Policy Instruments
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Transcript of Policy Instruments
Policy Instruments
February 6, 2013 Sustainable Energy Policy 1
Policy Instruments in Context actions, policies, governance
actions – behavioural actions▪ energy choices by firms, consumers
policies – rules produced by government that influence actions▪ Objectives (increase renewable
electricity)▪ Instruments (renewable portfolio
standard)▪ Settings (10% by 2012)
governance – who decides the rules
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Toolbox of Policy Instruments – Jaccard
command and control regulation financial disincentives (taxes) financial incentives (subsidies) voluntarism and information market oriented regulations –
emissions cap and tradable permits (ECTP)
market oriented regulations – artificial niche market regulations
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Evaluative Criteria
environmental effectiveness economic efficiency administrative feasibility political feasibility
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Command and Control Regulation Legally binding forces particular action does not encourage
actions beyond that required
require same actions from actors with different marginal costs of control
Example: automobile or appliance efficiency standard
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Command and Control Regulation – example – proposed coal GHG regs
Performance standard: coal plants can’t exceed 375 tons of CO2 per Gigawatt-hour
Current not possible with carbon capture and storage (CCS)
Starts in 2025 for new plants + those that have reached end
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Financial Disincentive - Taxes Does not prohibit action, but taxes
it Can’t guarantee a particular
outcome Sensitive to diversity of producer
costs and consumer preferences Example: tax on tonne of carbon
emitted – BC 2010: $20 per tonne of CO2 equivalent 2011: $25 2012: $30
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Financial Incentives (Subsidies) Government spending reduces
cost of action Examples:
rebate for fuel efficient cars (Canada’s ended)
ecoENERGY Retrofit Grants and Incentives
Royalty breaks for fossil fuel production
Research – see Post Partisan Power
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Voluntarism and Information Can produce more
informed decisions about costs and efficacy
Example: One Tonne Challenge
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market oriented regulations – emissions cap and tradable permits (ECTP)
Caps total amount of emissions Distributes allowances (permits) to
polluters Polluters can trade permits Effective in that you get greater certainty
over emissions Design issues in startup – should initial
permits be auctioned off or “grandparented”
Example: European Uni0n’s Emission Trading System California cap and trade program
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Stavins: Key design elements Gradual trajectory of emission
reductions Tradeable allowances Upstream regulation with economy-
wide effects Mechanisms to reduce cost
uncertainty Allowance allocation Provisions for offsets Linkage with other countriesFebruary 6, 2013 Sustainable Energy Policy 12
market oriented regulations – artificial niche market regulations
Require a certain % of the market to have performance characteristics
Can “force” innovation Examples
Renewable portfolio standard
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Missing Instruments? direct provision “Crown”
corporations National Oil
Companies increasingly important Klare: 81% of proven
reserves controlled by NOCs
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1990: Mulroney privatized, but kept 19% share2004: fully privatized
Evaluative Criteria
environmental effectiveness economic efficiency administrative feasibility political feasibility
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Because of different marginal costs of control, market-based regulations are more cost-effective
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Pre-mitigation Regulation: 30% reduction Cap and trade: 30% reduction
Coal Plant
Costs: $20/t
Emissions: 1000 t/yr
Costs: 0
Emissions: 700 t/yr
Costs: $6,000
Emissions: 400 t/yr
Costs: $0
Cement Plant
Costs: $40/t
Emissions: 1000 t/yr
Costs: 0
Emissions: 700 t/yr
Costs: $12,000
Emissions: 1000 t/yr
Costs: $12,000 (to coal
plant)
Total Emissions: 2000 t/yr
Costs: 0
Emission: 1,400 t/yr
Cost: $18,000
Emission: 1,400 t/yr
Cost: $12,000
Evaluating energy sustainability policy instruments
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effectiveness efficiencyAdministrative feasibility
political feasibility
Info/persuasion
subsidy
Emission tax
Cap and trade
C&C Regulation
January 21, 2010
Carbon tax in 2008 federal election
“I believe that good policy is good politics”
Stephane Dion Humiliating loss,
resignation as party leader
Message, or messenger?
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Carbon tax in 2009 BC election
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• NDP “axe the tax” campaign• Campbell and BC Liberals win 3rd
majority government
Federal conflict in 2012-13 Repeated Harper
government attacks on NDP for supporting a carbon tax
NDP’s position is cap and trade
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Policy-Politics Mismatch
Politicians prefer non-compulsory policies
History shows us they are insufficient Market-based instruments are more
cost effective Policy trend:
Failure of Congress to enact cap and trade leading US to pursue regs
Canada committed to harmonizing - Canada slowly pursuing regs
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