Download - Energy Policy 13
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Energy Policy Cédric Philibert
Energy Policy 13 Energy Policy 13
Cédric Philibert
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Energy Policy Cédric Philibert
OutlineOutline
• The problems with the Kyoto protocol
• Rejecting Kyoto?
• Keeping Kyoto (unchanged)?
• Transforming Kyoto!
• Certainty versus Ambition
• Your exams
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Energy Policy Cédric Philibert
The problems with KyotoThe 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
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Energy Policy Cédric Philibert
0
5
10
15
20
25
1990 1995 2000
Kyoto target
Gigatonnes of CO2
International Bunkers
Non-Annex I Parties
Non-Participating Annex I Parties
Kyoto Parties
2003
Kyoto is not enoughKyoto is not enough
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Energy Policy Cédric Philibert
100
150
200
250
300
350
400
450
2005 2010 2015 2020
8% per year 10% per year
~100
Uncertain economic growthUncertain economic growth
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Energy Policy Cédric Philibert
Keeping Kyoto?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)
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Energy Policy Cédric Philibert
No-harm No-harm vs vs equal per capitaequal per capitaSurplus allowances(above BaU)
Developed Developing Developed Developing “No-harm” rule Equal per capita allocation
Current Emissions Assigned Amounts
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Energy Policy Cédric Philibert
Rejecting Kyoto?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
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Energy Policy Cédric Philibert
Transforming Kyoto!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
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Energy Policy Cédric Philibert
Indexed targetsIndexed 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
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Energy Policy Cédric Philibert
Intensity Targets: a reality testIntensity Targets: a reality test
Regression line: coefficient of determination = 17.4%
Intensity targets
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Energy Policy Cédric Philibert
Non-binding targetsNon-binding targets• Targets with no
consequences for non-attainment
• Could allow trading– Need to make sure only
countries in compliance are net sellers!
• Target may be more stringent
• Could ease the political process
• “Carrots, no stick”• Gives an incentive to
achieve win-win reductions
• Could be negotiated within the CDM framework
• Not considered for industrialised Cies
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Energy Policy Cédric Philibert
• 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
Price capsPrice caps
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Energy Policy Cédric Philibert
Other optionsOther options• Sectoral targets
– Fixed or dynamic, binding or not
– Industry sectors or domestic sectors?
– Could allow trading– Limited cost-
effectiveness– 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?
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Energy Policy Cédric Philibert
COP 8 - 2002 COP 11 - 2005
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Energy Policy Cédric Philibert
• 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
Certainty versus AmbitionCertainty versus Ambition
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Energy Policy Cédric Philibert
€
ReductionsBaU Target
Marginal benefit
Marginal cost
Price(tax)
General case: Optimum when marginal benefit equals marginal cost
Cost uncertainty matters for instrument choice
Certainty versus AmbitionCertainty versus Ambition
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Energy Policy Cédric Philibert
Emission reductions
CO2 Concentrations : 384 ppmv (No KP) 383 ppmV (Full KP)
xx €
x €
0
Possible
Unlikely ?
Possible
Climate change: damages relate to concentrations, abatement costs relate to emission reductions
Marginal benefit curve is roughly flat
Certainty versus AmbitionCertainty versus Ambition
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Energy Policy Cédric Philibert
€
ReductionsBaU Target
Marginal benefit
Marginal cost
Uncertain costs
Far from the optimum
Certainty versus AmbitionCertainty versus AmbitionClimate change ~ flat marginal benefit curve
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Energy Policy Cédric Philibert
€
ReductionsBaU
Marginal benefit
Marginal cost
Tax
Price instruments minimise the error due to cost uncertainty
Uncertain abatement
Close to the optimum
Certainty versus AmbitionCertainty versus Ambition
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Energy Policy Cédric Philibert
€
ReductionsBaU Target
Price instrument vs. the equivalent quantity instrument:
Marginal benefit
Marginal cost
Greatly reduces expected costs
addedsaved
Tax
Climate change ~ flat marginal benefit curveCertainty versus AmbitionCertainty versus Ambition
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Energy Policy Cédric Philibert
€
ReductionsBaU Target
Marginal benefit
Marginal cost
May slightly reduce expected benefitsIncreases expected NET benefits (benefits minus costs)
gainedlost
Price instrument vs. the equivalent quantity instrument:Greatly reduces expected costs
Tax
Climate change ~ flat marginal benefit curveCertainty versus AmbitionCertainty versus Ambition
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Energy Policy Cédric Philibert
€
ReductionsBaU
Marginal benefit
Marginal cost
Tax
Compared to the equivalent best-guess target, a price instrument makes possible a more ambitious policy at lower expected costs
Target
Certainty versus AmbitionCertainty versus Ambition
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Energy Policy Cédric Philibert
€
ReductionsBaU
Marginal benefit
Marginal cost
Tax
Price cap
Target
But targets have political advantages over taxes
TargetTarget
Certainty versus AmbitionCertainty versus AmbitionCompared to the equivalent best-guess target,
a price instrument makes possible a more ambitious policy at lower expected costs
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Energy Policy Cédric Philibert
- Same expected benefits. Lower expected costs (e.g. fairness) Lower expected costs Higher expected benefits
€
ReductionsBaU
Marginal benefit
Marginal cost
Tax
Target
- Same expected costs. Higher expected benefits (e.g. environment)
Introducing a price cap makes possible a more ambitious policy:
Price cap
Especially useful when benefits are deeply uncertain…
Certainty versus AmbitionCertainty versus Ambition
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Energy Policy Cédric Philibert
• 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
Certainty versus AmbitionCertainty versus Ambition
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Energy Policy Cédric Philibert
• 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
Certainty versus AmbitionCertainty versus Ambition
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Energy Policy Cédric Philibert
Too low price caps?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
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Energy Policy Cédric Philibert
A threat to technology development?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
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Energy Policy Cédric Philibert
ConclusionConclusion• 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!
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Energy Policy Cédric Philibert
Your examsYour examsA little more on coal…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
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Energy Policy Cédric Philibert
9946
26294
1718
76036512
11733
3255
54694490
5122
0
5000
10000
15000
20000
25000
30000
2003 2050
MtC
O2
2 0 0 6
ENERGYTECHNOLOGYPERSPECTIVES
Scenarios &Strategies
to 2050
COCO22 Emissions : Emissions : + 137% by 2050 !+ 137% by 2050 !
Electricity Conversion Industry Transport Build’s.
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Energy Policy Cédric Philibert
Your final examYour final examThursday 21 June 9:00 to 11:00Thursday 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...