sectoral economic costs and benefits of ghg mitigation - IPCC

Fossil Fuels
of the first Kyoto commitment period. It is assumed that non-conventional sources will begin to
supplement conventional sources in order to meet demand – and non-conventional reserves are
certainly anticipated to exist in sufficient quantities to supply demand growth. However,
production and consumption of non-convention fuels are significantly more carbon-intensive
than conventional fuels. If governments choose to impose broadly based carbon charges as a
means of limiting overall emissions, development of non-conventional sources would certainly
be deferred (even more so if governments preferentially imposed charge on new investment in
non-conventional oil). Under such a scenario, the overall demand for conventional supplies
would be expected to rise even more rapidly – and volumes from Middle-East exporting
countries could remain high through the next several decades 1 .
Figure 2 Oil Supply Profiles 1996-2030
200
180
World Oil Demand
2300 Billion Barrels
160
World Crude Oil Supply
140
World Crude Oil Supply excluding OPEC Middle East
Million Barrels per Day
120
100
80
OPEC Middle East Crude Oil Supply
Unconventional Oil and NGLs
60
40
20
0
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
Additional Implications for Natural Gas
The gas market is in a substantially different position than either oil or coal 2 . Over the past
decade, growth in natural gas has been the greatest of any of the fossil fuels; over the next two
decades, growth is projected to continue by 2.6 percent annually, with consumption doubling.
The largest increases in incremental demand are expected in Asia and Latin America, but
demand is also likely to remain strong in the OECD countries.
Where gas is available, and its delivery to the market economically feasible, gas is the preferred
fuel in power generation, water and space heating and by industry. This is in part a result of the
high efficiency, and low emissions (of not only CO 2 , but also SO 2 ) of gas powered electricity
generation. There are also favorable markets for gas in household cooking and water heating.
Once gas supply systems have been built (with substantial investment costs) the marginal costs
of supplying gas in the short term is low, provided spare supply and capacity exists. Hence,
demand will be encouraged until full delivery capacity is reached.
1 See Aaheim, Bartsch, Mabro and Mueller in “The Kyoto Protocol and its Impact on Fossil Fuel Markets”,
CICERO preliminary project report, 1999; also Manne and Rutherford (1994): "International Trade in
Oil, Gas and Carbon Emission Rights: An Intertemporal General Equilibrium Model." Both suggest that
investment in non-conventional fuels is postponed due to carbon charges, and that the majority of the
carbon reductions occur in coal – leaving oil prices relatively unchanged.
2 For fuller treatment, see Part I: Natural Gas Developments and Forecasts in IEA, 1999, Gas
Information.
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