sectoral economic costs and benefits of ghg mitigation - IPCC

Davoud Ghasemzadeh and Faten Alawadhi
According to OWEM scenarios through restructuring, the most dramatic price increases would
be for coal, with increases by between 108% and 270% (see Figure 2).
This will translate into lower coal use in electricity generation, falling by between 63% and 92%
compared to the reference case (replaced largely by gas). The main reduction therefore in
demand will be on coal, while oil demand will be reduced by only 0.5 mb/d.
Figure 2
OECD Fossil Fuel Demand Following Restructuring of Taxes, mtoe
2400
2200
2000
Oil
1800
1600
1400
Gas
1200
1000
Coal
800
600
1995 2000 2005 2010 2015 2020
It has, nevertheless, been argued that the current high level of taxes in the transport sector already
internalises the externalities of air pollution, accidents, noise and congestion, that they are
already economically efficient, and that they should not be a part of any reform of the energy tax
system. But it is clear that the taxes have not been structured for this objectives.
In addition to the restructuring of energy taxes, there are other alternatives to minimise the
impacts of response measures. The list includes call for fiscal reforms such as removal of
subsidies on fossil fuel production in OECD countries, as well as execution of different projects
in OPEC countries and establishment of funding to diversify the economies of oil exporting
developing countries towards non-oil sectors. Some of these options are summarised, as follows:
• Establishment of funding is embodied in Article 3.14 of the Kyoto Protocol to
minimise the impact. Montreal Multilateral Fund might be seen as the prototype for a
funding mechanism, although the Montreal Multilateral Fund is on a much smaller
scale.
• Broader investment funds are needed to help oil exporting developing countries to
diversify their economies towards non-oil sectors including transfer of technology,
investment in vital sectors. Note that non-oil sectors are often closely dependent
upon oil income.
• Enhancing the role of natural gas, e.g. NG power generation for export.
• Reducing GHG emissions associated with flaring and venting of natural gas in oil
producing countries.
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