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41. The role of competition in the transition to climate neutrality

Author:
Georg Zachmann
Publication Date:
06-2022
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
The transition to climate neutrality requires the reallocation of production factors from polluting activities to non-polluting activities. The main push for this reallocation will come from governmental decarbonisation targets that are translated into stringent climate policy tools, such as carbon pricing and emissions standards. But the complex process of recombining production factors will require the coordination of millions of individuals and firms. The efficiency of this recombination process will be a main driver of the cost of the transition. Based on a consistent analytical framework, I argue that much more political attention should be paid to the markets and regulators that guide the re-allocation of production factors, to bring them in line with a carbon-neutral economy at the best service of European consumers. Three main issues should be considered: 1. The transition will change the role and efficiency of markets in allocating resources; 2. Competitive markets can make the transition more efficient; 3. In some areas, a too-narrow focus on competition can be detrimental, and needs to be discussed. To improve the institutions for resource allocation in the transition, policymakers should revisit three levels of intervention: 1) competition rules and enforcement should be adjusted to meet the new challenges of the transition; 2) efficient markets that are central to a climate-neutral economy – such as for electricity, emission rights or circular logistics – need to be properly designed; 3) the advantages and disadvantages of more direct state control in specific sectors should be revisited in light of the challenges of the transition. In summary, policymakers need to get away from simplistic state-or-market narratives. The focus should be on developing politically feasible frameworks for leveraging the benefits of competition for efficient resource allocation in the transition. Institutions should not focus solely on static efficiency, but must forcefully encourage investments in new systems and innovation. The role of institutions that determine resource allocation in the transition is an underappreciated but crucial area for future research and policy action.
Topic:
Climate Change, Institutions, Pollution, Carbon Emissions, Neutrality, and Decarbonization
Political Geography:
Global Focus

42. The Challenges of Decarbonizing the U.S. Electric Grid by 2035

Author:
Jonathan M. Moch and Henry Lee
Publication Date:
02-2022
Content Type:
Policy Brief
Institution:
Belfer Center for Science and International Affairs, Harvard University
Abstract:
The Biden administration has established a national goal of 100% carbon-free electricity by 2035 and reaching net-zero economy-wide greenhouse gas emissions by 2050.1 To realize these goals, the United States must not only transition the production of power, but also build thousands of miles of upgraded or new transmission. The U.S. electric grid consists of 600,000 miles of transmission lines connected to over 1 million megawatts of electricity generation capacity.2 Over 70% of these lines are more than 25 years old, well into their approximately 50-year lifetime.3 Furthermore, to meet President Biden’s 2050 goal, experts claim that over a million miles of new transmission will have to be built over a three-decade time span.4 Most plausible pathways to net-zero emissions call for the electrification of multiple services, such as heating and transportation.5 The resulting increase in electricity demand will require major upgrades to the grid, with some studies suggesting a 60% increase in peak demand by 2050.6 In the United States, the greatest potential wind energy resources are in the Midwest and along the two coasts,7 while the greatest solar energy resources are in the Southwest and in Florida.8 New transmission lines will be needed to carry the electricity from the areas where the renewable resources are most plentiful to distant load centers.
Topic:
Energy Policy, Environment, Natural Resources, Electricity, Decarbonization, and Energy
Political Geography:
North America and United States of America

43. Walking out of the Woods: EU Industrial Policy between the Energy Crisis and Decarbonisation

Author:
Pier Paolo Raimondi
Publication Date:
12-2022
Content Type:
Commentary and Analysis
Institution:
Istituto Affari Internazionali
Abstract:
Europe is in the midst of a profound and complex energy crisis. This is not limited to the gas sector as a result of Russia’s invasion of Ukraine but involves all energy sources. French nuclear generation, for example, has fallen to a thirty-year low over the past year due to maintenance works and corrosion.[1] Due to extreme heat over summer, unprecedented drought has reduced hydropower generation as well as the possibility to import coal by river.[2] Oil has not been immune to turbulences either. The EU embargo on Russian crude oil finally began on 5 December 2022, coupled with a price cap at 60 US dollars/barrel generating uncertainty over future supply and prices. In February 2023, the second step of the embargo, on refined products, will kick in, with diesel potentially becoming the next chapter of the European energy crisis.[3]
Topic:
Politics, European Union, Institutions, Industry, Decarbonization, and Energy Crisis
Political Geography:
Europe

44. Tallying Updated NDCs to Gauge Emissions Reductions in 2030 and Progress toward Net Zero

Author:
James Glynn, Kristin Smith, Melissa Lott, Lilly Yejin Lee, Jordan Shenhar, and Pekun Bakare
Publication Date:
03-2022
Content Type:
Working Paper
Institution:
Center on Global Energy Policy (CGEP), Columbia University
Abstract:
The Paris Agreement included two particularly crucial innovations for supporting greenhouse gas emissions reductions: a voluntary, bottom-up nationally determined contribution (NDC) and a ratchet mechanism. The latter change meant that, in the run-up to the 26th Conference of the Parties (COP26) to the United Nations Framework Convention on Climate Change in Glasgow last fall, countries prepared updated NDCs—specific commitments to reduce emissions by 2030—that outlined their increased ambition. After the adoption of the Glasgow Climate Pact, many observers have focused on what these NDCs, as well as countries’ pledges to reach net-zero greenhouse gas emissions by certain dates, could mean for the world’s ability to limit global temperature rise to well below 2° Celsius—the central goal of the Paris Agreement. But another critical question remains: how would these targets and ambitions drive near-term emissions reductions. Understanding the answer can provide insights to investors, utilities, or others with decision time horizons of 10–15 years and that wish to align with net-zero ambitions. This report, part of the energy systems modeling program at Columbia University’s Center on Global Energy Policy, aims to assess the alignment between updated NDCs and current net-zero pledges for policy makers and industry leaders to gain insight into their own national and corporate decarbonization outlooks. It considers all classes of NDCs, including: 1) percentage reduction in emissions relative to a historical base year level, 2) percentage reduction compared to a 2030 business-as-usual scenario, and 3) reduction in emissions intensity of gross domestic product. It presents an estimate of the percentage reduction in greenhouse gases (GHGs) from 2015 to 2030 for all commitments outlined in NDCs for countries that also have a net-zero target. Overall, this analysis finds that the NDCs of economies with 2050 net-zero pledges would lead to a 27 percent reduction in GHG emissions by 2030, relative to 2015. However, countries with post-2050 net-zero pledges are projected to increase their emissions by 10 percent between 2015 and 2030, lowering the net global emission reduction to 9 percent over this period.
Topic:
Environment, Green Technology, Carbon Emissions, and Decarbonization
Political Geography:
Global Focus

45. Hydrogen: A Hot Commodity Lacking Sufficient Statistics

Author:
Anne-Sophie Corbeau
Publication Date:
04-2022
Content Type:
Commentary and Analysis
Institution:
Center on Global Energy Policy (CGEP), Columbia University
Abstract:
Hydrogen has become one of the most debated topics in the energy industry. As an energy vector,[1] hydrogen has been touted as a possible path to decarbonize energy sectors that are considered difficult to electrify, such as heavy-duty transport. While hydrogen expansion faces challenges associated with introducing it into new sectors and decreasing the cost of green (or low-emission) hydrogen, major economies such as China, the EU, and the United States have been looking to integrate its use into their decarbonization strategies.[2] Demand for hydrogen could more than quintuple in a global net-zero-carbon-emissions scenario.[3] Given that hydrogen’s role is expected to increase significantly over the coming decade and expand into new sections of the energy system, it is essential to have more clarity on its current and future demand profile. The energy community is used to relying on statistics for more traditional fuels such as oil or natural gas; they enable analysts and investors to follow market developments, identify trends, and anticipate investment needs and opportunities. For policy makers, they can help to measure progress toward decarbonization objectives or against targets set within their hydrogen strategies as well as help them compare their activity with other countries’ developments. Understanding demand, production, and trade through data transparency is also a key element in energy security.
Topic:
Energy Policy, Science and Technology, Decarbonization, and Hydrogen
Political Geography:
Global Focus

46. US-Korea Cooperation on Climate Change

Author:
Troy Stangarone
Publication Date:
07-2022
Content Type:
Special Report
Institution:
East-West Center
Abstract:
Troy Stangarone, Senior Director and Fellow, Korea Economic Institute of America, explains that "the United States and South Korea have taken steps domestically to reduce their emissions, while making climate change an important part of their efforts to expand the US-Korea alliance beyond traditional security and economic issues."
Topic:
Climate Change, International Cooperation, Bilateral Relations, Carbon Emissions, and Decarbonization
Political Geography:
Asia, South Korea, and United States of America

47. Does environmental policy uncertainty hinder investments towards a low-carbon economy?

Author:
Joëlle Noailly, Laura Nowzohour, and Matthias Van Den Heuvel
Publication Date:
08-2022
Content Type:
Working Paper
Institution:
Centre for International Environmental Studies, The Graduate Institute (IHEID)
Abstract:
We use machine learning algorithms to construct a novel news-based index of US environmental and climate policy uncertainty (EnvPU) available on a monthly basis over the 1990-2019 period. We find that the EnvPU index spikes during the environmental spending disputes of the 1995-1996 government shutdown, in the early 2010s due the failure of the national cap-and-trade climate bill and during the Trump presidency. We examine how elevated levels of environmental policy uncertainty relate to investments in the low-carbon economy. In firm-level estimations, we find that a rise in the EnvPU index is associated with a reduced probability for cleantech startups to receive venture capital (VC) funding. In financial markets, a rise in our EnvPU index is associated with higher stock volatility for firms with above-average green revenue shares. At the macro level, shocks in our index lead to declines in the number of cleantech VC deals and higher volatility of the main benchmark clean energy exchange-traded fund. Overall, our results are consistent with the notion that policy uncertainty has adverse effects on investments for the low-carbon economy hindering progress to address the urgency of climate action.
Topic:
Environment, Finance, Economy, Investment, Institutions, and Decarbonization
Political Geography:
Global Focus

48. Comparing Government Financing of Reactor Exports: Considerations for US Policy Makers

Author:
Matt Bowen and Alec Apostoaei
Publication Date:
08-2022
Content Type:
Special Report
Institution:
Center on Global Energy Policy (CGEP), Columbia University
Abstract:
Decarbonizing the world’s energy supply by 2050 will require financing low-carbon energy projects at a cost of upwards of trillions of dollars. Nuclear energy is one of the few dispatchable low-carbon energy resources, and studies by the International Energy Agency have estimated a possible doubling of nuclear power as part of scenarios for achieving net-zero greenhouse gas emissions by midcentury. Large, capital-intensive projects such as nuclear power plants can be challenging for some countries to finance, however. As a result, countries wishing to build nuclear reactors look for attractive financing from supplier nations in the form of loans and equity. This report, part of wider work on nuclear energy at Columbia University’s Center on Global Energy Policy, compares the financing terms offered between 2000 and 2021 by the world’s major exporters of nuclear power plants: Russia, France, the Republic of Korea (ROK), China, and the United States. Russia dominated this period, with 11 reactors connected to power grids in six countries, in part due to the attractive state-backed financing offers it made. At the beginning of 2022, Russia had 13 of its reactors under construction in other countries, more than all other countries’ reactor exports combined. The US government has been actively developing advanced reactor technologies, partly with the intention of exporting them to other countries to help them address their energy and environmental goals. However, for numerous reasons, the US government has not financed a new US reactor export in decades, even though the US Export-Import Bank (EXIM) and the new International Development Financing Corporation (DFC) are capable of supporting exports of this scale. Given the recent absence of US financing, this report analyzes the earlier activities of EXIM related to nuclear energy and their relevance for potentially reviving such financing efforts in the near or medium term. A key factor shaping reactor vendor competitions is a nuclear arrangement by the Organization for Economic Co-operation and Development (OECD), in which France, the ROK, and the United States are members but China and Russia are not. This arrangement places limitations on OECD members regarding key loan terms for their reactor exports, including minimum interest rates and loan repayment terms, that can put them at a disadvantage compared to state-owned vendors from Russia and China. The arrangement does not restrict equity investments in reactor exports, posing an additional disadvantage for private vendors in the United States as they compete with larger, state-owned vendors in France and the ROK. As other countries develop their civil nuclear energy programs or begin new ones, the US government will need to decide whether it will assist in financing US reactor exports. The federal government has a variety of potential rationales for doing so, including creating jobs, assisting other countries in overcoming their energy and environmental challenges, and limiting Chinese and Russian influence. On the other hand, financing from EXIM or the DFC will come with financial risk, as some individual projects may not have successful outcomes.
Topic:
Energy Policy, Carbon Emissions, Decarbonization, and Nuclear Energy
Political Geography:
North America and United States of America

49. Electrification on the Path to Net Zero: A Comparison of Studies Examining Opportunities and Barriers in the United States

Author:
Margaret Cook, F. Todd Davidson, and Harrison Fell
Publication Date:
10-2022
Content Type:
Special Report
Institution:
Center on Global Energy Policy (CGEP), Columbia University
Abstract:
There is a strong and growing consensus that a simultaneously growing and decarbonizing electricity sector is necessary to meet declining greenhouse gas emissions targets. Rallying cries to “electrify everything” have captured the focus of many headlines and policy forums in recent years. However, there are important questions that remain unanswered about the electrify everything movement, including the technical, social, and political feasibility of the approach, as well as the affordability and equitability of implementation. While reducing emissions is paramount in mitigating the negative impacts of the energy system to the environment and human health, it is also critical that changes to energy infrastructure are both socially and politically acceptable, as well as affordable to help ensure an economically vibrant future. These nuanced dynamics are not easily articulated in public forums regarding the goal to electrify everything. A more detailed assessment of the problem might discover a better path forward. This report, part of the Power Sector and Renewables Research Initiative and Energy Systems Modeling Analytics program at Columbia University’s Center on Global Energy Policy, in conjunction with IdeaSmiths, examines eight recent major US studies on the topic. Six of the studies focus on strategies and pathways to a net-zero energy system and two assess the value of electrification and expanded transmission networks. This work serves to compare their assumptions and results. The authors’ purpose in analyzing the studies was threefold. First, the report explores the degrees of electrification in the United States that might be needed to achieve net-zero pathways as well as where and how electrification could occur under model assumptions. Second, it examines the relative roles of variable generation resources (e.g., wind and solar), energy storage (both short- and long-duration), and firm low-carbon power (e.g., natural gas with carbon capture, nuclear, hydro, and geothermal) in the energy transition to meet increasing levels of clean electricity demand. Finally, the report examines the barriers that could hinder both increased electrification and decarbonization of the pivotal power sector. By examining and comparing the studies and scenarios within them, the authors were able to identify shared themes resulting in robust insights that can be useful in informing policy makers and guiding other decision-making processes. Broad recommendations across studies include: (1) decarbonizing electricity; (2) electrifying end uses; (3) lowering energy demand; and (4) increasing transmission, distribution, and energy storage infrastructure. Seven major barriers to expanding electrification include challenges around: (1) the pace of transition, (2) technology advancement, (3) infrastructure siting, (4) equipment cost, (5) supply chains, (6) human capital/jobs, and (7) public support. To attain the various decarbonization goals analyzed in these studies, federal, state, and/or local regulators would need to implement an array of policies to accelerate the pace at which clean energy technologies are deployed. While the studies generally do not compare specific policies but rather the least-cost path(s) to achieving certain decarbonization targets, none of their reference scenarios indicate the energy sector will decarbonize fast enough to meet emissions targets without additional policies.
Topic:
Energy Policy, Electricity, Decarbonization, and Net Zero
Political Geography:
North America and United States of America

50. Commercialisation contracts: European support for low-carbon technology deployment

Author:
Ben McWilliams and Georg Zachmann
Publication Date:
07-2021
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Many of the technologies that can help the European Union become a net-zero emissions economy by 2050 have been shown to work but are not yet commercially competitive with incumbent fossil-fuel technologies. There is not enough private investment to drive the deployment of new low-carbon alternatives. This is primarily because carbon prices are neither high enough nor stable. There are a number of benefits from the deployment of low-carbon technologies that private firms do not factor in. These include the benefits of decreasing industry-wide costs over time, and the global climate benefits from the development of low-carbon technologies within the EU that can subsequently be exported. The result is an investment level below the socially optimal value in the EU. Commercialisation contracts could be implemented as a temporary measure to remove the risk associated with uncertain carbon prices for ambitious low-carbon projects. The aim of the contracts would be to increase private investment to the socially optimal level. Contracts would be allocated through auctions in which fixed prices for abated emissions over a fixed duration would be agreed on a project-by-project basis. On an annual basis, public subsidies amounting to the difference between the agreed carbon price and the actual EU carbon price would be provided to investors, depending on the total carbon emissions abated. As long as EU carbon prices are low, investors would receive larger subsidies to ensure their competitiveness. Contracts would be auctioned at EU level. This would generate increased competition compared to national auctions, leading to more efficient outcomes and preventing fragmentation of the single market. From about €3 billion to €6 billion would be provided to the main industrial emitting sectors annually, with the amount reducing as the EU carbon price rises and low-carbon technologies become competitive without subsidy.
Topic:
Climate Change, Energy Policy, Science and Technology, Investment, Trade, Carbon Emissions, and Decarbonization
Political Geography:
Europe