Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Aligning Policies for the Transition to a Low-carbon Economy

353 views

Published on

Aligning Policies for the Transition to a Low-carbon Economy - Presentation by Richard Baron, OECD

Published in: Environment
  • Be the first to comment

  • Be the first to like this

Aligning Policies for the Transition to a Low-carbon Economy

  1. 1. Richard Baron, project coordinator, OECD David Fischer, OECD Joint workshop OECD – Ministry of Finance Government of Indonesia Bogor, 4 November 2015
  2. 2. 2 OECD Ministerial Council Meeting 2014 At their Ministerial Council Meeting, OECD countries invited “OECD, in cooperation with the IEA, the NEA and the ITF […] to examine how to better align policies across different areas* for a successful economic transition of all countries to sustainable low-carbon and climate-resilient economies and report to the 2015 OECD MCM.” “ *economic, fiscal, financial, competition, employment, social, environmental, energy, investment, trade, development co-operation, innovation, agriculture and sustainable food production, regional as well as urban and transport policies” C/MIN(2014)23/FINAL
  3. 3. 3 Agenda WHY LOOK AT “POLICY ALIGNMENT” ? ALIGNING CROSS CUTTING POLICY DOMAINS ALIGNING SECTORAL POLICIES CONCLUSIONS
  4. 4. WHY LOOK AT “POLICY ALIGNMENT”? The climate challenge Source: IPCC, 2014, Synthesis Report Net zero emissions by the second half of the century
  5. 5. Southeast Asia – projected CO2 from energy Source: IEA, 2015, South East Asia Energy Outlook 2015, World Energy Outlook Special Report.
  6. 6. Emission reductions by 2030 in ‘Bridge Scenario’ Source: IEA, 2015, South East Asia Energy Outlook 2015, World Energy Outlook Special Report.
  7. 7. Stable and predictable climate policies – A strong price signal on carbon, to make low- carbon investments competitive with carbon intensive technologies. • Public sector choices can rely on monetary carbon values and full cost-benefit analyses WHY LOOK AT “POLICY ALIGNMENT”? Core climate policies are necessary…
  8. 8. Source: Based on data from the International Carbon Action Partnership and IEA (2014), Energy, Climate Change and Environment: 2014 Insights. Excludes developments in countries not studied 8 Carbon pricing : overview of domestic existing and planned CO2 emissions trading systems KoreaGuangdong Hubei California ShanghaiChongqing Tianjin Beijing Shenzhen Washington (planned) Quebec NZ ETS Tokyo Manitoba (planned) Ontario (planned) EU ETS Swiss ETS China (planned) RGGI Saitama
  9. 9. Stable and predictable climate policies – A strong price signal on carbon, so that low carbon investments are competitive with carbon intensive technologies. – Strong regulatory support in areas where price signals are not efficient, such as in energy efficiency measures. – Support for the uptake of low-carbon technologies WHY LOOK AT “POLICY ALIGNMENT”? Core climate policies are necessary… … but not sufficient
  10. 10. WHY DOES POLICY COHERENCE MATTER? Climate policy comes on top of other policy goals ECONOMIC TRADE COMPETITION FISCAL DEVELOPMENT COOPERATION SOCIAL INVESTMENT CLIMATE
  11. 11. Policy domains • Investment & finance • Tax policy • Innovation and skills • International trade • Adaptation Aligning Policies for a Low-carbon Economy Specific activities • Electricity (regulations) • Urban mobility (governance of local decisions) • Rural land use • General policy frameworks were not designed with climate goals in mind. • Existing policies and infrastructures are influenced by many decades of convenient fossil fuel use. • First diagnosis on misalignments of existing policy frameworks with climate policy  facilitate climate action, lower cost • Diagnosis has to be led at country-level.
  12. 12. 12 Agenda WHY LOOK AT “POLICY ALIGNMENT” ? ALIGNING CROSS CUTTING POLICY DOMAINS ALIGNING SECTORAL POLICIES CONCLUSIONS AND NEXT STEPS
  13. 13. • Restore coherence between energy-related taxes and expenditures and the transition to low carbon – Fossil Fuel Subsidies (incl. actual government spending in support of fossil fuel production and uses) – Taxing Energy Use (across fuels and sectors, gasoline/diesel, etc.) TAX POLICIES Looking at energy and beyond Taxes and tax expenditures send multitude of powerful signals to companies and households
  14. 14. TAX POLICIES Taxation of energy in the OECD area (in €/tCO2)
  15. 15. TAX POLICIES Taxation of energy in Indonesia (in IDR and €/tCO2)
  16. 16. • Restore coherence between energy-related taxes and expenditures and the low-carbon transition • Beyond energy taxes, other tax provisions hinder low-carbon choices, e.g.: – Fiscal treatment of company cars and commuting expenses – Property and land taxes, fiscal incentives for home ownership, … – Corporate income tax provisions: are they biased towards investment in heavy industry? TAX POLICIES Looking at energy and beyond Taxes and tax expenditures send multitude of powerful signals to companies and households
  17. 17. • Public RD&D expenditures fall short of the low-carbon energy transition challenge. INNOVATION AND SKILLS Delivering innovation and skills for the transition Innovation needed to bring low-GHG technologies and practices to market, and allow new dynamic firms to emerge
  18. 18. INNOVATION AND SKILLS Public Sector Energy RD&D in IEA Countries Source: IEA databases, 2014 cycle.
  19. 19. • Public RD&D expenditures fall short of the low-carbon energy transition challenge. • Innovation incentives are not always fostering new entrants that can challenge existing firms and practices • There may be significant skill gaps, e.g. buildings sector. INNOVATION AND SKILLS Delivering innovation and skills for the transition Innovation needed to bring low-GHG technologies and practices to market, and allow new dynamic firms to emerge
  20. 20. 1. SCALING-UP: $53 trillions needed by 2035 in RE and EE (IEA) 2. SHIFTING : Two-third of global investment in energy supply still goes to fossil fuels 500 1 000 1 500 Billiondollars(2012) 2000 2005 2010 2011 2012 2013 Renewables Power transmission & distribution Fossil fuels Nuclear Source: IEA, World Energy Investment Outlook, 2014 Annual energy supply investment INVESTMENT AND FINANCE Scaling-up and shifting investment
  21. 21. • Private finance – Develop a green investment policy framework conducive to low-carbon investment: avoid stop-and-go policies, price carbon – Align the rules governing the financial sector with long-term investment goals, e.g. unintended consequences of prudential regulations – Enhance disclosure and valuation of climate risks and liabilities in investors’ portfolios, e.g risks stranded assets, carbon footprint, vulnerability to climate risks • Public finance: Mainstream climate goals in public spending and development policies INVESTMENT AND FINANCE Scaling-up and shifting investment Channelling public and private sources of finance towards low-carbon infrastructure
  22. 22. • Can tariff-based trade barriers affect the low- carbon transition? • How can trade in services enhance the transition? • Are “green” domestic support measures conducive to international trade? • Are policies for aviation and maritime fuel aligned with climate objectives? Misalignments relating to international trade Trade itself is not the climate villain
  23. 23. 23 Agenda WHY POLICY COHERENCE AND ALIGNMENT MATTER FOR CLIMATE? ALIGNING CROSS CUTTING POLICY DOMAINS ALIGNING SECTORAL POLICIES CONCLUSIONS AND NEXT STEPS
  24. 24. Electricity: Contribution to annual emission reduction Source: IEA (2015), Energy Technology Perspectives: Mobilising Innovation to Accelerate Climate Action, International Energy Agency, Paris .
  25. 25. • “Current designs of wholesale electricity markets in many OECD countries are not strategically aligned with the low- carbon transition” – Weak price signals for investment  increase capital cost – Low-carbon technologies particularly capital intensive • Rethink electricity market design to secure timely investment in low-carbon technologies • Look at investment incentives in regulated systems Reframing investment signals in electricity systems Electricity market liberalisation was made possible by flexible fossil-based technologies (flexible combined-cycle gas turbines)
  26. 26. Risk raises the cost of low- carbon power significantly Financing costs can dominate all other components of LCOE for solar PV. Impact of cost of capital on the levelised cost of solar PV
  27. 27. • Look beyond ‘core climate policies: – Governance: Integrate land-use planning and transport policies • Adopt a co-benefits approach to transport • Integrate national and sub-national actions to improve coherence • Overcome government fragmentation at the local level – Finance: Empower local governments by removing fiscal and regulatory impediments – Innovation: Provide infrastructure to encourage technology breakthroughs (e.g. CNG refuelling stations, electric vehicle infrastructure). MOBILITY Opting for sustainable urban mobility Current transport systems are fossil-fuel based, with a high environmental costs in urban settings How to shift away from individual cars to mass transport modes, reduce the need for travel, improve fuel and vehicle efficiency?
  28. 28. • Governance: Integrate land-use planning and transport policies at the metropolitan level • Finance: Empower local governments by removing fiscal and regulatory impediments • Innovation: Remove bottlenecks to energy efficiency and technology breakthrough MOBILITY Opting for sustainable urban mobility How to shift away from individual cars to mass transport modes, reduce the need for travel, improve fuel and vehicle efficiency?
  29. 29. LAND USE Strengthening incentives for sustainable land use • Redirect agricultural support policies towards low- carbon practices How land use could move from a net contributor of one fourth of GHG emissions in 2014 to a net carbon sink by the end of the century, while feeding a growing population? Evolution of producer support in OECD countries by potential environmental impact Source: OECD (2013), “Producer and Consumer Support Estimates”, OECD Agriculture Statistics Database
  30. 30. LAND USE Strengthening incentives for sustainable land use Net carbon sink by the end of the century? • Redirect agricultural support policies towards low- carbon practices • Liberalise trade measures to support mitigation, adaptation and food security agenda • Remove insurance subsidies to support agriculture’s resilience • Value services provided by forests and ecosystems in economic decisions • Join-up policies to address the roots of food waste
  31. 31. 31 Agenda WHY POLICY COHERENCE AND ALIGNMENT MATTER FOR CLIMATE? ALIGNING CROSS CUTTING POLICY DOMAINS ALIGNING SECTORAL POLICIES CONCLUSIONS AND NEXT STEPS
  32. 32.  This first broad-based policy diagnosis points to the need for ‘whole-of-government’ approach to the climate challenge  Streamline institutions and policies (avoid multiple responsibilities and overlapping policy objectives)  Head of government should ask Ministries: are your existing policy frameworks hindering or helping climate goals?  Misalignments can be many: what are the major ones that could, once resolved, facilitate effective climate policy? CONCLUSION A new approach to the climate policy challenge
  33. 33.  This first broad-based policy diagnosis points to the need for ‘whole-of-government’ approach to the climate challenge  Resolving misalignments can foster sustainable, inclusive growth. Early lessons:  More progressive taxes, pro-development infrastructure investment, enhanced innovation  Energy security, lower local pollution, better mobility, sustainable agriculture  Alignment issues at international level?  A global agreement at COP21 should encourage co-operation on domestic climate policies CONCLUSION A new approach to the climate policy challenge
  34. 34. THANK YOU For full report, synthesis and video: http://oe.cd/lowcarbon richard.baron@oecd.org

×