Ibon Galarraga

Handbook of Sustainable Energy

Major contemporary issues and debates relating to the sustainable use of energy are addressed in this far-reaching Handbook. The contributing authors discuss the ongoing debates about sustainability and energy use, energy economics, renewable energy, efficiency and climate policy.

Evaluation of two alternative carbon capture and storage technologies: A stochastic model

* Carbon dioxide capture and storage (CCS) is one of the technologies for fighting climate change in the future. The use of CO2 for enhanced oil recovery (EOR) paired with storage in deep saline formations (DSF) could effectively help to support CCS demonstration projects, reduce costs and thus guarantee the future economic viability of power plants incorporating both EOR and CCS. * CCS without EOR is highly unprofitable at both current and expected carbon market prices. * The profitability of these technologies is highly influenced by the volatility of future electricity prices, oil prices and carbon allowance prices. * Investment in EOR and secondary DSF storage can only be profitable with a long-term equilibrium price for oil higher than

An analysis of the causes of the mitigation bias in international climate finance

51/barrel. When the investment decision can be made at any time the trigger value for optimal investment is significantly higher at

Carbon Pricing as an Effective Instrument of Climate Policy: Searching for an Optimal Policy Instrument

89/barrel. However, an increase in the investment cost can substantially raise these trigger prices.

The future of old industrial regions in a carbon-constrained world

Research on international climate finance got a new impetus from the United Nations Framework Convention on Climate Change Cancun Accords in 2010 which pledge to mobilize US dollars (USD) 100 billion in international climate financing annually by 2020. The Accords’ specification that adaptation must be addressed with the same priority as mitigation is not reflected in current patterns of international climate finance where we face a strong bias towards mitigation finance. A recent study by Buchner et al. (2011) ascertains a split between mitigation and adaptation finance of 95:5. In this paper, we investigate potential reasons for this bias. In our framework, we distinguish different decision layers and actors involved in international climate finance in order to categorize the causes responsible for the low priority of adaptation in international finance. The identification of obstacles for international adaptation funding is a first crucial step in the search for ways to overcome respective barriers. We find several different causes of the mitigation bias and these might offer starting points for policies aiming at raising adaptation finance and curing this bias. Furthermore, we describe interrelations between these causes which effective policies have to take into account.

Climate Finance: Theory and Practice

The paper highlights the use of carbon pricing as an effective market tool to control GHG emissions It describes the discussion on the benefits and limitations of both carbon tax and carbon trading. The paper summarises this debate and it argues that, as well as economic effectiveness, many other factors are highly relevant when choosing the right policy instrument. These include political feasibility, impact on competitiveness, institutional requirements, incentives for R&D and many others. Finally, interesting lessons are drawn for policy makers and academics willing to develop such instruments. [JEL: Q54, Q58, H00]

Investing in Adaptation: Flood Risk and Real Option Application to Bilbao

Even if a global agreement is achieved on climate change issues, it is likely that national policies will continue to differ. Consequently, the competitiveness of some industries could be affected and the so-called ‘carbon leakage’ effect might occur. This effect is more likely for those industries with a risk of relocation. Most of the studies that examine the carbon leakage phenomenon look at implications at the national or supra-national level, and neglect the important fact that some of the key industries affected are highly concentrated in the old industrial regions (OIRs). From a regional perspective, it is clear that these areas are affected more severely by climate policies. Using a computable general equilibrium (CGE) model, the impacts for one of the most vulnerable sectors – the iron and steel (IS) sector in the European OIR of the Basque Country (BC) – are first examined. The analysis is then replicated for the OIR of the North RhineWestphalia (NRW) region in Germany. The results show that although total effects may be diluted from a national perspective, the economic impact at the regional level may be quite large and may significantly reduce regional gross domestic product (GDP). This has broader implications for the OIRs and suggests a need to further explore policy insights for economic development and adaptation in them.

Climate Risk Assessment under Uncertainty: An Application to Main European Coastal Cities

How is the struggle against climate change financed? Climate Finance: Theory and Practice gives an overview of the key debates that have emerged in the field of climate finance, including those concerned with efficiency, equity, justice, and contribution to the public good between developed and developing countries. With the collaboration of internationally renowned experts in the field of climate finance, the authors of this book highlight the importance of climate finance, showing the theoretical aspects that influence it, and some practices that are currently being implemented or have been proposed to finance mitigation and adaptation policies in the developed and developing world.

Green Energy Labelling

Abstract Investment decisions in adaptation are usually made under significant uncertainty due to climate change and socio-economic trends. In this study, we propose three ways to incorporate climate and socio-economic uncertainty into the assessment of an adaptation infrastructure designed to cope with flood-risk in the city of Bilbao. First, we use stochastic modelling to estimate the present value of expected damage over a time period, considering that extreme events may increase in the future. Second, we develop an additional calculation that incorporates two risk measures used in financial economics: Value-at-Risk and Expected Shortfall, the latter being a less common but better risk indicator. Third, we illustrate a case of Real Options Analysis (ROA) in which a binomial tree is used to study whether the best decision at present is to invest now or to delay the investment decision.

THE EUROPEAN EMISSION TRADING SCHEME: IMPLICATIONS FOR LONG-TERM INVESTMENT VALUATION

This paper analyses the risk of extreme coastal events in major European coastal cities using a stochastic diffusion model that is calibrated with the worst case emission scenario from the Intergovernmental Panel for Climate Change (IPCC), i.e. the representative concentration pathway (RCP) 8.5. The model incorporates uncertainty in the sea-level rise distribution. Expected mean annual losses are calculated for 19 European coastal cities, together with two risk measures: the Value at Risk (VaR) and the Expected Shortfall (ES). Both measures are well-known in financial economics and enable us to calculate the impact of the worst SLR paths under uncertainty. The results presented here can serve as valuable inputs for cities in deciding how much risk they are willing to accept, and consequently how much adaptation they need depending on the risk aversion of their decision-makers.