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Costs of mitigating climate change risks
The literature has a number of studies that have used economy-wide models to estimate the costs of reducing greenhouse gas in the atmosphere. It is evident from the reviewed literature that abatement cost estimates vary greatly from one study to another. Fischer and Morgenstern (2005) attribute this variation in abatement cost estimates to the type of assumptions made in the models.
They note that assumptions about perfectly foresighted consumers and Armington trade elasticities generate lower estimates of marginal abatement costs, whereas assumptions about perfectly mobile capital, including technology, and greater disaggregation among regions and sectors tend to lead to higher estimates of marginal abatement costs (Fischer and Morgenstern,2005).
Arguably one of the popular studies that have estimated the costs of reducing climate change risks is the Stern Review conducted by Sir Nicholas Stern (Stern, 2006). He found that the cost of mitigating the GHG emissions and shifting into a low-carbon economy is equivalent to one percent of the global GDP per annum. However, the cost of no action against climate change risks is equal to five percent of world GDP per annum. Following the adoption of Copenhagen climate treaty in 18 2009 which set legally binding international GHG reduction targets and sought to replace the Kyoto Protocol, more GHG reduction costs estimates were conducted. For example, Den Elzen et al (2011), estimated the abatement costs of reaching the reduction targets set under the Copenhagen treaty. The GHG emission reduction targets under the Copenhagen were on average between 12-18 percent below 1990 levels for annexure 1 countries and 11-14 percent below baseline for NonAnnexure 1 countries. In brief, Annexure I countries includes mainly the developed nations while Non-Annexure I countries involve developing and underdeveloped countries. Den Elzen et al. (2011) found that the global abatement costs to reach the reduction targets under Copenhagen treaty by 2020 would be equivalent to US$ 60-100 billion, assuming that at least two-thirds of Annexure I emission reduction targets are achieved. The Annexure I costs are assessed to be about US$50 billion (equivalent to 0.12 percent of GDP) in 2020 and abatement costs appears to be the same for Non-annexure I countries (Den Elzen et al., 2011).
The Stern review by Stern (2006) is often credited in literature for increasing awareness on climate change risk and potential damages on the world economy. However, researchers such as Nordhaus, (2007) and Weitzman, (2007) find that the Stern review relied on a low time discount rate and other utility issues which overestimate the abatement costs of reducing emissions. The use of lower time discount rate is found to be inconsistent with marketplace rates that are often used in studies that applied a similar dataset and analytical structures. As a result, both Nordhaus, (2007) and Weitzman, (2007) argue that the question of how costly would climate change remain unanswered. Despite this uncertainty, the risk of climate change is evident from literature (IPCC, 2014) and policymakers should take coordinated efforts to reduce it. The next section discusses global efforts that have been initiated to mitigate growing GHG emissions.
CHAPTER ONE: INTRODUCTION
1.1 Context
1.2 Knowledge gap identification
1.3 Study objectives
1.4 Hypotheses
1.5 Methodology
1.6 Study contributions
CHAPTER TWO: CLIMATE CHANGE AND EFFORTS TO MITIGATE EMISSIONS.
2.1 Introduction
2.2 Definitions of climate-related terms
2.3 Evolution of climate change science
2.4 Potential consequences of the changing climate
2.4.1 Water
2.4.2 Agriculture
2.4.3 Health
2.5 Costs of mitigating climate change risks
2.6 Global efforts to mitigate growing GHG emissions
2.6.1 Kyoto Protocol
2.6.1.1 Clean development mechanism (CDM)
2.6.1.2 Joint implementation mechanism (JIM)
2.6.1.3 Emission trading mechanism (ETM)
2.6.2 Paris Agreement
2.7 South Africa’s efforts to mitigate GHG emissions
2.7.1 Climate policy options available to South Africa
2.7.1.1 Regulatory measures viii
2.7.1.2 Carbon emissions trading
2.7.1.3 Carbon taxes
2.7.1.4 Border carbon adjustments
2.7.1.5 Rationale of selecting a carbon tax in South Africa
2.7.2 Compatibility of climate policies with the WTO trade rules
2.7.3 South Africa’s experience in preserving the environment
2.7.4 Assessed carbon policy effects in South Africa
2.8 Summary
CHAPTER THREE: METHODOLOGY AND DATABASE
3.1 Introduction
3.2. Description of the UPGEM
3.3. Modifications made in the standard UPGEM
3.3.1 Expanding the standard UPGEM database
3.3.1.1 Mapping process and creation of sets
3.3.1.2 Step 2: Creating land rentals
3.3.1.3 Step 3: Splitting total flows into sources
3.3.1.4 Step 4: Creating margin matrices
3.3.1.5 Step 5: Creating tax matrices
3.3.1.6 Step 6: Creating basic flow matrices
3.3.1.7 Testing the balance of the database
3.3.2 Environmental enhancements
3.3.3 Estimating new trade elasticities
3.4. Model closures
3.5. Simulation design
3.5.1. Policy scenarios
3.5.2. Baseline scenario
3.6. Summary
CHAPTER FOUR: ESTIMATING TRADE ELASTICITIES
4.1. Introduction
4.2. Rationale for estimating new trade elasticities
4.3. Description of functional forms used in CGE model ix
4.4. Data used and data sources
4.5. Trade elasticity estimation methods
4.5.1. Armington elasticity
4.5.2. Export supply elasticity
4.5.3. Export demand elasticity
4.6. Results and discussions
4.6.1. Armington elasticity results
4.6.2. Export supply elasticity results
4.6.3. Export demand elasticity results
4.7. Conclusion
CHAPTER FIVE: SIMULATION RESULTS AND DISCUSSIONS
5.1 Introduction
5.2 Macroeconomic results
5.3 Sectoral results
5.4 Sensitivity analysis
5.4.1 Export demand elasticities
5.4.2 Revenue recycling schemes
5.5 Summary
CHAPTER SIX: CONCLUSION AND POLICY RECOMMENDATIONS
6.1 Conclusion
6.2 Policy recommendations
6.3 Future research
