Energy and Climate Policy – Lecture 11 Climate Policy Responses

Sample analytic questions

What are the rationale under the evolution of climate discussion and negotiation?
What are the typic/classic policy instruments to address climate change?
What are the pros and cons of those instruments?
What further reserach is needed to show the cost-effectiveness of those instruments?

Update from COP29

A UN/global Carbon Market?

Climate negotiation: a brief history

1997 Kyoto Protocol
- Common but Differentiated Responsibilities
2015 Paris Agreement
- 2 $^\circ$ C /1.5 $^\circ$ C
- NDC
2025: COP30

Understanding the drivers

Carrot
Stick
Beyond “Carrot and Stick”

IPAT

$I(mpact) = P(opulation) \times A(ffluence) \times T(echnology)$

$I(mpact) = \frac{P(opulation) \times A(ffluence)}{T(echnology)}$

Technology: renewable energy, energy efficiency, innovations

Kaya identify

$F=P \times \frac{G}{P} \times \frac{E}{G} \times \frac{F}{E}$

Where:

F: global CO2 emissions from human sources
P: global population
G: world GDP
E: global energy consumption

And:

G/P: GDP per capita
E/G: energy intensity of the GDP
F/E: emission intensity of energy

Climate wedges

The Mckinsey cost curve

Social cost of carbon

Marginal cost of carbon
Cost included:
- Net agricultural productivity
- Human health
- Property damage
- Energy system costs
Cost not included:
- Unknown impact: physical, ecological, economic
- Unknown cost: information

EPA social cost of carbon

NYDEC ‘Value of Carbon’ Guidance

Carbon dioxide: $125 per ton
Methane: $2,782 per ton
Nitrous oxide: $44,727 per ton

SCC updates

Tax vs Cap and Trade

Similarities:

Achieve carbon emission reduction
Abatement costs
International competitiveness
Raising revenue
Social costs
Distributional impacts

Differences:

Transaction costs
Performance under uncertainty
Linkages
Price volatility
Interaction with complementary policies
Market manipulation
Administrative requirements

What works what’s not

Carbon tax vs. subsides
Regulations vs markets
Considering
- Societal acceptance
- Political feasibility

Best practices

Energy efficiency
Low carbon eco-city
Renewable integration
Sectoral experiences
Policy/technology tools

Policy instruments

Type of instruments

Regulations and Standards
Taxes and Charges
Tradable Permits
Voluntary Agreements
Subsidies and Incentives
Inforamtion Instruments
R&DD
Non-Climate Policies (Cobenefits)

What policies work

References

Armitage, Sarah C., Noël Bakhtian, and Adam B. Jaffe. 2023. “Innovation Market Failures and the Design of New Climate Policy Instruments.” Working Paper. Working Paper Series. National Bureau of Economic Research. https://doi.org/10.3386/w31622.

Ehrlich, Paul R., and John P. Holdren. 1971. “Impact of Population Growth: Complacency Concerning This Component of Man’s Predicament Is Unjustified and Counterproductive.” Science 171 (3977): 1212–17. https://doi.org/10.1126/science.171.3977.1212.

Gupta, D. A. Tirpak, S. 2007. “Policies, Instruments and Co-Operative Arrangements.” Book Section. In Climate Change 2007: Mitigation. Contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, edited by P. R. Bosch B. Metz O. R. Davidson, 747–96. Cambridge, United Kingdom; New York, NY, USA: Cambridge University Press. https://www.ipcc.ch/site/assets/uploads/2018/02/ar4-wg3-chapter13-2.pdf.

Kaya, Yoichi, and Keiichi Yokobori, eds. 1997. Environment, Energy, and Economy: Strategies for Sustainable. Tokyo: United Nations Univ. https://archive.unu.edu/unupress/unupbooks/uu17ee/uu17ee00.htm.

Pacala, Stephen, and Robert Socolow. 2004. “Stabilization Wedges: Solving the Climate Problem for the Next 50 Years with Current Technologies.” Science 305 (5686): 968–72. https://doi.org/10.1126/science.1100103.

Rennert, Kevin, Frank Errickson, Brian C Prest, Lisa Rennels, Richard G Newell, William Pizer, Cora Kingdon, et al. 2022. “Comprehensive Evidence Implies a Higher Social Cost of CO2.” Nature, 1–3. https://doi.org/10.1038/s41586-022-05224-9.

Stavins, Robert N. 2022. “The Relative Merits of Carbon Pricing Instruments: Taxes Versus Trading.” Review of Environmental Economics and Policy 16 (1): 62–82. https://doi.org/10.1086/717773.

Stechemesser, Annika, Nicolas Koch, Ebba Mark, Elina Dilger, Patrick Klösel, Laura Menicacci, Daniel Nachtigall, et al. 2024. “Climate Policies That Achieved Major Emission Reductions: Global Evidence from Two Decades.” Science 385 (6711): 884–92. https://doi.org/10.1126/science.adl6547.