Carbon Library: Policy

Climate Strategies- Joint Implementation: Looking Back and Forward

This report, released by Climate Strategies in October, 2008, summarizes the development of the Joint Implementation mechanism thus far, and discusses its possible future.

Cap and Trade - International Data and AMEE

International perspectives with a particular focus on data. Written by one of the co-authors of the UK Climate Change Act.

UNDP - Bali Action Plan Summary

To assist policy makers in understanding the complex issues under discussion in the negotiating process, UNDP commissioned a series of background briefing papers on the key issues under the four main “building blocks” of the current international negotiations – mitigation, adaptation, technology and finance – as well as land use, land-use change and forestry (LULUCF). This document contains summaries for policy makers of these briefing papers. The full versions of the briefing papers are available on the UNDP web site at: http://www.undp.org/climatechange/documents.html.

IISD - Border Carbon Adjustment

Border carbon adjustments (BCAs) are being proposed in a number of legislative and political fora. They are intended to address competitiveness concerns and carbon leakage, and to help force major developing countries to take on hard commitments in the negotiations over a post-2012 climate regime. More research is needed on competitiveness: what sectors are vulnerable and to what extent? • Also more research is needed on the available alternatives to BCA: how effective and feasible are they? • More research is needed on the design of BCA schemes. Is it possible to design a BCA that addresses competitiveness and emissions leakage, and is also WTO-legal? • Need to carefully considered whether the geopolitical implications of implementing a BCA scheme would be positive or negative for the climate negotiations overall.

Resources for the Future - Decentralization in the EU Emissions Trading Scheme and Lessons for Global Policy

In 2005, the European Union introduced the largest and most ambitious emissions trading program in the world to meet its Kyoto commitments for the containment of global climate change. The EU Emissions Trading Scheme (EU ETS) has some distinctive features that differentiate it from the more standard model of emissions trading. In particular, it has a relatively decentralized structure that gives individual member states responsibility for setting targets, allocating permits, determining verification and enforcement, and making some choices about flexibility. It is also a “cap-within-a-cap,” seeking to achieve the Kyoto targets while only covering about half of EU emissions. Finally, it is a program that many hope will link with other greenhouse gas trading programs in the future—something we have not seen among existing trading systems. Examining these features coupled with recent EU ETS experience offers lessons about how cost effectiveness, equity, flexibility, and compliance fare in a multi-jurisdictional trading program, and highlights the challenges facing a global emissions trading regime.

Aldersgate Group - Trading For Growth: The role of the EU ETS in cutting emissions and stimulating wealth creation

This briefing by the Aldersgate Group looks at how the EU Emissions Trading Scheme can best deliver the necessary cuts in carbon emissions and maximise the economic benefits that can flow from higher environmental standards. By analysing key policy decisions such as the setting of caps, the distribution of allowances and the role of off-setting, this proposal builds on what has been achieved to date, so that the EU ETS delivers on the high objectives it has been set.

MIT - The Effects of Interactions between Federal and State Climate Policies

In the absence of a federal policy to cap carbon emissions many states are moving forward with their own initiatives, which currently range from announcements of commitments to reduce greenhouse gases to a regional multi-state cap-and-trade program slated to begin in 2009. While federal legislation is expected in the next few years, it is unclear how such legislation will define the relationship between a federal cap and trade program and other state regulations. Assuming the introduction of a cap-andtrade program at the federal level, this paper analyzes the economic and environmental impacts of the range of possible interactions between the federal program and state programs. We find that the impacts of interaction depend on relative stringency of the federal and state program and overlap in source coverage. Where state programs are both duplicative of and more demanding than the federal cap, the effect is entirely redistributive of costs and emissions, with in-state sources facing higher marginal abatement costs. Also, differing marginal abatement costs among states create economic inefficiencies that make achievement of the climate goal more costly than it need be. These redistributive effects and the associated economic inefficiency are avoided under either federal preemption of duplicative state programs or a ‘carve out’ of state programs from the federal cap with linkage to the federal allowance market.

UNDP - National Policies and their Linkages to Negotiations over a Future International Climate Change Agreement

Developing country policy makers will need to draw on a range of national policy instruments in order to address climate change. This document outlines the many policy options, and includes developing country case studies of policy implementation – showing what has and hasn’t worked.

IISD - Clean Energy Investment

If investment in energy infrastructure falls short of the monumental levels needed, we will be facing a crisis of development. If the investment materializes and is channeled into traditional modes, however, we will have a crisis of environment. The efforts needed diverge much further from the baseline case than we have yet succeeded in going. • One of the ways to address this problem is to focus on fostering significant new flows of clean energy investment from the private sector. The public sector funds committed to date, and likely to materialize in future, are at least an order of magnitude too sparse. • At the international level, international investment agreements may contain language that leaves government regulators exposed to binding compensable arbitration over climate change-related measures that impair investor profitability. • At the domestic level, addressing policy and regulatory obstacles to clean energy investment may be one of the most important ways that governments, MDBs and donors can observe their various technology transfer obligations. Trade policy may have a role to play here, similar to the role it plays in the Integrated Framework collaboration that aims to help LDCs better exploit potential gains from trade liberalization.

IISD - Liberalization of Trade in Environmental Goods for Climate Change Mitigation: The Sustainable Development Context

Trade is an important channel for the diffusion of climate mitigation goods. Lowering trade barriers brings their prices closer to world market prices, making them more affordable to consumers (industry and households) and bringing down climate mitigation costs overall. Lowering tariffs on climate mitigation goods can also contribute to UNFCCC technology transfer mandates by facilitating access to these goods. • Trade barriers can be lowered autonomously. More importantly, countries can engage in multilateral, regional or bilateral trade negotiations to lower barriers with binding commitments. • Trade liberalization is only one of a range of factors—including GDP, FDI, environmental regulatory frameworks and technical assistance—that affect actual trade in and diffusion of climate mitigation goods. Fiscal incentives, investment frameworks and intellectual property-related costs also determine access to, and affordability of, climate mitigation technologies. The impact of trade liberalization for climate change mitigation efforts will only be as effective as the broader enabling framework within which it is put into play.

WRI - Climate Policy Terminology

The following provides quick definitions for terms often used in climate policy debates. It is an introduction to the key climate change concepts and issues, which will be explained further in subsequent issues in WRI’s “Bottom Line” series on climate and energy policy.

WRI - The Bottom line on Cap-And-Trade

Cap-and-trade programs are the foundation of many climate policy proposals and have been a focus of debate in state, regional, and national legislatures. This fact sheet provides answers to some of the basic questions about cap-and-trade programs and reviews how such a system might work in the United States.

The Climate Institute - A comparison of emission pathways and policy mixes to achieve major reductions in Australia’s electricity sector greenhouse emissions

The Australian government is set to introduce an emission trading scheme (ETS) which it plans to commence in 2010. Although the government has released a Green Paper outlining the parameters for the design of an emission trading scheme, one of the key debating points is around the caps on emissions, particularly over the medium term. On the one hand, there are calls for a soft start to provide appropriate investment signals for low emission technologies, but not put Australia too far ahead of global action. On the other hand, there are calls for decisive action to drive absolute reductions in emissions and for the national target to be calibrated towards driving an ambitious global response. A second debating point is about the role for complementary measures such as energy efficiency targets and an expanded renewable energy target. Some argue that such measures will be superfluous once an emission trading scheme is in place, whilst others argue that emissions trading would, of itself, not overcome the many market failures that inhibit uptake of low emission technologies, and that removing the complementary measures will increase the cost of abatement on the economy. The Climate Institute commissioned MMA to examine these debating points. Using a simulation model of Australia’s electricity markets, MMA estimated the benefits and costs of alternative trajectories, or pathways, for emission caps and for a range of complementary measures. The “benefits” mainly related to the level of abatement of greenhouse emissions and accelerated technological development. The “costs” covered the additional capital, fuel and operating costs involved in bringing on low emission technologies and in altering the natural merit order in the dispatch of generating plant.

Retrospective on Phase 1 of the European Union Emissions Trading Scheme (EU-ETS) - Lessons Learnt.

The EU ETS has already caused emissions reduction through internal abatement despite somewhat over-allocating allowances in Phase 1, which has just concluded. There has been much reflection on the lessons learned this initial phase. The focus of this paper is to summarize a cross section of those discussions, representing the perspectives of policy makers, economists, traders, business executives, and environmentalists. Where there is consensus, to identify it. Where there are competing perspectives, to present them fairly. It should be noted however, that virtually every lessons-learned discussion has been presented by proponents of market-based solutions for emissions control, in the hope that they will help the carbon market to more successfully evolve. Sources are listed at the end and referenced parenthetically throughout. This white paper has been written by Don Sunderland V.P. Open Source Solutions, Misys plc.

The Climate Institute - Emissions Intensive Trade Exposed Assistance Policy

The Climate Pollution Reduction Scheme uses a cap and trade (or emissions trading) scheme as the cornerstone to achieve emissions reductions in Australia. However, emissions trading is not perfect and there are a number of justifications for complementary measures to address some key shortcomings. These shortcomings provide a strong prima facie case for government interventions to complement emissions trading. Such interventions may include various research, development and deployment measures for low emissions technologies, energy efficiency measures, assistance to low income households, structural adjustment assistance and assistance to trade exposed emissions intensive industries. This report focuses on ‘emissions leakage’ as a rationale for government intervention and measures designed to address this problem. It does not assess the costs and benefits of providing EITE assistance for the purpose of transitional support.

Achieving Early and Substantial Greenhouse Gas Reductions Under a Post-Kyoto Agreement

Author: John C. Dernbach, Distinguished Professor of Law, Widener University Law School. "This article explains why policy makers should seriously consider substantial early reductions in greenhouse gas emissions as a part of any post-Kyoto framework, and sets out suggested elements of a framework for early action in a post-Kyoto agreement. The suggested framework for early action includes a short-term goal for stabilizing global greenhouse gas emissions, involves both developed and developing countries, and includes an agreement to deepen the emissions reduction commitment of the Kyoto cap-and-trade program. The article also recommends that the parties negotiate separate agreements concerning particular policies or economic sectors. The article proposes a process for identifying, agreeing to, and implementing policies and measures that will maximize the benefits resulting from short-term action, including energy and cost savings from efficiency and conservation as well as job creation, reduction of other pollutants, and economic development. Although prepared before the recent economic downturn, the article suggests a path that could be used to help enhance the global economy."

Morgan Stanley - Olivia Hartridge - Designing carbon markets

The EU ETS has been a success so far and is the major driving force behind the international carbon market. As a result, investors are actively searching out emission reduction opportunities worldwide. But market participants are currently very wary about the ability of regulators to successfully set the conditions for a liquid and deep market delivering minimum cost reductions. Regulators need to be diligent about familiarising themselves with how the market is trading, consulting appropriately, not springing surprises, setting out clear and simple rules which deliver environmental integrity, providing short to medium-term certainty, and managing confidential data with the utmost care. If this is achieved, not only will the market respond more sympathetically to ideas and good intentions, but will also deliver a wealth of emission reductions. Most importantly, policy makers need to provide policy stability. This will not be achieved by giving the regulator the power to intervene in the market on the basis of vague criteria.

IEA - Issues behind Competitiveness and Carbon Leakage - Focus on Heavy Industry

When climate change mitigation policy introduces a cost for some but not others within the same sector, competition among companies is distorted. The implementation of the Kyoto Protocol potentially creates such a situation as some developed country Parties to the Kyoto Protocol have binding emission reduction targets (36 countries), while developing country Parties as well as other non-Parties, have no quantified emission reduction binding targets. The introduction of domestic or regional emissions trading schemes (ETS) that cap GHG emissions for sectors whose products compete internationally (e.g. the European ETS) can also trigger such conditions. Competitiveness concerns arise when this distortion becomes significant. For some industrial activities, this could be the case, but by no means for all. The question for those designing policy today is how to ensure that the transition towards a low-carbon economy occurs with only limited carbon leakage - namely the movement of production away from jurisdictions where carbon constraints exist to jurisdictions where they do not. Nonetheless, the prevention of carbon leakage should not occur without consideration of cost (to other sectors and the economy more generally). As a start, policy-makers’ priority should be: careful measurement and analysis of the issue, along the lines of what is presented in this report. This paper explores heavy industry’s vulnerability to carbon leakage and provides a statistical method to indicate possible carbon leakage. It also assesses a number of proposed policy measures to mitigate carbon leakage based on a selection of economic and environmental criteria.

T-PAGE - Climate Change And Sustainable Energy Policies In Europe And The United States.

Ultimately, the success of responsible public policies to tackle climate change will depend on public support and the full involvement of civil society in both Europe and America, as well as in other parts of the world which contribute significantly to global GHG emissions. As new policy proposals are currently being considered at the international level and by policymakers on both sides of the Atlantic, the Institute for European Environmental Policy (IEEP) and the Natural Resources Defense Council (NRDC), with the support of the European Commission's program to encourage “Transatlantic Civil Society Dialogues”, have carried out a joint project to build bridges and stimulate dialogue and exchange of experiences between civil society organisations on both sides of the Atlantic that share a common concern for global environmental issues. Together, they have analysed public policies with respect to climate change and sustainable energy systems, with a view to identifying areas of convergence and divergence and key issues for political debate. The project has brought together experts from environmental NGOs, academia and other interested civil society organisations in the EU and U.S. to debate the most salient issues on the political agenda. In order to disseminate the main conclusions and contribute to informed public debate on climate change and sustainable energy policies, the main results of the project are made available in this report.

OECD - What Role for Public Finance in International Climate Change Mitigation?

In this paper, prepared under the authority of the Chair of the Round Table on Sustainable Development at the Organisation for Economic Co-operation and Development (OECD), Richard Doornbosch (OECD) and Eric Knight (Oxford University) discuss how public finance might be raised and effectively spent on an adequate scale and pace to meet the demand for clean energy technology transfer in developing countries.