Planetary Economics Energy, Climate Change and the Three Domains of Sustainable Development Michael Grubb With Jean-Charles Hourcade and Karsten Neuhoff Routledge/Taylor & Frances, Published March 2014 http://www.routledge.com/books/details/9780415518826/ Source: Grubb, Hourcade, and Neuhoff. (2014): Planetary Economics: energy, climate change and the three domains of sustainable development. Routledge
An integrated approach to Energy Transition • Nature of the energy challenge • The Three Domains and Three Pillars of Policy • System key components • Pillar I: Standards and Engagement • Pillar II: Markets and Pricing • Pillar III: Strategic investment • Growth theory and macroeconomic linkages • Policy Integration • Joint Benefits • The Economics of Changing course Source: Grubb, Hourcade, and Neuhoff. (2014): Planetary Economics: energy, climate change and the three domains of sustainable development. Routledge
The energy challenge of decarbonisation 3 Historic average: 1.3%/yr 2010 1980 Decarbonisation (CO2/Energy MtCO2/Mtoe) 2.5 1990 2 Global carbon intensity 1.5 Global 20% by emissions 1 reduction Historical Decarbonisation/Energy below 1990 Productivity level 50% by 2050 Combination needed for percentage 0.5 emissions reduction Possible future paths 0 0 2.5 5 7.5 10 12.5 15 17.5 Energy Productivity (GDP/Energy bn$2000/Mtoe) Global energy efficiency Source: Grubb, Hourcade, and Neuhoff. (2014): Planetary Economics: energy, climate change and the three domains of sustainable development. Routledge
Carbon intensity has fallen but countries remain at widely varying levels 3 2.5 2 1.5 China 1 Australia EU New Russia India 0.5 USA Japan World EU 15 0 Figure 1.6 Trends in carbon intensity, by region and globally from 1980 ‐ 2008 Source: Authors. Data from IEA (2010) and World Bank (2011) Source: Grubb, Hourcade, and Neuhoff. (2014): Planetary Economics: energy, climate change and the three domains of sustainable development. Routledge
… last few decades, largely stable per-capita emissions in industrialised countries with little sign of convergence 25 CO 2 emissions tonnes per capita (tCO 2 ) – World USA 20 Australia Canada 15 Russian Bank Federation Germany Korean 10 Japan UK Poland France 5 China Brazil India 0 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 GDP per capita PPP ($bn 2000) Figure 1.7 Per ‐ capita CO2 emission trends in relation to wealth ‐ trends of major countries from1990 ‐ 2008 Data from World Bank (2011) and IEA (2010) Source: Grubb, Hourcade, and Neuhoff. (2014): Planetary Economics: energy, climate change and the three domains of sustainable development. Routledge
The “Bashmakov-Newbery Constant” • The proportion of national income spent on energy has remained surprisingly constant - for more than a century - for most countries - Despite huge variations in energy prices (Bashmakov) - This cannot be explained through the classical measures of in-country consumer price response (elasticities) but needs also to invoke: – Energy efficiency regulation and related policy responses – Innovation throughout energy supply and product chains Source: Grubb, Hourcade, and Neuhoff. (2014): Planetary Economics: energy, climate change and the three domains of sustainable development. Routledge
Prelude: three levels of risk conception .. Risk Basic Belief Typical Societal Time ‐ scale of Conception Strategy process climate change Indifferent Not proven, or “Ignorance is Environmental First few or “What you don’t bliss” group campaigns decades of disempowered know can’t hurt vs . resistance climate change you” lobbying Tangible and Weigh up costs Act at costs up to Technocratic As impacts rise attributed costs and benefits “social cost of valuation and above the noise carbon” politics of – next few pricing decades Disruption and Personal or “Containment Mitigate as much Ultimately, for securitization collective and defence” as practical and all (systemic and security at risk, adapt to the rest global risk) climate change Most as a “threat vulnerable , multiplier” sooner, with international spillover Source: Grubb, Hourcade, and Neuhoff. (2014): Planetary Economics: energy, climate change and the three domains of sustainable development. Routledge
An integrating approach to climate policy Three Domains and the Three Pillars of Sustainable Development • Nature of the challenge • The Three Domains and Three Pillars of Policy • System key components • Pillar I: Standards and Engagement • Pillar II: Markets and Pricing • Pillar III: Strategic investment • Policy Integration • Joint Benefits • The Economics of Changing course Source: Grubb, Hourcade, and Neuhoff. (2014): Planetary Economics: energy, climate change and the three domains of sustainable development. Routledge
Three Domains – an Economic Interpretation 1 st Domain 2 nd Domain 3 rd Domain “Satisficing” “Transforming” “Optimising” behaviour behaviour behaviour Resource Use / Energy & Emissions 1. Real-world individual 3. Innovation & and organisational evolution of decision-making complex systems Economic Output / Consumption Fig. 2 ‐ 3 b Resource trade ‐ offs with the other two domains Source: Grubb, Hourcade, and Neuhoff. (2014): Planetary Economics: energy, climate change and the three domains of sustainable development. Routledge
The Three Domains rest on different fields of theory that apply at different scales Behavioural and T S I O organisational M C E I A Neoclassical and H L O welfare R S I C Z A O L Evolutionary and N E institutional Source: Grubb, Hourcade, and Neuhoff. (2014): Planetary Economics: energy, climate change and the three domains of sustainable development. Routledge
Three realms of abatement opportunities - Global estimates for 2030 highlight first two .. 100 Estimates of Global Mitigation Costs and Potential by 2030 80 Advanced Economies Emerging Asia 60 Rest of the World Cost $USD/tonne of CO2e (in Millions) 40 Smarter Choices (Pillar I) 20 0 5 10 15 20 25 Annual abatement in 2030 GtCO2e ‐ 20 Choosing cleaner ‐ 40 products and processes Innovation and (Pillar II) Infrastructure ‐ 60 (Pillar III) Source: Planetary Economics , utilising McKinsey data from Pathways to a ‐ 80 Low Carbon Economy (2009) ‐ 100 Source: Grubb, Hourcade, and Neuhoff. (2014): Planetary Economics: energy, climate change and the three domains of sustainable development. Routledge
Solutions need to harness corresponding policy pillars based on the three domains, to transform energy systems H Highest relevance Policy pillars M Medium relevance 1 2 3 L Lowest relevance Standards & Markets & Strategic Dom ain To deliver Engagem ent Prices I nvestm ent Sm arter H L/ M L Satisfice choices Cleaner Optim ise M H M products & processes I nnovation & Transform L L/ M H infrastructure Source: Grubb, Hourcade, and Neuhoff. (2014): Planetary Economics: energy, climate change and the three domains of sustainable development. Routledge
An integrating approach to climate policy Three Domains and the First Pillar of Sustainable Development • Nature of the challenge • The Three Domains and Three Pillars of Policy • System key components • Pillar I: Standards and Engagement • Pillar II: Markets and Pricing • Pillar III: Strategic investment • Policy Integration • Joint Benefits • The Economics of Changing course Source: Grubb, Hourcade, and Neuhoff. (2014): Planetary Economics: energy, climate change and the three domains of sustainable development. Routledge
Energy and emission flows within the fossil fuel system Note: The lower panel gives the numeric breakdown at each stage illustrated in the upper panel. Numbers at each step in the Chart (fuel, channel, end ‐ use) independently add to 100%. [ All data from the International Energy Agency, accessed through ESDS. ENDUSE CHANNELS FUEL Buildings and Direct fuels and heat Coal appliances Emissions from fuel Electricity system Process extraction Industry Gas emissions Refined fuels Petroleum Transport system Landuse , other Agriculture gases Fig. 3.1 a Source: Grubb, Hourcade, and Neuhoff. (2014): Planetary Economics: energy, climate change and the three domains of sustainable development. Routledge
In transforming energy systems globally, all three domains are • … approximately equally important – Cost curve data – Difference between in-country and international elasticities – Observed policies of the most successful countries – Suggestive evidence from economic Growth Accounting & individual pillar ‘bottom up’ evidence • .. and interdependent – The pillars are complementary, not competing – “Any pillar on its own will fail” But the relative importance of different measures varies across sectors and nature of co-benefits are diverse Source: Grubb, Hourcade, and Neuhoff. (2014): Planetary Economics: energy, climate change and the three domains of sustainable development. Routledge
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