1. Unlocking the synergies between EE, RE and Emission target Energy Day Karsten Neuhoff, Dresden, 19.4.2013

2. 1 The role of targets for policy implementation 2 Multiple targets to achieve one objective 3 Multiple objectives motivating one target 4 Translating targets into action 5 The role of EU ETS – a target turned instrument 6 Possible implications for formulation of energy and climate targets Unlocking the synergies between EE, RE and Emission target

3. Strongly Disagree DisagreeStrongly Agree Agree NOTE: 80% of respondents agreed that the data collection process for the indicators was labour intensive Ability of indicators to facilitate policy/project management 1

4. What type of indicators are commonly used? 1 Lester, S. and K. Neuhoff, 2009, Understanding the roles of policy targets in national and international governance. Climate Policy, 9 (5), p. 464-480.

5. Policy target applied to Outcome Input Time frame (years) 131510 PSA PRSP EU Accession MDG Response time GPRA GPRAGovernment performance result act PSA Public Service Agreements PRSP Poverty Reduction Strategy Papers MDG Millennium Development Goals What trade-offs are involved in selecting indicators? 1 Allow comparison of policy effectiveness Often more difficult to define Easier to measure Can ignore important interactions / focus to narrowly Response time Identify barriers Lester, S. and K. Neuhoff, 2009, Understanding the roles of policy targets in national and international governance. Climate Policy, 9 (5), p. 464-480.

6. European CO 2 emissions year 2020today 2050 Conventional coal Oil Gas Illustrative EE and RE targets make LT emission targets viable 2 BAU Energy Efficiency Renewables CCS/ additional nuclear

7. Political objectiveTargetsPolicies / Programms Climate protection Emission Technology Energy efficiency Illustration Multiple targets to achieve one objective 2

8. Example RE deployment See also : Ensuring renewable electricity investment: 14 policy principles for a post-2020 perspective www.remunerating-res.eu 2 Principle A: 2030 targets needed Reference scenario Policy scenarios % of EU Power from RE National Renewable Energy Action Plans EU Roadmap 2050

9. Political objectivesTargetsPolicies / Programms Climate protection Reducing inequality Emission Technology Employment Energy efficiency Reduction of fuel poverty Illustration Industry development Energy security Multiple objectives motivating one target 3

10. Short-term job multiplier effects of green investments 3 Spencer T., K. Bernoth, L. Chancel, E. Guerin, K. Neuhoff (2012) Green investments in a European Growth Package, IDDRI Working Paper 11

11. Translating targets into action 11 4 Political objectivesTargetsPolicies / Programms EU ETS RE support Buiding standard Information program Support for retrofit Illustration Climate protection Reducing inequality Emission Technology Employment Energy efficiency Reduction of fuel poverty Industry development Energy security

12. What is necessary to deliver targets – example RE 4

13. Global Input: Technically- Feasible RE Generation Capacity Global Output: Installed / Target RE Capacity Planning Access to Grid and Energy Market Supply ChainProject Finance Barriers Lack of effective legal / regulatory framework Lack of private participation and professional institutions Uncertainty with government policies Lack of coordination between authorities Lack of consumer/social acceptance of RE technologies Barriers Highly controlled energy sector Lack of grid access for RE technologies Lack of clear practises and procedures (related to planning barriers) Lack of available grid capacity High grid connection costs for RE developers (poor cost allocation) Lack of access to energy market Barriers Lack of competition and lack of standards and codes of certification Lack of entrepreneurs, skilled labour, and training and O&M facilities Lack of R&D capacity Restricted access to technologies Lack of reliability of products Lack of institutions / mechanisms to disseminate information Barriers Financial Support (costs, risks,...) Energy Market (access, structure, long-term costs,....) Capital Market (perception of technical risk, perception of regulatory risk,...) Visibility (uncertainty,....) Barriers along the RE pipeline 4

14. Global Input: Technically- Feasible RE Generation Capacity Planning Access to Grid and Energy Market Supply ChainProject Finance Barriers Lack of effective legal / regulatory framework Lack of private participation and professional institutions Uncertainty with government policies Lack of coordination between authorities Lack of consumer/social acceptance of RE technologies Barriers Highly controlled energy sector Lack of grid access for RE technologies Lack of clear practises and procedures (related to planning barriers) Lack of available grid capacity High grid connection costs for RE developers (poor cost allocation) Lack of access to energy market Barriers Lack of competition and lack of standards and codes of certification Lack of entrepreneurs, skilled labour, and training and O&M facilities Lack of R&D capacity Restricted access to technologies Lack of reliability of products Lack of institutions / mechanisms to disseminate information Barriers Financial Support (costs, risks,...) Energy Market (access, structure, long-term costs,....) Capital Market (perception of technical risk, perception of regulatory risk,...) Visibility (uncertainty,....) Quantitative and qualitative indicators Qualitative indicators Global Output: Installed / Target RE Capacity Not covered Barriers along the RE pipeline: Indicators provided in NREAPs: 4

15. Source: IEA, GWEC, Worldwatch Institute Installed wind power per year (MW) China U.S. Spain India Germany U.K. Italy France Denmark 2nd Purpose of targets: Creating confidence for investors in supply chain 4

16. The role of EU ETS – a target turned policy 16 5 Political objectivesTargetsPolicies / Programms EU ETS RE support Buiding standard Information program Support for retrofit Illustration Climate protection Reducing inequality Emission Technology Employment Energy efficiency Reduction of fuel poverty Industry development Energy security

17. How does EU ETS impact on investment process? 17 I. Capturing Companies’ Attention II. Providing Clarity for Decision Making III. Creating enabling environment for Low-Carbon Investment 5 See Climate Strategies Project Summary: Carbon pricing for low carbon investment

18. The surplus of unused allowances is „piling“ up 18 5 Source: Banking of Surplus Emissions Allowances: Does the Volume Matter? DIW Discussion paper 1196 Early auctioning (120 m) Early phase III NER (300 m) Retained phase II NER (350 m) 0,0 0,5 1,0 1,5 2,0 2,5 3,0 Volume of unused allowances (billion) 200820092010201120122013201420152016201720182019202020212022 Cap exceeds emissions Uncertainty about future emissions will remain International offsets add to surplus Timing of auctions increases surplus in 2012/13 High Renewables Reference Current Policy Initiative CDM/ JI credits linked to EU (1.7 bn)

19. Where do unused allowances go? 5 Source: Banking of Surplus Emissions Allowances: Does the Volume Matter? DIW Discussion paper 1196 19 0,0 0,5 1,0 1,5 2,0 2,5 3,0 Volume of unused allowances (billion) Speculative investment Banks buy allowances to sell forward/ future/ option contracts  No impact on demand I Industry sector banks free allowances 200820092010201120122013201420152016201720182019202020212022 Power sector uses allowances to hedge future power sale (flexibility on volume) I

20. 1 The role of targets for policy implementation 2 Multiple targets to achieve one objective 3 Multiple objectives motivating one target 4 Translating targets into action 5 The role of EU ETS – a target turned instrument 6 Possible implications for formulation of energy and climate targets Unlocking the synergies between EE, RE and Emission target

21. Implicatinos of multiple drivers for targets Consistency of targets: Could limit scope for political compromise Might be difficult to test with real data/projections Could limit link from specific political objective to target -> Coherence is guiding principle How to model this? Jose Ramon San Cristobal (2012) A goal programming model for environmental policy analysis, Energy Policy 6

22. Political objective: 2°C / - 80-95% CO 2 20502010202020302040 CO2 emissions 2020 emission target ~ no further action Current initiatives (EE, RE) Illustration Discrepancy crystalizes in 2030 discussion Discrepancy can trigger discussion to increase consistency 6

23. Retain options for flexiblity 23 Capacity of political process is limited -> allow for renegotiation of a sub-set of targets at a time For some targets long-term matters -> but if all targets set long-term = inflexible -> allow for different time frames for different targets Avoid artificial simplification of target frameworks -> build on historic development of objectives and targets Continue & further develop current set of targets. See: H. Meyar-Naimi, S. Vaez-Zadeh (2012) Sustainable development based energy policy making frameworks, a critical review, Energy Policy 6

24. Considerations for future target development 24 Enhance predictabilty of future adjustement of targets -> formulate minimum levels of attributes nec. for society -> link targets more closely to policy objectives Enhance credibility of targets -> balance „ambition“ with credibility/effectiveness -> develop track record of delivery against targets -> show committment with complementing short-term pol. Integrate multiple actors more closely in 2030 process. Track and support delivery against targets. Create transparency around process of target adjustment. 6

25. Summary 25 6 Political objectivesTargetsPolicies / Programms EU ETS RE support Buiding standard Information program Support for retrofit Illustration Climate protection Emission Technology Energy efficiency Reduction of fuel poverty Reducing inequality Employment Industry development Energy security

26. Vielen Dank für Ihre Aufmerksamkeit. DIW Berlin — Deutsches Institut für Wirtschaftsforschung e.V. Mohrenstraße 58, 10117 Berlin www.diw.de Redaktion Karsten Neuhoff kneuhoff@diw.de