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EMF WP 14.3: The Berlin Mandate: The Design of Cost-Effective Mitigation Strategies

The Berlin Mandate calls for strengthening developed country commitments for limiting greenhouse gas emissions. This paper addresses a key issue in the current analysis and assessment phase – the costs of proposals to limit CO2 emissions. Employing four widely-used energy economy models, we explore the direct and indirect effects of alternative proposals on the global economy. We also examine the implication for atmospheric CO2 concentrations.

We begin by examining an AOSIS-like proposal in which OECD countries agree to reduce CO2 emissions by 20% below 1990 levels by a specified date. We find the implementing such a proposal could be quite costly. Not surprisingly OECD countries would be hardest hit. Their costs could be as high as several percent of GDP. The analysis also shows that because of trade effects, non OECD countries would likely incur costs even when reductions are confined to the OECD. An economic slowdown in the OECD would affect the full range of developing country exports, and hence their economic growth. This would likely by the case for both oil-importing and oil-exporting developing countries.

We then explore alternatives that are apt to be quite similar in terms of environmental benefits, but allow for flexibility in where and when emission reductions are made. We find that costs could be substantially reduced through international cooperation and the optimal timing of emission reductions. Indeed such flexibility can reduce costs by more than 80% potentially saving the international community trillions of dollars in mitigation costs. We find that reliance on more flexible alternatives reduces costs more effectively than adopting weaker, but still inflexible, commitments.