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Taran Fæhn, Statistics Norway: Climate policy aims and emissions pricing in Norway.

Workshop on Mitigation of CO2 emissions by the agricultural sector , Bergen, 3 Oct 2011. Taran Fæhn, Statistics Norway: Climate policy aims and emissions pricing in Norway. Carbon pricing - Some principles. Social benefit = sum of marginal damage= emissions price

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Taran Fæhn, Statistics Norway: Climate policy aims and emissions pricing in Norway.

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  1. Workshop on Mitigation of CO2 emissions by the agricultural sector, Bergen, 3 Oct 2011 Taran Fæhn, Statistics Norway:Climate policy aims and emissions pricing in Norway.

  2. Carbon pricing - Some principles • Social benefit = sum of marginal damage= emissions price Global 1.best: same price (ETS) Distribution: Allocation of qoutas Necessary global price 2020 (IEA/OECD): 50$ (250NOK) – sharply increasing towards 2050: 150-250$ • 2. best: Rich countries: Lower marginal benefit from emitting ->higher price (i.e. use carbon pricing as distributional instrument) • Norwegian climate policies? • The Olsen commission: • The EU price is a reasonable point of departure • Cost efficiency: All sources uniform price like EU’s • It is not cost efficient to have a national target • If national target desirable, use a uniform price (even if carbon leakage and EU ETS) • Only if market failures, supplement with appropriate standards, regulation, subsidies… • A national target optimal price = the necessary price to meet target under: no damage over: unacceptable damage

  3. The Climate Agreement and Norway’s pledges post-Copenhagen: • Overfulfill the Kyoto commitments by 10% (quotas/CDM) • Within 2020: Cut the globale climate gas emissions equivalent to 30% of our 1990 emissions • Participate in EU ETS phase 2 (2008-12) and 3 (2013-2020) • 2/3s of the reduction from a specified 2020 benchmark ”seem obtainable” domestically • Carbon neutrality within 2030, if other industrial countries make considerable commitments, too

  4. A quantitative interpretation of the domestic goal in 2020 (in our mandate): Benchmark Observed (until 2008) Global contribution cap Domestic target New measures 12-14 million tons ”non-forest” (15-17 incl. forest measures) 45-47 million tons ”non-forest” (42-44 incl. forest measures)

  5. The Climate Cure 2020 Two approaches: BOTTOM-UP approach: Sector-by-sector analyses: Detailed information on costs and abatement potentials of different measures TOP-DOWN approach (Statistics Norway): Macroeconomic CGE analysis : Computations of totale and marginal costs of the sum of measures necessary • Drawback : excisting technologies • Innovation: integrating information from 1)

  6. The macroeconomic scenarios The international commitments and pledges, only The Kyoto commitments The aims on global contributions post-Kyoto The EU ETS participation phase 2 and 3 Adding a national target uniform pricing = approximating a cost-effective regime Sheltering the EU ETS sector No additional policies in the EU ETS sector Cost-efficient EU ETS market Protect cornerstone enterprises Avoid carbon leakage Same international and domestic targets: burden-shifting to non-EU ETS

  7. THE MODEL MSG-TECH of the Norwegian economy Top-down features: - Economy-Energy-Emission CGE model (6 Kyoto-gases and 6 local pollutants) - Small, open economy features (no terms-of-trade effects) - Relatively disaggregate (40 industries, 60 goods) to capture substitution and composition effects - Second-best features of the real economy (market failures and policy distortions) - Recycling through labour taxation and endogenous labour supply responses

  8. THE MODEL MSG-TECH Bottom-up features: - Current and future technological options modelled within: - four process manufacturing industries (metals, chemicals, mineral products, pulp and paper) - petroleum industry - road transport within industries, households, public sector - Data and modelling: - detailed, plant-specific project studies of costs and abatement potentials - marginal abatement cost curves attributed to each industry - simultaneous determination of technological adaptation and other adjustments to GHG policy instruments (- Other technological change: Exogenous TFP growth and substitution (estimated on historical data)

  9. Modelling technological abatement costsill: Petroleum industry: • The detailed projects: • Electrification • Wind power installations • Power efficiency improvements • CCS The equations: The abatement curve:

  10. A) International commitments/ aims European: Industries: 2008-12: Petroleum, Refining, Process industries (not aluminium), Power (= 40% of emissions) From 2013: Also aluminium ( >50% of emissions) (From 2012: Aviation market (not modelled)) Global: KYOTO COMMITMENTS 2008-2012 Target: 10% Over-fulfillment = 44,9 mill tons CO2-eq annually PLEDGES FOR 2020 TO UN Target: 2020: cap of 35 millioner tonn CO2-ekvivalenter 2013-2020: Assumed: As in Kyoto-period

  11. International contributions- benchmarks- commitments/pledges Benchmark total Global contribution Benchmark EU ETS European contribution

  12. The international quota prices Flexible mechanisms

  13. International commitments/aims Results • GHG emissions in 2020 reduced by 3 mill tons (dvs. ¼-way) • Only in the EU ETS sector • Technology measures: 1,1 mill tons • Permit purchases: 18 millt. in 2020; i.e. 86% total global target • Social costs: 1,6 bill. NOK yearly (annuity) • Primarily permit purchases • NOTE: No transition costs

  14. Policy B: Uniform emission price The domestic, uniform emission price : 190€/t (1500 NOK/t)

  15. Policy B: Uniform emission price Benchmark total Domestic contribution Global contribution Benchmark EU ETS Domestic contribution EU ETS European contribution

  16. 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 0 -2000000 -4000000 Non-tech: Residual Non-tech: EU ETS -6000000 Tech: Residual Tech: EU ETS other Tech: Offshore -8000000 -10000000 -12000000 Policy B: Uniform emission price The abatement composition: Mill to CO2 eq • 50/50 technological investments and others (within technol)

  17. Policy B: Uniform emission price The abatement costs: • Welfare loss: 5 bill NOK, i.e. more than tripled • Important preconditions: • Equal emission prices for all! • Global and European contribution targets in excess are met through quota purchase • Revenue is fed back as reduced labour tax, which improves efficiency • Subsidised onshore process industries are crowded out and they are relatively unproductive • No abatement nor downscaling of primary industries

  18. Information from the bottom-up studies: Some technological measures/adaptations are omitted Buildings: Many more than free measures (conversion and efficiency measures) ca 2 millt Other manufacturing: conversion and efficiency ca ½ millt Agriculture: diffuse emissions/sinks ca 1 millt Skogbruk: Sinks ca ½ millt ca 4 millt Can it be even more cost effective? Foto: Marianne Gjørv

  19. 4000 3500 3000 utslippspris rest 2500 utslippspris EU-ETS NOK/tonn CO2-ekv. 2000 1500 1000 500 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2008 2009 2010 C: Sheltering the EU ETS sector Emissions price in non-EI ETS (2020): 3400 NOK/t Non EU ETS EU ETS

  20. C: Sheltering the EU ETS sector Emission abatement 2020 (mill tons) Uniform price EU ETS sheltered

  21. C: Sheltering the EU ETS sector • Social costs: Doubling from B • 10 bill/year (annuity). • Permit purchases cost more (less EU-ETS-red -> more EU-quotas) • Domestic abatement much more expensive • More revenue (high price an inelastic emission sources) (-) • More technological adaptation in transport (extrapolation)

  22. Main results • Only the international commitments/pledges • At least two prices apply • Costs are nevertheless low towards 2020 (Climate cure overestimated the price 40€ in 2020?) • Post-2020?.. depending on the global efforts • Domestic target • Marginal cost in 2020: 1500 NOK /200 € • More than tripling the total cost • Domestic target and sheltering • Another doubling of marginal and total costs

  23. Several targets imply several emission prices Illustrated by the computations: • Global target, only: Use the global marginal cost • EU ETS participation: EU-ETS price • Extra expectations from offshore EU ETS + tax • National target: Domestic marginal cost (=1500,- NOK) • National only for non-EU ETS: nonEU ETS marginal cost (=3400,-) • The more objectives in the climate policy, the more costly and the higher number of prices/marginal costs • The reasonable emission price/marginal cost estimate for agriculture???

  24. Thank you tfn@ssb.no www.Klimakur2020.no

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