WRI TARGET INTENSITYMARGARET B YAMASHITAHYACINTH BILLINGSPUBLICATIONS - PDF document

1 November 2006 WRI „ TARGET: INTENSITYMAR
November 2006 WRI „ TARGET: INTENSITYMARGARET B. YAMASHITAHYACINTH BILLINGSPUBLICATIONS DIRECTORLAYOUT Each World Resources Institute report represents a timely, scholarly treatment of and guaranteeing its authors and researchers freedom of inquiry. It also solicits and stated, however, all the interpretation and “ ndings set forth in WRI publications are Copyright © World Resources Institute. All rights reserved. of 50%, 15% of which is post-consumer. WRI „ TARGET: INTENSITY many people. Our grateful thanks g

2 o to Joe Aldy, Maurice Lefranc, and Hara
o to Joe Aldy, Maurice Lefranc, and Harald Winkler who generously contributed their expertise and comments. Rob Bradley, Florence Daviet, John Larsen, Maria Cordeiro, and David Jhirad at the World Resources Institute also lent their valuable guidance.Special thanks go to Maggie Powell, Hyacinth Billings, Margaret Yamashita, and Bob Taylor for their help in designing, editing, and printing this report. We also want to extend our gratitude to the Wallace Global Fund and the Prospect Hill Foundation for their “ na

3 ncial support.Finally, we wish to acknow
ncial support.Finally, we wish to acknowledge Jennifer Layke and Jonathan Pershing for their WRI „ TARGET: INTENSITY WRI „ TARGET: INTENSITYWithin the broader context of these criteria, this report nds several interesting aspects of intensity targets and the absence of a target. Targets are not necessarily of a target. The Bush administrations climate policy gure A.intensity target. Voluntary targets have not succeeded rms whose production units are simple electricity. But intensity targets are less attr

4 active when cult to de“ ne or understan
active when cult to de“ ne or understand. cantly for Future uncertainty greatly complicates climate change policy, since to some degree the future levels countries. But intensity targets appear to be more cial to developing countries, ts of intensity for policies such as emissions trading. But even cially attractive, ts imagined. There are and address short-term uncertainty. policy goals. But the potential for confusion creates an and intuitively, more amenable to clean growth.Ž result in ambiguity. WR

5 I „ TARGET: INTENSITYcountries with resp
I „ TARGET: INTENSITYcountries with respect to intensity, which table show, are either small islandŽ or least developed coun-this group at 2,386 tons per million dollars, while France, at 343, is among the lowest countries in the world. Coun-low intensities and vice versa. For example, Japan ranks fth in terms of absolute emissions, but emissions intensity. On the other hand, Uzbekistan (not „although with respect to intensity, several countries cant with respect to intensity (Baumert, Herzog, and Pershing 20

6 05).Table sity, and trends for the top t
05).Table sity, and trends for the top twenty emitting countries. sity, it quickly becomes apparent that they are quite dis-tinct. Only one country, Ukraine, is in the top twenty with respect to both absolute emissions and intensity. (The top uencing GHG intensity are energy ciency and the fuels consumed. As a metaphor, consider ciency and fuel use in the intensityŽ of au- cient (uses less fuel per mile) or is ciency or fuel mix„will alter GHG intensity (and absolute emissions). Output (or activity) level

7 s, however, do uence intensity. In the
s, however, do uence intensity. In the car metaphor, whether cant GHG:National carbon intensity depends “ rst on a countrys ects both a countrys energy ef“ ciency levels cien- per BTU or joule. Coal has the highest carbon content, followed by oil and then natural gas. Accordingly, if two entities are identical in energy intensity, but one relies more heavily on coal than does the other, its carbon intensity will be higher. Finally, it is important to note that when For instance, CH cantly in” uenced by c

8 ommodity prices and shifts in inter-Note
ommodity prices and shifts in inter-Notes from land-use change and forestry. These emissions are not likely to correlate well with economic activity. DRIVERS OF GHG INTENSITY WRI „ TARGET: INTENSITY intensities is often most apparent at the sectoral level. In the electric power sector, ects the differences in the carbon content of fuels favored in different countries (see table 3). Fuel mixes, we (Baumert, Herzog, and Pershing 2005 chap. 8). As a rule, Cross-country intensity comparisons and an analysis of i

9 ntensity trends yield additional observa
ntensity trends yield additional observations. First, ciency gains from increased economic productivity and, in some cases, sectoral shifts away from resource-intense TABLE CO INTENSITY: TRENDS AND DRIVERSCarbon IntensityEnergy IntensityFuel MixCountryTons of COPercent Tons of Oil eq./ Percent Tons of COTon of Oil eq.Percent 1,368-14569-12.40-13Russia1,332-15537-132.48-389917326192.76-1South Africa823-2257-23.21-1Poland757-43226-393.34-7675-51219-543.087South Korea633-2258102.45-10Australia630-16210-152.99-1

10 579-17230-162.52-1Canada575-14278-152.07
579-17230-162.52-1Canada575-14278-152.0705132224112.1320Mexico453-9180-102.521410-9200-212.0516Germany400-29161-202.49-10381515562.46-1Japan369-615702.35-6363-29152-192.39-12306-10118-52.60-52631714661.8010France244-19171-61.43-1451123212354912224102World52915218132Source:Note: gures for Russia and Ukraine cover the period from WRI „ TARGET: INTENSITYATIONALE overnments, the private sector, and nonpro“ t ana-reduction, clean growth,Ž and public perception, each of often related rationales for intensity target

11 s. Whether any cation for . UNCERTAINT
s. Whether any cation for . UNCERTAINTY REDUCTION used in the Kyoto Protocol and other climate policy con- xed„or absolute„target that speci“ es a level Achieving a “ xed level of emissions at some future year cult xed emission But if the target is too loose it will have no or even an Baumert, Herzog, and Pershing 2005; Bouille and Girar-libert and Pershing 2002). Intensity targets may reduce rms) more emissions and 4.2). Under that policy, when given a choice between UK companies opted for the latter (de

12 Muizon and Gla- .2. CLEAN GROWTH they ma
Muizon and Gla- .2. CLEAN GROWTH they may be more amenable to clean growth.Ž This argu-reduction, energy security, and increased mobility (trans-and Baumert 2005). Unfortunately, economic growth, cult to in- uence through policy), exert upward pressure on GHG The clean growthŽ rationale is an attempt to reconcile icting priorities and overcome political ob- ciency and the uptake . FRAMING THE TARGET nal rationale for intensity targets is that they may fer any degree of stringency. But absolute targets are

13 frequently construed as caps,Ž not onl
frequently construed as caps,Ž not only on emissions but also on economic prosperity, and are thus deemed un-desirable. By contrast, emissions intensity, as discussed continue to grow. Given that growth in poorer countries is likely and even necessary, intensity targets might bet- WRI „ TARGET: INTENSITY ect the real challenge, namely, the decoupling of the concept of de-coupling environmental pressures Similarly, Pizer (2005) contends that intensity tar-mance standard across the entire economy. As discusse

14 d in section 4, both the Bush administra
d in section 4, both the Bush administration and the Na-tional Commission on Energy Policy use this rationale rms, and industry bodies all have y in this section and then evaluated in section 5. Table 4 summarizes es them accord- Target metricequivalent) or intensity terms. SimpleŽ intensity Some policies employ both absolute and intensity ed effort cult to measure and cannot c Legal character refers primarily to whether or not the target is legally binding. Whether a target is . ARGENTINAS VOLUNTAR

15 Y COMMITMENT under the Kyoto Protocol (A
Y COMMITMENT under the Kyoto Protocol (Argentine Republic other countries might then follow. Under Argentinas Conference of the Parties under the Climate Convention.Argentinas proposed target was designed to adjust GDP. However, the Argentinean intensity target was not linear. Instead, it adjusted emissions by the approach tried to accommodate Argentinas agriculture sector, which accounted for about 40 percent of its GHG from that of other economic sectors (Bouille and Girar-target (Bouille and Girardin 2002

16 ). To help formulate the as well as grow
). To help formulate the as well as growth in the agriculture sector. Policymakers xed (absolute), simpleŽ intensity, and the square root of intensity. Only the last approach entailed action to meet the target) (Bouille and Girardin 2002). eral reasons. First, other developing countries resisted it in order to avoid being pressured to follow Argentinas example. Second, there was no procedural opportunity to advance the proposal under the Kyoto Protocol, given WRI „ TARGET: INTENSITY . BUSH ADMINISTRATION TA

17 RGET In 2002, U.S. President George W. B
RGET In 2002, U.S. President George W. Bush announced a cally, the presidents (Bush Administration 2002, converted to COThe administrations reason for adopting this target is a mix of the clean growthŽ and framing rationales administrations suggestion that economic growth could ected in the administrations suggestion that its target did not pit economic growth against the environment.Ž Another aspect of the Bush administrations target is that it is voluntary. Instead of mandatory regulations, it Accor

18 ding to the administration, If, in nd
ding to the administration, If, in nd that es further policy action, the United States . NATIONAL COMMISSION ON ENERGY Founded in 2002, the National Commission on Energy Policy (NCEP) is a bipartisan group of twenty leading energy experts representing industry, government, aca-demia, labor, consumers and environmental protection.mate: A Bipartisan Strategy to Meet Americas Energy of energy, national Security, and climate change. To limit U.S. emissions, the NCEP (2004) recommends an environmental target

19 based upon annual reductions in emission
based upon annual reductions in emissions intensity.Ž According to the NCEP, between ect a 2.4 GDP. Meeting this target would slow emissions growth to 0.4 percent per year.Ž After the ing which GHG growth would slow, the NCEP (2004) sity would decline at 2.8 percent per year, roughly equal verse phaseŽ sometime after 2020.mandatory, and implemented through an economywide ect a policy. Therefore, framingŽ appears to be the operative . SECTORAL TARGETS Sectoral intensity targets are relatively common in Euro

20 -This was the case with the UK CCLAs, di
-This was the case with the UK CCLAs, discussed earlier. electric power, forest products, lime, minerals, and railroads„have intensity targets (see table 5). Two sec- ciency tar-policies as contributions to the Bush administrations and are not enforced by any regulations. Some industry associations, however, undertake evaluations and re- WRI „ TARGET: INTENSITY .7. OTHER APPROACHES First, several analysts discuss GDP irst, several analysts discuss GDP target is raised or lowered by a corresponding amountŽ (Fr

21 ankel ex-ibility. Frankel () and Philib
ankel ex-ibility. Frankel () and Philibert and Pershing (2002) the risk„as pointed out by Müller, Michaelowa, and Vroljik () and Dudek and Golub (2003)„that an Second, Lutter (2000) and Kim and Baumert (2002) ed the basic formula for an intensity target as Intensity Target =Here, cient is emissions, but at a lower, decreasing rate. Statistical tools could be used to determine an optimalŽ coef“ cient val-and GDP in a given country. Argentina used a variant statistical analysis, Lutter (2000) proposed an ci

22 ents„are quantitative re“ nements of a e
ents„are quantitative re“ nements of a economic decline in particular.TABLE SELECTED CORPORATE INTENSITY TARGETS, U.S. EPA CLIMATE LEADERS CompanyTarget MetricStringency/Time FrameScope/ApplicabilityBaxter International, Inc.GHG per unit of production Caterpillar, Inc.GHG per dollar revenueGeneral Electric CompanyGHG per dollar revenue Holcim (U.S.) Inc.GHG per ton of cementSC JohnsonGHG per pound productVolvo Trucks North America, Inc.GHG per truck producedSource: WRI „ TARGET: INTENSITYtotal emissions or emi

23 ssions intensity. This, however, is have
ssions intensity. This, however, is have criticized the Bush target on several grounds. One achieved even without any policy, implying that intensity awed. But these criti-. To illustrate, it is unlikely that environmental advo-over ten years. Using the administrations GDP assump-Thus, when evaluating any GHG limitation policy, gency, and legal character of the proposed actions. A particular form of target, such as intensity, may be or voluntary. Indeed, the Argentina case illustrates a country, calling for r

24 eal reductions relative to all future Fo
eal reductions relative to all future For environmental performance, what matters overall is cult challenge for en- UNDERSTANDING From a technical standpoint, intensity indicators are calculate and convert from one to another. But intensity culties with respect to how they culty arises from the simple de“ nition of in- ned in terms of production in the denom-inator, which can be quanti“ ed in several ways. Some from all production processes. Even GDP may not be en- TABLE HISTORICAL CHANGES VERSUS BUSH ADMIN

25 ISTRATION TARGETHistorical Bush Target 3
ISTRATION TARGETHistorical Bush Target 37.0%38.6%14.214.3 -16.7-17.5 SourceNotes: gures are percentage changes over a 10 year period. gure (to the “ rst cant digit) is - WRI „ TARGET: INTENSITYgrowth than under relatively slow or negative growth. By xed emissions target gested as one means of addressing this cost uncertainty, several different dimensions. First, do intensity targets national targets? Second, do intensity targets provide a ture emissions level? Finally, do intensity targets at the rms?To asce

26 rtain the feasibility of any emissions t
rtain the feasibility of any emissions target, emissions. By nature, however, projections of population some degree of uncertainty. Consequently, emissions cantly uncertainty, countries are„understandably„reluctant Figure 2 shows the emissions growth of selected Energy Information Administration (EIA). The height cant yet still plausible ected in the underlying scenarios. As the gure shows, different countries have signi“ cantly dif-greater ranges than do developed countries. For instance, the ranges of emi

27 ssions in China and South Korea are ve
ssions in China and South Korea are ve times as large as those in the United States, Mexico and Europe. These ranges are substantial; the By contrast, the uncertainty ranges in projected percentage point (United States, India, and South Korea) to four percentage points (Mexico). In addition, research by Lutter (2000) concluded that forecast errors decline as t valve (Pizer 1999). A price cap applies to emissions Market forces determine the price of emissions and, by higher one, a compliance target. No penalt

28 y (or bene“ t) ALTERNATIVE APPROACHES
y (or bene“ t) ALTERNATIVE APPROACHES TO REDUCING COST-UNCERTAINTY WRI „ TARGET: INTENSITYor intensity (de Muizon and Glachant 2004).However, intensity targets may not appeal equally to all rms. For diversi“ ed corporations that produce a variety cient across their production processes. For example, M, Gen- ed manufacturers have adopted voluntary, absolute emissions targets under the U.S. EPAs Climate Leaders program. Service “ rms rms for which a large share of emissions come nd that their consequently,

29 may opt for absolute targets. . IMPLEME
may opt for absolute targets. . IMPLEMENTATION: INTERACTIONS WITH rms as internal At both levels, the tradable unit requires a de“ nition. In or creditsŽ denominated in units of COlute units. But this requirement presents a dif“ culty for at some point in the future. For an emissions market to able commodity, even though the ultimate number of WRI „ TARGET: INTENSITYbe measured in many ways: local currency, U.S. dollars sures, can be expressed in either constantŽ or currentŽ ation or not). Experience to

30 (Argentine Republic and Kete ; Bush Adm
(Argentine Republic and Kete ; Bush Administration 2002; Kim and proposal, which used constant cant issue relates to monitor-ing and verifying GDP. At the international level, emis- absolute (capped) and a relative (intensity) sector. The thou- rms and industrial sites with an intensity target buy units to help comply with the CCLA or, in the event of rst two years of the system (2002 and 2003), 946 entities made at least one trade. Most of these rms with intensity-based targets under CCLAs lute and relati

31 ve sectors takes place through a Gatewa
ve sectors takes place through a GatewayŽ gure). Transfers are approved only if the net ow of allowances and credits to the relative sector is In theory, connecting the relative sector with the absolute ber of entities. However, because of the gateway mechanism, which provides for one-wayŽ trading, this bene“ t is achieved stringent targets, the Gateway will prevent the absolute sector the relative sector (de Muizon and Glachant 2004).From an economic perspective, the latter scenario results From an environ

32 mental point of view, however, the gatew
mental point of view, however, the gateway mechanism is a means of preventing the contaminationŽ some to be less environmentally robust (de Muizon and rst two years of the UK ETS, cant adverse rst two years of experience with the UK ETS, however, the extremely costly Climate Change Levy. Accordingly, most With small average purchases and very large consequences rms ect ac- INTENSITY TARGETS UNDER THE UK EMISSIONS TRADING SCHEME WRI „ TARGET: INTENSITY t as short-term policy instruments. Second, emissions

33 of cant economic sector. Finally, the
of cant economic sector. Finally, the use developing countries that lack such capacity. in regulatory schemes, and in particular, emissions trading. But data and experience suggest that there ts of intensity targets„greater cost as emissions trading systems. But even though this cially attractive, it does not ts imagined. The UK Emissions Trading Scheme includes an intensity target option, Furthermore, historical emissions and economic cial for internalizing long-term uncertainty, t for mitigating short

34 -term (annual) uncertainty. The annual v
-term (annual) uncertainty. The annual variations in uncertainty. policy goals. But the potential for misunderstanding Absolute and intensity targets and cost. But because intensity targets are based other priorities, in particular clean growth.Ž Since economic growth is often a priority in developing Furthermore, because intensity targets are perceived The downside of the framingŽ advantage are that cult for a broader context. Intentionally or unintentionally, cant reduction policy, and the frame them ob

35 jectively and with adequate context. For
jectively and with adequate context. For WRI „ TARGET: INTENSITYInventory of U.S. Greenhouse Gas Emissions and Sinks: . Washington, D.C.Personal communication regarding Global Anthropogenic Non-CO Greenhouse Gas Emissions: . Draft U.S. Environmental Protection Agency. 2006. Climate Leaders: Partner Goals. Available at http://www.epa.gov/climateleaders/partners/ghggoals.html (last accessed May Vergano, D. 2005. The Debates Over: Globe Warming. USA Today, June . Available at http://www.usatoday.x.htm?POE=NEWIS

36 VA (last accessed May Waldron, A. . Chin
VA (last accessed May Waldron, A. . Chinas Economic Façade. Washington PostMarch World Resources Institute (WRI). 2003. Analysis of the Bush Administration Greenhouse Gas Target. Updated February . Available at http://pdf.wri.org/wri_bush_analysis_.pdf (last accessed May 9, 2006).World Resources Institute (WRI). 2006. Climate Analysis Indicators Tool (CAIT). Version 3.0. Washington, D.C.: World Resources Institute. Available at http://cait.wri.org. WRI „ TARGET: INTENSITY WRI „ TARGET: INTENSITY The World Reso

37 urces Institute is an environmental rese
urces Institute is an environmental research and policy or-live in ways that protect Earths environment for current and future genera- To reverse damage to ecosystems. We protect the capacity of ecosystems to sustain life and prosperity. To expand participation in environmental decisions. We collaborate uence over decisions about natural resources. To avert dangerous climate change. We promote public and private action to ensure a safe climate and sound world economy. To increase prosperity while improving