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Emissions Trading in South Africa National Climate Change Summit Emily Tyler

March 2009. Emissions Trading in South Africa National Climate Change Summit Emily Tyler.

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Emissions Trading in South Africa National Climate Change Summit Emily Tyler

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  1. March 2009 Emissions Trading in South AfricaNational Climate Change SummitEmily Tyler

  2. - What can we learn from theory and emerging international experience?- Relevant South African political, economic and institutional characteristics- Some initial considerations for the design of a South African ETS- Areas for further exploration…

  3. Considerations from theory & international experience Developing an ETS: • Planning, preparation, management • Data and lead times • Policy stability and certainty is crucial • Retrospective adjustment is costly! • Voluntary pilots (data generation, preparation, reduced complexity)

  4. Considerations from theory & international experience Markets and Politics • Concentration of market power (in product or emissions markets) negatively effects ETS performance • Information asymmetry enables abuse in design phase • Underlying distortions in energy markets undermine performance • Experience with market mechanisms advantageous • Fiscal revenue generation possible through auctioning • Distributional aspects effected by scheme design

  5. Considerations from theory & international experience Design Elements • Capacity to design, manage, enforce. ETS is a sophisticated policy mechanism • Baseline setting and allowance allocation is key to performance • Who? Increased efficiency of coverage (liquidity) vs distortions, administrative challenge • Flexibility vs simplicity • Institutional independence of scheme administrator

  6. The South African Emissions / Energy Context • 80% of South Africa’s emissions are energy related • Predominantly CO2 (limited methane and nitrous oxide) • Not a lot of info on emissions, mitigation opportunities, costs • Institutionally: Over 50% Eskom, 19% Sasol • Electricity crisis • Electricity sector’s monopolistic structure, some indications of intent to move away from this • Power Conservation Programme, Energy Conservation Scheme, Right To Consume trading proposal • LTMS modeling: many negative cost options in electricity generation, conservation, efficiency, reduction of future demand • Long term, absolute target of 40%, emissions peak 2020/25

  7. Broader South African Policy Environment • Poverty alleviation and employment creation focus • Capacity challenge: government, energy sector, strong financial sector • Current infrastructure investment opportunity In the absence of a global carbon price: balance between competitiveness, a commitment to an emission reduction trajectory and the creation of future strategic competitive advantages.

  8. South African ETS: Emerging Considerations 1. Importance of certainty - policy-wise this is an issue both locally and internationally - domestically and internationally no cap until 2020 (but key interventions still required in interim) - electricity market price uncertainty - many negative cost options (LTMS) being considered under energy policy already - price certainty (floors, ceilings) within early stages of scheme is important 2. Timing and importance of preparation and long lead times - Data, planning, consultation - 2020 start, voluntary scheme prior to this? - Alignment with PCP, RTC?

  9. Long Term Mitigation Scenario Planning Targets Emissions peak – ‘capped’ Source: S Raubenheimer in Genesis NBI Briefing Note, 2008

  10. South African ETS: Emerging Considerations 3. Capacity to implement and manage an ETS - extensive planning, ongoing maintenance and development - less certainty, data symmetry = more complex in design - Lack of experience with market mechanisms - Strong, sophisticated financial sector 4. Coverage - Issue of power concentration for regulation of downstream emissions - Combination of Scope 2 and Scope 1 non-electricity? - Size threshold, transaction costs, dominance of energy CO2 - Mobile emissions sources challenging under an ETS - Distributional issues

  11. Areas for further work We need to better understand: • The Australian experience: Whether it is feasible to design a scheme with both Scope 1 and 2 electricity generation emissions (GGAS) • The implications of the use of a white certificate trading scheme as a greenhouse gas mitigation policy instrument in South Africa • How could an ETS work in conjunction with existing / proposed policy initiatives in the energy sector? • What policy mechanisms are required for the short term critical investment decisions? • Current global economic climate and implications for economic policy making, market vs regulation • What and how costly are the emission reduction opportunities outside the energy sector? • Undertake a direct comparison of a future tax vs trading scheme in the South African context

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