Climate change costing

Climate change due to emission of greenhouse gases (CO2, methane) is the most controversial aspect of air pollution. This is because of the existence of minimal evidence at present and the fact that damage can only be ascertained in the far future, 50 years or more. CO2emissions are the main source of greenhouse gases. These are gases that are supposed to accumulate in the atmosphere with a long residence time, leading to higher long-term atmospheric temperature.

Electricity generation was supposed to account, in 2002, for about one third of global greenhouse gases emissions from energy utilisation [2]. With increased growth of electricity generation, at a rate of almost 1.5 times that of total primary energy utilisation, electricity production will assume a large proportion of emission of gases, particularly CO2(37 per cent of global energy emissions in 2020), that may cause significant climate change in the future. Developing countries, particularly China and India, which have very high electricity demand growth potential, are dependent on local coal supplies that emit increasingly large amounts of CO2 in the long term; although it is not easy to ascertain the extent and results of such emissions in the future, and correspondingly the extent of damage to human welfare and property. It is wiser to adopt the minimum regrets policy, which advocates the reduction in the rise of greenhouse gases emissions, and preferably their stabilisation as soon as possible, through energy efficiency, conservation and utilisation of relatively benign fuels like natural gas [19].

It is not possible to assess, with any degree of certainty, the future implications of increased emissions or concentration in the atmosphere of CO2, and correspond- ingly to understand the mechanisms of global warming and its social and economical impact. It is, however, certain that whereas other air pollutants have local and regional impact, that of CO2is going to be global and can be much wider reaching. Whereas the impact of other air pollutants can be contained in a very significant way by tech- nology (other than by fuel switching, efficiency and conversation), containment of CO2emissions is taking more time. Zero carbon emissions will be possible in the

near future, but they may prove to be costly; correspondingly, only industrialised countries will be able to afford them (see also Chapter 9).

Climate change can have two sorts of impact. One is market related, which is reflected in monetary terms and national accounts. The other is non-market related in that it has an intangible effect, like impacts on human amenities and ecosystems. Such damage can usually be estimated by the WTP concept. However, such estimates are not always available for assessment of global warming impacts. Other indicators are utilised to assess the welfare impacts on climatic change such as reduction in revenues or returns from capital and land. The IPCC Working Group III (1995) [20] estimates that a future impact of an atmospheric CO2concentration of twice the pre-industrial level (a scenario called 2× CO2), will have the following damage costs:

• world impact: 1.5–2.0 per cent of world GNP,

• developed country impact: 1–1.5 per cent of national GNP, • developing country impact: 2–9 per cent of national GNP.

Note that these figures include both adaptation costs and residual damages.

Such impacts are believed to vary from one country to another. Very few countries can have beneficial impacts. Asia and Africa, which accommodate most of the world’s population, are likely to suffer extreme damage owing to severe life and morbidity impacts. However, these estimates are not comprehensive and are highly uncertain.

Greenhouse gases are stock pollutants; that is, an emission now will have long- term effects that stretch over several decades. What is important is to estimate the marginal cost of CO2emissions, that is, the discounted present worth extra damage for one extra ton of carbon emitted. To achieve this, there is a need to consider two scenarios: the first is the present value of future damages associated with certain emissions, and the second has marginally different emissions in the base period. The results of such an approach depend greatly on the choice of the discount rate and variations in scenario assumptions, with results varying between the wide margin of US$5–US$125 as a marginal cost of CO2emission (1990) per ton of carbon. Most estimates are on the lower margin. Future emissions will have a higher marginal cost owing to the stock effect [21].

The marginal social costs per ton of air pollutants emitted were valued by a com- mission of European Communities/United Stated (CEC/US – 1993), and the results are shown in Table 8.4. Such figures are useful in evaluating the economics of abate- ment facilities and measures, and utilising evaluation techniques described previously. A study [22] of UK air pollution damage is demonstrated in Figure 8.2. The figure clearly depicts that SO2, mainly from power generation, causes the greatest air pollution damage in the UK. However, over recent years, there has been a dramatic decrease in SO2emission. This resulted from increased public awareness and demand, which led to regulatory policies, switching from coal to cleaner fuels, efficiency measures, the wider refinement and adoption of emissions inhibition technologies.

It has been estimated [23] that the average damage costs per unit electricity gener- ation from fossil power plants in EU-15, in 1990, amounted to 6.4 cents kWh−1, this was more than the actual cost of production; since then there have been considerable improvements.

Table 8.4 Marginal social costs per ton of air pollutant emitted (US$) – 1993 [20] CO2 SO2 NOx PM10 Health 1530 470 10 350 Forestry 1760 1220 Materials/buildings 480 320 320 Climate change 7 Total 7 3770 2010 10 670 Total SO2 CO₂ NOx PM₁₀ 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 5 4 3 2 1 0 Percentage of GDP

Figure 8.2 Cost of air pollution damage in the UK [22]

8.8

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Electricity generation in a