Key Issues for Korea

Integrating emissions trading with existing energy policies Issues for Korea

Christina Hood, International Energy Agency

KDI/KEI International Forum on Climate Change Policy Mix November 29 2013 Seoul, Korea © OECD/IEA 2013

Outline lIEA work on energy-climate policy integration lThe case for a package of energy policies alongside a carbon price lPolicy interactions lKey questions for policymakers to consider lIssues for Korea ©© OECD/IEA - 2010 OECD/IEA 2013


The IEA at a glance n Formed in the wake of the 1973 oil embargo with

a mission to promote member country energy security. n Today the IEA’s focus areas are: l Energy security: Promoting diversity, efficiency and flexibility within all energy sectors; l Economic development: Ensuring the stable supply of energy to IEA member countries and promoting free markets to foster economic growth and eliminate energy poverty; l Environmental awareness: Enhancing international knowledge of options for tackling climate change; and l Engagement worldwide: Working closely with nonmember countries, especially major producers and consumers, to find solutions to shared energy and environmental concerns ©© OECD/IEA - 2010 OECD/IEA 2013

Why is policy integration an issue? Poor policy integration can… ØUndermine energy security and affordability w w w w

Higher cost than necessary Investment uncertainty Risk of stranded assets Affects performance of energy policies (renewables, energy markets)

Ø Undermine climate outcomes w Low and uncertain carbon prices w Risk of policy stop-start

©© OECD/IEA - 2010 OECD/IEA 2013

IEA work on policy integration




BUT also prepare now for transition beyond 2020: n Development and deployment of

technologies that will need to be rapidly scaled up after 2020 (including CCS) n Avoid lock-in of high-emissions

infrastructure n Scaling up of carbon pricing policies

Carbon pricing will be implemented in the presence of strong energy policies ©© OECD/IEA - 2010 OECD/IEA 2013

The case for climate-energy policy packages Incremental cost of abatement actions

MtCO2

Carbon price mediates action economy-wide

Source: Hood C., Summing up the Parts, IEA 2011



MtCO2


Source: Hood C., Summing up the Parts, IEA 2011

Policies to unlock costeffective energy efficiency potential that is blocked by non-economic barriers


Multiple benefits of energy efficiency n Cannot assess appropriate level on emissions basis alone:

International

National

• Energy prices • GHG emissions • Resource management • Development goals

• Macroeconomic effects • Public budget impacts • Job creation • Energy security

Sector specific

• Asset values • Energy provider and infrastructure benefits • Industrial productivity and competitiveness

Individual

• Health and social improvement • Energy affordability and poverty alleviation • Consumer surplus (disposable income)

Source: Ryan, L. and Campbell, N. Spreading the Net: The Multiple Benefits of Energy Efficiency Improvements, IEA 2012


Energy Efficiency can lower short-term carbon prices Price of CO2 €/tCO2e

P P* MtCO2

Q*

Q*

EmissionEmission goal reductionreduction goal

Source: Summing up the Parts, IEA 2011



Reduced long-term marginal abatement cost

MtCO2


Source: Summing up the Parts, IEA, 2011


Technology support policies to: • reduce long-term costs • Enable timely scale-up ©© OECD/IEA - 2010 OECD/IEA 2013

Technology support can lower long-term carbon prices Price of CO2 €/tCO2e

(a)

Carbon price ambitious target

Carbon price modest target

Conventional Technologies

New Technology MtCO2

Price of CO2 €/tCO2e

Modest target

Ambitious target

(b) Carbon price ambitious target Carbon price modest target MtCO2

Modest target

Ambitious target

Source: Energy Technology Perspectives, IEA, 2012


TIME is also a constraint

Emission Reductions

Emission Reductions

(a)

(b) New Technology

New Technology Conventional Technologies Time

2050

Source: Energy Technology Perspectives, IEA, 2012

Conventional Technologies Time

2050



Infrastructure, Finance Avoiding lock-in

Reduced long-term marginal abatement cost

MtCO2


Source: Summing up the Parts, IEA 2011


Technology support policies to: • reduce long-term costs • Enable timely scale-up ©© OECD/IEA - 2010 OECD/IEA 2013


1. ETS allowance price depends on energy policy success or failure BAU EMISSIONS

(a) ENERGY POLICIES UNDERACHIEVE

(b)

ENERGY POLICIES OVERACHIEVE

15 % 10 % EMISSIONS CAP 30% BELOW BAU

Source: Summing up the Parts, IEA, 2011

5% Reductions from: energy efficiency polices technology policies price response in trading scheme ©© OECD/IEA - 2010 OECD/IEA 2013

2. ETS allowance price more sensitive to economic conditions Reductions from: energy efficiency polices technology policies price response in trading scheme

BAU EMISSIONS

BAU 5% LOWER THAN FORECAST

(a)

(b)

10 % 5% EMISSIONS CAP 30% BELOW BAU Source: Summing up the Parts, IEA, 2011

Adjust cap downward to restore scarcity in trading scheme?


Example 1: EU ETS

•Economic downturn + energy efficiency •Est. 2020 emissions now 25% below 1990 •EU ETS ~2Gt surplus 2008-2020 Source: “Cutting Carbon in Europe: The 2020 plans and the future of the EU ETS”, Carbon Trust, 2009


Example 2: California

Source: “Exploring the Interaction Between California’s Greenhouse Gas Emissions Cap-and-Trade Program and Complementary Emissions Reduction Policies”, EPRI 2013 ©© OECD/IEA - 2010 OECD/IEA 2013


Guidance for Policymakers to deliver better policy integration

Mapping the energy and climate policy landscape

Initial alignment of energy policies and the carbon price

Integration when phasing-in a carbon price

Design to maintain alignment over time

Energy policy and carbon pricing policy reviews

Insitutional co-ordination between climate and energy policymakers

Source: “Managing interactions between carbon pricing and existing energy policies”, IEA 2013


Key issues for South Africa, Chile, China South Africa: n Integration of carbon tax with regulated investment framework for electricity sector Chile: n Setting and maintaining ETS cap with uncertainties l Delivery of energy efficiency l GDP l Major changes in energy structure

China: n How to set ETS cap with uncertain GDP growth n Electricity dispatch not market-based n Regulated electricity prices ©© OECD/IEA - 2010 OECD/IEA 2013

Key issues for South Africa, Chile, China Common issues for these countries: n Need to integrate carbon pricing policy with

energy efficiency and renewable energy programmes n Need for integrated decision-making between

responsible agencies n Design to manage price rises



Key Issues for Korea: Mapping the energy and climate policy landscape






Source: “Managing interactions between carbon pricing and existing energy policies”, IEA 2013


Key Issues for Korea: Policy mapping Mapping the energy and climate policy landscape






• Improve national energy efficiency 46% by 2030, increase renewable energy to 11% TPES by 2030 •Single electricity buyer, dispatch market based, regulated retail price •Potential major shifts: nuclear, LNG prices •Pre-existing fuel taxes ©© OECD/IEA - 2010 OECD/IEA 2013

Key Issues for Korea: initial alignment Mapping the energy and climate policy landscape






•ETS cap: what assumptions about delivery of energy policies? Does ETS have “room to move” over a range of assumptions? •Build in flexibility for unforeseen changes. •Review energy policies for consistency with ETS: policy objectives, timing, higher energy prices •How pass through price signal to electricity endusers? How adjust (for) pre-existing taxes ? ©© OECD/IEA - 2010 OECD/IEA 2013

Key Issues for Korea: phasing in Mapping the energy and climate policy landscape





Insitutional co-ordination between climate and energy policymakers •If Korea’s climate goal remains science-based, carbon price level should be appropriate, however

•Check that free allocation method is not an incentive for lock-in of high-carbon investment •Getting price signal to end-users is important


Key issues for Korea: staying aligned Mapping the energy and climate policy landscape






•Harmonise timing of energy policy adjustments with ETS periods •Signal in advance how future ETS caps will be adjusted if economic and energy policy assumptions were wrong •Keep policy package as simple as possible while covering key policy needs ©© OECD/IEA - 2010 OECD/IEA 2013

Key issues for Korea: Reviews Mapping the energy and climate policy landscape






•When and on what basis will ETS settings be reviewed? •How will certainty be balanced with flexibility? •What would justify intervention outside scheduled reviews ? ©© OECD/IEA - 2010 OECD/IEA 2013

Key issues for Korea: decisionmaking Mapping the energy and climate policy landscape






•Which key agencies? •What institutional structures for co-ordinated decision-making on energy and climate policies: •For initial design? •For ongoing policy alignment? ©© OECD/IEA - 2010 OECD/IEA 2013

Summary: some key issues for Korean ETS and energy policy integration n Need to integrate ETS cap-setting with energy

efficiency and renewable energy programmes n Allow flexibility in ETS for unforseen changes

(economic, energy policy, “game changers”) n Need for integrated decision-making between

responsible agencies n Interface with single buyer electricity system:

getting price signal to end-users? n Design to manage electricity price rises



Thank you [email protected]

www.iea.org
