www.eprg.group.cam.ac.uk EU Climate Policy in crisis: a view to 2030 Concepts, Tools of Transition and implications for European policy Professor Michael Grubb 4CMR University of Cambridge Centre for Mitigation Research Editor-in-Chief, Climate Policy journal Senior Advisor, Sustainable Energy Policy, UK Office of Electricity and Gas Markets (Ofgem)
Step back and look Quarter of a Century State of policy and European political debate Definition of madness (x 2) Some basic reframing Three Pillars Structural implications for 2030 The investment narrative Implications for EU ETS www.eprg.group.cam.ac.uk
www.eprg.group.cam.ac.uk Fundamental structure of Planetary Economics based around three domains of human decisionmaking Domain Ignore / Satisfice Compensate / Optimise Secure / Transform
Policy challenge: to integrate three pillars of policy, based on the three domains, to transform our energy systems Domain INTEGRATED SOLUTIONS To deliver Standards & engagement Ignore / Satisfice Compensate / Optimise Secure / Transform Smarter choices Cleaner products and processes Innovation and infrastructure investment Source: M.Grubb, J.C.Hourcade, and K.Neuhoff, Planetary Economics, Taylor and Francis/Routledge, forthcoming Jan 2014 www.eprg.group.cam.ac.uk
www.eprg.group.cam.ac.uk There are potential co-benefits in each domain Domain and Pillar Co-Benefits A New Framework Standards & Engagement for Smarter Choices Enhance efficiency, Indoor and Local health subsidy removal.. Climate Policy potential to Prices and markets for cleaner products and processes Strategic investment for Innovation & Infrastructure Stabilise investor confidence, revenues, air pollution & energy security Accelerate Innovation in weak sectors, coordinate supply chain & infrastrructure Motivate Stabilise Coordinate Finance efficiency growth innovation for long-run security
The key for policy is to integrate and synergise across all three domains I. Satisfice Foster smarter choices II. Optimise Cleaner products & processes III. Transform Innovation and Infrastructure Standards & engagement Manage bills, increase responsiveness Values & Preference Prices, products and finance Markets & Prices Revenues & Revealed costs Education & Access - Enabling Environment Technology Options Strategic Investment www.eprg.group.cam.ac.uk
Need New Narrative The European condition: Continued economic crisis dominating politics, turning into a crisis of governance - Much reduced public interest and political attention to energy and climate change, solutions needed at EU level Irrespective of climate change, cannot realistically compete with US on basis of cheap fossil fuels + Key member states already committed to low carbon transition Both economy and energy sector need investment (c. 1trn) + Huge capital in institutional investor funds (c. 14trn) - deterred by policy and market uncertainty The determining opportunity www.eprg.group.cam.ac.uk
www.eprg.group.cam.ac.uk No Country is an Energy Island: Securing Investment for the EU s Future UK House of Lords, European Affairs Committee, 14th Report of Session 2012-13 (HL Paper 161) http://www.parliament.uk/hleud/
www.eprg.group.cam.ac.uk House of Lords Cttee Ch 2: Investment and Costs The time is right for infrastructure investment, including in energy, because it can have a multiplier effect, it can provide secure energy at a stable cost and it can boost technological advance. Low carbon generation and system infrastructure in particular can provide domestic energy production for decades at low and stable operating costs but at a high capital cost. We conclude that such investment is particularly appropriate at a time of historically low interest rates and recession. The potential to utilise underemployed financial resources, at low financing costs, while providing a secure indigenous supply for future growth means that investment, particularly in low carbon energy, could make a material and enduring contribution to European economic recovery (paragraph 24).
www.eprg.group.cam.ac.uk UK House of Lords Cttee - High-level conclusions No country is an energy island. It is for each Member State to decide what mix of energy is the most appropriate.. but the choices of one country affect others, including the collective need for energy security, an efficient market and environmental improvement... There are specific aspects of energy policy where a more coordinated EU strategy would be helpful. These include: Agreement on an energy policy framework through to 2030; A revised EU Emissions Trading System (ETS) with a floor price, accompanied by a tighter cap on the number of allowances, a 2030 renewable energy target and, possibly, an energy efficiency or consumption target; Coordinated research and development (R&D); Increased physical interconnection between Member States, which will require authorities to be clear with the public that certain choices, including not in my back yard, come at a cost; and Reduction of regulatory obstacles towards the completion of the EU internal energy market.
Three Pillar Package Standards and engagement for smarter choices Build on Energy Efficiency Directive towards embodied and supply chain carbon & materials efficiency Smart grid technologies Markets and pricing Stabilise and strengthen the EU ETS Extend EU Third Energy Package to facilitate low carbon contracts market New agenda of competitiveness through transformation for carbon and electro-intensive industry sectors Strategic investment for innovation and Infrastructure Component sector targets for innovation and coordination Grids and vehicles investments www.eprg.group.cam.ac.uk
www.eprg.group.cam.ac.uk Clear case for hybrid economic instrument design Figure 7-8 Combining price and quantity in emissions trading Source: Carbon Trust
Need a different ETS structure and narrative - its contribution to other pillars and investment Forestall the renationalisation of climate policy Price corridor to restore credibility demonstrate robustness in face of (large) future uncertainty reduce low carbon investment risk deter new coal investment + linkages to other pillars Positive link to EU politics Revenues - confidence for planning Corridor avoids conflict with other pillars and actions Automatically compensate for any shortfall in other two pillars Strategically rising floor price provides a platform for long-term financial Align with California and emerging instruments the bridge to Third Domain Chinese to set a global benchmark? www.eprg.group.cam.ac.uk
Planetary Economics: Contents www.eprg.group.cam.ac.uk 1. Introduction: Trapped? 2. The Three Domains Pillar 1 Pillar II Standards and engagement for smarter choice 3: Energy and Emissions Technologies and Systems 4: The Energy Efficiency Resource Technologies and Systems 5: Tried and Tested Three Decades of Energy Efficiency Policy Markets and pricing for cleaner products and processes 6: Pricing Pollution of Truth and Taxes 7: Cap-and-trade & offsets: from idea to practice 8: Who s hit? Handling the distributional impacts of carbon pricing Pillar III Investment and incentives for innovation and infrastructure 9: The Philosopher s Stone? Innovation, Growth and Finance 10: Bridging the Technology Valley of Death 11: Transforming systems 12. Conclusions: Changing Course