World Bank2012-03-192012-03-192011-01-31https://hdl.handle.net/10986/2734Asia-Pacific Economic Cooperation (APEC) economies display large variation in terms of income per capita. The richest APEC economies have an income per capita about twenty times higher than the poorest ones. So far most work on fiscal policy and climate change has been written with developed economies in mind. This report on the use of fiscal policies for mitigating and adapting to climate change effects corrects that bias with a particular focus on the developing economies of APEC. It also plays close attention to lessons that could be learnt from the advanced economies of APEC and elsewhere. On mitigation, the report notes that achieving the ambitious targets adopted by APEC economies will depend crucially the choice of fiscal policy instruments. These choices will depend, in turn, on the characteristics of developing economies, particularly of their energy sectors. Specifically, mitigation in developing countries requires a broad-based response with four key components. First, carbon pricing will be critical, but will not be sufficient and in some economies and some sectors may have little or no impact due to pre-existing distortions. Second, energy sector reforms that liberalize markets and establish effective regulators so that policies can support appropriate carbon prices and cost pass-through in the energy sector will be key. Third, broader economic reforms may also be important to off-set current bias towards capital and energy intensive economic growth. Fourth, technology-based mitigation policies will also be needed, but, given the mixed track record in this area, must be chosen with care. Given the many uncertainties involved, and the multiple reforms needed, a verifiable quantity anchor for mitigation policy is recommended for developing economies, such as the energy-intensity target recently adopted by China. On the adaptation side, fiscal analysis has so far largely focused on cost projections, but for policy makers adaptation instruments and decision-making tools are as or more important. Adaptation instruments include the provision of public and club goods (such as infrastructure), public sector pricing reform (in particular of water) and financial instruments (microcredit and insurance) which can be cost-effective alternatives to subsidies. Key to the right choice of instruments (which will vary from location to location) will be the correct use of appropriate decision-making tools. In particular, the social costs and benefits of alternative strategies need to be analyzed under conditions of uncertainty, in many ways the hallmark of climate change. Popular tools such as multi-criteria analysis, vulnerability indexes, and cost- effectiveness analysis are inadequate to the task. A combination of Monte Carlo and 'real options' analysis within a cost-benefit framework is recommended for adaptation projects. Examples from a range of economies are provided to demonstrate the utility of such an approach.CC BY 3.0 IGOABATEMENTABSOLUTE EMISSIONSACIDACID RAINADAPTATION TO CLIMATE CHANGEAIRAIR POLLUTIONAIR POLLUTION PROBLEMSALLOCATIONALUMINUMANNUAL GLOBAL EMISSIONSANTHROPOGENIC EMISSIONSAPPROACHAVAILABILITYBALANCEBIOMASSBUSINESS AS USUAL SCENARIOCALCULATIONCAPITAL COSTSCARBONCARBON DIOXIDECARBON DIOXIDE EMISSIONSCARBON INTENSITYCARBON PRICECARBON PRICESCARBON TAXCEMENTCLEAN ENERGYCLEANER ENERGYCLIMATECLIMATE CHANGECLIMATE CHANGE ECONOMICSCLIMATE CHANGE IMPACTSCLIMATE CHANGE MITIGATIONCLIMATE ECONOMICSCLIMATE LEGISLATIONCLIMATE POLICYCLIMATE-CHANGECLIMATE-CHANGE MITIGATIONCLIMATIC CHANGESCOCO2COALCOAL CONSUMPTIONCOAL PRICESCOAL PRODUCTIONCOASTAL AREASCONSUMER DEMANDCONSUMPTION OF COALCONVERGENCECOST-BENEFITCOST-BENEFIT ANALYSISCOST-BENEFIT FRAMEWORKCOST-EFFECTIVENESS ANALYSISCUMULATIVE EMISSIONSDAMAGESDEVELOPMENT ECONOMICSDISCOUNT RATEDISTRIBUTION OF COSTSDIVERGENCEDOMESTIC OILDOMESTIC OIL PRODUCTIONECONOMIC ANALYSISECONOMIC GROWTHECONOMIC IMPACTECONOMIC INDICATORSECONOMIC PERSPECTIVEECONOMIC POLICIESELECTRICITYELECTRICITY DISPATCHELECTRICITY GENERATIONELECTRICITY PRICESELECTRICITY SECTOREMISSIONEMISSION CONTROLEMISSION REDUCTIONSEMISSIONSEMISSIONS CONTROLEMISSIONS FROM COALEMISSIONS FROM DEFORESTATIONEMISSIONS GROWTHEMISSIONS INTENSITYEMISSIONS REDUCTIONEMISSIONS REDUCTIONSEMISSIONS TARGETSENERGY BILLSENERGY CONSUMPTIONENERGY COSTSENERGY EFFICIENCYENERGY INTENSITYENERGY INTENSIVEENERGY MARKETSENERGY POLICIESENERGY PRICEENERGY PRICESENERGY PRICINGENERGY PRODUCTIONENERGY SECURITYENERGY SHORTAGESENERGY SOURCESENERGY SUBSIDIESENERGY USEENVIRONMENTAL DECISIONSENVIRONMENTAL ECONOMICSENVIRONMENTAL GOALSENVIRONMENTAL OUTCOMESENVIRONMENTAL PROBLEMSENVIRONMENTAL PROTECTIONFEASIBILITYFINANCIAL ASSISTANCEFINANCIAL CONSTRAINTSFINANCIAL CRISISFINANCIAL INSTRUMENTSFINANCIAL SECTORFISCAL POLICIESFLOODSFORESTFOREST COVERAGEFOREST DEGRADATIONFOREST STOCKFORESTRYFOSSILFOSSIL FUELFOSSIL FUEL EMISSIONSFOSSIL FUEL USEFOSSIL FUELSFRAMEWORK CONVENTION ON CLIMATE CHANGEFUEL COSTSGASGASOLINEGASOLINE PRICESGASOLINE TAXGHGGLOBAL EMISSIONSGREEN PAPERGREENHOUSEGREENHOUSE GASGREENHOUSE GAS EMISSIONSGREENHOUSE GASESGROWTH IN DEMANDHEAVY INDUSTRYHIGH ENERGY INTENSITYHIGHER ENERGY PRICESHYDROGENIMPORTSINCOMEINCOME HOUSEHOLDSINSURANCEINVESTMENT DECISIONSMARGINAL UTILITYMARKET DISTORTIONSMARKET FAILURESMITIGATION TECHNOLOGIESNATIONAL EMISSIONSOILOIL CRISISOIL EQUIVALENTOIL IMPORTSOIL PRODUCTIONOIL USEPER CAPITA INCOMEPOLICY MAKERSPOWER SECTORPOWER SHORTAGESPRECAUTIONARY PRINCIPLEPRESENT VALUEPRICE OF COALPRIMARY ENERGYPRIMARY ENERGY CONSUMPTIONPROBABILITY DISTRIBUTIONPROBABILITY DISTRIBUTIONSR&D FUNDINGRAINFALLRATIO OF ENERGY CONSUMPTIONREDUCTION IN EMISSIONSRELATIVE PRICERENEWABLE ENERGYRENEWABLE ENERGY PROJECTSRENEWABLE ENERGY TECHNOLOGYRESPONSE TO CLIMATE CHANGESOLAR POWERSUBSTITUTIONSULPHURSUSTAINABLE DEVELOPMENTTAX CREDITSTAX RATESTOTAL EMISSIONSTRADITIONAL ENERGY SECTORTRADITIONAL FUELSTRANSMISSION CONSTRAINTSTRANSPORT SECTORUNCERTAINTIESUTILITIESVEHICLESWELFARE CONSEQUENCESWINDWIND ENERGYWIND INDUSTRYWIND POWERWORLD ENERGYWorld Bank10.1596/2734