12. Positive feedback can generate ‘virtuous’ or ‘vicious’ cycles (World Bank, 2002). As such, **lock-ins are not good or bad** **_per se_** . It depends on the objective pursued or consequences generated. **So is the potential for lock-in/path dependency a real problem vis-à-vis climate change?** This question has a two-fold response: an empirical one and a theoretical one. The empirical answer is that because the share of long-lived capital stock in total emissions is large (see paragraph 6), and because emissions path tends to be locked-in for long periods of time once capacity is installed, **inability to influence/re-orient the emissions from this portion of total capital stock to meet an emissions target by a given date will** —

**necessitate greater and possibly earlier effort on the remainder of the capital stock** particularly if, with new information, the emissions reduction targets have to become deeper than currently anticipated.<sup>15</sup>

13. The review of stabilization scenarios conducted in the IPCC Fourth Assessment Report (Fisher et al., 2007, Table 3.5 and Figure 3.17) provides some basis for illustrative calculations. Table 1 shows how much emission reductions would be necessary in the sectors that do _not_ involve long-lived capital stock for the World to be on a path (as per the IPCC) to meet a given concentration target by a given date, _provided no mitigation is undertaken in the sectors that involve long-lived capital stock_ (here energy, transport, and housing).<sup>16</sup> These calculations suggest that a 450 CO2-eq concentration target would not be achievable this way (because emission reductions would have to exceed 100% in the other sectors). Even meeting a 550 CO2-eq stabilization target would require that nearly all emissions from the non-longlived capital stock sectors be abated.

real contradiction between the two. Even though previous investments (sunk costs) are not accounted for in determining the cost-benefit ratio of the extension, the stream of future costs and benefits associated with the extension may be different _because_ of the earlier investments. That is, future costs and benefits may be different in the presence of the earlier investments than they would have been in the absence of the earlier investments—as such, the streams of costs and benefits are _not independent._ For example, if the backbone of a ring road or of a highway network has been built, then building a new road to connect a suburb to that ring road or to that highway network (as opposed to building a rail track) becomes much cheaper than it would have been had that initial investment in the ring road or highway network not been made.

15 The IEA World Energy Outlook makes a similar point that “any delay in implementing emissions-reduction policies will reduce the likelihood of the world achieving its climate-change goal. In the absence of incentives to invest in low-carbon technologies over the 2012-2020 period, the CO2 mitigation potential in the power sector in non-OECD countries would be reduced significantly, because less efficient solutions become locked in.” (IEA, 2008, p.493) 16 These calculations are based on the following conservative assumptions: (i) shares of electricity & heat, transportation and housing sectors in emissions as described in paragraph 6, remain constant over time in the business-as-usual scenario; (ii) capital stock in each sector is assumed to be evenly distributed across vintages, with average lifetime of 100, 70 and 40 years in the housing, transportation and electricity & heat sectors respectively; (iii) baseline emissions 50%, 80% and 100% higher than 2000 emissions in 2030, 2050 and 2100 respectively; (iv) emission reductions in 2030, 2050 and 2100 to meet given GHG atmospheric concentration target as per Fisher et al. (2007), Table 3.5 and Figure 3.17. Assuming that only half of the emissions from the electricity & heat, transportation and housing sectors depend on long-lived capital stock does not fundamentally alter the results.

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