ESRC Energy Research Conference Policy Studies Institute Decarbonisation of Energy Systems Dennis Anderson Imperial College Centre for Energy Policy and Technology (ICCEPT) March 31, 2003

Limits to the ‘Standard’ Framework The Optimal Tax? Marginal Benefits Marginal Costs Abatement Marginal Costs and Benefits > 50 years X Y A B

Case for Direct Support for Innovation 1Creates Options -- and defines a path forward 2Stimulates Innovation and Reduces costs 3Reduces Uncertainties: -- an option value 4Reduces the Size of the Pollution Taxes (actual or imputed) Required--less ‘hackles’ 5Environmental Problems Solved Sooner 6Positive Externalities: --reduced pollution and costs 7 Points to new policies ‘beyond Kyoto’

Future Energy Systems Renewables Nuclear Coal Biomass wastes Gas Biomass Oil Sequestration PV’s End Use Electricity CHP Direct Use Transport Hydrogen Storage H 2 CC Plant + Hydrogen Heat Transport Fuel Cells + Fuel cells CO 2 + Carbon Sequestration

Areas for Economic and Social Research 1.Energy Market Regulation: Price volatility and problem of loss of vision Distribution: rational price structures and new metering technologies fundamental if new decentralised technologies are to emerge 2.Climate Change Policies: (a) National Level Post-evaluation and comparisons of experiences in OECD countries

Areas for Economic and Social Research—contd. 3. Climate Change Policies: (b) International Level Post-evaluation and comparisons of experiences in developing countries Beyond Kyoto: new forms of international co-operation based on trade, investment and financial mechanisms of the UN Framework Convention on Climate Change

4. Economic Modelling of Climate Change Policies Current modelling efforts are lacking: Technology and innovation poorly represented (if at all) No allowance for non-linearities and threshold effects Developing countries poorly represented (if at all) Need capacity for independent assessments of IPCC’s scenarios Possibility of new insights for innovation process and policy Areas for Economic and Social Research—contd.

2. Non-linear and threshold effects in substitution: Effects of Relative Prices on Market Share

Chaotic Behaviour

Some results: with/without policies. T = 20% (permanently), G = 20%  T = 0 (permanently), G = 0%

5.Social and environmental impact: Public reaction to renewable energy and new energy systems Health and safety issues (e.g. if hydrogen route is followed and with large development of offshore resources) Positive features: e.g. with architectural innovation and more decentralised sources of heat and power Areas for Economic and Social Research—contd.