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close this bookThe Global Greenhouse Regime. Who Pays? (UNU, 1993, 382 p.)
close this folderPart II Resource transfers
close this folder6 North-South transfer
View the document(introduction...)
View the documentObligation to pay indices
View the documentRedistribution of incremental cost
View the documentBenchmarks
View the documentUN scale of payments
View the documentFinancing mechanisms
View the documentConclusion
View the documentNotes and references

Conclusion

I have shown that the incremental cost of abatement and coastal protection in the South that is justifiably the responsibility of the North is of the order of $30 billion per year. To these costs should be added a substantial sum for human resource development needed to realize the South's carbon abatement potential, perhaps as much again; plus approximately $100 million per year for technical assistance, training, and information provision (at least for the first five years of the Convention), and another $100 million for the costs of monitoring and verifying compliance with emission commitments by parties to the treaty (see Chapter 14).

These cost estimates are indicative and should be treated with caution. Because these figures are based on 'soft' estimates, these conclusions are not robust. They are based on many intervening assumptions and variables, changes in which would require radical revision in the numbers cited (see box). Many of the potential uncertainties may operate in opposite directions, thereby cancelling out each other. Some (such as marginal cost estimates and addition of non-CO2 greenhouse gases) may combine to enhance each other's effect on the incremental cost, increasing it dramatically.

Summary of uncertainties

• Present and future per capita carbon intensity (+20%)
• CO2 fossil fuel usage estimate error (5-10%)
• Aggregation errors
• Population projections (10%)
• Sink estimates (50%)
• Allocation rule for notional distribution of sinks (25-50%)
• 2025 permissible emissions target uncertainty (10-20%)
• Take-up rate of efficiency, substitution, renewables (10-20%)
• Cost of autonomous energy efficiency increase (20-50%)
• Levelized marginal cost schedules (differences of 100%) in current estimates; impact of 100% from innovation and diminishing returns on future cost ignored)
• Benefits (avoided coastal and agricultural costs) (25-50%)
• Discount rate (1-2% vs 5% vs 10%1
• Obligation to pay index used to determine the South's obligation (10% due to periodic readjustment)
• Treatment of non-CO2 fossil fuel greenhouse gases
• Trade impacts of abatement costs
• Intersectoral adjustment, human resource development, and institutional change costs

Note: author's estimates of the range of positive and negative uncertainty for variables is shown in ()

It is hard, however, to see that revisions will decrease the cost estimates provided here by a substantial amount. These estimates can be used reasonably as baseline figures of the likely magnitude of the financial flows involved in implementing the emission reduction commitments should the Climate Change Convention be successful.

The marginal abatement cost estimates, trade impacts, and human resource development costs are three particularly potent variables that need much more research before these estimates of incremental cost can be treated with confidence. It is also important that the emissions data base used in this chapter be updated and that the capital requirements be linked to a macroeconomic model that will enable the direct costs to be matched with indirect trade effects on the economic welfare of different nations and national groupings. Developing such a modelling capability to support policy making and the negotiations on the protocols of the Convention is of great importance.

Enough is known now, however, for action to start. Bilateral and regional activities can commence immediately (see Chapter 14). Indeed, such initiatives are a pressing priority as they would demonstrate the feasibility and logic of carbon taxes, traceable permits and abatement services.