A low carbon future for the industrialised countries

Dr. Michael Grubb, Head, Energy and Environmental Programme

Royal Institute of International Affairs, United Kingdom

1 Introduction

Having been asked to address the question of "A low carbon future for the industrialised countries", I thought it might be useful to break it down into four specific questions:

Could there be one? (technical feasibility)

What might be one? (scenario projections)

How might there be one? (policy/implementation)

Will there be one? (political feasibility)

This paper sketches some of the issues on each question, concentrating upon the CO2 emissions from fossil fuels which form the core problem in industrialised countries.

2 Could there be a low carbon future?

Is a "low-carbon" future technically feasible? Put like this, the answer is quite simple: yes. There are innumerable technical opportunities for improving the efficiency of energy use in the industrialised countries, ranging from super-insulated houses to super-efficient cars, appliances, electric motor drives etc. Estimates of the theoretical minimum energy required to deliver the energy services used in industrialised countries indicate that the overall technical "exergy" efficiency of the OECD's energy systems is less than 5%1.

Then there are a wide range of low-carbon supply options. Natural gas itself can reduce carbon emissions significantly compared with oil and coal. Nuclear power can offer much greater reductions for power production, as do a wide range of renewable energy sources2. Gross renewable resources, and uranium resources, are quite large enough to meet plausible needs for the industrialised countries over the next century. A low carbon future, in other words, is technically quite feasible.

This simple observation begs many questions about trade-offs. Would super-efficient houses or cars have other drawbacks, for example, concerning condensation, radon or "sick-building syndrome" for buildings, and lower power or other limitations for cars? And/or would they cost more? Is nuclear power environmentally better or worse than CO2 emissions, or alternative low-carbon sources? What about the visual or other impact of extensive wind energy use, and the potential biodiversity loss associated with widespread biofuels? And would such substitutes cost much more?

The question is therefore really about technical, environmental and economic feasibility, and optimality in trading off very different attributes. In this context, we need to start with an idea of the structural basis for future emissions. If the "baseline" - the emission trends without intervention to reduce CO2 - is very high, the costs (in the broad sense) of achieving a low-carbon future are likely to be much higher. It is therefore important to admit that we are quite uncertain about future trends, especially at the global level. Figure 1 shows a recent collection of global CO2 scenarios, which span a wide range, with wide divergence particularly beyond the first quarter of the next century.

Figure 1.Fossil fuel CO2 emission scenarios (recent estimates).

3 What might comprise a low-carbon future?

However, the trend uncertainties appear somewhat less in the industrialised countries, and the indications are encouraging. Despite a widespread assumption that CO2 emissions must grow with further economic development, the evidence of the last few decades does not support this supposition for industrialised countries. Figure 2 shows carbon emissions, by major group, for the industrialised countries as a whole over the last 25 years. The rise in emissions in the OECD - which was already slowing down - halted with the recession and oil shocks of 1973, and those in Eastern Europe (including the former Soviet Union) have fallen back rapidly as they emerged from the artificial isolation of centrally planned industrialisation; CO2 emissions in both the OECD and Eastern Europe in 1993 were only about 5% higher than they were 20 years previously.

Figure 2.Carbon emissions, 1968-93 (industrialised countries).

Obviously, this record is affected strongly by major events that may not be repeated: the oil shocks; the rise of nuclear power; the stagnation and then collapse of the East European economies. But there are also contrary factors: the oil shocks halted the displacement of coal by oil in power generation; the rapid and heavy-industry-based rise in East European emissions is unlikely to be repeated; and natural gas and renewable resources are only just beginning their penetration of power generation. The fact is that even in the OECD countries, energy demand and carbon emissions in the last eight years have simply not risen in response to the collapse in international energy prices to anything like the extent that many economic analyses would have predicted3.

Schematically, the situation is as in Figure 3. We know that there are strong pressures for increased commercial energy consumption as countries industrialise. We know that the rate of growth - of both economy and energy overall - slows as economies mature. We do not know whether energy use in post-industrial societies is likely to continue with slow growth, plateau, or even start to decline. And we do not know quite how the fuel mix may evolve. But projections of high baseline emissions growth for industrialised countries seem increasingly improbable, and arise from perceptions and models that seem increasingly out of touch with reality.

Figure 3.Energy consumption and economic development: the "S-curve".

This of course makes the prospect of a low-carbon future seem much easier. If one assumes a baseline trend of emissions somewhere near the 1990 levels for industrialised countries overall - and there will certainly be regional variations - then implementing progressive reductions appears far more manageable, and less costly, than projections of exponential increase. For example, most assessments indicate that efficiency improvements of at least 20% in OECD energy systems, and probably considerably more, are technically available without any additional costs. Baseline projections implicitly include take-up of some of this potential, but in "business and usual" projections much is likely to remain unexploited, for reasons that are complex but now quite well understood4. The more detailed and empirical assessments indicate that there is probably much scope for increasing the take-up of energy efficient technologies over and above this, without incurring extra costs, using a `mixed bag' of policy approaches, as discussed below.

Renewable energy technologies for reducing CO2 emissions also appear increasingly attractive. Though direct costs are generally higher than conventional options at present, projections indicate declining costs if and as production volumes increase and the technologies develop.

Energy systems are however characterised by immense inertia (as well as uncertainty concerning future trends and real costs), and in the industrialised countries significant amounts of "carbon-intensive" infrastructure is in place for decades. What might a "low carbon" future for industrialised then look like quantitatively? Table 1 shows some projections of what two major assessments have considered as intensive CO2 abatement scenarios. One uses top-down predictions formulated by the World Energy Council in extensive consultation with regional teams5; the other is generated by Greenpeace, using a suite of top-down and bottom-up models6. Another detailed study, by the International Energy Agency, uses the technology-oriented MARKAL model, but is difficult to compare with these projections7.

Table 1.Projections of maximum CO2 abatement in industrialised countries.


                  WEC-C                     Greenpeace                

                  1990     2020      %        1988     2020      %        
                                     change                      change   

North America/US  1.55     0.93      39.7%    1.28     0.65      -49%     

Western Europe    1        0.65      34.6%    1.01     .50       -51%     

Central/East      0.25     0.18      29.8%    0.31     0.16      -47%     
Europe                                                                    

CIS               1.08     0.75      30.2%    0.88     0.52      -41%     


The WEC "ecologically-driven" scenario projections - which were considered very radical by most of the teams involved - project reductions in the range 35-40% (absolute reductions from 1990 levels) for OECD countries, and about 30% for the Central & East European regions -reduction rates of 1-2%/yr in absolute terms. The Greenpeace scenario involves more rapid reductions in all regions. The IEA projections, which apply to select OECD countries are expressed in per-capita terms only and span a remarkable range, from 10-51% cuts, which is hard to explain as objective and comparable numbers. The WEC and Greenpeace numbers seem more coherent, the latter appearing more in the nature of a technical potential on this timescale, the former more constrained by economic and socio-political factors. An absolute reduction of about 1%/yr is also the figure that this author considered plausible with costs that might prove politically unsustainable8.

4 How might there be a low carbon future?

My central assertion - which is hardly new - is that achieving reductions such as those outlined above requires a "mixed bag" of instruments. If energy markets for both production and use were perfect, if people were perfectly rational economic calculators, and everyone was perfectly informed, almost all policy issues could be subsumed by "internalising" the estimated costs of CO2 with a carbon tax. Reality is infinitely more complex - which does not preclude the observation, empirical as well as theoretical, that pricing and hence carbon taxes are important.

A wide range of policy measures are available for improving the take-up of more efficient equipment. One of the most obvious and consistent themes in discussions about policies to improve energy efficiency is the provision of information. This has focused primarily upon advertising campaigns about energy use in homes, and sometimes building energy surveys and other "energy audits". Some labelling schemes already exist; one lesson from schemes to date is that if companies are unenthusiastic, legislation needs to be rather precise about contents, location and size of labelling if it is really to gain the attention of consumers.

Even when these problems do not exist, it is far from clear how much impact such schemes have. Energy forms a small part of costs for most people and businesses, and people do not always act upon knowledge gained. Whether or not anything is done further in response to building energy surveys, for example, depends heavily upon whether they are followed up by further information and sometimes incentives for adopting energysaving measures. For industry, studies of Japanese experience demonstrate the importance of legislation forcing companies above a given size to employ energy managers, which creates someone whose job is both to be informed and to push conservation. It is not just a matter of "don't know", but also, "don't care". With periodic bouts of enthusiasm usually correlated with world oil prices or energy shortages governments have thus sought to make people more concerned about energy, but the impact of such campaigns is difficult to sustain9.

A stronger approach is setting standards, particularly for energy efficiency. They can take many forms, and apply in many sectors10. Standards need not necessarily imply legislation; Jochem and Gruber suggest that "as an alternative to regulations, voluntary agreements by mass producers are an adequate solution"11, and there is much interest in voluntary "process quality" standards, such as the UK's BS7750 scheme for accrediting environmental management. The effectiveness of, and political attitude towards, voluntary standards is likely to depend strongly upon the relationship between government, industry, and public, and in practice the distinction can be less important than it seems. If standards are met, their legal status is almost irrelevant; if companies persistently fail to meet voluntary standards at the required level, legislation becomes necessary. Some of the main candidates for efficiency standards are buildings, automobiles, and appliances. Concerns about standards "freezing" technology, rawther than stimulating innovation, are real and need to be addressed byprocedures for revising standards over time, or better, applications of "tradeable efficiency credits" so that companies can benefit by exceeding the standard by selling the "spare" to other companies - an approach which also allows the average standard to be set more tightly. Another approach is to strengthen the incentive to achieve certain (non-binding) standards by creating tax differentials or other "cost transfer" incentives, such as the "gas guzzler to gas sipper" schemes which use the proceeds from taxing inefficient cars to subsidise more efficient ones, an approach could be applied to many goods.

Another major approach to "closing the efficiency gap" is through changes in the regulation of utilities (mostly electric, but also potentially gas) to encourage them to invest in improving end-use efficiency. Regulatory changes can allow utilities to keep some of the benefits of improving customer efficiency, and many states in the US have developed incentive structures which encourage utilities to engage in "demand side management", with considerable results. Across the US, the electric power industry's gross investments in improving end-use efficiency are projected to as high as $10bn by 2000, with a major impact on - though not a reversal of - growth in US electricity demand.

Combined Heat and Power (CHP, otherwise known as cogeneration), offers a specific technical approach to improving efficiency, by using the waste heat from power production. Small-scale schemes - for cogeneration within buildings for example - can be promoted among the general measures for improving building efficiency. Larger scale CHP/district heating schemes have more in common with supply issues, and they been mostly developed by strong local government and municipal utilities.

The most immediate supply-side strategy for reducing CO2 emissions is to increase the use of natural gas, both for heating where it displaces coal, oil or electricity from fossil sources, and for power generation, in which it emits typically half the CO2 emissions associated with coal stations. In fact, the "dash for gas", has already begun, notably in UK and US power generation. Combined cycle gas plants matured in the late 1980s to becoming the cheapest generating technology for many utilities, and combined with the higher cost of capital in most countries, it has become the most attractive power source in regions with access to adequate natural gas and liberalised electric utilities that encourage new investment in higher-return / shorter time-horizon projects.

Technically, nuclear power could make a large contribution. But nuclear construction ceased in much of the OECD in the face of rising concern about the costs (when decommissioning and waste disposal are included), managerial difficulties, and fears about the safety of reactors, disposal of wastes, and proliferation of nuclear weapons. Russia has ambitious plans but they seem unlikely to be implemented. It is increasingly clear that privatised, competitive generators are unlikely to bear the financial risks associated with nuclear power, so it depends heavily upon direct government decision. A major nuclear revival is likely to be highly contentious and may not be feasible in many countries. Another route might be to focus upon development of alternative and perhaps more attractive nuclear systems.

For renewable energy, there are already significant costeffective options. Some remain unexploited; for example, architects may be unaware of the potential for solar energy for heating and/or for reducing the need for cooling through building design. In several countries, small-scale hydro schemes are rendered uneconomic by the charges levied for "use" of the water or other regulations. In other areas, wind energy, energy from waste, and some biomass schemes are being deployed at increasing rates, depending upon the regulatory context, government support, and other factors.

R&D is clearly important for many renewables. There are many interesting possibilities and prototypes, but fewer commercially-available products that are reliable and competitive at today's energy prices. Another important factor affecting the development of renewables is the question of utility regulation. It is difficult for large centralised utilities to promote diverse and small-scale renewable technologies, which may depend upon local conditions, so the terms on which independent producers can access the grid is important.

But the fact remains that most renewables - and in many cases nuclear power - are simply likely to be somewhat more expensive than the direct costs of fossil fuels, so industry will not start deploying them on a large scale without incentives, or unless fossil fuel prices rise significantly. Similarly, although many cost-effective options for improving energy efficiency are currently available, efficiency improvements too will ultimately be limited by the fact that, without energy price rises, the costs involved are greater than the savings obtained. Increases in the effective price of fossil fuels is thus an essential long-term element of any strategy seriously to limit CO2 emissions. This can be achieved by removing subsidies where they exist, and by introducing taxes on fossil fuels - most efficiently (for reducing CO2 emissions), upon carbon itself.

The response to price changes of both demand and supply, and hence the tax level required to achieve a given impact on emissions, is in fact quite uncertain. One reason for this is the distinction between shortrun impacts on behaviour and longrun impacts on technology deployment and development. The modelling results which suggest high tax rates probably do not take adequate account of technological opportunities and other longrun impacts (though the lower tax levels discussed by modellers could still be sufficient to double the pithead price of coal). Consequently, clear longterm commitments to increasing carbon taxes might be at least as important as bringing them in rapidly; this would also help to minimise dislocation costs and losses from interim supply investments. The literature increasingly indicates that the important issues are not ones of general macro-economic costs - which are likely to be modest in most consuming countries because the revenues can be used to reduce other equally or more distorting taxes. The distributional impacts on particular sectors or groups in society appear to be a much more important issue12.

5 Will there be a low carbon future?

How likely is it that industrialised country governments will actually introduce policies that effectively limit CO2 emissions? Here the signs are complex, and not auspicious.

First, the relative modesty of current industrialised country commitments under the Climate Convention needs to be underscored: it is to aim at returning emissions to 1990 levels in the year 2000. Most official projections show emissions rising again thereafter, and even assuming this not to be the case, capping emissions permanently at this level will not come near stabilising global emissions, let alone atmospheric concentrations. In itself, it is indeed a minor perturbation to the long-run trend. Yet it is not clear how many industrialised countries will actually achieve even this aim.

It is useful to consider the European situation, in terms of both emission projections and policies. National targets / projections are shown in Table 2. This illustrates that even within the EU, several countries project emissions growth and the total of stabilisation is heavily contingent upon large reductions in the biggest country, Germany; which in itself derives in large measure from the collapse of emissions in East Germany following unification in 1990.

Table 2.CO2 targets in the European Union (MTCO2).


                          1990                       2000                       



Belgium &amp Lux          124.5                      118.9                      

Denmark                   53.1                       50.4                       

Germany **               1005.0                     [879.4]                    

Greece                    73.7                       92.1                       

France                    365.7                      413.2                      

Ireland                   30.8                       36.9                       

Italy                     402.4                      402.4                      

Netherlands               157.3                      152.6                      

Portugal                  39.9                       55.9                       

Spain                     210.7                      263.4                      

UK                        579.2                      579.2                      

Total (EC)                3042.2                     3044.4                     



** Assumes that Germany achieves 12.5% emissions reduction from 1990 levels by 2000 (on trend to target 25% reduction by 2005).

It is possible that some countries will "overachieve" their target - most notably the UK, given the large reduction of emissions arising from the "dash for gas" and associated fall in coal consumption following electricity privatisation. But projections in others - for example Italy - appear most optimistic and not many countries have really substantive policies in place for limitating CO2 emissions.

Progress with policies at the European level is still less encouraging. Of the European Commission's 5-part strategy developed in 1991/213:

The central place now given to national strategies is reflected in the fact that the Monitoring Decision is the only substantive piece of Union legislation yet to have passed through the European Council.

A central dilemma is that the policies required to implement emission constraints logically involve action at a variety of levels. There is in principle an important role for harmonised policy measures such as a carbon/energy tax and efficiency standards on tradeable goods, but there are powerful political obstacles to these arising from national resistance to having major energy policy decisions determined internationally. Conversely, many other measures are more appropriately taken at the national level - but despite all the rhetoric, many member governments see little real incentive to fight the difficult internal political battles necessary for major emission constraints; the benefits are not very tangible to Ministries of Finance, Industry, etc.

The situation in many other industrialised regions does not, at the time of writing, seem much more promising. The US has declared its willingness to adopt the Convention goal, and presented a strategy that relies quite heavily upon voluntary agreements. This may prove fruitful, but it is far from clear how much political will exists to take more substantive measures if the does not prove adequate. Japan is acknowledged to be struggling to fulfil its target, but has indicated that it is unlikely to introduce more substantive measures at least whilst recession there lasts. This does not mean that nothing is being done - most OECD countries are implementing some policies that will act to limit emissions, and/or to promote development and dissemination of low-carbon technologies. But the progress is very much slower and more tepid than might have been expected given the level of concern in the run-up to Rio, and may well prove inadequate either to achieve the Convention's modest aims, or to cap emissions thereafter, until stronger policies are introduced.

One of the more potent arguments that is used internally to oppose abatement policies, rightly or wrongly, is fear of affecting national competitiveness. This points to the central importance of an international framework for abatement action that will make the benefits tangible across different government departments. My own view, expressed elsewhere, is that tradeable emission permits offer one of the few mechanisms for achieving this, and that a more rapid turnaround in CO2 emissions from industrialised countries is unlikely until there is real prospect of such a system, or something with similar incentives, being implemented. The political impediments to this itself are substantial, but the European Union could, just possibly, offer an initial base for exploring such a system.

6 Conclusions

This assessment of "a low carbon future for the industrialised countries", therefore, yields mixed conclusions. Technically, yes there could there be one. Scenario assessments suggest that it would mean emissions from industrialised countries declining at rates averaging in the range 1-2%/yr for several decades. Achieving such reductions would involve a wide range of policies to alter habits and accelerate the uptake and development of energy efficient and low carbon technologies. But presently, the political indications are that progress will be much less, and much slower, than technical and scenario assessments suggest. Solutions exist, but it is like turning a fleet of supertankers each of which is steered by squabbling and competing crews that are also distracted by other concerns: it is not easy.

References

1. A review and synthesis of the literature, including a wide range of references, is given in M. Grubb et al., Energy Policies and the Greenhouse Effect, Vol. 2: Country Studies and Technical Options, Royal Institute of International Affairs, London, 1991 (Chapter 2). The IPCC Second Assessment Report, scheduled for Autumn 1995, will give a more recent and extensive assessment.

2. A comprehensive technical analysis of renewable energy sources is given in T.B. Johansson et al., Renewable Energy: Sources for fuels and electricity, Island Press, 1993.

3. Recent trends, indicators and implications are discussed in T. Barker & N. Johnstone (eds.), Energy, the Economy and Greenhouse Gas Abatement, CUP, 1994.

4. See for example F. Krause et al., Energy Policy in the Greenhouse, Vol. 2 Part 1, "Cutting carbon emissions: burden or benefit?: the Economics of energy tax and non-price policies", IPSEP, 1993; M. Grubb, Energy Policies and the Greenhouse Effect, vol. 1: Policy Appraisal, RIIA, 1990; and various papers to the OECD/IEA conference, The economics of climate change, OECD/IEA, Paris, 1994.

5. WEC, Energy for tomorrow's world, WEC, London, 1993.

6. M. Lazarus et al., Towards a fossil-free energy future: the next energy transition, Greenpeace / SEI-Boston, London / Boston, 1993.

7. The IEA study (T. Kram, "National energy options for reducing CO2 emissions", IEA/ETSAP, Netherlands Energy Research Foundation ECN, December 1993) states that its use of the MARKAL model gives a consistent modelling framework. But the choice of studies is a little idiosyncratic (including Ontario and Ottawa, but not Canada, Germany or the UK); projections are summarised in per-capita terms without any table of associated population projections; and there are peculiar features, notably the projection that the US can only achieve a 10% per-capita reduction by 2020, compared with a 51% reduction in the Netherlands; set against growing population it implies a view that the world's biggest absolute and per-capita emitter is technically unable even to stabilise emissions, which is wholly inconsistent with other studies.

8. M. Grubb, Energy Policies and the Greenhouse Effect, Vol. 2 op.cit.

9. As Schipper notes of OECD energy efficiency policies, "Policies that did things to things have reduced energy use, while those that did things to people have had little effect ... there is little evidence that exhortation causes any permanent energy savings" (L. Schipper, "Energy conservation policies in the OECD did they make a difference?", Energy Policy 15(6), December 1987.

10. Standards are obvious instruments for addressing some of the nonCO2 emissions, which often depend upon technology and operating practice: for example, the integrity and safety of gas distribution systems and appliances, and NOx, CO and hydrocarbon emissions from cars.

11. E. Jochem and E. Gruber, "Obstacles to rational electricity use and measures to alleviate them", Energy Policy, May 1990.

12. For a review see M. Grubb, J. Edmonds, P. ten Brink, M. Morrison, "The Costs of limiting Fossil-Fuel CO2 Emissions: A Survey and Analysis", Annual Review of Energy Environment, 1993, 18:397-478.

13. "A community strategy to limit carbon dioxide emissions and to improve energy efficiency", COM(92) 246 final, Brussels 1 June 1992.

14. Proposal for a Council Decision for a monitoring mechanism of Community CO2 and other greenhouse gas emissions, SEC(92) 854 final, Brussels, May 92.


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