Place, Time Climate policy mix. 2 Imprint Published by: Contact adelphi Caspar-Theyss-Strasse 14a...
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Transcript of Place, Time Climate policy mix. 2 Imprint Published by: Contact adelphi Caspar-Theyss-Strasse 14a...
Place, Time
Climate policy mix
4
5
• Objective of this session
• Policy instruments overview
• Mapping and selecting policy mix
• Key questions
Content
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What you can expect to learn from this session and exercise
• Gain an overview of climate change policy instruments and their characteristics
• Understanding of how to map and select policies for your country
• Get an idea of the relevance of climate policies for climate financing and your adaptation and mitigation objectives
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Policy instrument overview
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Definitions
Policy: “In UNFCCC parlance, policies are taken and/or mandated by a government - often in conjunction with business and industry within its own country, or with other countries - to accelerate mitigation and adaptation measures.” (IPCC 2007)
Source: IPCC 2007
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Climate policy challenges for decision-makers
Mitigation: Moving beyond business-as-usual (BAU): delivering transformational change (as
opposed to incremental) Adressing high upfront policy cost: allocating public funds for projects with
medium and longer term benefits (as opposed to immediate benefits) Phasing out polices that are working against climate agenda, e.g. fossil fuel
subsidies, and moving clean energy objectives high up on policy agenda
Adaptation Ensuring a clear understanding of climate risks and vulnerabilities Engaging more directly with scientific and modelling communities in planning
and policy processes
And for both areas: Tackling lack of institutional and technical capacities to develop and implement
these polices
Source: Amal-Lee Amin, E3G 2015.
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The role of policy
• National adaptation and mitigation strategies need comprehensive and coherent policy portfolios to enable transformational change
• National polices and actions designed according to international frameworks, e.g. NAMAs or NAPs, can help to facilitate support from international finance for their implementation
Vision• Set goals and targets
Source: Adopted from: World Bank 2014Green Growth in Practice. Lessons from Country Experiences, E3G 2014
Strategy • Select a portfolio of
complementary policy instruments
• Customize instruments through policy design
• Consider how to reform the strategy over time
Action • Implementing policies• Measuring and evaluating
progress and success• Adjusting policy design
over timeAn
alys
is
Stak
ehol
der E
ngag
emen
t
11Source: IPCC 2007. Working Group III. Chapter 13. Policies, Instruments and Co-operative Arrangements
IPCC 2014. Working Group III. Chapter 13. International Cooperation: Agreements and Instruments
IPCC 2014. Working Group III. Chapter 15. National and Sub-national Policies and InstitutionsButzengeiger 2011. Application of economic instruments for adaptation to climate change
Policy types
Regulation Conventional regulatory approaches that establish a rule and / or objective that must be fulfilled by the liable parties with penalties for non-compliance
Economic instruments
Also sometimes called ‘market-based’ instruments; include price instruments (e.g. taxes or subsidies) and quantity instruments (e.g. emissions trading)
Information instruments
Policies targeting asymmetric information problems, e.g.:- raising public awareness and concern about climate change, - identifying environmental challenges, - better designing & monitoring the impacts of environmental policies, - providing relevant information to inform consumption and
production decisions
R&D support Direct government funding and investment aimed at generatinginnovative approaches to mitigation and/or the physical and social infrastructure to reduce emissions
Focu
s of
this
pre
sent
ation
12Source: World Bank 2014
Link between national policies and international finance
Regulation
Economic instruments
Information instruments
R&D supportInte
rnati
onal
coo
pera
tion
& fi
nanc
e
Developing national policies in line with international policy frameworks…• Low-emission Development Strategy (LEDS)• Nationally Appropriate Mitigation Actions (NAMAs)• National Adaptation Programmes of Action (NAPA) • National Adaptation Plans (NAPs)• Monitoring and Evaluation framework
… facilitates co-financing from international sources:• UNFCCC funds (Green Climate Fund, Global
Environmental Facility, Adaptation Fund etc.)• Bi- and multilateral financing institutions, e.g. Clean
Investment Funds, NAMA Facility, multilateral development banks, international cooperation agencies etc.
International policies and treaties trigger (more ambitious) national policies and vise versa
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Policy instruments
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Regulation instruments
Definition: establish a rule and / or objective that must be fulfilled by the polluters who would face a penalty in case of non-compliance with the norm
Mitigation examples:• Efficiency standards• Building codes• Vehicle efficiency standards• Biofuel standards• Emissions standards
Adaptation examples:• Integrating climate change
considerations into land-use regulation and coastal area regulations
• Regulations on water resource management
• Regulations on the management of forest resources, forestry policies
Benefits• Low administrative cost• May be tailored to a specific sector / firm
/ activity• Certainty of the environmental outcome
Challenges • Environmental effectiveness depends on
their stringency
Source: IPCC 2007. Working Group III. Chapter 13. Policies, Instruments and Co-operative Arrangements IPCC 2014. Working Group III. Chapter 13. International Cooperation: Agreements and
InstrumentsIPCC 2014. Working Group III. Chapter 15. National and Sub-national Policies and InstitutionsButzengeiger 2011. Application of economic instruments for adaptation to climate change
15
Complementing regulation with other policies
• Regulation itself is often not enough• Additional financial instruments can create synergies and encourage
private investment by providing a more targeted approach to overcoming risk and / or financial barriers
• Example:
Building codesRegulation
Concessional loans
Construction companies
Households Financial instruments
Construction and purchase of
new energy efficient housing
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Economic instruments
Source: World Bank. Training course Policy Instruments for Low Emissions Development: From Design to Implementation
IPCC 2007. Working Group III. Chapter 13: Policies, instruments, and co-operative arrangementsIPCC 2914. Working Group III. Chapter 15. National and Sub-national Policies and Institutions
Policies that affect the relative costs of mitigation actions or adaptation measuresExamples:• Low-cost loans• Subsidies / Grants• Taxes and changes• Feed-in-Tariff• Other financial support tools
Economic instruments
Price instruments
(Tradable) quotas for emissions reductions or absolute quantity for renewable energy production driving a compliance marketExamples:• Emission trading schemes
Quantity instruments
17Source: CPI 2012. The Landscape of climate finance in GermanyFeed-in Tariffs, Discussion Paper. Tasmania Department of Infrastructure, Energy and Resources 2013
Feed-in-Tariff (FIT)
How does the power flow? How does the money flow?
Generating for own needs
Buys additional electricity
Sells excess generation
kWh
kWh
Bill paymentsSales revenue
Bill payments
FIT re-distribution
18Source: A Policymaker’s Guide to Feed-in Tariff Policy Design, NREL 2010
Pros and Cons of Feed-in-Tariff (FIT)
BENEFITS: Encourages uptake of the targeted
technology; stimulates growth of local industry and job creation
Unlocks private investment by creating a secure and stable market through fixed-price benefits
Makes small-scale renewable generation economically feasible
Performance-based and measurable, only cost money if projects actually operate
Enhances grid and market access for investors and participants
CHALLENGES: Long-term policy commitment to
renewable energy development required Costs incurred by the utility in paying out
feed-in tariffs are transferred to the entire energy consumer base
Not “market-oriented”; FITs are often independent from market price signals
May distort electricity prices, especially with rapid growth in emerging (i.e., higher-cost) RE technologies;
Requires up-front and continuous administrative commitment to accurately set payments. Excessively high FIT payments can lead to higher policy cost
FIT access to grid can impact grid reliability
19Source: WRI 2014 http://www.map.ren21.net/1 for solar photovoltaic technology
Solar PV Feed-in-Tariff World Map
• 56 countries worldwide• 5 in Africa: Algeria, Ghana, South Africa, Uganda, Kenya• 11 in Asia & Pacific: China, Mongolia, Kazakhstan, India,
Pakistan, Indonesia, Thailand, Philippines, Malaysia, Japan, Australia
20Source: Nannette Lindenberg 2014: Public instruments to leverage private capital for green investments in developing countries. Bonn: DIE
Concessional loans
BENEFITS: lower capital financing costs obligation to repay can give incentives
for project viability
CHALLENGES: need for due diligence increases costs degree of concessionality is hard to
estimate
• To mobilise private capital, i.e., public donors often provide a loan that has to be repaid (with interest).
• These loans are often concessional or flexible and can thus be repaid with a lower than market-rate interest rate or with an extended repayment schedule.
Relevant for: projects of relatively large scale and/or more developed projects
21Source: Adelphi
Low-cost loans example - Mongolia
Global Climate Partnership Fund
Xac Bank(Eco Banking Department)
$20m lending facility
Low-cost loans
Households
Energy efficient housing
Small and Medium Enterprises (SMEs)
Energy efficiency, improvement of processes, production and sale of energy efficient products
Success factors:• Lending facility structure
enabled low interest rates• Strict approval, monitoring
and reporting requirements
Results: • Strong growth of the
mortgage market• Up to 80% of energy savings
from more energy efficient housing
Next steps: • Leadership in green growth
financing in Mongolia• Advisory agreement with IFC
for capacity building and financial product development
22Source: GIZ CliFIT training in Togo, 2014
Concessional loans for agricultural climate policy measures, e.g. adaptation
Development bank (bi- or multilateral)
National agriculture bank
Lending facility
Concessional loans
Small-scale farmers
Installation of irrigation systems, innovative seed technologies, changing crop species, installation of
rainwater harvesting systems etc.
23Source: Adelphi
Butzengeiger 2011. Application of economic instruments for adaptation to climate change
Earmarking tax revenues for climate expenditures
Environmental charges
Revenues from fees imposed on polluter for the treatment or the disposal of pollution
Energy taxes
Revenues from taxation of energy from conventional generation
Carbon taxes
Revenues from taxation of emissions produced by companies
Dedicated budget lines on adaptation programmes
Public budget
24Source: World Bank 2014. State and Trends of Carbon Pricing
IPCC 2014. Working Group III. Chapter 15. National and Sub-national Policies and Institutions
Carbon tax
Carbon taxes around the world and the estimated share of GHG emissions covered (%) Puts a direct price on
carbon Provides certainty in the
marginal cost faced by emitters
Broad scope covering all technologies and fuels
Simplicity in implementation
BUT Does not guarantee a
maximum level of emission reductions
Hard to define the appropriate tax rate
Potential opposition from private sector
25
Taxes and fees example – Tanzania and Vietnam
Source: Environmental Fiscal Reform. Case studies. GIZ 2013
Tanzania • Environment related taxes in force:
- excise duty on plastic bags- VAT and excise duty on petroleum- motor vehicle taxes- fuel levy
• Three taxes provide significant revenues:- motor vehicle taxes- excise on petroleum- fuel levy
• None of the revenues is earmarked for environment related expenditures
• Improvement potential:• earmarking environment related taxed for
environmental expenditures• complementing excise taxes and fuel levy
by a CO2 tax
Vietnam • Environment related taxes in force:
- taxes on energy (refined fuels and coal)- taxes on environmentally harmful
substances, selected pesticides and soft plastic bags
- taxes on coal and on refined fuels
• Taxes levied on consumed physical units rather than on percentages of prices – in line with international best practices as the actual amounts harm the environment, independent of prices
• Revenues are not earmarked for environment related expenditures, but distributed among national and local budgets
• Tax burden is carried by enterprises and private households equally
26* Result of cap and allocationSource: DEHSt and BMU Emissions Trading Capacity Building Program, 2014
Emission Trading Scheme (ETS)
Cap is defined by a regulator and sets an upper limit of emissions that may be emitted in selected sectors of an economy. Emission permits are given out or sold to the entities covered by the ETS.
By the end of a defined period, each covered entity must surrender a number of allowances corresponding to their emissions.
Entities that have emitted less than their number of allowances can sell any excess to other participants in the scheme. Entities with low abatement costs therefore have an incentive to reduce their emissions.
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Source: International Carbon Action PartnershipIPCC 2007. Working Group III. Chapter 13. Policies, Instruments and Co-operative Arrangements IPCC 2014. Working Group III. Chapter 15. National and Sub-national Policies and InstitutionsGIZ 2013. Environmental Fiscal Reform. Case studies
Emission Trading Scheme (ETS)
BENEFITS:
Environmental: Sets clear emission reduction targets and
provides certainty of achieving them Gives an incentive for companies to account
for the environmental cost of their activitiesEconomic: Delivers emission reductions targets at the
lowest cost Offers companies flexibility in their
abatement options Provides regulatory predictability and stable
framework for investment choices. Auctioning revenues can be used for
environmental action
CHALLENGES: Do not stimulate innovation and low-
carbon technologies investment if carbon price is not high enough
Administrative cost: competent authorities, MRV system, compliance enforcement
Market liquidity: trading works only if there is sufficient certificate demand and supply now and in the future
Price volatility and uncertainty for emitters
Surplus supply of certificates (excessively high cap) can undermine the scheme
Carbon leakage: risk of emitters relocating outside of the regulated area
28Source: https://icapcarbonaction.com/
Emission Trading Schemes (ETS) around the world 17 ETSs around the world, mostly in developed or emerging economies Various sectors covered: energy, industry, transport, waste, buildings and agriculture Implemented on the national, subnational or city levels
29
Selecting policies
30Source: IPCC 2007. Working Group III. Chapter 13. Policies, Instruments and Co-operative Arrangements
IPCC 2014. Working Group III. Chapter 15. National and Sub-national Policies and InstitutionsWorld Bank 2013. Training course Policy Instruments for Low Emissions Development: From Design to
ImplementationButzengeiger 2011. Application of economic instruments for adaptation to climate change
Comparing different policy instruments
• Regulatory measures and standards generally provide some certainty of reaching environmental objectives, but their environmental effectiveness depends on their stringency
• The cost of regulation instruments to the government is likely relatively low
Regulation instruments
Economic instruments
• Direct subsidies, grants, concessional loans help facilitate additional private investment and are often critical to overcoming the barriers to the penetration of new technologies. Their economic costs are generally higher, but they are easier to implement politically than other instruments
• Taxes and charges are generally cost-effective, but they cannot guarantee a particular level of emissions, and they may be politically difficult to implement and, if necessary, adjust. Their environmental effectiveness depends on stringency
• Emission trading schemes ensure certainty and cost-efficiency of achieving environmental goals, but are institutionally and administratively costly and may not stimulate innovation and investment in low-carbon technologies
• Feed-in tariffs require an up-front and continuous administrative commitment, but encourage uptake of the targeted technology, stimulate growth of local industry, and unlock private investment, including small-scale actors
31
Comparing different policy instruments
• All instruments can be designed well or poorly and to be stringent or lax and politically attractive or unattractive.
• All instruments must be monitored and enforced to be effective.
• Climate policies are seldom applied in complete isolation – they overlap with other national polices relating to the environment, forestry, agriculture, waste management, transport and energy. In addition, they should be aligned with international policy frameworks, e.g. NAMA or NAP
• For an environmentally effective and cost-effective instrument mix, there must be a good understanding of the environmental issue to be addressed the links with other policy areas and the interactions between the different instruments in the mix.
• Applicability in specific countries, sectors and circumstances – particularly developing countries and economies in transition – can vary greatly, but can be enhanced when instruments are adapted to local circumstances
Source: IPCC 2007. Working Group III. Chapter 13. Policies, Instruments and Co-operative Arrangements IPCC 2014. Working Group III. Chapter 15. National and Sub-national Policies and InstitutionsWorld Bank 2013. Training course Policy Instruments for Low Emissions Development: From Design to
ImplementationButzengeiger 2011. Application of economic instruments for adaptation to climate change
32
Developing / selecting appropriate policy/policy mix
Source: World Bank 2013. Training course Policy Instruments for Low Emissions Development: From Design to Implementation
• Appropriate policy mix will vary from country to country• Policy selection is an iterative process, commonly has several steps:
• Multi-stakeholder processes are necessary to ensure that all relevant voices provide input on how and which policy instruments are selected
• An effective multi-stakeholder process can build support for eventual policy and lead to policy options that best reflect local priorities
1. Define policy evaluation criteria
2. Weigh evaluation criteria according to local priorities
3. Assess trade-offs between different policy options
4. Evaluate expected performance of policy
5. Select policy mix
Multi-stakeholder p
rocess
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Defining evaluation criteria
Examples of evaluation criteria:
• Environmental effectiveness• Cost efficiency• Feasibility: economic, institutional, political• Investment security• Opportunity to leverage international finance• Coverage: sectors, market barriers • Co-benefits• Complementarity with other policies/synergies
Source: World Bank 2013. Training course Policy Instruments for Low Emissions Development: From Design to Implementation
34
Example of a policy map
Buildings & urban structure
Energy Industry Transport Waste Agriculture and forestry
Building codes
Vehicle standards
Carbon tax/energy tax
Concessional loans
Concessional loans
Grants
Labelling, capacity building, information campaigns
Land-use regulation
Research and development grants
Performance standards
Low-cost debt
Feed-in-Tariff
Emission trading schemeGrants Economic
instruments
R&D support
Information and training
Regulation
Source: IPCC 2007. Working Group III. Chapter 13. Policies, Instruments and Co-operative Arrangements IPCC 2014. Working Group III. Chapter 15. National and Sub-national Policies and InstitutionsWorld Bank 2013. Training course Policy Instruments for Low Emissions Development: From Design
to Implementation
Sectors
Mitigation policies
Adaptation policies
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Key questions to recap
• What climate policy instruments (regulations and market-based instruments) do you already have in your country? What is working? What needs changing/improving?
• What criteria would you use when selecting specific policy instruments? Why are these criteria important?
36
Thank you for your attention!!!
37
BACK UP
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The role of public policy
• National adaptation and mitigation strategies require comprehensive and coherent policy portfolios that can enable transformational change across the economy
• National polices and actions designed in line with international frameworks, e.g. NAMAs or NAPs, enable access to co-financing by international finance for their implementation
Current economy
Green economy
Increasing immediate and long-term private investment + Public finance
exit strategy
Enabling policy framework
Source: Adopted from: Green Growth in Practice. Lessons from Country Experiences, E3G 2014
International finance
Government financial
incentives
Public budget support
39
Identifying climate policy needs
Key steps1. Analyse current emissions data and future projections2. Assess reduction potentials and priorities3. Review existing policy landscape4. Identify policy gaps for successful implementation5. Develop / select policy(ies) to close the gap
Take into consideration: • National Communications• Low-Emission Development
Strategy (LEDS)• Nationally Appropriate
Mitigation Actions (NAMAs)
Key steps1. Analyse climate change impacts and vulnerabilities2. Identify adaptation priorities & potential areas for
policy contribution3. Review existing policy landscape 4. Identify policy gaps for successful implementation5. Develop / select policy(ies) to close the gap
Take into consideration: • National Communications• National Adaptation
Programmes of Action (NAPA)
• National Adaptation Plan (NAP) process
Source: Adelphi GIZ 2012. Steps for Moving a NAMA from Idea towards Implementation
Mitigation
Adaptation
40
Taxes and fees examples
Source: Environmental Fiscal Reform. Case studies. GIZ 2013
Taxes on natural resource
extraction
Taxes on products
Taxes on pollutants and
emissionsCharges and fees
Burkina Faso
Morocco
South Africa
Tanzania
Uganda
China
Vietnam
Bolivia
Brazil
Colombia
Nicaragua
x
x
x
x
x
x
x
x
x
x
x
Afric
aAs
ia
Latin
Am
eric
a
41Source: World Bank 2013
IPCC 2007Butzengeiger 2011
Feasibility: Institutional requirements and economic costQ
uanti
ty
inst
rum
ents
Institutions required Public cost Private cost
Tradable Certificates Managing authority • Administrative cost • Total investment cost
Emission Trading Scheme
Managing authority • Administrative cost • Total investment cost
Subsidy/Grants Fund/Public bank • Administrative cost• Grant/subsidy amount
• Remaining investment cost
Low-cost loans Fund/Public bank • Administrative cost• Interest rate buy-down
• Remaining investment cost
Feed-in-Tariffs Managing authority • Administrative cost • Total investment cost• Energy price change
Taxes and fees/tax cost support
Tax authority • Administrative cost• Tax revenue/tax
revenue loss
• Remaining investment cost
Building codes
Regulation instruments
Managing authority • Administrative cost • Total investment cost
Market-based instruments
Pric
e in
stru
men
ts