IFO-PIK Workshop:
Transition towards global carbon pricing and fossil energy markets
Leakage
Implications for climate policy
Karsten Neuhoff
Leiter Abteilung Klimapolitik DIW Berlin
1
Technology „Leakage“ – example RE investment
$ Billion Investment in 2012
1.8
9.7
China
4.5 7.6
solar
US
Germany
wind
18.8
67,7
80,6
Uk
smart tech
Australia
biomass
142.5
78.3
biofuels
South Africa
2
4,3
geothermal 5,3
5,5
small hydro
2
Source: Bloomberg, New Energy Finance, Jan 2013
Karsten Neuhoff, 22.3.2012
Japan
44,2
6,2
8,3
16,3 22,8
Brazil
France
Mexico
Other countries
2
3
Policy leakage - example feed-in tariff
Source: http://www.pv-tech.org/tariff_watch/list
Karsten Neuhoff, 22.3.2012
3
Modernisation leakage – example slavery
• accurate, publicly available information about the impact of
slavery on lives - also against attempts by slavery's defenders
• the role of discounting the value of slave lives
• gradually more ambitious action against slavery, penalties
£100/head in 1807 to the death penalty for traders in 1827
• compensation for slave owners (£20 million in 1838)
• not with a global treaty, but country by country
4
Karsten Neuhoff, 22.3.2012
4
Production/Investment leakage – sectors potentially at risk
Lime
Casting of iron
40%
Impact from direct emissions
Preparation of yarn
Copper
Impact from indirect emissions (electricity)
Other textile weaving
Other inorganic
basic chemicals
30%
Household paper
Non-wovens
Industrial gases
Coke oven
Fertilisers & Nitrogen
4%
2%
0%
0.0%
Malt
Starches& starch
products
Flat glass
Veneer sheets
Retreading/
rebuilding tyres
Rubber tyres &
tubes manufact.
Hollow glass
Finishing
of textiles
Refined petroleum
0.2%
Aluminium
10%
Basic iron & steel
20%
Cement
Cost increase relative to value added
Commodities with significant carbon cost
Pulp &
Paper
0.4%
0.6%
Share of GDP of UK
0.8%
1.0%
5
Ist all about the detail in analysis, model and policy
Cost increase relative to value added (20 €/t CO2)
Illustrative for UK
50%
Semi finished
Iron and steel
Hot rolled
40%
30%
Total cost increase from CO2 pricing
20%
Cost increase from passed on CO2
pricing of first production stage only
10% Total cost increase from
higher electricity prices
0%
0
500
1000
1500
2000
2500
3000
Cumulative gross value added (mio €)
6
Climate Policy after Copenhagen – The role of Carbon Pricing, Cambridge University Press
Karsten Neuhoff, 22.3.2012
Conditions for green paradoxon (I/II)
Increase production
Investment
5 years
Lower revenue for
resource extraction due
to carbon price
Strong
carbon
price
Time frame
too short?
Demand
Response
too big?
Uncertainty
too high?
Difficult to see how this should work
Conditions for green paradoxon (II/II)
Coal
Requirement I
Scarce resource
/increasing cost curve
No?
Gas
No?
Requirement II
Optimization
horizon
T&T
No
Algeria No
Requirement III
Ability to control
US No
8
Oil
Yes?
Oil
- Iran
- Saudi
- Russia
- Stans
US No
Difficult to find actor meeting requirements
Karsten Neuhoff, 22.3.2012
6
Summary on leakage channels
Fossil fuel channel
• Oil (+)
• Coal (0)
(?)
• Gas (?)
• Invest uncertainty(-)
Climate
policy
Country A
(with cap)
Direct
Emission
reductions
Modernisation
leakage
(-)
Country B
(+?)
Product./investment
leakage
Policy leakage (-)
(-)
Potential
leakage
Technology leakage
Dominant effect: Unilateral climate policy triggers
additional international emission reductions
9
Vielen Dank für Ihre Aufmerksamkeit.
DIW Berlin — Deutsches Institut
für Wirtschaftsforschung e.V.
Mohrenstraße 58, 10117 Berlin
www.diw.de
Redaktion
Karsten Neuhoff
kneuhoff@diw.de