No. 5 January 1994

GHG Abatement Costing

Completion of Phase Two of the UNEP Project

The second phase of the UNEP GHG Abatement Costing project, funded by the UNEP Climate Programme and coordinated by the Centre, was completed in the latter part of 1993. The project involved the development of a methodological framework and country studies in ten developing and industrialized countries, carried out by national teams, under the coordination of a central project team led by the Centre.

Reducing emissions of greenhouse gases, or slowing their increase, is one way of mitigating climate change. The cost of doing this is of crucial importance to further commitments and negotiations under the Climate Convention. A number of studies are already under way to improve our knowledge of the issues surrounding climate change mitigation. One of these is the UNEP GHG Abatement Costing Project. GHG abatement in most cases primarily involves reducing the emissions of carbon dioxide associated with the production and consumption of energy. Since energy plays a central role in so many aspects of national economies, such measures can have significant economic impacts. On the other hand, some studies have indicated that considerable emission reductions can be achieved at little or no cost to society.

The project was initiated in 1991 to explore the issue of costing GHG emission reductions at country level, to develop a methodological framework and to test this out in a broad set of representative countries. A first phase, finished in 1992, reviewed the subject and made an initial attempt at formulating an approach for comparable national costing studies. This was published in the Phase One Report, and summarized in the popular booklet "Counting the Cost ", both available from the UNEP Centre.

The second phase of the project, described briefly in c2e2 news no. 4, aimed at producing a detailed set of methodological guidelines and testing and refining these through ten country studies. Phase Two is now complete and will be published early in 1994.

Ten country studies

The ten countries taking part in the study were: Brazil, Denmark, Egypt, France, India, the Netherlands, Senegal, Thailand, Venezuela and Zimbabwe. The central project team, led by the UNEP Centre, formulated the methodological guidelines and coordinated the studies. The guidelines were continually revised in conjunction with the national teams, particularly through four project workshops. A parallel aim throughout the project has been to help build capacity for conducting such analyses in developing countries.

The main focus of the country studies was on "bottom-up" technical-economic investigations of the reference case and abatement scenarios. Following this approach, most of the national teams were able to construct consistent abatement scenarios for the specified reduction targets of 12.5%, 25% and 50% reduction from baseline scenario emissions.

Reference and abatement scenarios

The cost of GHG abatement is defined in terms of the difference between a Reference Scenario and an Abatement Scenario. The term scenario is taken to mean a consistent description of the country in question, particularly its energy system and GHG emissions, over the period of the study, from the present to 2020 or 2030.

CO2 emission projections for the ten participating countries show significant variation, reflecting differences in development levels, assumptions, economic structure, etc. In particular, there is a marked difference in the projected emission trends in the group of developing countries from those in the three industrialized countries, as would be expected. In spite of these differences, the common structure, terminology and background assumptions in the project make it possible to explain and understand the differences and similarities.

The country studies show substantial differences in terms of the amount of CO2 emissions per capita (Figure 1). For example, in Thailand the per capita emissions in the reference case are projected to increase by a factor of six, while in Senegal and Zimbabwe they are assumed to stay roughly constant. Comparison in absolute terms reveals a huge variation among the countries: CO2 emission levels per capita in Thailand are expected to exceed by more than 20-fold those of India and reach the levels of the industrialized countries by 2030.

Figure 1. Per capita CO2 emissions in the base year and long-term projections, illustrating the spread of current values and projected developments.

Abatement costs

Country teams estimated abatement costs for reduction targets of 12.5-25% from the baseline in the short term (2005 to 2010) and 25-50% in the long term (2020 to 30). Costs are measured as the direct/financial costs at energy system and sectoral level. The costs include levelized investment, operation and maintenance and fuel costs.

The abatement cost varies with the degree of reduction. Cost curves, such as those in Figure 2 where marginal costs for several target reductions in a specific year are plotted, illustrate this variation for a number of participating countries. It should be noted that in this representation each point on the curves represents a complete energy system solution, rather than the result of an individual abatement option.

Figure 2. Marginal abatement costs for emission reductions from baseline for eight participating countries. The results for the long-term target year are shown.

A particular feature is the large potential for "negative cost" or "no-regrets" abatement options, amounting to as much as 35% reduction from baseline in the long-term target year, 2020, 2025 or 2030, according to the preference of the countries. "Negative cost" refers to the incremental cost of meeting the demand for equivalent energy services (transport, lighting, etc.) in the abatement scenario, compared to the reference scenario. If the total cost of an option or package of options is less than the corresponding cost in the reference scenario, the incremental cost is negative. However, implementation and transaction costs are often not included in the direct cost calculations in the scenarios.

The curves are also similar in shape: the first part of the cost curve, up to 5 to 10% emission reductions, indicates very low abatement cost, followed by a long interval, up to about 25% reduction in the short term and up to about 40% in the long term, in which marginal abatement cost falls within a narrow range between -$10 and +$30 per tonne CO2 reduced.

The abatement cost estimates for industrialized countries are more varied. The Danish results are similar to the majority of the developing countries, identifying a substantial negative-cost potential, while the Netherlands, and to an even greater extent France, estimate much higher abatement costs. The divergent results can be explained to a certain extent by different assumptions regarding the inclusion of "no-regrets" options in the reference case.

The average abatement cost curves illustrate the time dependence of abatement cost: at later times, more percentage reduction is achievable for the same cost, and the slope of the cost curve decreases. In other words the long-term curves are in general lower and flatter than the short-term ones. This reflects the fact that increasing opportunities for capital replacement allow the use of more efficient and less polluting energy technologies in both new and replacement applications.

The shift of the cost curves with time is illustrated in Figure 3 (a) and (b) which plot the average abatement costs for Brazil and Zimbabwe, and Denmark and the Netherlands, respectively.

Figure 3.(a) Average abatement costs for Brazil and Zimbabwe. The curves for short-term and long-term targets are shown for each country and illustrate similar time dependence.

Figure 3.(b) Average abatement costs for Denmark and the Netherlands. The curves for short-term and long-term targets are shown for each country and illustrate similar time dependence.

Methodological lessons

A number of valuable lessons have been derived from the process of developing the costing guidelines and evaluating the country studies. These lessons relate to the definition of the baseline, the treatment of energy efficiency improvements, macroeconomic feedbacks, implementation barriers and costs and joint products.

No regrets

A particularly important issue is that of so-called negative-cost, or "no-regrets" options, and the extent to which these should be included in the reference or the abatement scenario. There is no conclusive answer to this as yet, however the country studies indicate that the most profitable investments tend to be decentralized end-use options, related either to industrial or household energy consumption. Many such options are more cost-effective than large investments in power supply systems, but their implementation often involves many actors and decisions and may introduce significant extra costs which are not easily quantifiable. For this reason detailed studies of implementation barriers and costs are required, see elsewhere in this issue.

Comparable Studies

One of the primary aims of the project was to develop a methodological approach for carrying out comparable country costing studies. It is difficult to find a simple absolute measure for the comparability between different studies, and thus to judge the success of the project in achieving this aim. The measure of success of the guidelines lies more in the transparency and detailed documentation of the studies, and in the degree to which consensus was achieved among such a broad group of researchers and planners, spanning ten countries and differing interests, together with the members of the central project team and advisers.

A final indication of the success of the project is the extent to which the subject of GHG abatement costing has been brought to a higher level of awareness and expertise within the participating teams, both in the developing and industrialized countries. Through the discussions, the formulation and revision of the guidelines, and the execution of the country studies, all parties have become more aware and able to deal with the issues in a manner which can be understood, and hopefully accepted, nationally and internationally.

Phase Three: More detailed studies in Venezuela and Zimbabwe

With the completion of the second phase of the costing project, a comparable methodology has been established and a number of important results obtained for the participating countries. The level of detail of the results, and their reliability, clearly varies from country to country, depending on the availability of data, the sophistication of analysis tools, and the amount of resources which could be applied to clarifying costs and potentials of abatement options. The study revealed a wide range of areas where detailed further work is required, both within the CO2 from energy context already covered, and non-CO2 and non-energy emissions.

The ten country studies involved in the project achieved by no means the same level of detail in their analyses of GHG abatement. Some countries joined the project at a relatively late stage, while others had a long tradition of similar work and expertise which could be built on. The country teams also used different models, and had quite different amounts of data available. Thus a significant spread in the extent of the analysis is inevitable. Work is likely to continue in all the countries, extending the breadth and depth of the analysis. Part of this continuing work will make up Phase Three.

Phase Three of the project, initiated in October 1993, takes the methodological approach a step further by concentrating on such issues in two countries: Venezuela and Zimbabwe. The studies build on the Phase Two work and are being undertaken by the Department of Energy and the Southern Centre for Energy and Environment in Zimbabwe, and by the Ministry of Energy and Mines, Venezuela. The local teams are supported by the Energy Systems Group at Ris¨, Denmark, and Lawrence Berkeley Laboratory, USA, respectively. The UNEP Centre is also participating actively in both country studies and in the further development of the guidelines. The Phase Three studies are financed by UNEP and are scheduled for completion in mid-1994.

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