sectoral economic costs and benefits of ghg mitigation - IPCC

Jonathan Pershing
Gas demand will vary by region – and due to the nature of gas delivery systems, variations in
demand will also affect supply. Thus, supplies of LNG which largely fuel a growing Japanese
demand are not likely to be used in other regions, which are more likely to rely on local or
regional sources. However, gas from the Middle East as well as the Caspian region are likely to
help fuel demand growth in Europe once the pipeline infrastructure has been established. With
the least CO 2 emissions per unit of energy produced of all the fossil fuels, as well as lower costs
for power generation, many see a switch away from oil and coal and toward gas as part of the
near-term strategy to combat climate change. As can be seen from Table 1 above, more than 72%
of the world’s reserves of natural gas are found in the FSU and the Middle East. Countries in
these regions that may have experienced an effect from reductions in oil exports as a
consequence of climate change policies may see these offset from the increase in exports of
natural gas.
3 Polices to Mitigate Climate Response Effests on Fossil Fuel Exporters
The discussion above makes clear that the effects of climate mitigation policies may not be either
certain nor easy to identify. However, whether or not these effects are significant, a number of
actions may be taken to help limit their magnitude. The primary concern facing most fossil fuel
exporting countries is a decline in demand, which triggers a decline in price, and in combination,
a decline in export revenues. Thus, any actions that limit the decline in demand would also tend
to limit declines in revenue.
For countries with greenhouse gas limitation or reduction obligations, the converse is also likely
to be true: the more effectively targeted the policy actions and the more efficient the policies at
achieving greenhouse gas targets, the lower the cost of compliance is likely to be. As these
interests intersect, there is likely to be common ground between fossil fuel exporters, and Annex
I Parties on this issue: both seek to reduce the costs of compliance (the exporters to reduce
impacts, and the Annex I Parties to reduce domestic implementation costs).
A number of policy approaches may be considered to reduce the overall cost of compliance.
Those discussed below include:
• collective action at the international level (e.g., action through the Conference of the
Parties to the UNFCCC promoting open and comprehensive emissions trading, joint
implementation and CDM regimes);
• actions at the bilateral level (e.g., sharing experiences on how past revenues have been
managed to most effectively “hedge” against uncertain future revenue decline); and
• unilateral action by both fossil fuel exporters and importers (e.g., providing incentives in
exporting countries to investment in new industry that would diversify portfolios, or
removing subsidies for fossil fuels that distort market behavior and favor one fuel over
another in importing countries).
Collective, Multilateral Action.
Reducing the impact of climate mitigation policies may in some cases only be possible through
international agreement. Perhaps the most noteworthy option is one provided by the UNFCCC
itself – using the Kyoto Mechanisms to reduce the overall costs of compliance, and hence,
possible direct and indirect impacts on those countries that export fossil fuels.
97