Presentation given

1. The Green RacePast experience, learning for the futureDavid HoneSenior Climate Change AdviserGroup CO2

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3. Is this really happening?

4. Fossil fuel use grows – emissions continue to rise Data: BP Statistical Review of World Energy

5. Progress is being made in developing alternative energy Data: BP Statistical Review of World Energy

6. But alternative energy is hardly keeping up Data: BP Statistical Review of World Energy

7. But alternative energy is hardly keeping up Data: BP Statistical Review of World Energy

8. The story in the 21st century Large-scalehigh-impactevents ºC 6 - 5 - 4 - 3 - 2 - 1 - 0 - Global temperature rise Higher Very Low Fossil energy 87.0% market share Fossil energy adds 2.3 btoe p.a. Non-fossil adds 0.3 btoe p.a. Fossil energy 86.8% market share 1990 Data: BP Statistical Review of World Energy

9. Energy Technology Deployment(Shell scenario projections also shown)

10. “Laws” of Energy Deployment Law 1 When technologies are new, they go through a few decades of exponential growth, which in the 20th Century was characterized by scale-up at a rate of one order of magnitude a decade (corresponding to 26% annual growth). Exponential growth proceeds until the energy source becomes ‘material’ - typically around 1% of world energy. Law 2 After ‘materiality’, growth changes to linear as the technology settles at a market share. These deployment curves are remarkably similar across different technologies.

11. Our response is to “adjust” the system and add layer upon layer of policy, which can raise costs EU Emissions Trading System delivers a carbon price into the EU economy Cost to society $

12. Our response is to “adjust” the system and add layer upon layer of policy, which can raise costs UK Carbon Floor Price EU Emissions Trading System delivers a carbon price into the EU economy Cost to society Renewable Energy Targets Member State Coal Policy $

13. Our response is to “adjust” the system and add layer upon layer of policy, which can raise costs UK Carbon Floor Price Energy Efficiency Directive Nuclear Energy Policies EU Emissions Trading System delivers a carbon price into the EU economy Cost to society UK Carbon Reduction Commitment Renewable Energy Targets Local carbon taxes Member State Coal Policy $

14. Our response is to “adjust” the system and add layer upon layer of policy, which can raise costs UK Carbon Floor Price Energy Efficiency Directive “Green” politics and policies Nuclear Energy Policies EU Emissions Trading System delivers a carbon price into the EU economy Cost to society UK Carbon Reduction Commitment Renewable Energy Targets Local carbon taxes Member State Coal Policy $

16. Governments need to design a robust and long term policy framework with a clear objective to encourage change in the energy system.

18. A policy framework to consider B Cost of abatement € / tonne CO2e Abatement MTonne CO2e Carbon price policy drives project implementation from left to right across the abatement curve C A

19. A carbon price in the economy Goods and services pass into the economy, with the price of CO2 embedded $ CO2 Emitters buy allowances from or pay tax to the government $ $ Revenue passes through the treasury and may be used to offset costs to the consumer, e.g. tax reduction.

20. New technologies 19 Discover & Develop Must be well funded to drive innovation. Demonstration (at scale) A critical step in the early commercialization of a technology Deployment Driven by new features and price. Benefit to deploy Earlier deployment through demonstration 100 80 60 Technology cost 40 20 Alternative product 0 1 10 100 1000 Number of installations

21. New energy technologies – e.g. CCS 20 Discover & Develop Need to refocus and rapidly expand R&D. Demonstration No early adopters and high start-up costs so this phase will need help. Deployment Typically driven by the CO2 market CO2 price Earlier deployment through demonstration 100 80 60 Technology cost 40 20 Power generation without CCS 0 1 10 100 1000 Number of installations

22. A structured policy approach is needed 21

23. A structured policy approach is needed Broad energy production and use R&D support

24. Even modest first steps are proving very challenging 23

25. New technology mechanisms evolve (e.g. for CCS) China adopts carbon pricing mechanisms CDM evolves to includes sectors CDM Linkages develop between all systems and more systems appear Forestry mechanism Japan technology standards Norwegian ETS Expanding EU-ETS EU-ETS Danish-ETS New Zealand ETS UK-ETS Australian ETS / carbon price State and/or Federal carbon pricing Global shipping “cap-and-trade” Linking can enable a global carbon market . . . 2000 2005 2010 2015 2020 2025 Pre-Kyoto Kyoto Post 2012 Linkage framework

27. Carbon price mechanisms are effective and can deliver the necessary reductions.

28. Layering of additional policies can add to the cost and weaken the carbon price signal.

29. A clear long term policy framework is required.

30. Complimentary policies can enable new technologies (e.g. CCS) and ready them for deployment.