Rethinking Decarbonisation Incentives: International Policy Case Studies

To help inform thinking about UK policy options for our Rethinking Decarbonisation Incentives project, we commissioned 11 international case studies to explore the policy approaches to decarbonisation (or related objectives).

The case studies, delivered by Ricardo Energy and Environment, include examples of standards, subsidies, tradeable certificates and interacting suites of policies, as well as the carbon pricing instruments ‘carbon tax’ and ‘cap and trade’.

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International Case Studies

Interaction of Climate Policies in California 

Focuses on the policy development and governance processes involved in implementing California’s Global Warming Act of 2006, and the central role that California’s Air Resources Board’s (CARB) played. It also covers the role that the cap and trade policy alongside complementary measures in achieving California’s climate change goals.

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California Low Carbon Fuel Standards 

Examines the key design factors and governance and practical administration of the Fuel Standards programme. The case study also explores the revisions that were made following lawsuits filed against the fuel standard.

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EU Automotive Emissions Standards 

Investigates how manufacturers have performed against the standards and the limitations of this approach from the point of view of an incentive for decarbonisation. It also examines how the standards function alongside other EU policy initiatives, such as vehicle and fuel taxation.

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EU Emissions Trading System 

Examines the main issues in determining the robustness of the EU Emission Trading Scheme (ETS) price signal. The EU ETS policy development experience provides insights into the key challenges in establishing a multi-sector decarbonisation incentive.

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Italy Energy Efficiency White Certificates Scheme

Examines the white certificate system in Italy, known as the Titoli di Efficienza Energetic (TEE) to draw lessons on whether and how decarbonisation signals can be established with energy efficiency policies sitting alongside carbon pricing.

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Netherlands Renewable Energy Support Schemes 

Focus on how decisions around policy targets have led to different levels of economic incentives for renewables. It also examines the interaction between measures to support renewable energy and incentives for decarbonisation and how any negative consequences can be mitigated.

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New Zealand Emissions Trading Scheme 

Outlines the rationale for some of the unique features of the New Zealand Emission Trading System (ETS). These include policy decisions around excluding the agriculture sector from the ETS, the choice for upstream regulation, the rationale and impacts of linking to other ETS(s), and mechanisms to protect the competitiveness of industries.

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Pan-Canadian Carbon Pricing 

Reviews the federal carbon pricing ‘backstop’ approach proposed under the Pan-Canadian Framework on Clean Growth and Climate Change (PCF) for those jurisdictions which elect to adopt it or whose proposed approaches fail to meet the minimum stringency standards. In addition, the steps taken to mitigate risks to business competitiveness under the PCF are also highlighted.

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South Africa Carbon Tax 

Provides findings on the extent to which such a broad-based policy can deliver a carbon price signal throughout an economy, and the technical and political challenges faced. It explores the design of the tax, including its point of regulation, the exemptions or allowances granted to specific sectors, and rationale behind these. In addition, it examines measures to deal with issues of international competitiveness, such as the use of offsets.

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Sweden Energy and Carbon Tax Policy 

Explore the evolution of the tax policy and key drivers behind this. In addition, it explores the government’s measures to maintain political, commercial and public acceptance of the policy. Finally, the issue of the tax policy’s interaction with complementary policies is examined, including attempts to harmonise in areas of overlap.

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US SO2 Emission Trading 

Discusses the political context around designing the scheme, key design elements, and the associated economic benefits. It also reviews the challenges associated with the attempts to reduce the cap.

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Synthesis of Key Findings from Case Studies

Themes emerging from the report

  • Coverage and point of regulation – the coverage of a decarbonisation policy determine which greenhouse gases and sectors will be subject to any resulting price signal.
  • Price signal and policy certainty – decarbonisation policies generally require a target to be set to underpin the economic incentive. The robustness of this target and its surrounding governance framework will strongly affect the credibility of the policy and the emission reduction outcomes that are achieved.
  • Governance – the impact of decarbonisation policies on markets and investment depends significantly on its legislative and/or governance framework. Investor confidence in the stability and longevity of the policies is important for success.
  • Policy interactions and harmonisation – complementary policies may be required to address other barriers to abatement, which carbon pricing or regulation would not address

Using the case studies and key findings, Ricardo Energy and Environment are developing and characterising a set of reform options, which will undergo in-depth analysis in subsequent stages of the project.

Synthesis of Key Findings from Case Studies relevant to UK decarbonisation policy have been drawn from the international case studies listed above and brought together into a report.

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