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Electricity is a paradoxical economic good: it is highly homogeneous and heterogeneous at the same time. Electricity prices vary dramatically between moments in time, between location, and according to lead-time between contract and delivery. This three-dimensional heterogeneity has implication for the economic assessment of power generation technologies: different technologies, such as coal-fired plants and wind turbines, produce electricity that has, on average, a different economic value. Several tools that are used to evaluate generators in practice ignore these value differences, including "levelized electricity costs", "grid parity", and simple macroeconomic models. This paper provides a rigorous and general discussion of heterogeneity and its implications for the economic assessment of electricity generating technologies. It shows that these tools are biased, specifically, they tend to favor wind and solar power over dispatchable generators where these renewable generators have a high market share. A literature review shows that, at a wind market share of 30-40%, the value of a megawatt-hour of electricity from a wind turbine can be 20-50% lower than the value of one megawatt-hour as demanded by consumers. We introduce "System LCOE" as one way of comparing generation technologies economically.
Global mitigation efforts remain insufficient to limit the global temperature increase to well below 2 °C. While a growing academic literature analyzes this problem, perceptions of which obstacles inhibit goal attainment and which responses might be most effective seem to differ widely. This makes prioritization and agreement on the way forward difficult. To inform prioritization in global climate policy and research agendas, we present quantitative data on how 917 experts from the IPCC and the UNFCCC perceive the importance of different obstacles and response options for achieving 2 °C. On average, respondents consider opposition from special interest groups the most important obstacle and technological R&D the most important response. Our survey also finds that the majority of experts perceives a wide range of issues as important, supporting an agenda that is inclusive in terms of coverage. Average importance ratings differ between experts from the Global North and South, suggesting that balanced representation in global fora and regionally differentiated agendas are important. In particular, opposition from special interest groups is a top priority among experts from North America, Europe and Oceania. Investigating the drivers of individual importance ratings, we find little difference between experts from the IPCC and the UNFCCC, while expert's perceptions correlate with their academic training and their national scientific, regulatory, and financial contexts.
Should economic growth continue in a world threatened by the prospect of catastrophic climate change? The scientific and public debate has brought forth a broad spectrum of views and narratives on this question, ranging from neoclassical economics to degrowth. We argue that different positions can be attributed to underlying differences in views on (a) factors that determine human well‐being, (b) the feasibility and desirability of economic growth, (c) appropriate intervention points, and (d) preferences about governance and policy options. For each of these dimensions, we propose points of agreement on which a consensus between conflicting positions might be achieved. From this basis, we distill a sustainability transition perspective that could act as a basis for a renewed debate on how to align human well‐being with environmental sustainability.
The Intergovernmental Panel on Climate Change (IPCC) has proven its value as an institution for large-scale scientific collaboration to synthesize and assess large volumes of climate research for use by policy-makers, as well as for establishing credibility of findings among diverse national governments. But the IPCC has received considerable criticism of both its substance and process. The new IPCC leadership to be elected in October could help guide the IPCC to a clear, shared understanding of future objectives and could shape procedural reforms. We identify key opportunities for reform by addressing two related questions: Is the IPCC doing the right things? Is the IPCC doing things right?
Technical Summary
(2014)
Systematic review and meta-analysis of ex-post evaluations on the effectiveness of carbon pricing
(2024)
Today, more than 70 carbon pricing schemes have been implemented around the globe, but their contributions to emissions reductions remains a subject of heated debate in science and policy. Here we assess the effectiveness of carbon pricing in reducing emissions using a rigorous, machine-learning assisted systematic review and meta-analysis. Based on 483 effect sizes extracted from 80 causal ex-post evaluations across 21 carbon pricing schemes, we find that introducing a carbon price has yielded immediate and substantial emission reductions for at least 17 of these policies, despite the low level of prices in most instances. Statistically significant emissions reductions range between –5% to –21% across the schemes (–4% to –15% after correcting for publication bias). Our study highlights critical evidence gaps with regard to dozens of unevaluated carbon pricing schemes and the price elasticity of emissions reductions. More rigorous synthesis of carbon pricing and other climate policies is required across a range of outcomes to advance our understanding of “what works” and accelerate learning on climate solutions in science and policy.
Levelized costs of electricity (LCOE) are a common metric for comparing power generating technologies. However, there is criticism particularly towards evaluating variable renewables like wind and solar PV power based on LCOE because it ignores variability and integration costs. We propose a new metric System LCOE that accounts for integration and generation costs. For this purpose we develop a new mathematical definition of integration costs that directly relates to economic theory. As a result System LCOE allow the economic comparison of generating technologies and deriving optimal quantities in particular for VRE. To demonstrate the new concept we quantify System LCOE from a simple power system model and literature values. We find that at high wind shares integration costs can be in the same range as generation costs of wind power and conventional plants in particular due to a cost component “profile costs” captured by the new definition. Integration costs increase with growing wind shares and might become an economic barrier to deploying VRE at high shares. System LCOE help understanding and resolving the challenge of integrating VRE and can guide research and policy makers in realizing a cost-efficient transformation towards an energy system with potentially high shares of variable renewables.
Summary for Policymakers
(2014)
Carbon pricing is essential to achieve a reduction in global CO2 emissions. A carbon price can either be set directly via a carbon tax (price control) or be achieved through a cap-and-trade system (quantity control). While there has been much debate about the relative merits of each approach, cap-and-trade systems have been favoured in the political arena. In principle, they offer the most straightforward way to achieve a country’s emission reduction target by simply setting the cap at the remaining emission budget. Existing emissions trading schemes (ETSs) can be found in Europe, California and Québec, for example.
The Paris Agreement formulates the goal of GHG neutrality in the second half of this century. Given that Nationally Determined Contributions are as yet insufficient, the question is through which policies can this goal be realized? Identifying policy pathways to ratchet up stringency is instrumental, but little guidance is available. We propose a policy sequencing framework and substantiate it using the cases of Germany and California. Its core elements are policy options to overcome barriers to stringency over time. Such sequencing can advance policy design and hopefully reconcile the controversy between first-best and second-best approaches.
Steuern und Abgaben auf Produkte oder Verbrauch mit gesellschaftlichen Folgekosten (externe Kosten) – sogenannte Pigou- oder Lenkungssteuern – sind ein gesellschaftliches „Win-Win-Instrument“. Sie verbessern die Wohlfahrt und schützen gleichzeitig die Umwelt und das Klima. Dies wird erreicht, indem umweltschädigende Aktivitäten einen Preis bekommen, der möglichst exakt der Höhe des Schadens entspricht. Eine konsequente Bepreisung der externen Kosten nach diesem Prinzip könnte in Deutschland erhebliche zusätzliche Einnahmen erbringen: Basierend auf bisherigen Studien zu externen Kosten wären zusätzliche Einnahmen in der Größenordnung von 348 bis 564 Milliarden Euro pro Jahr (44 bis 71 Prozent der gesamten Steuereinnahmen) möglich. Die Autoren warnen allerdings, dass die Bezifferung der externen Kosten mit erheblichen Unsicherheiten verbunden ist. Damit Lenkungssteuern und -abgaben ihre positiven Lenkungs- und Wohlstandseffekte voll entfalten können, seien zudem institutionelle Reformen notwendig.
Die deutsche Klimapolitik benötigt eine grundlegende Neuausrichtung. Deutschland muss im Rahmen der EU-Lastenteilungsverordnung bis 2030 seine Emissionen im Verkehrs-, Gebäude- und Landwirtschaftssektor sowie in Teilen des Industrie- und Energiesektors um 38 Prozent gegenüber 2005 vermindern, sonst drohen erhebliche Strafzahlungen. Das erfordert einen deutlich steileren CO2-Reduktionspfad als in den vergangenen Jahren. Die Regierung plant daher, bis zum Ende des Jahres ein Klimaschutzgesetz zu verabschieden. Mit der aktuellen Ausrichtung von Energiewende und Klimapolitik kann dieses Ziel allerdings nicht erreicht werden, weil die bestehenden ökonomischen Anreize unzureichend sind und für Investoren und Innovatoren erhebliche Unsicherheiten über die zukünftige Ausrichtung der Klimapolitik bestehen. Außerdem sind die bisherigen Maßnahmen sozial unausgewogen. Der klimapolitische Rahmen muss dringend auf das zentrale Ziel ausgerichtet werden, also das Vermeiden von CO2-Emissionen. Der CO2-Preis sollte zum Leitinstrument der Klimapolitik werden. Gleichzeitig wächst die Unzufriedenheit mit dem unzureichenden klimapolitischen Fortschritt in breiten Teilen der Gesellschaft: Die nationalen Klimaziele für 2020 werden verfehlt. Die Jugend, prominent vertreten durch die „Fridays for Future“-Bewegung, sieht die Lebensgrundlagen ihrer eigenen und künftiger Generationen in Gefahr. Klimaschutz ist zu einem zentralen Thema in der Mitte der Gesellschaft geworden. Daraus ist ein unmittelbarer klimapolitischer Handlungsdruck entstanden, der für eine umfassende Reform der Klimapolitik genutzt werden sollte. Die nötigen Reformen lassen sich nur durch einen Paradigmenwechsel erreichen, bei dem auch die
Umwelt- und Klimapolitik an den grundlegenden Prinzipien der Sozialen Marktwirtschaft ausgerichtet wird. Dabei gilt es den Wettbewerb um die günstigsten Vermeidungstechnologien zu fördern, Investitionssicherheit zu stärken, die Gesamtkosten für die Erreichung der Ziele möglichst gering zu halten und die Belastungen gerecht über Haushalte und Unternehmen zu verteilen. Ordnungsrecht und Förderprogramme sollten künftig nur eine ergänzende Rolle einnehmen. Im Zentrum der Neuausrichtung muss eine umfassende und koordinierte Bepreisung der CO2-Emissionen stehen. Die Ausgestaltung einer deutschen CO2-Preisreform sollte von Beginn an als Dreiklang gedacht werden: Erstens muss der Konvergenzpunkt eine europaweit harmonisierte CO2-Bepreisung sein. Zweitens sollte Deutschland als Zwischenschritt zügig eine nationale CO2-Preisreform umsetzen, um seine Ziele im Rahmen der EU-Lastenteilungsverordnung zu erreichen. Drittens sollte die europäische CO2-Preisreform Grundlage für erfolgreiche internationale Klimaverhandlungen werden. Mit dieser Reform haben Deutschland und Europa die Chance, nicht nur die europäische Klimapolitik voranzubringen, sondern auch ihre Position in den internationalen Verhandlungen zu verbessern.
With the global expansion of renewable energy (RE) technologies, the provision of optimal RE policy packages becomes an important task. We review pivotal aspects regarding the economics of renewables that are relevant to the design of an optimal RE policy, many of which are to date unresolved. We do so from three interrelated perspectives that a meaningful public policy framework for inquiry must take into account. First, we explore different social objectives justifying the deployment of RE technologies, including potential co-benefits of RE deployment, and review modelbased estimates of the economic potential of RE technologies, i.e. their socially optimal deployment level. Second, we address pivotal market failures that arise in the course of implementing the economic potential of RE sources in decentralized markets. Third, we discuss multiple policy instruments curing these market failures. Our framework reveals the requirements for an assessment of the relevant options for real-world decision makers in the field of RE policies. This review makes it clear that there are remaining white areas on the knowledge map concerning consistent and socially optimal RE policies.
Model analysis within the ADAM project has shown that achieving low greenhouse gas concentration levels, e.g. at 400ppm CO 2 -eq, is technologically feasible at costs of a few percent of GDP. However, models simplify the dynamics involved in implementing climate policy and the results depend on critical model assumptions such as global participation in climate policy and full availability of current and newly evolving technologies. The design of a low stabilization policy regime in the real world depends on factors that can only be partly covered by models. In this context, the paper reflects on limits of the integrated assessment models used to explore climate policy and addresses the issues of (i) how global participation might be achieved, (ii) which kind of options are available to induce deep GHG reductions inside and outside the energy sector, and (iii) which risks and which co-benefits of mitigation options are not assessed by the models.
Im Dezember 2015 wurde in Paris Geschichte geschrieben: Die Weltklimakonferenz einigte sich auf das erste Klimaschutzabkommen, das alle Länder in die Pflicht nimmt. Damit bekennt sich die Weltgemeinschaft völkerrechtlich verbindlich zum Ziel, die Erderwärmung auf unter zwei Grad zu begrenzen. Doch was ist dieses Paris-Abkommen wert? Wo liegen seine Stärken, welche Herausforderungen kommen auf die Weltgemeinschaft zu? Welche Risiken birgt es? Was muss jetzt politisch folgen? Expertinnen und Experten aus Wissenschaft, Politik, Medien und NGOs analysieren in diesem Buch Hintergründe, Inhalte und Konsequenzen des neuen Weltklimavertrages.
The integration of wind and solar generators into power systems causes “integration costs” – for grids, balancing services, more flexible operation of thermal plants, and reduced utilization of the capital stock embodied in infrastructure, among other things. This paper proposes a framework to analyze and quantify these costs. We propose a definition of integration costs based on the marginal economic value of electricity, or market value – as such a definition can be more easily used in economic cost-benefit assessment than previous approaches. We suggest decomposing integration costs intro three components, according to the principal characteristics of wind and solar power: temporal variability, uncertainty, and location-constraints. Quantitative estimates of these components are extracted from a review of 100 + published studies. At high penetration rates, say a wind market share of 30–40%, integration costs are found to be 25–35 €/MWh, i.e. up to 50% of generation costs. While these estimates are system-specific and subject to significant uncertainty, integration costs are certainly too large to be ignored in high-penetration assessments (but might be ignored at low penetration). The largest single factor is reduced utilization of capital embodied in thermal plants, a cost component that has not been accounted for in most previous integration studies.
Several years of very low allowance prices in the EU emissions trading scheme (ETS) have motivated calls to introduce a price floor to correct potential underlying distortions and design flaws, including (i) the political nature of allowance supply and related credibility issues, (ii) potential myopia of market participants and firms, and (iii) waterbed and rebound effects resulting from policy interactions. In the wake of the recent EU ETS reform, allowance prices have sharply increased. This raises the question of whether the case for introducing a price floor in the EU ETS remains valid. We argue that such a price floor, also adopted in several other greenhouse gas cap-and-trade systems worldwide, remains an important improvement in the design of the system, as long as the above-mentioned distortions and design flaws persist. An EU ETS price floor can safeguard against these issues and provides more explicit guidance on the minimum allowance price policymakers consider acceptable. Either as a complement or substitute to the current Market Stability Reserve (MSR), a price floor would thus make the EU ETS less prone to future revision in case of unexpectedly low prices. We identify and confront four prominent arguments against the introduction of an EU ETS price floor.
Key policy insights:
- An EU ETS price floor would be an important institutional innovation enhancing political and economic stability, and predictability of the EUA price
- The recent Market Stability Reserve (MSR) reform has not removed the need for a carbon price floor.
- Introducing an element of price responsiveness into the so far purely quantitative design of the EU ETS would help to preserve its integrity
- In contrast to conventional wisdom, legal analysis reveals that an EU ETS price floor can be legally feasible
- Political support for a carbon price floor is gaining traction across Europe
Decarbonizing the global energy system requires large-scale investment flows, with a central role for international climate finance to mobilize private funds. The willingness to provide international finance in accordance with common but differentiated responsibilities was acknowledged by the broad endorsement of the Paris Agreement, and the Green Climate Funds in particular. The international community aims to mobilize at least USD 100 billion per year for mitigation and adaption in developing countries. In this article, we argue that too little attention has been paid on the spending side of climate finance, both in the political as well as the academic debate. To this end, we review the challenges encountered in project-based approaches of allocating climate finance in the past. In contrast to project-based finance, we find many advantages to spending climate finance in support of price-based national policies. First, the support for international climate cooperation is improved when efforts of successively rising domestic carbon pricing levels are compensated. Second, carbon pricing sets incentives for least-cost mitigation. Third, investing domestic revenues from emission pricing schemes could advance a country's individual development goals and ensure the recipient's ‘ownership’ of climate policies. We conclude that by reconciling the global goal of cost-efficient mitigation with national policy priorities, climate finance for carbon pricing could become a central pillar of sustainable development and promote international cooperation to achieve the climate targets laid down in the Paris Agreement.
This policy briefbuilds on theworkshop EU ETS Reform: Taking Stock and Examining Carbon Price Floor Options,held at the Centrefor European Policy Studies (CEPS) in Brussels on July 3, 2018. The workshop was cosponsored by CEPS and the AHEAD and Mistra CarbonExit projects. While the brief draws on insights from workshop discussions, its views are solely those of the authors. The brief outlinesdifferent perspectives on thepast performanceof the EU Emissions Trading System (ETS)in terms of its allowance price (Section 1), analyzes how the recent reform respondedto related challenges(Section 2), and considers the case for introducinga carbon pricefloor in the EU ETS(Section 3). The main part of the brief (Section 4) identifies five myths in the debate of an EU ETSpricefloorand criticallyconfrontsthem. Section 5 concludes by discussing potential entry points for introducing a carbon price floor in the context of the upcoming EU climate policy process