Introduction: climate change and climate policy in the … Kyoto Protocol under UNFCCC overall...

© 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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What is climate change?

Source: New Zealand Ministry for the Environment

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The last 400,000 years…

Homo Sapiens

Human Civilisations

2013

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Temperatures 2001-2010

Source: World Meteorological Organisation, 2012

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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

http://svs.gsfc.nasa.gov/vis/a010000/a010900/a010902/

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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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Projections for global temperature increase

Source: IPCC, 2007

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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





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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


- 160 - 120 - 80 - 40 0 40

10%

3%

Undiscounted


With price effect


Tota

l sav

ings

Fu

el s

avin

gs

Power

Industry

Transport

Residential

Commercial

Biomass

Coal

Oil

Gas

Fuel savings


- 160 - 120 - 80 - 40 0 40

10%

3%

Undiscounted


With price effect


Tota

l sav

ings

Fu

el s

avin

gs

Power

Industry

Transport

Residential

Commercial


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

© OECD/IEA 2010

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

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Outline





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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 ?

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Outline





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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*

© OECD/IEA 2010

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)

© OECD/IEA 2010

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

© OECD/IEA 2012

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

Introduction: climate change and climate policy in the … Kyoto Protocol under UNFCCC overall...

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