1 The questions l Is economic growth leading to excessive exploitation of natural resources and to degradation of the ecosystem? l Are increases in welfare, as measured by GDP, providing adequate employment opportunities, and are the benefits widely shared? l What is the right balance between public interventions and market solutions in responding to these issues? l Are governments taking a long-term view of their responsibility towards the current and next generations? l How can OECD governments show leadership and commitment to address pressures on the global commons? l And how can they help developing countries, many of which lack economic resources and local capacities, to move towards comprehensive sustainable development?

2 Sustainable development l Sustainable development brings a new perspective to concerns over the use of natural resources. l A central policy question is whether the earth’s ecosystem could sustain the high pressure on natural resources that would result if all countries were to adopt lifestyles similar to those now prevailing in the most economically developed countries l Given the considerable scope for substitution among resources, what matters more than absolute scarcity is whether human ingenuity can keep combining man-made, natural and human capital in ways that enable human needs to be met.

3 Externalities l The importance of externalities - the costs and benefits to society of economic activities that are not reflected in the market prices - is not limited to natural resources. l A major obstacle in achieving sustainable economic development arises from the presence of external environmental costs and the lack of well-defined property rights for many environmental resources l Open access to such resources free of charge means that producers and users lack the economic incentives to take the full costs of environmental degradation into account

4 Damage Cost Estimates for Energy Fuel Cycles (UK Specific Results) ECUcent Source DG XII

5 RES vs Conventional Power Plants Production Cost

6 Gas vs RES Power Plants Production cost Including External cost

7 Coal vs RES Power Plants Production cost Including External cost

8 Technology l Technology will be critical in meeting the needs of current and future generations and de-linking economic growth from environmental degradation. l But appropriate technological change is not automatic, and technologies may also lead to pressures on natural resources, create health hazards, and raise difficult ethical considerations. l Governments must improve framework conditions so as to provide the right incentives and price signals to firms and influence consumer’s awareness and behaviour. l They often have a direct role in the financing of the basic research underlying innovation in clean technologies and support for the development of markets for the substantial stock of more energy- efficient technologies that are close to being competitive.

9 The impact of Kyoto l Emission reduction targets are legally binding under the Protocol whereas under the United Nations Framework Convention on Climate Change (UNFCCC) there was no legal obligation. l Inclusion of sinks, which would in principle allow the inclusion of the intake of carbon by forests and agricultural soils.

10 Energy l Energy use and production is by far the most important source of total greenhouse gas emissions, representing around 80% of 1990 EU emissions. l The most important gas is CO2 coming from fossil fuel production and use. Around a third of total EU emissions of CO2 originates from electricity and heat production.

11 Transport l Transport accounts for around 20% of total EU emissions in Analysis shows that in the absence of new policy measures it is the sector with the greatest potential for growth in CO2 emissions up to l Emissions of N 2 O due to catalytic converters and HFC emissions from on-vehicle air conditioning are also expected to grow strongly over this period.

12 Strategy l Greenhouse gas emissions are linked to a vast variety of economic activities. l A successful policy strategy will have to be comprehensive involving the stakeholders belonging to different economic sectors: ä identifying throughout the economy a range of cost-effective policy measures. ä identifying indicative emission objectives for the sectors mentioned above.

13 Clean Coal Technologies ADVANCED TECHNOLOGICAL PROCESSES l Advanced pulverised coal-fired boilers (PCF) l Atmospheric fluidised-bed combustion (AFBC) l Pressurised fluidised-bed combustion (PFBC) l Integrated gasification combined-cycle systems (IGCC) l Pressurised pulverised coal combustion (PPCC) l Integrated gasification fuel cell systems (IGFC) l Magnetohydrodynamic electricity generation (MHD). ADVANCED TECHNOLOGICAL PROCESSES l Advanced pulverised coal-fired boilers (PCF) l Atmospheric fluidised-bed combustion (AFBC) l Pressurised fluidised-bed combustion (PFBC) l Integrated gasification combined-cycle systems (IGCC) l Pressurised pulverised coal combustion (PPCC) l Integrated gasification fuel cell systems (IGFC) l Magnetohydrodynamic electricity generation (MHD).

14 Net Efficiency of Solid Fuel-Based Power and Heat Generation Technologies

15 Economics of decarbonisation

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17 Conclusions l Lowering the absolute consumption of energy in a growing economy solely by way of technology improvements is close to impossible, at least in the absence of massive technological breakthroughs. l To fulfil Kyoto commitments in growing economies it will be necessary to have a mix of technology policies, changes in relative prices, and associated measures (dissemination) to enhance the effectiveness of technology and price-related policies. l Competitive markets have to be enable by appropriate policies in order to allow transparency of prices, rapid and flexible reactions to changing structural conditions and the rapid diffusion of new technologies.

18 Conclusions (2) l Regulations and standards can improve average efficiency and provide long-term signals for resource allocation. l Relative prices have to reflect a society’s preferences. While public goods as the prevention of global warming or the maintenance of energy supply security have intrinsic value, their achievement comes at an economic cost. Care has to be taken to minimise these costs. l Government policies to facilitate energy technology improvements need to be strengthened. Efforts need to be concentrated in those areas that are least likely to crowd out private efforts and maximise positive spillovers. l None of these types of actions can deliver least-cost solutions on its own. Together they might.