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Supporting carbon pricing policies through crediting and RBCF
Frédéric Gagnon-Lebrun May 2016
Supporting carbon pricing policies through crediting and RBCF May 2016
World Bank supported
Huge amount of detail, analysis,
(ongoing) thinking
Starting point • Policy-based crediting and Sectoral Approaches have long been
identified as promising options for GHG mitigation … • … but not yet implemented • Experience from CDM instructive, especially re: MRV • Some useful experience of RBF
• Paris Agreement has given structure, more certainty: • International climate policy architecture, with NDCs • Provisions for international transfers of “mitigation outcomes” • A new, UNFCCC-governed baseline-and-crediting mechanism
(for all countries) • Encourages RBF for REDD+
• Crediting of carbon pricing policies – implicit or explicit – is innovative and may help increase mitigation impact
Supporting carbon pricing policies through crediting and RBCF May 2016
DOMESTICECONOMY
Government
*Somerevenuerecyclingcandirectlyimpacttheopera6onofthepolicyinques6on,e.g.ifgovernmentprovidesextrafreeallowancesinanETS.**Verylikelytobeforeign,butcouldbeadomes6ccharityorafounda6on,etc.
External**CreditPurchaser
Withincreasedmi6ga6onimpact
CouldCredi6ngPricingPolicyincreasemi6ga6onimpactfromnew/exis6ng
policies?
DOMESTICECONOMY
GovernmentSurplus,i.e.extrarevenue
Costofpolicydesignandopera@on
*Somerevenuerecyclingcandirectlyimpacttheopera6onofthepolicyinques6on,e.g.ifgovernmentprovidesextrafreeallowancesinanETS.**Verylikelytobeforeign,butcouldbeadomes6ccharityorafounda6on,etc.
External**CreditPurchaser
Withincreasedmi6ga6onimpact
CouldCredi6ngPricingPolicyincreasemi6ga6onimpactfromnew/exis6ng
policies?
SectorsandStakeholders
Significantlyaffectedbythe
policy
Notaffectedbythepolicy
Somewhataffectedbythe
policy
DOMESTICECONOMY
GovernmentSurplus,i.e.extrarevenue
FlowtogovernmentbudgetFlowfromgovernmentbudget
*
Costofpolicydesignandopera@on
*Somerevenuerecyclingcandirectlyimpacttheopera6onofthepolicyinques6on,e.g.ifgovernmentprovidesextrafreeallowancesinanETS.**Verylikelytobeforeign,butcouldbeadomes6ccharityorafounda6on,etc.
External**CreditPurchaser
Withincreasedmi6ga6onimpact
CouldCredi6ngPricingPolicyincreasemi6ga6onimpactfromnew/exis6ng
policies?
4 Case Studies: no external crediting, but show how/why policies were implemented
Supporting carbon pricing policies through crediting and RBCF May 2016
MoroccoEnergySubsidy
Reform
IndonesiaEnergySubsidy
Reform
MexicoCarbonTax
Beijing(China)EmissionsTrading
System
Policy Ongoingreduc6onofsubsidies(fuelandelectricitygenera6on)
Ongoingreduc6onofsubsidies(fuelandelectricitygenera6on)
Carbontaxonfossilfuelsalesandimports.Norevenuerecycling.
OneofseveralpilotETS.Covers40%ofcity’sdirectandindirectemissions.
Drivers Publicfinances;stabilityofpublicpoweru6lity;increasingcompe66onamongpowerproducers
Publicfinancesandfiscaldeficit;electricitygenera6onexpansion;otherfundingpriori6es
Strengthenfinancialcapacity;supportInclusiveMexicoandaProsperousMexico;raiseawarenessaboutclimatechange
Increasedenergyefficiency;supportforeconomicdevelopmentgoals;tes6ngETS
Barriers Concernsaboutimpactsonpoorhouseholds;compe66venessconcernsamongindustry;mixedministerialposi6ons
Popula6onaccustomedtolowandstableenergyprices;weaktransportinfrastructure;minoritygovernmentandcomplexadministra6on
Long-standingcultureofsubsidizedfuelsandelectricity;Industryandcommerceagainstoriginalproposals
Strongopposi6onfromenterprisesfacingabatementscosts
“Carbon Economics”: (very) low value of credits as % of policy financial revenues/ savings
Supporting carbon pricing policies through crediting and RBCF May 2016
Critical Design/Implementation Issue #1: Political Economy • Increasing recognition that overall economic benefits are not the only
consideration for assessing policy: • Experience shows us that impacts on the poor and vulnerable are key – can/
should they be compensated? • Also suggests perception of impacts is higher than what could be/is observed
in practice
• “Carbon Economics” analysis: savings vs potential credit value • Could crediting play a role for increased ambition?
• Perhaps, particularly if there are highly symbolic groups to compensate
• GHG impact depends on how revenues are reinvested • “GSI-IF” shows double reductions if 30% revenue goes to
renewable energy/energy efficiency • Can be very hard to hypothecate or “earmark” savings (e.g.
Indonesia)
Supporting carbon pricing policies through crediting and RBCF May 2016
Critical Design/Implementation Issue #2: MRV • At present no agreed standards or international agreement which allow for
the estimation of GHG emission reductions from policy • Not an issue for ETS
• For fiscal policies, range of assumptions and challenges needed pre-implementation (modelling) or post (empirical analysis)
• Setting a baseline; • Attributing impact to the policy alone; • Time lags for impact; • Period over which credits should be generated, etc.
• Any pricing policy always part of a wider context and interacts with other policies and goals (e.g. carbon tax and subsidies in Mexico)
• Will always be uncertainty for fiscal policies • For a bilateral trade, this is a choice for the buyer • Great benefit from (simple) agreed methodologies
Supporting carbon pricing policies through crediting and RBCF May 2016
3 options to take forward
Supporting carbon pricing policies through crediting and RBCF May 2016
1. Support emission reductions at the policy margin 1. For ETS: could purchase allowances (creating scarcity) 2. Performance benchmarks from which to award credits, under a
carbon tax regime 3. Credit supporting policies (e.g. energy efficiency programmes) for
pricing policies
2. Support emission reductions within the targeted sectors 1. Politically symbolic; but large enough to drive change?
3. Overcome barriers to effective policy implementation and operation
1. Support MRV needs 2. For ETS: increase market liquidity
In all cases, (traditional) technical assistance is useful.
Next steps & Recommendations • In-depth feasibility and identification of suitable policy crediting
approaches is needed • In specific contexts • With engagement with interested countries (“sellers” and “buyers”) and
other relevant stakeholders
• Useful to explore the architecture more generally • Can we go beyond bilateral agreements between a buyer and seller
to fungible credits? • Connect domestic policies through crediting as an alternative to
wider (more difficult) linking? • Is there a role for “non-market approaches” under Paris Agreement
to support policy implementation?
• Need for piloting and testing of the mechanisms
Supporting carbon pricing policies through crediting and RBCF May 2016
Frédéric Gagnon-Lebrun Head – Climate Change Mitigation International Institute for Sustainable Development [email protected]
Supporting carbon pricing policies through crediting and RBCF May 2016