Environmental Objectives & Energy PolicyEnvironmental Objectives & Energy Policy

John Fitz Gerald & Sue ScottJohn Fitz Gerald & Sue Scott

The Economic and Social Research Institute, DublinThe Economic and Social Research Institute, Dublin

www.esri.iewww.esri.ie

Environmental ObjectivesEnvironmental Objectives

Problem for policy-makers: multiple Problem for policy-makers: multiple objectivesobjectives• Competitiveness and consumersCompetitiveness and consumers• Global warming etc.Global warming etc.• SecuritySecurity

Rephrase objective for DCMNRRephrase objective for DCMNR• Minimise cost of energy subject to Minimise cost of energy subject to

specified objectives on security and the specified objectives on security and the environmentenvironment

Implementing PolicyImplementing Policy

Ideally:Ideally:• one objective – one policy instrumentone objective – one policy instrument

Complexity is costlyComplexity 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 PolicyEU Policy

Incoherent – multiple policies for one Incoherent – multiple policies for one objectiveobjective

Emissions TradingEmissions Trading RenewablesRenewables R&D – correct incentives?R&D – correct incentives?

Emissions TradingEmissions Trading

““Grandparenting” a huge problemGrandparenting” a huge problem• No revenue to offset economic costsNo revenue to offset economic costs• Transfer from consumers to shareholdersTransfer from consumers to shareholders

DistortionsDistortions• Value depends on power station locationValue depends on power station location

Multiple rounds of permitsMultiple rounds of permits• Dirty plant must stay in business to Dirty plant must stay in business to

collect the jackpot every few yearscollect the jackpot every few years• Price driven up & NO clean upPrice driven up & NO clean up

Domestic PolicyDomestic Policy

Incoherent (but better than UK)Incoherent (but better than UK) Emissions TradingEmissions Trading• Made best of a bad handMade best of a bad hand

RenewablesRenewables• 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

Absence of carbon taxAbsence of carbon tax• No incentive to changeNo incentive to change• Burden uneven – raises costBurden uneven – raises cost

All-Island Electricity MarketAll-Island Electricity Market

Co-ordination of environmental policy?Co-ordination of environmental policy? Emissions Trading:Emissions Trading:• Wholesale price of electricity must reflect Wholesale price of electricity must reflect

permit costpermit cost• Similar relative allocation next round & Similar relative allocation next round &

treatment of new entrantstreatment of new entrants Renewables obligation in North:Renewables obligation in North:• Bad policy – could distort location of windBad policy – could distort location of wind

Policy on TransportPolicy on Transport

Carbon Tax - small effectCarbon Tax - small effect Congestion key environmental issueCongestion key environmental issue• Urban public transportUrban public transport• Congestion chargingCongestion charging• Emissions reduction a by-productEmissions reduction a by-product

EU level crucialEU 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