Policy Instruments February 6, 2013 Sustainable Energy Policy

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 6, 2013 Energy Sustainable Energy Policy

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 6, 2013 sustainable energy policy

Evaluative Criteria environmental effectiveness economic efficiency administrative feasibility political feasibility February 6, 2013 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 6, 2013 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 he setting of a performance standard of 375 tonnes CO2/Gwh for Canada's 53 coal-fired electricity generating units promises little. There are several "flexibilities" (Environment Canada's term) built into the proposed regulation: they don't apply to existing units until they are "old" -- 45 years old and at the end of a power purchasing contract. Existing units are otherwise grandfathered. Also, "new" units built before 2015 are not subject to the performance standard. 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 6, 2013 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 6, 2013 sustainable energy policy

Voluntarism and Information Can produce more informed decisions about costs and efficacy Example: One Tonne Challenge February 6, 2013 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 California cap and trade program February 6, 2013 sustainable energy policy

February 6, 2013 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 countries February 6, 2013 Sustainable Energy Policy

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 6, 2013 sustainable energy policy

Missing Instruments? direct provision “Crown” corporations National Oil Companies increasingly important Klare: 81% of proven reserves controlled by NOCs Klare: 81% of proven reserves controlled by NOCs 1990: Mulroney privatized, but kept 19% share 2004: fully privatized February 6, 2013 sustainable energy policy

Evaluative Criteria environmental effectiveness economic efficiency administrative feasibility political feasibility February 6, 2013 sustainable energy policy

Because of different marginal costs of control, market-based regulations are more cost-effective 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 Costs: $12,000 Costs: $12,000 (to coal plant) Total Emissions: 2000 t/yr Emission: 1,400 t/yr Cost: $18,000 Cost: $12,000 February 6, 2013 Sustainable Energy Policy

Evaluating energy sustainability policy instruments effectiveness efficiency Administrative feasibility political feasibility Info/persuasion subsidy Emission tax Cap and trade C&C Regulation February 6, 2013 Sustainable Energy Policy

January 21, 2010

Carbon tax in 2008 federal election “I believe that good policy is good politics” Stephane Dion Humiliating loss, resignation as party leader Message, or messenger? Sustainable Energy Policy

Carbon tax in 2009 BC election NDP “axe the tax” campaign Campbell and BC Liberals win 3rd majority government Sustainable Energy Policy

Federal conflict in 2012-13 Repeated Harper government attacks on NDP for supporting a carbon tax NDP’s position is cap and trade Sustainable Energy Policy

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 6, 2013 Sustainable Energy Policy