Policy Instruments

February 8, 2012 Sustainable Energy Policy 1

Extra midterm office hours

Today only change: 12-1:30, not 2-3:30Next week Monday 1-3 Tuesday 12-2

Sustainable Energy Policy 2

Policy Instruments in Context 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, 2012 Energy Sustainable Energy Policy 3

Toolbox of Policy Instruments – Jaccard

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, 2012 sustainable energy policy

Evaluative Criteria

environmental effectiveness economic efficiency administrative feasibility political feasibility

February 8, 2012 sustainable energy policy

Command and Control Regulation

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, 2012 sustainable energy policy

Command and Control Regulation – example – proposed coal GHG regs

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, 2012 sustainable energy policy

Financial Disincentive - Taxes 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 – BC 2010: $20 per tonne of CO2

equivalent 2011: $25 2012: $30

February 8, 2012 sustainable energy policy

Financial Incentives (Subsidies) Government spending

reduces cost of action Examples:

rebate for fuel efficient cars (Canada’s ended)

ecoENERGY Retrofit Grants and Incentives

Royalty breaks for fossil fuel production

Research – see Post Partisan Power

February 8, 2012 sustainable energy policy

Voluntarism and Information Can produce more

informed decisions about costs and efficacy

Example: One Tonne Challenge

February 8, 2012 sustainable energy policy

market oriented regulations – emissions cap and tradable permits (ECTP)

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 System Western Climate Initiative

February 8, 2012 sustainable energy policy

Stavins: Key design elements

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 countriesFebruary 8, 2012 Sustainable Energy Policy 12

market oriented regulations – artificial niche market regulations

Require a certain % of the market to have performance characteristics

Can “force” innovation Examples

Renewable portfolio standard

February 8, 2012 sustainable energy policy

Missing Instruments?

direct provision “Crown”

corporations National Oil

Companies increasingly important Klare: 81% of proven

reserves controlled by NOCs

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1990: Mulroney privatized, but kept 19% share

2004: fully privatized

Evaluative Criteria

environmental effectiveness economic efficiency administrative feasibility political feasibility

February 8, 2012 sustainable energy policy

Because of different marginal costs of control, market-based regulations are more cost-effective

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Pre-mitigation Regulation: 30% reduction Cap 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)

Total Emissions: 2000 t/yr

Costs: 0

Emission: 1,400 t/yr

Cost: $18,000

Emission: 1,400 t/yr

Cost: $12,000

Evaluating energy sustainability policy instruments

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effectiveness efficiencyAdministrative feasibility

political feasibility

Info/persuasion

subsidy

Emission tax

Cap and trade

C&C Regulation

January 21, 2010

Policy-Politics Mismatch

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, 2012 Sustainable Energy Policy 19