Energy and Climate Investment

November 3, 2022

Simply Switching to Electric Vehicles Today is Not Enough to Address Climate Change

By: Deborah Bleviss

There is no doubt that purchasing an electric vehicle (EV) is quite chic right now, and it is indeed true that non-fossil-fuel-based vehicles will play an increasingly important role in achieving net zero greenhouse gas (GHG) emissions by 2050. Moreover, focusing on personal vehicles makes sense; they account for almost 60 percent of the GHG emissions from transportation today in the US, with transportation making up the largest sectoral share of US GHG emissions, 27 percent (EPA, Transportation GHG Emissions).

But simply buying and using EVs today is not enough. Here are the reasons why:

Electricity generation is still overwhelmingly from fossil fuels. Indeed, fossil fuels generated more than 60 percent of utility-produced electricity in 2021 (EIA, Electricity Generation by Source). Hence, EVs are not GHG free when tracing electricity back to how it is generated. But they are better than a fossil-fueled vehicle. A typical gasoline vehicle produces over 11,000 pounds of carbon dioxide (CO₂) equivalent emissions per year. In comparison, a fully electric vehicle produces less than 4,000 pounds, while a plug-in hybrid (runs on gasoline and electricity) produces less than 6,000 pounds. A typical fossil fuel hybrid produces not much more than a plug-in hybrid, just over 6,000 pounds of CO₂ equivalent emissions (DOE Alternative Fuels Data Center, Vehicle Emissions).

Electric vehicles remain outside the affordability scale for most Americans. Their prices continue to be higher than fossil-fueled vehicles. As of June 2022, the average cost of an electric vehicle was $54,000 compared with the average price of a fossil-fueled vehicle of $44,400; both have risen sharply since the beginning of the year, 22 percent for EVs and 14 percent for fossil-fueled vehicles (Inside EVs, EV Prices). Moreover, the dominant electric vehicle brand on the market today is Tesla, whose models all exceed the average price of a fossil-fueled vehicle, ranging from $47,000 to over $200,000 (Motortrend, Price of a Tesla). Hence, while demand for EVs has increased, they remain a small fraction of overall personal vehicle sales, estimated at just over 5 percent (Car and Driver, EV Sales ).

Price aside, electric vehicles have other issues that make their potential purchase a problem for would-be buyers. First, their ranges are generally less than for fossil-fueled vehicles, especially high-efficiency vehicles. Lower-priced EVs, in particular, tend to have lower ranges. Ranges for EVs today typically are 200 to 300 miles, with some still getting less than that and a few, generally with price tags over $100,000, getting ranges in the 400-to-500-mile range (Inside EVs, EV range). In contrast, the 2022 hybrid Toyota Camry LE, with a combined fuel economy of 52 miles per gallon, a base price just below $28,000, and a CO₂ equivalent emissions of 5,600 pounds per year, has a range of 686 miles (fueleconomy.gov). Added to this problem is the limited infrastructure enabling electric vehicle owners to fuel up when their fuel supply is low. There are 46,000 public EV charging stations in the US today, of which 41,000 are slow-charging level 2 chargers that can take 4 to 10 hours to charge a fully electric vehicle (US News, Charging Stations). In contrast, there are 145,000 fossil fuel service stations in the US, and refueling takes minutes (American Petroleum Institute, No. of Service Stations ).

Using electric vehicles instead of fossil-fueled vehicles in congested urban conditions does nothing to relieve the traffic congestion that exacerbates fossil fuel use and thereby increases greenhouse gas emissions. While EVs do not directly consume more fossil fuel in traffic congestion and do not add to local emissions, their usage in urban congested areas only adds to the number of vehicles in those areas. As a result, everybody slows down and is subjected to stop-and-go conditions that cause fossil-fueled vehicles to consume more fuel and emit more greenhouse gas emissions. Not using personal vehicles at all—electric or fossil fuel—in congested urban conditions and instead using public transportation is the best strategy for reducing GHG emissions in these areas. The National Academy of Sciences has recently estimated that a person taking public transportation results in a 55 percent reduction in their CO₂ equivalent emissions compared with driving or ride-hailing (NAS, Update on Public Transportation’s Impact on GHG Emissions ).

So what should consumers, businesses and governments do to reduce greenhouse gases in personal travel?

Buying energy-efficient fossil-fueled cars is a good short- to medium-term strategy. As already noted, a fossil fuel hybrid produces half of the emissions of a typical fossil fuel car. Purchase and use of these vehicles will buy us time to address the price, range, infrastructure, and fossil fuel electricity generation problems facing today’s electric vehicles.

To the maximum extent possible, leave your personal vehicle behind—fossil fuel or electric–and use public transportation if you are traveling in an urban area. It is indeed true that public transportation does not function well in some parts of the country. This makes advocacy for investing in functional public transportation systems critical. It is essential to ensure that public transportation systems are inter-connected in an urban area (for example, buses and rail transit systems) and that public transportation users can access this type of transportation from the first mile of their commute to the last.

With public transportation so crucial in reducing GHG emissions, prioritize converting public transportation vehicles totally off fossil fuels. Already the percentage of electric buses worldwide, estimated at 13 percent in 2018 (Bloomberg, Electric Buses ), substantially exceeds the percentage of personal vehicles globally that are electrified, estimated at 1.6 percent at the beginning of 2022 (IEA, Electric Vehicles). Being able to plug electric buses into renewably generated electricity goes one step further. Montgomery County, Maryland, is leading the way here, having just started a program that enables county electric buses to recharge through electricity generated by a solar microgrid (Montgomery County, Solar Microgrid for Electric Buses ).

Be strategic in driving electric vehicle prices down, including a focus on fleets. Increasing the volume of electric vehicles sold is critical to driving down costs. Focusing on fleets to do this, owned by governments, private companies and car sharing companies such as ZipCar, makes sense. They can purchase en masse rather than buying one at a time. The US federal fleet is under a mandate to green its vehicles and hence can be an important source for increasing the size of the EV market. And among private car-sharing companies, we are already seeing many engaged in demonstrations in cities globally where EVs are among consumers’ choices.

Similarly, think creatively about how to increase the range of electric vehicles, not only through better batteries but also by using renewable technologies in the vehicles to capture energy for usage by the vehicle. These may include solar panels on vehicle roofs and wind turbines that capture the energy of air blowing through vehicle grilles. Indeed, Toyota has been testing a rooftop solar system on its Prius Prime since 2019.

Invest in solar photovoltaic arrays and potentially other renewable technologies that can directly charge personal EVs. This avoids the usage of the fossil-fuel-intensive electricity grid. These types of investments can start with demonstration programs, potentially in cities with extensive roof infrastructure upon which solar panels can be placed. While these panels should first be used to provide needed energy services for the buildings on which they are placed, by improving the energy efficiency of these buildings, there is the potential for these solar panels to generate more power than is needed for the buildings, power that can then be used to charge EVs.

Set clear goals and timelines for converting the electric grid away from fossil fuels across the country. Ultimately, the electric grid will probably remain the major source of electricity for charging electric vehicles. Hence, it is essential that the grid move as quickly as possible to generate electricity from non-fossil sources. This also benefits decarbonization efforts in other sectors that use electricity. But for electric vehicles truly to be fossil fuel-free, the electricity they use must not be generated from fossil fuels.

Keep the door open to using other fossil fuel-free fuels for personal vehicles. The most likely alternative fuel is hydrogen-based fuel cells, which both Toyota and Hyundai are seriously exploring. But biofuels may have a role as well, for example, in a country like Brazil, which already has substituted a substantial biofuels/fossil fuels mix into fuels for its personal vehicles.

Transportation will be one of the hardest sectors to move off fossil fuels, if for no other reason than this sector is almost exclusively dependent on these fuels. If we are to be successful in decarbonizing the transportation sector, it is important to recognize how challenging this will be and not leap to simplistic solutions. Electric vehicles have an important role to play, especially in the future, but they are far from the predominant solution today.

January 27, 2020

Seoul 1 GWp ‘Solar City’ Highlighted at Mayors Forum

NYC_small — Dr. Byrne and Mayor Park Won-soon interview in Seoul, Korea

The 2019 Mayors Forum (part of IREC held in Seoul in October) featured Seoul’s 1 GWp Solar City Initiative. FREE helped the City to design this ambitious program as part of the FREE-Seoul Metropolitan Government (SMG) Memorandum of Understanding (MOU). Dr. Byrne delivered the keynote at the Forum, which drew 37 mayors from 25 countries. Mayor Park Won Soon chaired the Forum.

Seoul Metropolitan Government (SMG) plans to invest $1.5 billion in their strategy to deploy 1 gigawatt (GWp) of solar energy by 2022. As part of the MOU, FREE has provided the modeling and technical assessment of the city’s rooftop potential as hosts of a distributed solar power plant. FREE also calculated the economics of the project and used a financing structure it has developed for city-scale investment in such a project. (FREE has published results of it modeling and financing approach for 5 cities in addition to Seoul: New York City, London, Munich, Amsterdam, and Tokyo.)

In November 2017, Seoul Metropolitan Government (SMG) declared its intention to deploy 1 gigawatt of rooftop solar as part of its “Solar City Seoul” master plan. Over the next five years, Seoul city government plans to invest $1.5 billion to make the project a reality. This is a significant step forward in the future of Seoul’s sustainability contribution and follows in the wake of the very successful first stages of the city’s One Less Nuclear Power Plant (OLNPP) initiative. 1 Under initiatives like the OLNPP, Seoul focused heavily on promoting energy conservation and efficiency improvement. With this new Solar City Seoul plan, the city is ramping up investment in energy production as well. FREE applauds this direction chartered by the Mayor of Seoul, Mr. Park Won-soon.

FREE has been actively advising the city for five years on the prospects of becoming a “solar city.” As part of the Seoul International Energy Advisory Council (SIEAC), Dr. John Byrne has described to city officials the potential of rooftop solar across the 10-million people strong city. FREE has also published several refereed articles analyzing the emergent role of the solar city concept coupled with new priorities, such as policy effectiveness, solar financing support, and market mechanisms available to Seoul to explore this potential in detail. 2 For example, research we have conducted shows Seoul has a full deployment potential of about 10 gigawatts. 3

FREE attended the launch of the initiative. Mayor Park Won-soon and Dr. Byrne were interviewed by leading Korean newspapers on the strategy. During an interview with Kyunghyang Shinmun, Mayor Park underscored FREE’s role, noting that he “had an opportunity to take a view of the downtown area in Seoul from Namsan Mountain with Prof. Byrne. As I talked with him, I realized that Seoul has a significant PV technical potential.” 4

A striking feature of the Solar City Seoul plan is the commitment to increase household-level PV deployment through miniature solar generators installed on rooftops and verandas or so-called “mini-PV” technology. This prong of the plan will engage more than 100,000 households in helping to supply solar energy to the city! This is exactly in tune with the Mayor’s original pursuit of the idea that “citizens are energy.” The initiative will make solar energy a part of the everyday life of Seoul’s citizens and businesses.

FREE has worked extensively on the concept of the “solar city” – the citywide deployment of rooftop solar energy. Our work shows not only that Seoul has significant potential to develop itself as a solar city but that cities like New York, Tokyo, London, Amsterdam, and Munich possess similar resources. 5 Indeed, a paper published in the International Journal of Urban Sciences by the FREE research team highlights the fact that this opportunity is common to most cities around the world. 6 An investigation of the market, finance, and policy considerations associated with solar city deployment found that the concept is not only technically feasible but it also creates practical economic benefits, including job creation and expansion of local green industries, and results in significant environmental benefits by shrinking the city’s carbon footprint by more than 10 percent. 7

“I will make Seoul a place where PV can be found everywhere”, the Mayor said. The FREE team will be there to continue to help make this ambition become unavoidable reality.

FREE published a blog article on the OLNPP initiative which can be accessed at: https://freefutures.org/one-less-nuclear-power-plant-seouls-commitment-to-a-low-carbon-and-non-nuclear-city/
For more information on our publications, please see freefutures.org/publications
Byrne, J., Taminiau, J., Kurdgelashvili, L., & Kim, K. N. (2015). A review of the solar city concept and methods to assess rooftop solar electric potential, with an illustrative application to the city of Seoul. Renewable and Sustainable Energy Reviews, 41, 830-844. doi://dx.doi.org/10.1016/j.rser.2014.08.023
Translated from the Korean newspaper Kyunghyang (article, in Korean, can be found at: https://news.khan.co.kr/kh_news/khan_art_view.html?artid=201712072105005&code=100100
Byrne, J., Taminiau, J., Kim, K. N., Seo, J., & Lee, J. (2016). A solar city strategy applied to six municipalities: Integrating market, finance, and policy factors for infrastructure-scale photovoltaic development in Amsterdam, London, Munich, New York, Seoul, and Tokyo. Wiley Interdisciplinary Reviews: Energy and Environment, 5(1), 68-88. doi:10.1002/wene.182
Byrne, J., Taminiau, J., Seo, J., Lee, J., & Shin, S. (2017). Are solar cities feasible? A review of current research. International Journal of Urban Sciences, 1-18. doi:10.1080/12265934.2017.1331750
Byrne, J., Taminiau, J., Kim, K. N., Lee, J., & Seo, J. (2017). Multivariate analysis of solar city economics: Impact of energy prices, policy, finance, and cost on urban photovoltaic power plant implementation. Wiley Interdisciplinary Reviews: Energy and Environment, , n/a. doi:10.1002/wene.241

July 8, 2016

The Scale of the Energy Access Gap

By Benjamin M. Attia
Access to electricity is a key catalyst correlated with economic development.

The International Energy Agency (IEA) recently estimated that over 1.5 billion people do not have access to affordable electricity, representing one quarter of the world’s population [1]. In the absence of aggressive new policies and significant financing, it is estimated that that number will drop to only 1.3 billion by 2030 [1]. The United Nations’ (UN) Sustainable Energy for All (SE4ALL) initiative, which is working toward a goal of global universal energy access by 2030, estimates that approximately 600 million of these unelectrified people live in Sub-Saharan Africa [2]. This number is expected to rise to approximately 645 million by 2030 under a business-as-usual scenario due to expected explosive population growth [2, 3]. This widening gap of energy access is a complex and multidimensional problem and represents an important hindrance to economic development and social change in the developing world.

Historically, the access gap since the initial commercialization of electricity has “consistently been between 1 and 2 billion people… as grid expansion has roughly paced global population” growth [4]. This suggests that the access gap is a reflection of a persistent lack of equity in distribution. In fact, in 1983, Krugmann and Goldemberg famously estimated that at 1983 global consumption levels, the “energy cost of satisfying the basic human needs” of every person on the planet was well within the available supply of energy resources [5, p. 60].

Today, the consumption and distribution inequalities are even more pronounced. In 2011, the average American consumed 13,240 kilowatt hours (kWh) per person per year, while the average Ethiopian consumed only 56 kWh [6]. Further, across all of Sub-Saharan Africa, annual per capita kWh use is one-sixth the load requirements of a relatively efficient American refrigerator [7]. Globally, the poorest three-quarters of the world’s population comprise less than ten percent of total energy consumption [8, p. 5].

The inequities that underline energy poverty and energy access are also fundamentally connected to climate change. Looking ahead, the world’s demand for electricity is estimated to increase by more than 70% by 2040, and the World Bank and IEA estimate that a doubling in installed energy capacity will be necessary to meet the anticipated growing demands of emerging markets [9], [10]. Despite the accelerating paradigm shift to low-carbon and renewable energy generation technologies, there is a paradoxical irony to the link between development and climate change which has left the poorest countries with the lowest contributions to greenhouse gas (GHG) emissions as the most vulnerable and most susceptible to the effects of climate change [11, p. 591, 12]. As markets evolve to value avoided GHG emissions [13, p. 215], reconciling the joint–and possibly conflicting– goals of development through universal energy access and combating climate change will accelerate, but at present, the inequity in energy access is only further exacerbated by the parallel inequities with respect to climate change adaptation measures.

Many scholars agree that access to electricity in itself is not fully sufficient to bring about the required economic and social development to break the cycle of poverty [14, p. 1058, 15, p. 2194]. It has also been widely settled that access to electricity is a key catalyst correlated with economic development and that a lack of electricity access is a key bottleneck to growth [16], see [17] for comprehensive rebuttal]. However, approaches for tackling the problems associated with energy poverty are often difficult to scale up because of the difficulties associated with navigating this uneven technical, sociocultural, agricultural, and institutional landscape, and, as will be demonstrated below, the multidimensionality of energy access inhibits scalability of any one catch-all solution.

The IEA estimates that 30% of those without access to electricity would best be served by grid extension, 52.5% would be best served by micro-grids, and 17.5% would best be served by stand-alone energy systems [3, p. 14]. There is a clear need for investment in rural electrification initiatives at all three levels and a clear gap in understanding routes and sinks for effective impact investing [3, p. 14]. National grid extension programs and firms selling small energy systems are generally much better funded than the community-scale solution of micro-grids, despite their significant potential market share and niche ability to provide scale benefits, rapid deployment, flexibility of business models, and energy storage, security, and reliability [3, p. 15]. The micro-grid space is rife with opportunity to build markets, innovate new business models, develop new financing mechanisms, and provide the sustainable development benefits of renewable electrification and increased economic potential.

As one development professional put it, “If rural [people] have power in their lives, they will have more power over their lives” [16]. Access to electricity is not the answer to the greater global problems of poverty and inequity, but can be a good place to start.

References
[1] “World Energy Outlook 2014,” Paris, France, 2014.
[2] SE4ALL, “Energy for all: Financing Access for the poor,” in Energy for All Conference, 2011.
[3] M. Franz, N. Peterschmidt, M. Rohrer, and B. Kondev, “Mini-grid Policy Toolkit: Policy and Business Frameworks for Successful Mini-grid Roll-outs,” EUEI Partnership Dialogue Facility, Escheborn, 2014.
[4] P. Alstone, D. Gershenson, and D. M. Kammen, “Decentralized energy systems for clean electricity access,” Nat. Clim. Chang., vol. 5, no. 4, pp. 305–314, 2015.
[5] H. Krugmann and J. Goldemberg, “The energy cost of satisfying basic human needs,” Technol. Forecast. Soc. Change, vol. 24, no. 1, pp. 45–60, 1983.
[6] C. Kenny, “If Everyone Gets Electricity, Can the Planet Survive?,” The Atlantic, 2015.
[7] “Power Africa Annual Report,” 2014.
[8] J. Tomei and D. Gent, “Equity and the energy trilemma Delivering sustainable energy access in low-income communities,” International Institute for Environment & Development, London, United Kingdom, 2015.
[9] “World Energy Outlook 2015 Factsheet,” Paris, France, 2015.
[10] R. K. Akikur, R. Saidur, H. W. Ping, and K. R. Ullah, “Comparative study of stand-alone and hybrid solar energy systems suitable for off-grid rural electrification: A review,” Renew. Sustain. Energy Rev., vol. 27, pp. 738–752, 2013.
[11] A. Yadoo and H. Cruickshank, “The role for low carbon electrification technologies in poverty reduction and climate change strategies: A focus on renewable energy mini-grids with case studies in Nepal, Peru and Kenya,” Energy Policy, vol. 42, pp. 591–602, 2012.
[12] J. Byrne, Y.-D. Wang, H. Lee, and J. Kim, “An equity and sustainability-based policy response to global climate change,” Energy Policy, vol. 24, no. 4, pp. 335–343, 1998.
[13] U. Deichmann, C. Meisner, S. Murray, and D. Wheeler, “The economics of renewable energy expansion in rural Sub-Saharan Africa,” Energy Policy, vol. 39, no. 1, pp. 215–227, 2011.
[14 A. Bhide and C. R. Monroy, “Energy poverty: A special focus on energy poverty in India and renewable energy technologies,” Renew. Sustain. Energy Rev., vol. 15, no. 2, pp. 1057–1066, 2011.
[15] B. Mainali and S. Silveira, “Financing off-grid rural electrification: Country case Nepal,” Energy, vol. 36, no. 4, pp. 2194–2201, 2011.
[16] D. Mans, “Back to the Future: Africa’s Mobile Revolution Should Inspire Rural Energy Solutions,” Huffington Post, 20-May-2014.
[17] L. A. Odarno, “Negotiating the Labrynth of Modernity’s Promise: A Paradigm Analysis of Energy Poverty in Peri-Urban Kumasi, Ghana,” University of Delaware, 2014.

January 15, 2016

Post-Paris Agreement: FREE’S Focus on Subnational Climate Action

By Job Taminiau and Joseph Nyangon
Accelerating climate action and finance at subnational level based on the Paris Agreement.

The 21st Conference of the Parties to the U.N. Framework Convention on Climate Change, or COP 21 (also known as the Paris climate summit) closed in Le Bourget, France after two weeks of intense negotiations, with negotiators agreeing on a landmark “Paris Agreement.” The conference took place from November 30 – December 12, 2015 and was attended by a delegation from the Foundation for Renewable Energy and Environment (FREE). The FREE delegation included Dr. John Byrne, Chairman and President, and Dr. Job Taminiau, Research Principal of FREE. This blog post briefly discusses the outcome document of the negotiations and highlights the experience of attending COP-21.

FREE’s Participation in the COP process
The FREE delegation participated in official side events, interviews, discussions, and meetings throughout the second week of the negotiations. Overall, the FREE delegation was very impressed by the ‘can do’ attitude of, particularly, the subnational actors that were present at the COP. In fact, these subnational actors, on more than one occasion, highlighted their willingness to not only follow-up on negotiators’ progress to seal a deal but to champion and “ratchet-up” local climate action as a viable pathway for future climate change mitigation and adaptation.

FREE co-sponsored and co-organized two side events at the conference. In a side event on the potential contribution of cities to address climate change, co-sponsored and co-organized by FREE in collaboration with the Center for Energy and Environmental Policy (CEEP, University of Delaware) and the Climate Alliance of European Cities with Indigenous Rainforest Peoples (or simply “Climate Alliance”), the Global Covenant of Mayors, and others, Dr. Taminiau offered a perspective on subnational climate change innovation, leadership, and governance by drawing from examples of ‘solar city’ strategies. Such a project could offer a substantial improvement in a city’s energy profile: for example, a high density, vertical city like Seoul could supply 66% of daylight electricity needs for the year and 35% of all-hours annual electricity needs from the use of 30% of the rooftop real estate available in the city. The Europe-based Climate Alliance was a very suitable partner for this message: the organization works with more than 1,700 cities and municipalities spread across 26 European countries to reduce their greenhouse gas emissions.

L-R: Dr. Taminiau and Dr. Byrne at the Paris climate change conference

Flanked by among others, Camille Gira of Luxembourg European Union Council Presidency; Magda Aelvoet, Minister of State, President, Federal Council for Sustainable Development, Belgium; Tine Heyse, Deputy Mayor of Ghent, Belgium; Josefa Errazuriz, Mayor of Providencia, Chile; Julie Laernoes, Vice-President of Nantes Metropole, France; Marie-Christine Marghem, Belgian Federal Minister of Energy, Environment and Sustainable Development; and Ellý Katrin Gudmundsdottir, Chief Executive Officer and Deputy Mayor of Reykjavik, Iceland, Dr. Taminiau argued that cities are well positioned to help bend the carbon curve. “Cities could be the power plant of the future,” he added.

The second side event organized by the Climate Change Center Korea was titled “Preparing Action Plans for a Post-2020 Climate Change Regime in Asia.” Former prime ministers and senior government officers from Asia were among the participants in this well-attended event, highlighting the need for a new finance, markets and policy regime as well as stronger cooperation and partnerships in Asia to combat climate change. Dr. Duck-Soo Han, Chairman of the Board of Directors of the Climate Change Center and Former Prime Minister of Republic of Korea called for enhanced financial and technological resources in Asia to combat climate change. Professor Haibin Zhang of Peking University and a Member of the Global Advisory Board of the Center for Climate and Sustainable Development Law and Policy (CSDLAP) offered a Chinese perspective on climate policy governance. Dr. Oliver Lah of Wuppertal Institute for Climate (Germany) examined EU-Asia climate partnerships. And Richie Ahuja, Regional Director for Asia of the Environmental Defense Fund (EDF) summarized work in Asian region on clean energy and clean cooking systems as low-carbon solutions.

Dr. Byrne presenting findings from a study on the financeability of large urban solar plants in Amsterdam, London, Munich, New York, Seoul, and Tokyo. Photo by IISD/ENB

Dr. Byrne presented findings from a six-city study on the financeability of large urban solar plants. He described results from Amsterdam, London, Munich, New York, Seoul, and Tokyo, noting financing and policy needs on the cost of installations in these cities to enable infrastructure-scale investment. Particularly, New York City, London, Munich, and Amsterdam could be successful in implementing a solar city strategy without many changes to existing policy structures. Seoul and Tokyo, meanwhile, require more modification to existing conditions in order to produce a viable project that could attract financial resources from investors. For instance, FREE’s researchers find that such infrastructure-scale solar development is financeable in 13 years for Seoul, 10 years for New York City, and 11-12 years for London, Munich and Amsterdam (Figure 1).

Figure 1. Solar city implementation options for the six municipalities under a 12-year financing maturity. [1]

The Paris Agreement: A New Direction for Climate Change Governance?
Forged by nearly 200 countries to ramp-up climate mitigation and adaptation measures to reel in planet-warming carbon emissions, the Paris Agreement marks a historic shift in climate diplomacy. Indeed, the agreement has been hailed as a monumental step in the climate change negotiation process: “For the first time, every country in the world has pledged to curb emissions, strengthen resilience and join in common cause to take common climate action,” said UN Secretary General Ban Ki-moon during the conference’s closing session. “This is a resounding success for multilateralism,” he declared. Key elements of the new agreement include:

A goal to hold the increase in global average temperature to “well below 2°C and endeavour to reach 1.5°C” relative to pre-industrial temperatures;
Successive nationally determined contributions outlining Parties’ commitments to reduce climate change emissions, to be updated every five years. Each round of commitments needs to represent a progression from previous commitments; and
A regular process of review of the implementation of the Paris Agreement. This “global stocktake” which informs collective efforts on mitigation, adaptation and support on technology development and transfer for developing country parties will take place in 2023 and every five years thereafter.

Six years after the 2009 diplomatic disaster of Copenhagen, the path to Paris had been well-prepared. The COP talks in Copenhagen, in no small part, collapsed due to the continued focus on a top-down, legally binding agreement with strong emission reduction commitments for which, ultimately, willingness to sign on by nation-states was low. The Copenhagen Accord (2009) and subsequent Cancun Agreements (2010) formulated a new approach revolving around a new way of target-setting of more bottom-up, self-determined, national targets. This ‘pledge-and-review’ approach yielded approval from a much larger set of nation-states, including the United States and China. A “fresh” architecture for climate action was set out to be the goal in the follow-up Durban Platform for Enhanced Action (2011).[2] The bilateral talks and agreements between China, the U.S., and India can also be seen as critical preparatory work that allowed for the outcome in Paris. For example, U.S. President Barack Obama and his Chinese counterpart President Xi Jinping met in September 2015 in Washington D.C. announcing new and strengthened bilateral and multilateral climate cooperation, including the establishment of a national cap-and-trade program in China by 2017, providing momentum for success in Paris.

The Paris Agreement marks a break from the past, representing an unprecedented inflection point in the global response to climate change. Over twenty years of negotiations have brought the international community to a point where self-determination, rather than top-down treaty pursuits, has become the new approach moving forward. In this, there appear to be at least two main elements that will shape climate change governance for the years to come.

First, the agreement provides a process for governments to ratchet-up efforts to limit global temperature rise and, for the first time, includes commitments from all key Parties to the convention. The agreement puts emphasis on registering commitments at global, national, provincial/state, local, and corporate scales, and tracks national performance over time. Every five years, beginning in 2020, each country will be required to communicate a new nationally determined contribution for reducing emissions. Potentially, this implies that the Paris Agreement could be the main platform within which climate change action at the global level is articulated for years, only to be routinely updated rather than fully redrafted.

Second, as the focus shifts to implementation, the success of the agreement lies in the Convention’s ability to engage the private sector, financial institutions, cities, and transnational and subnational authorities. Indeed, as Christiana Figueres highlighted during the 2016 Investor Summit on Climate Risk, the Paris Agreement was “clearly the easiest of the components”. [3] Noting the Paris Agreement as the “starting line”, Christiana Figueres continued that the real challenge is to take all the “fantastic intentions” and move them to actual implementation. Similarly, Secretary General Ban Ki-Moon emphasized the gravity of the challenge that lies ahead: “We have an agreement. It is a good agreement. You should all be proud. Now we must stay united – and bring the same spirit to the crucial test of implementation. That work starts tomorrow”.[4]

L-R: Laurence Tubiana, COP 21 Presidency; UNFCCC Executive Secretary Christiana Figueres; UN Secretary-General Ban Ki-moon; COP 21/CMP 11 President Laurent Fabius, Foreign Minister, France; and President François Hollande, France, celebrating the conclusion of the event. Photo by IISD/ENB

The Bottom Line: Paris Agreement Implementation Requires Subnational Creativity, Innovation, and Leadership
The FREE delegation proposed ‘polycentric’ strategies to COP-21 as a viable way forward for the international community. The proposal is based on ideas and models developed and implemented by FREE, such as the promising contribution of the Pennsylvania Sustainable Energy Finance Program (PennSEF), the innovative character of the Sustainable Energy Utility (SEU) model, or the transformative potential of ‘solar cities’. The proposal titled “A Polycentric Response to the Climate Change Challenge Relying on Creativity, Innovation, and Leadership” highlights the critical importance of subnational actors, particularly cities and other municipal agents. [5] Relying on a wide and diverse landscape of actors to address climate change, the proposed focus on ‘polycentric’ strategies could capture and scale-up the innovation, leadership, and creativity taking place.

FREE has well-established experience with sustainable energy financing programs and, through research such as on solar cities, is actively developing options for transformative change. The SEU model, for instance, has been implemented in the U.S. state of Delaware (with a second bond issuance planned for the near-term) and in Washington, DC and is being actively explored in India and Korea. The U.S. White House in an announcement made by President Obama recognized the SEU model for its promise of transformative change and capability to lower energy use and carbon emissions while improving state economic development. Other programs, like PennSEF and planned future projects, combine innovations in finance, policy and market approaches and are needed to mobilize necessary levels of climate finance and fulfilment of existing commitments of the Paris Agreement.

Concerns linger as to, for instance, the observation that much more needs to be done than is currently pledged by the nation-states in order to meet the two degree target (the so-called ‘ambition gap’). The bottom line of the Paris Agreement therefore is that implementation will require the mobilization of state and non-state actors to perform substantial technical, methodological, and policy efforts to support the accord when it enters into force. A critical factor in this is the leveraging of financial resources to drive transformative change. FREE plans to assist state and non-state actors in developing these capacities. Recombination and careful consideration of the policy-market-finance interaction is at the foundation of FREE’s project portfolio and can deliver a critical contribution towards the implementation of the Paris Agreement.

Notes
[1] Byrne, J., Taminiau, J., Kim, K.N., Seo J., and Lee, J. (2015). “A solar city strategy applied to six municipalities: integrating market, finance, and policy factors for infrastructure-scale photovoltaic development in Amsterdam, London, Munich, New York, Seoul, and Tokyo.” Wiley Interdisciplinary Reviews: Energy and Environment.
[2] As mentioned on the UNFCCC website: https://unfccc.int/key_steps/durban_outcomes/items/6825.php
[3] As discussed at the 2016 Investor Summit on Climate Risk. The Summit seeks to sustain the momentum from Paris and was organized by Ceres, the United Nations Foundation, and the United Nations Office for Partnerships.
[4] https://www.un.org/apps/news/infocus/sgspeeches/statments_full.asp?statID=2875#.Vqe9cSo4HIV
[5] This position paper was authored by Dr. Job Taminiau and Dr. John Byrne in their respective capacity at the Center for Energy & Environmental Policy (CEEP, University of Delaware).

December 23, 2015

China’s Cap-and-Trade Decisions

By Joseph Nyangon
How China Can Shape the Future of Carbon Markets

About 75% of current electricity supply in China comes from thermal power generation, mostly coal-fired power plants. In the above February 17, 2015 photo, a man cycles past cooling towers of coal-fired power plants in Fuxin, a prefecture-level city in northwestern Liaoning province, China (AP Photo/Greg Baker).

In the lead-up to the 2015 Paris climate change conference, policymakers stressed the need for creation of integrated carbon markets and called for linking new climate financing mechanisms with the United Nations-organized Green Climate Fund (GCF) based in South Korea. Both the U.S. and China have committed to accelerating the transition to low-carbon development internationally. Through a $3 billion per year pledge to GCF by the U.S. and a new $3.1 billion climate finance guarantee by China to support other developing countries to combat climate change, the two countries have committed to enhance multilateral climate cooperation. [1]

Carbon markets have emerged as part of the solution to the problem of climate change. Examples of these markets include the EU Emissions Trading System (EU ETS), the Regional Greenhouse Gas Initiative (RGGI) in the U.S., and the Western Climate Initiative (a joint program of California and two Canadian provinces – British Colombia and Quebec). New cap-and-trade schemes for 2016 have been announced by South Korea, Switzerland, Kazakhstan, and China (which will test models with seven ETS pilots).

While carbon markets are being used more frequently as a policy option, the question remains if such markets will actually reduce emissions and make development more sustainable. A common worry is how cap-and-trade decisions would be balanced with those stemming from often regulated markets governing carbon-intensive sectors, especially energy commodity markets, which have a clear growth orientation.

On his historic state visit to the U.S. in September 2015, Chinese President Xi Jinping announced new and strengthened climate actions, including the establishment of a national cap-and-trade program for carbon dioxide (CO₂) emissions by 2017. [1] The declaration made in Washington D.C. in a joint meeting with President Barack Obama builds on the historic November 2014 U.S.-China joint announcement on climate change, enhances bilateral and multilateral climate cooperation and together, provided momentum for securing the Paris Agreement—a historic climate change policy architecture to cut greenhouse gas (GHG) emissions and ramp-up mitigation and adaptation worldwide. This is truly a bright spot for cap-and-trade systems, especially considering the potential implications for China’s price-controlled energy sector. The nation accounts for nearly 30% of global GHG emissions, placing it as the world’s biggest emitting nation, followed by the United States.

China’s market-based carbon pricing system will be the world’s largest, and will apply initially to power generation, iron and steel industries, chemical firms, building materials, cement and paper-making industries, and non-ferrous metals manufacturing. The electricity sector is particularly important because China’s energy-related CO₂emissions are expected to grow until 2030. [2] For this reason, the discussion here focuses on the energy sector and how China can balance its domestic commitments in the electricity industry and the proposed nationwide ETS market to advance emissions trading as the most efficient policy instrument to address GHG emissions, in lieu of command-and-control or carbon taxes measures. While important details remain to be worked out, including the level of the cap, accreditation and verification systems, allocation of allowances, registry and market oversight, and regulations on the use of carbon offsets, the key takeaway is that China has signalled its commitment to achieving its post-2020 intention to move toward a low-carbon and climate resilient economy.

Here are six critical ways China can shape the future of carbon governance through reforms of its energy sector and a balanced ETS market development:

1. Develop a priority dispatch policy for renewable energy generation
This tool would enable China to prioritize power generation from renewable sources in its power sector. It would also establish distribution and dispatching guidelines to accept electricity from the most efficient and lowest-polluting fossil fuel power generators first. China has committed to implementing a clean electricity dispatch system. The 2005 landmark Renewable Energy Law includes a provision for a priority “green dispatch” system in the power sector but its actual implementation has been difficult because of the current structure of the power system. This is particularly critical for China because even though it now leads in global wind and solar energy manufacturing, 75% of its current electricity supply comes from thermal power generation, mostly coal-fired power plants.

2. Ensure state-owned and private energy companies have equal rights and liabilities in the ETS
Most state-owned Chinese companies enjoy monopoly positions due to the current political system and state capitalism policy, which give them a dominant position in the energy and power sector. Success of a nationwide cap-and-trade policy will depend upon rules in which state-owned and private energy firms have equal responsibility to avoid carbon emissions. Such a responsibility would obviate fears that the state industry sector would have undue control of the energy market and the potential to manipulate electricity prices.

3. Ensure transparency in allocation of allowances and trading rules
For the success of a nationwide carbon market, China must encourage full participation of companies, especially energy and power firms, by addressing current concerns that ETS will increase their production costs or reduce profits. The experience of the EU ETS demonstrates that cap-and-trade as a policy instrument can fail if there is insufficient political will to limit the number of available allowances to energy-intensive production sectors.

4. Establish independent carbon market monitoring systems
The central government selected the National Development and Reform Commission (NDRC) and the Provincial Development and Reform Commissions (PDRCs) as the lead authorities responsible for managing its ETS pilots. Because energy and power sectors are controlled by the National Energy Administration (NEA), [3] a department affiliated with NDRC, establishing an independent carbon market monitoring body could help to promote the development of the ETS in China and diminish potential institutional imprinting challenges from the old system.

5. Increase the share of non-fossil energy sources and establish a carbon intensity cap
Economic restructuring to promote low-carbon development, promoting technology advancement and improving energy efficiency are essential strategies for mitigating GHG emissions. These strategies as well as implementing measurable targets for CO₂ intensity would help China to explicitly address climate protection concerns (e.g., increasing the share of non-fossil energy composition in the mix of primary energy sources, and creating carbon trading exchanges). In addition to improving energy efficiency and increasing renewable energy generation, establishing a carbon intensity cap would be an important step toward an eventual introduction of a nationwide ETS.

6. Establish inter-regional carbon trading
China’s twenty-three provinces differ with respect to economic strength, industrial composition and related energy demands, making implementation of a national carbon trading a daunting challenge. The initial pilot ETSs (begun in 2013) did not allow inter-regional carbon trading. At the national level, this would be critical to carbon governance in China and should be developed via a bottom-up approach to achieve numerous mandatory intensity and efficiency targets.

China has a unique opportunity to shape the future of carbon markets. Its pilot carbon trading experience, industrial structure, economic development and capacity to link its national ETS with other schemes give the country a distinguished advantage. A future well-linked Chinese national ETS with other schemes internationally will require harmonisation of rules, reliable emissions accounting, mutual acceptance of the scheme caps, and enforcement of trading regulations in all participating jurisdictions. Although China’s pilot ETSs are at a very early stage and assessing them in terms of impact on emissions reduction and regional integration of carbon markets would be immature, certain problems are apparent when one examines the potential of the carbon market. These issues concern transparency in allocation of allowances and the effectiveness of legal enforcement, lack of unified ETS framework at the inter-regional level, and incentive-inducing policy tools.

Final Remarks
China’s pledge to create the world’s largest market-based carbon pricing system is an exciting step and demonstration of its commitment to achieve a unified ETS market and to pursue a low carbon economy. Can China innovate on both economic and environmental fronts, bringing these key factors together to boost the next phase of climate-resiliency? Any change in the Chinese energy sector will surely have a global impact, and striking the right balance to realize just and sustainable solutions to the problems of climate change will place the country in a strong carbon leadership position.

Notes
[1] White House Joint Presidential Statement: https://www.whitehouse.gov/the-press-office/2015/09/25/us-china-joint-presidential-statement-climate-change
[2] The Chinese ETS Pilots: An IETA Analysis: https://www.ieta.org/assets/China-WG/ieta%20china%20pilots%20analysis%20feb%2026.pdf
[3] Chinese Government Releases Major Policy Guidance on Renewable Integration and Related Issues: https://www.raponline.org/featured-work/chinese-government-releases-major-policy-guidance-on-renewable-integration-and-related