Policies And Technologies
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  • 1. Policies and Technologies
    • A national policy framework
    • Understanding “cap-and-trade”
    • Key technologies
    • A new international agreement
  • 2. The “energy and CO 2 economy” Oil Biomass Gas Coal Nuclear Renewables Primary Energy Liquids Direct combustion Industry and Manufacturing Mobility Final Energy Agriculture and Land Use Energy Energy Energy Buildings Power Generation
  • 3. Pathways to 2050 0 50 100 150 200 250 300 350 400 450 $0 $20,000 $40,000 $60,000 GDP per capita, US$ 2000 (ppp) Energy per capita, GJ Wealthy developed Developed Leading developing Developing Improving energy efficiency 2025 2050 Falling CO 2 emissions per unit of energy 2008
  • 4. The scale of change
    • The scale of transformation required to even approach the 450 ppm target is massive. The International Energy Agency estimates that to achieve this;
    • Energy intensity of the global economy must improve by 2.7 percent per year, against a current rate of less than 1 percent in the last decade;
    • The share of energy from renewable sources must increase from 10 percent to 38 percent by 2030;
    • Carbon capture and storage must be online and account for a 14 percent reduction in emissions by 2020;
    • Nuclear must increase by 9 percent by 2030, which implies building 20 new nuclear plants per year around the world whereas less than two are built annually today.
  • 5. How can all this be achieved ? Government policy will be important
  • 6. Key Sectors in the “energy & CO 2 economy” Oil Biomass Gas Coal Nuclear Renewables Primary Energy Liquids Direct combustion Industry and Manufacturing Mobility Final Energy Agriculture and Land Use Energy Energy Energy Buildings Power Generation
  • 7. An abatement curve can provide insight
  • 8. An abatement curve can provide insight
  • 9. New Technologies Alternative product Number of installations Technology cost 0 20 40 60 80 100 1 10 100 1000 Benefit to deploy Earlier deployment through demonstration Discover & Develop Must be well funded to drive innovation. Deployment Driven by new features and price. Demonstration (at scale) A critical step in the early commercialization of a technology
  • 10. New Energy Technologies – e.g. CCS Power generation without CCS Number of installations Technology cost 0 20 40 60 80 100 1 10 100 1000 CO 2 price Earlier deployment through demonstration Discover & Develop Need to refocus and rapidly expand R&D. Deployment Typically driven by the CO 2 market Demonstration No early adopters and high start-up costs so this phase will need help.
  • 11. A structured policy approach is needed Power Generation / Industry & Manufacturing Transport Commercial & Domestic (Buildings) Discover & Develop Demonstrate Deploy
  • 12. A structured policy approach is needed Power Generation / Industry & Manufacturing Transport Commercial & Domestic (Buildings) Discover & Develop
    • Support for infrastructure (e.g. grids & pipelines)
    • Support for advanced fuel development
    • Urban planning decisions.
    • Education and awareness.
    Demonstrate
    • Fiscal support for large-scale CCS demonstrations
    • Fiscal support for early 2 nd generation biofuel manufacture.
    • Public transport infrastructure
    • Encouraging radical design
    Deploy
    • “ Cap-and-Trade”
    • CCS rules and recognition
    • Renewable Energy Certificates
    • “ Fast-track” planning
    • Vehicle efficiency standards
    • Incentivise fuels based on W-t-W CO 2 reduction.
    • Consumer behaviour
    • Use of public transport
    • Efficiency standards (appliances, air-con)
    • Use of project mechanisms linked to GHG market.
    • Encouraging “electrification”.
    Broad energy production and use R&D support
  • 13. A structured policy approach is needed A simple, high profile and credible target for the renewables’ share of power generation, supported by a range of incentives to encourage investment. Measures to incentivise new fuels based on their “well-to-wheels” CO 2 reduction potential, implementation of vehicle efficiency standards and vehicle/road-use programs targeted at drivers A series of robust energy standards for buildings, appliances etc. with incentives for retrofit of existing infrastructure. "Cap and trade" emissions trading systems for power generators, most industrial facilities and large fleet transport such as aviation.
  • 14. Emissions Trading or “Cap-and-trade” Initial emissions 100 Mt p.a. Year 5 at 95 Year 15 at 80 Year 10 at 88 Offsets Allowance trading between facilities $ CO 2 Government issues 88 million allowances into the economy CCS Project Efficiency Project
  • 15. Key principles of “cap-and-trade”
    • The aim of “cap-and-trade” is to direct investment capital towards lower CO 2 emission projects, via a market price for CO 2 emissions.
    • Therefore, the trading system should not remove that capital from the industries or firms covered by the system.
    • Design Features to be Discussed
    • Allocation of allowances
    • Banking and borrowing
    • Recognition of technologies
    • Constraints and limitations
    • External projects mechanisms (or offsets)
    • Linkage
  • 16. An Introduction to Cap-and-Trade Courtesy Holmes Hummel, PhD Using Musical Chairs: An Illustration of Managed Scarcity
  • 17. Musical Chairs: A Helpful Analogy
    • Each chair (an allowance) represents the “right to emit”
    • one metric ton of carbon dioxide (1 mtCO 2 )
    • or an equivalent amount of any other greenhouse gas
  • 18. Musical chairs
    • At the start of the game, everyone has a seat –
    • because there are no limits on carbon emissions.
    2008
  • 19. Musical chairs
    • After the first year, a cap is imposed by issuing a limited number of allowances and making players compete for the allowances available .
    • In our analogy, one player doesn’t have a chair…
    2009
  • 20. Musical chairs Would anyone be willing to trade their chair for $30 ? 2009
  • 21. Musical chairs Sure! For that price, I can finance an efficiency upgrade, eliminating my need for a pollution permit. 2009
  • 22.
    • So, the market price for the “right to emit” in the first year
    • is $30 for one ton of carbon dioxide…
    Musical chairs 2009
  • 23.
    • At that price, some players may realize it would be more profitable to reduce their emissions and sell their allowances.
    • Profit opportunities are a main driver for innovation and investment in the global economy today, and the climate challenge needs both .
    2009 Musical chairs
  • 24. The new flow of capital in the economy CO 2 Goods and services pass into the economy, with the price of CO 2 embedded Emitters buy allowances from the government through auction Government recycles auction revenue to consumers through the tax system
  • 25. The CO 2 price and allocation Points of regulation Resource Power Generation Factories Heavy industry Light industry Consumer Electricity
    • Over time, the CO 2 price will impact the entire value chain.
    • The rate at which this happens varies considerably.
    • It can be very fast for electricity.
    • It will be very slow for some products where the price is established outside the capped market.
    Time CO 2 price impact
  • 26. The CO 2 price and allocation Points of regulation Resource Power Generation Factories Heavy industry Light industry Consumer Electricity Time CO 2 price impact Free allocation early on as little / no price pass through Progressive shift to auctioning as the CO 2 price impacts the economy Full auctioning as the CO 2 price impacts the entire value chain Auction funds recycled to consumers through the tax system
  • 27. CO 2 is a commodity
  • 28. Artificial limits within “cap-and-trade”
    • Although created entirely by policy makers and legislation, an emissions trading market is still a market . As such, it should not be subject to;
      • Price caps;
      • Price floors and / or reserve prices;
      • Arbitrary price management by oversight bodies or parliament;
      • Imposition of trading limits (e.g. offsets);
      • Unexpected rule changes;
  • 29. External Projects (or offsets)
    • Emission reduction projects executed outside the capped sector can offer important benefits;
      • An inflow of compliance units (credits) can offer further flexibility in meeting the cap.
      • Access to external projects can act as an efficient cost control mechanism within the capped sector.
      • Projects can help developing countries begin managing emissions.
      • The flow of project credits can help build a global CO 2 market.
    • All national emission trading systems should recognise the same global project mechanisms.
  • 30. Advantages of Emissions Trading
    • It is designed to deliver an environmental outcome, in that the cap must be met.
    • It will deliver its environmental objective at lowest cost to the economy.
    • A national trading system can be linked with other such systems, delivering over time a global carbon market.
    • A trading system offers both compliance and policy flexibility.
    • The structure is simple.
    • It works. The trading system will deliver what it is asked to do.
      • US sulphur trading has delivered the required cuts in sulphur emissions.
      • The EU system has suffered early data issues, not design issues.
  • 31. Going global ! 2000 2005 2010 2015 2020 2025 Pre-Kyoto Kyoto Post 2012 Linkage framework Linkages develop between all systems and more systems appear Danish-ETS UK-ETS Australian ETS US National or North American “cap-and-trade” Norwegian ETS EU-ETS CDM CDM evolves to include clean electricity mechanism Expanding EU-ETS Japan technology standards New technology mechanisms evolve (e.g. for CCS) China adopts CCS standard New Zealand ETS
  • 32. Evolution of the EU-ETS
    • Phase I
    • Learning by doing
    • Discrete
    • No banking
    • Allocation
    • Conservative
    • Grandfathering
    • Trial auctions
    • Member State driven
    • Commission guidance
    • Establishes capacity
    • Some CER inflow
    • Phase II
    • The real thing
    • Kyoto compliance
    • Banking to 2012+
    • Allocation
    • Still grandfathering
    • Some benchmarking
    • Regular small auctions
    • Commission guidance
    • Member States follow
    • Active liquid market
    • CER inflow rises
    • Phase III
    • Expansion – gases & sectors
    • -20% (or –30%) by 2020
    • EU wide cap
    • Allocation
    • 100% auctioning for powergen
    • Benchmarking for industry
    • Top decile benchmarks
    • Recognition of carbon leakage
    • Commission led
    • Member State compliance
    • Limited CER inflow
    • CCS recognition
    2005 2008 2013 2020
  • 33. Evolution of the EU Cap 2005 2006 2007 2008 2009 2010 2012 2013 2014 2015 2016 2018 2019 2020 2021 2011 2017 2180 MtCO 2 pa 2083 actual in 2005 1964 Gradient – 1.74% Phase II Phase III Phase I Start up Phase 1620 -20% -30% Trend line continues aiding predictability Not to scale!
  • 34. EU ETS price and market activity Key : Dec 07 delivery Dec 08 delivery Dec 09 delivery Source: Point Carbon
  • 35. Key technologies
    • Only four pathways forward:
      • Energy efficiency
        • Transport
        • Buildings (e.g. insulation)
        • Appliances (e.g. Air conditioning)
      • Renewable energy
        • Wind, solar, wave, tidal, bio-energy
      • Nuclear power
      • Fossil fuels with Carbon Capture and Storage (CCS)
    • All four are essential and will be needed at scale:
      • To meet energy demands this century
      • To limit CO 2 emissions into the atmosphere
  • 36. Traffic Road transport: > 750 million light duty vehicles ~ 70 million trucks and buses > 250 million motorbikes ~ 5 billion tonnes CO 2 p.a.
  • 37. Change takes time 0 500 1000 1500 2000 2500 2000 2010 2020 2030 2040 2050 Total vehicles, millions Large scale "alternative" vehicle manufacture starts in 2010 with 200,000 units per annum and grows at 20% p.a. t hereafter. Total a lternative v ehicles Total t raditional v ehicles Annual total vehicle growth of 2% p.a. Annual vehicle production growth of 2% p.a.
  • 38. Transport - an ongoing evolution Energy sources Energy carrier Drive-train options Electrolysis Solar Wind Hydro Nuclear CCGT Conventional and advanced bio-fuels Biomass Liquid fuels Oil Conventional ICE Hydrogen FCV CO 2 Gas Coal Partial oxidation Syngas CO, H 2 Fischer– Tropsch Synthetic fuels Shift reaction Hybrid Electricity Electric vehicle Plug-in hybrid
  • 39. Mobility – What is needed
    • Key directions . . .
    • Involve fuel producers, vehicle makers and the consumer.
    • New more efficient vehicles
    • Broadening the range and type of fuels
    • Changing the way we use mobility
    • Key technologies . . .
    • Hybrids and plug-in hybrids (drive trains and batteries)
    • Advanced biofuels, synthetic diesels, electricity.
    • Integrated public / private transport mechanisms
    • Hydrogen / CCS
  • 40. Carbon Capture and Storage (CCS)
    • CCS technology is available:
      • A family of technologies all in use today
      • Large scale end-to-end demonstration needs to happen
      • Deployment need not be a distant dream
  • 41. The scale of the challenge
    • We are at 386 ppm CO 2 in the atmosphere today.
    • The science tells us not to go beyond 450 ppm.
    • The difference is 64 ppm.
    • Emissions are rising at over 2 ppm per annum
    • The current generation of coal fired power stations in China (recently built, under construction and planned) will alone add 15 ppm CO 2 to the atmosphere if run for 50 years without carbon capture & storage.
    • Every year we delay the global deployment of CCS we commit the planet to a 1 ppm increase in long-term stabilization of atmospheric CO 2 , thereby further limiting our chances of containing climate change.
  • 42. Carbon capture and storage in practice
  • 43. New Technologies Alternative product Number of installations Technology cost 0 20 40 60 80 100 1 10 100 1000 Benefit to deploy Earlier deployment through demonstration Discover & Develop Must be well funded to drive innovation. Deployment Driven by new features and price. Demonstration (at scale) A critical step in the early commercialization of a technology
  • 44. New Non-Energy Technologies Alternative product Number of installations Technology cost 0 20 40 60 80 100 1 10 100 1000 Benefit to deploy Earlier deployment through demonstration
    • Discover & Develop
    • R&D is well funded in the high tech sector;
      • Extreme competition
      • Spinoffs from other government initiatives.
    Deployment Cool new features help deployment Demonstration (at scale) Early adopters pay for this step in the IT sector
  • 45. New Energy Technologies – e.g. CCS Power generation without CCS Number of installations Technology cost 0 20 40 60 80 100 1 10 100 1000 CO 2 price Earlier deployment through demonstration Discover & Develop Need to refocus and rapidly expand R&D. Deployment Typically driven by the CO 2 market Demonstration No early adopters and high start-up costs so this phase will need help.
  • 46. CCS and the EU trading system Power generation without CCS Number of installations Technology cost 0 20 40 60 80 100 1 10 100 1000 CO 2 price Earlier deployment through demonstration
    • Demonstration
    • EU Council of Ministers announces a 10-12 large-scale project demonstration programme.
    • EU Parliament supports the programme with a pool of 300 million bonus allowances offered for CO 2 stored.
    • At €25 per tonne of CO 2 this is worth €7.5 billion.
    • No single project to be awarded more that 45 million allowances bonus allowances.
    • Deployment
    • CCS recognised within the EU-ETS.
    • New CCS legislation sets standards for storage and establishes rules for long term liability.
  • 47. CCS and the EU trading system Power generation without CCS Number of installations Technology cost 0 20 40 60 80 100 1 10 100 1000 We need to replicate this model globally CO 2 price Earlier deployment through demonstration
    • Demonstration
    • EU Council of Ministers announces a 10-12 large-scale project demonstration programme.
    • EU Parliament supports the programme with a pool of 300 million bonus allowances offered for CO 2 stored.
    • At €25 per tonne of CO 2 this is worth €7.5 billion.
    • No single project to be awarded more that 45 million allowances bonus allowances.
    • Deployment
    • CCS recognised within the EU-ETS.
    • New CCS legislation sets standards for storage and establishes rules for long term liability.
  • 48.  
  • 49.  
  • 50. The end game – nuclear fusion??
  • 51. A new global direction is also needed
  • 52. Very demanding reductions are called for
    • Effective action requires:
    • Global emissions to fall by at least 50% relative to 1990 by 2050;
    • Global average per capita emissions that will – as a matter of basic arithmetic – need to be around 2 tonnes (T) by 2050 (20 GT divided by 9 billion people): this figure is so low that there is little scope for any large group to depart significantly above or below it;
    • Agreement by developed countries to take on immediate and binding national targets of 20% to 40% by 2020 , and to commit to reductions of at least 80% by 2050 ;
    • Key Elements of a Global Deal
    • Nicholas Stern
  • 53. The implications are clear
  • 54. The Kyoto Protocol
    • Agreed in 1997
    • Ratified in 2005
    • Started in 2008
    • First commitment period is 2008-2012
    • Base year is 1990
    • Sets absolute emission targets for developed countries
    • Overall reduction for developed countries of 5%
    • Introduces global trading
    • No mandatory action for developing countries
    • Establishes a project mechanism which allows developing countries to benefit from the CO 2 price in developed countries
  • 55. A new global deal
    • Must be more inclusive
    • Maintains absolute targets for developed countries
    • Provides a clear pathway forward for developing countries, with absolute targets the goal for many
    • Builds technical capacity in developing countries
    • Operates on a much larger scale than the Kyoto Protocol
    • Builds towards a global carbon market
    • Embodies financing mechanisms
    • Draws on clean technology funds
    • Addresses land use and deforestation
    • Deals with adaptation
  • 56. The prospect of emission targets looms 0 50 100 150 200 250 300 350 $0 $10,000 $20,000 $30,000 $40,000 GDP per Capita, US$ ppp (2000) Energy per Capita, GJ Finland Romania “ Developed” countries with Kyoto Targets Korea Taiwan Singapore China Thailand Malaysia Rapidly emerging economies in Asia
  • 57. Two pathways to consider No target under the Kyoto Protocol Opportunity to respond to the market through the Clean Development Mechanism National action agreements National policies and measures Sectoral agreements Funding via market mechanisms Use of clean-technology funds Direct recruitment to cadre of nations with targets National emission target 2013 - 2020 2013 - 2020 2018 - 2030 2008 - 2012
  • 58. The global abatement curve Abatement GtCO 2 e per year in 2030 C A Large scale abatement within the electricity sector. Some land restoration. Energy efficiency measures, land use practices, avoided deforestation. Higher cost technologies still moving down the cost curve B Cost of abatement € /tCO 2 e
  • 59. The anatomy of a deal Abatement GtCO 2 e per year in 2030 C A Developed Developing Less Developed Absolute targets National policies and measures: SD-PAMs, NAMAs, without access to international project mechanisms. Large scale action in the electricity (and transport) sector driven by international project mechanisms and clean tech funds. Large scale action through cap-and-trade, transport measures (vehicle efficiency, low carbon fuels etc.) and building regulations Support for Demonstration programmes globally Smaller scale clean development projects utilising the CDM Cost of abatement € /tCO 2 e B Targeted systems for agriculture and deforestation D
  • 60. Going global ! 2000 2005 2010 2015 2020 2025 Pre-Kyoto Kyoto Post 2012 Linkage framework Linkages develop between all systems and more systems appear Danish-ETS UK-ETS Australian ETS US National or North American “cap-and-trade” Norwegian ETS EU-ETS CDM CDM evolves to include clean electricity mechanism Expanding EU-ETS Japan technology standards New technology mechanisms evolve (e.g. for CCS) China adopts CCS standard New Zealand ETS