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Climate Policy for Industry the EU Emissions trading scheme Climate Change Summit, March 2009 Johannesburg

Climate Policy for Industry the EU Emissions trading scheme Climate Change Summit, March 2009 Johannesburg . Karsten Neuhoff Faculty of Economics Cambridge University. www.electricitypolicy.org.uk/tsec/2. Outline. The challenge for low-carbon policies

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Climate Policy for Industry the EU Emissions trading scheme Climate Change Summit, March 2009 Johannesburg

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  1. Climate Policy for Industrythe EU Emissions trading schemeClimate Change Summit, March 2009Johannesburg Karsten Neuhoff Faculty of Economics Cambridge University www.electricitypolicy.org.uk/tsec/2

  2. Outline • The challenge for low-carbon policies • Provide for the needs of different investors • Provide for different technologies • European package – a consistent framework?

  3. The challenge for emission reductions Gt CO 2 Assumed emission growth business as usual 1%/year in EU-27 5 4 3 2 Linear 75% reduction trajectory 1 0 2007 2012 2020 2050

  4. Upward bias of ex-ante estimates (bottom up) Cost estimates of UK Policies during 1990-2001 ex ante 6000 ex post 5000 4000 Costs (£M) 3000 2000 1000 0 Lead Free Euro I petrol 2000 fuel 2005 fuel in Flue Gas De- Low NOX Petrol Cars* 2000/1 Sulphurisation burners standards (FGD) * Upper estimate >£8000 million. Source: AEA Technology Environment, 2005, An Evaluation of the Air Quality Strategy, Report to DEFRA, available at: http://www.defra.gov.uk/

  5. Other building materials Leaner structures Lower clinker content Substitution Efficiency A carbon price works through the value chain – example cement Cement Concrete Building Clinker

  6. Cross-country comparisons suggest strong link between energy price and energy intensity Source: Nebwery 2003

  7. Allowance prices – important for project investment

  8. BAU Energy Efficiency Gas Renewables Oil CCS/ additional nuclear Conventional coal Future carbon targets – determine strategic choices Illustrative European CO2 emissions year 2050 today 2020

  9. Empirical evidence – experience reduces cost Source IEA

  10. Learning investment Learning investment Future savings Carbon cost Future savings Technology policy complements carbon pricing Low carbon technology Conventional technology Cost Experience (e.g. installed capacity)

  11. Contribution from energy efficiency Contribution from new low carbon technology portfolio Renewable target Trajectory 20% without internat. action Kyoto target How does it all fit together? Gt CO 2 Assumed emission growth business as usual 1%/year in EU-27 5 4 3 2 Linear 75% reduction trajectory 1 0 2007 2012 2020 2050

  12. Effective climate policy for industry Emission trading – share target across sectors • Short-term – address ‘risk’ from low carbon prices • Long-term – clear European and National targets Technology policy • Support deployment of low carbon technologies • Ensure a portfolio of renewables is available by 2020 Beyond Europe • For few sectors, work internationally on leakage policies • Lead by example in implementation and technology www.electricitypolicy.org.uk www.climate-strategies.org

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