EXECUTIVE SUMMARY

This chapter synthesizes information from the relevant literature on policies, instruments and co-operative arrangements, focusing mainly on new information that has emerged since the Third Assessment Report (TAR). It reviews national policies, international agreements and initiatives of sub-national governments, corporations and non-governmental organizations (NGOs).

National policies

The literature on climate change continues to reflect the wide variety of national policies and measures that are available to governments to limit or reduce greenhouse gas (GHG) emissions. These include regulations and standards, taxes and charges, tradable permits, voluntary agreements, subsidies, financial incentives, research and development programmes and information instruments. Other policies, such as those affecting trade, foreign direct investment, consumption and social development goals, can also affect GHG emissions. Climate change policies, if integrated with other government polices, can contribute to sustainable development in developed and developing countries alike.

Reducing emissions across all sectors and gases requires a portfolio of policies tailored to fit specific national circumstances. While the advantages and disadvantages of any one given instrument can be found in the literature, four main criteria are widely used by policymakers to select and evaluate policies: environmental effectiveness, cost-effectiveness, distributional effects (including equity) and institutional feasibility. Other more specific criteria, such as effects on competitiveness and administrative feasibility, are generally subsumed within these four.

The literature provides a great deal of information for assessing how well different instruments meet these criteria, although it should be kept in mind that all instruments can be designed well or poorly and to be stringent or lax and politically attractive or unattractive. In addition, all instruments must be monitored and enforced to be effective. The general conclusions that can be drawn from the literature are that:

• Regulatory measures and standards generally provide some certainty of emissions levels, but their environmental effectiveness depends on their stringency. They may be preferable when information or other barriers prevent firms and consumers from responding to price signals (high agreement, much evidence).
• Taxes and charges are generally cost-effective, but they cannot guarantee a particular level of emissions, and they may be politically difficult to implement and, if necessary, adjust. As with regulations, their environmental effectiveness depends on stringency (high agreement, much evidence).
• Tradable permits can establish a carbon price. The volume of allowed emissions determines the carbon price and the environmental effectiveness of this instrument, while the distribution of allowances can affect cost-effectiveness and competitiveness. Experience has shown that banking provisions can provide significant temporal flexibility (high agreement, much evidence). Uncertainty in the price of carbon makes it difficult to estimate the total cost of meeting emission reduction targets.

Voluntary agreements (VAs) between industry and governments, which vary considerably in scope and stringency, are politically attractive, raise awareness among stakeholders and have played a role in the evolution of many national policies. A few have accelerated the application of best available technology and led to measurable reductions of emissions compared to the baseline, particularly in countries with traditions of close cooperation between government and industry. However, there is little evidence that VAs have achieved significant reductions in emissions beyond business as usual (high agreement, much evidence). The successful programmes all include clear targets, a baseline scenario, third party involvement in design and review and formal provisions for monitoring.

• Financial incentives are frequently used by governments to stimulate the diffusion of new, less GHG-emitting technologies. While economic costs are generally higher for these than for other instruments, financial incentives are often critical to overcoming the barriers to the penetration of new technologies (high agreement, much evidence). Direct and indirect subsidies for fossil fuel use and agriculture remain common practice, although those for coal have declined over the past decade in many Organization for Economic Co-operation and Development (OECD) and in some developing countries.
• Government support through financial contributions, taxation measures, standard setting and market creation is important to the promotion of technology development, innovations and transfer. However, government funding for many energy research programmes has fallen off since the oil shock in the 1970s and stayed constant at this lower level, even after the United Nations Framework Convention on Climate Change (UNFCCC) was ratified. Substantial additional investments in – and policies for – Research and Development (R&D) are needed to ensure that technologies are ready for commercialization in order to arrive at a stabilization of GHGs in the atmosphere (see Chapter 3), as are economic and regulatory instruments to promote their deployment and diffusion (high agreement, much evidence).
• Information instruments, including public disclosure requirements, may affect environmental quality by promoting better-informed choices and lead to support for government policy. There is only limited evidence that the provision of information can achieve emissions reductions, but it can improve the effectiveness of other policies (high agreement, medium evidence).

In practice, climate-related policies are seldom applied in complete isolation, as they overlap with other national polices relating to the environment, forestry, agriculture, waste management, transport and energy and, therefore, in many cases require more than one instrument. For an environmentally effective and cost-effective instrument mix to be applied, there must be a good understanding of the environmental issue to be addressed, the links with other policy areas and the interactions between the different instruments in the mix. Applicability in specific countries, sectors and circumstances – particularly developing countries and economies in transition – can vary greatly, but may be enhanced when instruments are adapted to local circumstances (high agreement, much evidence).

International agreements

As precedents, the UNFCCC and Kyoto Protocol have been significant in providing a means to solve a long-term international environmental problem, but they are only first steps towards the implementation of an international response strategy to combat climate change. The Kyoto Protocol’s most notable achievements are the stimulation of an array of national policies, the creation of a carbon market and the establishment of new institutional mechanisms. Its economic impacts on the participating countries are yet to be demonstrated. The Clean Development Mechanism (CDM), in particular, has created a large project pipeline and mobilized substantial financial resources, but it has faced methodological challenges in terms of determining baselines and additionality. The Protocol has also stimulated the development of emissions trading systems, but a fully global system has not been implemented. The Kyoto Protocol is currently constrained by the modest emission limits. It would be more effective if the first commitment period is followed-up by measures to achieve deeper reductions and the implementation of policy instruments covering a higher share of global emissions (high agreement, much evidence).

New literature highlights the options for achieving emission reductions both under and outside of the Convention and its Kyoto Protocol by, for example, revising the form and stringency of emission targets, expanding the scope of sectoral and sub-national agreements, developing and adopting common policies, enhancing international Research, Development and Demonstration (RD&D) technology programmes, implementing development-oriented actions and expanding financing instruments (high agreement, much evidence). An integration of diverse elements, such as international R&D co-operation and cap and trade programmes, within an agreement is possible, but any comparison of the efforts made by different countries would be complex and resource-intensive (medium agreement, medium evidence).

Recent publications examining future international agreements in terms of potential structure and substance report that because climate change is a global problem, any approach that does not include a larger share of global emissions will have a higher global cost or be less environmentally effective (high agreement, much evidence). The design of a future regime will have significant implications for global costs and the distribution of cost among regions at different points in time There is a broad consensus in the literature that a successful agreement will have to be environmentally effective and cost-effective, incorporate distributional considerations and equity and be institutionally feasible (high agreement, much evidence). Agreements are more likely to be effective if they include goals, specific actions, timetables, participation and institutional arrangements and provisions for reporting and compliance (high agreement, much evidence).

Goals determine the extent of participation, the stringency of the measures and the timing of the actions. For example, to limit the temperature increase to 2°C above pre-industrial levels, developed countries would need to reduce emissions in 2020 by 10–40% below 1990 levels and in 2050 by approximately 40–95%. Emissions in developing countries would need to deviate below their current path by 2020, and emissions in all countries would need to deviate substantially below their current path by 2050. A temperature goal of less than 2°C requires earlier reductions and greater participation (and vice versa) (high agreement, much evidence). Abatement costs depend on the goal, vary by region and depend on the allocation of emission allowances among regions and the level of participation.

Initiatives of local and regional authorities, corporations, and non-governmental organizations

Corporations, local and regional authorities and NGOs are adopting a variety of actions to reduce GHG emissions. Corporate actions range from voluntary initiatives to emissions targets and, in a few cases, internal trading systems. The reasons corporations undertake independent actions include the desire to influence or pre-empt government action, to create financial value, and to differentiate a company and its products. Actions by regional, state, provincial and local governments include renewable energy portfolio standards, energy efficiency programmes, emission registries and sectoral cap and trade mechanisms. These actions are undertaken to influence national policies, address stakeholder concerns, create incentives for new industries and/or to create environmental co-benefits. Non-government organizations promote programmes that reduce emissions through public advocacy, litigation and stakeholder dialogue. Many of the above actions may limit GHG emissions, stimulate innovative policies, encourage the deployment of new technologies and spur experimentation with new institutions, but they generally have limited impact on their own. To achieve significant emission reductions, these actions must lead to changes in national policies (high agreement, medium evidence).

Implications for global climate change policy

Climate change mitigation policies and actions taken by national governments, the private sector and other areas of civil society are inherently interlinked. For example, significant emissions reductions have occurred as a result of actions by governments to address energy security or other national needs (e.g. the switch in the UK to gas, the energy efficiency programmes of China and India, the Brazilian development of a transport fleet driven by bio-fuel or the trend in the 1970s and 1980s toward nuclear power). However, non-climate policy priorities can overwhelm climate mitigation efforts (e.g. decisions in Canada to develop the tar sands reserves, those in Brazil to clear forests for agriculture and in the USA to promote coal power to enhance energy security) and lead to increased emissions. New research to assess the interlinkages between climate change and other national policies and actions might lead to more politically feasible, economically attractive and environmentally beneficial outcomes and international agreements.