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Energy and climate policy

Richard Baron, head of Climate Change Unit, IEA

IEA-FTS of RussiaWorkshop on Global Energy Market Scenarios

Paris, 27 May 2010

richard.baron@iea.org

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IEA climate policy work

International climate policy after Copenhagen

Domestic policy choices for effective CO2 emission reductions

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IEA climate change policy work

Advise UNFCCC process Climate Change Expert Group (formerly Annex I Expert Group

on the UNFCCC) Technical input to negotiations since 1994 After Copenhagen: focus on carbon market mechanisms and

reporting

Projects on energy and climate Design of domestic emissions trading systems Combining policy tools for least-cost climate strategies Nuclear power in a carbon constrained world Policy options for low-carbon electricity in China Monitoring progress in climate policy

Climate / energy efficiency / renewables policy databases

Evolution of CO2 emissions from power generation

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International climate policy

Copenhagen did not deliver a full international climate policy framework

The Copenhagen Accord takes several steps forward

More is needed

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The Copenhagen Accord (1)

Increase in global temperature should be below 2oC

Aim of peak in global and national emissions “as soon as possible”

“Annex I” (developed) countries to set emissions targets for year 2020

Financing: Fast-track USD30 billion (2010-12) plus USD100 billion a year by 2020

The use of markets to pursue cost-effective mitigation actions

Technology mechanism

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The Copenhagen Accord (2)

“Non-Annex I” (developing) countries will implement mitigation actions by 2020 (pledges submitted)

Domestic monitoring, reporting and verification (MRV) for unilateral actions, with international consultation

Actions seeking international support to be recorded in a registry and subject to international MRV

Non-Annex 1 countries:

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World abatement emissions in the 450 ScenarioExcerpt from IEA Press Conference at COP15

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Source: IEA analysis based on pledges as of January 2010, and World Energy Outlook 2009

Current pledges point in the right direction but further efforts needed to close the gap and to reach the 450 Scenario for 2oC

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28

30

32

34

36

38

40

42

2007 2010 2015 2020 2025 2030

Gt

450 Scenario

Reference Scenario

OECD+

OME

OC

3.8 Gt

13.8 Gt

27

29

31

33

35

2007 2010 2015 2020

Gt

Reference Scenario

450 Scenario

Current Pledges

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What is needed next, what is missing?

Resolve the future of the Kyoto Protocol and its carbon market instruments

How to get from current unilateral pledges to a more coordinated response to achieve the 2oC goal?

How to best support CO2 emission reductions in emerging economies?

Engage economies on a low-carbon development path – a true energy revolution

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World energy-related CO2 emissions and reductions per region and activity in 450 scenario

The mitigation challenge is daunting – 3.8 GtCO2 needed by 2020 in the energy sector alone globally, with much mitigation to

take place in emerging economies

Source: Early excerpt of WEO 2009 for Bangkok UNFCCC meeting2007 2015 2020 2025 2030

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28

30

32

34

36

38

40

42

450 Scenario

Reference Scenario

OECD+

Other Major Economies

Other Countries

3.8 Gt

13.8 Gt

Nuclear– 10%

CCS – 10%

Efficiency – 45%

Renewables & biofuels – 21%Nuclear– 13%

CCS – 20%

Efficiency – 67%

Renewables & biofuels – 19%Nuclear – 8%

CCS – 6%Efficiency – 55%

Renewables & biofuels – 34%Nuclear– 9%

WorldBy regionAbatement by technology, 2030

Efficiency – 57%

Renewables & biofuels – 23%

Source: World Energy Outlook, IEA 2009

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What is in the policy tool-kit? Carbon pricing (tradeable emission permits / carbon

taxes)Relative energy prices must be changed if we are to achieve the

decarbonisation of energy systems

Energy efficiency policy measuresOur energy services can be met with much less primary energy,

and often at lower cost. How?

Targeted support to low-carbon technologiesRenewablesNuclearCarbon capture and storage

Targeted tool-kit for each technology, based on maturity and cost-competitiveness, and general market conditions

Domestic climate policy

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Carbon pricing: the EU Emissions Trading System More than 11,000 installations have been allocated a CO2

emissions goal – and corresponding CO2 allowances (EUAs)

27 countries. Power generation and heavy industry only = 45% of EU greenhouse gas emissions)

Penalties for non-compliance: EUR 40-100/tCO2

Three phases Trial: 2005-2007. Some over-allocation to industry Current (Kyoto): 2008-2012. Crisis affects industrial activity and

lowers CO2 price 2013-2020: Evolution towards auctioning of allowances (i.e.

government revenues). Reduction goal: -21% from 2005

Concerns: long-term price signal / competitiveness

Australia, Brazil, Japan, Korea, Mexico, New Zealand, US are considering adopting Emissions Trading Systems

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A price on CO2 now guides energy investments in Europe

Today’s EU electricity prices: EUR 50/MWhEUR 15/tCO2 adds about EUR 13/MWh for a coal-based plant

CO2 now a key component in EU electricity prices

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Energy efficiency: a prerequisite At the core of an effective response to reduce CO2

A large potential for cost-effective energy savings exist in all countries / economies

It is critical to tap that potential to allow cleaner, more expensive energy carriers needed for decarbonisation

Consumers face significant barriers (information, split incentives, transaction costs, access to capital)A CO2 price alone not likely to break these barriers

Targeted policy tools are neededMinimum energy performance standardsLabelling of end-use equipment (electric appliances)Fiscal measures

Check IEA 25 concrete recommendations on energy efficiency to G8 and progress to date:

http://www.iea.org/G8/docs/Efficiency_progress_g8july09.pdf

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Summarising challenges & opportunities

Still lacking an international framework to enhance the ambition of climate policy goals A matter for the international negotiation only?

Domestic climate policy is moving along in many developed and developing countries Climate policy goals are an integral part of energy policy in most

developed countries

Interest in the ‘upsides’ of climate policy for energy goals Lower reliance on fossil fuels and less tensions on international

markets Lower local pollution and improve air quality Lower energy cost through energy efficiency-driven savings

How to best manage the transition to low-carbon? Significant infrastructure change (e.g. to decarbonise electricity) How can all economic activities survive under a CO2 constraint? How to

manage winners and losers? Finding least-cost combinations of policies is essential for sustainable

climate policy