Technologies, Policies and Measures for Mitigating Climate Change drastically over recent years, system capital costs are $7 000-10 000/kW; the corresponding electricity cost is 23-33¢/kWh, even in areas of high insulation (2400 kWh/m2/yr). However, the cost of PV systems is expected to improve significantly through RD&D, as well as with economies of scale. Because of its modularity, PV technology is a good candidate for cost-cutting through learning-by-doing, as well as technological innovation (SAR II, 19.2.5.4.1). Although PV devices emit no pollution in normal operation, some systems involve the use of toxic materials, which can pose risks in manufacture, use and disposal. By 2020 to 2025, the annual economic potential of solar energy in well-defined niche markets is assessed to be 16–22 EJ (SAR II, B.3.3.2). Realization of this potential will depend on the cost and performance improvements of solar electric technologies. If fully realized, irrespective of costs, the CO, reduction could amount to 0.3-0.4 Gt C annually. A 50-MW power plant based on 1995 technology with installed costs of $2 300/kW would have generating costs of about 8-9¢/kWh, in areas with good insulation (SAR II, 19.2.5.4.1). The mitigation cost versus coal-fired electricity generation of approximately 5e/kWh then would range from $130-170/t C avoided; compared to gas-fired electricity with similar costs, the range would be from $270-350/t C avoided. These costs do not account for energy system considerations such as storage requirements, or benefits of replacing more expensive peak electricity where the PV output is well-correlated with peak electrical demand. Optimistic assessments of future PV costs indicate values as low as $700-800/kW by 2020-2030 and electricity costs of 2.2-4.4€/kWh, depending on the level of insulation (SAR II, 19.2.5.4.1; Table 19-6). Ignoring energy system considerations, use of PV generation at these costs would reduce both generation costs and emissions relative to conventional coal technologies at today's costs. Other estimates of PV generation costs in 2030 are between 50 and 100% higher than these values, depending on whether or not there is accelerated RD&D. 43 Market-based programmes directly change the relative price of energy-related activities. In a perfectly competitive marketplace, under an emission tax or tradable quota scheme, emitters would reduce emissions up to the point where the marginal cost of control equals the emission tax rate or the equilibrium price of an emission quota. Both instruments would promote dynamic efficiency (cost minimization over the long term, when factors of production are variable and technological change may be stimulated), as each provides a continuous incentive for RD&D in emission abatement technologies to avoid the tax or quota purchases (SAR III, 11.5). As such, the costs of emission taxes are known, but the magnitude of emission reductions is uncertain. This situation reverses for emission quotas. Solar thermal-electric systems have the long-term potential to provide a significant fraction of the world's electricity and energy needs. This technology generates high-temperature beat, thus may realize conversion efficiencies of about 30% (SAR II, 19.2.5.4.2). Parabolic-trough technology has achieved significant cost reductions and current plants have energy costs of 9-134/kWh in the hybrid mode. Power towers have signifi- 5.3.1.1 cantly lower projected energy costs of 4-6¢/kWh (SAR II, 19.2.5.4.2). In addition to electricity production, solar thermal systems can provide high-temperature process heat, and central receivers can be used to process advanced fuels such as hydrogen and chemicals (SAR II, 19.2.5.4.2). Local solar thermal systems can provide heating and hot water for domestic, commercial or industrial uses (SAR II, 19.2.5.5). Phasing Out Permanent Subsidies Permanent energy sector subsidies provide incorrect market signals to producers and consumers alike, and may lead to energy prices below actual cost; resource allocation is thus distorted and inherently suboptimal. Subsidies to established technologies create artificial market barriers to the entry of new technologies. For this reason, the adoption of marginal cost pricing and the minimization, if not elimination, of long-term, permanent subsidies that increase GHG emissions have been 44 Technologies. Policies and Measures for Mitigating Climate Change Table 10: Selected examples of measures and technical options to mitigate GHG emissions in electricity generation. The literature on full-cost pricing is controversial. No consen- Regulatory Measures The conventional approach to environmental policy in many countries has used uniform standards (based on technology or performance) and direct government expenditures on projects that are designed to improve the environment. Like marketbased incentives, the first of these strategies requires that polluters undertake pollution abatement activities; under the second strategy, the government itself expends resources on environmental quality. Both of these strategies figure prominently in current and proposed measures to address global climate change (SAR III, 11.4). Standards and codes have the advantage that the effect on GHG emissions can, in general, be assessed a priori. The disadvantage, however, is that the costs incurred are often unknown and can be higher than market-based instruments. Under some circumstances, however, a performance standard may provide greater incentives but under other circumstances also lower incentives for technological adoption than a marketable permit system (SAR IIL 11.4.1). An example of a regulatory measure in the United States is the Public Utilities Regulatory Policy Act (PURPA), enacted in 1978, which required electric utilities to buy power from independent producers at the long-term avoided cost and led to the creation of a competitive, decentralized market. Small- to medium-scale cogeneration fueled by natural gas and biomass became a popular technology approach. PURPA is largely responsible for the introduction of more than 10 000 MW, of renewable electric capacity (SAR II, 19.4). According to some assessments, such regulatory measures could lead to higher electricity costs. Chapter 11 of SAR III uses the term "joint implementation" to include "activities implemented jointly" and that usage is continued here. Technologies, Policies and Measures for Mitigating Climate Change 5.3.3 Voluntary Agreements Voluntary agreements generally refer to actions undertaken in the participants' self-interest and endorsed by a government with the objective of reducing GHG emissions. Such agreements are considered in many Annex 1 countries to constitute a flexible measure. The agreements can take on many different forms at both national and international levels, and can include targetand performance-based agreements, cooperative RD&D, general information exchange, and activities implemented jointly. Forward-looking firms may take steps to control GHG emissions if they fear more costly mandatory controls in the absence of voluntary reductions. This could explain why some voluntary agreements for domestic energy management have arisen. The vast majority of GHG reductions from the actions announced or expanded through the U.S. Climate Change Action Plan, for example, come from voluntary initiatives aimed at increasing energy efficiency (SAR III, 11.4.3). 5.3.4 Research, Development and Demonstration 47 Although many energy sector mitigation options require further RD&D support, it is important to have a government strategy that does not attempt to pick individual technology winners. Fortunately, many of the promising technologies for reducing emissions, such as many renewable and other low- or zero-GHG emitting energy technologies, require relatively modest investments in RD&D. This is a reflection largely of the small scale and the modularity of these technologies (SAR II, 19.4). As a result, it should be feasible to support a diversified portfolio of options, even with limited resources for RD&D. It has been estimated that research and development of a range of renewable energy technologies would require on the order of $15-20 billion distributed over a couple of decades (SAR II, 19.4). RD&D programmes are necessary but not sufficient to establish new technologies in the marketplace. Commercial demonstration projects and programmes located in realistic economic and organizational contexts to stimulate markets for new technologies also are needed. For a wide range of small-scale, modular technologies, such as most renewable energy technologies and fuel cells, energy production costs can be expected to decline with the cumulative volume of production, as a result of learning by doing. High rates of innovation in the energy sector are a prerequisite Infrastructural Measures Removal of Institutional Barriers In some circumstances, the removal of institutional barriers can attract private-sector interest in advanced renewable technologies. Regulatory reform and deregulation (breaking-up of producer monopolies, transmission and distribution networks) have allowed small and independent power producers access to the grid and improved their competitiveness. Standardization of equipment to facilitate connection to the grid also would improve technology adoption. In the case of adoption of Table 11: Total reported IEA government R&D budgets (columns 1–7; US$ billion at 1994 prices and exchange rates) and GDP (column 8; US$ trillion at 1993 prices). |