DEALING WITH DOOM THE TRIPLE CHALLENGE OF ENERGY SCARCITY, CLIMATE CHANGE AND GLOBAL INEQUITY JOS BRUGGINK

EU Conference Sustainable Development, Brussels, May MAIN FOCUS OF PRESENTATION DEALING WITH DOOM THE TRIPLE CHALLENGE OF ENERGY SCARCITY, CLIMATE CHANGE AND GLOBAL INEQUITY Guarding against unfortunate consequences of unsustainability first Action-oriented approach: what can be done now rather than what should be done later Issue linkages central: dynamically connecting solutions for faces of doom Three faces of doom correspond to three dimensions of unsustainability FIRST STEP IN ANALYSIS: TWO PRINCIPLES FOR EFFECTIVE POLICY DESIGN

EU Conference Sustainable Development, Brussels, May WORLD VIEWS AND POLICY STRATEGIES We are living in a manageable world where European public policies can make a lasting impact We must shape the world in a sustainable mold according to European visions of sustainability SHAPING STRATEGIES We are living in an unmanageable world where European public policies have marginal effects We must hedge against the unfortunate consequences of an increasingly unsustainable world HEDGING STRATEGIES Based on nothing ventured, nothing gained attitude Need to keep many technological options open Emphasis on R&D policies and long term targets Based on better be safe than sorry attitude Need to choose winning technologies at an early stage Emphasis on implementation policies and short term targets

EU Conference Sustainable Development, Brussels, May FIRST PRINCIPLE FOR POLICY DESIGN A balanced and interconnected combination of shaping and hedging strategies will make European policies for sustainability much more effective

EU Conference Sustainable Development, Brussels, May DIMENSIONS OF SUSTAINABILITY Political reality: hierarchical pyramid People Social objectives Global equity Planet Environmental objectives Climate change Profit Economic objectives Energy security Profit Economic objectives Energy security People Social objectives Global equity Academic perception: equivalent triangle Planet Environmental objectives Climate change

EU Conference Sustainable Development, Brussels, May TWO PRINCIPLES FOR POLICY DESIGN A balanced and interconnected combination of shaping and hedging strategies will make European policies for sustainability much more effective Approaching the three faces of energy doom in hierarchical order over time will make European policies for sustainability much more effective NEXT STEP IN ANALYSIS: STORYLINE FOR EUROPEAN ENERGY POLICIES FOR SUSTAINABILITY BASED ON THESE PRINCIPLES

EU Conference Sustainable Development, Brussels, May STORYLINE FOR POLICY STRATEGY PHASE 1 PHASE 2 PHASE HEDGING STRATEGIES SHAPING STRATEGIES R,D&D policies for climate change R,D&D policies for global equity Implementation policies for energy security Implementation policies for climate change Implementation policies for global equity

EU Conference Sustainable Development, Brussels, May THE SUNNY SIDE OF DOOM Sustainable ambitions in the sky should reflect political realities on the ground Dealing with doom makes it politically acceptable to invoke the visible fist of government in addition to the invisible hand of market Therefore Europe should guard against consecutive instances of doom first But the results of the required hedging policies may help to solve the next instance of doom If secondary shaping policies are well orchestrated with primary hedging policies NEXT STEP IN ANALYSIS: ILLUSTRATION OF STORYLINE FOR SUSTAINABLE MOBILITY

EU Conference Sustainable Development, Brussels, May STORYLINE FOR SUSTAINABLE MOBILITY PHASE 1 PHASE 2 PHASE HEDGING STRATEGIES SHAPING STRATEGIES Improve sustainable fuel options Improve sustainable mobility options Choose electric car as winning technology Choose winning sustainable fuel option Reduce mobility volumes and import sustainable fuels

EU Conference Sustainable Development, Brussels, May OIL PRICES AND MOBILITY Index number First assumption: the price of oil increases to 300$/barrel Second assumption: tax regime and margins remain the same Third assumption: income grows 2%/year, cars become 20% more efficient

EU Conference Sustainable Development, Brussels, May OIL PRICES AND THE IMPACT OF CO 2 -PRICES 1,74 /litre 1,61 /litre 1,49 /litre 1,36 /litre 1.24 /litre Equivalent consumer price 150 $ 125 $ 100 $ 75 $ 50 $ Fuel price per barrel Conventional oil First generation biomass Gas through GTL or CNG Enhanced oil recovery Coal-to-liquids Second generation biomass Tar sands and oil shales Consumers perspective Producers perspective CO price of 60/ton has no influence on consumer decisions CO 2 price of 60/ton makes a difference in future fuel source battles

EU Conference Sustainable Development, Brussels, May SYNCHRONISING OIL AND CARBON MARKETS World oil price Bottom price of 80$/barrel Price corridor for unrestrained oil markets 80$/barrel 20 /ton 100 /ton 80 /ton 60 /ton 40 /ton Price tempered above 120$/barrel Flexible CO 2 -tax 120$/barrel40$/barrel Trajectory for CO 2 –tax (10 /ton = 6.3 $/barrel)

EU Conference Sustainable Development, Brussels, May DRIVING FORCES FOR SUSTAINABLE MOBILITY The initial tandem of oil prices and carbon prices –Synchronising oil and carbon prices smoothes transitions –Gradually rising carbon prices must make sustainable fuels (including electricity) competitive The ultimate tandem of fuel prices and road charges –Growing global mobility volumes will replace a peak oil problem with a peak soil problem –Ultimately mobility growth must be constrained by road charges in addition to high fuel prices FINAL STEP IN ANALYSIS: WHAT ARE THE IMPLICATIONS FOR EU R&D STRATEGIES?

EU Conference Sustainable Development, Brussels, May Relative global performance of EU energy innovation system EU GOVERNANCE OF ENERGY R&D

EU Conference Sustainable Development, Brussels, May IMPROVING EU ENERGY INNOVATION Promising new instruments are being developed –Strategic Energy Technology Plan (SET-Plan) –European Institute of Innovation and Technology (EIT) But additional sources of funding are lacking –Without additional funds these institutions are likely to cannibalise existing EU and national R&D funds Need for revenue generating policy strategies –Earmarking revenues from hedging-oriented implementation policies for shaping-oriented R,D&D policies forms potential escape route –In case of sustainable mobility part of a CO 2 -tax working in tandem with oil prices may provide funds for sustainable electricity and biofuels