Transcript Cover Slide (option 1) - Energy Research Centre (UCT)

March 2009
Emissions Trading in South Africa
National Climate Change Summit
Emily 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