# **_Section 1. Choices about long-lived capital stock are usually made in short periods of time, but have long-lasting implications for GHG emissions_**

5. **Capital stock is not homogenous** . In fact, long-lived capital stock is a composite of capital stocks with different lifespans which can be disaggregated into the subgroups as follows:<sup>7</sup>

- Group 1 is capital stock with a lifetime of 5-15 years, which includes most types of consumer durables (excluding short-lived consumer durables, such as personal computers with 3-year life horizon, but including fridges, cars, etc. with 10+ year life horizons). Investment decisions for group 1 capital stock are very decentralized (at the level of households or individual units within firms), and the costs of energy services plays a central role in the choice of equipment.

- Group 2 is capital stock with a 15 to 40-year time horizon, such as factories and power plants. Decisions for group 2 capital stock are made for the most part by higher-level entities, such as firms’ headquarters or highest levels of governments. Except for power generation capital per se, energy costs play a limited role in investment decisions relative to other considerations such as e.g., strategic/competition criteria.

- Group 3 is infrastructure, with a 40 to 75+-year time horizon, such as road and rail networks, power distribution networks, etc.<sup>8</sup> As we will see below, such networks are typically built-out in one to two decades and their size remains stable for decades with only minor extensions. As in the case of group 2, group 3 decisions are mostly centralized, and energy costs play a limited role. The initial projects in each network increase the benefits of subsequent projects in the network.

- Group 4 is land use and urban form (land conversion and urban density) which can persist beyond a century or more. This level is governed both by group 2 and 3 infrastructure decisions, and by policies that directly or indirectly influence urban forms and land-use (e.g., tax policies, etc.). The conversion of land to urban uses is generally unidirectional and irreversible. Early density patterns persist for decades or longer (see also paragraph 44).

6. **This note focuses on investments in capital stock with life duration in excess of 15 years** —i.e., on capital stock in groups 2, 3 and 4 above— **which have potentially significant and long-lasting implications for greenhouse gases (GHG) emissions** . In fact, the share of emissions directly influenced by long-lived capital stock in total GHG emissions is significant: **roughly on the order of 41% of total World GHG emissions** in 2000 (50% when land-use change is excluded). This number is computed as follows. On the energy supply side, the emissions from _electricity and heat generation_ represent one quarter of total World GHG emissions. These emissions are a function of the type of fuel used by the longlived capital stock (group 2 in the typology above), and would be different with a different type of capital stock. On the energy demand side, direct emissions from the _transportation_

> 7 This division is based on the threefold categorization in Jaccard (1997) and Jaccard and Rivers (2007)—i.e., Group 1, Group 2+3, and Group 4. Here Jaccard’s second group has been split into two to distinguish factories and power plants (our Group 2) from infrastructure networks (our Group 3).

> 8 We have moved buildings from Jaccard’s category 2 (our 3) to his category 3 (our 4), in light of Jaccard and Rivers (2007) analysis suggesting their lifespan exceeds a century.

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