Supporting carbon pricing policies through crediting and RBCF. Frédéric Gagnon-Lebrun May 2016

Transcription

1 Supporting carbon pricing policies through crediting and RBCF Frédéric Gagnon-Lebrun May 2016

2 World Bank supported Huge amount of detail, analysis, (ongoing) thinking

3 Starting point Policy-based crediting and Sectoral Approaches have long been identified as promising options for GHG mitigation but not yet implemented Experience from CDM instructive, especially re: MRV Some useful experience of RBF Paris Agreement has given structure, more certainty: International climate policy architecture, with NDCs Provisions for international transfers of mitigation outcomes A new, UNFCCC-governed baseline-and-crediting mechanism (for all countries) Encourages RBF for REDD+ Crediting of carbon pricing policies implicit or explicit is innovative and may help increase mitigation impact

4 DOMESTIC ECONOMY External ** Credit Purchaser Government Could Credi6ng Pricing Policy increase mi6ga6on impact from new/exis6ng policies? With increased mi6ga6on impact *Some revenue recycling can directly impact the opera6on of the policy in ques6on, e.g. if government provides extra free allowances in an ETS. **Very likely to be foreign, but could be a domes6c charity or a founda6on, etc.

5 DOMESTIC ECONOMY External ** Credit Purchaser Surplus, i.e. extra revenue Government Cost of policy design and Could Credi6ng Pricing Policy increase mi6ga6on impact from new/exis6ng policies? With increased mi6ga6on impact *Some revenue recycling can directly impact the opera6on of the policy in ques6on, e.g. if government provides extra free allowances in an ETS. **Very likely to be foreign, but could be a domes6c charity or a founda6on, etc.

6 DOMESTIC ECONOMY Sectors and Stakeholders External ** Credit Purchaser Significantly affected by the policy Somewhat affected by the policy Not affected by the policy * Surplus, i.e. extra revenue Flow to government budget Flow from government budget Government Cost of policy design and opera@on Could Credi6ng Pricing Policy increase mi6ga6on impact from new/exis6ng policies? With increased mi6ga6on impact *Some revenue recycling can directly impact the opera6on of the policy in ques6on, e.g. if government provides extra free allowances in an ETS. **Very likely to be foreign, but could be a domes6c charity or a founda6on, etc.

7 4 Case Studies: no external crediting, but show how/why policies were implemented Morocco Energy Subsidy Reform Indonesia Energy Subsidy Reform Mexico Carbon Tax Beijing (China) Emissions Trading System Policy Ongoing reduc6on of subsidies (fuel and electricity genera6on) Ongoing reduc6on of subsidies (fuel and electricity genera6on) Carbon tax on fossil fuel sales and imports. No revenue recycling. One of several pilot ETS. Covers 40% of city s direct and indirect emissions. Drivers Public finances; stability of public power u6lity; increasing compe66on among power producers Public finances and fiscal deficit; electricity genera6on expansion; other funding priori6es Strengthen financial capacity; support Inclusive Mexico and a Prosperous Mexico; raise awareness about climate change Increased energy efficiency; support for economic development goals; tes6ng ETS Barriers Concerns about impacts on poor households; compe66veness concerns among industry; mixed ministerial posi6ons Popula6on accustomed to low and stable energy prices; weak transport infrastructure; minority government and complex administra6on Long-standing culture of subsidized fuels and electricity; Industry and commerce against original proposals Strong opposi6on from enterprises facing abatements costs

8 Carbon Economics : (very) low value of credits as % of policy financial revenues/ savings

9 Critical Design/Implementation Issue #1: Political Economy Increasing recognition that overall economic benefits are not the only consideration for assessing policy: Experience shows us that impacts on the poor and vulnerable are key can/ should they be compensated? Also suggests perception of impacts is higher than what could be/is observed in practice Carbon Economics analysis: savings vs potential credit value Could crediting play a role for increased ambition? Perhaps, particularly if there are highly symbolic groups to compensate GHG impact depends on how revenues are reinvested GSI-IF shows double reductions if 30% revenue goes to renewable energy/energy efficiency Can be very hard to hypothecate or earmark savings (e.g. Indonesia)

10 Critical Design/Implementation Issue #2: MRV At present no agreed standards or international agreement which allow for the estimation of GHG emission reductions from policy Not an issue for ETS For fiscal policies, range of assumptions and challenges needed preimplementation (modelling) or post (empirical analysis) Setting a baseline; Attributing impact to the policy alone; Time lags for impact; Period over which credits should be generated, etc. Any pricing policy always part of a wider context and interacts with other policies and goals (e.g. carbon tax and subsidies in Mexico) Will always be uncertainty for fiscal policies For a bilateral trade, this is a choice for the buyer Great benefit from (simple) agreed methodologies

11 3 options to take forward 1. Support emission reductions at the policy margin 1. For ETS: could purchase allowances (creating scarcity) 2. Performance benchmarks from which to award credits, under a carbon tax regime 3. Credit supporting policies (e.g. energy efficiency programmes) for pricing policies 2. Support emission reductions within the targeted sectors 1. Politically symbolic; but large enough to drive change? 3. Overcome barriers to effective policy implementation and operation 1. Support MRV needs 2. For ETS: increase market liquidity In all cases, (traditional) technical assistance is useful.

12 Next steps & Recommendations In-depth feasibility and identification of suitable policy crediting approaches is needed In specific contexts With engagement with interested countries ( sellers and buyers ) and other relevant stakeholders Useful to explore the architecture more generally Can we go beyond bilateral agreements between a buyer and seller to fungible credits? Connect domestic policies through crediting as an alternative to wider (more difficult) linking? Is there a role for non-market approaches under Paris Agreement to support policy implementation? Need for piloting and testing of the mechanisms

13 Frédéric Gagnon-Lebrun Head Climate Change Mitigation International Institute for Sustainable Development