March 2009 Emissions Trading in South AfricaNational Climate Change SummitEmily Tyler
- Recap: What can we learn from theory and emerging international experience?- Some initial considerations for the design of a South African ETS- White Certificate Trading- Areas for further exploration…
Emerging Lessons from Theory and International Experience • Developing an ETS: capacity (planning and management), certainty • Markets and Politics: market structure (power concentration, experience with market mechanisms, existing distortions), info asymmetry • Design Elements: distributional, revenue generation, point of regulation, liquidity, simplicity, data for baseline setting, allowance allocation, some sectors less suitable (transport)
South African ETS: Emerging Considerations 1. Importance of certainty - Significant uncertainty both domestically and internationally - Electricity market price uncertainty Design: Price certainty (floors, ceilings) to enable investment planning 2. Timing and importance of preparation and long lead times - Data, planning, consultation Design: 2020 turning the corner and cap, voluntary scheme prior to this?
South African ETS: Emerging Considerations 3. Capacity to implement and manage an ETS - does SA have this in government, energy sectors? - less certainty, data symmetry = more complex in design - lack of experience with market mechanisms, especially in energy sector - strong financial sector Design: simplicity! 4. Coverage - Issue of power concentration for regulation of downstream emissions - Substitution, who? - Distributional issues Design: Price mechanisms to avoid pass-through of costs, point of regulation as large electricity users and Scope 1 non-electricity emissions, initially only CO2
Short term significant opportunities in energy efficiency • Substitution opportunities amongst large players perhaps best targeted by non-market mechanisms • To gain liquidity and avoid market power concentration issues need to look towards consumer of electricity, coal, gas, liquid fuels • Significant near-term, negative cost opportunities in energy efficiency White Certificate Trading Schemes
White Certificate Trading • Indirect GHG mitigation policy mechanism • White Certificates: a guarantee awarded to indicate that a certain amount of energy savings have been achieved, can be generated through a quota system • Unique, traceable, establish a ‘property right’ over the savings • Most White Certificate Trading Schemes are ‘baseline-and-credit’ • Point of regulation is typically energy distributors: electricity, gas, oil • Therefore most often there is a distinction between the point of regulation, and where the savings occur • Energy Service Companies (EsCOs) fill the gap • Internationally often used in the household sector
Emerging lessons from theory and international experience • WCS develop measuring and monitoring capacity within the energy sector • The development of an EsCO sector is stimulated • Low cost to government • Existing market structure has been found to be less of a concern BUT • Interlinking of white certificate schemes with other energy sector policy mechanisms - additionality issues (baseline and additionality crucial to performance) • Clear point of regulation and regulatory certainty are important • Interlinking with other GHG policy mechanisms, complex
White Certificates and Emissions Trading in South Africa • Proposed ECS and RTC schemes are WCS • In pipeline, with sectoral buy-in advanced • Captures ‘low hanging fruit’ of mitigation opportunities • Will generate data • Issue of temporary, intensity based nature of the ECS, complexity of linking with a GHG scheme in future • A possibility for households and transport? • Simplicity: one policy objective, one instrument.
Areas for further work We need to better understand: • The implications of the use of a white certificate trading scheme as a greenhouse gas mitigation policy instrument in South Africa (GGAS, UK) • How could an ETS work in conjunction with existing / proposed policy initiatives in the energy sector, particularly the ECS and RTC? • How can it be ensured that the energy efficiencies realised through the ECS are sustainable and long term in nature? • 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