Environmental Objectives & Energy Policy John Fitz Gerald & Sue Scott The Economic and Social Research Institute, Dublin

Environmental Objectives n Problem for policy-makers: multiple objectives Competitiveness and consumersCompetitiveness and consumers Global warming etc.Global warming etc. SecuritySecurity n Rephrase objective for DCMNR Minimise cost of energy subject to specified objectives on security and the environmentMinimise cost of energy subject to specified objectives on security and the environment

Implementing Policy n Ideally: one objective – one policy instrumentone objective – one policy instrument n Complexity is costly Costly for regulatorsCostly for regulators Costly for firmsCostly for firms Cost of running a good scheme can kill itCost of running a good scheme can kill it

EU Policy n Incoherent – multiple policies for one objective n Emissions Trading n Renewables n R&D – correct incentives?

Emissions Trading n “Grandparenting” a huge problem No revenue to offset economic costsNo revenue to offset economic costs Transfer from consumers to shareholdersTransfer from consumers to shareholders n Distortions Value depends on power station locationValue depends on power station location n Multiple rounds of permits Dirty plant must stay in business to collect the jackpot every few yearsDirty plant must stay in business to collect the jackpot every few years Price driven up & NO clean upPrice driven up & NO clean up

Domestic Policy n Incoherent (but better than UK) n Emissions Trading Made best of a bad handMade best of a bad hand n Renewables A means to an endA means to an end In long run ETS should be enoughIn long run ETS should be enough But ETS is distortedBut ETS is distorted n Absence of carbon tax No incentive to changeNo incentive to change Burden uneven – raises costBurden uneven – raises cost

All-Island Electricity Market n Co-ordination of environmental policy? n Emissions Trading: Wholesale price of electricity must reflect permit costWholesale price of electricity must reflect permit cost Similar relative allocation next round & treatment of new entrantsSimilar relative allocation next round & treatment of new entrants n Renewables obligation in North: Bad policy – could distort location of windBad policy – could distort location of wind

Policy on Transport n Carbon Tax - small effect n Congestion key environmental issue Urban public transportUrban public transport Congestion chargingCongestion charging Emissions reduction a by-productEmissions reduction a by-product n EU level crucial Standards for fuel efficiencyStandards for fuel efficiency Learn from CaliforniaLearn from California Huge market - producers can reactHuge market - producers can react Long lead in time on R&DLong lead in time on R&D