Climate policy: a global outlook

Transcription

1 Climate policy: a global outlook Title Igor Shishlov Title 2 June 2015, HEC Paris Date JI 1 Russia 03/10/11 I

2 Solid evidence the earth is warming? Source: Pew Research Center, Oct. 2013

3 Agenda 1. Climate policy toolbox 2. International climate negotiations 3. Project-based carbon finance 3

4 Agenda 1. Climate policy toolbox 2. International climate negotiations 3. Project-based carbon finance 4

5 Three main options for climate policies Regulation Tax Cap and trade 5

6 1st option: regulation Regulations Effective on well-defined processes or technologies Distinctions to be made between a wide range of emissions producers, costs are difficult to anticipate, total emissions are dependant on levels of production US EPA regulation: ban of new coal-fired power plants without carbon capture and storage European directive: standard of 130gCO 2 /km in 2012 for new private road vehicles Montreal Protocol: progressive ban of ozone depleting substances: halogenated hydrocarbons (CFCs and HCFCs) 6

7 GHG abatement cost curve example (Russia) Source: McKinsey & Company (2010) 7

8 2nd option: taxation Taxation Known economic cost, new revenue, can cover a wide range of emissions sectors Uncertainty regarding achievement of emission reduction target, risks of exemptions linked to low social acceptability Carbon tax: e.g.: Sweden (> 100 /tco 2 ) with exemption under conditions Tax on energy use: e.g.: French fuel tax 8

9 2nd option: the carbon tax Marginal abatment cost ( /tco 2 ) Entity A Cost of the carbon tax for the entity B Average emission per company after tax Entity B Cost of the carbon tax for the entity A Tax price Emissions (tco 2 ) Source : Base on Combining cap-and-trade with offsets: Lessons from CER use in the EU ETS in 2008 and 2009,Trotignon R., Climate Economics Chair (2011). 9

10 3rd option: cap and trade (market based) Cap and trade (market of emissions allowances) Optimization of economic costs, environmental target fixed ex-ante, possibility of raising new revenue Complexity, higher implementation and management costs, risks of over allocation and windfall profits Kyoto protocol European Union Emissions Trading Scheme (EU ETS) 10

11 3rd option: cap and trade (market based) Marginal abatment cost ( /tco 2 ) Entity A the distributional effect Cap Entity B Cost of opportunity for the entity A (cost of compliance without trading) Market price Cost of opportunity for the entity B (profit made by selling surplus) Emissions (tco 2 ) Source : Base on Combining cap-and-trade with offsets: Lessons from CER use in the EU ETS in 2008 and 2009,Trotignon R., Climate Economics Chair (2011). 11

12 Carbon pricing world map (2014) 12

13 Key messages (part 1) Up to you 13

14 Key messages (part 1) Carbon markets are based on an environmental commodity (1 ton CO2e) Cost-effective emissions reduction The EU ETS is the largest (but not the only) carbon market with a value of $150 billion New regional markets emerge in California, China, South Korea, etc Market-based tools will prevail in the future 14

15 Agenda 1. Climate policy toolbox 2. International climate negotiations 3. Project-based carbon finance 15

16 The tragedy of the commons Garrett Hardin (1968): depletion of a common resource by rational economic agents 16

17 Who should mitigate? Historic responsibility of industrialized countries A European citizen is responsible for releasing around 10 tco2/year and an American >20 tco2/year. Current and future responsibility of emerging countries The BASIC countries represented 16% of global emissions in 1990 and 32% in 2008 low emissions per capita balancing the fight against climate change and socioeconomic development 17

18 Historical responsibility (1990) Source: CDC Climat Research based on EDGAR and the World Bank (2012) 18

19 Future responsibility (2008) Source: CDC Climat Research based on EDGAR and the World Bank (2012) 19

20 Historical Cumulative Emissions by Country Cumulated responsibilities Cumulated emissions over : USA (20%) EU28 (15%) China (18%) India (5%) 4% 23% 26% 11% Source: CDIAC Data; Le Quéré et al 2013; Global Carbon Project

21 Who is it? 21

22 At the origins, the UNFCCC United Nations Framework Convention on Climate Change (UNFCCC) Adopted in 1992 during the Rio conference 194 signatory countries known as parties to the Convention Objective: stabilizing GHG concentrations to a level would prevent dangerous anthropogenic interference with the climate system It recognizes three principles: precautionary principle: scientific uncertainty regarding the impacts of climate change do not justify deferring action principle of common but differentiated responsibility: all emissions have an impact on climate change, but the most industrialized countries bear greater responsibility for the current concentration of GHGs principle of the right to economic development 22

23 UNFCCC process Conference of the parties (COP) every year Adoption by consensus (1 country = 1 vote) Secretariat + subsidiary bodies, expert groups 23

24 UNFCCC impact Created obligations (esp. for developed nations): Compiling and sharing data on GHG emissions & national strategies Implementation of mitigation strategies including financial and technological support to developing countries Cooperation on adaptation to climate change impacts 24

25 Kyoto Protocol (1997) Should have covered all industrialized countries, a total of 38 states, known as "Annex B Target: decrease GHG emissions by 5% between 1990 and : CO2, methane, nitrous oxide, fluorinated gases (PFC, HFC and SF6) Entered into force in 2005 after ratification by??? Russia (55 countries and 55% of developed countries emissions) Every Annex B country received emissions allowances called Assigned Amount Units (AAU) equivalent to 1 ton of CO2 25

26 Kyoto Protocol (1997) Should have covered all industrialized countries, a total of 38 states, known as "Annex B Target: decrease GHG emissions by 5% between 1990 and : CO2, methane, nitrous oxide, fluorinated gases (PFC, HFC and SF6) Entered into force in 2005 after ratification by Russia (55 countries and 55% of developed countries emissions) Every Annex B country received emissions allowances called Assigned Amount Units (AAU) equivalent to 1 ton of CO2 26

27 Kyoto Protocol ratification (2008) Source: UNFCCC 27

28 Kyoto flexibility mechanisms Exchange of allowances: Emissions trading (article 12): country A buys country B s AAUs Bubbling (article 4): redistribution of effort within a group of countries (e.g. EU) Project mechanisms: a project to reduce GHG emissions awarded with carbon credits: Joint Implementation JI (article 6): for developed countries Clean Development Mechanism CDM (article 17): for developing countries 28

29 Trading AAUs between developed countries Country A Country B Emission target Emission target Purchase Market sale Base year Commitment period Commitment period Base year Actual emissions Forecast of emissions Business as usal Achieved reductions Source : MIES, Guide des mécanismes de projets Use of flexibility mechanisms 29

30 Kyoto compliance positions hot air Source: Gray and Greenwood (IDEA Carbon, 2011) 30

31 Unbalanced market due to hot-air and North American countries Withdrew Did not ratify hot air Source: CDC Climat Research, UNFCCC 31

32 Emissions (GtCO 2 ) Outsourced emissions? Dark: Territorial emissions Light: Consumption-based emissions Source: CDC Climat Research 32

33 Kyoto Protocol CP2 ( ) Canada withdrew in 2011 The US never ratified Russia does not participate in CP2 Japan does not participate in CP2 New Zealand does not participate in CP2 The CP2 is symbolic (only 12% of global emissions), but useful to keep the negotiations moving forward and pursue the MRV Source: UNFCCC 33

34 The history of climate negotiations in 90 seconds 34

35 Key messages (part 2) The Kyoto Protocol was the first attempt to curb GHG emissions on a global scale: A global GHG accounting framework Limits emissions of developed countries (symbolic?) Created a market thanks to flexibility mechanisms However, the market is not in equilibrium, hence no real constraint New global agreement shall be adopted in Paris in 2015 and enter into force by 2020 Main challenge: striking a global deal, i.e. accommodate the needs and circumstances of various countries 20 countries account for 85%-90% of emissions 35

36 Agenda 1. Climate policy toolbox 2. International climate negotiations 3. Project-based carbon finance 36

37 Kyoto flexibility mechanisms Exchange of allowances: Emissions trading (article 12): country A buys country B s AAUs Bubbling (article 4): redistribution of effort within a group of countries (e.g. EU) Project mechanisms: a project to reduce GHG emissions awarded with carbon credits: Joint Implementation JI (article 6): for developed countries Clean Development Mechanism CDM (article 17): for developing countries 37

38 What is a carbon offset? The counteracting of carbon dioxide emissions with an equivalent reduction of carbon dioxide in the atmosphere (Oxford Dictionary) A unit of carbon dioxide-equivalent (CO 2 e) that is reduced, avoided, or sequestered to compensate for emissions occurring elsewhere (World Resource Institute)

39 Demand for offsets Stakeholders Demand Compliance Companies, countries Deficit of allowances (Kyoto, ETS) Voluntary Companies, organisations, individuals Voluntary emissions target Supply Excess allowances (e.g. AAUs, EUAs) Offsets (e.g. CERs, ERUs) Offsets (e.g. VCUs or GS credits)

40 Crediting emissions reductions Source: CDC Climat Research 40

41 The CDM scheme Emissions reduction projects in non-annex B countries: The amount of additional project emissions reductions is credited in the form of CERs CDM project in non-annex B host country CERs CERs are added to the buyer country s AAU budget, the overall cap increases Investments & technology for the CDM project and/or payments for carbon credits CERs Annex B investor country s AAU budget Objectives: Reduce abatement cost Contribute to sustainable development + Spillover benefits: search engine, technology transfer Source: CDC Climat Research (2012)

42 Geography of the CDM >7 000 projects in >100 countries >300 billion USD investments >1.5 Gt CO2e emissions reductions Source: UNFCCC (2013)

43 Geography of the CDM >100 countries represented 90% CERs from China, India, South Korea, Brazil Source: UNEP Risoe CDM Pipeline (2013)

44 Sectoral scope of the CDM 27 sectors represented 83% CERs from industrial gases and renewables Source: UNEP Risoe CDM Pipeline (2013)

45 A global environmental commodity Source: Stephan, Bellassen, Alberola (2014)

46 The tanker hit the iceberg Source: Stephan, Bellassen, Alberola (2014)

47 Carbon market disequilibrium Source: Stephan, Bellassen, Alberola (2014)

48 10 years of the CDM Largest carbon offset mechanism in the world >7 000 projects registered >1.5 billion GtCO2e abated cost-effectively >US$3.6 billion savings (mainly EU ETS) >US$300 billion investments (mainly private) Innovation platform ( search engine ) Issues with environmental integrity Market disequilibrium and capacity loss Learning-by-doing (lessons for NMM)

49 What is carbon offsetting? A papal indulgence or an efficient economic tool to tackle climate change?

50 Key messages (part 3) Market principles work (but need fine-tuning!) The CDM leveraged multi-billion investments The CDM reduced costs (mainly in the EU ETS) The CDM identified new abatement opportunities Future challenges (also for COP21) Supply-demand balance Environmental integrity (MRV issues) Using the experience in new market mechanisms 50

51 Told you not to buy CERs 51

52 Merci! Title Title Date JI 52 Russia 03/10/11 I

53 Useful sources: climate change Al Gore s An inconvenient truth (2006) Nicholas Stern s Review on the Economics of Climate Change (2006) Assessment Reports by the Intergovernmental Panel on Climate Change (IPCC) Skeptical Science website 53

54 Useful sources: climate policy The Policy Climate by CPI (2013) EU ETS website of the European Commission UNFCCC website (international policy) World Bank s State and Trends menupk: ~pagepk: ~pipk: ~thesitepk: ,00.html Publications by CDC Climat Research 54