Workshop at the 2009 Climate Change Summit
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Workshop at the 2009 Climate Change Summit Wednesday 4 March 2009. Economics of climate change Context and concepts related to mitigation. HARALD WINKLER. Energy Research Centre University of Cape Town. Climate change – an integrated framework. Source: IPCC 2001.

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Harald winkler

Workshop at the 2009 Climate Change Summit

Wednesday 4 March 2009

Economics of climate change

Context and concepts related to mitigation


Energy Research Centre University of Cape Town

Climate change economics

Environmental issue, rising emissions

Deeply economic issue – at heart of energy economy

“Climate change presents a unique challenge for economics: it is the greatest and widest-ranging market failure ever seen” (Stern Review 2006)

Climate change economics

History minerals energy complex
History: minerals-energy complex

  • Complex comprising mining, minerals processing, the energy sector, and associated industries (Fine & Rustomjee 1996)

  • Coal

    • ¾ of TPES

    • > 90% of electricity

    • ‘cheap’ and inefficient

  • Particular challenge for mitgation …

  • … while increasing access to affordable eneryg services

  • Short-term: energy efficiency

  • Medium-term: change fuel mix

Future low carbon future
Future: low-carbon future

  • Redefine competitive advantage

    • from attracting energy-intensive sectors

    • to building a new advantage around climate-friendly technologies and systems

Towards climate policy
Towards climate policy

  • LTMS strategic option of ‘Use the Market’

  • Polokwane resolution on climate change

  • Treasury work on environmental fiscal reform

    • Theme of ‘putting a price on carbon’

    • Question is ‘how?’

Carbon and carbon markets
Carbon and carbon markets

  • Markets are a means, not an end

    • May be efficient, but not good at equity

  • Carbon cycle is global – problem of common property management

  • How to manage

    • Multi-laterally – UNFCCC, but also other scales

    • Price vs quantity

  • Pure regulation – standards

  • Pure price – tax

  • Combination – cap-and-trade

Conceptual distinctions
Conceptual distinctions

Economic instruments


GHG emission standards

Carbon tax


Cap and trade

Fuel input tax


Building standards

Greenor white certificates

Some broad questions
Some broad questions

  • What would the distributional implications of different economic instruments be?

  • What are the implications, including costs and benefits, of choosing to use an economic instrument for mitigation?

  • How could different instruments be combined

  • How responsive is the system (and its parts) to various economic instruments for mitigation? (elasticity)

  • What would a consistent and effective approach to energy-intensive sectors, in order to increase efficiency, encourage fuel switching and eventually diversify products

  • What are the key design elements that need to be considered to design the best instrument for mitigation in SA?

  • What supportive measures might be needed to implement a set of instruments? Implications of existing policy? What legal and institutional arrangements could we build on?

Thank you

Thank you

Energy Research Centre University of Cape Town

Environmental Policy Research Unit, University of Cape Town

Genesis Analytics