cannot be optimized by treating only a portion of that system, and the definitions and rules for LULUCF will have to be carefully crafted to provide incentives for increasing carbon stocks while recognizing the other important roles played by the terrestrial biosphere and its products. It is, however, important that the transaction costs associated with these rules are not so high that they discourage participation toward the ultimate objective of stabilizing atmospheric CO2. If all of this can be achieved, improved management of the terrestrial biosphere can provide an important contribution toward meeting climate-change objectives, and the Kyoto Protocol can provide incentives for improved management of the terrestrial biosphere.

Bernhard Schlamadinger
Gregg Marland

The European Union & Global Climate Change: A Review of Five National Programmes

The European Union & Global Climate Change: A Review of Five National Programmes

Prepared for the Pew Center on Global Climate Change
June 2000

John Gummer and Robert Moreland, Sancroft International Ltd

Press Release

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Eileen Claussen, President, Pew Center on Global Climate Change

As we approach the third anniversary of the Kyoto Protocol and continue working to address the questions raised but not answered in the agreement, entry into force is increasingly the subject of climate change discussions. European Union (EU) countries have voiced their strong support for early ratification. With Kyoto targets that become legally binding upon the Protocol’s entry into force, how close these countries are to delivering the promised reductions is worthy of analysis and discussion.

This report reviews the progress of five EU member states whose emissions totalled nearly 60 percent of the EU emissions in 1990: Germany, United Kingdom, The Netherlands, Austria, and Spain. As part of the Annex I group of developed countries, the EU member states agreed to a collective target to reduce their greenhouse gas emissions under the Kyoto Protocol. They have assumed national commitments at varying levels through Article 4 of the Protocol, which establishes that groups of countries may redistribute their emissions reductions in ways that preserve their collective goal. The five countries reviewed in this report have chosen varied approaches to cutting their emissions, with some similarities including voluntary agreements with industry and eco-taxes. Analysis suggests the following:

  • The EU will meet its Rio target to keep emissions to 1990 levels by 2000, largely due to reductions in the UK and Germany.
  • The UK is currently the furthest of the five countries below its 1990 level and is likely to meet its Kyoto commitment of a 12.5 percent reduction in 2008/12.
  • Germany, the EU’s largest emitter in 1990, may fall short of its Kyoto commitment (21 percent reduction) without further action; given the high level of political commitment and the recent proposal of additional measures, it is possible that Germany could achieve its target .
  • The three smaller countries are not on track: CO2 emissions from the Netherlands currently exceed 1990 levels by 17 percent, rendering it highly unlikely that it will reach its Kyoto target even if half its reductions come from emissions trading; Austria faces per capita emissions that are already low due to the high use of renewable energy — additional reduction measures will be very difficult and plans and programs are not now in place to deliver the necessary reductions; Spain is already close to reaching the level of emissions growth that it was allowed as a relatively poor country in the EU, with little indication that sufficient action will be taken to prevent exceeding its target.

The authors and the Pew Center gratefully acknowledge the following individuals for their review of previous drafts of this report: Tom Burke, Jos Delbeke, Hermann Ott, Karl Steininger, Pier Vellinga , Hauke Von Seht, and Anne Weir.

Executive Summary

Most member states of the European Union (EU) have been at the forefront of international efforts to mitigate global climate change. They have been leaders in proposing targets for reducing greenhouse gas (GHG) emissions and developing policies for action. In 1990, the EU Ministers of Environment and Energy agreed that carbon dioxide (CO2 ) emissions of the member states would be no higher in 2000 than in 1990. Seven years later in Kyoto, Japan, the EU ministers agreed to reduce the EU’s GHG emissions by 8 per cent between 1990 and the period from 2008 to 2012 (2008/12). This reduction was apportioned among the 15 member states. The wealthier nations took a higher percentage of reductions, while the less economically developed nations agreed to moderate increases in emissions growth.

Although there is an overall EU target, actions taken to reduce GHG emissions are the responsibility of the individual member states. This report examines the response of five states: The Federal Republic of Germany, the United Kingdom (UK), The Netherlands, Austria, and Spain, which in total contributed 60 per cent of the EU’s emissions in 1990. Germany and the UK — the leading emitters — contributed 46 per cent. The Netherlands and Austria are often considered leaders on environmental issues, while Spain was chosen because its emissions will be allowed to increase over 1990 levels. Progress made since 1990, obstacles encountered, and the likelihood of successfully meeting the reduction target within the time scale envisaged in the Kyoto Protocol are discussed. Government plans that have turned into action and plans for future implementation are also addressed. The political commitment of governments to reduce emissions and potential obstacles to reductions are examined.

The European Commission concluded in 1999 that the EU’s GHG emissions as a whole will be approximately the same in 2000 as they were in 1990, but that the stabilisation of emissions will largely result from the efforts of the two biggest emitters, Germany and the United Kingdom. Major factors in the reduction of GHG emissions have been the switch from coal-powered to natural gas-fired electricity production and rehabilitation policies in the former East Germany. Other measures, noticeably energy efficiency incentives and high gasoline prices (relative to the United States), played a part. However, in the future, the member states are likely to rely more on renewable energy, combined heat and power (co-generation) schemes, eco-taxes, voluntary agreements with industry, and a moderation of increases in emissions from traffic. Despite political difficulties over coal, nuclear energy, eco-taxes, and road transport, the authors believe that, generally, the political commitment to reduce GHG emissions remains strong.

The European Union’s strong support for action could be seen in its pressure for high targets at Kyoto. Power, however, lies with member state governments. Consequently Europe-wide action has been very limited, but all member states have taken action, and emissions would be higher but for this action. However, the 2000 emissions target will be achieved largely through reductions in Germany and the United Kingdom, although some member states — notably the Netherlands — will be well behind their individual targets. The European Commission estimates that emissions would increase by 6 per cent between 2000 and 2008/12 without further measures. Thus, in reality, the Kyoto target is a reduction of 14 per cent for the period from 2000 to 2008/12.

Germany, as the largest emitter in the EU, has long recognised the need to reduce GHG emissions. It has taken on the responsibility for the largest reductions: 252 million metric tonnes (mmt), equivalent to a 21 per cent reduction between 1990 and 2008/12. While action in Germany has been taken nationwide, the improvement in the German position to date — a reduction of about 17 per cent in GHG emissions from 1990 to 2000 — largely reflects the dramatic decrease in emissions from the former East Germany. This reduction is unlikely to continue at the same pace and meeting the Kyoto target will be difficult but not impossible. The government has a national programme that includes a reduction in coal use and production, voluntary agreements with industry, traffic measures, eco-taxes, and an emphasis on co-generation and renewable energy. German public opinion is mixed on the success of some of these measures, the need to use nuclear energy, and, indeed, whether Germany should have accepted such a large share of the EU’s obligation. However, there is little dissent on the need for action and the government of Chancellor Gerhard Schröder has regularly stressed its importance. The German position is illustrated by the government’s keen desire to see the Kyoto Protocol enter into force by 2002.

The United Kingdom has historically had a high per capita level of GHG emissions. It has accepted a reduction of 12.5 per cent between 1990 and 2008/12, and has adopted a national target of about double this percentage. The UK has already achieved a 14.6 per cent reduction due primarily to substantial fuel switching from coal to natural gas. However, further reductions in this area are limited and, like all the EU countries reviewed in this report, the UK will have to contend with increases in transportation sector emissions. To ensure continued reductions, the government is relying heavily on several measures, including greater use of renewable energy, eco-taxes, and voluntary arrangements with industry. The country is also examining the possibility of a domestic emissions trading scheme. The UK does face political difficulties concerning nuclear energy, coal, domestic energy use, and traffic growth. The national target of obtaining 10 per cent of electricity generation by 2010 from renewables is ambitious. However, these difficulties do not yet threaten the fulfillment of the UK’s strong commitment to achieve its obligations under the Protocol.

The Netherlands is often considered an environmental leader and indeed was at the forefront of EU appeals for action on climate change at both Rio and Kyoto. However, the Dutch economy, which has grown faster than the European average, is energy-intensive, partly due to the country ’s large resources of offshore natural gas. Although the Netherlands has accepted a 6 per cent reduction in emissions between 1990 and 2008/12, it has increased its CO2 emissions by about 17 per cent since 1990. This increase brings into question the country ’s ability to reach its Kyoto Protocol target. The government has already stated that it intends to take advantage of emissions trading to meet half its target. Like Germany, the Netherlands is introducing a wide range of measures to achieve its goal and is promising more. These measures will affect some of the traditional strengths of the economy — the transport sector and its energy-intensive industries — and will involve further taxation. The Dutch commitment to reducing GHG emissions is very strong and the Netherlands has shown willingness in recent years to tackle other difficult problems, such as making its labour market more flexible. Nevertheless, it is difficult to be optimistic about the country ’s ability to meet its obligations under the Kyoto Protocol.

Austria has a low level of per capita GHG emissions, largely as a result of its heavy reliance on renewable energy, particularly hydropower and biomass. It also has provided strong support for public transport — particularly rail. Austria has agreed to cut emissions under the Kyoto Protocol by 13 per cent between 1990 and 2008/12. From examination of the data available, this target may be more difficult to achieve than the Austrians envisaged. There may be less opportunity to expand the use of renewable energy than anticipated, and the Austrian government will not entertain the use of nuclear energy. The government is firmly behind actions to reduce GHG emissions and intends to meet its obligations. Because of the high use of renewables for energy production, the Austrian public appears to believe that the country has no great problem from emissions other than transport and could react against tougher measures.

Spain is the one country examined in this report that has been allowed increased emissions (15 per cent between 1990 and 2008/12) because of the country ’s need for economic development and relatively low level of per capita GHG emissions. Statistical information for Spain is more limited than for other countries covered, but GHG emissions between 1990 and 2000 appear to have increased between 11 and 13 per cent. Greater use of natural gas and renewables instead of oil and coal should help, but much will depend on political will in Spain and on pressure from other member states. Unless further action is taken, Spain will not meet its target.

The report draws a number of conclusions. However, no hard conclusion on the likelihood of the EU as a whole achieving its obligations by 2008/12 can be drawn. Much depends on the development of new programmes to form voluntary agreements with industry, accelerate renewable energy use in electricity generation, and increase the use of co-generation. Much also depends on the extent to which strong political commitments to reduce emissions can outweigh countervailing political pressures. Demands to slow the switch from coal-powered generation, reduce the contribution of nuclear energy without adequate replacement of its generating capacity from non-CO2 generation sources, and avoid restrictions on road transport could put member states off course. However, the political commitment to take action on GHG emissions appears generally to be strong and supported by public opinion.


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

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

Prepared for the Pew Center on Global Climate Change
May 2000

Daniel Bouille, Institute for Energy Economics, Bariloche Foundation
Hilda Dubrovsky, Institute for Energy Economics, Bariloche Foundation
William Chandler, Battelle, Advanced International Studies Unit
Jeffery Logan, Battelle, Advanced International Studies Unit
Fernando Groisman, Institute for Energy Economics, Bariloche Foundation

Press Release

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Eileen Claussen, President, Pew Center on Global Climate Change

The Republic of Argentina is positioning itself at the forefront of the climate change debate among non-Annex I countries. It initiated market reforms in the early 1990s that made the economy more efficient while providing mixed, but on balance, positive, environmental results. In 1999, Argentina set a voluntary target to lower greenhouse gas emissions to between 2 and 10 percent below the projected baseline emissions for 2012. Additional policy choices that it makes to improve economic growth and lower emissions could serve as important examples for others facing similar challenges.

Argentina's electric power demand is expected to more than triple over the next 15 years, expanding by 6 percent a year. Emissions of greenhouse gases, however, do not have to increase at the same rate. The successful implementation of the market-based reforms and increased competition in power generation could continue to play an important role in the near future in lowering emissions from projected levels. This report describes the context for new investments in this sector and identifies principal trends under three alternative policy scenarios. The report finds that:

  • Under a business-as-usual scenario, electric power generating capacity, primarily from large natural gas turbines and combined-cycle plants, is expected to increase 170 percent, growing from 17 gigawatts in 1995 to 46 gigawatts in 2015, at a cost of $26 billion. Carbon dioxide emissions are expected to nearly triple, growing from 4.8 million tons in 1995 to 14 million tons in 2015.
  • Natural gas combined-cycle plants have become the most competitive alternative over hydro and nuclear power, and are currently the main choice of private sector power developers in Argentina. These plants produce less than half the greenhouse gas emissions of similar coal-fired plants, and have essentially no emissions of sulfur dioxide and particulates. If low-cost natural gas resources become restricted due to shortages, however, investments would flow to nuclear and coal-fired power plants. This outcome could raise total costs to nearly $45 billion, although greenhouse gas emissions would remain essentially unchanged due to the offsetting characteristics of nuclear and coal-fired plants.
  • Adopting policies that favor renewable energy sources and nuclear power cost $32 billion by 2015 — about 23 percent more than the baseline — and would decrease carbon dioxide emissions from 14 million tons in the baseline to 11 million tons in 2015.
  • Increasing energy efficiency by end-users and demand-side management would reduce total costs by $6.3 billion and carbon dioxide, sulfur dioxide and nitrogen oxide emissions would all decline 20 percent compared to the baseline.

Developing Countries and Global Climate Change: Electric Power Options in Argentina is the last 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 in Brazil, China, India, and Korea.

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

Argentina boasts a distinctly market-oriented electricity generating system. Power sector reforms have progressed further than in most nations, including the United States, and hold important lessons for climate policy. Competition in Argentina has favored natural gas over hydropower and nuclear power, thus increasing emissions at the margin, but has also virtually eliminated coal from the market despite its abundance. While competition has lowered the price of electricity, and thereby increased demand, it has done so by reducing inefficiency that in turn reduced carbon emissions. Privatization and competition in the energy sectors of Argentina and several other South American countries is influencing power reform across the continent.

There are numerous trends driving growth in energy demand. The electric power sector consumes about 22 percent of Argentina's total energy supply. Today, overall energy demand growth is driven by transportation energy use, which increased by half since 1990. The residential sector grew by more than one-quarter over the same period. Abundant natural gas provides one-third of total energy use and continues to increase market share. Transportation and agriculture still rely on petroleum, but industry, commercial buildings, and residences have increasingly switched to direct use of natural gas. Argentina also exports petroleum and natural gas, currently about one-eighth of total production. The country has a relatively strong energy conservation and efficiency program focusing on cogeneration of heat and power, energy appliance labeling, and efficient lighting.

Argentina is emerging as a leader in environmental issues. In October 1999, Argentina announced a voluntary effort to restrict greenhouse gas emissions within a range of 2 to 10 percent below the projected baseline level during 2008-2012. Argentina became the first developing country under the United Nations Framework Convention on Climate Change to establish a voluntary target. The impact of this action on other developing countries is still not clear, but it could catalyze some of the relatively small emitters to take on similar voluntary targets.

While Argentinian power demand is expected to continue to grow rapidly at over 6 percent each year, growth will not necessarily mean a corresponding increase in emissions. Carbon emissions in particular can be offset by improving energy conversion efficiencies, promoting carbon-friendly renewable energy sources, and introducing policies such as the Clean Development Mechanism (CDM) or domestic actions to change fuel-choice decisions. This study explores these and other issues in four scenarios including a baseline of continuing policies and trends, an emissions mitigation case, a natural gas shortage scenario, and a scenario of end-use efficiency improvements.

The scenarios provided the following results:

Baseline Scenario. This scenario, which assesses power supply and demand based on current trends and fuel availability, projects installed power generating capacity to grow from about 17 gigawatts1 in 1995 to 46 gigawatts in 2015, an increase of 170 percent. The share of power provided by hydroelectric resources will fall from half of all generation in 1995 to about one-quarter, while nuclear power will drop from 10 percent of supply to only 3 percent in 2015. Gas-fired plants provided about 46 percent of power in 1995, a share that will grow to 72 percent over the next decade-and-a-half. Total cost in the baseline scenario from 1995 to 2015, including discounted capital, operations and maintenance, and fuel components, is estimated to be $26 billion. Carbon dioxide emissions from the power sector grow from 4.8 million tons of carbon in 1995 to an estimated 14 million tons in 2015, almost tripling.

Emissions Mitigation Scenario. This scenario tests the impact of policies to reduce the capital cost of power supply in order to favor non-carbon energy sources such as hydropower and wind. The reduction in capital costs is simulated by lowering the discount rate from 12 percent in the base case to 5 percent, and would require an outright social or environmental subsidy. This approach might simulate the use of domestic subsidies and soft loans or investments from the CDM. In this scenario, hydropower's share continues to fall but only to 39 percent, while nuclear's share drops to 4 percent. Power supply grows 7 percent more than in the baseline, thus requiring a total of almost 49 gigawatts of capacity in 2015. The value of the "subsidy" would amount to $6 billion over the 20-year period as total costs increase by 23 percent to $32 billion. Carbon dioxide emissions are around 11 million tons, or one-fifth less than baseline levels.

Natural Gas Shortage Scenario. This scenario assumes that low-cost natural gas resources are restricted — compared to the baseline scenario — for use in the power sector starting in 2005. Methodologically, the scenario applies the 12 percent discount rate used in the baseline but severely constrains gas supply to reflect the assumed resource depletion. Consequently, the least-cost model simulation predicts investment flowing to nuclear and coal-fired power stations. Total power capacity reaches 48 gigawatts, 4 percent above the baseline, although actual power generation remains the same. Nuclear power's share in generation rises dramatically to over 15 gigawatts by 2015. The scenario also applies environmental externalities to coal use, and this accounts for the marked increase in nuclear power. Power demand would exceed 181 terawatt-hours, compared to roughly 55 terawatt-hours today. Total costs would rise to nearly $45 billion, over 70 percent higher than the baseline. Carbon emissions would decline by 2 percent, but sulfur dioxide and particulate emissions would increase dramatically due to the increased use of coal-burning power plants. The likelihood of a natural gas shortage this severe is remote so the scenario results should be viewed as an upper-end outcome.

Efficiency Scenario. This scenario tests the effect of demand-side energy-efficiency policies, including strengthening standards for appliances and buildings, increasing competition in energy-using equipment by liberalizing trade, and providing informational or financial assistance to industrial consumers. Efficiency is assumed to reduce energy use in the buildings sector by 9 percent and by 7 percent in the industrial sector by 2015 compared to the baseline. Industrial cogeneration plays a significant role in this scenario. Total power costs are $6.3 billion lower than in the baseline and more than 50 percent below the natural gas shortage scenario. Carbon dioxide, sulfur dioxide, particulate, and nitrogen oxide emissions would all decline by approximately 20 percent compared to the baseline.

Several of the above scenarios raise questions about implementation costs. While the CDM might be one option in the mitigation scenario, this study makes no claim to describe how such a mechanism could be implemented to achieve the major shift in private discount rates. The efficiency scenario, similarly, depends on policies with uncertain effectiveness and does not indicate the level of effort that would be required. Achieving the potential revealed in these scenarios will depend on major new policy initiatives and on policy research to describe an effective set of policies that decision-makers can adopt.

The impact of increased use of market forces on the environment and specifically on greenhouse gas emissions in Argentina has been mixed but, on balance, positive. While hydropower and nuclear are seriously disadvantaged by market economics, gas is highly favored over coal. Because the environmental and social considerations of hydropower, nuclear, and coal are substantial, it cannot be said that the market produces an unfavorable environmental result. More to the point, the market in Argentina has provided a prudent path for energy development and environmental protection, one that sensible public policy can build on to further protect Argentina's environment and the global climate.

About the Authors

Daniel Bouille
Daniel Bouille is Senior Researcher at the Institute for Energy Economics/Bariloche Foundation in Buenos Aires, Argentina. An economist by training, his academic background includes post-graduate studies in Energy Economics at the University of Cologne in Germany.

His professional background presently focuses on research and technical assistance related to climate change issues. Professor Bouille was National Coordinator of the Argentine Report on Greenhouse Gas Mitigation in the Energy Sector. He has served as Coordinator of numerous projects including, "Study on Flexibility Mechanisms within the Context of the United Nations Framework Convention on Climate Change and the Kyoto Protocol;" "Study of the Andean Pact: the Benefits of the Integration on Greenhouse Gas Emissions;" Technical Assistance to the First Mitigation Study for El Salvador; and Energy Study to fix the Argentine Voluntary Commitment.

Professor Bouille is also a member of the expert roster of the GEF, and Lead Author of the IPCC Working Group III Third Report.



NAME AND SURNAME: Hilda Susana Dubrovsky
BIRTH DATE: September 6th, 1953
PRESENT POSITION: Instituto de Economía Energética Academic Researcher


Civil Engineer directed to hydraulic vocational guidance.
Researcher, Postgraduate in Economic and Energy Planning.


Experience obtained through different research-studies and works dealing with Economics and Energy Planning, requested by national and international agencies such as: PNUD, FAO, CEE (DG XVII), IDRC (Canada), IDB, OLADE, The World Bank, CIER (Commission of Regional Electricity Integration) and The Andean Promoting Corporation- CAF. Other institutions as the National Secretariat for Energy (Argentina) and different national and provincial public or private bodies: INVAP, CNEA, also with various universities and electricity companies.


Electricity Planning, energy prices and tariffs, energy and agriculture-husbandry production techniques; projection methodology covering energetic requirements; integral energy planning at national level; energy integration; strategies dealing with national use of the energy, environment impacts of the energy systems.

Author and collaborating member in numerous research studies, covering the above mentioned areas.


William Chandler is currently Senior Staff Scientist and Director of Advanced International Studies at Battelle Memorial Institute's Pacific Northwest National Laboratory in Washington, D.C. He is a member of the international energy panel of the U.S. President's Council of Advisors on Science and Technology, and an adjunct professor at Johns Hopkins University.

Mr. Chandler has authored or co-authored ten books, and has often published in both technical and popular journals, including Climatic Change and Scientific American. He occasionally appears on national radio and television, most recently in a Peter Jennings ABC special on climate change.

His international work has included institution building, policy development, and project finance. He led the creation of independent, not-for profit energy efficiency centers in six nations, including Russia and China. Chandler received the 1992 Champion of Energy-Efficiency Award from the American Council for an Energy Efficient Economy for his work. He has also led case studies of energy and climate in most of the transition economies and is lead author for the Intergovernmental Panel on Climate Change, currently focusing on technology transfer.

Mr. Chandler manages the U.S.-Ukrainian collaborative program on energy-efficiency investment under the Gore-Kuchma Commission and is a member of the National Committee on U.S.-China Relations. He holds a B.S. from the University of Tennessee, and an MPA from Harvard University.


Jeffrey Logan is a Research Scientist in the Advanced International Studies Unit of the Pacific Northwest National Laboratory in Washington, D.C. His work focuses primarily on the environmental and economic impacts of energy system decisions, with a heavy geographic focus on China.

He has published extensively on China's electric power sector, natural gas industry, energy conservation efforts, and renewable energy potential. He led a 1998 study entitled "China's Electric Power Options: An Analysis of Economic and Environmental Costs, " which received wide attention. He has also advocated greater natural gas use in China as a substitute for coal and published related articles in the Oil and Gas Journal and the China Business Review.

Mr. Logan began his career at General Electric modeling satellite orbits. He later joined the Peace Corps and taught applied science in rural Nepal. A growing interest in the rapid development of Asian economies and their associated environmental and social dislocations then took him to China where he worked with the United Nations. He has five years of field experience in Asia and speaks Chinese and Nepali.

Logan has a B.S. degree in Aerospace Engineering from the Pennsylvania State University. He also holds a joint Masters degree in Environmental Science and Public Administration from the School of Public and Environmental Affairs at Indiana University. He has also worked at the East-West Center in Hawaii researching the dynamics of Chinese energy and economic activity.



NAME AND SURNAME: Fernando Groisman
BIRTH DATE: June 30th, 1921
PRESENT POSITION: Instituto de Economía Energética Senior Researcher


Mechanical-Electrician Engineer, Senior. Expertise in Economics, Energy Policy and Planning. Methodologies and Applications directed to Energy Planning connected to the requirements, supply and environment impacts.


Experience and training in: Integral Energy Studies worked in different Argentine provinces and National regions, as well as in foreign countries. Studies covering the diagnosis, energy demand and supply scenarios, on medium and long term; environment impacts and mitigation sceneries related to environmental pollution. Studies dealing with the rational use of energy. Energy and environment policies patterns; assessment and supply by means of non-conventional energy sources. Various study-works referred to the different effects of technology. Advisor on subjects referred to Energy Legislation.

Author and collaborating member in numerous research study-works in the above mentioned fields.   


Daniel Bouille
Fernando Groisman
Hilda Dubrovsky
Jeffrey Logan
William Chandler

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

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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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.


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

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

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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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

Innovative Policy Solutions to Global Climate Change Conference

Promoted in Energy Efficiency section: 

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


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 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

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