Evolving Carbon Prices in an Uncertain World, Alan Lee (May 2011)
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Transcript of Evolving Carbon Prices in an Uncertain World, Alan Lee (May 2011)
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Alan Lee Presentation to Beijing Energy Network, May 2011
capa
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vide
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Evolving carbon prices in an uncertain world
the case for cooperation but not too much
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These slides are a partial record of a presentation to the Beijing Energy Network delivered in May 2012 in the author’s personal capacity. Slides were used as prompts only, with slide animation not available here, and should not be taken to represent the content as delivered in context.
Material cited does not necessarily represent the views of the author, nor any entity with which the author may be affiliated, and should not be relied upon for any purpose.
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Key messages
• Carbon is arguably being “priced” already in China and other countries, albeit in various different ways.
• Governments and businesses at all levels can do much more to bring about effective carbon prices, even without a specific clear plan agreed at higher levels.
• With appropriate measures to track progress in
place, this can help achieve ambitious climate action.
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1. Carbon pricing concepts and history
2. Carbon pricing in China and beyond
3. Discussion and recommendations
Overview
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What is a carbon price?
A measure of the value of keeping greenhouse gases out of the atmosphere.
¥/t CO2e
Whose value? What price level? How to create the price?
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?
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Polluters to pay e.g. Pork production emits more per unit than chicken.
This can be reflected explicitly in menu prices or implicitly in consumer choices
? ? 6
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A carbon price reflects the difference between the cost of a product’s emissions to individuals and society
LOW EMISSIONS
HIGH EMISSIONS
Original emissions
LOW PRICE
HIGH PRICE
Original price
DEMAND (PRIVATE MARGINAL
BENEFIT)
Subsequent emissions
Carb
on p
rice Subsequent
price
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More than one way to price carbon
Trading scheme Coal plant subsidy
Policy
• Cap on emissions set by government
• Liable entities trade allowance units and offsets
• Government gives money to coal plant operator
• Cost of electricity from coal gains a relative price advantage
Carbon price
• Positive
• Explicit
• Market-based
• Negative
• Implicit
• Non market-based
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A negative carbon price reflects a social value on an emissions-intensive product
LOW EMISSIONS
HIGH EMISSIONS
Original emissions
LOW PRICE
HIGH PRICE
Original price
DEMAND (PRIVATE MARGINAL
BENEFIT)
Subsequent emissions N
egat
ive
carb
on p
rice
Subsequent price
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More than one way to price carbon
• Positive Negative • Explicit Implicit • Market-based Non market-based • International Local • Public Private • Compulsory Voluntary
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UN Multinational
bodies Nations
Provinces
Local governments
Big business
SMEs NGOs
Policy at any level can affect emissions directly, indirectly or unintentionally
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Explicit carbon pricing has a history including taxes and more recently cap-and-trade
Carbon tax
• Norway/Finland/Netherlands (1990/91) • Costa Rica (1997) • Canadian provinces (2007/08) • South Africa: vehicles 2010 • India: coal production & import (2010)
Cap-and-trade
• EU + Norway (2005) • New Zealand (2010) • US Regional Greenhouse Gas Initiative (2009)
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Implicit prices result from various policies
Clean energy obligations
• EU Renewable Energy Directive • US Bio-energy mandates
Emissions performance or
efficiency standards
• EU and California standards for vehicles • Building standards • China 12th Five-Year Plan targets
Baseline-and-credit
• New South Wales and Australian Capital Territory electricity • California Low-Carbon Fuel Standard
Project mechanism
• CDM, Joint Implementation • Voluntary emissions reductions • REDD+
Social commitments • Japan
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1. Carbon pricing concepts and history
2. Carbon pricing in China and beyond
3. Discussion and recommendations
Contents
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For year 2009 Coal Oil
Total value of subsidies US $11.7 billion US $24.1 billion
Total fuel consumption 2.5 Gt 0.6 Gt
Subsidy per tonne of fuel $4.68 $38.91
Emissions per unit of fuel 2.7 t 3.1 t
Implied carbon price in use of fuel -$1.74 -$12.55
Proportion electricity from this fuel 81% 1%
Implied carbon price weight by share of electricity production -$1.41 -$0.13
Vivid Economics estimate an implicit carbon price of China’s fossil fuel ‘subsidies’
Dat
a fro
m V
ivid
Eco
nom
ics
2010
15
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$7.58
$1.52
$0.25
$0.11
$0.10
$0.03
$0.03
-$0.13
-$1.41
$8.08
$- $1 $2 $3 $4 $5 $6 $7 $8 $9 $10
Large-for-small generator substitution (2%)
Mandating better coal technology (9%)
Gas subsidies (1%)
Wind/solar feed-in tariff (0.3%)
Infrastructure loans (10%)
Biomass feed-in tariff (0.03%)
Solar subsidies (0.03%)
Oil subsidies (1%)
Coal subsidies (81%)
TOTAL
China’s electricity policies price carbon in effect US $/t CO2-e (market exchange rate) Policy and percent coverage
of electricity sector
Dat
a fro
m V
ivid
Eco
nom
ics
2010
Only covers policies at Dec 2009 16
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Vivid found China’s electricity carbon price beats Japan, rivals US, lags behind UK
Vivi
d Ec
onom
ics
2010
US $
/t C
O2-e
$-
$5
$10
$15
$20
$25
$30
UK China US (all
states)
US (RGGI states)
Japan Australia South Korea
Market exchange rates (Sep 2010)
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Data: Vivid Economics 2010. Map: Pew Centre
Regional Greenhouse Gas Initiative (RGGI) states have lead the US in carbon pricing
$5.1/t US
average
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Pricing carbon can vary in cost-effectiveness
Vivi
d Ec
onom
ics
2010
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Implicit carbon prices are lower than needed to meet Copenhagen commitments
Vivi
d Ec
onom
ics
and
McK
ibbo
n et
al (
2010
)
US $
/t C
O2-e
$-
$10
$20
$30
$40
$50
$60
UK China US Japan Australia
Electricity sector
Economy-wide 2012 price consistent with Copenhagen commitments
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Future direction of carbon price/s in China?
• Pilot emissions trading in key provinces/cities ahead of national scheme?
• Environmental tax?
• Resource tax?
• Power price control?
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1. Carbon pricing concepts and history
2. Carbon pricing in China and beyond
3. Discussion and recommendations
Overview
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Paul
Bar
an (1
964)
On
Dis
tribu
ted
Com
mun
icat
ions
Centralised Decentralised Distributed
What is an optimum level of coordination?
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Centralised Decentralised Distributed
Evolution of climate policy features more or less coordination at different levels
Montreal Protocol UNFCCC
Kyoto Protocol
CDM methodology & project approval
IPCC
GHG Inventory guidelines
Compliance mechanisms KP land-use coverage choices Inventory reports
Copenhagen/ Cancun pledges
National policies Voluntary carbon market standards
Carbon prices
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Each level of coordination presents its own challenges and opportunities
More centralised Less centralised
+
• Global outcome • Institutional legitimacy • Harmonised rules with
streamlined bureaucracy and efficiency
• Early action and innovation • Resilience to failed
experiments, lessons learnt • Localised solutions,
responsive to rapid change
--
• Lowest common denominator outcome • Agenda subject to hijack
and compromise • Slow • Inflexible
• Leakage • Laggards • Risk of perceived illegitimacy • Inefficiencies from
fragmentation • Harder to track global action
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Adap
ted
from
Geo
ffrey
Lew
is (2
009)
ENVIRONMENTAL PERFORMANCE
(CARBON PRICE)
TIME 26
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How to achieve a middle ground?
• Some diversity is unavoidable. How much diversity can be tolerated?
• To what extent is trust versus unity needed for effective cooperation?
• Is complete consensus on all elements necessary from the outset?
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Centralised Decentralised Distributed
What minimal level of centralisation best suits different policy elements?
UNFCCC Global objective (2°C)
Tracking of
global progress
IPCC
Carbon market guidelines
Carbon price
pledges?
National targets
and policies
Detailed carbon market rules(voluntary/ mandatory)
Compliance mechanisms
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Recommendations
A. Governments at all levels can act now to increase carbon prices, while working to coordinate and improve policies over time.
B. Governments and observers should regularly and rigorously quantify policies’ climate impact and share findings, to track and inform global action.
C. Measures of effective carbon price provide useful insights to effort and to certain risks of trade exposure.
D. Businesses and individuals can position themselves now for high, long-term carbon prices.
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Judi
th K
orb
and
Karl
Edua
rd L
inse
nmai
r (19
99) Can society self-regulate without centralisation?
Certain termites regulate temperature and CO2 of their surroundings through cooperation rather than central leadership
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References (1) • Paul BARAN (1964) On Distributed Communications Networks. The RAND
Corp., Santa Monica.
• Daniel BODANSKY (2010) A tale of two architectures: the once and future UN climate change regime. Available at SSRN: http://ssrn.com/abstract=1773865
• CENTRE FOR INTERNATIONAL ECONOMICS (2010) Comparing effective carbon prices: methodological issues. Available at http://www.thecie.com.au/content/news/Carbon_Price_Comparisons.pdf
• Fergus GREEN, Warwick McKIBBIN and Greg PICKER (2010) Confronting the crisis of international climate policy: rethinking the framework for cutting emissions. Lowy Institute for International Policy, Sydney.
• Judith KORB and Karl Eduard LINSENMAIR (1999) The architecture of termite mounds: a result of a trade-off between thermoregulation and gas exchange? Behavioral Ecology Volume: 10, Issue: 3, Pages: 312-316.
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References (2) • Geoffrey LEWIS (2009) China Green Buildings: a two-pronged approach.
Available at http://chinagreenbuildings.blogspot.com/2009/04/two-pronged-approach-top-down.html
• PRODUCTIVITY COMMISSION (2011) Carbon Emission Policies in Key Economies. Australian Government, Canberra. Available at http://pc.gov.au/projects/study/carbon-prices/report
• VIVIC ECONOMICS (2010) The implicit price of carbon in the electricity sector of six major economies. The Climate Institute, Sydney.
• WORLD BUSINESS COUNCIL FOR SUSTAINABLE DEVELOPMENT (2011) Carbon pricing: the role of a carbon price as a climate change policy instrument. Available at www.wbcsd.org/web/energy.htm
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