London, Green City sustainability and markets

1
London, Green City sustainability and markets

• Simon Kyte
• Economist, GLA Economics
• 12th January, 2007
• Design Public Policy Markets for Congestion
  Carbon Trading, University of Essex

2
Why focus on cities?

• Why are cities a good place to look for
  reductions in greenhouse gas emissions? Because
  thats where the people are. Its people who
  drive cars, throw away mountains of garbage and
  use billions of kilowatts of electricity.
• Paul Schell, former Mayor of Seattle.

3
Propositions

• London is an environmentally effective city (but
  has congestion and pollution problems)
• London is an innovative city in terms of
  transport and environmental policy
• London has established itself as the competitive
  leader in carbon trading
• London is a global city and gains influence by
  being so.

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London- Environmentally Effective City
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Environmentally effective London
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CO2 emissions per dwelling
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Household gas sales per consumer, 2002 (KWh)
Source Environmental Effectiveness of London,
GLA , June 2005
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Transport - Total traffic and traffic growth,
1993-2003
Source DfT
Environmental Effectiveness of London, GLA , June
2005
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Total road transport CO2 emissions per 1 million
GVA and per capita (2003)
CO2 (tonnes) per capita
CO2 (tonnes) per 1 million GVA
Source GLA Economics and ONS Environmental
Effectiveness of London, GLA , June 2005
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Early implementation in London

• Nonetheless, cities can be polluted and
  congested
• BUT - externalities can be priced
• Case for early implementation in cities.

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Early implementation in London

• London also is at risk from climate change (as
  well as adjustment) through rising sea levels and
  increased flood risk.

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London- Policy Innovative City
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Road pricing early implementation

• Smeed Report (1964)
• Given the immense growth in the number of
  vehicles, the present taxation methods do not
  effectively restrain the use of roads in the
  right places at the right time

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Early implementation in London

• Central London congestion charging
• If road space is not priced traffic volumes
  increase until congestion limits further growth
• A congestion charge introduced in Central London
  in February 2003
• First congestion pricing in a major European
  city
• London is ahead of the game, and many other
  cities now looking to the London experience -
  Stockholm (53 voted in favour) - the first
  European city to approve a road user charge.

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Congestion Charge the London experience

• Traffic and speed changes led to environmental
  benefits
• In 2005, reduction in volume of traffic of 21
  compared with pre-charging levels
• Comparing emissions pre and post charging
• 13 reduction in NOx in the charging zone
• 16 reduction in PM10 in the charging zone
• 15.7 reduction in CO2 emissions.

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Towards an optimal pricing scheme

• The 8 flat charge is a blunt pricing mechanism
  (although easy for users to understand)
• Optimal scheme would vary by
• Distance travelled in charging zone
• Time of day (most congested times are most
  expensive)
• Location (most congested area is most expensive)
• Emission level/size of vehicle
• Problem becomes LACK OF COMPREHENSION
• Dependent on availability and cost of technology.

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LEZ Early implementation

• Proposed low emission zone (LEZ)
• Introduces an emission standard for Greater
  London from 2008 for HGVs, buses and coaches
• Aim discourage the worst polluting vehicles
  entering Greater London to move closer to
  national and EU air quality objectives for 2010
• High costs of non-compliance (high daily rate and
  penalties).

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LEZ Londons air quality

• London still suffers some of the poorest air
  quality in the UK with PM10 concentrations
  exceeding EU standards
• Impact on respiratory cardiovascular conditions
  as well as transporting carcinogenic compounds
  into the lungs
• PM10 levels depend on weather conditions August
  2003.

London
London
London
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LEZ How it will work

• Aim persuade operators of most polluting
  vehicles to modify / replace
• Public consultation ends next month could be in
  place early 2008
• Will be enforced by a Greater London-wide network
  of mobile and fixed cameras.
• by the way, PM10 are responsible for 4x as many
  deaths in London each year as road traffic
  accidents.

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Employment impacts from LEZ


  1                     FTE equivalent
jobs (Source PWC)
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Zero / low carbon developments
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Zero / low carbon developments

• Mayor has set challenging target for 2010 gt1
  zero-C development per Borough
• e.g. BedZed (Beddington), Gallions Ecopark
  (Greenwich), Karma House (Wembley), St Matthews
  (Brixton)
• Tendency for effective subsidies strong policy
  needed REQUIREMENT rather than ENCOURAGEMENT
• London planning an Albert Docks ZCD aiming to
  demonstrate that zero carbon development can be
  financially viable.

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Potential for Combined Heat Power
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Potential for CHP current of all energy
produced by EU country
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CHP and the market

• Scandinavian CHP has not been achieved using
  market mechanisms
• Helsinki (where 90 of buildings heated by
  community heating) installation of electric
  heating is forbidden in areas zoned for community
  heating as elsewhere in Finland.

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CHP and the market (cont.)

• Municipal building regulations also aid
  enforcement at the local level
• Denmark local authorities have been responsible
  for drawing up local and regional heat plans
  since 1979. These are agreed through guidance
  of the national ministry
• Take-off in rural areas would be even slower
• But UK probably has most advanced market for
  micro-CHP.

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Obstacles to micro-CHP in UK

• Initial outlay costs high. Tends to encourage
  purchase by specifiers and not by households
• Unable to gain revenues from exports. Favours
  non-CHP purchases and small units without much
  export potential
• Lack of familiarity and different installation
  skills
• No domestic equivalent of the Climate Change Levy
  exemption.

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Obstacles to micro-CHP in UK (cont.)

• Unlikely to be effective in households with less
  than 1200 kWh/year gas consumption
• Will be strongly affected by movements in the
  price of gas
• ESCOs and the 28 day rule.

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Market failure?

• Currently, investments in micro-generation,
  renewables and often CHP have a negative NPV
• Some of the greatest energy savings loft and
  cavity wall insulation. But incentives lacking in
  private rented market.

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Market failure? (continued)

• Photovoltaics plan for City Hall only possible
  under subsidy
• Green Fund channels funds from subscriber green
  tariffs to support small scale renewables, even
  though the consumer is actually purchasing from
  the Grid.

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London- Carbon Trading City
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Carbon trading

• Basically the right to emit one unit of carbon
• Requires the assignment of property rights
• UK-ETS predated EU-ETS non-fungible
• London has a clear competitive advantage over
  Germany (Leipzig) and the US

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Carbon trading - benefits

• Future largest commodity market
• CDM allows companies to invest where GHGs can be
  cut most effectively
• Flexible responds to changes in the market
  (unlike, say, environmental taxes)
• Developing Countries may use it as a cash cow to
  fund increased social and economic development.

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Carbon trading - problems

• Property rights need to be allocated at right
  level
• Not really a market property rights given to
  biggest polluters by governments allows them
  windfall
• Takes focus away from reducing dependence on
  fossil fuels
• May not encourage investment in CHP /renewables
• Ex-Soviet hot air pool
• Responsibility v. geography
• Measurement issues particularly offsets, 1990
  base
• Exporting heavy manufacturing to the Developing
  World
• Deadweight what would have happened anyway
• Open to fraud funding the saving from what
  would never have happened anyway.

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EU-ETS price collapse
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Personal carbon allowances

• At the moment its about governments and
  installations, not about individuals.
• What would an optimal system look like?
• Individuals given a tradable carbon allowance
• Incentives at the right level of decision making
• Problem administrative costs
• May be opportunities to start trading at LAD
  level but measurement issues.

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London- Global City
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CO2 emissions by regional source
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Do we wait for national global markets?

• UK 2 of CO2 emissions globally
• London circa ¼
• UK share of global emissions falls and Developing
  Countries increase
• Use status as an international city, our
  influence with Commonwealth Countries and the
  London administrations links with Beijing to
  influence those outside of Annex I
• C20 Group,
  Clinton Foundation.

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Londons opportunity to influence China

• Using Londons experience to promote Chinese
  carbon reductions
• Possible adaptation of EU ETS for China using the
  City of Londons world-leading experience to
  establish regional Asian carbon trading schemes
• Promote Londons carbon reduction programme and
  sustainability initiatives (Congestion Charge
  Green Homes Service) as an example of best
  practice to Beijing including secondment
  swaps
• Encourage investment in Dagenham Sustainable
  Industries Business Park from China given that it
  specialises in some environmental technologies.

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Londons opportunity to influence China

• Opportunities for innovation in Carbon Capture
• Potential joint RD ventures in developing Carbon
  Capture Storage (CCS)
• Possibility of UK / China developing a global
  carbon market and using experience of BP and RWE.

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Londons opportunity to influence India

• Close links language, culture, cricket / polo,
  Londons base of Indian businesses
• Indian economy transformed more open, more per
  capita GDP growth, structural shifts, current
  account surplus. But growth without
  industrialisation, capital scarcity,
  infrastructural problems, catastrophic risks from
  climate change
• Historic migration links but UK overtaken in
  1970s
• UK investment in India not as great as one might
  expect benign neglect (Stephen Byers)
• But 40 of UK investment via CDM goes to India
• As Chinas population stabilises, India will
  become the accelerating source of CO2 emissions
• UK has opportunity to lobby for India but US has
  also positioned itself strategically.

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Policy trading an example

• Cities for Climate Change Protection represents
  7 of global population.
• Review of Portland (Oregon)s Local Action Plan
  on Global Warming following unanticipated rapid
  demographic growth.
• Portland makes study of energy efficiency, waste
  and traffic management policies pursued by
  Copenhagen Stockholm (also members of CCCP).
• New Action Plan - converting traffic signals to
  LED weatherising low-income households green
  building design assistance increasing vegetative
  cover extending parking pricing setting solid
  waste recovery targets supporting congestion
  pricing on regional freeways etc.

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- Conclusions
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Conclusions (1)

• Many aspects of Londons performance demonstrate
  environmental effectiveness in comparison to
  areas with more dispersed population.
• London has taken a lead in pricing mechanisms,
  building regulations and emissions standards.
  Sometimes market-led other times, not.
• That does not mean it cannot gain from the
  experiences and policies of other cities and
  technological change will enable sharpening of
  some of the blunter instruments.

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Conclusions (2)

• UK also took early lead in C-trading and is
  responsible player in EU-ETS. But EU system is
  far from perfect over-allocation, windfall
  profits and little choice for consumers.
• UK small and declining proportion of global
  carbon emissions (although responsible for more
  on a responsibility basis).
• Influence is far greater on account of historic
  relations with Commonwealth countries, membership
  of EU, English-speaking world etc.
• Therefore
• Create local policy solutions
• Benefit from policy experiences elsewhere
• Build more robust economically effective
  international agreements.

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Questions?

• Simon Kyte
• Economist, GLA Economics
• simon.kyte_at_london.gov.uk