Climate Change 2007 Update

9. How can governments create incentives for mitigation?

• 9.1 What are the implications of different policy instruments?
• 9.2 How is climate change mitigation linked to sustainable development?

9.1 What are the implications of different policy instruments?

The source document for this Digest states:

E. POLICIES, MEASURES AND INSTRUMENTS TO MITIGATE CLIMATE CHANGE

22. A wide variety of national 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 (high agreement, much evidence).

• Four main criteria are used to evaluate policies and instruments: environmental effectiveness, cost effectiveness, distributional effects, including equity, and institutional feasibility [13.2].
• 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: [7.9, 12.2,13.2]
  
  • Integrating climate policies in broader development policies makes implementation and overcoming barriers easier.
  • 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.
  • 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.
  • 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.
  • 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.
  • 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 has 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.
  • 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.
  • 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, they generally have limited impact on the national or regional level emissions [13.4].
• Lessons learned from specific sector application of national policies and instruments are shown in Table SPM-7.

23. 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 (high agreement, much evidence).

• An effective carbon-price signal could realize significant mitigation potential in all sectors [11.3, 13.2].
• Modelling studies, consistent with stabilization at around 550 ppm CO₂-eq by 2100 (see Box SPM.3) 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 TAR that take into account induced technological change lower these price ranges to 5 to 65 US$/tCO₂eq in 2030 and 15 to 130 US$/tCO₂-eq in 2050 [3.3, 11.4, 11.5].
• 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. [4.4,11.6]
• 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 [4.5, 5.5, 6.7, 7.6, 8.6, 9.6, 10.5].

Table SPM-7. Selected sectoral policies, measures and instruments that have shown to be environmentally effective in the respective sector in at least a number of national cases.

24. 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 (high agreement, much evidence).

• 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 [2.7, 3.4, 4.5, 11.5, 13.2].
• 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 [13.3].
• 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 [11.7].
• Financial flows to developing countries through 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 [12.3, 13.3].

25. 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 (high agreement, much evidence).

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 [1.4, 11.4, 13.3].

26. 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 (high agreement, much evidence).

• Greater cooperative efforts to reduce emissions will help to reduce global costs for achieving a given level of mitigation, or will improve environmental effectiveness [13.3].
• Improving, and expanding the scope of, market mechanisms (such as emission trading, Joint Implementation and CDM) could reduce overall mitigation costs [13.3].
• 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 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 [13.3].
• Actions 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 [13.3].

Source & ©: IPCC (WGIII) IPCC Climate Change 2007: Mitigation,
Summary for Policymakers (2007) , p.19-21

9.2 How is climate change mitigation linked to sustainable development?

The source document for this Digest states:

F. SUSTAINABLE DEVELOPMENT AND CLIMATE CHANGE MITIGATION

27. Making development more sustainable by changing development paths can make a major contribution to climate change mitigation, but implementation may require resources to overcome multiple barriers. There is a growing understanding of the possibilities to choose and implement mitigation options in several sectors to realize synergies and avoid conflicts with other dimensions of sustainable development (high agreement, much evidence).

• Irrespective of the scale of mitigation measures, adaptation measures are necessary [1.2].
• Addressing climate change can be considered an integral element of sustainable development policies. National circumstances and the strengths of institutions determine how development policies impact GHG emissions. Changes in development paths emerge from the interactions of public and private decision processes involving government, business and civil society, many of which are not traditionally considered as climate policy. This process is most effective when actors participate equitably and decentralized decision making processes are coordinated [2.2, 3.3, 12.2].
• Climate change and other sustainable development policies are often but not always synergistic. There is growing evidence that decisions about macroeconomic policy, agricultural policy, multilateral development bank lending, insurance practices, electricity market reform, energy security and forest conservation, for example, which are often treated as being apart from climate policy, can significantly reduce emissions. On the other hand, decisions about improving rural access to modern energy sources for example may not have much influence on global GHG emissions [12.2].
• Climate change policies related to energy efficiency and renewable energy are often economically beneficial, improve energy security and reduce local pollutant emissions. Other energy supply mitigation options can be designed to also achieve sustainable development benefits such as avoided displacement of local populations, job creation, and health benefits [4.5,12.3].
• Reducing both loss of natural habitat and deforestation can have significant biodiversity, soil and water conservation benefits, and can be implemented in a socially and economically sustainable manner. Forestation and bioenergy plantations can lead to restoration of degraded land, manage water runoff, retain soil carbon and benefit rural economies, but could compete with land for food production and may be negative for biodiversity, if not properly designed [9.7, 12.3].
• There are also good possibilities for reinforcing sustainable development through mitigation actions in the waste management, transportation and buildings sectors [5.4, 6.6, 10.5, 12.3].
• Making development more sustainable can enhance both mitigative and adaptive capacity, and reduce emissions and vulnerability to climate change. Synergies between mitigation and adaptation can exist, for example properly designed biomass production, formation of protected areas, land management, energy use in buildings and forestry. In other situations, there may be trade-offs, such as increased GHG emissions due to increased consumption of energy related to adaptive responses [2.5, 3.5, 4.5, 6.9, 7.8, 8.5, 9.5, 11.9, 12.1].

G. GAPS IN KNOWLEDGE

28. There are still relevant gaps in currently available knowledge regarding some aspects of mitigation of climate change, especially in developing countries. Additional research addressing those gaps would further reduce uncertainties and thus facilitate decision-making related to mitigation of climate change [TS.14].

Source & ©: IPCC (WGIII) IPCC Climate Change 2007: Mitigation,
Summary for Policymakers (2007) , p.21-22