Part 3 of 3 Parts (Please read Part 1 and 2 first)
Jostein Kristensen discussed the RAB model at the Driving investment towards nuclear projects panel. He said, "The key consideration here though is that, again, the risk transfer is something that in this context needs to be developed more or less from scratch. I'm not aware of any particular instances where the RAB model has been used directly, at least not in the recent past, but particularly in the UK context where this is being actively discussed, the arrangements need to be developed and this can take time, but I think the upside potential is quite considerable.”
"One of the key challenges here is perhaps the polar opposite one of the feed-in tariffs and the contract-for-difference model which is that in the RAB model the energy user will be partly funding potentially the construction of the plant before it is completed. And I think that is something that, as a point of risk transfer, and risk allocation efficiency, needs to be worked out. Provided this can be overcome then, certainly, the RAB model is one that potentially can do a lot of good in bringing forward investment in certain markets at certain times, and particularly where there is a culture of using regulation in the infrastructure sector over time as there is in the UK."
When asked whether the electricity markets give a clear signal to investors in low-carbon generation, he said that the short answer was “no”. He added “What we do have in a number of countries are taxes on, or incentives for, different kinds of technologies, activities or fuels, and while that’s helpful, very often there is potentially quite a lot of variation in the effective carbon price built into them. That means you don’t get the right kind of competition between different fuel types or technologies that you would if you had an overarching market-wide price signal.”
The European Union’s Emissions Trading Scheme provides a carbon price. Different countries have a similar kind of cap-and-trade system that provides a uniform market price. Maybe in the future, they will be expected to cover more segments of the economy in low-carbon generation.
Unfortunately, prices based on these mechanisms reflect the long-term risks and costs of climate change. There are serious policy related reasons for this. Kristensen said, “Obviously, in some countries where you have very high carbon prices or carbon taxes, that can then affect the price of electricity and other services to consumers and industries and producers of various goods and services, and reduce the overall competitiveness of the economy relative to other neighboring countries that don’t have such price signals.”
It is going to require international coordination to shield those consumers producers and industries that are within the zone of effective carbon pricers from inefficient or unfair competition outside where their competitors don’t have the same incentives. Market arrangements just don’t internalize the costs that different infrastructures impose on the system and that means that the electricity or other infrastructure services might not be priced correctly, Kristensen said. To have a clear signal it will be necessary to evolve more robust market arrangements especially for pricing carbon. As long as those conditions are not met, other supporting policies will be needed. Among those would be carbon border taxes being discussed as part of the European Green Deal.