Perspectives on Climate Policy : Induced technological change, land competition and global income inequality

Licentiate thesis, 2005

Emissions of carbon dioxide enhance the natural greenhouse effect, which may cause higher average global surface temperatures. To avoid climate change, carbon emissions must decrease or carbon must be removed from the atmosphere. In order to achieve this, intervening policies are necessary. In this thesis two papers deals with different aspects of climate policy, and the third paper investigate trends in global income and resource inequalities. In the first paper induced technological change is examined in a global energy system model with limited foresight. We find that the introduction of induced technological change reduces the total net present value of the abatement cost over this century by 3-9% (depending on the stabilization target) compared to a case where technological learning is exogenous. Also technological lock-in is studied in the model. We show that technology specific policies may break a technological lock-in and reduce the abatement cost compared to a case with cap and trade system only. The second paper concerns land-use competition between bioenergy plantations that replace fossil fuels in the energy sector and carbon sinks that sequester and store atmospheric carbon. These two abatement options may compete for the same lands under a stringent climate target. Studies suggest that carbon sinks have a lower abatement cost but bioenergy plantations have a larger abatement potential. Using an energy system model with perfect foresight we examine whether bioenergy or carbon sinks are the most cost-effective option. We show that long-rotation forests for the purpose of carbon sequestration will not be cost-effective in the long run under a stringent climate policy. Thus economic efficiency considerations tend to favour short-rotation plantations for high carbon prices. In the third paper we investigate global income and resource inequality between 1960 and the late 1990s. Income is measured in GDP/capita in terms of both current market exchange rates and purchasing power parity (PPP). Consumption of paper, energy, electricity, food, animal food, as well as emissions of carbon dioxide, are also studied. Changes in the absolute and relative gap between the top and bottom 20% consumers as well as the Atkinson measure are used as inequality indicators. We find that the inequality in terms of GDP/capita measured in PPP terms is rather stable in relative terms, but increasing in absolute terms. We also conclude that resource inequality tends to improve faster than income inequality, even though inequality in electricity and paper consumption in absolute terms has worsened significantly since the 1960s.