Can the Kyoto Protocol promote renewable energy technologies?
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Can the Kyoto Protocol promote renewable energy technologies?
Norbert Wohlgemuth
University of Klagenfurt, Austria
Tel +43 463 2700 4113, Fax +43 463 2700 4191
norbert.wohlgemuth@uni-klu.at.at
This paper presents and analyses the capacity of the proposed mechanisms of the Kyoto Protocol to
promote investment in renewable energy technologies, whereas the focus is on the Clean Development
Mechanism. Analysis of abatement costing studies indicates that the increasing use of renewable
energy tends to be a higher cost option compared with other greenhouse gas abatement technologies.
This finding, however, does not make renewable energy technologies unattractive for greenhouse gas
mitigation as such because, apart from their vast technical potential to reduce greenhouse gas
emissions, renewable energy technologies have great capacity to contribute to other aspects of
sustainable development. The extent of investment into renewable energy induced by the Kyoto
mechanisms will depend on whether the rules and guidelines that are to be developed in the coming
years will explicitly support renewables. The Kyoto mechanisms could be instrumental in leading to
significant investment into these resources if rules are defined appropriately.
1 The Kyoto Protocol and Renewable Energy
The Intergovernmental Panel on Climate Change (IPCC) has pointed to the large role renewable
energy can play in meeting the ultimate goal of virtually replacing fossil fuels, noting that “in the
longer term, renewable energy sources could meet a major part of the world’s demand for energy”
(IPCC, 1996a). This would be an accelerated decarbonisation of the world’s energy system over the
next century — a dramatic reversal of the trend in global emissions during the last decades. The IPCC
Second Assessment Report (IPCC, 1996a and b) has concluded that a 60 to 80% reduction in
greenhouse gas emissions will ultimately be needed to stabilise atmospheric concentrations of these
gases and avert serious climate disruptions.1
The Kyoto Protocol to the Climate Change Convention sets out legally binding emission targets and
timetables for developed countries. In order to ease compliance, it allows countries to achieve their
1
Wigley (1999) presents results from the IPCC Third Assessment Report, which has been released in February 2001. The
new estimates are now that the global-mean temperature change from 1990 to 2100 ranges between 1.3°C and 4.0°C
while the sea-level rise ranges between 17 cm and 99 cm. These latest results indicate a more severe impact of man-
made global warming than previously assumed.emission targets through the “Kyoto Mechanisms”. These mechanisms comprise International
Emissions Trading (ET), Joint Implementation (JI), and a Clean Development Mechanism (CDM).
The new climate change regime also offers an opportunity for renewable energy technologies (RETs)
as they meet the two basic conditions to be eligible for assistance under the United Nations
Framework Convention on Climate Change implementing mechanisms: they contribute to global
sustainability through greenhouse gas mitigation; and they conform to national priorities by leading to
development of local capacities and infrastructure. Further, with the Kyoto Protocol,2 the Parties to the
UNFCCC have moved towards internalising the external costs of the greenhouse gas emissions. While
the Kyoto Protocol has not yet proposed any binding emission limitation commitments for developing
nations, flexible instruments such as the Clean Development Mechanism and the possibilities of
emissions trading are likely to provide economic incentives for significant emissions abatement in
developing countries. The altered competitive dynamics should also prove favourable for RETs.
The United Nations Framework Convention on Climate Change (UNFCCC, 1992) was adopted to
achieve stabilisation of greenhouse gas concentrations in the atmosphere at a level that would prevent
dangerous anthropogenic interference with the climate system. The Kyoto Protocol to the UNFCCC
(1997) establishes legally binding emission reduction targets for developed countries. They are to be
reached in the period between 2008 and 2012, known as the “first commitment period”.3 Agreement
on emission reductions was made conditional on the inclusion of additional instruments, commonly
referred to as “Kyoto Mechanisms”. They aim at easing the economic burden of emissions reductions
by providing the means to achieve targets at lower cost.
Overall, the targets adopted at Kyoto commit industrialised nations (Annex B Parties)4 to reduce their
emissions of a basket of greenhouse gases, evaluated in CO2 equivalent, by around 5% between 2008
to 2012 as compared to 1990 levels. The Parties have agreed to differentiated individual emissions
targets, ranging from an increase of 10% of emissions (Iceland) to the biggest emissions reduction of
2
Depledge (2000) provides an in-depth history of the Kyoto Protocol negotiations, tracing each provision from the
original proposals from Parties through to the final authentic language.
3
The Kyoto Protocol comes into effect if it is ratified by at least 55 Parties to the Convention, incorporating Annex B
Parties, which accounted for at least 55% of total Annex B CO2 emissions. As of 5 February 2001, 84 Parties had signed
and 32 Parties had ratified the Kyoto Protocol. But none of the Annex B Parties had ratified the Protocol.
4
‘Annex B’ is the group of countries listed under Annex B of the 1997 Kyoto Protocol. Annex B countries have adopted
legally binding greenhouse gas emission targets for 2012. ‘Annex I’ refers to the group of countries listed under ‘Annex
I’ of the 1992 Climate Convention, and which has adopted the ‘aim of returning [.] to their 1990 levels [.] anthropogenic
emissions of carbon dioxide and other greenhouse gases’ (UNFCCC, 1992, 4.2(b)). Both set of countries are almost
identical and include most OECD countries, Russia, Ukraine, and the Central and Eastern European countries that are in
a process of economic transition from centrally planned economies. Sometimes the terms ‘Annex B’ and ‘Annex I’ are
used synonymously.
28%, undertaken by 27 Annex B Parties, including the European Union (EU) and its Member States.
The emission reduction obligations can be summarised as follows (Weyant and Hill, 1999):
• Western European countries accepted an 8 per cent reduction, with the exception of
Iceland (+10%) and Norway (+1%). The European Union wants to take advantage of the
“bubble” possibility under Article 4, which implies that countries may differentiate their
targets (Haites, 2001).5
• Eastern European countries adopted the same obligation as their Western European
counterparts, with the exceptions of Croatia (-5%) and Hungary and Poland (-6%).
• The Russian Federation and Ukraine were allowed emission stabilisation with respect to
1990 levels, while Latvia, Estonia and Lithuania agreed to 8% reductions.
• Japan and Canada agreed to a 6% reduction, and the United States to a 7% reduction.
• Australia was allowed to increase emissions by 8%, and New Zealand to emit up to 1990
levels.
This is equivalent to stabilisation, as greenhouse gas emissions from Annex B Parties were in 1995
already 5% lower than in 1990. This was caused in large part by the collapse of the centrally-planned
economies in the early nineties. Many countries including the United States will have to make serious
efforts to meet their own targets if they want to counter economic growth. The level of emissions of
Annex B Parties by 2008-2012 will therefore depend on the extent to which Parties achieve their
targets through domestic reductions as well as the extent to which the Kyoto Mechanisms are used to
obtain credit for reductions abroad.
Reducing emissions can be undertaken through various measures, including increasing the efficiency
in the provision and end-use of energy, and a switch towards carbon-free (renewable) and less carbon
intensive (e.g., natural gas) resources. Often, the cheapest option with significant impact on emissions
is fuel switching. The move to gas, however, has, in many cases, already been undertaken through the
ongoing liberalisation of electricity markets. New pathways need to be sought. These may include the
increased use of renewable energy.
However, the Kyoto Protocol provides no specific support for renewable energy, and makes only
general references to promoting new and renewable energy. The closest reference to renewable energy
is made under Article 2 of the Protocol:
5
Individual Member States commitments in accordance with Article 4 of the Kyoto Protocol are: Belgium -7.5%,
Denmark -21%, Germany -21%, Greece +25%, Spain +15%, France 0%, Ireland +13%, Italy -6.5%, Luxembourg -28%,
Netherlands -6%, Austria -13%, Portugal +27%, Finland 0%, Sweden +4%, United Kingdom -12.5%.
3“Each Party included in Annex I … shall: (iv) Research on, and promotion, development and
increased use of, new and renewable forms of energy, of carbon dioxide sequestration
technologies and of advanced and innovative environmentally sound technologies”.
While this is likely to remain rhetoric, Article 6 on JI and Article 12 on a CDM may support
renewables in a more concrete way, as investors can earn greenhouse gas emission reduction credits.
The new climate change regime may thus offer an opportunity for the development of RETs as they
lead to zero greenhouse gas increases, and constitute an ideal tool for sustainable development
(Leggett, 1998).6
2 The Kyoto Mechanisms
The Kyoto Protocol allows Annex B Parties to implement their commitments by entering into a formal
agreement to undertake their obligations jointly (Article 4), to transfer emission reduction units from
projects undertaken within Annex B (Article 6), which corresponds to Joint Implementation, or to
engage in emissions trading (ET) (Article 17). In addition, a form of Joint Implementation between
Annex B and non-Annex B Parties using the CDM was defined in the Protocol (Article 12) through
which emission reductions can be earned within a non-Annex B Party and used towards meeting the
Annex B Party’s commitments.
2.1 Emissions Trading
Following Kyoto, many countries focused on ET both because of the extent of emission reductions
that may be purchased from other countries and because of the uncertainty surrounding the concrete
design of ET (OECD, 1997). Like a carbon tax, ET has been shown to lead to emission reductions
where (marginal) costs of abatement are least. ET is thus a suitable mechanism to exploit efficiency
gains in terms of cost reduction. However, following Kyoto there has been concern that emission
reduction targets had been set too low for these efficiency gains to come about. While most questions
surrounding trading remained unresolved even almost three years after Kyoto, it is obvious that the
rules governing emissions trading will not be as stringent as for project-based activities (Woerdman,
2000b).
In the context of emission trading, negotiators in Kyoto were very concerned about the issue of “hot
air”. Hot air is traded when one of the trading parties is subject to too low emission targets. Under
6
“The purpose of the clean development mechanism shall be to assist Parties not included in Annex I in achieving
sustainable development and in contributing to the ultimate objective of the Convention, and to assist Parties included in
Annex I in achieving compliance with their quantified emission limitation and reduction commitments under Article 3”
(UNFCCC, 1997, Article 12, p 13).
4these circumstances, emission permits may simply be transferred or sold to the account of another
country without any further abatement effort. Hot air thus constitutes a costless asset. As a result, the
idea that emission trading should take advantage of emission abatement cost differentials does not
materialise.
Most hot air stems from Eastern Europe, Russia and Ukraine. Projections for 2010 indicate that more
than 80% of all allowances on offer, corresponding to about 2% of CO2 emissions in 1990, will come
from Eastern Europe and the former Soviet Union (Figure 1). The effectiveness of the emission target
thus depends on these economies in transition. Rules and regulations of an emissions trading system
therefore will need to explicitly address the situation of the economies in transition.
Figure 1 Potential Supply of and Demand for “Hot Air”
2 5 0 0
C a n a d a
Ja p a n
2 0 0 0
E U
1 5 0 0
Mt CO2
U S A
1 0 0 0
R o m a n ia
B u lg a ria
5 0 0
U k ra in e
R u s s ia
0
S u p p ly D em and
Source: Missfeldt (2000).
An element that will determine the evolution of a trading system is the issue of who is eligible to trade.
Article 17 limits participation in the trading scheme to those Parties listed under Annex B that have
committed themselves to quantifiable emission targets. A priori this implies intergovernmental trading
only. Pre-Kyoto, however, experts and Parties discussed the participation of private entities. Tradable
5permits could then, for example, be made available on spot and futures markets on the international
stock exchange (McKibbin et al., 1999). In the political debate two “schools” have formed:
representatives of the EU tend to support intergovernmental trading, while representatives of the
United States and the “umbrella group”7 favour trading among private entities.8
2.2 Joint Implementation
The idea of JI is to reduce emissions through a project in a host country, while a donor country may
credit at least part of the emission reductions. The project is economical because the donor country is
faced with high marginal emission abatement costs, while the host country exhibits comparatively
lower marginal abatement costs. In principle, the economic gains are similar to ET except that under
JI, the efforts are typically bound to a specific project.
JI has already been subject to a pilot phase under the Climate Convention under the name of Activities
Implemented Jointly (AIJ).9 The pilot phase, which does not allow for crediting of emissions, has
begun at the First Conference of the Parties in Berlin, 1994. While during the pilot phase, projects
were largely sponsored by governments, it is expected that private firms will become increasingly
interested in investment since the Kyoto Protocol allows for crediting of emissions reductions. Under
the pilot phase mainly small scale renewable and energy efficiency projects were funded, including
several solar energy projects.10
JI under the Kyoto Protocol is limited to projects in the developed world. The most likely candidates
to host such projects among Annex B Parties are the economies in transition, because they “achieved”
large emissions reductions as their centrally planning economies collapsed (Missfeldt and
Villavicencio, 2000). Article 6 on JI, as it stands, would cover both emissions reductions and sinks
projects including, for example, energy efficient housing projects, the building of renewable, clean
coal or nuclear power plants, and forest projects.
7
The “umbrella group” is an informal coalition of countries during the climate negotiations, which in early 2000 consisted
of Australia, Canada, Iceland, Japan, New Zealand, Norway, the Russian Federation, Ukraine and the United States.
8
One of the issues in designing an emissions trading framework is how to enforce compliance with the trading rules. If
revenues from the sale of quotas exceed the cost of sanctions, countries benefit from non-compliance. Haites and
Missfeldt (2001) analyse the economic and environmental performance of different liability proposals for the first
commitment period, and find that penalties are sufficient to deter non-compliance if they are high enough and effectively
enforced.
9
An overview of Parties’ experience with AIJ can be found in UNFCCC (1999).
10
A list of projects which have been accepted, approved or endorsed by the designated national authorities for AIJ of the
Parties concerned can be found at www.unfccc.de/program/aij/aijproj.html.
6Two comments need to be made on this approach. Firstly, it may be argued that climate change
mitigation should not be undertaken at the expense of worsening other environmental problems.
Building a nuclear reactor, for example, results in zero greenhouse gas emissions during plant
operation, but entails hazards such as the decommissioning of spent nuclear fuel and waste, the risk of
nuclear accidents and potential problems with nuclear proliferation. The Protocol, however, does not
address this issue. Secondly, no advice is given as to which technology is to be chosen as long as the
emission reductions are additional. Introducing a “clean coal project”, for example, may well lead to
“additional” emission reductions, but it may not be the technology that would yield the maximum
emission reductions possible in a specific project case.
In order to achieve a workable framework for JI, a number of issues will need to be addressed,
including baselines, multiplicity of underlying objectives, the issue of hot air and uncertainty (Begg et
al., 2001). For example, it will be essential to have a clear and transparent definition of baselines as
both the host and donor of a JI project might exaggerate emission reductions by overstating baseline
emissions (OECD, 1999; Parkinson et al., 2001).
2.3 Clean Development Mechanism
Article 12 of the Protocol describes the CDM, which is essentially JI between developed (Annex B)
and developing countries. It could help solve developing countries’ needs for capital to finance
technology transfer for and diffusion of sustainable economic development, while also providing a
more flexible alternative for developed (Annex B) countries to meet emissions reduction targets
(Stewart, 2000; Haites and Aslam, 2000).
The difference between the CDM and JI is significant as developing countries are not subject to a
(binding) emission ceiling. At its worst, the CDM may therefore lead to increases in absolute
emissions as compared with the status quo. Clear guidelines and procedures to assess the greenhouse
gas emissions reduction generated from the project have to be developed in order to preclude this
possibility.
Unlike under Article 6, the project range that is eligible for a CDM activity has not yet been defined.
This gives an opportunity to exclude certain types of projects. Other than JI, the CDM requires that
projects contribute to “achieving sustainable development” in the developing countries (UNFCCC,
1997, Article 12.2). Thus requirements for project types under the CDM are likely to be more stringent
than for JI.
As the CDM is based on bilateral project level trading, this instrument also has certain similarities to
JI. However, the main difference between JI and CDM is that host countries as developing countries
are not committed to fulfil a reduction target under the Protocol. In contrast to JI and ET, the Kyoto
Protocol furthermore identifies three institutional aspects to be implemented under the CDM. One
7such aspect is related to the establishment of operational entities certifying emission reductions
resulting from each project. In addition, the CDM is to be supervised by an executive board. Finally,
the CDM shall assist in arranging funding of other CDM projects.
The assessment of greenhouse gas reductions generated by a project is not easy, and requires that a
“baseline” be established against which the emissions reduction may be measured. (OECD, 1999).11 In
future negotiations it is also possible to supplement the criteria of “additionality” with criteria of
environmentally sound investment. So far no advice is given as to which technology is to be chosen as
long as the emission reductions are additional. A project is “additional” if
“any such project provides a reduction in emissions by sources, or an enhancement of removals by
sinks, that is additional to any that would otherwise occur” (Article 6 of the Kyoto Protocol).
Introducing a clean coal project, for example, may well lead to “additional” emission reductions, but it
may not be the technology that would yield the maximum emission reductions possible in a specific
project case.
In addition, there has been concern that projects could be endorsed that – while contributing to
greenhouse gas reductions – may entail other environmental problems. Building a nuclear reactor, for
example, results in zero greenhouse gas emissions during plant operation, but entails hazards such as
the decommissioning of spent nuclear fuel and waste, the risk of nuclear accidents and potential
problems with nuclear proliferation. Although the Protocol does not address this issue, at the fifth
Conference of the Parties in Bonn, in November 1999, a number of countries including Austria,
Denmark, Germany, Greece, Indonesia, Ireland, Italy, Nauru, Singapore, Sweden and Tuvalu
suggested that nuclear projects should not be part of the project-based mechanisms JI and the CDM
(CAN, 1999). As of early 2000, however, only the Alliance of Small Island States (AOSIS) has
officially submitted the view that nuclear power should be excluded. At the same time, many green
non-government organisations such as Friends of the Earth, began supporting the idea of a “positive
list” of technologies. Such technologies would not have to prove “additionality”, and could be
endorsed as JI or CDM projects on an “ad hoc” basis. It is very likely that such a list would contain
RETs.
Decisions on modalities for the three mechanisms have not been taken in November 2000 in The
Hague at the sixth Conference of the Parties to the Climate Convention but postponed to July 2001.
These modalities could contain a framework of rules that will make the mechanisms operational so
that countries may start using them ahead of the end of the commitment period in 2012. Key issues
11
A baseline defines a level of emissions against which the actual or estimated emissions of a climate mitigation project is
compared. The baseline is the standard from which a measure of valid emission reductions is derived. It must therefore
be set at a level that ensures that an emission mitigation activity is additional to that which would have otherwise
occurred.
8that must still be resolved at the resumed talks include a package of financial support and technology
transfer to help developing countries contribute to global action on climate change, including measures
for adapting to climate change impacts; the establishment of an international emissions trading system
and a CDM; the rules for counting emissions reductions from carbon “sinks” such as forests; and a
compliance regime (Baumert et al., 2000).
3 The Potential for Renewables
In addition to progress at the political level, the flexibility mechanisms’ potential to reduce global
greenhouse gas emissions critically also depends on the relative abatement costs in non-Annex B
countries.12 ECN (1999) systematically compiled information on abatement costs from 24 non-
Annex B country studies (ADB, 1998; UNDP/GEF, 1999), and arrive at an abatement potential of
roughly 1.5 Gigatonnes (Gt) of CO2 equivalents, at a price of USD 50/tonne CO2 equivalents or
lower.13 Roughly 38% of this potential is found to be achievable at negative or zero incremental costs.
The 24 non-Annex B countries for which studies on abatement costs were available comprise a fairly
extensive sample: these countries currently account for some two thirds of total greenhouse gas
emissions in non-Annex B countries. The studies also indicate that a large fraction of the total
identified abatement potential can be realised in a relatively small number of non-Annex B countries.
The identified abatement potential for China and India already constitutes nearly 70% of the total
identified potential. Figure 2 depicts the projected CO2 abatement costs curve in year 2010 for 24 non-
Annex B study countries for options in the range of -50 to +50 USD/tonne CO2 equivalents.14
12
This section covers only abatement costs of CO2 emissions. Tol and Downing (2000) present marginal abatement costs
of other greenhouse gases as well. An extensive discussion of the literature on climate change impact estimation and
valuation is given in Eyre et al. (1997).
13
Only options in the energy sector have been considered. Greenhouse gas emissions from the energy sector account for
more than 70% of the total global greenhouse gas emissions.
14
Out of the total of 247 eligible options included, the costs for 22 options are below -50 1990 US$ and for 15 options the
unit costs exceed 50 1990 US$.
9Figure 2 CO2 Abatement Costs for 24 non-Annex B Countries.
Cost curve
(all eligible options)
50
40
30
20
(in US dollars 1990 per tonne)
Abatement costs
10
0
0,0 0,2 0,4 0,6 0,8 1,0 1,2 1,4 1,6 1,8
-10
-20
-30
-40
-50
Abatement potential
(Gigatonnes CO2 equivalent)
Source: ECN (1999).
The projected potential for all non-Annex B countries at economic costs per tonne of up to 50 USD
can be extrapolated to 2.25 Gt of CO2 equivalents. Most of this potential is projected to be achievable
at quite low costs. Up to 1.6 Gt per year appears feasible at economic costs of US$ 6/tonne CO2 or
lower.
The abatement potential in non-Annex B countries is significant when compared with Annex B
reduction requirements, and a considerable fraction of this potential can be tapped at low cost. The
greenhouse gas abatement cost studies further suggest that approximately 1.7 Gt CO2 equivalents per
year would be available during the 2008-2012 budget period, at net incremental costs below 10 1990
US$/tonne CO2. The analysis performed on some 60 AIJ and Global Environment Facility (GEF)
projects confirms this conclusion. The different nature of the analysed projects limits the extent to
which they can be used to generate representative aggregate cost curves. Nevertheless, an analysis of
the net incremental cost curve and the AIJ/GEF contribution cost curve results in the same conclusion
that a large number of the projects (up to 99%) has a potential with abatement costs less than 10
US$/tonne CO2 (ECN, 1999).
In order to meet the Kyoto targets, Annex B countries must, based on their projected emissions for
2010, reduce their greenhouse gas emissions by some 620 million tons of carbon (MtC). The
10contribution of the flexibility mechanisms (in 2010) to this reduction requirement as calculated by
Zhang (1999) are presented in Table 1. Depending on the scenario chosen,15 the CDM’s contribution
ranges from 131.8 MtC under the “EU ceilings” scenario to 357.5 MtC if Russia and Ukraine are
allowed to fully participate in trading. The CDM appears to be the flexible instrument which promises
the greatest potential, clearly bigger than trading with economies in transition, including ET and JI.16
Table 1 Allocation of World Wide Greenhouse Gas Reduction Requirements to Flexible
Mechanisms, in MtC
Scenarios Domestic action Hot air Emissions trading CDM
+ JI
No limits 171.7 105.0 51.8 292.1
50% reduction from 310.3 105.0 36.1 169.2
BAU emissions
EU ceilings 387.8 70.2 30.8 131.8
No hot air 203.5 0 59.6 357.5
Source: Zhang (1999).
Estimates of the size of the CDM market (in 2010) critically depend on the modelling approach. A
literature survey indicates that the CDM potential ranges from 67-723 MtC, resulting in a CDM
contribution to the total emission reduction requirements of between 10 and 58% (Zhang, 1999). With
respect to the geographical distribution of the CDM flows, China and India are very likely to account
for a large majority of the total non-Annex B countries’ exported permits to the Annex B regions
(Austin and Faeth, 2000).
The abatement cost studies indicate that two types of activities encompass most abatement potential:
energy efficiency measures in the power sector and demand side energy efficiency measures (together
66%). The role of renewable energy is limited to 14% of identified abatement measures and the
potential for fuel switching is 17% (ECN, 1999). The AIJ/GEF projects indicate that demand side
15
“No limits”: no caps are imposed on the use of all three flexibility mechanisms; “50% reduction from BAU [business as
usual] emissions”: the maximum allowed acquisitions from all three flexibility mechanisms are limited to 50% of the
difference between projected baseline emissions and the Kyoto targets in 2010; “EU ceilings”: EU proposal for concrete
ceilings on the use of all three flexibility mechanisms; “No hot air”: trading in hot air is not allowed.
16
Woerdman (2000a) argues, by providing five reasons, that JI and CDM projects will be more effective, efficient and
politically acceptable than an ET system.
11energy efficiency has received most attention in the GEF/AIJ projects (60%), followed by renewable
energy (34%).17
These results may lead to the conclusion that renewable energy may not take a very prominent share
as part of JI and CDM. However, several aspects have to be kept in mind. There are clear limitations
of analysis: The abatement cost studies are far from comprehensive; different assumptions and
approaches across studies make it difficult to reconcile and combine results; the studies do not reveal
all information needed to construct cost curves from all available options; estimates of abatement
potential and incremental costs are very sensitive to assumptions on the baseline scenarios; definition
of costs was not consistent across studies; and CDM transaction costs were often excluded.
The cost curve in Figure 2 also does not reveal the distribution of different technologies in the –50 to
+50 US$ cost range. Halsnæs (1999) presents energy sector greenhouse gas emission reduction
options and their costs. Table 2 shows the number of renewable energy options and the number of total
options considered in the Asia Least-cost Greenhouse Gas Abatement Strategy and UNEP studies. As
can be seen, only 17% of all options analysed were based on renewable energy, which may also have
led to an underestimation of the potential of RETs.
Table 2 Renewable Energy Options in Greenhouse Gas Abatement Studies
Country Number of renewable energy Total number of options
options
Thailand 0 13
Vietnam 1 7
Republic of Korea 0 9
Philippines 3 12
Myanmar 2 15
Pakistan 4 21
Peoples Republic of China 4 14
Ecuador 2 11
Botswana 6 18
Zambia 1 9
Estonia 2 8
Hungary 1 12
Total 26 149
Source: Halsnæs (1999).
17
Kamal (1997) also finds that improving energy efficiency is the most cost-effective way for mitigating global warming.
12Concerning the relative cost of renewables-based options it appears that they tend to be higher cost
options for greenhouse gas mitigation in the energy sector. This finding, however, does not make them
an unattractive option for greenhouse gas mitigation as such because, apart from their potential to
reduce greenhouse gas emissions, they have great potential to contribute to other aspects of sustainable
development, including improved air and water quality, enhanced soil preservation, flood protection,
electrification of rural and remote areas and increased employment opportunities; a more diversified
resource base, avoided fuel supply and price risks; provision of infrastructure and economic flexibility
by modular and small scale technologies; creation of more choice for consumers; contribution to
overall system reliability (Austin and Faeth, 2000; Chapman and Ward, 1996).
4 Conclusions
Remarkable progress has been made in the commercialisation of renewable energy options. Wind
power, for example, is a success story and may soon be the most economic supply alternative. Solar
energy is coming of age and unit costs are coming down at an impressive rate. In the long run,
renewable energy will be the major contributor to the world’s energy system. The industrialised
countries of the North have most of the technologies and the financial resources for utilising RETs,
while many developing countries have great potential for renewable resources. Therefore, technology
transfer to developing countries is needed, and the Kyoto mechanisms could play an important role.
There is concern that RETs might not benefit fully from the Kyoto mechanisms because of their
economics and characteristics, including small unit sizes and dispersed application (DeLucia, 1998).
On the other hand, these features may not always constitute a hindrance because modular, distributed
technologies can have operating and financial attributes, such as modularity and flexibility, very low
operating costs and the ability to create new strategic options for the future, which could make them
more economically attractive than conventional technologies. While the Kyoto mechanisms may be
key in fostering human capacity in the receiver countries, they may not yield the amount of emission
reductions required to make them worthwhile if high transaction costs are taken into account.
Although there seems to be a large number of low-cost emission reduction projects in developing
countries, there may be considerable difficulties in the realisation of these projects within the context
of the CDM. In the absence of binding targets in developing countries it will be difficult to determine
the net emission reduction effects due to specific CDM projects, since nation-wide indirect and direct
effects must be counted. In addition, individual projects that bring about large emissions reductions
may prove useful. Alternatively, host countries may want to resort to bundling of small RET projects.
With respect to the Kyoto mechanisms, traditional investment criteria for projects to be funded under
the mechanisms are not the only criteria: the CDM, for example, is to contribute to sustainability.
13Therefore, since renewable energy is generally understood as contributing to sustainability, there is a
“match” between RETs and the CDM, which could contribute to mutual enhancement.
A very favourable outcome for renewables would be if developed countries could seek a relatively
large proportion of their emission reductions abroad, combined with strict and relatively exclusive
criteria for which technologies are supported under the CDM. If “positive lists” for the CDM are
endorsed at the international level, RETs are likely to figure prominently on them.
On the other hand, allowing, for example, either forest, nuclear or large hydro project into the CDM
would significantly dilute the market for carbon offsets pushing down the value of carbon credits. In
turn, this would have a negative impact on the diffusion of RETs in developing countries via the
CDM.
There are only three climate negotiating sessions left to the important tenth anniversary earth summit,
“Rio+10”, to be held in Johannesburg in June 2002. Pressure on OECD governments to show
environmental leadership is intensifying. To sum up, the Kyoto Protocol is likely to give a positive
push to renewable technologies. The magnitude of the impetus will depend on whether the rules and
guidelines that are to be developed in the coming years will explicitly support renewables. In order to
achieve this, the renewable industries would be advised to lobby the governments to do so.
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