Tax and trade: a hybrid climate policy instrument to control carbon prices and emissions

This article describes a ‘tax and trade' emission regulations system that controls both emission costs and emission quantities. Emitters are taxed at a fixed price on carbon emissions and the government uses the tax revenue to buy carbon offsets on existing emissions markets. Unlike a traditional carbon tax, regulated firms may also produce carbon credits which may be sold to the government. Thus, the government bears the compliance cost risk rather than an individual firm and has control over the number of offsets purchased and the effective emission reduction. This unusual form of hybrid has potential political advantages of creating an economic incentive on corporate choices (at the margin) substantially greater than the actual trading price, and with lower financial transfers than in most schemes.

Policy relevance

The article presents a hybrid carbon emissions system that adds to the growing discussion of hybrid policy instruments which could be implemented by policy makers, particularly in nations without current cap and trade policies.     

Funding low-carbon investments in the absence of a carbon tax

Introducing a carbon tax is difficult, partly because it suggests that current generations have to make sacrifices for the benefit of future generations. However, the climate change externality could be corrected without such a sacrifice. It is possible to set a carbon value, and use it to create ‘carbon certificates’ that can be accepted as part of commercial banks’ legal reserves. These certificates can be distributed to low-carbon projects, and be exchanged by investors against concessional loans, reducing capital costs for low-carbon projects. As the issuance of carbon certificates would increase the quantity of money, it will either lead to accelerated inflation or induce the Central Bank to raise interest rates. Low-carbon projects will thus have access to cheaper loans at the expense of either ‘regular’ investors (in case of higher interest rates) or of lenders and depositors (in case of accelerated inflation). Within this scheme, mitigation expenditures are compensated by a reduction in regular investments, so that immediate consumption is maintained. It uses future generation wealth to pay for a hedge against climate change. This framework is not as efficient as a carbon tax but is politically easier to implement and represents an interesting step in the trajectory towards a low-carbon economy.     

Achieving additional emission reductions under a cap-and-trade scheme

Over the last decade, cap-and-trade emissions schemes have emerged as one of the favoured policy instruments for reducing GHG emissions. An inherent design feature of cap-and-trade schemes is that, once the cap on emissions has been set, no additional reductions beyond this level can be provided by the actions of those individuals, organizations and governments within the covered sectors. Thus, the emissions cap constitutes an emissions floor. This feature has been claimed by some to have undesirable implications, in that it discourages ethically motivated mitigation actions and preempts the possibility that local, state and national governments can take additional mitigation action in the context of weak national or regional targets. These criticisms have become prominent in Australia and the US within the public debate regarding the adoption of an emissions trading scheme (ETS). These criticisms and their potential solutions are reviewed. A set-aside reserve is proposed to automatically retire ETS permits, which would correspond to verified and additional emissions reductions. This minimizes the possibility that ethically motivated mitigation actions are discouraged, allows for additional action by other levels of government, while providing transparency to other market participants on the level of permit retirements.     

Mapping public appraisals of carbon dioxide removal

Efforts to deliver on net zero emissions targets are set to rely on carbon dioxide removal (CDR) methods. Democratic, trustworthy and socially intelligent research, development, demonstration and deployment of CDR methods in aid of net zero will be highly dependent on how different publics evaluate them, and ultimately which groups support or oppose them. This paper develops a novel, nationally representative method for the multi-criteria appraisal of five policy relevant CDR methods – plus an option not to pursue CDR at all – by members of the British public (n = 2,111). The results show that the public supports the inclusion of CDR in UK climate policy. CDR methods often characterised as ‘natural’ or ‘nature-based’ are appraised more highly than ‘technological’ ones, in the descending order: habitat restoration, afforestation, wood in construction, bioenergy with carbon capture and storage, and direct air carbon capture and storage. Yet, there is no significant disagreement in the appraisal of technological methods and they therefore may be less polarizing, suggesting that popular preconceptions of what is natural – and therefore more attractive – may be holding them back. CDR methods being mainly developed by public sector and non-governmental organisations are also appraised more highly than those being developed by private interests. Regional differences in option appraisal reveal where particular CDR methods are more or less likely to be supported or opposed; stressing the importance of matching physical requirements for CDR with appropriate social contexts. Demographic and socio-economic analyses show that people who appraise CDR methods most highly tend to be older respondents, male, or of a higher social grade. Finally, those with hierarchical worldviews and who voted ‘leave’ in the UK’s referendum on EU membership are less supportive of CDR than those with egalitarian worldviews and who voted ‘remain’.     

Carbon taxes: a review of experience and policy design considerations

State and local governments in the USA are evaluating a wide range of policies to reduce carbon emissions, including carbon taxes, which have existed internationally for nearly 20 years. In this article, existing carbon tax policies, both internationally and in the USA, are reviewed, and carbon policy design and effectiveness are analysed. Design considerations include which sectors to tax, where to set the tax rate, how to use tax revenues, what the impact will be on consumers, and how to ensure that emissions reduction goals are achieved. Emissions reductions that are due to carbon taxes can be difficult to measure, although some jurisdictions quantify reductions in overall emissions, others examine impacts that are due to programmes funded by carbon tax revenues.     

Linkage of greenhouse gas emissions trading systems: learning from experience

The last ten years have seen the growth of linkages between many of the world's cap-and-trade systems for GHGs, both directly between systems, and indirectly via connections to credit systems such as the Clean Development Mechanism. If nations have tried to act in their own self-interest, this proliferation of linkages implies that for many nations, the expected benefits of linkage outweighed expected costs. In this article, we draw on the past decade of experience with carbon markets to examine why systems have demonstrated this revealed preference for linking. Linkage is a multi-faceted policy decision that can be used by political jurisdictions to achieve a variety of objectives, and we find qualitative evidence that many economic, political, and strategic factors – ranging from geographic proximity to integrity of emissions reductions – influence the decision to link. We also identify some potentially important effects of linkage, such as loss of control over domestic carbon policies, which do not appear to have deterred real-world decisions to link.

Policy relevance

These findings have implications for the future role that decentralized linkages may play in international climate policy architecture. The Kyoto Protocol has entered what is probably its final commitment period, covering only a small fraction of global GHG emissions. Under the Durban Platform for Enhanced Action, negotiators may now gravitate toward a hybrid system, combining top-down elements for establishing targets with bottom-up elements of pledge-and-review tied to national policies and actions. The incentives for linking these national policies are likely to continue to produce direct connections among regional, national, and sub-national cap-and-trade systems. The growing network of decentralized, direct linkages among these systems may turn out to be a key part of a future hybrid climate policy architecture.     

Attitudes toward climate change mitigation policies: a review of measures and a construct of policy attitudes

Research on policy support or public acceptability of climate change policies is proliferating. There is, however, a great diversity in how these evaluative responses have been defined, operationalized, and measured across studies. In order to shed some light on this subject, we reviewed 118 studies published over the last 15 years aiming at measurement of policy acceptability, acceptance, support, and other responses to climate change mitigation policies. We found that conceptual vagueness and weak theoretical embedding are pervasive in the field, which leads to uncertainty over what is being measured, ambiguity of policy recommendations, and difficulties in comparing empirical results. In response, we propose a construct of policy attitudes as an overarching concept comprising the diversity of measures and constructs already in use. The purpose of the construct is to serve as a common basis for operationalization and survey design. In order to inform policy makers, researchers should be clear in how they formulate surveys with a focus on questions of importance to research and policy-making.

Key policy insights

• Acceptability, acceptance, and support are defined as distinct and possibly empirically distinguishable classes of responses evaluating a policy proposal. These responses are expressions of underlying policy attitudes.

• People may respond to policies in other ways as well, including lack of interest.

• There is no popularity threshold for a policy to be safe to implement, but instead it is a matter of identifying the conditions of policy support or other responses.

• Results obtained using different measures of mitigation policy attitudes vary widely with respect to the characteristics of the policy in question and the measured response. Thus, great care must be taken when designing surveys and interpreting their results.

     

Initial public reactions to carbon capture and storage (CCS): differentiating general and local views

Carbon capture and storage (CCS) is considered a potential climate change mitigation option, but public opposition may hamper its implementation. A quasi-experimental approach is used to examine whether ‘not in my back yard’ (NIMBY) sentiments can be anticipated at the initial stage when CO₂ storage locations have been selected and communicated to the public. Furthermore, the psychological structure of initial reactions to CO₂ storage plans is studied to ascertain the differences between people living in the direct vicinity of a proposed CO₂ storage location (i.e. onsite residents) and people who do not (i.e. offsite residents). The results indicate that initial reactions to local CCS plans are not necessarily dominated by NIMBY sentiments. For onsite residents as well as offsite residents, trust in government affects their judgements of the risks and benefits associated with CCS, which in turn affects their inclination to protest against CCS plans. Onsite residents’ inclination to protest is affected by their perceptions of local safety risks, but this is less of a concern for offsite residents. The inclination to protest against CCS is unrelated to concern about climate change.     

Quantifying the social equity of carbon mitigation strategies

Many tools that are helpful for evaluating emissions mitigation measures, such as carbon abatement cost curves, focus exclusively on cost and emissions reduction potential without quantifying the direct and indirect impacts on stakeholders. The impacts of climate change will be the most severe and immediate for billions of poor people, especially for those whose livelihoods are based on agriculture and subsistence activities and are directly dependent on weather patterns. Thus, equity and vulnerability considerations must be central to GHG emissions reduction strategies. A case study of a carbon abatement cost curve for an electricity system in two Nicaraguan rural villages is presented and is complemented with assessments based on the poverty metrics of the poverty headcount, the Gini coefficient, and the Kuznets ratios. Although these metrics are relatively easy to calculate, the study provides a general indication as to how the social impacts of mitigation strategies on the poor (whether they are in rural or urban environments, developed or developing countries) can be revealed and highlights the inequalities that are embedded in them. Further work analysing how mitigation measures affect the various more detailed poverty indices, such as the Human Development, Gender Equality, or Multidimensional Poverty indices, is needed.     

Assessing the authenticity of national carbon prices: A comparison of 31 countries

Many countries have carbon pricing in place, in the form of a tax and/or market. Generally, this involves low price rates, incomplete emissions coverage, and price reductions for particular sectors. This raises the question whether the label “carbon price” – in the environmental-economics textbook sense – really applies. To answer it, we assess the authenticity of 31 national carbon prices, calculating average carbon prices and their gap with advertised prices, at both national and sector levels. The results indicate a poor level of authenticity. This means that the carbon prices published by sources such as the World Bank provide a misleading representation of the actual national policy pressure on emissions. Countries show considerable differences regarding the average carbon price level and the gap with advertised prices. Moreover, there is not a one-to-one relationship between advertised and average carbon prices, suggesting the former are not a good basis for international comparison of policy effectiveness. Across countries, the mean carbon price equals €7.90/ton of CO₂ while the mean price gap is 57.7%. Most noticeably, the highest advertised price for Sweden should be interpreted with care as it goes along with a price gap of almost €100 to the average price. In addition, Switzerland and Finland show relatively high price gaps. To illustrate the relevance and non-triviality of our indicators, note that Sweden occupies a 3rd position in terms of average carbon price (after Norway and Switzerland), 27th in terms of price gap, and 16th in terms of effective rate (i.e. sum of implicit and explicit carbon prices). We further find that implicit carbon prices dominate explicit ones for most countries, notably in road transport, whereas the reverse holds for industrial and electricity sectors. Combining our findings with recent empirical evidence for carbon-pricing effectiveness highlights the potential of the instrument to combat climate change, provided implementation is improved and internationally harmonized. Shifting the attention from advertised to average carbon prices might help in this regard.     

Carbon pricing in practice: a review of existing emissions trading systems

This article analyses the implementation of emissions trading systems (ETSs) in eight jurisdictions: the EU, Switzerland, the Regional Greenhouse Gas Initiative (RGGI) and California in the US, Québec in Canada, New Zealand, the Republic of Korea and pilot schemes in China. The article clarifies what is working, what isn’t and why, when it comes to the practice of implementing an ETS. The eight ETSs are evaluated against five main criteria: environmental effectiveness, economic efficiency, market management, revenue management and stakeholder engagement. Within each of these categories, ETS attributes ? including abatement cost, stringency of the cap, improved allocation practices over time and the trajectory of price stability ? are assessed for each system. Institutional learning, administrative prudence, appropriate carbon revenue management and stakeholder engagement are identified as key ingredients for successful ETS regimes. Recent implementation of ETSs in regions including California, Québec and South Korea indicates significant institutional learning from prior systems, especially the EU ETS, with these regions implementing more robust administrative and regulatory structures suitable for handling unique national and sub-national opportunities and constraints. The analysis also shows that there is potential for a ‘double dividend’ in emissions reductions even with a modest carbon price, provided the cap tightens over time and a portion of the auctioned revenues are reinvested in other emissions-reduction activities. Knowledge gaps exist in understanding the interaction of pricing instruments with other climate policy instruments and how governments manage these policies to achieve optimum emissions reductions with lower administrative costs.

Key policy insights

• Countries are learning from each other on ETS implementation.

• Administrative and regulatory structures of ETS jurisdictions appear to evolve and become more robust in every ETS analysed.

• A ‘double dividend’ for emissions reductions may also exist in cases where mitigation occurs as a result of the ETS policy and when auction revenues are reinvested in other emissions-reduction activities.

     

The impact of compensatory measures on public support for carbon taxation: an experimental study in Sweden

This study aims at better understanding how, and to what extent, perceptions of a policy instrument’s distributional effects impact on policy support, focusing on the case of CO₂ taxes on petrol in Sweden. Through a large-scale (N?=?5000) randomized survey experiment with a 2?×?3 factorial design, the extent to which perceptions of fairness determine attitudes to a suggested increase of the Swedish CO₂ tax is explored. Furthermore, the study considers whether these effects change with the level of the suggested tax increase, as well as whether negative sentiments can be alleviated by combining it with a compensatory measure in the shape of a simultaneous income tax cut financed by the revenues from the tax increase. The results show that a higher tax increase is both viewed as more unfair and enjoys weaker support. Furthermore, compensatory measures can be a powerful policy design tool to increase perceptions of the policy as fair, but the effect of compensation on policy support is conditioned by the individual’s left–right ideological position. Whereas people self-identifying to the right react favourably to compensatory measures, people self-identifying to the left become less supportive of a tax increase when combined with a simultaneous cut in income taxes.

Key policy insights

• Perceptions of fairness are highly important for explaining public support for climate policy tools, specifically CO₂ taxes.

• Compensatory measures can be a powerful policy design tool to increase perceptions of the policy as less unfair.

• However, the effect of compensatory measures on policy support is conditioned by ideological position, and only successful among people to the ideological right.

• In contexts dominated by right-wing ideals, a combination of a tax and a compensatory scheme may be a successful route forward towards increased climate policy support.

• In left-oriented contexts the results imply that a CO₂ tax without compensation seems more likely to increase support.

     

Public perception of climate engineering and carbon capture and storage in Germany: survey evidence

Climate engineering (CE) and carbon capture and storage are controversial options for addressing climate change. This study compares public perception in Germany of three specific measures: solar radiation management (SRM) via stratospheric sulphate injection, large-scale afforestation, and carbon capture and storage sub-seabed (CCS-S). In a survey experiment we find that afforestation is most readily accepted as a measure for addressing climate change, followed by CCS-S and lastly SRM, which is widely rejected. Providing additional information decreases acceptance for all measures, but their ranking remains unchanged. The acceptance of all three measures is especially influenced by the perceived seriousness of climate change and by trust in institutions. Also, respondents dislike the measures more if they perceive them as a way of shirking responsibility for emissions or as an unconscionable manipulation of nature. Women react more negatively to information than men, whereas the level of education or the degree of intuitive vs reflective decision making does not influence the reaction to information.

POLICY RELEVANCE

Current projections suggest that the use of climate engineering (CE) technologies or carbon capture and storage (CCS) is necessary if global warming is to be kept well below 2°C. Our article focuses on the perspective of the general public and thus supplements the dialogue between policymakers, interest groups, and scientists on how to address climate change. We show that in Germany public acceptance of potentially effective measures such as SRM or CCS-S is low and decreases even more when additional information is provided. This implies that lack of public acceptance may turn out to be a bottleneck for future implementation. Ongoing research and development in connection with CCS-S and SRM requires continuous communication with, and involvement of, the public in order to obtain feedback and assess the public’s reservations about the measures. The low level of acceptance also implies that emission reduction should remain a priority in climate policy.     

The polarization of public concern about climate change in Norway

This article contributes to the existing literature by investigating the importance of value orientations for the Norwegian public's climate change concern, by analysing data from a national Gallup Poll from 2003 to 2011. Logistic regressions were conducted to investigate the importance of individualistic and egalitarian values for climate concern, and whether the groups of different value orientations have polarized in their climate concern over time. Respondents who hold less individualistic values and those holding egalitarian values are found more likely to be concerned about climate change than are those holding individualistic and less egalitarian values. Furthermore, the analyses find polarization in climate concern in the period for both value orientations. Increased focus on policy instruments in the political debate may be one explanation for values being increasingly salient. Future research should focus on studying ways to formulate policies given variations in values. One way would be to develop solutions that have co-benefits across groups of different value orientations. However, not all mitigation policies have immediate co-benefits for everyone. Research on how changes in the institutional setting may enhance the logic of social responsibility seems crucial.

Policy relevance

It is an important social science contribution to increase our understanding of public positions on climate change for developing effective responses to this vexing problem. This study identifies polarization over time between subgroups of different value orientations in their climate change concern. This may have implications for policies, as political solutions may be increasingly dependent on the composition of political leadership. Society and politicians should look for mitigation policies that have co-benefits across groups of different value orientations when possible. However, not all mitigation policies have immediate co-benefits for everyone. One option then is to change the institutional settings from enhancing the logic of individual benefits to enhancing the logic of social benefits for behaviour crucial for mitigating climate change. Finally, narratives about a low-emitting society that are attractive for all groups of value orientations should be emphasized.     

Border carbon adjustments and the potential for protectionism

Balancing a legitimate fear that carbon leakage could undermine the impact of any global climate change agreement is a countervailing fear that leakage could be the excuse for protectionism in the guise of ‘border carbon adjustments’. This would be dangerous for the world trading system, risking disputes due to ambiguities in the details of World Trade Organization rules over what types of border measures are potentially and actually admissible. Even with good-quality data, there is considerable potential for judgemental discretion, and hence opportunistic manipulation, in estimating the carbon charges to levy on an imported product. This is true even given agreement on whether to use importer or exporter coefficients. A clear distinction needs to be made between environmental and competitiveness motives for border adjustments. The key argument is that the traditional symmetry, between origin (production)-based taxes and other charges (e.g. due to a cap-and-trade scheme) and those based on the destination (consumption) principle, breaks down in the case of carbon charges. The potential is explored for regional agreements to ensure origin as the basis for carbon levies, while recognizing the challenges this poses for the mutual recognition of emissions regimes in particular.     

Funding low carbon cities: local perspectives on opportunities and risks

There are compelling reasons for policy makers to be interested in the low-carbon agenda. More than half of the world's population lives in, and more than half of the world's economic output comes from, cities. Up to 70% of global carbon emissions can also be attributed to consumption that takes place in cities. Recent research has shown that cost-effective investments in low-carbon options could deliver a 40% reduction in GHG emissions from cities by 2020, while also providing wider economic benefits such as enhanced competitiveness and increased employment. As yet, however, investments in low-carbon cities have not been made at scale due mainly to the scale of the finance required, local government budgetary constraints, and perceptions about their costs and benefits. With a focus on the UK, a contemporary account is provided of what local authorities see as the major financial risks associated with funding low-carbon cities. Practical proposals – which also have more general relevance to the future financing of low-carbon cities around the world – are offered on how local authorities, in conjunction with central government, the private sector, and institutional investors, can effectively manage these risks.

Policy relevance

Cities house more than half of the world's population, generate more than half of the world's economic output, and produce between 40% and 70% of all anthropogenic GHG emissions. In the UK, 70% of such emissions are under the influence of its local authorities. Thus, one of the key public policy challenges for the low-carbon transition is how it should be financed. There are several obstacles and related risks to this transition, including financial and legal obstacles and the differing views and perceptions of stakeholders. These can be attenuated, somewhat, by national government support at scale, local authority leadership, and cooperation between other authorities and the private sector, and the development of tools and guidance to reduce transaction costs.     

Post-2012 climate policy dilemmas: a review of proposals

This article assesses a wide range of alternative proposals for post-2012 international climate policy regimes. We believe that these proposals will serve as a basis for debates about how to configure post-2012 climate policy. The article characterizes and assesses the policy proposals along the lines of five key policy dilemmas. We argue that (1) many proposals have ideas on how to reduce emissions, but fewer have a solution on how to stimulate technical innovation; (2) many proposals formulate climate policy in isolation, while there are fewer proposals that try to mainstream climate policies in other policy areas; (3) many proposals advocate market-based solutions, while fewer realize that there are certain drawbacks to this solution especially at the international level; (4) most proposals have a preference for a UN-based regime, while a more fragmented regime, based on regional and sectoral arrangements may be emerging; and (5) most proposals have ideas about mitigation, but not many have creative ideas on how to integrate mitigation with adaptation.     

公众为何对气候变化的科学结论信任不充分

通过系统分析世界各国气候传播领域近年来的进展,以解释为何公众对气候变化的科学结论缺乏信任这一复杂问题.文中首先概述了各国公众对气候变化的态度以及影响公众态度的社会、政治与经济因素,再分析了各国媒体对气候变化的报道及其媒体效果,并重点探究了社会心理因素如何影响人们对气候变化的认知与态度.此外国际气候传播研究对我国气候传播...     

The tools of climate adaptation policy: analysing instruments and instrument selection

Governments have a key role to play in the process of climate adaptation, through the development and implementation of public policy. Governments have access to a diverse array of instruments that can be employed to adapt their operations and influence the behaviour of individuals, organizations, and other governments. However, the choice of policy instrument is political, because it affects the distribution of benefits and costs, and entrenches institutional procedures and resources that are difficult to redeploy. This article identifies four key governing resources that governments employ in the service of adaptation and analyses these resources using criteria drawn from the policy studies literature. For each category, specific policy instruments are described, and examples are provided to illustrate how they have been used in particular jurisdictions. The article also discusses instrument selection, focusing on trade-offs among the instrument attributes, processes for setting the stage for instrument choice, jurisdictional constraints on instrument selection, and ways to avoid negative vertical and horizontal policy interplay.

Policy relevance

Adaptation is a nascent field of public policy, and courses of action to reduce vulnerability and build adaptive capacity are in their infancy. This article contributes to policy development and analysis by identifying the range of policy instruments available to governments and analysing concrete ways in which they are employed to implement adaptation policy objectives. Taking stock of these adaptation tools and comparing their behavioural assumptions and attributes helps to illuminate potential policy options, and to evaluate their technical viability, political acceptability, and economic feasibility. Providing examples of how these instruments have been implemented successfully in other jurisdictions offers ideas and lessons for public officials.     

How to reach an elusive INDC target: macro-economic implications of carbon taxation and emissions trading in Turkey

This paper employs a computable general equilibrium model (CGE) to analyse how a carbon tax and/or a national Emissions Trading System (ETS) would affect macroeconomic parameters in Turkey. The modelling work is based on three main policy options for the government by 2030, in the context of Turkey’s mitigation target under its Intended Nationally Determined Contribution (INDC), that is, reducing greenhouse gas (GHG) emissions by up to 21% from its Business as Usual (BAU) scenario in 2030: (i) improving the productivity of renewable energy by 1% per annum, a target already included in the INDC, (ii) introducing a new flat rate tax of 15% per ton of CO₂ (of a reference carbon price in world markets) imposed on emissions originating from carbon-intensive sectors, and (iii) introducing a new ETS with caps on emission permits. Our base path scenario projects that GHG emissions in 2030 will be much lower than Turkey’s BAU trajectory of growth from 430 Mt CO₂-eq in 2013 to 1.175 Mt CO₂-eq by 2030, implying that the government’s commitment is largely redundant. On the other hand, if the official target is assumed to be only a simple reduction percentage in 2030 (by 21%), but based on our more realistic base path, the government’s current renewable energy plans will not be sufficient to reach it.

• Turkey’s official INDC is based on over-optimistic assumptions of GDP growth and a highly carbon-intensive development pathway;

• A carbon tax and/or an ETS would be required to reach the 21% reduction target over a realistic base path scenario for 2030;

• The policy options considered in this paper have some effects on major sectors’ shares in total value-added. Yet the reduction in the shares of agriculture, industry, and transportation does not go beyond 1%, while the service sector seems to benefit from most of the policy options;

• Overall employment would be affected positively by the renewable energy target, carbon tax, and ETS through the creation of new jobs;

• Unemployment rates are lower, economic growth is stronger, and households become better off to a larger extent under an ETS than carbon taxation.