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Find out more about how Energy Systems Catapult can help you and your teams
Net Zero Carbon Policy is an Energy Systems Catapult thought leadership project, focusing on how the UK can develop an innovation-friendly, economy-wide framework for Net Zero.
We are building on the insights from our Rethinking Decarbonisation Incentives project, to develop credible policy options for an efficient and socially beneficial transition.
In this report, we explore how linking sectoral policies through trading can play a key role in opening a pathway to an economy-wide carbon policy framework.
This approach has a number of key advantages for achieving Net Zero:
We anticipate that different sectoral policies can be implemented in ways that complement, or are consistent with, an overarching UK ETS. There is potential to place sectoral policies within the ‘cap’ of an ETS and for them to be linked by allowing the trading of carbon credits across sectors. In this sense, sectoral carbon policies can be seen as modules that can be linked over time so that they create and impose an economy-wide ‘cap’ on all emissions. Initially, trading may take place within sectors with links introduced progressively across sectors as circumstances allow.
The aim of linking sectors is not to impose an economy-wide effective carbon price, rather it is to enable cost-effective emissions reduction that would result from flexible trading. The detailed metrics of tradeable carbon credits in each sector could vary depending on the design of sectoral obligations or regulations. To enable linkages via trading, sector-specific carbon metrics and standards can be converted into a common ‘currency’ of £/tCO2e.
An example of the potential sector-specific carbon metrics or standards that could be converted into a common ‘currency’ of £/tCO2e to allow trading of carbon credits across the economy.
Sectors can begin to link as soon as the associated carbon markets allow, but this requires carbon policy design to consider linkages from their inception. In this way, sectoral carbon policies can remain tailored to the associated challenges and opportunities that arise within each. This approach is likely to be both publicly and politically more acceptable than attempting to apply or expand a blanket approach using a single carbon tax or a single overarching emissions trading system.
Our Net Zero Carbon Policy project has so far proposed actions to initiate a sector-led approach as a pathway to an economy-wide carbon policy framework. To enable this will require – amongst other things – trading of carbon credits within and across sectors. In order to develop such linkages, we suggest that policymakers consider the following recommended actions.
Developing Carbon Credit Markets
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Independent thought leadership that combines expertise in clean technology, economics, and energy policy design, informed by cutting-edge modelling and evidence-based analysis.
Find out moreFind out more about how Energy Systems Catapult can help you and your teams
Find out more about how Energy Systems Catapult can help you and your teams