sectoral economic costs and benefits of ghg mitigation - IPCC

Ron Knapp
would impose on the US economy and a significant substitution away from coal in electricity
generation.
The projected decrease in coal production in the European Union also is largely attributable to
substitution of coal with less emission intensive energy sources, in particular gas, resulting from
the imposition of a relatively high carbon equivalent penalty.
The decline in Australian and Canadian coal output relative to the reference case results mainly
from reduced exports to other Annex B countries, particularly Japan. Coal use in Japan – the
world's largest importer of coal and the destination of around half of Australia's and Canada's
coal exports - is projected to decline significantly under independent abatement. Despite losing
international competitiveness in non-Annex B markets as a result of the penalty applied to
fugitive methane emissions from coal mining, exports of coal to non-Annex B regions from
Australia are projected to rise, offsetting to some extent the decline in Annex B coal demand.
ABARE’s assessment of the economic impacts of abatement policies on non-Annex B
regions
The imposition of carbon equivalent emission penalties in Annex B regions is projected to have
significant impacts on non-Annex B industry output. Generally, the projected changes in non-
Annex B industry output are brought about by changes in international competitiveness of
particular industries and the associated effects on domestic demand.
Production of all fossil fuel intensive goods is projected to increase in non-Annex B regions
relative to the reference case. The largest increases are projected to occur in iron and steel and
nonferrous metals production. For individual non-Annex B countries, the impact of increased
export competitiveness on production depends mainly on the resulting increase in exports to
Annex B regions. The projected increase in exports from non-Annex B countries depends on the
extent and orientation of trade with Annex B countries. The larger the trade orientation toward
Annex B markets, the larger the increase in exports and output is likely to be.
For example, in South Korea and Brazil, iron and steel exports to Annex B regions constitute a
larger share of production than they do in other non-Annex B regions. Therefore, improved
export competitiveness against Annex B competitors is projected to result in relatively large
increases in iron and steel production relative to the reference case in these regions.
… and the impact on fossil fuel industries in non-Annex B countries
ABARE points out that, unlike fossil fuel intensive goods, the direction of projected production
changes is not consistent across all fossil fuel industries. Changes in fossil fuel output depend on
the magnitude of export and domestic demand changes. There are a number of export related and
domestic factors affecting non-Annex B fossil fuel output. Export related factors include:
• declining economic activity relative to the reference case in Annex B regions, and
substitution away from fossil fuel intensive activities in Annex B regions, are projected to
reduce the export demand for non-Annex B fossil fuels, other things being equal;
• penalising Annex B fugitive emissions from fossil fuel production increases the
competitiveness of non-Annex B fossil fuel exports, leading to an increase in export
demand, other things being equal; and
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