Divergent pathways managed in the short, medium and long term

The end results in terms of instrumentation are substantially different for the two strategies. The starting points are equal, with their long term divergence leading to somewhat different pathways following short term already and, more so, medium term. How long might the options for either strategy direction in instrumentation be kept open? This may not only depend on the requirements for each strategy but also on an active choice to keep options open as long as possible. Instruments may be adapted so as to fit in both strategies. Temporary subsidies on renewables may shift from feed-in tariffs (FiTs), not compatible with open real time markets; to feed-in premiums (FiPs) or Contracts for Difference (CFDs), more compatible; to investment subsidies (with conditions) which are nearly fully compatible with open markets in the Institutionalist Strategy, but are also compatible with a Planning & Control Strategy. This may allow to postpone basic strategy choices somewhat. Similarly, development of a pan-European transmission grid does not yet determine the type of electricity market it is to function in. The more limited electricity transport volume required in the Planning & Control mode may well be set up so as to allow for the later expansion for the Institutionalist mode. Conversely, specific choices now may reduce options for either strategy later. Most clearly this is the case in a binding international agreement on yearly reduced caps per country, as being incompatible with an international agreement on a common yearly rising level emission tax, possibly as a Carbon Club³⁴, starting with limited membership. The current UNFCCC process now considers the cap option only, but discussions on the tax approach have opened with influential supporters, see recently in Nature (MacKay, Cramton et al. 2015).

The long term unavoidably comes after the short and medium term however. Would there be obstacles for developing either of the strategies in due time, or for both of them?

A few obstacles can be imagined but are mostly easy to avoid.

 The option of a Carbon Trading Authority is not to be realized as it would create an obstacle to developing a simplified price stabilized emission pricing system in the institutionalist mode, and is not required for the planning & control mode. This obstacle can easily be avoided by not having this Authority.

 For learning curves creation, hybrid electric drive cars are not any more incentivized as by subsidies and Fleet Standard premiums, in neither strategy. There are millions of hybrid cars now sold per year already (market share Japan: 30%). There also is a substantial underestimation of their actual fuel use due to the non-realistic measurement standards used. In such circumstances hybrid drive vehicles may even help create a lock-in at high powered gasoline using heavy weight cars. Hybrid SUVs are expanding fastest in this market now. The lock in results from such drives being very actively promoted by current climate

34 Carbon Club is a less military term than coalition of the willing, or more neutral: climate coalition or more dynamic: front runner coalition.

policies. This obstacle can easily be avoided by removing the subsidy and replacing the NEDC (New European Driving Cycle) measurement standards by real performance measurement³⁵. In the Intuitionalist strategy Fleet Standards and their adjoining measurement rules (NEDC and coming WLTP) are abolished fully, moving the measurement issue to the private domain.

 Subsidies for creating learning curves in electric cars also seem a waste of money, given that several main producers are marketing them now already, globally. This obstacle can easily be avoided, by pure real life fleet standards in the Planning & Control strategy and by rising emission taxes in the Institutionalist strategy.

 For the Institutionalist strategy the strict implementation of a strengthened Unbundling Directive is essential, probably not at variance with the Planning & Control Strategy. However, with Planning & Control the fruits of a better functioning electricity market cannot be fully realized due to technology specific intervention in the electricity market. This obstacle cannot easily be avoided.

 Changes in the ETS cannot avoid a choice for either of the governance strategies. In the Institutionalist Strategy the ETS domain is expanded so as to cover all fossil emissions, also the transport sector, making Fleet Standards, also improved ones, superfluous in due time. In the Planning & Control strategy, the ETS first remains as is and becomes superseded by other instruments.

 For the option of pure and strict cap-and-trade, not part of any governance strategy here, additional measures would be due: phase out all subsidies on technologies under the cap as these don’t lower the fixed cap and constitute complex transfer payments to producers and users only.

 The difference between the two strategies regarding road transport are fundamental.

Planning & Control uses fleet standards and electric vehicle subsidies, in a high priced electricity market, in current prices in the order of €0.25 cents per kWh. In the Institutionalist mode, the emission tax raises gasoline and Diesel prices substantially, see Table 6, while loading at very low electricity prices, in the order of €0.05, see BOX 1. Additional attractiveness comes from the option to use the battery advantageously in the open real time electricity market.

Table 11 Instrument Mixes in Planning & Control and Institutionalist Governance

PLANNING &CONTROL STRATEGY INSTITUTIONALIST STRATEGY

1. Institutional Framework Conditions 1. Institutional Framework Conditions ETS not expanded and maintained, overtaken by technology

specific instruments; no relevant generic emission pricing Electricity markets somewhat fragmented, with some vertical integration of production & distribution; load clearance by large producers & operators; bilateral international trade

Access rules for use for underground energy storage and geothermal resources

Generic emission tax, fully upstream, rising levels specified

Electricity market, single price, equal for all, also internationally; phase out of FiTs and similar

Small lender markets rules as for low emission housing Minor revision of landlord-tenant relations.

Ownership rules for underground energy storage and geothermal resources

35 Also WLTP (Worldwide harmonized Light vehicles Test Procedures) as agreed in UN context will be prone to

“optimization” by car producers, as any other lab standard. A-select real drive performance measurement does not have this optimization option.

EU Directives on Spatial Planning for low energy cities and transport infrastructure

Standardization at EU level, if possible global: as for communication in internet of things, for plugs etc.

Smart grid regulation

No Directives on national spatial planning

Standardization at EU level, if possible global, as for communication in internet of things, for plugs etc.

No smart grid regulation 2. Public Infrastructure 2. Public Infrastructure EU subsidies for implementation of low energy building and

transport infrastructure by member states; public-private partnerships as negotiated for management of main infrastructure.

Pricing of infrastructure use based on funding, including profits.

No energy efficiency policy for climate reasons Long distance EU High tension DC grid;

Public ownership for inherently monopolistic inter-country energy transport

Pricing of infrastructure use substantially based on capacity pricing.

3. Publicly funded Research, R&D and Demonstration

3. Publicly funded Research, R&D and Demonstration

Less basic research, more RD&D Design contests

More close to application R&D and many learning curve cases

More basic research and CARPA projects Design contests

Less close to application R&D and few learning curve cases

4. Regulating Private Actors 4. Regulating Private Actors 4.1 Informational instruments 4.1 Informational instruments Public information systems: methods and data, tending to

short/medium term, e.g. current energy performance based: mandatory energy performance labelling (MEPL)

Standards for technology comparison, linked to long term low emission scenarios (to be developed)

4.2 Financial Instruments 4.2 Financial Instruments Electricity: production subsidies, feed-in premiums and

investment subsidies; nuclear premiums and inv. subsidies;

fossil capital subsidies (as capacity payment); electricity storage subsidies; electricity to flex heat subsidies; ….

Heating: Non-fossil heating tech subsidies; insulation subsidies stock; ….

Transport, additional to low-price ETS: EU guidance on differentiated subsidies on cars (purchase, registration, road use, parking, etc.; rising additional carbon based fuel taxes, also LPG (and similar household butane/propane and heating oil), rising with reference ‘relevant’ price level.

Subsidies on all non-combustion drive vehicles

Electricity: None by EU, open to member states iff in line with open EU-wide electricity market

Heating: None by EU

Transport): None for climate reasons, apart from EU emission taxes

4.3 Standards & Regulations 4.3 Standards & Regulations Detailed and changing smart grid metering prescriptions

Energy in building: insulation standards; technology standards heating/cooling and cooking; etc.

Expanding the Energy Using Product Directive, using CE labelling to enforce

Transport: Fleet standards reformed to pure climate, covering all, vanishing differentiation between categories;

increasing stringency to zero

No smart grid metering prescriptions Building standards: None by EU?

Heating/cooling: None by EU?

Reducing use of Energy Using Product Directive: (very useful but not for LT climate reasons)

Transport: Fleet standards first reformed to pure climate covering all, fading medium term