sectoral economic costs and benefits of ghg mitigation - IPCC

Fossil Fuels
• policies designed to reduce greenhouse gas emissions will affect the price of fossil fuels
in Annex B regions to different extents, depending on the carbon intensity of the fuel, and
this will lead to substitution between fuels in Annex B countries. As discussed earlier,
Annex B countries are projected to reduce coal consumption to a greater extent than gas
and oil consumption in response to emission abatement.
The main domestic factor influencing non-Annex B fossil fuel output is the extent to which
carbon equivalent leakage increases demand for fossil fuel inputs into, for example, iron and
steel production. Also, the overall economic impact of Annex B emission abatement on non-
Annex B regions will affect the demand for fossil fuels.
… and on coal
ABARE notes that, in non-Annex B regions, coal production is generally used domestically in
the production of electricity and iron and steel. Increased production of iron and steel and
demand for electricity to produce, for example, aluminium is projected to flow on to increased
demand for coal. This is projected to be the case in China and India. However, in Indonesia
around 46 per cent of production is exported to Annex B regions (mainly Japan), so that reduced
Annex B coal demand is projected to lead to reduced exports and production relative to the
reference case. The negative trade impact in Indonesia is offset to some extent by increased
exports to non-Annex B regions such as China (exports of coal to China account for
approximately 35 per cent of total Indonesian coal output).
Under emissions trading, the projected increase in coal output from China and India is reduced
because carbon equivalent leakage is reduced. The projected decline in Indonesia's coal
production is smaller because the projected decline in Japan's coal consumption is less.
The US predictions
In a presentation to the Coaltrans Asia Conference in June 1998 Todd Myers of Resource Data
International, Inc. (RDI) showed a range of possible outcomes for the US coal industry. This
suggested a reduction in the level of electricity generation from coal from 1.7 million gigawatt
(GW) hours in 1995 down to 1.0 million GW hours by 2020 compared with a non-Kyoto base
case of 2.0 million hours in 2005 and rising to over 2.5 million GW hours by 2020.
From around 1.9 million GW hours projected for 2000, the decline to the Kyoto level of 1.0
million GW hours in 2020 by the RDI modelling scenario implies a halving of the coal
consumption requirements (after allowing for a modest average thermal efficiency improvement
for the US coal-fired electricity sector as a whole).
US DOE EIA suggests decimation of USA’s coal industry …
The US Department of Energy’s Energy Information Administration (EIA) ‘Impacts of the
Kyoto Protocol on US Energy Markets and Economic Activity’ (Washington, October 1998)
identified the following:
In the reference case, US coal production climbs to 1,287 million short tons in 2010 and 1,376
million short tons in 2020. In the carbon reduction cases, US coal production begins a slow
decline early in the next decade, accelerates rapidly downward through 2010, and then continues
to drop slowly through 2020.
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