12.2.1.1 Development paths as well as climate policies determine GHG emissions

For much of the last century, the dominant path to industrialization was characterized by high concurrent GHG emissions. The IPCC Third Assessment Report concluded that committing to alternative development paths can result in very different future GHG emissions. Development paths leading to lower emissions will require major policy changes in areas other than climate change. The development pathway pursued is an important determinant of mitigation costs and can be as important as the emissions target in determining overall costs ( Hourcade et al., 2001 [NPR, ARC] ) These findings were based on an extensive analysis of model-based emissions scenarios ( Morita and Lee, 1998 [ARC] ), a survey of more qualitative studies ( Robinson and Herbert, 2001 [SRC] ), and a comparison of stabilization scenarios ( Morita et al., 2000 [SRC] ) based on the IPCC SRES scenarios ( Nakicenovic et al., 2000 [NPR, SRC] ).

Developing countries do not have to follow the example of developed countries in terms of energy use ( UNCSD, 2006 [NPR] ), since the early stages of infrastructure development offer opportunities to satisfy their populations’ needs in different ways. Many factors that determine a country’s or region’s development pathway, and, closely related, its energy and GHG emissions are subject to human intervention. Such factors include economic structure, technology, geographical distribution of activities, consumption patterns, urban design and transport infrastructure, demography, institutional arrangements and trade patterns. The later choices with respect to these factors are made, the fewer opportunities there will be to change development paths, because of lock-in effects (e.g., ( Arthur, 1989 ) ). For detailed discussion, see Section 2.7.1 and Section 3.1.3 . An assessment of mitigation options should not be limited to technology, although this is certainly a key factor, but should also cover the broader policy agenda. Climate change mitigation can be pursued by specific policies, by coordinating such policies with other policies and integrating them into these other policies. Also, climate mitigation objectives can be mainstreamed into general development choices, by taking climate mitigation objectives routinely into consideration in the pursuance of particular development pathways.

Development policies not explicitly targeting GHG emissions can influence these emissions in a major way. For example, six developing countries (Brazil, China, India, Mexico, South Africa, and Turkey) have avoided through development policy decisions approximately 300 million tons a year of carbon emissions over the past three decades. Many of these efforts were motivated by common drivers, such as economic development and poverty alleviation, energy security, and local environmental protection ( Chandler et al., 2002 [NPR, SRC] ).The current state of knowledge does not allow easy quantitative attribution to specific policies with accuracy, given that other factors (as in any country) also influence these emissions. For example, autonomous technological modernization certainly has played a role. Chandler et al. 2002 [NPR, SRC] ), however, also clearly identify policies that have made a definite contribution. In Brazil, these included production and use of ethanol and sugarcane bagasse, development of the natural gas industrial market, use of alternative energy sources for power generation and a set of demand-side programmes promoting conservation and efficiency in the electricity and transportation sectors (See also Box 12.1 ).

In China, growth in GHG emissions has been slowed to almost half the economic growth rate over the past two decades through economic reform, energy efficiency improvements, switching from coal to natural gas, renewable energy development, afforestation, and slowing population growth. In India, key factors in GHG emission reductions have been economic restructuring, local environmental protection, and technological change, mediated through economic reform, enforcement of clean air laws by the nation’s highest court, renewable energy incentives and development programmes funded by the national government and foreign donors. In Mexico, expanding use of natural gas in place of more carbon-intensive fuels, promoting energy efficiency and fuel substitution by means that included energy pricing mechanisms, and abating some deforestation have played a major role. The policies in South Africa that contribute to lower growth in GHG emissions include restructuring the energy sector, stimulating economic development, increasing access to affordable energy services, managing energy-related environmental impacts, and securing energy supply through diversification. Finally, in Turkey, economic restructuring and price reform resulting from government moves to more market-oriented policies and the expectation of European integration, fuel switching, and energy efficiency measures have contributed to avoided GHG emissions ( Chandler et al., 2002 [NPR, SRC] ).

There are multiple drivers for actions that reduce emissions, and they can produce multiple benefits. The most promising policy approaches are those that capitalize on natural synergies between climate protection and development priorities to simultaneously advance both objectives. Many of these synergies are in energy demand (e.g., efficiency and conservation, education and awareness) and some in energy supply (e.g., renewable options).

Capturing these potential benefits is not always easy, since there are many conflicts and trade-offs. From the perspective of energy security, for example, it can be politically and/or economically attractive to give priority to domestic coal and oil resources over more environmentally friendly imported gas (e.g., SSEB 2006 [NPR, MoS] ). The adverse economic impact of higher oil prices on oil-importing developing countries is generally more severe than for OECD countries. This is because their economies are more dependent on imported oil and more energy-intensive, and because energy is used less efficiently. On average, oil-importing developing countries use more than twice as much oil to produce a unit of economic output as do OECD countries. Developing countries are also less able to weather the financial turmoil wrought by higher oil-import costs ( IEA, 2004a [NPR] ). For a discussion of the role of energy security for development paths, see Section 3.3.6 . Some studies have shown that, depending on how priorities are set, some conflict between local atmospheric pollution problems and global climate change issues may arise. This is because some of the most cost-effective, environmentally-friendly power generation technologies for the global environment available in developing countries, such as biomass-fired or even some hydroelectric power plants, may not be sound for the local environment (due to NO_x and particulate emissions in the former case, and flooding in the latter). Conversely, abating local air pollution generally is beneficial from a global perspective. Still, there are a few exceptions. Decreasing sulphur and aerosol emissions (with the exception of black carbon) to address local air pollution problems can increase overall radiative forcing, because these aerosols have a negative radiative forcing. Thus, exploring development paths requires careful assessment of both local environmental priorities and global environmental concerns ( Schaeffer and Szklo, 2001 [MoS, SRC] ).

In developed countries too, development choices made today can lead to very different energy futures. In the TAR, Banuri et al, 2001 [NPR, SRC] ) distinguished between strategies decoupling growth from resource flows (e.g., resource light infrastructure, eco-intelligent production systems, ‘appropriate’ technologies and full-cost pricing), and strategies decoupling wellbeing from production (intermediate performance levels, regionalization avoiding long-distance transport, low-resource lifestyles). Technological mitigation options at the sectoral level are mainly discussed in Chapter 4 to 11 which also cover to some extent non-technological options that relate to different development priorities, as far as the literature allows.

The connections between development pathways and international trade are often left unexplored. International trade allows a country to partially ‘de-link’ its domestic economic systems from its domestic ecological systems, as some goods can be produced by other economic systems. In such cases, the impacts of producing goods impact the ecological systems of the exporting country (where production takes place) rather than the ecological system of the importing country (where consumption occurs). One popular way of showing that the impacts of economic activities in many nations affect an area much larger than within their national boundaries is the ecological footprint (see Section 12.1.3 ). For example, the environmental effects of soya and hardwood production for export as fodder and construction material, respectively, are well-known examples. As a consequence, in discussing the implications of development choices for climate change mitigation, it is not enough to discuss development pathways for individual countries. To fully address global emission reductions, an integrated multi-country perspective is needed ( Machado et al., 2001 [SRC] ).

12.2.1.2 New global scenario analyses confirm the importance of development paths for mitigation

Section 3.1.5 discusses some factors that determine development paths, such as structural changes in production systems, technological patterns in sectors, such as energy, transportation, building, agriculture and forestry, geographical distribution of activities, consumption patterns and trade patterns. After publication of IPCC TAR, several new scenarios relating to climate change or global sustainability were published, making different assumptions for these factors. Most of them confirm the main findings of SRES (see also Chapter 3 ). It is important, however, to translate the lessons derived from scenarios (which are often global in scale) to national and even local level policy choices that can lead to the desired outcomes.

For the Millennium Ecosystems Assessment (MEA), four scenarios explored implications of development pathways for global and regional ecosystem services, loosely based on the SRES but developed and enriched further ( Alcamo et al., 2005 [MoS, ARC] ; Carpenter and Pingali, 2005 [NPR] ; Cork et al., 2005 [NPR] ). For the next 50 years, all scenarios find that pressures on ecosystem services increase with the extent of the pressure being determined by the particular development path. The MEA scenarios identify climate change next to land-use change as a major driver of biodiversity loss in the coming century. Quality of the services differs strongly by scenario - with the most positive scenarios finding a clear improvement in some services and the most negative scenario, finding a general decrease. The MEA scenario analysis, thus, emphasizes that development of ecosystem services, biodiversity, human wellbeing and the capacity of the population to deal with these developments is largely determined by the choice of development pathway.

The United Nations Environment Programme ( UNEP, 2002 [NPR] ), used SRES scenarios as well as the scenarios of the World Water Vision ( (Gallopin and Rijsberman, 2000 ) ) and the Global Scenario Group ( Raskin et al., 1998 [NPR, SRC] ) as inspiration for the development of four development pathways for the third Global Environmental Outlook (UNEP/RIVM, 2004 ): Markets First, Security First, Policy First and Sustainability First. Again, the different development pathways reflected by these scenarios are associated with a wide range of GHG emissions similar to the range captured by the SRES scenarios.

Shell’s Low Trust Globalization, Open Doors and Flags scenarios explore how different future development pathways could affect the company’s business environment. In the Open Doors scenario, CO₂ emissions increase most rapidly as a result of higher economic growth and the absence of security-driven investment in indigenous renewable energy sources, even if people may be more concerned about climate change than in other scenarios. The Low Trust Globalization scenario is characterized by larger barriers to international trade and cooperation. Paradoxically, there could be faster progress towards carbon efficiency as a result of a different set of policies aimed at energy efficiency, conservation and development of renewables, notably wind and, possibly, nuclear power. Finally, the Flags scenario with a patchwork of national approaches could show positive responses to climate change because of factors such as the pursuit of self-reliance (Shell, 2005 ).

Several scenarios developed since the TAR have explored different development pathways, but without explicitly addressing climate change or GHG emissions. The characteristics of these pathways in terms of the rate and structure of geopolitical, economic, social and technological development, however, would result in large variations in GHG emissions. Four scenarios developed by the US National Intelligence Council (Davos World, Pax Americana, A New Caliphate and Cycle of Fear) explore how the world may evolve until 2020 and what the implications for US policy might be, focusing on security concerns ( NIC, 2004 [NPR, MoS] ). The National Intelligence Council scenarios show the possible impacts of particular development pathways in some regions for other regions. Also, in several developing countries, different future development pathways have been explored in systematic scenario exercises, for example, China ( Ogilvy and Schwartz, 2000 [NPR, MoS] ); the Mont Fleur scenarios for South Africa ( Kahane, 2002 [NPR] ); the Guatemala Vision ( Kahane, 2002 [NPR] ); Destino Colombia ( (Cowan et al., 2000 ) ); Kenya at the crossroads (SID/IEA, (Society for International Development and the Institute of Economic Affairs), 2000 ). Taking global climate change explicitly into account would strengthen and enrich development-oriented scenarios as the ones mentioned above.

Case studies in Tanzania ( Agrawala et al., 2003a [NPR] ), Fiji ( Agrawala et al., 2003c [NPR] ), Bangladesh ( Agrawala et al., 2003b [NPR] ), Nepal ( Agrawala et al., 2003a [NPR] ), Egypt ( Agrawala et al., 2004b [NPR] ) and Uruguay (Agrawala et al., 2004a [NotFound] ) show how climate-change adaptation can be integrated with national and local development policies, often as a no-regrets strategy. Implementation of no-regrets strategies is, however, not without challenges. A study of the Baltic region explores a sustainable development pathway addressing broad environmental, economic and social development goals, including low GHG emissions. It points out that a majority of the population could favour - or at least tolerate - a set of measures that change individual and corporate behaviour to align with local and global sustainability ( Raskin et al., 1998 [NPR, SRC] Kaivo-oja et al. 2004 [MoS] ) conclude that climate change as such may not be a major direct threat to Finland. However, the effects of climate change on the world’s socio-economic system and the related consequences for the Finnish system may be considerable. The Finnish scenario analysis, which is based on intensive expert and stakeholder involvement, suggests that such indirect consequences have to be taken into account in developing strategic views of possible future development paths for administrative and business sectors.

Netherlands Environmental Assessment Agency ( MNP, 2005 [MoS] ) has developed the four IPCC SRES scenarios for a sustainability outlook for the Netherlands. The four scenarios represent four world perspectives with four different views on future priorities for action to make development more sustainable. This outlook points at several dilemmas. Surveys showed that 90% of the Dutch population prefer a future which would be different from the globalizing, market-oriented A1 scenario. Yet, A1 appears to be the future they are heading for. A majority of the population also thinks that something has to be done about unsustainable production and consumption patterns, and suggest that the government should do more. The study suggests that the regional (European) level may be the most appropriate level to address sustainability issues. Global political, economic and cultural differences make effective global policy difficult, while many sustainability issues go beyond local or national capacity to develop and implement effective policies.

Scenarios describe different states of the world that could come about by different developments in the driving forces that are often of a geopolitical nature and are largely unaffected by national or local policy-making. These scenarios studies reveal that different pathways are possible, but also that pursuing them involves many complex challenges. Such challenges include consideration of indirect effects, and difficulties in translating the often positive attitude of the population towards sustainable futures into concrete changes. Decision-makers have to consider the robustness of alternative development pathways they pursue through their policy choices, in the face of global developments they will be confronted with.

12.2.1.3 Development paths can vary by regions and countries because of different priorities and conditions

An understanding of different regional conditions and priorities is essential for mainstreaming climate change policies into sustainable development strategies (See Section 12.2.3 ). Since regions and countries differ in many dimensions, it is impossible to group them in a way consistent across all dimensions. There is a diversity of regional groupings in the literature using many criteria that are specific to their purpose within the underlying context. (For regional groupings, see Section 2.8 ).

As noted in Section 12.1.1 , the mitigative capacity of a nation is closely related to its underlying development path, which depends on the general pool of resources that may be referred to as response capacity. The response capacity including mitigative capacity of countries varies, amongst other factors, with their ability to pay for abatement costs. Winkler et al. 2007 [SRC, 2007] ) analysed the mitigative capacity of different countries as shaped by two economic factors: namely average abatement cost (or mitigation potential; high cost means low potential); and ability to pay, as approximated by GDP per capita. Ability to pay, measured by GDP per capita, is an important factor in mitigative capacity, since more wealth gives countries greater capacity to reduce emissions. The cost of abatement can act as a barrier in turning mitigative capacity into actual mitigation. Examining these factors together, Winkler et al. 2007 [SRC, 2007] ) found that the abatement costs are not linearly correlated with level of income. Some countries have high mitigative capacity (income) and are also able to translate this into actual mitigation due to low costs. For others, mitigative capacity is clearly low. Relatively high average abatement costs mean that this capacity can be turned into even less actual mitigation. Interestingly, there are some poorer countries with low abatement costs. Conversely, there are also countries with high mitigative capacity, as approximated by income, but high average abatement costs. However, this group of countries still has higher mitigative capacity, simply by virtue of their higher ability to pay. Low-income countries do not spend on mitigation even if they have low-cost mitigation opportunities, simply because the opportunity cost in terms of basic development needs is too high.

Developed economies: Developed economies are included in Annex I to the UNFCCC and are members of the OECD. CO₂ emissions from fossil fuel combustion accounted for over 80% of their total emissions in 2000 with negligible amounts from land-use change ( Table 12.1 ). These countries are also largely responsible for GHG emissions with high radiative forcing. Their population growth is projected to be low or negative ( UNDP, 2004 [NPR] ), income and level of human development are in the upper middle and high end of the spectrum ( UNDP, 2004 [NPR] ), and energy consumption and GHG emissions per capita are above the world average ( IEA, 2005 [NPR] ). These developed countries are assessed to be least vulnerable when compared to other groups of countries ( Adger et al., 2004 [NPR] ), with vulnerability scores lower than 15, close to the lower end of the spectrum ( Table 12.1 ). In general, mitigative capacity in these economies is high but cost can be high. As well as marginal cost of mitigation increases with the rate of energy efficiency. Nevertheless, there are large mitigation potentials in these countries. For example, passenger vehicle economy in North America and Australia is well below that in EU and Japan, even lower than some developing countries such as China ( An and Sauer, 2004 [NPR] ). Barring a few newly industrialized countries, most are highly industrialized with limited scope or need for large-scale expansion of the physical infrastructure, such as public utilities, physical transport infrastructure, and buildings ( Pan, 2003 [SRC] ).

Notwithstanding this limited scope or need for infrastructure expansion and economic growth figures often much lower than in many developing countries, the future will look different from today and low-carbon development pathways are possible. Improving energy efficiency, modernizing production and changing consumption patterns would have a large impact on future GHG emissions ( Kotov, 2002 [NPR] ). Developed countries possess comparative advantages in technological and financial capabilities in mitigation of climate change. Priority mitigation areas for countries in this group may lie in improving energy efficiency, building new and renewable energy, and carbon capture and storage facilities, and fostering a mutually remunerative low-emissions global development path through technological and financial transfer of resources to the developing world.

In many industrialized countries (e.g., Japan and in Europe), implications of energy systems with very low carbon emissions have been explored, often jointly by governments, energy specialists and stakeholders (e.g., Kok et al., 2000 [NPR, ARC] ). However, a fundamental and broad discussion in society on the implications of development pathways for climate change in general and climate change mitigation in particular in the industrialized countries has not seriously been initiated. Low-emission pathways apply not only to energy choices. For example, in North-America and Europe, UNEP 2002 [NPR] ) identifies land-use development, particularly infrastructure expansion, as a key variable determining future environmental stresses, including GHG emissions. Pathways that capitalize on advances in information technologies to provide a diverse range of lifestyle and spatial planning choices will also affect energy use and GHG emissions.

Economies in Transition: With EU enlargement, economies in transition as a single group no longer exist ^[4] . Nevertheless, Central and Eastern Europe and Commonwealth of Independent States share some common features in socioeconomic development ( UNDP, 2005 [NPR] ), and in climate change mitigation and sustainable development ( IPCC, 2001b [NPR] ; Adger et al., 2004 [NPR] ). With respect to social and economic development, countries in this group fall between the developed and developing countries ( Table 12.1 ). In terms of level of human development and vulnerability, for instance, these countries fall behind the developed countries but are well ahead of the developing countries. In certain key areas, however, they are closer to the developed countries in terms of population growth, levels of industrialization, energy consumption, and GHG emissions.. In other areas, including income levels and distribution, institutions and governance, they can show features similar to the developing world. GDP per capita level in some of these EIT countries is as low as that in the lower middle income developing countries (World Bank, 2003 [NPR] ), and energy intensity is in general high ( IEA, 2003a [NPR] ).

Although the 0.3 % per annum rate of economic growth in the past 15 years has been low, it is expected that in many countries, future rates could be high, which would contribute to an upward trend in GHG emissions. Measures to decouple economic and emissions growth might be especially important for this group through restructuring the economy ( Kotov, 2002 [NPR] ). Mitigative capacities are high as compared developing economies, but lower than those for developed economies due to a weaker financial basis. These capacities can be further enlarged through institutional reform, such as liberalization of the energy market and political determination to increase energy efficiency.

Developing Economies: Recently, interest at regional level in exploring development pathways which are consistent with lower GHG emissions has increased ( Kok and de Coninck, 2004 [NPR] ). This appears to be valid primarily for developing countries. Case studies focus on the future in the priority areas of energy supply, food security and fresh water availability in South Africa ( Davidson et al., 2003 [JoC, SRC] ), Senegal ( Sokona et al., 2003 [NPR, SRC] ), Bangladesh ( Rahman et al., 2003 [NPR] ), Brazil ( La Rovere and Romeiro, 2003 [NPR, ARC] ), China ( Jiang et al., 2003 [NPR, ARC] ) and India ( Shukla et al., 2003 [NPR, ARC] ) A common finding of these studies is that it is possible to develop pathways that combine low GHG emissions with effective responses to pressing regional problems. In the energy sector, energy security and reduced health risks can be effectively combined with low GHG emissions, even without explicit climate policies. Enhancing soil management, avoiding deforestation, and encouraging reforestation and afforestation can increase carbon storage, while also serving the primary goals of food security and ecosystem protection.

Although the developing economies are highly diverse, their general features contrast to those of the industrialized world. Levels of human development and consumption of energy per capita are much lower than those in the developed countries and in the economies in transition ( Table 12.1 ). GHG emissions from land-use change and agriculture are a significant proportion of their total emissions ( Ravindranath and Sathaye, 2002 [NPR, SRC] ; Baumert et al., 2004 [NPR, ARC] ).

Given the fact that energy consumption and emission per capita are low in the developing world, focus on climate mitigation alone may have large opportunity cost in terms of fiscal and human capitals, and therefore not be compatible with meeting sustainable development goals. With respect to levels of human development, UNDP 2005 [NPR] ) projects that by 2015 almost all developing regions will not be able to meet their Millennium Development Goals. With respect to access to clean water, for example, the 2015 MDG goal will be missed by 210 million people who will not have access, with 50% in South Asia, 40% in Sub-Saharan Africa, 7% in East Asia and the Pacific. Non-climate policies for sustainable development goals can be more effective in addressing climate change, such as population control, poverty eradication, pollution reductions, and energy security, as demonstrated in the People’s Republic of China ( Winkler et al., 2002b [JoC, SRC] ; PRC, 2004 [NPR] ). In order to realize the promise of leapfrogging, improvements are needed to the institutional capabilities of the recipient developing country and its energy and environmental policies in order to foster sustainable industrial development ( (Gallagher, 2006; ) Lewis and Wiser, 2007 [2007] ).

In aggregate terms, some large developing countries are included in the list of top 25 emitters ( Baumert et al., 2004 [NPR, ARC] ). These few developing countries are projected to increase their emissions at a faster rate than the industrialized world and the rest of developing countries as they are in the stage of rapid industrialization ( Pan, 2004b [SRC] ). For these countries, climate change mitigation and sustainable development policies can reinforce one another, however, financial and technological assistance can be help these countries to pursue a low carbon path of development ( Ott et al., 2004 [NPR, SRC] ). Emissions per capita for some developing countries, however, will continue to be lower than the industrialized countries for many decades.

For most other developing countries, adaptation to climate change takes priority over mitigation as they are more vulnerable to climate change and less carbon dependent ( Hasselmann et al., 2003 [JoC, ARC] ). However, both adaptive and mitigative capacities tend to be low ( Huq et al., 2003 [NPR] ). OPEC countries are unique in a sense that they may be hurt by development paths that reduce the demand for fossil fuels. Diversification of their economy is high on their agenda. Although climate change mitigation can be one consideration in evaluating poverty alleviation options, poverty has to be alleviated regardless of GHG emissions. Improved access to energy can lead to increasing GHG emissions, for example, where kerosene and propane use is more appropriate than biomass renewables. However, in absolute terms this is a minor increase in global GHG emissions (see also Section 12.2.4 ).

For most Small Island States, the key issue to sustainable development is the adoption of a comprehensive adaptation and vulnerability assessment and implementing framework with several priorities: sea level rise (high percentage of the population located in coastal areas); coastal zone management (including specially coral reefs and mangroves); water supply (including fresh water catchments);: management of upland forest ecosystem; and food and energy security. For some islands, extreme events, such as tropical hurricanes and El Niño and La Niña events, are an important threat.

In summary, different regions and types of countries have different contextual conditions to respond to, and therefore, their attempts to move towards a development path leading to sustainable development while also mitigating climate change, will vary considerably. Policy decisions will be most effective where made while recognizing these contextual conditions and where they relate and adapt to the existing regional and country realities.

12.2.3.1 State

The transition from government to governance recognizes the changing trends among political constitutions in developed and developing countries. While varying in speed and scope in individual states, these institutional reforms broadly span the domains of government and market activity, the powers of public executive administration relative to that of legislatures and courts, the degree of federalism within nation states, the organization of the financial system and capital markets, the demands of corporate governance and corporate social responsibility, the structure of industrial organization and public utilities, the strength and engagement of civil society organizations, and the delegation of national sovereignty to multinational and regional law and regimes ( Berger and Dore, 1996 [NPR] ; Hollingworth and Boyer, 1997 [NPR] ; Schmidt, 2002 [NPR, MoS] ; Heller and Shukla, 2003 [NPR, SRC] ).

The specific constellation of these reforms depends on the pre-existing institutions in a country, the local politics of reform and resistant domestic interests. Yet in almost all cases, the re-organization of governance institutions will have important implications for the choice of potential national development paths in key input sectors. For example, a recent study of electricity sector reforms in five leading emerging nations - China, India, South Africa, Brazil and Mexico - found that in no cases did the changes away from power provision through state monopolies correspond closely to the orthodox designs of electricity market reforms ( Box 12.2 ).

All five electricity sectors separate ownership of generation from transmission and distribution and allow participation in the generation markets by independent, often foreign, power producers. Nowhere have competitive generation markets flourished or has the state withdrawn substantially from system planning, tariff setting based on social and political criteria, infrastructure financing, or predominant ownership of major power sector firms ( Victor and Heller, 2007 [NPR, SRC, 2007] ). Yet, the consequences for climate friendly energy development have varied across these emerging markets because of nationally specific characteristics. Social goals, including increasing access and renewable power development, have not been interrupted. In some cases, such as the Indian State of Gujarat, the substitution of public grid power by privately developed stand-alone power plants has increased the rate of substitution of coal-fired generation by natural gas ( Shukla et al., 2005 [NPR, SRC] ). In Mexico, complex, financially problematic, government guarantees of tariffs have also encouraged gas fuel diversification from oil to gas. In other cases, including China, the ongoing flux in institutional reforms creates both risks of intensive coal-based power development and the opportunities of more climate friendly energy growth.

The choice of policies that governments seek and are able to pursue is influenced by the political culture and regulatory policy style of a country or region, and the extent of public expectations that their governments will take a strong or weak lead in pursuing policy responses. Earlier efforts to address the issues of institutional capacity for mitigation include a compendium of policy instruments ( DOE, 1989 [NPR] ); two collections of country studies ( Grubb, 1991 [NPR, ARC] ; Rayner, 1993 [JoC, SRC] ) and a review of the relevant social science literature on institutions ( O’Riordan et al., 1998 [NPR, SRC] ).

A substantial body of political theory identifies and explains national policy styles or political cultures. The underlying assumption is that individual countries tend to process problems in a specific manner, regardless of the distinctiveness or specific features of any specific problem; a national ‘way of doing things.’ The key features of prevailing ‘policy styles’ in various countries and regions of the world are highlighted.

Richardson et al. 1982 [NPR] ) identified national policy style as deriving from the interaction of two components “(a) the government’s approach to problem solving and (b) the relationship between government and other actors in the policy process.” Using a basic typology of styles, countries are subdivided according to whether national decision-making is anticipatory or reactive, and whether the political context is consensus-based or impositional. Many studies of national differences in institutional arrangements for making and implementing environment and technology policy emphasize the essentially cooperative approach to environmental protection in Europe and the more confrontational approach that predominates in the United States ( Lindquist, 1980 [NPR] ; Kelman, 1981 [NPR] ; Kunreuther et al., 1982 [NPR] Jasanoff 1986 [NPR] ) shows how information about established technologies, such as formaldehyde use, is interpreted differently by scientific advisory bodies in different countries. In particular, Brickman et al. 1985 [NPR] ) argue that decentralization of decision-making in the USA both increases the demand for scientific details of technological and environmental hazards and engenders competition between different explanations. Europeans generally expect national government, and increasingly the European Union, to take the lead in all matters pertaining to environmental safety and health, as well as economic and social welfare.

Recent empirical studies confirm the view that only detailed and case-specific analyses of government institutions and policies can illuminate national differences in the pursuit of environmental and other regulatory objectives. ( Weiner 2002 ) ) finds that, contrary to common assertions, the USA and Europe have not differed substantially in their use or implementation of the precautionary principle. ( Stewart 2001 ) ) finds that the USA has successively moved between alternative forms of environmental policies, beginning with command and control, before switching toward market instruments (permits and taxes), and later experimentation with flexible negotiated regulation and information based instruments.

In these cases, national political and regulatory cultures are distinguished by institutional factors, such as the judicial doctrines of administrative review and regulatory standards of general treatment, more than cultural predilections that support or restrict government action. Finally, governments appear to have varied traditions of policy preferences and authority. European governments and populations appear more comfortable with lifestyle (demand) regulation than do North American governments, which often tend to look to longer-run technology development support in collaboration with market actors ( Nelson, 1993 [NPR] ).

An important, though often neglected, issue in the choice of policy instruments is the institutional capacity of governments to implement the instrument on the ground ( Rayner, 1993 [JoC, SRC] ). This is often a matter of what countries with highly constrained resources think that they can afford. However, even industrialized nations exhibit significant variation with respect to the characteristics that would be considered ideal for the successful application of the complete suite of policy instruments listed above. These attributes include ( O’Riordan et al., 1998 [NPR, SRC] ):

• a well developed institutional infrastructure to implement regulation;
• an economy that is likely to respond well to fiscal policy instruments because it possesses certain characteristics of the economic models of the free market;
• a highly developed information industry and mass communications infrastructure for educating, advertising, and public opinion formulation;
• a vast combined public and private annual RD&D budget for reducing uncertainties and establishing pilot programmes.

To the extent that these close to ideal conditions for conventional policy instruments are missing, policy-makers are likely to encounter obstacles to their effectiveness. For example, both Brazil and Indonesia ( Petrich, 1993 [JoC] ) have carefully crafted forest protection laws that could be used to secure forest preservation and carbon management. However, neither country is able to allocate sufficient resources to monitoring and compliance with those laws to ensure that they are effective. Even in industrialized countries, competition for resources among state agencies responsible for promoting economic development and those responsible for environmental protection are almost universally resolved in favour of the former. In much of the developing world, the shortage of programmes resources is exacerbated by pressures to utilize natural resources to earn foreign income. This increases demands of population for energy, and pressures to convert forest land to human habitation. As a result, legislative initiatives often seem to “leave more marks on paper than on the landscape” ( Rayner and Richards, 1994 [NPR, SRC] ).

Less industrialized countries often have poor infrastructures, exacerbated by lack of human, financial, and technological resources. In addition, these countries are likely to focus on more basic considerations of nation building and economic development. The economic conditions of less-industrialized countries also present opportunities to achieve both sustainable development goals and emissions reductions measures at lower cost than in the industrialized countries.

The notions of adaptive and mitigative capacity advanced in the IPCC TAR appear to reinforce the idea that the capacity to develop and implement climate response strategies are essentially the same as those required to develop and implement policies across a wide variety of domains. They are largely synonymous with those of sustainable development. The issues and cases discussed here suggest that the challenges of capacity building for sustainable development is not confined to the less industrialized countries, but that industrialized countries also fall short of the capacity to respond to climate mitigation challenges in a sustainable fashion.

As O’Riordan et al. 1998 [NPR, SRC] ) note “the more that climate change issues are routinized as part of the planning perspective at the appropriate level of implementation, the national and local government, the firm, the community, the more likely they are to achieve desired goals. Climate policies per se are hard to implement meaningfully. However, merely piggybacking climate change onto an existing political agenda is unlikely to succeed.”

12.2.3.2 Market

Industry is a central player in ecological and sustainability stewardship. Accordingly, over the past 25 years or so, there has been a progressive increase in the number of companies taking steps to address sustainability issues ( Holliday et al., 2002 [NPR] ; Lyon, 2003 [NPR] ) at either the company or industry level (see Box 12.3 ). A number of companies have, as part of their corporate strategy, voluntarily defined goals that reflect social responsibilities and environmental concerns that go beyond traditional company obligations. Following this line of thinking, an increasing number of companies are defining targets for GHG emissions and sinks. Some of the more widely acknowledged corporate sustainability drivers include regulatory compliance, market opportunities, and reputational value. Lyon 2003 [NPR] ) hypothesizes that voluntary action on the environment might be explained by either a recognition by companies that pollution is a symptom of production inefficiencies, or a perception that consumers are willing to pay more for products with better environmental credentials. Either explanation would signal that markets are more important than regulation as an incentive for improved environmental performance. Lyon 2003 [NPR] ) suggests instead that “it is the opportunity to influence regulation that makes corporate environmentalism profitable”.

Some companies have recognized that pursuing sustainability offers potential cost savings ( Thompson, 2002 [NPR] ; Dunphy et al., 2003 [NPR, MoS] ). For example, by increasing energy and material efficiency in production and by reducing wastes, companies can reduce costs per unit of production and thereby gain a competitive market advantage ( Hawken et al., 1999 [NPR] ; Schaltegger et al., 2003 [NPR] ). This concept of ‘eco-efficiency’ further acknowledges that businesses which constantly work to evaluate their environmental performance will be more innovative and responsive businesses. DuPont, for example, has sought to elevate sustainability to the strategic level, using a three-pronged strategy involving integrated science, knowledge intensity and productivity improvements ( Holliday, 2001 [NPR] ). The company has achieved financial savings in excess of US$1 billion per annum, partly through reduced energy and raw material use and less waste ( Holliday, 2001 [NPR] ).

Lyon 2003 [NPR] ) suggests that the influence of ‘green marketing’ is modest in terms of shifting industry behaviour with respect to the environment. ( Senge and Carstedt 2001 ) ) position consumers as a key influence in shaping the ‘next industrial revolution’, founded on an economic system that genuinely connects industry, society and the environment. Their view is that a shift in consumer attitudes and values is an essential prerequisite to building sustainable societies. ( Schaefer and Crane 2005 ) ) conclude that a change in behaviour by the majority of consumers is not imminent. They suggest that it will require a sense of crisis to bring about a sea change in consumption patterns.

Managing stakeholder relations has also been identified as a corporate environmental driver. Many companies seek to improve relations with government, NGOs and local communities, because this can offer benefits, such as faster approvals for projects or products ( Thompson, 2002 [NPR] ), a continuing ‘licence to operate’, and greater scope for self-regulation. In regard to NGOs, improved relations can reduce or eliminate protests, such as consumer boycotts and direct lobbying ( Thompson, 2002 [NPR] ). Companies are also improving their environmental and social performance in response to demands from their corporate clients. Many large corporations, in particular, have introduced purchasing guidelines that place demands on suppliers to meet environmental performance standards ( Thompson, 2002 [NPR] ). The role of trade associations is another factor - including at the international negotiations ( Hamilton et al., 2003 [NPR, ARC] ).

Demands of investors, insurers and other financial institutions are providing further incentives in relation to sustainability. Through improved sustainability performance, companies can potentially increase the attractiveness of their shares in the market, reduce insurance premiums and obtain better loan terms ( Thompson, 2002 [NPR] ). For example, the rapid growth of socially responsible investment funds (SRIs) in the last decade is providing an incentive for greater corporate sustainability ( Thompson, 2002 [NPR] ; Borsky et al., 2006 [NPR, SRC] ). The role of institutional investors, and the growing concern in some business circles about liability due to inaction on climate change should also be acknowledged. This has led to a growing number of stakeholder initiatives to have publicly owned companies become proactive on climate change, and a growing number of initiatives to monitor and manage GHG emissions, even in the absence of domestic legislation and mandatory requirements (see Innovest, 2005; Cogan, 2006 ). The Carbon Disclosure Project has emerged as an important framework internationally for company reporting on their carbon footprint. Disclosure of environmental impact is increasingly seen as a crucial element of a company’s risk profile for legal liability as well as competitive position in the face of possible future regulation. For example, re-insurers, companies providing insurance to insurance companies, have shown considerable concern about how climate change could impact insurance claims. Zanetti et al. 2005 [NPR] ) suggest that climate change should be a core element in a company’s long term-risk management strategy. Risk and return, demand, compliance and enforcement regimes, amongst other factors, are also likely to have an impact on investment.

Notwithstanding these achievements, there is widespread debate as to whether industry’s responses to environmental decline and sustainability issues more generally are sufficient ( Elkington, 2001 [NPR] ; Sharma, 2002 [NPR] ; Doppelt, 2003 [NPR] ; Dunphy et al., 2003 [NPR, MoS] ).

All the same, notions of corporate social responsibility (CSR) have gained a wider hold. The essence of the CSR perspective is that there is a clear basis for businesses to widen their focus from simply profit maximization to include other economic, social, and environmental concerns. The arguments in support of CSR include competitive advantage ( (Porter and van der Linde, 1995; ) ( Porter and Kramer, 2002 ) ), notions of corporate citizenship ( (Marsden, 2000; ) Andriof and McIntosh, 2001 [NPR] ), and stakeholder theory ( Post et al., 2002 [NPR] ;( Driscoll and Starik, 2004; ) Windsor, 2004 [NPR] ). Drawing on the experience of DuPont, Holliday 2001 [NPR] ) acknowledges the importance of shareholder value, but adds that business practices focused on sustainability outcomes can generate financial gains.

( Colman 2002 ) ) reported that 45% of the Fortune Global Top 250 companies have issued environmental, social or sustainability reports. Similarly, CSR would seem to have become a more serious concern to European companies, though ( Pharaoh 2003 ) ) suggests it is primarily sales driven. In the UK, socially responsible investment ( Srivastava and Heller, 2003 [NPR, SRC] ) grew from US$ 46 billion in 1997 to US$ 450 billion in 2001 ( Sparkes, 2002 [NPR] Borsky et al. 2006 [NPR, SRC] ) report that the US$ 2.16 trillion of socially responsible investments held in the USA accounted for approximately 11% of the total investment assets under management in 2003 . The standards used by SRI funds to evaluate firms vary widely in the issues they address (with many simply staying away from weapons, tobacco, alcohol, and gambling) and how rigorously these standards are applied. Some SRI companies emphasize diversity and labour relations, while others focus on environment. There is no set of common criteria, and thus not all companies on SRI lists can be considered sustainable. However, growing public interest in SRI has led more companies to be concerned about a variety of social and environmental issues.

In considering the role of business, a distinction between multinationals and smaller, entrepreneurial enterprises is useful. A recent UK report identifies a difference in perspectives and approaches to global climate change in these two groups of businesses, with multinationals taking a long-term view, positioning for the future based on broad policy directions ( Hamilton and Kenber, 2006 [NPR] ). By contrast, smaller businesses, entrepreneurs or venture capitalists are more sensitive to the details of immediate or shorter term policy reforms. Similarly, there may be a difference even within the multinational sector between the energy suppliers (e.g., electricity producers/distributors, oil companies, or even coal companies) and energy intensive industries (e.g., chemical or aluminium companies). The former takes a longer term, market development or pro-active view and the later a more reactive view (e.g., BIAC/OECD/IEA, 1999 ). Finally, some companies are likely to be ‘winners’ with any effort to advance sustainable development through clean energy policies (e.g., insulation industry, window manufacturers, energy service companies) and some are likely to be ‘losers’ (e.g., producers of energy inefficient products). It is therefore difficult to speak about ‘market’ sector preferences because there are different types of businesses with significantly different perspectives in different places.

In summary, although there has been progress, the private sector can play a much greater role in making development more sustainable. As the number of companies that operate both profitably and more sustainably increases, the view that addressing social and environmental issues is incompatible with shareholder maximization may loose ground. Opinions vary on the extent to which business can be relied upon to meet sustainability objectives. These range from business being inherently self-interested and exclusively profit-driven, to socially responsible businesses going ‘beyond compliance’ are on the forefront of the sustainability curve. Although the issues are complicated, there can be no question that the shift towards improved sustainability is fundamentally connected to the social, economic and environmental performance of the private sector. This is especially true in relation to the issue of climate change.

12.2.3.3 Civil society

Civil society refers to the arena of uncoerced collective action around shared interests, purposes and values ( Rayner and Malone, 2000 [NPR, SRC] ). In theory, its institutional forms are distinct from those of the state, family and market, although in practice, the boundaries between state, civil society, family and market are often complex, blurred and negotiated. Civil society commonly embraces a diversity of spaces, actors and institutional forms, varying in their degree of formality, autonomy and power. Civil societies are often populated by organizations such as registered charities, development non-governmental organizations, community groups, women’s organizations, faith-based organizations, professional associations, trades unions, self-help groups, social movements, business associations, coalitions and advocacy groups ( Najam, 1996 [SRC] ). As this definition emphasizes, civil society is closely related to the more recent concept of ‘social capital’. As described by Putnam 1993 [NPR] ), social capital describes the overlapping networks of associational ties that bind a society together.

During the past three decades, the mantle of civil society has been increasingly claimed by non-governmental organizations (NGOs). The NGO sector has experienced an explosion in numbers worldwide as well as a proliferation of types and functions. There is considerable debate about the extent to which NGOs claim to be or even represent civil society in the traditional sense can be maintained. Certainly, their dependence on either government or business raises questions about the extent to which they are truly independent of the state and the market. According to The Economist 2000 [NPR] ), a quarter of Oxfam’s US$ 162 million income in 1998 was given by the British Government and the EU. World Vision US, which claims to be the world’s largest privately funded Christian relief and development organization, receives millions of dollars worth of resources from the US Government. The role of governments in supporting NGOs is not limited to financial support. At least one UK-based NGO has advised various small governments in climate negotiations and has even drafted text. Other NGOs are closely associated with the market sector, known as BINGOs (Business and Industry NGOs). A question frequently raised about NGOs is of accountability ( Jordan and van Tuijl, 2006 [NPR] ). Relatively few NGOs are directly accountable to members in the same way that governments are to voters or businesses are to shareholders, raising further questions about the extent to which their claims to the mantle of civil society are justified ( Najam, 1996 [SRC] ).

Whether they are truly ‘civil society’ or not, there is little doubt that NGOs can be effective in shaping development and environment. A multitude of interest groups, including civil society in its various manifestations, seek to influence the direction of national and global climate change mitigation policy ( Michaelowa, 1998 [ARC] ). Non-governmental organizations have been particularly active and often influential in shaping societal debate and policy directions on this issue ( (Corell and Betsill, 2001; ) ( Gough and Shackley, 2001; ) Newell, 2000 [NPR] ). The literature on the various ways in which civil society, and especially NGOs, influence global environmental policy in general and climate policy in particular, points out that civil society employs ‘civic will’ to the policy discourse and that it can motivate policy in three distinct but related ways ( Banuri and Najam, 2002 [NPR, SRC] ). First, it can push policy reform through awareness-raising, advocacy and agitation. Second, it can pull policy action by filling the gaps and providing policy services such as policy research, policy advice and, in a few cases, actual policy development. Third, it can create spaces for champions of reform within policy systems so that they can assume a salience and create constituencies for change that could not be mobilized otherwise.

The image of civil society ‘pushing’ for environmental protection and climate change mitigation policies is the most familiar one. There are numerous examples of civil society organizations and movements seeking to push policy reform at the global, national and even local levels. The reform desired by various interest groups within civil society can differ ( Michaelowa, 1998 [ARC] ). But common to all is the legitimate role civil society has in articulating and seeking their visions of change through a multitude of mechanisms that include public advocacy, voter education, lobbying decision-makers, research, and public protests. Given the nature of the issue, civil society includes not only NGOs but also academic and other non-governmental research institutions, business groups, and broadly stated the ‘epistemic’ or knowledge communities that work on better understanding of the climate change problematic. Some have argued that civil society has been the critical element in putting global climate change into the policy arena and relentlessly advocating its importance. Governments have eventually began responding to these calls from civil society for systematic environmental protection and global climate change mitigation policies ( (Gough and Shackley, 2001; ) Najam et al., 2004 [SRC] ). In particular, studies on the negotiation processes of global climate change policy ( (Levy and Newell, 2000; ) ( Corell and Betsill, 2001 ) ) highlight the role of non-governmental and civil society actors in advancing the cause of global climate change mitigation.

The role of civil society in ‘pulling’ climate change mitigation policy is no less important. In fact, the IPCC assessment process itself is a voluntary knowledge community seeking to organize the state of knowledge on climate change for policy-makers. It is an example of how civil society, and particularly how ‘epistemic’ or knowledge communities can directly add to or ‘pull’ the global climate policy debate ( (Siebenhuner, 2002; ) Najam and Cleveland, 2003 [SRC] ). In addition, the knowledge communities as well as NGOs have been extremely active and instrumental in servicing the needs of national and sub-national climate policy. This is done in various ways: by universities and research institutions writing local and national climate change plans; by NGOs helping in the preparation of national climate change positions for international negotiations and increasingly being part of the national negotiation delegations ( (Corell and Betsill, 2001 ) ); by civil society and epistemic actors playing key roles in climate change policy assessments at all levels from the local to the global.

Finally, civil society plays a very significant role by ‘creating spaces for champions of policy reform’ and providing platforms where these champions can advance these ideas. The Pew Climate Initiative and the Millennium Ecosystem Assessment are two examples of how civil society has created forums and space for discourse by different actors, and not just civil society actors, to interact and advance the discussion on where climate change mitigation and sustainable development policy should be heading. Increasingly, civil society forums such as these are very cognisant of the need to broaden the participation in these forums to other institutional sectors of society.

12.2.3.4 Interactions

The shift from ‘government to governance’ has been accompanied by both theoretical and a practical interest in how the three main arenas of actors – state, market and civil society – interact, including how they might work in concert to achieve improved outcomes from a sustainability perspective. A variety of perspectives are offered that cast light on these questions including ‘partnerships’ ( Najam et al., 2003 [Ambiguous] ;( Hale, 2004; ) ( Forsyth, 2005 ) ), ‘deliberative democracy’ ( Levine, 2000 [NPR] ; O’Riordan and Stoll-Kleeman, 2002 [NPR] ; Gutmann and Thompson, 2004 [NPR] ), and ‘transition theory’ ( (Geels, 2004; ) ( Elzen and Wieczorek, 2005 ) )

Each of these studies considers issues of governance in the context of sustainable development and climate change mitigation. Partnerships considers forms of cooperative governance and action, deliberative democracy deals with issues of representation in decision-making, Transition theory seeks to explain how technological innovation occurs and how these processes might be channelled towards changing the technological composition of development pathways, for example, in support of de-carbonization.

Partnerships: Partnerships between public and private actors can maximize impact by taking advantage of each partner’s unique strengths and skill sets. Partnership programmes can provide citizens groups with a lever for increasing pressure on both governments and industry to change in support of improved sustainability. From an economic development perspective, one of the potentially fruitful styles of partnership has been between governments and industry through BOT projects - Build, Operate, Transfer. Despite their promise as a means of financing large-scale capital intensive projects, there have been significant difficulties in practice (see Box 12.4 ).

Cooperative environmental governance models offer advantages such as a more structured framework for pluralist contributions to policy, consensus-building, more stable policy outcomes, and social learning. Although these cooperative models allow for more stakeholder participation, it is also suggested that they fail to fully address exclusion of minority and less powerful groups, non-representative outcomes, and a failure to integrate local knowledge. An analysis of waste-to-energy projects in the Philippines and India confirms that such problems will be encountered ( (Forsyth, 2005 ) ).

The notion that partnerships between sectors is the wave of the future was given particular salience by the World Summit on Sustainable Development in Johannesburg, South Africa, in 2002 . There, several ‘Type II’ partnerships were launched involving various combinations of governments, business and civil society actors ( Najam and Cleveland, 2003 [SRC] ;( Hale, 2004; ) ( Bäckstrand and Lövbrand, 2006 ) ). Although too early to evaluate the impacts, these particular partnerships, represent a larger trend in the last decade with a far greater level of partnership activities between governments and NGOs, and between government and business, and now increasingly all three. Such multi-sector forums and partnerships are no longer limited to a few industrialized countries or to particular sectoral mixes. There are now cross-sectoral partnerships and the search for meaningful cross-sectoral partnerships in developing and industrialized countries alike and initiated equally by governments, business and civil society.

Deliberative Democracy: According to ( Pimbert and Wakeford 2001 ) ), various social and political factors have brought support to the use of deliberative processes in policy-making, planning and technology assessments. According to Levine 2000 [NPR] ), public debate over issues such as global warming provides the public opportunity to form opinions, where otherwise such an opportunity might not exist. Additionally, deliberative processes provide decision-makers with insight into the public mood and, public deliberation provides the opportunity for the public to justify their views on matters of concern.

Notions of deliberative democracy emerge from the observed shift from ‘government to governance’, in that they refer to shared responsibility for the design of policy. O’Riordan and Stoll-Kleeman 2002 [NPR] ) suggest that policy spaces are no longer characterized by hierarchical orders; opportunities have been opened for a variety of forms of public-private cooperation, policy networks, formal and informal consultation, working across scales from multinational to local. The drivers, they suggest, include a need for new approaches to decision-making, occasioned by new mixes of private, public and civic actors.

There are at least five issues that continually challenge social scientists engaged in the design and implementation of participatory mechanisms, such as consensus conferences, focus groups, citizens’ juries, and community advisory boards. These are:

• Representation – Who and how to select. The challenge is achieving representativeness of a community and establishing the legitimacy of those participating to speak on behalf of others;
• Resources – Participatory decision-making requires substantial investment by all parties, chiefly, funding and logistical support on the part of governments and business and time on the part of citizens;
• Agenda framing – Too narrow a framing prejudges the issues, but overly broad framing frustrates closure;
• Effectiveness – Does citizen involvement have impact on decisions. Disaffection deepens when citizen deliberations are not seen to have traction and people think their time has been wasted;
• Evaluation – This is seldom done, and when done, is usually self-evaluation of process rather than of outcomes.

Transition Theory: What can loosely be referred to as ‘transition theory’ ( (Elzen and Wieczorek, 2005 ) ) offers another perspective on ‘society – market – state’ relations, but importantly also presents some insights into how societies can shift onto more sustainable paths. Berkhout 2002 [JoC] ) observed that energy and climate change policy communities are confronted with a major challenge in the form of shaping a substantially de-carbonized future. This necessitates a better understanding of the links between technologies and the institutions in which they are imbedded ( (Geels, 2004 ) ).

The important questions refer to the factors that impede transitions and, of particular interest to policy communities, how transitions could be induced. Socio-technical systems are often characterized by technological lock-in and path dependency. Actors and organizations become imbedded in interdependent networks and mutual dependencies ( (Walker, 2000; ) Berkhout, 2002 [JoC] ;( Geels, 2004 ) ( Elzen and Wieczorek 2005 ) ) outline options for inducing innovation under different governance paradigms – the top-down, command-and-control approach (state) a market model, or through policy networks (processes, interactions, networks). ( Geels 2004 ) ( and Smith 2003 ) ) approach the same question from a different perspective, both concluding that radical innovations are nurtured in ‘niches’. Thus: “Climate change, for instance, is currently putting pressure on energy and transport sectors, triggering changes in technical search heuristics and public policies” ( (Geels, 2004 ) Berkhout 2002 [JoC] ) offers that substantial commitment is required from governments and businesses to invoke transitions.

While the literature on transition theory is vague on how to induce innovations, such as those that might bring about a shift onto a more sustainable development path. It usefully emphasizes the importance of interactions among actors/organizations, technology, and institutions. For a shift to a more sustainable path, ( Smith 2003 ) ) provides an important reminder that technical change has traditionally occurred in the context of economic growth. Sustainable development, he suggests, implies that “the problem ordering shifts subtly yet profoundly”, which will establish new challenges in achieving “publicly managed transitions towards environmentally sustainable technological regimes” ( (Smith, 2003 ) ). In the context of climate change, acknowledged in the literature on transition theory as an impetus for technological innovation, this challenge needs to be addressed; this will require new approaches to the governance of technological change and innovation ( Berkhout, 2002 [JoC] ;( Elzen and Wieczorek, 2005 ) ).

12.2.3.5 Policy implications

The discussion above implies that actors and actor coalitions are important and that there is increasing evidence of multi-level patterns of governance and transnational networks of influence on climate change and other global environmental issues. These networks join actors across organizational boundaries; business representatives and environmental non-governmental organization activists may join shareholders, government policy communities and scientists to promote (or stall) action ( Haas, 1990 [NPR] ;( Levy and Newell, 2000; ) Fairhead and Leach, 2003 [NPR] ;( Paterson et al., 2003; ) ( Biermann and Dingwerth, 2004; ) ( Haas, 2004; ) Levy and Newell, 2005 [NPR] ). Also, local and regional governments are increasingly active and may provide an invaluable testing ground and experience with mitigation policy in key areas, such as transportation ( (Betsill and Bulkeley, 2004; ) ( Lindseth, 2004; ) ( Bulkeley and Betsill, 2005 ) ). This suggests that policy-makers could do a number of things differently to promote understanding of climate change and agreement on policy responses to climate change:

• Create ‘policy spaces’ for non-state actors, scientists, and experts to interact with government actors; actively facilitate interactions between experts and other stakeholders to build trust, understanding and support for action across a wide range of actors (Ostrom, 1990; Ostrom, 2000; Stern, 2000; Banuri and Najam, 2002; Ostrom et al., 2002). Such activity would provide benefits if built from the bottom-up (building on experience and viewpoints from an increasingly active municipal and community level set of response) and from the top-down (working across elites in government or in scientific/expert and other NGO circles).
• Institutionalize opportunities for public debate and wider interactions within the public sphere on environmental issues (Renn, 2001; Bulkeley and Mol, 2003; De Marchi, 2003; Liberatore and Funtowicz, 2003). By creating the means for dialogue and collaboration to construct understanding about global environmental change, participants have the opportunity to formulate views – talk leads to value formation – which can ultimately generate public support for political action (Dietz and Stern, 1995; Dietz, 2003).
• Encourage and facilitate local action and experimentation – where local communities have the potential to work more closely with affected stakeholders and tailor response strategies to the community’s values and norms (Cash and Moser, 2000). Local action on climate change interacts with governance and action taken at different scales (e.g., at national and international levels; Bulkeley and Betsill, 2005).

Domestic policy processes influence international policy opportunities and constraints on climate change ( Fisher, 2004 [NPR] ). Any domestic policy process will necessarily be working to develop a position with input across the range of actors, for example, market, state, civil society and science/expert communities ( Hajer, 1995 [NPR] ; SLG, 2001 [NPR] ; Fisher, 2004 [NPR] ). How this plays out will, to some extent, be influenced by different cultural and social biases in governance at the domestic level (e.g., whether science and business have a privileged role in the policy process; the access and influence of environmental organizations; how coalitions of actors across these groups interact with the policy process). On issues of global environmental change, scientists and other experts necessarily play a privileged role to advise governments ( Jasanoff, 1990 [NPR] ; Giddens, 1991 [NPR] ; Beck, 1992 [NPR] ; Yearley, 1994 [NPR] ; Jasanoff and Wynne, 1998 [NPR] ), forming what Haas 1990 [NPR] ; 2004 ) has referred to as transnational epistemic communities or networks of influence. Given large uncertainties, global environmental change science argues for policy processes that give a central role to public deliberation about the issues – to facilitate common framings about the problem and eventual agreement on responses ( (Funtowicz and Ravetz, 1993; ) Hajer and Wagenaar, 2003 [NPR] ; Stern and Fineberg, 1996 [NPR] ).

Ultimately, devising effective climate change mitigation strategies depends on good governance practices, which is the essence of sustainable development, for example, whole-of-government decision-making; synergies among economic, environmental and social policies; coalition-building; political leadership; integrated approaches; and policy coherence.

12.2.4.1 Energy

The implications of four broad categories of energy policies on emissions are discussed: provision of affordable energy services to the poor; liberalization; energy efficiency; and energy security. Policies that support the penetration of renewable energy - which are often introduced for non-climate reasons, but are also obvious tools for climate mitigation in the energy sector - are discussed in Section 4.5 .

Access to Energy: Access to energy is critical for the provision of basic services such as lighting, cooking, refrigeration, telecommunication, education, transportation or mechanical power ( Najam et al., 2003 [Ambiguous] ). Yet, an estimated 2.4 billion people rely on wood, charcoal or dung for cooking, and 1.6 billion are without access to electricity ( IEA, 2004c [NPR] ). Providing access to commercial fuel and efficient stoves would have highly positive impacts on human development by reducing child mortality, improving maternal health, and freeing up time used to collect fuel wood, especially for women and girls ( Najam and Cleveland, 2003 [SRC] ; Modi et al., 2006 [NPR] ). For example, indoor air pollution, mainly from cooking and heating from solid fuels, is responsible for 36% of all lower respiratory infections and 22% of chronic obstructive pulmonary disease ( WHO, 2002 [NPR] ). See also Chapter 4 and Chapter 6 . It is estimated that a shift from crop residues to LPG, kerosene, ethanol gel, or biogas could decrease indoor air pollution by approximately 95% ( (Smith et al., 2000 ) ). The impact on GHG emissions depends on the nature of the biomass resources and the carbon intensity of the replacement. Providing reliable access to electricity would also have highly positive impacts on human development, by providing preconditions for the development of new economic and social activities, for example, allowing for education activities at night and employment generating business initiatives (World Bank, 1994 [NPR] ;( Karekezi and Majoro, 2002; ) Spalding-Fecher et al., 2002 [NPR] ;( Toman and Jemelkova, 2003 ) ).

The implications of improved access to commercial fuels for cooking on GHG emissions are ambiguous. On the one hand, emissions increase, albeit by a small amount globally. Smith 2002 [JoC] ) estimates that providing LPG as fuel for roughly two billion households would increase global GHG emissions by about 2%. On the other hand, unsustainable use of fuelwood and related deforestation decreases. For example, the ‘butanization’ programmes adopted in Senegal in 1974 to support LPG use through a combination of subsidies to LPG, support for the development for stoves suitable for local conditions and removal of tax on imported equipment, is estimated to have resulted in a 33-fold increase in LPG use, and in a 15% drop of charcoal consumption ( Davidson and Sokona, 2002 [NPR, SRC] ). Similarly, the implications of electrification programmes for GHG emissions are ambiguous. Energy demand is likely to increase as a result of easier access and induced economic benefits. However, emissions per unit of energy consumed might decrease, depending on the relative carbon content of the fuel used in the baseline (typically kerosene) and of the electricity newly provided ( de Gouvello and Maigne, 2000 [NPR] ). Public policies have a strong influence on this technology choice. In some cases, the technology is set directly by public decision-makers. But even where left to private entities, public policies, such as the choice between centralized or decentralized models of electrification, or the nature of the fiscal system, strongly constrain technology choices.

One example of such indirect impact is documented by Colombier and Hourcade 1989 [ARC] ). They found that the “equal price of electricity for all” principle embedded in French law has generated vast implicit subsidies from urban to rural areas and discouraged, over time, the development of cost-effective decentralized electrification alternatives to grid expansion. The expanded grid the country is locked into, however, is the source of very high maintenance and upgrading costs to accommodate increased demand from rural households and companies – much higher than would have occurred had decentralized solutions been implemented at the onset. The implications for GHG emissions (not studied in the paper) are probably limited given the share of nuclear power in France. But similar dynamics could have more important GHG emissions implications in countries with fossil-fuel dominated power grids.

Liberalization: Many countries have embarked on liberalization of their energy sector over the past two decades. These programmes with the objective to reduce costs and improve efficiency of energy services include privatization of the energy producers, separation between production and transmission activities, liberalization of energy markets, and lifting restrictions on capital flows in the sector. Overall, liberalization programmes aim at improving the efficiency of the energy sector, and should, therefore, lead to reduced emissions per unit of output. Effective privatization programmes, however, differ markedly from country to country ( Kessides, 2004 [NPR] ), depending on prior institutional arrangements. In addition, privatization programmes are often sequentia. See, for example, ( Jannuzzi 2005 ) ) for a discussion on how the Brazilian regulator progressively adapted policies to elicit sufficient resources for energy efficiency and R&D from private utilities. These policies are often ‘incomplete’, in the sense that former public power generators remain dominant by combining features from both the public and private sector, an outcome very different from the ideal private energy markets ( Victor and Heller, 2007 [NPR, SRC, 2007] : see also Section 12.2.3.1 ). It may, therefore, not be surprising that there is little literature drawing general lessons on the implications of privatization programmes on GHG emissions.

A great deal of literature, however, deals with the emission implications of some components of privatization programmes, particularly removal of energy subsidies. Energy subsidies removal may also be adopted as a stand-alone policy, independent from privatization. Conversely, subsidies may remain even within competitive markets. Government subsidies in the global energy sector are in the order of US$ 250-300 billion per year, of which around 2-3% support renewable energy ( (De Moor, 2001 ) ). Removing subsidies on energy has well-documented economic benefits. It frees up financial resources for other uses and discourages overuse of natural resources ( UNEP, 2004 [NPR] ). But, reducing energy subsidies might have important distributional effects, notably on the poor, if not accompanied by appropriate compensation mechanisms. The impact of policies to reduce energy subsidies on CO₂ emissions is expected to be positive in most cases, as higher prices trigger lower demand for energy and induce energy conservation. For example, econometric analyses have shown that price liberalization in Eastern Europe during the period 1992 - 1999 was an important driver of the decrease in energy intensity in the industrial sector ( Cornillie and Fankhauser, 2002 [NPR] ). Similarly, removal of energy subsidies has been identified as instrumental in reducing GHG emissions compared with the baseline in China and India over the past 20 years ( Chandler et al., 2002 [NPR, SRC] ). Overall, an OECD study showed global CO₂emissions could be reduced by more than 6% and real income increased by 0.1% by 2010, if support mechanisms on fossil fuels used by industry and the power generation sector were removed ( OECD, 2002 [NPR] ). Yet subsidies removal may actually result in increased emissions in cases where poor consumers are forced off-grid and back to highly carbon intensive fuels, such as non-sustainable charcoal or diesel generators. For example, removal of the subsidies for LPG in Senegal under the ‘butanization’ programmes discussed above is expected to increase charcoal and unsustainable fuelwood use ( Deme, 2003 [NPR] ). For additional discussion on energy subsidies, see Section 4.5.1 and Section 6.8.3.2 and Section 13.2.1.5 .

Energy Efficiency: Policies that increase energy efficiency – both on the demand and on the supply side – are pursued to reduce demand for energy without affecting, or while increasing, output at very low costs. This is the case even though some of the direct efficiency gains might be offset by increased demand due to lower energy costs per unit of output. Efficiency also increases competitiveness, relaxes supply constraints and, therefore, enhances the range of policy options and space, and lowers expenditure on energy thereby freeing up more resources for other development goals. The impact on CO₂ emissions, in turn, tends to be positive, but depends heavily on the carbon content of the energy supply. For example, Brazil National Electricity Conservation Program (PROCEL), created in 1985, has saved an estimated 12.9 TWh and an estimated R$ 2.6 billion from 1986 to 1997 . This is 25 times as much as the amount invested in the programmes, while reducing emissions by an estimated 3.6 Mt CO₂ over the same period of time ( La Rovere and Americano, 1999 [NPR, ARC] ; Szklo et al., 2005 [SRC] ). Similarly, ( Palmer et al. 2004 ) ) estimate that the annual energy savings generated by all current Demand-Side Management programmes (DSM) in the USA represent about 6% of the country’s non-transportation energy consumption. This leads to reductions in CO₂ emissions equivalent to (at most) 3.5% of the country’s total. DSM programmes are also discussed in Section 6.8.3.1 and Section 5.5.1 .Over the period 1973 - 1998, the International Energy Agency ( IEA, 2004b [NPR] ) estimates that energy efficiency - driven both by policies and by autonomous technical improvements - have resulted in energy savings corresponding to almost 50% of 1998 energy consumption levels. Without these savings, energy use (and CO₂ emissions) in 1998 would have been almost 50% higher than observed.

Energy Security: Energy security is broadly defined as ensuring long-term security of energy supply at reasonable prices to support the domestic economy. This is a major concern for Governments worldwide, and it has taken new prominence in recent years with the political instability in the Middle East, increased oil prices, and tensions over gas in Europe ( (Dorian et al., 2006; ) ( Turton and Barreto, 2006 ) ). Energy security concerns, however, can translate into very different policies depending on national and historical circumstances ( (Helm, 2002 ) ). Their impact on carbon emissions is ambiguous, depending on the nature of the policies and, in particular, on the fuel sources being favoured. For example, in response to the first oil shock, Brazil launched in 1975 the National Alcohol Fuel Program (PRO-ALCOOL) to increase the production of sugarcane ethanol as a substitute for oil, at a time when Brazil was importing about 80% of its oil supply ^[5] . The programmes resulted in reduction of oil imports and expenditure of foreign currency and job creation, as well as in large emission reductions, estimated at 1.5 Mt CO₂/yr ( Szklo et al., 2005 [SRC] ). Brazil also provides an example where emissions actually increased as a result of energy security considerations. During the 1990 s, Brazil faced lack of public and private investment in the expansion of the power system (both generation and transmission) and a growing supply-demand imbalance, which culminated in electricity shortage and rationing in 2001 . This situation forced the country to install and run emergency fossil-fuel plants, which led to a substantial increase in GHG emissions from the power sector in 2001 ( (Geller et al., 2004 ) ). Hourcade and Kostopoulo ( 1994 ) show how reactions to the first oil shock by France, Italy, Germany, and Japan led to very different emissions with relatively similar economic outcomes (see Box 12.5 ).

Box 12.5: Differentiated reactions to the first oil shock in France, Italy, Germany and Japan

An example of how different development paths can unfold in relatively similar countries is given by Hourcade and Kostopoulou 1994 [ARC] ) for France, Italy, Germany, and Japan - countries with similar levels of GDP per capita in 1973 – in their response to the first oil shock. France moved aggressively to develop domestic supply of nuclear energy and a new building code. Japan made an aggressive shift of its industry towards less energy-intensive activities and simultaneously used its exchange-rate policies to alleviate the burden of oil purchases. Germany built industrial exports to compensate the trade balance deficit in the energy sector. Much of the variations of CO₂ emissions per unit of GDP from 1971 to 1990 can be attributed to these choices ( Figure 12.1 left). Yet, while this indicator diminished by half in France, by a third in Japan, and ‘only’ by a quarter in Germany ( IEA 2004b [NPR] ).

Figure 12.1: (left) CO₂ emissions from fossil-fuel combustion per unit of GDP; (right) Evolution of GDP per capita

Note: GDP in US$ in constant prices at market exchange rates.

Source: IEA, 2004a [NPR]

Hourcade and Kostopoulou 1994 [ARC] ) also observe that the macro-economic performance of these countries was relatively comparable between 1973 and 1990 ( Figure 12.1 right), suggesting that widely different environmental outcome can be obtained at similar welfare costs in the long-run. In addition, they observe that the responses were for a large part driven by the country’s pre-existing technologies and institutions (thus providing an illustration of the general observations about decision-making made in Section 12.2.3.1 ).

12.2.4.2 Transportation and urban planning

Transportation is a key development issue. Transportation is also one of the fastest growing end-use sectors in terms of CO₂ emissions in both the developed and the developing world. The level of these emissions results from the combination of the distances travelled by goods and people, and the set of technologies used to make these journeys. Demand for and supply of transportation are largely inelastic in the short-term, but become elastic in the longer run as people and activities change location, as new infrastructure is developed and as preferences evolve. A very wide array of policies affects these long-term dynamics. The set of transportation technologies available at time, and their relative costs, are also influenced by public policies.

Three examples of how public policy choices affect transportation supply, transportation demand, technology, and ultimately emissions from the transport sector are discussed in this section: one of congestion policy, one of urban planning at city level, and the other of national policy driving urban planning. The first example is from the City of London, where a congestion charge was introduced in February 2003 to reduce congestion. Simultaneously, investment in public transport was increased. Early results suggest that congestion in the charging zone has reduced by 30% during the charging hours, that CO₂ emissions have been reduced by 20%, and that primary emissions of NO_x and PM₁₀ have been reduced by 16% (Transport for London, 2005 ). However, the cost-benefit ratio of the operation is questioned ( (Prud’homme and Bocarejo, 2005; ) Santos and Fraser, 2006 [NPR] ). Other examples of how non-climate transportation policies can impact on emissions are given in Section 5.5 .

The second example is the development and steady implementation of an integrated urban planning programme in the city of Curitiba (Brazil) from 1965 onwards. This has allowed the city to grow eight-fold from 1950 to 1990, while maintaining 75% of commute travel by bus – a much higher public transport modal share than in other big Brazilian cities (57% in Rio, 45% in São Paulo) – as well as little congestion. As a result, Curitiba uses 25% less fuel than cities of similar population and socio-economic characteristics. Two characteristics of the programmes seem to have contributed particularly to its success: (i) integration of infrastructure and land-use planning; and (ii) the consistency with which successive municipal administrations have implemented the plan over nearly three decades ( Rabinovitch and Leitman, 1993 [NPR] ).

The third example concerns urban planning in the United States and Europe (and Japan), the latter being on average rather compact while the former exhibit important sprawl. Nivola 1999 [NPR] ) notes that this difference cannot be explained only by differences in demography, geography, technology or income. He argues that the combination of public choices is responsible for most of the differences in urban sprawl between the USA and Europe. Such policies include: (1) a bias towards public financing of roads to the detriment of other modes of transportation in the USA - against a more balanced approach in Europe; (2) dedicated revenues for highway construction in the USA - against funds drawn from general revenues in Europe; (3) lower taxes on gasoline in the USA than in Europe; (4) housing policies more geared towards supporting new homes: (5) a tax system more in favour of homeowners in the USA; (6) lower support from the federal government to local governments in the USA than in Europe; and (7) the quasi-absence of regulations favouring small in-city outlets against shopping malls in the USA. In turn, this difference in urban planning generates widely different transport demand, energy consumption ( Newman and Kenworthy, 1991 [NPR] ), and CO₂ emissions. Per capita CO₂ emissions from travel in the USA are nearly three times as high as in major European countries, due mostly to a larger number of journeys per capita and a higher energy intensity ( (Schipper et al., 2001 ) ). A key point in the analysis made by Nivola 1999 [NPR] ) is that most of these consequences were totally unintended, as these policies were adopted for non-transportation reasons (let alone for emissions reasons).

12.2.4.3 Agriculture and forestry

Vast arrays of policies affect the emissions of the agriculture and forestry sectors, and the emissions or the sequestration rate from biomass and soils. An extensive list of non-climate policies that impact on CO₂, CH₄ and N₂O emissions from the agriculture sector are presented in Chapter 8 (Tables 8.10 and 8.11 ). The list includes sectoral policies designed to reach environmental goals other than climate change, such as biodiversity conservation or watershed protections; agricultural policies designed to reach non-environmental goals, such as increasing exports of agricultural products or securing farmers’ income; and non-agricultural policies with impact on the agriculture sector, such as energy price reforms. For example, the 2003 EU Common Agricultural Policies reform, by decoupling subsidies from production targets, is likely to lead to reduced on-farm CO₂ and N₂O emissions (see Table 8.10 ). In fact, changes in the Common Agricultural Policy from 1997 to 2001 (in intervention prices, in per-hectare support to grains and oilseeds, as in milk quotas and livestock subsidies) are estimated to have resulted in a 4% decline of agricultural sector emissions in Europe over that period ( (De Cara et al., 2005 ) ).

If the direct emissions of the forestry sector are small, the emissions/uptake related to land conversion from/to forests are extremely large (see Chapter 9 ). In addition, emissions/uptake related to changes in the quality of existing forests, to the use of forest products in carbon stocks, and to bioenergy are very large. Policies affecting land use and land-use change, policies affecting the substitution between wood-based and other products, and policies related to bioenergy are thus likely to have strong implications for the net emissions from forests and forest products.

The causes of deforestation have been studied specifically. They differ from regions to regions and depend on the interaction of cultural, demographic, economic, technological, political and institutional issues (e.g., Angelsen and Kaimowitz, 1999 [MoS] ;( Geist and Lambim, 2002 ) ). In all cases, the drivers of deforestation are strongly affected by policy decisions. For example, rural road construction or improvement tend to encourage future deforestation ( Chomitz and Gray, 1996 [MoS] ; Chomitz, 2007 [NPR, 2007] ), yet may have positive economic implications by providing better access to markets and basic services for remote population in developing countries ( (Jacoby, 2000 ) ). Similarly, agriculture intensification policies have potentially important but ambiguous effects on deforestation. On the one hand, intensification increases the productivity of existing agricultural land and lowers the pressure on forests. On the other, it could also trigger migration and it might, in fact, increase deforestation. Careful design of agriculture intensification policies is thus necessary to avoid unintended outcome on deforestation ( Angelsen and Kaimowitz, 2001 [NPR] ).

A third example concerns a macro-economic policy decision: the devaluation of Brazil currency in 1999, which fell by 50% against the US dollar. Coupled with an increase of soybean prices on the international market, increased the value of soybean and beef production in the country - notably in the state of Mato Grosso – triggered massive increase in production and massive deforestation of cerrado forests. In fact, a third of total deforestation in the Brazilian Amazon between 1999 and 2003 occurred in Mato Grosso ( Chomitz, 2007 [NPR, 2007] ).

12.2.4.4 Macro-economy and trade

Macro-economic policies such as exchange rate policies, fiscal policies, government budget deficits, or trade policies may have profound impacts on the environment, even though they are designed for other purposes. This link has been extensively studied in the past decades, notably in the context of the evaluation of structural adjustment programmes in developing countries. A key finding from this literature is that the relationship between macro-economic policies and the environment are often complex and country-specific, and depend on whether or not other market or institutional imperfections persist ( Munasinghe and Cruz, 1995 [NPR, SRC] ; Gueorguieva and Bolt, 2003 [NPR] ). No case studies discuss the impact of structural adjustment on GHG emissions, but some discuss the relationship between structural adjustment and deforestation and thus, by extension, GHG emissions from land-use change. Again, the effects depend on the mix of policies adopted as part of the structural adjustment programmes, and of country-specific characteristics. For example, Kaimovitz et al. ( 1999 ) report that the structural adjustment programmes implemented in Bolivia in 1985 strongly increased profitability of soybean production, and led to massive deforestation in soybean producing areas. Symmetrically, ( Benhin and Barbier 2004 ) ) find that a structural adjustment programmes implemented in Ghana in 1983 led to a reduction of deforestation linked to extension of cocoa culture because, among others, of increased producer price for cocoa, higher availability of inputs, and other measures aimed at rehabilitating existing cocoa farms. Another channel through which structural adjustment programmes could impact on deforestation is through the timber market. Pandey and Wheeler 2001 [NPR] ) analyse cross-country data on the markets for wood products in countries where World Bank supported adjustment programmes were implemented. They find that these programmes greatly affect imports, exports, consumption and production in many forest product sectors, but that the impacts on deforestation tend to cancel out. If domestic deforestation does not increase, however, imports of wood products do, suggesting increased pressures on forest in other countries. Finally, as also noted above, Pandey and Wheeler 2001 [NPR] ) find that currency devaluation strongly increases the exploitation of forest resources.

Among macro-economic policies, trade policies have attracted particular attention in recent years, due to the fact that international trade has increased dramatically over the past decades. There is a general consensus that, in the long-run, openness to trade is beneficial for economic growth. However, the pace of openness, and how to cope with social consequences of trade policies are subject to much controversy ( (Winters et al., 2004 ) ). Trade has multiple implications for GHG emissions. First, increased demand for transportation of goods and people generates emissions. For example, freight transport now represents more than a third of the total energy use in the transportation sector (see Section 5.2.1 ). Secondly, trade allows countries to partially ‘de-link’ consumption from emissions, since some goods and services are produced abroad, with opposite implications for the importing and exporting countries. For example, ( Welsch 2001 ) ) shows that foreign demand for German goods accounts for nearly a third of the observed structural changes in the composition of output and decrease in emissions intensity of West Germany over the period 1985 - 1990 . At the other end, Machado et al. 2001 [SRC] ) report that inflows and outflows of carbon embodied in the international trade of non-energy goods in Brazil accounted for some 10% and 14%, respectively, of the total carbon emissions from energy use of the Brazilian economy in 1995 . And the game is often not zero-sum, when production technologies are less carbon-efficient in the exporting country than in the importing one. For example, Shui and Harriss 2006 [NPR] ) estimate that USA-China trade represents between 7% and 14% of China’s total CO₂ emissions, and that USA-China trade increases world emissions by an average of 100 MtCO₂-eq per year over the period 1997 - 2003 because of higher emissions per kWh and less efficient manufacturing technologies in China. Finally, policies favourable to trade have been accused of favouring the relocation of companies to ‘pollution heavens’ where environmental constraint would be lower. Empirical analysis, however, do not confirm the ‘race to the bottom’ hypothesis ( Wheeler, 2001 [NPR] ). See also Section 11.7 .

12.2.4.5 Some general insights on the opportunities to change development pathways at the sectoral level

Although the examples discussed above are very diverse, some general patterns emerge. First, in any given country, sectors where effective production is far below the maximum feasible production with the same amount of inputs – sectors that are far away from their production frontier – have opportunities to adopt ‘win-win-win’ policies. Such policies free up resources and bolster growth, meet other sustainable development goals, and also, incidentally, reduce GHG emissions relative to baseline. Among the examples discussed above, the removal of energy subsidies in economies in transition, or the mitigation of urban pollution in highly polluted cities in the developing world pertain to the ‘win-win-win’ category. Of course, these policies may have winners and losers, but compensation mechanisms can be designed to make no-one worse off in the process.

Conversely, sectors where production is close to the optimal given available inputs – sectors that are closer to the production frontier – also have opportunities to reduce emissions by meeting other sustainable development goals. However, the closer to the production frontier, the more trade-offs are likely to appear. For example, as discussed above, diversifying energy supply sources in a country where the energy system is already cost-efficient might be desirable for energy security reasons and/or for local or global environmental reasons. But it might come at a cost to the country if, for example, diversification involves more expensive technologies or more risky investments ( (Dorian et al., 2006 ) ).

Third, in many of the examples reviewed above, what matters is not only that a ‘good’ choice is made at a certain time, but also that the initial policy has persisted for a long period – sometimes several decades – to truly have effects. The comparison between the development of European and USA cities since the end of World War II is a case in point. The reason is that some of the key dynamics for GHG emissions, such as technological development or land-use patterns, present a lot of inertia, and thus need sustained effort to be re-oriented. This raises deep institutional questions about the possibility of governments to make credible long-term commitments, particularly in democratic societies where policy-makers are in place only for short spans of time ( Stiglitz, 1998 [JoC] ).

A fourth element that stems from some of the examples outlined above is that often not one policy decision but an array of decisions are necessary to influence emissions. This is especially true when considering large-scale and complex dynamics such as the structure of cities or the dynamics of land-use. This raises, in turn, important issues of coordination between policies in several sectors, and at various scales.

Fifth, as already emphasized in Section 12.2.3 , institutions are significant in determining how a given policy or a given set of policies ultimately impact on GHG emissions (World Bank, 2003 [NPR] ). For example, the differentiated reactions of Japan, Italy, Germany and France to the first oil shock can be traced to differences in institutions, relative power of different influence groups, and political cultures ( Hourcade and Kostopoulou, 1994 [ARC] ).

12.2.4.6 Mainstreaming climate change into development choices: Setting priorities

As highlighted in Sections 12.2.4.1 to 12.2.4.5 , development policies in various sectors can have strong impacts on GHG emissions. The operational question is how to harness that potential. How can climate change mitigation considerations be mainstreamed into development policies.

Mainstreaming means that development policies, programmes and/or individual actions that otherwise would not have taken climate change mitigation into consideration explicitly include these when making development choices. This makes development more sustainable.

The ease or difficulty with which mainstreaming is accomplished will depend on both the mitigation technology or practice, and the underlying development path. No-regrets energy efficiency options, for instance, are likely to be easier to implement (and labelled as climate change mitigation actions) than others that have higher direct cost, require coordination among stakeholders, and/or require a trade-off against other environmental, and social and economic benefits. Weighing other development benefits against climate benefits will be a key basis for choosing development sectors for mainstreaming climate change considerations. In some cases, it may even be rational to disregard climate change considerations because of an action’s other development benefits ( Smith, 2002 [JoC] ).

Development policies, such as electricity privatization, can increase emissions if they result in construction of natural gas power plants in place of hydroelectric power for instance, but they can reduce emissions if coal power plants are not built. Judicious and informed choices will be needed when pursuing development policies in order to ensure that GHG emissions are reduced and not increased (see above). This section considers which sectors should receive priority for mainstreaming climate change mitigation into development choices; what sectors are better off not pursuing mainstreaming; and which stakeholders might have a bigger stake and voice in mainstreaming. The next section considers concrete ways to mainstream mitigation considerations into development choices.

Prioritizing requires that the current and future associated emissions of the targeted sector and the mitigation potential of the non-climate sustainable development action be estimated. Policy-makers can then weigh the emissions reduction potential against other sustainability aspects of the action in choosing the appropriate policy to implement. In order to implement such an approach, empirical analyses are needed to estimate future associated emissions and current and future mitigation potential of development actions. Few, if any, global analyses provide complete guidance of this type. In light of the lack of empirical analyses, associated emissions for selected sectors in which development actions may be pursued are presented. This provides an initial guide in ranking sustainable development actions. A more complete analysis is needed, however, which would require the estimation of future associated emissions, and current and future mitigation potential of sustainable development actions.

Selected examples of CO₂ emissions associated with sectors where sustainable development actions could be implemented are presented in Table 12.3 . These are described below:

Emissions associated with selected sectors:

• Macro-economy: Through fiscal tax and subsidy policies, public finance can play an important role in reducing emissions. Rational energy pricing based on long-run-marginal-cost principle can level the playing field for renewables, increase the spread of energy efficient and renewable energy technologies, improve the economic viability of utility companies, and can reduce GHG emissions. Non-climate taxes/subsidies and other fiscal instruments can impact the entire global fossil fuel emissions of CO₂, which amounted to about 51 GtCO₂-eq in 2004. Those that directly reduce fossil fuel use could be easily relabelled and mainstreamed as climate taxes, but others, for example a tax on water use, would need to be evaluated for their fossil fuel impacts and climate benefits.
• Forestry: Adoption of forest conservation and sustainable forest management practices can contribute to conservation of biodiversity, watershed protection, rural employment generation, increased incomes to forest dwellers and carbon sink enhancement. The forestry sector emissions show a high and low range to signal the uncertainty in estimates of deforestation. A best estimate value is about 7% of global emissions in 2004 (see Table 12.3 ). There are many country-specific studies of the potential to reduce deforestation ( Chapter 9 ).
• Electricity: Adoption of cost-effective energy efficiency technologies in electricity generation, transmission distribution, and end-use reduce costs and local pollution in addition to reduction of greenhouse gas emissions. Electricity deregulation or privatization can be practised in any country and can impact the global electricity-related emissions which amounted to about 20% of global emissions.
• Oil import security: Oil import security is important to ensure reliable supply of fuels and electricity. Diversification of oil imports, through increasing imported and domestic sources oil and other energy carriers is an approach adopted by countries concerned about energy security. The percentage of net oil imports serves as one indicator of a country’s energy security. The CO₂ emissions associated with net oil imports amounted to about 20% of global emissions (see Table 12.3 ). Reducing oil imports as a strategy to improve energy security thus offers a significant global opportunity to reduce emissions. Minimizing the use of coal as a substitute, and increasing use of less-carbon-intensive energy sources and reducing energy intensity of the economy are options that could be pursued to achieve this goal (IEA, 2004b). However, heavy use of biomass as a fossil fuel substitute may compete with other societal goals such as food security, alleviation of hunger and conservation of biodiversity.

Example of a sector where other benefits outweigh mainstreaming:

• Rural household energy use: Development of rural regions, better irrigation and water management, rural schools, better cook stoves in developing countries can promote sustainable development. The emissions associated with rural household activities, mostly derived from energy needed for cooking and some heating, are relatively small, however. These emissions are estimated to be between 10% and 15% of developing-country residential sector emissions or less than 0.5% of global emissions. Rural areas of developing countries rely primarily on traditional bioenergy ^[6] and consume comparatively small amounts of fossil fuels. The use of improved cook stoves is one way to reduce biomass and fossil fuel use. The worldwide amount estimated by Smith (2002) for provision of LPG as fuel for roughly two billion households is about 2% of global GHG emissions. From a global perspective, Table 12.3 suggests that smaller sectors with significant other welfare benefits need not be burdened with having to reduce CO₂ emissions since larger gains from sustainable development actions that address climate change mitigation are to be had elsewhere.

Emissions that key stakeholders can influence:

• International finance: While climate change mitigation is an important component of the multilateral bank (MDB) strategies, in practice climate change issues are not systematically incorporated into lending for all sectors. MDBs could explicitly integrate climate change considerations into their guidelines for country and sector strategies, and apply a greenhouse gas accounting framework in their operations (Sohn et al., 2005). MDBs can directly influence their own lending and indirectly influence the emissions of borrowing countries. The annual emissions from World Bank-funded energy activities alone, for instance, were estimated to range from 0.27 to 0.32 GtCO₂ (World Bank, 1999). MDBs could directly influence more than the aforementioned amounts once emissions associated with all lending activities of all MDBs are counted. Indirectly, through policy dialogue and conditionality, MDBs could influence additional emissions from developing countries, which amounted to about 25% of global emissions in 2004 ( Table 12.3 ).
• Insurance: Buildings and transport vehicles form the bulk of the insured activities. Emissions from these sectors and from all international marine vessels and aircraft are estimated to be about 20% of global emissions, giving insurers a significant potential role in controlling emissions. Some insurers are beginning to recognize climate-change risks to their business (Vellinga et al., 2001; Mills, 2005). Examples of actions may include premiums differentiated to reflect vehicle fuel economy (this is not unique to the buildings and/or transport sector or distance driven); liability insurance exclusions for large emitters; improved terms to recognize the lower risks associated with green buildings; or new insurance products to help manage technical, regulatory, and financial risks associated with emissions trading (Mills, 2003).

12.2.4.7 Operationalization of mainstreaming

Though there is a considerable amount of literature on how development policies are made (see Section12.2.3), there is currently very limited literature on how climate mitigation considerations could be mainstreamed into development policies. Based on a number of Indian case studies on integrating climate change mitigation in local development, Heller and Shukla 2003 [NPR, SRC] ) note operational guidelines which can integrate development and climate policies into the future development pathways of developing countries. In developing countries, which by and large have not yet enacted domestic GHG legislation, the Clean Development Mechanism can play a role as one component of national GHG reduction strategies and sustainable development.

Based on a United States Environmental Protection Agency ( US EPA, 2006 [NPR] ) report on best practices for implementation of clean energy policies and programmes, Sathaye et al. 2006 [NPR, SRC] ) conclude that following best practices would benefit the operationalization process: (a) commitment of publicly elected and/or regulatory bodies; (b) involvement and support of key stakeholders; (c) sound economic and environmental analyses conducted using simple and transparent tools; (d) longer time frames for programmes so that they can overcome market and funding cycles; (e) setting annual and cumulative targets to gage progress of mainstreaming; (f) ensuring additionality over and above existing and other planned programmes; (g) selection of an effective entity for implementation; (h) education and regular training of key participants; (i) monitoring and evaluation of mainstreaming results; and (j) maintenance of a functional database on a project’s or programme’s sustainable development performance.

A study of the Baltic region explores a sustainable development pathway addressing broad environmental, economic and social development goals, including low GHG emissions. A majority of the population could favour - or at least tolerate - a set of measures that change individual and corporate behaviours to align with local and global sustainability ( Raskin et al., 1998 [NPR, SRC] Kaivo-oja 2004 [MoS] ) concludes that climate change as such may not be a major direct threat to Finland, but the effects of climate change on the world’s socio-economic system and the related consequences for the Finnish system may be considerable. The Finnish scenario analysis, which is based on intensive expert and stakeholder involvement, suggests that such indirect consequences have to be taken into account in developing strategic views of possible future development paths for administrative and business sectors.

12.3.1.1 Energy demand sectors – Transport, Buildings and Industry

In the buildings sector, energy efficiency options may be characterized as integrated and efficient designs and siting, including passive solar technologies and designs and urban planning to limit heat island effect. Considering energy efficiency as the guiding principle during the construction of new homes results in both reduced energy bills -enhancing the affordability of increased energy services- and GHG abatement (see Section 6.6 ). Policies that actively promote integrated building solutions for both mitigating and adapting to climate change are especially important for the buildings sector. Good urban planning, including increasing green areas as well as cool roofs in cities, has proven to be an efficient way to limit the heat island effect, which also reduces cooling needs. Mitigation and adaptation can, therefore, be addressed simultaneously by these energy efficiency measures.

In developing countries, efficient cooking stoves that use clean biomass fuels are an important option. These can have significant health benefits including reduction in eye diseases. The incident is disproportionately high amongst rural women in many developing countries where fuelwood and other biomass materials are a principal source of energy ( (Porritt, 2005 ) ). It has also been shown, for example, that the availability of cleaner burning cookers and solar cookers in developing countries not only has important health benefits but also significant social benefit in the lives of women in particular ( (Dow and Dow, 1998 ) ). A move to a more reliable and cleaner fuel not only has benefits in terms of carbon emission and health, it has also the effect of freeing up significant amount of time for women and children, which can be applied to more socially beneficial activities, including going to schools in the case of children. The air pollution benefit of improved stoves, however, is controversial; other studies have noted that efficiency was improved at the expense of higher emissions of harmful pollutants (see Section 4.5.4.1 ).

In the transport sector, the energy efficiency measures may be categorized into those that are vehicle specific and those that address transportation planning. Vehicle-specific programmes focus on improvement to the technology and vehicle operations. Planning programmes are targeted to street layouts, pavement improvements, lane segregation, and infrastructural measures that improve vehicle movement and facilitate walking, biking and the use of mass transport. Cost-effective mitigation measures of both types have been identified that result in higher vehicle and/or trip fuel economy and reduce local air pollution. Institutionalizing planning systems for CO₂ reduction through coordinated interaction between national and local governments is important for drawing up common strategies for sustainable transportation systems (see Section 5.5.1 ). While there are many synergies in emission controls for air pollution and climate change, there are also trade-offs (see Section 5.5.4 ). Promotion of bicycling, walking, and other non-motorized modes of transportation has large and consistent co-benefits of GHG reduction, air quality, and people health improvement (see Section 5.2.1 and 5.5.4). Diesel engines are generally more fuel efficient than gasoline engines and thus have lower CO₂ emissions, but increase particle emissions. Air quality driven measures, such as obligatory particle matter and NO_x filters and in-engine measures, mostly result in higher fuel use and consequently, higher GHG emissions.

In the industrial sector, energy efficiency options may be classified as those aimed at mass-produced products and systems, and those that are process-specific. The potential for cost-effective measures is significant in this sector. Measures in both categories would have a positive impact on the environment. To the extent the measures improve productivity, they would increase economic output and hence add to government tax revenue. Higher tax revenue would benefit national, state and local government fiscal balance sheets (see Section 7.7 Nadel et al., 1997 [NPR] ; Barrett et al., 2002 [NPR] ; Phadke et al., 2005 [NPR, SRC] ).

Since energy efficiency improvement reduces reliance on energy supply, it is likely to improve a nation’s energy security. Using prices as an instrument to promote energy efficiency mitigation options is often difficult due to the many barriers that impede their progress. Lack of information about such mitigation options and the principal agent problem have been documented to be particularly significant barriers in the residential sector, but these also prevail in the small and medium scale industries sectors ( Sathaye and Murtishaw, 2005 [NPR, SRC] ). Programmes that can overcome such barriers would increase energy efficiency penetration.

12.3.1.2 Energy supply ^[7]

Switching to low carbon energy supply sources is the other mitigation category in the energy sector with significant GHG benefits. This can be achieved through either increased reliance on imported or indigenous alternative fuels. Using a higher proportion of low carbon imported fuels will almost always reduce local air pollution. Its direct impact will be to increase payment for fuel imports that may result in worsened balance of payments, unless these are utilized to increase a nation’s exports ( Sathaye et al., 1996 [SRC] ). The higher fuel imports will increase dependence on international fuel supply that may result in reduced energy security unless diversification of supply mitigates concerns about increased dependence. Economies and societies of low carbon fuel exporting countries would benefit from the higher trade.

Increased reliance on most indigenous low carbon energy sources ^[8] would also reduce local air pollution, but the local environmental benefits in certain solid bioenergy applications appear to be uncertain (see Section 4.5.4.1 ). While indigenous low carbon fuels can reduce fuel imports, these have to be balanced against higher capital requirements for investment in fuel extraction, processing and delivery ( Sathaye et al., 1996 [SRC] ). The development of large hydro sources can displace local populations and put their livelihood in jeopardy, and in reservoirs with large surface area, the resulting methane emissions may reduce their net GHG benefit substantially. For example, although hydroelectric plants have the potential to reduce GHG emissions significantly, a large amount of literature points to important environmental costs ( McCully, 2001 [NPR] ; Dudhani et al., 2005 [NotFound] ), highlights the social disruptions and dislocations ( (Sarkar and Karagoz 1995; ) ( Kaygusuz, 2002 ) ), and questions the long-term economic benefits of major hydropower development. Increased use of indigenous low-carbon fuels can reduce export of fuels from other countries to the extent the latter are substituted away. These may adversely affect the trade balance of exporting countries ( Sathaye et al., 1996 [SRC] ).

At the same time, low carbon fuels can have other environmental benefits. For example, a move away from coal to cleaner fuels will reduce ecosystem pressures that often accompany mining operations ( (Azapagic, 2004 ) ). Similarly, a move away from charcoal and fuelwood as a source of energy will have the attendant environmental benefits of reducing the pressures of deforestation ( Masera et al., 2000 [MoS, ARC] ; Najam and Cleveland, 2003 [SRC] ). This points towards the need to optimize technology choice decisions not only along the dimension of carbon emissions but also other environmental costs.

Wind power can cause harm to bird populations, and may not be aesthetically appealing. Increased use of biomass is viewed as a renewable alternative, but indoor air pollution from solid fuels has been ranked as the fourth most important health risk factor in least developed countries (see Chapter 4 ). Trade-offs among pollutants are inevitable in the use of some mitigation options, and need to be resolved in the specific context in which the option is to be implemented.

Several examples of corruption that either increases the price of electricity and/or prevent the proceeds from extracted resources to meet development needs are provided in Section 4.5.4.3 . This suggests that corruption may reduce the sustainable development benefits of new mitigation technologies and/or low carbon fuels that require a significant modification of social systems.

12.3.1.3 Cross-sectoral sustainable development impacts

Implementation of mitigation options often creates new industries, for example, for energy efficient products such as cooking stoves, efficient lamps, insulation materials, heat pumps, and efficient motors, or for solar panels, windmills, and biogas installations. The success of these new industries depends on various factors, such as the degree of information, costs, the image of the product and its traditional competitors or its attributes other energy efficient. New industries can create new jobs and income, and might be pioneers in new market with significant competitive advantage. Ethanol production from sugar waste has created a new industry and generated employment opportunities and tax revenue for the Government of Brazil. However, the older, outpaced industry may lose jobs. Besides the uncertainty on the overall net effect, this may lead to regional loss of employment. For example, the increased production of biofuels for transportation, or energy production in rural areas, is expected to protect existing employment and to create new jobs in rural areas ( Sims, 2003 [ARC] ). Renewable energy systems are more labour intensive than fossil fuel systems and a higher proportion of jobs are relatively highly skilled. Thus, an increase in employment of the rural people can only be achieved, if corresponding learning opportunities are created. If, however, labour intensity decreases over time, the long-term effect on jobs might be less pronounced than originally anticipated.