Climate Policies

Climate Policies, measures and instruments… (from IPCC, AR4, WGIII, Summary for Policy Makers)


1. A wide variety of national climate policies and instruments are available to governments to create the incentives for mitigation action. Their applicability depends on national circumstances and an understanding of their interactions, but experience from implementation in various countries and sectors shows there are advantages and disadvantages for any given instrument.

Four main criteria are used to evaluate climate policies and instruments: environmental effectiveness, cost effectiveness, distributional effects, including equity, and institutional feasibility.

All instruments can be designed well or poorly, and be stringent or lax. In addition, monitoring to improve implementation is an important issue for all instruments. General findings about the performance of policies are:

o Integrating climate policies in broader development policies makes implementation and overcoming barriers easier.

o Regulations and standards generally provide some certainty about emission levels. They may be preferable to other instruments when information or other barriers prevent producers and consumers from responding to price signals. However, they may not induce innovations and more advanced technologies.

o Taxes and charges can set a price for carbon, but cannot guarantee a particular level of emissions. Literature identifies taxes as an efficient way of internalizing costs of GHG emissions.

o Tradable permits will establish a carbon price. The volume of allowed emissions determines their environmental effectiveness, while the allocation of permits has distributional consequences. Fluctuation in the price of carbon makes it difficult to estimate the total cost of complying with emission permits.

o Financial incentives (subsidies and tax credits) are frequently used by governments to stimulate the development and diffusion of new technologies. While economic costs are generally higher than for the instruments listed above, they are often critical to overcome barriers.

o Voluntary agreements between industry and governments are politically attractive, raise awareness among stakeholders, and have played a role in the evolution of many national policies. The majority of agreements have not achieved significant emissions reductions beyond business as usual. However, some recent agreements, in a few countries, have accelerated the application of best available technology and led to measurable emission reductions.

O Information instruments (e.g. awareness campaigns) may positively affect environmental quality by promoting informed choices and possibly contributing to behavioural change, however, their impact on emissions has not been measured yet.

o RD&D can stimulate technological advances, reduce costs, and enable progress toward stabilization.

Some corporations, local and regional authorities, NGOs and civil groups are adopting a wide variety of voluntary actions. These voluntary actions may limit GHG emissions, stimulate innovative policies, and encourage the deployment of new technologies. On their own, and without climate policies they generally have limited impact on the national or regional level emissions.



2. Climate policies that provide a real or implicit price of carbon could create incentives for producers and consumers to significantly invest in low-GHG products, technologies and processes. Such policies could include economic instruments, government funding and regulation.

An effective carbon-price signal could realize significant mitigation potential in all sectors. Modelling studies, consistent with stabilization at around 550 ppm CO2-eq by 2100, show carbon prices rising to 20 to 80 US$/tCO2-eq by 2030 and 30 to 155 US$/tCO2-eq by 2050. For the same stabilization level, studies since the IPCC Third Assessment Report that take into account induced technological change lower these price ranges to 5 to 65 US$/tCO2-eq in 2030 and 15 to 130 US$/tCO2-eq in 2050.

Most top-down, as well as some 2050 bottom-up assessments, suggest that real or implicit carbon prices of 20 to 50 US$/tCO2-eq, sustained or increased over decades, could lead to a power generation sector with low-GHG emissions by 2050 and make many mitigation options in the end-use sectors economically attractive.

Barriers to the implementation of mitigation options are manifold and vary by country and sector. They can be related to financial, technological, institutional, informational and behavioural aspects.



3. Government support through financial contributions, tax credits, standard setting and market creation is important for effective technology development, innovation and deployment. Transfer of technology to developing countries depends on enabling conditions and financing.

Public benefits of RD&D investments are bigger than the benefits captured by the private sector, justifying government support of RD&D.

Government funding in real absolute terms for most energy research programmes has been flat or declining for nearly two decades (even after the UNFCCC came into force) and is now about half of the 1980 level.

Governments have a crucial supportive role in providing appropriate enabling environment, such as, institutional, policy, legal and regulatory frameworks, to sustain investment flows and for effective technology transfer – without which it may be difficult to achieve emission reductions at a significant scale. Mobilizing financing of incremental costs of low-carbon technologies is important. International technology agreements could strengthen the knowledge infrastructure.

The potential beneficial effect of technology transfer to developing countries brought about by Annex I countries action may be substantial, but no reliable estimates are available.

Financial flows to developing countries through Clean Development Mechanism (CDM) projects have the potential to reach levels of the order of several billions US$ per year, which is higher than the flows through the Global Environment Facility (GEF), comparable to the energy oriented development assistance flows, but at least an order of magnitude lower than total foreign direct investment flows. The financial flows through CDM, GEF and development assistance for technology transfer have so far been limited and geographically unequally distributed.


4. Notable achievements of the UNFCCC and its Kyoto Protocol are the establishment of a global response to the climate problem, stimulation of an array of national policies, the creation of an international carbon market and the establishment of new institutional mechanisms that may provide the foundation for future mitigation efforts.

The impact of the Protocol’s first commitment period relative to global emissions is projected to be limited. Its economic impacts on participating Annex-B countries are projected to be smaller than presented in TAR, that showed 0.2-2% lower GDP in 2012 without emissions trading, and 0.1-1.1% lower GDP with emissions trading among Annex-B countries.

5. The literature identifies many options for achieving reductions of global GHG emissions at the international level through cooperation. It also suggests that successful agreements are environmentally effective, cost-effective, incorporate distributional considerations and equity, and are institutionally Feasible.

Greater cooperative efforts to reduce emissions will help to reduce global costs for achieving a given level of mitigation, or will improve environmental effectiveness.

Improving, and expanding the scope of, market mechanisms (such as emission trading, Joint Implementation and CDM) could reduce overall mitigation costs.

Efforts to address climate change can include diverse elements such as emissions targets; sectoral, local, sub national and regional actions; RD&D programmes; adopting common climate policies; implementing development oriented actions; or expanding financing instruments. These elements can be implemented in an integrated fashion, but comparing the efforts made by different countries quantitatively would be complex and resource intensive.

Climate policies that could be taken by participating countries can be differentiated both in terms of when such action is undertaken, who participates and what the action will be. Actions can be binding or non-binding, include fixed or dynamic targets, and participation can be static or vary over time.