“Real-world” low-carbon policy
packages for the energy sector
Christina Hood, Head, Environment and Climate Change Unit
Workshop on Implementing real-world low-carbon policy packages in the energy sector: understanding the challenges Paris, 27 June 2017
© IEA 2017
Power Generation
23%
Policy packages
A broad basket of policies is relevant for energy transition: policy overlaps and interactions need to be
taken into account for effective implementation
Carbon
Pricing
Energy
efficiency
support
Renewables support
Fossil fuel
phase-down
Air quality
regulations
Supporting markets and infrastructure
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… but real-world policymaking is more challenging!
A broad basket of policies is relevant for energy transition: policy overlaps and interactions need to be
taken into account for effective implementation
© IEA 2017
Many questions and issues remain challenging for governments
• What can low-to-moderate carbon prices achieve? When and how may they need to be complemented?
• How to manage trade-offs between policies that best support short, medium and long-term action?
• How best to align energy and climate policies among themselves, across jurisdictions, with other policy objectives (e.g. air quality, development)?
• Policy design options for particular political realities, such as concerns about
• Energy price rises
• Competitiveness
• Stranded assets
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Carbon prices in IEA scenarios
Expected carbon prices are well below those needed in a 2C scenario
Region 2020 2030 2040
NPS
European Union 20 37 50
Chile 6 12 20
Republic of Korea 20 37 50
China 10 23 35
South Africa 7 15 24
Region 2020 2030 2040
NPS
European Union 20 37 50
Chile 6 12 20
Republic of Korea 20 37 50
China 10 23 35
South Africa 7 15 24
450 Scenario
United States and Canada 20 100 140
European Union 22 100 140
Japan 20 100 140
Republic of Korea 20 100 140
Australia and New Zealand 20 100 140
China, Russia, Brazil and South
Africa
10 75 125
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United Kingdom power generation: coal to gas switching
Moderate carbon prices (with shifts in relative fossil fuel prices) have supported coal to gas switching
-40
-20
0
20
40
60
80
100
120
140
160
180
2008 2009 2010 2011 2012 2013 2014 2015 2016
€/tC
O2
Coal-to-GasSwitch Range
Prevailing UKCarbon Price
Prevailing EUCarbon Price
Average Coal-to-Gas Switch Price
Source: IEA, Energy, Environment and Climate Change: 2016 Insights
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What “modest” carbon prices can (and cannot) contribute
• Can:
- Lead to some fuel-switching in existing operations
- Make near-to-market low-carbon technologies cost-effective
- Backstop other low-carbon support policies
• Cannot:
- Drive all necessary low-carbon investment
- Force early retirement of high-carbon assets
- Give strong signal for electrification of heat and transport
- [Overcome non-price market barriers]
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The time dimension
Low-hanging fruit….
… or preparing for the long-term?
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Optimising for the long term: support for technology development
Support for new technologies can lower carbon prices and total investment costs
Technology cost
Emission reductions
Conventional Technologies
New
Technology
(a)
Technology cost
Emission reductions
(b)
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Tracking Clean Energy Progress www.iea.org/etp/tracking2017/
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Another side of optimizing for the long term…
An early start may be necessary for new technologies to scale up at the rate needed
(a) (b)
Conventional
Technologies
New
Technology
Time Time
New
Technology
Conventional
Technologies
Emission
Reductions Emission
Reductions
2050 2050
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Past IEA work on energy-climate policy interactions
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ETS: Supplementary policies can significantly impact prices
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Alignment of a carbon price with existing energy policies
There are many questions for policymakers to consider in energy-climate policy alignment
Mapping
the energy
and climate
policy
landscape
Initial
alignment
of energy
policies and
the carbon
price
Integration
when
phasing-in
a carbon
price
Design to
maintain
alignment
over time
Insitutional co-ordination between climate and energy policymakers
Energy
policy and
carbon
pricing
policy
reviews
•Energy policies
•Policy objectives
•Policy performance
•Underpinning issues
(markets, infrastructure,
finance)
•Carbon price settings
•Adjust energy policies
•“Room to move”
•Effect of revenue
recycling
•Reference to actual or
shadow carbon price?
•Avoiding lock-in?
•Energy policy design for
greater certainty
•Stress-testing
•Flexible cap
•Efficiency vs simplicity
•How often ?
•Balancing certainty and
flexibility
•What would justify
intervention outside
scheduled reviews ?
•Which agencies?
•What levels of government?
•What structure for co-
ordination?
© IEA 2017
IEA work programme on low carbon policy packages:
• Workshop 27 June
• Scoping report for release in October 2017
- Literature review on climate policy mixes and interactions
- Clarifying the role of carbon pricing in IEA World Energy Model
- Identify mitigation “gaps” with sustained moderate prices, with a focus on avoiding lock-in and understanding major path dependencies
- Canada case study: backstop national carbon price; interactions across jurisdictions and sectors
• 2018:
- Work on China policy mix: national ETS and regulated electricity markets. Secondee from NDRC China to work in IEA Environment and Climate Change Unit.
- ? India: low-carbon policy packages in the context of other policy objectives
- Longer publication in late 2018
© IEA 2017
Conclusions
How can IEA help policymakers deliver more
effective, realistic, and well-integrated low-carbon
climate and energy policies that take account of
local political realities?
© IEA 2017
Costs to society can be reduced through a package of policies including energy efficiency and
technology development and deployment, with carbon pricing as the cornerstone.
Carbon pricing is necessary but not sufficient
Price of CO2
€/tCO2e
MtCO2
Carbon price mediates
action economy-wide
Source: Summing up the Parts, 2011
© IEA 2017
Costs to society can be reduced through a package of policies including energy efficiency and
technology development and deployment, with carbon pricing as the cornerstone.
Carbon pricing is necessary but not sufficient
Policies to unlock cost-
effective energy efficiency
potential that is blocked by
non-economic barriers
Technology support policies
to:
• reduce long-term costs
• Enable timely scale-up
Reduced long-
term marginal
abatement cost
Price of CO2
€/tCO2e
MtCO2
Carbon price mediates
action economy-wide
Source: Summing up the Parts, 2011
Infrastructure, Financing
