Rethinking Decarbonisation Incentives

Introduction

Rethinking Decarbonisation Incentives (RDI) explores how UK policies can promote clean growth by taking a ‘whole systems’ perspective on carbon policy.

Through the project, Energy Systems Catapult aims to promote broader strategic debate about how the UK could improve carbon policy to stimulate innovation and clean growth.

To download a copy of the final report, click here.

The Challenge and Opportunity

The UK has clear targets to reduce carbon emissions, but the economic incentives to do so are complex and changeable. Current policies comprise a combination of different taxes, subsidies, contracts and regulations, which is a long way removed from the textbook ideal of an economy-wide carbon price.

The reward for cutting carbon emissions is generally much lower than it needs to be, and it varies across different sectors of the economy. This makes it very difficult to promote the right balance of investment or to encourage long-term investment and innovation.

Our Approach

The debate in the UK about energy and climate change policy often focuses on specific parts of the energy system or particular policies, most often in the power sector. Discussion and analysis naturally tend to address the detail of the particular energy policy instruments in play.

The Government published its Clean Growth Strategy, which provides a broader framework, but with a wide range of sector-specific policy intentions.

There is relatively less strategic debate about:

  • The broad pattern of economic drivers for decarbonisation
  • How to create an enduring economic framework for carbon reduction across the whole economy.

Other jurisdictions around the world appear to have a more active debate around economy-wide carbon policy (e.g. California, Canada etc.), with widespread engagement in questions of carbon policy, taxation and ‘cap and trade’ design.

The RDI project aims to fill this gap and stimulate more consideration of the economy-wide framework for carbon reduction and clean growth in the UK.

The Catapult has explored:

  • How current policies incentivise action to cut emissions in different sectors.
  • What we can learn from international case studies and examples.
  • What reform options could work for the UK to improve incentives to cut emissions efficiently and promote clean growth.

Our Outputs

The RDI project has so far produced:

Who is involved?

We have worked with a number of collaborators and advisors, which include:

Next Steps

The Rethinking Decarbonisation Incentives project has helped us to better understand the nature and scale of challenges in improving carbon policies. We plan to continue working on these themes, focusing on practical steps to promote clean growth, innovation, and investment across the whole energy system and economy.

Potential themes include:

  • Further developing carbon standards for low/zero carbon residential heat.
  • Understanding the features of carbon policy that work best for industry and innovation.
  • Examining strategic interactions with wider policy challenges (e.g. vehicle electrification, air quality, congestion, and motoring taxation).
  • Improving the empirical basis for policy and incentives through more integrated greenhouse gas emission measuring, monitoring, and verification.
  • Long-term policy to promote investment in options for greenhouse gas removals.