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Workshop at the 2009 Climate Change Summit
Wednesday 4 March 2009
Economics of climate change
Context and concepts related to mitigation
HARALD WINKLER
Energy Research Centre
University of Cape Town
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Climate change – an integrated framework
Source: IPCC 2001
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Climate change economics
 Environmental issue,
rising emissions
 Deeply economic issue
– at heart of energy
economy
“Climate change presents a
unique challenge for
economics: it is the
greatest and widest-ranging
market failure ever seen”
(Stern Review 2006)
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History: minerals-energy complex
 Complex comprising mining, minerals processing, the
energy sector, and associated industries
(Fine & Rustomjee 1996)
 Coal
 ¾ of TPES
 > 90% of electricity
 ‘cheap’ and inefficient
 Particular challenge for mitgation …
 … while increasing access to affordable eneryg
services
 Short-term: energy efficiency
 Medium-term: change fuel mix
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Future: low-carbon future
 Redefine competitive advantage
 from attracting energy-intensive sectors
 to building a new advantage around climatefriendly technologies and systems
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Towards climate policy
 LTMS strategic option of ‘Use the Market’
 Polokwane resolution on climate change
 Treasury work on environmental fiscal reform
 Theme of ‘putting a price on carbon’
 Question is ‘how?’
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Carbon and carbon markets
 Markets are a means, not an end
 May be efficient, but not good at equity
 Carbon cycle is global – problem of common property
management
 How to manage
 Multi-laterally – UNFCCC, but also other scales
 Price vs quantity
 Pure regulation – standards
 Pure price – tax
 Combination – cap-and-trade
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Conceptual distinctions
Economic instruments
Direct
Indirect
Carbon tax
Cap and
trade
Fuel input tax
Green or
white
certificates
Regulatory instruments
GHG
emission
standards
Building
standards
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Some broad questions
1.
What would the distributional implications of different
economic instruments be?
2.
What are the implications, including costs and benefits, of
choosing to use an economic instrument for mitigation?
3.
How could different instruments be combined
4.
How responsive is the system (and its parts) to various
economic instruments for mitigation? (elasticity)
5.
What would a consistent and effective approach to energyintensive sectors, in order to increase efficiency, encourage
fuel switching and eventually diversify products
6.
What are the key design elements that need to be considered
to design the best instrument for mitigation in SA?
7.
What supportive measures might be needed to implement a
set of instruments? Implications of existing policy? What
legal and institutional arrangements could we build on?
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Thank you
Energy Research Centre
University of Cape Town
Environmental Policy Research Unit, University of Cape Town
Genesis Analytics
www.erc.uct.ac.za
ERC