Three propositions for a 2015 international climate agreement. Model analysis

Transcription

1 Three propositions for a 15 international climate agreement Model analysis

2 Three propositions for a 15 international climate agreement Model analysis Michel den Elzen, Annemiek Admiraal, Andries Hof, PBL Niklas Höhne, Hanna Fekete, Julia Larkin, Ecofys Jose Alberto Garibaldi, Energeia Ecofys, PBL, Energeia 1 ii

3 Summary Three model-based scenarios showing different pathways to limiting the increase of global mean temperature to a maximum of C above preindustrial levels produced different possible overall costs and benefits and different impacts on countries. The scenarios were developed through the ACT 15 project to inform the process leading to a new international climate agreement in 15. The scenarios, or propositions, (, and ) differ in the timing of emissions reduction. The proposition assumes steady emissions reductions between and 3; the proposition assumes slower reductions until 3 but faster reductions after that date; the proposition assumes the fastest transition to low-carbon energy beginning now. Box 1 shows possible policy mechanisms for the propositions. The scenario results were compared with a business-as-usual scenario without mitigation policies in terms of climate impacts; costs of mitigation, adaptation and damages; benefits; and the required transition in the energy system. All three propositions require considerable mitigation costs, but would also have considerable benefits over a business-as-usual case. The benefits of any proposition would likely outweigh its mitigation costs by avoiding the damages caused by climate change shown in the business as usual scenario. The key findings from the scenarios are: There are different ways to still secure a 15 climate agreement compatible with a C world with a likely chance (more than %). This report analyses three options to make this happen: o An ambitious global agreement with greenhouse gas targets for 3 in line with C target. o Less ambitious short-term emissions reductions (by 5) but with an ambition mechanism for enhanced reductions to get back on track with the C target. o Firm, long-term, global collective goal to phase-out greenhouse gases to net zero, supported by a range of early actions. The analysis shows that reducing greenhouse gas emissions to limit temperature increase to C has multiple long-term benefits compared to the baseline, but requires significant investment in mitigation. Average mitigation costs throughout the century are in the order of 1-1.5% of global GDP for the three propositions. The financial flows balancing the mitigation costs between world regions in order to reflect differentiated responsibilities and capability differ substantially, depending on which equity principle is used. In all three propositions, the benefits of avoided damages are likely to exceed mitigation costs in the long term according to the average projections. Due to differences in timing of mitigation, the scenario is expected to reach a net benefit earliest, with the and the scenarios reaching net benefits later. In the long term, all countries will benefit from global mitigation effort, but the least developed regions and middle income regions benefit most from global mitigation in general, as their avoided damages are significantly larger than that of developed regions. The propositions require different elements and bear different risk of overshooting C temperature increase above preindustrial levels: o Requires that strong 3 targets are agreed in 15. It bears the risk that this does not happen or that the targets will not be implemented thereafter. iii

4 o o Requires a step change in technologies and costs. This bears the risk that the transition will turn out infeasible if an early shift to low-carbon technologies is missed. Assumes that long term policy vision and incentives are significant enough to drive immediate action. If that is not the case, the long-term targets may be missed. The findings are described in more detail below and in the main report. Methodology For the analysis, we used the global climate policy model FAIR, the TIMER energy model and a landuse model, which are all part of the IMAGE modelling framework. 1 The FAIR model was used to construct global greenhouse gas emission pathways (of all greenhouse gasses), and to calculate the climate impacts, direct abatement costs, and the damage and adaptation costs. The TIMER energy-system model was used to analyse mitigation options and costs and focused on several long-term, dynamic relationships within the energy system, such as technological and economic lifetime, inertia, endogenous learning curves (learning-by-doing) and resource depletion. Learning effects are based on a relation between increasing capacity and cost reduction (economies of scale) rather than on financial resources for research and development (R&D). The IMAGE land-use model was used for the analysis of the mitigation options and costs for the agricultural and land-use sector. Damages include many sectors, including market and non-market impacts, and estimates of the economic costs of catastrophic impacts. Mitigation costs were calculated on the basis of marginal abatement cost curves, which indicate the costs of reducing an additional emission unit. These costs constitute one measure of the costs of climate policy, capturing direct costs of abatement action but not taking into account the costs related to a change in fuel trade or macro-economic impacts (including sectoral changes or trade impacts). In the literature, different costs metrics are used to describe the costs of climate policy: abatement costs or the increase of energy system costs are used by both partial and full equilibrium models and gross domestic product (GDP) or consumption losses are reported by full equilibrium models. Both methods have strengths and weaknesses; both are used in literature including the IPCC AR5 as valid approaches. Box 1: Three mitigation propositions policy assumptions ACT 15 project partners defined the mitigation policy components of the three propositions.. In this proposition, each country would put forward an ambitious national commitment to reduce emissions between and 3, which would reinvigorate the carbon market. These national commitments would be embedded within a global agreement that would keep on course of staying below C.. Like the proposition, countries would put forward national commitments. However, short-term emissions reductions (by 3) would be less ambitious than those under the approach, so countries would agree to an ambition mechanism that would create a process to ratchet up emissions-reduction commitments over time, with enhanced ambition post 3.. Instead of focusing only on national mitigation measures, countries would set a firm, long-term, collective goal to phase-out greenhouse gases to net zero by 5 or perhaps another target year. Countries would have more flexibility on how to achieve that target, with the ability to choose policies and plans that work best for them, such as the 1 The model is extensively used for the Fifth Assessment Report of the Intergovernmental Panel on Climate Change, and many model comparison model studies, for example, EMF, LIMITS, AMPERE. iv

5 rapid phase-in of renewable energy or phase-out of fossil fuel subsidies. This would allow countries that wish to go further faster to do so within the agreement. Delay or failure to reduce global greenhouse gas emission would have severe world-wide consequences the baseline The baseline scenario includes national domestic energy policies as implemented before the 1 cutoff date. Policies implemented beyond the cut-off date are not taken into account. In the baseline scenario, significant growth in energy use, greenhouse gas emissions, climate change and respective damages are projected. This scenario is characterised by high energy use and strong dependency on fossil fuels. Many regions depend on costly fossil-fuel imports, while only few regions profit from the exports. Air pollution and other environmental impacts from fossil fuel combustion for many countries remain high and worsen the situation for the population and ecosystems. Greenhouse gas emissions increase throughout the century and lead to a radiative forcing of.1 watts per square meter (W/m²) by 1, which would likely lead to a temperature increase of at least 3.5 C above the pre-industrial level, rising further thereafter. The resulting climate impacts would require strong adaptation measures in all regions. Damage estimates are uncertain, but indicative calculations show global annual damages could be on the order of % of GDP by 1, even with adaptation, and are projected to increase even further beyond that date. Reducing greenhouse gas emissions to limit temperature increase to C has multiple long-term benefits over the baseline, but requires significant upfront investments All three propositions developed under the ACT 15 project are designed to keep temperature increase below C by aiming at a radiative forcing target of.8 W/m in 1. This requires a steep reduction to around zero greenhouse gas emissions by at least the end of the century for the and propositions, with slightly higher emissions for the proposition (see Figure 1). The propositions differ in timing of action on global and regional scales: the proposition assumes a steady decarbonisation pathway, the proposition delays action until 3, and the proposition assumes early and immediate action. v

6 Gt COeq/yr Global GHG emissions (incl. landuse CO) Baseline 3 1 5% below 199 level Figure 1: Global greenhouse gas emissions (including land use) of the propositions and the baseline scenario In the mitigation scenarios, significant upfront investments are likely to pay off in the long term in various ways, depending on assumptions about discount rates, climate damage and other factors: Energy efficiency measures strongly decrease energy consumption and, together with a more renewable energy supply, alleviate the dependency on fossil fuels and associated import costs thereby increasing energy security; Air pollution and, for instance, the environmental impacts of fossil fuel production are reduced, decreasing the need for investments in these areas; The avoided damage could be substantial. Damage costs will stabilize towards the end of the century, whereas they would continue to increase significantly in the baseline. The three propositions require a rapid energy system transition, were focus on efficiency and decarbonizing the electricity sector play major roles. All propositions show a reduction in global energy consumption (because of increased efficiency) and an energy system transition towards non-conventional energy sources like bioenergy, renewables and carbon capture and storage (CCS). Especially CCS turns out to play a major role in the energy transition. vi

7 EJ/yr 1, 1, 8,, Global primary energy consumption Other renewables and nuclear Bio-energy with CCS Bio-energy without CCS, Fossil fuels with CCS, Fossil fuels without CCS, Baseline Figure shows a gradual decrease of fossil fuel use and increase of renewables for the scenario. In the scenario a more rapid transition is required after 3 to compensate for the delayed action in the first decades. The risk of locking in a conventional energy system and the immediate dependency on energy efficiency, CCS and renewables after 3 can be seen here. For the scenario, we assumed a faster transition from onwards. EJ/yr 1, 1, 8,, Global primary energy consumption Other renewables and nuclear Bio-energy with CCS Bio-energy without CCS, Fossil fuels with CCS, Fossil fuels without CCS, Baseline Figure : The global energy system would need to change radically under all three propositions. This figure illustrates the likely shifts in energy sources under the propositions, but these shifts are not a feature of the modeled propostions. In all three propositions, the benefits from avoided damages are likely to exceed mitigation costs in the long term. Average mitigation costs throughout the century are about 1% of global GDP (with an uncertainty range of 1% to about 3%). Literature suggests that these costs are to some extent offset by reduced air pollution, which could amount to a third of the mitigation costs. Towards the end of vii

8 the century, all three scenarios show that the benefits of avoiding damage caused by climate change will likely outweigh any mitigation costs ( Global Share of GDP (%) Global mitigation costs and benefits Costs Benefits Costs incl. mitigation benefits Costs excl. mitigation benefits Avoided damage costs Share of GDP (%) Aggregation of global mitigation costs, benefits and avoided damage costs Costs Benefits Default Min Max - - Figure 3). However, the outcome depends on how today s costs. They are compared against future costs (the discount rate) and on the treatment of uncertainty in both damages and mitigation costs (see uncertainty ranges in viii

9 Global Share of GDP (%) Global mitigation costs and benefits Costs Benefits Costs incl. mitigation benefits Costs excl. mitigation benefits Avoided damage costs Share of GDP (%) Aggregation of global mitigation costs, benefits and avoided damage costs Costs Benefits Default Min Max - - Figure 3). ix

10 Global Share of GDP (%) Global mitigation costs and benefits Costs Benefits Costs incl. mitigation benefits Costs excl. mitigation benefits Avoided damage costs Share of GDP (%) Aggregation of global mitigation costs, benefits and avoided damage costs Costs Benefits Default Min Max Figure 3: Annual avoided damage and mitigation costs. Avoided damage costs are the difference between total damage costs in the baseline scenario and in the mitigation scenario. Total damage costs are defined as the sum of adaptation costs and residual damage costs of climate change. Residual damages are the loss and damages associated with the impacts of climate change and these can be reduced by adaptation. The uncertainty ranges are based on the mitigation costs projections of the IPCC AR5 report and the damage projections of the Stern Review report. - - The proposition focusses on strict greenhouse gas targets for 3 in line with C. To achieve these targets, efforts for are increased to the level of the conditional pledges made by countries under the UN Framework Convention on Climate Change (UNFCCC). Over the century, mitigation action and associated costs steadily increase, reaching a maximum around 7 at about 1% of global GDP (with a large uncertainty range). Its cumulative costs over the century are the lowest of the three propositions. As shown in x

11 Global Share of GDP (%) Global mitigation costs and benefits Costs Benefits Costs incl. mitigation benefits Costs excl. mitigation benefits Avoided damage costs Share of GDP (%) Aggregation of global mitigation costs, benefits and avoided damage costs Costs Benefits Default Min Max - - Figure 3, the scenario has the most equally distributed mitigation cost path (with no strong peaks in costs). Emissions of an illustrative example emerging economy and middle-income country would peak around 5, and those of an illustrative least developed country around 5 (Table 1). The proposition focusses on a process to arrive at strict mitigation targets after the 15 agreement is in place, allowing for less mitigation action in the beginning, which is compensated by more action after 3 with significantly increased ambition. This leads to low mitigation costs until 3, after which mitigation costs increase steeply to around % (range of 1% to 7%) by 5. After 5 costs are in the same order of magnitude as in the proposition. Emissions of an illustrative emerging economy and a middle-income country would peak 5 to 1 years later than in the proposition, and those of a least-developed country a bit earlier, in to 5 (Table 1). The proposition focusses on a global target to phase-out greenhouse gas emissions and on a set of sectoral actions towards this goal. This results in an even faster transition to a low carbon economy than assumed in the proposition. It requires immediate and significant action and investment in new technologies, which implies steeply rising costs until 5. In the latter half of the xi

12 century, the high initial costs pay off and costs are lower than for the other propositions in this period. The peaking dates of emissions are similar to those under the proposition, except for an emerging economy, which would peak five years earlier. Table 1: Peaking dates of emissions for the world and four illustrative countries Global A developed An emerging econcome counveloped A middle in- A least de- country omy try country No peaking Note: Based on the World Bank income regions. Climate costs differ substantially among countries For each proposition, the level of mitigation costs, adaptation costs and residual damage differs significantly among countries. The mitigation costs calculations assume that emission reductions are distributed optimally over time (after the starting point of enhanced action) and across all greenhouse gases (including land use and non-co), sectors and sources, such that the aggregate costs of reaching the global emission target are minimized. Under such assumptions projected mitigation efforts are the largest in emerging economies and middle-income regions, because their mitigation potential is high. However, this does not imply that these regions will have to bear all the costs. Based on the principle of common but differentiated responsibilities, developed regions could finance at least part of the mitigation costs of poorer regions. This is made especially clear by looking at the least developed regions, which could face high mitigation costs (-3% of GDP in 3) if reductions would occur globally where they are the cheapest, compared with developed regions (.5-1.%). In the long term, least-developed regions and middle-income regions benefit the most from global mitigation in general because their avoided damages would be significantly larger than those of developed regions. However, avoided damages also depend on geographic location which partly determines vulnerability to climate change. The three propositions each have advantages and risks The different conditions for each proposition and its likely implementation risks and cost impacts are summarized in Table. The implementation of the pathways projected in this analysis depends on very different conditions, which each carry their own risks of not being feasible, and therefore of failing to meet the C climate target. The proposition assumes that in 15 countries collectively agree on and implement strong and 3 targets. This assumption is ambitious, given the current state of negotiations. The scenario assumes a drastic change towards an ambitious trend after an initial phase of rather low ambition. Delaying action may lead to undesirable consequences like lock-in effects for high-carbon fuels, delay in technical learning, higher mitigation costs, and dependency on negative emissions and on a full range of technologies (especially CCS). It also requires a doubling of the emission reduction rate between 3 and 5 (% reduction per year). This scenario risks being unfeasible which would allow significant damage and adaptation costs in regions prone to climate change. xii

13 The scenario, in contrast, assumes even more immediate action than the scenario and therefore depends on immediate action in 15 that is more ambitious than the current pledges. The three propositions have different global mitigation costs implications. The proposition evenly increases costs and thus implies a steady transition of the system at least compared with the other two propositions. Its cumulative costs over the century are the lowest of the three propositions. The proposition requires a step change of ambition after 3 and leads to possibly disruptive changes in the future. The proposition requires an earlier transition, which is more costly upfront but has the lowest costs towards the end of the century. Table : Comparison of results of the three propositions Necessary conditions for the scenario Strong 3 targets are agreed in 15 and implemented thereafter Steep emission reductions after 3. Transition to low-carbon energy supply after initial increase of fossil fuel share Long-term policy vision and incentives are significant enough to drive immediate action Implementation risks Strong targets are agreed but not implemented Fast emission reduction after 3 may turn out to be infeasible if the technical potential is not fully available Short-term lock-in effect of fossil fuel infrastructure which may be hard to eliminate later. Incentives are not sufficient to achieve the required fast and early action. Global mitigation costs implications increase of ambition and mitigation costs, gradual transition Step change and possibly disruptive change and high mitigation costs after 5 Frontloading of effort, earlier transition, limited additional mitigation costs after 5 xiii

14 Acknowledgements This report is part of a suite of materials developed through the ACT 15 project. Through a process of widespread global engagement, ACT 15 will develop an ambitious and effective proposal for a new international climate agreement that catalyses climate action and moves the world onto low-carbon and climate resilient pathways. The ACT 15 outcomes will provide a key input to policymakers and negotiators as they conclude a forthcoming UN Framework Convention on Climate Change (UN- FCCC) agreement in 15. The ACT 15 project includes: Research. The team conducted research to understand the implications of the key elements of the agreement, including mitigation, adaptation, finance, technology, transparency of action, and capacity building. International consultation process. Based upon the research findings, the consortium developed three options for the agreement, which are being explored in convenings around the world, engaging a wide range of stakeholders. Analysis. To support the convenings, the proposed options were analysed impartially for political and economic feasibility and their ability to keep global warming below ⁰ Celsius. (Phase I analysis is documented in this report, Phase II will be published October 1); Draft proposal and explanatory memorandum. The consortium will develop a single proposal based upon findings from the convenings accompanied by an explanation of the elements of the proposal and why it will have the highest probability of success for catalysing an effective, fair, and ambitious transition to a low-carbon and climate-resilient future both in developed and developing countries. Supported by the Climate Works Foundation, the European Commission and the Prospect Hill Foundation, ACT 15 is a consortium of climate experts and centres of excellence from developing and developed countries: Ateneo School of Government, E3G (Third Generation Environmentalism), Ecofys, the Energeia Network, Institute for European Studies Vrije Universiteit Brussels, PBL Netherlands Environmental Assessment Agency, Tsinghua University, the World Resources Institute and Youba Sokona, former Coordinator of African Climate Policy Centre. xiv

15 Contents Summary iii Acknowledgements xiv Contents xv 1 Introduction Context 1 1. Scope of the report 1.3 Outline of this report Overview of analytical approach.1 Approach. Three propositions for a global agreement.3 Modelling framework 8 3 Global impacts Greenhouse gas emissions 1 3. Mitigation costs Mitigation co-benefits 1 3. Adaptation and impacts Integrated outcome 15 Illustrative country outcomes.1 Greenhouse gas emissions. Mitigation costs and benefits 3.3 Adaptation and impacts. Integrated outcomes 5..1 Developed country 5.. Emerging economy 7..3 Middle-income country 9.. Least-developed country 31 5 Distributional impacts of the propositions 3 Appendix A: Model and data details 39 xv

16 Appendix B: Global impacts of the three propositions 5 B.1 Energy and industry, non-co and land-use emissions 5 B. Global primary energy consumption under the three propositions B.3 Global electricity production under the three propositions 7 Appendix C: A variant of the proposition: a phase-out of GHGs by 9 C.1 Approach 9 C. Results 9 C..1 Emission reduction 9 C.. Mitigation, adaptation and damage costs 5 C..3 Global energy supply under the phase-out scenario 51 Appendix D: Additional information on distributional impacts calculations 5 References 55 xvi

17 1 Introduction The results of an environmental integrity and costs-and-benefit impact analyses of three climate change mitigation propositions are presented in this report. The modelled propositions were developed through the ACT 15 project for discussion leading to a new international climate agreement in Context In autumn 13, Working Group I of the Intergovernmental Panel on Climate Change (IPCC) published its contribution to the IPCC s Fifth Assessment Report, stating more clearly than ever the correlation between anthropogenic greenhouse gas (GHG) emissions and climate change phenomena (IPCC, 13). With the Copenhagen Accord of 9 and the Cancun Agreements in 1, the international community has agreed to limit GHG emissions to levels that would keep the global average temperature increase below C over pre-industrial levels, and is considering a target of 1.5 C (UNFCCC, 9, 1). The UNEP Gap Report 13 (UNEP, 13) showed again, as in previous reports, that with current pledges and activities, the aggregate ambition of mitigation actions falls short (by about 8-1 billion tonnes of CO-equivalent emissions by ) for a likely chance of being on track to stay below the C target. These emission gap estimates are based on least-cost mitigation scenarios, with comprehensive, immediate action starting in 1. New information from model studies showing scenarios with higher emissions conclude that the world could still meet the C target, but likely with higher medium- and long-term costs, and more importantly with greater risk that their efforts would not be successful (e.g., Kriegler et al., 13; Riahi et al., 13). The World Bank report Turn Down the Heat (Schellnhuber et al., 1) vividly explains the consequences of a higher temperature increase: increased frequency of extreme weather events; acidification of oceans, with an accompanying decrease in sea animal life; sea level rise up to 1 meter by 1; fresh water shortages; and forest dieback, to name only a few. Climate change impacts do not linearly increase with the temperature level because of unpredictable atmospheric interactions and climate feedbacks. Furthermore, climate change will not impact all regions equally: vulnerable regions with less adaptive capacity suffer more (Schellnhuber et al., 1). Left unresolved, increasing differences between regions represent high potential for conflicts. However, if appropriately addressed, these differences present new opportunities to enhance collaboration and derive benefits from cooperation. The new climate agreement can be an opportunity to scale up global mitigation action, prevent the world from more dangerous climate change impacts, and enhance opportunities and leadership to derive benefits from addressing this problem and its associated challenges (Garibaldi, 1; Haites et al., 13; Morgan et al., 13). Box : List of Key Terms Adaptation (costs): level of adaptation (costs) to climate change, defined as the share of climate change damage avoided by adaptation. This level is be calculated by the model to minimise adaptation costs and residual damage, or set by the user. Avoided damage (or the benefits): the difference between total damage costs in the businessas-usual scenario and total damage costs in the mitigation scenario. Least-cost mitigation /global least-cost solution: a cost-effective approach of mitigation, meaning that emission reductions are distributed optimally over time (after the starting point of 1 DRAFT

18 enhanced action) and across all greenhouse gases (including land use and non-co), sectors and sources, such that the aggregate costs of reaching the global climate target are minimized. Marginal abatement cost: cost of an additional unit of pollution abated (COeq). A marginal abatement cost curve (MAC curve) is a set of options available to an economy to reduce pollution, ranked from the lowest to highest additional costs. Mitigation benefits: avoided climate change damages due to less climate change as a consequence of mitigation measures. Mitigation co-benefits: benefits due to climate mitigation policies, other than greenhouse-gas reductions. Co-benefits are for example the mitigation of air-pollution impacts, energy-supply security (by increased energy diversity), technological innovation, reduced fuel cost, employment and reducing urban migration. These co-benefits are often short term benefits. Mitigation costs: net costs of measures to reduce greenhouse gas emissions. These capture direct costs of abatement action but not taking into account the costs related to a change in fuel trade or macro-economic impacts (including sectoral changes or trade impacts). Net present value of costs: the sum of the discounted costs to present values. Optimal damage / adaptation: calculations of damage and adaptation costs assume a cost-optimal implementation of investments, minimizing total damage and adaptation costs. Residual damages: the loss and damages associated with the impacts of climate change remaining after adaptation. Total damage: sum of adaptation costs and residual damage. 1. Scope of the report This report summarizes scientific analysis of three scenario options developed for a series of convenings organised under the ACT 15 project during the first half of 1. The analysis presents the, the and the emissions mitigation propositions and their economic impacts, in terms of mitigation costs, co-benefits, and avoided damage, compared with a baseline scenario. The mitigation costs calculations assume that emission reductions are distributed optimally over time (after the starting point of enhanced action), such that the aggregate costs of reaching the global emission target are minimized (there is no differentiation of reduction targets based on distributional effects). The impacts on the energy system are described in Appendix B. Appendix C offers a variant of the proposition, which aims at a phase-out of GHG emissions by (CO emissions alone by 5). Additional aspects of the propositions, such as detailed evaluation of distributional effects, equity, finance, the role of the carbon market, and adaptation costs will be included in a final report in October 1. This report considers the implementation of any interpretation of burden sharing or of the convention principles, including the principle of common, but differentiated, responsibilities and respective capabilities (CBDR&RC) only to a limited extent (Section 5). In practice, implementation of the latter can provide additional benefits to lower-income groups over those with higher incomes. 1.3 Outline of this report The remainder of this report is organised into the following subsections: DRAFT

19 Section : Overview of analytical approach Section 3: Discussion of global impacts of the three propositions addressing: Greenhouse gas (GHG) emissions Mitigation costs and co-benefits Adaptation and climate impacts costs Integrated analysis of outcomes Section : Implications for illustrative country profiles: Developed country Emerging economy Middle-income country Least-developed country Section 5: Distributional impacts Appendix A: Details of the modelling framework Appendix B: Impacts on the energy system of the three propositions Appendix C: A variant of the scenario; a phase-out of GHGs by Appendix D: Additional information on distributional impacts calculations References 3 DRAFT

20 Overview of analytical approach.1 Approach Analysis of three scenarios for a future climate agreement developed by the ACT15 team the,, and propositions looks at six aspects affected by the design of the climate agreement: Global GHG emission levels Domestic mitigation costs for major regions Direct benefits of mitigation, for example, development, health and energy security benefits Adaptation benefits and costs and benefits and costs through impacts, loss and damage for major regions Integrated outcome: orders of magnitude of the sum of costs and benefits for: o mitigation o co-benefits o adaptation and impacts Distributional effects of the propositions We present global results and illustrative results for countries of different income levels. These cases illustrate potential national impacts, but not the particular situations of all countries. We use the World Bank income groupings using 1 gross national income (GNI) per capita: Developed country (i.e., World Bank high-income country, $1,1 or more); Emerging economy (upper-middle-income country, $,8 $1,15); Middle-income country (lower-middle-income country, $1,3 $,85); Least-developed country (low-income country, $1,35 or less).. Three propositions for a global agreement This section outlines the three propositions for a new international climate change agreement for discussion through ACT This report analyses and summarizes the environmental, economic and political assessments of each of these propositions. For more details on the implications of other aspects of the propositions, as well as a full suite of ACT 15 materials, go to the ACT 15 website. 5 Table 3: Summary of the three ACT 15 propositions: Key elements The models used in this analysis assume aggregated world regions including some major GHG emitting countries. These regions have been classified to the World bank income groups as best as possible. Therefore, small differences may exist between the classification of the World Bank and the classification in this model. 3 The propositions are meant to provoke and structure a constructive discussion, to facilitate a better understanding of the potential framework and elements of the agreement and to identify the interests and perspectives of various stakeholders and countries. Note that these propositions are not mutually exclusive and their elements could be combined. However, for the sake of structured and clear analysis, in this report each proposition is taken separately. 5 DRAFT

21 Three propositions General description More ambition built into the commitments in 15 with a lower risk of overshooting the ⁰ C target Each country would and agree to a national 3 target and measures to reduce emissions Moderately strong set of transparency provisions with no compliance mechanism The character of the commitments would reduce the costs of investing and create a demand for a carbon market, which would represent a major source of funding Higher risk of overshooting the ⁰ C target due to lower short-term ambition Countries could commit to different types of commitments with a shorter term target (i.e. 5) to prevent locking in low ambitions Strong focus on reviewing those commitments early and on a regular schedule with an ambition mechanism Greater public funding for adaptation and focus on a loss and damage mechanism Global phase-out goal to net zero by 5, for example, and a structure allowing those willing to go further faster to do so Variety of commitments, such as renewable energy or energy efficiency policies or phasing out fossil fuel subsidies Varying stringency transparency and accountability A range of tools, practices, innovative technologies and incentives made available, supported by a new innovative financing mechanism Mitigation Most significant short-term (3 targets) mitigation ambition Incentives for greater ambition are facilitated by finance and capacity commitments Commitments are strengthened in the lead-up to Paris due to high levels of support Carbon market plays an effective role in reducing emissions combined with UNFCCC rules that would be applied for all countries Countries that currently have national targets for will continue to have them, but they would be stronger Countries could make different types of commitments Shorter-term target (i.e. 5) to prevent locking in low ambition Strong focus on reviewing those commitments early and on a regular schedule with an ambition mechanism Carbon market would play a limited role Global phase-out goal: commitments such as renewable energy or energy efficiency policies or phasing out fossil fuel subsidies, and a focus on sectoral drivers of decarbonisation. To enhance the alignment of these actions with the global phase-out goal in 5, a range of tools and incentives would be made available. Transparency (measurement, reporting and verification [MRV]) Would significantly build on current requirements which include biennial reporting and reviews for all countries but shift away from a clear division between developed and developing countries Would ensure more robust transparency as countries would agree to have a convergence to common standards for accounting and verification for all countries over time It would create a step-by-step approach Would implement a system where the type of transparency requirement would differ by the type of commitments, so targets would require greater stringency, but policies and measures less Finance Domestic and international revenues from carbon market flows Reduced risks and costs of investing Pushed up costs Adaptation finance commitments focus on public funding Public funds would be the main source for funding A set of indicators would guide the financial contributions of all countries Commitments more closely link with the development agenda More synergies in financing to occur Greater alignment between existing financial institutions and climate finance New financing mechanism for innovative technology and practices 5 DRAFT

22 Direct access to these funds by developing countries Adaptation and loss and damage Focus on consolidating institutional arrangements and prioritizing the needs of the most vulnerable Greater link between the level of mitigation and the need for adaptation Supplemental and specific funding is agreed for adaptation Insurance for loss and damage included Focus on innovation, greater access to technologies and capacity Strengthened information platform, including new resilience technologies, and enhanced national and local adaptation capacity Equity A clear framework on equity would emerge, providing guidance on which countries take what actions Countries agree to explain why their commitments are equitable and then to review those justifications Equity would be more flexibly addressed, as some countries could choose to move further faster Legal form/ Compliance Internationally binding mitigation commitments for all countries Global financial targets Legally binding elements applied to all countries No compliance mechanism Mitigation and finance commitments to achieve specific emissions targets and funds enforced through binding national laws and regulations Internationally binding MRV requirements Different ways of treating different parties Facilitative compliance mechanism Binding global phase-out goal Internationally binding processes (e.g. MRV when and how to channel financial contributions) Nationally binding mitigation commitments through decisions outside the treaty Legally binding elements applied to all countries Decision in Paris to adopt (by a certain date) a compliance mechanism (with both facilitative and enforcement measures) DRAFT

23 Risks and conditions associated with the three propositions All three ACT 15 propositions, although using different approaches, are designed to meet the C climate target. In fact, the emission pathways of all three propositions meet the target with about the same probability. However, different risks are associated with each scenario that may prevent it from happening. For example, all calculations assume a full portfolio of mitigation options. Technological limitations highly increase the risks (i.e. the likelihood of failing to meet the C target), especially if action is delayed (see Box 3). The analysis does not attach a likelihood as to whether the following assumptions will be met, as they depend on political and social processes that are difficult to predict. We assume the following levels of ambition: The proposition assumes implementation of the ambitious / conditional end of the pledges and assumes that they are extended to 3 in an continuously ambitious way; The proposition assumes less ambition until 5 than the proposition and then significant enhanced action as a step change. It relies on a mechanism to ensure that action will significantly increase after 3; The proposition sets a firm long-term, collective goal to phase out GHGs to net zero, for example, by 5. Within that overarching frame, countries agree on flexible approaches that enable those ready to go further faster to do so. We assume significant immediate actions of most countries based on the drive for innovation by a group of pioneer countries. If the final 15 agreement is not consistent with the requirement of a C limit, or if mitigation actions are delayed, allowing 3 emission to grow beyond the emissions pathways in Section 3.1, the damage costs and risks would be significantly higher. These damage costs and risks will be distributed differently across countries of different economic levels, likely causing more suffering by those where impact costs are most salient or who are most vulnerable. The three scenarios are projected through 1. In all cases, climate impacts and associated damage costs are expected to continue along the trajectories shown. 7 DRAFT

24 Box 3: Risk of delayed action Although the analysis shows little difference between the three scenarios in terms of climate impact, damage and adaptation costs, delaying action would have serious drawbacks, as analysed by the AM- PERE project (Kriegler et al., 1a; Riahi et al., 13). The AMPERE project was dedicated to the "Assessment of Climate Change Mitigation Pathways and Evaluation of the Robustness of Mitigation Cost Estimates". To stay below the limited carbon budget associated with a C path, any additional emissions until 3 would need to be compensated for in the future. Thus, delaying climate policy leads to more stringent actions in the future. Delayed action followed by a rapid energy system transition poses a significant challenge to achieving the long-term climate target (Kriegler et al., 1a; Riahi et al., 13) for the following reasons: Economies could lock-in to a carbon-intensive energy infrastructure. Delayed mitigation action until 3 leads to new conventional energy infrastructure (e.g., more coal-fired power plants), and therefore greater lock-in of a carbon-intensive infrastructure. It further delays the learning progress for renewable energy techniques. Rapid decarbonization after 3 implies larger climate mitigation costs. For instance, by early retirements of carbon-intensive power plants built up to 3. According to projections by the Ampere project (Kriegler et al., 1a; Riahi et al., 13), delayed policy action increases mitigation costs by 1-% compared with a least-cost pathway; Cuts in emissions would be deeper in the mid-term. Rapid reductions in the medium term would require global CO emission cuts of 8% per year for the delayed-action scenario, whereas immediate action requires emission cuts of only 3 % per year. This is in contrast to the % growth per year in global CO emissions over the last decade. Achieving such deep emission cuts using policy interventions would be historically unprecedented, even at the national scale, and possibly infeasible. Reliance on controversial or unproven technologies would be increased. Delay in mitigation narrows the choice of mitigation technologies. Several studies imply that the availability of the full range of technologies is necessary to meet the reduction target. For example, carbon capture and storage (CCS), in combination with bioenergy, is crucial because it allows for negative emissions. However, these techniques are still immature because of many uncertainties and political issues, and need policy incentives for their development. Delayed action implies larger risks of failing to meet the C climate target. Particularly given the economic and technological risks, if the potential of solar and wind energy, CCS and/or bioenergy is limited, mitigation options could run out and the C target becomes unattainable in an increasing number of models. When the scenario becomes infeasible, the costs for damage, loss and adaptation shift towards the business-as-usual levels. Delaying climate action creates several risks and requires a more costly transformation of the global energy system. Increasing energy efficiency could reduce these risks by lowering energy demand and creating more flexibility on the supply side..3 Modelling framework For the analysis, we used the global climate policy model FAIR, the TIMER energy model and a landuse model, which are all part of the IMAGE modelling framework. These models were developed at the PBL Netherlands Environmental Assessment Agency. The FAIR model was used to construct a global GHG emission pathway, and to calculate the direct abatement, damage and adaptation costs. Mitigation costs were calculated using marginal abatement curves, which indicate the costs of reducing an additional emission unit. These costs are one measure of the costs of climate policy, capturing 8 DRAFT

25 direct costs of abatement actions but not the costs related to a change in fuel trade or macro-economic impacts (including sectoral changes or trade impacts). Damages include many sectors, including market and non-market impacts, and estimates of the economic costs of catastrophic impacts. The TIMER energy-system model was used to analyse mitigation options and costs. It focused on several long-term, dynamic relationships within the energy system, such as technological and economic lifetime, inertia, endogenous learning curves (learning-by-doing) and resource depletion. Learning effects were based on a relation between increasing capacity and cost reduction (economies of scale) and not on financial resources for research and development (R&D). The IMAGE land-use model was used for the analysis of the mitigation options and costs for the agricultural and land-use sector. More details are in Appendix A. Box. Limitations of the model analysis The most important caveat of the analysis is the large uncertainty of the damage estimates by the RICE model of Nordhaus and Boyer (), on which we based our method for modelling adaptation and damage costs. Therefore, the results should be interpreted with sufficient care. Below are five major limitations of the study. First, though the costs of adaptation are small compared with residual damages and mitigation costs, adaptation reduces potential damages. Mindful that estimates of damage and adaptation costs are uncertain, we project that with optimal adaptation efforts, one dollar invested in adaptation reduces total climate costs by about four dollars globally. Thus, relatively small investments in adaptation could reduce damages substantially, especially in lower-income regions where potential damages are projected to be higher. Second, the total amount of adaptation and damage costs in a region depends on long-term climate projections, which are subject to large uncertainties. The range of damage and adaptation costs projections shown here include only the uncertainties in the damage and adaptation costs projections. Including the combined effect of uncertain cost and climate projections would further widen the uncertainty ranges, as shown by Stern (). Third, the mitigation costs capture only direct costs of abatement action, but do not take into account the costs related to a change in fuel trade or macro-economic impacts (including sectoral changes or trade impacts). In the literature, different cost metrics are used to describe the costs of climate policy: some models use abatement costs or the increase of energy system costs (partial and full equilibrium models), while others use gross domestic product (GDP) or consumption losses (full equilibrium models). Both methods have their strengths and weaknesses: both are used in literature including the IPCC AR5 as valid approaches. Fourth, the mitigation measures considered in the scenarios focus on reducing emissions by means of alternative technologies. Only indirectly and implicitly are lifestyle changes included in efficiency improvements and/or macro-economic changes. Studies have shown that some non-technical measures may be effective in reducing emissions (Stehfest et al., 9). A key question is whether such measures are politically feasible. Finally, nearly all the climate calculations use simple climate models. The calculations of the mitigation scenario under the RCP scenarios using complex climate models may provide important insights into the question of whether the reversal in the radiative forcing trend (peak and decline) can actually be achieved in light of the more complex dynamics in these models. 9 DRAFT

26 3 Global impacts This section presents the results of the three scenarios at a global level. Section presents results for illustrative country examples. 3.1 Greenhouse gas emissions All three propositions lead to a rise of no more than C with almost the same probability. They show the same radiative forcing level in 1, similar GHG emission budgets for 5 1 and similar temperature increase projections. But they have different global emission pathways. Figure illustrates the GHG emission trajectories and temperature increases until the year 1 for each of the propositions. Gt COeq/yr Global GHG emissions (incl. landuse CO) Baseline 3 1 5% below 199 level C Global temperature increase above pre-industrial level Figure. Global GHG emissions (upper) and temperature increase projection (lower) of the baseline scenario and the three propositions 1 DRAFT

27 Figure shows the global emissions for each proposition, based on the following assumptions: The scenario assumes that all countries achieve their conditional pledges for by implementing policies at the national level. After, emissions decrease steadily towards approximately zero in 1 (upper graph); The scenario assumes that all countries achieve their (less ambitious) unconditional pledges for, with action of similar ambition until 5. After 5, action is significantly more ambitious to make up for the delay in emission reductions. This means that emissions are rising until 5, with a steep decrease afterwards and net negative global emissions from 8 onwards; The scenario assumes more rapid and deeper reductions driven by the group of countries that wish to move faster. This leads to an emissions level in lower than the level implied by the conditional pledges. Because of this early action, this scenario allows a higher and positive global emission level at the end of the century to achieve the same radiative forcing target in 1. An alternative scenario (not shown) aims at a phase-out of GHGs by (CO emissions alone by 5), with a much lower radiative forcing by 1, and therefore a higher probability of achieving the C target (see Appendix C). The corresponding transformation progress indicators are shown in Table. Significant emission reductions are required for each proposition. The proposition, especially, requires a rapid change after 3 in (per capita) emissions. Table : Global transformation progress indicators Global GHG emissions in 3 relative to % 13% 1% GHG emissions in 3 relative to 5 1% 115% 9% Average annual CO reduction rate 3 1% % % Average annual CO reduction rate 3 5 % 3% 3% 3 per capita GHG emissions (tco₂e/capita) per capita GHG emissions (tco₂e/capita) Peaking year of global GHG emissions 5 Note: Emissions of CO₂ including land use. tcoe is tonnes of carbon dioxide equivalent. The scenarios assume the full availability of mitigation technologies. Without CCS and large-scale deployment of bioenergy, in particular, the o C target may become infeasible in our model, as in other model studies (Kriegler et al., 1a; Kriegler et al., 13; Riahi et al., 13). With delayed action, such as in the scenario, there would be dependency on a limited number of technologies (see Appendix B). The risks of delay are shown in Box 3. More details on the scenario assumptions, including the cumulative emissions, their radiative forcing in 1 and the exact probability of meeting the C target is in Appendix A, (Section ). 3. Mitigation costs The abatement costs for each scenario were calculated using the energy system model TIMER that is used in the model comparisons of the IPCC AR5 Working Group III report and the AMPERE and LIM- ITS project. The outcomes were consistent with the IPCC AR5 ranges. Abatement costs are the direct additional costs due to climate policy but do not capture the macro-economic implications of these costs. The calculations assume a cost-optimal implementation of the reductions across regions, greenhouse gases and sources (after the starting point of enhanced action). Hence, mitigation at zero net cost is assumed in the baseline. Other modelling setups (e.g. bottom-up models), assume significant mitigation potential at negative cost. Costs are not discounted over time; instead, the annual costs as a share of GDP are shown. 11 DRAFT

28 Figure 5 shows the direct costs related to emission reductions for each proposition. In the scenario, global mitigation costs immediately start to increase slowly until 75, after which most of the transition is complete and the costs decrease. This scenario has the lowest costs of the three. In the scenario, global mitigation costs are relatively low until 3, because of limited ambition. After 3, costs increase steeply from near zero to a very high level in 5, after which they decline. Such a rapid increase in mitigation costs risks causing economic disruptions. Total mitigation costs are higher than in the other two scenarios because a drastic reduction of emissions after 3 would require a rapid, and thus more costly, transformation of the global energy system. Under the scenario, early action drives higher early costs, which can be seen as investment. The modelled mitigation costs increase steeply from today onwards due to a rapid transformation of the energy system, peak in the first half of the century, then decline significantly. Because the energy transition is made earlier than in the other scenarios, has the lowest costs at the end of the century but cumulative costs are still higher than under the scenario. % of GDP Global mitigation costs Figure 5: Annual global undiscounted mitigation costs under the three propositions, excluding mitigation benefits, as share of GDP. As mentioned, our cost projections assume the full availability of mitigation technologies. Limitations in the technological availability (for example, CCS, solar and wind, bioenergy) will lead to higher costs and, particularly for the scenario, an increased risk that the o C target becomes infeasible. The necessary changes for the energy transition are described in more detail in Appendix B (Section ). 3.3 Mitigation co-benefits The baseline scenario includes several undesirable developments. Local air pollution, for example, will remain high and will have significant health impacts. Energy security decreases due to increased dependency on fossil fuels, which is concentrated in certain regions. Climate change mitigation may improve these elements. Reduction in air pollution 1 DRAFT

29 Analysis of the three propositions show important benefits from reducing air pollution. Figure shows that all three propositions reduce global air pollutants SO and NOx compared with the baseline. Mt S/yr 7 5 Global SO emissions Baseline Mt N/yr Global NOx emissions Baseline Figure : SO and NOx emissions under the baseline and the three propositions Estimating the value of co-benefits We estimated the potential monetary value of the co-benefits using a simplified first-order approach that assumes that one third (1/3) of the direct mitigation costs (as shown in Section 3.) is offset by the monetary co-benefits from other issues, based on: The Global Energy Assessment (Riahi et al., 1), that shows that the reduction of costs for air pollution and health measures in stringent mitigation scenarios compared with the baseline is 3% of the mitigation costs, and the reduction of costs for energy security measures is 17% of the mitigation costs. The values are not additive because they overlap. Using only air pollution and health benefits as co-benefits leads to a conservative estimate. Conversely, negative external effects like landscape pollution due to windmills or the potential negative effects of biomass production is not accounted for. McCollum et al. (13) find that a stringent emission reduction approach can reduce costs for air pollution and health measures by % of the mitigation costs by 3. Considering that only few studies are available and that potential negative effects of mitigation are not accounted for, the factor of 1/3 is surrounded by large uncertainties and can only be interpreted as a first indication. We applied this factor to all years and all illustrative countries independent of their economic level or geographic conditions, a significant simplification because the co-benefits of GHG reduction measures are region and country specific. The energy security expressed by energy imports and exports projections (not shown in this report) shows, that the energy self-sufficiency of regions is affected very differently by the mitigation scenarios. However, the analysis shows that in the long run, all regions have a net profit compared with the baseline. Also the benefits of mitigation actions for air pollution are much larger in regions with high air pollution (e.g. China) compared with regions where air pollutants have been abated (e.g. European Union or United State). 3. Adaptation and impacts Adaptation and damage costs were estimated according to the FAIR calculations based on the regional damage estimates of the RICE model (Nordhaus, 8; Nordhaus, 199), as described in Bruin et al. (9) and Hof et al. (9). These damage estimates include impacts on many sectors, both market and non-market, and also place a monetary value on the risks of catastrophic impacts (see 13 DRAFT

30 Appendix A). At C global warming, the RICE model projects damage of 9-11% of global GDP. The Stern report, using the PAGE model (Hope, ) for the damage and impacts calculations, finds a slightly lower impact for a C global warming a 7.5% loss in GDP (see Stern,, figure.). Figure 7 shows the adaptation and damage costs for the baseline and the three propositions over time (in the baseline scenario, the global temperature increase reaches around 3.5 o C by 1, and in the propositions it reaches about o C). The green line shows the cost of the damage that would occur at each temperature level without adaptation. The arrow shows that overall costs can be reduced if adaptation is implemented (the orange area depicts adaptation costs) so that the remaining damage (blue area) is significantly smaller. The level of adaptation is assumed to be optimal: only adaptation measures are implemented for which the avoided damage exceeds the costs of adapting. Adaptation can significantly reduce potential damage and thus total climate costs. Hof et al. (9) found that given the AD-RICE damage and adaptation cost curves, residual damage is on average reduced by about four dollars for every dollar invested in adaptation. These estimates are indications; making predictions about damage and adaptation costs for the next 1 years involve large uncertainties. Adaptation costs and damage can also be reduced by mitigation (Figure 7). In the absence of mitigation, adaptation and impacts costs will grow substantially. Following Hof et al. (1), we used the concept of avoided damage, which is the difference in the sum of adaptation costs and residual damage under the baseline case with that under the mitigation scenarios. Avoided damage manifests itself by, for example, less coastal damage, less biodiversity loss, or less healthcare costs due to less climate change. A focus on the avoided damage underlines the net benefits possible through cooperation, particularly when considering mitigation, adaptation, and residual damage (Garibaldi, 1). In this analysis, all propositions aim for a C mitigation strategy and therefore their adaptation costs and damage are similar. The mitigation delay under the scenario does not have a significant impact on adaptation needs. Other risks due to delay are considered in Box 3 (Section Error! Reference source not found.). Because of inertia in the climate system, residual damage and adaptation costs are similar in the three propositions and the baseline until about. In the long run, residual damage and adaptation costs diverge. In the baseline, residual damage increases sharply and will continue to increase after 1. Adaptation costs are also much higher at the end of the century. If the global temperature increase is kept to ⁰C, the sum of climate change damage and adaptation costs will stabilise at around 1.5% of world GDP under all propositions in this model. These results are comparable to those in other studies. The Stern report (Stern, ), for instance, finds a 11.3% loss in global GDP by based on a temperature increase of 7.5 o C, whereas our projection is an 8% loss of GDP in based on a temperature increase of 5.5 o C (not shown here). If we use Stern s assumed temperature increase, our damage loss projection would be about 1%, slightly higher than Stern. 1 DRAFT

31 Share of world GDP (%) Baseline Share of world GDP (%) Share of world GDP (%) Share of world GDP (%) Adaptation costs Residual damages Damage without adaptation Figure 7: Global adaptation costs, residual damage and extra damage if no adaptation is undertaken (damage without adaptation) for the baseline and the three propositions. All three propositions avoid significant costs and damage over the baseline. Note: Costs are shown as a share of GDP over time and represent total costs (not relative to the baseline). 3.5 Integrated outcome This section illustrates the full costs under the baseline scenario and the three propositions. Costs examined include: Mitigation costs Co-benefits of mitigation as offsetting some of the mitigation costs, and Benefits from avoided adaptation and residual damage (damage cause by climate change impacts with adaptation) 15 DRAFT

32 For any given year these three cost / benefit elements can be compared. Global Share of GDP (%) Global mitigation costs and benefits Costs Benefits Costs incl. mitigation benefits Costs excl. mitigation benefits Avoided damage costs Share of GDP (%) Aggregation of global mitigation costs, benefits and avoided damage costs Costs Benefits Default Min Max - - Figure 8 presents the mitigation costs and avoided damage (or the benefits) of the propositions compared with the baseline scenario, assuming optimal adaptation in the three propositions. The figure includes estimates of the mitigation co-benefits as explained in Section 3.3. The mitigation costs exceed the avoided damage in the short term, but eventually, the avoided damage outweighs the mitigation costs. The time when this would happen is uncertain due to the uncertainty in the mitigation costs and avoided damage. 1 DRAFT

33 Global Share of GDP (%) Global mitigation costs and benefits Costs Benefits Costs incl. mitigation benefits Costs excl. mitigation benefits Avoided damage costs Share of GDP (%) Aggregation of global mitigation costs, benefits and avoided damage costs Costs Benefits Default Min Max - - Figure 8.. Avoided damage the difference between total damage in the baseline scenario and in the mitigation scenario. Total damage is the sum of adaptation costs and residual damage. Avoided damage will outweigh mitigation costs in the long term Note: Range of estimates based on the mitigation costs projections of the IPCC AR5 report and the damage projections of the Stern Review report. All values are subject to uncertainty as illustrated by the uncertainty ranges based on mitigation cost estimates from other models in the IPCC AR5 report. The ranges of the damage estimates are based on the Stern Review (Stern, ). The uncertainties are described in detail in Appendix A (section A.3.). The three propositions differ in mitigation costs, but are similar in avoided damage due to their similar temperature projections. For the scenario, the aggregated effect is slightly negative in the first half of the century (less than.5% of GDP with an uncertainty range of % to 3.5%), but by the end of the century the aggregated effect is likely to be positive. In the scenario, total costs increase more sharply, but the aggregated effect is positive earlier than in the scenario. The scenario shows a large peak in total costs about mid-century. 17 DRAFT

34 Total costs of the propositions and baseline Share of GDP (%) Baseline Figure 9 illustrates an alternative view: total adaptation costs and residual damage (not avoided damage) for the baseline and the three propositions. This view shows adaptation costs and residual damage (green), costs with mitigation benefits (red), and without mitigation benefits (red dashed). Costs are measured as a percentage of world GDP. For all propositions, total costs (sum of mitigation costs and benefits, adaptation costs and residual damage) stabilise towards the end of the century at about 1.5% to % of world GDP, whereas under the baseline scenario, the total cost (adaptation and residual damage costs) grows to 3.5% to % of world GDP, and continues to increase after 1 (Figure 9). In this context, it can be argued that in the absence of mitigation, adaptation and residual damage costs are likely to become unmanageable. Note that the damage projections account for adaptation. Without adaptation the difference between adaptation and residual damage in the baseline and in the propositions would be much larger, and the damage projections would increase by a factor of about two (see also Figure 7). Global Mitigation costs and adaptation and residual damage costs Share of GDP (%) Baseline, ,, -3, -, -5, -, -7,, -9, Costs incl. Mitigation benefits Costs excl. mitigation benefits Adapatation costs and residual damage 18 DRAFT

35 Total costs of the propositions and baseline Share of GDP (%) Baseline Figure 9. Total mitigation costs, mitigation benefits, adaptation costs and residual damage for the baseline and for the propositions, separate (top panel) and aggregated (bottom panel). Source: Range of estimates based on the mitigation costs projections of the IPCC AR5 report and the damage projections of the Stern Review report. Figures 8 and 9 show annual costs and benefits as a share of GDP but not the cumulative costs. To compare future costs and benefits, all future costs and benefits should be discounted to their net present value using a discount rate. The discount rate depends on how fast per capita income increases (if future generations are richer, a dollar has less value for them than for the current generation, providing a reason for discounting) and on the so-called pure rate of time preference, which reflects the notion that people would rather have money now than later. The level of the discount rate, especially of the pure rate of time preference, is under debate. Stern (), for instance, applied a pure rate of time preference of.1%, while Nordhaus and Sztorc (13) applied one of 1.5%. Such differences can determine whether or not the benefits of climate policy exceed the costs (Hof et al., 8). 19 DRAFT

36 Illustrative country outcomes Complementary to the global information, the analysis provides insights for four illustrative countries because global estimates say little about specific countries. Differences can emerge from mitigation costs (as mitigation potential is not equal among country groups), from mitigation benefits (countries profit differently from energy security or air pollution reduction), or from avoided damage and adaptation costs (climate change vulnerability varies among country groups). Importantly, the mitigation costs and benefits, as well as adaptation costs and residual damage, are depicted where they occur based on a modelled global least-cost solution of the reductions across economic groups, sources and sectors. The issue of who pays for these reductions for adaptation costs, mitigation costs or for compensating residual damage is discussed in Section 5..1 Greenhouse gas emissions In an illustrative developed country, the emissions would look similar to those depicted in Figure 1. In the scenario, this emission trend extends towards 3. Afterwards emissions would decline significantly and steeply. The reductions in the scenario would be about half of 5 levels in 3, thus by they would be more ambitious than the current unconditional pledges. Emissions would have to decline to near zero by in all propositions. In an illustrative emerging economy, emissions would peak by 5 (by 3 in the scenario), then shift to a downwards trajectory. In any scenario, domestic emissions would decline to almost zero slightly later than for developed countries, by around 5. In a middle-income country, emissions would peak before 5 (by 3 in the scenario) and then decrease steadily. This country would also transform its emissions pathway. The annual decrease in emissions is less steep than in developed countries or emerging economies, but requires a sharp deviation from the baseline trend. In the and the scenario, the country would also need to reduce emissions towards zero near the end of the century. For a typical least-developed country, emissions could grow slightly until the middle of the century. In general, its emissions path is relatively stable. Its challenge is how to avoid replicating the high-emission development pathways that developed countries have followed. In this analysis, its baseline considers a stable increase in emissions after 3 and no stabilisation within the timeline considered. Note that the graphs show the actual emissions in the regions, not potential emission targets resulting from a fair distributions of emission reduction efforts. DRAFT

37 Regional greenhouse gas emissions as share of 5 emissions % Developed country % Emerging economy % Middle income country % Least developed country Baseline Figure 1. GHG emissions pathways expressed as an index (GHG emissions in 5 = 1) for a developed country, an emerging economy, a middle-income country and a least-developed country. Note: Based on a cost-effective approach, with no burden sharing. The emission projections exclude land-use emissions, given the uncertainties in relation to countries projections. 1 Table 5 shows the transformation progress indicators of the four illustrative countries compared with global numbers in a situation assuming that all emission reductions are distributed optimally over time, and across all regions, greenhouse gases and sectors. For all propositions, most significant emission reductions would take place in developed and emerging regions between 3 and 5. The emissions of the developed country would peak by around 5, and show a declining trend. 1 DRAFT

38 Table 5: Overview of selected transformation progress indicators for the world and the four illustrative types of countries Global A Developed country An emerging economy A middleincome country A leastdeveloped country GHG emissions in 3 relative to % 78% 13% % 1% GHG emissions in 3 relative to 5 11% 8% 1% 15% 15% Average annual CO reduction rate 3 1.1% 1.9% -.3%.9% -1.% Average annual CO reduction rate 35.5% 3.9%.3% 1.5% -1.1% 3 Per capita GHG emissions (tco₂e/capita) Per capita GHG emissions (tco₂e/capita) Emission peaking year GHG emissions in 3 relative to % 97% 1% 31% 31% GHG emissions in 3 relative to 5 18% 8% 1% % 15% Average annual CO reduction rate 3 -.3% 1.% -.% -1.%.% Average annual CO reduction rate 35 3.%.% 5.%.% % 3 Per capita GHG emissions (tco₂e/capita) Per capita GHG emissions (tco₂e/capita) Emission peaking year GHG emissions in 3 relative to % 7% 11% % 1% GHG emissions in 3 relative to 5 99% % 88% 15% 1% Average annual CO reduction rate 3 1.% 3.%.1%.5% -1.% Average annual CO reduction rate 35.9% 5.1%.3%.% -.1% 3 Per capita GHG emissions (tco₂e/capita) Per capita GHG emissions (tco₂e/capita) Emission peaking year 5 5 No peaking Note: Emissions exclude land use CO₂ and are based on a cost-effective approach, with no burden sharing. tcoe/captia is tonnes of carbon dioxide equivalent per captia. DRAFT

39 . Mitigation costs and benefits Share of Developed country GDP (%) Share of Emerging economy GDP (%) Share of Middle income country GDP (%) Share of Least developed country GDP (%) (incl. mitigation benefits) (incl. mitigation benefits) (incl. mitigation benefits) Figure 11 shows the mitigation costs in illustrative countries (where they would occur in a uniform global least-cost solution) expressed as percentage of GDP, including mitigation benefits with an assumed factor of 1/3 of mitigation costs as described in Section Mitigation costs differ among the illustrative country examples. They are highest in least-developed countries, reflecting the high carbon intensity of most least-developed countries. Thus mitigation potential may be higher in those countries, some of which may need support to cover the costs (Section 5). Differences among the scenarios are clearest for the emerging, middle-income, and least-developed countries, but less so in the developed country example. 7 Even though there are regional differences in co-benefits, we used a factor of 1/3 for all regions, as no specified regional information is available. Therefore this analysis represents a global average of what co-benefits might be. 3 DRAFT

40 Share of Developed country GDP (%) Share of Emerging economy GDP (%) Share of Middle income country GDP (%) Share of Least developed country GDP (%) (incl. mitigation benefits) (incl. mitigation benefits) (incl. mitigation benefits) Figure 11: Regional mitigation costs including mitigation benefits (solid lines) and excluding mitigation benefits (dashed lines).3 Adaptation and impacts The benefits of enhanced mitigation action in reducing adaptation costs and residual damage vary significantly by the economic level of the countries, with only small differences among the three proposals (as discussed in Section 3.). Figure 1 shows avoided damages (total damages in the baseline compared with total damages in the three propositions) in the four illustrative countries. The benefits of a stringent mitigation scenario are highest in the middle-income country and next highest in the least-developed country. In the developed-country, benefits are smallest. These results show the vulnerability of lower-income countries to climate change. DRAFT

41 5 Avoided damages Benefits as share of GDP (%) Developed country Emerging economy Middle income country Least developed country Figure 1: Avoided damage (total damage in the baseline compared with total damage in the three propositions) in four economies Note: Total damage is the sum of adaptation costs and residual damage. The analysis is limited by the fact that it considers only one illustrative country per economic type. Because the results depend heavily on the country circumstances, choosing other countries within the same grouping may lead to different results.. Integrated outcomes Comparing the total climate change costs and benefits of the three propositions and of the baseline scenario for the different economies reveals that all three propositions will likely create net benefits for all illustrative countries towards the end of the century with a positive trend continuing after 1. However, the illustrative countries benefit differently from the three propositions. The following subsections describe the results for each example country and compare the impact of the three propositions and the countries...1 Developed country For the exemplary developed countries, net benefits of mitigation will likely mainly occur in the next century. Figure 13 presents the mitigation costs and avoided damage (or the benefits), compared with the baseline scenario assuming optimal adaptation for a developed country. The damage as a percentage of GDP is lower than the global average. Hence, the mitigation costs (blue line), exceed 5 DRAFT

42 the avoided damage for most of the century. The uncertainty ranges are based on those in the global projections. Developed country Share of GDP (%) Costs Benefits 3, 3, 1, 1, ,, -3, -, -5, Mitigation costs and benefits 3,3, 1,1, ,-1, -3,-3 -,- -5,-5, , -1, -3, -3 -, - -5, -5 Costs incl. mitigation benefits Costs excl. mitigation benefits Avoided damage costs 3,3, 1,1 Share of GDP (%) Costs Benefits Aggregation of mitigation costs, benefits and avoided damage costs Default Min Max Figure 13. Avoided damage and mitigation costs (upper panel) and aggregation of mitigation costs and avoided damage (lower panel) for an illustrative developed country. When the aggregated costs (blue line) becomes positive, the mitigation action results in a net benefit according to the mean projections. The relative adaptation and residual damage costs are small for the developed country compared with its mitigation costs, and not as dramatic as those for country examples at the other income levels. Figure 1 shows the total costs (adaptation costs and residual damage, not avoided damage) of the three propositions compared with the baseline. In the global results and other country examples, the and the scenarios show a drastic cost peak in the middle of the century. Compared with the emerging economy or the least-developed country, the peak for the developed country is modest, with aggregated costs (Figure 1 lower panel) not going beyond 1.5% of the GDP in any of the propositions. The focus of the effort is nevertheless on mitigation in this exemplary developed country, where costs for adaptation and loss and damage are smaller than mitigation costs and less dramatic than in other countries examined in the following sections. DRAFT

43 Developed country Mitigation costs and adaptation and residual damage costs Share of GDP (%) Share of GDP (%) Baseline, , , -1,5,,5-3, -3,5 -, -,5-5, Costs incl. Mitigation benefits Costs excl. mitigation benefits Adapatation and residual damage costs Total costs of the propositions and baseline Baseline Figure 1. Mitigation costs, mitigation benefits and adaptation and residual damage costs for an illustrative developed country for the baseline and for the three propositions, separate (top panel) and combined (bottom panel)... Emerging economy In the exemplary emerging economy, costs of mitigation would vary strongly among the propositions. Figure 15 presents the mitigation costs and avoided damage (or the benefits), compared with the baseline scenario assuming optimal adaptation in an exemplary emerging economy. For the emerging economy, mitigation costs exceed the avoided damages in the short to medium term, but at the end of the century the avoided damage likely outweighs the mitigation costs. As with the developed country, the proposition shows some delay in producing net benefits. 7 DRAFT

44 Emerging economy Share of GDP (%) Mitigation costs and benefits 5, 5 5,5 5, 5 Costs Benefits 3, 3 1, 1-1, , -5, -7, 3,3 3, 3 1,1 1, 1-1, , ,-3-3, -5,-5-5, -7,-7-7, Costs incl. mitigation benefits Costs excl. mitigation benefits Avoided damage costs Share of GDP (%) Costs Benefits Aggregation of mitigation costs, benefits and avoided damage costs Default Min Max Figure 15: Avoided damage and mitigation costs (upper panel) and aggregation of mitigation costs and avoided damage (lower panel) for an illustrative emerging economy. When the aggregated costs (blue line) becomes positive, the mitigation action results in a net benefit. Damage for the emerging economy quickly becomes severein the baseline and decreases in the mitigation cases (see Figure 1). In this country, the more radical scenario leads to much higher costs than the other scenarios; the advantage of slightly lower adaptation costs and residual damage does not make up for these costs within the timeframe considered. No analysis is made for financial flows derived from the allocation of emission rights or reductions through carbon markets or the application of the convention principles to enhance collective action both are likely to affect the outcomes for these countries. 8 DRAFT

45 Emerging economy Mitigation costs and adaptation and residual damage costs Share of GDP (%) Baseline, ,, -3, -, -5, -, -7,, Costs incl. Mitigation benefits Costs excl. mitigation benefits Adapatation and residual damage costs Share of GDP (%) Total costs of the propositions and baseline Baseline Figure 1. Mitigation costs, mitigation benefits and adaptation costs and residual damage for an illustrative emerging economy for the baseline and for the propositions, separate (top panel) and combined (bottom panel)...3 Middle-income country The illustrative middle-income country profits quickly from stringent mitigation under the three propositions because its impacts from climate change are particularly high, and avoiding them increases its benefits. Figure 17 presents the mitigation costs and avoided damage (or the benefits), compared with the baseline scenario assuming optimal adaptation. For the middle-income country, mitigation costs exceed the avoided damage in the short term, but somewhere in the second half of the century, avoided damage outweighs mitigation costs with a little delay for the proposition. The net benefits for the middle-income economy are higher than for the developed and emerging economies illustrated in this analysis. 9 DRAFT

46 Middle income country Share of GDP (%) Costs Benefits 1, 1, 8,8,,,, , -, -,, Mitigation costs and benefits 1, 1, 8,8,,,, , -, -,, 1, 1,,, , -,, Costs incl. mitigation benefits Costs excl. mitigation benefits Avoided damage costs 8,8,,, Share of GDP (%) Costs Benefits Aggregation of mitigation costs, benefits and avoided damage costs Default Min Max Figure 17. Avoided damages and mitigation costs (upper panel) and aggregation of mitigation costs and avoided damages (lower panel) for an illustrative middle income country. When the aggregated costs (blue line) becomes positive, the mitigation action results in a net benefit. For the middle-income country, the total costs in the three propositions are lower than in the baseline scenario as early as the middle of the century. While mitigation costs remain stable at 1% to 1.5% of the GDP, the benefits in the three propositions (because of reduced adaptation and residual damage costs) increase to more than 5% of GDP at the end of the century (Figure 18). The middle-income country benefits proportionally more than the higher-income country from substantial global collective action. The differences among the three propositions are almost negligible for this country. 3 DRAFT

47 Middle income country Mitigation costs and adaptation and residual damage costs Share of GDP (%) Baseline, , -, -,, -1, -1, -1, -1, Costs incl. Mitigation benefits Costs excl. mitigation benefits Adapatation and residual damage costs Share of GDP (%) Total costs of the propositions and baseline Baseline Figure 18. Mitigation costs, mitigation benefits and adaptation and residual damage for an illustrative middle-income country for the baseline and for the propositions, separate (top panel) and combined (bottom panel)... Least-developed country The results for the least-developed country are similar to the emerging and middle income countries: mitigation costs exceed the avoided damages in the short-term, but by the end of the century, the avoided damage likely outweighs the mitigation costs (Figure 19). The proposition reaches a net benefit earlier and the proposition shows some delay. In the and propositions, mitigation costs peak in the middle of the century, whereas the scenario shows a slow cost increase, but a similar development of avoided damages. 31 DRAFT

48 Least developed country Share of GDP (%) Mitigation costs and benefits Costs Benefits 8, 8 8,8 8,8 3, 3, , -1, 3,3 3,3, , , -7, -1, -1, Costs incl. mitigation benefits Costs excl. mitigation benefits Avoided damage costs Sha re of GDP (%) Aggregation of mitigation costs, benefits and avoided damage costs Costs Benefits Default Min Max Figure 19. Avoided damages and mitigation costs (upper panel) and aggregation of mitigation costs and avoided damages (lower panel) for an illustrative least-developed country. When the aggregated costs (blue line) becomes positive, the mitigation action results in a net benefit. Under the scenario, the least-developed country would almost immediately have total costs similar to the baseline scenario, but they soon turn to benefits (Figure ). Under the and propositions, and under the uniform cost conditions and no burden sharing assumed in this analysis, this country would experience high mitigation costs in the middle of the century, with ap- 3 DRAFT

49 proximately the same level of adaptation and residual damage costs. For the least-developed country, which has the lowest income, costs are relatively high for the baseline and for the mitigation scenarios. How such countries could be supported with financial resources is discussed in Chapter 5. Least developed country Mitigation costs and adaptation and residual damage costs Share of GDP (%) Baseline, , -, -,, -1, -1, -1, -1, Costs incl. Mitigation benefits Costs excl. mitigation benefits Adapatation and residual damage costs Total costs of the propositions and baseline Share of GDP (%) Baseline Figure. Mitigation costs, mitigation benefits and adaptation and residual damage costs for an illustrative least developed country for the baseline and for the propositions, separate (top panel) and combined (bottom panel). 33 DRAFT

50 5 Distributional impacts of the propositions The previous sections considered the costs for example countries assuming the emissions are reduced where it is the cheapest to do so. They did not consider the question of who pays for these costs. This will be determined by negotiations on how countries will contribute to the shared international collective mitigation effort In the UNFCCC, all countries agreed to the fundamental principle of common but differentiated responsibilities and respective capabilities (CBDRRC). This principle says that some countries will contribute more and some less to solving the problem of climate change depending on their responsibility (e.g., historic emissions) and their capability (e.g., based on economic indicators). The principle will be specified further, thus the current interpretation of responsibility and capability have different meanings regarding the distribution of emission allowances and/or the obligation to pay for mitigation, adaptation and damage. In most cases, these distributions will likely differ from the domestic mitigation and adaptation costs and residual damage presented in the previous section. Financial flows among countries can balance domestic mitigation costs and domestic spending for adaptation and damage with expected spending based on responsibility and capability. One can, for example, argue that a large proportion of the mitigation and adaptation costs and damage in the illustrative least-developed country should be covered by countries with more responsibility and capacities. A different portion could be covered for developing countries with higher capabilities. Mitigation activities and the need for adaptation funds and compensation for damages in different countries are linked. If one country increases its mitigation efforts (domestically or via financial transfers), global adaptation costs and residual damage are likely to decrease. Consequently, one could consider that a future climate agreement should offer incentives that reward countries that take more ambitious mitigation action. The financial transfers are potentially very large, depending on which share of the mitigation, adaptation costs and damages are supported and for which countries. 3 DRAFT

51 Table provides examples of the costs for mitigation, adaptation, residual damage and avoided damage in 3 and 5, assuming that mitigation and adaptation occur where it is the cheapest. 35 DRAFT

52 Table. Annual costs associated with climate change in 3 and in 5 under the three propositions for the country economic groups (billion US$ 5) Mitigation Adaptation + Residual damage Avoided damage 3 World Developed countries Emerging economies Middle-income countries Least-developed countries World Developed countries Emerging economies Middle-income countries Least- developed countries Comparing the adaptation costs outcomes to estimates of adaptation costs found in literature is complicated due to the static nature of most estimates (Hof et al., 9). The World Bank (), for instance, arrived at US$1 billion yearly for developing countries as a whole. A more recent World Bank estimate (1) sets global annual average adaptation costs at US$7 1 between 1 and 5, depending on the climate scenario. The estimates of Oxfam (Raworth, 7) and United Nations Development Programme (UNDP) (Watkins, 7) are US$5 billion (current needs) and US$8 billion (by 15), respectively. For 3, the UNFCCC (7) estimated adaptation costs at US$5 17 billion. For the coming decades, our projection of adaptation costs seems relatively low compared with other estimates. An explanation could be that in our model (Hof et al., 9), adaptation occurs reactively, implying that there is no adaptation to expected future climate change but only to current climate damage. This results in relatively low adaptation costs in the short run and relatively high adaptation costs in the long run. Two ways to determine a method of financial transfers are: sharing mitigation targets and sharing overall costs. The first approach, sharing mitigation targets also called effort-sharing distributes emission allowances to countries based on equity principles or other principles. Financial flows among countries can balance the difference between actual domestic emissions and allowances. Many effort-sharing proposals have been made (Höhne et al., 1). Differences in allowances under different approaches are huge. For example, developed countries could be allocated targets in the range of a % to 1% reduction below 1 levels in 3, where the cost-effective level shown in the previous section is around half of 1 emissions. For most effort-sharing approaches, developed countries would buy allowances from other countries. An effort-sharing approach based on converging per capita emissions is illustrated in Figure 1. 3 DRAFT

53 Developed country Costs as share of GDP (%) Domestic costs Financial flows (revenues or costs) Total mitigation costs Figure 1: Example of a developed country s domestic costs (based on cost-effective implementation), financial flows through carbon trading or other mechanisms and total mitigation costs in 3 and 5 This approach shares the costs of mitigation, but does not discuss sharing the costs for adaptation and residual damage. The second option for financial transfers, sharing overall costs, is a thought experiment to assume that each country follows the most cost-efficient emission trajectory globally, and that all mitigation, adaptation and residual damage costs relating to these efforts are shared globally according to the countries responsibility and capability. If the mitigation and adaptation costs and the residual damage costs of a country are higher than its responsibility and capability, it will receive financial transfers. If its mitigation, adaptation and residual damage costs are lower than its responsibility and capability, it will provide financial transfers. The approach follows these steps: Sum the global costs for mitigation, adaptation and residual damage. Apply a distribution key to the total costs to determine the contribution of each economic grouping of countries to the global costs. Compare the contribution of the group to their costs to calculate the net transfers. For this illustration, we chose a distribution key 8 that reflects the responsibility and capability of the economic groups. It proposes three indicators, all resulting in shares, which are directly applied to the total costs: 1. Responsibility: the economic group s share of global accumulated historic emissions (19 ). Capability: the groups share of global income (1) 3. Capability: The system of financial contributions of individual member states to the United Nations (1) (the UN Scale of Assessment), which is commonly agreed, through the General Assembly, to be based on the principle of capability. The distribution of costs as a percentage of the total costs for the world and the country groups are shown in Appendix D. It is possible to arrive at the key through a variety of indicators. The examples chosen here, illustrate ends of a range of possibilities and point to the order of magnit ude of the numbers. Figure shows a possible distribution of the 3 costs for the country groups under the scenario. It gives total costs for mitigation, adaptation and residual damage in 3 in each group (left area of graph), the range of international finance flows resulting from an exemplary distribution 8 The distribution key reflects a percentage distribution between all countries, adding up to 1% globally. We apply this to total global costs to illustrate which share each country should bear. 37 DRAFT

54 of costs (middle area of graph) and the range of total flows. The yearly costs shown here include mitigation co-benefits, because we assume that each country should contribute to its domestic measures that have high co-benefits, since those turn into a net profit for the economy. The approach shows international finance flows of US$15 9 billion in 3. The main funding is from developed countries, and the main recipients are middle-income countries. In least-developed countries, international finance covers most of the mitigation, adaptation and residual damage costs; nevertheless the size of the flows is comparably small. Emerging economies in this example have high absolute costs, but they could also make high contributions, so that international flows are not as relevant. The financial flows values must be interpreted with care because they are a model output. Costs to programme operators, such as the Green Climate Fund can be quite different as they have a different perspective. Effective use of international finance and making use of leverage of further funding is essential to achieving the common goal. In relative terms, the total financial flows amount to.15.3% of global GDP in 3. For developed countries this would be around.3.5% of their national GDP in 3. Figure : Illustration of cost sharing for the four country income groups under the proposition in 3 Note: Ranges are due to different ways of sharing the cost. Irrespective of the modelling uncertainties, we can learn three things from this thought experiment: Developed countries will most likely provide financial transfers, the question is: How much? Least-developed countries will most likely receive financial transfers, but their overall share of the costs is relatively small. The challenge will be to induce the changes necessary in the middle-income countries and emerging economies to efficiently minimise necessary financial transfers. 38 DRAFT

55 Appendix A: Model and data details A.1 The modelling framework The analysis of the three propositions used the IMAGE Integrated Assessment modeling framework. This framework includes the PBL FAIR policy model with business-as-usual (BAU) projections of the PBL IMAGE land-use and TIMER energy models, developed for the OECD Environmental Outlook (OECD, 1). The FAIR model is used to construct greenhouse gas emission pathways, the resulting global carbon tax, and abatement costs (using marginal abatement cost curves), and damage and adaptation costs. The carbon tax calculated in FAIR was used as input in the TIMER energy-system model. TIMER was used to analyse mitigation options in industry, transport and the residential sector and described the demand and supply of 1 energy carriers for a set of world regions on a yearly basis throughout the end of the century. The TIMER model focuses on several long-term, dynamic relationships within the energy system, such as technological and economic lifetime, inertia, endogenous learning curves (learning-by-doing) and resource depletion. Learning effects are based on a relation between increasing capacity and cost reduction (economies of scale) and not on research and development. The IMAGE land-use model was used for the analysis of the mitigation options and costs for the agricultural and land-use sector. The model and business-as-usual scenarios are described in more detail below. Business-as-usual scenario This scenario was developed for the OECD Environmental Outlook (OECD, 1) as calculated by the TIMER energy system model (van Vuuren et al., 7) and the IMAGE land-use model (Bouwman et al., ). The emission projections are based on GDP projections by the OECD ENV-Linkages model (Burniaux and Chateau, 8) developed for the OECD Environmental Outlook (OECD, 1). For OECD countries, these projections were based on a modest recovery from the economic recession. Modeling framework The FAIR model is able to analyse the interaction between long-term climate targets and short-term regional emission objectives. FAIR interacts with various parts of the core IMAGE model: mitigation cost curves for the energy sector are derived from the energy model TIMER and land-use-related mitigation options are formed by the earth system model. Information from FAIR on marginal abatement costs and reduction efforts per sector and greenhouse gas were used as input into IMAGE to evaluate the impacts under different climate mitigation assumptions. The FAIR model consists of the following six linked modules (Figure A.1): The global pathfinder module calculates cost-optimal global pathways for achieving long-term climate targets (den Elzen et al., 7). This model combines a greenhouse gas abatement cost model with the MAGICC climate model (Meinshausen et al., 11) to calculate longterm emission pathways. The policy evaluation module calculated the emission levels for and beyond, resulting from national pledges and domestic climate mitigation plans (Roelfsema et al., 13a, b). The effort-sharing module (not used in the current study, except for Chapter 5) calculated regional and national emissions allowances or reduction targets, based on a wide range of equity principles, hence, sharing a global emissions target. The mitigation costs module calculated the abatement costs (den Elzen et al., 11; den Elzen et al., 8). The damage module calculated climate change damage, adaptation costs, and mitigation costs, under a specified level of adaptation (Hof et al., 9). The cost-benefit module was not used for the current study. Input for the modules consisted of baseline data on population, GDP and emissions, as calculated by the IMAGE modelling framework. Emissions were from all major sources and include all six Kyoto greenhouse gases. Marginal abatement cost (MAC) curves describing mitigation potential and costs of 39 DRAFT

56 greenhouse gas emission reductions were derived from the TIMER energy model and the IMAGE landuse model. The MAC curves take into account a wide range of options, including carbon plantations, carbon capture and storage (CCS), biomass, wind and solar energy, and energy efficiency and technological improvements. The estimates of adaptation costs and residual damage were based on the AD-RICE model (de Bruin et al. 9). The AD-RICE model estimated adaptation costs based on total damage projections by the RICE model (Nordhaus, 199, 8). Total climate change damage estimates in RICE were derived from adding all sectoral impacts. DICE/RICE includes the sectors agriculture, sea-level rise, other market sectors (forestry, energy systems, water systems, construction, fisheries, and outdoor recreation), health, non-market amenity impacts, human settlements and ecosystems, and catastrophic events. In the DICE/RICE model, potential catastrophic events are by far the most important factor in total damages: for a.5 o C temperature increase over 19, catastrophic events make up more than half the total estimated damages at the global scale. TIMER is part of the IMAGE integrated assessment framework. TIMER describes the long-term dynamics of the production and consumption of about 1 primary energy carriers for end-use sectors in world regions (van Vuuren et al., 11). The model s behaviour is mainly determined by substitution processes of various technologies based on long-term prices and fuel preferences. These two factors drive multinomial logit models that describe investments in new energy production and consumption capacity. The demand for new capacity is limited by the assumption that capital goods are only replaced at the end of their technical lifetime. The long-term prices that drive the model are determined by resource depletion and technology development. Resource depletion is important for both fossil fuels and renewables (for which depletion and costs depend on annual production rates). Technology development was determined by learning curves or through exogenous assumptions. Emissions from the energy system were calculated by multiplying energy consumption and production flows with emission factors. The IMAGE land-use model was used for projections of agricultural emissions. The model simulates the change in land use and land cover, at.5 x.5 degrees, driven by demand for food and biofuels, and changes in climate. A crop module based on the FAO agro-ecological zones approach computes the spatially explicit yields for the different crop groups and for grass, as well as the areas used for their production, as determined by climate and soil quality. Where expansion of agricultural areas is required, a rule-based suitability map determines which grid cells are selected. Agricultural emissions come from both land use (e.g. methane emissions from animals) and land-use change. Emissions from the latter depend on the carbon fluxes between vegetation, and carbon stocks in soils and in the atmosphere. DRAFT

57 Figure A.1. The FAIR model ( A. Additional assumptions for the three propositions For this analysis we made additional assumptions to generate quantitative and comparable data, as indicated in Table A.1. 1 DRAFT

58 Table A.1. Assumptions made for this analysis (early action) (phase-out) Mitigation/ Increasing Ambition Level of ambition 5 ppm in 1 (.8 W/m ) 5 ppm in 1 (.8 W/m ) 5 ppm in 1 (.8 W/m ) Phase-out () Baseline OECD baseline OECD baseline OECD baseline Low emission intensity baseline Pledges Conditional pledges for Less ambitious unconditional pledges, extended to 3 More action than conditional pledges More action than current pledges Timing action Immediate action in line with conditional pledges Delayed action (after 3) Immediate mitigation after 15 Immediate action Technology mitigation options All technologies included (also bio-energy in combination with carbon capture and storage (CCS) All technologies included (also bio-energy in combination with CCS) All technologies included (also bio-energy in combination with CCS) All technologies included (also bio-energy in combination with CCS) Technology progress (learning) Energy demand (energy efficiency improvements): industry Energy demand (energy efficiency improvements): in residential sector; building sector Reference Reference Reference Faster through early action, induced by a long term policy vision ( years foresight in carbon tax). Reference Reference Reference Low energy demand (for material processing in industry) Reference Reference Reference A combination of stringent efficiency measures and behavioural changes radically limits energy demand, leading to a doubling of the rate of energy intensity improvements compared to the past. Land use Land use and agricultural sector Equity Reference Reference Reference Strong REDD and Afforestation policy Not quantified for this study. The allocation of the reductions across regions is based on a least costs implementation. Finance Not quantified for this study. Illustrative examples are included (Section 5) Adaptation Quantified for this study. DRAFT

59 Measurement, reporting and veryfication (MRV) Legal form Not quantified for this study Not quantified for this study All emission scenarios are designed to reach.8 watts per square meter (W/m ) radiative forcing by 1 (see Figure A.). This means that cumulative emissions over the century could be slightly different and as a result the likelihood of meeting the two C target as well. W/m.8 Radiative forcing Baseline Figure A.: Radiative forcing under the three propositions Table A. shows the cumulative emissions over 95 years under the different scenarios. All propositions decrease cumulative emissions significantly below the baseline development. The propositions themselves vary by up to 135 gigatonnes of CO equivalent (GtCOe), or approximately 5%. Table A.: Cumulative emissions between 5 and 1 for the different scenarios Cumulative emissions,5 1 (GtCOe) Baseline In addition to the three propositions, the analysis considered a fourth scenario: a phase-out scenario, which is further described in Appendix C. This scenario aims at a phase-out of GHG emissions by (CO emissions alone by 5), and reaches a lower radiative forcing and temperature increase projection than the other three scenarios. This phase-out scenario is fully consistent with the storyline of the scenario. A.3 Definition of costs and benefits and their uncertainty ranges A.3.1 Mitigation costs 3 DRAFT

60 The costs for mitigation in the scenarios reflect direct costs resulting from a change in actions in comparison to the baseline scenario. We do not consider the complete macro-economic value of those actions, nor do we show investment costs. The model uses a cost-effective approach, meaning that emissions are reduced where it is cheapest. As a result, the mitigation costs do not include any considerations regarding burden sharing. The resulting carbon price ranges from 1 US$/tCOe. The costs of the propositions are a direct output of the scenarios. They thus depend on the assumptions of the model, such as the availability of technologies and that no regional delays hold up the development of technologies for future years. Furthermore, the costs depend on our baseline projection. Uncertainty in the baseline will lead to other costs projections. To reflect the uncertainty around the model results, we display an uncertainty range of -5% and +3% based on the mitigation costs projections resulting from the IPCC AR5 report. A.3. Mitigation benefits We express the mitigation benefits through a standard factor of 33% of the mitigation costs, as further explained in Section 3.3. We apply this factor to all years and all regions, which is a significant simplification. These co-benefits of GHG reduction measures are region and country specific. As an uncertainty range, we use +/- 15% ( McCollum et al., 13, figure ). A.3.3 Adaptation and residual damage costs Adaptation costs are the costs of measures taken to adapt to the impacts of climate change. Residual damage is the damage from the effects of climate change, in spite of adaptation. Both are direct outputs of the AD-RICE model applied in this analysis. Uncertainty arises from the unpredictability of the climate system, and from uncertainty around damage predictions. As a standard factor to display this uncertainty, we use +15% and %, based on the 5th to 95th percentile ranges of the Stern review (table.1), which is based on PAGE model runs. If we used the damage function of Weitzman (1), the results would be about 5% higher. A.3. Aggregation of uncertainty ranges To illustrate the total costs of the different propositions, we added the costs and benefits: Total costs = mitigation costs - mitigation benefits + adaptation costs + residual damage. To determine the uncertainty range of the total costs, we used the combined standard uncertainty: = This approach takes into account the fact that the results of the individual factors are independent and that all elements are unlikely to tend to the same end of an extreme (e.g. it is unlikely that all are in their maximum end). DRAFT

61 Appendix B: Global impacts of the three propositions B.1 Energy and industry, non-co and land-use emissions Figure B.1 shows the impact of the different propositions and the baseline on global energy- and industry-related CO emissions, land-use CO emissions and non-co greenhouse gas emissions (e.g. CH, NO, NOx, SO, F-gases). The upper left panel shows the total of these greenhouse gas emissions. The upper right panel shows that a large part of total greenhouse gas emissions is related to CO emissions from energy and industry. It shows clear differences between the propositions, mainly related to the timing of mitigation. The land-use CO emissions (lower left) for the propositions are assumed to follow the baseline trend, leading to strong reductions, that is zero-emissions by 35, and negative emissions by 1. The non-co greenhouse gas emissions (lower right) show a similar short-term trend as the energy and industry related CO emissions. However, the long-term the emissions are more or less stable, due to the limited additional reduction potential at higher carbon prices. Gt COeq/yr Global greenhouse gas emissions (incl. landuse CO) Baseline Gt CO-eq/yr Global energy and industry CO emissions Baseline Gt COeq/yr Global landuse CO (all scenarios) Gt CO-eq/yr Global non-co GHG emissions baseline Figure B.1: Global greenhouse gas emissions by source under the baseline and three propositions. This figure shows on global level all greenhouse gas emissions (upper left), global energy and industry related CO emissions (upper right), global land use CO emissions (lower left) and the global non-co greenhouse gas emissions (lower right). 5 DRAFT

62 B. Global primary energy consumption under the three propositions Figure B. illustrates the global distribution of energy carriers used as primary energy sources. For non-bio-energy renewable energy, the model assumes a conversion factor of 1% from primary energy to electricity. Global primary energy consumption is highest under the scenario in and 3, then decreases substantially. The scenario shows the lowest energy consumption in the first half of the century due to an ambitious reduction policy, but energy consumption is allowed to increase again at the end of the century. The scenario requires strict policy measures after 5 to compensate for the delayed energy reduction in the first decades. Therefore, energy consumption would be the lowest at the end of the century which emphasizes the importance of energy efficiency. Renewable energies and fossil energy sources used in power plants with CCS technology increase quickly under all scenarios. The scenario shows a low carbon share already in 5 because of early action. Under the scenario, the use of fossil fuels increases in the first years leading to the risk of a lock-in in fossil fuels, which makes a rapid shift to a low carbon economy more difficult. This scenario is more dependent on energy efficiency. In all scenarios, CCS plays a major role in the decarbonisation of the primary energy supply. EJ/yr 1, 1, 8,, Global primary energy consumption Other renewables and nuclear Bio-energy with CCS Bio-energy without CCS, Fossil fuels with CCS, Fossil fuels without CCS, Baseline Figure B.: Absolute global primary energy consumption per energy carrier under the baseline and three propositions. DRAFT

63 % Relative share in global primary energy consumption Other renewables and nuclear Bio-energy with CCS 5 Bio-energy without CCS 3 Fossil fuels with CCS 1 Fossil fuels without CCS Baseline Figure B.3. Relative shares of energy carriers of global primary energy consumption under the baseline and three propositions B.3 Global electricity production under the three propositions Figures B. and B.5 show the absolute and relative shares of energy carriers in electricity production. All scenarios show an energy system transition towards non-conventional electricity sources and both nuclear energy and CCS play a major role. Both figures show a gradual transition towards renewables for the and scenario. The scenario requires a more rapid transition after 5 to compensate for the delayed action in the first decades. However, the delay heightens the risk becoming locked in to a conventional energy system. EJ/yr, 35, 3, Global electricity consumption Other renewables and nuclear Bio-energy with CCS 5,, 15, Bio-energy without CCS Fossil fuels with CCS 1, 5, Fossil fuels without CCS, Baseline Figure 3: Primary energy supply in power generation under the baseline and three propositions 7 DRAFT

64 % Relative share in global electricity consumption Other renewables and nuclear Bio-energy with CCS Bio-energy without CCS Fossil fuels with CCS Fossil fuels without CCS Baseline Figure B.5. Shares of energy carriers in global primary energy production in power generation under the baseline and three propositions 8 DRAFT

65 Appendix C: A variant of the proposition: a phase-out of GHGs by The proposition states that countries would set a firm, long-term, collective goal to phase out greenhouse gases to net zero by 5 or perhaps another target year. In the default calculations of the scenario, given the common radiative forcing target of the three propositions, the emissions do not reach a final phase-out. In this Appendix we explore a forth scenario with a phase-out of GHG emissions by, which is consistent with the storyline of the scenario. Our model shows that this is possible; however, it requires very ambitious measures and immediate global action. C.1 Approach The phase-out scenario realises an ambitious pathway, translated in our model via the following parameters: Significant energy efficiency at the most ambitious edge. Early mitigation action, starting in 15. A low energy intensity baseline, reflecting low energy demand (for material processing in industries, residential applications, and energy consumption of buildings). No-cost effective mitigation pathway, but focus on an emission reduction target in combination with policies. Low hanging fruit measures that look most tangible (like banning several types of traditional light bulbs) have only limited effects in the short term. In this scenario we need rapid decarbonisation. Measures that are not first in line in a cost-optimal scenario turn out to have much larger abatement effects. These are measures like: advanced insulation, stimulating electric passenger vehicles, good housekeeping in industries and CCS. A maximal carbon tax of US$ for all regions to stimulate rapid decarbonisation. Simulation of a long-term policy vision on decarbonisation, by creating years foresight in this high long-term carbon tax. This results in early action of investments in renewable energy and a faster rate of technological learning. Focus on negative emissions (afforestation, REDD, CCS, bioenergy) to compensate for emissions still being made by the second half of the century. C. Results This section shows the results in terms of emission reductions, costs and the necessary changes to the energy system. C..1 Emission reduction Figure C.1 illustrates the GHG emissions under the zero-emission scenario: emissions start declining almost immediately and reach zero in 55. In the rest of the decade, emissions remain below zero, leading to a radiative forcing of. W/m in 1 (compared to.8 W/m in the other propositions). This scenario would increase significantly the chance of remaining within the C limit. According to our analysis, a maximum temperature change of 1.5 C would be realised. 9 DRAFT

66 Gt COeq/yr 8 Global GHG emissions (incl. landuse CO) baseline (phase out) Figure C.1. Global CO emissions under the phase-out scenario compared with the baseline and other propositions. C.. Mitigation, adaptation and damage costs Phasing out greenhouse gas emissions by the middle of the century requires immediate and substantial investments in renewables and early retirement of current energy infrastructure. As explained in Section 5.8 this is not a cost-effective approach (more expensive techniques might be more effective in reducing emissions), therefore the mitigation costs are significantly higher than in the cost-effective propositions. Figure C. shows that total costs of this scenario (mitigation, damage and adaptation costs) rise immediately after 15 and peak in 5 at % of global GDP. In the second half of the century, the costs decrease slowly and by the year 1 are at a same level as other mitigation scenarios. Figure C.. Mitigation costs, mitigation benefits and adaptation and residual damage costs for an illustrative leastdeveloped country for the baseline and for the propositions, separate (top panel) and combined (bottom panel). 5 DRAFT

67 Figure C.3 shows the mitigation costs compared with the avoided damage costs (top panel) and the sum of both (lower panel). The phase-out scenario turns out to have not significantly more avoided damage benefits than the other propositions, as they are also designed to limit climate change with the lowest possible damage costs. Phasing out greenhouse gases will lead to a net benefit from around 7 onwards. Figure C.3. Avoided damages and mitigation costs (upper panel) and aggregation of mitigation costs and avoided damages (lower panel). When the aggregated costs (blue line) becomes positive, the mitigation action results in a net benefit. C..3 Global energy supply under the phase-out scenario The phase-out scenario, with its immediate, highly ambitious measures, leads to a fast decrease of fossil energy carriers, against the current trend. Instead, renewables play an increasingly important role in both global primary energy consumption (Figure C.) and electricity consumption (Figure C.5). Especially towards the end of the century, with rising electricity demand, nuclear power plants become an important supplier as well. Of the overall primary energy consumption, bio-energy will become the most important energy source (larger than 5% of primary energy consumption), replacing fossil fuels for heat generation and in transport. 51 DRAFT

68 EJ/yr 1 1 Global primary energy consumption Baseline : phase-out Other renewables and nuclear Bio- energy with CCS Bio-energy without CCS Fossil fuels with CCS Fossil fuels without CCS % Relative share in global primary energy consumption Baseline : phase-out Other renewables and nuclear Bio-energy with CCS Bio-energy without CCS Fossil fuels with CCS Fossil fuels without CCS Figure. Primary energy consumption under the phase-out scenario compared with the other scenarios. 5 DRAFT

69 EJ/yr Global electricity consumption Baseline : phase-out Other renewables and nuclear Bio-energy with CCS Bio-energy without CCS Fossil fuels with CCS Fossil fuels without CCS % 1 1 Relative share in global electricity production Baseline : phase-out Other renewables and nuclear Bio-energy with CCS Bio-energy without CCS Fossil fuels with CCS Fossil fuels without CCS Figure 5 Electricity production under the phase-out scenario compared with the other scenarios. 53 DRAFT

70 Appendix D: Additional information on distributional impacts calculations Table D.1 illustrates accumulated historic emissions, income and the UN scale of assessment (system of financial contributions of individual member states to the United Nations) for the economic groups shown in the section on distributional impacts. The results show that the UN scale of assessment puts most effort on upper-middle- and high-income countries and that the accumulated historic emissions assign more efforts to less-developed regions. With the accumulated historic emissions calculations being extended to earlier (e.g. pre-industrial) levels, the implied efforts would shift away from lessdeveloped, which have little emissions history before the th century, while current high- income countries have already emitted considerable greenhouse gases. Table D.1. Distribution of costs via different indicators Income UN scale of assessment Responsibility Capability group Accumulated Distribution of Distribution via Distribution of emissions capability GDP in 11** UN scale of assessment*** responsibility (19 )* [%] [GtCOe] [%] [5 US$ billion] [%] Low income Lower middle income 77 Upper middle income High income 38 8 * Source: Ecofys (11) Database Factors Underpinning Future Action ** Source: World Bank Data *** Source: UN scale of assessment 1 5 DRAFT

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75 ACT 15 Partners Ateneo School of Government (The Philippines) E3G (Third Generation Environmentalism) (United Kingdom) Ecofys (Germany) Energeia Institute for European Studies Vrije Universiteit Brussels (Belgium) PBL Netherlands Environmental Assessment Agency (The Netherlands) Tsinghua University (China) World Resources Institute Youba Sokona ACT 15 is supported by: