sectoral economic costs and benefits of ghg mitigation - IPCC

Jonathan Pershing
It is necessary to again caveat some of the limitations of these models: few include any analog
for the market power exerted by OPEC countries, few assume any action to comply based on
non-CO 2 policies and measures, few assume any mitigation or offset from sinks, and almost all
are based solely on CO 2 from the energy sector. As a consequence, all are likely to substantially
overstate overall costs, and more specifically, overstate OPEC or oil exporting country costs.
Recognizing the caveats attached to the models and the likely error in any specific value, there is
none-the-less a clear trend: the greater the application of the mechanisms, the lower the overall
global and OPEC (in this case representing oil exporters) GDP losses. Oil prices, while declining
(according to most general equilibrium models), decline only slightly. In all cases – even the case
of full domestic implementation (i.e., without the application of any of the Kyoto mechanisms),
there is a rise in both global and regional GDP. The use of the mechanisms merely allows a more
rapid increase (or a reduced reduction from the business-as-usual, no-policy scenario). Inasmuch
as efforts to cap the use of the mechanisms also increase the overall costs, they too would have a
detrimental effect on OPEC GDP.
Other actions too, may require agreement in the UNFCCC. For example, the greater the use of
sinks and non-CO 2 greenhouse gases to offset CO 2 emissions, the lower the cost implications for
overall compliance. For example, depending on the interpretation of the sinks definitions,
forecasts suggest that a substantial share of emissions might be offset through measures to
enhance sinks. To date, however, guidelines for the use of these have not been agreed. Clearly,
the implications of environmental protection that underpin both the Convention and the Protocol
will determine the ultimate use of these – but there are sure to be consequences for fossil fuel
exporters in the outcomes.
Bilateral Exchange of Experiences
In addition to actions that might be taken at the multilateral level, a number of counties have
already begun to experiment with mechanisms to offset possible losses from the decline in oil
revenues – in effect, creating hedging strategies. The reasons for this have perhaps been most
clearly explained by the Norwegian Ministry of Finance in it 1998 budget 1 . They suggest that
while petroleum revenues provide countries with sizeable surpluses both on the current account
of the balance of payments and in central government finances as well as opportunities to
maintain growth and employment, single sector economies are also more vulnerable to internal
and external instabilities and cost pressures. This is related to the following factors:
• Part of the petroleum revenues is not income in the usual sense since it involves a depletion
of petroleum wealth;
• Government revenues from the petroleum sector do not have the same effect of reducing
spending in the private sector as taxes from other sectors. The use of petroleum revenues
may therefore generate cost pressures and weaken the basis for exposed industries in the
mainland economy.
• Revenues from the petroleum sector show greater variations over time than other revenues,
partly as a result of fluctuations in the price of crude oil. The dependence on petroleum
revenues implies that without careful planning, declines in oil prices would require
substantial alterations in economic policy.
Two examples may be cited for successful long-term management initiatives designed to provide
the benefits of sales of national natural resource bases in the future: the Kuwait Investment
Authority and the Norwegian Government Petroleum Fund. Other examples also exist (e.g.,
Oman, the Province of Alberta in Canada, and the State of Alaska in the USA).
1 See Norwegian Department of Finance, 1998 budget, p 31.
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