February 12, 2014Sustainable Energy Policy1. actions, policies, governance actions – behavioural...

Policy Instruments

February 12, 2014 Sustainable Energy Policy 1

Policy Instruments in Context actions, policies, governance

actions – behavioural actions▪ energy choices by firms, consumers

policies – rules produced by government that influence actions▪ Objectives (increase renewable

electricity)▪ Instruments (renewable portfolio

standard)▪ Settings (10% by 2012)

governance – who decides the rules

February 12, 2014 Energy Sustainable Energy Policy 2

Rationales for Government Intervention in the Market

externalities public goods monopoly Information equityJaccard*

weak rationale for endurance strong rationale for cleanliness*pp. 262-270 that you were not assigned

February 12, 2014 sustainable energy policy

Toolbox of Policy Instruments – Jaccard and Rivers

command and control regulation financial disincentives (taxes) financial incentives (subsidies) voluntarism and information market oriented regulations –

emissions cap and trade market oriented regulations –

artificial niche market regulations


Evaluative Criteria

environmental effectiveness economic efficiency administrative feasibility political feasibility


Command and Control Regulation

Legally binding forces particular action does not encourage

actions beyond that required

require same actions from actors with different marginal costs of control


Command and Control Regulation – example –coal GHG regs

Performance standard: coal plants can’t exceed 425 kg of CO2 per Megawatt-hour

Currently not possible without carbon capture and storage (CCS)

Starts in 2015 for new plants + those 50 yrs old


Financial Disincentive - Taxes Does not prohibit action, but taxes it Gives price certainty Can’t guarantee a particular

outcome Sensitive to diversity of producer

costs and consumer preferences Example: tax on tonne of carbon

emitted – BC 2010: $20 per tonne of CO2 equivalent 2011: $25 2012: $30


http://www.livesmartbc.ca/government/carbon_tax.html

Financial Incentives (Subsidies) Government spending

reduces cost of action Examples:

rebate for fuel efficient cars (Canada’s ended)

Feed-In Tariffs Royalty breaks for fossil fuel

production Research


http://www.tc.gc.ca/programs/environment/ecotransport/ecoauto.htm

http://arctic.pembina.org/pub/171

Voluntarism and Information Can produce more

informed decisions about costs and efficacy

Example: One Tonne Challenge


market oriented regulations – emissions cap and tradable permits (ECTP)

Caps total amount of emissions Distributes allowances (permits) to polluters Polluters can trade permits Effective in that you get greater certainty

over emissions Design issues in startup – should initial

permits be auctioned off or “grandparented” Example:

European Uni0n’s Emission Trading System California


http://ec.europa.eu/environment/climat/emission/index_en.htm

http://www.arb.ca.gov/cc/capandtrade/capandtrade.htm

cap/trade + tax hybrids

Ceiling or safety valve at upper end of price

Floor on price

The more restrictive the ceiling and floors the more it becomes like a carbon tax


market oriented regulations – artificial niche market regulations

Require a certain % of the market to have performance characteristics

Can “force” innovation Examples

Renewable portfolio standard To be discussed under renewables


http://www.cpuc.ca.gov/PUC/energy/Renewables/index.htm

Missing Instruments?

direct provision “Crown”

corporations National Oil

Companies increasingly important Klare: 81% of proven

reserves controlled by NOCs


1990: Mulroney privatized, but kept 19% share

2004: fully privatized

Evaluative Criteria

environmental effectiveness economic efficiency administrative feasibility political feasibility


Because of different marginal costs of control, market-based regulations are more cost-effective


Pre-mitigation Regulation: 30% reduction

Cap and trade: 30% reduction

Coal Plant

Costs: $20/t

Emissions: 1000 t/yr

Costs: 0

Emissions: 700 t/yr

Costs: $6,000

Emissions: 400 t/yr

Costs: $0

Cement Plant

Costs: $40/t

Emissions: 1000 t/yr

Costs: 0

Emissions: 700 t/yr

Costs: $12,000

Emissions: 1000 t/yrCosts: $12,000 (to coal plant)

Total Emissions: 2000 t/yr

Costs: 0

Emissions: 1,400 t/yr

Cost: $18,000

Emissions: 1,400 t/yr

Cost: $12,000

Evaluating energy sustainability policy instruments


effectiveness efficiencyAdministrative feasibility

political feasibility

Info/persuasion

subsidy

Emission tax

Cap and trade

C&C Regulation

January 21, 2010

Carbon tax in 2008 federal election

“I believe that good policy is good politics”

Stephane Dion Humiliating loss,

resignation as party leader

Message, or messenger?

Sustainable Energy Policy 21

Carbon tax in 2009 BC election


• NDP “axe the tax” campaign

• Campbell and BC Liberals win 3rd majority government

Federal conflict in 2012-14 Harper promised

regulations

Repeated Harper government attacks on NDP for supporting a carbon tax

NDP’s position is cap and trade

January 30, 2014 Sustainable Energy Policy 23

Policy-Politics Mismatch

Politicians prefer non-compulsory policies

History shows us they are insufficient Market-based instruments are more

cost effective Policy trend:

Failure of Congress to enact cap and trade leading US to pursue regs

Canada committed to harmonizing Canada slowly pursuing regs


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