The report, “Pledges and Actions: A scenario analysis of mitigation costs and carbon market impacts for developed and developing countries”, explores the implications of different possible scenarios on the outcomes of the current climate negotiations. It combines the latest emission reduction proposals (“pledges”) by Annex I (developed) countries with different levels of possible domestic abatement actions by non-Annex I (developing) countries and examines the related mitigation costs and impacts on the carbon-market. In addition to the analysis of the current proposals, the report describes a scenario with reductions that would limit global warming to 2 degrees above the pre-industrial level, based on comparable efforts of Annex-I countries.

The analysis focused in particular on: the abatement costs for developed and developing countries; the price of tradable emission units on the global carbon market in 2020; the buyers and sellers of carbon credits; and the costs and financing of non-Annex I REDD (Reducing Emissions from Deforestation and Forest Degradation in Developing Countries) activities by Annex I and other non-Annex I countries.

The authors analyzed those issue using three broad post-2012 climate policy scenarios:

• Low ambition scenario: based on the lower end of the proposed ranges of emission reduction targets for individual Annex I countries and low-ambition mitigation actions in non-Annex I regions, i.e. use of 25% of the reduction potential in energy-efficiency, renewables, non-CO₂ reduction options and avoided deforestation (REDD). Non-Annex I actions may be (partially) financed by Annex I2.

• Higher ambition scenario: based on the higher proposed reduction targets for individual Annex I countries and more ambitious mitigation actions in non-Annex I regions, i.e. use of 50% of the reduction potential in energy-efficiency, renewables, non-CO₂ reduction options and REDD.

• Comparable effort scenario (aimed at meeting the 2-degree climate target): This scenario assumes an ambitious aggregated Annex I reduction target (30% below 1990 levels) and non-Annex I reduction that corresponds to an average of 16% below baseline emissions, excluding REDD and LULUCF3 CO₂ emissions and 19% below baseline emissions including LULUCF CO₂ emissions and REDD. These reductions are needed to meet long-term greenhouse gas concentrations of 450 ppm CO₂ eq, and to limit the global mean temperature increase to 2 °C compared to pre-industrial levels.

Among the findings of the report:

• The current proposals by the EU, the United States and Japan are about 5 to 15% lower than required to meet the 2 °C objective, which was accepted by the G8 in July. Canada’s pledges are 25% lower and those of Russia and the Ukraine are even over 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.

• 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 US$18 to 38 billion in 2020. Assuming a 4 to 8% reduction, below baseline levels, by 2020, developing countries would gain US$3 to 5 billion .

• For meeting the 2 °C target, the costs would be US$138 billion for developed countries and US$40 billion for developing countries. Under the current proposals, as well as in the scenario aimed at the 2 °C, developing countries will still be able to benefit from carbon trade, with estimated revenues of US$15 to 60 billion . If the economic crisis would be taken into account, the mitigation costs would be considerably lower.

• Deforestation is one of the main sources of CO₂ emissions and leads to loss of biodiversity and soil degradation. Financing the reduction in emissions from deforestation and forest degradation in developing countries (UN program REDD) is meant to protect the forests. At the same time, this helps to limit mitigation costs for developed countries, as it is relatively cheap, and generates income for developing countries. Given the assumption that developed countries would finance 80% of REDD activities in developing countries at REDD market prices, the costs would be around US$18 billion for developed countries, while developing countries would earn around US$4 billion by 2020, despite of their own contribution of 20%. This would lead to a halving of the emissions from deforestation, and would help substantially to bridge the gap between current proposals and what is needed to meet the 2 °C target.

• 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. 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.

• Under the comparable efforts scenario, the emissions by developed countries as a group would have to be 30% lower in 2020, compared with 1990. More advanced developing countries would have to reduce their emissions by 20% below baseline (without climate policy) and those on a lower development level by 10%. The least-developed countries would be exempt from any legally binding emission reduction efforts, 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.

PBL’s findings are consistent with an analysis last week by the International Institute for Applied Systems Analysis (IIASA), and say that even if pledges are interpreted in the most optimistic way, the proposals collectively fall short of the 25 to 40% reduction target that was agreed on in Bali.

This report was commissioned by the Netherlands Programme on Scientific Assessment and Policy Analysis for Climate Change (WAB). It was written by the Netherlands Environmental Assessment Agency (PBL) and the Energy Research Centre of the Netherlands (ECN), as a deliverable of the WAB project “Balancing the carbon market”. The Netherlands Environmental Assessment Agency (PBL) is the national institute for strategic policy analysis in the field of environment, nature and spatial planning.

Resources

• Pledges and Actions: A scenario analysis of mitigation costs and carbon market impacts for developed and developing countries