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© OECD/IEA 2010
Introduction: climate change and climate policy in the energy sector
Christina Hood, Environment and Climate Change Unit, IEA
© OECD/IEA 2010
IEA climate change work
UNFCCC process: Climate Change Expert Group Market mechanisms
Domestic climate change policy issues: Design of emissions trading instruments Energy security and climate change Electricity Security & a Climate-Constrained
World (Climate & Electricity Annual) Energy efficiency Combining policy instruments Climate and energy efficiency policy databases
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Outline
1. Climate change: science, international agreements
2. The challenge for the energy sector
3. [Break for discussion]
4. Climate policy options & policy packages • E.g. emissions trading and carbon markets
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Results: Arctic Sea Ice Decline
Credit: NASA/Goddard Scientific Visualization Studio
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Jet stream changes
Credit: NASA/Goddard Space Flight Center
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Climate Risks: 2001 vs 2009
Smith J B et al. PNAS 2009;106:4133-4137
©2009 by National Academy of Sciences
2001 2009
1
2
3
4
5
0 =1990
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What does this mean…
Impacts of global climate change felt already today – change in weather patterns, sea-level rise, vegetation, extreme weather events
Uncertainty about possible tipping points and ‘runaway warming’
Governments aim to stabilise and reduce the concentration of GHGs to limit temperature increase (mitigation)
Durban agreement on a 2 degree target. A 450 ppm scenario corresponds to 50/50 chance of meeting the 2 degree target
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International response: the UNFCCC
1992 United Nations Framework Convention on Climate Change (UNFCCC) 193 countries have ratified Ultimate objective: “the stabilization of greenhouse gas
concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system”
1997 Kyoto Protocol under UNFCCC
overall objective leads to a 5% reduction from 1990 levels for developed countries during 2008-2012
Three “flexibility mechanisms” Emissions trading (right to buy and sell quotas)
Joint implementation (among industrialised countries)
Clean development mechanisms (with developing countries)
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From Kyoto to Cancún
Kyoto Protocol Targets
Pledged actions and targets under UNFCCC
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Current status of negotiations
Parties acknowledged that 2020 pledges are not on track with the 2oC goal (agreed in Cancún)
Establishment of the Green Climate Fund (GCF)
Kyoto Protocol second commitment period from 2013-2020 (but some countries pulled out)
Work on new market mechanisms
Launch of a new negotiation: Ad-Hoc Working Group on the Durban Platform for Enhanced Action Should conclude its work by 2015 with a ‘protocol,
another legal instrument or an agreed outcome with legal force under the UNFCCC applicable to all Parties’ from 2020
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The world is changing
By 2035, cumulative CO2 emissions from today exceed three-quarters of the total since 1900,
and China’s per-capita emissions match the OECD average
European Union
0
100
200
300
400
500
United States China India Japan
Gig
ato
nn
es
2010-2035
1900-2009
Cumulative energy-related CO2 emissions in selected regions
Source: World Energy Outlook 2011, IEA
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Outline
1. Climate change: science, international agreements
2. The challenge for the energy sector
3. [Break for discussion]
4. Climate policy options & policy packages • E.g. emissions trading and carbon markets
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What long-term CO2 reductions are needed?
ETP 2012 2DS is broadly consistent with a long term 2°C scenario (RCP3PD) that has zero CO2 emissions by 2075
Source: Energy Technology Perspectives 2012
ETP timeframe
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Decoupling energy use from economic activity
Reducing the energy intensity of the economy is vital to achieving the 2DS.
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All technologies have roles to play
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0
10
20
30
40
50
60
2009 2020 2030 2040 2050
Gt C
O2
Power generation efficiency and fuel switching 3% (1%)
Nuclear 8% (8%)
End-use fuel switching 12% (12%)
End-use fuel and electricity efficiency 42% (39%)
Renewables 21% (23%)
CCS 14% (17%)
Technology contributions to reaching the 2DS vs 6DS
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Annual additional investments in 2DS
Additional investments in non-OECD countries exceed the pledged climate finance, but the incremental cost is much less due to fuel savings
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- 160 - 120 - 80 - 40 0 40
10%
3%
Undiscounted
Without price effect
With price effect
Additional investment
Tota
l sav
ings
Fu
el s
avin
gs
Power
Industry
Transport
Residential
Commercial
Biomass
Coal
Oil
Gas
Fuel savings
Additional investment
- 160 - 120 - 80 - 40 0 40
10%
3%
Undiscounted
Without price effect
With price effect
Additional investment
Tota
l sav
ings
Fu
el s
avin
gs
Power
Industry
Transport
Residential
Commercial
Biomass
Coal
Oil
Gas
Fuel savings
Additional investment
- 160 - 120 - 80 - 40 0 40
10%
3%
Undiscounted
Without price effect
With price effect
Additional investment
Tota
l sav
ings
Fu
el s
avin
gs
Power
Industry
Transport
Residential
Commercial
Additional investment
Clean energy investment pays off
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Every additional dollar invested in clean energy can generate 3 dollars in return.
USD trillion
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Clean energy: slow lane to fast track
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Progress is too slow in almost all technology areas Significant action is required to get back on track
Cleaner coal power
Nuclear power
Renewable power
CCS in power
CCS in industry
Industry
Buildings
Fuel economy
Electric vehicles
Biofuels for transport
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0
5
10
15
20
25
30
35
40
2010 2020 2025 2030 2035
Delay until 2017
Delay until 2015
2015
Emissions from existing infrastructure
The door to 2°C is closing, but will we be “locked-in” ?
Without further action, by 2017 all CO2 emissions permitted in the 450 Scenario will be “locked-in” by existing power plants, factories, buildings, etc
45
6°C trajectory
2°C trajectory
CO
2 e
mis
sio
ns
(gig
ato
nn
es)
Source: World Energy Outlook 2011, IEA
© OECD/IEA 2010
Outline
1. Climate change: science, international agreements
2. The challenge for the energy sector
3. [Break for discussion]
4. Climate policy options & policy packages • E.g. emissions trading and carbon markets
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Discussion
1. What are the major opportunities for
emissions reductions identified so far in your country ?
2. What are the key barriers to implementing climate policy in your country ?
© OECD/IEA 2010
Outline
1. Climate change: science, international agreements
2. The challenge for the energy sector
3. [Break for discussion]
4. Climate policy options & policy packages • E.g. emissions trading and carbon markets
© OECD/IEA 2010
Policy Type Policy options
Price-based
instruments Taxes on CO2 directly Taxes/charges on inputs or outputs of process (e.g. fuel and vehicle taxes) Subsidies for emissions-reducing activities Emissions trading systems (cap and trade or baseline and credit)
Command and
control regulations Technology standards (e.g. biofuel blend mandate, minimum energy
performance standards) Performance standards (e.g. fleet average CO2 vehicle efficiency) Prohibition or mandating of certain products or practices Reporting requirements Requirements for operating certification (e.g. HFC handling certification) Land use planning, zoning
Technology
support policies Public and private RD&D funding Public procurement Green certificates (renewable portfolio standard or clean energy standard) Feed-in tariffs Public investment in underpinning infrastructure for new technologies Policies to remove financial barriers to acquiring green technology (loans,
revolving funds)
Information and
voluntary
approaches
Rating and labelling programmes Public information campaigns Education and training Product certification and labelling Award schemes
Climate Change Policy Options
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Price of CO2
€/tCO2e
MtCO2
Policies to unlock cost-
effective energy efficiency
potential that is blocked by
non-economic barriers
Carbon price mediates
action economy-wide Technology support
policies to:
• reduce long-term costs
• Enable timely scale-up
Reduced long-term
marginal abatement
cost
Infrastructure, Financing
Policy packages can lower costs
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Price of CO2
€/tCO2e
MtCO2
P*
Emission
reduction goal
Q*
P
Energy Efficiency can lower
short-term carbon prices
Emission
reduction goal
Q*
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Current and Proposed Emissions Trading Systems
Operating/soon to launch
Alberta
RGGI
EU
Switzerland
Tokyo
NSW
New Zealand
California
Australia
Quebec
Thailand
Developing/Considering
Chile
Brazil
China
Republic of Korea Turkey
Ukraine Ontario
British Columbia
Kazakhstan
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CO2 emissions CO2 allowances
Busin
ess a
s u
sual em
issio
ns
Allo
wances
Actu
al em
issio
ns
Strategy 1:
Investment in own
reductions up to
compliance need
Allo
wances
Actu
al
em
issio
ns
Busin
ess a
s u
sual em
issio
ns
Allo
wan
ces
Actu
al em
issio
ns
Strategy 2:
Investment in own
reductions beyond
compliance need
Strategy 3:
Purchase of
allowances
Purchased
allowances
Choice of compliance strategy depends on marginal cost of
reductions and price of allowances
Busin
ess a
s u
sual em
issio
ns
Investments in
reductions
Surplus
allowances
How does cap and trade work?
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EU emissions trading system (EU ETS)
Largest emissions trading system in the world and a major pillar of EU climate policy
Covers over 11,000 installations in 27 EU countries +4 others, representing about 40% of EU emissions
A pre-compliance trial phase (2005-07) was followed by the second phase corresponding to the compliance period of the Kyoto Protocol (2008-2012). Third phase (2013-2020) will have cap 21% below 2005 levels (or 34% if international climate agreement)
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EU ETS CAP 2008-2020
EXPECTED BAU EMISSIONS 2008-2020
2008 EU Climate and Energy Package
5 G
t A
BA
TEM
ENT
Domestic abatement in response to price ~0.9Gt
Renewables Directive ~2Gt
Energy Efficiency Directive ~0.5Gt
Offset entitlement ~1.65Gt
Data Source: Energy Efficiency, renewable energy and CO2 allowances in Europe: a need for coordination, CDC Climat ClimateBrief No18, Nicolas Berghmans
)
Renewables
Energy Efficiency
Offsets
ECONOMIC CRISIS
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Emerging Lessons from IEA ETS review
Set ambitious targets – no need for a market otherwise?
Provide clear long-term investment signals
Don’t over-estimate cost impacts
Allow for design adjustments in early years – mistakes will be made, and should not be carried forward
Supplementary policies will be needed
No free allocation for electricity generation – huge wealth transfers difficult to justify otherwise
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International carbon markets
Domestic market mechanisms with link to international carbon
market
(e.g. emissions trading scheme; sectoral trading)
Crediting mechanism linked to international markets
Domestic emission reduction policies
with possible crediting link to international carbon markets
(e.g. NAMA or sectoral
crediting)
Linking to international markets
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Understand fundamentals:
-Abatement potentials, costs
-Macroeconomic impacts
Consider case for further supplementary policies
Assess wider economic effects
Assess interactions, adjust if necessary
REVIEW TO MAINTAIN COHERENCE OVER TIME
Bu
ild C
on
stitu
en
cy fo
r Clim
ate
Ch
an
ge
Re
sp
on
se
Establish Policy Core: Carbon price supplemented by
-Energy efficiency policies
-Technology policies
Regular Review of Policy Packages
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Centralised fuel production,power and storage
A smart, sustainable energy system
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A sustainable energy system is a smarter, more unified and integrated energy system
Centralised fuel production,power and storage
Renewable energy resources
EV
Co-generation
Smart energysystem control
Distributedenergy resources
Surplus heat
H vehicle2