sectoral economic costs and benefits of ghg mitigation - IPCC

Fossil Fuels
demand for crude oil is reduced because of the increase in competitiveness of non-carbon fuel
brought about by carbon instruments.
The CLIMOX model does not consider methane abatement separately, and the results on gas
could change substantially if reductions in fugitive fuels were achieved at less cost than
reductions in gas use. Gas leaks could be stopped, with more gas at a competitive price available,
substituting for coal and in some cases for oil. Already we have seen that the reduction in gas use
in electricity generation is much less, than the reduction in coal use. If cheaper ways to repair
leaking pipelines were used, gas could expand its market in electricity generation at the cost of
coal.
To evaluate the importance of the existence of non-carbon fuel in the model, we have performed
simulations for a world without non-carbon fuel. Without non-carbon fuel, the quantity of oil
increases in the BaU case, to 104.4 mbl/d in 2020, as opposed to 102 mbl/d in the base version.
The oil price rises by 40 per cent from the 1995 level, compared with an increase by 33 per cent
in the base case. Total liquid fuel availability is less than in the base case, 110 mbl/d instead of
112 mbl/d (as before, this figure includes refinery gains).
Implementing Kyoto then reduces the total production of oil to 101.1 mbl/d, a reduction of 3.3
mbl/d as compared to 5.3 mbl/d in the simulations with non-carbon fuel. The oil price increases
by 35 per cent from the 1995 level, five percentage points below the BaU simulations, as
opposed to 9 percentage points in the base case. The impact of Kyoto on the oil market is
therefore significantly less in a world without non-carbon fuel as backstop fuel.
To conclude, contrary to a priori expectations based on partial equilibrium evaluation of carbon
contents of fuels, climate change policies as envisaged in the Kyoto Scenario have a strong
impact on gas, almost as strong as on coal, the major culprit in the greenhouse debate. Existing
taxation means impacts on oil are reduced, but technological development takes away some of
the oil demand.
5.3 Oil Revenues
Changes in prices and volumes of oil sold translate into changes in oil revenues for oil producers.
In Table 5 we show changes in oil revenues for the regions in the model. World oil revenues
increase by 48 and 98 per cent between 1995 and 2010 and 2020, respectively, in the Businessas-Usual
case. There are strong regional differences in this increase, as oil production in some
regions declines and in others increases very strongly. The strongest increase for the regions is
observed in Latin America, where revenues more than double to 2010, and more than triple to
2020 in the BaU case. Oil revenues in the Middle East (AOE) also increase strongly, to more
than twice their level of 1995.
The price and quantity reactions to the implementation of the Kyoto Protocol mean oil revenues
world-wide increase less strongly than in the BaU case. The Kyoto Protocol costs the world oil
producers on average 12 per cent of projected revenues in 2010 and 2020.
The regional differences are again strong: because non-conventional oil suffers more from Kyoto
policies, producers of high amounts of non-conventional oil in the BaU case see a bigger fall in
revenues, than producers of only conventional oil. Oil revenues in Latin America fall by 27 and
29 per cent from BaU levels in 2010 and 2020. Also in the EIT region, the postponement of nonconventional
oil projects means oil revenues fall 20 and 27 per cent. The AOE region suffers
relatively little, with revenues 10 and 7 per cent below BaU projections in 2010 and 2020.
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