Climate-Smart Development Adding up the benefits of actions that help build prosperity, end poverty and combat climate change ©2014 International Bank for Reconstruction and Development/The World Bank and ClimateWorks Foundation The World Bank ClimateWorks Foundation 1818 H St NW 235 Montgomery Street, Suite 1300 Washington DC 20433 San Francisco, CA 94104 Telephone: 202-473-1000 USA Internet: www.worldbank.org Internet: www.climateworks.org This work is a joint product of the World Bank and the ClimateWorks Foundation. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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Contents Acknowledgements ....................................................................................................................................................ix Glossary of Keywords and Phrases .........................................................................................................................xi Acronyms and Abbreviations..................................................................................................................................xiii Foreword.....................................................................................................................................................................xv Executive Summary.................................................................................................................................................xvii Why emissions matter..........................................................................................................................................xvii Achieving development and climate goals simultaneously.................................................................................xviii A framework to assess benefits. ..........................................................................................................................xviii Case studies demonstrate sizeable benefits........................................................................................................ xix Conclusions and next steps.................................................................................................................................. xx Chapter 1: Introduction ..............................................................................................................................................1 Background.............................................................................................................................................................1 SLCPs Damage Health and Crops..........................................................................................................................1 Emissions: Sources, Impacts, and Reduction Methods..........................................................................................2 Win-win Opportunities.............................................................................................................................................2 New Modeling Tools Enable More Holistic Planning...............................................................................................3 Objectives of this Report.........................................................................................................................................3 Report Structure......................................................................................................................................................4 Chapter 2:  New Framework to Estimate Benefits.....................................................................................................5 Benefits Framework.................................................................................................................................................5 Step 1: Identify the Full Range of Benefits..............................................................................................................6 Step 2: Identify Appropriate Benefits Assessment Tools. ........................................................................................6 Tools Used for Sector Policy Benefits Assessment............................................................................................7 Tools Used for Development Project Benefits Assessment. ...............................................................................7 Step 3: Identify an Appropriate Macroeconomic Tool.............................................................................................7 Limitations of Bottom-up and Macroeconomic Modeling..................................................................................8 Step 4: Estimate and Present Significant Benefits..................................................................................................8 iii CLIM ATE - S M A RT D E V E L OP M E N T Chapter 3:  Multiple Benefits Assessment—Case Studies....................................................................................... 9 Valuation Methods Used in this Report................................................................................................................... 9 Sector Policy Case Studies................................................................................................................................... 10 Sector Policy Case Study 1: Shift to Clean Transport...................................................................................... 11 Case Study Interventions...............................................................................................................................................11 ......................................................................................................................................................11 Case Study Benefits. Summary and Conclusions............................................................................................................................................12 Sector Policy Case Study 2: Energy-efficient Industry..................................................................................... 12 Case Study Interventions...............................................................................................................................................12 ......................................................................................................................................................13 Case Study Benefits. Summary and Conclusions............................................................................................................................................14 Sector Policy Case Study 3: Energy-efficient Buildings................................................................................... 15 Case Study Interventions...............................................................................................................................................15 Case Study Benefits. ......................................................................................................................................................15 Summary and Conclusions............................................................................................................................................15 Development Project Case Studies....................................................................................................................... 16 Development Project Case Study 1: Sustainable Transportation in India........................................................ 17 Case Study Interventions...............................................................................................................................................17 ......................................................................................................................................................17 Case Study Benefits. Summary and Conclusions............................................................................................................................................18 ....................................... 18 Development Project Case Study 2: Integrated Solid Waste Management in Brazil. Case Study Interventions...............................................................................................................................................18 ......................................................................................................................................................19 Case Study Benefits. Summary and Conclusions............................................................................................................................................19 Development Project Case Study 3: Cleaner Cookstoves in Rural China........................................................ 20 Case Study Interventions...............................................................................................................................................20 ......................................................................................................................................................21 Case Study Benefits. Summary and Conclusions............................................................................................................................................21 Development Project Case Study 4: Biogas Digesters and Photovoltaic Systems in Mexican Agriculture..... 22 Case Study Interventions...............................................................................................................................................22 ......................................................................................................................................................22 Case Study Benefits. Summary and Conclusions............................................................................................................................................22 Lessons and Conclusions from the Case Studies................................................................................................. 23 Chapter4:  Conclusions and Next Steps.................................................................................................................. 27 References.................................................................................................................................................................. 29 Annex A: Summary of Health, Agricultural, and Climate Benefits from Emissions Reduction.......................... 33 Annex B: Detailed Description of the Models.......................................................................................................... 35 McKinsey’s MACC Model...................................................................................................................................... 36 TM5-FASST Model................................................................................................................................................ 37 Oxford Economics’ GEIM...................................................................................................................................... 37 Annex C: Details and Data for Sector Policy Case Studies................................................................................... 41 “Policy Consensus” Scenario................................................................................................................................ 41 Sector Policy Case Study 1: Shift to Clean Transport........................................................................................... 42 Key Assumptions.............................................................................................................................................. 42 Case Study Impacts. ......................................................................................................................................... 44 Sector Policy Case Study 2: Energy-efficient Industry.......................................................................................... 45 Key Assumptions.............................................................................................................................................. 45 Iron and Steel.................................................................................................................................................................45 Cement. ..........................................................................................................................................................................45 Chemicals......................................................................................................................................................................46 Case Study Impacts. ......................................................................................................................................... 47 Sector Policy Case Study 3: Energy-efficient Buildings........................................................................................ 48 iv Co ntents Key Assumptions..............................................................................................................................................48 Case Study Impacts. .........................................................................................................................................49 Summary Tables for the Sector Policy Case Studies............................................................................................50 Conclusions from the Sector Policy Case Studies................................................................................................52 Annex D: Detailed Development Project Case Studies..........................................................................................53 Development Project Case Study 1: Sustainable Transportation in India.............................................................53 Background: Pimpri-Chinchwad BRT...............................................................................................................53 Nationwide Scale-up Analysis..........................................................................................................................54 Air Quality and Agricultural Analysis.................................................................................................................55 Macroeconomic Analysis..................................................................................................................................55 Monetization of Benefits and Comparison with Stated Project Benefits..........................................................55 Summary and Conclusions...............................................................................................................................56 Development Project Case Study 2: Integrated Solid Waste Management in Brazil............................................56 Background: Benefits of Integrated Solid Waste Management. .......................................................................56 Nationwide Scale-up Analysis..........................................................................................................................57 Public Health and Agricultural Benefits............................................................................................................58 Macroeconomic Benefits..................................................................................................................................58 Monetization of Benefits and Comparison to Stated Project Benefits.............................................................59 Summary and Conclusions...............................................................................................................................59 Development Project Case Study 3: Cleaner Cookstoves in Rural China. ............................................................59 Background: Domestic Energy and Solid Fuels...............................................................................................59 Nationwide Analysis: Clean Cookstoves for the Rural Poor.............................................................................60 Public Health and Agricultural Benefits............................................................................................................61 Macroeconomic Benefits..................................................................................................................................61 Monetization of Benefits and Comparison to Stated Project Benefits.............................................................61 Summary and Conclusions...............................................................................................................................62 Development Project Case Study 4: Biogas Digesters and Photovoltaics in Mexican Agriculture.......................62 Background: Mexican Agriculture. ....................................................................................................................62 Nationwide Scale-up Analysis: Biodigesters and PV Systems for Pig and Dairy Farms..................................63 Public Health and Agricultural Benefits............................................................................................................64 Macroeconomic Benefits..................................................................................................................................64 Monetization of Benefits and Comparison to Stated Project Benefits.............................................................64 Summary and Conclusions...............................................................................................................................65 FIGURES ......................................................... xix Figure E.1:  Total annual benefits in 2030 of key sector policies in six regions.. Figure E.2:  Aggregate benefits over 20 years of four development projects............................................................. xix Figure 2.1:  Analytical Framework Used for the Policy and Project Case Studies.........................................................7 Figure 3.1:  Climate Benefits of Sustainable Transport Policies in 2030......................................................................12 ...................12 Figure 3.2:  Socioeconomic and Climate Benefits of Sustainable Transport Policies in 2030 by Region. Figure 3.3:  Climate Benefits of Energy Efficient Industry Policies in 2030..................................................................14 ...............14 Figure 3.4:  Socioeconomic and Climate Benefits of Energy-efficient Industry Policies in 2030 by Region. .................................................................15 Figure 3.5:  Climate Benefits of Energy-efficient Building Policies in 2030. Figure 3.6:  Socioeconomic and Climate Benefits of Energy-efficient Building Policies in 2030 by Region...............16 ..........................................18 Figure 3.7:  Socioeconomic and Climate Benefits of Sustainable Transportation in India. Figure 3.8:  Socioeconomic and Climate Benefits of Integrated Solid Waste Management in Brazil..........................20 Figure 3.9:  Socioeconomic and Climate Benefits of Cleaner Cookstoves in Rural China..........................................21 ..........................23 Figure 3.10:  Socioeconomic and Climate Benefits of Biodigesters and PV in Mexican Agriculture. v CLIM ATE - S M A RT D E V E L OP M E N T Figure B.1:  Global Carbon Abatement Cost Curve, 2030...........................................................................................36 ...........................................................38 Figure B.2:  Main Transmission Channels in Oxford Economics’ GEIM Model. Figure C.1:  Oil Prices in 2010 Dollars for Baseline, Policy Consensus and All Policy Case Study Scenarios............42 Figure C.2:  Road Transport Marginal Abatement Cost Curve, 2030 (six focus regions).............................................43 Figure C.3:  Conventional Passenger Vehicle Efficiency by Region, BAU vs. Case Study..........................................44 Figure C.4:  Underlying Global Scenario Power Mix (2030).........................................................................................44 Figure C.5:  Chemicals: Energy Intensity vs. BAU, 2030 (%).......................................................................................47 Figure C.6:  Industry Marginal Abatement Cost Curve, 2030 (Six Focus Regions)......................................................47 Figure C.7:  Buildings Marginal Abatement Cost Curve, 2030 (Six Focus Regions)....................................................49 Figure C.8:  Energy Intensity vs. BAU, Commercial Buildings (%, 2030).....................................................................49 Figure C.9:  Energy Intensity vs. BAU, Residential Buildings (%, 2030)......................................................................50 ..........................................................................58 Figure D.1:  Lifecycle GHG Emissions (MtCO2e/yr) for All Scenarios. TABLES Table 1.1: CO2, Methane, and Black Carbon Emissions Sources, Impacts, and Reduction Methods..........................2 ............24 Table 3.1: Sector Policy Case Studies: Comparison of Costs and Benefits per Metric Ton of CO2e Abated.. Table 3.2: Sector Policy Case Studies: Monetized Health, Agricultural, and Energy Benefits in 2030........................24 ............................................................................................25 Table 3.3: Development Project Case Studies Summary. Table 3.4: Development Project Case Studies: Summary of Global and Local Benefits.............................................26 Table C.1: Policy Consensus Around Climate Change................................................................................................42 Table C.2: Transportation: Changes in CapEx and OpEx............................................................................................43 ...........................................................................44 Table C.3: Underlying Scenario Fuel Price Assumptions by Region. ...........................44 Table C.4: Underlying Assumptions on Incremental Costs of Plug-in Hybrid and Electric Vehicles. ..........................................................46 Table C.5: Iron and Steel: Changes in CapEx and OpEx, BAU vs. Case Study. Table C.6: Cement: Changes in CapEx and OpEx, BAU vs. Case Study....................................................................46 Table C.7: Chemicals: Changes in CapEx and OpEx, BAU vs. Case Study................................................................47 Table C.8: Buildings: Commercial and Residential CapEx Changes, BAU vs. Case Study.........................................49 Table C.9: Changes in Non-CO2 Emissions for the Three Sector Policy Case Studies...............................................50 ..................................................51 Table C.10: Avoided Premature Mortality for the Three Sector Policy Case Studies. .............................................................51 Table C.11: Increase in Crop Yields from a Shift to Energy-efficient Industry. Table C.12: Monetized Health and Agricultural Benefits of the Sector Policy Case Studies.......................................51 Table C.13: Energy Savings from Sector Policy Case Studies for the Six Focus Regions for 2030............................51 ............................51 Table C.14: Annual Avoided Premature Mortalities from the Sector Policy Case Studies for 2020. Table C.15: Annual Increase in Crop Yields from the Sector Policy Case Studies for 2020........................................52 Table C.16: Social Cost of Carbon (SCC) for 2030 for the Three Sectors...................................................................52 Table D.1: Multiple Benefits Potential of Sustainable Transportation (BRT) Initiatives in India....................................56 Table D.2: Multiple Benefits Potential of Integrated Solid Waste Management in Brazil.............................................60 ...............................................................62 Table D.3: Multiple Benefits Potential of Clean Cooking Solutions in China. ...............................................................65 Table D.4: Multiple Benefits Potential of Sustainable Agriculture in Mexico. vi Co ntents BOXES Box 3.1: Sector Policy Case Study 1 Benefits: Shift to Clean Transport.....................................................................13 Box 3.2: Sector Policy Case Study 2 Benefits: Energy-efficient Industry....................................................................14 Box 3.3: Sector Policy Case Study 3 Benefits: Energy-efficient Buildings..................................................................16 Box 3.4: Development Project Case Study 1 Benefits: Sustainable Transportation in India.......................................17 Box 3.5: Development Project Case Study 2 Benefits: Integrated Solid Waste Management in Brazil......................19 Box 3.6: Development Project Case Study 3 Benefits: Clean Cookstoves in Rural China..........................................21 Box 3.7: Development Project Case Study 4 Benefits: Biogas Digestion and PV in Mexican Agriculture..................23 Box B.1: Two Integrated Planning Approaches That Paved the Way..........................................................................35 vii Acknowledgements The ClimateWorks Foundation and the World Bank would like Robert Bisset, Fionna Douglas, Stacy Morford, Venkat Gopal- to thank the modeling teams, the reviewers, and the project task akrishnan, Karin Rives, and Samrawit Beyene. Management teams for their contributions to the development of this report. oversight was provided by Karin Kemper and Jane Ebinger. The modeling work for the report was conducted by Rita Van Advice on the macroeconomic analysis was provided by Kirk Dingenen (Joint Research Centre, European Commission), Sarah Hamilton, Erika Jorgenson, and Stéphane Hallegatte. The Hunter (Oxford Economics), and Sudhir Gota (Clean Air Asia). report was peer-reviewed by Masami Kojima, Andreas Kopp, The ClimateWorks task team included Surabi Menon and Laura Muthukumar Mani, Tijen Arin, and Carter Brandon. Inputs Segafredo (co-Task Team Leaders). Ruoting Jiang, formerly at were also gratefully received from the following World Bank ClimateWorks, provided analysis support for the modeling work; staff: Nupur Gupta, Om Prakash Agarwal, Gaurav Joshi, Sintana Seth Monteith designed the graphics and Debra Jones edited the Vergara, Marcus Lee, Farouk Banna, Stephen Hammer, Yabei report. Management oversight was provided by Charlotte Pera. Zhang, Yun Wu, Charles Feinstein, Svetlana Edmeades, Tim The task team from the World Bank included Sameer Akbar Valentiner, Guillermo Hernández, Onno Ruhl, Gloria Grando- and Gary Kleiman (co-Task Team Leaders), Samuel Oguah, lini, Klaus Rohland, and Deborah Wetzel. ix Glossary of Keywords and Phrases Anthropogenic: Human-caused. Local Socioeconomic Benefits: Benefits such as GDP growth, employment gains, reduced energy and fuel costs, time savings, Black Carbon (BC): A small, dark particle that warms the earth’s improved water and air quality, higher crop yields, improved climate. Although black carbon is a particle rather than a public health, and reduced mortality that are realized in the greenhouse gas, it is the second-largest climate warmer after jurisdiction that enacts the policy or project. carbon dioxide. Unlike carbon dioxide, black carbon is quickly washed out and can be eliminated from the atmosphere if Methane (CH4): A greenhouse gas that only lasts an average of 12 emissions stop. Reductions would also improve human health. years in the atmosphere; it is an extremely powerful warmer during that period. One molecule of methane warms about 25 Carbon Dioxide (CO2): The greenhouse gas that contributes the times more than CO2 over 100 years (and 72 times as much most to global warming. While more than half of the CO2 over 20 years). emitted is removed from the atmosphere within a century, some fraction (about 20 percent) of emitted CO2 remains in Mitigation: Actions to address climate change by decreasing the atmosphere for many thousands of years. greenhouse gases and other climate-forcing agents. Global Burdens of Disease: A study to estimate the number of Ozone (O3): A harmful pollutant and greenhouse gas that only worldwide deaths annually from different diseases or environ- forms though complex chemical reactions with other substances mental causes; can also be divided into different regions and in the atmosphere (e.g., methane); it can harm human health groups. See http://www.healthmetricsandevaluation.org/gbd. and crops. Global Public Goods Benefits: Benefits such as protection of Radiative Forcing: A measure of the net change in the energy ecosystem services, reduced acid deposition and infrastructure balance of the earth with space; that is, the incoming solar loss, and reduced climate change impacts that are realized radiation minus outgoing terrestrial radiation. At the global beyond the jurisdiction where a policy is implemented or a scale, the annual average radiative forcing is measured at project carried out. the top of the atmosphere, or tropopause. Expressed in units of warming rate (watts, W) per unit of area (meters Hydrofluorocarbons (HFCs): Chemical replacements for ozone- squared, m 2). depleting substances being phased out by the Montreal Protocol. These substances are used in heating and cooling Short-lived Forcers or Short-lived Climate Pollutants (SLCPs): systems and as aerosols. Although less damaging to the ozone Substances such as methane, black carbon, tropospheric layer than what they replace, they can have very large global ozone, and some hydrofluorocarbons that have a significant warming potentials. impact on near-term climate change and a relatively short xi CLIM ATE - S M A RT D E V E L OP M E N T lifespan in the atmosphere compared to carbon dioxide and Systems Approach: An approach capturing the direct and indirect other longer-lived gases. benefits of policies and projects and quantifying their macroeco- nomic impacts; it is meant to capture the interconnectedness Synergistic Economic Benefits: Macroeconomic benefits from between identified benefits. multiplier effects, forward linkage of investment, and poten- tial cross-sector interactions; for example, indirect health and Tropospheric Ozone: Sometimes called ground-level ozone, this agriculture benefits that would result from the electrification refers to ozone that is formed or resides in the portion of the of the transport sector if the power sector simultaneously atmosphere from the earth’s surface up to the tropopause (the reduced its carbon intensity and co-pollutant emissions due lowest 10–20 km of the atmosphere). to a performance standard or a renewable energy mandate. xii Acronyms and Abbreviations Ag Agriculture IIASA International Institute for Applied Systems Analysis BAU Business-as-usual scenario ICE Internal combustion engine BenMAP Environmental Benefits Mapping and Analysis KCAL Kilocalories Program of the U.S. EPA LFG Landfill gas BC Black carbon LPG Liquefied petroleum gas BRT Bus rapid transit system MACC Marginal Abatement Cost Curve CapEx Capital expenditures MOUD Ministry of Urban Development (of the CCAC Climate and Clean Air Coalition to Reduce Short- Government of India) Lived Climate Pollutants Mt Megaton (million metric tons) CCS Carbon capture and storage MSW Municipal solid waste CGE Computable General Equilibrium model NMVOC Non-methane volatile organic compounds CH4 Methane NPV Net present value CO Carbon monoxide N2O Nitrous oxide CO2 Carbon dioxide O3 Ozone CO2e Carbon dioxide equivalent OC Organic carbon CW ClimateWorks Foundation OpEx Operational costs or expenditures EU European Union (refers to EU27) PAD Project Appraisal Document EV Electric vehicle PM Particulate matter EPA U.S. Environmental Protection Agency PM2.5 Particulate matter with an aerodynamic diameter less than 2.5 microns FASST Fast Scenario Screening Tool for Global Air Quality and Instantaneous Radiative Forcing PPP Purchasing power parity GAINS Greenhouse Gas and Air Pollution Interactions PV Photovoltaic and Synergies: a model that provides a framework RoW Rest of world for the analysis of co-benefits reduction strategies SLCP Short-lived climate pollutants from air pollution and greenhouse gas sources SRC Source receptor coefficient GBD Global burden of disease TM5 Chemical Transport Model (maintained by the GDP Gross domestic product European Commission’s Joint Research Center and GHG Greenhouse gas the model on which the FASST tool is based) GEIM Global Energy and Industry Model of Oxford TEEMP Transportation Emissions Evaluation Models for Projects Economics TSP Total suspended particulates GEF Global Environment Facility U.S. United States GNI Gross national income UNEP United Nations Environment Programme GOM Government of Mexico WAVES Wealth Accounting and the Valuation of Ecosystem Gt Gigaton (billion metric tons) Services IBRD International Bank for Reconstruction and WB World Bank Development xiii Foreword The evidence is clear that climate change is already hurting the European Union. If enacted together, these policies could reduce poor. It is damaging infrastructure, threatening coastal cities, and greenhouse gas emissions by the same amount as taking two bil- depressing crop yields, as well as changing our oceans, jeopardiz- lion cars off the streets. ing fish stocks, and endangering species. The report also looks at four country-specific projects and the The UN Intergovernmental Panel on Climate Change (IPCC) impact they would have if scaled-up nationwide. For example, has shown more clearly than ever before that climate change is if India built 1,000 kilometers of new bus rapid transit lanes real, and that it has impacted every continent and all oceans. in about twenty large cities, the benefits over 20 years would Consecutive IPCC reports make clear that we are ill-prepared to include more than 27,000 lives saved from reduced accidents manage the risks of climate change and the impact it brings, and and air pollution, and 128,000 long-term jobs created. It would that global emissions of greenhouse gases are rising faster than also have large, positive effects on India’s GDP, its agriculture, ever before, despite reduction efforts. and the global climate. No one will escape the impact. Climate change poses a severe Climate-Smart Development is a collaboration with the Climate- risk to global economic stability. Without urgent mitigation action, Works Foundation, and provides a framework to better understand ending extreme poverty by 2030 will not be possible. the climate risks and benefits in everything we do. The report’s At the World Bank Group, we know it doesn’t have to be like findings show clearly that development done well can deliver this. We believe it is possible to reduce emissions and deliver jobs significant climate benefits. and economic opportunity, while also cutting health care and energy I recommend this publication to policy makers and develop- costs. This report provides powerful evidence in support of that view. ment practitioners alike. This publication, Climate-Smart Development, highlights scal- able development solutions and builds on research to quantify the social benefits of climate action. The report simulates case studies of policies that could lead to emissions reductions in three sectors: transportation, industry, and the energy efficiency of buildings. It also describes the national-level impact that scaling-up Dr. Jim Yong Kim development solutions could have in five large countries and the President, World Bank Group xv Executive Summary Officials responsible for a nation’s economy have been primarily impacts are proving to be devastating for the world’s most vulner- concerned with delivering jobs, stimulating growth, and promoting able populations. competitiveness. They are also becoming worried about the effects Emissions of carbon dioxide and other greenhouse gases must climate change will inflict on their country’s economic future. be substantially reduced to keep the world from exceeding the Increasingly, these officials want to know if there are investments 2°Celsius threshold of global warming.2 While efforts to reduce and efforts that can advance urgent development priorities and, at these climate pollutants, despite some progress, have been slow, the same time address the challenges of our rapidly warming world. recent scientific evidence suggests that cutting so-called “short-lived Thanks to a growing body of research, it is now clear that climate pollutants,” which are responsible for up to 40 percent climate-smart development can boost employment and can save of the current warming, can have immediate climate impacts.3 millions of lives. Smart development policies and projects can Complementary actions on greenhouse gases and short-lived also slow the pace of adverse climate changes. Based on this climate pollutants can slow the rate of near-term warming, push new scientific understanding, and with the development of new back dangerous tipping points4 and provide time to allow the economic modeling tools to quantify these benefits, it is clear that world’s poorest people to adapt to the changing climate. the objectives of economic development and climate protection Among the short-lived climate pollutants, black carbon and can be complementary. methane are climate forcers but they are also air pollutants that This report uses new modeling tools to examine the full range injure human health and diminish agriculture production. By of benefits ambitious climate mitigation policies can produce across reducing them, it is possible to prevent the deaths of 2.4 million the transportation, industry and building sectors in the United people and boost crop production by 32 million tons of crops States, China, the European Union, India, Mexico and Brazil. This that would have been lost each year.5 In rural areas, millions of report also describes the multiple benefits of four development people can be saved from premature death by switching to clean project simulations scaled up to the national level. The report builds on recent efforts to estimate the develop- 1 Note that the term co-benefit is not used in this report as it implies a primary ment benefits1 that come with a reduction in climate pollutants. benefit whereas this work seeks to demonstrate the many reasons for undertaking These include economic growth, new jobs, improved crop yields, emission reductions without assigning a preference for one benefit over another. 2 “Turn Down the Heat: Why a 4°C Warmer World Must Be Avoided,” World enhanced energy security, healthier people, and millions of lives Bank, 2012a. saved. In many cases these benefits accrue quickly, and they accrue 3 Short-lived Climate Pollutants (SLCPs) such as methane, black carbon, tropo- locally, primarily in the nation where action is taken. spheric ozone, and some hydrofluorocarbons have a significant impact on near-term climate change and a relatively short lifespan in the atmosphere compared to carbon dioxide and other longer-lived gases. 4 With warming beyond 2oC, the risk of crossing activation thresholds for nonlin- Why emissions matter ear tipping elements in the Earth System and irreversible climate change impacts increases. These include Amazon rain forest die-back, ocean ecosystem impacts, and ice sheet destabilization, “Turn Down the Heat: Why a 4°C Warmer World Must Be Climate change impacts impose undeniable burdens on economic Avoided,” World Bank, 2012a. development by causing significant damage to agriculture, water 5 “Integration of Short-Lived Climate Pollutants in World Bank Activities,” World resources, ecosystems, infrastructure, and human health. These Bank, 2013a. xvii CLIM ATE - S M A RT D E V E L OP M E N T cooking solutions. In cities, commuters can save time, and many • Contributes a compelling rationale for effectively combin- thousands of asthma and heart attacks can be alleviated, through ing climate action with sustainable development and green improved transit systems. Limiting these pollutants through smart growth worldwide development enhances economies, stimulates production, leaves populations healthier and slows the rate of climate change. The report responds to demand from countries that are striving to advance local development priorities and needs for resilient, low carbon growth. By looking at policies and projects more Achieving development and climate holistically, one can better assess the overall value of actions that goals simultaneously reduce emissions of GHGs and short-lived climate pollutants, and provide a more compelling case for coordinated development and climate action. Policies that reduce GHG emissions and other short-lived climate The report proposes the following framework to analyze poli- pollutants can have clear economic, health, and other social cies and projects: benefits. For example, a policy that encourages more efficient transportation—including fuel efficient vehicles, and effective 1. Identify the full range of benefits that result from a project public transit—will save fuel and time which improves energy or policy, including improved health, crop yields, energy sav- security and labor productivity. These policies can also reduce ings, job growth, labor productivity, and economic growth smog-related respiratory problems, thus saving lives, and improve 2. Select appropriate assessment tools that provide insight on visibility, benefiting local investment in sectors such as tourism each measurable benefit and recreation. Similarly, a project to improve solid waste man- 3. Choose the appropriate macroeconomic tool to analyze direct agement may initially be pursued for its sanitation and health and synergistic economic benefits benefits; it can also reduce methane emissions that may boost 4. Estimate the full range of benefits and present results using crop yields and save energy. All these gains directly contribute metrics relevant to the audience to economic growth. At the project level, these benefits have often been left out Several simulated case studies are used in this study to dem- of economic analyses because many health and environmental onstrate how to apply this analytical framework. The case studies benefits were not easily quantifiable. This has left decision makers cover multiple pollutants (particulate matter, primarily black carbon; with analyses that are incomplete. Recent efforts to better estimate and GHGs, including methane, a precursor to ozone, and CO2) and the full impacts of proposed development projects have produced multiple sectors (transportation, industry, buildings, waste, and several new analytical tools and models. With these new tools, agriculture). They demonstrate the frameworks’ benefits from two economists can more fully assess the multiple impacts of pollut- perspectives: sector policies applied at the national or regional level, ants and estimate the value of emission reductions. Today’s tools and projects implemented at the sub-national level. By applying can also model the synergistic impacts of harms and benefits as the framework to analyze both types of interventions, the report they flow through the economy. demonstrates the value of this approach for national and local policymakers, international finance organizations, and others. The report focuses on assessing the multiple benefits of A framework to assess benefits simulated policy and project case studies. These analyses should be viewed as “full implementation simulations”7 relative to a This report attempts to quantify investments that represent a true business-as-usual scenario. The benefits quantified have an opti- economic gain in terms of increased economic productivity.6 It does mistic bias because they do not necessarily include transaction so by applying new modeling tools that give a fuller accounting of costs, risks, market distortions, and other factors that would be the benefits of near-term and long-term climate and development included in a policy implementation evaluation. Nonetheless, interventions. The report: they offer an important building block to refine the approaches, methods, and tools for multiple-benefit analysis. The results also • Introduces a holistic, adaptable framework to capture and measure the multiple benefits of reducing emissions of several 6 Work has already been undertaken to expand consideration of some hidden pollutants costs of mitigation, such as Paltsev, S. and Capros, P. (2013). A similar effort on benefits is needed. • Demonstrates how local and national policymakers, members 7 Here “full implementation” means that it is assumed that policies and programs of the international development community, and others can achieve their full technical potential. Additional education and outreach or other use this framework to design and analyze policies and projects program costs may be required to achieve this full potential. xviii E xe cu tive S um m ary highlight the need to fine-tune the modeling tools to represent rapid transit in India, integrated solid waste management in Brazil, real-world conditions more accurately. cleaner cookstoves in rural China, and biogas digestion and solar photovoltaics in Mexican agriculture. The aggregate benefits over the life of the projects are esti- Case studies demonstrate sizeable mated to include more than 1 million lives saved, about 1 mil- benefits lion–1.5 million tons of crop losses avoided, and some 200,000 jobs created. These projects could reduce CO2e emissions by 355 million–520 million metric tons, roughly equivalent to shutting Three simulated case studies analyzed the effects of key sector down 100–150 coal-fired power plants. This equates to about policies to determine the benefits realized in six regions8 (the $100 billion–$134 billion in additional value for just three of these United States, China, the European Union, India, Mexico, and projects in India, Brazil, and Mexico when accounting for health Brazil) and the impact on global GDP. The sector policies include benefits, avoided crop losses, GDP benefits, and the social benefits regulations, taxes, and incentives to stimulate a shift to clean of carbon mitigation (beyond direct project benefits such as the transport, improved industrial energy efficiency, and more energy value of carbon finance assets, reduced operating costs and other efficient buildings and appliances. project-related economic benefits). In China, the estimated value The annual benefits9 of just these policies in 2030 include an of avoided premature death alone would come to more than $1 estimated GDP growth of between $1.8 trillion and $2.6 trillion. trillion. Figure E.2 illustrates potential benefits for four project Approximately 94,000 premature pollution-related deaths could simulations scaled to the national level. be avoided. Additionally, the policies would avoid production of 8.5 billion metric tons of carbon dioxide equivalent (CO2e)10 emissions and almost 16 billion kilowatt-hours of energy saved, 8 These five large countries and the European Union are referred to as “six regions” a savings roughly equivalent to taking 2 billion cars off the throughout the report for simplicity. 9 Since the sector policy case studies covered a limited number of pollutants road. These policies alone would account for 30 percent of the (methane and BC, but not other co-pollutants), the health and agricultural benefits total reduction needed in 2030 to limit global warming to 2°C.11 are underestimated. However, even with the limited emissions data included in this Figure E.1 illustrates annual benefits for three case studies in study, the resulting benefits can be significant. 10 CO equivalents (CO e) as used in this report include only CO , BC, methane 2030 for key sectors. 2 2 2 (CH4), HFCs, and nitrous oxide (N2O). This report also presents results of four simulated case studies 11 To limit the average global temperature increase to 2°C, 2030 emissions must that analyzed several sub-national development projects, scaled be limited to approximately 35 Gt CO2e (UNEP, 2013; Spiegel and Bresch, 2013); up to the national level, to determine the additional benefits business-as-usual emissions are estimated at 63 Gt CO2e in 2030. (beyond the economic net present value typically calculated in project financial analysis) over the life of each project, generally 20 years. Four project simulations were studied: expanded bus Figure E.2: Aggregate benefits over 20 years of four development projects Figure E.1: Total annual benefits in 2030 of key sector policies in six regions About 1 million lives saved 195,000 to 261,000 $37 billion–$60 billion new jobs increases to GDP 1million–1.5 million 350–520 tons of crop Mt CO2 e Reduced loss avoided Sustainable Transport: Cleaner Coookstoves: Solid Waste Management: Biogas Digastion & PV India China Brazil in Agriculture: 1 million metric 8.5 Gt CO2 e 15,800 TWh 94,000 Mexico tons of increased of emissions of energy llives crop yields reduced saving saved Note: (Results for Mexico are combined with Brazil’s.). Source: Authors. xix CLIM ATE - S M A RT D E V E L OP M E N T Conclusions and next steps cars could yield greater benefits than clean transport or clean power in isolation) This analysis shows that by using the proposed framework, • Additional macroeconomic analysis to reflect the additional actions can be identified that secure growth, increase jobs and benefits of green versus non-green investment options competitiveness, save lives and slow the rate of climate changes. Many development efforts—across a range of sectors—hold As scientists continue to clarify the many ways that local air the promise of economic growth as borne out by economic pollution, short-lived climate pollutants, and greenhouse gases harm analysis. Activities that also reduce emissions—across a range of health, welfare, and the environment, the framework presented pollutants—deliver health, agriculture and other socioeconomic in this report can be honed to better account for these costs by benefits that are integral to a broader development agenda. Quan- providing more complete economic analyses. tifying and including these benefits, where possible, can reveal Ultimately, climate change is an issue for the whole economy and the broader socioeconomic value of projects while enhancing the all facets of development. All policy makers, whether in government case for climate mitigation. Given the rising cost of inaction on cabinets or corporate boardrooms, need to understand where they climate change, it is imperative that the broad benefits of smart can get development and climate benefits from the decisions they development be included in economic analyses. make. Similarly, those charged with informing decisions from a As a result of limitations in the framework and available model- climate perspective need to able to present more complete analysis ing tools, this report does not provide project-level evaluation for and evidence of the broad impacts of their projects and policies. decision making nor does it focus on policy implementation issues or costs, which are required for comprehensive policy evaluation.12 12 The policy case studies use data from a marginal abatement cost curve model The report does however highlight areas where additional research that only considers project costs to implement a technology for a transition and could improve limitations with the framework. For example, thus is limited in use for full-scale analysis of implementation costs for policies. improved tools are needed to account for behavioral changes As a result, the outcomes presented have no prescriptive value in terms of policy such as shifting to public transit and advanced cookstoves, and to evaluation. Rather, due to the limitations of existing information and assumptions, they provide illustrative simulations of how additional benefits could be quantified explicitly account for the full climate change costs of emissions.13 and integrated into policy evaluation in the future. The framework also needs additional work to tailor its application 13 The social cost of carbon (SCC) is used to monetize the climate change dam- at the individual project level. Areas for research include: age avoided when CO2 is reduced. Lacking specific World Bank guidance on the social cost of carbon, values developed by the US Interagency Working Group on Social Cost of Carbon (2013) are used. The SCC accounts for changes in agricultural • Further benefits assessments based on more comprehensive productivity, human health, and property damage from increased flood risks (US emissions data EPA, 2013, http://www.epa.gov/climatechange/EPAactivities/economics/scc.html); however, it does not include all the damage caused by increased CO2 and may evolve • Multi-sector macroeconomic analysis that better illustrates as scientific understanding develops further. This does not constitute a World Bank the synergistic benefits (for example, using cleaner energy endorsement of these values. The SCC is very sensitive to the discount rate used. In sources to supply the increased power demand for electric addition, the climate change costs of black carbon emissions are not accounted for. xx 1 Chapter Introduction Background SLCPs Damage Health and Crops Climate change is a fundamental threat to sustainable economic The opportunity to mitigate near-term warming is only one reason development, with devastating impacts on agriculture, water to reduce SLCP emissions. In addition, air pollution15 imposes an resources, ecosystems, and human health. Immediate, substantial undeniable burden on development and threatens many emerging reductions in CO2 and other long-lived GHGs are needed to avoid economies (World Bank 2013d). The United Nations Environment a 4°C warmer world (UNEP 2011a). While every region will be Programme (UNEP) estimates that fast action to reduce emissions affected, those least able to adapt—the poor and most vulner- of SLCPs could avoid an estimated 2.4 million premature deaths able—will be hit hardest. from outdoor air pollution annually by 2030 and about 32 million The large and dominant role of CO2 emissions in raising global tons of crop losses per year.16 average temperature remains unchanged; understanding of the A growing body of scientific literature analyzing the effects of air effects of greenhouse gases and other pollutants on the climate pollution on health and agricultural activities is rapidly emerging. system, however, is improving. Other pollutants—namely methane Observational and modeling studies indicate that outdoor air pol- (CH4), ozone (O3), black carbon (BC), and some hydrofluorocarbons lution results in more than 3 million deaths annually, with another (HFCs), collectively referred to as short-lived climate pollutants 3.5 million or more deaths attributed to household-related air pol- (SLCPs)—are now recognized for their potency and as a significant lution (Lim et al. 2012; Silva et al. 2013; Fang et al. 2013; Avnery cause of global warming (Methane and HFCs are included in the et al. 2013). In addition, these and other studies have documented Kyoto protocol). Although these pollutants have a much shorter that hundreds of millions of metric tons of crop losses could be lifetime14 in the atmosphere than CO2, recent estimates indicate that avoided each year by reducing emissions. Reducing emissions SLCPs may be responsible for 30–40 percent of overall present-day of BC and methane (which aids in the formation of tropospheric global warming (Molina et al. 2009; Bond et al. 2013). Reducing ozone) can provide significant development benefits, including emissions of SLCPs now could reduce warming by up to 0.6°C by improved health and increased agricultural yields (UNEP/WMO 2050 (Hu et al. 2013; UNEP 2011a and b; Shindell et al. 2012) and 2011). Annex A explores this literature more fully. avoid or delay potentially dangerous “tipping points” in important climatic systems (Molina et al. 2009). 14 Compared with hundreds of years or more for CO , the average lifetime of 2 To avoid the long-term threat of climate change, the world methane and many HFCs is less than 15 years; BC persists for less than two weeks. 15 SLCPs and air pollution are directly linked through black carbon, which is one must still reduce CO2 emissions. But reducing SLCP emissions component of the air pollutant PM2.5 (particulate matter with a diameter of 2.5 could slow the rate of warming over the next two to four microns or less), and methane, which is a precursor to ground-level ozone pollution. decades, providing time for the poor and vulnerable to adapt 16 “Integration of Short-Lived Climate Pollutants in World Bank Activities,” World to a changing climate. Bank (June 2013). 1 CLIM ATE - S M A RT D E V E L OP M E N T Crucially, the health benefits of reducing black carbon other sources. In addition to its warming effect, methane leads emissions (especially from biomass cookstoves and transport to the formation of ground-level ozone, a component of smog, in Asia and Africa) would be realized immediately and almost which can cause significant crop damage, respiratory illnesses, entirely in the regions that reduce their emissions. China and and other harmful impacts. BC comes from incomplete combus- India especially will reap the benefits of some reductions, such tion of carbon-rich fuel; it is a component of particulate matter as reduced background ozone, because of their large populations and is a risk factor for cardiopulmonary disease and can trigger and agricultural sectors. asthma, heart attacks, and strokes. Greenhouse gas emissions are usually measured as carbon dioxide equivalents (CO2e). Emissions: Sources, Impacts, and Reduction Methods Win-win Opportunities Emissions are often categorized by how long they persist in the Many projects and policies offer the opportunity to control CO2 and atmosphere. SLCP emissions simultaneously; doing so can deliver both local Long-lived greenhouse gases include carbon dioxide, nitrous socioeconomic benefits and global climate benefits, and reduce oxide, and some HFCs. CO2 is naturally present in the atmosphere; the net cost of action to mitigate climate change.18 it is also emitted from burning fossil fuels and biomass, and by Several studies indicate the multiple possible synergies that certain chemical reactions (e.g., cement manufacturing). Nitrous can be achieved by combining measures that address climate oxide (N2O) is emitted from agricultural, transportation, and change with efforts to improve air quality or energy security (West industrial sources; its impact on health and agriculture is limited et al. 2013; Bollen et al. 2009; Shindell et al. 2012). These studies in the examples in this report. Hydrofluorocarbons are used in heating and cooling systems and aerosols; because HFCs do not 17 Although N O and HFC emissions have not been considered from the perspective contribute to health or crop damage, their emissions are not 2 of potential health or agriculture benefits, their impact in terms of carbon dioxide covered in this report.17 equivalent radiative forcing reduction has been included in the calculations of the SLCPs include methane, black carbon, and some other policy intervention scenarios in this report. 18 The term co-benefits generally refers to additional benefits, such as reduced HFCs. Methane is released as a fugitive emission from oil and outdoor pollution, that may be associated with a global climate policy. The benefits gas production and distribution, agriculture (including livestock described here include climate and socioeconomic benefits associated with both CO2 and rice farming), decomposition of municipal solid waste, and and SLCP reductions and may be considered as multiple or comprehensive benefits. Table 1.1: CO2, Methane, and Black Carbon Emissions Sources, Impacts, and Reduction Methods. Pollutant Sources Impacts Reduction methods Carbon dioxide Emitted from burning fossil fuels • Global warming • More-efficient buildings, appliances, (CO2) – Atmospheric and biomass, and by certain equipment, industrial processes, transport lifetime: hundreds of years chemical reactions (e.g., cement systems, and vehicles or more manufacturing). • Cleaner sources of energy • Improved forest and land management Methane (CH4) – Released as a fugitive emission • Global warming • Recovery and use from coal mines and oil Atmospheric lifetime: from oil and gas production and • Precursor to ground-level production; reduced leaks from natural gas 12 years distribution, agriculture (including ozone (smog) production and pipelines livestock and rice farming), • Significant crop damage • Improved management of municipal waste decomposition of municipal solid • Respiratory illness and and wastewater, including recycling, waste, and other sources. other health problems composting, and gas capture and use • Anaerobic digestion of livestock manure • Improved rice irrigation Black carbon (BC) – A component of particulate matter • Short-lived climate forcer, • Standards to reduce vehicle emissions, Atmospheric lifetime: days emitted by incomplete combustion especially in northern including diesel particle filters and to weeks of carbon-rich fuel, including open latitudes elimination of high-emitting vehicles burning, residential heating and • Reduced visibility • More-efficient cookstoves, heaters, brick cooking, diesel-powered vehicles • Cardiopulmonary disease, kilns, and coke ovens and equipment, and old industrial asthma, heart attacks, and • Cleaner fuels sources. strokes 2 I n tro du c ti o n conclude that the multiple benefits of a package of controls are Capros 2013) have already explored the subject from the cost often greater than the individual benefits considered separately; perspective. these benefits can reduce the marginal cost when controls are implemented together. They also demonstrate that efforts to reduce SLCP emissions can improve public health, reduce crop losses, Objectives of this Report and slow the rate of near-term climate change, thereby aiding sustainable development. Recent studies indicate that reducing This report describes efforts by the ClimateWorks Foundation emissions of BC and methane may also help reduce sea-level rise and the World Bank to quantify the multiple economic, social, (Hu et al. 2013). and environmental benefits associated with policies and projects Recent work by the World Bank (2013b) in India finds that to reduce emissions in select sectors and regions. The report has the combined cost of outdoor and indoor air pollution is more three objectives: than $40 billion annually, or more than three percent of India’s 2009 GDP. When other environmental degradation is factored • To develop a holistic, adaptable framework to capture and in, including crop, water, pasture, and forest damage, the total is measure the multiple benefits of reducing emissions of several closer to 5.7 percent of India’s GDP. This mostly affects the poor- pollutants. est members of society. • To demonstrate how local and national policymakers, members The growing recognition of SLCPs’ deleterious effects on climate, of the international development community, and others can health, agriculture, and the environment suggests that capturing use this framework to design and analyze policies and projects. many of these “externalities” can strengthen the economic rationale • To contribute a compelling rationale for effectively combin- for projects or policies that reduce SLCPs. ing climate action with sustainable development and green growth worldwide. New Modeling Tools Enable More By using a systems approach20 to analyze policies and projects, Holistic Planning this work illustrates ways to capitalize on synergies between efforts to reduce emissions and spur development, minimize costs, and maximize societal benefits. New methods and tools for capturing multi-pollutant health, This report uses several case studies to demonstrate how to agricultural, and environmental benefits allow for expanded apply the analytical framework. The case studies approach this economic analysis that more fully accounts for their monetary analysis from two perspectives: sector policies applied at the value. These tools translate the estimated emissions reductions national or regional level and development projects implemented from interventions in various energy systems (using engineering at the sub-national level. The sector policy case studies are based systems models) into changes in atmospheric concentrations on ClimateWorks’ portfolio analysis. The development project (using chemical transport models) and estimate health and case studies are based on World Bank–financed projects, scaled agricultural benefits (via concentration-response models and up to the national level. By applying the framework to analyze valuation tools). both types of interventions, this report demonstrates the efficacy Two innovative programs helped usher in these modern, of this approach for national and local policymakers, international synergistic, multi-pollutant air quality and energy planning tools: finance organizations, and others. the European Convention on Long-Range Transboundary Air Pol- These case studies show that climate change mitigation and lution and the U.S. market-based approach to controlling acid rain air quality protection can be integral to effective development under the Clean Air Act, where advanced economic efficiency is efforts and can provide a net economic benefit. Quantifying the a major driver of the design of air quality management programs benefits of climate action can facilitate support from constituen- (see Box B-1 in Annex B). cies interested in public health and food and energy security; it The continued integration of energy, economic, and air qual- ity planning has resulted in a new breed of tools19 that, when 19 These include the U.S. EPA’s Environmental Benefits Mapping and Analysis linked together, provide comprehensive benefits calculations, Program (BenMAP), the European Commission Joint Research Centre’s Fast Scenario often with monetized value as an output. The advent of these Screening Tool (TM5-FASST), and a new rapid assessment tool being developed by tools enables broader economic analysis of emissions-reduction the Climate and Clean Air Coalition to Reduce Short-lived Climate Pollutants (CCAC). 20 The systems approach refers to the incorporation of sector-specific tools to ana- programs, including improved internalization of externalities lyze direct benefits and the use of a macroeconomic tool to expand the scope of the than was previously feasible. This report explicitly focuses on indirect benefits included. It is meant to indicate the interconnectedness between expanding benefits analysis, as others (for example, Paltsev and identified benefits. 3 CLIM ATE - S M A RT D E V E L OP M E N T can also advance the international discussion of effective ways to by reducing emissions. It also introduces new modeling tools that address climate change while pursuing green growth. enable broader economic analysis of emissions-reduction programs. Chapter 2 explains how these tools can be combined to develop an effective framework to analyze policies and projects. Chapter Report Structure 3 demonstrates the framework, using several policy- and project- based case studies to estimate the multiple benefits of emissions The current chapter provides background information on the reductions from a regional or national level. Finally, Chapter 4 pollutants covered in this report and identifies opportunities to explores the challenges to operationalizing the framework and achieve both (local) socioeconomic and (global) climate objectives presents conclusions from the study. 4 2 Chapter New Framework to Estimate Benefits The analysis presented in this report uses recently developed b. Global public goods benefits—such as protection of emissions modeling and assessment tools and an integrated ecosystem services, reduced acid deposition and infra- macroeconomic model. Prior analyses added some environ- structure loss, and reduced climate change impacts—that mental externalities into cost-benefit analyses by quantifying are realized beyond the jurisdiction that carries out and monetizing specific benefits and adding them individually the policy or project. For example, reduced sulfate and to the benefits side of the ledger. The framework proposed here methane emissions can have large downwind benefits advances this work by taking a systems approach, integrating (i.e., beyond the locality that reduced the emissions). multiple benefits into a macroeconomic model to demonstrate c. Combined benefits that can be realized both locally and the additional benefits that can accrue—in terms of GDP and globally. While it is important for nations to realize the employment—as the benefits flow through the economy. All local benefits of emissions control, it is equally important of these benefits are not routinely captured in cost-benefit for them to recognize the shared benefits that accrue approaches; new tools make it possible, however, to include to them when their neighbors and other global actors many of them in project and policy analyses where emissions reduce their emissions. can be quantified. 2. Identify appropriate benefits assessment tools: These should include available tools that provide insight on each measurable benefit at the scale or resolution appropriate to the analysis. Benefits Framework Selection (or development) of suitable analytical tools is critical. For example, several slightly different tools are used in this report The framework to assess the multiple benefits of projects and poli- for individual case studies, but entirely different tools may be cies to reduce emissions of GHGs and SLCPs follows these steps: used as long as they adequately assess the relevant benefits. Those benefits that cannot be quantitatively assessed should 1. Identify the full range of benefits: These should include be qualitatively described and included in economic analysis. all potential benefits that result from a project or policy, 3. Identify an appropriate macroeconomic tool: This model including: should enable analysis of economic benefits across sectors and a. Local socioeconomic benefits—such as GDP growth, types of benefits. For example, health or agricultural benefits employment gains, reduced energy and fuel costs, time may have a positive effect on other areas of the economy (e.g. savings, improved water and air quality, higher crop labor productivity, household disposable income); energy yields, improved public health, and reduced mortal- savings in one sector might benefit another sector (e.g. by ity—that are realized in the jurisdiction that enacts the reducing energy costs and the investment needed to supply policy or undertakes the project. energy). 5 CLIM ATE - S M A RT D E V E L OP M E N T 4. Estimate significant benefits: Appropriate metrics should be and recreation industries); and time savings due to new public used to measure significant benefits, and the results should transit. These less tangible benefits can have spillover effects be presented so that they are meaningful to the audience they on the macro-economy; for example, good urban environmental affect. For example, while economic effects might best be quality is important to attract and retain the talented profession- presented in monetary terms for policymakers, talking about als who drive wealth creation in knowledge-based economies the impact on cardiovascular health might be more relevant (Florida 2000). to health officials. Similarly, presenting benefits in terms of Environmental benefits are similarly treated as an externality crop yields is likely to resonate more with farmers. in most economic analyses. As the WAVES partnership21 for Natural Capital Accounting demonstrates, however, many countries are This framework is consistent with the World Bank’s para- beginning to reflect the costs of reduced ecosystems services on digm of “inclusive green growth” (World Bank 2012b) in that it their national ledgers. Environmental benefits include biodiversity, recognizes the limitations of traditional cost-benefit analysis and ecosystem services, and reduced climate change impacts. attempts to supplement it by quantifying additional benefits to more completely demonstrate the value of green growth strate- gies. Because different benefits resonate with different audiences Step 2: Identify Appropriate Benefits at the regional, national, and sub-national levels, it is worthwhile Assessment Tools to acknowledge all the benefits in economic analysis, even if not all can be monetized. Many types of integrated assessment models are widely used to estimate the benefits or impacts associated with emissions Step 1: Identify the Full Range of Benefits reductions. For example, the partial-equilibrium Global Change Assessment Model (GCAM) models the impacts of climate change The first step in applying the framework requires consideration policies and technologies on GHG emissions, energy consumption, of all potential economic, social, and environmental benefits that production, and the economy linked to the energy sector (Clarke a project or policy may yield at the local and global levels. Many et al. 2008). The Greenhouse Gas and Air Pollution Interactions common interventions in the energy, transportation, and building and Synergies (GAINS) model is used in co-benefits studies to sectors are likely to have similar benefits. assess the health and ecosystem impacts of particulate pollution, For World Bank–financed development projects, socioeconomic acidification, eutrophication, and tropospheric ozone (Amman et benefits are likely to be among the primary motivations, and they al. 2008). Several other technology models also simulate anthro- should be assessed as part of routine project appraisal. All indirect pogenic systems and their linkage to the atmosphere, quantify- economic impacts should be considered, such as multiplier and ing several benefits. These include top-down and bottom-up flow-through effects that result from linkages in the economy (for approaches, and they have evolved significantly as a result of example, whether project investment results in greater manufac- regulatory programs that have emphasized economic efficiency turing or construction services) or the effects of complementary (See Box B-1 in Annex B). economic policies (such as changes in structural relationships Key features of these models include their ability to estimate due to incentives for local purchases). Studies have shown that the regional costs and a range of benefits of alternative emissions reduced traffic congestion enhances economic development control strategies, and to identify cost-effective measures to achieve (UNEP 2011c; ESCAP 2007) and improved health leads to greater specified emissions reduction targets. This study used a variety of labor force productivity (Sanderson et al. 2013). These economic models to determine changes in emissions, in costs, and in health, benefits should be included in analyses; this involves reviewing agricultural, and other economic benefits. potentially significant effects and ensuring they are represented The particular tools chosen for this study should be viewed appropriately in available modeling tools. as examples only. The World Bank’s low-carbon growth stud- Some socioeconomic benefits are difficult to include in an ies (ESMAP 2012) provide many other examples of methods to economic analysis because they are not easily quantified or assess long-term mitigation potential and benefits even though their assessment relies on contingent valuation methodologies the overarching goal of those studies was to reduce the emissions (such as willingness to pay for various benefits). For emissions trajectory of growth at the country level. reduction activities, these benefits can include improved public health and higher crop yields; reduced infrastructure losses from acid rain; improved visibility (which has its own intrinsic 21 Wealth Accounting and the Valuation of Ecosystem Services: http://www. value and reduces economic losses in the tourism, aviation, wavespartnership.org/waves/. 6 N ew Fr a mew or k to E stimate Bene f i ts Tools Used for Sector Policy Benefits Two development project case studies, on biogas digesters Assessment and improved cookstoves, relied on project experience and expert judgment to estimate emissions reductions and benefits. The This report relied on two models to analyze the benefits of the focus of the analysis in all cases is to demonstrate an adaptable policy-based case studies (See Figure 2.1 and Annex B): framework to assess benefits. • Marginal abatement cost curve model (MACC). Developed by McKinsey & Co. (Enkvist et al. 2009) with ClimateWorks Step 3: Identify an Appropriate support, this model estimates potential emissions reductions Macroeconomic Tool and associated costs. Although not as detailed as sector-specific models, it represents a unified view of the available technical measures to reduce GHG emissions or SLCPs, their emissions For all of the case studies in this report, the outputs from the MACC, reduction potential (MtCO2e), and the associated cost ($/tCO2e) FASST, and other tools are fed into the Global Energy Industry in a specific year for different regions and countries. The abate- ment potential and corresponding costs are calculated relative 22 The identification of least-cost CO e abatement opportunities does not equate to a business-as-usual scenario (BAU) in a given year.22 In this 2 to an endorsement of the proposed interventions or actions in all cases. Rather this study, impacts in 2030 are considered. tool is utilized as one possible basis for collectively assessing the additional benefits • Fast Scenario Screening Tool (TM5-FASST). Developed by the of a given set of emissions reduction measures. Individual abatement measures and European Commission Joint Research Centre (Van Dingenen et opportunities should be carefully selected on the basis of individual country context and development appropriateness. al. 2009), this model estimates health and agricultural impacts. 23 TEEMP does not address the analytical need for tools that account for consumer This model links emissions of pollutants in a given source region preference, behavior change, and structural relationships that reinforce existing to downwind pollutant levels (at the national level and glob- transportation patterns (such as zoning regulations and infrastructure deployment). These tools require further research and development. In the absence of tools to ally) using meteorology and atmospheric chemistry. Pollutant do this enhanced analysis, however, TEEMP can provide basic estimates of benefits levels are then used to calculate impacts by applying specific that could come from the most common transportation systems. dose-response functions from scientific literature. The outputs include lives saved per year from avoided cardiopulmonary, respiratory, and lung-cancer-related causes, as well as changes in agricultural yields for maize, rice, wheat, and soybean. Figure 2.1: Analytical framework used for the policy and project case studies Tools Used for Development Project Macroeconomic Benefits Assessment Parameters Reduced emissions Health improvements The four development project case studies used several sector- Benefits Assessment Tools Increased crop yields specific tools and bottom-up analyses to estimate the benefits of Energy savings Project Inputs TEEMP Fuel costs the interventions, including TM5-FASST and: Reduced diesel use Capital investments Improved waste handing • Transportation Emissions Evaluation Models for Projects Operations & maintenance Cleaner household fuel EASEWASTE ... Methane digestion use (TEEMP) (GEF 2010). Developed by Clean Air Asia (ADB TM5-FASST Efficiency Policy Inputs 2013), this model quantifies emissions and multiple benefits Clean transport MACC (such as reduced accidents and travel time), and uses simpli- Energy efficient industries GEIM Efficient buildings/appliances fied analysis to determine the economic feasibility of a project. As a technology-oriented model, it relies on projected demand as an input rather than independently assessing the future Benefit Putputs demand for new technologies.23 Agriculture & worker productivity, GDP, jobs, etc. • Environmental Assessment of Solid Waste Systems and Technologies (EASEWASTE). Developed by the Technical Note: Health and agricultural benefits were included in the macroeconomic model only when they were large enough to have a significant impact on the University of Denmark (Kirkeby et al. 2008), this life-cycle variables included in the GEIM. The specific changes that result from sector policies and development projects are analyzed to determine their emissions assessment model follows waste management from generation reductions. Specific data—such as changes in transportation modes, waste through collection, transportation, and treatment, and calcu- handling, building regulations, and pollutant levels—are fed into appropriate benefits assessment tools to quantify the multiple benefits. These benefits are lates the environmental emissions and impacts of alternative then fed into a macroeconomic model to demonstrate the additional economic treatment scenarios. benefits that can accrue. 7 CLIM ATE - S M A RT D E V E L OP M E N T Model (GEIM) from Oxford Economics, which calculates the mac- in response, the central bank raises interest rates, which causes roeconomic implications of climate and air quality interventions. demand (in particular investment) to fall and GDP to move back Macroeconomic models are quantitative tools routinely used to toward baseline levels. If the additional investment is large enough, evaluate the impact of economic and policy shocks—particularly it will crowd out a significant portion of capacity-expanding policy reforms—on the economy as a whole. These models repro- investment, which will in turn result in lower potential and actual duce (in a stylized manner) the structure of the whole economy, output in the long run.25 including the economic transactions among diverse agents (pro- To the extent that GDP rises above baseline levels in the case ductive sectors, households, the government, and others). This studies in this report, it reflects an increase in productivity or energy approach is especially useful when the expected effects of policy efficiency that results in sustainable economic development. In implementation are complex and materialize through different future analyses, it may be appropriate to compare GDP growth transmission channels, as is the case with climate and energy for a proposed intervention with the Keynesian effects associated policies. Details about the GEIM can be found in Annex B. with a default alternative project, such as the average distribution of historic public investment. The net effect would represent the Limitations of Bottom-up and benefit or cost of the proposed intervention. Macroeconomic Modeling Combining bottom-up (MACC) and top-down (macroeconomic Step 4: Estimate and Present Significant modeling) approaches has advantages and disadvantages. Bottom- Benefits up models disaggregate energy consumption across sectors and consider specific energy technologies with technical and economic parameters, but they often neglect to account for feedbacks in the The fourth step in the framework requires that the benefits are economy and the effects of international energy markets. Top-down measured and presented appropriately for various audiences. This models are good at identifying complex and dynamic interactions involves selecting metrics that are meaningful to the audience, among macroeconomic variables, but they are very aggregated and not all benefits can or should be monetized and aggregated. and lack the level of resolution necessary to inform policymaking. Economic effects should be presented in monetary terms, such as Additionally, top-down macroeconomic models show only how net present value or change in GDP. Specific health benefits may real resources are reallocated among economic activities after the be more relevant to public health officials than the statistical mon- economy has “equilibrated” following a shock to the system (e.g., etized value of avoided mortalities. Tons of avoided crop losses will an oil price change); they generally cannot easily model the gradual likely resonate most with farmers and agricultural policymakers. uptake of new technologies. Both kinds of models depend crucially The next chapter shows how this framework can be applied, on some simplifying assumptions that do not reflect real-world and the benefits of a variety of case studies are estimated using a conditions. This can be remedied to a certain extent by tailoring range of metrics. For policymakers, information on mitigation costs the scenarios to specific needs, but uncertainties remain that must and benefits help identify policies that can optimize development be recognized and highlighted when presenting the results.24 or welfare benefits while also attaining environmental goals. For Another concern with respect to economic analysis of capital international finance and development organizations, the results investment relates to the Keynesian effects of some projects. For of different scenarios indicate which sectors and regions stand to example, disaster reconstruction aid might generate significant benefit most from financial interventions. For non-climate philan- economic activity with GDP benefits, but it does not improve thropists and analysts, the economic, social, and environmental productivity; rather it simply replaces productive capacity that benefits provide insights on how emissions mitigation measures was lost in a disaster. Assuming some slack in the economy, all can also improve public health and food and energy security. spending will produce multiplier effects on GDP, or “Keynesian benefits.” Thus analysis must carefully distinguish any productiv- ity benefits that result from green investment. 24 At least one round of iteration between macroeconomic models and technology In this analysis, the GEIM model deals with Keynesian effects models should be conducted to allow the fixed parameters of technology models to be updated based on macroeconomic responses. The iteration process will likely to some extent by recognizing the long-term drag on the economy produce only minor changes, relative to the initial estimate and was not conducted caused by capital investment. Any additional investment that here given the preliminary nature of this analysis. does not improve efficiency or expand productive capacity puts 25 In some cases, additional investment also expands a country’s capital stock a drag on the economy in the long term. The transmission chan- (e.g., building new power plants, adding new public transit systems); in other cases, green capital investments may not do so if they strand assets before their nel for this is essentially crowding out: the additional investment normal retirement age. This effect is not included to a significant degree in the increases demand and, as a result, GDP and the rate of inflation; case studies that follow. 8 3 Chapter Multiple Benefits Assessment—Case Studies The framework described in the preceding chapter was applied to need of 3,000 kilocalories of energy (kcal), this translates into two types of case studies to demonstrate the estimation of benefits about one million kcal per person per year. Hence one metric from two perspectives: (1) sector policies applied at the national ton of cereal can feed three people for one year (Cassidy et or regional level, and (2) development projects implemented at al. 2013; Nellemann et al. 2009). the sub-national level. By applying the framework to analyze both • Social cost of carbon: CO2 emissions reductions are valued in types of interventions, this report demonstrates the efficacy of this report based on U.S. government estimates of the social this approach for national and local policymakers, international cost of carbon, which project changes in agricultural productiv- finance organizations, and others. A summary of the case stud- ity, human health, and property damage from increased flood ies is presented in this chapter, and more detailed descriptions risks.29 Due to limited data availability and uncertainty, however, are contained in Annex C (for sector policies) and Annex D (for this social cost of carbon does not account for all the damage development projects). caused by increased CO2, and it does not explicitly account for the health and agriculture benefits of reduced SLCP emissions. This report uses the average values ($34 per ton in 2010, rising Valuation Methods Used in this Report due to increased damages over time to approximately $55 per ton in 2030) obtained using discount rates of 2.5, 3, and 5 percent This report uses the following methods to monetize the benefits in 2010 dollars (U.S. Interagency Working Group on Social Cost of climate and development action: of Carbon 2013). Benefits derived using the 3 percent discount • Value of statistical life (VSL): Adjusting for differences in rate are presented in the main text for illustration, but sensitiv- income and purchasing power, the following values of statistical ity to other social discount rates is presented in the annexes. lives saved were established (all reported in 2010 purchasing power parity in U.S. dollars).Using methods recommended by the OECD (2011), values for OECD member countries 26 Following OECD (2011), an income elasticity of 0.8 was used for inter-country were based on a U.S. value of $7,887,511 (U.S. EPA Guidance transfer within the OECD. All 2010 VSLs were indexed over time based on projected 2000);26 EU, $5,713,388 and Mexico, $3,055,289. Values for national income (GDP) growth, assuming income elasticity of 1 (assumes current non-OECD countries were derived by averaging available value will hold the same relationship to income as in the future). 27 China: Wang and He (2010), Hammit and Zhou (2006), Qin et al. (2000), Zhang estimates of locally determined VSLs:27 Brazil, $1,555,802; (1999), Liu and Zhao (2011); India: Shanmugam (1997), Alberani et al. (1999), Bus- China, $700,635; and India, $967,998. solo & O’Connor (2001), Madheswaran (2007); Brazil: Markandya (1998), Serôa Da • Crop values: For agricultural sectors, this report uses the 2010 Motta et al. (1997), Ortiz et al. (2009). World Bank average grain crop price of $171.8028 per ton for 28 data.worldbank.org. 29 US EPA (2013): http://www.epa.gov/climatechange/EPAactivities/economics/ the crops considered (maize, wheat, rice, and soybeans) and scc.html. Note that these damages are largely based on modeled climate impacts further estimates that each metric ton of cereal contains three due to increased extreme weather such as hurricanes, floods, and droughts. These million kilocalories (kcal) of energy. Assuming a daily calorie do not overlap with the benefits from avoided air pollution and agricultural losses. 9 CLIM ATE - S M A RT D E V E L OP M E N T • Carbon finance value: GHG reductions can help finance cer- with a mitigation cost below $80/tCO2e33 (Spiegel and Bresch 2013; tain projects through the sale of certified emissions reductions Dinkel et al. 2011). in various carbon markets, such as the Clean Development These mitigation costs are defined as the incremental cost Mechanism (CDM) and the EU Emissions Trading System. The of a low-emission technology compared with the reference case, value of the emissions reduction is determined by individual measured in $/tCO2e. These costs include two key components: market conditions and does not reflect the full value to society. (1) the annualized repayments for capital expenditure (CapEx), • CO2 mitigation cost: The cost per ton of avoided CO2 emis- or the additional investments in new technology or replacement sions is determined by the MACC model. infrastructure necessary to achieve the GHG emission reductions, • Effect on GDP: The macroeconomic impacts of the multiple and (2) the operational costs or savings (OpEx), fuel- and non- benefits as they flow through the economy are calculated fuel-related, associated with each abatement opportunity. The using the GEIM model. A discount rate of 10 percent is used abatement costs can therefore be interpreted as pure project costs (consistent with Belli et al. 1998) within the GEIM macroeco- incurred to install and operate each low-emitting technology. Other nomic calculations. However, social discount rates of 2.5, 3, key elements—transaction costs, communication/information costs, and 5 percent were used to calculate the net present value subsidies or explicit CO2 costs, taxes, and the economic impacts of GDP and other socioeconomic benefits. Again, the central of investing significantly in low-emitting technology (such as value of 3 percent was used for illustrative purposes in the advantages from technology leadership)—are deliberately excluded main text, but sensitivity to the other social discount rates is from the cost calculations. presented in the annexes. Since data is only available for black carbon and methane, • Project benefits: The stated benefits of World Bank-financed the health and agricultural benefits estimated here are conserva- development projects are calculated as the net present value tive.34 They therefore have a negligible impact on the economy of the stream of annual benefits less costs over the life of relative to the size of the economy and the labor force. A future a project (scaled to the national level for the case studies study (see footnote 5251 in Annex C) will examine similar benefits presented). These stated benefits might include new revenue for mitigating a larger suite of pollutants. streams (such as fees collected) and cost savings (such as As described in the prior chapter, the quantified SLCP emission reduced energy or transit costs). reductions from the MACC model are fed into the TM5-FASST tool • Energy savings: The monetized values for energy savings are to model the resulting health and agricultural impacts in 2030 (see obtained by assuming a price of oil of $80/barrel in 2010 dollars, Annex C for the 2020 values). Although the impacts are mostly seen in accordance with the scenario assumptions of MACC 3.0 (see in the regions where emissions are reduced, downwind impacts in Annex C) and applying the following equivalences: 1 GWh other regions are also observed. These emissions reductions and = 8.6e–5 Mtoe and 1 Mtoe = 7.33 Mboe (IEA, BP). This is a impacts, including reduced mortality and decreased crop damage, rather crude, imprecise estimate, but it is nonetheless useful in providing an order of magnitude of the monetary savings associated with the emission reductions in each case study. 30 The selection of certain lowest-cost SLCP interventions in each sector does not constitute an explicit endorsement. Rather these interventions were selected as a reasonable basis to demonstrate how to quantify multiple development benefits. In practice, each potential measure should be considered in the context of local Sector Policy Case Studies development circumstances and appropriateness. 31 The power sector was not analyzed in this study because a similar breakdown for non-CO2 emissions was not available from the cost-curve model. The case studies presented below analyze three key sector policy 32 CO e includes CO , BC, methane (CH ), HFCs, and nitrous oxide (N O). HFCs are 2 2 4 2 interventions needed to address the mitigation gap identified by not considered in this analysis because they have no quantifiable impact on health UNEP (2013). They describe policy changes, including regulations, and crops. The impact of N2O on health and agriculture is limited in the cases con- sidered here. Because other ozone precursors are not considered, agricultural yields incentives, and taxes, to stimulate specific measures30 to cut emis- are mainly affected by methane controls (Avnery et al. 2011). sions from three sectors: transportation, industry, and buildings 33 This value was selected because higher-cost measures tend to be early-stage relative to a “no new policy” baseline scenario.31 The analysis technologies whose development is difficult to project. Choosing this threshold includes impacts in five countries and one region—China, India, limits the mitigation potential to roughly 76 percent of the total potential identified in the cost curve. That figure drops to 68.5 percent at $66/tCO2e (€50/tCO2e) and the EU, the U.S., Mexico, and Brazil (subsequently, for simplic- 67.5 percent at $53/tCO2e (€40/tCO2e). See Annex C for a detailed representation ity, referred to in this report as “six regions”)—plus the impact of all mitigation opportunities in the road transport, industry, and building sectors on global GDP. This analysis refers to the U.S. and the E.U. as considered in the sector policy case studies, including those above $80/tCO2e. 34 Agricultural impacts are only shown for the industry sector mainly due to meth- developed countries and to China, India, Mexico, and Brazil as ane emissions; agricultural impacts for transport and buildings are not available emerging economies. The case studies use the MACC model to since only BC emissions are available in these sectors (and these have a negligible identify all quantified opportunities to reduce emissions of CO2e32 impact on agriculture). 10 Mu lti ple Bene fits A ssessment —C ase Studies are fed into the GEIM. The resulting outputs include changes in GDP and employment. The “transmission channels”35 and results Sector Policy Case Study 1: are summarized below. Shift to Clean Transport Each sector policy case study analyzes the macroeconomic This case study assumes policy interventions that achieve a 30–45 results of two scenarios in order to estimate the lower and upper percent improvement in the fuel efficiency of conventional vehicles bounds of possible effects of the policy interventions. and aggressive penetration of alternative fuel vehicles by 2030, with hybrid vehicles representing up to 60 percent of new vehicle Scenario 1 makes two key assumptions: sales and fully electric vehicles making up 8–12 percent of new vehicle sales in 2030. A mode shift of passengers to public transit a. Self-financed transition: Each country pays for the full is assumed to be two percent metro, eight percent buses, and 10 costs of the transformations required to reduce GHG percent BRT in 2030. Twenty percent of freight traffic is assumed to emissions. shift from rubber to rail and five percent from rubber to sea in 2030. b. No technology transfer: Developed countries produce all the new (cleaner, more efficient) technology needed to transform each sector, which boosts their exports Case Study Interventions and emerging markets import the necessary technology. This case study includes the following changes: Scenario 2 is similar to Scenario 1 but makes different assumptions: • Improving the fuel efficiency of internal combustion engine vehicles. a. International climate finance: Developed countries pay • Shifting to hybrid and electric vehicles. for 60 percent of the capital expenditures incurred by • Transitioning to low-carbon fuels such as bio-ethanol for emerging economies to reduce GHG emissions on a pro- medium- and heavy-duty vehicles. rata basis depending on their GDP. • Increasing government investment in transport infrastructure b. Accelerated technology transfer: Emerging economies to support the new vehicle types. produce 80–100 percent of the new (cleaner, more • Shifting from cars to public transit (rail, bus, and BRT). efficient) technology needed to transform each sector, • Shifting freight from trucks to trains (rubber to rail) and ships while developed countries produce 100 percent of their (rubber to sea). own technology. This case study places greater emphasis on technology change Results are categorized as global or local benefits. As explained and less on mode shift, in part because it is based on a MACC in Chapter 2, global public goods benefits include reduced cli- model that does not fully account for behavior changes such as a mate change impacts and the transboundary benefits of reduced shift to mass transit. Thus this model may unfairly compare mar- emissions; local socioeconomic benefits include health and other ginal changes to a carbon-intensive transport mode with the major benefits realized within the five focus countries and one region infrastructure changes needed for an innovative, low-emissions that reduce emissions. Changes to GDP are presented on a global mode. For instance, because recharging networks for electric basis. The social value of carbon is based on the social cost of cars require high fixed investment, the cheapest option would carbon explained above, using a 3 percent discount rate. Values appear to be smaller changes to conventional vehicles. However, for different discount rates are shown in Annex C. For monetizing climate change uncertainty and inertia argue for early mitigation global value of lives saved, the VSL for India is used as most of that requires system-level changes. Despite this drawback of the the global total is found in the South Asian region. MACC model, this case study illustrates the economic benefits of such a transition. Sector Policy Case Study 1: Shift to Clean Transport Case Study Benefits The benefits of a shift to cleaner transportation include substantial GHG emissions from the transportation sector account for about fuel savings and reduced air-quality-related complications and 13 percent of global total; of that, emissions from road transport deaths resulting from respiratory illnesses. Since households and account for about 80 percent of total transport emissions. These numbers highlight the opportunity for governments and the private sector to work together to reduce the carbon intensity of 35 See Figure B2 in Annex B for an overview of the transmission channels included transportation. in this analysis. 11 CLIM ATE - S M A RT D E V E L OP M E N T firms would have to buy less fuel, they would have more money to Summary and Conclusions spend on other goods and services; in addition, the reduced demand As shown in Figure 3.2, a transformation of the transport sector for oil would lower oil prices, providing a boost to the economy.36 toward more-efficient vehicles and freight and greater use of advanced The power sector would, however, need to make investments to biofuels and public transit, would have significant economic and meet the increased electricity demand from electric vehicles; the health benefits in the six focus regions. These changes would save costs of this investment would ultimately be paid by consumers. about $170 per ton of avoided CO2 emissions. At the global level, Other benefits, such as time savings and reduced fatalities from GDP would be about 0.5–0.8 percent higher than baseline levels in improved public transportation systems, are not quantified here. 2030, but the impact across countries would be mixed. Developed Global GDP would be about 0.5 percent and 0.8 percent higher economies would perform best, even in the scenario least favor- than baseline levels in 2030 for Scenarios 1 and 2 (equivalent able to them. However, emerging economies, particularly India and to $600 billion and $1 trillion in 2010 dollars, respectively). The China, would reap the greatest benefits in lives saved from reduced impact across countries is, however, heterogeneous. Developed air pollution. As noted above, because of limited emissions data, the economies would perform best, even in the scenario least favor- mortality savings and resulting economic impacts are conservative. able to them. For emerging markets, the combination of higher electricity prices and the long-run drag from paying for capital Sector Policy Case Study 2: Energy-efficient investments (See description of Keynesian effects on Pg. 8), even Industry in the scenario that assumes a significant role for international climate finance, would result in GDP growth being dampened Direct and indirect37 CO2e emissions from the industrial sector are relative to baseline levels in 2030. the single biggest contributor to global emissions. Direct emissions By 2030, the mitigation measures undertaken in the five alone account for about 20 percent of global emissions. The cement, countries and one region are estimated to save more than 21,000 chemicals, and iron and steel sectors are the three largest emit- lives globally each year from avoided premature deaths. Within ters; government policies to reduce their emissions would have a the focus countries and region, the emissions reductions would significant impact on the global fight to contain climate change. reduce air-quality-related mortality by about 20,000 lives per year; in monetary terms, the reduced deaths would be equivalent to Case Study Interventions $87 billion (2010 dollars). India and China account for over 90 This case study considers the impact of a government-led trans- percent of the total (see Figure 3.1). formation of industry, including a shift to clean fuels and reduced Results of the case study are summarized in Box 3.1. 36 The transmission channels in this macroeconomic analysis would benefit from better modeling of inter-sector effects. For example, lower oil prices may result in more oil being used in other sectors, reducing the net gain. 37 Indirect emissions in the industrial sector are from electricity consumption. Figure 3.1: Climate benefits of sustainable transport policies in 2030 Figure 3.2: Socioeconomic and climate benefits of sustainable transport policies in 2030 by region 2.4 7% 10% 72% Monetized Brazil & Benefits Gt CO2 e of mitigation potential of mitigation needed of mitigation potential Transport Mexico China EU India US (2010 $bn) for all sectors for 450 PPM for transport sector Note: A shift to cleaner transportation would avoid 2.4 Gt of CO2e emissions Lives at an average mitigation cost of $169/tCO2e.a This represents 7 percent of the $87 Saved total global technical mitigation potential (for all sectors), 10 percent of the energy-related emission reductions necessary to stabilize CO2e concentration at 20,000 4% 31% 1% 64% 0% 450 ppm, and 72 percent of the available global technical potential in the road Energy transport sector. $237 Saved a In other words, these emissions reductions would save money. The abatement 4,700TWh 8% 26% 31% 10% 25% cost for society is negative for many of the transportation changes (such as improvements in conventional vehicles) because the payback over the lifetime Emissions of the vehicle is assumed to be positive (the fuel cost savings more than offset $132 Reduced the initial additional investment in improved technology). Only fuel cost savings 2.4 Gt CO2e 9% 20% 41% 11% 19% are considered; no other benefits are included. 12 Mu lti ple Bene fits A ssessment —C ase Studies Box 3.1: Sector Policy Case Study 1 Benefits: Shift to Clean Transport A transformation of the transport sector in the six focus regions, through more fuel-efficient internal-combustion vehicles, more widespread adoption of electric and hybrid vehicles, greater use of public transport and advanced biofuels, and a shift to more efficient freight, would generate substantial benefits (all values are annual results in 2030 for the six focus regions, unless noted), including: Local* Socioeconomic Benefits • Lives saved: roughly 20,000 premature mortalities from air pollution avoided per year, with a monetized value of about $87 billion. • Energy saved: about 4,700 TWh, roughly equivalent to 12.5 percent of projected energy consumption in the transport sector and 2.3 percent of projected total global energy demand (cf. IEA WEO 2013). • Effect on global GDP**: increase of about 0.5–0.8 percent above the baseline, or $600 billion–$1 trillion, equivalent to $250–400/tCO2e, with uneven effects among countries. Global Public Goods • CO2e emissions reduction: roughly 2.4 Gt per year. • Average mitigation cost: –$169/tCO2e (MACC). • Estimated social value of CO2e reductions: $132 billion. • Additional lives saved: roughly 1,300 premature deaths from air pollution avoided per year outside the six focus regions, with a monetized value of about $6 billion. * Local here refers to the six focus regions. ** Although these are global GDP values, the results are driven entirely by shocks inflicted on the economies of the six focus regions. energy consumption. Specific changes include a switch from coal are equivalent to about $240 billion (2010 dollars). In addition, to natural gas, biomass, and electricity; more-efficient motors, because of reduced crop damage from ozone emissions, yields for kilns, and coke ovens; and carbon capture and storage. four crops (maize, wheat, rice, and soybeans) would increase by about 1.3 million metric tons in the six regions. The EU and China Case Study Benefits would reap the most agricultural benefits. The global impact of The shift to a more energy-efficient industrial sector would have these mitigation measures (including benefits that accrue outside significant impacts on the economy, health, and agricultural the six focus regions) would result in a total of about 58,000 lives productivity. The TM5-FASST model shows that the fuel switch saved per year in 2030, and in an increase in crop yields of 1.72 would reduce emissions-related mortalities by about 52,000 lives million tons per year in 2030. per year for the six focus regions; the majority of these are in Based on the GEIM model, global GDP would be about 1–1.2 India (see Figure 3.2). In monetary terms, the mortality savings percent above baseline levels in 2030 in Scenarios 1 and 2 (equivalent to $1.2 trillion and $1.4 trillion respectively), with heterogeneous impacts across countries. Because developed countries have already made substantial improvements to their industrial energy efficiency, Sector Policy Case Study 2: Energy the average gains available from lower energy consumption are Efficient Industry limited. In Scenario 1 (which assumes that developed countries produce most of the high-tech infrastructure needed to transform This case study considers the impact of policies to shift all the sector), however, developed countries do gain from an increase industrial sectors away from the dirtiest fuels and to reduce their energy consumption by 8–53 percent depending on the sector: in exports of capital goods to emerging economies. For the emerg- ing economies, the potential gains from lower energy use are more • Chemicals: 21–53 percent (about one-third of abatement significant and, as a result, these countries improve their global potential). competitiveness in both scenarios. While the impact on GDP and • Cement: 8–14 percent (about one-quarter of abatement poten- jobs is positive everywhere, in Scenario 1 developed countries expe- tial). rience slower growth in GDP and employment than in Scenario 2. • Iron and steel: 8–14 percent (about one-seventh of abatement In both scenarios, emerging economies see significant employment potential). gains. The results of the case study are summarized in Box 3.2. 13 CLIM ATE - S M A RT D E V E L OP M E N T Figure 3.3: Climate benefits of energy efficient industry Figure 3.4: Socioeconomic and climate benefits of energy policies in 2030 efficient industry policies in 2030 by region Monetized Brazil & Benefits Industry Mexico China EU India US (2010 $bn) 4.3 12% 17% 73% Lives $240 Saved 52,000 20% 21% 1% 57% 1% Gt CO2 e of mitigation potential of mitigation needed of mitigation potential for all sectors for 450 PPM for industry sector Energy Saved $287 Note: A shift to a more efficient industrial sector would avoid 4.3 Gt CO2e at an average mitigation cost of $7/tCO2e. This represents 12 percent of the total global 5,700TWh 6% 59% 10% 14% 10% technical mitigation potential (for all sectors), 17 percent of the energy-related Crop Increase $0.22 emission reductions necessary to stabilize CO2e concentration at 450 ppm, and 73 percent of the available global technical potential in the industry sector. 1,002,500 3.8 million metric tons 1% 32% 38% 6% 22% people fed Emissions $237 Reduced 4.3 Gt CO2e 6% 62% 8% 16% 9% Summary and Conclusions A more energy-efficient industrial sector would be a key step in the global effort to contain climate change. As shown in Figure 3.4, such a transition would also have significant global economic, Emerging economies could reap significant gains from lower energy health, and agricultural benefits. Global GDP would be about consumption. These countries have the most to gain from new 1–1.2% above baseline levels in 2030, with uneven impacts across capital investments; by reducing their production costs more on countries. Potential gains from lower energy use are limited for average than developed countries, they improve their competitive- developed countries, because they have already greatly improved ness and gain market share and jobs in both scenarios. their industrial energy efficiency. They could benefit, however, by The vast majority of health benefits from reduced air pollu- increasing their exports of high-tech, low-emission capital goods. tion are estimated to occur in emerging economies, particularly in Box 3.2: Sector Policy Case Study 2 Benefits: Energy Efficient Industry A transformation of the industrial sector, through policies that spur a shift to clean fuels and reduced energy consumption, would generate substantial societal benefits (all values are annual results in 2030 for the six focus regions, unless noted), including: Local* Socioeconomic Benefits • Lives saved: 52,000 avoided premature mortalities from air pollution, with a monetized value of $240 billion. • Crops saved: roughly 1.26 million metric tons, enough to feed 3.8 million people for one year and valued at $216 million. • Energy saved: more than 5,700 TWh in 2030, equivalent to more than 14 percent of projected energy consumption in the industrial sector and about 3 percent of projected total global energy demand (cf. IEA WEO 2012). • Effect on global GDP**: increase of about 1–1.2 percent above the baseline, or $1.2–$1.4 trillion, equivalent to $280-$336/tCO2e, with uneven effects among countries. Global Public Goods • CO2e emissions reduction: roughly 4.3 Gt per year. • Average mitigation cost: $7/tCO2e (MACC). • Estimated social value of CO2e reductions: $237 billion. • Additional lives saved: roughly 5,880 premature deaths from air pollution avoided per year outside the six focus regions, with a monetized value of about $28 billion. • Additional crops saved: roughly 460,000 metric tons per year outside the six focus regions, with a monetized value of about $79 million. * Local here refers to the six focus regions. ** Although these are global GDP values, the results are driven entirely by shocks inflicted on the economies of the six focus regions. 14 Mu lti ple Bene fits A ssessment —C ase Studies India, Brazil, and China. Crop yields would also rise significantly, especially in the EU, China, and the U.S. As noted above, the Sector Policy Case Study 3: Energy health and agriculture benefits are likely understated because of Efficient Buildings limited emissions data (see Annex C). This case study assumes significant improvements in energy intensity: 15–28 percent in residential buildings and 4–47 percent Sector Policy Case Study 3: Energy-efficient in commercial buildings. The biggest reductions can be achieved Buildings from new construction (about 21 percent of abatement potential), electronics and appliances (about 20 percent), and building Although residential and commercial buildings account for a retrofits (about 12 percent); the remainder is achieved via reduced relatively small proportion of global emissions (just under 10 per- HFCs, highly efficient lighting, and water heater and HVAC retrofits. cent), relatively simple and cost-effective improvements in energy efficiency could significantly reduce energy consumption—and therefore energy-related emissions—worldwide. than recouped through lower energy bills, household incomes in Mexico would rise, boosting consumption and GDP. (In contrast, Case Study Interventions households in Brazil would make the smallest gains in Scenario 1, This case study presents the impacts of government policies where efficiency improvements are relatively limited but carry a to reduce energy use in residential and commercial buildings significant investment cost.) through more efficient appliances, electronics, and equipment; The heterogeneous impact on GDP is also reflected in employ- better insulation, including retrofits and new construction; and ment. Most countries see some growth in jobs; China and India improved heating, cooling, and refrigeration systems. gain the most in absolute numbers, but the increase in Mexico’s GDP means it gains the most jobs relative to its labor force (a Case Study Benefits 1.3 percent rise in employment above the 2030 baseline). The Reducing the energy used by buildings would have significant results of the case study are summarized in Box 3.3 below. impacts on the economy and human health. The TM5-FASST model estimates that the accompanying reductions in emissions Summary and Conclusions of air pollutants would reduce mortality by about 22,000 lives per Improving the energy efficiency of commercial and residential year in the focus regions. The vast majority of the avoided deaths buildings—including appliances, small equipment, and heating are in India (as shown in Figure 3.6), primarily due to the large and cooling systems—would support climate change mitigation reduction in black carbon emissions when traditional residential cookstoves are replaced with more fuel-efficient ones (see Table C.1 in Annex C) and dirty fuels are replaced with liquid petroleum gas 38 Most of the emissions in the residential and commercial buildings sector in and other cleaner fuels (Dinkel et al. 2011). In monetary terms, Mexico are from gas use; thus this sector already has a carbon-efficient baseline. Additionally, with limited use of heating and cooling in buildings, capital costs for an the lives saved would be equivalent to $102 billion (2010 dollars) energy-efficient transition is relatively low compared to other countries. As a result, for the six regions considered. The global impact of mitigation the GDP and efficiency gains are the highest in Mexico compared to the other regions. measures undertaken in the six focus regions is estimated to result in a total of about 24,000 lives saved per year in 2030 from avoided premature mortality. Because of limited data availability, however, this analysis includes only a small subset of pollutants Figure 3.5: Climate benefits of energy efficient buildings (primarily BC) and an underestimate of emissions mitigated in policies in 2030 the buildings sector (Wagner et al. 2013); the estimated health benefits, therefore, are conservative. From a macroeconomic perspective, the efficiency improve- ments raise global GDP by 0–0.2 percent in Scenario 1 and 2, respectively (up to $240 billion, in 2010 dollars) from the baseline 1.8 5% 7% 62% scenario in 2030. As in other sectors, the key transmission channels are the effects of the changes in capital investment and energy Gt CO2 e of mitigation potential of mitigation needed of mitigation potential for all sectors for 450 PPM for buildings sector consumption; the impacts are heterogeneous across countries. Note: A shift to more energy-efficient buildings would avoid 1.8 Gt CO2e at an In Mexico, for example, households can achieve greater energy average mitigation cost of $36/tCO2e. This represents 5 percent of the total global technical mitigation potential (all sectors), 7 percent of the energy-related savings, at lower cost, than households in the other countries.38 emissions reductions necessary to stabilize CO2e concentration at 450 ppm, Because the cost of household efficiency improvements is more and 62 percent of the available global technical potential in the buildings sector. 15 CLIM ATE - S M A RT D E V E L OP M E N T Box 3.3: Sector Policy Case Study 3 Benefits: Energy Efficient Buildings Dramatic reductions in the energy used by residential and commercial buildings—through government policies that drive more efficient appli- ances, equipment, insulation, and heating and cooling systems—would generate substantial societal benefits (all values are annual results in 2030 for the six focus regions, unless noted), including: Local* Socioeconomic Benefits • Lives saved: 22,000 premature mortalities from air pollution avoided per year, with a monetized value of $102 billion. • Energy saved: about 5,400 TWh, roughly equivalent to 13 percent of projected energy consumption in the buildings sector and three percent of projected global energy demand (cf. IEA WEO 2012). • Effect on global GDP**: increase of about 0–0.2 percent above the baseline, or up to $240 billion, equivalent to $134/tCO2e, with uneven effects among countries. Global Public Goods • CO2e emissions reduction: Roughly 1.8 Gt per year. • Average mitigation cost: $36/tCO2e (MACC). • Estimated social value of CO2e reductions: $99 billion. • Additional lives saved: roughly 1,800 premature deaths from air pollution avoided per year outside the six focus regions, with a monetized value of about $9 billion. * Local here refers to the six focus regions. ** Although these are global GDP values, the results are driven entirely by shocks inflicted on the economies of the six focus regions. efforts and benefit human health and the global economy. Global on agricultural productivity would also be significant if data were GDP would be about 0–0.2 percent above baseline levels in 2030, available for a fuller set of emissions (see Annex C). but the impact across countries is uneven and largely independent of their income levels. Mexico performs relatively strongly, as its households are able to save significant energy at relatively little Development Project Case Studies cost, which in turn boosts real incomes, consumption, and GDP. As in other sectors, the vast majority of health benefits from The case studies below are based on World Bank–financed, sub- reduced air pollution would occur in emerging economies, par- national development projects, scaled up to estimate their impacts ticularly India and China. Although not quantified here, impacts at the national level. Using the analytical framework described above, these projects are analyzed relative to a “no project” base- line to determine the additional benefits (beyond the net present economic value typically calculated in project financial analysis) that would accrue over the life of each project (generally 20 years). Figure 3.6: Socioeconomic and climate benefits of energy This presentation differs from the results shown in the sector efficient buildings policies in 2030 by region. policy case studies. It is intended to present an aggregated view of Monetized each project’s value over the planning horizon in deciding whether Brazil & Benefits Buildings Mexico China EU India US (2010 $bn) to proceed with a project. While these case studies focus on demon- strating a broader range of benefits during the implementation and Lives analysis phases of development initiatives, it is important to consider Saved $87 these issues during the planning stages so that project designers 22,000 1% 6% 0% 93% 0% can adjust plans to optimize a comprehensive range of benefits. Energy Saved $272 All these case studies should be viewed as simulations that, 5,400TWh 3% 30% 29% 3% 35% while based on realistic projects and data, require assumptions for scaling that may or may not be feasible to implement. These Emissions $99 simulations are meant to demonstrate the potential for additional Reduced 1.8 Gt CO2e 3% 30% 22% 5% 39% benefits beyond what is derived from current project-level economic 16 Mu lti ple Bene fits A ssessment —C ase Studies analysis.39 (The analytical tools used for these simulations are described in Steps 2 and 3 of the framework (see Chapter 2); the Development Project Case Study 1: valuation methods are explained at the beginning of this chapter. Sustainable Transportation in India Finally, see Annex D for more details on these case studies.) This case study includes construction of more than 1,000 km of new bus rapid transit lines deployed in about 20 large Indian Development Project Case Study 1: cities to displace more than seven percent of current traffic along Sustainable Transportation in India the selected routes. Affordable, low-emissions transport is crucial for development. People need effective transit options for access to jobs, education, and health services; economic activity requires the transport of transport per passenger kilometer was scaled up (less project costs). goods. Well-designed and -enforced bus rapid transit (BRT) is a Annual financial flows of all benefits are aggregated through 2033 relatively inexpensive way to get people out of high-emitting vehicles and discounted at three percent. (See Annex D for a sensitivity and to reduce traffic congestion and pollution. In 2009, the World analysis to alternative values of the social discount rate. Bank approved a sustainable urban transport project for India that included BRT in three pilot cities. The Pimpri-Chinchwad BRT may serve as a model for replication across India; it was analyzed in depth in this case study to establish realistic benefits that can be 39 The results of these simulations have not been endorsed by the in-country expected under real-world conditions. project counterparts. Case Study Interventions The results of the Pimpri-Chinchwad BRT analysis and a Minis- try of Urban Development (MOUD) study of more than 87 cities Box 3.4: Development Project across India were used to estimate the length of viable BRT routes that could realistically be developed across India, as well as the Case Study 1 Benefits: Sustainable per-kilometer costs and benefits of such development. For this Transportation in India case study, the length was estimated at approximately 1,000 km, Deployment of 1,000 km of new bus rapid transit lanes in about including more than 422 km that is already included in govern- 20 Indian cities could lead to: ment plans. This was contrasted against a “no BRT” scenario. The analysis estimates that investment of $3–4 billion would be Stated Project Benefits (scaled to the national level) needed to develop 1,000 km of BRT corridors in about 20 cities NPV of project development objectives: $9.7 billion (mostly time across India within 6–12 years. savings and reduced operating costs). Case Study Benefits Additional Local* Socioeconomic Benefits** Analysis using the TEEMP model shows that large reductions in • BC reduced: 5,000–6,000 tons. time, emissions, fuel use, and traffic fatalities can be achieved by • Lives saved: 27,200–31,200 (from reduced accidents and air shifting passenger traffic away from current transportation patterns pollution), with a value of $49-$54 billion. to a modern BRT system. The emissions reduction benefits were • Crops saved: more than 28,000 tons, with a value of $3 mil- further analyzed using the TM5-FASST tool, which shows that lion. reductions in black carbon and co-pollutant emissions from the • Jobs created: 44,000–91,000 short-term; more than 128,000 expanded BRT would reduce crop losses and deaths from respiratory long-term. illnesses. Capital investments, operation and maintenance costs, • Effect on India’s GDP: $11.5–$13.5 billion increase between fuel savings, and productivity benefits were fed into the Oxford 2013 and 2032. Economics GEIM, which shows further benefits: Investment in Global Public Goods** India’s infrastructure will boost its economy and create jobs, and the switch to mass transit will reduce the overall cost of transport, CO2e emissions reduced: 42–49 Mt, valued at $1.3–$1.5 billion raising firms’ profit margins and households’ real incomes. based on the social cost of carbon. Results are summarized in Figure 3.7; in Box 3.4 they are * Local here refers to the national level. compared with the net present value of the project as estimated ** Net present value of aggregate benefits over 20 years, in 2010 by current project analysis methods. Here the reduced cost of dollars discounted at three percent. 17 CLIM ATE - S M A RT D E V E L OP M E N T Figure 3.7: Socioeconomic and climate benefits of directly included in the project’s financial analysis, they could be sustainable transportation in India part of the discussion of broader economic benefits that accrue to a country as a result of such a transportation program. Development Project Case Study 2: Integrated Solid Waste Management in Brazil 27,200–31,200 lives saved Effective management of municipal solid waste poses “one of the biggest challenges [to] the urban world” (UN-Habitat 2010). In Sustainable low-income countries, most cities collect less than half of the waste 128,000 $11.5 billion–$13.5 billion generated, and only half of the collected waste is processed to jobs effect on GDP (NPV) minimum acceptable environmental and health standards. Properly managing waste to minimize methane emissions offers a variety Transport of local and global benefits. Locally, improper waste management, especially open dumping and open burning, contaminates water, air, and land; attracts disease vectors; and clogs drains, contribut- ing to flooding. At the global scale, burning waste without proper air pollution controls creates toxic pollutants; improper disposal 28,000 tons 42–49 Mt CO2 e of crop loss avoided Reduction also pollutes the oceans, threatening ecosystems, fisheries, and tourism. Waste is an emerging contributor to climate change, Note: Benefits are scaled to national level and aggregated over project period. emitting 5 percent of global GHGs and 12 percent of methane (Bogner et al. 2007). Waste has the potential, however, to be a net sink of GHGs when used as a resource, through recycling and Summary and Conclusions reuse (Bogner et al. 2007). A comprehensive value of the project was established by exploring the multiple benefits of expanded BRT systems. As shown above, Case Study Interventions the benefits include time and fuel savings, reduced environmental This case study estimates the emissions reductions from integrated impact, and fewer deaths from traffic accidents and air-quality- solid waste management in Brazil by a simulated scale-up of one related respiratory illnesses. There would also be significant project to the national level. The model project selected is an inte- macroeconomic benefits. In addition to the $9.7 billion in NPV grated solid waste management project with an innovative carbon that might typically be used to justify such a project, this study finance platform. The registered carbon finance methodology inte- has identified more than $62 billion in added value, including the grates a seamless payment structure within solid waste management social cost of carbon and the welfare benefits of lives saved, crops investments, greatly facilitating the sale of credits and the additional protected, and GDP growth. In addition, more than 5,000 tons benefits that can be captured from those resources. It is a $50 million of black carbon emissions would be eliminated, with potentially financial intermediary loan for on-lending to borrowers with solid strong climate benefits. While not all of these benefits can be waste subprojects. The project aims to improve the treatment and disposal of municipal solid waste; its success is measured by the number of open dumps closed and the increased volume of waste disposed in sanitary landfills, composted, or recycled. Brazil was Development Project Case Study 2: selected for scale-up due to the existing strong regulatory structure and finance instruments available in this sector. Integrated Solid Waste Management Four different policy scenarios for managing Brazil’s waste in Brazil were compared with a reference baseline: National expansion of an existing World Bank integrated solid • Baseline: The current state of solid waste management in waste management project with innovative finance mechanisms Brazil, with 58 percent of waste going to sanitary landfills, would enable sanitary disposal of all of Brazil’s solid waste through sanitary landfills, composting, and biogas digestion— most of which flare the methane produced; the remainder significantly reducing methane emissions. of the waste is going to open dumps, which simply vent the methane produced. 18 Mu lti ple Bene fits A ssessment —C ase Studies • All landfill scale-up: All generated waste ends up in a sanitary landfill (no more open dumping), and 50 percent of landfill Box 3.5: Development Project Case gas is collected and flared. Study 2 Benefits: Integrated Solid • All landfill with electricity generation: Similar to the previ- Waste Management in Brazil ous scenario, but 50 percent of landfill gas is flared and 50 percent is used to generate electricity, displacing natural gas A project simulation to enable sanitary disposal of all of Brazil’s on the electricity grid. solid waste, through improved collection and sorting, sanitary landfills, composting, and biogas digestion, is estimated to have • Anaerobic digestion of organic waste with electricity the following direct benefits: generation: Seventy-five percent of organic waste is sorted and routed to anaerobic digesters to produce electricity, Stated Project Benefits (scaled to national level) displacing natural gas on the grid; the resulting compost is NPV of project development objectives: more than $100 billion used as fertilizer (but no market value is assessed for fertil- (inclusive of $1.6–$3.2 billion carbon finance value). izer substitutions). • Composting for organic waste: Seventy-five percent of organic Additional Local* Socioeconomic Benefits** waste is sorted and composted. Again, this compost is not • Jobs created: 44,000–110,000. assumed to displace any fertilizer; this underestimates the • Energy saved: 0.5–1.1 percent of Brazil’s electricity demand. environmental benefits. • Effect on Brazil’s GDP: $13.3–$35.2 billion increase between 2012 and 2032. For all of the Brazilian waste scenarios explored, the most relevant result is the difference between the policy scenario at the Global Public Goods** baseline and at “full implementation.” The required investment • CO2e emissions reduced: 158–315 Mt, valued at $4.8–$9.7 is estimated at $1–2 billion per year through 2030. billion based on the social cost of carbon (a social value incre- ment of $3.2–$6.5 billion beyond the carbon finance value). Case Study Benefits • Lives saved: 2,500–4,900 avoided premature deaths from air The project will result in reduced methane emissions as well as a pollution, with a monetized value of $5.5–$10.6 billion. variety of other benefits, including improved water quality, improved • Crops saved: 550,000–1.1 million tons, worth $61–$120 million. soil quality, improved public health, and decreased mining of * Local here refers to the national level. natural resources. The methane reductions were estimated using ** Net present value of aggregate benefits over 20 years, in 2010 USD the EASEWASTE solid waste lifecycle assessment model, using discounted at three percent. data specific to Brazil for generation rates, composition, electricity grid, and landfill behavior. Generic data was used to model the composting facilities and the anaerobic digesters. Improved organic waste treatment, through anaerobic digestion The net present value of the project is based on the esti- and composting, with electricity production offers the greatest mated fees generated if all of Brazil’s solid waste is treated in potential for methane reduction from solid waste for Brazil (on sanitary landfills, less costs drawn from the recent report What a the order of 15–30 million metric tons of CO2e per year). These Waste (Hoornweg and Bhada-Tata 2012)—including purchasing, emissions reductions were input into the FASST tool to estimate operations, maintenance, and debt service for each of the options additional health and crop benefits from reduced ground-level explored. Potential program costs have not been considered here. ozone formation. Each year, these could result in 246 to 468 avoided deaths from respiratory illnesses and 53,000–101,000 Summary and Conclusions tons of avoided crop losses (with a value of $9.1–17.4 million This case study shows that greater emissions reductions can globally). be achieved using an integrated solid waste approach, which These scenarios also yield significant macroeconomic benefits considers every step in the waste value chain, than by targeting over the 20-year analysis period, including increased GDP in Brazil only one technology (e.g., sanitary landfills). Although methane of $13.3–$35.2 billion (net present value in 2010 dollars, using a is emitted only at the point of waste treatment and disposal, 3 percent discount rate), with a corresponding growth in jobs of efforts to reduce these emissions and manage waste as a resource 44,000–110,000 depending on the scenario. In addition, 0.5–1.1 can occur at every stage: planning, waste generation, collection, percent of national power demand is satisfied as an additional treatment, and disposal. Upstream efforts are especially valuable. benefit in two of the scenarios. Summaries of the results are shown For example, incentive schemes to reduce waste generation and in Box 3.5 and Figure 3.8. increase source separation yield two types of SLCP reductions. 19 CLIM ATE - S M A RT D E V E L OP M E N T Figure 3.8: Socioeconomic and climate benefits of integrated solid waste management in Brazil Development Project Case Study 3: Cleaner Cookstoves in Rural China A 20-percent public subsidy in China between 2015 and 2020 for fuel-efficient, lower-emitting cookstoves and solar cookers is assumed to establish a robust, self-sustaining market for these advanced technologies; this would enable all rural poor house- 2,500–4,900 holds that currently use solid fuels for residential cooking to lives saved switch to the cleaner stoves by 2030. Solid Waste 44,000–110,000 $13.3 billion–$35.2 billion more than one million premature deaths each year in China (Lim jobs effect on GDP (NPV) et al. 2012). Switching to modern fuels would be the most effec- tive way to reduce this pollution and health damage; these fuels Management are more expensive, however, and require more costly stoves and delivery infrastructure. As a result, poorer rural households without access to affordable modern fuels such as liquid petroleum gas and natural gas are unlikely to transition on a large scale. Effective interventions to scale up the dissemination of clean-burning, fuel- 550,000–1,100,000 tons 158–315 Mt CO2 e of crop loss avoided Reduction efficient stoves for household cooking and heating can mitigate the health hazards of burning solid fuels (World Bank 2013c). Note: Benefits are scaled to national levels and aggregated over project analysis period. Case Study Interventions While heating systems and combined cooking and heating stoves also represent important sources of indoor and outdoor air pol- First, they directly reduce landfill methane (and other down- lution, in order to simplify the analysis, the focus here is only on stream GHG) emissions; second, they displace other sources of cleaner cookstoves. SLCP (and GHG) emissions (i.e., fertilizers and natural gas). This case study, based on a universal access to clean cooking Large-scale use of these waste-to-resource technologies requires scenario developed under the China Clean Stove Initiative (World major investments of $1–$2 billion per year in upstream waste Bank 2013c), assumes40 a publicly supported plan to encourage rural reduction and source separation. Without separation of waste at households to switch to more fuel-efficient and environmentally the household level, neither composting nor anaerobic digestion is friendly cookstoves starting in 2015. For the first five years, the public economically feasible. Making these investments, however, would sector would support a 20 percent subsidy to rural households for lead to significant economic returns. The NPV of such a project the cost of the clean cookstoves in addition to substantial technical is estimated at approximately $100 billion. In addition, between assistance funding. This temporary support is assumed to encour- $22–$52 billion in additional value stems from increased GDP, the age a robust private market that would propel further deployment social value of carbon (beyond carbon finance), reduced mortality, of cleaner stoves through 2030, with households bearing the full and improved crop yields. All these benefits should be considered cost. The 20 percent subsidy and program and technical assistance in the economic analysis of such a project. will cost $400 million over the program timeframe (2015–2020), supplemented by $1.2 billion in private sector investment, which Development Project Case Study 3: Cleaner takes into account reduced household spending in other areas in Cookstoves in Rural China response to increases spending on cookstoves. This case study assumes that 40 percent of rural poor house- China has made great strides in expanding energy access and holds relying primarily on solid fuels for cooking will have switched providing cleaner cooking fuels and improved stoves throughout to cleaner stoves by 2020, and all households will have switched the country. However, about half of China’s population still relies by 2030. This is against a backdrop of increasing urbanization on solid fuels (coal and biomass) for cooking and heating, and the International Energy Agency estimates 241 million people in China will continue to do so by 2030 (World Energy Outlook 2013). 40 Unlike the other case studies based on past investment projects, this analysis is Household air pollution from solid fuel use is estimated to cause based on a hypothetical scenario. 20 Mu lti ple Bene fits A ssessment —C ase Studies and rising household incomes, which have already established a of PM2.5 would have very significant public health benefits. These trend toward modern fuels and cleaner stoves. include avoiding an estimated 87,900 premature deaths in that Based on these assumptions, more than 20 million subsidized year from lung cancer and heart attacks, the majority (more than stoves (improved biomass and clean-fuel cookstoves and solar 85,000) in China. By 2030, $250 billion (85,000 lives times the cookers) would be deployed between 2015 and 2020, and more estimated $3 million VSL) in avoided mortality could be realized than 50 million unsubsidized stoves would be sold between 2020 in that year. These benefits are underestimated, however, because and 2030, significantly speeding up the naturally occurring transi- they only account for improvements in outdoor air quality; greater tion to cleaner stoves. health benefits are expected due to improved household air quality, but tools to quantify these benefits are not available.41 Case Study Benefits The large energy savings, especially from reduced coal use, Deploying clean cooking solutions in China would reap many would add more than $10 billion to the Chinese economy over benefits, including improved health, energy savings, and private the 20-year analysis period ending in 2033. The combined energy sector development opportunities. As estimated by the FASST tool, savings from biomass and coal builds by 2030 to nearly 490 mil- emissions reductions by the year 2030 of more than 480,000 tons lion gigajoules (GJ) annually, or about three percent of residential energy use. The increased consumer spending also yields job gains. A summary of the benefits is presented in Box 3.6 and Figure 3.9. Summary and Conclusions Box 3.6: Development Project Case A plan to encourage rural households to switch to more fuel-efficient Study 3 Benefits: Clean Cookstoves in and environmentally friendly cookstoves, by subsidizing and sup- Rural China porting deployment of more than 20 million cookstoves between A 20-percent public subsidy in China between 2015 and 2020 for fuel-efficient, lower-emitting cookstoves and solar cookers, and 41 Tools to estimate the benefits from improvements in household air quality are subsequent unsubsidized sales through 2030, are estimated to under development by the University of California Berkeley for the Climate and have the following benefits: Clean Air Coalition partner countries; no such tools exist for China at this time. Stated Project Benefits Because this case study is not based on an actual project, but Figure 3.9: Socioeconomic and climate benefits of cleaner was developed based on the universal access to clean cooking cookstoves in rural China scenario developed under the China Clean Stove Initiative (World Bank, 2013b), the net present value of the project development objectives has not been calculated. Additional Global Public Goods* CO2e emissions reduced: 49 Mt, valued at $1.5 billion based on the social cost of carbon of $34/tCO2e in 2010, rising to $55/ 1,000,000 lives saved tCO2e in 2030. Cleaner Additional Local Socioeconomic Benefits* • Lives saved: more than one million from avoided premature 22,000 $10.7 billion new jobs effect on GDP (NPV) deaths due to outdoor air pollution, with a value of $1.5 trillion (within China); even more lives would be saved if considering the health impacts from reductions in indoor emissions. Cookstoves • Jobs created: about 22,000 (near term). • Energy saved: 545 million gigajoules (GJ) reduced coal use and 5,400 million GJ biomass use. • Macroeconomic benefits of $10.7 billion between 2015–2030 (largely due to the economic impact of fuel savings). Crop loss avoided 49 Mt CO2 e unknown Reduction * Net present value of aggregate benefits over 20 years, in 2010 dollars Note: Benefits are aggregated over the project analysis period. discounted at three percent. 21 CLIM ATE - S M A RT D E V E L OP M E N T dairy farms. These installations are driven by farmer demand, Development Project Case Study 4: which is expected to grow as biodigester technology becomes more Biogas Digestion and Photovoltaic cost-effective and better adapted to different production scales. Systems in Mexican Agriculture While the original project supports a range of energy-efficiency technologies, this case study focuses exclusively on continued Given high and increasing demand for co-funding of biodigesters deployment of biodigesters at pig and dairy farms, plus motogenera- at pig and dairy farms, and PV systems to provide power for chill- tors and photovoltaic systems on dairy farms, where milk-cooling ing systems at dairy farms, this case study assumes additional systems favor the added expense of electrical generation add-ons. co-funding to equip 90 percent of Mexico’s pig and dairy herds The case study assumes that public funding is available to continue with biodigesters, and 90 percent of dairy farms, with PV systems leveraging private sector investment in these technologies through by 2031. 2031, when 90 percent of pig and dairy herds (estimated at 15 million head of pig and 3.2 million head of dairy cattle) would have added manure biodigestion capacity, with generators and PV systems included on the dairy farms. 2015 and 2020, would have large health and energy benefits. It is estimated that more than 85,000 premature deaths from outdoor Case Study Benefits air pollution could be avoided annually in 2030 (more than one The project benefits include reduced methane emissions, which million lives over 20 years) in China alone. The net present value lower global background ground-level ozone and related health of these health benefits is more than $1.5 trillion in 2010 dollars. and agricultural damage. By recovering methane from biodigesters Recent studies suggest that more than one million premature and flaring it or using it to generate electricity, CO2e emissions are deaths are attributed to household air pollution each year (Lim reduced by 9.4 million tons per year in 2030. Estimated annual et al. 2012); thus the potential health benefits could be higher if benefits include 180 avoided premature deaths from air pollution household exposure were included. Large energy savings could (but relatively few within Mexico) and 39,000 tons of avoided also reduce energy costs nationwide, resulting in broad economic crop losses worth more than $6 million (mostly outside Mexico). benefits of more than $10 billion over the analysis period. Finally, Other benefits include new job creation and improved sanitary more than 20,000 new jobs could be created. conditions due to manure treatment. The net present value of the project is based on the carbon Development Project Case Study 4: Biogas finance value of the reduced methane emissions, equivalent to Digesters and Photovoltaic Systems in nine million tons of annual CO2e reductions by 2030 (103 MtCO2e Mexican Agriculture cumulatively) and worth more than $1 billion over the 20-year program (less costs of about $600 million). Based on the social cost According to Mexico’s Fifth National Communication to the UN of carbon, however, this project’s emissions reductions are worth Framework Convention on Climate Change, agriculture continues $3.2 billion ($2.2 billion higher than the carbon finance value). to be an important source of the country’s emissions (12% of its The results are summarized in Box 3.7 and shown in Figure 3.10. GHG emissions in 2010 including both methane and nitrous oxide), primarily from land-use changes, tillage, synthetic fertilizers, and Summary and Conclusions anaerobic decomposition of organic materials. To reduce these Sustained investment that achieves 90 percent penetration of emissions and improve the agricultural sector’s contribution to manure biodigesters across all the pig and dairy farms and 90 the overall economy, the government of Mexico has prioritized percent penetration of photovoltaic systems across all dairy farms improvements in the sector’s energy efficiency, renewable energy, in Mexico would derive significant economic, public health, agri- and biomass practices. cultural, and environmental benefits. In addition, policy reforms to allow farmers to sell excess electricity generated to the power Case Study Interventions company could produce even larger benefits. This case study builds on the successful Mexico Sustainable Rural While the project economic analysis assumes a carbon finance Development Project, a $100 million World Bank loan blended value of more than $1 billion, these emissions reductions are more with a $10.5 million Global Environment Facility grant, with addi- completely represented by the social cost of carbon, which values tional contributions from the Government of Mexico and project the reductions at $3.2 billion—in other words, an extra $2.2 billion beneficiaries. The project supported a number of technologies, in welfare value above the finance value. Increased productivity including biodigesters at pig and dairy farms. As of May 2013, from energy savings adds an additional $1.1 billion in economic 303 biodigesters had been installed, half at pig farms and half at benefit; global health and agricultural benefits are monetized 22 Mu lti ple Bene fits A ssessment —C ase Studies Figure 3.10: Socioeconomic and climate benefits of Box 3.7: Development Project Case biodigesters and PV in Mexican agriculture Study 4 Benefits: Biogas Digestion and PV in Mexican Agriculture Co-funding to equip 90 percent of pig and dairy farms with biodi- gesters and 90 percent of dairy farms with PV systems by 2031 would have the following benefits: 1,900 lives saved Stated Project Benefits NPV of project development objectives: $424 million. Biogas Digestion & PV Additional Local* Socioeconomic Benefits** 1,400 $1.1 billion new jobs effect on GDP (NPV) • Lives saved in Mexico: relatively few (approximately 15), with a monetized value of $50 million. in Agriculture • Jobs created: 1,400. • Energy saved: 11 percent of national agricultural electricity demand. • Effect on Mexico’s GDP: increase of $1.1 billion between 2013 and 2031. 410,000 tons 103 Mt CO2 e of crop loss avoided Reduction Global public goods** Note: Benefits of manure management and renewable energy deployment are • CO2e emissions reduced: 103 Mt (as methane), valued at scaled to national levels and aggregated over the project analysis period. $3.2 billion based on the social cost of carbon (a social value increment of $2.2 billion beyond the carbon finance value). • Lives saved outside Mexico: more than 1,900 avoided pre- mature mortalities from air pollution, with a monetized value of Since the policy-based case studies and the project-based case $4.1 billion. studies cover different regions and use slightly different metrics, • Crops saved: more than 410,000 tons, worth $45 million direct comparisons and a summation of benefits are not possible. (mostly outside Mexico). For instance, the policy interventions are presented in terms of their annual impact in 2030; the project interventions are presented as * Local here refers to the national level. ** Net present value of aggregate benefits over 20 years in 2010 dollars the aggregate impact over a 20-year assumed life of the project. discounted at three percent. Either way, a snapshot summary of each case study shows that significant benefits can be realized. The first three case studies demonstrate the effects of key sector policy interventions and determine the benefits42 realized in six at about $4.2 billion. This suggests that more than 17 times the regions (the U.S., China, the EU, India, Mexico, and Brazil) and stated project value is not recognized through current practices. the impact on global GDP. A useful way to view these benefits is to compare them against a similar metric, in this case a metric ton of CO2e abated in 2030 (see Table 3.1). For example, the transport Lessons and Conclusions from the Case sector would realize a net return on mitigation of $169 per ton Studies of CO2e, even without accounting for the health or GDP benefits. In the buildings sector, where the interventions have the highest costs among the three sectors, the health and GDP benefits are This chapter demonstrates the use of an integrated framework substantial enough to cover the costs. The industrial sector is the to analyze the multiple development benefits of efforts to miti- most promising in terms of benefits compared with abatement gate climate change and protect air quality. Both regional policy changes and national development projects are analyzed using 42 Since the policy case studies covered a limited number of pollutants (methane the framework; the aim is to demonstrate its efficacy as a tool and BC, and no co-pollutants), the health and agricultural benefits are underesti- for local and national policymakers, development organizations, mated. Even with the limited emissions data included in this study, the resulting philanthropies, analysts, and others. benefits can be significant. 23 CLIM ATE - S M A RT D E V E L OP M E N T Table 3.1: Sector policy case studies: Comparison of costs Added value provides a useful rationale for improving eco- and benefits per metric ton of CO2e abateda nomic analysis, but it may not be the most important way to view 2030 Costs Transportation Industry Buildings the multiple benefits derived by the project-based case studies. Table 3.4 provides an alternative view of the same benefits, cat- CO2e mitigated 2.4 Gt/yr 4.3 Gt/yr 1.8 Gt/yr egorized as global public goods or local socioeconomic benefits. Mitigation Costs –$169/tCO2e $7/tCO2e $36/tCO2e As the table shows, interventions that reduce methane lead to large Health Benefit $36/tCO2e $56/tCO2e $56/tCO2e global public goods with respect to CO2e reductions, health, and Crop Benefit NA 3.8 million NA additional people agriculture, whereas measures that reduce particulate matter and fed black carbon have larger local health benefits. All lead to positive Global GDP $250–$400/ $280–336/tCO2e $0–134/tCO2e economic benefits over the 20-year investment period examined increase tCO2e in this analysis. Note: Values shown are for the six focus regions unless otherwise indicated. Grouping the multiple benefits this way makes it easier to a Short-lived climate pollutants are not accurately gauged in terms of equivalence to CO2 based on their 100-year global warming potential. New recognize the contributions countries can make to greening metrics are needed that account for the fact that many SLCPs are thousands of their own growth in addition to benefits that accrue to the rest times more potent than CO2 for a short time, yet compare more modestly to the 100-year global warming potential of CO2 because it continues to warm during of the World. the entire 100 years. None of the case studies includes the value of reduced climate change impacts, such as damage caused by more-intense storms, higher storm surges and sea levels, and damaged ecosystems. costs. Although crop benefits are not included for transportation While these results may indicate significant costs or ben- or buildings, these benefits would be substantial if a wider suite efits in one sector or region versus another, they do not show of emissions data were available (see footnote 5152 in Annex C). the integrated impact of all the emissions reduction measures Translating the aggregated health, agriculture, and energy available across sectors and the corresponding inter-sectoral benefits for all sector policies into monetary values yields the interactions. A more integrated analysis would allow a better results shown in Table 3.2. understanding of how savings in one sector can be reinvested The project-based case studies examine several sub-national to cover costs in other sectors to yield overall economic growth. development projects, scaled up to the national level. A sampling Such synergistic benefits could be greater than the sum of the of the benefits of these projects is shown in Table 3.3. A strik- individual benefits.43 ing result of this analysis is that these projects have significant In addition, the full benefits of reduced emissions are not additional value well beyond the already significant stated captured in this study due to the limited data in the MACC model project benefits. (see Annex C for a discussion of the significantly underestimated benefits, based on recent research). As a result, the labor and agricultural productivity benefits (from greater longevity, fewer work days lost to illness, and reduced crop damage) were Table 3.2: Sector policy case studies: Monetized health, not included in the macroeconomic analyses because of their agricultural, and energy benefits in 2030 small size relative to the impact across the overall workforce. A recent analysis by Sanderson et al. (2013) demonstrates that Regions Health Agriculture Energy Savings such effects can be large enough to recoup the entire cost of China $ 66 billion $ 69 million $ 311 billion mitigation. These types of integrated scenarios using a systems India $ 293 billion $ 14 million $ 75 billion approach with additional macroeconomic linkages should be US $ 8 billion $ 48 million $ 186 billion investigated in future work. EU $ 8 billion $ 82 million $ 181 billion Brazil & Mexico $ 53 billion $ 3 million $ 45 billion Total $ 429 billion $ 216 million $ 798 billion Note: Estimated avoided premature mortality and increased crop yields from abatement measures undertaken in each sector (transport, industry, and buildings) are monetized and aggregated by region. The valuesa of energy savings are also shown. Figures are denoted in 2010 dollars. a The monetized values for energy savings are obtained by assuming a price of oil at $80/barrel in 2010 dollars in accordance with the scenario assumptions of MACC 43 This has been demonstrated in prior multi-pollutant, multi-sector analyses in 3.0 (see Appendix C) and applying the following equivalences: 1 GWh = 8.6e–5 the U.S., where simultaneous implementation of seven major mitigation actions Mtoe, and 1 Mtoe = 7.33 Mboe (source: IEA, BP). This is a rather crude, imprecise estimate, but nonetheless useful to provide an order of magnitude of the monetary resulted in greater economic benefits than the sum of assessed benefits from the savings associated with the emissions reductions specified in each case study. individual measures (MDE 2013). 24 Mu lti ple Bene fits A ssessment —C ase Studies Table 3.3: Development project case studies summary Reduced Income Carbon Finance Social Cost Of Crop Loss Effect on Op Cost Generated Benefit (CO2) CO2e Lives Saved Avoided Jobs Created GDP (NPV) Projects Estimated NPV of scaled project based on Pro stated project benefits Additional added value aggregated over 20 years P1 $9.7 bn — — 42–49 Mt value 27,200–31,200 28,000 tons ($3 44,0000–91,000 temp, $11.5–13.5 bn of $1.3–1.5 bn ($49–54 bn) mn) 128,000 long-term P2 — $97–98 bn 158–315 Mt 158–315 Mt 2,500–4,900 550,000–1.1 44,000–110,000 $13.3–35.2 bn (@ $16/ton = additional value ($5.5–10.6 bn) mn tons $1.6–3.2 bn) of $3.2–6.5 bn ($61–120 mn) P3 — — — 49 Mt value of >1,000,000 — 22,000 $10.7 bn $1.5 bn (>$1.5 tn) P4 — NPV:* $424 mn 103 Mt (@ $16/ton 103 Mt additional 1,900 ($4.1 410,000 tons 1,400 $1.1 bn = $1 bn) value of $2.2 bn bn) ($45 mn) Notes: 1. P1–P4 = Development Project Case Studies 1–4: P1 = Sustainable Transport: India, P2 = Solid Waste Management: Brazil, P3 = Cleaner Cookstoves: China, and P4 = Biogas Digestion and PV in Agriculture: Mexico; mn = million, bn =billion, and tn = trillion. 2. CO2 emissions reductions are valued based on U.S. government estimates of the social cost of carbon, which estimates changes in agricultural productivity, human health, and property damage from increased flood risks. 3. Using methods recommended by the OECD (2011) for OECD countries and published estimates of the value of statistical life (VSL) for non-OECD countries and adjusting for differences in income and purchasing power, the following VSLs for avoided mortality were established (all reported in 2010 dollars). China: $700,635; India: $997,093; Mexico: $1,379,804; Brazil: $1,555,800; the EU: $6,375,400; and the U.S.: $7,887,510. 4. Crops are valued at $171/ton based on 2010 grain prices from data.worldbank.org. 5. Unlike other case studies, P3 is not based on an actual project, but was developed based on the recently announced joint World Bank/Chinese government China Clean Stove Initiative (World Bank 2013b). As a result, there are no stated project benefits. 6. Net present values (NPVs) are calculated using a 3-percent social discount rate; results have also been calculated using 2.5 and five percent discount rates. All values are provided in Annex D. * $622 million in costs are subtracted from the $1 billion in carbon finance value to arrive at a net present value of $424 million in 2010 dollars. 25 CLIM ATE - S M A RT D E V E L OP M E N T Table 3.4: Development project case studies: summary of global and local benefits Local Socioeconomic Benefits Global Public Goods Reduced CO2e Projects Lives saved Crop loss avoided Jobs created GDP emissions Lives saved Crop loss avoided P1 27,000–31,000 28,000 tons 44,000–91,000 N/A 42–49 Mt ~350 7,000 tons shot-term; 128,000 long-term P2 — 3,500–6,800 tons 44,000–110,000 N/A 158–315 Mt 2,500–4,900 550,000–1.1million tons P3 1 million — 22,000 N/A 49 Mt — — P4 15 1,500 tons 1,400 N/A 103 Mt 1,900 410,000 tons Monetized NPV of Benefits (using 3% social discount rate [2010 USD] and social cost of carbon) P1 $49–$54 billion $3 million N/A $11.5–$13.5 $1.3–$1.5 billion ~$490 million $750,000 billion P2 — $400,000–$700,00 N/A $13.3–$35.2 $4.8–$9.7 billion $5.5–$10.6 $61–$120 million billion billion P3 $1.5 trillion — N/A $10.7 billion $1.5 billion — — P4 $50 million $160,000 N/A $1.1 billion $3.2 billion $4.1 billion $45 million Notes: 1. P1–P4 = Development Project Case Studies 1–4: P1 = Sustainable Transport: India, P2 = Solid Waste Management: Brazil, P3 = Cleaner Cookstoves: China, and P4 = Biogas Digestion and PV in Agriculture: Mexico; mn = million, bn =billion, and tn = trillion. 2. CO2 emissions reductions are valued based on U.S. government estimates of the social cost of carbon, which estimates changes in agricultural productivity, human health, and property damage from increased flood risks. 3. Using methods recommended by the OECD (2011) for OECD countries and published estimates of the value of statistical life (VSL) for non-OECD countries and adjusting for differences in income and purchasing power, the following VSLs for avoided mortality were established (all reported in 2010 dollars). China: $700,635; India: $997,093; Mexico: $1,379,804; Brazil: $1,555,800; the EU: $6,375,400; and the U.S.: $7,887,510. 4. Crops are valued at $171/ton based on 2010 grain prices from data.worldbank.org. 5. Unlike other case studies, P3 is not based on an actual project, but was developed based on the recently announced joint World Bank/Chinese government China Clean Stove Initiative (World Bank 2013b). As a result, there are no stated project benefits. 6. Net present values (NPVs) are calculated using a 3-percent social discount rate; results have also been calculated using 2.5 and five percent discount rates. All values are provided in Annex D. 26 4 Chapter Conclusions and Next Steps The growing cost of environmental degradation in many developing and regional scales. By doing so, the report shows that national countries is impeding progress toward achieving the World Bank's and international policymakers, finance organizations, and others twin goals of reducing poverty and boosting shared prosperity. can strengthen their estimation of the multiple benefits of such According to a recent study, 5.7 percent of India’s GDP in 2009 was policies and projects. Furthermore, quantifying the benefits can lost to environmental degradation, with almost 3.3 percent attributed facilitate support from different constituencies, including those to air pollution emissions (World Bank 2013b). In China, serious air interested in public health and food and energy security. Such pollution has become a restricting bottleneck for regional socioeco- improved analyses can also advance international discussions on nomic development (CAAC 2013). Developing countries like India the most effective ways to avoid the risks of a 4°C warmer world. and China recognize the concurrent need to reduce air pollution, The framework presented in this report, like most first time improve access to affordable energy and convenient transportation, efforts, has some limitations: the framework uses a patchwork address climate change, and grow their economies. China’s “12th of tools that were not designed to seamlessly integrate with one Five-Year Plan on Air Pollution Prevention and Control in Key Regions” another; it does not account for behavioral issues, such as modal places economic development at the center of its air quality man- choice in public transit; and it does not explicitly account for agement plans; India’s 12th Five-Year Plan (Planning Commission, the costs of the climate change impacts of these emissions. In Government of India, 2013) acknowledges a need to establish “green addition to addressing these limitations, the framework could be national accounts” to measure the true costs of environmental deg- strengthened through additional work: radation and to acknowledge the full benefits of reduced emissions. As international development organizations, philanthropies, and • Further benefits assessments based on more comprehensive others support developing countries in prioritizing climate project emissions data. and policy interventions to close the greenhouse gas “emissions • Macroeconomic analysis to reflect the benefits of green versus gap,” improved analysis is needed to identify ways to leverage non-green investment options. synergies among interventions, reduce costs, and maximize local • Better assessment of tradeoffs, such as between higher costs socioeconomic benefits. and productivity gains. This report puts forth a holistic framework to estimate the mul- • Better assessment of risks to avoid locking-in development tiple benefits of reduced emissions of several pollutants. Including on the wrong path. the value of these benefits in economic analysis provides a fuller • Inclusion of welfare gains and other non-quantifiable benefits accounting of the true value of policies and programs and makes (such as equity and inclusion) in macroeconomic analysis. a stronger case for coordinated climate and development action. Further, it demonstrates the application of the framework using Making the framework functional at the sub-national project sectoral case studies at the policy and project level and at national level faces additional challenges. For example, integrating health 27 CLIM ATE - S M A RT D E V E L OP M E N T and agriculture benefits into the economic analysis of individual Finally, the preparation of this report included consultative projects (rather than using the global macroeconomic model workshops in China and India where the demand for such a frame- as has been done in this report) may require a more tailored work was strongly articulated by local policy makers and other approach. Local benefits—such as time savings, gender equality, stakeholders. The consultations identified the need for decision and social inclusion—may also need to be incorporated. Because makers at the national and sub-national level to be sensitized to not all these benefits are quantifiable, a hybrid approach may the idea of a framework that can help quantify multiple benefits so be needed. 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These include BC and tropospheric ozone combustion of biomass and fossil fuels and eliminating other air formed from methane. Changing climate and increasing methane pollutants are clear. In many cases, the development benefits of concentrations also contribute to global premature mortality (by improved local environmental quality far exceed the potential up to 5 and 15 percent, respectively). This study also found that, climate benefits of reducing these emissions. For example, BC from in some regions, climate change and increased methane together incomplete combustion of diesel in vehicles is a toxic air pollutant. are responsible for more than 20 percent of the respiratory mortal- Diesel exhaust is a risk factor for cardiopulmonary disease and ity associated with ozone exposure. can trigger asthma and heart attacks, leading to hospital visits Chen et al. (2013) analyzed the impact on life expectancy of and premature deaths (World Bank 2011). Methane is released as sustained exposure to air pollution, using a wide range of data a fugitive emission from oil and gas production and distribution, sources generated by a central government policy to provide free biogas production, agricultural production (including livestock and winter heating to homes and offices in the period of 1950–1980 in rice farming), decomposition of municipal solid waste, and other cities north of the Huai River. The researchers found air pollution activities (e.g., coal mining). In the atmosphere, methane leads was 55 percent higher in the north between 1981–2000, resulting to the formation of tropospheric ozone, a component of smog. in life expectancies about 5.5 years lower than in the south, where These pollutants can cause significant crop damage, lowering heating was not legally required and promoted. In other words, agricultural yields (UNEP 2011a). air pollution had resulted in 500 million residents of Northern The last global burden of disease report (Lim et al. 2012) esti- China to lose more than 2.5 billion life years of life expectancy. mated that in 2010 there were 3.5 million premature deaths from More generally, the analysis suggests that long-term exposure to indoor smoke from solid fuels and another three million deaths an additional 100 µg/m3 44 of TSPs is associated with a reduction from urban air pollution. Both forms of air pollution include black in life expectancy of about three years. carbon. These statistics provide a strong impetus for taking quick In a recent paper, Avnery et al. (2013) examined the potential action to reduce BC emissions. benefits of a strategy to mitigate surface ozone by gradually reducing Fang et al (2013) studied the human health effects of air pollu- emissions of methane, an important greenhouse gas and tropo- tion, climate change, and increased methane concentrations from spheric ozone precursor. Because ozone has a significant negative the pre-industrial period to the present. They found that global impact on crop yields, reducing ozone-induced agricultural losses changes in PM2.5 are associated with 1.5 million cardiopulmonary would allow the world to meet the projected 50 percent increase deaths and 95,000 lung cancer deaths annually, and ozone changes in global grain demand by 2030 without further environmental are associated with 375,000 respiratory deaths annually. Most air pollution mortality is driven by increased emissions of fine particles and smog (95 percent and 85 percent of mortalities from PM2.5 and 44 Micrograms (one-millionth of a gram) per cubic meter of air. 33 CLIM ATE - S M A RT D E V E L OP M E N T degradation. The study finds that a specific set of methane emis- In China, for example, the Bollen (2009) analysis suggests that sions reduction strategies—if fully implemented—would increase the costs of reducing greenhouse gas emissions by 80 percent from global production of soybean, maize, and wheat by 23–102 Mt in the baseline would amount to 6.5 percent of the country’s GDP, 2030, equivalent to an approximately 2–8 percent increase relative while the benefits would be equivalent to 4.5 percent of GDP. to year 2000 production and worth $3.5–15 billion worldwide (in These same benefits could also be achieved, however, through a 2000 dollars), increasing the cost effectiveness of this methane more targeted air quality policy at a cost of 1.8 percent of GDP. mitigation policy. On the flip side, stringent air quality policy can lead to significant Bollen et al. (2010) went a step further and demonstrated reductions in greenhouse gas emissions. Again using China as an multiple possible synergies that can be exploited by combin- example, the authors find that stringent air policy to reduce the ing climate change, air pollution, and energy security policies. number of premature deaths from chronic exposure to outdoor The benefits of coordinated policies can be large: in Europe, air pollution by 70 percent by 2050 (compared with the baseline) for example, the achievable reductions in CO2 emissions and would lower GDP in 2050 by 7 percent; the air quality benefits oil consumption are significantly deeper for integrated policies would be equivalent to 7.5 percent of GDP and greenhouse gas than when one of the policies is omitted. Integrated optimal emissions would be 40 percent lower. energy policy can reduce the number of premature deaths from A 2011 synthesis report published by UNEP found that reduc- air pollution by about 14,000 annually in Europe and over three ing atmospheric concentrations of short-lived climate pollutants, million per year globally by lowering people’s chronic exposure specifically black carbon, tropospheric ozone, and methane, offers to ambient particulate matter. a real opportunity to improve public health, reduce crop yield Along the same lines, Shindell et al. (2012) considered a losses, and slow the rate of near-term climate change, thereby large number of emissions control measures to reduce emis- aiding sustainable development. Crucially, the health benefits sions of tropospheric ozone and black carbon, pollutants that from implementing black carbon mitigation measures (especially contribute to degraded air quality and global warming. The by controlling emissions from biomass cookstoves and transport in study identifies a subset of specific measures targeting meth- Asia and Africa) would be realized immediately and almost entirely ane and BC emissions that could reduce projected global mean in the regions that reduce their emissions. More specifically, the warming by approximately 0.5°C by 2050, avoid 700,000–4.7 reductions in outdoor particulate air pollution (from black carbon million annual premature deaths from outdoor air pollution, measures) would avoid an estimated 2.4 million premature deaths and increase annual crop yields by 30–135 million metric tons annually by 2030 while also greatly reducing the health impacts due to ozone reductions in 2030 and beyond. The study also from indoor exposure. Controlling emissions of methane and other quantifies the net benefits of methane emissions reductions, ozone precursors by implementing black carbon measures (by estimated at $700–5,000 per metric ton, well above average reducing emissions from coal mines in Northeast Asia, South East marginal abatement costs (about $250/t). Asia, and the Pacific; oil and gas production in all regions; and Other reports published by multilateral institutions arrive at long-distance natural gas transmission pipelines in North America the same conclusion. A study commissioned by the OECD and and Europe; and by implementing Euro VI standards more widely) conducted by the Netherlands Environmental Assessment Agency would avoid annual losses from four major crops of about 32 Mt (Bollen et al., 2009) found that a stringent global climate policy each year after 2030. Finally, reducing these short-lived climate will lead to considerable improvements in local air quality and, pollutants offers a realistic opportunity to significantly reduce consequently, improved health. The analysis showed that measures the rate of global warming (by about 0.4°C) between 2010–2040. to reduce emissions of greenhouse gases to 50 percent of 2005 In addition to the impacts described here, SLCPs cause serious levels by 2050 can reduce the number of premature deaths from damage to non-crop flora and fauna (wild forests and wildlife); chronic exposure to air pollution by 20–40 percent. The policy this has not as yet been as rigorously studied. It is clear that the implications are, however, different for emerging economies and ecosystem services supported by biodiversity, watersheds, and developed countries. Whereas climate policy will generate air climate-regulating systems have significant economic value (World quality improvements in the OECD countries (particularly in the Bank 2012b), including nature-based tourism. Efforts to properly U.S.) in the mid-term, in emerging economies these benefits will value these aspects of natural capital will be integrated into future only become significant in the longer run. analyses on the multiple benefits of reducing emissions. 34 Annex B: Detailed Description of the Models This report uses recently developed emissions modeling and the European Convention on Long-Range Transboundary Air Pol- assessment tools and an integrated macroeconomic model. Two lution and the U.S. market-based approach to control acid rain innovative programs helped usher in these modern, synergistic, under the Clean Air Act, advanced economic efficiency as a major multi-pollutant air quality and energy planning tools. The programs, driver of the design of air quality management programs. Box B.1: Examples of Integrated Planning Approaches Europe: The Convention on Long-Range Transboundary Air Pollution The innovative Regional Air Pollution Information and Simulation (RAINS) model was the predecessor to today’s Greenhouse Gas and Air Pollution Interactions and Synergies (GAINS) model. Maintained by the International Institute for Applied Systems Analysis, RAINS informed national emission caps that employed cost-effectiveness as the rationale for differentiated obligations. The model had to quantify the costs of the entire range of emissions reduction possibilities and ensure that the desired environmental outcomes were achieved across an entire geographic area. By putting all measures into a broader context, RAINS helped decisionmakers identify strategies that maximize synergies between different measures, ensure attainment of all environmental goals, and minimize costs (Amann et al. 2011). United States: Multi-pollutant Planning under the Clean Air Act Implementation of air quality protection under the Clean Air Act is complicated by the act’s pollutant-by-pollutant approach; the many chal- lenges that followed spurred development of tools that attempt to deal with multiple air quality issues simultaneously.Integrated multi-pollutant planning has been shown to be a more economical way to address environmental and public health issues than traditional single-pollutant approaches (Weiss et al. 2007; NYSERDA 2012). By concurrently looking at multiple air quality goals and potential controls and their en- vironmental, public health, energy, and economic impacts, a more complex set of policy questions emerges that can then be addressed. Multi-pollutant approaches identify the tradeoffs of implementing one strategy over another, help set priorities and appropriate planning hori- zons, and identify the optimal mix of policies and controls that will result in greater synergistic benefits than discrete policies covering individual pollutants. 35 CLIM ATE - S M A RT D E V E L OP M E N T McKinsey’s MACC Model of each bar represents the average annual cost for each abatement opportunity of avoiding one metric ton of CO2. The marginal abatement cost curve (MACC) model used in this Abatement costs are defined as the incremental cost of a report to analyze several sector-wide policies was developed low-emissions technology compared with the reference case, by McKinsey & Co. in 2011–2012. This version, v.3.0, builds on measured on $/tCO2e. These costs include two key components: previous modeling and simulation exercises McKinsey conducted the annualized repayments for capital expenditure (CapEx)—in for several clients, including the ClimateWorks Foundation, other words, the additional investments in new technology or starting in 2007. Subsequent updates took into account chang- replacement infrastructure necessary to achieve those GHG emis- ing economic circumstances (such as the 2008–2009 financial sion reductions—and the operational costs or savings (OpEx), crisis) and technology costs (such as the rapidly declining cost fuel- and non-fuel-related, associated with each specific abate- of renewable technology and the stalled development of carbon ment opportunity. The repayment period is the functional life of capture and storage). the equipment, and the interest rate is the long-term government In graphic representations of MACCs (Figure B.1), policy levers bond rate. The abatement costs can therefore be interpreted as are typically sorted by increasing cost of emissions reduction pure project costs incurred to install and operate each specific opportunities in a given year (merit order). The width of each bar low-emitting technology. Capital availability is not considered represents the potential GHG emissions reduction from that specific a constraint. Other key elements are deliberately excluded from intervention (such as a suite of fuel efficiency improvements to the cost calculations: transaction costs, communication/information internal combustion engine). This abatement potential is defined costs, subsidies or explicit CO2 costs, taxes, and the consequen- as the volume difference between the emissions baseline and tial economic impacts of significantly investing in low-emitting the emissions after the lever is applied. To ensure comparability technology (such as advantages from technology leadership). across different sectors and emissions sources, all emissions and MACCs can be interpreted as a supply curve of abatement sinks (storage) are measured in metric tons of CO2e. The height opportunities, independent of abatement targets, which could in Figure B.1: Global carbon abatement cost curve, 2030 36 A n n ex B : Deta il ed Des cr i p tion o f t h e M o de ls turn be interpreted as a demand curve for abatement. The cost SRCs are stored into 56x56 matrices between identical source and curve representation used for this study takes a societal perspec- receptor regions. On the other hand, the 1°x1° resolution SRC tive, rather than that of an individual investor or consumer, to maps allow for calculation of the resulting concentration in each illustrate the cost requirements to the society as a whole. This is individual grid point and are therefore useful in creating global clearly an abstraction; policy options are not selected by a single concentration and impact maps or in constructing customized worldwide decision maker. This representation is useful for com- receptor regions for studies with specific targets. parison, however, and to provide a globally consistent indication The resulting air pollutant concentrations, and their specific of available abatement opportunities and associated costs. Given spatial distribution, are then further processed into impacts, such the long time horizon of the analysis, all the results are subject to as the effect of PM on human health (e.g., mortalities, reduction significant uncertainties. In addition, as mentioned earlier, some of statistical life expectancy), the impact of O3 on vegetation and key assumptions may significantly affect the analysis, particularly crop damage, and damage caused by deposition of eutrophying the exclusion of transaction costs (all costs above and beyond the or acidifying components in sensitive ecosystems. Most of these technical project costs incurred in making an economic exchange) calculations are based on simple empirical dose-response func- and behavioral changes driven by price and non-price factors tions, but they require that additional data be overlaid with the (including those addressed by specific policies). The MACC model pollutant concentration (or derived metric) in order to properly “merit order” typically starts with energy efficiency measures in calculate the exposure (using maps of populations, crops and the industry and building sectors, moves on to address measures vegetation, sensitive ecosystems, and so forth). in the transport and forests/land use sectors, and ends with the power sector. The model is based on a split of 21 regions (G8+5, and other major geopolitical regions). Oxford Economics’ GEIM Economic analyses of climate policies are often based on partial TM5-FASST Model equilibrium models, which are typically used to assess the impact of an economic or policy shock affecting two or more intercon- The TM5-FASST model is a reduced-form air quality source-receptor nected markets, assuming the rest of the economy remains fixed matrix (AQ-SRM) developed by the European Commission’s Joint (ceteris-paribus condition). This is a very effective approach when Research Center in Ispra, Italy. It covers 56 source regions, includ- the effects of the policy shock are expected to be limited to specific ing major countries and aggregations of several smaller nations. sectors/markets. However, when the economic or policy shock TM5-FASST can analyze emissions of SO2, NOx, NH3, CO, NMVOC, to be evaluated is complex, expected to be transmitted through elemental carbon, primary organic matter, PM2.5, and CH4.45 The different channels and have significant impacts throughout the relation between the emissions of compound i from source x and economy, and may take place in several stages, economists con- resulting pollutant j concentration (where j = i in case of a pri- sider general equilibrium models to be the best choice. General mary component) at receptor y is expressed by a simple functional equilibrium analysis performs well when evaluating fiscal policies, relation that mimics the underlying meteorological and chemical trade policies, climate change shocks, shocks in international processes (Van Dingenen et al. 2009). In the current version of prices, and other shocks. TM5-FASST, the function is a simple linear relation: Oxford Economics’ Global Energy Industry Model (GEIM) is a structural, econometric, general equilibrium model of the C i→j,y,x = C 0 + A i→j,x,y E i,x global economy. McKinsey used GEIM to develop and quantify integrated climate, energy, and economic scenarios for the most where C i→j,y,x = isCthe 0+A concentration i→j,x,y E i,x of species j at receptor y formed recent version of its global GHG abatement cost curve (the MACC from precursor i emitted at source x, C0 is a C i→j,y,x = C 0 + A i→j,x,y E constant, is i,x v.3.0 described above), linking emissions scenarios with global the so-called source-receptor coefficient (SRC) between x and y and regional macroeconomic performance. One of the reasons for (i→j), and Ei,x is the emission rate (kg/yr) of precursor i at Oxford Economics’ model was chosen to perform the scenario source x. The SRCs are stored as matrices with dimension [x,y] analysis in this report is that its energy module is more detailed at the 1° x 1° resolution of the native TM5-CTM model (in other and sophisticated than other similar tools. words, there is one 1° x 1° SRC map for each of the 56 source regions and for each precursor component) and, in principle, can be aggregated into any customized receptor region. 45 Sulfur dioxide, nitrogen oxides, ammonia, carbon monoxide, non-methane volatile One particularly useful aggregation scheme is to combine organic compounds, elemental carbon, primary organic matter, particulate matter the receptor grids into the 56 defined source regions; hence the with a diameter of 2.5 microns or less, and methane. 37 CLIM ATE - S M A RT D E V E L OP M E N T GEIM could be defined as Keynesian in the short run and mon- GEIM country coverage etarist in the long run. This means that, while increased demand will initially lead to higher output and employment, shock will • Developed economies: The U.S., Japan, the Eurozone, Ger- many, France, Italy, the UK, Canada, Austria, Australia, Spain, feed through into higher wages and prices. Given an inflation Denmark, Finland, Norway, Netherlands, Belgium, Portugal, target, interest rates will have to rise, reducing demand (known Ireland, Sweden, Austria, Switzerland. as “crowding out”). In the long run, output and employment are • Emerging markets: China, Taiwan, China, South Korea, Hong determined by supply-side factors. Figure B.2 presents an overview Kong SAR, China, Thailand, Malaysia, Philippines, Indonesia, of the model’s main transmission channels. Singapore, Mexico, Brazil, Argentina, Chile, Poland, Czech GEIM operates on the following assumptions: Rep., Hungary, Russia, Bulgaria, Croatia, Slovakia, Romania, South Africa, Turkey, India, UAE. • Consumption is a function of real income, wealth, and inter- • Six trading blocs: OPEC, Eastern Europe, Africa, Latin est rates. America, rest of OECD, rest of world. • Investment follows a “q” formulation with accelerator terms. • Exports depend on world demand and relative unit labor costs. As in all general equilibrium models, GEIM’s individual country • Imports depend on total final expenditure and competitiveness. models are fully linked through global assumptions about trade, • Real wages depend on productivity and unemployment relative exchange rates, competitiveness, capital markets, interest rates, to the non-accelerating inflation rate of unemployment (NAIRU). commodity prices, and internationally traded goods and services. • Prices are a mark-up of unit costs, with profit margins a func- The level of detail in the model varies depending on availability of tion of the output gap. reliable data. GEIM examines 46 economies in detail. G7 country • Monetary policy is endogenized. models include over 400 variables; other OECD countries’ models • Exchange rates are determined by uncovered interest parity typically include about 300 variables; and models for emerging (UIP). markets include about 200. The rest of world is covered by six • Expectations are adaptive. trading blocs, with headline indicators for 30 countries, so that global GDP and trade are fully modeled. This geographical resolu- GEIM can model several linkages between different country tion was ideal for the purpose of this study given the close con- models, including: nection between the size of a country’s economy and its relative importance as a GHG emitter. • Trade: World trade for each country is a weighted average of the growth in total goods imports (excluding oil) of all other countries. The weights are thus the relevant coefficients in the trade matrix. Figure B.2: Main transmission channels in oxford economics’ • Competitiveness: Where available, the model uses relative GEIM model unit labor cost data provided by the IMF (and relative prices Global Energy elsewhere). Prices (by fuel type) • Interest rates and exchange rates: These are endogenous and Cost Curve Energy Prices Analysis* Faced by other are constructed using a Taylor Rule formulation that approxi- sectors & countries mates central banks’ response to shifts in the economy and Fossil fuel demand relates movements in interest rates (the standard tool used in Energy Intensity Other Costs (incl. labor cost) monetary policy) to the rate of inflation relative to a predefined target and the level of actual output relative to potential output. Energy Demand • Commodity prices: The price of oil depends on supply/demand Total Costs Costs & prices in other sectors balance, while metal prices depend on industrial growth. & countries • World price of manufactured goods: These include sectoral Households* Transport* Output Price outputs such as fuel extraction, iron and steel, transport equip- ment, computers and office equipment, and so on; prices are Final demand, determined by change in competiveness, trade environment, Output/ output in other Carbon Employment and domestic final demand. sector & countries Emissions • Capital flows: Bilateral capital flows for major blocs are taken * Cost curve analysis also feeds into households’ income and transport energy into account. consumption. 38 A n n ex B : Deta il ed Des cr i p tion o f t h e M o de ls Oil prices are determined by the interaction of supply and • Credit conditions: Introduce levers to account for the tight- demand in the global market. In the model, oil demand is linked ness/looseness of bank lending that is not reflected in inter- to economic growth, and relative oil prices are fully integrated est rates (analysis based on research by John Muellbauer of with the rest of the model. Gas and coal prices are modeled in Oxford University). a similar way. • Balance sheet coverage: Expand to cover financial and non- Despite the relatively strong performance of the model, the financial corporations as well as households and governments. global financial crisis highlighted areas where it could be improved: • Credit ratings: Reflect the impact of sovereign debt ratings on interest rate spreads for government bonds. • Interest rates: Expand coverage to include key corporate and • Feedback effects: Include the impacts of unemployment/ consumer lending rates as well as interbank rates and bond insolvencies on credit conditions. yields. 39 Annex C: Details and Data for Sector Policy Case Studies The first three case studies presented in Chapter 3 analyzed the The policy consensus scenario assumes a recovering economy impacts of key sector policy interventions—including regulations, and a strong greenhouse gas policy agreement among the major incentives, and taxes—to stimulate specific measures to cut economies of the world (strict policies agreed to by 2015 and effec- emissions from three sectors: transportation, industry, and build- tive by 2020, as laid out at the COP17 meeting in Durban); this ings. The ClimateWorks Foundation analyzed the impacts in six clear policy signal also spurs major investment in clean, efficient regions—China, India, the EU, the U.S., Mexico, and Brazil—plus technologies well before 2020. In addition, non-energy-related the impact on global GDP. forestry and agriculture CO2 emissions, non-CO2 greenhouse gases, and CCS are addressed forcefully. This is also reflected in fossil-fuel prices, which are an important driver for economic “Policy Consensus” Scenario growth projections considered in the scenarios. Figure C.1 shows the difference in oil prices between the policy consensus scenario The sector policy case studies presented in Chapter 3 are based on and a baseline scenario in which GHG emissions reductions are certain carbon mitigation assumptions derived from McKinsey’s not pursued. As a consequence of the dramatic decrease in fossil MACCv.3.0. More specifically, they use McKinsey’s “Policy Consen- fuel use in the policy consensus scenario, demand for oil decreases sus” scenario, in which policy is the main driver of a transition to and prices remain relatively stable over the 2010–2050 period, as a clean economy. Amongst the six scenarios considered in MACC v opposed to a scenario in which fossil fuel use remains dominant 3.0, this is the most optimistic scenario. In this scenario, total emis- and GHG emissions continue to grow as does the demand and sions for all sectors and all regions of the world result in about 45 price of oil. This is consistent with most other energy models’ GtCO2e emitted per year in 2030. At the other end of the spectrum forecasted trajectories through 2030.46 The figure also shows the is the most pessimistic scenario where GHG emission reductions oil price trajectories for all policy case study simulations. are not pursued. In this scenario, total global emissions result in More details on the assumptions used for the policy consensus about 60 GtCO2e emitted per year in 2030. To limit emissions to scenario is described below. For details on assumptions behind 45 GtCO2e per year for the policy consensus scenario, the energy other scenarios, refer to Spiegel and Bresch (2013). system would require a global capital expenditure of about $6.1 trillion per year in 2030 (Spiegel and Bresch 2013). This is about $1.5 trillion more than in the scenario where GHG reductions are not pursued. In 2010, the global capital expenditure for similar 46 See, for example, http://www.eia.gov/pressroom/presentations/howard_04162012. investments was about $4.3 trillion. pdf, page 6. 41 CLIM ATE - S M A RT D E V E L OP M E N T Table C.1. Policy Consensus Around Climate Change 2010–20: Real climate change policy 2020–30: Global deal reached 2030–50: Long-term reductions • The economy recovers and grows strongly • The economy grows at high growth rates (~2% • Green growth benefits of new indus- at the end of the decade (2–3% OECD, OECD, 6–7% BRIC, 3–4% RoW), especially in coun- trial revolution underpin continued 7–8% BRIC, 3–4% RoW) tries that are early adopters of green tech benefitting growth (~2% OECD, 4–6% BRIC, • More extreme weather events and success- on green wave 3–4% RoW) ful communication campaigns increases • Global deal on climate is reached and agreed in • Demand for oil & coal, less so for public awareness, “clean” consumption 2022 gas, gradually decreases leading to and put pressure on politicians. Green vot- • International cooperation on GHG emissions (high reduced prices. But the technology ing becomes mainstream and bipartisan CO2 prices) shift means clean energy infrastruc- • Increasing consensus in 2015 among • Comprehensive targets on EE ture is solidly in place policy makers result in national and regional • Non-energy climate forcers also addressed, e.g. • Strict ETS system with mandates in abatement policies (a high implicit CO2 Forestry and Agriculture non- ETS sectors (high CO2 price price) on most OECD and BRIC countries • Oil demand growth slows significantly. and widespread mandates and tar- by 2020 (not necessarily in the form of a • Resource holders respond by cutting back produc- gets on EE and non-energy climate “global deal”) tion forcers) • A clear policy debate makes future interna- • Countries that have not diversified energy supply • Thanks to global cooperation and tional agreement on GHG emissions more suffer. This also pushes unconventional gas further strong growth, an adequate adapta- likely • A few countries take the lead in clean tech develop- tion fund covers risk management • Clean tech roll-out quick with support from ment, others are followers—green growth benefits for poorer countries a strong economy and policies, with cost early adopters • Impact of climate change not as se- trajectory following expectations • Tech driven by private sector and high competi- vere as expected, but clear effects • Fossil fuel supplies keep up with demand tion reduces prices more quickly than expected. are visible due to widespread shale gas exploration in In parallel, electrification of transport and industrial US and China processes is rolled out in the US and EU Note: The global economy recovers (e.g. driven by strong Asian demand), and through a series of observable climate events/trends and scientific advancements until 2020, the broad public starts to agree that global warming is for real. As a result, strong mitigation legislation is established in the major economies between 2020 and 2025. Sector Policy Case Study 1: Shift to from oil production and refining). About 50 percent of global road Clean Transport transport emissions originate from North America and Western Europe; all emissions currently originate from combustion of liquid fuels (largely fossil), and there is no significant use of indirect Road transport accounted for 6.6 Gt of CO2e or approximately energy (i.e., electricity). 80 percent of all global transport emissions in 2010 (15 percent is Key Assumptions This case study assumes a business-as-usual (BAU) growth of global Figure C.1: Oil prices in 2010 USD for Baseline, Policy distances traveled of 106 percent for light-duty vehicles (LDVs) Consensus and all policy case study scenarios from 2010–2030, 57 percent for medium-duty vehicles (MDVs), and 60 percent for heavy-duty vehicles (HDVs). This implies that $/bbl (2010) 185 Baseline global emissions will grow by approximately 100 percent until 2030 180 175 without reference case efficiency improvements, largely driven by Industry scenario 170 increased vehicle sales in China and other emerging economies. 165 Buildings scenario 160 Including reference case efficiency improvements, emissions will 155 150 grow by about 29 percent to 2030 (to approximately 8.5 Gt CO2e). 145 Transport scenario The abatement opportunities in the case study include a 30–45 140 135 percent improvement in the fuel efficiency of internal combus- 130 125 tion engine (ICE) vehicles; aggressive penetration of alternative 120 vehicles, with hybrid vehicles representing up to 60 percent and 115 110 fully electric vehicles making up 8–12 percent of new vehicle sales; 105 100 a mode shift of passengers to public transit (2 percent metro, 8 Cost Curve 3.0 95 “Policy consensus” percent buses, and 10 percent BRT); and a shift of freight traffic 90 scenario 85 from trucks to trains (20 percent) and ships (5 percent) in 2030. 80 These improvements could bring down emissions by approximately 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 35 percent in 2030 compared with the BAU. If all measures at a 42 A n n ex C : Deta i ls a n d Data f or S e ctor Po l i c y C a se Studi es cost of <$330 (€250)/tCO2e were implemented, 2030 emissions Figure C.2: Road transport marginal abatement cost curve, would drop to 2010 levels. In this study, the potential from biofuels 2030 (six focus regions) is limited to gasoline replacement by bioethanol from sugarcane $/tCO2e 900 and second-generation lignocellulosic feedstock, with an 11 per- 800 LDV hydrogen Total: cent compound annual growth rate (CAGR) in ethanol production 700 2.4 GtCO2e Modal shifts required to meet 2030 demand.47 Finally, this scenario assumes 600 (passenger, freight): 500 0.6 GtCO2e very limited technical potential for commercial vehicles (due to 400 Alternative vehicles: their higher relative efficiencies and BAU improvements). 300 Efficient vehicles: 0.3 GtCO2e Modal shift public Alternative fuels: 200 0.9 GTCO2e transport-metro 0.5 GtCO e The abatement cost for society, in particular for conventional 2 100 80 ICE improvements, is negative for many levers; in other words, 0 MtCO2e 1,900 these improvements have a positive payback over the lifetime of –100 2,000 2,500 –200 the vehicle because the fuel cost savings are greater than the initial –300 HDV diesel Low GWP Motor additional investment for the advanced vehicle technology. The –400 Vehicle Air Conditioners marginal abatement cost curve for the six focus regions (China, India, the U.S., EU, Mexico, and Brazil) is presented in Figure C.2. For implementation of the policy levers in the MACC model, the cumulative investment (CapEx) is $447 billion from 2011–2030, offset by cumulative OpEx savings of approximately $305 billion. This case study assumes that the ICE transition is dramatic and These are pure project costs as defined in Annex B. The capital relatively rapid in all countries (see Figure C.3). In this scenario and operating expenditures by region are shown in Table C.2. electric vehicles will reduce tailpipe emissions but will increase Fuel savings would be substantial in the transport scenario emissions from power plants by approximately 80 gCO2e/km of modeled. The two key drivers of reduced fuel consumption are the distance traveled; this is assumed to be high-emitting electricity. transition from ICE vehicles to electric vehicles and hybrids (hybrids The CO2 emissions reductions included in the analysis already are assumed to run on electricity 75 percent of the time) and the account for these effects, but the full breakdown of other pollut- improvement in fuel efficiency of the remaining ICE vehicles. Since ants (including black carbon) is not available and hence is not the MACC model tends to be skewed toward underestimating the included (as is the case for all other scenarios). The underlying penetration of hybrids and overestimating the penetration of EVs assumptions on fuel and costs are presented in Tables C.3 and in the BAU scenario, this results in a slight overstatement of both C.4. The analysis does not use a demand model to examine modal CapEx and OpEx for the abatement scenario considered in the simulation (Table C.2). This in turn means that both the mitigation 47 The MACC model builds on an analysis of land availability/land use in 2030 potential and abatement costs for the transport sector presented in that arrives at a potential production volume of 160 billion gallons of biofuel. This Figure C.2 may be slightly overestimated (specifically, the levers analysis only considered the availability of land as constraint for biofuels production grouped under the “alternative vehicles” label). The total effect and did not take into account other (environmental) factors like water availability on simulated outcomes in terms of GDP, however, is likely to be or impact on water resources. The model also assumes that the biofuel needed for consumption need not be produced locally. In addition, the cost of abatement through negligible. For this analysis, both fuel savings and mode shift biofuels reflects the cost of production, not an opportunity cost of alternative land toward non-motorized transport, included in the form of avoided uses (for example, the model does not consider the impact of higher sugar prices trips, were considered when evaluating technology choices. on the abatement potential and cost of bioethanol). Table C.2: Transportation: Changes in CapEx and OpEx Change in capital expenditure vs. BAU (in millions, 2010 USD) Change in operating expenditure vs. BAU (in millions, 2010 USD)   2020 2030 2020 2030 Brazil $12,876 $21,483 Brazil –$616 –$1,738 China $35,176 $75,019 China –$1,896 –$6,232 EU $49,973 $63,793 EU –$4,371 –$11,565 India $13,833 $22,738 India –$749 –$2,232 Mexico $5,649 $9,303 Mexico –$190 –$549 United States $46,984 $64,556 United States –$1,800 –$4,109 43 CLIM ATE - S M A RT D E V E L OP M E N T Figure C3: Conventional passenger vehicle efficiency by Figure C4: Underlying global scenario power mix (2030) region, BAU vs. case study 45% l/km 40% 0.060 35% 0.050 30% 0.040 25% 20% 0.030 15% 0.020 10% 0.010 5% 0.000 0% Coal Gas Oil CCS Nuclear Solar Wind Hydro Other REU27 India Germany France Italy China Mexico US Brazil UK BAU Final Scenario Baseline Secnario would have more money to spend on other goods and services; shifts and consumer choices; rather, it presents a supply model in addition, the reduced demand for oil would lower oil prices, mandating change through policy interventions that yield a pre- providing a boost to the economy. The power sector, however, determined amount of emissions reductions. This could lead to would need to make investments to meet the increased electricity a neglect of fixed costs of technology adoption and the risks of a demand from electric vehicles; the cost of this investment would lock-in into high-emissions transport systems. ultimately be paid by consumers. Overall, the two clean transport scenarios increase global Case Study Impacts GDP by 0.5–0.8 percent ($600 billion–$1.0 trillion in 2010 dollars) The MACC model shows that the interventions described above Table C.4: Underlying assumptions on incremental costs of require significant increases in capital expenditures and result in plug-in hybrid and electric vehicles significant reductions in operating expenditures. The FASST tool shows that the reductions in emissions considered here (primarily Incremental cost of plug-in BC) result in reduced deaths from respiratory illnesses. The GEIM hybrid/electric vehicles in 2030 (USD) Region 2030 analysis provides the multiple economic impacts. For example, LDV diesel plug-in hybrid Brazil 3,977.18 because households and firms would have to buy less fuel, they China 3,471.52 India 3,471.52 Table C.3: Underlying scenario fuel price assumptions by region Mexico 3,716.16 EU 4,222.85 Region 2020 2030 US 4,222.91 Price of Electricity Brazil 0.09 0.10 LDV gasoline plug-in hybrid Brazil 3,527.40 (USD/KWh) China 0.12 0.13 China 3,079.98 France 0.05 0.05 India 3,079.98 Germany 0.05 0.05 Mexico 3,297.30 India 0.11 0.12 EU 3,746.94 Italy 0.05 0.05 US 3,746.93 Mexico 0.09 0.10 LDV electric Brazil 3,420.11 Rest of EU27 0.05 0.06 China 2,999.43 United States 0.08 0.09 India 2,999.43 Price of Crude Oil (USD/bbl) Global 109.45 123.48 Mexico 3,203.76 Price of Gasoline (USD/liter) Global 0.81 0.90 EU 3,641.31 Price of Diesel (USD/liter) Global 0.80 0.88 US 3,640.64 44 A n n ex C : Deta i ls a n d Data f or S e ctor Po l i c y C a se Studi es from the baseline scenario in 2030. However, the impact of the Key Assumptions scenarios is not homogenous across countries. Scenario 1, which assumes that developed countries produce most of the high-tech Iron and Steel vehicles and infrastructure needed to transform the sector, results The iron and steel industry emitted 2.5 Gt CO2e in 2010 (approxi- in a boost to developed countries’ exports and increases GDP by mately five percent of total global emissions), of which about 2.2 1–2.2 percent relative to the 2030 baseline. In contrast, emerg- Gt were process-related and 0.3 Gt were emitted in the power sector ing markets must import some of the necessary machinery; this through the consumption of ~777 TWh of electricity. acts to dampen GDP by 1–3 percent relative to the 2030 baseline. In the BAU case, global iron and steel production is expected to Scenario 2 assumes that developed countries would shoulder the grow by three percent per annum, while global emissions will grow majority of the costs incurred by emerging economies to transform by two percent per year, increasing emissions to 3.7 Gt in 2030. The their transportation sector while also foregoing the net benefit 0.7 percentage point difference is due to BAU decarbonization, ongo- deriving from increased capital exports, at a cost to the GDP of ing industrial energy efficiency programs, and a 10 percent shift from less than one percent compared with Scenario 1. In Scenario 2, basic oxygen furnace (BOF) to electric arc furnace (EAF) production. the emerging economies see a boost in GDP of 0.1–0.9 percent The pursuit of available mitigation opportunities could reduce relative to Scenario 1. 2030 emissions to about 24 percent lower than 2010 levels, abat- The impact on GDP is also reflected in employment, which ing 1.8 Gt CO2e or 49 percent annually compared with the BAU in the emerging markets drops by 0–1.8 percent relative to the scenario. More than half (about 56 percent) of the abatement baseline in 2030 for Scenario 2. In Scenario 1, for emerging potential comes from China and India. The opportunities can be economies the drop in employment is 0.35–1.84 percent rela- divided into four types: tive to the baseline. For countries that have a boost in GDP, employment increases of 0.5–1.1 percent relative to the 2030 • CCS (42 percent of total potential) baseline are possible for Scenario 2 and increases of 1–1.75 • Energy efficiency measures (39 percent of total potential) percent are found for Scenario 1. The changes for each country • Process change (9 percent of total potential) are affected by that nation’s relative competitiveness (this is one • Fuel shift measures (10 percent of total potential) of the transmission channels included in the macroeconomic model), which leads to differential economic impacts across Breakthrough technologies for smelting and top gas recycling are the global economy. expected within the 2030 timeframe. Fuel shift shows very limited The emissions reductions are estimated to reduce air quality- capacity, because coke can be substituted only in small plants. related mortality by about 20,000 lives per year in the six regions The average cost for all iron and steel abatement measures is considered in 2030; India and China would account for about –$65 per ton of CO2e in 2020. This cost is expected to increase to 90 percent of the total. In monetary terms, the reduced air-quality- $17 per ton in 2030, due to implementation of CCS, despite the related mortality would be equivalent to a total of $87 billion (2010 effects of capital cost reductions (learning rate improvements) and dollars). The global impact from mitigation measures undertaken higher energy costs. Approximately 700 Mt of the total abatement in the six focus regions results in a global net total of 21,040 lives potential can be achieved at a negative cost. Total cumulative saved per year in 2030 from avoided premature mortality.48 Ide- investment (CapEx) is approximately $64 billion, offset by cumula- ally, to assess health impacts from urban transport, air pollution tive OpEx savings of approximately $28 billion—from 2011–2030. exposure measurements at the street level would be needed. This The geographical breakdown is shown in Table C.5. would be a daunting task; because this analysis relies on down- scaled models to examine health impacts, it does not fully capture Cement the expected impacts. Cement is the main ingredient in concrete, which is, after water, the second-most-used substance. The cement industry accounted for 2.6 Gt of CO2 emissions in 2010 (including indirect emissions); Sector Policy Case Study 2: Energy- China represented the largest source of emissions (approximately efficient Industry 48 In general, only if a significant number of lives were saved in the multi-country scenarios were the impacts included as productivity gains in the macroeconomic This case study includes three primary industrial sectors—iron model. There was no iteration between the health and macroeconomic model to reach equilibrium; in other words, lives saved were calculated based on static estimates of and steel, cement, and chemicals—plus a mixed category labeled the energy and emissions energy savings. The iteration process would only produce “other industry” (which includes most other industrial production minor changes relative to the initial estimates of lives saved, and these changes are activities except those related to oil and gas). unlikely to be significant from a macroeconomic perspective. 45 CLIM ATE - S M A RT D E V E L OP M E N T Table C.5: Iron and steel: Changes in CapEx and OpEx, BAU vs. case study Change in iron & steel capital expenditure vs. BAU Change in iron & steel operating expenditure vs. BAU (in millions, 2010 USD) (in millions, 2010 USD)   2020 2030 2020 2030 Brazil $2,059 $9,379 Brazil –$88 –$89 China $9,637 $20,892 China –$1,006 –$1,387 EU $13,521 $309 EU –$121 –$16 India $1,652 $18,351 India –$161 –$413 Mexico $175 $329 Mexico –$17 –$30 United States $1,041 $1,648 United States –$64 –$94 Table C.6: Cement: Changes in CapEx and OpEx, BAU vs. case study Change in cement capital expenditure vs. BAU Change in cement operating expenditure vs. BAU (in millions, 2010 USD) (in millions, 2010 USD)   2020 2030 2020 2030 Brazil –$10 $217 Brazil –$19 –$30 China $4,059 $6,794 China –$548 –$484 EU $5,418 $186 EU –$37 –$39 India –$702 $2,001 India –$71 –$87 Mexico $75 $177 Mexico –$10 –$17 United States –$77 $778 United States –$9 –$8 55 percent). More than half of cement emissions are from the due to avoiding build-outs of clinker production capacity. Not all clinker calcination process; these emissions can be abated only of the levers will carry a negative cost at the individual cement by reducing clinker production or applying CCS technology. producer’s level, however, due to non-marginal pricing by suppli- In the business-as-usual case, cement production will grow ers, taxes, and higher discount rates. The geographical breakdown by 2.1 percent per year and direct emissions are projected to of CapEx and OpEx is shown in Table C.6. grow at approximately 1.9 percent per annum due to production growth (notably in Asia), increasing to 3.7 Gt in 2030 (including Chemicals indirect emissions). The chemical industry accounts for 16 percent of total industrial The total abatement potential amounts to approximately 0.83 GHG emissions. Chemical production resulted in 2.9 Gt of CO2e Gt CO2 in 2030, which would cut emissions by 23 percent and emissions in 2010, of which about 2 Gt were process-related and keep emissions approximately 10 percent above 2010 levels. Almost 0.9 Gt were emitted in the power sector through the consumption 90 percent of the abatement potential is based on conventional of ~1,300 TWh of electricity. technologies, such as clinker substitution and alternative fuels. In the business-as-usual case, global chemical production is No breakthrough technology to greatly improve energy efficiency expected to grow by approximately 4 percent per annum and global or carbon intensity is foreseen in the near term, and significant emissions to grow by 3.5 percent per year, increasing current emis- abatement potential from CCS is unlikely until after 2030. sions to 5.7 Gt in 2030. The approximately 0.5 percentage point Carbon capture and storage requires capital investments to difference is due to BAU decarbonization via ongoing industrial build out capture capacity.49 The average cost for all abatement energy efficiency programs. measures is –$32/tCO2e in 2020 and is expected to increase, due to the relatively higher cost of CCS, to –$15/tCO2e in 2030. From 49 Because CCS development has been slower than expected, the updated cost curve a societal perspective, the implementation of conventional levers reflects a reduced abatement potential (compared with the 2009 version) of about can largely be achieved at a negative cost and negative cash flow, 0.9 Gt CO2e for 2030 for the industrial sector. 46 A n n ex C : Deta i ls a n d Data f or S e ctor Po l i c y C a se Studi es Table C.7: Chemicals: Changes in CapEx and OpEx, BAU vs. case study Change in chemicals capital expenditure vs. BAU Change in chemicals operating expenditure vs. BAU (in millions, 2010 USD) (in millions, 2010 USD)   2020 2030 2020 2030 Brazil $851 $1,309 Brazil –$16 –$86 China $14,144 $22,060 China –$254 –$627 EU $18,704 $748 EU –$109 –$60 India $1,966 $3,025 India –$94 –$291 Mexico $276 $360 Mexico –$11 –$15 United States $5,911 $7,203 United States –$139 –$252 With a global CO2 abatement cost of up to $133/tCO2, abate- flow. The geographical breakdown of CapEx and OpEx is shown ment could hold 2030 emissions to 2015 levels, abating 2.0 Gt in the table above. annually compared with the BAU, of which approximately 42 percent could be achieved at a negative cost. Almost half of the Case Study Impacts abatement potential comes from China. The abatement opportunities can be grouped in four categories: Economically, the large capital investment is relatively balanced out by significant fuel savings and accompanying fossil fuel price • Energy efficiency impacts. In Scenario 1 the increase in capital expenditure provides • Fuel shift a boost to developed countries, which are assumed to supply • Decomposition of non-CO2 GHG gases the bulk of the capital goods to all countries. Emerging markets • Carbon capture and storage also gain via improved competitiveness as a result of their larger potential reduction in energy consumption. When this potential The average cost for all abatement measures is –$20 per tCO2e is realized, the cost of production for iron and steel, cement, and in 2020. This cost is expected to increase to –$10 per tCO2e in chemicals falls more than in developed countries, allowing the 2030, due to the introduction of CCS, despite capital cost reduc- emerging markets to gain global market share. In Scenario 2, these tions (learning rate improvements) and higher energy prices. results are amplified by the fact that developed countries shoulder a The chemical sector requires high up-front capital investments large fraction of the costs of the transition for emerging economies. of approximately $978 billion in 2010–2030. However, cumula- tive operational savings of approximately $778 billion, mostly due to lower energy expenditures, will offset the negative cash Figure C.6: Industry marginal abatement cost curve, 2030 (six focus regions) $/tCO2e Figure C.5: Chemicals: Energy intensity vs. BAU, 2030 (%) 250 Smelt reduction Total: Chemicals: 1.4 GtCO2e 4.3 GtCO2e 200 150 Coke substitution Coal to biomass Other industry: 100 fuel shift 1.2 GtCO2e Cogeneration 80 50 –21 0 –23 –23 –26 –50 1,000 2,000 3,000 4,000 4,400 –30 –29 –31 –100 –35 –38 –150 Top gas recycling Cement: MtCO2e Clinker 0.6 GtCO2e –200 substitution by fly ash –250 –53 –300 New motor systems Iron & Steel: 1.1 GtCO2e REU27 Mexico Brazil China India UK Germany Italy France US –350 47 CLIM ATE - S M A RT D E V E L OP M E N T Overall, global GDP in the scenarios modeled is about 1–1.2 transform the sector. As a result, these countries see a boost to their percent higher ($1.2 trillion-$1.4 trillion, 2010 USD) in 2030 than exports, which adds to the increase in domestic demand. Although in the baseline scenario. The key drivers of the increase in GDP this channel acts as a drag on emerging markets, they gain as a are the additional capital expenditures and the reduction in energy result of an improvement in their relative competitiveness. With consumption in the industrial sector, although this positive impact much higher energy intensity levels in the baseline, these countries would be offset by having to pay for the capital in the long run. All have the most to gain from investing in the new technologies; in the focus regions analyzed here see a relative increase of 0.1–2.4 addition, by reducing their production costs more than developed percent in their GDP in Scenario 1; in Scenario 2, only the EU countries (on average), they gain global market share. Scenario countries have a cost to GDP of 0.8–0.2 percent relative to the 2030 2 results in a redistribution of gains, with developed economies baseline, because their relative competitive advantage decreases. losing their edge. The shift in GDP is also reflected in employment The fuel switch assumed in the case study is estimated to in the emerging markets. In both scenarios, emerging economies reduce emissions-related mortalities by about 52,000 lives per year experience significant job gains. In China, the number of people for the six focus regions, of which the vast majority are in India. employed is 1.5–1.8 percent higher than the 2030 baseline for The mitigation measures undertaken in the six focus regions are Scenarios 1 and 2, respectively; in India and Brazil the increases estimated to result in a global net total of 58,240 lives saved per are 0.6–2 percent and 0.8–1.5 percent, respectively. year in 2030 from avoided premature mortality. The reduction in SLCPs in this sector is mainly from abatement of black carbon emissions by replacing traditional brick kilns with more energy- Sector Policy Case Study 3: efficient kilns, such as vertical shaft and simple tunnel brick kilns, Energy-efficient Buildings and installation of electrostatic precipitators on coke ovens to capture process emissions (Dinkel et al. 2011). A majority of the drop in BC emissions occurs in India, which in turn realizes the The buildings sector emitted an estimated 3.4 Gt CO2e in 2010, highest savings in lives from reduced cardiopulmonary diseases. of which 2.1 Gt (63 percent) was indirect emissions from energy China, on the other hand, could see a larger reduction in methane use from the power sector. emissions than the other countries analyzed, through degasifica- tion and gas capture in coalmines and oxidation of ventilation Key Assumptions air methane50 (Dinkel et al. 2011). This saves more lives from respiratory-related causes (a reduction in methane emissions low- In the business-as-usual scenario, new building construction, along ers formation of ozone). However, the health benefits indicated with increased ownership of appliances and lighting, is projected here are conservative due to the limited emissions data available to grow rapidly from 2010–30. Global emissions are expected to in the MACC model. grow by 1.4 percent per year, increasing to 4.5Gt of CO2e in 2030 In monetary terms, the estimated mortality savings from reduced in the absence of abatement measures. SLCPs is equivalent to about $240 billion (2010 dollars) for the six About three Gt of low-cost carbon abatement opportunities regions. In addition, agricultural productivity for the four crops have been identified in the buildings sector—half in the residential (maize, wheat, rice, and soybeans) would increase by more than sector and half in commercial buildings. The majority (approxi- 1,255,000 metric tons in the six regions considered as a result of mately 2.7 Gt) can be achieved at a negative lifecycle cost, or net reduced ozone damage to soils and crops. The mitigation mea- savings. The biggest reductions can be achieved in efficient new sures undertaken in the six focus regions would result in a global construction (0.7 Gt CO2e of abatement potential), electronics and net increase in crop yields of 1.72 million tons per year in 2030. appliances (0.6 Gt CO2e), and building envelope retrofits (0.4 Gt), Although China has the highest reduction in CH4 emissions, most with the remainder achievable through F-gas reductions (0.3 Gt), of the increase in crop yields is in the EU (followed by China). This high-efficiency lighting and lighting controls (0.2 Gt), and water is because of the EU’s higher base crop production, which leads to heater and HVAC retrofits (0.3 Gt). greater benefits, and the downwind impacts of CH4 emissions in Many of the negative-cost abatement opportunities are not China (sensitivity tests with the FASST model indicate that without realized under the BAU because of misaligned incentives and any CH4 abatement in China, European crop yields would be more high perceived consumer discount rates and transaction costs. All than a third lower). The increase in crop yields is valued at $216 million for the six regions. Again, this value is an underestimated 50 To prevent explosions, coal mines are constantly ventilated to blow in fresh air and because of the limited emissions data in the MACC model. suck out air containing methane. This ventilation air methane is the largest source As previously outlined, Scenario 1 assumes that developed of methane from coal mines. The concentration is too low to be sold as natural gas, countries produce most of the high-tech infrastructure needed to but ventilation air methane can be oxidized to produce heat and electricity. 48 A n n ex C : Deta i ls a n d Data f or S e ctor Po l i c y C a se Studi es abatement measures considered in this sector assume no impact Figure C.7: Buildings marginal abatement cost curve, 2030 on end-user comfort; behavioral changes could yield significantly (six focus regions) higher emissions reductions. The marginal abatement cost curve $/tCO2e for the six regions of interest is presented in Figure C.7. 900 Replacement of commercial gas water heater 800 The case study assumes significant increases in capital expen- 700 Efficient Total: Efficient buildings diture for service firms and households. The relevant figures for 600 appliances: 1.8 GtCO2e (envelope, HVAC, refrigeration): 500 0.4 GtCO2e 1.4 GtCO2e each of the regions considered are indicated in Table C.8. 400 The entire change in operational expenditures is assumed to Residential building envelope 300 200 Efficient new derive from fuel savings, implying that there are no non-fuel OpEx commercial build 100 80 savings in this scenario. 0 400 1,000 1,500 1,800 Developed economies and emerging markets are both assumed –100 –200 to implement these policies. As a result, energy consumption in –300 Commercial MtCO2e building envelope retrofit buildings is lower across all countries (although at a higher cost –400 Residential appliances Efficient new –500 Office electronics residential build of capital), and the impact of the combined capital expense and Consumer electronics fuel savings feeds through the whole economy. The other key assumption is the change in energy efficiency across sectors. The shift in equilibrium energy intensity for residential and commercial buildings, shown in Figures C.8 and C.9, indicates the different gains across countries. Case Study Impacts Figure C.8: Energy intensity vs. BAU, commercial buildings (%, 2030) As in other sectors, the key transmission channels are the impact of the change in capital expenditures and reduced energy consump- tion. In the short run, capital expenditure is generally higher than in the baseline; as a result, GDP is increased as a result of the rise in expenditure. Over the long term (after the spending has taken place), however, the positive boost fades as firms must increase –15 prices to cover their higher operating cost and households must –17 –17 –18 adjust their spending to a lower level of disposable income. These –21 –22 new factors are a drag on GDP, which pulls output back down –25 –24 to (or even below) baseline levels. These effects are balanced by –27 –28 declining fuel prices as efficiency measures reduce global demand. REU27 US Germany France UK China Brazil Italy India Mexico At the country level, the net outcome of the scenario depends on Note: (REU27 = rest of EU27). a number of additional factors. Table C.8: Buildings: Commercial and residential CapEx changes, BAU vs. case study Change in commercial buildings capital expenditure vs. BAU Change in residential buildings capital expenditure vs. BAU (in millions, 2010 USD) (in millions, 2010 USD)   2020 2030 2020 2030 Brazil $668 $1,011 Brazil $2,085 $2,743 China $6,816 $12,925 China $61,450 $73,263 EU $10,021 $10,668 EU $24,375 $20,662 India $1,063 $2,330 India $4,301 $5,596 Mexico $301 $502 Mexico $1,604 $2,243 United States $15,332 $18,255 United States $20,064 $16,719 49 CLIM ATE - S M A RT D E V E L OP M E N T Figure C.9: Energy intensity vs. BAU, residential buildings to liquid petroleum gas and other cleaner fuels (Dinkel et al. 2011). (%, 2030) In monetary terms, the mortality savings are equivalent to $102 billion (in 2010 dollars) for the six regions considered. However, –4 the health benefits indicated here are underestimated due to the limited emissions data available in the MACC model (the model –12 does not include PM2.5). –23 –23 –22 –26 –25 –29 Summary Tables for the Sector Policy Case Studies –47 Mexico US UK Germany France China Italy Brazil India The following tables summarize the findings from ClimateWorks’ analysis of the three sector policy case studies. Reductions in non-CO2 emissions associated with technical abatement in the transport, industry, and buildings (including appliances) sectors for the years 2020 and 2030, as obtained from the MACC model (Enkvist et al. 2009; Dinkel et al. 2011), are shown Overall, the scenarios modeled produce global GDP that is in units of MtCO2e. Although N2O emissions are listed, their health 0–0.2 percent higher (up to $240 billion in 2010 dollars) in 2030 and agricultural impacts are not considered. than in the baseline scenario. Again, the impacts are heterogeneous across countries due to a number of drivers. For households, the size of any gain/loss is determined by the amount of energy sav- ings generated relative to the cost of the additional capital. For Table C.9: Changes in non-CO2 emissions for the three sector Mexico, households are able to improve their energy efficiency by policy case studies more than any other country at a relatively low cost. As a result, household incomes in Mexico rise relative to the baseline (the Transport Industry Buildings Abatement cost in terms of additional capital spending is more than covered (MtCO2e) 2020 2030 2020 2030 2020 2030 by the gains from lower energy bills), which increases consump- China N2O 0 0 16 30 0 0 tion; as a result, GDP is 1–1.8 percent higher relative to the 2030 CH4 0 0 17 93 0 0 baseline for the two scenarios considered. BC 33 44 25 64 12 10 The heterogeneous impact on GDP is also reflected in employ- India N2O 0 0 2 3 0 0 ment. Depending on the scenario, most countries see a small rise CH4 0 0 3 19 0 0 as a result of the increase in GDP. China and India gain the most in absolute numbers due to their size, but the dramatic increase BC 22 55 57 121 55 89 in Mexico’s GDP means it sees the greatest gain in employment US N2O 0 0 16 22 0 0 relative to its labor force, with 1.3 percent more jobs created above CH4 0 0 4 19 0 0 the 2030 baseline. BC 5 0 0 0 0 0 The reduction in greenhouse gas emissions and air pollut- EU N2O 0 0 31 42 0 0 ants due to these energy efficiency improvements are estimated CH4 0 0 3 13 0 0 to lower air-pollution-related mortality by about 22,000 lives per BC 19 2 0 0 0 0 year in the six focus regions. The vast majority of this impact Brazil & N2O 0 0 4 6 0 0 occurs in India. Worldwide (including areas outside the six focus Mexico CH4 0 0 1 5 0 0 regions), the mitigation measures are estimated to save 23,855 BC 24 41 14 22 4 9 per year in 2030 from avoided premature mortality. These health Note: Reductions in non-CO2 emissions associated with technical abatement benefits result primarily from the large reduction in black carbon in the transport, industry, and buildings (including appliances) sectors for the years 2020 and 2030, as obtained from the MACC model (Enkvist et al., 2009; emissions in India (see Table C.9) when  traditional residential Dinkel et al., 2011), are shown in units of Mt CO2e. Although N2O emissions are cookstoves are replaced with more fuel-efficient ones or by a shift listed, their health and agriculture impacts are not considered. 50 A n n ex C : Deta i ls a n d Data f or S e ctor Po l i c y C a se Studi es Table C.10: Avoided premature mortality for the three sector Table C.11: Increase in crop yields from a shift to energy policy case studies efficient industry Premature Industry Transport Buildings Increase in crop Industry adult yields mortality(>30 (metric tons/year) 2020 2030 years old) /year 2020 2030 2020 2030 2020 2030 China 27,400 402,000 China –3,580 –10,968 –4,596 –6,126 –1,658 –1,397 India 5,520 80,900 India –13,154 –29,483 –5,027 –12,576 –12,613 –20,452 US 19,200 281,000 US –113 –523 –411 –11 Negligible EU 32,300 475,000 EU –47 –686 –2,518 –277 Negligible Brazil & Mexico 1,129 16,510 Brazil & Mexico –6,145 –10,699 –443 –752 –81 –162 Note: Reduced emissions of BC and CH4 improve yields of maize, wheat, Note: Annual reductions in cardiopulmonary and respiratory disease and lung rice, and soybean in 2020 and 2030, as obtained from the FASST model (Van cancer associated with BC and CH4 emission changes in 2020 and 2030, as Dingenen et al. 2009) for the six focus regions. obtained from the FASST model (Van Dingenen et al. 2009) for the six focus regions. Table C.12: Monetized health and agricultural benefits of the sector policy case studies Monetized Value (2010 USD) Industry Transport Buildings Total China Health $39 B $22 B $5 B $66 B Agriculture $69.1 M n/a n/a $69.1 M India Health $138 B $59 B $96 B $293 B Agriculture $13.9 M n/a n/a $13.9 M US Health $8B $164 M 0 $8 B Agriculture $48.3 M n/a n/a $48.3 M EU Health $6B $2 B 0 $8 B Agriculture $81.6 M n/a n/a $81.6M Brazil & Mexico Health $ 49 B $3 B $738 M $53 B Agriculture $2.84 M n/a n/a $2.84 M Note: Based on the statistical value of life and a crop value of $171.80 for the regions for 2030, using data shown in Tables C.10 and C.11. Table C.13: Energy savings from sector policy case studies Table C.14: Annual avoided premature mortalities from the for the six focus regions, 2030 sector policy case studies, 2020* Energy Savings Premature mortality (GWh) Industry Transport Buildings (>30 years old) /year Industry Transport Buildings China 3,338,338 1,215,979 1,622,171 China –113,182 –11,869 –25,571 India 861,857 447,377 174,920 India –162,207 –6,899 –39,842 US 602,326 1,193,521 1,885,038 Note: Reduced cardiopulmonary and respiratory disease and lung cancer from EU 545,069 1,476,108 1,574,906 the FASST model (Van Dingenen et al. 2009) associated with emission changes in 2020 as obtained from the GAINS model from Wagner et al. (2013) for China Brazil & Mexico 393,588 363,249 142,162 and India (see footnote 51). * From alternate modeling scenario. Note: (All fuels included.) 51 CLIM ATE - S M A RT D E V E L OP M E N T Table C.15: Annual increase in crop yields from the sector Table C.16: Social cost of carbon (SCC) for 2030 for the policy case studies, 2020* three sectors, using the values associated with the different discount rates (US Interagency Working Group on Social Cost Increase in crop yields of Carbon, 2013) described in Chapter 3 (metric tons/year) Industry Transport Buildings China 921,000 172,000 198,000 SCC (in billions) India 564,000 98,600 125,000 5% 3% 2.5% Note: Reduced cardiopulmonary and respiratory disease and lung cancer from Gt CO2e discount, discount, discount, the FASST model (Van Dingenen et al. 2009) associated with emission changes Sectors abated $17/tCO2e $55/tCO2e $80/tCO2e in 2020 as obtained from the GAINS model from Wagner et al. (2013) for China and India (see footnote 51). Industry 4.3 $73 $237 $344 * From alternate modeling scenario. Transport 2.4 $41 $132 $192 Buildings 1.8 $31 $99 $144 Note: Monetized values (in 2010 USD) are calculated for the emissions mitigated in each of the sectors for the six regions considered. The main text uses the Conclusions from the Sector Policy central 3% discount rate. Case Studies Aggregating the results of the three sector policy case studies results of integrated scenarios with additional macroeconomic linkages in significant multiple benefits. The annual benefits of these poli- should be investigated in future work. cies in the six focus regions in 2030 include 8.5 billion metric tons of avoided CO2e emissions and almost 16 billion kilowatt-hours of energy saved. This is worth almost $800 billion. Approximately 51 Wagner et al. (2013) used the GAINS model to estimate emissions reductions for SO2, NOx, PM2.5, BC, OC, CO, NMVOC, and NH3 from GHG mitigation measures that 94,000 premature deaths could be avoided each year, with a cost less than $80/tCO2e for China and India for 2020 for the industry, transport, monetized value of $429 billion. Reduced crop damage increases and buildings sectors. The 2020 health benefits of these emissions reductions were yields by 1.3 million metric tons, valued at $216 million. Globally, estimated at 150,622 and 208,948 avoided premature mortalities per year for China GDP would grow by $1.8–$2.6 trillion per year. and India, respectively. The MACC model used in the sector policy case studies in this report estimates 9,834 and 30,794 avoided premature mortalities per year for Again, the full benefits of reduced emissions are not captured China and India, respectively. The Wagner et al. (2013) study estimated crop yield in this study because of the limited availability of data in the increases at 1.3 million and 0.8 million metric tons for China and India, respectively, MACC model.51 As a result, the labor productivity benefits of whereas the MACC data indicated increases of 27,400 and 5,520 metric tons. (The majority of the benefits are in the industrial sector; see Tables C-14 and C-15.) If fewer lost work days and greater longevity, and the GDP impacts these estimates were included in the GEIM analysis, the expected impacts would from increased agricultural productivity, were not included in include increased worker and agricultural productivity that would boost GDP. A the macroeconomic analyses due to their small size relative secondary effect of increased crop yields would be reduced food prices, which increase disposable household income and hence GDP in the long-term. These to the overall workforce. A recent analysis by Sanderson et al. larger benefits estimates from the detailed data set in the Wagner et al. (2013) (2013) demonstrates that when such effects are included, they can study clearly need to be considered in an updated study that would also include be large enough to offset the entire cost of mitigation. These types the other focus regions. 52 Annex D: Detailed Development Project Case Studies Development Project Case Study 1: Models for Projects (TEEMP) framework developed by Clean Air Sustainable Transportation in India Asia. TEEMP quantifies emissions from the proposed project, as well as other benefits (e.g., reduced accidents and travel time, and rough, or “sketch”, economics) to determine the feasibility Background: Pimpri-Chinchwad BRT of the project. Some key assumptions for the analysis, such as ridership data In order to develop the information to conduct a national-scale for the base year, 2008, were taken from the project appraisal analysis of expanded sustainable bus rapid transit (BRT) in India, document. Ridership growth rate was derived from data within the Pimpri-Chinchwad BRT project was analyzed in some depth to the project appraisal document. In addition, data on total BRT establish the benefits that can be expected under real-world condi- ridership within the municipality (taken from the municipal tions. Currently 68 percent of urban transportation demand in this transportation plan) were used to develop a projection of rider- city is satisfied by individual two-wheelers; public transportation ship along the BRT corridor. These ridership assumptions sug- accounts for less than four percent. Of the total investment for this gest that about 200,000 trips/day, or 68 million/year in 2014 project (roughly $345 million), about $147 million ($44 million in (rising to more than a half million per day, or 170 million/year IBRD lending) is dedicated to the Pimpri-Chinchwad sustainable by 2033) are shifted to BRT. This represents about seven percent transport plan that was used as the model project. of total city passenger trips in 2014. Other key assumptions had Major components of the model project include: to be estimated using expert judgment or exogenous empirical available data. • Construction of two new road-cum-BRT corridors (19 km). Some of the key assumptions include: • Passenger access to BRT stations on two previously built BRT corridors, such as overpasses and underpasses and improved • 20-year timeframe, with BRT operational in 2014 and economic at-grade crossings using GPS system to control BRT operation. lifetime running through 2033. • Three bus terminals to serve the previously built BRT corridors. • Construction materials and emissions taken from Reducing • Technical assistance and capacity building, including transport Carbon Emissions from Transport Projects.52 planning; BRT service plan, fare structure, and fare collection; • Mode shifts assumed to follow existing transportation mode assistance to build up the proposed BRT management structure; share (23 percent car, 17 percent two-wheeler, 16 percent and capacity building and training for BRT staff. An analysis of these and other details as a standalone project was conducted using the Transportation Emissions Evaluation 52 http://www.adb.org/documents/reducing-carbon-emissions-transport-projects. 53 CLIM ATE - S M A RT D E V E L OP M E N T three-wheeler, 42 percent bus), based on the Pimpri-Chinchwad In order to scale up the benefits of the single Pimpri-Chinchwad Comprehensive Mobility Plan.53 BRT system to the assumed nationwide BRT scenario (1,000 km), • Average speed and trip length (25 km/hr declining to 15 km/ additional key assumptions were made: hr by 2033) for the non-BRT traffic in both the counterfactual and BRT scenario derived from the India Ministry of Urban • National statistics and traffic demographics derived from a Development study, Traffic and Transportation Strategies and 2007–2008 Ministry of Urban Development survey54 of 30 Policies in Urban Areas. cities in India. • Occupancy for the counterfactual and BRT scenarios (1.4 for • Key data that included the distribution of cities by popula- cars, 1.1 for two-wheelers, 1.9 for three-wheelers, and 35 for tion range, transportation demand, and trip mode-share by bus) taken from the Comprehensive Mobility Plan. city population. • Complete implementation of existing standards (Euro 3/4 for • Occupancy values, emission factors, fuel split, and technology cars; Euro III/IV for all diesels; Euro 1 for gasoline two- and data taken from the Pimpri-Chinchwad analysis. three-wheeler four-stroke engines) but no strengthening of • New investments of $3–$4 billion. these standards. • BRT development follows typical development patterns estab- Two development timelines were explored for the national lished for India, including closed-system BRTs with central scale-up scenario: an optimal case, which completes 1,000 km of lanes, no multiple lane stations, and medium demand. new BRT in six years, and a somewhat more realistic (based on recent BRT experience) 12-year case that deploys the same length Using the assumptions listed above, the TEEMP framework of BRT, but over a longer period. Both timelines are subject to found that large reductions of time, emissions, fuel use, and traffic economic analysis for the period 2013–2032. fatalities can be achieved by shifting passenger traffic away from Six-year timeline: Based on the analysis, development of 1,000 current transportation patterns and onto a modern BRT system km of BRT lines in 15–20 cities across India within six years and consistent with project documentation and historic Indian BRT would result in the following benefits between 2013 and 2032: development patterns. Over the 20-year analysis timeframe, benefits include: • 380 tons per year of BC reduction relative to the reference case starting in 2019 (6,000 tons in aggregate). • 5,761 billion vehicle kilometers traveled (VKT) saved. • 1,975 reduced fatalities per year (from reduced traffic accidents • 201 million hours of travel time saved (about 5 minutes per trip). and improved air quality) starting in 2019 (31,000 in aggregate). • 691 traffic-related fatalities avoided. • $2.6 billion/year in fuel savings starting in 2019. • 10,368 traffic-related injuries avoided. • Three million tons/year of CO2 emissions reductions starting • Approximately $1 billion in fuel savings. in 2019 (49 Mt in aggregate). • 1,300 tons of NOx emissions avoided. • 1.1 million tons of CO2 emissions avoided. Twelve-year timeline: Under a somewhat delayed implementa- • 300 tons per year of PM10 avoided (145 tons per year emitted tion, the following benefits would occur during the same 2013–2032 as BC). analysis period: These results are in line with CO2 and PM savings from other • 380 tons per year of BC reduction relative to the reference case BRT projects in Asia (on a per-km basis). starting in 2024 (5,200 tons in aggregate). • 1,975 reduced fatalities per year (from reduced traffic accidents Nationwide Scale-up Analysis and improved air quality) starting in 2024 (27,000 in aggregate). • $2.6 billion/year in fuel savings starting in 2024. The results of the Pimpri-Chinchwad BRT analysis and a Ministry of Urban Development (MOUD) study of more than 87 cities across India were used to estimate the length of viable BRT routes that 53 https://www.pcmcindia.gov.in/CMP.pdf. Sensitivity simulations were conducted could realistically be developed across India (approximately 1,000 using a 47-percent mode shift from buses and a 6-percent shift from cars based on km in the scale-up scenario, including more than 422 km that is actual mode-shift data from the Ahmedabad BRT project (52 percent buses, 30 per- cent rickshaws, 14 percent 2-wheelers, two percent cars, and 2 percent bicycles).The already included in government plans), as well as the per-kilometer sensitivity resulted in greater BC reductions (65-percent higher, leading to greater costs and benefits of such development. This is contrasted against health benefits) but lower fuel savings (a 38-percent lower CO2 benefit). a “no BRT” case that consists of no new BRT development. 54 http://urbanindia.nic.in/programme/ut/final_report.pdf. 54 A n n ex D : Deta i l ed Deve l op men t Pr o j ec t C a se Studi es • Three million tons/year of CO2 emissions reduction starting of transport feeds through to the rest of the economy, boosting in 2024 (42 Mt in aggregate). firms’ profit margins and households’ real incomes. These indi- rect benefits are in addition to others identified previously by the Additional savings include reductions in vehicle-km traveled, TEEMP analysis (reduced traffic fatalities and injuries) and FASST travel time, other injuries, and NOx; these were not quantified for analysis (reduced premature mortality and increased agriculture the national analysis. productivity). The faster, six-year BRT implementation results in higher Air Quality and Agricultural Analysis benefits over the project’s forecast horizon (2013–2032), as India’s economy enjoys the benefits over a longer period. In this case, As described in Chapter 3, the FASST tool can directly and rapidly the net present value of the project (discounted using a 3 percent assess the approximate public health and agricultural benefits of social discount rate) is $13.5 billion (in 2010 dollars). In the more air quality improvements. The tool also monetizes these benefits realistic 12-year implementation case, the delayed timetable reduces using health valuation functions and prevailing crop values. the net present value of the project to $11.5 billion. The FASST tool estimates for 2030 that reducing emissions of The economic benefits are also felt in the labor market. In the CO2 by three million tons per year and BC by nearly 380 tons per short run (2013–17), faster implementation creates approximately year (approximately 800 tons/year of PM2.5) leads to significant 91,000 new jobs, while the more realistic implementation scenario local and global benefits, including at least 200 avoided deaths increases employment by an average of 48,000 jobs. The two (approximately 175 in India) from respiratory illnesses in the 15–20 timelines have the same long-run impact on employment, with cities with new BRTs.55 In addition, crop losses are reduced by about 128,000 jobs created by the early 2030s. 3,400 tons of grain, worth about $490,000 (most of the avoided losses—2,700 tons of grain worth about $460,000—occur in India). Monetization of Benefits and Comparison The avoided premature mortality is probably very conserva- with Stated Project Benefits tive because the atmospheric model used here assumed uniform emissions reductions across India, rather than concentrating the The macroeconomic analysis does not reflect the monetary value reductions in the 15–20 cities with new BRT systems (where the of the avoided deaths. However, the additional benefits can be population would have greater than average exposure and higher estimated using the 2010 value of a statistical life (VSL) in India. median wages). The VSL is listed in the literature at about $375,000. After adjust- ing for income and purchasing power, this is equal to $967,998 Macroeconomic Analysis in 2010 (See Chapter 3). Based on this future stream of welfare benefits, the net present From a macroeconomic perspective, the direct and indirect impact value of the avoided mortalities (as a result of air quality improve- of the BRT project will be felt through four channels. The most ments and reduced traffic fatalities) is calculated at $39–54 billion important of these is the impact on India’s economy from capital (assuming a 3 percent discount rate). Given that the avoided spending from the project. The short-run investment in the trans- mortality occurs predominantly in higher-wage cities, the value port network is expected to provide a boost to domestic demand would likely be even higher. Time savings (approximately five and, as a result, GDP and employment. In addition to the boost to minutes per trip, or about 500 million hours per year) also occur domestic demand, the improvement in the country’s infrastructure predominantly in higher-wage cities. These productivity gains were increases India’s capital stock and, as a result, potential output. not included in the macroeconomic analysis, but they could have This means that the increase in GDP is sustained over the long an effect if they occur on a large enough scale. term because the improvement in the country’s infrastructure Agricultural benefits and CO 2 reductions have also been increases the amount of output India can produce. Although this quantified as net present value, following the same procedure of channel is partially offset by the additional cost to the govern- interpolating benefits streams between 2011–2031 and then aggre- ment/operator associated with operating the BRT, the net impact gating and discounting at three percent. The results indicate nearly is overwhelmingly positive. $3 million in agricultural benefits; using a social cost of carbon, In addition to these direct impacts, the BRT project offers more than $1.3 billion in value can be ascribed to CO2 reductions. a number of indirect benefits. Despite the additional operating costs, the switch to a mass transit system reduces the overall cost 55 The specific number of cities would depend on the distribution of length of BRT of transport per passenger kilometer as passengers switch from lanes among the largest Indian cities. Based on 20 km of BRT track for a city the cars and motorbikes to the BRT system. The reduction in the cost size of Pimpri-Chinchwad, it is likely that 15–20 cities would receive new BRT lanes. 55 CLIM ATE - S M A RT D E V E L OP M E N T Project appraisal documents were reviewed to compare the mortality and morbidity, and significant macroeconomic gains. multiple development benefits of this case study with current Table D.1 categorizes these results as global public goods versus evaluation practices. The project economic analysis included the local socioeconomic benefits and presents a sensitivity analysis to following economic benefits from construction of the new BRT the value of the social discount rate used (including 2.5 percent corridors: (i) a reduction in unit road-user costs in all types of and five percent for comparison). vehicles for use of the new improved road (gasoline and time savings), (ii) reductions in unit road user costs from trips trans- ferred from two-wheelers to public transportation (gasoline and Development Project Case Study 2: time savings), and (iii) reductions in GHG emissions from trips Integrated Solid Waste Management in transferred from two-wheelers to public transportation. Because Brazil the large time and fuel savings are included in the project’s stated benefits, they have not been monetized as additional benefits in this case study. Because the (negligible) CO2 benefits estimated Background: Benefits of Integrated Solid by the project documentation seem too small relative to the Waste Management true potential, the case study includes instead the large CO2 benefits identified by TEEMP. The $185 million in net present Effective management of municipal solid waste (MSW) poses value for 19 km of BRT in Pimpri has been scaled up to $9.7 “one of the biggest challenges [to] the urban world” (UN-Habitat billion, based on the 1,000 km of BRT lines to be constructed 2010)—and the challenge is growing. In low-income countries, under this case study. most cities collect less than half of the waste generated, and only half of the collected waste is processed to minimum acceptable Summary and Conclusions environmental and health standards. Along with rapid urbanization and population growth, MSW generation from the world’s cities By exploring the multiple benefits of effective BRT systems (beyond is increasing at unprecedented and alarming rates—from 1.3 bil- the traditional measures of successful transportation initiatives lion tons (in 2006) to 2.2 billion tons (by 2025)—and this growth and the economic net present value typically calculated in project is centered in developing countries. These cities lack funding financial analysis), it is possible to provide a more comprehen- for proper waste management; the annual municipal budgetary sive picture and a greater monetized value of the project being shortfall in World Bank client countries is $40 billion (Hoornweg examined. These benefits include time and fuel savings, reduced and Bhada-Tata 2012). World Bank solid waste activities aim to environmental impacts, reduced traffic and air-quality-related improve waste management where the need is most pressing. Table D.1: Multiple benefits potential of sustainable transportation (BRT) initiatives in India Global Public Goods Local Socioeconomic Benefits MtCO2e Global Lives Saved Global Crop Losses Local Lives Saved Local Crop Losses Local Jobs Local GDP Avoided (thousand Avoided (thousand (thousands) tons) tons) 42–49 ~360 7 27,000–31,000 28 44–91 short-term; N/A 128 long-term Monetized NPV of Benefits Using 2.5% Social Disount Rate (million 2010 USD) Social value of Global Lives Saved Global Crop Losses Local Lives Saved Local Crop Losses Local Jobs Local GDP carbon Avoided Avoided $2,000–2,400 ~$535 $0.80 $53,000–59,000 $3.2 N/A $12,400–14,500 Monetized NPV of Benefits Using 3% Social Disount Rate (million 2010 USD) Social value of Global Lives Saved Global Crop Losses Local Lives Saved Local Crop Losses Local Jobs Local GDP carbon Avoided Avoided $1,300–1,500 ~$490 $0.75 $49,000–54,000 $3 N/A $11,500–13,500 Monetized NPV of Benefits Using 5% Social Disount Rate (million 2010 USD) Social value of Global Lives Saved Global Crop Losses Local Lives Saved Local Crop Losses Local Jobs Local GDP carbon Avoided Avoided $280–340 ~$360 $0.55 $35,000–40,000 $2.2 N/A $8,600–10,200 56 A n n ex D : Deta i l ed Deve l op men t Pr o j ec t C a se Studi es Though more visibly a local problem, MSW affects public waste subprojects. The project aims to improve the treatment and health and the environment on a global scale—most notably by disposal of municipal solid waste; its success is measured by the emitting methane (primarily from landfills). Properly managing number of open dumps closed and the increased volume of waste waste to minimize methane emissions offers a variety of local disposed in sanitary landfills, composted, or recycled. Brazil was and global benefits. Locally, improper waste management, selected for scale-up due to the existing strong regulatory structure especially open dumping and burning, pollutes water bodies, and finance instruments available in this sector. contaminates air and land, attracts disease vectors, and clogs In this analysis, methane reductions from improved solid waste drains, contributing to flooding. People who live near or work management across Brazil are estimated by the EASEWASTE solid with solid waste have increased disease burdens (Giusti 2009). waste lifecycle assessment model, developed by the Technical At the global scale, post-consumer waste is an emerging con- University of Denmark (Kirkeby et al. 2008). This model follows tributor to climate change, emitting five percent of global GHGs waste through its lifecycle, from generation through collection, and 12 percent of methane (Bogner et al. 2007). Most methane transportation, and treatment, and calculates the environmental from solid waste is emitted from landfills, and these emissions emissions and impacts from alternative treatment scenarios. Data are growing fastest in emerging economies. However, waste has specific to Brazil are used for generation rates, composition, the the potential to be a net sink of GHGs when used as a resource, electricity grid, landfill behavior, cost data (including purchase, through recycling and reuse (Bogner et al. 2007). Burning waste operations, maintenance) and debt service for each option (Hoorn- without proper air pollution controls also affects the environment weg and Bhada-Tata 2012). Potential program costs have not been on a global scale by creating dioxins and furans, globally mixed considered here. Generic data are used to model the composting persistent organic pollutants (POPs) that are toxic to humans facilities and anaerobic digesters. and the environment. Improper disposal is also polluting the Four different policy scenarios for managing Brazil’s waste oceans at a global scale, threatening ecosystem functions, fish- were assessed with respect to a reference baseline case: eries, and tourism (Law et al. 2010). Properly managing waste to minimize methane emissions also leads to improved water, 1. Baseline: The current state of solid waste management in air, and soil quality. Brazil, with 58 percent of waste going to sanitary landfills Though methane emissions only occur at the point of treatment and the remainder to dumps. The majority of sanitary landfills and disposal, efforts to reduce these emissions can occur at every flare the methane produced in the landfill; open dumps simply stage in the value chain: planning, waste generation, collection, vent the methane produced. treatment, and disposal. Moreover, the more efforts are focused 2. All landfill scale-up: All generated waste ends up in a sanitary upstream, the bigger the reductions that can be realized. For landfill (no more open dumping); 50 percent of landfill gas example, incentive plans to reduce waste generation and increase (LFG) is collected and flared. source separation yield two types of SLCP reductions. First, they 3. All landfill with electricity generation: Similar to the previ- directly reduce the amount of methane produced in a landfill (and ous scenario, but 50 percent of LFG collected is flared, and other GHGs downstream in the value chain); second, they prevent 50 percent is used to generate electricity (displacing natural other sources of SLCP (and GHG) emissions by displacing fertil- gas on the electrical grid). An engine efficiency of 30 percent izers for agriculture and natural gas for electricity. is assumed. 4. Anaerobic digestion (with electricity generation) for organic Nationwide Scale-up Analysis waste: Organic waste is sorted and 75 percent is routed to anaerobic digesters, producing electricity (displacing natural This case study estimates the emissions reductions from an inte- gas on the grid); the resulting compost is used on land (but grated solid waste management approach in Brazil by simulating no market value or fertilizer substitutions are made). Again, a scale-up of a model project to the national level. It shows that an engine efficiency of 30 percent is assumed. greater emission reductions can be achieved using an integrated 5. Composting for organic waste: Organic waste is sorted and 75 solid waste approach than by targeting only one technology. percent is composted. Again, the compost is not assumed to The model project selected is an integrated solid waste man- displace any fertilizer (though if it did, greater environmental agement project with an innovative carbon finance platform. benefits would be seen). The registered carbon finance methodology integrates a seamless payment structure within solid waste management investments For all the scenarios explored, the most relevant result is the greatly facilitating the sale of credits and the additional benefits difference between a given scenario and the baseline. Implement- that can be captured from those resources. It is a $50 million ing these organic waste treatment technologies on a large scale financial intermediary loan for on-lending to borrowers with solid could reduce methane emissions by up to 29 million metric tons 57 CLIM ATE - S M A RT D E V E L OP M E N T of CO2e per year.56 Lifecycle GHG emissions are shown for each and crop benefits from reduced ground-level ozone formation. scenario in Figure D.1. These could result in 246–468 avoided deaths around the world The baseline scenario results in about 11 million metric tons annually by 2030 from respiratory illnesses and 53,000–101,000 of CO2e emissions each year (on a lifecycle basis). In the “all tons of avoided crop losses each year. landfill scale-up” scenario, emissions are reduced relative to the baseline and are actually negative because the landfill is able to Macroeconomic Benefits sequester more than it emits; this results in about –3.6 million metric tons of CO2e or a reduction of nearly 15 million metric The direct economic impacts of improved waste disposal are tons relative to the reference case. The “all landfill with electric- assessed through four main channels. The additional capital and ity generation” scenario is similar to the all landfill scale-up, operating expenditures needed to run the sanitary landfill, anaerobic but instead of flaring the collected gas, roughly half of it is used digestion, or composting facilities will provide a significant boost to offset some natural gas power generation, further reducing to GDP in the short run. This effect will fade over the medium CO2e emissions. term as the cost of investment is paid through higher prices (which Emissions are lowest in the “anaerobic digestion” scenario depress real incomes and profitability). With a significant amount because organic waste is diverted from the landfill to an anaerobic of international finance providing the up-front capital investment, digester, where methane emissions are maximized, captured, and however, the full crowding-out effect generated by the short-term used for energy. This results in the largest reduction of methane rise in demand would not be felt by the economy. As a result, emissions—about 29 million metric tons—and the largest dis- some of the short-run boost to investment is retained, which placement of fossil fuels. The composting scenario leads to the allows GDP to rise in the long run. second-lowest emissions (about 20 million metric tons) because A number of other benefits are also associated with the diversion of organic waste from landfills reduces methane emis- investment in waste management. Agricultural productivity is sions, but it does not displace fossil fuel emissions through increased via improved soil and water quality (in addition to the electric generation. increases in agricultural yield discussed above). Electricity costs are lowered as a result of burning methane instead of natural gas Public Health and Agricultural Benefits to produce power. Based on these effects, a publicly financed and leveraged The reduced methane emissions (15–29 million metric tons of CO2e investment of $1-$2 billion/year in collection, transportation, avoided per year by 2030 relative to the reference case) are input and sanitary waste disposal alternatives (e.g. sanitary landfill, to the FASST tool to estimate the additional annual public health composting, and anaerobic digestion) yields a range of macroeco- nomic benefits over the 20-year analysis period (using a 10 percent economic discount rate within the GEIM model, but a 3 percent social discount rate to calculate the NPV of the GDP benefits). In all three cases, the impact was found to be significant and positive. Figure D.1: Life-cycle GHG emissions (MtCO2/yr) for all The composting alternative provided the smallest positive boost, scenarios with the net present value of the increase in GDP estimated to 15 be $13.3 billion; the sanitary landfill alternative provided a $18.6 10 billion boost; and the anaerobic digestion alternative $35.2 billion (all in 2010 dollars). Million Metric Tons CO2e/yr 5 The increase in GDP is also reflected in the labor market. By the 0 end of the forecast horizon (2032), the number of people employed –5 increases by 44,000 (in the maximum composting alternative), –10 58,000 (in the sanitary landfill alternative), and 110,000 (in the –15 anaerobic digestion alternative). Finally, between 0.5–1.1 percent –20 of national power demand is satisfied as an additional benefit of two of these scenarios. –25 Baseline All LF All LF-electricity Anaerobic Compost digestion Treatment, recovery and disposal phase Transportation phase Collection phase 56 Assumes effective source separation of organic waste, no market for compost Note: Anaerobic digestion and composting offer the greatest emission (no substitution for fertilizer), and that the electricity produced displaces natural reductions, 20 million–29 million metric tons annually. gas on the grid. 58 A n n ex D : Deta i l ed Deve l op men t Pr o j ec t C a se Studi es Monetization of Benefits and Comparison considers every step in the waste value chain, from generation to Stated Project Benefits in the household through final disposal, is needed to effectively manage waste as a resource. As in the India case study, the present value of avoided mortality In summary, annual deployment of $1-$2 billion of leveraged can be estimated over the 20-year analysis period. Given that the public and private sector investment in sanitary landfills, anaerobic health benefits from methane reductions are global in nature and digestion, or composting programs, with increased emphasis on do not necessarily accrue to Brazil, this benefit has not been mon- waste collection, could result in 20-year aggregate benefits of: etized for Brazil specifically. Rather, benefits have been estimated for the six focus regions for which data is available, and all other • 158–315 million metric tons of CO2e reduction of methane avoided mortalities have been ascribed to a conservative estimate worth $4.8-$9.7 billion (an increment of $3.2-$6.5 billion in of VSL (in this case, India). The aggregate 2,500–4,900 avoided added value over scaled-up stated project estimates). deaths over 20 years have an estimated net present monetized • More than 2,500–4,900 avoided instances of premature mor- value of $5.5-$10.6 billion (2010 dollars). tality from air pollution globally, with a value of more than Using a 2010 market price of approximately $170/ton, the $5.5-$10.6 billion. avoided crop losses have been interpolated over the analysis • $61-$120 million in avoided crop losses (but only $390,000- period, monetized, and discounted at three percent to estimate $735,000 in Brazil). their net present value at more than $60 million, or $120 million • Between 44,000 and 110,000 jobs created. if the larger emissions reductions are achieved. In addition, apply- • Between 0.5–1.1 percent of national electricity demand offset. ing the social cost of carbon (U.S. Interagency Working Group on • $13.3-$35.2 billion in GDP benefit from 2012–2031. Social Cost of Carbon 2013) to projected CO2 reductions over the analysis period provides significant value in excess of the carbon Table D.2 categorizes these results as global public goods or finance value—a total value of $4.8-$9.7 billion, or an additional local socioeconomic benefits and presents a sensitivity analysis increment of $3.2-$6.5 billion. to the value of social discount rate used (including 2.5 percent These benefits should be compared with the project ben- and five percent for comparison). efits stated in the model project documentation, which include: (i) population surpluses resulting from the closing of open-air dumps and construction (and adequate operation) of regional Development Project Case Study 3: landfills; (ii) health and environmental improvements (although Cleaner Cookstoves in Rural China these were not quantified); and (iii) distribution of project benefits and impacts among stakeholders. The documentation further states that the “economic benefits are assumed to be represented Background: Domestic Energy and Solid by the financial income (fees) generated by the project. Due to Fuels lack of data, this proxy is assumed to represent the totality of benefits.” Using simple cost-benefit analysis, the net present value China has made great strides in expanding energy access and pro- of the financial income for a sanitary landfill for a municipality of viding cleaner cooking fuels and improved stoves throughout the approximately 200,000 people ($100 million) was scaled up to the country. However, more than half of China’s population, located national population of Brazil; this estimates the net present value mainly in rural areas, still relies on solid fuels (coal and biomass) of the stated project benefits at roughly $100 billion. for cooking and heating, and many are likely to continue to do so in the near future. Switching to modern energy alternatives Summary and Conclusions would be the most effective way to reduce cooking and heating emissions and should be encouraged; however, such fuels are Improved organic waste treatment, through anaerobic diges- more expensive than solid fuels and require more costly stoves tion and composting, offers the greatest potential for methane and delivery infrastructure. Poorer rural households without reduction from solid waste in Brazil, on the order of 30 million access to affordable modern fuels such as LPG and natural gas are metric tons of CO2 equivalent per year. In order for these waste- unlikely to transition up the energy ladder on a large scale. The to-resource technologies to be used on a large scale, major International Energy Agency estimates some 241 million people annual investments of $1-$2 billion are required in upstream in China will still rely on solid fuels for cooking and heating in waste reduction and source separation. (Without separation of 2030 (World Energy Outlook 2013). This analysis builds on the waste at the household level, neither composting nor anaerobic World Bank engagement with the government of China for the digestion is economically feasible.) An integrated approach that China Clean Stoves Initiative (World Bank 2013c). 59 CLIM ATE - S M A RT D E V E L OP M E N T Table D.2: Multiple benefits potential of integrated solid waste management in Brazil Global Public Goods Local Socioeconomic Benefits Multiple Benefits MtCO2e Global Lives Saved Global Crop Losses Local Crop Losses Local Jobs Local GDP Avoided Avoided (thousands) (thousand tons) (thousand tons) 158–315 2,500–4,900 550–1,100 3.5–6.8 44–110 N/A Monetized NPV of Benefits Using 2.5% Social Disount Rate (million 2010 USD) Social value of Global Lives Saved Global Crop Losses Local Crop Losses Local Jobs Local GDP carbon Avoided Avoided $7,700–15,400 $6,000–11,400 $65–129 $0.4–0.8 N/A $14,100–37,300 Monetized NPV of Benefits Using 3% Social Disount Rate (million 2010 USD) Social value of Global Lives Saved Global Crop Losses Local Crop Losses Local Jobs Local GDP carbon Avoided Avoided $4,800–9,700 $5,500–10,600 $61–120 $0.4–0.7 N/A $13,300–35,200 Monetized NPV of Benefits Using 5% Social Disount Rate (million 2010 USD) Social value of Global Lives Saved Global Crop Losses Local Crop Losses Local Jobs Local GDP carbon Avoided Avoided $1,100–2,200 $4,100–7,800 $46–92 $0.3–0.5 N/A $10,800–28,200 Effective interventions to scale up the dissemination of clean- Key assumptions used for this analysis include the following: burning, fuel-efficient stoves for household cooking and heating can mitigate the health hazards of burning solid fuels. In China, • The baseline assumes natural penetration of cleaner cookstoves household burning of solid fuels ranks fourth among all risk fac- and modern fuel cookstoves, which also takes into consid- tors for poor health. It is estimated that household air pollution eration population growth and urbanization rates. Under the from solid fuel use results in more than one million premature baseline scenario, there are over 49 million rural households deaths each year in China (Lim et al. 2012). relying on traditional stoves and 10 million rural households relying on cleaner cookstoves in 2030. Nationwide Analysis: Clean Cookstoves for • Subsidies offered from 2015–2020 increase deployment of the Rural Poor three types of clean cookstoves: about 10 million improved biomass cookstoves costing $85 each (efficiency of 30 percent While heating systems or combined cooking and heating stoves also in 2013, rising to 40 percent by 2030); more than 6.75 million represent important opportunities to reduce indoor and outdoor advanced clean-fuel cookstoves costing $100 each (efficiency air pollution, to simplify this analysis this case study focuses on of 35 percent in 2013, rising to 49 percent by 2030); and 3.5 cleaner cookstoves. million solar cookers costing $25 each (efficiency of 40 percent The case study assumes a publicly supported plan to encourage in 2013, rising to 55 percent in 2030). rural households to switch to more fuel-efficient and environmen- • Deployment rates rise from 1.3 million per year in 2015 (500,000 tally friendly cookstoves starting in 2015. For the first five years, the improved, 500,000 advanced, and 300,000 solar cookers) to public sector would support clean cookstove market transforma- about 5.5 million per year in 2020 when the subsidy program tion by subsidizing the cost of the clean cookstoves in addition to ends (three million improved, 1.75 million advanced, and providing technical assistance (such as awareness campaign and 750,000 solar cookers). support to private sector development) under a national clean stove • Deployment between 2020–2030 dips somewhat after the subsidy program. By 2020, 40 percent of rural, poor households relying ends but largely holds steady through the end of 2030, when primarily on solid fuel for cooking are assumed to have switched, more than 72 million cleaner stoves will have been deployed and by 2030 all households are assumed to use a clean stove. This and 100 percent of rural poor households will have switched is against a backdrop of increasing urbanization and rising house- to cleaner cookstoves and modern fuel cookstoves. hold incomes, which has already established a trend toward the • These deployments include replacements after five years and use of modern fuels and cleaner stoves. This program is expected use empirical data to estimate the replacement rate at 90 percent to help establish a robust private sector market for cleaner stoves. (the percentage of clean stove users who purchase another clean 60 A n n ex D : Deta i l ed Deve l op men t Pr o j ec t C a se Studi es stove when replacement was needed) and an acceptance rate of costs to run the subsidy program for five years. As with consumer 78 percent (the number of clean stove users who accept the new spending, these costs would provide both a positive boost and a stoves). These rates are assumed to rise to 100 percent by 2030. negative shock to GDP. The positive boost would come from the • After 2020, a robust market will have been established and additional goods and services demanded by the public sector to private investment will continue throughout the analysis run the program initially, although these would be broadly offset timeframe. by the negative impact on inflation. The switch to more fuel-efficient cookstoves would also have Based on these assumptions, the fuel and energy savings and a small but significant impact on energy consumption in China’s emissions reductions in PM2.5 and CO each year throughout 2033 economy. Most rural, poor households currently use non-commercial are estimated by the EAP CSI team, along with the air quality biomass fuel for cooking (though a significant fraction use coal). and agricultural impacts, and the broader macroeconomic effects All households would consume considerably less energy than in the have been further estimated through macroeconomic modeling baseline and, as a result, aggregate energy consumption and energy in the GEIM model. prices would be lower. The effect on energy prices is only from the reduction in coal use. This has a positive impact on households, Public Health and Agricultural Benefits which have to spend less of their income on energy, and this helps to offset the higher cost of the cookstoves. More importantly, lower The emission rate per megajoule (MJ) of heat content was used to fuel prices would have a significant positive impact on the wider estimate PM2.5 and CO emissions reductions from the calculated economy. The cheaper cost of electricity lowers firms’ production solid fuel reductions in the case study. These emissions reductions costs and increases the economy’s productive potential and, as a were input into the FASST tool to estimate the public health and result, long-run output is higher. This channel therefore has an crop benefits. Based on the estimated emissions reductions in 2030, unambiguously positive impact on the economy which builds over premature mortalities from outdoor air pollution were estimated time as the number of fuel-efficient stoves increases. to be reduced by approximately 87,900 annually; the majority of The economic impact has been assessed using a number of these (85,700) will occur in China. This has a significant economic metrics: the additional employment generated over the short term value, given the Chinese value of a statistical life of $700,635 in (2013–2017), the cumulative increase in GDP over the short term 2010. Given that more than a million lives are lost annually due (2013–2017), and the net present value of the cumulative increase to household air pollution in China as per the Global Burden of in GDP over the case study horizon (20 years).57 The general Disease (Lim et al. 2012), the estimate of lives saved is clearly finding is that the plan would have a positive impact on China’s underestimated as indoor exposure was not assessed. economy in both the short term and the long run. In the near-to-medium term (2015–19), the increase in con- Macroeconomic Benefits sumer spending ($1.2 billion spent by households on the switch to cleaner cookstoves) results in GDP rising by a cumulative $1.6 The direct and indirect impacts of the cookstoves project are felt billion (2010 USD). This in turn generates 22,000 new jobs. through three key transmission channels. In the short run, the Over the medium-to-long term, the positive boost from the most important channel is the impact of the additional expenditure increase in consumption diminishes as spending is completed and (to buy the cookstoves) on private consumption and, as a result, the negative shock to households’ real income comes through. on GDP. The increase in spending boosts GDP in the short run. However, the positive shock from households’ reduced energy This channel is maintained until 2033 (the last year of cookstove consumption and the impact this has on fuel prices increases purchases in the case study); over the medium term, however, the China’s potential output. As a result, GDP is increased in the positive boost is offset by the negative impact of the additional long run; the net present value of this increase is around $10.7 cost on households’ real income, crowding out some portion of billion (2010 dollars). other household spending and returning the economy to baseline levels. The composition of private sector spending does change Monetization of Benefits and Comparison over the scenario’s horizon: spending on cookstoves is higher, to Stated Project Benefits while spending in other areas is lower. As a result, the long-term impact of this channel in isolation would be negative, although This project is not based on an actual investment program; rather, the impact would be smaller because the cost of clean stoves is it is a simulation based on the stocktaking exercise for various subsidized by the public sector for the first five years. In addition to the extra spending needed to purchase clean 57 The net present value (in 2010 dollars) of the cumulative increase in GDP was cookstoves, the project would also generate small administrative calculated using a social discount rate of 2.5, three, and five percent in Table D.3. 61 CLIM ATE - S M A RT D E V E L OP M E N T clean stove options identified under the China Clean Stove Initia- (corresponding to an aggregate benefit of more than one mil- tive (World Bank, 2013c). Thus there are no stated project benefits lion lives saved through 2033 and a monetized net present to scale up and compare. value of more than $1.5 trillion). However, the value of the benefits identified above can be • Reduced energy use of 450 GJ per year in 2030. estimated as net present values by interpolating the estimated • Near-term employment gains of about 22,000 jobs. 85,700 premature mortalities avoided annually in 2030 over the • $10.7 billion in net present value from GDP increases between 2014–2030 time period and extrapolating the declining avoided 2014–2033. mortality between 2030–2033 (as baseline rates of clean stove adoption rise to meet the policy scenario) and monetizing based Table D.3 categorizes these results as global public goods or on the estimated VSL for China now and in the future as national local socioeconomic benefits and presents a sensitivity analysis income grows. Based on this future stream of welfare benefits, the to the value of social discount rate used (including 2.5 percent net present value is calculated, assuming a social 3 percent dis- and five percent for comparison). count rate, at more than $1.5 trillion from avoided mortality. Given that the reduced emissions in this case study affect the rural poor, rather than the urban populations, it may overstate the monetized Development Project Case Study 4: benefit. However, because the estimate of lives saved only reflects Biogas Digesters and Photovoltaics in reduced exposure to outdoor pollution and does not account for the Mexican Agriculture indoor exposure, it is more likely to underestimate the true value. Summary and Conclusions Background: Mexican Agriculture Deployment of more than 72 million cleaner stoves between Over the past 15 years,Mexico’s rural sector has experienced 2014–2033 would require a public investment of $400 million in substantial reforms, which have led to a largely liberalized, the near term (through 2020) to establish a robust private market. market-oriented, and private sector-driven rural economy. Agri- The annual benefits in 2030 of such a scenario are estimated to culture remains an important part of the Mexican economy and include: an employer of a large share of the rural population. A number of second-generation reforms are needed, however, to diversify the • 87,900 avoided instances of premature mortality from outdoor country’s productive pattern and respond to the challenges of an air pollution globally, of which 85,700 would be within China increasingly integrated global market. According to Mexico’s Fifth Table D.3: Multiple benefits potential of clean cooking solutions in China Global Public Goods Local Socioeconomic Benefits MtCO2e Global Lives Saved Global Crop Losses Local Lives Saved Local Crop Losses Local Jobs Local GDP Avoided (thousand Avoided (thousand (thousands) tons) tons) 49 — — 1 million — 22 N/A Monetized NPV of Benefits Using 2.5% Social Disount Rate (million 2010 USD) Social value of Global Lives Saved Global Crop Losses Local Lives Saved Local Crop Losses Local Jobs Local GDP carbon Avoided Avoided $2,500.0 — — $1,700,000 — N/A $11,500 Monetized NPV of Benefits Using 3% Social Disount Rate (million 2010 USD) Social value of Global Lives Saved Global Crop Losses Local Lives Saved Local Crop Losses Local Jobs Local GDP carbon Avoided Avoided $1,500 — — $1,500,000 — N/A $10,700 Monetized NPV of Benefits Using 5% Social Disount Rate (million 2010 USD) Social value of Global Lives Saved Global Crop Losses Local Lives Saved Local Crop Losses Local Jobs Local GDP carbon Avoided Avoided $350 — — $1,100,000 — N/A $8,200 62 A n n ex D : Deta i l ed Deve l op men t Pr o j ec t C a se Studi es National Communication to the UN Framework Convention on through 2031, when 90 percent of pig and dairy farms would have Climate Change, agriculture continues to be an important source added manure biodigestion capacity and 90 percent of dairy farms of the country’s emissions (12 percent of its GHG emissions in would have installed motogenerators and PV systems. 2010 including both methane and nitrous oxide), primarily through Key assumptions in this analysis include: land-use change, tillage, synthetic fertilizers, and anaerobic decom- position of organic materials. To partially address these emissions • Emissions reductions, technology costs, and energy savings and to improve the agricultural sector’s contribution to the overall will scale according to data gathered from initial deployments economy, the Government of Mexico has prioritized increasing the under this program. Total dairy cattle herd was estimated at competitiveness and environmental sustainability of agriculture 3.2 million head and pig herd is estimated at 15 million head and agri-businesses by promoting energy efficiency (including based on USDA production forecasts.58 renewable energy) and biomass practices. • Project co-financing factors will remain, on average, about The successful Mexico Sustainable Rural Development Proj- 1.61 for biodigesters (in other words, for every $1.00 invested ect—$100 million in World Bank loans blended with a $10.5 million by the project, $1.61 is invested by the project beneficiary), GEF grant and additional contributions from the Government of 1.35 for generators, and 1.15 for PV systems. This level of Mexico and project beneficiaries—promotes investments to reduce beneficiary contribution indicates important buy-in by farmers GHG emissions from agribusiness, primarily from livestock pro- and supports the assumption of full coverage of operation and duction and value-added agro-processing. The project was based maintenance (O&M) variable costs by farmers and producers on four pillars: (i) the proportion of Mexico’s GHG emissions con- during the lifespan of the biodigester and renewable energy tributed by the agricultural sector; (ii) the Mexican government’s systems. prioritization of climate change adaptation and mitigation; (iii) the • One-third of the biodigesters funded under the project currently strong demand from Mexican producers and agro-processors for include an accompanying biogas generator for on-site energy technologies to save energy and reduce pollutants; and (iv) the generation. This proportion is expected to grow to one-half World Bank’s comprehensive engagement to support the Mexican as generators become more cost-effective and the number of government’s Climate Change Agenda, including the promotion suppliers in Mexico increases (currently there were only two of renewable energy and energy efficiency in rural areas, as well generator suppliers in the country in early 2013). as sustainable, climate-smart agriculture. • The amount of electricity generation from biogas genera- Since January 2010, the project has supported a number of emis- tors presented in the case study is conservative. The farms sions reducing and energy-efficient technologies. A majority of the currently generate sufficient energy for their own operation funds have supported the fixed cost of installation of biodigesters in (which reduces electricity costs and improves the continuity pig and dairy farms, based on demand from farmers. As of May 2013, of their electricity supply). Current policy restricts small-scale 303 biodigesters were installed—half in pig farms and the other half producers from uploading excess energy (or net metering) to in dairy farms. By the end of 2012, the entire original $50 million the national grid. This could change, however, allowing for loan had been fully committed, and a further $50 million loan had the sale of excess energy to the grid. been sought and approved. This indicates the steadily increasing • Given consistently high (and increasing) private sector demand demand for biodigesters, which is expected to continue as biodi- for project activities and the Mexican government’s region- gester technology becomes more widespread, more cost-effective, leading, committed role to climate change adaptation and and better adapted to the different production scales in Mexico. mitigation strategies, public investment for this program will scale linearly to achieve 30 percent of the national sector Nationwide Scale-up Analysis: Biodigesters potential for biodigester and PV systems in 2016–2021, 60 and PV Systems for Pig and Dairy Farms percent in 2021–2026, and 90 percent in 2026–2031. Potential for biodigester installation was estimated based on national While the original project has many components that support a statistics of pig and dairy-cow herds, with all calculations range of energy-efficient technologies, this case study focused broken down on a per-head basis and scaled accordingly. exclusively on continued deployment of biodigesters on pig farms Private sector versus public sector investment leverage ratios and a combination of biodigesters with motogenerators and PV (by sector) in initial fixed capital costs, as well ongoing O&M systems on dairy farms, where the higher electrical demand for costs, were assumed and projected over time based on actual milk cooling systems favors the added expense of electrical gen- project data. An underlying assumption is that the Government eration add-ons. The case study assumes that public funding is available to con- tinue leveraging the private sector investment in these technologies 58 http://www.thefarmsite.com/reports/contents/MexicoLivestock6March2014.pdf 63 CLIM ATE - S M A RT D E V E L OP M E N T of Mexico will continue to support the uptake of the new tech- costs go up and these costs are ultimately passed on to other sec- nologies, with this financial support decreasing (in real terms) tors. But the positive impact of lower energy consumption in the over time as the technologies become more widespread and agriculture sector, coupled with the partial offsetting of crowding cheaper. Hence the linear projection of this full implementa- out from the public subsidy, would result in a net positive impact tion simulation is based on the assumed technology uptake, on the economy as a whole. As a result, the net present value of with important underlying dynamics related to tradeoffs in the case study project through 2026 is $600 million, which rises costs (public and private), scale, number of beneficiaries, to $1 billion by 2031. and regulatory changes (related to energy policy and climate While this project has significant benefits for the environment, change targets). the agricultural sector, and the broader Mexican economy, its true potential benefits are far larger. For instance, policy reforms The project benefits include the reduction of nearly 10 Mt/year that would enable excess electricity generated to be sold back to of CO2e (mostly as methane recovered from the biodigesters and utilities could lead to significantly greater benefits to farmers who either flared as CO2 or utilized to generate electricity). In addition, generate electricity. This would enable the Mexican agricultural the project generates new jobs (with specific benefits for women sector to supply a significantly larger fraction of its own electrical and indigenous populations) and improved sanitary conditions due demand and provide additional carbon-free electricity generation to manure treatment. While these benefits may have significant to the grid. A detailed economic analysis of such a scenario is value, the current analysis focuses on those benefits that can be recommended. quantified and valued. Monetization of Benefits and Comparison Public Health and Agricultural Benefits to Stated Project Benefits The methane reductions, estimated as 9.4 Mt of CO2e per year As with the Brazil case study, the health benefits from methane in 2030, can significantly lower the health and agricultural dam- reductions are global in nature and do not necessarily accrue to ages from global background ozone. Estimated benefits include Mexico (only about 1–2 of the 180 annual avoided instances of 180 avoided instances of premature mortality from air pollution premature mortality would occur in Mexico).This aggregates to annually (but relatively few within Mexico) and 39,000 tons of more than 1,900 premature mortalities avoided between 2012–2031, avoided crop losses per year (again, mostly outside Mexico). monetized here at more than $4.1 billion. Using a 2010 global com- modity market price of approximately $170/ton, the avoided crop Macroeconomic Benefits losses have been interpolated over the analysis period, monetized, and discounted at three percent to estimate the net present value The direct and indirect impacts of this case study have been assessed of this benefit at about $45 million. In addition, applying the to be realized through two key channels. In the short term, the most social cost of carbon (U.S. Interagency Working Group on Social important channel is the impact of changes in spending as a result Cost of Carbon 2013) to projected CO2 reductions over the analysis of investment. The increase in spending provides a positive boost period provides a significant present value of $3.2 billion—or $2.2 to GDP in the short term, although some of the increase is offset billion in excess of the carbon finance value (approximately $16/ by the need to import capital goods. In the short term (2013–2021), ton based on project documentation). the increase in investment results in GDP rising by a cumulative These benefits should be compared with the stated benefits in $450 million (2010 dollars) as a result of the $270 million spent the project documentation. Project documentation estimated that by farming operations and public bodies on the new capital stock. “about 1.5 million tons of CO2 equivalent of possible emissions This in turn would generate approximately 1,400 new jobs. reductions (ERs) would be generated through biodigesters under The second key transmission channel is the impact of the the project over a period of five years. This would translate into reduction in energy (specifically electricity) consumption in the some $24.0 million of carbon credits.” Interpolating the reduction agriculture sector. A significant reduction in electricity use would potential between current estimates from Mexico’s Shared Risk have a positive impact on the sector, via a reduction in output Trust (FIRCO) and this report’s scaled estimates of full imple- prices, which would trigger an increase in demand. In isolation, mentation at the 9.4 Mt CO2e national potential in 2031 results this channel would have an unambiguously positive impact (in in a 20-year cumulative reduction of 103 Mt. Using the $16/ton both the short term and the long term) on Mexico’s agriculture value listed in project documentation, a carbon finance value of sector and the wider macroeconomy. $1.047 billion is derived—less than one-third the value based on Over the medium-to-long term, the positive boost from the the social cost of carbon. Subtracting present value costs (public increase in consumption would diminish as agricultural production and private sector investment over the period 2012–2031) of $623 64 A n n ex D : Deta i l ed Deve l op men t Pr o j ec t C a se Studi es Table D.4: Multiple benefits potential of sustainable agriculture in Mexico Global Public Goods Local Socioeconomic Benefits MtCO2e Global Lives Saved Global Crop Losses Local Lives Saved Local Crop Losses Local Jobs Local GDP Avoided (thousand Avoided (thousand (thousands) tons) tons) 103 1,900 410 15 1.5 1.4 N/A Monetized NPV of Benefits Using 2.5% Social Disount Rate (million 2010 USD) Social value of Global Lives Saved Global Crop Losses Local Lives Saved Local Crop Losses Local Jobs Local GDP carbon Avoided Avoided $5,000 $4,500 $48 $54 $0.18 N/A $1,140 Monetized NPV of Benefits Using 3% Social Disount Rate (million 2010 USD) Social value of Global Lives Saved Global Crop Losses Local Lives Saved Local Crop Losses Local Jobs Local GDP carbon Avoided Avoided $3,200 $4,100 $45.0 $50 $0.16 N/A $1,070 Monetized NPV of Benefits Using 5% Social Disount Rate (million 2010 USD) Social value of Global Lives Saved Global Crop Losses Local Lives Saved Local Crop Losses Local Jobs Local GDP carbon Avoided Avoided $700 $3,000 $34 $37 $0.12 N/A $820 present value of $3.2 billion based on the social cost of car- million yields a net present value of $424 million for the project’s bon (an additional $2.2 billion in carbon value beyond the stated benefits. stated benefits). • More than 1,900 avoided instances of premature deaths from Summary and Conclusions air pollution, with a NPV of more than $4.1 billion (mostly outside Mexico). The Mexican government’s commitment to greater competitiveness • Nearly 410,000 tons of avoided crop losses worth $45 million and environmental sustainability in agribusinesses and the agricultural (mostly outside Mexico). sector can be demonstrated through sustained investment in manure • A gain of 1,400 jobs. biodigesters and photovoltaics. A sustained investment that achieves • An 11 percent offset in national electricity demand. 90 percent penetration in Mexican farms of anaerobic digestion of pig • Increase of $1.1 billion in GDP between 2012–2031. and dairy cattle manure, and motogenerators and PV electricity genera- tion at dairy farms, would derive significant economic, public health, agricultural, and environmental benefits. These benefits include: Table D.4 categorizes these results as global public goods or local socioeconomic benefits and presents a sensitivity analysis to • More than 9.4 million Mt of CO2e reduction in methane the value of the social discount rate used (including 2.5 percent per year in 2030 (103 million tons over 20 years) with a net and five percent for comparison). 65