The (ir)relevance of transaction costs in climate policy instrument choice: an analysis of the EU and the US

This article assesses the relevance of ex post transaction costs in the choice of climate policy instruments in the EU (focusing mainly on the example of Germany) and the US. It reviews all publicly available empirical ex post transaction cost studies of climate policy instruments broken down by the main private and public sector cost factors and offers hypotheses on how these factors may scale depending on instrument design and other contextual factors. The key finding from the evaluated schemes is that it is possible to reject the hypothesis that asymmetries in ex post transaction costs across instruments are large and, thus, play a pivotal role in climate policy instrument choice. Both total and relative ex post transaction costs can be considered low. This conjecture differs from the experience in other areas of environmental policy instruments where high total transaction costs are considered to be important factors in the overall assessment of optimal environmental policy choice. Against this background, the main claim of this article is that in climate policy instrument choice, ex post transaction cost considerations play a minor role in large countries that feature similar institutional characteristics as the EU and the US. Rather, the focus should be on the efficiency properties of instruments for incentivizing abatement, as well as equity and political economy considerations (and other societally relevant objectives). In order to inform transaction cost considerations in climate policy instrument choice in countries that adopt new climate policies, more data would be desirable in order to enable more robust estimates of design- and context-specific transaction-cost scaling factors.

Policy relevance

The findings of this study can help inform policy makers who plan to set up novel climate policy instruments. The results indicate that ex post transaction costs play a minor role for large countries that feature similar institutional characteristics as the EU and the US. For instrument design the focus should rather be on efficiency properties of instruments in incentivizing abatement, as well as equity and political economy considerations (and other societally relevant objectives).     

Strengthening bottom-up and top-down climate governance

Although the UN and EU focus their climate policies on the prevention of a 2 °C global mean temperature rise, it has been estimated that a rise of at least 4?°C is more likely. Given the political climate of inaction, there is a need to instigate a bottom-up approach so as to build domestic support for future climate treaties, empower citizens, and motivate leaders to take action. A review is provided of the predominant top-down cap-and-trade policies in place – the Kyoto Protocol and EU Emissions Trading Scheme (EU ETS) – with a focus on the grandfathering of emissions entitlements and the possibility of offsetting emissions. These policies are evaluated according to two criteria of justice and it is concluded that they fail to satisfy them. Some suggestions as to how the EU ETS can be improved so as to enable robust climate action are also offered.

Policy relevance

The current supranational climate policy has not been successful and global leaders have postponed the adoption of a meaningful successor to the Kyoto Protocol. In view of this inaction, bottom-up approaches with regard to climate policy should be further developed. It is argued that two of the main top-down policies, grandfathering and offsetting, impede the avowed goals of EU climate policy and pose significant ethical dilemmas with regard to participatory and intergenerational justice. In order to provide a more robust EU climate policy, the EU should inter alia provide a long-term perspective for investors, reduce the volatility of the carbon price, and prepare for the possibility of carbon leakage.     

The challenges of monitoring national climate policy: learning lessons from the EU

One of the most central and novel features of the new climate governance architecture emerging from the 2015 Paris Agreement is the transparency framework committing countries to provide, inter alia, regular progress reports on national pledges to address climate change. Many countries will rely on public policies to turn their pledges into action. This article focuses on the EU’s experience with monitoring national climate policies in order to understand the challenges that are likely to arise as the Paris Agreement is implemented around the world. To do so, the research employs – for the first time – comparative empirical data submitted by states to the EU’s monitoring system. Our findings reveal how the EU’s predominantly technical interpretation of four international reporting quality criteria – an approach borrowed from reporting on GHG fluxes – has constrained knowledge production and stymied debate on the performance of individual climate policies. Key obstacles to more in-depth reporting include not only political concerns over reporting burdens and costs, but also struggles over who determines the nature of climate policy monitoring, the perceived usefulness of reporting information, and the political control that policy knowledge inevitably generates. Given the post-Paris drive to achieve greater transparency, the EU’s experience offers a sobering reminder of the political and technical challenges associated with climate policy monitoring, challenges that are likely to bedevil the Paris Agreement for decades to come.

Policy relevance

The 2009 Copenhagen summit ushered in a more bottom-up system of international climate governance. Such systems typically depend on strong monitoring approaches to assess past performance and estimate future national contributions over time. This article shows why decision makers at multiple governance levels should pay serious attention to empirical data on the experiences and challenges that have emerged around monitoring in the EU, a self-proclaimed climate leader. The analysis highlights key political and administrative challenges that policy makers will likely encounter in implementing climate policy monitoring and ensuring transparency in the spirit of the Paris Agreement.     

Interactions between European agricultural policy and climate change: a Slovenian case study

This article analyses the interactions between agricultural policy measures in the EU and the factors affecting GHG emissions from agriculture on the one hand, and the adaptation of agriculture to climate change on the other. To this end, the article uses Slovenia as a case study, assessing the extent to which Slovenian agricultural policy is responding to the challenges of climate change. All agricultural policy measures related to the 2007–2013 programming period were analysed according to a new methodological approach that is based on a qualitative (expert evaluation) and a quantitative (budgetary transfers validation) assessment. A panel of experts reached consensus on the key factors through which individual measures affect climate change, in which direction and how significantly. Data on budgetary funds for each measure were used as weights to assess their relative importance. The results show that there are not many measures in (Slovenian) agricultural policy that are directly aimed at reducing GHG emissions from agriculture or at adaptation to climate change. Nevertheless, most affect climate change, and their impact is far from negligible. Current measures have both positive and negative impacts, but overall the positive impacts prevail. Measures that involve many beneficiaries and more budgetary funds had the strongest impact on aggregate assessments. In light of climate change, agricultural policy should pay more attention to measures that are aimed at raising the efficiency of animal production, as it is the principal source of GHG emissions from agriculture.

Policy relevance

Agricultural policy must respond to climate challenges and climate change impact assessment must be included in the process of forming European agricultural policy. Agricultural policy measures that contribute to the reduction of emissions and adaptation, whilst acting in synergy with other environmental, economic and social goals, should be promoted. The approach used in this study combines qualitative and quantitative data, yielding an objective assessment of the climate impact of agricultural policy measures and providing policy makers with a tool for either ex ante or ex post evaluations of climate-relevant policy measures.     

The socialization potential of the CDM in EU–Vietnam climate relations

This article argues that the material incentives associated with climate policies such as the Clean Development Mechanism (CDM) may contribute to the socialization of emerging economies such as Vietnam in economic-oriented climate change norms. In current academic research, the CDM has both been extolled as a cost-effective and vilified as an environmentally inadequate instrument. Few studies so far, however, have looked into the CDM's potential contribution to socialization-related phenomena such as raising climate change awareness. This article aims to fill that gap by studying the CDM in EU–Vietnam relations in four periods, namely initiation (2001–2007), improvement (2008–2010), consolidation (2010–2012), and potential habit formation (2012 and beyond), with both the EU and Vietnam being important players in the market for CDM credits (Certified Emission Reductions or CERs). We argue that there is at least a strong potential for habit formation resulting from the CDM's material incentives, and that the underlying causal mechanism involves the emergence and activities of norm entrepreneurs and habit formation through a process of legal institutionalization.

Policy relevance

Normative transformation or change is increasingly attracting the attention of both climate policy makers and scholars alike, certainly in view of the failures of ‘standard’ economic or technological solutions to tackle climate change. There is a need, however, to apply insights from social theory to specific policies and cases. The policy relevance of this article lies here: does the CDM (a specific policy) affect climate concerns (norms) in Vietnam (a specific case)? And, if so, to what extent and why? Based on previous research regarding the Chinese case, it is expected that the CDM's material incentives result in a mild effect in Vietnam, probably less pronounced than in China in view of the latter's relative level of economic development, and the strength of its political and legal-institutional system and (human) capacity to develop CDM projects. This article's research findings point out that whether and how ‘deep’ these new shared ideas will succeed in becoming standards of appropriate behaviour in Vietnam might to some extent depend on whether the international community is able to offer a material incentive structure that fosters such a normative transformation.     

Climate policy strength compared: China,the US,the EU,India, Russia,and Japan

The few systematic international comparisons of climate policy strength made so far have serious weaknesses, particularly those that assign arbitrary weightings to different policy instrument types in order to calculate an aggregate score for policy strength. This article avoids these problems by ranking the six biggest emitters by far – China, the US, the EU, India, Russia, and Japan – on a set of six key policy instruments that are individually potent and together representative of climate policy as a whole: carbon taxes, emissions trading, feed-in tariffs, renewable energy quotas, fossil fuel power plant bans, and vehicle emissions standards. The results cast strong doubt on any idea that there is a clear hierarchy on climate policy with Europe at the top: the EU does lead on a number of policies but so does Japan. China, the US, and India each lead on one area. Russia is inactive on all fronts. At the same time climate policy everywhere remains weak compared to what it could be.

Policy relevance

This study enables climate policy strength, defined as the extent to which the statutory provisions of climate policies are likely to restrict GHG emissions if implemented as intended, to be assessed and compared more realistically across space and time. As such its availability for the six biggest emitters, which together account for over 70% of global CO₂ emissions, should facilitate international negotiations (1) by giving participants a better idea of where major emitters stand relative to each other as far as climate policy stringency is concerned, and (2) by identifying areas of weakness that need action.     

Telling stories with models and making policy with stories: an exploration

Narrative research is in vogue in the social sciences. A current debate in philosophy of economics concerns the role of storytelling in economic modelling, and a growing research programme in policy studies investigates the influence of stories on policy outcomes. These two streams of research have yet to be connected in an investigation of how scientific models, in addition to delivering numerical results, also shape policy through the stories that are told with them. This article addresses that gap, arguing that stories produced with integrated assessment models of global climate change are particular types of policy narratives. An analytical framework for studying their composition and content is suggested. The narrative analysis of modelled stories illuminates some of the models' underpinning values and beliefs. These values and beliefs influence the normative, policy-relevant conclusions generated with the models. For illustration, the framework is applied to the analysis of two variations of the Dynamic Integrated Climate Economy model that are used to tell different stories about climate justice and climate policy.

Key policy insights

• IAMs consist of mathematical structures and the stories told by manipulating these structures.

• There is an intricate but not fully deterministic relationship between IAM structures and stories.

• Examining both these elements contributes to our understanding of the models' role in climate governance.

• Appreciation of modelled stories may facilitate more effective use of IAMs in the policy process.

     

Drivers of national climate policy

Patterns of national climate policy performance and their implications for the geopolitics of climate change are examined. An overview of levels of emissions performance across countries is first provided. Substantial changes in emissions trends over time are documented, notably with GHG emissions trajectories, which are shaped less and less by the developed/developing country divide. Various patterns of policy convergence and divergence in the types of policies states implement are then surveyed. Four broad types of explanation that may account for these trends are then explored: (1) variation in the institutional form of country-level governance regimes, (2) patterns of dependence on fossil fuel energy, (3) broad systemic differences among states (specifically in their population densities, carbon intensity, and per capita incomes, and (4) variations in the traditions of economic intervention by states. The article contributes to the growing body of work on comparative climate policy, and provides a first attempt at exploring the comparative politics of instrument choice. The analysis challenges the continued importance of a North–South divide for the future of climate policy, thus reinforcing a sense of the ‘new geopolitics’ of climate change. Some of the implications of the analysis for debates about the form of future international agreement on mitigation policy are also explored.

Policy relevance

The article contributes to the understanding of the variety of institutional conditions under which policy makers develop policy and thus the constraints and opportunities for the design of international agreements under these conditions.     

Potential impact of albedo incorporation in boreal forest sector climate change policy effectiveness

Forests have an important role to play in climate change mitigation through carbon sequestration and wood supply. However, the lower albedo of mature forests compared to bare land implies that focusing only on GHG accounting may lead to biased estimates of forestry's total climatic impacts. An economic model with a high degree of detail of the Norwegian forestry and forest industries is used to simulate GHG fluxes and albedo impacts for the next decades. Albedo is incorporated in a carbon tax/subsidy scheme in the Norwegian forest sector using a partial, spatial equilibrium model. While a price of EU€100/tCO₂e that targets GHG fluxes only results in reduced harvests, the same price including albedo leads to harvest levels that are five times higher in the first five years, with 39% of the national productive forest land base being cleared. The results suggest that policies that only consider GHG fluxes and ignore changes in albedo will not lead to an optimal use of the forest sector for climate change mitigation.

Policy relevance

Bare land reflects a larger share of incoming solar energy than dense forest and thus has higher albedo. Earlier research has suggested that changes in albedo caused by management of boreal forest may be as important as carbon fluxes for the forest's overall global warming impacts. The presented analysis is the first attempt to link albedo to national-scale forest climate policies. A policy with subsidies to forest owners that generate carbon sequestration and taxes levied on carbon emissions leads to a reduced forest harvest. However, including albedo in the policy alongside carbon fluxes yields very different results, causing initial harvest levels to increase substantially. The inclusion of albedo impacts will make harvests more beneficial for climate change mitigation as compared to a carbon-only policy. Hence, it is likely that carbon policies that ignore albedo will not lead to optimal forest management for climate change mitigation.     

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.     

Taking stock of Climate Change Acts in Europe: living policy processes or symbolic gestures?

Since the UK introduced a Climate Change Act (CCA) in 2008, similar legislation has followed in a number of states, with each having a slightly different take. What unites these examples is that they all represent framework legislation that aims to facilitate climate change mitigation by creating continuous policy processes whereby mechanisms for the reduction of greenhouse gas (GHG) emissions are developed and implemented. This article is concerned with the extent to which they are living policy processes or rather symbolic gestures. We analyse seven European CCAs with regard to GHG emission reduction targets, planning/implementation mechanisms, and feedback/evaluations prescribed by the laws. These three features correspond with three aspects of climate policy integration (CPI): interpretations of CPI as a norm; CPI as a process of governing; CPI as a policy outcome. We show that CCAs address all three aspects of CPI and constitute living policy processes, although to varying extents. However, CCAs are also policy processes in that they are part of a political system, affected by political forces external to the legislation, positively and negatively.

Key policy insights

• CCAs can provide a normative basis for policymaking on climate change at the national level, especially through quantitative emission reduction targets.

• Whilst CCAs can bring some stability and predictability to policymaking on climate change (mainly because legislation is more difficult to amend or remove than policy strategies), they are still vulnerable to political developments.

• Most CCAs lack either short/medium-term (Denmark, Finland, Ireland, Sweden) or long-term (Austria) targets. Given EU Member States’ aim to decarbonise in the next three decades and the Paris Agreement's global goal of pursuing efforts to limit warming to 1.5°C, states need to find ways to guide this process. One approach could be the inclusion of short-term, medium-term and long-term targets in their CCAs.

• Since sanctioning mechanisms are lacking across all the CCAs analysed here, it is not clear what will happen if legally binding targets are not met. Just as it is difficult to imagine speed limits and speed cameras without accompanying penalties, it is hard to imagine how CCAs without sanctions can deliver decarbonization.

     

The need for national deep decarbonization pathways for effective climate policy

Constraining global average temperatures to 2 °C above pre-industrial levels will probably require global energy system emissions to be halved by 2050 and complete decarbonization by 2100. In the nationally orientated climate policy framework codified under the Paris Agreement, each nation must decide the scale and method of their emissions reduction contribution while remaining consistent with the global carbon budget. This policy process will require engagement amongst a wide range of stakeholders who have very different visions for the physical implementation of deep decarbonization. The Deep Decarbonization Pathways Project (DDPP) has developed a methodology, building on the energy, climate and economics literature, to structure these debates based on the following principles: country-scale analysis to capture specific physical, economic and political circumstances to maximize policy relevance, a long-term perspective to harmonize short-term decisions with the long-term objective and detailed sectoral analysis with transparent representation of emissions drivers through a common accounting framework or ‘dashboard’. These principles are operationalized in the creation of deep decarbonization pathways (DDPs), which involve technically detailed, sector-by-sector maps of each country’s decarbonization transition, backcasting feasible pathways from 2050 end points. This article shows how the sixteen DDPP country teams, covering 74% of global energy system emissions, used this method to collectively restrain emissions to a level consistent with the 2 °C target while maintaining development aspirations and reflecting national circumstances, mainly through efficiency, decarbonization of energy carriers (e.g. electricity, hydrogen, biofuels and synthetic gas) and switching to these carriers. The cross-cutting analysis of country scenarios reveals important enabling conditions for the transformation, pertaining to technology research and development, investment, trade and global and national policies.

Policy relevance

In the nation-focused global climate policy framework codified in the Paris Agreement, the purpose of the DDPP and DDPs is to provide a common method by which global and national governments, business, civil society and researchers in each country can communicate, compare and debate differing concrete visions for deep decarbonization in order to underpin the necessary societal and political consensus to design and implement short-term policy packages that are consistent with long-term global decarbonization.     

Vehicle tax policies and new passenger car CO2 performance in EU member states

This article explores the causes for differences in the average CO₂ emissions intensity of the new passenger car (NPC) fleet in member states (MS) across Europe. Although EU policies mitigating CO₂ emissions from NPCs have been in place since 1999, MS strongly diverge in the absolute amount and relative change in emissions over the last decade. The authors employ a qualitative approach to analyse the factors, in particular national vehicle taxes, contributing to this divergence and the relative contribution of national and European policies in reducing national CO₂ emissions from NPCs. The analysis shows that there has been a significant reduction in CO₂ emissions intensity of NPCs since 2007 across most MS, compared with the six years previous to that date. This would indicate that EU-wide policies, such as the CO₂ vehicles regulation, along with the economic recession in 2008, have influenced national NPC CO₂ emissions. Generally, countries with CO₂-differentiated vehicle taxes are observed as more likely to have achieved greater reductions in CO₂ emissions. However, over the same period there have been many confounding factors, such as economic instability in the EU, that also influence NPC emissions. Using more detailed case study analyses of six countries, the authors find that there is scope for well-designed national vehicle tax policies to drive NPC emissions down further than the EU average. In countries with the highest success rate, such as the Netherlands, the design of the vehicle tax, as part of a well-aligned policy package, has been very important in delivering the biggest reductions in CO₂ emissions from NPCs.

POLICY RELEVANCE

The transport sector continues to be an intractable source of CO₂ emissions. Governments around the world are seeking effective policies to deal with the increase in passenger car CO₂ emissions appropriate to their own circumstances. This article examines the experience of EU MS with CO₂-differentiated vehicle taxes in reducing CO₂ emissions in the context of other national and international contributing factors. It should therefore both be useful to policy makers and contribute to climate policy research in general.     

Climate policy networks in South Korea: alliances and conflicts

A policy network analysis using a questionnaire survey was conducted to identify the main climate policy actors in South Korea and examine how they form alliances and come into conflict over four major issues. Generally, it was found that governmental organizations are the main actors in the South Korean climate policy arena and that they mediate between the business and civil sectors. In particular, key organizations in each sector play a leading role in the formation and maintenance of at least two distinct alliance networks: growth and environmental. In particular, the growth network has been stronger and more intense than the environmental network, with the exception of nuclear power policy. The crucial drivers of proactive policy discourse in South Korea have been scientific discourse and a consensus on the advent of anthropogenic climate change by the international scientific community, the international climate change negotiations and the pressure to commit to GHG emissions reduction, and low-carbon green growth strategy.

Policy relevance

The positions of South Korean governmental organizations (as well as other civil society organizations) on the four major issues of climate policy have not been aligned. The government has not acted as a unified body; instead it is an aggregated body composed of organizations with competing interests. If policy actors with different interests share the recognition of the state of the country within global society and understand international pressure as well as the urgency of combating climate change, then a common policy goal can be achieved. It is essential for the government to exert proactive leadership for climate policies in mediating the growth and environmental networks. It is important to boost environmental networks in order to overcome the alliance of growth networks. A more proactive response for combating climate change would establish open policy-making processes for environmental network actors and provide economic opportunities for climate actions.     

Carbon taxes and greenhouse gas emissions trading systems: what have we learned?

Systematic evidence relating to the performance of carbon pricing – carbon taxes and greenhouse gas (GHG) emissions trading systems (ETSs) – is sparse. In 2015, 17 ETSs were operational in 55 jurisdictions while 18 jurisdictions collected a carbon tax. The papers in this special thematic section review the performance of many of these instruments over the 2005–2015 period. The performance of existing carbon taxes and GHG ETSs can help policy makers make informed choices about whether to introduce these instruments and to improve their design. The purpose of carbon pricing instruments is to reduce GHG emissions cost effectively. Assessing their performance is difficult because emissions are also affected by other policies and exogenous factors such as economic conditions. Carbon taxes in Europe prior to 2008 and in British Columbia reduced emissions from business-as-usual but actual emissions continued to rise. Since 2008 emissions subject to European carbon taxes have declined, but in most countries, other mitigation policies have probably contributed more to the reductions than the carbon taxes. Emissions subject to ETSs, with the exception of four systems without emissions caps, have declined. The ETSs contributed to the emissions reductions, but their share of the overall reduction is not known. Most tax rates are low relative to levels thought to be needed to achieve climate change objectives. Few jurisdictions regularly adjust their tax rates. All ETSs have accumulated surplus allowances and implemented measures to reduce these surpluses. The largest ETSs now specify annual reductions in their emissions cap several years into the future. Emissions trading system allowance prices are generally lower than the tax rates.

Key policy insights

• Theoretical discussions usually portray carbon taxes and GHG ETSs as alternatives. In practice, a jurisdiction often implements both instruments to address emissions by different sources.

• Designs of ETSs have evolved based on experience shared bilaterally and via dedicated institutions.

• Carbon tax designs, in contrast, have hardly evolved and there are no institutions dedicated to sharing experience.

• Every jurisdiction with an ETS and/or carbon tax also has other policies that affect its GHG emissions.

     

Targeting carbon dioxide removal in the European Union

In principle, many climate policymakers have accepted that large-scale carbon dioxide removal (CDR) is necessary to meet the Paris Agreement’s mitigation targets, but they have avoided proposing by whom CDR might be delivered. Given its role in international climate policy, the European Union (EU) might be expected to lead the way. But among EU climate policymakers so far there is little talk on CDR, let alone action. Here we assess how best to ‘target’ CDR to motivate EU policymakers exploring which CDR target strategy may work best to start dealing with CDR on a meaningful scale. A comprehensive CDR approach would focus on delivering the CDR volumes required from the EU by 2100, approximately at least 50 Gigatonnes (Gt) CO₂, according to global model simulations aiming to keep warming below 2°C. A limited CDR approach would focus on an intermediate target to deliver the CDR needed to reach ‘net zero emissions’ (i.e. the gross negative emissions needed to offset residual positive emissions that are too expensive or even impossible to mitigate). We argue that a comprehensive CDR approach may be too intimidating for EU policymakers. A limited CDR approach that only addresses the necessary steps to reach the (intermediate) target of ‘net zero emissions’ is arguably more achievable, since it is a better match to the existing policy paradigm and would allow for a pragmatic phase-in of CDR while avoiding outright resistance by environmental NGOs and the broader public.

Key policy insights

• Making CDR an integral part of EU climate policy has the potential to significantly reshape the policy landscape.

• Burden sharing considerations would probably play a major role, with comprehensive CDR prolonging the disparity and tensions between progressives and laggards.

• Introducing limited CDR in the context of ‘net zero’ pathways would retain a visible primary focus on decarbonization but acknowledge the need for a significant enhancement of removals via ‘natural’ and/or ‘engineered’ sinks.

• A decarbonization approach that intends to lead to a low level of ‘residual emissions’ (to be tackled by a pragmatic phase-in of CDR) should be the priority of EU climate policy.

     

The economics of climate change in Mexico: implications for national/regional policy

The recent Mexican government study, The Economics of Climate Change in Mexico (ECCM), which has largely influenced Mexico's stance on climate change issues and international negotiations, is critically reviewed. Whilst the importance of such government-supported national studies as a first attempt to provide estimates on the anticipated costs of climate change is recognized, there is scope to strengthen the underlying analysis. It is argued that some of the key policy recommendations of ECCM are weakly supported by its analysis, that it has some methodological weaknesses, and that there are inconsistencies with the approach adopted in the Stern Review. Furthermore, it is likely that the estimated costs severely under-represent future climate change damages in the case of Mexico, which could deter drastic mitigation and adaptation efforts. New estimates of the costs of climate change are presented based on the impact functions of two integrated assessment models.

Policy relevance

Due to its large influence in building a regional view of what climate change could imply for Latin America, the analysis of the ECCM highlights the need to strengthen the analysis of national climate documents to ensure they properly support national/regional policy making. The academic evaluation of national climate change documents is a necessary prerequisite for the development of sound climate policy.     

Zero carbon energy system pathways for Ireland consistent with the Paris Agreement

The Paris Agreement is the last hope to keep global temperature rise below 2°C. The consensus agrees to holding the increase in global average temperature to well below 2°C above pre-industrial levels, and to aim for 1.5°C. Each Party’s successive nationally determined contribution (NDC) will represent a progression beyond the party’s then current NDC, and reflect its highest possible ambition. Using Ireland as a test case, we show that increased mitigation ambition is required to meet the Paris Agreement goals in contrast to current EU policy goals of an 80–95% reduction by 2050. For the 1.5°C consistent carbon budgets, the technically feasible scenarios' abatement costs rise to greater than €8,100/tCO₂ by 2050. The greatest economic impact is in the short term. Annual GDP growth rates in the period to 2020 reduce from 4% to 2.2% in the 1.5°C scenario. While aiming for net zero emissions beyond 2050, investment decisions in the next 5–10 years are critical to prevent carbon lock-in.

Key policy insights

• Economic growth can be maintained in Ireland while rapidly decarbonizing the energy system.

• The social cost of carbon needs to be included as standard in valuation of infrastructure investment planning, both by government finance departments and private investors.

• Technological feasibility is not the limiting factor in achieving rapid deep decarbonization.

• Immediate increased decarbonization ambition over the next 3–5 years is critical to achieve the Paris Agreement goals, acknowledging the current 80–95% reduction target is not consistent with temperature goals of ‘well below’ 2°C and pursuing 1.5°C.

• Applying carbon budgets to the energy system results in non-linear CO₂ emissions reductions over time, which contrast with current EU policy targets, and the implied optimal climate policy and mitigation investment strategy.

     

Electricity regulation in the Chinese national emissions trading scheme (ETS): lessons for carbon leakage and linkage with the EU ETS

Carbon leakage is central to the discussion on how to mitigate climate change. The current carbon leakage literature focuses largely on industrial production, and less attention has been given to carbon leakage from the electricity sector (the largest source of carbon emissions in China). Moreover, very few studies have examined in detail electricity regulation in the Chinese national emissions trading system (which leads, for example, to double counting) or addressed its implications for potential linkage between the EU and Chinese emissions trading systems (ETSs). This article seeks to fill this gap by analysing the problem of ‘carbon leakage’ from the electricity sector under the China ETS. Specifically, a Law & Economics approach is applied to scrutinize legal documents on electricity/carbon regulation and examine the economic incentive structures of stakeholders in the inter-/intra-regional electricity markets. Two forms of ‘electricity carbon leakage’ are identified and further supported by legal evidence and practical cases. Moreover, the article assesses the environmental and economic implications for the EU of potential linkage between the world’s two largest ETSs. In response, policy suggestions are proposed to address electricity carbon leakage, differentiating leakage according to its sources.

Key policy insights

• Electricity carbon leakage in China remains a serious issue that has yet to receive sufficient attention.

• Such leakage arises from the current electricity/carbon regulatory framework in China and jeopardizes mitigation efforts.

• With the US retreat on climate efforts, evidence suggests that EU officials are looking to China and expect an expanded carbon market to reinforce EU global climate leadership.

• Given that the Chinese ETS will be twice the size of the EU ETS, a small amount of carbon leakage in China could have significant repercussions. Electricity carbon leakage should thus be considered in any future EU–China linking negotiations.

     

Pledges,politics and performance: an assessment of UK climate policy

Abstract

New Labour came to power in 1997 pledging to put environment concerns at the heart of policy-making. Shortly after being elected, the Labour Government signed the Kyoto Protocol and adopted a voluntary domestic target of a 20% cut in carbon dioxide emissions by 2010. This article looks at the development of UK climate policy since 1997 and the political drivers that have led to development of the climate policy mix. It assesses the Climate Change Programme adopted in 2000 and its delivery, and it also looks at the 5-year Climate Change Programme Review published in March 2006. It conducts a quantitative assessment of the UK's performance by looking at emissions data, and it also provides a qualitative analysis, by looking at the UK policies and measures within their political and institutional context. The article concludes that Labour has been actively promoting climate policy since coming to power and has played a strong leadership role internationally. The UK is on track to meet and surpass its Kyoto target, meeting its international commitments. Between 24.1 and 29.1 million tonnes of carbon savings per year are expected by 2010. Policies and measures in the industrial sector are delivering real emissions reductions, in addition to the reductions made through fuel switching. The Government has found it more difficult to make some of the tough choices necessary to deliver emissions reductions in the transport and the household sectors. The article seeks to explain why the Labour Government has found it uncomfortable, politically, to implement stronger measures in these parts of the economy. The article highlights the changing dynamics within UK politics and concludes that there are two possible avenues for taking more stringent measures in the future. The first involves the development of a cross-party consensus on climate change. The second is to change the way that climate change is framed, so that it is no longer seen as an ‘environment’ issue but one with which voters and decision-makers can immediately connect. Only then will it be possible to implement the necessary policies and measures across the whole economy.