sectoral economic costs and benefits of ghg mitigation - IPCC

José R Moreira
When a project is undertaken, costs will be incurred at various points in time. Where the project
has costs incurred over T years, and where the annual rate of discount is r, if all costs are in
current prices, then the discount rate chosen is called the nominal discount rate. If the costs are in
constant prices, the discount rate is called the real discount rate. These discount rates can be
classified in ethical terms based on what rates of discount should be applied, and in descriptive
terms based on what rates of discount people actually apply in their day-to-day decisions. The
former leads to relatively low rates of discount (around 3% in real terms) and the latter to higher
rates (above 10%, and even higher).
In table 5, adjustments to estimated social costs are described.
At this point it is worthwhile to comment on the following. Large-scale power production
projects demand primarily capital, foreign exchange and fuel resources. Many renewable energy
projects demand in addition to capital also local resources such as land, labor and materials. A
traditional assessment of private project costs will often make the large-scale power production
project more attractive in relation to a renewable project compared to an assessment on social
costs. This is because, although these larger projects have lower traditional costs, they can have
higher social costs – i.e. when account is taken of the benefits of increased employment, reduced
local air pollution, and saved capital and foreign exchange.
As noted from the above discussion it is clear that the IPCC assessment should include more than
private costs. The idea behind this approach deals with one of the requirements of the UNFCCC,
which states that global air emission control, and sustainable development must occur. Countries’
government and its measurement should determine sustainable development and verification
requires analysis of social costs.
Another aspect taken from the IPCC guidelines is the absence of well-defined procedures for
calculation of externalities listed in Table 5. This is a serious difficulty IPCC authors have to
overcome, if the purpose is to assess in a uniform way the available literature.
9 Conclusion
With all these different methodologies at hand it is of small value to present information to
decision-makers. The variety of results and their spreads in figures are so large that result
credibility is low. On the other hand some results are extremely important for not being
considered when a country defines its economic policy.
To minimize the problem it is recommended that a series of guidelines be provided by a credible
organization (e.g. IPCC) for the calculation of externalities. Externalities are not yet accepted by
several economists and decision-makers, but GHG emission costs, which are also not yet
considered in most economic project evaluation, do have a Reference Manual prepared by IPCC
providing rules and guidance for their proper accounting.
The existence of a standard procedure for externality accountability should be a serious advance
for their future acceptance as a routine consideration for project evaluation.
References
Carvalho, J.L. and C. Haddad, 1981 – Foreign Trade Strategies and Employment in Brazil, in
Trade and Developing Countries. A. O. Krueger, H. Lary, t. Monson, and N. Akrasanee,
(eds), Chicago, University of Chicago Press for the National Bureau of Economic
Research.
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