Esercitazione Energy Economics and Climate Change Policy

Energy economics and climate change policy - V. Costantini (Università Roma Tre)

Overview

• Vulnerability and adaptation ......................................................................................................................... 1
• Energy efficiency and energy saving ............................................................................................................. 2
• Biofuels .......................................................................................................................................................... 2
• Policy instruments for Clean Energy Technologies ....................................................................................... 3
• European energy strategy ............................................................................................................................. 4
• Climate change impacts................................................................................................................................. 5
• Carbon Leakage ............................................................................................................................................. 6
• The Emission Trading System ........................................................................................................................ 6
• Clean Development Mechanism ................................................................................................................... 7
• The Green Climate Fund ................................................................................................................................ 8
• Alternative Classifications of Energy ........................................................................................................... 10

Vulnerability and adaptation

Vulnerability and adaptation are two concepts strictly connected: one, the consequence of the other. Or better, first can be referred to an ex-ante measurement; second, as a situation ex-post.

First is about the exposure to adverse effects due to Climate Change, and it involves not only the country’s geographical location but even several other socio-economics factors, such as infrastructures, political and economic stability and income, too.

Then it is mainly related to the country’s capacity to cope and deal with adverse effects, that can relate on food accountability, floods, GDP losses and many other effects, even unexpected.

Adaptation can be considered as a consequence and it is about the resilience of a country to the form effects. It is how a country can adapt to integrate Climate Change into their development strategy.

Those two concepts are a multidimensional issue: in fact, different vulnerability can arise from several socio-economics variables.

In order to assess the issues, the Notre Dame University developed an Index to catch the multidimensional factors of the issues. In fact, it takes two variables: “Readiness”, the capacity to cope promptly to adverse effects and “Vulnerability”, exposure to CC.

Indeed, the Index describes 4 different outcomes: the worst one, with high vulnerability and low readiness; the best one, with high readiness and low vulnerability.

The index lists 45 socio-economics indicators – from food accountability to Economics Variables, considering WB indicators such as “Doing Business Indicator” – that can describe different outcomes in terms of “vulnerability” and “readiness”.

Anyway, adaptation has been one of the key elements in all the Climate Summits, this mainly due to the international concern regarding the resilience of the most vulnerable economics, especially the Last Developed Countries in Africa – most exposed and less prepared to CC (first pane in the ND-GAIN Index).

For these reasons, two Funds have been implemented: first, the Adaption Fund (Kyoto Protocol) and the other one, the Green Climate Fund (2010), to meet the mitigation and adaptation targets.

Adaptation is a substitute for mitigation, but beside the distinction there’s more. GCF aims to develop projects in those countries – DCs – that are more exposed to CC.

Energy efficiency and energy saving

Someone said, “Energy Efficiency is the first fuel that every country has in abundance”. Energy Efficiency (EE) and Energy Saving (ES) have taken an increasing role in the debate over the last years, even if often those two concepts are frequently misunderstood.

In fact, even if they’re strongly related, EE and ES are different. We could even say that there can be Energy Saving without Energy Efficiency; there can be Energy Efficiency without money saving.

Then first, it is important to define EE: it can be measured by “Useful Output of a process/Useful Input of a Process” (Energy Intensity, EI).

In fact, EI can be considered as a proxy measure for the EE: even if, a country with a relatively low energy intensity does not necessarily have high energy efficiency. Equally, trends towards lower intensity are not necessarily driven by efficiency improvements.

For example, it can be defined as “GDP/Mtoe”. And it is about the possibility to reduce the Input to reach the same amount of Output – reaching the same level of GDP by a lower amount of Mtoe, in this case.

But stepping back in the answer, I wrote “there can be Energy Efficiency without Money [Energy] Saving”, because of the nature of EE that could drive into a “Rebound Effect”.

In fact, as a result of EE implementation, the cost of the Energy can decrease but the consumption can still increase. For example, if the Energy Cost gets lower, the household could decide to not switch off the fridge during the holidays.

Indeed, this effect is described as the “Rebound Effect” and can be considered fully-fledged a policy failure. A discrepancy within the expected energy saved and the actual amount.

EE has gradually taken an important role in the Developed Countries, especially in Europe with the so-called 20-20-20 Target Package.

Indeed, EE has a crucial role in the political agenda, due to Mitigation Policy and Energy Security. In fact, to meet the EU target, EE is crucial, especially in those sectors where Energy Intensity’s higher: Household consumption – energy for heating/cooling, first –, Transport Sector and manufacturing sector – especially cement production.

Energy Efficiency plays in two sides: on the short run, with a high expenditure for EE; on the long run, based on the expectations on the future energy savings. The difference between those two timespans reveals the affordability of the investment.

Biofuels

The increasing interest around Biofuel became reality around the 70s, after the first oil crises. In fact, Biofuel can represent an alternative to fossil fuels; actually, this source shows some important issues, in terms of mitigation, energy security and a boost for the domestic farm production.

In order to react to the high oil volatility, some regions had implemented policy instruments to foster biofuels. But first, it is important to make an introduction, to give substance to what I am going to write.

In fact, Biofuels are conventionally classified within first generation, that are made from food crops rich in sugar; second generation, made from non-food residual of the current crops and third generation – from algae.

Meanwhile the first generation are commonly widespread all over the globe; the advanced generations (II, III, IV gen.) are still in the research stage, a long way to the official commercialization.

Indeed, on the first generation lies the main cons of this alternative source: meanwhile, the algae biofuel could be the best clean substitute for fossil fuels, because of its alternative land use.

First generation biofuels could be one of the main causes of deforestation, then in order to overproduce crops, this would destroy our carbon sinks.

Then from one side, first generation biofuels could give non-oil producers countries a chance in terms of agricultural development – different from food production – and energy security; but still, it could reveal problems, like deforestation and land overuse.

However, the three main biofuels markets are: Europe, Brazil and USA. Brazil is one of the main bioethanol producers: in the 70s implemented an important public intervention, called “Pro-Alchool” program, that pushed the Brazilian bioethanol market up.

In 1997 the Brazilian fuel market was gradually liberalized, extinguishing all price controls. Since 2002, the ethanol price relative to petrol price fluctuates freely, though in several Brazilian States ethanol benefits from an excise-tax differential compared with petrol.

In 2003 the introduction of flex-fuel vehicles (FFVs) that can run on any given mix of