On the Interaction of Policy Instruments: Implications of - - PowerPoint PPT Presentation

▶
on the interaction of policy instruments
SMART_READER_LITE
LIVE PREVIEW

On the Interaction of Policy Instruments: Implications of - - PowerPoint PPT Presentation

Jun 05, 2023 48 likes •264 views

On the Interaction of Policy Instruments: Implications of Overlapping Regulation under Different Levels of Electricity Demand Oliver Schenker ZEW Centre for European Economic Research, Mannheim European Climate and Energy Policy Targets

slide-1
SLIDE 1

On the Interaction of Policy Instruments: Implications of Overlapping Regulation under Different Levels of Electricity Demand

Oliver Schenker ZEW – Centre for European Economic Research, Mannheim

slide-2
SLIDE 2

CECILIA2050 Conference ● Bruxelles● March 6, 2014

European Climate and Energy Policy – Targets for 2020

2008 Climate and Energy Package. Targets for 2020 20% GHG emissions reduction 20% share of renewable energy 20% improvement in energy efficiency

2

slide-3
SLIDE 3

CECILIA2050 Conference ● Bruxelles● March 6, 2014

European Climate and Energy Policy – Achievements

Achievements GHG emissions in 2012 18% lower than in 1990 13% share of renewable energy in 2012 The energy intensity of the EU economy has reduced by 24% between 1995 and 2011

3

slide-4
SLIDE 4

CECILIA2050 Conference ● Bruxelles● March 6, 2014

European Climate and Energy Policy – Instruments and policies

Instruments and policies to reach these targets

  • EU ETS
  • MS policies

(ESD)

  • Renewable

Energy Directive

  • MS policies
  • Energy Efficiency

Directive

  • MS policies

4

slide-5
SLIDE 5

CECILIA2050 Conference ● Bruxelles● March 6, 2014

Instruments and Policies Overlap and Interact

Why several instruments? Consequences ?

Interactions

5

slide-6
SLIDE 6

CECILIA2050 Conference ● Bruxelles● March 6, 2014 6

  • Goal to mitigate GHG is one of many policy goals
  • Reduce air pollution
  • Energy security
  • Create jobs, secure competitiveness
  • Tinbergen Rule: # Policy Target =

# Policy Instruments

  • But also additional market failures beyond climate ext.
  • Market failures in knowledge generation
  • Distorted incentives for energy efficiency measures

Why several instruments?

slide-7
SLIDE 7

CECILIA2050 Conference ● Bruxelles● March 6, 2014 7

Climate policy has to work in a complex real world

with:

  • Significant transaction and

enforcement costs

  • Complicated innovation and

diffusion processes (path dependency, lock-in, long- lasting nature of investments)

  • Political and legal constraints. Policies have to be embedded in

existing frameworks

slide-8
SLIDE 8

CECILIA2050 Conference ● Bruxelles● March 6, 2014 8

Consequences of interaction:

  • Modelling in 2007 indicated EU-ETS price of ~ 30 EUR/tCO2.
  • In fact, in 2013: 5 EUR/tCO2 or lower
  • Current European climate policy has to work under unforeseen

economic crisis

  • But another part of the explanation:
  • RE deployment policies reduce fossil fuel use, CO2 emissions, and thus,

demand for allowances

  • Several measures proposed to stabilise prices
  • Backloading, Market Stability Reserve, Carbon Market Authority
slide-9
SLIDE 9

CECILIA2050 Conference ● Bruxelles● March 6, 2014 9

Economic situation and the interaction between RE target and EU ETS

  • Policy targets are set ex-ante. Economic activity in target year is

unknown.

  • Question: How does the economic situation affect the

interaction between RE target and EU ETS?

slide-10
SLIDE 10

CECILIA2050 Conference ● Bruxelles● March 6, 2014

Basic Intuition –

Power Sector Abatement if Demand is Low

BAU Emission Red.

GAS COAL

Emission reduction target is reached with fuel switch only

Emission Reduction Target 10

slide-11
SLIDE 11
slide-12
SLIDE 12

CECILIA2050 Conference ● Bruxelles● March 6, 2014

  • Distinguish between 6 generation technologies: Nuclear, Coal, Gas,

Wind (R), Solar (R) , Rest

  • Technologies differ in their carbon intensity
  • Calibrated to the European electricity market of 2030 as in the

Reference Scenario of „EU energy trends for 2030“. Outcome of PRIMES Model

  • 3 policy scenarios:

I. Single Emissions Cap (CO2 Reduction -40%) II. Single Renewable Share (30%) III. Joint Emissions Cap and Renewable Share

  • Economic growth scenarios and respective electricity demand: IA

Energy Roadmap 2050

A Stylized Model of the European Power Sector

12

slide-13
SLIDE 13

CECILIA2050 Conference ● Bruxelles● March 6, 2014 20 40 60 80 3750 3800 3850 3900 3950 4000 4050 4100 4150 4200 4250 4300 CO2 Price [EUR/tCO2] Total Demand Electricity in 2030 [TWh] Joint Single Cap 10 20 30 40 50 3750 3800 3850 3900 3950 4000 4050 4100 4150 4200 4250 4300 RES-E Price [EUR/MWh] Total Demand Electricity in 2030 [TWh] Single RES-E Joint IA RM Low Growth IA RM High Growth

Carbon and RES Prices

13

slide-14
SLIDE 14

CECILIA2050 Conference ● Bruxelles● March 6, 2014

Excess Costs in 2030

200 400 600 800 1000 1200 1400

Low Growth Scenario Reference High Growth Scenario

Excess Costs [Mil EUR p.a.]

14

slide-15
SLIDE 15

CECILIA2050 Conference ● Bruxelles● March 6, 2014

  • If there are additional market failures,
  • e.g., because firms are unable to appropriate the full benefits from

innovation, thus underinvest  Additional instruments are necessary to correct for these additional market failures  Optimal policy involves a policy portfolio

  • Criteria: Benefit of additional instrument vs. cost of overlap

15

Dynamic incentives

slide-16
SLIDE 16

CECILIA2050 Conference ● Bruxelles● March 6, 2014

Policy interactions might have unintended consequences:

  • When properties of targets are related
  • Crowding out of less emission-intensive tech by more

intensive tech

  • May make carbon price more sensitive to energy demand

changes

  • Causes excess costs, in particular when electricity demand

is low But there are good arguments for policy portfolios:

  • Additional market failures
  • Additional policy goals

 Instruments have to work in the real world, not a sandbox!

16

Conclusion

slide-17
SLIDE 17

CECILIA2050 Conference ● Bruxelles● March 6, 2014

Thank you for your attention Oliver Schenker ZEW - Centre for European Economic Research schenker@zew.de http://www.entracte- project.eu

ENTRACTE is funded by the European Commission under the 7th Framework Programme of the European Union

17

ZEW Lunch Debate: The 2030 Climate and Energy Framework Tuesday, 18. March 2014, 12-2 pm

at the Representation of the State of Baden-Württemberg to the EU

  • Günther H. Oettinger, European

Commissioner for Energy

  • Prof. Andreas Löschel, ZEW
  • Prof. Vittorio Prodi, MEP
  • Sir Graham Watson, MEP
slide-18
SLIDE 18

CECILIA2050 Conference ● Bruxelles● March 6, 2014

80 90 100 110 0.00E+00 2.00E+08 4.00E+08 6.00E+08 8.00E+08 1.00E+09 1.20E+09 1.40E+09 1.60E+09 1.80E+09

EUR/MWh

MWh

Nuclear Coal and lignite Gas Wind, Biomass & Wase Solar Price Industry REF 2030 EUR/MWh

Calibrated Supply Curves

18

slide-19
SLIDE 19

CECILIA2050 Conference ● Bruxelles● March 6, 2014

Power Mix in 2030

9.8% 9.8% 9.8% 9.8% 24.1% 25.8% 23.8% 25.8% 21.1% 16.5% 19.1% 16.9% 17.8% 18.6% 17.4% 17.7% 24.1% 25.6% 26.1% 26.1% 3.2% 3.6% 3.8% 3.8% 0% 20% 40% 60% 80% 100%

Baseline Single Cap Single RES Joint Solar Wind Gas Coal Nuclear Base

19

slide-20
SLIDE 20

CECILIA2050 Conference ● Bruxelles● March 6, 2014

I. Coherently assess climate policy instruments with the full range of economic research methods II. Understand interactions between multiple climate policy instruments

  • III. Take into account the barriers to implementation
  • IV. Identify mixes of instruments that provide an effective,

efficient, and feasible overall EU climate policy to achieve legislated and aspirational targets of GHG emission reductions

20

Objectives of ENTRACTE

slide-21
SLIDE 21

CECILIA2050 Conference ● Bruxelles● March 6, 2014 21

  • Duration: 36 months (01/09/2012 – 31/08/2015)
  • Requested EU Contribution: 2,935,276 €
  • 9 Partners from 6 countries:

Structural facts about ENTRACTE