February 8, 2012Sustainable Energy Policy1

 Today only change: 12-1:30, not 2-3:30 Next week  Monday 1-3  Tuesday 12-2 Sustainable Energy Policy2

 actions, policies, governance  actions – behavioural actions ▪ energy choices by firms, consumers  policies – rules produced by government that influence actions ▪ Objectives (increase renewable electricity) ▪ Instruments (renewable portfolio standard) ▪ Settings (10% by 2012)  governance – who decides the rules February 8, 2012Energy Sustainable Energy Policy3

 command and control regulation  financial disincentives (taxes)  financial incentives (subsidies)  voluntarism and information  market oriented regulations – emissions cap and tradable permits (ECTP)  market oriented regulations – artificial niche market regulations February 8, 2012sustainable energy policy

 environmental effectiveness  economic efficiency  administrative feasibility  political feasibility February 8, 2012sustainable energy policy

 Legally binding  forces particular action  does not encourage actions beyond that required  require same actions from actors with different marginal costs of control  Example: automobile or appliance efficiency standard February 8, 2012sustainable energy policy

 Performance standard: coal plants can’t exceed 375 tons of CO2 per Gigawatt-hour  Current not possible with carbon capture and storage (CCS)  Starts in 2025 for new plants + those that have reached end February 2, 2012sustainable energy policy

 Does not prohibit action, but taxes it  Can’t guarantee a particular outcome  Sensitive to diversity of producer costs and consumer preferences  Example: tax on tonne of carbon emitted – BCBC  2010: $20 per tonne of CO2 equivalent  2011: $25  2012: $30 February 8, 2012sustainable energy policy

 Government spending reduces cost of action  Examples:  rebate for fuel efficient cars (Canada’s ended) ended  ecoENERGY Retrofit Grants and Incentives ecoENERGY Retrofit Grants and Incentives  Royalty breaks for fossil fuel productionbreaks  Research – see Post Partisan Power February 8, 2012sustainable energy policy

 Can produce more informed decisions about costs and efficacy  Example: One Tonne Challenge February 8, 2012sustainable energy policy

 Caps total amount of emissions  Distributes allowances (permits) to polluters  Polluters can trade permits  Effective in that you get greater certainty over emissions  Design issues in startup – should initial permits be auctioned off or “grandparented”  Example:  European Uni0n’s Emission Trading SystemEmission Trading System  Western Climate Initiative Western Climate Initiative February 8, 2012sustainable energy policy

 Gradual trajectory of emission reductions  Tradeable allowances  Upstream regulation with economy-wide effects  Mechanisms to reduce cost uncertainty  Allowance allocation  Provisions for offsets  Linkage with other countries February 8, 2012Sustainable Energy Policy12

 Require a certain % of the market to have performance characteristics  Can “force” innovation  Examples  Renewable portfolio standard Renewable portfolio standard February 8, 2012sustainable energy policy

 direct provision  “Crown” corporations  National Oil Companies increasingly important  Klare: 81% of proven reserves controlled by NOCs February 8, 2012sustainable energy policy 1990: Mulroney privatized, but kept 19% share 2004: fully privatized

 environmental effectiveness  economic efficiency  administrative feasibility  political feasibility February 8, 2012sustainable energy policy

February 8, 2012Sustainable Energy Policy16 Pre-mitigationRegulation: 30% reductionCap and trade: 30% reduction Coal Plant Costs: $20/t Emissions: 1000 t/yr Costs: 0 Emissions: 700 t/yr Costs: $6,000 Emissions: 400 t/yr Costs: $0 Cement Plant Costs: $40/t Emissions: 1000 t/yr Costs: 0 Emissions: 700 t/yr Costs: $12,000 Emissions: 1000 t/yr Costs: $12,000 (to coal plant) TotalEmissions: 2000 t/yr Costs: 0 Emission: 1,400 t/yr Cost: $18,000 Emission: 1,400 t/yr Cost: $12,000

February 8, 2012Sustainable Energy Policy17 effectivenessefficiency Administrative feasibility political feasibility Info/persuasion subsidy Emission tax Cap and trade C&C Regulation

January 21, 2010

 Politicians prefer non-compulsory policies  History shows us they are insufficient  Market-based instruments are more cost effective  Policy trend:  Failure of Congress to enact cap and trade leading US to pursue regs  Canada committed to harmonizing - Canada slowly pursuing regs February 8, 2012Sustainable Energy Policy19