IPCC’s latest report on Climate Change – summary part 3

Mitigation of Greenhouse gas (GHG) in the short and medium term.

The report introduces a number of concepts which I will copy verbatim from the report and add some explanatory notes.

• The concept of “mitigation potential” has been developed to assess the scale of GHG reductions that could be made, relative to emission baselines, for a given level of carbon price (expressed in cost per unit of carbon dioxide equivalent emissions avoided or reduced).

The carbon price referred to is often called a ‘carbon tax’. So, the report is saying that for different rates of carbon tax there will be an associated reduction (or mitigation) of GHG emissions against a no carbon tax situation.

• Mitigation potential is further differentiated in terms of “market potential” and “economic potential”.

• Market potential is the mitigation potential based on private costs and private discount rates, which might be expected to occur under forecast market conditions, including policies and measures currently in place, noting that barriers limit actual uptake.

This, I think, is saying that companies could be expected to undertake emission reduction if a carbon tax was in place, because projects which were previously uneconomic, for the business, would become so. In other words, companies would eliminate GHG emissions when it was cheaper to do so than pay the carbon tax.

• Economic potential is the mitigation potential, which takes into account social costs and benefits and social discount rates, assuming that market efficiency is improved by policies and measures and barriers are removed.

Economic potential looks at the broader costs and savings arising from GHG emissions and their mitigation. For example, the costs of respiratory disease from air pollution. A clean air act, from a narrow perspective might seem to just impose costs on companies to clean up their act. A broader view considers the lost productivity due to worker illness and the health costs picked up by individuals, companies and the state. An even broader view would consider quality of life and attempt to put an economic value on clean air.

As the study notes, the broader perspective of the economic potential is generally greater than the market potential.

To estimate the potential, two broad classes of approach are used:

• Bottom-up studies are based on assessment of mitigation options, emphasizing specific technologies and regulations. They are typically sectoral studies taking the macro-economy as unchanged. Sector estimates have been aggregated … to provide an estimate of global mitigation potential for this assessment.

Bottom-up looks at individual sectors, such as the power industry or transport, and the affect that technology change or regulation could have in reducing emissions. These are then aggregated to produce global estimates.

• Top-down studies assess the economy-wide potential of mitigation options. They use globally consistent frameworks and aggregated information about mitigation options and capture macroeconomic and market feedbacks.

Over time, these models have become more similar as bits from each approach have been incorporated in the other and the results they produce are quite similar as we’ll see in the next blog.

The report identifies a particular advantage of bottom-up studies which is for the assessment of specific policy options at the sectoral level while top-down studies are useful for assessing cross-sectoral and economy-wide climate change policies, such as carbon taxes and stabilization policies.

One final caution:

• However, current bottom-up and top-down studies of economic potential have limitations in considering life-style choices, and in including all externalities such as local air pollution. They have limited representation of some regions, countries, sectors, gases, and barriers. The projected mitigation costs do not take into account potential benefits of avoided climate change.

I will look at some of the sectoral analysis in the next blog. I have to admit that this taking longer than I expected but I think it is important that the terms in which the report is framed are aired and explained.