Download Energy Policy Cédric Philibert

Energy Policy
Cédric Philibert
Energy Policy 13
Cédric Philibert
Energy Policy
Cédric Philibert
Outline
•
•
•
•
•
•
The problems with the Kyoto protocol
Rejecting Kyoto?
Keeping Kyoto (unchanged)?
Transforming Kyoto!
Certainty versus Ambition
Your exams
Energy Policy
Cédric Philibert
The problems with Kyoto
• 1st commitment period to end by 2012
• Kyoto only addresses 1/3 of global
emissions
– Although through the Clean Development
Mechanism its theoretical potential is greater
• Kyoto entails uncertain abatement costs
– This explains (at least in part) the reluctance of
some industrialised countries and all developing
countries, to accept being bound by emission
quotas
Energy Policy
Cédric Philibert
Kyoto is not enough
Gigatonnes of CO2
25
International Bunkers
20
Non-Annex I Parties
15
10
5
0
1990
Non-Participating Annex I Parties
Kyoto Parties
1995
Kyoto target
2000
2003
Energy Policy
Cédric Philibert
Uncertain economic growth
450
400
~100
350
300
250
200
150
100
2005
2010
8% per year
2015
10% per year
2020
Energy Policy
Cédric Philibert
Keeping Kyoto?
•
•
•
•
Unrealistic global ‘allocations’
Wait for a change in US policy
Wait for developing countries to develop
Likely to be a slow process:
– Concerns about competitiveness
– … might prevent ‘Kyoto countries’ to tighten
targets
– Agenda of cuts will define concentration levels
(CO2)
Energy Policy
Cédric Philibert
No-harm vs equal per capita
Developed
Developing
“No-harm” rule
Current Emissions
Developed
Surplus
allowances
(above BaU)
Developing
Equal per capita allocation
Assigned Amounts
Energy Policy
Cédric Philibert
Rejecting Kyoto?
What are the possible alternatives?
• Carbon taxes: politically difficult
• Technology agreements: useful, but
likely to be insufficient and/or too costly
• Policies and measures: needed, but can
a global coordination of PaMs work?
• Climate change is a public good:
unilateral action unlikely to be enough
Energy Policy
Cédric Philibert
Transforming Kyoto!
• Keep emissions trading:
– Cost-effective = environmentally effective
– Allows preserving vested interests
– Allows the rich to pay for the poor
• Address uncertainty on GHG reduction costs
with more flexible options:
–
–
–
–
Targets indexed on actual economic growth
Price caps for industrialised countries
Non-binding targets for developing countries
Sector-wide crediting mechanisms to start with
Energy Policy
Cédric Philibert
Indexed targets
• Assigned amounts based on economic
projection, adjusted to actual growth
• “Intensity targets” only a special case
• Now endorsed as an option for developing
countries by most experts, for industrialised
countries by some
• How much do they reduce uncertainty?
– Maybe not enough for developing countries, suggests a
comparison of emissions and GDP trends (extrapolated
from 1971 to 1991) and actual economic performances
and emissions from 1997 to 2001
Energy Policy
Cédric Philibert
Intensity Targets: a reality test
Regression line: coefficient of
determination = 17.4%
Intensity targets
Energy Policy
Cédric Philibert
Non-binding targets
• Targets with no
consequences for
non-attainment
• Could allow trading
• “Carrots, no stick”
• Gives an incentive to
achieve win-win
reductions
– Need to make sure only • Could be negotiated
countries in compliance
within the CDM
are net sellers!
framework
• Target may be more
• Not considered for
stringent
industrialised Cies
• Could ease the
political process
Energy Policy
Cédric Philibert
Price caps
• Supplementary permits made available in
unlimited quantities at a given price
• At domestic and/or international levels
– If at the international level, one institution must be
tasked with selling permits to governments, and
goverments to entities
– If at the domestic level only, international coordination
requires all-sectors emission coverage through an
upstream regime or ETS and taxes at the level of the
price cap
• If some money is raised
– Could finance more adaptation, or partially close the gap
in financing some more reductions
Energy Policy
Cédric Philibert
Other options
• Sectoral targets
– Fixed or dynamic,
binding or not
– Industry sectors or
domestic sectors?
– Could allow trading
– Limited costeffectiveness
– If dynamic, special risk of
leakage
– A pragmatic first step?
• Policies&measures
– Commitment to
specific P&Ms
– Large potentials for
P&Ms, but does the
commitment help?
– World standards vs
trade barriers
– Sovereignty issue
– Compliance?
– Trade-offs financial
&technical aid?
Energy Policy
Cédric Philibert
COP 8 - 2002 COP 11 - 2005
Energy Policy
Cédric Philibert
Certainty versus Ambition
• The problem of climate change is
fraught with uncertainty
• Decision making under uncertainty rests
on ‘expected’ costs or benefits, i.e. all
possible outcomes times their
probabilities of occurrence
• However, this presentation does not
offer a cost benefit analysis of climate
change
• It provides a stylised analysis of
instrument choice under uncertainty
Energy Policy
Cédric Philibert
Certainty versus Ambition
General case: Optimum when marginal
benefit equals marginal cost
Cost uncertainty matters for instrument choice
€
Marginal cost
Price
(tax)
Marginal benefit
BaU
Target
Reductions
Energy Policy
Cédric Philibert
Certainty versus Ambition
Climate change: damages relate to concentrations,
abatement costs relate to emission reductions
xx €
Possible
Marginal benefit curve is roughly flat
Unlikely ?
x€
Emission reductions
CO2 Concentrations :
Possible
0
384 ppmv (No KP)
383 ppmV (Full KP)
Energy Policy
Cédric Philibert
Certainty versus Ambition
Climate change ~ flat marginal benefit curve
€
Marginal cost
Uncertain
costs
Marginal benefit
BaU
Target
Far from the
optimum
Reductions
Energy Policy
Cédric Philibert
Certainty versus Ambition
Price instruments minimise the error due to cost
uncertainty
€
Marginal cost
Tax
Marginal benefit
BaU
Uncertain
abatement
Close to the
optimum
Reductions
Energy Policy
Cédric Philibert
Certainty versus Ambition
Climate change ~ flat marginal benefit curve
Price instrument vs. the equivalent quantity instrument:
Greatly reduces expected costs
€
Marginal cost
Tax
Marginal benefit
saved
added
BaU
Target
Reductions
Energy Policy
Cédric Philibert
Certainty versus Ambition
Climate change ~ flat marginal benefit curve
Price instrument vs. the equivalent quantity instrument:
Greatly reduces expected costs
May slightly reduce expected benefits
Increases expected NET benefits (benefits minus costs)
€
Marginal cost
Tax
Marginal benefit
lost
BaU
gained
Target
Reductions
Energy Policy
Cédric Philibert
Certainty versus Ambition
Compared to the equivalent best-guess target,
a price instrument makes possible a more
ambitious policy at lower expected costs
€
Marginal cost
Tax
Marginal benefit
BaU
Target
Reductions
Energy Policy
Cédric Philibert
Certainty versus Ambition
Compared to the equivalent best-guess target,
a price instrument makes possible a more
ambitious policy at lower expected costs
But targets have political advantages over taxes
€
Marginal cost
Price cap
Tax
Marginal benefit
BaU
Target
Reductions
Energy Policy
Cédric Philibert
Certainty versus Ambition
Introducing a price cap makes
possible a more ambitious policy:
- Same expected benefits. Lower expected costs (e.g. fairness)
- Same expected costs. Higher expected benefits (e.g. environment)
€
Especially useful when benefits are deeply uncertain…
Marginal cost
Price cap
Tax
Marginal benefit
BaU
Target
Reductions
Energy Policy
Cédric Philibert
Certainty versus Ambition
• Short term certainty on emission levels may
be costly but has little value
– because climate change is cumulative
• Flexible options reduce expected costs
– help get more countries on board
– allow more ambitious policies
• More ambitious targets can be chosen
– higher benefits and lower costs (on expectation)
– especially useful if benefits are deeply uncertain
– help match marginal costs with benefits despite
uncertainties (Economic efficiency)
– help accomodate differing visions
Energy Policy
Cédric Philibert
Certainty versus Ambition
• What about climate catastrophes?
– If a GHG threshold is known and close:
• Use a quantity target to stop emissions
– If a GHG threshold is a possibility but its level
is unknown:
• Favour the most ambitious policy
• How do we go to stabilisation?
– Level and agenda left undecided
• Ensure action, not exact results
• Favour the most ambitious policy
• Over time, adjust the target and the price cap
Energy Policy
Cédric Philibert
Too low price caps?
• Price caps should be set in the upper range of cost expectations
for a given target…
– … until targets are ratcheted down…
• Governments may not use them ‘right’…
– would they do better without price caps?
• Would agreeing on a price cap level be « a nightmare »?
– Differentiation amongst countries would remain through differentiated
assigned amounts
– ENGOs say abatement costs are low; industry say they are high. Some
price cap level might be felt high enough by the ENGOs and low enough
by the industry
– Price caps may lead both to be more careful in their public statements
about abatement costs…
• An international agreement on price cap level would be preferable
for cost-effectiveness but is not necessary
– Several price cap levels may coexist in one international trading system; to
avoid the domination of the lowest price cap level, only complying
countries (i.e. not ‘using’ the price cap) should be net sellers
Energy Policy
Cédric Philibert
A threat to technology development?
• Reducing expected abatement costs reduces
expected benefits of climate-friendly technologies…
• … if there is no price floor…
• … and if the ambition in the targets is unchanged
– Targets and price cap level drive technology development, not certainty
on quantitative results
– Price volatility (e.g. oil) shown to deter investments; more ambitious
targets and price caps would lead to less volatile carbon prices
– In any case, more specific instruments remain needed to promote costly
technologies with great learning-by-doing potential (e.g. PV)
• The price cap should smoothly grow over time
• And in a decade or two reach a level above the cost of CO2
capture and storage (‘backstop’ technology), so coal can be
used in a carbon-constrained world
Energy Policy
Cédric Philibert
Conclusion
• Fixed targets give certainty on short
term emission results
• More flexible options might facilitate:
– The participation of more countries
– The adoption of relatively more ambitious
targets
• More flexible options give less certainty
of achieving precise levels
– But a greater probability of doing better!
Energy Policy
Cédric Philibert
Your exams
A little more on coal…
• Why oil became the
first energy source?
– Quality of lighting
– Energy density (1912…)
– Liquidity, Low cost…
• When will coal peak
– Consumption/reserves
ratio at current levels
– The peak is only the
beginning of the end…
• Clean coal
– Not only coal washing…
– Air pollutants (SOx, NOx,
PM, Metals, Nukes…)
– CO2 capture storage
• Coal to Liquids
– Increase consumption
– Increase emissions…
– CTL w/o CCS a disaster
• Information sources
Energy Policy
Cédric Philibert
30000
CO2 Emissions :
+ 137% by 2050 !
25000
ENERGY
TECHNOLOGY
PERSPECTIVES
20000
Scenarios &
Strategies
to 2050
MtCO2
2006
15000
26294
11733
10000
7603
6512
5000
4490
9946
5469
5122
3255
1718
0
2003
2050
Electricity Conversion Industry Transport Build’s.
Energy Policy
Cédric Philibert
Your final exam
Thursday 21 June 9:00 to 11:00
• Your final exam will be made of four topics.
• All must be addressed in brief, e.g. 4 to 6
bullet points or short paragraphs.
• It is more important to get all the major
aspects than to support your points in detail.
– For each topic, full responses in bullet points will be
noted on 5, and one additional point might be
attributed to more detailed answers.
– A perfect paper in bullet points would get 20/20, a
perfect paper with slightly more detailed answers
would get 24/20...