Transcript Cover Slide (option 1)

March 2009
Emissions Trading in South Africa
National Climate Change Summit
Emily Tyler
- What can we learn from theory and
emerging international experience?
- Relevant South African political, economic and
institutional characteristics
- Some initial considerations for the
design of a South African ETS
- Areas for further exploration…
Considerations from theory & international experience
Developing an ETS:
• Planning, preparation, management
• Data and lead times
• Policy stability and certainty is crucial
• Retrospective adjustment is costly!
• Voluntary pilots (data generation, preparation, reduced
complexity)
Considerations from theory & international experience
Markets and Politics
• Concentration of market power (in product or emissions
markets) negatively effects ETS performance
• Information asymmetry enables abuse in design phase
• Underlying distortions in energy markets undermine
performance
• Experience with market mechanisms advantageous
• Fiscal revenue generation possible through auctioning
• Distributional aspects effected by scheme design
Considerations from theory & international experience
Design Elements
• Capacity to design, manage, enforce. ETS is a
sophisticated policy mechanism
• Baseline setting and allowance allocation is key to
performance
• Who? Increased efficiency of coverage (liquidity) vs
distortions, administrative challenge
• Flexibility vs simplicity
• Institutional independence of scheme administrator
The South African Emissions / Energy Context
• 80% of South Africa’s emissions are energy related
• Predominantly CO2 (limited methane and nitrous oxide)
• Not a lot of info on emissions, mitigation opportunities, costs
• Institutionally: Over 50% Eskom, 19% Sasol
• Electricity crisis
• Electricity sector’s monopolistic structure, some indications of intent
to move away from this
• Power Conservation Programme, Energy Conservation Scheme,
Right To Consume trading proposal
• LTMS modeling: many negative cost options in electricity
generation, conservation, efficiency, reduction of future demand
• Long term, absolute target of 40%, emissions peak 2020/25
Broader South African Policy Environment
• Poverty alleviation and employment creation
focus
• Capacity challenge: government, energy
sector, strong financial sector
• Current infrastructure investment opportunity
In the absence of a global carbon price: balance between
competitiveness, a commitment to an emission
reduction trajectory and the creation of future strategic
competitive advantages.
South African ETS: Emerging Considerations
1. Importance of certainty
- policy-wise this is an issue both locally and internationally
- domestically and internationally no cap until 2020 (but key interventions
still required in interim)
- electricity market price uncertainty
- many negative cost options (LTMS) being considered under energy
policy already
- price certainty (floors, ceilings) within early stages of scheme is
important
2. Timing and importance of preparation and long lead times
- Data, planning, consultation
- 2020 start, voluntary scheme prior to this?
- Alignment with PCP, RTC?
Long Term Mitigation Scenario Planning Targets
Emissions peak – ‘capped’
Source: S Raubenheimer in
Genesis NBI Briefing Note,
2008
South African ETS: Emerging Considerations
3. Capacity to implement and manage an ETS
- extensive planning, ongoing maintenance and development
- less certainty, data symmetry = more complex in design
- Lack of experience with market mechanisms
- Strong, sophisticated financial sector
4. Coverage
- Issue of power concentration for regulation of downstream emissions
- Combination of Scope 2 and Scope 1 non-electricity?
- Size threshold, transaction costs, dominance of energy CO2
- Mobile emissions sources challenging under an ETS
- Distributional issues
Areas for further work
We need to better understand:
- The Australian experience: Whether it is feasible to design a scheme with
both Scope 1 and 2 electricity generation emissions (GGAS)
- The implications of the use of a white certificate trading scheme as a
greenhouse gas mitigation policy instrument in South Africa
- How could an ETS work in conjunction with existing / proposed policy
initiatives in the energy sector?
- 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