Policies for Energy Systems Transformations – Chapter 22

1. Policies for Energy Systems Transformations – Chapter 22 Mark Jaccard Simon Fraser University, Vancouver www.markjaccard.com / twitter @MarkJaccard

2. GEA’s multiple policy objectives Ensuring energy access for all - accelerating access in developing countries Responding to environmental impacts and risks – minimizing environmental effects and reconciling local versus global environmental objectives Enhancing energy security – managing energy-related risks of geopolitics, technological failures, natural disasters, and market volatility Addressing market power – regulating or managing natural monopoly (grids and pipelines) and preventing undue market influence (oil, electricity) Managing energy endowments – benefitting current and future generations by efficiently developing valuable resources, preventing corrupt forms of rent-seeking, and husbanding resources or the wealth they generate

3. GEA focus on access and environment GEA focus on energy access and cleaner energy requires significant: material development – technologies, infrastructure, buildings, urban form, non-urban land-uses human development – capacity building in education, law, finance, communication, planning, and governance Almost all GEA chapters include specific policies for material and human development in their respective fields (transportation, urban areas, buildings, renewables, financing clean energy, system operation, etc.). Chapter 22 includes a listing of policies, as well as providing policy portfolios that link to the GEA scenarios. Specific policy chapters address energy access (ch.23), technology innovation (ch.24), and capacity development (ch.25)

4. The access-environment challenge • OECD must reduce energy use and transform to zero carbon pollution • China energy access path

5. China’s electricity: access + CO2 • Electricity access almost universal • (carbon pollution x 4) • projected • 200 million without electricity

6. Policies for cleaner energy access Integrate energy development within socio-economic development - poverty alleviation, human capacity building, rural development, etc. Reduce / remove subsidies to fossil fuel development and combustion. Direct energy-related subsidies to lowest income groups, especially for efficient, low emission devices (stoves) – equipment is key. Build-in energy efficiency / renewables with new infrastructure, buildings, energy systems (cogen., micro-grids), public transit, and urban form. Improve attractiveness for domestic and foreign energy investments via transparency and stability of legal-financial-regulatory system. Link international efforts to reduce greenhouse gases with mechanisms to incentivize zero-emission technologies and fuels in developing countries (CDM, tax transfers, sectoral agreements, linked cap-and-trade)

7. Evaluating policies for CO2 reduction Policy performance depends on trade-off between four criteria: Emission reduction effectiveness Economic efficiency Political acceptability (including perceptions of fairness) Administrative feasibility Categories of policies include: Inducing voluntary action (labels, education, ads, training) Subsidies (grants, low-interest loans, tax credits) Standards (prescriptive and detailed, performance-based) Pricing (taxes, cap-and-trade) • Compulsory policies

8. Compulsory policies essential climate policy • Any of these can be designed to be effective compulsory non-compulsory • information • labels • subsidies standards emissions pricing • These alone cannot cap-and-trade carbon tax

9. Lessons from the climate policy trenches Climate policy is inherently difficult: Fossil fuels plentiful and low cost with continuous innovation Vested interests delude themselves and others about climate science Political systems rarely reward long-term focus Need global action but lack effective global governance institutions Public concern inevitably fluctuates, and likewise political motivation Policy advisors need to understand and respond to these monumental constraints. Following are some suggestions for climate policy-making.

10. Suggestions for climate policy-making - 1 Avoid proposals that require a rational model of policy-making. - real-world policy-making is fragmented and chaotic (transport, electricity, industrial policy, trade, urban development) - must seize policy windows quickly! Assume politicians will avoid compulsory policies - “subsidies and information for efficiency is sufficient” - “renewables will outcompete fossil fuels” - “behavioral change by individuals and groups is the answer” - “corporation social responsibility is the answer” - “we’ll wait for global action!”

11. Suggestions for climate policy-making - 2 Understand that politicians must focus on political acceptability - don’t argue that only one type of compulsory policy is valid - instead, design regulations or cap-and-trade for economic efficiency Pay attention to the likely staying power of policies - cap-and-trade creates supportive constituency (brokers, traders) - RPS or FIT creates supportive constituency (renewable suppliers) - legislate schedule for medium term rising emissions price or decreasing cap, with eventual room for adjustment - revenue-neutral carbon tax constrains future politicians from tax cut - develop trusted institutions to sustain policy effort (California) The issue of global action - appearance as important as reality in terms of trade effects - voluntarily negotiated agreement unlikely – need leaders and sometimes forceful mechanisms (perhaps trade measures)

12. Chapter 22: Lead Authors Lawrence Agbemabiese (UNEP) Christian Azar (Chalmers University of Technology, Sweden) Adilson de Oliveira (Federal University of Rio de Janeiro, Brazil) Carolyn Fischer (Resources for the Future, USA) Brian Fisher (BAEconomics, Australia) Alison Hughes (University of Cape Town, South Africa) Michael Ohadi (University of Maryland, USA) Kenji Yamaji (University of Tokyo, Japan) Xiliang Zhang (Tsinghua University, China)