What stands in the way becomes the way Sequencing in climate policy to ratchet up stringency over time AHEAD Workshop Berkeley 2 October 2017 Christian Flachsland I want to do two things: Very short intro to German Energiewende, mainly targets – my colleagues will follow Present first AHEAD project working paper on sequencing, title of this talk

Germany GHG emissions and reduction targets EU 2050: -80% to -95% EU 2020: -20% EU 2030: -40% 2016: -27% 2020: -40% 2030: -55% 2040: -70% 2050: -80% to -95% Energy Residential Transport Industry Germany GHG targets: 2050 towards today. Not on track – 2020 goal missed with current policies Development of sector GHG emissions: Energy stable – 11GW new coal plants since 2000  Substituting nuclear, old coal power Coal exit debate for 2030 Residential slight reduction Industry declined Transport increasing trend In context of diesel debate now also ICE exit debate 2030 by green party Embedded in EU goals: Name goals Sometimes difficult to achieve German goals in context of EU goals: If EU policies regulate German emissions  EU ETS, but also vehicle efficiency Agriculture other emissions goals *GHG targets are relative to 1990 UBA (2016), Agora Energiewende (2016)

Energiewende targets legally binding Many targets Nuclear phaseout not shown in particular renewables in power sector (which are also legally binding, others only indicative) But also much efficiency focus in targets

Ratcheting up of renewable and climate targets over time 2050 stringency (policy targets) 40% in 2030 30% in 2020 20% in 2020 20% in 2020 *2 in 2010 2005 2010 2015 DE renewable targets EU GHG targets

Our starting point Climate policy stringency needs to ratchet up significantly to achieve 2°C Some questions Do we simply need more of the same policies? Will current approaches dominated by policies supporting specific technologies prevail so that they can just be scaled up? Or do we need something different, such as ambitious carbon pricing? In the long-term, significant carbon pricing benchmark policy for low-cost decarbonization In the short-term, significant carbon pricing has faced strong barriers. Other policies have been feasible Some of these policies apparantly enabled ratcheting up policy ambition They might have also contributed to preparing the future introduction of significant carbon pricing

Conceptual Model stringency B C C A A B Policy Policy time t=1 t=2 2 1

Barriers Sequencing options 1. Cost 2. Distribution 3. Institutions High technology costs Drive down technology costs through dedicated green technology (industrial) policies Lack of policy cost-effectiveness Phase in more cost-effective policies: Phase out technology policies once technologies are mature Infuse regulation with incentives, ultimately reaching carbon pricing (first-best) Increase sectoral coverage of policies 1. Cost Specific barrier Sequencing option Opposition by regulated interest groups Use targeted exemptions and compensation to get consent Employ sectoral differentiation, such as policies with lower stringency (or more compensation) in sectors with higher political opposition Lack of supporting coalition Prioritize policies (e.g., green industrial policies) that expand supporting constituencies Counteract regressive effects with complementary policies and programs 2. Distribution Specific barrier Sequencing option Lack of expertise and capacity Build on existing agencies and policy tools doing related work to set up new policies Draw on related policy domains or other jurisdictions in designing policies Long-term versus short- term interests Create new institutions politically insulated or otherwise able to focus on long-term Implement policies that are resistant to rollbacks (e.g., create property rights) Codify regulatory actions through legislation; that is, make them legally binding Veto points Select initial policy options that face reduced veto points and that can also build political support to overcome more stringent veto points in the future Public participation Allow public notice and comment; hold public hearings for major decisions Allow judicial review agency decisions to ensure public voices are recognized 3. Institutions Specific barrier Sequencing options Free riding, lack of intern. institutions Develop an international climate regime Build climate coalitions: Linking, Transfer Choices and preferences of other jurisdictions Take advantage of “reverse leakage”: Market technology and policy diffusion 4. Free-Riding

Barriers Sequencing options 1. Cost 2. Distribution 3. Institutions High technology costs Drive down technology costs through dedicated green technology (industrial) policies Lack of policy cost-effectiveness Phase in more cost-effective policies: Phase out technology policies once technologies are mature Infuse regulation with incentives, ultimately reaching carbon pricing (first-best) Increase sectoral coverage of policies 1. Cost Specific barrier Sequencing option Opposition by regulated interest groups Use targeted exemptions and compensation to get consent Employ sectoral differentiation, such as policies with lower stringency (or more compensation) in sectors with higher political opposition Lack of supporting coalition Prioritize policies (e.g., green industrial policies) that expand supporting constituencies Counteract regressive effects with complementary policies and programs 2. Distribution Specific barrier Sequencing option Lack of expertise and capacity Build on existing agencies and policy tools doing related work to set up new policies Draw on related policy domains or other jurisdictions in designing policies Long-term versus short- term interests Create new institutions politically insulated or otherwise able to focus on long-term Implement policies that are resistant to rollbacks (e.g., create property rights) Codify regulatory actions through legislation; that is, make them legally binding Veto points Select initial policy options that face reduced veto points and that can also build political support to overcome more stringent veto points in the future Public participation Allow public notice and comment; hold public hearings for major decisions Allow judicial review agency decisions to ensure public voices are recognized 3. Institutions Exemptions: EU ETS + Feed-in tariffs Specific barrier Sequencing options Free riding, lack of intern. institutions Develop an international climate regime Build climate coalitions: Linking, Transfer Choices and preferences of other jurisdictions Take advantage of “reverse leakage”: Market technology and policy diffusion 4. Free-Riding

Renewable electricity feed-in tariff cost development Source: BDEW (2016) Annual costs of support has risen to more than 23 bil. € (>60 €/MWh) ~50% for solar pv (~20% of all RE power production) Expected decline after 2025 when old installations stop receiving subsidies Auctioned contracts for difference

Barriers Sequencing options 1. Cost 2. Distribution 3. Institutions High technology costs Drive down technology costs through dedicated green technology (industrial) policies Lack of policy cost-effectiveness Phase in more cost-effective policies: Phase out technology policies once technologies are mature Infuse regulation with incentives, ultimately reaching carbon pricing (first-best) Increase sectoral coverage of policies 1. Cost Specific barrier Sequencing option Opposition by regulated interest groups Use targeted exemptions and compensation to get consent Employ sectoral differentiation, such as policies with lower stringency (or more compensation) in sectors with higher political opposition Lack of supporting coalition Prioritize policies (e.g., green industrial policies) that expand supporting constituencies Counteract regressive effects with complementary policies and programs 2. Distribution Specific barrier Sequencing option Lack of expertise and capacity Build on existing agencies and policy tools doing related work to set up new policies Draw on related policy domains or other jurisdictions in designing policies Long-term versus short- term interests Create new institutions politically insulated or otherwise able to focus on long-term Implement policies that are resistant to rollbacks (e.g., create property rights) Codify regulatory actions through legislation; that is, make them legally binding Veto points Select initial policy options that face reduced veto points and that can also build political support to overcome more stringent veto points in the future Public participation Allow public notice and comment; hold public hearings for major decisions Allow judicial review agency decisions to ensure public voices are recognized 3. Institutions Exemptions: EU ETS + Feed-in tariffs Specific barrier Sequencing options Free riding, lack of intern. institutions Develop an international climate regime Build climate coalitions: Linking, Transfer Choices and preferences of other jurisdictions Take advantage of “reverse leakage”: Market technology and policy diffusion 4. Free-Riding

Outlook More empirical and theoretical research required Develop solid theory of climate policy sequencing that can inform policymaking? Some avenues for future research: Identify previously successful sequencing options, build tool kit of approaches? Identify conditions under which sequencing has been successful (or not)? Recognize and avoid „bad“ lock-ins? Better understand intentional vs. non-intentional sequencing? Develop transition indicators to evaluate sequencing progress? Carefully disentangle welfare economics vs. political economy considerations in policy advice

„The impediment to action advances action. What stands in the way becomes the way.” Marcus Aurelius (121-180 AD) RFF Report available at http://www.rff.org/research/publications/ what-stands-way-becomes-way-sequencing- climate-policy-ratchet-stringency-over