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Policy Instruments

Policy Instruments. Extra midterm office hours. Today only change: 12-1:30, not 2-3:30 Next week Monday 1-3 Tuesday 12-2. Policy Instruments in Context. actions, policies, governance actions – behavioural actions energy choices by firms, consumers

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Policy Instruments

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  1. Policy Instruments Sustainable Energy Policy

  2. Extra midterm office hours • Today only change: 12-1:30, not 2-3:30Next week • Monday 1-3 • Tuesday 12-2 Sustainable Energy Policy

  3. Policy Instruments in Context • actions, policies, governance • actions – behavioural actions • energy choices by firms, consumers • policies – rules produced by government that influence actions • Objectives (increase renewable electricity) • Instruments (renewable portfolio standard) • Settings (10% by 2012) • governance – who decides the rules Energy Sustainable Energy Policy

  4. Toolbox of Policy Instruments – Jaccard • command and control regulation • financial disincentives (taxes) • financial incentives (subsidies) • voluntarism and information • market oriented regulations – emissions cap and tradable permits (ECTP) • market oriented regulations – artificial niche market regulations sustainable energy policy

  5. Evaluative Criteria • environmental effectiveness • economic efficiency • administrative feasibility • political feasibility sustainable energy policy

  6. Command and Control Regulation • Legally binding • forces particular action • does not encourage actions beyond that required • require same actions from actors with different marginal costs of control • Example: automobile or appliance efficiency standard sustainable energy policy

  7. Command and Control Regulation – example – proposed coal GHG regs • Performance standard: coal plants can’t exceed 375 tons of CO2 per Gigawatt-hour • Current not possible with carbon capture and storage (CCS) • Starts in 2025 for new plants + those that have reached end sustainable energy policy

  8. Financial Disincentive - Taxes • Does not prohibit action, but taxes it • Can’t guarantee a particular outcome • Sensitive to diversity of producer costs and consumer preferences • Example: tax on tonne of carbon emitted – BC • 2010: $20 per tonne of CO2 equivalent • 2011: $25 • 2012: $30 sustainable energy policy

  9. Financial Incentives (Subsidies) • Government spending reduces cost of action • Examples: • rebate for fuel efficient cars (Canada’s ended) • ecoENERGY Retrofit Grants and Incentives • Royalty breaks for fossil fuel production • Research – see Post Partisan Power sustainable energy policy

  10. Voluntarism and Information • Can produce more informed decisions about costs and efficacy • Example: One Tonne Challenge sustainable energy policy

  11. market oriented regulations – emissions cap and tradable permits (ECTP) • Caps total amount of emissions • Distributes allowances (permits) to polluters • Polluters can trade permits • Effective in that you get greater certainty over emissions • Design issues in startup – should initial permits be auctioned off or “grandparented” • Example: • European Uni0n’s Emission Trading System • Western Climate Initiative sustainable energy policy

  12. Stavins: Key design elements • Gradual trajectory of emission reductions • Tradeable allowances • Upstream regulation with economy-wide effects • Mechanisms to reduce cost uncertainty • Allowance allocation • Provisions for offsets • Linkage with other countries Sustainable Energy Policy

  13. market oriented regulations – artificial niche market regulations • Require a certain % of the market to have performance characteristics • Can “force” innovation • Examples • Renewable portfolio standard sustainable energy policy

  14. Missing Instruments? • direct provision • “Crown” corporations • National Oil Companies increasingly important • Klare: 81% of proven reserves controlled by NOCs 1990: Mulroney privatized, but kept 19% share 2004: fully privatized sustainable energy policy

  15. Evaluative Criteria • environmental effectiveness • economic efficiency • administrative feasibility • political feasibility sustainable energy policy

  16. Because of different marginal costs of control, market-based regulations are more cost-effective Sustainable Energy Policy

  17. Evaluating energy sustainability policy instruments Sustainable Energy Policy

  18. Policy-Politics Mismatch • Politicians prefer non-compulsory policies • History shows us they are insufficient • Market-based instruments are more cost effective • Policy trend: • Failure of Congress to enact cap and trade leading US to pursue regs • Canada committed to harmonizing - Canada slowly pursuing regs Sustainable Energy Policy

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