DEALING WITH DOOMTHE TRIPLE CHALLENGE OF ENERGY SCARCITY, CLIMATE

CHANGE AND GLOBAL INEQUITY

JOS BRUGGINK

EU Conference Sustainable Development, Brussels, 26-28 May 20092

MAIN FOCUS OF PRESENTATION

DEALING WITH DOOMTHE TRIPLE CHALLENGE OF ENERGY SCARCITY, CLIMATE

CHANGE AND GLOBAL INEQUITY

Guarding against unfortunate consequences

of unsustainability first

Action-oriented approach: what can be done now rather than

what should be done later

Issue linkages central: dynamically connecting solutions

for faces of doom

Three faces of doom correspond to three

dimensions of unsustainability

FIRST STEP IN ANALYSIS:

TWO PRINCIPLES FOR EFFECTIVE POLICY DESIGN

EU Conference Sustainable Development, Brussels, 26-28 May 20093

WORLD VIEWS AND POLICY STRATEGIES

We are living in a manageable world where European public

policies can make a lasting impact

We must shape the world in a sustainable mold according to

European visions of sustainability

SHAPING STRATEGIES

We are living in an unmanageable world where European public policies have marginal effects

We must hedge against the unfortunate consequences of an

increasingly unsustainable world

HEDGING STRATEGIES

• Based on “nothing ventured, nothing gained” attitude

•Need to keep many technological options open

• Emphasis on R&D policies and long term targets

• Based on “better be safe than sorry” attitude

• Need to choose winning technologies at an early stage

• Emphasis on implementation policies and short term targets

EU Conference Sustainable Development, Brussels, 26-28 May 20094

FIRST PRINCIPLE FOR POLICY DESIGN

A balanced and interconnected combination of shaping and hedging strategies will make European policies for sustainability much more effective

EU Conference Sustainable Development, Brussels, 26-28 May 20095

DIMENSIONS OF SUSTAINABILITY

Political reality: hierarchical pyramid

PeopleSocial objectives

Global equity

Planet Environmental objectives

Climate change

ProfitEconomic objectives

Energy security

ProfitEconomic objectives

Energy security

PeopleSocial objectives

Global equity

Academic perception: equivalent triangle

Planet Environmental objectives

Climate change

EU Conference Sustainable Development, Brussels, 26-28 May 20096

TWO PRINCIPLES FOR POLICY DESIGN

A balanced and interconnected combination of shaping and hedging strategies will make European policies for sustainability much more effective

Approaching the three faces of energy doom in hierarchical order over time will make European policies for sustainability much more effective

NEXT STEP IN ANALYSIS:

STORYLINE FOR EUROPEAN ENERGY POLICIES FOR SUSTAINABILITY BASED ON THESE PRINCIPLES

EU Conference Sustainable Development, Brussels, 26-28 May 20097

STORYLINE FOR POLICY STRATEGY

PHASE 1

PHASE 2

PHASE 3

2010

2020

2030

2040

2050

HEDGING STRATEGIES

SHAPING STRATEGIES

R,D&D policies for climate change

R,D&D policies for global equity

Implementation policies for energy security

Implementation policies for climate change

Implementation policies for global equity

EU Conference Sustainable Development, Brussels, 26-28 May 20098

THE SUNNY SIDE OF DOOM

Sustainable ambitions in the sky should reflect political realities on the ground

Dealing with doom makes it politically acceptable to invoke the visible fist of government in addition to the invisible hand of market

Therefore Europe should guard against consecutive instances of doom first

But the results of the required hedging policies may help to solve the next instance of doom

If secondary shaping policies are well orchestrated with primary hedging policies

NEXT STEP IN ANALYSIS:

ILLUSTRATION OF STORYLINE FOR SUSTAINABLE MOBILITY

EU Conference Sustainable Development, Brussels, 26-28 May 20099

STORYLINE FOR SUSTAINABLE MOBILITY

PHASE 1

PHASE 2

PHASE 3

2010

2020

2030

HEDGING STRATEGIES

SHAPING STRATEGIES

Improve sustainable fuel options

Improve sustainable mobility options

Choose electric car as winning technology

Choose winning sustainable fuel option

Reduce mobility volumes and import sustainable fuels

EU Conference Sustainable Development, Brussels, 26-28 May 200910

OIL PRICES AND MOBILITY

0

50

100

150

200

250

Crude oil price (€/litre) Gasoline price (€/litre) Expenditure (% of income)

June 2008 June 2020

Index number

First assumption: the price of oil increases to

300$/barrelSecond assumption: tax

regime and margins remain the same

Third assumption: income grows 2%/year, cars become 20% more

efficient

EU Conference Sustainable Development, Brussels, 26-28 May 200911

OIL PRICES AND THE IMPACT OF CO2-PRICES

1,74 €/litre

1,61 €/litre

1,49 €/litre

1,36 €/litre

1.24 €/litre

Equivalent consumer price

150 $

125 $

100 $

75 $

50 $

Fuel price per barrel

Conventional oil

First generation biomass Gas through GTL or CNG Enhanced oil recovery

Coal-to-liquids Second generation biomass

Tar sands and oil shales

Consumers perspective

Producers perspectiveCO price of 60€/ton

has no influence on consumer decisions

CO2 price of 60€/ton makes a difference in

future fuel source battles

EU Conference Sustainable Development, Brussels, 26-28 May 200912

SYNCHRONISING OIL AND CARBON MARKETS

World oil price

Bottom price of

80$/barrel

Price corridor for

unrestrained oil markets

80$/barrel

20 € /ton

100 € /ton80 € /ton60 € /ton40 € /ton

Price tempered

above 120$/barrel

Flexible CO2-tax

120$/barrel40$/barrel

Trajectory for CO2–tax (10 € /ton = 6.3 $/barrel)

EU Conference Sustainable Development, Brussels, 26-28 May 200913

DRIVING FORCES FOR SUSTAINABLE MOBILITY

The initial tandem of oil prices and carbon prices– Synchronising oil and carbon prices smoothes transitions– Gradually rising carbon prices must make sustainable fuels

(including electricity) competitive

The ultimate tandem of fuel prices and road charges– Growing global mobility volumes will replace a peak oil

problem with a peak soil problem– Ultimately mobility growth must be constrained by road

charges in addition to high fuel prices

FINAL STEP IN ANALYSIS:

WHAT ARE THE IMPLICATIONS FOR EU R&D STRATEGIES?

EU Conference Sustainable Development, Brussels, 26-28 May 200914

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Innovation guidance

Market formation

Knowledgedistribution

Knowledgedevelopment

Financial resourcemobilization

Human resourcemobilization

Entrepreneurialinvolvement

Relative global performance of EU energy innovation system

EU GOVERNANCE OF ENERGY R&D

EU Conference Sustainable Development, Brussels, 26-28 May 200915

IMPROVING EU ENERGY INNOVATION

Promising new instruments are being developed– Strategic Energy Technology Plan (SET-Plan)– European Institute of Innovation and Technology (EIT)

But additional sources of funding are lacking– Without additional funds these institutions are likely to

cannibalise existing EU and national R&D funds

Need for revenue generating policy strategies– Earmarking revenues from hedging-oriented implementation

policies for shaping-oriented R,D&D policies forms potential escape route

– In case of sustainable mobility part of a CO2-tax working in tandem with oil prices may provide funds for sustainable electricity and biofuels