sectoral economic costs and benefits of ghg mitigation - IPCC

Jonathan Pershing
global oversupply and reduced demand due to climate change mitigation actions 1 , revenue losses
for South Africa and Indonesia could be as much as 4% and 1% of their GNP, respectively.
However, it should also be noted that the spot market prices for coal has already fluctuated more
than this amount without climate policies – suggesting that exporting countries have already
developed mechanisms to cope with such changes. Furthermore, in none of the non-Annex I coal
exporting countries are coal exports a substantial share of GDP; thus it seems likely that
additional emphasis on other elements of national economies could offset any losses in this
sector.
The local environmental impacts of coal combustion must also be considered when evaluating
long-term coal demand. While enormous strides have been made in the most modern coal fired
plants with respect to emissions of sulfur, particulates and nitrous oxides, coal-fired power
generation still accounts for a substantial share of local pollution in much of the world – and may
ultimately lead to a reduction in coal-fired generation even absent other factors.
Perhaps most important from the perspective of the long-term viability of coal in the generation
of power is the issue of cost: where natural gas supply is available, the fuel of choice for new
electricity generation is gas. It is less costly to build and, if supply is available, to operate.
In combination, these policy and price issues have driven many governments as well as many
private sector power plant operators, for reasons entirely independent of climate change, to
consider other power generation alternatives to coal – including not only natural gas, but also
renewables and, in some countries, to nuclear. This in part explains the long-term decline in the
use of coal as a primary generation source in much of the OECD.
In spite of such trends, a number of factors also suggest that coal could make a comeback. The
enormous reserves of coal in China, India and North America – each countries with significant
anticipated energy demand growth over the next century – and the low costs of power generation
from coal fired combustion make it an attractive long term power source. In addition, because of
the large scale and high degree of centralization of coal fired power, CO 2 emissions from coal
plants may prove the most amenable to capture and long term storage – ultimately removing the
climate threat the fuel might pose.
Oil & Gas
Approximately 50 percent of total world oil production is exported. Considering the ratio of oil
production to reserves (see Table 4), however, it may suggest that in the next 20 - 25 years, a
number of regions will have consumed nearly all of their current reserves 2 . This suggests that the
distribution of exports is likely to shift significantly. In particular, North America, Europe, the
Former Soviet Union and the Asia-Pacific region are likely to substantially deplete their current
oil reserves – leaving at least their current supply of 1.7 thousand million tons per year (nearly
50% of current production) to be filled by increasing production from the remaining regions.
These numbers do not account for growth in demand as a consequence of economic growth –
although they also do not account for any policies that might be taken to mitigate climate change.
The IEA’s World Energy Outlook predicts oil demand increasing from 72 million barrels/day (in
1996) to 95 million barrels/day in 2010. If this global increase is allocated evenly to the top ten
1 Note that Warwick McKibben and Petrer Wilcoxen in “Permit Trading Under the Kyoto Protocol”
suggest that coal consumption in Japan, the world’s largest importer, declines by approximately 43% in a
no-trading case, and approximately 24% in a trading case. Price shifts might be expected to be less.
2 It is clear from the literature that reserves of fossil fuels are difficult to ascertain. Uncertainty estimates
for many regions are quite high (e.g., see USGS, Masters et al, 1999, see web-site
http://energy.er.usgs.gov/ products/papers/WPC/14/text/ht). Nonetheless, a general trend as outlined here
does seem to be supported in most analyses.
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