Pledges and actions - A scenario analysis of mitigation costs and carbon market impacts for developed and developing countries

Proposals Copenhagen: 10% short for reaching the 2 °C climate objective

According to the EU and G8, global warming should be limited to 2˚C, from pre-industrial average global temperature levels. The current proposals by the EU, the United States and Japan are about 5 to 15% lower than required to meet this objective, Canada’s pledges are 25% lower and pledges of Russia and the Ukraine are even 35% lower than required. The United States have not yet submitted a formal reduction proposal. Based on the Climate Security Act, the study assumes an emission cap of 0 to 3%, by 2020, below 1990 levels.

Reductions required to meet 2˚C

The reductions required to meet the 2 ˚C objective have been calculated by the Netherlands Environmental Assessment Agency in its study ‘Comparable Effort Scenario’. The scenario assumes comparable efforts by countries in similar circumstances: the emissions from developed countries as a group would have to be 30% lower by 2020, compared with 1990 levels, more advanced developing countries would have to reduce their emissions by 20% below baseline (without climate policy), and those on a lower developmental level would need to achieve a 10% reduction. The least-developed countries would be exempt from any emission reduction effort, up to 2020. The mitigation costs for developed countries would be 0.24% of GDP in 2020, and for developing countries this would be 0.18%, excluding possible additional financing.

Carbon market and mitigation costs

Under the current proposals, the estimated annual mitigation costs, including financing the reduction of emissions from deforestation and forest degradation in developing countries, for the developed region, would vary between 18 and 38 billion US$ in 2020 (about 0.01 tot 0.05% of GDP), if emission trading and CDM are allowed. Assuming a 4 to 8% reduction, below baseline levels, by 2020, developing countries would gain 3 to 5 billion US$. For meeting the 2 °C target, the costs would be 138 billion US$ for developed countries and 40 billion US$ for developing countries.

The study shows that developed countries will probably depend heavily on emission trading, and that developing countries could benefit from emission trading, with estimated revenues of 15 to 60 billion US$. If no emission trading is allowed and reductions by developed countries have to be achieved domestically, their total mitigation costs increase 4 to 13 times under the current proposals and in the 2 °C scenario.

Deforestation and forest degradation

Financing the reduction in emissions from deforestation and forest degradation in developing countries (UN programme ‘REDD’) is meant to protect the forests. Given the assumption that developed countries would finance 80% of REDD activities in developing countries at REDD prices, the costs would be around 18 billion US$ for developed countries, while developing countries would earn around 4 billion US$ by 2020, despite of their own contribution of 20%. This would lead to a halving of the emissions from deforestation. Under the current proposals by the developed countries, a substantial amount of REDD activities is not included in the assumed 80% REDD financing.

Hot air

Estimated 2020 emissions in Russia and the Ukraine are lower than the regions’ pledges for the upcoming Copenhagen meeting. This means they could sell a surplus of emission credits without reducing any greenhouse gas emissions. This surplus is called ‘hot air’. If sold, it would lead to a lower carbon price, but not to any actual reductions in greenhouse gas emissions. In our calculations, Russia, the Ukraine and Belarus would benefit with trading revenues from selling part of this ‘hot air’. If Russia and the Ukraine would not trade their ‘hot air’, the overall reductions by developed countries would increase from between 10 and 15, to between 14 and 19%, below 1990 levels, by 2020.

More information

• Exploring comparable post-2012 reduction efforts for Annex I countries