sectoral economic costs and benefits of ghg mitigation - IPCC

Terry Barker, Lenny Bernstein, Ken Gregory, Steve Lennon and Julio Torres Martinez
The MIT Joint Program's EPPA (Emissions Prediction and Policy Analysis) model was used for
this analysis. EPPA is a recursive, multi-regional, general equilibrium model that divides the
world into 12 regions, considers 10 economic sectors, and the vintage capital. The study
considered a reference case with no climate policy, and a series of cases in which the Kyoto
targets were held to 2030:
• full trading,
• no trading
• exemption of the trade goods sectors,
• exemption of households and agriculture,
• exemption of energy-intensive industries,
• exemption of transportation, and
• exemption of electric utilities.
The study was limited to the USA All of the exemption cases led to higher costs, with exemption
of the electric utility industry being the most costly, leading to almost three times more national
welfare loss than the full trading case, which has the least impact. The costs of these exemptions
grew with time.
Discussion on the sectoral impact
The overall assessment of MIT's paper by Torstein Arne Bye of Statistics Norway was that it
confirmed his expectations. He then presented this simplified assessment of the impact of GHG
mitigation on the U.S. economy: the growth in emissions due to economic growth to 2010 should
be about 40%. Energy's share of economic growth is about 3%. Multiplying these two factors
yields a loss in GDP of 1.2%, about what Jacoby et al found.
Bye raised a number of questions about the MIT study, including:
• Were the elasticities of substitution "estimates or guesstimates", they appear to be the same
for all sectors?
• Was the assumption that a carbon tax and permit trading system were equivalent justified;
he cited a study by Goulder and Williams indicating that if permits were grandfathered, they
were not equivalent to a carbon tax?
• What distributional effects were predicted by the model?
• Does the model reach steady state by 2030?
• Is 1 - 2% of GDP a large cost to pay for GHG mitigation?
Discussion on impact on chemicals, paper, steel and cement industries
Paul Cicio of IFIEC, USA started by introducing short papers on the impacts of GHG mitigation
policies on four industries: chemicals, paper, steel and cement 1 . These industries are similar in
that most of their products are commodities produced with mature technology.
Cicio had several comments on Jacoby's paper. The basic approach was good, but too simplified.
Emissions in energy intensive industries are high, in part because of co-generation. The impact
on these industries may be higher than anticipated because the low-cost options for emissions
reduction have already been taken. Also the model does not account for the fact that the jobs
which would be lost in these industries are high paying jobs that are not easily replaced.
1
These papers are included in this volume.
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