1. © OECD/IEA 2010 Energy and climate policy Richard Baron, head of Climate Change Unit, IEA IEA-FTS of Russia Workshop on Global Energy Market Scenarios Paris, 27 May 2010 richard.baron@iea.org

2. © OECD/IEA 2010 IEA climate policy work International climate policy after Copenhagen Domestic policy choices for effective CO 2 emission reductions

3. © OECD/IEA 2010 IEA climate change policy work Advise UNFCCC process Climate Change Expert Group (formerly Annex I Expert Group on the UNFCCC) Technical input to negotiations since 1994 After Copenhagen: focus on carbon market mechanisms and reporting Projects on energy and climate Design of domestic emissions trading systems Combining policy tools for least-cost climate strategies Nuclear power in a carbon constrained world Policy options for low-carbon electricity in China Monitoring progress in climate policy Climate / energy efficiency / renewables policy databases Evolution of CO 2 emissions from power generation

4. © OECD/IEA 2010 International climate policy Copenhagen did not deliver a full international climate policy framework The Copenhagen Accord takes several steps forward More is needed

5. © OECD/IEA 2010 The Copenhagen Accord (1) Increase in global temperature should be below 2 o C Aim of peak in global and national emissions “as soon as possible” “Annex I” (developed) countries to set emissions targets for year 2020 Financing: Fast-track USD30 billion (2010-12) plus USD100 billion a year by 2020 The use of markets to pursue cost-effective mitigation actions Technology mechanism

6. © OECD/IEA 2010 The Copenhagen Accord (2) “Non-Annex I” (developing) countries will implement mitigation actions by 2020 (pledges submitted) Domestic monitoring, reporting and verification (MRV) for unilateral actions, with international consultation Actions seeking international support to be recorded in a registry and subject to international MRV Non-Annex 1 countries:

7. © OECD/IEA 2010 World abatement emissions in the 450 Scenario Excerpt from IEA Press Conference at COP15 © OECD/IEA 2009 Source: IEA analysis based on pledges as of January 2010, and World Energy Outlook 2009 Current pledges point in the right direction but further efforts needed to close the gap and to reach the 450 Scenario for 2 o C 26 28 30 32 34 36 38 40 42 200720102015202020252030 Gt 450 Scenario Reference Scenario OECD+ OME OC 3.8 Gt 13.8 Gt Reference Scenario 450 Scenario Current Pledges

8. © OECD/IEA 2010 What is needed next, what is missing? Resolve the future of the Kyoto Protocol and its carbon market instruments How to get from current unilateral pledges to a more coordinated response to achieve the 2 o C goal? How to best support CO 2 emission reductions in emerging economies? Engage economies on a low-carbon development path – a true energy revolution

9. © OECD/IEA 2010 © OECD/IEA 2009 World energy-related CO 2 emissions and reductions per region and activity in 450 scenario The mitigation challenge is daunting – 3.8 GtCO 2 needed by 2020 in the energy sector alone globally, with much mitigation to take place in emerging economies Source: Early excerpt of WEO 2009 for Bangkok UNFCCC meeting 20072015202020252030 26 28 30 32 34 36 38 40 42 450 Scenario Reference Scenario OECD+ Other Major Economies Other Countries 3.8 Gt 13.8 Gt Nuclear– 10% CCS – 10% Efficiency – 45% Renewables & biofuels – 21% Nuclear– 13% CCS – 20% Efficiency – 67% Renewables & biofuels – 19% Nuclear – 8% CCS – 6% Efficiency – 55% Renewables & biofuels – 34% Nuclear– 9% World By region Abatement by technology, 2030 Efficiency – 57% Renewables & biofuels – 23% Source: World Energy Outlook, IEA 2009

10. © OECD/IEA 2010 What is in the policy tool-kit? Carbon pricing (tradeable emission permits / carbon taxes) Relative energy prices must be changed if we are to achieve the decarbonisation of energy systems Energy efficiency policy measures Our energy services can be met with much less primary energy, and often at lower cost. How? Targeted support to low-carbon technologies Renewables Nuclear Carbon capture and storage  Targeted tool-kit for each technology, based on maturity and cost-competitiveness, and general market conditions Domestic climate policy

11. © OECD/IEA 2010 Carbon pricing: the EU Emissions Trading System More than 11,000 installations have been allocated a CO2 emissions goal – and corresponding CO 2 allowances (EUAs) 27 countries. Power generation and heavy industry only = 45% of EU greenhouse gas emissions) Penalties for non-compliance: EUR 40-100/tCO 2 Three phases Trial: 2005-2007. Some over-allocation to industry Current (Kyoto): 2008-2012. Crisis affects industrial activity and lowers CO 2 price 2013-2020: Evolution towards auctioning of allowances (i.e. government revenues). Reduction goal: -21% from 2005 Concerns: long-term price signal / competitiveness Australia, Brazil, Japan, Korea, Mexico, New Zealand, US are considering adopting Emissions Trading Systems

12. © OECD/IEA 2010 A price on CO 2 now guides energy investments in Europe Today’s EU electricity prices: EUR 50/MWh EUR 15/tCO 2 adds about EUR 13/MWh for a coal-based plant CO 2 now a key component in EU electricity prices

13. © OECD/IEA 2010 Energy efficiency: a prerequisite At the core of an effective response to reduce CO 2 A large potential for cost-effective energy savings exist in all countries / economies It is critical to tap that potential to allow cleaner, more expensive energy carriers needed for decarbonisation Consumers face significant barriers (information, split incentives, transaction costs, access to capital) A CO 2 price alone not likely to break these barriers Targeted policy tools are needed Minimum energy performance standards Labelling of end-use equipment (electric appliances) Fiscal measures Check IEA 25 concrete recommendations on energy efficiency to G8 and progress to date: http://www.iea.org/G8/docs/Efficiency_progress_g8july09.pdf

14. © OECD/IEA 2010 Summarising challenges & opportunities Still lacking an international framework to enhance the ambition of climate policy goals A matter for the international negotiation only? Domestic climate policy is moving along in many developed and developing countries Climate policy goals are an integral part of energy policy in most developed countries Interest in the ‘upsides’ of climate policy for energy goals Lower reliance on fossil fuels and less tensions on international markets Lower local pollution and improve air quality Lower energy cost through energy efficiency-driven savings How to best manage the transition to low-carbon? Significant infrastructure change (e.g. to decarbonise electricity) How can all economic activities survive under a CO 2 constraint? How to manage winners and losers? Finding least-cost combinations of policies is essential for sustainable climate policy