Policy Instruments February 11, 2015Sustainable Energy Policy1

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 (33% by 2020) – governance – who decides the rules February 11, 2015Energy Sustainable Energy Policy2

Rationales for Government Intervention in the Market externalities public goods monopoly Information equity  Jaccard* – weak rationale for endurance – strong rationale for cleanliness *pp that you were not assigned February 11, 2015sustainable 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 trade market oriented regulations – artificial niche market regulations February 11, 2015sustainable energy policy

Evaluative Criteria environmental effectiveness economic efficiency administrative feasibility political feasibility February 11, 2015sustainable 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 February 11, 2015sustainable energy policy

Command and Control Regulation – example –coal GHG regs Performance standard: coal plants can’t exceed 425 kg of CO2 per Megawatt-hour Currently not possible without carbon capture and storage (CCS) Starts in 2015 for new plants + those 50 yrs old February 11, 2015sustainable energy policy

Financial Disincentive - Taxes Does not prohibit action, but taxes it Gives price certainty Can’t guarantee a particular outcome Sensitive to diversity of producer costs and consumer preferences Example: tax on tonne of carbon emitted – BCBC – 2010: $20 per tonne of CO2 equivalent – 2011: $25 – 2012: $30 February 11, 2015sustainable energy policy

Financial Incentives (Subsidies) Government spending reduces cost of action Examples: – rebate for fuel efficient cars (Canada’s ended)ended – Feed-In Tariffs – Royalty breaks for fossil fuel productionbreaks – Research February 11, 2015sustainable energy policy

Voluntarism and Information Can produce more informed decisions about costs and efficacy Example: One Tonne Challenge February 11, 2015sustainable 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 SystemEmission Trading System – California, Quebec California February 11, 2015sustainable energy policy

February 11, 2015Sustainable Energy Policy12

Key design elements What sources are covered? Are allowances auctioned or issued for free (“grandparenting”) Are prices regulated with price floors, caps, or both How are actions linked with other jurisdictions How should revenues be allocated from auctions? Should offsets be allowed from non-regulated emitters? February 11, 2015Sustainable Energy Policy13

cap/trade + tax hybrids Ceiling or safety valve at upper end of price Floor on price The more restrictive the ceiling and floors the more it becomes like a carbon tax February 11, 2015Sustainable Energy Policy14

market oriented regulations – artificial niche market regulations Require a certain % of the market to have performance characteristics Can “force” innovation Examples – Renewable portfolio standard Renewable portfolio standard – To be discussed more later in term February 11, 2015sustainable energy policy

Missing Instruments? direct provision “Crown” corporations National Oil Companies increasingly important – Klare: 81% of proven reserves controlled by NOCs February 11, 2015sustainable energy policy 1990: Mulroney privatized, but kept 19% share 2004: fully privatized

Evaluative Criteria environmental effectiveness economic efficiency administrative feasibility political feasibility February 11, 2015sustainable energy policy

Because of different marginal costs of control, market- based regulations are more cost-effective February 11, 2015Sustainable Energy Policy18 Pre-mitigationRegulation: 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 Emissions: 1000 t/yr Costs: 0 Emissions: 700 t/yr Costs: $12,000 Emissions: 1000 t/yr Costs: $12,000 (to coal plant) TotalEmissions: 2000 t/yr Costs: 0 Emissions: 1,400 t/yr Cost: $18,000 Emissions: 1,400 t/yr Cost: $12,000

Evaluating energy sustainability policy instruments February 11, 2015Sustainable Energy Policy19 effectivenessefficiency Administrative feasibility political feasibility Info/persuasion subsidy Emission tax Cap and trade C&C Regulation

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 Policy21

Carbon tax in 2009 BC election Sustainable Energy Policy22 NDP “axe the tax” campaign Campbell and BC Liberals win 3 rd majority government

Federal conflict in Harper promised regulations Repeated Harper government attacks on NDP for supporting a “a job killing carbon tax” NDP’s position is cap and trade January 29, 2015Sustainable Energy Policy23

January 29, 2015Sustainable Energy Policy24 From PJ Partington

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 Sustainable Energy Policy25