new paradigm of low carbon development
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New Paradigm of Low New Paradigm of Low Carbon DevelopmentCarbon Development
Rae kwon ChungClimate Change Ambassador
Republic of Korea
Story of Three Myths
Climate Action (CA): Bad for EconomyTarget: only way for Emission ReductionNot Enough Money/Technology for CA
Climate Action: Good for EconomyE R: Possible without Target Enough Money/Technology for CA
Story of Low Carbon Parad
High Carbon Paradigm:Energy, Growth, Climate Nexus
Cheap Fossil Fuel
Low Energy Efficien
Vul To high oil price
High Fossil Fuel Depend
Vul to Climate Change
Economivulner-ability
Ecologic vulnerability
MDG in dangerUnsustainable Growth
Low Carbon Paradigm
• High Energy Efficiency Saving Energy Costs Energy Security against High Oil Price Improve Industrial Performance Sustain Economic Growth
• Low Fossil Fuel Dependency Reducing GHG Emissions Reducing vulnerability to Climate Change Improving Ecologic
al Sustainability• Economic Growth + Ecological Sustainability Green Growth • Turn Vicious Cycle to Virtuous Cycle
Paradigm Shift from High to
Low Carbon Paradigm
Climate Action = Energy Security
• Especially When Oil is 130 USD per Barrel
• Climate Action Improving Energy Efficiency
Improving Energy Security • High Oil Price is making Climate
Action not only Ecological action but Economic Action
CA Bad for Economy ?
• Internalize Ecological Costs Improves Energy Efficiency Strengthen Competitiveness Encourage R&D, Create New Market, Employment, Growth• Countries with High Energy Price High Energy Efficiency
Then Why Resist ?
• Positive Results: Long-Term• Afraid of Short-Term Burden/Costs• Key: How to close Long-term/Short-
Term Gap ?• Need Policy Support to Minimize Short-Term Burden to Maximize Long-Term Gains
Because We do not know yet
• Whether decoupling could happen in DCs• Low Carbon Development: still vision, • Decoupling only happens in rich countries• Korea: 75-06, GDP increased 7.5 times Energy Consumption 7.4 times• We need Low Carbon Economics: that can make decoupling happen in DCs.
A/P Can not repeat
Quantity of Growth
Quantity of Growth
Grow First, Clean Up
Later
Grow First, Clean Up
Later
Market Cost Efficiency
Green Green GrowthGrowthGreen Green
GrowthGrowthQuality of Quality of
GrowthGrowthQuality of Quality of
GrowthGrowth
A/P 새로운 성장 패턴
Eco-efficiency
Asia & Pacific Asia & Pacific
• High Growth
• 2/3 of world poor
• 1.5 times population density
• 34% of global GHG emission
• Lowest ecological carrying capacity
Ecological Status of Global Economy
• Deepening Ecological Deficit– Footprint is surpassing Biocapacity
Unmet basic needs… need Unmet basic needs… need for further economic growthfor further economic growth
• 600 million without safe drinking water • 1.9 without sanitation• 800 million without electricity • Still need rapid economic growth
Asia-Pacific situation
Limited Carrying capacity
A/P has to change “Growth Pattern”
• To attain
• MDG 1 (poverty reduction)
• MDG 7 (environmental sustainability)
at the same time
Paradigm Shift from
•Quantity of GDP to Quality of GDP
• Ecological Quality• Economic Quality• Social Quality
Current Paradigm: MCE
• Market Cost Efficiency: market price
• Market Price < Ecological Price • Market Cost Efficiency (MCE) <
Ecological Cost Efficiency (ECE)•Gap between MCE & ECE has to
be closed
Need to shift from MCE to Ecological Efficiency (EE) •EE: Key Concept of
Green Growth•EE is Internalize Ecological Cost Maximize Resource EfficiencyMinimize Pollution Impact
EE of Economic Growth
•Different Pattern of Growth • Japan> EU > US• In Asia: Singapore
Different Patterns of Growth
(global hectares per capita, 2003)
Examples of Eco-Efficiency
• Japan: rail based transport system • Singapore: private car control • London: congestion charge• Norway: Road Pricing, ban
shopping mall • Failure of EE: Traffic Congestion
Costs Japan 0.79%, US 0.65%, UK 1.25%, Bangkok 6%, Korea 3%
Basis for Eco-Efficiency
1. Price-structure: close gap between market
Price & Ecological Price
* Invisible Infra of society
2. Infra-structure: Frame of Economic
Performance * Visible Infra of society
Policy Tool for Eco-Efficiency
•Eco-Tax Reform: Tax Base, Income Carbon•Sustainable Infra: Transport •Demand-side Management•Green Business Promotion•Climate Action
Eco-Tax Reform Tax Base: Income
Tax Base: Carbon
Income Tax
Carbon Tax
•
Carbon Tax
Changing Tax Base
Income Tax
Double Dividend
•1 stone 2 birds
•Reducing GHG Emissions•Promoting Growth
Demand-side Management
• As Income level rises, consumption will place major pressure on CO₂emission
• Deteriorating EE of Consumption• Consumer Acceptance: Key• Congestion charge, Road Pricing
Climate Change
• Market Failure (MF): Stern ReviewNeed invest 1-2% of Global GDP If not, global GDP will be lower 5-20%
• From GG perspective: EE Failure
• GG Ultimate answer to Climate Change
• Low Carbon Paradigm: one of the tools for GG/EE
United Nations Economic and Social Commission for Asia and the United Nations Economic and Social Commission for Asia and the PacificPacific
EE & Carbon Intensity
• Ecological Efficiency GG• Low Carbon Intensity (LCI) LC Dev. • EE: improving efficiency of Power
plants• LCI: switching Coal-fired power
station to Gas-fired one
3 myths of Climate Regime
• Target is Good. No Target is Bad.• “Binding” is better than “Voluntary”• “Binding Target” is the only option to
reduce Global Emission. - placing a far greater role on Government over Market (Finance, TT)
2 Cases of Target
• When BAU
(ANNEX 1)• When BAU
(Non-Annex1)
Fixed/Absolute/Binding Target
•When BAU : Feasible •When BAU : Not Feasible
- Uncertainty of Projection - Difficulty of Agreement•Hot Air / Growth Capping
Flexible/Relative/Voluntary Target
•Target: Indicative Goal, Political Will
•Driver of Short Term Action•Pledge & Review: adjustable to
changing circumstances
When target has limited role?When target has limited role?
•MRV (Measurable, Reportable and Verifiable) actions of NA-1: Need Incentives
•Market Mechanism could play key role in providing Incentives.
In designing Post-2012 In designing Post-2012
• Need Market and Private Sector Dynamism• Improve Commercial Viability of Investment • What is lacking is not money and
technology In fact we have too much money and enough technology.
• Once we can design a mechanism which can improve commercial viability of mitigation investment money & tech will flow
to Mitigation
DC: “Unilateral Actions”DC: “Unilateral Actions”• China & DCs: already taking significant m
itigation actions • China: 20% energy efficiency target, has to be recognized & incentivized
It is not fair to say that China does not have a target. It already has.
• Nicklaus Stern: Key Elements for Global Deal for CC, incentive for DCs
as Carbon Credit for mitigation
Unilateral Developing Country Unilateral Developing Country Actions Compared to US and Actions Compared to US and
EU EU
• Reductions from BAU (CCAP)
1638 1687
2029
2582
MM
TC
O2e
US Lieberman-Warner in 2015 EU-27 -30% Target in 2020
China, Brazil, and Mexico's Unilateral Actions US Lieberman-Warner in 2020
EU 3
Lieberman-Warner (2015)
EU 30% target
China, Brazil, & Mexico
Lieberman-Warner (2020)
Cost Cost of 1 ton COof 1 ton CO₂Reduction₂Reduction
• CO2 ER per ton (USD): 234 Japan, 153 USA, 198 Europe.
• a few dollars to 20 or 30 $ per ton in developing countries (less than 20 $ in China) Asia-Pacific Integrated Model (AIM), Japan
• Cost Differential: can make ER investment in DC commercially viable: drive market mechanism
Barrier for Market Mechanism
• Political Ideology: Supplementarity Principle Reduce in your country
Is it necessary ? To what extent ???• Additional Burden on Annex 1 ??? it depends on design of Climate Regime• If Supplementarity Principle is relaxed, reduces burden on Annex1 & enables Deeper Cut/Deeper Global Net Reduction
Original CDM Design•Annex 1 Compliance Mechanism
– Political (Not Market) Mechanism– Supplementarity Principle:– CDM: loophole of A-1 Compliance
Restrict CDM As Much As Possible Impose Additionality Criteria:Technical, Project, Financial Additionality
CDM has to be redesigned as market incentive mechanism
Evolution of CDM DesignEvolution of CDM Design
• From Compliance to Market Mechanism • Bilateral to Unilateral CDM:
– A-1: Investing in NA-1 to generate CER (B/CDM) – A-1: Buying CER from NA-1 (U/CDM)– Proposed in 2000 at COP 6, Approved in 2005– Strong opposition: G-77(China,India), EU
• U/CDM: incentive for investment in mitigation projects in NA-1, about 70% U/CDM
Still Half Way:Still Half Way:
• Original Bilateral CDM: Political Mechanism• U/CDM: Hybrid of Political / Market Mechanism
– Still Same Additionality Criteria: restricting project scope• CDM: yet very limited incentive for investment in mitiga
tion in NA-1– Need to remove project & financial additionality criteria, but
maintain Technical Baseline strict
Key Issues for Post-2012Key Issues for Post-2012
• For Developing Country: How to design finance & technology transfer mechanism?– Current Debate focusing on the role
of Governments of Annex 1:Not Realistic
• For Investor: How to improve commercial viability of investment for mitigation?
What is NAMA ?
• Nationally Appropriate Mitigation Actions (NAMA)
by developing country parties, supported and enabled by technology, financing and capacity-building, in a MRV (Measurable, Reportable, Verifiable) manner
- Bali Action Plan Decision 1/COP 13, Para. 1.(b).(ii)
If Credit is awarded to NAMA
• Mitigation initiated even without Finance & Technology (e.g. Unilateral CDM)
• Commercial Viability will be improved Fin & Tech flow will be scaled-up• Global Mitigation Cost could be reduced• Annex 1 could take deeper target • Mitigation will be driven by market
dynamism/ Private Sector.
With credit for NAMA
• Global Carbon Market will function as Fin & Tech Transfer Mechanism
• DCs can initiate mitigation while pursuing Low Carbon Development (GG)
• Certain share of proceeds can be allocated to Adaptation Fund,
then 4 key issues of Bali Roadmap positively addressed
How to Operationalize NAMA?
• Demand Side: need buyer of credit Annex 1: deeper target • Supply Side: Wholesale approach for CDM, prog
rammatic and sectoral CDM Can build on existing rules of CDMTotal cost of Global Mitigation: reduced
Carbon Intensity (CI)
• Can be applied sector by sector Power Sector, Transport Sector etc. Ex. Reduce CI by 20% in 3 years: • NAMA: actions lowering CI• CI: Key concept in calculating Carbon Credit • Basis for Wholesale CDM: Nicklaus Stern
Related Issues
• Additional Deeper Cut: Additional Financial burden?
Better than Fund or Bond • Carbon Trade: only carbon
offsetting? No.• How to balance supply and demand?Needs study (price differentiation,
CER Discounting etc.)
How to negotiate NAMA?
• Agree on principle by 2009Work out details after 2009 as was CDM
• Scope and Extent of Credit & Modality is open to negotiation
• Carbon Intensity of Sectors: can be applied to sectoral approach
Another Idea of Market Another Idea of Market MechanismMechanism
• Reform & Expand CDM Scope: removing Project & Financial Additionality but maintain Technical Additionality
• Enhance and Wholesale CDM: Lord Nicklaus Stern
• Multiply CER for Solar & Wind
Climate Regime after 2012Climate Regime after 2012
• A-1: Deeper Target (more than potential domestic red
uction) to create demand for carbon credit from NA-1, Fin & Tech Transfer • NA-1: Incentive Mechanism through Carbon Market
Mechanism (NAMA Credit)
Mixed with Soft Target (Vol, Pldge & Review)
Net Global Reduction ?Net Global Reduction ?
• CDM: Emission Shifting (Carbon Offset) Mechanism Not Global Emission Reduction Mechanism
• But if we Discount CER: Then CDM can function as
Mechanism for Net Global Reduction Mechanism without imposing target on NA-1
• CER Discount: CER price stabilization & Net Global Reduction
UER/CER DiscountingUER/CER Discounting
Carbon Credit
NoReduction
Carbon Credit
Sold
Unsold
Net Global Reduction
How About Korea ?
• Early Mover/Bridging Role• Set Mid-term Target for 2020: to be announced by next year• Pledge & Review: Adjustable/ /relative/ volunt
ary target• Post-2012: Recognize vol target/ Incentive for
Mitigation Action • East Asia Climate Partnership:
East Asia Climate Partnership
• Vision: Low Carbon Development Strategy Common Challenge of Harmonizing Growth & Climate• 200 Million USD for 5 years• Policy Forum: launching early next year• Technology & Finance Cooperation• Pilot Projects
Climate Change
• Need “Beyond GDP Paradigm”• “Low Carbon Paradigm” Need to change the way we live/new value: Happiness/Quality of life/ Motainai (Japan) Sufficiency Economy (Thailand)
Climate Change
• Not just an ecological issue• Issue of changing lifestyle • If we just try to maximize GDP, we
will end up with shrinking GDP (Stern Review)
• If we focus on quality of GDP, then actual GDP will be even bigger
West
East
Happiness EquationHappiness Equation
Happiness =
GDP
Desire
New AsianConsumerism
New WesternConsumerism
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