Stabilising World CO2 Emissions: a Bridge Too Far?

ABSTRACT

Proposals to reduce greenhouse gas emissions by 20 to 50 % of prevailing levels have been made to address concerns about climate change.  These goals would require emissions to be reduced to 3.4 and 2 tonnes of carbon dioxide equivalent per capita, respectively.  US emissions are currently 20 tonnes per capita and the OECD as a whole is at 11.5 tonnes;  China already exceeds 3.4 tonnes per capita.  Even in those developed economies which are not predominantly reliant on fossil fuel for electricity generation, emissions far exceed the targets under discussion.  If emission reduction targets are to be met alongside higher living standards this will require immense ingenuity.

INTRODUCTION

Contrary to many assertions, including those of the Stern report on the Economics of Climate Change, ⁽¹⁾ the costs of reducing emissions of carbon dioxide and other greenhouse gases will be considerable.

Though urging greater reductions in emissions, many countries have lowered their own emission reduction bars -- Australia, for example, counts reductions in land clearing as contributing to its goal.  Almost all OECD countries, however, have incurred considerable costs in subsidies to renewables and other measures involving regulating use of energy and energy using goods.  In spite of this and notwithstanding that the first level of cuts is likely to be the easiest, few signatories to the Kyoto convention will meet the obligations they agreed to.  The OECD group as a whole in 2005 had increased its emissions by 20 per cent over their 1990 levels.

Far more draconian emission reductions are required than agreed to at Kyoto for the period to 2012 if the world is to see a reduction in the concentration of carbon dioxide and other gases said to be responsible for global warming.  This would require vigorous action by all countries, including developing countries, the emissions of which have now surpassed those of the developed world.  Developing countries on average presently have only one quarter of developed countries' per capita emissions.

Developed countries have been reducing their emissions relative to their GDP levels partly by increasingly outsourcing energy intensive manufactured goods to developing countries, including oil and gas rich countries.  This relocation of production, which the IPCC claims has only had a minor effect, does not, of course, bring a global reduction.

At Bali in 2007, the lowest figure discussed for a reduction in emission levels was 20 pei cent.  This means bringing global emissions down to their 2004 levels of 29 Gigatonnes (Gt) of CO₂ equivalent to 23 Gt.  Under a business-as-usual scenario, emissions in 2030 would grow to 43 Gt.  The July 2008 G8 summit agreed a target of 50% reduction in global emissions by 2050 but specified neither a base date nor any intermediate targets.

In per capita terms, adjusted for population growth, 23 Gt translates to some 2.7 tonnes down from the present 4 tonnes. ⁽²⁾  Presently the US is around 20 tonnes and even China is now approaching 4 tonnes.

Countries are likely to seek modifications of a starting point of equal amounts per capita even if agreement is reached on the necessity for action.  Developed countries might argue for emissions to be set reflecting units of GDP.  Many will claim special circumstances as Australia did in negotiating a higher target in the Kyoto Convention.

Developing countries might argue for higher allocations than developed countries based on their historically lower cumulative emission levels. ⁽³⁾

Some detailed, though perhaps fanciful, emission reductions have been "scenarioed" by the IPCC, which has estimated global savings of 9-17 Gt of CO₂ equivalent from a tax of $US 20 per tonne and 12-26 Gt from a $US 50 tax.  Savings of such magnitudes have certainly not emerged from the measures already in place in the EU and elsewhere, as UNDP data illustrates in Table 1.

Table 1:  Per capita emissions of selected countries, 1990 and 2004
(t CO₂)

	1990	2004
High-income OECD     France     Spain     UK     Italy     Sweden     Switzerland     Japan     US     Canada	12.0 6.4 5.5 10.0 6.9 5.8 6.2 8.7 19.3 15.0	13.2 6.0 7.6 9.8 7.8 5.9 5.4 9.9 20.6 20.0

Source:  UNDP Human Development Report, 2007.

Moreover, even if approached, the possible savings need to be weighed against business-as-usual emissions of 43 Gt in 2030.

All forecasts such as those of the IPCC incorporate unproven technological breakthroughs to reduce costs of non-fossil fuels and often include a radical substitution of energy for other goods and services.  There is no reliable information on which to base the forecast outcomes of measures that force a markedly lower use of fossil fuel based energy -- hence the IPCC's use of the term "storylines and scenarios".  Improved energy efficiencies have been a permanent feature of economic growth and such efficiencies will doubtless continue to emerge.  Indeed, if energy prices increase relative to those of goods and services in general we are likely to see lower energy to GDP ratios.  However, even with a universal adoption of nuclear energy for baseload power or breakthroughs such as cheap carbon capture and storage, it would require unprecedented technology developments and/or much increased fossil fuel prices to bring about lower levels ol emissions of the magnitudes sought, while retaining current living standards. ⁽⁴⁾

1 MAGNITUDE OF THE TASK

1.1 THE STERN REPORT

The Stern Report sought reductions in global emissions of carbon dioxide by 80 per cent of current levels by 2050.  Stern argued that the economic cost will be a total of one pei cent of world GDP, "which poses little threat to standards of living given that the economic output in the OECD countries is likely to rise by over 200 per cent and in developing countries by more than 400 per cent" during this period (P.239).

Stern's forecasts have attracted wide-ranging opinions.  Dasgupta, ⁽⁵⁾ on the assumption oi a constant-population, and no technological change has written, "Suppose the social rate of return on investment is 4% a year.  It is an easy calculation to show that the currem generation in that model economy ought to save a full 97.5% of its aggregate output for tht future^' Nordhaus, ⁽⁶⁾ who believes action should be taken to mitigate global warming nevertheless, also argues Stern's discount rates are too high, and says, "The Review's unambiguous conclusions about the need for extreme immediate action will not survive the substitution of assumptions that are consistent with today's marketplace real interest rates and savings rates." On the other hand Kenneth Arrow ⁽⁷⁾ is broadly supportive as are reviews of the Stern Report by economists including Robert Solow, Amartya Sen and Joseph Stiglitz. ⁽⁸⁾

Among the assessments that have been highly critical of his findings has been that ol Australia's Productivity Commission (PC). ⁽⁹⁾  The PC noted Stern assumes higher temperature increases than the IPCC as a result of carbon dioxide and other emissions.  The PC also noted that the Stern report has no adaptation assumptions, lengthy and spurious suggestions about the cost of health, and in general "draws heavily on studies that have a more pessimistic view on climate change and its impacts and gives little attention to more optimistic views".  The PC was also critical of the low discount rate Stern uses (1.4%) which allows it to come to far higher costs than any other study and argued that Stern, "erred in its failure to present a range of results for different discount rates"

The real economic task involved is demonstrated by the modest outcomes of changed energy policies that Stern cites.  Among these is the relatively minor emission reductions achieved in the EU under its Kyoto commitments.  This is in spite of regulations on energy use and subsidies to renewables as well as a carbon use restraint program based on cap and trade.  The capped emission trade has a tax equivalent that has ranged between €32 and €0.08 per tonne of CO₂ and was around €19 per tonne in November 2008.  This, incidentally, would be enough to increase the Australian wholesale price ol electricity by almost two thirds.  Australian carbon credits in the absence of a full set ol guidelines were trading below the EU price.

Recognising that any CO₂ reduction would need to address the use of fossil fuels, Stern's report saw a form of carbon tax as the key feature of any policy to limit greenhouse gas emission.  He estimated a tax would be required at an initial level of US$100 per tonnt of CO₂ -- which would increase Australian wholesale electricity prices two and a half fold -- and envisaged new technologies cutting in by 2030.  These new technologies, Stern envisaged would drive down the required tax level to around $US35 per tonne.

In addition to these tax effects, the Stern estimates also include other measures like a continuation of existing energy efficiency taxes and programs.  They also incorporate a considerable emphasis on energy saving at the production end.  Moreover, they arc posited on a major contribution from voluntary energy savings, partly stimulated by education programs, drawing upon what the economist Lionel Robbins famously referred to as "that very scarce commodity, human love". ⁽¹⁰⁾

1.2 SOURCES OF CARBON EMISSIONS

IPCC data ⁽¹¹⁾ has sought to identify the share of the various emission sources.  CO₂ in fuel is responsible for over half with methane and deforestation comprising most of the rest.  Figure 1 illustrates the data.

Figure 1:  Global Share of Gases in CO₂ Equivalents

Source:  Technical Summary, WG3 IPCC, Fourth Assessment Report, 2007, p28

Within the energy sector, coal and natural gas comprise 46 per cent with only nuclear and solar etc., at less than 13 per cent, genuinely free of emissions.  Biomass is potentially largely free of emissions and is renewable but presently it mostly comprises obsolete energy supplies like animal dung.

As a share oi 2005 energy use, the United Nations Development Programme (UNDP) estimates are as shown in Table 2.

Table 2:  Primary Energy Supply 2005

	Total primary energy supply (Mt of oil equivalent)	Oil (%)	Coal (%)	Natural Gas (%)	Hydro, solar, wind and geothermal (%)	Biomass and waste (%)	Nuclear (%)
World	11,433.90	25.3	35	20.7	2.6	10	6.3

UNDP, Human Development Report 2007

Emissions themselves are mainly derived from industrial and consumer uses, with about 30 per cent coming from agriculture and forestry.  Figure 2 shows the source of emissions by usage.

Figure 2:  Sources of Emissions

Source:  Technical Summary, WG3 IPCC, Fourth Assessment Report, 2007

There are myriad combinations of ways to reduce emissions.  The measure that presents the easiest to envisage with current technologies involves a shift to nuclear of all the coal and 80 per cent of the gas plant used for energy production.  With those inputs supplying about 75 per cent of CO₂ from fossil use, that would mean a reduction oi some 40 per cent of CO₂ emissions compared to the present supply profile.

As discussed in the following sections, stabilisation of emissions would require the high income OECD countries to reduce their per capita emissions by about 70 per cent and the rest of the world to show no increase.  Hence even far reaching changes as envisaged in a nuclear substitution scenario -- and a renewables substitution would be similar -- would still be insufficient to allow emission stabilisation with current energy usage levels. ⁽¹²⁾

Shifting electricity generation from coal to nuclear power would have a significant but estimatable price tag representing the premium cost of nuclear power over fossil fuelled plant.  While major technological breakthroughs cannot, of course, be ruled out a series of minor breakthroughs is more likely.  Among the latter, one that has attracted considerable attention involves sequestering CO₂ in cement, which the US EPA classes as the third largest source of greenhouse gas pollution. ⁽¹³⁾  Major possible breakthroughs include work by Atlantic Richfield's ArcTech into using termites to convert coal into methane and humic acid, thereby largely eliminating its CO₂. ⁽¹⁴⁾

1.3 THE INITIAL STEPS TAKEN BY THE DEVELOPED COUNTRIES

All developed countries have incurred considerable costs in subsidizing and regulating in favour of high cost energy sources with low emissions.  In spite of this, and the fact that the early gains are likely to be the easiest because they tap into the fabled "low hanging fruit", most major signatories will fail to meet their Kyoto obligations.

Although individual European Union countries will meet their targets -- Germany because of unification, and the United Kingdom because of the shift from coal powered electricity generation to gas -- the EU as a whole is presently falling short and this is likely to be amplified in the 2008-12 period over which commitment results are measured.

Canada, which has often been in the vanguard of countries urging increased action, is among those falling furthest from the goal to which it agreed. ⁽¹⁵⁾

Australia, which claimed to be only 4.5 per cent above 1990 levels in 2005 will, if the economy continues to grow, be some 14 per cent above 1990 levels for the Kyoto yardstick average of 2008-12.  Compared to its highly generous Kyoto target of 108 pel cent of 1990 levels, Australia would be over 30 per cent above its 1990 levels were it not to measure its emissions on the basis of the creative 'Australia clause' in Article 3.7.  Thai clause permits countries for which land-use change and forestry are a net source oi greenhouse gas emissions to count changes to these as part of their measures of nei emissions.  Norway has also benefited from this inclusion of clearing credits and, as a result, will meet its target.

Table 3 is drawn from the latest United Nations Framework Convention report and indicates levels of achievement compared to the 2008-12 targets expressed as the emissions in excess of or below the!990 base level.  The latest data is for 2005 and the levels are expressed on two bases:  with and without counting land use changes as a result of policy towards clearing land for cultivation.  Only the EU taken as a whole is close tc the targets in the form they were originally agreed.

Table 3:  Kyoto Commitments and Achievements over 1990 Baselines

	2008-12	2005 actual
	Target	Inc. clearing	Exc. clearing
Australia	8%	4.5%	25.6%
Canada	-6%	54.2%	25.3%
EU	-8%	-4.0%	-1.5%
Japan	-6%	7.1%	6.9%
NZ	0%	22.7%	24.7%
Norway	1%	-23.1%	8.8%
US	-7%	16.3%	16.3%

Source:  UNFCC, 2007

2 ACHIEVING GLOBAL EMISSION REDUCTIONS

2.1 THE GLOBAL SETTING FOR AN EMISSIONS REDUCTION SCHEME

Difficulties that developed countries have experienced thus far in reducing GHG emission levels are likely to be amplified for many developing countries should they agree to join a post-Kyoto covenant.  And if they do not agree to make reductions in theii emission levels, it is very difficult to see carbon stabilisation occurring without a series oi breakthroughs in non fossil fuel technologies or carbon capture and storage.  At the G8 summit in July 08, developing countries including China, India, South Africa, and Brazil rejected the notion of joining 50% reduction by 2050, indicating the developed world should reduce emission far higher if they were to agree to any reductions of their own.

Fast growing developing countries currently have relatively low per capita levels of carbon emissions.  However, their economic growth is highly dependent on consumption oi fossil fuels and this presents seemingly insuperable obstacles to stabilizing world carbon dioxide emissions.

In 2004, global greenhouse gas emissions (in CO₂ equivalents) were 28,790 million tonnes.  Just over 10 per cent of these were from the former Soviet bloc with the rest split fairly evenly between the OECD countries and the developing world.  Emissions from OECD countries grew at 1.3 per cent per annum between 1990 and 2004.  Those of the developing countries, however, saw annual growth at 5.7 per cent during the same period while the former Soviet bloc's emissions fell by 1.7 per cent per annum.

By 2008, developing countries' emissions exceeded those of the OECD countries.  The faster growth in emissions within developing countries will increasingly dilute any actions taken by the developed OECD nations, ⁽¹⁶⁾ the only group seriously considering abatement measures at the present.  The dilution is further amplified if abatement in the OECD is achieved by the established trend of smelting and other energy intensive activities being re-located to developing countries.  The IPCC report tended to downplay this leakage issue arguing, "Estimates of carbon leakage rates for action under Kyoto range from 5 to 20% as a result of a loss of price competitiveness, but they remain very uncertain." ⁽¹⁷⁾  Given the globalised nature of production and the incentives and necessities of businesses to relocate to venues where even modest cost savings are available, the IPCC's range foi carbon leakage may be too modest.

Table 4 shows the output of aluminium production, probably-the most energy intensive of the main industrial products, by major country.

Table 4: World Aluminium Production

	World	33,410,000
1	People's Republic of China	5,896,000
2	Russia	4,102,000
3	United States	3,493,000
4	Canada	3,117,000
5	Australia	1,945,000
6	Brazil	1,674,000
7	Norway	1,384,000
8	India	1,183,000
9	Bahrain	872,000
10	United Arab Emirates	861,000
11	South Africa	855,000
12	Iceland	721,000
13	Germany	679,000
14	Venezuela	640,000
15	Mozambique	530,000
16	Tajikistan	520,000
17	Spain	399,000
18	France	394,000
19	United Kingdom	366,000
20	New Zealand	330,000
21	Netherlands	313,000
22	Argentina	272,000
23	Romania	270,000
24	Egypt	245,000
25	Iran	240,000
26	Indonesia	225,000
27	Ghana	200,000
28	Italy	198,000
29	Nigeria	193,000
30	Greece	165,000
31	Slovakia	158,000
32	Montenegro	120,000
33	Slovenia	117,000
34	Ukraine	113,000
35	Bosnia and Herzegovina	107,000
36	Sweden	102,000
37	Cameroon	96,000
38	Mexico	75,000
39	Turkey	65,000
40	Poland	50,000
41	Switzerland	44,000
42	Azerbaijan	35,000
43	Hungary	28,000
43	Japan	18,000

Source:  Wikipedia from http://www.altech.is/index.php/id/1802

A summary of the recent trends in emissions is shown in Table 5.

Table 5:  Growth of CO₂ equivalent emissions by region (m tonnes)

	1990	2004	Annual Increase
OECD	11205	13319	1.3%
Former Soviet bloc	4182	3168	-1.7%
Developing Countries	6833	12303	5.7%
Total	22220	28790	2.1%

Source:  Human Development Report 2007/2008, UNDP

The UN Human Development Report illustrates considerable diversity between countries' emission levels per unit of Purchasing Power Parity adjusted GDP (in terms oi kt of CO₂ per million dollars).  In 2004, the poorest countries, such as Angola and Congo, emitted less than 100 tonnes of CO₂ per million dollars of GDP.  Oil rich countries had far higher emission levels (e.g., Kuwait was 1,810;  the UAR 1,570 and Iran 930).  Similarly many former Soviet bloc countries had high emission levels (e.g., Kazakhstan 2,070;  Uzbekistan 3,070;  Russia 1,170).

India and China have different progressions to their current emission levels, perhaps reflecting their different development paths, with China focussed on manufacturing and Indian development more closely associated with the service industries.  Both countries carbon intensity to GDP dropped between 1990 and 2004, India's from 480 tonnes pei million dollars to 440 and China's from 1,300 to 700. ⁽¹⁸⁾

In spite of the rapid growth in developing country emissions, their per capita CO₂ emissions remain considerably below those of the OECD countries.  In 2004, OECD emissions averaged 11.5 tonnes, the US and Canada were at 20 with Australia, the UK and France at 16, 10 and 6 tonnes respectively.  Per capita emissions in developing countries averaged 2.4 tonnes.  Table 6 summarises the position of selected countries and country groupings in 2004.

Table 6:  Carbon Intensity of Energy Emissions, selected countries

	CO2 emissions
	Per capita	Per unit of GDP (kt of CO2 per million 2000 PPP US$)
Selected Countries     Angola     D.R. Congo     Kuwait     UAR     Iran     Uzbekistan     Kazakhstan     India     China     Australia     United States     Canada     UK     France	0.7 - 37.1 34.1 6.4 5.3 13.3 1.2 3.8 16.2 20.6 20.0 9.8 6.0	0.29 0.06 1.81 1.57 0.93 3.07 2.07 0.44 0.70 0.58 0.56 0.69 0.34 0.23
Aggregate Areas     Least developed countries     East Asia & Pacific     Former Soviet bloc     High-income OECD     World	0.02 3.5 7.9 13.2 4.5	0.017 0.63 0.97 0.45 0.55

Source:  UNDP Human Development Report 2007/8

There have been suggestions that the developing countries should be brought into an emission reduction scheme by granting them tradable emission rights.  This offers ostensibly attractive outcomes of all round wins.  Developing countries would be giver rights that would be surplus to their requirements, rather like when post-communisl countries in the former Soviet bloc were brought within the system.  Those countries adoption of capitalist production and pricing methods had encouraged conservation ol resources and meant their previous emission levels were far higher than their reformed economies required.  Granting them their existing levels of emissions and allowing them to trade the surplus amounts handed them windfall gains.

The treatment of the former Soviet bloc countries in this way was crucial to getting theii agreement to the Kyoto Convention and in turn to the Convention receiving the global suDDort necessarv for it to come into force as an international treatv.  But at the same time this vastly expanded me quantities ot permitted emissions oy activating sleeper emission rights.  In this way it somewhat undermined the basic intent of the protocol.

The far greater magnitude of developing country emissions, their less wasteful use of energy and their future need for much higher levels of energy use makes it impossible to adopt a similar approach.  This would be even more difficult if developing countries claimed that they should receive credits for their previously low level of emissions.  Figure 3 illustrates the overwhelming importance of the developed world in past levels of emissions.

Figure 3:  Contributions to atmospheric concentrations of greenhouse gases, 1850-2002

Notes:  This figure shows the relative contribution of developed and developing countries to increases in concentrations from CCte emissions from fossil fuels and cement maaafacrrjrt over the period 1850-2002,

Source:  Carbon Pollution Reduction Scheme, Australian Green Paper July 2008, derived from Kevin Baumert, Timothy Herzog, Jonathan Pershing 2005, 'Navigating the numbers greenhouse gas data and international climate policy', World Resources Institute.

An alternative approach to the carrot of incentives to developing country participation is the stick of penalties for non-participation.  For example, Australia's Garnaut Report cites, with apparent approval, the suggestion of the economist Joseph Stiglitz that a tariff be placed on goods for recalcitrant countries which are not playing the game.  Garnaut also notes that the head of the WTO, Pascal Lamy supports such penalties as a "distant second best solution". ⁽¹⁹⁾

While measures like WTO tariffs on carbon contents of goods may be a background threat to be used to encourage a "voluntary" solution, should this not emerge, such countervailing duty measures would prove extremely difficult to devise.  They would entail a careful estimate of the fossil fuel content of every good and service, an estimate that would clearly be highly variable between products and over time.  In the face of sharp disagreements, it is not difficult to see an attempt to require such compliance as bringing about tne ena or rne present rules unaer wnicn me giooai tracing system operates.

Set against the case for developing countries to receive more generous credits Posner and Sunstein ⁽²⁰⁾ argue that developed countries' previous growth also brought benefits to developing countries.  Posner and Sunstein also point to further difficulties that might emerge in determining a fair allocation of costs.  These include the different levels ol benefits said to accrue from taking action;  Russia for example would be likely to obtain gains from warming and China, the US and Japan are forecast to incur relatively low losses.

Further practical issues in administrating carbon dioxide reduction programs can be seen by examining measures that are already in place to allow signatories' obligations to be acquitted in developing countries through the Clean Development Mechanism (CDM).  There has been a rapid increase in applications to use this approach.  Wara and Victor ⁽²¹⁾ identify at least three problems with CDM-type schemes:

• Many offsets have made use of the refrigerant HCF-23 and created perverse incentives whereby the manufacture of the gas becomes a sideline to the credits it can earn;
• Many offsets are claimed for projects that would have proceeded anyway;  and
• Verification of projects' emission savings is unreliable.

These matters aside, it would require the adoption of as yet unknown fundamental technological developments to achieve stabilisation at 2004 levels of 28,790 million tonnes under any practicable or fair apportionment of the emission levels.  If the trajectory were global, stabilisation by 2030 with OECD countries reducing theii emission levels by 20 per cent and the former Soviet bloc holding their emissions constant, then this would require developing countries to limit their increases in emissions to 15 GT (by 22 per cent) as illustrated in Table 7.

Table 7:  Emission Stabilisation Scenario
(million tonnes of CO₂ equivalent)

	2004	2030	2030 bau (22)
OECD	13319	10655	18350
Former Soviet bloc	3168	3168	3168
Developing Countries	12303	14967	36671
Total	28790	28790	58188

Source:  Derived from Human Development Report 2007/2008, UNDP

While superficially generous to the developing countries, the 22 per cent increase is a massive reduction compared with business-as-usual growth levels.  Compared with the 15 billion tonnes of carbon dioxide equivalent projected under this scenario, business-as-usual levels -- based on previous growth rates -- would see developing countries emitting over 37 billion tonnes in 2030.

Moreover, because of their population growth, limiting developing countries' emission levels to 15 billion tonnes of carbon dioxide equivalent would result in their emissions per head actually falling.  Developing countries in 2030 are estimated to have a population at 7.2 billion, ⁽²³⁾ and under the scenario in Table 7 their per capita emissions would fall from 2.4 tonnes to 2.3 tonnes.  This is one fifth of the OECD 2004 per capita average of 11.5 tonnes and only a quarter of the OECD average in 2030 (7.9 tonnes) once a 20 per cent reduction and population growth is incorporated.

Many other scenarios can be examined.  At one extreme, if developing countries were tc maintain their 1990-2004 levels of increase and the former Soviet bloc's emission levels remained constant, this would leave virtually no emissions for the OECD group in 2030.  Even under that scenario the developing countries' 2030 per capita emissions would be less than one third the current OECD level.

Perhaps the most readily supported basis of allocating emissions would be on an equal per capita basis for all countries. ⁽²⁴⁾  With a 20 per cent reduction, this would require emissions per capita to be limited to 3.4 tonnes.  Such a task would be Herculean foi those countries presently in the over 15 tonne per capita category.  Chancellor Merkel's proposal of halving present global emission levels would further magnify the difficulties involved.

OECD countries' current per capita emissions and the percentage reduction necessary tc bring these to a world average of 3.4 tonnes are illustrated in Figure 4.  The 3.4 tonnes per capita level is equivalent to an average overall 20 per cent reduction on 2004 levels.  The 2004 emissions are shown by the bars measured against the left hand axis.  The reductions for the selected countries are illustrated by the blue line measured on the right hand scale.

Figure 4:  OECD Countries' Per Capita Emission Reduction Requirements
(with Aggregate Emissions 20 per cent Below 2004 Levels)

Source:  Derived from Human Development Report 2007/2008, UNDP

Ominously for those seeking lower emissions, China's per capita emission levels have already been noted as indicative of the magnitude of a stabilisation task.  At 3.8 tonnes ol CO₂ equivalent per capita in 2004, China already exceeded the 3.4 tonne global average target, in spite of massive reductions in its energy intensity.

Any debate over emission reductions in practice is likely to follow the negotiated course that characterised the Kyoto Protocol's agreement.  Countries, at least those intending tc abide by obligations they agree to, will seek to point to special circumstances that make them unable to follow a general standard, the most obvious of which is equal emissions per capita.  Many countries will argue that they are producing goods entailing high carbon emissions for consumption in other countries;  others will argue that theii geography requires intrinsically higher emission levels, that special features of theii location or their agricultural profile means they require higher than average emission credits or that they are natural sinks for CO₂ and should obtain some recognition for this, and so on.

The developed countries are likely to call for a weighting to be given to emission levels per dollar of GDP, which rewards them for their higher levels of carbon "efficiency" in producing each unit of GDP.

Against this, developed countries are likely to require above average quotas in recognition of their previously low levels of emissions, which were summarised in Figure 3.  Figure 5 illustrates this in greater detail, showing that by 2030, OECD countries with about 15 per cent of the world's population will cumulatively have produced 54 per cent of the world's emissions since 1990, while developing countries with 85 per cent or the population will have accounted for under 20 per cent.

Figure 5

Source:  IMF "World Economic Outlook".  2008 Chapter 4 Climate Change and the Global Economy

2.2 PATHS TO EMISSION REDUCTIONS

Barring some presently unforeseen technology breakthroughs, if developing countries were somehow forced to hold their emissions at their present levels, they would be unable to close the gap with the developed world's living standards.  If developed countries were required to reduce their emissions to the current world average of around 4 tonnes pei capita, this could only be possible with (1) a fundamental shift to low-carbon economies.  (2) a markedly reduced living standards or (3) a drastically different lifestyle.

As previously discussed, a radical nuclearization of electricity generation would produce less than a 40 per cent reduction in carbon dioxide equivalents.  It would also be a 'one-shot' reduction requiring additional emission reductions or substitutions out of energy ii living standards were to be allowed to increase.  Even a massive conversion to nucleai would come at considerable cost in the abandonment of wealth in such assets as coal and in the diversion of capital from more productive venues.

There is, of course, the prospect of new technologies emerging.  Draconian cuts in emission levels would require taxes or prices on emission levels that would certainl) stimulate the discovery of these as well as energy use economies.  But the necessary technological breakthroughs are, as yet, commercially unproven.

Those promoting actions are more sanguine.  The IPCC and others have modelled man) scenarios, which purport to show the task, one version of which Table 8 exemplifies.

Table 8:  Areas of Estimated Emission Reductions

Chapter of report	Estimate	Sector-based ("bottom-up") potential by 2030 (GtCO2-eq/yr)				Economy-wide model ("top-down") snapshot of mitigation by 2030 (GtCO2-eq/yr)
		Downstream (indirect allocation of electricity savings to end-use sectors		Point-of-emissions allocation (emission savings from end-use electricity savings allocated to energy supply sector)
		Low	High	Low	High	Low	High
		"Low cost" emission reductions:  carbon price <20 US$/tCO2-eq
4	Energy supply	1.2	2.4	4.4	6.4	3.9	9.7
5	Transport	1.3	2.1	1.3	2.1	0.1	1.6
6	Buildings	4.8	6.1	1.9	2.3	0.3	1.1
7	Industry	0.7	1.5	0.5	1.3	1.2	3.2
8	Agriculture	0.3	2.4	0.3	2.4	0.6	1.2
9	Forestry	0.6	1.5	0.6	1.9	0.2	0.8
10	Waste	0.3	0.8	0.3	0.8	0.7	0.9
11	Total	9.3	17.1	9.1	17.9	8.7	17.9
		"Medium cost" emission reductions:  carbon price <50 US$/tCO2-eq
4	Energy supply	2.2	4.2	5.6	8.4	6.7	12.4
5	Transport	1.5	2.3	1.5	2.3	0.5	1.9
6	Buildings	4.9	6.1	1.9	2.3	0.4	1.3
7	Industry	2.2	4.7	1.6	4.6	2.2	4.3
8	Agriculture	1.4	3.9	1.4	3.9	0.8	1.4
9	Forestry	1.0	3.2	1.0	3.2	0.2	0.8
10	Waste	0.4	1.0	0.4	1.0	0.8	1.0
11	Total	13.9	25.7	13.2	25.8	13.7	22.6
		"Medium cost" emission reductions:  carbon price <100 US$/tCO2-eq
4	Energy supply	2.4	4.7	6.3	9.3	8.7	14.5
5	Transport	1.6	2.5	1.6	2.5	0.8	2.5
6	Buildings	5.4	6.7	2.3	2.9	O.6	1.5
7	Industry	2.5	5.5	1.7	4.7	3.0	5.0
8	Agriculture	2.3	6.4	2.3	6.4	0.9	1.5
9	Forestry	1.3	4.2	1.3	4.2	0.2	0.8
10	Waste	0.4	1.0	0.4	1.0	0.9	1.1
11	Total	15.8	31.1	15.8	31.1	16.8	26.2

Source:  WG3 IPCC, Fourth Assessment Report, 2007, p.636

Many individual country estimates go into great detail in specifying the areas where energy savings are to be made -- a recent Australian study not only made such estimates for domestic appliances but also identified projected new developments in such considerable detail that it included water beds. ⁽²⁵⁾

Table 9, also reproduced from the IPCC, estimates the sort of reductions expected from different effective tax rates.  It illustrates two of the 40 "storylines and scenarios" suggesting that even with no tax 5-14 per cent reduction in emissions will take place, that a tax of $50 per tonne of CO₂ would increase that to 13-52 per cent and a tax of $100 would increase it to 16-63 per cent.

Table 9:  Global economic mitigation potential
in 2030 estimated from bottom-up studies ⁽²⁶⁾

Carbon price (US$/tCO2-eq)	Economic potential (GtCO2-eq/yr)	Reduction relative to SRES A1 B (68 GtCO2-eq/yr} (%)	Reduction relative to SRES B2 (49 GtCO2-eq/yr) (%)
0	5-7	7-10	10-14
20	9-17	14-25	19-35
50	13-26	20-35	27-52
100	16-31	23-46	32-63

Source:  Technical Summary, WG3 IPCC, Fourth Assessment Report, 2007, p77

Though some quite extraordinary detail about the expected reductions is offered in Tables 8 and 9, the numbers should not be interpreted as providing anything beyond conjecture.  We have not got the information to be able to model behaviour in response to price (or regulation) with the level of detail offered by the IPCC work.  Historical price data that is available to allow estimates to be made is of two sorts.  The first is associated with relatively small changes in price.  The second relates to infrequent large changes that have previously occurred in the context of readily available alternative supply sources;  for example with dramatic oil price increases where fossil fuel substitution was possible and where energy intensive activities could shift to locations where energy prices remained low.  Neither of these experiences offer sound bases for forecasting the kind of outcomes required to reduce CO₂ emissions by the quantities sought.

3 CONCLUDING COMMENTS

ADDRESSING THE ISSUES

There have been many suggested targets for emission reductions.  The Stern Report sought an 80 per cent reduction from present levels and Professor Stern has reiterated such calls. ⁽²⁷⁾  Others have called for stabilisation at 2004 levels.

Any of the targets would require sweeping technological innovations, to allow the substitution from fossil fuels or living standards which, at least on a global scale, would be vastly lower than those that are being anticipated.

It is not difficult to reduce consumption of goods and services for which alternatives are available.  Thus the world's steel industry adjusted to the oil price hikes in the 1970s by almost eliminating its use of petroleum products and substituting coal.  It is even easiei to envisage economising on other products like beef when substitutes are available.

It would be far less easy to envisage reducing consumption of broadly defined goods like food or housing to a degree approaching 80 per cent.  In the case of both products such economising would be possible (for food by reducing the consumption of grain-fed animals and other low efficiency calorie converters).  But meeting the proposed GHG targets is likely to cause a considerable loss of consumer satisfaction and a sacrifice in living standards.

Presumably those calling for radical reductions in carbon emissions, especially when they are also largely rejecting nuclear power, consider reductions in carbon emissions have penalties akin to reducing a sub-component of a major demand category like food 01 shelter.  They consider that man's ingenuity, given adequate incentives, will discover low cost alternatives and means of satisfying demand in ways that use a different mix ol inputs and outputs.

Such notions appear to be highly optimistic.  Already we have seen prices of low carbon emitting fuels increase markedly -- before falling at the end of 2008, gas prices more than trebled over recent years -- in response to an aversion to coal use in Europe and North America.

Using the food analogy, if we were told that the consumption of fish would need to be reduced by 80 per cent, this would require a very large tax on fish but the availability of substitutes is such that the aggregate loss of economic welfare would be small.  Contrast that with the outcome if the reduction were to be food in general.  At issue is whether carbon emissions are so pervasive in the production of energy that taxing them so that they are reduced by 80 per cent would have an effect closer to the analogy of food or fish.

Even for targets involving less than an 80 per cent reduction in emissions, considerable restructuring and costs would be required.  For stabilisation at 2004 levels, a wholesale replacement of coal and gas by nuclear for electricity generation would be capable ol achieving some but by no means all of the required reductions.

Some indication of the practicality of emission levels that are achievable from this approach is illustrated by low carbon economies such as France, Switzerland and Sweden.  In all three cases nuclear power dominates, with hydro playing important roles in Sweden and Switzerland, and all three produce less than 6 tonnes of carbon dioxide equivalent per capita.  Even so, this remains a far cry from the 2-3.4 tonnes of CO₂ equivalent per capita that is necessary with stabilisation at 2004 levels.

Adoption of nuclear power presents the only lowish cost option to move the world substantially towards stabilising emissions, however, many of those pressing most strongly for emission reductions are also tenaciously opposed to this form of electricity generation -- astonishingly the first Australian Garnaut report ⁽²⁸⁾ did not even mention it. ⁽²⁹⁾

While more attainable than some approaches, even an extensive replacement of fossil fuels with nuclear power is a task of considerable magnitude.  For many countries resource rich in fossil fuels, the journey will mean a huge sacrifice of living standards compared to those that would otherwise prevail.  Some would see levels of wealth loss that would be difficult to compensate.

The ubiquity of carbon in our lives offers the medium by which controls can be all-encompassing.  This was strikingly observed at the "2020 Summit" called by Australia's Prime Minister, Kevin Rudd, in April 2008, just a few months after his election.  The Prime Minister told that summit of 1,000 of Australia's selected leaders and thinkers that climate change "overarches all".  And the leader of the environment panel at the Summit called for "robust institutions to support" a climate change agenda encompassing "government expenditure, tax, regulation and investment".

Even so, Australia demonstrates considerable policy confusion, not least because measures to suppress domestic CO₂ emissions are accompanied by continued enthusiasm for coal exports, which comprise 23 per cent of the country's total exports.

The task of bringing a stabilisation of world emission is difficult to understate.  Australia, since the April 2008 Summit, has issued two reports by Professor Garnaut, modelling exercises and a Green and White Paper mapping out its agenda for a comprehensive "Carbon Pollution Reduction Program" involving a tradeable rights system, largely based on auctions, and additional regulatory measures.  The objective, a reduction of emissions by 60 per cent by 2050, would still leave Australia at double the level required roi stabilisation at a uniform per capita emission level.

Garnaut's Draft Report, Targets and Trajectories ⁽³⁰⁾ argued that Australia would suffer an eight per cent loss of GDP by 2100 under business-as-usual (four times the global costs posited by Stern) and recommended a tax of $20 per tonne of CO₂-e in 2010 rising to $30 in 2020.  This was projected to bring a 10 per cent reduction in emissions by 2020, rather less than the amount inferred by the Government's Green Paper issued in July 2008. ⁽³¹⁾  The Garnaut report also contemplated halving the Australian 2020 reduction il China and other major emitters failed to participate, a response which begs serious questions since it would surely be an empty gesture for Australia to impose upon itseli emission reduction costs if the world at large did not do so.

The modelling by the Australian Treasury, ⁽³²⁾ which was issued separately but also formed the basis of the modelling results of Garnaut, used a price of $A20 per tonne of CO₂ (2005 dollars) escalating over time and estimated the cost to the economy of stabilisation would be only two years loss of growth by 2050 or 4.7 per cent of GDP.

Global stabilisation is modelled at 550 parts per million of CO₂-e and is on the basis that all nations phase in targets (China, for example, by 2015).

Although Garnaut suggested that force, international sanctions and perhaps a new international trading regime might be necessary to ensure countries reduced theii emissions, Treasury has taken a controversial, almost unworldly, view that, "Where emission pricing is gradually introduced across the world, countries that defer action face higher long-term costs, because global investment is redirected to countries that act early.  Australia therefore benefits from being an early mover in a multi-stage world."

The modelling forecasts a great deal of trading.  It has Australia, in the central Treasury scenario (called Garnaut 10), buying 293 MT CO₂e, 40 per cent of its needs in 2050 at $US 91 per tonne (in 2005 prices) or over $US 26 billion per annum.  Such numbers are largely determined by assumptions on how cheap it is for countries to mitigate emission relative to each other.  The US and China are said to find easy opportunities to do this while countries like Australia, the EU and the OPEC countries are in the world market buying the permits -the former Soviet bloc is spending over $200 billion a year buying credits.

As with all modelling, that of the Australian Treasury is dependent on the assumptions employed.  Critical in this respect are the following:

• Responsiveness of energy demand to higher prices;
• Substitution of energy for other goods and services due to higher prices;  and
• Technological developments of non-carbon energy sources and the abilities to sequester carbon cheaply.

And irrespective of the richness of the inputted data and the complexity of the interrelationships assembled, the answers are driven by assumptions on these matters which, for the period involved and the magnitude of changes required, are little more than educated guesses.  In this respect it is useful to consider how forecast scenarios might have coped with imagining a world fifty years hence in 1960.  They would have had to envisage the Internet, mass air travel, mobile phones, the collapse of communism and the rise of India and China.  No forecasts could have picked these changes.

CONCLUSIONS

• The sort of GHG reduction target that the scientists believe is necessary to avert climate change involve stabilisation of CO₂-e emissions at their present level ol around 550 parts per million (ppm).  Many argue that a trajectory to 450 ppm is necessary.  Politicians in developed countries have in general endorsed the need for emphatic action to address emissions.
• Under a business-as-usual scenario, emissions are likely to be more than double 2004 levels by 2030 and to continue rising thereafter.  In July 2008 the G8 called for a reduction in emissions by 50 per cent by 2050.  Meeting such targets in the time frames proposed is challenging, requiring significant resources and resourcefulness.
• The following chapters of this book examine the difficulties and explore ways in which the emission reduction targets might be approached.

---

ENDNOTES

1.  Stern Review, "Economics of Climate Change", 2006.

2.  As Fawcett, Hvelplund and Meyer point out in their chapter, German chancellor Angela Merkel was calling for a halving of global emission levels to two tonnes per capita, though the global financial crisis has shifted her priorities towards industry assistance.

3.  In this respect, a spokesman for the Bangladesh high commission in London said in response to the news that UK aid for climate change was to be in the form of loans, "The climate situation has not been created by us.  The money should come spontaneously from rich countries and not be a loan." http://www.guardian.co.uk/environment/2008/may/16/clinriatechange.internationalaidanddevelopment.  China in its October 2008 White Paper "China's Policies and Actions for Addressing Climate Change" argued that cumulative emission levels were the appropriate measure.

4.  The nuclear issues are further addressed in the chapter by Rothwell & Graber;  clean coal is examined in the chapter by Lackner et al.

5.  Sir Partha Dasgupta Comments on the Stern Review's Economics of Climate Change University of Cambridge, November 11, 2006.

6.  William Nordhaus, The Stern Review on the Economics of Climate Change, May 2007.

7.  K.J. Arrow (2007), Global Climate Change:  A Challenge to Policy, Economist's Voice, 4 (3).

8.  http://www.cambridge.org/catalogue/catalogue.asp?isbn=9780521700801

9.  The Stern Review:  as assessment of its methodology, Staff Working Paper, Productivity Commission, January 2008

10.  The University of Aston's Professor Julia King has argued for a plan to 'educate' children so that they can help shape parents purchases of cars etc to be 'green.' Professor King was appointed by the Chancellor of the Exchequer, Gordon Brown, to lead the 'King Review' to examine the vehicle and fuel technologies to help to reduce carbon emissions from road transport.  The interim analytical report (Part 1) was published on 9th October 2007.  Personal communication, Paul Biggs Birmingham University.

11.  IPCC Fourth Assessment Report, Working Group III Report "Mitigation of Climate Change.

12.  See nuclear chapter in this volume for further details

13.  Carbon sequestering in cities, Calera cement, and maybe Vinod Khosla first trillionaire in 2020.

14.  Lisa Margonelli, Gut Reactions

15.  As described elsewhere in this volume, the orovince of Ontario clans to chase out its coal by 2014

16.  For a discussion of the role of China, refer to chapter by Lewis et al in this volume.

17.  WG3 IPCC, Fourth Assessment Report, 2007, p622

18.  The chapter by Lewis et al. discusses the trends for China.

19.  Garnaut Draft Climate Change Review, p.324, July 2008.  Border tariffs on carbon intensive products from countries that fail to take action comparable to the US also feature in the Waxman-Markey Bill.

20.  Posner A.E. and Sunstein C.R., Global Warming and Social Justice, Regulation, Spring 2008.

21.  Wara, M.W., and Victor D.G., A Realistic Policy on International Carbon Credits, Working Paper 74, Program on energy and Sustainable Development, Stanford University, April 2008.

22.  Based on projecting emissions per head forward at the compound average rates 1990-2004 for OECD (1.24%) and DCs [4.29%) with the former Soviet bloc constant

23.  Derived from Population Reference Bureau

24.  Refer to chapter by Fawcett et al in this volume

25.  Government of Victoria, Department of Premier and Cabinet, Understanding the Potential to Reduce Victoria's Greenhouse Gas Emissions, Prepared by the NOUS Groups and SKM, December 2007.

26.  The estimates refer to SRES A1 B:  a high economic growth scenario with a median forecast of technology development introducing reduced emissions;  and SRES B2 with lower economic growth and diminished material intensity of the GDP and a relatively rapid innovation and take-up of resource efficient technologies.  The 2030 CO₂ equivalent of compounding the 1990-2004 growth rates of the OECD and developing countries (with the former Soviet bloc constant at 2004 levels) is 58 Gt.

27.  http://www.theaustralian.news.com.au/story/0,25197,23627804-11949.00.html

28.  Garnaut Climate Change Review, lnterim Report - Feb 08

29.  The final Garnaut Report (September 2008) does discuss nuclear but dismisses it as a possiblesourceof energy for Australia because of capital cost increases, better possibilities that Garnaut speculates will become available in carbon capture and storage and because of public opinion.

30.  Garnaut Climate Change Review, Targets and Trajectories, Draft Report September 2008

31.  Carbon Pollution Reduction Scheme, Green Paper, Department of Climate Change, July 2008

32.  Australia's Low Pollution Future