energy policy 13
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Energy Policy 13. Cédric Philibert. Outline. The problems with the Kyoto protocol Rejecting Kyoto? Keeping Kyoto (unchanged)? Transforming Kyoto! Certainty versus Ambition Your exams. The problems with Kyoto. 1st commitment period to end by 2012 - PowerPoint PPT PresentationTRANSCRIPT
Energy Policy Cédric Philibert
Energy Policy 13 Energy Policy 13
Cédric Philibert
Energy Policy Cédric Philibert
OutlineOutline
• 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 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
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
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
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)
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
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
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
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
Energy Policy Cédric Philibert
Intensity Targets: a reality testIntensity Targets: a reality test
Regression line: coefficient of determination = 17.4%
Intensity targets
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
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
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?
Energy Policy Cédric Philibert
COP 8 - 2002 COP 11 - 2005
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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!
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
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.
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...