1141
15
National and Sub-national
Policies and Institutions
Coordinating Lead Authors:
Eswaran Somanathan (India), Thomas Sterner (Sweden), Taishi Sugiyama (Japan)
Lead Authors:
Donald Chimanikire (Zimbabwe), Navroz K. Dubash (India), Joseph Kow Essandoh-Yeddu (Ghana),
Solomone Fifita (Tonga / Fiji), Lawrence Goulder (USA), Adam Jaffe (USA / New Zealand), Xavier
Labandeira (Spain), Shunsuke Managi (Japan), Catherine Mitchell (UK), Juan Pablo Montero
(Chile), Fei Teng (China), Tomasz Zylicz (Poland)
Contributing Authors:
Arild Angelsen (Norway), Kazumasu Aoki (Japan), Kenji Asano (Japan), Michele Betsill (USA),
Rishikesh Ram Bhandary (Nepal / USA), Nils-Axel Braathen (France / Norway), Harriet Bulkeley (UK),
Dallas Burtraw (USA), Ann Carlson (USA), Luis Gomez-Echeverri (Austria / Colombia), Erik Haites
(Canada), Frank Jotzo (Germany / Australia), Milind Kandlikar (India / Canada), Osamu Kimura
(Japan), Gunnar Kohlin (Sweden), Hidenori Komatsu (Japan), Andrew Marquard (South Africa),
Michael Mehling (Germany / USA), Duane Muller (USA), Luis Mundaca (Chile / Sweden), Michael
Pahle (Germany), Matthew Paterson (Canada), Charles Roger (UK / Canada), Kristin Seyboth (USA),
Elisheba Spiller (USA), Christoph von Stechow (Germany), Paul Watkiss (UK), Harald Winkler
(South Africa), Bridget Woodman (UK)
Review Editors:
Martin Jänicke (Germany), Ronaldo Seroa da Motta (Brazil), Nadir Mohamed Awad Suliman
(Sudan)
Chapter Science Assistant:
Rishikesh Ram Bhandary (Nepal / USA)
11421142
National and Sub-national Policies and Institutions
15
Chapter 15
This chapter should be cited as:
Somanathan E., T. Sterner, T. Sugiyama, D. Chimanikire, N. K. Dubash, J. Essandoh-Yeddu, S. Fifita, L. Goulder, A. Jaffe, X.
Labandeira, S. Managi, C. Mitchell, J. P. Montero, F. Teng, and T. Zylicz, 2014: National and Sub-national Policies and Institu-
tions. In: Climate Change 2014: Mitigation of Climate Change. Contribution of Working Group III to the Fifth Assessment
Report of the Intergovernmental Panel on Climate Change [Edenhofer, O., R. Pichs-Madruga, Y. Sokona, E. Farahani, S.
Kadner, K. Seyboth, A. Adler, I. Baum, S. Brunner, P. Eickemeier, B. Kriemann, J. Savolainen, S. Schlömer, C. von Stechow, T.
Zwickel and J.C. Minx (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA.
11431143
National and Sub-national Policies and Institutions
15
Chapter 15
Contents
Executive Summary � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1147
15�1 Introduction � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1149
15�2 Institutions and governance � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1149
15�2�1 Why institutions and governance matter
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1149
15�2�2 Increase in government institutionalization of climate mitigation actions
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1150
15�2�3 Climate change mitigation through sectoral action
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1151
15�2�4 Co-Benefits as a driver of mitigation action
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1152
15�2�5 Sub-national climate action and interaction across levels of governance
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1152
15�2�6 Drivers of national and sub-national climate action
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1154
15�2�7 Summary of institutions and governance
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1154
15�3 Characteristics and classification of policy instruments and packages � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1155
15�3�1 Economic instruments
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1155
15�3�2 Regulatory approaches
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1155
15�3�3 Information policies
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1156
15�3�4 Government provision of public goods and services and procurement
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1156
15�3�5 Voluntary actions
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1156
15�4 Approaches and tools used to evaluate policies and institutions � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1156
15�4�1 Evaluation criteria
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1156
15�4�2 Approaches to evaluation
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1156
15�5 Assessment of the performance of policies and measures, including their policy design, in
developed and developing countries taking into account development level and capacity
1157
15�5�1 Overview of policy implementation
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1157
11441144
National and Sub-national Policies and Institutions
15
Chapter 15
15�5�2 Taxes, charges, and subsidy removal � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1159
15.5.2.1 Overview
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1159
15.5.2.2 Environmental effectiveness and efficiency
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1160
15.5.2.3 Distributional incidence and feasibility
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1161
15.5.2.4 Design issues: exemptions, revenue recycling, border adjustments
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1162
15�5�3 Emissions trading
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1163
15.5.3.1 Overview of emissions trading schemes
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1163
15.5.3.2 Has emissions trading worked?
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1163
15.5.3.3 Sector coverage and scope of the cap
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1165
15.5.3.4 Setting the level of the cap
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1165
15.5.3.5 Allocations
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1166
15.5.3.6 Linking of schemes
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1166
15.5.3.7 Other design issues: banking, offsets, leakage, price volatility and market power
. . . . . . . . . . . . . . . . . . 1166
15.5.3.8 Choice between taxes and emissions trading
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1167
15�5�4 Regulatory approaches
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1168
15.5.4.1 Overview of the implementation of regulatory approaches
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1168
15.5.4.2 Environmental effectiveness of energy efficiency regulations
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1168
15.5.4.3 Cost effectiveness of energy efficiency regulations
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1169
15�5�5 Information measures
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1170
15�5�6 Government provision of public goods or services, and procurement
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1170
15�5�7 Voluntary actions
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1171
15.5.7.1 Government-sponsored voluntary programmes for firms
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1171
15.5.7.2 Voluntary agreements as a major complement to mandatory regulations
. . . . . . . . . . . . . . . . . . . . . . . . . . 1172
15.5.7.3 Voluntary agreements as a policy instrument in governmental mitigation plan
. . . . . . . . . . . . . . . . . . . . 1172
15.5.7.4 Synthesis
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1173
15�5�8 Summary
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1174
15�6 Technology policy and R&D policy � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1174
15�6�1 Overview of the role of technology policy and R&D policy
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1174
15�6�2 Experience with technology policy
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1175
15.6.2.1 Intellectual property
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1175
15.6.2.2 Public funding of research and development
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1175
15.6.2.3 Policies to foster or accelerate deployment and diffusion of new technologies
. . . . . . . . . . . . . . . . . . . . . 1176
15�6�3 The impact of environmental policy instruments on technological change
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1177
15�6�4 The social context of technological transitions and its interaction with policy
� � � � � � � � � � � � � � � � � � � � � � � � � � 1178
15�6�5 Building programme evaluation into government technology programmes
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1178
15�6�6 Summary of technology policy and R&D policy
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1178
11451145
National and Sub-national Policies and Institutions
15
Chapter 15
15�7 Synergies and tradeoffs among policies � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1179
15�7�1 Relationship between policies with different objectives
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1179
15�7�2 Interactions between climate policies conducted at different jurisdictional levels
� � � � � � � � � � � � � � � � � � � � � � 1180
15.7.2.1 Beneficial interactions
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1180
15.7.2.2 Problematic interactions
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1180
15�7�3 Interactions between policies conducted at the same jurisdictional level
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1181
15.7.3.1 Beneficial interactions
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1181
15.7.3.2 Problematic interactions
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1181
15�8 National, state and local linkages � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1182
15�8�1 Overview of linkages across jurisdictions
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1182
15�8�2 Collective action problem of sub-national actions
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1182
15�8�3 Benefits of sub-national actions
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1183
15�8�4 Summary
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1183
15�9 The role of stakeholders including NGOs � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1183
15�9�1 Advocacy and accountability
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1184
15�9�2 Policy design and implementation
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1184
15�9�3 Summary of the role of stakeholders
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1184
15�10 Capacity building � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1184
15�10�1 Capacity to analyze the implications of climate change
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1185
15�10�2 Capacity to design, implement and evaluate policies
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1185
15�10�3 Capacity to take advantage of external funding and flexible mechanisms
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1185
15�10�4 Capacity building modalities
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1185
15�11 Links to adaptation � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1186
11461146
National and Sub-national Policies and Institutions
15
Chapter 15
15�12 Investment and finance � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1187
15�12�1 National and sub-national institutions and policies
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1187
15�12�2 Policy change direction for finance and investments in developing countries
� � � � � � � � � � � � � � � � � � � � � � � � � � � 1188
15�13 Gaps in knowledge and data � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1189
15�14 Frequently Asked Questions � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1189
References � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1191
11471147
National and Sub-national Policies and Institutions
15
Chapter 15
Executive Summary
Since the Intergovernmental Panel on Climate Change (IPCC) Fourth
Assessment Report (AR4), there has been a marked increase in national
policies and legislation on climate change, however, these policies,
taken together, have not yet achieved a substantial deviation in emis-
sions from the past trend. Many baseline scenarios (those without
additional policies to reduce emissions) show GHG concentrations that
exceed 1000 ppm CO
2
eq by 2100, which is far from a concentration
with a likely probability of maintaining temperature increases below
2 °C this century. Mitigation scenarios suggest that a wide range of
environmentally effective policies could be enacted that would be
consistent with such goals. This chapter assesses national and sub-
national policies and institutions to mitigate climate change in this
context. It assesses the strengths and weaknesses of various mitiga-
tion policy instruments and policy packages and how they may interact
either positively or negatively. Sector-specific policies are assessed in
greater detail in the individual sector chapters (7 12). Major findings
are summarized as follows. [Section 15.1]
The design of institutions affects the choice and feasibility of
policy options as well as the sustainable financing of climate
change mitigation measures (limited evidence, medium agreement).
By shaping appropriate incentives, creating space for
new stakeholders
in decision making, and by transforming the understanding of policy
choices, institutions designed to encourage participation by represen-
tatives of new industries and technologies can facilitate transitions to
low-emission pathways, while institutions inherited unchanged from
the past can perpetuate lock-in to high-carbon development paths.
[15.2, 15.6]
There has been a considerable increase in national and sub-
national mitigation plans and strategies since AR4 (medium evi-
dence, high agreement). These plans and strategies are in their early
stages of development and implementation in many countries, mak-
ing it difficult to assess whether and how they will result in appropri-
ate institutional and policy change, and thus, their impact on future
emissions. However, to date these policies, taken together, have not
yet achieved a substantial deviation in emissions from the past trend.
Theories of institutional change suggest they might play a role in shap-
ing incentives, political contexts, and policy paradigms in a way that
encourages emissions reductions in the future. [15.1, 15.2]
Sector-specific policies have been more widely used than
economy-wide, market-based policies (medium evidence, high
agreement). Although economic theory suggests that economy-wide
market-based policies for the singular objective of mitigation would
generally be more cost-effective than sector-specific policies, political
economy considerations often make economy-wide policies harder
to design and implement than sector-specific policies. Sector-specific
policies may also be needed to overcome sectoral market failures that
price policies do not address. For example, building codes can require
publicly funded energy efficient investments where private investments
would otherwise not exist. Sector approaches also allow for packages
of complementary policies, as, for example, in transport, where pricing
policies that raise the cost of carbon-intensive forms of private trans-
port are more effective when backed by public investment in viable
alternatives. [15.1, 15.2, 15.5, 15.8, 15.9]
Direct regulatory approaches and information measures are
widely used, and are often environmentally effective, though
debate remains on the extent of their environmental impacts
and cost effectiveness (medium evidence, medium agreement).
Examples of regulatory approaches include energy efficiency standards;
examples of information programmes include labelling programmes
that can help consumers make better-informed decisions. While such
approaches often work at a net social benefit, the scientific literature
is divided on whether such policies are implemented with negative pri-
vate costs to firms and individuals. Since AR4 there has been continued
investigation into ‘rebound’ effects that arise when higher efficiency
leads to lower energy prices and greater consumption. There is general
agreement that such rebound effects exist, but there is low agreement
in the literature on the magnitude. [3.9.5, 8.3, 9.7.2.4, 15.5.4, 15.5.5]
Fuel taxes are an example of a sector-specific policy and
are often originally put in place for objectives such as rev-
enue they are not necessarily designed for the purpose of
climate change mitigation (high confidence). In Europe, where fuel
taxes are highest, they have contributed to reductions in carbon emis-
sions from the transport sector of roughly 50 % for this group of coun-
tries. The short-run response to higher fuel prices is often small, but
long-run price elasticities are quite high, or roughly – 0.6 to – 0.8. This
means that in the long run, 10 % higher fuel prices correlate with 7 %
reduction in fuel use and emissions. In the transport sector, taxes have
the advantage of being progressive or neutral in most countries and
strongly progressive in low-income countries. [15.5.2]
Reduction of subsidies to fossil energy can result in significant
emission reductions at negative social cost (high confidence).
[15.5.2] Although political economy barriers are substantial, many
countries have reformed their tax and budget systems to reduce fuel
subsidies that actually accrue to the relatively wealthy, and utilized
lump-sum cash transfers or other mechanisms that are more targeted
to the poor. [15.5.3]
Cap and trade systems for greenhouse gases are being estab-
lished in a growing number of countries and regions (limited evi-
dence, medium agreement). Their environmental effect has so far been
limited because caps have either been loose or have not yet been bind-
ing. There appears to have been a tradeoff between the political feasi-
bility and environmental effectiveness of these programmes, as well as
between political feasibility and distributional equity in the allocation
of permits. Greater environmental effectiveness through a tighter cap
may be combined with a price ceiling that makes for political feasibil-
ity. [15.5.3]
11481148
National and Sub-national Policies and Institutions
15
Chapter 15
Carbon taxes have been implemented in some countries
and alongside technology and other policies have contrib-
uted to decoupling of emissions from gross domestic product
(GDP) (high confidence). Differentiation by sector, which is quite com-
mon, reduces cost-effectiveness that arises from the changes in pro-
duction methods, consumption patterns, lifestyle shifts, and technology
development, but it may increase political feasibility, or be preferred
for reasons of competitiveness or distributional equity. In some coun-
tries, high carbon and fuel taxes have been made politically feasible
by refunding revenues or by lowering other taxes in an environmental
fiscal reform. [15.2, 15.5.2, 15.5.3]
Adding a mitigation policy to another may not necessarily
enhance mitigation (high confidence). For instance, if a cap and
trade system has a sufficiently stringent cap, then other policies such
as renewable subsidies have no further impact on total emissions
(although they may affect costs and possibly the viability of more
stringent future targets). If the cap is loose relative to other policies,
it becomes ineffective. This is an example of a negative interaction
between policy instruments. Since other policies cannot be ‘added on’
to a cap-and-trade system, if it is to meet any particular target, a suf-
ficiently low cap is necessary. A carbon tax, on the other hand, can
have an additive environmental effect to policies such as subsidies to
renewables. [15.7]
There is a distinct role for technology policy as a complement to
other mitigation policies (high confidence). Properly implemented
technology policies reduce the cost of achieving a given environmental
target. Technology policy will be most effective when technology-push
policies (e. g., publicly funded research and development (R&D)) and
demand-pull policies (e. g., governmental procurement programmes or
performance regulations) are used in a complementary fashion (robust
evidence, high agreement). [15.6] While technology-push and demand-
pull policies are necessary, they are unlikely to be sufficient without
complementary framework conditions. Managing social challenges of
technology policy change may require innovations in policy and insti-
tutional design, including building integrated policies that make com-
plementary use of market incentives, authority and norms (medium
evidence, medium agreement). [15.6.5].
Since AR4, a large number of countries and sub-national jurisdictions
have introduced support policies for renewable energy such as feed-
in tariffs (FIT) and renewable portfolio standards (RPS). These have
promoted substantial diffusion and innovation of new energy tech-
nologies such as wind turbines and photovoltaic (PV) panels, but have
raised questions about their economic efficiency, and introduced chal-
lenges for grid and market integration (7.12, 15.6).
Worldwide investment in research in support of climate change
mitigation is small relative to overall public research spending
(medium evidence, medium agreement). The effectiveness of research
support will be greatest if it is increased slowly and steadily rather
than dramatically or erratically. It is important that data collection for
programme evaluation be built into technology policy programmes,
because there is very little empirical evidence on the relative effective-
ness of different mechanisms for supporting the creation and diffusion
of new technologies. [15.6.2, 15.6.5]
Public finance mechanisms reduce risks that deter climate
investments (high confidence). The future value of carbon permits
created by an economic instrument such as cap and trade may, for
example, not be accepted as sufficiently secure by banks. Government
public finance mechanisms to reduce risks include debt and equity
mechanisms, carbon finance, and innovative grants. [15.12]
Government planning and provision can facilitate shifts to less
energy and GHG-intensive infrastructure and lifestyles (high con-
fidence). This applies particularly when there are indivisibilities in the
provision of infrastructure as in the energy sector (e. g., for electric-
ity transmission and distribution or district heating networks); in the
transport sector (e. g., for non-motorized or public transport), and in
urban planning. The provision of adequate infrastructure is important
for behavioural change (medium evidence, high agreement) [15.5.6].
Successful voluntary agreements on mitigation between gov-
ernments and industries are characterized by a strong institu-
tional framework with capable industrial associations (medium
evidence, medium agreement). The strengths of voluntary agreements
are speed and flexibility in phasing measures, and facilitation of barrier
removal activities for energy efficiency and low emission technologies.
Regulatory threats, even though the threats are not always explicit, are
also an important factor for firms to be motivated. There are few envi-
ronmental impacts without a proper institutional framework (medium
evidence, medium agreement). [15.5.5]
Synergies and tradeoffs between mitigation and adaptation
policies may exist in the land-use sector (medium evidence,
medium agreement). For other sectors such as industry and power, the
connections are not obvious. [15.11]
The ability to undertake policy action requires information,
knowledge, tools, and skills, and therefore capacity building
is central both for mitigation and to the sustainable develop-
ment agenda (medium evidence, high agreement). The needs for
capacity building include capacity to analyze the implications of cli-
mate change; capacity to formulate, implement, and evaluate policies;
capacity to take advantage of external funding and flexible mecha-
nisms; and capacity to make informed choices of the various capacity
building modalities. [15.10]
Mainstreaming climate change into development planning has
helped yield financing for various climate policy initiatives
(medium evidence, medium agreement). Among developing and some
least developed countries, an emerging trend is the establishment of
national funding entities dedicated to climate change. While diverse in
design and objectives, they tap and blend international and national
11491149
National and Sub-national Policies and Institutions
15
Chapter 15
sources of finance, thereby helping to improve policy coherence and
address aid fragmentation. Financing adaptation and mitigation in
developing countries is crucial from the viewpoint of welfare and
equity (medium evidence, high agreement). [15.12]
Gaps in knowledge: The fact that various jurisdictions produce vari-
ous policy instruments influenced by co-benefits and political economy
and that they interact in complex manners makes it difficult to evalu-
ate the economic and environmental effectiveness of individual policy
instrument as well as policy package of a nation. Most importantly, it
is not known with certainty how much an emission reduction target
may cost to the economy in the real world in comparison to the ‘first
best’ optimal solution estimated by economic models in other chapters
in this report. Costs may be under-stated or over-stated.
15.1 Introduction
This chapter assesses national and sub-national mitigation policies
and their institutional settings. There has been a marked increase
in national policies and legislation on climate change since the AR4
with a diversity of approaches and a multiplicity of objectives (see
Section 15.2). However, Figure 1.9 of Chapter 1 suggests that these
policies, taken together, have not yet achieved a substantial devia-
tion in emissions from the past trend. Limiting concentrations to lev-
els that would be consistent with a likely probability of maintaining
temperature increases below 2 °C this century (scenarios generally
in the range of 430 480 ppmv CO
2
eq) would require that emissions
break from these trends and be decreased substantially. In contrast,
concentrations exceed 1000 ppmv CO
2
eq by 2100 in many baseline
scenarios (that is, scenarios without additional efforts to reduce emis-
sions).
The literature on mitigation scenarios provides a wide range of CO
2
shadow price levels consistent with these goals, with estimates of
less than USD 50 / tCO
2
in 2020 in many studies and exceeding USD
100 / tCO
2
in others, assuming a globally-efficient and immediate effort
to reduce emissions. These shadow prices exhibit a strongly increasing
trend thereafter. Policies and instruments are assessed in this light.
Section 15.2 assesses the role of institutions and governance. Section
15.3 lays out the classification of policy instruments and packages,
while 15.4 discusses the methodologies used to evaluate policies and
institutions. The performance of various policy instruments and mea-
sures are individually assessed in Sections 15.5 and 15.6.
The two main types of economic instruments are price instruments,
that is, taxes and subsidies (including removal of subsidies on fossil
fuels), and quantity instruments emission-trading systems. These are
assessed in Sections 15.5.2 and 15.5.3 respectively. An important fea-
ture of both these instruments is that they can be applied at a very
broad, economy-wide scale. This is in contrast to the regulation and
information policies and voluntary agreements which are usually sec-
tor-specific. These policies are assessed in Sections 15.5.4, 15.5.5, and
15.5.7. Government provision and planning is discussed in 15.5.6. The
next section, 15.6, provides a focused discussion on technology policy
including research and development and the deployment and diffusion
of clean energy technologies. In addition to technology policy, longer-
term effects of the policies assessed in Section 15.5 are addressed in
Section 15.6.
Both these sections, 15.5 and 15.6, bring together lessons from poli-
cies and policy packages used at the sectoral level from Chapters 7
(Energy), 8 (Transport), 9 (Buildings), 10 (Industry), 11 (Agriculture, For-
estry and Land Use) and Chapter 12 (Human Settlements, Infrastruc-
ture, and Spatial Planning).
The following sections further assess the interaction among policy
instruments, as they are not usually used in isolation, and the impacts
of particular instruments depend on the entire package of policies and
the institutional context. Section 15.7 reviews interactions, both ben-
eficial and harmful, that may not have been planned. The presence of
such interactions is in part a consequence of the multi-jurisdictional
nature of climate governance as well as the use of multiple policy
instruments within a jurisdiction. Section 15.8 examines the deliberate
linkage of policies across national and sub-national jurisdictions.
Other key issues are further discussed in dedicated sections. They are:
the role of stakeholders including non-governmental organizations
(NGOs) (15.9), capacity building (15.10), links between adaptation and
mitigation policies (15.11), and investment and finance (15.12). Gaps
in knowledge are collected in 15.13.
15.2 Institutions and
governance
15�2�1 Why institutions and governance matter
Institutions and processes of governance (see Annex 1: Glossary for
definitions) shape and constrain policy-making and policy implementa-
tion in multiple ways relevant for a shift to a low carbon economy. First,
institutions understood as formal rules and informal norms set the
incentive structure for economic decision making (North, 1991), influ-
encing, for example, decisions about transportation investments, and
behavioural decisions relevant to efficient energy use. Second, insti-
tutions shape the political context for decision making, empowering
some interests and reducing the influence of others (Steinmo etal.,
1992; Hall, 1993). Harrison (2012) illustrates this with respect to envi-
ronmental tax reform in Canada. Third, institutions can also shape pat-
terns of thinking and understanding of policy choices through both
11501150
National and Sub-national Policies and Institutions
15
Chapter 15
normative and cognitive effects (Powell and DiMaggio, 1991). These
effects can result in dominant policy paradigms ideas, policy goals,
and instruments that favour some actions and exclude others from
consideration (Radaelli and Schmidt, 2004). For example, existing
energy systems are likely to remain in place without appropriate insti-
tutional change (Hughes, 1987) and changes in discourse, which would
perpetuate existing technologies and policies and lock out new ones
(Unruh, 2000; Walker, 2000). More generally, a mismatch between
social-ecological context and institutional arrangements can lead to
a lack of fit and exert a drag on policy and technological response
(Young, 2002).
15�2�2 Increase in government
institutionalization of climate mitigation
actions
There has been a definite increase since AR4 in formal governmental
efforts to promote climate change mitigation. These efforts are diverse
in their approach, scale, and emphasis, and take the form of legisla-
tion, strategies, policies, and coordination mechanisms. Many of these
are relatively recent, and often in the design or early implementa-
tion stage. As a result, it is premature to evaluate their effectiveness
and there is insufficient literature as yet that attempts to do so. Since
global greenhouse gas emissions have continued to increase in recent
years (Chapter 5 and Section 15.1), it will be important to closely
monitor this trend to evaluate if policies and institutions created are
sufficiently strong and effective to lead to the reductions required to
stabilize global temperature, for instance, at the 2 °C target. This sec-
tion reviews national centralized governmental actions, while 15.2.3
discusses sectoral actions and 15.2.5 examines the roles of other
stakeholders including non-state actors.
A review of climate legislation and strategy in almost all United Nation
(UN) Member States shows that there has been a substantial increase
in these categories between 2007 and 2012 (Dubash etal., 2013) (See
Figure 15.1). Dubash et al. (2013) define climate legislation as mitiga-
tion-focused legislation that goes beyond sectoral action alone, while
climate strategy is defined as a non-legislative plan or framework
aimed at mitigation that encompasses more than a small number of
sectors, and that includes a coordinating body charged with implemen-
tation. International pledges are not included. By these definitions,
39 % of countries, accounting for 73 % of population and 67 % of
greenhouse gas emissions, were covered by climate law or strategies
in 2012, an increase from 23 % of countries, 36 % of population, and
45 % of emissions in 2007. There are also strong regional differences,
Figure 15�1 | National climate legislation and strategies in 2007 and 2012.* Reproduced from Dubash et al., (2013). In this figure, climate legislation is defined as mitigation-
focused legislation that goes beyond sectoral action alone. Climate strategy is defined as a non-legislative plan or framework aimed at mitigation that encompasses more than a
small number of sectors, and that includes a coordinating body charged with implementation. International pledges are not included, nor are sub-national plans and strategies. The
panel shows proportion of GHG emissions covered.
*
Number of countries and GHG emissions covered (NAI: Non AnnexI countries (developing countries), AI: AnnexI countries (developed countries), LAM: Latin America, MAF:
Middle East and Africa, ASIA: Asia, EIT: Economies in Transition, OECD-1990: OECD of 1990)
4
3
2
4
3
2
4
3
2
1 11
3 (16%)
9 (46%)
0 (1%)
15 (50%)
14 (46%)
1 (4%)
0 (0%)
12 (61%)
0 (1%)
8 (28%)
6 (19%)
1 (4%)
7 (38%)0 (0%) 7 (38%)14 (49%)
11 (23%)
15 (30%)
1 (3%)
22 (44%)
15 (30%)
25 (52%)
1 (3%)
7 (15%)
0 (3%)
7 (53%)
0 (0%)
1 (28%)
3 (70%)
0 (0%)
1 (13%)
1 (23%)
0 (0%)
1 (8%)
5 (76%)
1 (16%)
1 (19%)
4 (65%)
1 (16%)
13 (69%)
6 (30%)
0 (1%)
6 (34%)
1 (3%)
0 (1%)
0 (0%)
4 (76%)
0 (3%)
3 (50%)
1 (26%)
0 (3%)
0 (0%)
8 (55%)
0 (0%)
6 (44%)0 (2%) 2 (63%) 0 (0%) 0 (0%) 0 (0%) 12 (62%) 1 (20%) 1 (20%) 6 (44%)
2007 2012
2007 20122007 20122007 20122007 20122007 20122007 20122007 2012
0
00
5
10
15
20
4: Analysis Incomplete
3: No Climate Legislation
or Strategy/Coordinating Body
2: Climate Strategy and
Coordinating Body
1: Climate Legislation
5
10
15
20
25
30
20
40
60
80
100
GHG Emissions Covered [%]
GHG Emissions [GtCO
2
eq]
GHG Emissions [GtCO
2
eq]
OECD-1990EITASIAMAFAIGLOBAL NAI LAM
11511151
National and Sub-national Policies and Institutions
15
Chapter 15
with Asia and Latin America recording the fastest rate of increase.
Taken as a block, in 2012, 49 % of current emissions from the develop-
ing world regions of Asia, Africa, and Latin America were under climate
law and 77 % of emissions were under either law or strategy, while for
the developed world regions of Organisation for Economic Co-opera-
tion and Development 1990 Countries OECD-1990 and Economies in
Transition (EIT) the equivalent numbers are 38 % and 56 %. Finally,
while the number of countries with climate legislation increased mar-
ginally from 18 % to 22 % over this period, the number of countries
with climate strategies increased from 5 % to 18 %, suggesting many
more countries are adopting a strategy-led approach. (For regional
aggregations see AnnexII.2)
Climate legislation and strategies follow a wide diversity of approaches
to operationalization and implementation. The imposition of carbon
prices is one approach widely discussed in the literature (See Section
15.5) but less frequently implemented in practice. Examples include
the European Union’s Emissions Trading Scheme (ETS) (See Section
14.4.2) or setting of carbon taxes (see Section 15.5.2). One study of
the 19 highest emitting countries finds that six have put in place some
form of carbon price, while 14 have put in place both regulation and
other economic incentives for greenhouse gas mitigation (Lachapelle
and Paterson, 2013). Common explanations for this variation are in
terms of the novelty of emissions trading (although emissions trad-
ing has been in practice implemented much more widely than carbon
taxation), the legitimacy problems faced by emissions trading (Pater-
son, 2010), or political contestation over increased taxation (see for
example Laurent (2010), on the French case, Jotzo (2012) for Austra-
lia or Jagers and Hammar (2009), for evidence that popular support
for carbon taxes in Sweden depend on how it is framed in popular
debate), and lobbying by fossil-fuel or energy-intense industry lobbies
(Bailey etal., 2012; Sarasini, 2013).
More generally speaking, policy instruments have often been sec-
tor-specific. Economy-wide instruments, even when implemented,
have had exemptions for some sectors, most commonly those most
exposed to international trade. The exemptions have arisen because
national policies have been developed under the strong influence of
sectoral policy networks (Compston, 2009) and many stakeholders
therein including firms and NGOs influence the policy to promote
their interests (Helm, 2010). This phenomenon undermines the overall
cost-effectiveness of climate policy (Anthoff and Hahn, 2010) although
it may help further other objectives such as equity and energy security
(see Section 15.7).
Another approach follows a model of national-level target backed by
explicit creation of institutions to manage performance to that target.
In China, for example, a ‘National Leading Group on Climate Change’
in June 2007, housed in the apex National Development and Reform
Commission and chaired by the premier (Tsang and Kolk, 2010a) coor-
dinates the achievement of targets set in the subsequent National Cli-
mate Change Programme. The Chinese examples illustrate a broader
point emerging from a cross-country study that implementation of cli-
mate legislation and plans are, in at least some cases, drawing power-
ful finance and planning departments into engagement with climate
change (Held etal., 2013).
Another approach is to establish dedicated new climate change bodies
that are substantially independent of the executive and that seek to
coordinate existing government agencies through a variety of levers.
The leading example of this approach is in the UK, where a dedicated
Climate Change Committee analyzes departmental plans and monitors
compliance with five-year carbon budgets (U. K., 2008; Stallworthy,
2009). Instead of direct executive action, as in the Chinese case, this
approach relies on analysis, public reporting, and advice to govern-
ment. Following the UK example, Australia has established an inde-
pendent Climate Change Authority to advise the government on emis-
sion targets and review effectiveness of its Carbon Pricing Mechanism
(Keenan etal., 2012).
15�2�3 Climate change mitigation through
sectoral action
While there is no systematic study of implementation of climate plans,
case study evidence suggests that these plans are frequently opera-
tionalized through sectoral actions. There are a variety of ways through
which national plans interface with sectoral approaches to mainstream
climate change. In some cases, there is a formal allocation of emis-
sions across sectors. For example, in Germany, mitigation efforts were
broken down by sectors for the period between 2008 and 2012, with
the national Allocation Act 2012’ specifying emissions budgets for
sectors participating in the EU ETS as well as the remaining sectors
(Dienes, 2007; Frenz, 2007). More typically, climate mainstreaming
occurs through a sector by sector process led by relevant government
departments, as in France (Mathy, 2007), India (Dubash, 2011; Atter-
idge etal., 2012), and Brazil (da Motta, 2011a; La Rovere etal., 2011).
In some cases, the sectoral process involves a role for stakehold-
ers in engagement with government departments. In France, sectoral
approaches are devised at the central level through negotiation and
consultation between multiple ministries, experts, business, and NGOs.
According to at least one analysis, this approach risks a dilution of
measures through the influence of lobbies that may lose from miti-
gation actions (Mathy, 2007). In Brazil, sector specific approaches are
developed by sectoral ministries complemented by a multi-stakeholder
forum to solicit views and forge consensus (Hochstetler and Viola,
2012; Viola and Franchini, 2012; Held etal., 2013a).
In some cases, climate change considerations bring about changes in
long-standing patterns of sector governance. In South Africa, for exam-
ple, the Copenhagen pledge led to a process of reconsidering South
Africa’s integrated resource plan for electricity to include carbon reduc-
tion as one among multiple criteria (Republic of South Africa, 2011). In
India, the establishment of national sectoral ‘missions’ had the effect
of creating new institutional mechanisms in the case of the National
11521152
National and Sub-national Policies and Institutions
15
Chapter 15
Solar Mission, or of raising the profile and importance of particular
ministries or departments as in the example of the Bureau of Energy
Efficiency (Dubash, 2011). In other cases, climate mainstreaming was
facilitated by prior political shifts in governance of a sector. Brazil’s
climate approach particularly emphasizes the forest sector (da Motta,
2011b; La Rovere, 2011). Progress on the Brazilian plan was enabled
by prior domestic political consensus around a far-reaching Forest
Code (Hochstetler and Viola, 2012).
15�2�4 Co-Benefits as a driver of mitigation
action
The importance of co-benefits both development gains from climate
policy and climate gains from development policy emerge as a par-
ticularly strong rationale and basis for sectoral action. As Table 6.7
shows, an inventory of sectoral action on climate change (drawn from
Chapter 7 12) is linked to a wide range of co-benefits and adverse
side-effects, encompassing economic, social, and environmental
effects. Table 15.1 provides a roadmap for the co-benefits and adverse
side-effects from sectoral mitigation measures most prominently dis-
cussed across Chapters 7 to 12. They are listed in three columns: eco-
nomic, social, and environmental. Each column shows the range of
effects on objectives or concerns beyond mitigation discussed in Chap-
ters 7.12 for that category. For example, energy security is categorized
in the column of ‘economic’ and addressed in Section 7.9, 8.7, 9.7,
10.8, 11.13.6, and 12.8.
This perception is reinforced by comparative case studies and specific
country studies. A comparative study finds that co-benefits is an impor-
tant driving force for mitigation policies across large, rapidly industrial-
izing countries (Bailey and Compston, 2012a), a finding that is sup-
ported by country level studies. India’s National Action Plan on Climate
Change (NAPCC), for example, is explicitly oriented to pursuit of co-
benefits, with mitigation understood to be the secondary benefit emerg-
ing from development policies. The linkage between energy security and
mitigation is particularly important to winning broader political support
for action on mitigation (Dubash, 2011; Fisher, 2012). A similar trend is
apparent in China (Oberheitmann, 2008), where provincial implementa-
tion of targets is enabled by linking action to local motivations, notably
for energy efficiency (Teng and Gu, 2007; Richerzhagen and Scholz,
2008a; Qi etal., 2008; Tsang and Kolk, 2010b; Kostka and Hobbs, 2012).
Tsang and Kolk (2010a) go so far as to say that Chinese leaders essen-
tially equate climate policy with energy conservation. Kostka and Hobbs
(2012) identify three ways in which this alignment of global and local
objectives happens: interest bundling, through which objectives of
political institutions are tied to local economic interests; policy bun-
dling, to link climate change with issues of local political concern; and
framing in ways that play to local constituencies.
The concept of ‘nationally appropriate mitigation actions’ (NAMAs)
has a conceptual connection to the idea of co-benefits. Nationally
appropriate mitigation actions are intended to be mitigation actions
that are ‘nationally appropriate’ in the sense that they contribute to
development outcomes. Therefore, NAMAs provide a possible mech-
anism for connection of national policies and projects to the global
climate regime, although the mechanisms through which this will be
accomplished are yet to be fully articulated (see Box 15.1). Another,
related mechanism is the explicit formulation in many countries of ‘low
emissions development strategies’ that seek to integrate climate and
development strategies (Clapp etal., 2010).
15�2�5 Sub-national climate action and
interaction across levels of governance
In many countries, the formulation and implementation of national
mitigation approaches are further delegated to sub-national levels,
with differing levels of central coordination, depending on national
contexts and institutions. Comparative analysis of cross-country cli-
mate action is insufficiently developed to allow generalization and
explanation of different approaches to climate policy.
Table 15�1 | Roadmap for the assessment of potential co-benefits and adverse side-effects from mitigation measures for additional objectives in the sector chapters (7 12). For
overview purposes, only those objectives and concerns are shown that are assessed in at least two sectors. For a broader synthesis of the literature assessed in this report, see Sec-
tion 6.6.
Effect of mitigation measures on additional objectives or concerns
Economic Social Environmental
Energy security (7.9, 8.7, 9.7, 10.8, 11.13.6, 12.8)
Employment impact (7.9, 8.7, 9.7, 10.8, 11.7, 11.13.6)
New business opportunity / economic activity (7.9, 11.7,
11.13.6)
Productivity / competitiveness (8.7, 9.7, 10.9, 11.13.6)
Technological spillover / innovation (7.9, 8.7, 10.8, 11.3,
11.13.6)
Health impact (e. g., via air quality and noise) (5.7, 7.9, 8.7, 9.7,
10.8, 11.7, 11.13.6, 12.8)
Energy / mobility access (7.9, 8.7, 9.7, 11.13.6, 12.4)
(Fuel) Poverty alleviation (7.9, 8.7, 9.7, 11.7, 11.13.6)
Food security (7.9, 11.7, 11.13.6 / 7)
Impact on local conflicts (7.9, 10.8, 11.7, 11.13.6)
Safety / disaster resilience (7.9, 8.7, 9.7, 10.8, 12.8)
Gender impact (7.9, 9.7, 11.7, 11.13.6)
Ecosystem impact (e. g., via air pollution) (7.9, 8.7, 9.7, 10.8,
11.7, 11.13.6 / 7, 12.8)
Land-use competition (7.9, 8.7, 10.8, 11.7, 11.13.6 / 7)
Water use / quality (7.9, 9.7, 10.8, 11.7, 11.13.6)
Biodiversity conservation (7.9, 9.7, 11.7, 11.13.6)
Urban heat island effect (9.7, 12.8)
Resource / material use impact (7.9, 8.7, 9.7, 10.8, 12.8)
Box 15�1 | Nationally Appropriate Mitigation Actions (NAMAs)
The Bali Action Plan (BAP), (1 / CP.13; UNFCCC, 2007) states that
developing countries are called on to take NAMAs supported and
enabled by technology and finance. For example, NAMAs could be
articulated in terms of national emissions intensity or trajectories,
sectoral emissions, or specific actions at sectoral or sub-sectoral
levels. As of June 2013, 57 parties had submitted NAMAs to
the United Nations Framework Convention on Climate Change
(UNFCCC) secretariat.
The design of mechanisms to link NAMAs to global support lead
to some complex tradeoffs. For example, large scale sectoral
NAMAs provide the least scope for leakage (decreased emissions
in one sector is undermined by increased emissions in another
part of the economy) and the lowest measurement costs (Jung
etal., 2010). However, designing NAMAs around transaction
costs might run counter to designing them for targeted focus
on national development priorities. Exploring the extent of this
tradeoff and managing it carefully will be an important part of
implementing NAMAs.
Much of the writing on NAMAs is focused on the challenges of
linking national actions to the international climate framework.
Conceptual challenges involved in linking NAMAs to the UNFCCC
process include the legal nature of NAMAs (van Asselt etal.,
2010), financing of NAMAs, and associated concerns of avoid-
ing double counting (Cheng, 2010; Jung etal., 2010; van Asselt
etal., 2010; Sovacool, 2011a) and measurement, reporting, and
verification of NAMAs (Jung etal., 2010; Sterk, 2010; van Asselt
etal., 2010).
While NAMAs pertain particularly to the developing world, co-
benefits based arguments are also used in developed countries. In
the United States, Gore and Robinson (2009) argue that expansion
of municipal scale action is articulated in the form of co-benefits,
and is driven by network-based communication and citizen
initiative. In Germany, several benefits in addition to climate
change have been attributed to the policy for energy transition or
‘Energiewende,’ including security of energy supply and industrial
policy (Lehmann and Gawel, 2013).
11531153
National and Sub-national Policies and Institutions
15
Chapter 15
In some federal systems, national target setting by the central govern-
ment is followed by further allocation of targets to provinces, often
through nationally specific formulae or processes. For example, in
the case of Belgium, Kyoto targets were re-allocated to the regional
level through a process of negotiation, followed by the preparation of
regional climate plans to implement regional targets (Happaerts etal.,
2011). Ultimately, since agreement could not be reached on regional
targets to meet the national Kyoto targets, the approach relied on off-
sets were explicitly internalized as part of the national approach to
meeting Kyoto targets. In China, national action is defined and moni-
tored by the central government in consultation with provinces, and
implementation is delegated to provinces. Targets set in the subse-
quent National Climate Change Programme as part of the 11th Five
Year Plan were implemented through a mechanism of provincial com-
muniqués to track compliance with the target, and provincial leading
groups to implement the target (Teng and Gu, 2007; Qi etal., 2008;
Tsang and Kolk, 2010b; Held etal., 2011a; Kostka and Hobbs, 2012). A
range of policy mechanisms were used to implement this target, such
as differential energy prices based on energy efficiency performance,
promotion of energy audits, and financial incentives for performance
(Held etal., 2011b). Subsequent revised targets have been set for the
12th Five Year Plan.
Other countries represent intermediate cases between central control
and decentralization. India has developed a mix of national policies
through its National Action Plan on Climate Change, responsibility
for which rests with central government ministries, and State Action
Plans on Climate Change to be developed and implemented by states
(Dubash etal., 2013). While they are predominantly focused on imple-
menting national level directives, there is also sufficient flexibility to
pursue state-level concerns, and some states have created new mecha-
nisms, such as the establishment of a Climate Change department in
the state of Gujarat, and the establishment of a green fund in Kerala
(Atteridge etal., 2012). In France, the EU objectives were adopted as
national goals, and through national legislation, all urban agglomera-
tions over 50,000 are required to prepare ‘Climate and Energy Territo-
rial Plans’ to meet these goals and, additionally, to address adaptation
needs (Assemblée Nationale, 2010).
Since all other planning processes
related to issues such as transport, building, urban planning, and energy
have to conform to and support these objectives, this approach pro-
vides a powerful mechanism to mainstream climate change into local
public planning. These plans also form a framework around which pri-
vate voluntary action can be organized. In Germany, while the federal
government initiates and leads climate action, the states or ‘Länder’
have a veto power against central initiatives through representation in
the upper house of parliament (Weidner and Mez, 2008). In addition,
however, the Länder may also take additional action in areas such as
energy efficiency measures, renewable energy development on state
property and even through state-wide targets (Biedermann, 2011).
In some cases, sub-national jurisdictions seem to be attempting to
compensate for the lack of political momentum at the national level
(Schreurs, 2008; Dubash, 2011). In the United States, for example,
although progress at the federal level has been slow and halting, there
have been multiple efforts at sub-national scales, through unilateral
and coordinated action by states, judicial intervention, and municipal-
mitigation is particularly important to winning broader political support
for action on mitigation (Dubash, 2011; Fisher, 2012). A similar trend is
apparent in China (Oberheitmann, 2008), where provincial implementa-
tion of targets is enabled by linking action to local motivations, notably
for energy efficiency (Teng and Gu, 2007; Richerzhagen and Scholz,
2008a; Qi etal., 2008; Tsang and Kolk, 2010b; Kostka and Hobbs, 2012).
Tsang and Kolk (2010a) go so far as to say that Chinese leaders essen-
tially equate climate policy with energy conservation. Kostka and Hobbs
(2012) identify three ways in which this alignment of global and local
objectives happens: interest bundling, through which objectives of
political institutions are tied to local economic interests; policy bun-
dling, to link climate change with issues of local political concern; and
framing in ways that play to local constituencies.
The concept of ‘nationally appropriate mitigation actions’ (NAMAs)
has a conceptual connection to the idea of co-benefits. Nationally
appropriate mitigation actions are intended to be mitigation actions
that are ‘nationally appropriate’ in the sense that they contribute to
development outcomes. Therefore, NAMAs provide a possible mech-
anism for connection of national policies and projects to the global
climate regime, although the mechanisms through which this will be
accomplished are yet to be fully articulated (see Box 15.1). Another,
related mechanism is the explicit formulation in many countries of ‘low
emissions development strategies’ that seek to integrate climate and
development strategies (Clapp etal., 2010).
15�2�5 Sub-national climate action and
interaction across levels of governance
In many countries, the formulation and implementation of national
mitigation approaches are further delegated to sub-national levels,
with differing levels of central coordination, depending on national
contexts and institutions. Comparative analysis of cross-country cli-
mate action is insufficiently developed to allow generalization and
explanation of different approaches to climate policy.
Box 15�1 | Nationally Appropriate Mitigation Actions (NAMAs)
The Bali Action Plan (BAP), (1 / CP.13; UNFCCC, 2007) states that
developing countries are called on to take NAMAs supported and
enabled by technology and finance. For example, NAMAs could be
articulated in terms of national emissions intensity or trajectories,
sectoral emissions, or specific actions at sectoral or sub-sectoral
levels. As of June 2013, 57 parties had submitted NAMAs to
the United Nations Framework Convention on Climate Change
(UNFCCC) secretariat.
The design of mechanisms to link NAMAs to global support lead
to some complex tradeoffs. For example, large scale sectoral
NAMAs provide the least scope for leakage (decreased emissions
in one sector is undermined by increased emissions in another
part of the economy) and the lowest measurement costs (Jung
etal., 2010). However, designing NAMAs around transaction
costs might run counter to designing them for targeted focus
on national development priorities. Exploring the extent of this
tradeoff and managing it carefully will be an important part of
implementing NAMAs.
Much of the writing on NAMAs is focused on the challenges of
linking national actions to the international climate framework.
Conceptual challenges involved in linking NAMAs to the UNFCCC
process include the legal nature of NAMAs (van Asselt etal.,
2010), financing of NAMAs, and associated concerns of avoid-
ing double counting (Cheng, 2010; Jung etal., 2010; van Asselt
etal., 2010; Sovacool, 2011a) and measurement, reporting, and
verification of NAMAs (Jung etal., 2010; Sterk, 2010; van Asselt
etal., 2010).
While NAMAs pertain particularly to the developing world, co-
benefits based arguments are also used in developed countries. In
the United States, Gore and Robinson (2009) argue that expansion
of municipal scale action is articulated in the form of co-benefits,
and is driven by network-based communication and citizen
initiative. In Germany, several benefits in addition to climate
change have been attributed to the policy for energy transition or
‘Energiewende,’ including security of energy supply and industrial
policy (Lehmann and Gawel, 2013).
11541154
National and Sub-national Policies and Institutions
15
Chapter 15
scale action (Carlarne, 2008; Rabe, 2009, 2010; Posner, 2010). There
are examples of states joining together in creating new institutional
mechanisms, such as the Regional Greenhouse Gas Initiative (RGGI)
among Northeastern states in the United States to institute an emis-
sions trading programme, and the Western Climate Initiative (WCI)
between California and several Canadian provinces, although both
these initiatives have also failed to live up to their original promise
(Mehling and Frenkil, 2013). Climate policy in the state of California,
with its new cap and trade programme, is particularly worth noting
both because of the size of its economy and because California has a
history as a pioneer of environmental innovation (Mazmanian etal.,
2008; Farrell and Hanemann, 2009).
As detailed further in Section 15.8, cities are particularly vibrant sites
of sub-national action in some countries, often operating in networks
and involving a range of actors at multiple scales (Betsill and Bulkeley,
2006; Gore and Robinson, 2009). For example, in the Netherlands, the
central government has established a programme that provides subsi-
dies to municipalities to undertake various measures such as improve-
ments in municipal buildings and housing, improved traffic flow, sus-
tainable energy, and so on (Gupta et al., 2007). In Brazil, important
cities such as Rio de Janeiro and São Paulo have taken specific mea-
sures that go beyond national policies. For example, a 2009 São Paulo
law (No. 13.798) commits the state to undertake mandatory economy-
wide GHG emission reduction targets of 20 % by 2020 from 2005 lev-
els (Lucon and Goldemberg, 2010). In the United States, over 1000 cit-
ies and municipalities have committed to reaching what would have
been the US Kyoto target as part of the Conference of Mayors’ Climate
Protection Agreement (Mehling and Frenkil, 2013).
Sub-national action on climate change is a mix of bottom-up experi-
mentation and the interaction of top-down guidance with local imple-
mentation action. In some cases, countries have set in place explicit
mechanisms for coordination of national and sub-national action, such
as in China and India, but there is insufficient evidence to assess the
effectiveness of these mechanisms. More typical is relatively uncoor-
dinated action and experimentation at sub-national level, particularly
focused on cities. These issues are discussed further in Section 15.8.
15�2�6 Drivers of national and sub-national
climate action
National and sub-national actions are related to domestic political
institutions, domestic politics, international influences, and ideational
factors. Based on data from industrialized countries, a comparative
political analysis suggests that proportional representation systems
such as those in many EU nations are more likely than first past the
post systems to give importance to minority interests on environmen-
tal outcomes; systems with multiple veto points, such as the US system,
afford more opportunities for opponents to block political action; and
in federal systems powerful provinces with high compliance costs can
block action, as seems to have occurred in Canada (Harrison and Sund-
strom, 2010). Lachapelle and Paterson (2013) use quantitative analysis
to substantiate the argument about proportional representation and
systems with multiple veto points. They also show that presidential-
congressional systems find it systematically more difficult to develop
climate policy than parliamentary systems.
These are, however, only general tendencies: the specific details of
country cases, as well as the possibility of multiple and interacting
causal factors, suggests the need for caution in predicting outcomes
based on these factors.
In particular, national domestic political factors are also salient. Elec-
toral politics, operating through pressure for action from domestic
constituents, is a determinant of action as is the cost of compliance
(Harrison and Sundstrom, 2010). The role of climate change in elec-
toral strategies developed by political parties may also play a role
in climate governance, although evidence for this effect is available
only for developed countries (Carter, 2008; Fielding etal., 2012; Bai-
ley and Compston, 2012a). For example, the compliance costs of car-
bon pricing were the subject of direct electoral competition between
Australia’s major political parties in the 2007 and 2010 general elec-
tions (Rootes, 2011; Bailey et al., 2012). The presence of substantial
co-benefits opportunities and re-framing policy around these oppor-
tunities can also influence domestic politics in favour of climate action
(Held etal., 2013b); (Bailey and Compston, 2012a). Finally, the ‘type’
of state liberal market, corporatist or developmental can shape
outcomes (Lachapelle and Paterson, 2013). For example, somewhat
counter-intuitively corporatist states (e. g., Germany, South Korea) are
more likely to have introduced carbon pricing than states with liberal
market policy traditions (e. g., the United States, Canada). Conversely,
liberal market economies are more likely, as are developmental states
(e. g., China), to focus on R&D as a principal policy tool (on the United
States, see notably Macneil (2012). These patterns reflect powerful
institutional path dependencies and incentives facing actors promot-
ing climate policy in particular countries (Macneil, 2012).
International pressures are also important in explaining state action.
Diplomatic pressure, changes in public and private finance that empha-
size mainstreaming climate change, and a general trend toward higher
fossil-fuel energy prices all are associated with increasing climate
action (Held etal., 2013b).
Finally, based on comparative case studies, various ideational factors
such as national norms around multilateralism, perceptions of equity
in the global climate regime (Harrison and Sundstrom, 2010), and
ideas put forward by scientists, international organizations and other
voices of authority can also shift domestic politics (Held etal., 2013b).
15�2�7 Summary of institutions and governance
The evidence on institutional change and new patterns of climate gov-
ernance is limited, as many countries are in the process of establishing
11551155
National and Sub-national Policies and Institutions
15
Chapter 15
new institutions and systems of governance. However, several trends
are visible. First, there is a considerable increase in government led
institutionalization of climate action through both legislation and pol-
icy since AR4. The factors driving these changes include international
pressures, scope for co-benefits, and changing norms and ideas. The
specifics of national political systems also affect country actions. Sec-
ond, evidence from national cases illustrates considerable diversity in
the forms of action. While there are only a few cases of nationally led
economy wide carbon price setting efforts, more common are sectoral
approaches to climate change mitigation or delegated action to sub-
national levels, often embedded within national climate policy frame-
works. Third, the promise of ‘co-benefits’ is often an important stated
reason for climate policies and their framing. Fourth, there is a profu-
sion of activity at sub-national levels, particularly urban areas, much
of which is only loosely coordinated with national actions. Finally, the
diversity of approaches appears to be strongly driven by local institu-
tional and political context, with legislative and policy measures tai-
lored to operate within the constraints of national political and insti-
tutional systems.
15.3 Characteristics and
classification of policy
instruments and packages
This section presents a brief and non-exhaustive description of the
main policy instruments and packages, using the common classifica-
tion set by Chapter 3.8. Most of these instruments will be assessed
with the common evaluation criteria set by Chapter 3 (see Section
15.5) in most of the remaining parts of this chapter. As indicated in
Section 15.2, these instruments are introduced within an institutional
context that obviously influences their design and implementation.
15�3�1 Economic instruments
Economic instruments are sometimes termed ‘market-based’ approaches
because prices are employed in environmental and climate policies. Eco-
nomic instruments for climate change mitigation include taxes (includ-
ing charges and border adjustments), subsidies and subsidy removal,
and emissions trading schemes. Taxes and subsidies are known as price
instruments since they do not directly target quantities, while emis-
sions trading schemes, especially cap-and-trade schemes (see below),
are known as quantity instruments. This distinction can be important, as
seen in Sections 15.5.3.8, 15.7.3.2, and 15.7.3.4.
Taxes and charges are ideally defined as a payment for each unit of
GHG released into the atmosphere. In the climate context, they are
usually unrelated to the provision of a service and are thus known as
taxes rather than charges. They can be levied on different tax bases,
whereas tax rates, given the global and uniform characteristics of the
taxed emissions, usually do not show spatial variation (OECD, 2001).
In the last years, many taxes on GHG or energy have devoted part of
their revenues to the reduction of other distortionary taxes (green tax
reforms), although other revenue uses are now playing an increasing
role (Ekins and Speck, 2011).
Border tax adjustments are related instruments that intend to solve the
dysfunctions of variable climate change regulations across the world.
Although some authors highlight that they could alleviate the problem
of leakage and a contribute to a wider application of mitigation policies
(Ismer and Neuhoff, 2007), others emphasize that they do not consti-
tute optimal policy instruments and could even increase leakage (Jakob
etal., 2013) or cause potential threats to fairness and to the function-
ing of the global trade system (e. g., Bhagwati and Mavroidis, 2007).
Subsidies to low GHG products or technologies have been applied by a
number of countries but, contrary to the previous revenue-raising / neu-
tral economic instruments, they demand public funds. In some coun-
tries there are ‘perverse’ subsidies lowering the prices of fossil fuels
or road transport, which bring about a higher use of energy and an
increase of GHG emissions. Therefore, subsidy reduction or removal
would have positive effects in climate change and public-revenue
terms and is therefore treated as an instrument in its own right (OECD,
2008).
In ‘cap-and-trade’ emissions trading systems regulators establish an
overall target of emissions and issue an equivalent number of emis-
sions permits. Permits are subsequently allocated among polluters and
trade leads to a market price. The allocation of emission permits can
be done through free distribution (e. g., grandfathering) or through
auctioning. In ‘baseline and credit’ emissions trading systems, polluters
may create emission reduction credits (often project-based) by emit-
ting below a baseline level of emissions (Stavins, 2003).
15�3�2 Regulatory approaches
Regulations and standards were the core of the first environmental
policies and are still very important in environmental and climate poli-
cies all around the world. They are conventional regulatory approaches
that establish a rule and / or objective that must be fulfilled by the pol-
luters who would face a penalty in case of non-compliance with the
norm. There are several categories of standards that are applicable to
climate policies, mainly:
• Emission standards, which are the maximum allowable discharges
of pollutants into the environment, and which can also be termed
as performance standards;
• Technology standards that mandate specific pollution abatement
technologies or production methods (IPCC, 2007); and
• Product standards that define the characteristics of potentially pol-
luting products (Gabel, 2000).
11561156
National and Sub-national Policies and Institutions
15
Chapter 15
15�3�3 Information policies
A typical market failure in the environmental domain is the lack, or
at least asymmetric nature, of relevant information among some
firms and consumers. Good quality information is essential for rais-
ing public awareness and concern about climate change, identify-
ing environmental challenges, better designing and monitoring the
impacts of environmental policies, and providing relevant informa-
tion to inform consumption and production decisions. Examples
of information instruments include eco-labelling or certification
schemes for products or technologies and collection and disclosure
of data on GHG emissions by significant polluters (Krarup and Rus-
sell, 2005).
15�3�4 Government provision of public goods
and services and procurement
A changing climate will typically be a ‘public bad’ and actions and
programmes by governments to counteract or prevent climate
change can thus be seen as ‘public goods’. There are many examples
where public good provision may be an appropriate form of miti-
gation or adaptation. Examples include physical and infrastructure
planning, provision of district heating or public transportation ser-
vices (Grazi and van den Bergh, 2008), and funding and provision
of research activities (Metz, 2010). Moreover, the removal of insti-
tutional and legal barriers that promote GHG emissions (or preclude
mitigation) should be included in this policy type. Afforestation pro-
grammes and conservation of state-owned forests are an important
example.
15�3�5 Voluntary actions
Voluntary actions refer to actions taken by firms, NGOs, and other
actors beyond regulatory requirement. Voluntary agreements repre-
sent an evolution from traditional mandatory approaches based on
conventional or economic regulations and intend to provide further
flexibility to polluters. They are based on the idea that, under certain
conditions, polluters can decide collectively to commit themselves to
abatement instead of, or beyond the requirements of regulation. Vol-
untary agreements, sometimes known as long-term agreements, can
be developed in different ways; in most cases the voluntary commit-
ment is assumed as a consequence of an explicit negotiation process
between the regulator and the pollutant. In other cases a spontane-
ous commitment may be viewed as a way to avoid future mandatory
alternatives from the regulator (Metz, 2010). Finally, there are cases
where the regulator promotes standard environmental agreements
on the basis of estimation of costs and benefits to firms (Croci,
2005).
15.4 Approaches and tools
used to evaluate policies
and institutions
15�4�1 Evaluation criteria
Several criteria have been usually employed to assess the effects of cli-
mate change policies and these have been laid out in Section 3.7. The
criteria that have been used are environmental effectiveness, economic
effectiveness (cost-effectiveness and economic efficiency), distribu-
tional equity and broader social impacts, and institutional, political,
and administrative feasibility and flexibility. Political and institutional
feasibility are not only a separate criterion, but also need to be taken
into account when judging other criteria such as economic effective-
ness. It would be misleading to show that a tax would have been more
cost-effective than, for example, a regulation if it would never have
been feasible to implement the tax at a sufficiently high level to have
the same effect as that regulation.
15�4�2 Approaches to evaluation
One can evaluate the effect of policy instrument x on a set of vari-
ables y that matter for the evaluation criteria either through model-
ling or through ex-post empirical measurement. For any evaluation
based solely on modelling, it will never be possible to know whether
all important aspects of the relationship between x and the y’s are cap-
tured appropriately by the model. For this reason, it is highly desirable
to have ex-post empirical analysis to evaluate a policy instrument. In
order to measure the effect of a policy instrument, one must compare
the observed y’s in the presence of x with the ‘but-for’ or ‘counterfac-
tual’ value of the y’s defined as their estimated likely value but for the
implementation of x.
Statistical methods can be used to attempt to control for the evolution
of the world in the absence of the policy. The most reliable basis for
estimating counterfactual developments is to build programme evalu-
ation into the design of programmes from their inception (Jaffe, 2002).
If the planning of such evaluation is undertaken at the beginning of a
programme, then data can be developed and maintained that greatly
increase the power of statistical methods to quantify the true impact
of a programme by controlling for but-for developments.
Statistical analyses capture only those policy effects that can be and have
been measured quantitatively. Qualitative analyses and case studies
complement statistical analyses by capturing the effects of policies and
institutions on other aspects of the system, and the effect of institutional,
social and political factors on policy success (e. g., Bailey etal., 2012).
11571157
National and Sub-national Policies and Institutions
15
Chapter 15
Of course, data for ex-post evaluation is not always available, and even
where it is, it is very challenging to capture all aspects of the situation
empirically. Therefore, there will always be a role for models to eluci-
date the structure of policy effects, and to estimate or put bounds on
the magnitude of effects. Such models can be purely analytical / theo-
retical, or they can combine empirical estimates of certain parameters
with a model structure, as in ‘bottom-up’ models where many small
effects are estimated and cumulated, or in simulation models, which
combine an analytical / theoretical structure with numerical estimates
of parameters of the model. Many such models are ‘partial equilib-
rium,’ meaning they capture the particular context of interest but
ignore impacts on and feedback from the larger system. There are also
computable ‘general equilibrium’ (CGE) models that allow for interac-
tions between the context of the policy focus and the larger system,
including overall macroeconomic impacts and feedbacks see for exam-
ple, Bohringer etal., (2006).
‘Experimental economics’ uses a laboratory setting as a ‘model’ of a
real-world process, and uses ‘experimental subjects’ responses in that
setting as an indicator of likely real-world behaviour (Kotani et al.,
2011). With any model, results are truly predictive of real-world results
only to the extent that the model be it theoretical, simulation or
experimental captures adequately the key aspects of the real world
in the experiment.
15.5 Assessment of the
performance of policies
and measures, including
their policy design, in
developed and developing
countries taking into
account development
level and capacity
15�5�1 Overview of policy implementation
In this section we assess the performance of a series of policy instru-
ments and measures, starting with economic instruments (taxes in
15.5.2, emissions trading in 15.5.3), regulatory approaches (15.5.4),
information programmes (15.5.5), government provision of public
goods (15.5.6) and voluntary agreements (15.5.7). We assess aspects
of these and other policies in Section 15.6 on technology and R&D pol-
icy, and in Section 15.7 that deals with interactions between policies.
Many policy instruments are in principle capable of covering the entire
economy. However, as mentioned in Section 15.2, in practice the instru-
ments are often targeted to particular sectors or industries. This partly
reflects the fact that certain barriers or market failures are specific to
or more pronounced in certain sectors or industries. Furthermore, some
policies may cover only part of the economy as a result of the ability
of special interests to exempt some sectors or industries (Compston,
2009), (Helm, 2010).
Broader coverage tends to promote greater cost-effectiveness. How-
ever, on fairness grounds there is an argument for partly or fully
exempting certain industries in order to maintain international com-
petitiveness, particularly when the threat to competitiveness comes
from other nations that have not introduced climate policy and would
gain competitive advantage as a result.
Table 15.2 brings together policy instruments discussed in sector
chapters (Chapters 7 to 12). Two broad themes emerge from this sur-
vey. First, while policies that target broad energy prices taxes or
tradable allowances are clearly applicable across all sectors a wide
range of other policy approaches are also prevalent, which enable
policy design that addresses sector specific attributes. For example,
in the buildings sector regulatory instruments are an important tool.
In the absence of a building code enforcing enhanced efficiency, an
energy price signal alone might be insufficient to induce a builder to
invest in an energy efficient building that they plan to sell or rent.
Building and product standards also increase investor certainty
thereby reducing costs. Similarly, the transport sector relies not only
on pricing policies but also on government provision of infrastructure
and regulation that guides urban development and modal choices.
The industry sector faces information and other barriers to investment
in efficiency, which can be overcome by audits and other informa-
tion based programmes. In Agriculture, Forestry, and Other Land Use
(AFOLU), government regulation to protect forests and set the condi-
tions for REDD+ (Reducing Emissions From Deforestation and Forest
Degradation) plays a substantial role, as do certification programmes
for sustainable forestry.
Sector-specific policies often exist alongside broader ones. In energy
supply, broad-based GHG emissions pricing has often been supple-
mented by specific price- and quantity-based mechanisms (such as
feed-in-tariffs (FITs) and portfolio standards) and underpinned by
sufficient regulatory stability (including non-discriminatory access to
electricity and gas networks). In industry, relatively broad tax exemp-
tions may be combined with mandatory audits, with the former help-
ing ‘level the playing field’ and providing the impetus for action, and
the latter addressing an information barrier; thus each instrument
addresses a separate market failure or barrier. The implementation
of multiple policy instruments within a single sector can promote
cost-effectiveness when the two instruments address distinct market
failures. On the other hand, multiple instruments can work against
cost-effectiveness when the two instruments fail to address different
market failures and thus are simply redundant. This issue is discussed
further in Section 15.7 below.
11581158
National and Sub-national Policies and Institutions
15
Chapter 15
Table 15�2 | Sector Policy Instruments.
Policy Instruments Energy (See 7�12) Transport (See 8�10) Buildings (See 9�10) Industry (See 10�11) AFOLU (See 11�10)
Human Settlements
and Infrastructure
(See 12�5)
Economic
Instruments — Taxes
(Carbon taxes may be
economy-wide)
•Carbon taxes •Fuel taxes
•Congestion charges,
vehicle registration
fees, road tolls
•Vehicle taxes
•Carbon and / or energy
taxes (either sectoral
or economy wide)
• Carbon tax or energy
tax
•Waste disposal taxes
or charges
•Fertilizer or Nitrogen
taxes to reduce nitrous
oxide
•Sprawl taxes, impact
fees, exactions,
split-rate property
taxes, tax increment
finance, betterment
taxes, congestion
charges
Economic
Instruments — Tradable
Allowances
(May be economy-wide)
•Emissions trading (e. g.,
EU ETS)
•Emission credits under
the Kyoto Protocol’s
Clean Development
Mechanism (CDM)
•Tradable Green
Certificates
•Fuel and vehicle
standards
•Tradable certificates
for energy efficiency
improvements (white
certificates)
•Emissions trading
•Emission credits under
CDM
•Tradable Green
Certificates
•Emission credits under
CDM
•Compliance schemes
outside Kyoto protocol
(national schemes)
•Voluntary carbon
markets
•Urban-scale Cap
and Trade
Economic
Instruments — Subsidies
•Fossil fuel subsidy
removal
•Feed-in-tariffs for
renewable energy
•Capital subsidies
and insurance for 1
st
generation Carbon
Dioxide Capture and
Storage (CCS)
•Biofuel subsidies
•Vehicle purchase
subsidies
•Feebates
•Subsidies or tax
exemptions for
investment in efficient
buildings, retrofits and
products
•Subsidized loans
•Subsidies (e. g., for
energy audits)
•Fiscal incentives (e. g.,
for fuel switching)
•Credit lines for low
carbon agriculture,
sustainable forestry.
•Special Improvement
or Redevelopment
Districts
Regulatory Approaches
•Efficiency or
environmental
performance standards
•Renewable Portfolio
Standards for
renewable energy
•Equitable access to
electricity grid
•Legal status of long-
term CO
2
storage
•Fuel economy
performance standards
•Fuel quality standards
•GHG emission
performance standards
•Regulatory restrictions
to encourage modal
shifts (road to rail)
•Restriction on use
of vehicles in certain
areas
•Environmental capacity
constraints on airports
•Urban planning and
zoning restrictions
•Building codes and
standards
•Equipment and
appliance standards
•Mandates for energy
retailers to assist
customers invest in
energy efficiency
•Energy efficiency
standards for
equipment
• Energy management
systems (also
voluntary)
•Voluntary agreements
(where bound by
regulation)
•Labelling and
public procurement
regulations
•National policies
to support REDD+
including monitoring,
reporting and
verification
•Forest law to reduce
deforestation
•Air and water pollution
control GHG precursors
•Land-use planning and
governance
•Mixed use zoning
•Development
restrictions
•Affordable housing
mandates
•Site access controls
•Transfer
development rights
•Design codes
•Building codes
•Street codes
•Design standards
Information
Programmes
•Fuel labelling
•Vehicle efficiency
labelling
•Energy audits
•Labelling programmes
•Energy advice
programmes
•Energy audits
•Benchmarking
•Brokerage for industrial
cooperation
•Certification schemes
for sustainable forest
practices
•Information policies
to support REDD+
including monitoring,
reporting and
verification
11591159
National and Sub-national Policies and Institutions
15
Chapter 15
Policy Instruments Energy (See 7�12) Transport (See 8�10) Buildings (See 9�10) Industry (See 10�11) AFOLU (See 11�10)
Human Settlements
and Infrastructure
(See 12�5)
Government Provision
of Public Goods or
Services
•Research and
development
•Infrastructure
expansion (district
heating / cooling or
common carrier)
•Investment in transit
and human powered
transport
•Investment in
alternative fuel
infrastructure
•Low emission vehicle
procurement
•Public procurement of
efficient buildings and
appliances
•Training and education
•Brokerage for industrial
cooperation
•Protection of national,
state, and local forests.
•Investment in
improvement and
diffusion of innovative
technologies in
agriculture and forestry
•Provision of utility
infrastructure
such as electricity
distribution, district
heating / cooling
and wastewater
connections, etc.
•Park improvements
•Trail improvements
•Urban rail
Voluntary Actions
•Labelling programmes
for efficient buildings
•Product eco-labelling
•Voluntary agreements
on energy targets or
adoption of energy
management systems,
or resource efficiency
•Promotion of
sustainability by
developing standards
and educational
campaigns
15�5�2 Taxes, charges, and subsidy removal
15�5�2�1 Overview
Taxes on carbon (together with emissions trading systems) are eco-
nomic instruments. In the presence of rational consumers, firms, and
complete markets, they achieve any given level of emissions reduc-
tion in the least costly way possible. Economic instruments like carbon
taxes are attractive because of their simplicity and broad scope cover-
ing all technologies and fuels (Section 3.8) and thus evoking the cost-
minimizing combination of changes to inputs in production and tech-
nologies to changing behaviour as manifested in consumption choices
and lifestyles. This is the reason they have the potential to be more effi-
cient than directly regulating technology, products, or behaviour.
1
To
minimize administrative costs, a carbon tax can be levied ‘upstream’
(at the points of production or entry into the country). Finally, unlike an
emissions trading system that requires new administrative machinery,
a tax can piggyback off existing revenue collection systems.
Despite these attractive properties, carbon taxes are not nearly as
prevalent a policy instrument as one might expect. As yet, the Scandi-
navian countries, the Netherlands, the UK, and the Canadian province
of British Columbia are the only large jurisdictions with significant and
fairly general carbon taxes of at least USD 10 / tCO
2
.
2
The reasons for
this are not entirely clear. It may be that a carbon tax, unlike a nar-
rower sectoral regulation, attracts more hostile lobbying from fossil
1
If psychological or institutional barriers to adoption or other market failures are
the main factor impeding choice then regulations or other instruments may be
an efficient complement or stand-alone instrument to deal with this (see Section
15.4).
2
Australia has a fixed fee hybrid system sometimes described as a tax that will be
converted into an ETS.
fuel interests
3
for whom the stakes it creates are high (Hunter and Nel-
son, 1989; Potters and Sloof, 1996; Goel and Nelson, 1999; Godal and
Holtsmark, 2001; Skjærseth and Skodvin, 2001; Kolk and Levy, 2002;
van den Hove etal., 2002b; McCright and Dunlap, 2003; Markussen
and Svendsen, 2005; Pearce, 2006; Beuermann and Santarius, 2006;
Deroubaix and Lévèque, 2006; Pinkse and Kolk, 2007; Bridgman etal.,
2007; Bjertnæs and Fæhn, 2008; Blackman etal., 2010; Sterner and
Coria, 2012). Secondly, the payments required by a tax are transparent,
unlike the less visible costs of regulations. The general public, not being
aware of the above-mentioned efficiency properties of a tax, may be
less likely to accept such an instrument (Brännlund and Persson, 2010).
Third, policy may be driven by perceived risks to competitiveness and
employment as well as the distribution of costs rather than on consid-
erations of pure efficiency (Decker and Wohar, 2007). Finally, a set of
institutional path dependencies may have led to a favouring of emis-
sions trading systems over taxes, including a post-Kyoto preference
for emissions trading in key bureaucracies, supported by creation of
supportive industry and other associations (Skjærseth and Wettestad,
2008; Paterson, 2012).
Countries that have sizeable general carbon taxes are fewer
still mainly a few Northern European countries. The carbon tax in
Sweden is 1100 SEK or USD165 / tCO
2
, which is an order of magnitude
higher than the price of permits on the EU emissions trading scheme
(ETS) market or than the carbon taxes discussed in many other coun-
tries. Such high taxes typically have some exemptions motivated by
the fact that other (competing) countries have no (or low) taxes. Swe-
den, for example, exempted the large energy users who participate in
the EU ETS from also paying the carbon tax on the grounds that there
would otherwise be a form of ‘double’ taxation (See 15.5.2.4 for a
more thorough discussion).
3
These can be either producers (for instance of fossil fuels) or users of energy, rang-
ing from energy intensive industries to truck drivers.
11601160
National and Sub-national Policies and Institutions
15
Chapter 15
Although general carbon taxes are so far uncommon, there are many
policies that have similar effects but (for political reasons) avoid using
the words ‘carbon’ and / or ‘tax’, (Rabe and Borick, 2012). Taxes on fuels,
especially transport fuels are very common. While narrower in scope,
they nevertheless cover a significant fraction of emissions in many
countries. They can be interpreted as sectoral carbon taxes; in some
countries this is clearly stated as an objective of fuel taxes, in others it
is not. Fuel taxes may be politically easier to implement in some coun-
tries since (private) transport is hardly subject to international competi-
tion and hence leakage rates are low. A large share of all revenues
from environmentally related taxes in fact come from fuel taxes, which
were introduced in various countries, beginning with Europe and Japan,
though they are also common in low income, oil-importing countries.
One of their main stated purposes is to finance road building, although
additional arguments include reducing expensive imports, government
revenue raising, and reducing environmental impacts. Irrespective of
the motivation, the effect of carbon taxes on fuel is to raise prices to
consumers and restrict demand (see Section 15.5.2.2). Fuel taxes are
important for climate change mitigation since the transport sector
represents a large and increasing share of carbon emissions (27 % of
global energy-related CO
2
emissions in 2010 see Section 8.1). Theory,
simulation, and empirical studies all suggest strongly that taxing fuel is
a lower cost method of reducing emissions compared to policies such
as fuel efficiency mandates, driving restrictions, or subsidies to new
technologies
4
(Austin and Dinan, 2005). However, consumers who buy
vehicles may be unable to correctly internalize the long-run savings of
more fuel-efficient vehicles. This would be considered a ‘barrier’ and
would provide motivation for having fuel efficiency standards in addi-
tion to fuel taxes (see Section 15.5.4).
Variation in fuel prices is generated by subsidies as well as taxes. Fossil
fuel subsidies are prevalent in many countries, being most common
in oil and coal producing countries. According to the International
Monetary Fund (IMF) (2013), the Middle East and North Africa region
accounts for around 50 % of global energy subsidies. In 2008, fossil
fuel subsidies for transport fuels, electricity, tax breaks for oil and
gas production, and for research and development into coal genera-
tion, exceeded USD
2010
489.1 billion globally (IEA / OECD, 2011). A more
recent estimate by the IMF (2013) puts the figure at USD
2010
469.5 bil-
lion or 0.7 % of global GDP in 2011. This is a pre-tax estimate and
includes petroleum products, electricity, natural gas, and coal. A large
share is in the fossil fuel exporting countries. After factoring in nega-
tive externalities, through corrective taxes, the IMF reports USD
2010
1.85 trillion in implicit subsidies. This figure assumes damages corre-
sponding to a USD 25 / t social cost on carbon, consistent with United
States Interagency Working Group on Social Cost of Carbon (2010).
Advanced economies’ make up 40 % of the global post-tax estimate.
Reviewing six major studies that estimate fossil fuel subsidies, Ellis
(2010) notes that removal of such subsidies would increase the aggre-
gate GDP in OECD and non-OECD countries in the “range from 0.1 per
4
See also Section 15.12 on climate finance.
cent in total by 2010 to 0.7 per cent per year to 2050 (Ellis, 2010).The
studies reviewed include both modelling and empirical exercises.
15�5�2�2 Environmental effectiveness and efficiency
Assessing the environmental effectiveness of carbon taxation is not
straightforward because multiple instruments and many other factors
co-evolve in each country to produce policy mixes with different out-
comes in terms of emissions. For example, energy taxes varying by sec-
tor have been prominent in the Nordic countries since the 1970s with
carbon taxes being added on in the early 1990s. Ex-post analyses have
found varying reductions in CO
2
emission from carbon taxes in Nor-
way, Sweden, Denmark, and Iceland, compared to business-as-usual
(see Andersen (2004) for an extensive review of these studies and their
estimation techniques).
The UK’s Climate Change Levy (CCL), introduced in 2001 on manufac-
turing plants and non-residential energy users (offices, supermarkets,
public buildings, etc.), has had a strong impact on energy intensity
(Martin et al., 2011). Electricity use, taxed at a rate of about 10 %,
declined by over 22 % at plants subject to the levy as compared to
plants that were eligible to opt out by entering into a voluntary agree-
ment to reduce energy use. There was no evidence that the tax had any
detrimental effect on economic performance or led plants to exit from
the industry (Martin etal., 2011).
From 1990 to 2007, the CO
2
equivalent emissions in Sweden were
reduced by 9 % while the country experienced an economic growth of
+51 %. In Sweden, with the highest carbon tax (albeit with exemptions
for some industrial sectors), there was a very strong decoupling of car-
bon emissions and growth with reductions in carbon intensity of GDP
of 40 % (Johansson, 2000; Hammar etal., 2013). Per capita emissions
in Denmark were reduced by 15 % from 1990 to 2005; the experience
in Scandinavia, the UK, and the Netherlands was similar (Enevoldsen,
2005; Enevoldsen etal., 2007), (Bruvoll and Larsen, 2004), (Cambridge
Econometrics, 2005), (Berkhout etal., 2004; Sumner etal., 2011; Lin
and Li, 2011). Of course, many factors may be at play, and these dif-
ferences cannot be attributed solely to differences in taxation. Overall,
the evidence does suggest that carbon taxes, as part of an environ-
mental tax reform, lead to abatement of GHG emissions, generate rev-
enue for the government, and allow reductions in income tax threaten-
ing employment. Theory strongly suggests that if a tax is implemented
then it would also be cost effective, but it is for natural reasons hard to
demonstrate this empirically at the macro level.
There is much more evidence available on the environmental efficacy
of fuel as compared to carbon taxation. In the short run, consumers
may be locked into patterns of use by habit, culture, vehicle charac-
teristics, urban infrastructure, and architecture. The short-run response
to higher fuel prices is indeed often small price elasticity estimates
range between – 0.1 to – 0.25 for the first year. However long-run price
elasticities are quite high: approximately – 0.7 or a range of – 0.6 to
11611161
National and Sub-national Policies and Institutions
15
Chapter 15
0.8. This range is the average found by surveys of hundreds of stud-
ies that use both market based variations in fuel price as well as pol-
icy induced variations and exploit both temporal and cross-sectional
variations in the data; the individual study estimates range substan-
tially more depending on countries or regions covered, time period,
method and other factors (Oum, 1989; Goodwin, 1992; Graham and
Glaister, 2002; Goodwin etal., 2004). In the long run, therefore, 10 %
higher fuel prices will ultimately lead to roughly a 7 % reduction in fuel
use and emissions. Income elasticities are about 1, which means that
5 % growth in income gives 5 % growth in emissions. If instead a 2 %
reduction is desired there is a 7 % gap between the 5 % increase and
the – 2 % desired and a 10 % increase in fuel price every year would be
needed to achieve such a reduction in emissions with a 5 % growth in
income.
The long-run effects of transport fuel taxation have been large. Sterner
(2007) shows that in Europe, where fuel taxes have been the high-
est, they have contributed to reductions in CO
2
emissions from trans-
port by 50 % for this group of countries. The whole Organisation for
Economic Co-operation and Development (OECD) would have had
30 % higher fuel use had not the European Union and some other
members imposed high fuel taxes (i. e., if all the OECD countries had
instead chosen as low fuel taxes as in the United States). Similarly, the
OECD could have decreased fuel use by more than 35 % if all member
countries would have chosen as high taxes as the United Kingdom.
The accumulated difference in emissions over the years leads to a dif-
ference in several ppm in CO
2
concentration, presumably making fuel
taxes the policy that has had the largest actual impact on the climate
up till now (Sterner, 2007).
The environmental effect of a fuel tax is illustrated in Figure 15.2,
where the fitted curve is from a log-linear regression of the emission
intensity of liquid fuels on the price of diesel. The cross-country varia-
tion in diesel prices is mostly due to variation in taxes (and in some
cases, subsidies). Figure 15.2 suggests that the effect of a change in
the price of a fuel on emissions is greater at low prices. This is intuitive,
since fuel will be consumed wastefully when it is cheap, allowing for
greater demand reductions when the price rises.
Though there are few clean experiments, the market continuously cre-
ates ‘quasi-experiments’ which are analogous to the introduction of
policies. Increased fuel prices in the USA in 2008, for instance, led to
a shift in the composition of vehicles sold, increasing fuel-efficiency,
while also reducing miles travelled (Ramey and Vine, 2010; Aldy and
Stavins, 2012).
Other price instruments that have been used in the transport sector are
congestion charges, area pricing, parking fees, and tolls on roads or
in cities. These have been used to reduce congestion; emission reduc-
tion is a co-benefit. The USD
2010
15.4 congestion fee in London led to
reductions in incoming private cars by 34 % when introduced. Over-
all congestion was also estimated to have been reduced by 30 %, and
emissions fell (Leape, 2006). The smaller (USD
2010
2.6) congestion fee in
Stockholm reduced total road usage by 15 % (Johansson etal., 2009).
Reducing subsidies to fossil energy will have a significant impact on
emissions. Removing them could reduce world GHG emissions by 10 %
at negative social cost by 2050 (Burniaux and Chateau, 2011).The IMF
calculates that the removal of these subsidies induce a 15 % reduction
in global energy related carbon emissions or 5 billion tCO
2
in absolute
terms and concludes that the post-tax estimate of USD
2010
1.85 tril-
lion in subsidies is ‘likely to underestimate’ energy subsidies due to the
assumptions made, hence the impact on carbon emissions is likely to
be higher. Ellis (2010) reports a range of effects from just a few percent
to 18 % by 2050 depending on the size of the subsidy reduction.
Recognizing the potential impact of a reduction in subsidies to fossil
fuels, the G20 and APEC blocks agreed in 2009 to phase out inefficient
fossil fuel subsidies in all countries (G20 Leaders, 2009).
In China, the energy saving policies adopted in 1991, the 1998 Law
on Energy Conservation, and the 2004 Medium and Long Term Spe-
cific Schema on Energy Saving, led to higher energy prices and explain
half the decline in energy intensity of Chinese industries between 1997
and 1999, while R&D accounted for only 17 % of the decline (Fisher-
Vanden etal., 2006; Yuan etal., 2009).
15�5�2�3 Distributional incidence and feasibility
Although fuel taxes have often been criticized for being regressive
(that is, for imposing a proportionally higher burden on the poor),
this is not always the case. There are large variations in distributional
impacts both within and between social groups the effects range from
regressive or progressive (Rausch etal., 2010, 2011); see also 6.3.5.2.
Studies of the distributional incidence of fuel taxes show that they
may be neutral or weakly regressive (before revenue recycling) in rich
countries, but they are generally progressive in poor countries. In many
Figure 15�2 | The impact of average diesel prices across the world on the emissions
intensity of liquid fuels.
Diesel Price [USD
2010
/l]
Liquid Fuel Emissions Intensity [kgCO
2
eq/Hundred USD
2010
of GDP]
Diesel Price [USD
2010
/l]
Diesel Price [USD
2010
/l]
Area of Circle Proportional to
Country's Total Emissions
0
1
2
3
4
0 50 100 150 200 250
11621162
National and Sub-national Policies and Institutions
15
Chapter 15
least developed and developing countries such as India, Indonesia,
China, and many African countries, the progressivity of fuel taxes is
in fact quite strong. In Europe they are approximately neutral (Sterner,
2012). Carbontaxation can sometimes have regressive effects prior to
recycling revenue, but recycling can make the poorest households bet-
ter off. Generally, the degree of progressivity can be selected depend-
ing on the method of recycling revenues. The environmental taxation
gives rise to government income that can be allocated in ways that
either benefit the poor or any other group giving a considerable range
of options for how progressive or regressive the politicians want to
make the overall package (Bureau, 2011).
The distributional effects of other taxes vary significantly. Kerosene
taxes in developing countries are regressive since kerosene is used
predominantly by the poor (Younger etal., 1999; Gangopadhyay etal.,
2005; Datta, 2010). This regressivity may also apply to taxes on elec-
tricity or coal. The distributional effects of a more general carbon tax
will depend on the mode of implementation with respect to different
fuels and sectors and typically be more complex than for a single fuel,
since the potential substitution possibilities are many. Results vary, but
for instance, Hassett etal. (2009) finds a carbon tax to be regressive in
the USA, showing that the cost is about 3.74 % for the poorest decile
four times the effect on the highest decile. In India, on the other hand,
a carbon tax would be progressive (Datta, 2010). The pro- or regressiv-
ity of carbon taxes will vary between countries but can also be affected
by design, as shown for instance by Fullerton etal., (2012) or Sterner
and Coria (2012).
The assertion that fuel taxes are regressive is often used as an argu-
ment and can make fuel taxes politically difficult to implement even if
not true. Feasibility is however not tied in any simple way to income
distribution effects. If a tax is progressive, this does not necessarily
increase feasibility since this means that the interests of influential
groups are affected, which may be a much bigger impediment to feasi-
bility (Datta, 2010). Fear of social unrest may hold up subsidy removal.
Protests over reduced petrol subsidies are common; for example,
recently riots erupted in Nigeria when President Jonathan Goodluck
tried to eliminate very costly petrol subsidies with only partial success.
Some countries such as Iran and Indonesia have recognized that fuel
subsidies actually accrue to the relatively wealthy and managed to
successfully reduce the subsidies without much unrest, by making sure
that revenues saved are spent fairly for instance through general
lump-sum cash transfers (Coady etal., 2010; Atashbar, 2012; Sterner,
2012; Aldy and Stavins, 2012).
15�5�2�4 Design issues: exemptions, revenue recycling,
border adjustments
As mentioned above in 15.5.2.1, despite the attractive efficiency prop-
erties of a broad carbon tax, and even its progressivity in many cir-
cumstances, it may face political resistance. To have a big effect on
emissions a tax must be high. Carbon and fuel taxes have often been
initially resisted, but once introduced it seems the fee level has often
been increased, (Sumner etal., 2011b). Another factor may be a path
dependency since the taxes reduce the use of fossil fuel and lower fuel
use means less opposition to fuel taxes, (Hammar etal., 2004). This
path dependency may be the rationale for raising the fuel or carbon
taxes slowly and steadily as done by the Conservative government in
the UK with the Fuel Price Escalator starting in 1993, a policy that was
continued under the successor Labour government for several years.
An emissions tax involves a transfer from economic agents to the
state, namely the tax revenue from the residual emissions that are
not abated. Private parties have to make this transfer in addition to
bearing the cost of actually reducing emissions. There are a number
of approaches to designing a tax (or fee) so that the transfer does not
take place and resistance from incumbent polluters is reduced.
One approach is simply to exempt certain carbon-intensive indus-
tries such as heavy industry in Sweden, as mentioned earlier. Such
policies with incomplete coverage are less cost efficient than general
policies (Montgomery, 1972 and Chapter 6.3.5.1). This lack of effi-
ciency applies not only to carbon emissions it applies even more
broadly to agriculture, forestry and to other climate gases such as
methane or nitrous oxide (Bosetti etal., 2011). However, narrow sec-
toral policies may be politically more feasible due to concerns about
international competitiveness, the structure of winners and losers, and
consequent lobbying (Holland etal., 2011).
A related approach that tries to avoid the loss of coverage is to exempt
some firms from taxes conditional on their undertaking emission
reduction commitments. In Denmark, for example, companies signing
an energy savings agreement with the government received a 25 %
tax reduction (OECD, 2001; Agnolucci, 2009; Sumner etal., 2011; Ekins
and Speck, 2011; Aldy and Stavins, 2012). Similarly, in the UK some
firms may sign Climate Change Agreements (CCA) to reduce emissions
that exempt them from the CCL. This experience offers a cautionary
tale: on average the agreements did not require firms to reduce emis-
sions beyond what they would have done anyway (Martin etal., 2011).
Conditional exemptions amount to unconditional ones if the condi-
tions are lax.
Yet another approach to avoiding a large transfer to the state is to
recycle all or part of the tax revenue. In the Canadian province of Brit-
ish Columbia, revenue from the broad carbon tax of USD
2010
29.1 / tCO
2
is fully rebated to the general population via income tax cuts and
transfers to low-income people who do not pay income tax. British
Columbia raised the tax gradually in increments of USD
2010
4.8 / tCO
2
annually to its current level (Jaccard, 2012).
Sometimes revenues are recycled to firms in emission-intensive indus-
tries. Again, this relies on identifying the recipients, so it is usually con-
fined to a few sectors with the attendant disadvantages mentioned
above. Refunded emission payments and other combinations of taxes
and subsidies may be designed to be neutral so that, for example, the
11631163
National and Sub-national Policies and Institutions
15
Chapter 15
industry pays the cost of abatement but does not pay a tax for the
allowed or reference level of pollution (Fischer, 2011). One expression
of this is fees, which are collected in environmental funds and sub-
sequently used in ways that benefit the polluters. An example from
NO
x
emissions in Sweden is that a refunded emission payment may
be politically more acceptable and thus environmentally more effective
than simply a tax. Since the fee is refunded (in proportion to output),
there is considerably less resistance to the fee and it can be set much
higher than what would have been acceptable for a pure tax. Nor-
way has pioneered another instrument for NO
x
emissions — taxes are
refunded to cover abatement expenses. This implies a combination of a
tax on emissions with a subsidy on abatement. Experience shows that
a lower fee can achieve the same result with this instrument design
as a tax (Fischer, 2011). Norway is considering promoting similar solu-
tions for carbon emissions (Hagem etal., 2012). The drawback of such
schemes for reducing carbon emissions is that their sectoral nature
reduces coverage and raises costs.
Abatement subsidies have also been financed out of general revenues.
Abatement subsidies need to be financed through tax revenues. The
taxes needed to finance the subsidies in general involve a marginal
excess burden. This deadweight loss is an extra cost of subsidies rela-
tive to emissions taxes. Furthermore, there is an efficiency penalty due
to their sectoral nature. If applied to firms, subsidies may create per-
verse incentives to enter or to fail to exit from, a polluting industry, and
raise costs (Polinsky, 1979). Perhaps for such reasons, they are seen in
residential and commercial sectors, for instance, tax breaks are pro-
vided for building insulation or refurbishing. There are also white certif-
icates and innovative financing schemes that allow loans to be repaid
as part of electricity bills (See Section 9.10 for further discussion).
Another reason for tax exemptions is to avoid a loss of competitive-
ness in industries exposed to foreign competition that is not subject to
taxation or equivalent policies. A pure tax (at a high level) may incen-
tivize industries to move to neighbouring countries. This is known as
‘leakage’, since emissions `leak’ to jurisdictions not subject to taxa-
tion. It is generally hard to find decisive empirical evidence of carbon
leakage, though this may be partly because high carbon taxes have
not been tried in any significant way for trade-exposed sectors. As
discussed in Chapter 5, some simulations suggest that there could be
sizeable effects (Elliott etal., 2010). Though the overall effects of bor-
der tax adjustment on leakage are subject to debate (see Jakob etal.,
2013), a recent model comparison suggests that full border tax adjust-
ments would moderately decrease leakage rates from on average from
on average 12 to 8 % (Bohringer etal., 2012). Border tax adjustments
are taxes levied on imported goods that impose equivalent taxes on
emissions `embedded’ in the goods. Aichele and Felbermayr (2011)
find that sectoral carbon imports for a committed (i. e., taxed) coun-
try from an uncommitted exporter are approximately 8 % higher than
if the country had no commitments and that the carbon intensity of
those imports is about 3 % higher. When measurement of embedded
emissions is uncertain, border tax adjustments can be criticized for
introducing trade barriers in environmental guise (Holmes etal., 2011).
Leakage can also occur intertemporally. As shown by Sinn (2008,
2012), a carbon tax might not only encourage demand in other areas.
There may also be a perverse supply side reaction (referred to as the
Green Paradox) increasing the current supply of fossil fuels in antici-
pation of rising carbon taxes. Subsequent research (Gerlagh, 2011;
Hoel, 2012) has shown that, strictly speaking, this only applies to very
simplified and special models with complete exhaustion of all fossil
fuels (which would lead to very drastic climate change) and also only
to models in which the carbon tax actually starts low and rises faster
than the discount rate. A number of conclusions can be drawn from
the debate: (1) generally, the supply side should not be neglected; (2)
if a tax is used, there are arguments for making it high rather than low
and fast-growing; and most importantly, (3) instruments used need to
cover as many countries and sources as possible. It may be difficult to
find a single optimal tax, and it may be necessary, rather to formulate
a tax rule that will decide how the tax rate is to be updated (Kalkuhl
and Edenhofer, 2013).
15�5�3 Emissions trading
15�5�3�1 Overview of emissions trading schemes
Over the past three decades, emissions trading, or cap and trade, has
evolved from just a textbook idea (Dales, 1968) to its current role as a
major policy instrument for pollution control. Earlier experiences with
emissions trading include schemes such as the California RECLAIM
Program and the US Acid Rain Program (Tietenberg, 2006; Ellerman
etal., 2010).
But since the start of the EU carbon trading system (See Section
14.4.2), several countries and sub-national jurisdictions (e. g., New
Zealand, Australia, California, northeastern United States, Quebec,
South Korea, Tokyo, and five cities and seven provinces in China) have
also put in place or proposed trading schemes to control their carbon
emissions. This section provides a brief overview of the literature (see
further Perdan and Azapagic, 2011; Aldy and Stavins, 2012) and draws
lessons for the design of carbon trading programmes.
15�5�3�2 Has emissions trading worked?
We begin by assessing environmental effectiveness. There were three
GHG cap-and-trade programmes that were operational
5
by 2012 (New-
ell et al. 2013). The EU ETS, reviewed in 14.4.2, is by far the largest.
Emissions are estimated to have fallen by 2 5 % relative to business-
as-usual in the first pilot phase from 2005 2007 (Ellerman, Convery,
De Perthuis, etal., 2010). Similarly, Egenhofer et al., (2011) attribute
5
California and Quebec started recently in 2013, as did Australia with its ‘fixed-
price’ or tax period; trading starts 2014 and S Korea starts even later. None of
these can be evaluated empirically at present.