climate policy for industry the eu emissions trading scheme climate change summit, march 2009...
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Climate Policy for Industrythe EU Emissions trading scheme
Climate Change Summit, March 2009Johannesburg
Karsten NeuhoffFaculty of EconomicsCambridge University
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Outline
• The challenge for low-carbon policies
• Provide for the needs of different investors
• Provide for different technologies
• European package – a consistent framework?
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2007 2020 2050
Gt CO2
in EU-27
Assumed emission growth business as usual 1%/year
2012
Linear 75% reduction trajectory
The challenge for emission reductions
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Upward bias of ex-ante estimates (bottom up)
* Upper estimate >£8000 million.Source: AEA Technology Environment, 2005, An Evaluation of the Air Quality Strategy,Report to DEFRA, available at: http://www.defra.gov.uk/
Cost estimates of UK Policies during 1990-2001
0
1000
2000
3000
4000
5000
6000
Lead Free
Petrol
Euro I petrol
Cars*
2000 fuel
standards
2005 fuel in
2000/1
Flue Gas De-
Sulphurisation
(FGD)
Low NOX
burners
Co
sts
(£M
)
ex anteex post
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A carbon price works through the value chain – example cement
Clinker Cement Concrete Building
Other building materials
LeanerstructuresLower clinker
content
Sub
stitu
tion
Efficiency
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Cross-country comparisons suggest strong link between energy price and energy intensity
Source: Nebwery 2003
Denmark
JapanNorway
Austria
ItalyGermany Luxembourg
Switzerland SwedenPortugalFrance Finland
Spain
United
Kingdom
Netherlands
Greece
New Zealand
Belgium
United States
Australia
Mexico
Turkey
Hungary
Korea
Canada
Slovakia
Czech RepublicPoland
0
200
400
600
800
1,000
1,200
1,400
0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0Average energy intensity (kg oil equivalent/$1995 GDP)
Ave
rage e
nerg
y p
rice $
/toe
Best fit constant price
elasticity of -1.0 a
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Allowance prices – important for project investment
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Eur
opea
n C
O2
emis
sion
s ye
ar
2020today 2050
Conventional coal
Oil
Gas
Illustrative
Future carbon targets – determine strategic choices
BAU
Energy Efficiency
RenewablesCCS/ additional nuclear
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Empirical evidence – experience reduces cost
Source IEA
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Technology policy complements carbon pricing
Low carbon technology
Conventional technology
Learninginvestment
Future savings
Learninginvestment
Future savings
Cos
t
Experience (e.g. installed capacity)
Carboncost
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2007 2020 2050
Gt CO2
in EU-27
Assumed emission growth business as usual 1%/year
2012
Linear 75% reduction trajectory
Contribution from new low carbon technology portfolio
Renewable target
Kyo
to t
arge
t
Trajectory
20%
with
out
inte
rnat
. ac
tion
How does it all fit together?
Contribution from energy efficiency
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Effective climate policy for industry
Emission trading – share target across sectors• Short-term – address ‘risk’ from low carbon prices• Long-term – clear European and National targets
Technology policy• Support deployment of low carbon technologies• Ensure a portfolio of renewables is available by 2020
Beyond Europe• For few sectors, work internationally on leakage policies• Lead by example in implementation and technology
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