My knowledge of the energy sector Flashcards
(188 cards)
1
Q
According to the IPCC, wood burning releases less CO2 than bituminous coal.
True or false?
A
False - wood burning releases MORE CO2 than bituminous coal
Reference: IPCC, ‘Guidelines for National GHG Inventories, Volume 2 (Energy)’, 2006
2
Q
Wood biomass is assumed to be carbon neutral.
What does this mean?
Why is it incorrect in practice?
A
That the carbon released by wood burning is sequestered by growing new trees, creating net zero emissions.
For wood biomass to be carbon neutral, the rate of emissions from wood burning must equal the rate of uptake from forest growth - not the case.
Carbon debt period: time lag between emissions being released and forest regrowth.
Forests take decades to grow!
3
Q
We should only plant trees where they naturally grow.
Name 3 places we should NOT plant trees and explain why.
A
Peatland/wetland:
Anoxic conditions prevent decomposition = carbon store. Draining peatland to plant trees releases massive amounts of CO2, e.g. UK in the 80s/90s.
Savannah/grassland:
Naturally fire-prone landscapes. Planting = more fuel for fires.
Tundra:
Natural low-lying vegetation gets covered by snow = albedo, contributes to cooling effect. Planting tall, dark trees reduces snow cover, absorbs heat, reduces cooling effect.
4
Q
Name 3 problems with converting natural forest to biomass plantation.
A
- Reduces AGB - mature trees and diverse carbon stocks (shrubs, deadwood, leaf litter) lost
- Reduces BGB - removal of residue disturbs soil
- Monoculture reduces biodiversity, genetic diversity and therefore adaptive capacity of the ecosystem
5
Q
Why has biomass been grouped with other clean energy sources?
Give 2 reasons.
A
- The false assumption that it is carbon neutral
- The UN reporting guidelines state that emissions are recorded in the felling country but not the combustion country; makes emissions look artificially low
6
Q
Why has the biomass industry grown so much in recent years in the UK?
A
It receives the same subsidies as wind and solar under the 2012 UK Bioenergy Strategy. This was a means of fulfilling the EU’s Renewable Energy Directive.
7
Q
Give 3 facts about the UK biomass sector.
A
- We are the largest global importer of wood pellets - approx. 40% in 2017 (SA report, 2019)
- Due to demand, we are starting to use virgin not waste wood
- Demand is predicted to increase
8
Q
Where are the biggest emerging biomass markets and why is this a problem?
A
Japan and South Korea
Two massive economies, threatens the nearby Asian tropical forests and Russian boreal forests to meet demand
9
Q
Why is increasing global demand for biomass a problem for climate targets, aside from emissions/carbon debt?
A
To meet demand, companies might start planting trees in places unsuitable for tree growth: peatland, savannah and tundra
10
Q
There are policy instruments that can drive transition to green economy.
Name 2 incentives.
A
- Feed-in tariffs: payments made to businesses generating their own electricity via methods that do not deplete natural resources, proportional to the amount of power generated. Popular, good way to intro green energy to the system.
- Carbon taxation: ‘polluter pays’, raises the cost of brown business. Unpopular as costs often paid by the consumer.
11
Q
There are policy instruments that can drive transition to green economy.
Tell us about clean energy subsidies.
A
- Reduces the supply costs of green products
- Encourages investment from the private sector (less risk as less capital lost if the investment fails)
12
Q
There are policy instruments that can drive transition to green economy.
Tell us about fossil fuel subsidies.
A
- Reduces project costs for FF companies
- Encourages investment in FFs from the private sector
- Ensures FFs dominate the market as renewable products more expensive in comparison
13
Q
Outline 6 problems with fossil fuel subsidies, aside from encouraging emissions.
A
- Expensive - can cause debt and fiscal crises
- Inefficient - same money could make a bigger impact elsewhere
- Liability - when FF price increases, so does the cost of subsidising them
- ‘Regressive’ - benefit the wealthy more than the poor (only a small proportion of subsidies reach the lowest quintile)
- Slow adoption of renewable tech because they make FFs cheaper
- Often corrupt - illegal diversion of subsidised product has been known
14
Q
What is a Green Bond?
A
A bond where the proceeds can only be used to finance green projects
15
Q
When was the first Green Bond issued and by who?
A
2008 by the World Bank
16
Q
What are the Green Bond Principles and when were they released?
A
A set of voluntary guidelines that provide a 4-step methodology for creating a Green Bond.
First published in 2014.
17
Q
Green Bonds are only issued by multilateral banks.
True or false?
A
False - initially they were, but now they’re issued by banks, governments, municipalities and even multinationals e.g. Toyota.
18
Q
Green Bonds are becoming increasingly popular in the developing world. True or false?
A
True - in countries like Brazil, Nigeria and India
19
Q
Give 4 benefits of a Green Bond.
A
- Easy to identify green projects to invest in
- Allows portfolio diversification, reducing exposure to CC risks
- Transparent because they are publicly traded
- In-depth dialogue in the reporting process - collaboration and improvement
20
Q
Give 3 challenges of Green Bonds.
A
- Lack of universally agreed standards and certification -> GREEN WASHING
- Prevailing short-term financial goals: monetary policy looks ~2-3 years ahead, physical assets ~10 years, but CC is long-term.
- Limited understanding of CC risks
21
Q
Name the categories of CC risk.
A
Physical: loss of life, assets and supply chains due to natural disasters.
Transition: businesses not prepared for the low-carbon transition = stranded assets
Biodiversity: system collapse due to a loss of biodiversity, e.g. a loss of pollinators would cause agribusiness to collapse
22
Q
What are stranded assets?
A
Those that de-value or fail to generate economic returns
23
Q
Give an example of why we need meaningful dialogue between scientists, industry and government.
A
Biomass falsely perceived as carbon neutral, governments gave subsidies to the private sector, created a massive industry that is growing but is completely misaligned with climate targets.
24
Q
Give benefits of renewable energy over FFs.
A
- No emissions
- Less/no pollution
- Energy security (infinite source)
- Reduced exposure to CC risk: FFs more susceptible to market fluctuations, as C19 has shown
25
What is 'built capital'?
Give 2 key examples of built capital.
Any mechanism, building or technology constructed by humans.
Energy and transport.
26
Outline two challenges to the UK energy sector (domestic level).
Air pollution: many areas above the WHO safe limit for particulate matter, likely to exacerbate the current pandemic and cause future public health crises (respiratory disease, been linked to depression etc.)
Energy poverty in low income groups: many without adequate energy access, will be exacerbated by C19 due to unemployment and recession.
27
Outline a challenge for the energy sector at global level.
Relate it to the UK.
The transition to green economy in response to CC.
Different sized economies have different responsibilities.
Advanced economies like the UK must lead in decarbonisation. This presents immediate challenges at all levels of the economy.
28
The transition to green economy presents immediate challenges at all levels of the UK economy.
Outline 3.
1. Development/deployment of sustainable infrastructure
2. Changing consumer behaviour
3. More effective regulation
29
The development/deployment of sustainable infrastructure needed for green transition presents numerous challenges.
Outline 5.
1. High upfront costs - need investment for R+D and deployment
2. Issue of scale - can we produce enough to cause costs to fall and roll them out at scale?
3. Emissions and waste generated from R+D/deployment
4. Adjustment hiccups that come with changing to a new system
5. Job losses for those in polluting sectors being replaced
30
The development/deployment of sustainable infrastructure needed for green transition creates numerous opportunities.
Outline 3.
1. Chance for public-private partnerships to raise capital: fosters collaboration reduces risk
2. New business opportunities for the private sector.
3. Job creation in new green sectors
31
The change to consumer behaviour needed for green transition presents numerous challenges.
Outline 3.
1. Incentives like carbon taxation cause rising prices that upset the consumer - not good for gov or private sector
2. Those from low income households may not be able to afford transition elements, e.g. a clean car
3. Consumers may not understand the change needed/why due to poor CC education and lack of public discourse (though this is improving)
32
The increased regulation needed for green transition presents numerous challenges.
Outline 2.
1. The imposition of laws and regulations upsets industry sectors and can elicit strong lobbying from them.
2. Requires the establishment of new agencies, e.g. Greenpeace recommends a Warm Homes Agency for C19 recovery (Green Buildings), but this requires funding and expertise - takes time to set up.
33
Define the National Grid.
The network that connects all of the power stations in the UK to make sure that everywhere has access to electricity.
34
# Define the energy sector.
In essence, what does it do?
Name its 3 components.
The totality of all the industries involved in the production and sale of energy.
Makes energy available to power the economy.
Components:
- Energy production (fuel extraction, manufacturing, refining)
- Energy sale
- Energy distribution
35
Name the different industries that make up the energy sector.
There are .
- FF companies (oil, gas, coal)
- Electrical power (electricity generation and distribution, e.g. the National Grid plc)
- Nuclear power
- Renewable energy (hydro, wind, solar, bioenergy)
- Traditional, i.e. firewood which is still used in developing nations
36
Is the transport sector part of the energy sector?
Define the transport sector.
No, but they are closely linked.
The part of the economy that provide services to move goods or people.
37
# Define fossil fuel.
What are some examples?
A natural fuel formed in the geological past from the remains of living organisms.
Coal, oil and gas.
38
Green public procurement can also drive the transition to green economy. What does that mean?
When authorities procure public goods/services with reduced environmental impact.
39
What is meant by 'whole systems' approach to energy?
Give 3 points.
Looking at the energy landscape in its entirety, so considering economic, environmental, social and technological elements and how they interact to produce the whole.
Broad, multi-disciplinary approach.
From start to end of the energy life cycle.
40
Who are the Committee on Climate Change (CCC)?
The gov's official climate advisors
41
What is energy storage?
Battery tech
Renewables are an intermittent energy source so we need to store excess energy for times when there is less wind/solar etc. available
42
What is DSR?
Demand-side response
Intelligent energy usage, basically using energy in the locations its most needed during peak times whilst turning it down in others
E.g. supermarkets turn down their freezers/lights when everyone is watching the Bake Off final
43
What is energy poverty?
A lack of access to modern energy services
Happens in developing countries
44
What is fuel poverty?
When a household cannot afford to keep adequately warm at a reasonable cost, given their income
Happens in developed countries like the UK
45
What is the 2012 UK Bioenergy Strategy?
A strategy that provides a holistic view of biomass uses
Used to inform policy decisions on electricity, heat and transport
46
What is the EU Renewable Energy Directive?
When was the original one?
When was the updated one?
A set of rules for the EU to achieve its renewables targets (% contribution)
Original: agreed in 2009 for 2020
Recast: agreed in 2018 for 2030, composes two different regulatory mechanisms (targets for each country until 2020, joint target until 2030)
47
What is an 'energy vector/carrier'?
Give two examples.
A convenient way to store, move and use energy extracted from other sources
E.g. electricity and hydrogen
48
The energy vectors electricity and hydrogen can be decarbonised. True or false?
True - by using renewables as the energy source
49
What is floating offshore wind (FOW)?
Wind turbines attached to structures that float on the water. They are tethered to the seabed to stop them floating away.
50
What is the advantage of floating offshore wind over fixed?
Fixed offshore wind is limited to depths of approx. 165ft, meaning floating offshore wind can be deployed in more places to expand energy capacity.
51
How does floating offshore wind stay upright?
They use the iceberg principle; most of the mass is underwater.
52
Why are European oil majors interested in floating offshore wind?
Because they can capitalise on their offshore expertise (oil extraction) to diversify their product and lead the market.
53
Who is currently leading in floating offshore wind?
Where is the world's only commercial floating offshore wind farm and what is it called?
Europe
Scotland, called Hywind Scotland
54
Which three well-known European oil majors are investing in floating offshore wind?
Equinor, Shell and Total
55
Which unit is electricity measured in?
Watts, or multiples of.
Smaller devices are measured in watts.
Larger devices are measured in kilowatts.
56
How many watts are in the following:
1 kilowatt
1 megawatt
1 gigawatt
1 terawatt
1 kW = 1000 W (one thousand watts)
1 mW = 1,000,000 W (one million watts)
1 gW = 1,000,000,000 W (one billion watts)
1 tW = 1,000,000,000,000 W (one trillion watts)
57
Define...
Nuclear fission
Nuclear fusion
Which one releases more energy?
Which one is used commercially and why?
Fission = splitting of a heavy, unstable nucleus into two lighter nuclei
Fusion = combining two lighter nuclei
Fusion releases more energy
Fission is used commercially as it can be controlled, plus the conditions needed are less expensive to generate.
58
What is the Green Homes Grant?
A government grant for homeowners in England to help pay for certain energy-efficient home improvements.
59
How much can you get through the Green Homes Grant?
The maximum amount available is £5,000, or £10,000 if you get certain benefits.
60
What can the Green Homes Grant help to pay for?
- Double or triple glazed windows
- Floor, wall or roof insulation
- Energy-efficient doors
- Solar thermal energy systems
- Heat pumps
- Thermostats and heating controls
61
What is the problem with the Green Homes Grant?
There is a lack of skilled tradespeople to fit the home improvements. Currently, many consumers have applied but there are not enough suppliers signed up to the scheme.
The scheme is only due to run until March 2022; this is not enough time to incentivise tradespeople to take time off work/lose money to attend training.
62
What is the Warm Home Discount?
An annual credit paid by energy companies into the electricity account of eligible consumers.
63
Is the Warm Home Discount voluntary?
It is compulsory for large energy companies, though many smaller suppliers voluntarily offer it.
64
How much is the Warm Home Discount for winter 20-21?
£140 credit
65
Who is eligible for the Warm Home Discount?
Two groups:
Core group - those who received the Guaranteed Credit element of Pension Credit
Broader group - those on a low income or with certain means-tested benefits
66
What is Direct Air Capture (DAC)?
Capturing carbon dioxide from the air
67
How does DAC work?
There are multiple methods:
Using a chemical that selectively binds CO2 from the air and releases it when heated
Systems that use changes in temperature, humidity or electrical charge to capture/release CO2
68
DAC can be used in 'carbon recycling'. How?
The pure CO2 can be used in short-lived products, where after use the CO2 is released back to the atmosphere.
69
DAC can be used in long-lived products like low-carbon cement. What is this called?
A carbon-to-value supply chain
70
There are concerns about DAC's energy demands. Why?
Because the concentration of CO2 in the air is so low, large amounts of energy are needed for DAC. This must be low-carbon energy to maximise it's climate impact.
Using low-carbon energy may divert it from emissions reductions purposes and require large areas of land.
71
DAC is put into 'geologic storage'. What does this mean?
What are the concerns?
CO2 is injected into geological reservoirs (underground).
Pipeline damage, leakage, seismic activity, water pollution.
72
DAC can be used in 'enhanced oil recovery'. What is this?
What is the concern?
Where CO2 is pumped into declining oil wells to increase output.
It is being used to prolong the fossil fuel industry, thereby negating DAC's benefits.
73
What is a Regulated Asset Base (RAB) funding model?
A type of economic regulation typically used in the UK for infrastructure assets such as water, gas and electricity networks.
74
Why is RAB funding used?
To incentivise private investment into public projects by providing a secure payback, i.e. guaranteed returns on investment for developers.
75
Under RAB funding, who takes ownership of the assets and operating costs?
Bear in mind RAB is used to fund public projects.
The private company
76
Under RAB funding, if the private company takes ownership of the assets/operating costs, how do they benefit?
They can raise revenue through consumer bills and often access government subsidies.
Because there is guaranteed payback, there is a reduced risk on the investment. This is how RAB incentivises private investment.
77
What benefits might a RAB-funded project have for energy consumers? Why?
A more reliable power supply and better quality service due to new investments.
78
RAB gives one company a monopoly over a service. True or false?
True
79
How does RAB funding work?
An independent regulator gives the private company a licence to charge consumers a regulated price for using the assets.
80
How is RAB funding supposedly made fair for the consumer?
The independent regulator will ensure prices are not set too high and provide efficiency incentives that would normally be motivated under a competitive market.
81
What is the argument against RAB funding?
Give 4 points.
1. It transfers the risks of construction from developers to consumers. Developers can effectively spend what they like on construction as consumers are locked in to paying the costs regardless. As most construction projects take longer and cost more than planned, consumers can end up paying a lot. There is also the argument that corrupt companies could long out a project to continue receiving regular income from consumers; there is no incentive to finish it.
2. Consumers end up paying for the project before it is even finished, i.e. they're paying for something uncertain that they can't use.
3. Consumers are charged for projects irrespective of their utilities supplier or region. For example, Scottish consumers could end up paying for a nuclear plant in Essex.
4. RAB gives one company a monopoly. That company could be a foreign, state-owned one. Therefore, RAB can effectively prop up overseas states e.g. nuclear projects built by Chinese company CGN
82
Why might RAB funding be a good option for nuclear projects?
Constructing nuclear power plants is...
- Very expensive (tens of millions)
- Resource-intensive
- A long-gestation project (takes ages)
- Complex, often causing unforeseen delays and increasing costs
This makes them a risky investment that many investors will avoid. However, RAB sees a fixed rate of return for investors as the project is being built, counteracting the high costs.
83
Why is RAB considered a 'securitisable asset' for developers?
Because it has regulatory protection and government backing.
84
Aside from the other arguments against RAB, why is it risky to use it for a nuclear power plant?
RAB has never been used to fund a project as expensive and complex as a nuclear plant; we don't know what could happen.
85
What is an interconnector?
A physical link that allows the transfer of electricity across borders.
86
How many interconnectors does the UK currently have?
Who do they link us to and what are the project names?
Five
France, IFA1 and IFA2
The Netherlands, BritNed
Northern Ireland, Moyle
Republic of Ireland, East West
87
Where do interconnectors derive their revenue from?
Congestion revenues
88
Interconnectors derive their revenues from congestion revenues.
How do congestion revenues work?
They depend on the existence of a price differential between markets at either end of the interconnector.
89
How is interconnector capacity governed?
By EU legislation, which requires all interconnector capacity to be allocated to the market via market-based mechanisms, i.e. auctions.
The legislation also includes conditions for how revenues are used.
90
What does it mean to 'commercialise ' technology?
To move a product from concept to market.
91
Companies that can commercialise technology faster and more efficiently are more successful. True or false?
True - commercialisation ability gives a competitive edge
92
Why is rapid commercialisation of technology important for a company?
Because there is an increasing proliferation of tech that renders previous tech obsolete.
Basically, everything moves hella fast now so hurry up if you want to make money off your innovation.
93
Which four factors indicate a company's successful commercialisation ability (and therefore competitive advantage)?
1. A short time to market for new tech
2. Tech is sold on a wide range of markets
3. Their product range increases
4. A greater breadth of technologies are used in the product range
94
How might a company improve their commercialisation ability?
Give 6 points.
1. Invest in R&D in-house (rapid transfer of ideas)
2. Automate/digitalise processes where possible (speeds manufacturing)
3. Employ highly skilled/experienced staff (can work faster)
4. Improve the management structure (reduces decision-making time)
5. Involve customers in testing (finds problems early on)
6. Orient teams around products, not functions (work is more cohesive)
95
What are the four types of barriers to the deployment of renewable energy technology (RET)?
Social, economic, technical and regulatory.
96
What are the four social barriers to the deployment of RET?
1. Lack of public awareness
2. NIMBY syndrome
3. Loss of alternative income
4. Lack of experienced professionals
97
Lack of public awareness is a social barrier to RET deployment. Expand on this.
The public may have:
- Insufficient information outlining the ecological and financial benefits
- A lack of awareness of available RET technology
- Concerns around the financial stability and installation of RET
Basically they don't know enough about it, they don't know what the options are and therefore they are concerned about it.
98
NIMBY syndrome is a social barrier to RET deployment. Expand on this.
'Not in my backyard'
When the public supports RET in principle, just not in their neighbourhood. This is because of the landscape impact (its ugly), potential environmental degradation and a lack of consultation of local communities.
99
A loss of alternative income is a social barrier to RET deployment. Expand on this.
Projects like solar and wind require large land areas. This can causes losses to agriculture, fishing and tourism.
100
A lack of experienced professionals is a social barrier to RET deployment. Expand on this.
Transition to low-carbon economy requires a skilled labour force. As it is a relatively new industry, this workforce doesn't exist yet.
101
Name the five economics barriers to the deployment of RET.
1. Competition from fossil fuels
2. Government grants/subsidies
3. A lack of financing institutions
4. High upfront project costs
5. Intangible costs (of fossil fuels)
102
Competition from fossil fuels are an economic barrier to RET deployment. Expand on this.
Fossil fuels dominate the market. As they are relatively cheap and abundant, they have historically outpriced renewables.
103
Government grants and subsidies are an economic barrier to RET deployment. Expand on this.
Fossil fuels receive more subsidies than renewables. This helps to reduce their costs and make them more cheaper for the consumer so they dominate the market.
104
A lack of financing institutions is an economic barrier to RET deployment. Expand on this.
With limited institutions that will finance RET projects, developers find it hard to raise the capital needed. This can signal to investors that RET is a risky investment.
105
High upfront project costs are an economic barrier to RET deployment. Expand on this.
RET projects have high up front costs and long payback periods (because renewables are less efficient than fossil fuels). This demotivates investors.
106
Intangible costs (of fossil fuels) are an economic barrier to RET deployment. Expand on this.
The cost of a fuel typically encompasses its exploration, production, distribution and usage costs. However, the externalities (unforeseen costs) of fossil fuels, i.e. their effects on both health and the atmosphere, are not reflected in their price.
If fossil fuel prices included intangible costs, renewables would be more competitive.
107
Name the four technical barriers to RET deployment.
1. Limited infrastructure
2. Lack of maintenance expertise
3. Lack of R&D
4. Technological complexity
108
Limited infrastructure is a technical barrier to RET deployment. Expand on this.
As RET is often placed in remote locations, it requires additional transmission lines to connect to the main grid. Most grids are not designed to integrate renewables and therefore need to be modernised. This process is expensive, especially for developing nations.
109
A lack of maintenance expertise is a technical barrier to RET deployment. Expand on this.
As RET is relatively new there is a lack of maintenance expertise. Plus, spare parts often need to be imported from other countries, making maintenance expensive (meaning it is often overlooked). If maintenance is not carried out regularly, a plant cannot achieve maximum efficiency.
110
A lack of R&D is a technical barrier to RET deployment. Expand on this.
As much RET is still in its infancy, R&D receives less investment as it is perceived as risky. Therefore, RET cannot compete commercially with fossil fuels.
111
Technological complexity is a technical barrier to RET deployment. Expand on this.
Due to their complex and diverse nature, it is hard to create performance standards for RET products. This prevents them from achieving large-scale commercialisation.
112
Name the five regulatory barriers to RET deployment.
1. Ineffective government policy
2. Inadequate fiscal incentives
3. Bureaucratic complexities
4. Unrealistic government commitments
5. A lack of certification
113
Ineffective government policy is a regulatory barrier to RET deployment. Expand on this.
For low-carbon transition, the government must implement policies to move the energy system away from fossil fuels. Without this, transition will not happen, i.e. Bozza's 10 Point Plan/the EWP
114
Inadequate fiscal incentives are a regulatory barrier to RET deployment. Expand on this.
Governments fail to remove tax on RET material imports, fail to impose tax on materials with a high carbon cost (i.e. the absence of a carbon border tax) and feed-in tariffs remain uncommon.
115
Bureaucratic complexities are a regulatory barrier to RET deployment. Expand on this.
A lack of coordination between authorities can lead to planning delays and restrictions. Obtaining permission can also lead to higher costs due to lobbying.
These factors prolong the project start-up period and reduce motivation to invest in RET.
116
Unrealistic government commitments are a regulatory barrier to RET deployment. Expand on this.
There is a gap between the policy targets set by governments and the actual results from implementation. This discourages investment. Governments need to set realistic targets.
117
A lack of certification is a regulatory barrier to RET deployment. Expand on this.
A lack of certification means that materials from overseas may not meet the standards of the importing country. This can create confusion/uncertainty in RET projects as developers must comply with local law.
118
What does ROI stand for?
Return on investment
119
What is an efficient supply chain?
One that makes the best use of its resources (financial, human, technological, physical) to minimise material/packaging costs and reduce time wastage.
120
What is an effective supply chain?
One that meets or exceeds the demands of its key stakeholders (customers, partners, suppliers, vendors).
Basically, one that delivers exactly what has been asked/is expected.
121
It is possible for a supply chain to be effective but not efficient?
Yes, if the supply chain satisfies its stakeholders with a quality product but wasted loads of resources in the process.
122
It is possible for a supply chain to be efficient but not effective?
Yes, if the supply chain uses minimal resources and delivers quickly but the product does not satisfy its stakeholders.
123
To make a supply chain efficient, what must you optimise - internal or external processes?
Internal (streamline operations)
124
To make a supply chain effective, what must you optimise - internal or external processes?
External (constant communication with stakeholders)
125
What does CBAM stand for?
What is it?
Carbon Border Adjustment Mechanism, aka a carbon tax
126
Define 'carbon leakage'.
When companies in regions with strict emissions reductions policies move their carbon-intensive activities to regions with laxer policies; emissions are only moved, not reduced.
127
Carbon leakage can also happen when, as a result of strict emissions reductions policies, domestic companies stop producing and foreign companies (with laxer policies) produce more. True or false?
True
128
Why do the EU want to introduce a CBAM?
To incentivise international trading partners to reduce their emissions.
129
How would the EU's CBAM work?
It has not been decided yet, but three different options are being explored:
1. Customs duty/tax on imports as they cross the border
2. Extension of the EU ETS to cover imports
3. VAT-style tax on imports sold in Europe
130
Why might a CBAM benefit domestic EU producers?
A CBAM would make EU companies more competitive.
EU producers have been paying a carbon tax since on their goods since 2005 through the EU ETS. Therefore, their manufacturing costs for the same goods are higher than foreign companies' with laxer emissions policies (e.g. China). This means they are often outpriced on the world market.
131
What are the arguments for an EU CBAM?
Give 2.
1. Incentivises international trading partners to crack down on emissions
2. Increases the competitiveness of EU producers
132
What are the arguments against an EU CBAM?
Give 7.
1. If the cost of carbon is too low, companies will not be incentivised to cut their emissions (it will be pointless)
2. It violates the UNFCCC's 'common but differentiated responsibility' as exporters from developing nations would bear the same mitigation burden as those from developed nations
3. Implementing a CBAM would discriminate against producers from developing nations, whose practices are more emissions-intensive, shutting them out of world trade
4. It is difficult to quantify and price the emissions of a product along its entire value chain
5. Exporters from high-carbon countries would sell more goods to countries without a CBAM, which might affect domestic production (trade deviation)
6. If EU producers cannot import raw materials due to the CBAM there will be downstream effects (trade distortion)
7. It could start a trade war, as other countries push back with their own retaliatory tariffs
133
Which sectors are most at risk of carbon leakage and therefore likely to be subjected to an EU CBAM?
Give the 4 main ones.
Steel
Cement
Aluminium
Fertilisers
134
What is the current mechanism for reducing carbon leakage within the EU?
Giving free emissions allocations via the EU ETS to energy-intensive companies that meet product-related benchmarks and are in danger of carbon leakage.
135
What is the legal issue with implementing an EU CBAM? Refer to the WTO.
It violates the WTO's 'non-discrimination' principle, as it would mean differentiating between low and high carbon products that are otherwise alike.
136
Where is the WTO's non-discrimination principle contained?
In the General Agreement on Tariffs and Trade (GATT).
137
How might the EU overcome the legal issue with implementing a CBAM? Refer to the WTO.
The GATT provides exceptions to the non-discrimination principle for environmental reasons, but the EU would need to meet these requirements.
For example, they could use the revenue generated from a CBAM to fund climate action.
138
If, once decided, an EU CBAM is implemented as an extension of the EU ETS, no changes would need to be made domestically. True or false?
What might this be a problem?
False - changes would have to be made to the allowance stock and the market stability reserve.
This may also involve paying EU companies an 'export subsidy', which is forbidden under the WTO's Subsidies and Countervailing Measures (SCM).
139
Critics of the EU CBAM suggest that a 'globally harmonised' carbon pricing system would be better. True or false?
True
140
How many countries are in the EU?
27
141
The EU CBAM has not even been agreed yet, but what benefits have there already been?
Attitudes towards CC have already changed in other countries; many have set more ambitious national climate policies and greenhouse gas reduction measures for industry.
142
Why has the EU CBAM been labelled 'the latest form of economic imperialism'?
Developing nations are the most emissions-intensive, so a CBAM would hit them really hard and affect their ability to trade.
143
Countries with strict environmental/emissions policies will be minimally affected (if at all) by a CBAM. Why?
Give some examples.
Because their goods already comply with EU carbon pricing standards so they won't be charged.
Costa Rica and Switzerland, who have relatively clean energy mixes.
144
Implementation of an EU CBAM could either spark a trade war with China or encourage emissions reductions. Why?
Trade war: China produces half of the world's steel so would be very exposed to a CBAM. Beijing expressed concerns as early as 2019 and do not want their hand forced.
Emissions reductions: there are already a number of Chinese producers with small carbon footprints. This could give them a competitive advantage as they will still be able to trade with Europe.
145
What do Russia think of an EU CBAM?
The EU is Russia's largest trade partner. The goods Russia exports are all emissions-intensive (oil/gas, minerals, metals) so they would be very exposed to a CBAM.
Russia perceives a CBAM as a means to protect European industry, not for climate change action.
146
Aside from the EU, which other world power has expressed much support for a CBAM/is considering implementing their own?
The US
147
Which two places are the only ones in the world to currently have a CBAM?
California and Quebec
148
A CBAM is more likely to meet WTO standards if the revenue is used for climate action. Give 2 ways in which it could be used.
1. To invest in low-carbon innovation in European industry
| 2. Sent back to developing nations affected by the tax to find climate action there (best option imo)
149
The EU has come up with x proposals for a CBAM since 2007 but have all been scrapped.
How many proposals were there?
Why were they scrapped?
3
Either because the system of free allowance allocations under the ETS was favoured or because concerns over WTO challenges were too strong
150
As other countries begin to implement their ambitious mitigation strategies (e.g. Japan, China, South Korea), carbon leakage will become less of a problem and a CBAM will be less of a concern for the EU. True or false?
True
151
When does the EU Commission want to adopt its proposal of a CBAM?
If this happens, when would it come into force?
June 2021
January 2023
152
What is the Contracts for Difference (CfDs) scheme?
The government’s main mechanism for supporting low-carbon electricity generation.
153
What are two advantages to CfDs?
1. They incentivise investment in renewable energy
| 2. They protect the consumer from price volatility
154
Regarding CfDs, define 'strike price'.
The guaranteed price to be paid to electricity generators under the CfD.
155
Regarding CfDs, define 'market price'.
The average wholesale price of energy on the market.
156
Who is the Low Carbon Contracts Company (LCCC) and what do they do?
A company owned by BEIS who:
- Issues CfDs
- Manages CfDs during the construction/delivery of energy generation projects
- Makes CfD payments to the energy generator
157
Regarding CfDs, the LCCC is known as the...
counterparty
158
How to CfDs work?
Give 3 steps.
1. Energy generators bid for CfDs in an auction
2. Successful generators enter into a private law contract with the LCCC
3. The LCCC pays generators a flat rate for their energy each month
159
Under CfDs, the LCCC pays generators a flat rate for the energy they produce. How is this calculated?
It is the difference between the strike price (the guaranteed price under the CfD) and the market price.
160
Under a CfD, an offshore wind developer's strike price is £57 per MWh. The market price is £45 per MWh. How much do they receive from the LCCC?
£12
£57 strike - £45 market = £12 paid by LCCC
161
Under a CfD, the LCCC pays generators a flat rate for the energy they produce. This is the difference between the strike price and market price.
What happens if the strike price is lower than the market price?
The energy generator pays money to the LCCC instead.
162
Under a CfD, an offshore wind developer's strike price is £30 per MWh. The market price is £60 per MWh. How much does the developer pay to the LCCC?
£30
£60 market price - £30 strike price = £30 paid by developer
163
What is the funding mechanism for CfDs called?
What does it pay for?
The Levy Control Framework
It either pays the energy developer or the LCCC, depending on the difference between strike and market price.
164
Where does the money for the Levy Control Framework come from in CfDs?
What is this called?
The government collects a levy from all UK-based electricity suppliers.
The Supplier Obligation Levy.
165
In CfDs, the Supplier Obligation Levy is taken from all UK-based electricity suppliers.
Who ultimately pays this cost?
How is it calculated?
The consumer.
It is proportional - the more electricity you use, the more you contribute to the cost of a strike price.
166
If market price exceeds strike price, the energy generator pays the LCCC. How do consumers get their money back?
Under the Levy Control Framework, the energy generator pays the LCCC. They then return the money to energy suppliers from whom the levy was originally collected. This means consumers get their money back.
167
CfD provide strong credit stability which incentivises private investment - how?
Give 4 points.
1. Removes price risk as it is a contracted revenue scheme
2. Long-term returns on investments as CfD are 15-year contracts
3. Removes volume risk as low-carbon generation 'bids in at a low rate' (I presume this means there's less competition?)
4. Removes counterparty risk as the LCCC is a government-backed authority with a strong regulatory framework
168
How do CfDs protect the consumer from energy price increases?
Because it is a condition that generators pay consumers back when the market price exceeds the strike price.
169
How are CfDs different from subsidies for the consumer?
The amount paid by consumers varies because, for CfD...
1. It is the difference between strike price and market price; although strike price is constant, market price can vary
2. It is proportional, as the more energy consumers use, the more they contribute to the cost of a strike price through the Levy Control Mechanism
Whereas subsidies are usually paid at a constant rate by all taxpayers.
170
Define a subsidy.
Any form of government support (financial or otherwise) provided to producers or consumers.
171
Subsidies are also called state aid. True or false?
True
172
Subsidies are not a form of government intervention (in the market). True or false?
False - they are a form of government intervention.
173
Who are subsidies most commonly awarded to - producers or consumers?
Producers
174
How are state subsidies financed? Give 2 options.
1. General taxation (most common)
| 2. Borrowing
175
What effect do producer subsidies have on...
1. Producers
2. Consumers
1. Subsidies reduce their costs per unit, allowing them to produce more units.
2. The increased supply causes a lower product cost for consumers.
176
How do you calculate the total spent on the subsidy?
The subsidy cost per unit multiplied by the number of units.
177
What effect does a direct subsidy to the consumer have?
It reduces the cost for consumers to buy a particular product, thereby increasing demand.
178
Name the five types of producer subsidy.
1. A guaranteed payment on the cost of a product (i.e. a guaranteed minimum price)
2. An input subsidy which reduces the costs of production
3. Government grants to cover losses
4. Bail-outs
5. Loans and grants for setting up in areas of high unemployment
179
To what extent do subsidies feed through to lower prices for consumers?
This depends on the price elasticity of demand.
If the price is inelastic, the main effect of the subsidy is a lower price for the consumer.
If the price is elastic, the main effect of the subsidy is to increase the quantity traded (not lower the price).
180
# Define elasticity of demand.
Define PRICE elasticity of demand.
Elasticity of demand measures the responsiveness of demand to changes in another variable.
Price elasticity of demand (PED) measures the responsiveness of demand to changes in price.
181
What is meant by 'price elastic'?
PED > 1
A change in price will cause large changes in demand, i.e.
A price cut would increase revenue.
A price rise would decrease revenue.
Basically means the demand is really sensitive to the price.
182
What is meant by 'price inelastic'?
PED < 1
A change in price will cause little change in demand
Basically means the demand is insensitive to the price.
183
What is meant by 'unitary price elasticity'?
PED = 1
A change in price will equal a change in demand, e.g. a 15% price change produces a 15% demand change
184
What is meant by 'perfectly inelastic'?
PED = 0
A change in price has absolutely no effect on demand
185
Give five cases in which government subsidies might help to correct market failures.
1. To control inflation and keep prices down for the consumer
2. To encourage the consumption of goods and services with positive externalities (social and environmental benefits)
3. Reduce the cost of capital investment projects to boost economic growth
4. To slow the long-term decline of an industry
5. To boost demand for goods/services during a recession
186
What two factors should be used to judge the effectiveness of a subsidy?
Efficiency and fairness - might the money be better spent elsewhere?
187
Free market economists say that subsidies distort the free market mechanism and can lead to government failure. What does this mean?
That government intervention leads to a worse distribution of resources.
188
What are the arguments against subsidies? Give 7 points.
1. Distorts market prices, which can make products from other companies/countries less competitive
2. Decisions about who receives subsidies are often based on political aims
3. Expensive, money could be better spent elsewhere
4. Costs usually fall on taxpayers/consumers who often derive no benefit from the subsidy
5. Delay much-needed reform as they protect inefficient industries from having to compete
6. Risk of fraud when allocating payments
7. There are alternatives that distort the market less
