lessons from canadalessons from canada’ ’’’s ss s failed ... john... · new technologies...

5/2011 Nyboer-Simon Fraser University 1

National Energy Efficiency ConferenceNational Energy Efficiency ConferenceNational Energy Efficiency ConferenceNational Energy Efficiency ConferenceSingaporeSingaporeSingaporeSingaporeMay 25, 2011May 25, 2011May 25, 2011May 25, 2011

John NyboerJohn NyboerJohn NyboerJohn NyboerEnergy and Materials Research GroupEnergy and Materials Research GroupEnergy and Materials Research GroupEnergy and Materials Research GroupSchool of Resource and Environmental ManagementSchool of Resource and Environmental ManagementSchool of Resource and Environmental ManagementSchool of Resource and Environmental ManagementSimon Fraser UniversitySimon Fraser UniversitySimon Fraser UniversitySimon Fraser University

emrgemrgenergy and mater ials research group


Lessons from CanadaLessons from CanadaLessons from CanadaLessons from Canada’’’’s s s s Failed Climate Policies Failed Climate Policies Failed Climate Policies Failed Climate Policies


Too little too late?emrgemrgenergy and mater ials research group





What has happened so far What has happened so far What has happened so far What has happened so far in Canadain Canadain Canadain Canada

0

100

200

300

400

500

600

700

800

900

1000

1990 1995 2000 2005 2010 2015 2020 2025

Canada Total GHG Emissions (Mt)

Actual Emissions

Kyoto ProtocolG7, Rio

World Conference on Changing Atmosphere

BaU ForecastGreen Plan

NAPCC

Action Plan 2000

Climate Change Plan for Canada

Project Green ecoENERGY, ecoACTION"Turning the Corner"

TtC

US W/M

TtC, 65% below 2006

ecoACTION (update)

Nyboer / EMRG / REM 4

Policy Developmentemrgemrg

energy and mater ials research group


A policy is:

an effort by public authorities to induce

actions by consumers, businesses and

perhaps other levels of government.”

11/2007 Jaccard-Simon Fraser University 5

Greenhouse gas emission Greenhouse gas emission Greenhouse gas emission Greenhouse gas emission reduction policiesreduction policiesreduction policiesreduction policies

Information - labeling, ads, awards, reports

Subsidies to unregulated emitters - tax credits, grants, low-interest loans, offsets (private subsidies), rebates

Command-and-control regulations - efficiency standards, minimal requirements

Financial charges – GHG taxes, investment charges, penalties, fees

Market-oriented regulations (cap and trade, niche market regulations (VES, RPS, Carbon standards)




Climate policy challenges:Climate policy challenges:Climate policy challenges:Climate policy challenges:evaluative criteriaevaluative criteriaevaluative criteriaevaluative criteria



Effectiveness – achieves the environmental or other objective.

Political feasibility – can succeed politically in terms of equity objectives, optics and constituency creation.

Economic efficiency – minimized costs, similar incremental costs of abatement across the economy

Administrative feasibility – not overly complex to design and administer




Type A policies not Type A policies not Type A policies not Type A policies not substitutes for Type Bsubstitutes for Type Bsubstitutes for Type Bsubstitutes for Type B

Less compulsory More compulsory

Information,voluntary,

moral suasion

Subsidy,grant,

tax creditFiscal penalty,

tax

Regulation

Market-orientedregulation

Less effective

Less efficient

More effective/efficient

AAAA BBBB


Case study Case study Case study Case study ---- Kyoto policy Kyoto policy Kyoto policy Kyoto policy assessment and policy choiceassessment and policy choiceassessment and policy choiceassessment and policy choice

Set of early “agreements”: 1988 – World Conference on the Changing Atmosphere, 1988 – G7, 1992 – Rio

Kyoto commitment: 1997 (signatory) w/ target 6%<1990

National Climate Change Process: 1998-1999

Conclusion: C&T or Carbon Tax for entire economy of $120 / tonne CO2 (revised to $150/t)

Action Plan 2000: information programs and subsidies with no “compulsory” policies





emrgemrgenergy and mater ials research group Action Plan 2000Action Plan 2000Action Plan 2000Action Plan 2000

Transportation Partnerships with automotive manufacturers and ethanol producers

Information provision through EnerGuide for Vehicles

Demonstration projects for hydrogen distribution infrastructure and

efficient urban transportation

Subsidy/information

Information

Information

Energy Sector Demonstration project for carbon sequestration

Information provision and moral suasion through the Canadian

Industry Program for Energy Conservation (CIPEC)

Voluntary agreements with industry

Financial incentive for renewable energy

Purchase of green power by government

Demo/Information

Information

Voluntary

Subsidy

Subsidy

Industry Information gathering and benchmarking

Energy-efficiency audits for small and medium enterprises

Information

Subsidy/information

Buildings Information provision to encourage retrofits in commercial sector

Information provision through EnerGuide for Houses

Information

Information


Canadian Policy

Research Award, 2002for

Outstanding Research

Contribution

Runner Up for the

Donner Prize, 2003

For more details

www.emrg.sfu.ca/

costofclimatepolicy




CD Howe Papers

by

EMRG Researchers

Available from

www.cdhowe.org






Canadian Federal and Provincial Canadian Federal and Provincial Canadian Federal and Provincial Canadian Federal and Provincial policy efforts 1988policy efforts 1988policy efforts 1988policy efforts 1988----2010201020102010

Actions:Actions:Actions:Actions: focus on energy efficiency– assumption that this is the cheapest and easiest action,

so do it first.

Policies:Policies:Policies:Policies: use information programs and subsidies to increase energy efficiency– if energy efficiency is profitable, these non-compulsory

policies should be sufficient.




McKinsey ReportMcKinsey ReportMcKinsey ReportMcKinsey Report

Industry actions


electricity saved

$ / kWh

efficient electrolytic processes

cost of newhydropower dam

efficient motorsefficient light bulbs

0

efficientbuilding shell

Assumed independentAssumed independentAssumed independentAssumed independent



Issue #1Issue #1Issue #1Issue #1Actions assumed independentActions assumed independentActions assumed independentActions assumed independent

Construction of cost curves implies that each action is completely independent of every other action (extreme partial equilibrium analysis).

(1) demand-side, (2) supply-demand including price, (3) micro-macro rebounds




Issue #2Issue #2Issue #2Issue #2Market conditions assumed Market conditions assumed Market conditions assumed Market conditions assumed

homogeneoushomogeneoushomogeneoushomogeneous

Market evidence shows that acquisition of a more efficient or lower emission technology will cost X for the first 20% of the market, X+Y for the next 20%, X+Y+Z for the next 20%, and so on.

Reasons include:

• different age of existing capital stock and hence cost of replacement at a particular time

– old techs maintained (e.g., 70 yr old motors rewound rather thanreplaced)

– Reluctance of floor operators to replace a functioning system

• local differences in transaction costs – learning, acquisition, installation and operation

– Lack of experienced operation and maintenance personnel– Labour conflicts, jurisdiction of operations




Issue #3Issue #3Issue #3Issue #3Technologies assumed perfect Technologies assumed perfect Technologies assumed perfect Technologies assumed perfect

substitutessubstitutessubstitutessubstitutes

Quality of service assumed identical.

But some technologies provide (or are perceived to provide) lower quality service – a concern with new technologies especially (e.g.: new metal smelting technologies compared to old, inefficient methods; efficient light bulbs; transit vs. personal vehicles). They are not substitutes.

Risk assumed identical.

But (1) long payback investments usually higher investment risk, and (2) new technologies usually higher failure risk.

- numerous mining examples: Rio Tinto HiSmelt process, BHP hot briquetted iron process and high pressure nickel leaching process, …

Incorporating this risk usually causes higher “expected cost” for high efficiency / low emissions technologies.


IsnIsnIsnIsn’’’’t energy efficiency the low t energy efficiency the low t energy efficiency the low t energy efficiency the low hanging fruit?hanging fruit?hanging fruit?hanging fruit?



Standard profitability analysis overlooks risks and quality differences in technologies

– Assumes independence of actions, one on another

– ignores new technology risks and long payback risk

– ignores consumers’ preferences as technologies are rarely perfect substitutes

If these hidden costs are included, efficiency cost can increasesignificantly.

Further, subsidies to induce penetration of efficient technologies incur free-riders (utilities’ estimate 10%)




Estimated freeEstimated freeEstimated freeEstimated free----ridership rates ridership rates ridership rates ridership rates for subsidized programsfor subsidized programsfor subsidized programsfor subsidized programs

Technology Source Free-ridership

Furnace Malm (1996) 89%

Refrigerator Train and Atherton (1995) 36%

Air conditioner “ 66%

Building shell retrofit Grosche and Vance (2009) 50%

Electric utility DSM

programs – various

Loughran and Kulick

(2004)50-90%

Hybrid vehicles Chandra et al. (2009) 74%

Transit Pass Tax Credit:Free ridership = >90%,Cost = $2,000/t CO2e


Estimating the effect of Estimating the effect of Estimating the effect of Estimating the effect of subsidies on emissionssubsidies on emissionssubsidies on emissionssubsidies on emissions

Free riders – evidence suggests 25-75% (unavoidable)

If the cost of energy supply does NOT change, savings may be spent on other energy-consuming services or devices:

Direct rebound – evidence suggests 5-20%, Jevons’ “backfire”

Indirect rebound – consume other services

Productivity rebound – evidence suggests very high potential for energy efficiency subsidies (new devices, new energy services), less so for fuel switching subsidies and carbon capture subsidies




Estimating the effect of Estimating the effect of Estimating the effect of Estimating the effect of subsidies on emissionssubsidies on emissionssubsidies on emissionssubsidies on emissions

Free riders – evidence suggests 25-75% (unavoidable)

Rebound effectsDirect rebound – evidence suggests 5-20%Indirect rebound – unknown, may exceed 100%Productivity rebound – unknown, could be large

OffsetsA subsidy, usually from one private entity to another, to help fund an action that reduces emissions from what they otherwise would be.

Issues: Are these offsetsverifiable?additional?permanent?

Do they prevent or delay actions that must happen?






Emissions pricing policies: Emissions pricing policies: Emissions pricing policies: Emissions pricing policies: direct and indirect pricingdirect and indirect pricingdirect and indirect pricingdirect and indirect pricing

Economy-wide carbon tax with revenue recycling

Hybrid of absolute C&T for industry with carbon tax for rest of economy

Absolute C&T permits for the entire economy- carbon permits required for all fuels, hence similar price

impact on gasoline and heating fuels as carbon tax- likely auction of at least some permits to recycle

revenue to those most negatively impacted

Technology, fuel or sector-specific regulations (renewable electricity, low carbon fuel, CCS, low emission vehicles, building codes, zoning for urban form)

Direct

Indirect




Current Canadian federal policy Current Canadian federal policy Current Canadian federal policy Current Canadian federal policy (recently shelved)(recently shelved)(recently shelved)(recently shelved)

Cap applied only to industryonly to industryonly to industryonly to industry – 50% of emissions (original target date – 2010).

Intensity capIntensity capIntensity capIntensity cap rather than absolute cap (aka: performance standard) – 18% below 2006 intensity by 2010, declining 2% per year thereafter.

International offsets limited to 10% of required intensity reduction. No limit on domestic No limit on domestic No limit on domestic No limit on domestic offsets!offsets!offsets!offsets!




Estimating the policy outcome:Estimating the policy outcome:Estimating the policy outcome:Estimating the policy outcome:Canadian federal policyCanadian federal policyCanadian federal policyCanadian federal policy

Jaccard & Rivers. 2007. Estimating the effect of the Canadian Government’s 2006-2007 GHG Policies




Reductions with compulsory Reductions with compulsory Reductions with compulsory Reductions with compulsory polices polices polices polices ---- CanadaCanadaCanadaCanada



emrgemrgenergy and mater ials research group Policy versus politicsPolicy versus politicsPolicy versus politicsPolicy versus politics

What climate policy experts know.

“Effective climate policy requires a cost to emitting GHGs.”

If a politician’s proposal does not “raise the price of carbon, …you should conclude that the proposal is not serious.”William Nordhaus, Yale.

Of the requirements for effective climate policy “the first is the pricing of carbon …” Nicholas Stern, UK government.

What experts in the art of politics know.

“Price increases that can be directly attributed to politicians are politically risky.”




If pricing is key to GHG reduction, If pricing is key to GHG reduction, If pricing is key to GHG reduction, If pricing is key to GHG reduction, whatwhatwhatwhat’’’’s the role for other policies?s the role for other policies?s the role for other policies?s the role for other policies?

Information is critical as a complement to emissions pricing (awareness, capacity building in all sectors).

Subsidies have a role:- in advancing low- and zero-emission transformative investments

that are still too expensive under initial emissions price levels (e.g. CCS)

- as a political carrot to foster policy acceptance.

Regulations have an important role to:- overcome information asymmetries,- create niche markets for new technologies,- improve the prospects for zero- and low- emission choices in

production processes, buildings, land-use, and energy-related services like district heating and transportation.


Are CanadaAre CanadaAre CanadaAre Canada’’’’s policies really s policies really s policies really s policies really Failures?Failures?Failures?Failures?

If the measurement criteria are “effective reduction” of GHGs emitted by Canadian sources in an “economically efficient” manner …

If the measurement criteria are political expediency and popular acceptability, the policies are extremely successful.

- The government is seen to have been active in the area, generating plans, visions, targets, estimates and policy that implies effective actions at low costs

- The voting public, business and industry are relatively unaffected and few costs are actually noticed; if anything, benefits are felt and actions undertaken ease the “conscience”




What to do!emrgemrgenergy and mater ials research group


In the face of a climate change challenge,

industry must play a leading role in designing

and implementing government policies that

start the global energy system on a long-term

transformation toward zero greenhouse gas

emissions.


What to do!emrgemrgenergy and mater ials research group


• The Call

– It takes time but begin now

– We need more than markets…

– We need creativity in development and direction

We need you…




Thank you.

lessons from canadalessons from canada’ ’’’s ss s failed ... john... · new technologies...

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