Modelling innovation and the macroeconomics of low-carbon transitions: theory,perspectives and practical use

Energy and climate policies may have significant economy-wide impacts, which are regularly assessed based on quantitative energy-environment-economy models. These tend to vary in their conclusions on the scale and direction of the likely macroeconomic impacts of a low-carbon transition. This paper traces the characteristic discrepancies in models’ outcomes to their origins in different macro-economic theories, most importantly their treatment of technological innovation and finance. We comprehensively analyse the relevant branches of macro-innovation theory and group them into two classes: ‘Equilibrium’ and ‘Non-equilibrium’. While both approaches are rigorous and self-consistent, they frequently yield opposite conclusions for the economic impacts of low-carbon policies. We show that model outcomes are mainly determined by their representations of monetary and finance dimensions, and their interactions with investment, innovation and technological change. Improving these in all modelling approaches is crucial for strengthening the evidence base for policy making and gaining a more consistent picture of the macroeconomic impacts of achieving emissions reductions objectives. The paper contributes towards the ongoing effort of enhancing the transparency and understanding of sophisticated model mechanisms applied to energy and climate policy analysis. It helps tackle the overall ‘black box’ critique, much-cited in policy circles and elsewhere.

Key policy insights

• Quantitative models commissioned by policy-makers to assess the macroeconomic impacts of climate policy generate contradictory outcomes and interpretations.

• The source of the differences in model outcomes originates primarily from assumptions on the workings of the financial sector and the nature of money, and of how these interact with processes of low-carbon energy innovation and technological change.

• Representations of innovation and technological change are incomplete in energy-economy-environment models, leading to limitations in the assessment of the impacts of climate-related policies.

• All modelling studies should state clearly their underpinning theoretical school and their treatment of finance and innovation.

• A strong recommendation is given for modellers of energy-economy systems to improve their representations of money and finance.

     

Swimming upstream: addressing fossil fuel supply under the UNFCCC

Reducing fossil fuel supply is necessary to meet the Paris Agreement goal to keep warming ‘well below 2°C’, yet the Agreement is silent on the topic of fossil fuels. This article outlines reasons why it is important that Parties to the Agreement find ways to more explicitly address the phasing out of fossil fuel production under the UNFCCC. It describes how countries aiming to keep fossil fuel supply in line with Paris goals could articulate and report their actions within the current architecture of the Agreement. It also outlines specific mechanisms of the Paris Agreement through which issues related to the curtailment of fossil fuel supply can be addressed. Mapping out a transition away from fossil fuels – and facilitating this transition under the auspices of the UNFCCC process – can enhance the ambition and effectiveness of national and international climate mitigation efforts.

Key policy insights

• The international commitment to limit global average temperature increases to ‘well below 2°C’ provides a strong rationale for Parties to the Paris Agreement and the UNFCCC to pursue a phase-down in fossil fuel production, not just consumption.

• Several countries have already made commitments to address fossil fuel supply, by agreeing to phase down coal or oil exploration and production.

• Integrating these commitments into the UNFCCC process would link them to global climate goals, and ensure they form part of a broader global effort to transition away from fossil fuels.

• The Paris Agreement provides a number of new opportunities for Parties to address fossil fuel production.

     

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.

     

Perceived fairness and public acceptability of carbon pricing: a review of the literature

While carbon pricing is widely seen as a crucial element of climate policy and has been implemented in many countries, it also has met with strong resistance. We provide a comprehensive overview of public perceptions of the fairness of carbon pricing and how these affect policy acceptability. To this end, we review evidence from empirical studies on how individuals judge personal, distributional and procedural aspects of carbon taxes and cap-and-trade. In addition, we examine preferences for particular redistributive and other uses of revenues generated by carbon pricing and their role in instrument acceptability. Our results indicate a high concern over distributional effects, particularly in relation to policy impacts on poor people, in turn reducing policy acceptability. In addition, people show little trust in the capacities of governments to put the revenues of carbon pricing to good use. Somewhat surprisingly, most studies do not indicate clear public preferences for using revenues to ensure fairer policy outcomes, notably by reducing its regressive effects. Instead, many people prefer using revenues for ‘environmental projects’ of various kinds. We end by providing recommendations for improving public acceptability of carbon pricing. One suggestion to increase policy acceptability is combining the redistribution of revenue to vulnerable groups with the funding for environmental projects, such as on renewable energy.

Key policy insights

• If people perceive carbon pricing instruments as fair, this increases policy acceptability and support.

• People’s satisfaction with information provided by the government about the policy instrument increases acceptability.

• While people express high concern over uneven distribution of the policy burden, they often prefer using carbon pricing revenues for environmental projects instead of compensation for inequitable outcomes.

• Recent studies find that people’s preferences shift to using revenues for making policy fairer if they better understand the functioning of carbon pricing, notably that relatively high prices of CO₂-intensive goods and services reduce their consumption.

• Combining the redistribution of revenue to support both vulnerable groups and environmental projects, such as on renewable energy, seems to most increase policy acceptability.

     

Empirical calibration of climate policy using corporate solvency: a case study of the UK’s carbon price support

Emission reductions improve the chances that dangerous anthropogenic climate change will be averted, but could also cause some firms financial distress. Corporate failures, especially if they are unnecessary, add to the social cost of abatement. Social value can be permanently destroyed by the dissolution of organizational capital, deadweight losses paid to liquidators, and unemployment. This article proposes using measures of corporate solvency as an objective tool for policy makers to calibrate the optimal stringency of climate change policies, so that they can deliver the least loss of corporate solvency for a given level of emission reductions. They could also be used to determine the generosity of any compensation to address losses to corporate solvency. We demonstrate this approach using a case study of the UK’s Carbon Price Support (a carbon tax).

Key policy insights

• Solvency metrics could be used to empirically calibrate the optimal stringency of climate policies.

• An idealized solvency trajectory for firms affected by climate change policy would cause corporate solvency to initially decline – approaching but not exceeding ‘distressed’ levels – and then gradually improve to a new ‘steady state’ once the low-carbon transition had been achieved.

• In terms of the UK’s Carbon Price Support, corporate solvency of energy-intensive industries was found to be stable subsequent to its introduction. Therefore, the available evidence does not support its later weakening.

     

Including animal to plant protein shifts in climate change mitigation policy: a proposed three-step strategy

Strong and rapid greenhouse gas (GHG) emission reductions, far beyond those currently committed to, are required to meet the goals of the Paris Agreement. This allows no sector to maintain business as usual practices, while application of the precautionary principle requires avoiding a reliance on negative emission technologies. Animal to plant-sourced protein shifts offer substantial potential for GHG emission reductions. Unabated, the livestock sector could take between 37% and 49% of the GHG budget allowable under the 2°C and 1.5°C targets, respectively, by 2030. Inaction in the livestock sector would require substantial GHG reductions, far beyond what are planned or realistic, from other sectors. This outlook article outlines why animal to plant-sourced protein shifts should be taken up by the Conference of the Parties (COP), and how they could feature as part of countries’ mitigation commitments under their updated Nationally Determined Contributions (NDCs) to be adopted from 2020 onwards. The proposed framework includes an acknowledgment of ‘peak livestock’, followed by targets for large and rapid reductions in livestock numbers based on a combined ‘worst first’ and ‘best available food’ approach. Adequate support, including climate finance, is needed to facilitate countries in implementing animal to plant-sourced protein shifts.

Key policy insights

• Given the livestock sector’s significant contribution to global GHG emissions and methane dominance, animal to plant protein shifts make a necessary contribution to meeting the Paris temperature goals and reducing warming in the short term, while providing a suite of co-benefits.

• Without action, the livestock sector could take between 37% and 49% of the GHG budget allowable under the 2°C and 1.5°C targets, respectively, by 2030.

• Failure to implement animal to plant protein shifts increases the risk of exceeding temperate goals; requires additional GHG reductions from other sectors; and increases reliance on negative emissions technologies.

• COP 24 is an opportunity to bring animal to plant protein shifts to the climate mitigation table.

• Revised NDCs from 2020 should include animal to plant protein shifts, starting with a declaration of ‘peak livestock’, followed by a ‘worst first’ replacement approach, guided by ‘best available food’.

     

Escaping the climate policy uncertainty trap: options contracts for REDD+

Climate policy uncertainty significantly hinders investments in low-carbon technologies, and the global community is behind schedule to curb carbon emissions. Strong actions will be necessary to limit the increase in global temperatures, and continued delays create risks of escalating climate change damages and future policy costs. These risks are system-wide, long-term and large-scale and thus hard to diversify across firms. Because of its unique scale, cost structure and near-term availability, Reducing Emissions from Deforestation and forest Degradation in developing countries (REDD+) has significant potential to help manage climate policy risks and facilitate the transition to lower greenhouse gas emissions. ‘Call’ options contracts in the form of the right but not the obligation to buy high-quality emissions reduction credits from jurisdictional REDD+ programmes at a predetermined price per ton of CO₂ could help unlock this potential despite the current lack of carbon markets that accept REDD+ for compliance. This approach could provide a globally important cost-containment mechanism and insurance for firms against higher future carbon prices, while channelling finance to avoid deforestation until policy uncertainties decline and carbon markets scale up.

Key policy insights

• Climate policy uncertainty discourages abatement investments, exposing firms to an escalating systemic risk of future rapid increases in emission control expenditures.

• This situation poses a risk of an abatement ‘short squeeze,’ paralleling the case in financial markets when prices jump sharply as investors rush to square accounts on an investment they have sold ‘short’, one they have bet against and promised to repay later in anticipation of falling prices.

• There is likely to be a willingness to pay for mechanisms that hedge the risks of abruptly rising carbon prices, in particular for ‘call’ options, the right but not the obligation to buy high-quality emissions reduction credits at a predetermined price, due to the significantly lower upfront capital expenditure compared to other hedging alternatives.

• Establishing rules as soon as possible for compliance market acceptance of high-quality emissions reductions credits from REDD+ would facilitate REDD+ transactions, including via options-based contracts, which could help fill the gap of uncertain climate policies in the short and medium term.

     

Climate-governance entrepreneurship,higher-order learning,and sustainable consumption: the case of the state of Oregon,United States

The ongoing devolution of climate policy-making to sub-national levels has prompted growing interest in policy entrepreneurship by individuals who are politically and technically creative and institutionally resourceful. This paper investigates the case of the materials-management programme in the Oregon Department of Environmental Quality which has emerged as a national and international leader by focusing on the role of household consumption in greenhouse gas (GHG) emissions. Two noteworthy innovations involve the development of a consumption-based GHG emissions inventory and introduction of policies aimed at facilitating construction of small homes (so-called Accessory Dwelling Units, ADU). The case traces over several decades the higher order learning processes within the group and their entrepreneurship toward affecting broader changes in emission accounting and climate policies in Oregon. The paper identifies the enabling factors for these innovations, and considers: how to create the conditions for learning, experimentation, and policy entrepreneurship; how to reproduce these conditions in different locales; and how to recognize and foster innovations that arise outside the established mainstream ‘climate community’. It also stresses the benefits of breaking down the barriers between science-based analysis and policy. The two questions frequently raised in the climate policy debate – how to bring researchers and practitioners together to develop efficacious policies; and how to replicate successful programmes and policies across different communities, jurisdictions, and locations – should be re-examined. It may be more appropriate to ask instead: How to create conditions for learning, experimentation, and policy entrepreneurship; and how to reproduce these conditions in different locales.

Key policy insights

• Using a consumption-based greenhouse gas emission inventory instead of a sector-based inventory radically changes climate policy priorities, shifting the emphasis from technological fixes to curbing household consumption.

• Policy innovations thrive in teams that combine technical and scientific competencies with: a commitment to addressing societal problems; interest in inquiry, experimentation, and learning; entrepreneurship; and strategic and political savvy.

• These qualities require breaking down artificial barriers between science and policy.

• Transformative policy ideas can originate within institutional nodes that operate outside of an established community of expertise and authority; and these should be identified and fostered.

     

Implementing climate change adaptation: lessons from India’s national adaptation fund on climate change (NAFCC)

With poverty alleviation and sustainable development as key imperatives for a developing economy like India, what drives the resource-constrained state governments to prioritize actions that address climate change impacts? We examine this question and argue that without access to additional earmarked financial resources, climate action would get overshadowed by developmental priorities and effective mainstreaming might not be possible. A systematic literature review was carried out to draw insights from the current state of implementation of adaptation projects, programmes and schemes at the subnational levels, along with barriers to mainstreaming climate change adaptation. The findings from a literature review were supplemented with lessons emerging from the implementation of India’s National Adaptation Fund on Climate Change (NAFCC). The results of this study underscore the scheme’s relevance.

Key policy insights

• Experience with NAFCC implementation reveals that states require sustained ‘handholding’ in terms of financial, technical and capacity support until climate change issues are fully understood and embedded in the policy landscape.

• Domestic sources of finance are critically important in the absence of predictable and adequate adaptation finance from international sources.

• The dedicated window for climate finance fosters a spirit of competitive federalism among states and encourages enhanced climate action.

• Enhanced budgetary allocation to NAFCC to strengthen the state-level adaptation response and create capacity to mainstream climate change concerns in state planning frames, is urgently needed.

     

Measuring the adaptation goal in the global stocktake of the Paris Agreement

The Paris Agreement establishes a global goal on adaptation which will be assessed through the global stocktake, the first attempt by the international climate change regime to measure collective progress on adaptation. This policy analysis identifies four main challenges to designing a meaningful assessment. These are: designing a system that can aggregate results; managing the dual mandate of reviewing collective progress and informing the enhancement of national level actions; methodological challenges in adaptation; and political challenges around measurement. We propose a mixed-methods approach to addressing these challenges, combining short-term needs for reporting with longer-term aims of enhancing national adaptation actions.

Key policy insights

• Broad domains of adaptation activity could be identified within each of the objectives of the adaptation goal and progress could be measured and aggregated through simple scorecards.

• The goal should have both process and outcome indicators as well as some narrative linking activities to outcomes over time.

• Reporting could be a compilation of national data using qualitative and quantitative sources, aligning with the global stocktake’s aim of enhancing national actions over time and reducing immediate reporting burdens.

• There would be a complementary role at least in the short term for an expert assessment of priority areas.

     

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.

     

Policy options to streamline the carbon market for agricultural nitrous oxide emissions

The majority of emissions of nitrous oxide – a potent greenhouse gas (GHG) – are from agricultural sources, particularly nitrogen fertilizer applications. A growing focus on these emission sources has led to the development in the United States of GHG offset protocols that could enable payment to farmers for reducing fertilizer use or implementing other nitrogen management strategies. Despite the development of several protocols, the current regional scope is narrow, adoption by farmers is low, and policy implementation of protocols has a significant time lag. Here we utilize existing research and policy structures to propose an ‘umbrella’ approach for nitrogen management GHG emissions protocols that has the potential to streamline the policy implementation and acceptance of such protocols. We suggest that the umbrella protocol could set forth standard definitions common across multiple protocol options, and then modules could be further developed as scientific evidence advances. Modules could be developed for specific crops, regions, and practices. We identify a policy process that could facilitate this development in concert with emerging scientific research and conclude by acknowledging potential benefits and limitations of the approach.

Key policy insights

• Agricultural greenhouse gas market options are growing, but are still underutilized

• Streamlining protocol development through an umbrella process could enable quicker development of protocols across new crops, regions, and practices

• Effective protocol development must not compromise best available science and should follow a rigorous pathway to ensure appropriate implementation

     

Climate action for food security in South Asia? Analyzing the role of agriculture in nationally determined contributions to the Paris agreement

The Nationally Determined Contributions (NDCs) submitted under the Paris Agreement propose a country’s contribution to global mitigation efforts and domestic adaptation initiatives. This paper provides a systematic analysis of NDCs submitted by South Asian nations, in order to assess how far their commitments might deliver meaningful contributions to the global 2°C target and to sustainable broad-based adaptation benefits. Though agriculture-related emissions are prominent in emission profiles of South Asian countries, their emission reduction commitments are less likely to include agriculture, partly because of a concern over food security. We find that income-enhancing mitigation technologies that do not jeopardize food security may significantly augment the region’s mitigation potential. In the case of adaptation, analysis shows that the greatest effort will be directed towards protecting the cornerstones of the ‘green revolution’ for ensuring food security. Development of efficient and climate-resilient agricultural value chains and integrated farming bodies will be important to ensuring adaptation investment. Potentially useful models of landscape level climate resilience actions and ecosystem-based adaptation are also presented, along with estimates of the aggregate costs of agricultural adaptation. Countries in the region propose different mixes of domestic and foreign, and public and private, adaptation finance to meet the substantial gaps.

Key policy insights

• Though substantial potential for mitigation of agricultural emissions exists in South Asia, governments in the region do not commit to agricultural emissions reductions in their NDCs.

• Large-scale adoption of income-enhancing technologies is the key to realizing agricultural mitigation potential in South Asia, whilst maintaining food security.

• Increasing resilience and profitability through structural changes, value chain interventions, and landscape-level actions may provide strong options to build adaptive capacity and enhance food security.

• Both private finance (autonomous adaptation) and international financial transfers will be required to close the substantial adaptation finance gap

     

Governance of bioenergy with carbon capture and storage (BECCS): accounting,rewarding, and the Paris agreement

Studies show that the ‘well below 2°C’ target from the Paris Agreement will be hard to meet without large negative emissions from mid-century onwards, which means removing CO₂ from the atmosphere and storing the carbon dioxide in biomass, soil, suitable geological formations, deep ocean sediments, or chemically bound to certain minerals. Biomass energy combined with Carbon Capture and Storage (BECCS) is the negative emission technology (NET) given most attention in a number of integrated assessment model studies and in the latest IPCC reports. However, less attention has been given to governance aspects of NETs. This study aims to identify pragmatic ways forward for BECCS, through synthesizing the literature relevant to accounting and rewarding BECCS, and its relation to the Paris Agreement. BECCS is divided into its two elements: biomass and CCS. Calculating net negative emissions requires accounting for sustainability and resource use related to biomass energy production, processing and use, and interactions with the global carbon cycle. Accounting for the CCS element of BECCS foremost relates to the carbon dioxide capture rate and safe underground storage. Rewarding BECCS as a NET depends on the efficiency of biomass production, transport and processing for energy use, global carbon cycle feedbacks, and safe storage of carbon dioxide, which together determine net carbon dioxide removal from the atmosphere. Sustainable biomass production is essential, especially with regard to trade-offs with competing land use. Negative emissions have an added value compared to avoided emissions, which should be reflected in the price of negative emission ‘credits’, but must be discounted due to global carbon cycle feedbacks. BECCS development will depend on linkages to carbon trading mechanisms and biomass trading.

Key policy insights

• A standardized framework for sustainable biomass should be adopted.

• Countries should agree on a standardized framework for accounting and rewarding BECCS and other negative emission technologies.

• Early government support is indispensable to enable BECCS development, scale-up and business engagement.

• BECCS projects should be designed to maximize learning across various applications and across other NETs.

• BECCS development should be aligned with modalities of the Paris Agreement and market mechanisms.

     

Reducing fugitive methane emissions from the North American oil and gas sector: a proposed science-policy framework

The shale gas boom in the United States spurred a shift in electricity generation from coal to natural gas. Natural gas combined cycle units emit half of the CO₂ to produce the same energy as a coal unit; therefore, the market trend is credited for a reduction in GHG emissions from the US power sector. However, methane that escapes the natural gas supply chain may undercut these relative climate benefits. In 2016, Canada, the United States and Mexico pledged to reduce methane emissions from the oil and natural gas sector 40–45% from 2012 levels by 2025. This article reviews the science-policy landscape of methane measurement and mitigation relevant for meeting this pledge, including changes in US policy following the 2016 presidential election. Considerable policy incoherence exists in all three countries. Reliable inventories remain elusive; despite government and private sector research efforts, the magnitude of methane emissions remains in dispute. Meanwhile, mitigation efforts vary significantly. A framework that integrates science and policy would enable actors to more effectively inform, leverage and pursue advances in methane measurement and mitigation. The framework is applied to North America, but could apply to other geographic contexts.

Key policy insights

• The oil and gas sector’s contribution to atmospheric methane concentrations is becoming an increasingly prominent issue in climate policy.

• Efforts to measure and control fugitive methane emissions do not presently proceed within a coherent framework that integrates science and policy.

• In 2016, the governments of Canada, Mexico and the United States pledged to reduce methane emissions from the oil and natural gas sector 40–45% from 2012 levels by 2025.

• The 2016 presidential election in the United States has halted American progress at the federal level, suggesting a heavier reliance on industry and subnational efforts in that country.

• Collectively or individually, the countries, individual agencies, or private stakeholders could use the proposed North American Methane Reduction framework to direct research, enhance monitoring and evaluate mitigation efforts, and improve the chances that continental methane reduction targets will be achieved.

     

The political roots of divergence in carbon market design: implications for linking

There is a substantial literature on optimal emissions trading system (ETS) designs, but relatively little on how organized political interests affect the design and operation of these economic instruments. This article looks systematically at the political economy of the diffusion of ETS designs and explores the implications for carbon-market linking. Contrary to expectations of convergence – as has been observed in many areas where economic policy diffuses across markets – we found substantial divergence in the design and implementation of ETS across the nine systems examined. The architects of these different systems are aware of other designs, but they have purposely adjusted designs to reflect local political and administrative goals. Divergence has sobering implications for visions of ubiquitous linkages and the emergence of a global carbon market that, to date, have been predicated on the assumption that designs would converge. More such ‘real world’ political economy analysis is needed to understand how political forces, mainly within countries, act as strong intervening variables that affect instrument design, implementation and effectiveness.

Key policy insights

• Our finding of design divergence indicates that policy efforts aimed at achieving integrated international markets are unlikely to be successful.

• Visions of carbon market linkage will need to confront the reality that there are well-organized political coalitions, anchored in the status quo, that prefer divergence.

• In linking ETS, policy-makers should devote more attention to preventing excessive capital flows that can undermine political support for linkage, while also creating incentives for convergence in trading rules over time.

     

Policy goals,partisanship and paradigmatic change in energy policy – analyzing parliamentary discourse in Germany over 30 years

The successful implementation of the Paris Agreement requires substantial energy policy change on the national level. In national energy policy-making, climate change mitigation goals have to be balanced with arguments on other national energy policy goals, namely limiting cost and increasing energy security. Thus far, very little is known about the relative importance of these goals and how they are related to political partisanship. In order to address this gap, we focus on parliamentary discourse around low-carbon energy futures in Germany over the past three decades and analyze the relative importance of, and partisanship around, energy policy goals. We find that the political discourse revolves around four, rather than three, goals as conventionally assumed; improving the competitiveness of the national energy technology industry is not only an additional energy policy goal, it is also highly important in the political discourse. In general, the relative importance of these goals is rather stable over time and partisanship around them is limited. Yet, a sub-analysis of the discourse on renewable energy technologies reveals a high level of partisanship, albeit decreasing over time. Particularly, the energy industry goal’s importance increases while its partisanship vanishes. We discuss how these findings can inform future energy policy research and provide a potential inroad for more ambitious national energy policies.

Key policy insights

• In addition to the three classic goals of energy policy (limiting cost, securing access and reducing the environmental burden) we identify a fourth policy goal: strengthening the national energy technology industry

• Conformity between the three classical energy and the industrial policy goals is a key driver explaining policy change

• For renewable energy technologies, partisanship around this fourth goal is lower than around other goals and decreases over time as innovation allows these technologies to increasingly correspond to policy-makers’ high-level goals

• Extant research underestimates the importance of industry policy goals, but overestimates environmental co-benefits of low-carbon energy options

• Paradigmatic policy change in Germany did not depend on top-down shifts in high-level policy goals but was driven by lower-level technology-specific goals

     

Effect of reciprocity on public opinion of international climate treaties: experimental evidence from the US and China

This study reports survey results of American and Chinese citizens administered to determine the effect of reciprocity and the absence of reciprocity on public support of international climate treaties. American and Chinese college students and adults were surveyed about their support for signing an international climate treaty including commitments to reduce their greenhouse gas emissions, conditional on the other country signing the same treaty or not. This study finds knowledge of other-country non-support on average decreases cooperative behaviour among all age groups in both the US and China. Knowledge of China’s support for the treaty is found on average to increase support among American adults, while having no noticeable effect on average support among American college students. Chinese citizens are found to not respond positively to reciprocity. Although not statistically significant at conventional significance levels, knowledge of the US’s support is found on average to decrease support among Chinese college students and adults.

Key policy insights

• To increase support for international climate treaties, knowledge that another major emitter will sign the treaty does not unanimously increase domestic support.

• Knowing the other country will not sign the treaty decreases domestic support for signing an international climate treaty for both Americans and Chinese, relative to not being told about the other country’s decision to sign the treaty.

• Knowing China will sign an international climate treaty on average increases American adult support for signing the same treaty, while American college student support is unaffected.

• Although not statistically significant at conventional significance levels, knowing the US will sign an international climate treaty on average decreases Chinese support for signing the same treaty.

• Policy-makers pursuing increased international support of climate treaties by first getting support from countries with substantial historical emissions might deter international support if little attention to fairness concerns is given.

     

China’s national carbon emissions trading scheme: lessons from the pilot emission trading schemes,academic literature,and known policy details

Upon completion, China’s national emissions trading scheme (C-ETS) will be the largest carbon market in the world. Recent research has evaluated China’s seven pilot ETSs launched from 2013 on, and academic literature on design aspects of the C-ETS abounds. Yet little is known about the specific details of the upcoming C-ETS. This article combines currently understood details of China’s national carbon market with lessons learned in the pilot schemes as well as from the academic literature. Our review follows the taxonomy of Emissions Trading in Practice: A Handbook on Design and Implementation (Partnership for Market Readiness & International Carbon Action Partnership. (2016). Retrieved from www.worldbank.org): The 10 categories are: scope, cap, distribution of allowances, use of offsets, temporal flexibility, price predictability, compliance and oversight, stakeholder engagement and capacity building, linking, implementation and improvements.

Key policy insights

• Accurate emissions data is paramount for both design and implementation, and its availability dictates the scope of the C-ETS.

• The stakeholder consultative process is critical for effective design, and China is able to build on its extensive experience through the pilot ETSs.

• Current policies and positions on intensity targets and Clean Development Mechanism (CDM) credits constrain the market design of the C-ETS.

• Most critical is the nature of the cap. The currently discussed rate-based cap with ex post adjustment is risky. Instead, an absolute, mass-based emissions cap coupled with the conditional use of permits would allow China to maintain flexibility in the carbon market while ensuring a limit on CO₂ emissions.

     

Engineering climate debt: temperature overshoot and peak-shaving as risky subprime mortgage lending

Despite the ambitious temperature goal of the 2015 Paris Agreement, the pace of reducing global CO₂ emissions remains sluggish. This creates conditions in which the idea of temperature ‘overshoot and peak-shaving’ is emerging as a possible strategy to meet the Paris goal. An overshoot and peak-shaving scenario rests upon the ‘temporary’ use of speculative solar radiation management (SRM) technologies combined with large-scale carbon dioxide removal (CDR). Whilst some view optimistically the strategic interdependence between SRM and CDR, we argue that this strategy comes with a risk of escalating ‘climate debt’. We explain our position using the logic of debt and the analogy of subprime mortgage lending. In overshoot and peak-shaving scenarios, the role of CDR and SRM is to compensate for delayed mitigation, placing the world in a double debt: ‘emissions debt’ and ‘temperature debt’. Analogously, this can be understood as a combination of ‘subprime mortgage’ (i.e. large-scale CDR) and ‘home-equity-line-of-credit’ (i.e. temporary SRM). With this analogy, we draw some important lessons from the 2007–2009 US subprime mortgage crisis. The analogy signals that the efficacy of temporary SRM cannot be evaluated in isolation of the feasibility of large-scale CDR and that the failure of the overshoot promise will lead to prolonged peak-shaving, masking an ever-rising climate debt. Overshoot and peak-shaving scenarios should not be presented as a secured feasible investment, but rather as a high-risk speculation betting on insecure promises. Obscuring the riskiness of such scenarios is a precipitous step towards escalating a climate debt crisis.

Key policy insights

• The slow progress of mitigation increases the attraction of an ‘overshoot and peak-shaving’ scenario which combines temporary SRM with large-scale CDR

• Following the logic of debt, the role of CDR and SRM in this scenario is to compensate for delayed mitigation, creating a double debt of CO₂ emissions and global temperature

• Using the analogy of subprime lending, this strategy can be seen as offering a combination of subprime mortgage and open-ended ‘line-of-credit’

• Because the ‘success’ of peak-shaving by temporary SRM hinges critically on the overshoot promise of large-scale CDR, SRM and CDR should not be discussed separately