sectoral economic costs and benefits of ghg mitigation - IPCC

Fossil Fuels
of CLIMOX. The OPEC model seems therefore better suited to analyse short term behaviour and
might overstate the extent to which producer policies can influence long-term oil revenues.
7 Concluding Remarks
This paper has shown the implications of the ‘most likely’ implementation of the Kyoto Protocol,
and of ‘roll-over’ of emission targets in the years following the first commitment period. The EIT
region emerges as the only region selling emission permits. An assumed ‘hot air’ cartel limits the
supply of permits in all periods, and increases permit prices considerably.
According to our assessment, effects of the Kyoto Protocol on the oil market will be significant,
and quantities and prices in the Kyoto scenario will be lower than what could be expected under
Business-as-Usual. Our assumptions of a relatively flexible response of non-conventional oil
production to lower demand growth in the Kyoto scenario mitigates the price response. On the
other hand, the impact of Kyoto on oil will be increased by the availability of non-carbon fuel,
i.e. hydrogen, ethanol, bio-diesel, etc.. Sensitivity analysis has shown that non-carbon fuel
increases the impact of Kyoto substantially, both in terms of quantities and prices.
The impact of climate change policies on gas is greatly increased because of emissions of
fugitive-fuel methane. However, in our analysis we only simulate emission abatement through
reductions in the use of gas. Engineering solutions to the fugitive fuel problem are not properly
appreciated. If it turned out feasible to repair leaking gas transportation systems at relatively low
cost, methane abatement could be achieved without reductions in gas use. Gas consumer prices
would rise less with an implementation of Kyoto, and gas demand would be reduced less. Gas
could then emerge as a competitive alternative to coal, and capture more market share from coal.
We have performed a large number of additional simulations with the model, to test impacts of
single policy instruments, and sensitivity of results to crucial assumptions. With regard to oil
revenues, simulations have shown that an implementation of Kyoto on the basis of energy taxes
is the most damaging, given that non-carbon fuel most probably would be exempted from such
taxes. International flexibility mechanisms are important to mitigate impacts on oil exporters.
Relative impacts on oil revenues, i.e. percentage reductions in oil revenues from baseline, proved
remarkably robust against changes in assumptions of oil market functioning, oil availability, and
economic growth over the period. For the different simulations, oil exporters on average loose
12-15 per cent of revenues projected for 2010 under Business-as-Usual.
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