Evolving carbon prices in an uncertain world the case for cooperation but not too much                                    ...
These slides are a partial record of a presentation to theBeijing Energy Network delivered in May 2012 in theauthor’s pers...
Key messages•  Carbon is arguably being “priced” already in China   and other countries, albeit in various different ways....
Overview1.  Carbon pricing concepts and history2.  Carbon pricing in China and beyond3.  Discussion and recommendations   ...
What is a carbon price?         A measure of the value of keeping     greenhouse gases out of the atmosphere.             ...
Polluters to paye.g. Pork production emits more per unit than chicken.     This can be reflected explicitly in menu prices...
A carbon price reflects the difference between the cost  of a product’s emissions to individuals and society              ...
More than one way to price carbon           Trading scheme           Coal plant subsidy         • Cap on emissions • Gover...
A negative carbon price reflects a social value on an                                emissions-intensive product          ...
More than one way to price carbon•  Positive                     Negative•  Explicit                      Implicit•  Marke...
Policy at any level can affect emissions directly,           indirectly or unintentionally                    UN          ...
Explicit carbon pricing has a history including    taxes and more recently cap-and-trade       •  Norway/Finland/Netherlan...
Implicit prices result from various policiesClean energy     •  EU Renewable Energy Directive obligations     •  US Bio-en...
Contents1.  Carbon pricing concepts and history2.  Carbon pricing in China and beyond3.  Discussion and recommendations   ...
Vivid Economics estimate an implicit carbon        price of China’s fossil fuel ‘subsidies’For year 2009                  ...
China’s electricity policies price carbon in effect  Policy and percent coverage              US $/t CO2-e (market exchang...
Vivid found China’s electricity carbon price                  beats Japan, rivals US, lags behind UK               $30    ...
Regional Greenhouse Gas Initiative (RGGI) states         have lead the US in carbon pricing        $5.1/t         US      ...
Pricing carbon can vary in cost-effectiveness                                                     Vivid Economics 2010    ...
Implicit carbon prices are lower than needed to                       meet Copenhagen commitments                      Ele...
Future direction of carbon price/s in China?•  Pilot emissions trading in key provinces/   cities ahead of national scheme...
Overview1.  Carbon pricing concepts and history2.  Carbon pricing in China and beyond3.  Discussion and recommendations   ...
Paul Baran (1964) On Distributed CommunicationsWhat is an optimum level of coordination?Centralised   Decentralised   Dist...
Evolution of climate policy features  more or less coordination at different levelsMontreal ProtocolUNFCCC                ...
Each level of coordination presents its own            challenges and opportunities          More centralised             ...
Adapted from Geoffrey Lewis (2009)ENVIRONMENTAL PERFORMANCE(CARBON PRICE)                 TIME                        26
How to achieve a middle ground?•  Some diversity is unavoidable.   How much diversity can be tolerated?•  To what extent i...
What minimal level of centralisation        best suits different policy elements?UNFCCC                                   ...
RecommendationsA.  Governments at all levels can act now to increase    carbon prices, while working to coordinate and imp...
Can society self-regulate without centralisation?                                                      Judith Korb and Kar...
31
References (1)•  Paul BARAN (1964) On Distributed Communications Networks. The RAND   Corp., Santa Monica.•  Daniel BODANS...
References (2)•  Geoffrey LEWIS (2009) China Green Buildings: a two-pronged approach.   Available at   http://chinagreenbu...
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Evolving Carbon Prices in an Uncertain World, Alan Lee (May 2011)

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Presentation by Alan Lee to the Beijing Energy Network, May 2011: "Evolving carbon prices in an uncertain world: the case for cooperation but not too much".

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Evolving Carbon Prices in an Uncertain World, Alan Lee (May 2011)

  1. 1. Evolving carbon prices in an uncertain world the case for cooperation but not too much capanddividend.org Alan Lee Presentation to Beijing Energy Network, May 2011
  2. 2. These slides are a partial record of a presentation to theBeijing Energy Network delivered in May 2012 in theauthor’s personal capacity.Slides were used as prompts only, with slide animation notavailable here, and should not be taken to represent thecontent as delivered in context.Material cited does not necessarily represent the views ofthe author, nor any entity with which the author may beaffiliated, and should not be relied upon for any purpose. 2
  3. 3. Key messages•  Carbon is arguably being “priced” already in China and other countries, albeit in various different ways.•  Governments and businesses at all levels can do much more to bring about effective carbon prices, even without a specific clear plan agreed at higher levels.•  With appropriate measures to track progress in place, this can help achieve ambitious climate action. 3
  4. 4. Overview1.  Carbon pricing concepts and history2.  Carbon pricing in China and beyond3.  Discussion and recommendations 4
  5. 5. What is a carbon price? A measure of the value of keeping greenhouse gases out of the atmosphere. ¥/t CO2eWhose value? What price level? How to create the price? ? 5
  6. 6. Polluters to paye.g. Pork production emits more per unit than chicken. This can be reflected explicitly in menu prices or implicitly in consumer choices ? ? 6
  7. 7. A carbon price reflects the difference between the cost of a product’s emissions to individuals and society DEMAND (PRIVATE MARGINAL BENEFIT) HIGH PRICE SubsequentCarbon price price Original price LOW PRICE LOW Subsequent Original HIGH EMISSIONS emissions emissions EMISSIONS 7
  8. 8. More than one way to price carbon Trading scheme Coal plant subsidy • Cap on emissions • Government gives money set by government to coal plant operatorPolicy • Liable entities • Cost of electricity from trade allowance coal gains a relative price units and offsets advantage • Positive • NegativeCarbon • Explicit • Implicit price • Market-based • Non market-based 8
  9. 9. A negative carbon price reflects a social value on an emissions-intensive product DEMAND (PRIVATE MARGINAL BENEFIT) HIGH PRICENegative carbon price Original price Subsequent price LOW PRICE LOW Subsequent Original HIGH EMISSIONS emissions emissions EMISSIONS 9
  10. 10. More than one way to price carbon•  Positive Negative•  Explicit Implicit•  Market-based Non market-based•  International Local•  Public Private•  Compulsory Voluntary 10
  11. 11. Policy at any level can affect emissions directly, indirectly or unintentionally UN Multinational bodies Nations Big business NGOs Provinces SMEs Local governments 11
  12. 12. Explicit carbon pricing has a history including taxes and more recently cap-and-trade •  Norway/Finland/Netherlands (1990/91) •  Costa Rica (1997)Carbon •  Canadian provinces (2007/08) tax •  South Africa: vehicles 2010 •  India: coal production & import (2010) Cap- •  EU + Norway (2005) and- •  New Zealand (2010)trade •  US Regional Greenhouse Gas Initiative (2009) 12
  13. 13. Implicit prices result from various policiesClean energy •  EU Renewable Energy Directive obligations •  US Bio-energy mandates Emissions •  EU and California standards for vehiclesperformance or •  Building standards efficiency standards •  China 12th Five-Year Plan targets •  New South Wales and Australian Capital TerritoryBaseline-and- electricity credit •  California Low-Carbon Fuel Standard •  CDM, Joint Implementation Project •  Voluntary emissions reductions mechanism •  REDD+ Social •  Japancommitments 13
  14. 14. Contents1.  Carbon pricing concepts and history2.  Carbon pricing in China and beyond3.  Discussion and recommendations 14
  15. 15. Vivid Economics estimate an implicit carbon price of China’s fossil fuel ‘subsidies’For year 2009 Coal OilTotal value of subsidies US $11.7 billion US $24.1 billionTotal fuel consumption 2.5 Gt 0.6 GtSubsidy per tonne of fuel $4.68 $38.91Emissions per unit of fuel 2.7 t 3.1 t Data from Vivid Economics 2010Implied carbon price in use of fuel -$1.74 -$12.55Proportion electricity from this fuel 81% 1%Implied carbon price weight by -$1.41 -$0.13share of electricity production 15
  16. 16. China’s electricity policies price carbon in effect Policy and percent coverage US $/t CO2-e (market exchange rate) of electricity sector $- $1 $2 $3 $4 $5 $6 $7 $8 $9 $10 Large-for-small generator $7.58 substitution (2%) Mandating better $1.52 coal technology (9%) Gas subsidies (1%) $0.25 Wind/solar feed-in tariff (0.3%) $0.11 Infrastructure loans (10%) $0.10 Biomass feed-in tariff (0.03%) $0.03 Data from Vivid Economics 2010 Solar subsidies (0.03%) $0.03 Oil subsidies (1%) -$0.13 Coal subsidies (81%) -$1.41 TOTAL $8.08 16Only covers policies at Dec 2009
  17. 17. Vivid found China’s electricity carbon price beats Japan, rivals US, lags behind UK $30 Market exchange rates (Sep 2010) $25 $20US $/t CO2-e $15 $10 $5 Vivid Economics 2010 $- UK China US US Japan Australia South (all (RGGI Korea states) states) 17
  18. 18. Regional Greenhouse Gas Initiative (RGGI) states have lead the US in carbon pricing $5.1/t US average 18Data: Vivid Economics 2010. Map: Pew Centre
  19. 19. Pricing carbon can vary in cost-effectiveness Vivid Economics 2010 19
  20. 20. Implicit carbon prices are lower than needed to meet Copenhagen commitments Electricity sector Economy-wide 2012 price consistent with Copenhagen commitments $60 $50US $/t CO2-e $40 Vivid Economics and McKibbon et al (2010) $30 $20 $10 $- UK China US Japan Australia 20
  21. 21. Future direction of carbon price/s in China?•  Pilot emissions trading in key provinces/ cities ahead of national scheme?•  Environmental tax?•  Resource tax?•  Power price control? 21
  22. 22. Overview1.  Carbon pricing concepts and history2.  Carbon pricing in China and beyond3.  Discussion and recommendations 22
  23. 23. Paul Baran (1964) On Distributed CommunicationsWhat is an optimum level of coordination?Centralised Decentralised Distributed 23
  24. 24. Evolution of climate policy features more or less coordination at different levelsMontreal ProtocolUNFCCC Copenhagen/ Kyoto Protocol Compliance Cancun pledges mechanisms National policiesCDM methodology KP land-use& project approval coverage choices Voluntary carbonIPCC market standards GHG Inventory Inventory reports guidelines Carbon prices Centralised Decentralised Distributed 24
  25. 25. Each level of coordination presents its own challenges and opportunities More centralised Less centralised •  Global outcome •  Early action and innovation •  Institutional legitimacy •  Resilience to failed+ •  Harmonised rules with experiments, lessons learnt streamlined bureaucracy •  Localised solutions, and efficiency responsive to rapid change •  Lowest common •  Leakage denominator outcome •  Laggards-- •  Agenda subject to hijack •  Risk of perceived illegitimacy and compromise •  Inefficiencies from •  Slow fragmentation •  Inflexible •  Harder to track global action 25
  26. 26. Adapted from Geoffrey Lewis (2009)ENVIRONMENTAL PERFORMANCE(CARBON PRICE) TIME 26
  27. 27. How to achieve a middle ground?•  Some diversity is unavoidable. How much diversity can be tolerated?•  To what extent is trust versus unity needed for effective cooperation?•  Is complete consensus on all elements necessary from the outset? 27
  28. 28. What minimal level of centralisation best suits different policy elements?UNFCCC National targetsGlobal objective and policies(2°C) Carbon market Detailed carbon Tracking of guidelines market rules global progress (voluntary/ Carbon price mandatory) pledges? IPCC Compliance mechanisms Centralised Decentralised Distributed 28
  29. 29. RecommendationsA.  Governments at all levels can act now to increase carbon prices, while working to coordinate and improve policies over time.B.  Governments and observers should regularly and rigorously quantify policies’ climate impact and share findings, to track and inform global action.C.  Measures of effective carbon price provide useful insights to effort and to certain risks of trade exposure.D.  Businesses and individuals can position themselves now for high, long-term carbon prices. 29
  30. 30. Can society self-regulate without centralisation? Judith Korb and Karl Eduard Linsenmair (1999) Certain termites regulate temperature and CO2 of their surroundings through cooperation rather than central leadership 30
  31. 31. 31
  32. 32. References (1)•  Paul BARAN (1964) On Distributed Communications Networks. The RAND Corp., Santa Monica.•  Daniel BODANSKY (2010) A tale of two architectures: the once and future UN climate change regime. Available at SSRN: http://ssrn.com/ abstract=1773865•  CENTRE FOR INTERNATIONAL ECONOMICS (2010) Comparing effective carbon prices: methodological issues. Available at http:// www.thecie.com.au/content/news/Carbon_Price_Comparisons.pdf•  Fergus GREEN, Warwick McKIBBIN and Greg PICKER (2010) Confronting the crisis of international climate policy: rethinking the framework for cutting emissions. Lowy Institute for International Policy, Sydney.•  Judith KORB and Karl Eduard LINSENMAIR (1999) The architecture of termite mounds: a result of a trade-off between thermoregulation and gas exchange? Behavioral Ecology Volume: 10, Issue: 3, Pages: 312-316. 32
  33. 33. References (2)•  Geoffrey LEWIS (2009) China Green Buildings: a two-pronged approach. Available at http://chinagreenbuildings.blogspot.com/2009/04/two-pronged-approach- top-down.html•  PRODUCTIVITY COMMISSION (2011) Carbon Emission Policies in Key Economies. Australian Government, Canberra. Available at http://pc.gov.au/ projects/study/carbon-prices/report•  VIVIC ECONOMICS (2010) The implicit price of carbon in the electricity sector of six major economies. The Climate Institute, Sydney.•  WORLD BUSINESS COUNCIL FOR SUSTAINABLE DEVELOPMENT (2011) Carbon pricing: the role of a carbon price as a climate change policy instrument. Available at www.wbcsd.org/web/energy.htm 33
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