Key Messages
1. Quantifying the benefits of GHG abatement is extremely difficult, given the uncertainty on the
consequences of climate change, in particular where low‐probability catastrophic outcomes are
concerned.
2. This makes setting the test for selecting options, in terms of a rate of return or a shadow price for
carbon, problematic. There may be no better guide than contribution to a political economy‐wide
mitigation target (e.g. a trajectory leading to 450 ppm CO2 in the atmosphere by 2100) but
ranking mitigation measures according to cost‐effectiveness remains essential if resources are
not to be wasted.
3. Although the largest overall cuts in GHG emissions are to be expected in the energy, residential
and commercial buildings sectors, many mitigation measures in the transport sector are relatively
low cost. Some of these save money in the long run, through fuel savings. Nevertheless the
capital costs of many transport sector technological innovations are likely to be high and this is a
barrier to commercialisation given the evidence that upfront costs have a disproportional impact
on decisions regarding energy‐efficiency.
4. Fuel efficiency standards accompanied by appropriate fuel taxes are a key instrument for
addressing this barrier. Long‐term targets can create the certainty that vehicle manufacturers
need to make investments in new technologies, compensating for consumer risk aversion to
paying for improved fuel economy as well as producer uncertainty on drivers’ willingness to pay
for energy efficiency. The resulting changes in vehicle production and purchases have the
potential to deliver the largest share of CO2 mitigation in the transport sector.