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Ancillary Benefit Issues of Mitigation:Innovation, Technological Leapfrogging,

Employment,Sustainable Development

by

Eberhard Jochem1,2 and Reinhard Madlener2

1Fraunhofer-ISI, Karlsruhe and 2CEPE, Zurich

OECD Workshop on the Benefits of Climate Policy:Improving Information for Policy Makers

12/13 December 2002, Paris

Presentation Outline

� Traditional conceptual framework of ancillary benefits

• Enlarged conceptual framework

• Multi-functional processes, buildings, supporting services - co-benefits at the business economics level and related ancillary benefits

• Dynamics of policy-induced innovation of new technologies

• Slow technical progress vs. leapfrogging by foreign trade North/South

• Additional and decentralised net employment by resource efficiency

• Conclusions

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A Conceptual Framework of AncillaryBenefits and Mitigation Costs

Major attention on:

- Ecological / environmental / climate change effects

- Health effects

- Macro- and welfare economics

Not sufficiently covered:

- technological changes

- innovation dynamics

- foreign trade

Policies supporting sustainable development

Climate Policy Mitigation Ancillary Policies

environmental externali-ties (health, corrosion,crops)

climate change externa-lities (effects of storm,floods, migration etc.)

Production system

Services,

Institutions

private consumption,(decision andconsumptionpatterns)

net economic andsocietal externalities(more employment,faster developmentof DCs)

reduced GHG andother pollutants

higher product quality,increased capital orlabour productivity

reduced capital stockby pooling

leapfrogging in DCs byimports of resource-efficient technologies

Gross Mitigation Cost

Net Ancillary Benefits from Externalities Gross Ancillary Benefits or Co-Benefits

Ecologicalsystem

Focus of this paper

Enlarged Conceptual Frameworkof Ancillary Benefits

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Co-Benefits and Ancillary Benefits at the Level ofBusiness Economics

• Implicitly: traditional concept reflects mono-functionaltechnologies, i.e. energy converting technologies,such as engines, power plants, etc.

• Multi-functional technologies (buildings, industrialprocesses):– different objectives: increased product quality, or

comfort increased labour and capital productivityreduced production defect ratios

– resulting co-benefits, often not monetised,quantified, identified

– resulting ancillary benefits, e.g. increased economicefficiency (macro level)

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

050100150200250

heating oil (adapted heating cost)

incl. benefits of lower indoor temp.

incl. benefits of noise protection, low est.

incl. benefits of noise protection, high est.

improved indoor air quality, low est.

improved indoor air quality, high est.

Qh=MJ/m2a

NECHF/kWh

Marginal Net Costs of Investments inInsulation and Ventilation Systems

Wall insulation in roofapartments, roof insulation

Triple glazing

Improved indoorair quality

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Services Supporting Resource Efficiency

• Pooling of machines, appliances and vehicles

– co-benefits: smaller capital cost, but the sameservices

– ancillary benefits: more net employment, moreefficient use of materials and therelevant capital stock

• Contracting of media services (e.g. co-generation,compressed air, solvents)

• Moving services for single elderly people(experience: 20 m2 saved per person)

Dynamics of Policy Induced Innovations ofNew Technologies

• New technologies: expensive and often causing lessexternalities (e. g. wind energy, foamed plastics)

• Policy-induced innovations

� high potentials of decreasing cost by learning andeconomy of scale effects

� new incentives for further improvements oftraditional competitive technologies (e.g. heatpumps / boilers; fuel cells / combustion engines)

• These ancillary benefits are not reflected in mostmacro models!

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Ancillary Benefits in Developing

• Imports of used machines, dismantled plants, andused vehicles from OECD to DCs: a hundred billion$/a market

– steel works and refineries from the 1960s startingoperation today

– 1 mio. 10-year-old cars from OECD to DCs p.a.

– 75% of all investment goods in India have beenused in other countries before

• Hotels and office buildings in warm climates withoutwall insulation and double glazing

• Potential leapfrogging for less resource use bymodified trade rules: ancillary benefits on resourceuse and local pollution

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2

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0 10 20 30 40

-1RWI/Ifo, 1996

ISI-DIW, 1995

DIW,1997

DIW, 1994

Welsch, 1996

Öko-Institut 1996

Meyer et al, 1997

Cha

nges

in e

mpl

oym

ent

in %

Energy savings in relation to reference in %

Impacts of Energy Efficiency Policies onNet Employment in Germany

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Conclusions I

• Past analyses on ancillary benefits of mitigation focuson environmental, climate change, and health effects(macro view)

• Co-benefits and ancillary benefits are not only a policyissue, but may be important at the business level(multi-functional technologies, services supportingresource efficiency)

• Co-benefits and ancillary benefits often not monetised,quantified, or even identified, may have the sameorder of magnitude as direct benefits

• Dynamics of policy-induced innovations: unnoticedancillary benefits

• Foreign trade of used machinery, plants, and vehiclesslow down global resource efficiency

Conclusions II• Changed boundary conditions of foreign trades open

high potentials for ancillary benefits• As these ancillary benefits are not adequately covered

bv most economic models the results of net mitigationcosts are higher that in reality

• Increased net employment is an ancillary benefit ofmitigation

– important in many countries with highunemployment rates

– important for many rural and mountainous regions• Many ancillary benefits of mitigation are short-term

effects, while the objective of mitigation policies isvery long term

• All these aspects of ancillary benefits should supportmitigation policies and ought to be understood as acentral part of sustainable development policies

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Thank you for your attention!