sectoral economic costs and benefits of ghg mitigation - IPCC

Fossil Fuels
Kuwait Investment Authority 1 : Surplus revenues from Kuwait oil sales were originally managed
by the Department of Finance of the government. In 1960, the General Reserve was created,
consisting of all the State's investments, and in 1976, Kuwait formed the “Future Generations
Fund” which consisted of 50% of the General Reserve at that time, 10% of the annual budgetary
revenues of the State, plus the profit of these assets. The original idea was that the Future
Generations Fund would provide a source of income in the event the oil markets were depressed
– or when crude oil dried up. Presently, investment income is a larger source of national income
than the oil industry itself. Assets from the Fund For Future Generations (now managed by the
Kuwait Investment Authority) are invested in international stocks, foreign bonds, major
currencies, and various economic projects, under the supervision of economic and financial
experts in Kuwait and advised by international financial institutions. The Fund plays a major role
in implementing economic and social policies for local development, and regional and
international cooperation, investing in a diverse portfolio. In 1997/98 the Fund for Future
Generations received government contributions of approximately US$ 1.06 billion.
Norwegian Government Petroleum Fund 2 : The fund, originally created in 1996 is an integrated
part of the central government fiscal budget and is to reflect government saving. Money is only
allocated when the budget (including petroleum revenues) shows a surplus. The fund's income is
derived from government net petroleum revenues plus any return on investment. Unlike the
Kuwaiti analog, the Norwegian Fund does have regular disbursements to the government budget
as transfers to finance the non-oil budget deficit. The value of the fund corresponds to a separate
portfolio of foreign assets which aim to maintain the fund's international purchasing power.
According to the present guidelines (issued in 1996) the assets are to be invested mainly in low
risk bonds, with a currency distribution matching Norway's import weights. At the end of 1996
the fund's capital amounted to approximately US $6.5 billion, and forecasts indicate the capital in
the fund to be an estimated US $60 billion at the end of 2001. The long-term calculations of the
size of the Government Petroleum Fund, taking into account new projections for petroleum
revenues and assumptions concerning growth in public sector employment as described above,
suggest the Fund will rise to 140 per cent of GDP in 2020 and then fall steadily thereafter under
the baseline scenario.
A bilateral effort among producers from developed and developing countries to better
disseminate information on such practices could be helpful in assisting all export dependent
Parties to counter any ill effects of global climate change mitigation policies.
Unilateral Action
It is expected that a significant share of any climate change mitigation efforts will be taken
domestically and (except, perhaps, in the European Union) unilaterally. Much of the discussion
in section 2 above described specific policies that might be taken to reduce emissions from oil or
coal. However, some other measures, both cost-effective and likely to minimize the impact on
fossil fuel exporters – may also deserve some attention.
Perhaps most significant in its possible impacts is the removal of fossil fuel subsidies. A paper
prepared by the Annex I Experts Group in 1996 3 concluded that removal of subsidies in coal and
electricity could both substantially reduce CO 2 emissions – and stimulate economies with
revenues that had previously been tied up in subsidies.
1 Data on the KIA is drawn from the KIA website: http://168.187.145.2/kia.htm
2
Data on the Norwegian fund is drawn from the Norwegian Department of Finance website:
http://www.dep.no/fin/prm/1997/k2/970513e.html, and in the 1998 National Budget of Norway.
3 Annex I Experts group on the UNFCCC, 1996. Policies and Measures for Common Action: Reforming
Coal and Electricity Subsidies.
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