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Technology Approach: Overview and Some Options

Ned Helme, Center for Clean Air Policy

Center for Clean Air PolicyDialogue on Future International Actions to Address

Global Climate Change

19-22 April 2005Oslo, Norway

Presentation Outline

Technology pathwaysFinancing» Financial flows from Developed to

Developing Countries (e.g., ODA and FDI)» Gov’t Energy R&D budgets» Example Deployment Initiatives

Technology optionsPossible Linkage to Sectoral Approach

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Role of Technology in GHG Stabilization

“Business-As-Usual”Technology Gap

“Stabilization”Technology Gap

1300 GT C

480 GT C

Source: Dooley et al., 2004

Filling the “Stabilization Gap”: A Variety of Technology Pathways

Without capture and storagetechnology (550 ppm)

With capture and storage Technology (550 ppm)

Source: Edmonds

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Technology Pathways (2)

Exemplary path that meets 450 ppmv CO2concentration

1. Major reduction in fossil fuels

2. Phase-out of nuclear

3. Expansion of solar

4. Substantial improvement in energy efficiency

Source: WBGU, 2003

The “Chicken & the Egg”

Political will to adopt emissions caps is often limited by uncertainty over the technology to achieve the emissions goals…But development of the technology can be hindered by the lack of emissions goals.

What are the means to develop and deploy the technologies necessary to meet aggressive global stabilization levels?

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Financial Flows$225 billion of financing flowed from industrialized countries to developing countries in 2000» about 4 percent of the

combined GDP of developing countries

Private sector flows from multinational corporations and other private sources accounted for 3/4 of total flows.» Bilateral government aid,

including ODA was the 2nd

largestFinancial flows from developing countries from industrialized countries, 2000

Development Banks

6%

Other Multilateral Institutions

4%

FDI 43%

FDI covered by ECA

investment insurance

6%

International Finance Corp.

2%

Bilateral Aid12%

Other private 27%

Source: Sussman & Helme, 2004

Overview: Export Credit Agencies (ECAs)

ECAs provided investment risk insurance that directly covered about $13 billion of FDI in 2000 (~11% of total FDI.Including medium- or long-term loans and loan guarantees, the total amount of ECA activity in 2000 reached $85 billion.ECAs offer loans, guarantees, credit insurance, or financial technical assistance.» Purpose is to promote the exports of goods and services, primarily

to developing countries, from the country where the ECA is located.

» Step in where private banks and insurance companies do not provide credit or insurance (i.e., lender of “last resort”)

Source: Sussman & Helme, 2004

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Gov’t Energy R&D BudgetsIEA Government R&D Budgets: 1974-2001

Private energy R&D 0.1 to 0.6% of electricity sales in OECD countries vs 3.1% industry on average (source: Battelle)

Gov’t Energy R&D Budgets in 2001

Source: IEA, 2004

Total IEA R&D expenditures in 2001 was $8.9 billion» 17% for conservation, 4% for coal, 4% for solar, 1% for wind, and

4% for nuclear

Energy Research & Development Budgets in 2001

0 500 1,000 1,500 2,000 2,500 3,000 3,500

France

Germany

Italy

UK

Japan

US

Canada

EU-15

Million USD (2003 prices and exchange rates)

Conservation

Oil & Gas

Coal

Solar

Wind

Biomass

Other Renew ables

Nuclear

Pow er & Storage

Other

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Existing Deployment Initiatives: Examples

Renewable Energy & Energy Efficiency Partnership (REEEP)CDM» Estimated to be around 50-90 MMTCO2e per year

(Haites, 2004). Estimated CER prices are $5-10 USD / ton CO2e (World Bank, 2005).

» At these levels, estimated CER financial flows of $250-900 million per year.

Technology Options

Options could include:Commitments to R&DCommitments to deploymentSupport small and medium-sized enterprises for technology deploymentSupport of pull policies

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Commitments to R&DNational R&D commitments» Increase R&D by X% per year

– By two-fold for the G8 by 2010 (ICCT, 2005)» Increase R&D to $Y million per capita per year

International R&D Actions» “R&D protocol” (Barrett, 2003)

– Collaborative research on new technologiesallocations could be based upon UN scale of assessment, historical CC responsibility, or current emissions

» Building upon or adding to existing arrangements?– Int’l technology collaboration efforts (e.g., IEA agreements)– CSLF, Methane-to-Markets, Hydrogen– Others needed?

Example Nat’l R&D Commitments

Doubling the G8* R&D budget would yield an extra $8 billion per year

Doubled Energy Research & Development Budgets from 2001

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000

Est. IEA Total

France

Germany

Italy

UK

Japan

US

Canada

EU-15

Million USD (2003 prices and exchange rates)

* Doesn’t include Russia since data isn’t available through the IEA

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Commitments to Deployment

Developing countries commit to pay for the incremental cost of deployment of a certain number of facilities in developing countries» Could be through multilateral fund (Barrett, 2003) or bilateral

fund– e.g., US commit to help pay for 5 IGCC-CCS facilities in China

“Technology Backstop Protocol” (Edmonds and Wise, 1998)» New fossil fuel power plants built in A1 after 2020 & new syn

fuel capacity would be required to capture and store all carbon from their waste streams

– Graduation clause for developing countries

Funding Deployment Through ECAs

Create a pool of concessional financing» Donor-sponsored fund that creates a pool of concessional financing

Concessional financing means that is a direct grant or contains a significant grant element (e.g., interest rate subsidy for a loan)» addresses the higher costs of climate-friendly technologies» does not raise cost of financing climate-friendly projects for ECA,

developers, or host countryRelies on list of acceptable technologies—based on climate impacts and donor and host country priorities A portion of funds could be earmarked for specific technologies reflecting the mix of donors/technologies to be supported or linked to Sectoral Climate Agreements

Source: Sussman & Helme, 2004

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Comparison of Potential IGCC/CCS Incentives with Existing RE Incentives in

U.S.

4.75$15-28$750-870IGCC+CCS no EOR

2.75$17$328RE

Capacity (GW)

Price per MWH

Cost per Year in 2010

($millions)

Example: Deploying IGCC-CCSCreating an ECA pool of concessional financing to pay the incremental cost of IGCC-CCS deployment in developing countries» Base cost (e.g., scrubbed pulverized coal) would be paid through foreign

direct investment (FDI)» Pool to pay the incremental cost could be funded through bilateral (e.g.,

ODA) or multilateral arrangements (e.g., World Bank) grants or loans Could be implemented through commitments of members of the Carbon Sequestration Leadership Forum (CSLF)If pool paid incremental cost of 9-10 plants:» Pool incremental cost could be around $1.5 – 1.75 billion/yr (based on

U.S. cost experience)» FDI would pay for the base cost (e.g., cost of pulverized coal) of

Small GHG reductions by 2020 BUT proving these technologies in these countries could have significant medium to long-term impacts similar to the case of wind.» Goal is to support enough technologies to prove these technologies in

order to advance their deployment

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Development of wind technology

Learning curve for wind energy in Germany

0

200

400

600

800

1000

1200

1400

1600

1800

10 100 1000 10000 100000Installed capacity [MW]

Cos

t [€/

kW]

1990

2003

Development of wind turbines

Support for Small- and Medium-Sized (SMEs) Enterprises

Provide financial, capacity building, training, etc. for SMEs to help implement climate friendly technologiesSeparate programs could be developed to target specific industries» e.g., Energy Service Companies (ESCOs)

for the deployment of energy-efficiency technologies

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Supporting SMEs: Energy Service Companies (ESCOs)

ESCOs are companies engaged in developing, installing, and financing EE or load reductionIn developing countries there are an estimated 305 ESCOs—compared to 991 in developed countries, excluding amount in USTotal value of projects in developing countries $191 million—compared to $401 million in developed countries, excluding US

» US estimated at $1.8-2.1 billion in 2001Biggest barriers to greater ESCO development is financialPromoting ESCOs internationally could include:

» Increasing information» Developing accreditation protocols, monitoring & verification protocols,

standardized contracts» Developing funding sources for working capital for marketing and project

preparation and development (e.g., private banks, multilateral funders and donor agencies, venture capital firms). Could be developed through:

– A revolving fund– Dedicated debt organizations offering 80-100% financing

» Promote energy performance contracting in local, regional, and federal government buildings

Source: Vine, 2005

Support “Pull” Policies

Could take a variety of forms including:» Cap-and-trade» Carbon taxes» Tax incentives» Subsidies

– e.g., German feed-in tariff for renewables (Hohne, 2004)

» Sectoral credit generating baseline approach» Etc.

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Technology Incentives as Part of Sectoral Approach

If BMK technologies are more costly than existing, then implementation will weaken competitive position of developing country industry unless incremental costs are coveredPool of concessionary funding needed to “write down” cost of new tech – if BMK allows CERs to be generated, then amount of concessionary finance is difference between CER value and incremental additional cost of new technology deploymentIf we want to retain tougher BMK, then more concessionary finance necessaryECA funds cover “risk premium”, FDI/local finance cover baseR&D, SMEs, other “pull” policies all reduce cost of new techOver time, new tech costs and performance improve, eliminating need for concessionary finance

Key Questions

What are the realistic elements of a technology approach?Are specific A1/G8 commitments to R&D funding realistic?» In what form?» How do you ensure they achieve results?

Can deployment commitments be instituted? » Through multilateral or bilateral arrangements?» Can ECAs be mobilized? Can concessionary funding be identified

to leverage ECAs?How do you develop an int’l framework to support SMEs?» How to achieve the examples for ESCOs? What other types of

SMEs need to be developed? How?

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ReferencesBarrett, Scott. (2003). Environment and Statecraft: The Strategy of Environmental Treaty-Making.

Dooley, JJ, RT Dahowski, MA Wise, CL Davidson. (2003). Developing a Detailed Understanding of Large Scale Deployment of Carbon Capture and Sequestration (CCS). Joint Global Change Research Institute, Pacific Northwest National Laboratory, Battelle. Presentation at CCAP Climate & Air Quality Dialogue. November.

Edmonds, J. and M. Wise. (1998). “Building Backstop Technologies and Policies to Implement the Framework Convention on Climate Change”. May.

German Advisory Council on Global Change, WBGU. (2003). World in Transition – Towards Sustainable Energy Systems.

Haites, Erik. (2004). Estimating the Market Potential for the Clean Development Mechanism: Review of Models and Lessons Learned. June.

Hohne, Niklas. (2004). Technology Policy: Empirical Evidence for Successful Renewables Policies. Presentation at CCAP Dialogue on Future International Actions to Address Global Climate Change. May. Available online at: http://www.ccap.org/Presentations/Technology%20Policy%7EHoehne.pdf

International Climate Change Taskforce, ICCT. (2005). Meeting the Climate Challenge. January.

International Energy Agency, IEA. (2004). R&D Statistics Database. Available online at: www.iea.org/Textbase/stats/rd.asp

Sussman, Frances and Ned Helme. (2004). Harnessing Financial Flows from Export Credit Agencies for Climate Protection. Center for Clean Air Policy. April. Available online at: http://www.ccap.org/international/future.htm

Vine, Edward. (2005). An international survey of the energy service company (ESCO) industry. Energy Policy, 33: 691-704.

Appendix

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Country Energy R&D Expenditures

Est. IEA Total France Germany Italy UK Japan US Canada EU-15 G8 (w/o Russia)Conservation 1518 14 27 30 0 599 600 45 234 1316Oil & Gas 354 40 0 0 4 33 116 48 58 240Coal 349 0 20 0 6 42 249 4 35 321Solar 356 11 48 42 3 84 96 5 146 289Wind 111 3 20 1 2 8 41 2 57 78Biomass 197 3 5 3 3 17 89 7 75 126Other Renewables 94 5 8 0 2 26 33 5 24 79Nuclear 3786 431 147 128 26 2529 305 46 811 3612Power & Storage 580 2 48 94 3 183 140 22 198 492Other 1521 11 15 42 4 82 1237 34 129 1424Total Energy R&D 8866 519 339 339 53 3602 2905 219 1769 79762001 RD&D Budget per capita (USD) 8.76$ 4.12$ 5.88$ 0.90$ 28.35$ 10.18$ 7.03$ 4.68$ 11.37$

RD&D Budgets in 2001, Million US$ (2003 prices and exchange rates)

Int’l ESCOs Data

Country # of ESCOs

Total Value of ESCO projects in 2001

(million USD) Country # of ESCOs

Total Value of ESCO projects in 2001

(million USD)Argentina 5 < 1 Australia 8 25Brazil 60 100* Austria 25 7Chile 0~3 0~0.2 Belgium 4 N/AChina 23 49.7 Bulgaria 12 N/AColumbia 1~3 < .2 Canada 5 50-100Cote d'Ivoire 4 0.25 Czech Repub 3 1~2Egypt 14 N/A Estronia 20 1~3Ghana 1~3 < .1 Finland 4 .5~1India 4~8 .5~1 Germany 500-1000 150Jordan 1 2 Hungary 10~20 N/AKenya 2 <.01 Italy 20 N/AKorea 158 20 Japan 21 61.7Mexico 7 N/A Lithuania 3 N/AMorocco 1 0.5 Poland 8 30Nepal 2 0.25 Slovak Repub 10 1.7Philippines 5 < .2 Sweden 6~12 30South Africa 3~5 10 Switzerland 50 13.5Thailand 6 5~6 Ukraine 5 2.5Tunisia 1 0.5 United Kingdo 20 N/A

Non-Annex I Annex-I

*Due to electricitiy shortages, 2001 was an unusual year for Brazil. The prior year (2000) was more tpical: in that year, ESCO services were valued at $30 million.

Source: Vine, 2005