Climate Change and Energy Sector Transformation ... · PDF fileClimate Change and Energy Sector Transformation: Implications for Asia ... OECD Recommendations and Implications for

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Climate Change and Energy Sector Transformation: Implications for Asia-Pacific Including Japan

Aligning Policies for the Transition to a Low-carbon Economy:

OECD Recommendations and Implications for Asia-Pacific Including Japan

ISAP 2015 Yokohama, 29 July 2015

Takashi Hattori

Head of Environment & Climate Change

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Aligning Policies for a Low-carbon Economy

Chapter 7: Reframing investment signals and incentives in electricity

Electricity is essential to the decarbonisation agenda

Source: Energy Technology Perspectives 2015

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Electricity Generation in 2DS

Growing share of variable renewables demand for a more flexible and integrated system

Low-carbon generation: higher capital cost, lower operational cost vs. coal and gas

Source: Energy Technology Perspectives 2015

Low carbon High

carbon

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Electricity markets

Regulatory framework for electricity systems determines investment context, cost, and reliability of system

Current wholesale electricity markets in many OECD countries are not strategically aligned with the low-carbon transition

Require new market arrangements as well as a robust CO2 price

Regulated electricity systems also face challenges, e.g. fair grid and market access for new low-carbon sources

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Considerations for Japan

Deregulated electricity markets may not deliver the long-term price signal needed for investment in high capital cost, low-carbon technologies.

Competitive and timely investment in low-carbon solutions will require new market arrangements such as long-term supply agreements, as well as a robust and stable CO2 price signal.

Jurisdictions with regulated systems that consider introducing greater competition need to adopt market arrangements that will encourage, rather than hinder, investment in low-carbon technologies.

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Towards COP21

A major milestone in efforts to combat climate change is fast approaching – COP21 in Paris in December 2015

Momentum is building:

• Historic US-China joint announcement; EU 2030 targets agreed

• Developed & developing countries are putting forward new pledges to reduce emissions

• Many energy companies & investors are starting to engage

• Pope Francis’ encyclical LAUDATO SI’

Source: Brookings Institute Source: Business & Climate Summit Source: US Embassy

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WEO Special Report 2015

Pledges are not yet enough to achieve our climate goal, but are a basis from which to build ambition

Companies that do not anticipate stronger energy & climate policies risk being at a competitive disadvantage

Proposes four key energy sector outcomes for COP21

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Emissions burden moves over time

Cumulative energy-related CO2 emissions by region

Past emissions are important, although the source of emissions shifts with changes in the global economy

2015-2040

1890-2014

100

200

300

400

500

United

States

European China

Union

Russia Japan India Africa

Gt

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National pledges build towards a global agreement

Submitted INDCs cover two-thirds of energy-related GHG emissions, with implications for future energy & emissions trends

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But it’s not enough…

8

16

24

32

40

1990 2000 2010 2020 2030

Gt

INDC Scenario

450 Scenario

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What does the energy sector need from COP21?

The IEA proposal for COP21:

1. Peak in emissions – set the conditions which will achieve an early peak in global energy-related emissions

2. Five-year revision – review contributions regularly, to test the scope to lift the level of ambition

3. Lock in the vision – translate the established climate goal into a collective long-term emissions goal

4. Track the transition – establish a process for tracking energy sector achievements

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1. Peak in emissions: IEA strategy to raise climate ambition

Global energy-related GHG emissions

Five measures – shown in a “Bridge Scenario” – achieve a peak in emissions around 2020, using only proven technologies & without harming economic growth

20

25

30

35

40

2000 2014 2020 2025 2030

Gt

CO

2-eq

Bridge Scenario

INDC Scenario

Energy efficiency

49%

Reducing inefficient coal

Renewables investment

Upstream methane reductions

Fossil-fuel subsidy reform

17%

15%

10%

Savings by measure, 2030

9%

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A five-year review cycle would enable pledges to keep pace with energy sector innovation; building ambition before the carbon budget is consumed

Today 2020 2025 2030 2035 2040

World’s remaining carbon budget

2. Five-year revision: World’s carbon budget is shrinking

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Total

50

100

150

200

2015 2020 2025 2030 2035 2040 M

illio

n

Vehicle sales

Cost reductions & deployment of electric vehicles

An emissions goal would give greater clarity & certainty to the energy sector, strengthening the case for RD&D investment & technology transfer

100

200

300

400

Do

llars

pe

r kW

h

Electric

Battery costs

Electric vehicles (right axis)

Solar PV additions

Capacity Capital costs

Solar PV (right axis)

Cost reductions & deployment of solar PV

40

60

80

100

2015 2020 2025 2030 2035 2040

GW

20

1 000

1 500

2 000

2 500

Do

llars

per

kW

500

Internal combustion

3. Lock in the vision: What more does it take for 2 °C?

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Energy sector indicators are needed to track the low-carbon transition; IEA identifies key metrics to monitor energy sector achievements

4. Track the transition: Impact of pledges must be monitored

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Japan: a closer look

INDC: 26% below 2013 by 2030

Unique challenges:

• limited resources

• high energy prices

• already high efficiency

Nuclear post-Fukushima

0%

20%

40%

60%

80%

100%

2010 2014 2030

Coal

Oil

LNG

Nuclear

Renewables

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Energy, Climate Change & Environment 2014:

Unlocking high-emission assets

Chapter on policies and actions to “unlock” existing high-emissions assets • Retirement of coal plant

• Change dispatch of existing power plant fleet

• Efficiency retrofit of coal plant

• Retrofit of coal plant for CCS

Examples from Canada, China, UK, US, EU

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Energy, Climate Change & Environment 2016

Preliminary topics:

Tracking the progress of the INDCs and the 2015 agreement

Coal and climate

Complementary approaches in industry/business

Energy sector resilience to climate change

Electricity markets and climate policy

Energy and emissions data

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Thank you

Takashi Hattori [email protected]

Head, Environment & Climate Change Unit

Sustainable Technology and Policy Directorate

International Energy Agency