6 Policies, Measures, and Instruments
6.1 Policy Instruments and Possible Criteria for their Assessment
The purpose of this section is to examine the major types of policies and measures
that can be used to implement options to mitigate net concentrations of GHGs
in the atmosphere. In keeping within the defined scope of this Report, policies
and measures that can be used to implement or reduce the costs of adaptation
to climate change are not examined. Alternative policy instruments are discussed
and assessed in terms of specific criteria, all on the basis of the most recent
literature. There is naturally some emphasis on the instruments mentioned in
the Kyoto Protocol (the Kyoto mechanisms), because they are new and focus on
achieving GHG emissions limits, and the extent of their envisaged international
application is unprecedented. In addition to economic dimensions, political
economy, legal, and institutional elements are discussed insofar as they are
relevant to these policies and measures.
Any individual country can choose from a large set of possible policies, measures,
and instruments, including (in arbitrary order): emissions, carbon, or energy
taxes, tradable permits, subsidies, deposit-refund systems, voluntary agreements,
non-tradable permits, technology and performance standards, product bans, and
direct government spending, including R&D investment. Likewise, a group
of countries that wants to limit its collective GHG emissions could agree to
implement one, or a mix, of the following instruments (in arbitrary order):
tradable quotas, joint implementation, clean development mechanism, harmonized
emissions or carbon or energy taxes, an international emissions, carbon, or
energy tax, non-tradable quotas, international technology and product standards,
voluntary agreements, and direct international transfers of financial resources
and technology.
Possible criteria for the assessment of policy instruments include: environmental
effectiveness; cost effectiveness; distributional considerations including competitiveness
concerns; administrative and political feasibility; government revenues; wider
economic effects including implications for international trade rules; wider
environmental effects including carbon leakage; and effects on changes in attitudes,
awareness, learning, innovation, technical progress, and dissemination of technology.
Each government may apply different weights to various criteria when evaluating
GHG mitigation policy options depending on national and sector level circumstances.
Moreover, a government may apply different sets of weights to the criteria when
evaluating national (domestic) versus international policy instruments. Co-ordinated
actions could help address competitiveness concerns, potential conflicts with
international trade rules, and carbon leakage.
The economics literature on the choice of policies adopted has emphasized the
importance of interest group pressures, focusing on the demand for regulation.
But it has tended to neglect the "supply side" of the political equation,
emphasized in the political science literature: the legislators and government
and party officials who design and implement regulatory policy, and who ultimately
decide which instruments or mix of instruments will be used. However, the point
of compliance of alternative policy instruments, whether they are applied to
fossil fuel users or manufacturers, for example, is likely to be politically
crucial to the choice of policy instrument. And a key insight is that some forms
of regulation actually can benefit the regulated industry, for example, by limiting
entry into the industry or imposing higher costs on new entrants. A policy that
imposes costs on industry as a whole might still be supported by firms who would
fare better than their competitors. Regulated firms, of course, are not the
only group with a stake in regulation: opposing interest groups will fight for
their own interests.
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