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The Role of Cost-Effectiveness
A mitigation strategy should use options that minimize effects
on domestic or world economies. Strategies therefore should be
evaluated on the basis of cost-effectiveness as well as other
considerations. Care must be taken to ensure that estimates of both
costs and effects are comparable. Cost calculations, for example,
need to use consistent assumptions about energy prices, inflation,
or discount rates. Benefits must be evaluated in standard terms,
such as the equivalent amount of CO2
The cost of mitigation may include a number of components, some
of which are difficult to measure. Three different kinds of costs
need to be distinguished. First are direct expenditures to reduce
emissions or otherwise reduce potential greenhouse warming. These
include, for example, the purchasing of energy-efficient air
conditioners or insulation. Second are long-term investments that
increase the overall efficiency of large-scale systems. Examples
include investment in more efficient electricity generation and
industrial facilities. Third are possible substitutions among final
goods and services that require different amounts of energy. An
example is the substitution of public transit for private
Current expenditures to reduce greenhouse warming are in
principle the easiest to measure because there generally are
current market transactions from which to obtain data. For
longer-term capital expenditures, a discount rate must be used to
calculate the present value of costs so they can be compared with
costs of other options. Where major substitutions of final goods or
services are required, the full costs are difficult to determine.
The potential loss in value to consumers of the changes in
consumption patterns must be estimated.
Technological Costing Versus Energy
There are two choices for estimating the costs of various
mitigation options: "technological costing" and "energy modeling."
Technological costing develops estimates on the basis of a variety
of assumptions about the technical aspects, together with
estimatesoften no more than guessesof the costs of
implementing the required technology. This approach can be useful
for evaluating emerging technologies when it is hard to apply
statistical methods to estimate costs from market data.
Technological costing relies implicitly on economic assumptions,
and like energy modeling assumes that direct costs are a good
measure of total cost.
Energy modeling uses a variety of techniques to project energy
uses and supplies by region over time. Often, energy modeling uses
data on prices and quantities consumed to construct statistical
behavioral relationships. Unlike technological costing, energy
models strive to ensure that the projections