Economics of a Global Strategy for Reduction of Carbon Emissions

The evolution of natural systems that feed and sustain human populations, and indeed the evolution of modern society, has occurred in the context of a moderate and stable climate. Therefore, recent trends in climate change, most likely caused by increasing concentrations of carbon dioxide and other radiative trace gases in the atmosphere, and the expected consequent global warming, are now a major concern. Carbon emissions from energy systems are considered one of the major contributors to climate change and are the focus of all studies on the prevention of climate changes and adaptation strategies. Two global energy scenarios (each with several options) are analyzed in this paper: from a dynamic-as-usual concept to a more advanced concept with the goal of stabilizing carbon dioxide concentrations in the atmosphere (equivalent to about 60% reduction of carbon emission compared with today's level). It is shown that the stabilization approach will require dramatic changes in energy systems: the share of non-carbon fuels will increase to about three-quarters of the total primary energy consumption, which will itself grow by a factor of two by the middle of the next century. Surprisingly, the implementation costs turn out to be approximately the same for all scenarios (taking into account possible errors in the cost appraisals for several decades ahead). However, the cost distributions between energy production and use are quite different. Globally, these costs are 3-4% of GNP, but for developing countries the share of energy investments is, on average, about 7-8% of GNP, which is cause for concern and will greatly hamper economic and social progress in the Third World. The introduction of energy taxes or carbon taxes in developed countries and the raising of "global energy funds" could help developing countries to overcome these difficulties. It is supposed that such a policy would stimulate economic growth in developing countries and, as a result, overlap the GNP losses in developed countries. The paper attempts to evaluate an optimal strategy for reducing carbon emissions for the next couple of decades, when large uncertainties surround global warming, and to show ways of establishing "no-regret" policy