Download How can international frameworks support domestic implementation?

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How can international frameworks
support domestic implementation?
Karsten Neuhoff
University of Cambridge
www.climate-strategies.org/
Outline
Criteria from an economist’s perspective
• Encourage domestic policies and CO2 price internalisation
– To reduce total costs of climate policy
• Address extreme CO2 price uncertainty
– To facilitate public and private investment
• Limit international transfers of rents
– To maximise support for international cooperation
• CER Put Options (CERPOs)
Karsten Neuhoff, 2
I. Domestic policy is core for effective climate policy. It can include
regulation, taxation, trading, etc.
Comparison across OECD countries shows: Where taxation doubles energy
prices, GDP is twice as high per unit of energy input.
-> domestic policy drives energy efficiency – reduces cost of decarbonisation
1,400
Denmark
1,200
Japan
Norway
Average energy price $/toe
1,000
Best fit constant price
Austria
800
elasticity of -1.0
Italy
Luxembourg
Germany
Switzerland
Portugal
France
600
Spain
Netherlands
Sweden
Finland
New Zealand
United States
Turkey
Australia
Greece
400
Mexico
United
Kingdom
200
a
Canada
Hungary
Korea
Slovakia
Czech Republic
Poland
Belgium
0
0.0
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
Average energy intensity (kg oil equivalent/$1995 GDP)
1.0
Source:Newbery, D. M. (2003) Sectoral dimensions of sustainable development: energy and transport.
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Economic Survey of Europe 2(73-93).
II. Increase market confidence in CO2 price and emission trajectory
facilitates financing and increases private sector responses.
Illustrative
Euro/t CO2
1. Short and not
representative history
2. Difficult to quantify
likelihood of low future
CER prices
1
2
Today
2020
- Financing difficult for
projects that require
strong CER price
- Possibility of low price
is excuse to continue
2050 BAU
Karsten Neuhoff, 4
Mitigation costs vary across sectors and technologies
Energy supply
Transport
Buildings (elect.)
Buildings (other)
Industry (elect.)
Industry (other)
Agriculture
Forestry
Waste
$/t CO2
<100
<50
International rent transfer with
uniform CER price of 50
<20
<0
0
2
4
6
8
10
12
14
GT CO2 eq. Emission reduction potential (2030) non OECD/EIT
Economic potential for GHG emission reductions in non OECD, non IET countries Base line emissions SRES
B2 xxx GT Source IPCC, IPCC Fourth Assessment Report, Working Group III CH11 - TAR (draft), p 21
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III. Avoid infra-marginal rents for international transfers, to increase
support for international cooperation.
600
Billion USD
Rent transfer with
one CO2 price
Direct cost
500
400
300
200
100
0
.7% global
GDP
Current
ODA
10 $/bbl oil
tax
Mitigation
cost non
OECD/EIT
Karsten Neuhoff, 6
CER Put Options (CERPOs)
Issue for developing countries:
• How to advance domestic climate policy?
• Policy/sectoral/programmatic CDM have inherent risk
of low future CER prices
One solution:
• Industrialised parties issue put options on CERs
– Hedges downside risk for developing countries
– Industrialised countries support strong CER price
• Developing countries implement domestic policy and
gain policy/sectoral/programatic CDM credits
– CERPO pays if CER price is low
Karsten Neuhoff, 7
Does CERPO proposal satisfy economist’s criteria?
I.
Development of domestic policy accelerated using
policy/sectoral/programmatic CDM
II. Reduces downside risk for countries/investors,
facilitating financing and investment
III. Infra-marginal rents not reduced
Why not link to Chinese tax on CER exports?
•
Infra-marginal rent finances domestic policies
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