Planetary Economics: - Centre International de Recherche sur l ...

Planetary Economics: - Centre International de Recherche sur l ...

Planetary Economics:Concepts and Tools of Transitionand implications for European policyLa Transition Energetique, projets de societe et tensions du presentParis, 21 st June 2013Professor Michael Grubb4CMR University of Cambridge Centre for Mitigation ResearchEditor-in-Chief, Climate Policy journalSenior Advisor, Sustainable Energy Policy,UK Office of Electricity and Gas Markets (Ofgem)

To also mark publication of Special Issue ofBy theLow Carbon Drivers for a Sustainable WorldVOLUME 13 ISSUE S01 2013International Research Network for Low Carbon Societies (LCS)“Although the insights are varied, there is a commontheme – the need to link the policies necessary tolaunch a long-run transition towards an LCS withshorter-term concerns about poverty alleviation, jobs,and the protection of welfare benefits.”

Fundamental structure of Planetary Economics basedaround three domains of human decisionmakingDomainIgnore /SatisficeCompensate/ OptimiseSecure /

Policy challenge: to integrate three pillars of policy, based onthe three domains, to transform our energy systemsDomainINTEGRATEDSOLUTIONSTo deliverStandards &engagementIgnore /SatisficeSmarterchoicesCleanerCompensate /products andOptimiseprocessesSecure /TransformInnovation andinfrastructureinvestmentSource: M.Grubb, J.C.Hourcade, and K.Neuhoff, Planetary Economics, Taylor andFrancis/Routledge, forthcoming October

There are potential co-benefits in each domainDomain and Pillar Co-Benefits A New FrameworkStandards &Engagement forSmarter ChoicesPrices and marketsfor cleaner productsand processesStrategic investmentfor Innovation &InfrastructureEnhanceefficiency,Indoor and Localhealthsubsidy removal ..Stabilise investorconfidence,revenues, airpollution &energy securityAccelerateInnovation inweak sectors,coordinatesupply chain &infrastrructureRole of ClimatePolicy to- Motivate- Stabilise- Coordinate- Financetransformationalpolicies to enhancegrowth, energyaccess & and

The key for policy is to integrate and synergiseacross all three domainsI. SatisficeFoster smarter choicesStandards &engagementII. OptimiseIII. TransformInnovation andCleaner products andInfrastructureprocessesValues & PreferenceManage bills,increaseresponsivenessPrices, productsand financeMarkets &Pi PricesRevenues & Revealed costsEducation & Access- Enabling Environment Technology Options

Relative emphasis and specific instruments will varyAccording to national resource endowments, culture, etcThe European condition:• Continued economic crisis dominating politics, turning intoa crisis of governance- Much reduced public interest and political attention to energyand climate change, solutions needed at EU level• Irrespective of climate change, cannot realistically competewith US on basis of cheap fossil fuels+ Key member states already committed to low carbon transition• Both economy and energy sector need investment (c. €1trn)+ Huge capital in institutional investor funds (c. €14trn)- deterred by policy and market uncertainty• EU ETS Structural reform and 2030 packageThe determining

Three Pillar Package• Standards and engagement for smarter choices– Build on Energy Efficiency Directive towards embodied andsupply chain carbon & materials efficiency– Smart grid technologies• Markets and pricing …– Stabilise and strengthen the EU ETS– Extend EU Third Energy Package to facilitate low carboncontracts market– New agenda of competitiveness through transformation forcarbon and electro-intensive industry sectors• Strategic investment for innovation and Infrastructure– Component sector targets for innovation and coordinationGrids and vehicles

Most fundamental need is for arising price floor in the EU ETS• Restore credibility• Deter new coal investment• Reduce low carbon investment risk• Demonstrate robustness in theface of (large) future uncertainty• Forestall the renationalisation ofclimate policy• Provide some confidence forrevenue planning• Reduce displacement in delivery ofthe other two pillars• Automatically compensate for anyshortfall in other two pillars• Provide a platform for long-termfinancial instruments – the bridgeto the Third DomainAlign with California and emergingChinese to set a global benchmark?

Planetary Economics: Contents1. Introduction: Trapped?2. The Three DomainsPillar 1• Standards and engagement for smarter choice• 3: Energy and Emissions – Technologies and Systems• 4: The Energy Efficiency Resource – Technologies and Systems• 5: Tried and Tested – Three Decades of Energy Efficiency PolicyPillar II• Markets and pricing for cleaner products and processes• 6: Pricing Pollution – of Truth and Taxes•7: Cap-and-trade & offsets: from idea to practice• 8: Who’s hit? Handling the distributional impacts of carbon pricingPillar III• Investment and incentives for innovation and infrastructure• 9: The Philosopher’ss Stone? Innovation, Growth and Finance• 10: Bridging the Technology Valley of Death• 11: Transforming systems12. Conclusions: Changing

Three distinct realms of opportunity require different typesof policy based on different theoretical foundationsRealm ofOpportunityStandards &engagementINTEGRATEDSOLUTIONSField oftheorySmarter choices(eg. energy efficiency)Behavioural &institutionalCleanerproducts andprocessesNeoclassicaland welfareeconomicsInnovation andinfrastructureinvestmentEvolutionary &institutionalSource: M.Grubb, J.C.Hourcade, and K.Neuhoff, Planetary Economics, Taylor andFrancis/Routledge, forthcoming October

DominantMitigationRealm ofPillar ofDecision Field oftimescaleeconomic opportunit policy/framework theory/ Domainprocess y responseShort term– Ignorant orIgnore / disempoweredsatisficeBehavioural&organisationalMove closer tothe ‘best practicefrontier’’‘Smarterchoices’Standards andengagement(Pillar I)Medium term–Cost /OptimiseCosts / impacts Neoclassical Make best tradeoffsare tangible & welfarealong theand significant economics frontierSubstitutecleanerproduction andproductsMarkets andpricing(Pillar 2)Long term–Secure/TransformTransformational risks andopportunitiesEvolutionary&institutionalEvolve thefrontierInnovation andinfrastructurePublic‐ledinvestment(Pillar III)

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