Transcript Grundlagen

Sustainability standards for bioenergy
A means to reduce climate change risks?
Prof. Dr. Renate Schubert, Julia Blasch
Institute for Environmental Decisions (IED)
IARU International Scientific Congress on Climate Change, Copenhagen, 10-12 March 2009
Agenda
1. Risks of unregulated bioenergy use
2. Sustainability standards
3. Market failure in the bioenergy market
4. Overcoming information asymmetries
5. Predictions on consumers’ WTP
6. Addressing public externalities
7. Conclusions and recommendations
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1. Risks of unregulated bioenergy use

Bioenergy accounts for ~10% of global primary energy
supply

More than 85% thereof is traditional bioenergy use in the
developing world

Production and use of modern bioenergy, esp. of biofuels,
usually depends on government support
Exception: Brazilian ethanol
Biofuel subsidies in Europe, US and CA: ~ 11 Bio. US-$ in 2006

Often cited motivations for support policies: (1) climate
change mitigation (2) energy autonomy (3) rural development
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1. Risks of unregulated bioenergy use


Unregulated support bears risks for
-
Climate
-
Biodiversity
-
Food security
-
Soil and water resources
-
Social development
Two origins of risks: (1) unsustainable behavior of market
actors AND (2) unsustainable government support policies
 Can regulation reduce these risks?
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2. Sustainability standards

Possible regulation: sustainability standards for bioenergy
production

Sustainability standards have to refer to:
I.
Required life-cycle-GHG emission reduction
II.
Minimum land use changes (direct and indirect LUC)
III.
No conversion of natural ecosystems
IV. Conservation of water and soil quality
V.
Controlled use of GMO
VI. Compliance with basic labor standards
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2. Sustainability standards

Certification schemes need to attest compliance with the
standard


Product labels as visible signs to consumers
Open question: What type of scheme should be
introduced?
3/11/2009
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Voluntary certification
-
Mandatory certification
-
Binding minimum standard
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2. Sustainability standards
Examples for legislation and initiatives on sustainable
bioenergy
-
National: Criteria for biofuels support in GB, DE, CH;
Criteria for biofuels of Swedish energy company SEKAB
-
Supranational:
Criteria for biofuels support in European RES Directive
-
International:
Criteria of Roundtable on Sustainable Bioenergy (RSB)
Sustainability Task Force of Global Bioenergy Partnership (GBEP)
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3. Market failure in the bioenergy market
Open question:
-
Why don’t markets provide sustainable bioenergy by
themselves?
Answer: Potential sources of market failure are
-
Information asymmetries between producers and
consumers
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Public externalities of bioenergy production
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3. Market failure in the bioenergy market
Information asymmetries
 Consumers cannot observe production methods
-
They have incomplete information on the production processes
-
Production method is a “credence characteristic” of bioenergy
 Producers know modes of production, i.e. information
asymmetry (Akerlof,1970)
 Results:
No price premium for sustainable bioenergy
Producers supply unsustainable bioenergy
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3. Market failure in the bioenergy market
Public externalities
 Positive externalities from sustainable bioenergy
production
- Positive effects on biodiversity, climate, soil/water, etc.
- But: No remuneration for provision of these public goods
 Negative externalities from unsustainable bioenergy
production
- Deforestation, soil degradation, loss of biodiversity, etc.
- But: No private costs for damages caused
 Result: too little sustainable, too much unsustainable b.e.
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3. Market failure in the bioenergy market
 Simultaneous occurrence of information asymmetries and
public externalities
 consumers will not reveal their true willingness to pay
for sustainable bioenergy
 producers will not produce sustainable bioenergy
Two sources of market failure 
Two instruments to correct them
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4. Overcoming information asymmetries
 General effect of standards/ certification/ labeling
- Producers can credibly signal their modes of production
- Consumers can distinguish products according to production
methods used at low information costs
 Result: Socially preferable market outcome
- Producers can capture price premium for sustainable bioenergy
- Consumers can adapt purchasing behavior to their preferences
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4. Overcoming information asymmetry
 Open question: Will private actors introduce voluntary
standards?
- Producers aim at capturing price premium
- Price premium will only emerge if consumers show necessary
willingness to pay
- Problem of insufficient WTP because of public externalities prevails
 No, we will not observe voluntary standards; mandatory
certification as solution! (= Instrument 1)
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5. Predictions on consumers’ WTP
 Theoretically, willingness to pay depends on
- Consumers’ preferences for “green” product characteristics
- Existence of private benefits from “green” product characteristics
(i.e. health, taste)
- Share of “concerned” consumers in population
- Consumers’ ability to pay the price premium
 Generally, WTP studies for “green” products predict:
- Share of “concerned” consumers: 30-50% of population
- WTP for price premium: up to 5-10% of product price
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5. Predictions on consumers’ WTP
 Market share of certified Sustainable Forest Management
- In 2008 around 8.3% of global forest cover (~ 13.4% of managed
forests) was certified by either FSC or PEFC
- 80-90% of certified forests lie in Europe, North America, Russian
Federation
 Market share of certified “green electricity”
- In 2006 share of certified electricity was +/- 5% in European
countries with some exceptions (NL, SE)
Limited market share for sustainable bioenergy
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6. Addressing public externalities
How to design the mandatory certification: Taxation vs.
binding minimum standard (BMS)
Taxation

Perverse incentive of taxation  Less sustainable
bioenergy than before intervention

High tax rate required due to high social costs of
unsustainable bioenergy production (i.e. deforestation,
use of GMO, child labor)
 Unsustainable bioenergy will be noncompetitive
 Producers will have to exit the market
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6. Addressing public externalities
Taxation vs. binding minimum standard (BMS)
Binding minimum standard (BMS)

BMS equals an “infinitely” high tax on unsustainable
bioenergy production

Like a tax BMS will force producers of unsustainable
bioenergy to exit the market

However: No perverse incentive like from taxation

And: BMS may exhibit higher political feasibility
 BMS are dominant solution (=Instrument 2)
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7. Conclusions and recommendations
Mandatory certification and a binding minimum standard…

eliminate the worst environmental and social effects
of bioenergy production

pave the way for comprehensive requirements for
sustainable land-use in the whole agriculture and
forestry sector

must be embedded in a broader package of policy
measures
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7. Conclusions and recommendations
Recommendations for implementation
 Step-wise approach: implementation at national, regional
and then international level (to ensure compatibility with
GATT/WTO law)
 Criteria on international level: Recognized body such as
Global Bioenergy Partnership (GBEP) or Roundtable on
Sustainable Biofuels (RSB) should take the lead
 Intermediate solution: bilateral agreements between
important producer and consumer countries
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7. Conclusions and recommendations
Next steps/Outlook
 Short-run: Unconditional promotion of bioenergy should
be brought to an end
 instead: minimum standard + phase out subsidies for bioenergy
of outstanding sustainability
 Long-run: Integrated taxation strategy for fossil fuels and
unsustainably produced renewable energy is needed
 aim: change of relative prices in the energy market in favor of
sustainable renewable energy products with proven potential to
mitigate climate change
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Institute for Environmental Decisions / [email protected]
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New Report: „Future Bioenergy and
Sustainable Land Use“
Latest report by the German
Advisory Council on Global
Change (WBGU)
For more information:
www.wbgu.de
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