Climate Policy after Copenhagen: The Role of Carbon Pricing

Contents......Page 8
Figures......Page 10
Tables......Page 13
Boxes......Page 14
Acknowledgements......Page 15
Abbreviations......Page 16
One Introduction......Page 18
Two The role of a climate policy mix......Page 36
2.1 Putting a price on carbon......Page 37
Substitution of input fuels and carbon-intensive commodities......Page 41
Efficiency improvements......Page 45
2.2 The role of technology policy......Page 46
I. Research, development and demonstration......Page 48
II. Deployment and diffusion......Page 52
III. Creating long-term prospects for low-carbon technologies......Page 54
IV. Using synergies from international co-operation......Page 56
2.3 The role for targeted measures and regulation......Page 58
Who bears the cost of low-carbon policies?......Page 62
Implications for consumers......Page 65
2.5 Conclusion......Page 69
Notes......Page 71
Three Implementing a carbon price: the example of cap and trade......Page 73
3.1 The SO2 trading programme in the USA......Page 75
3.2 The European Union emissions-trading scheme......Page 78
3.3 Setting the cap: too many cooks spoil the broth......Page 82
3.4 Distributing allowances: compensate or distort......Page 89
Distortions from grandfathering with a moving baseline......Page 90
Distortions from benchmark allocation with a moving baseline......Page 91
Distortions from closure provisions......Page 93
Distortions from new-entrant allocation......Page 94
Summary of distortions......Page 97
Selling and auctioning allowances......Page 100
3.5 Sectoral coverage of a carbon-pricing scheme......Page 103
Benefit of including a sector into the scheme......Page 104
Challenges of including sectors into the scheme......Page 106
Timing of inclusion......Page 108
Governments’ responsibility for sectors in a carbon-pricing scheme......Page 109
3.6 Conclusion......Page 110
Notes......Page 112
Four Shifting investment to low-carbon choices......Page 114
4.1 The nature of uncertainty......Page 115
4.2 Response to uncertainty with taxes and cap-and-trade schemes......Page 117
4.3 Investment under uncertainty: contrasting different perspectives......Page 122
4.4 Addressing requirements of strategic investors......Page 126
The evolving policy framework in Europe......Page 130
4.5 Addressing requirements of project investors......Page 132
Length of implementation periods......Page 133
Banking and borrowing......Page 134
Active government intervention......Page 137
Setting a reserve price in auctions......Page 138
Put option contracts......Page 139
Price cap......Page 141
4.6 Addressing the needs of financial investors......Page 142
4.7 Conclusion......Page 146
Notes......Page 147
Five Co-operation among developed countries: a role for carbon markets?......Page 149
Support nations in developing sense of responsibility for their actions......Page 150
The ‘free rider’ issue......Page 151
Building trust and sense of joint effort......Page 154
Using co-operation mechanisms as a commitment device......Page 155
Credibility of international commitments......Page 156
5.2 Transparent monitoring and reporting......Page 157
5.3 Carbon-market-based international co-operation among developed countries......Page 160
International trade: on the country or installation levels?......Page 161
Direct linking of cap-and-trade schemes......Page 163
Indirect linking......Page 164
5.4 The economics of carbon-market-based co-operation mechanisms......Page 165
Dynamic efficiency gains of separate schemes if some countries pursue more-ambitious policies......Page 166
Alignment of cap-and-trade schemes with political responsibility......Page 168
Implications of joined-up schemes for future climate negotiations......Page 169
The dynamics of linking emissions-trading schemes......Page 170
5.6 A global carbon tax......Page 172
5.7 Conclusion......Page 175
Notes......Page 177
Six A world of different carbon prices......Page 179
6.1 Screening for high carbon costs......Page 181
Components of import costs......Page 190
The interaction between import costs and carbon costs......Page 192
6.3 Corporate strategy: the longer-term view......Page 195
6.4 The industry value chain: leakage versus substitution effect......Page 198
6.5 Policy options to address leakage......Page 202
State aid or free-allowance allocation to subsidise carbon-intensive production......Page 205
Sectoral agreements to address leakage......Page 209
Border adjustments......Page 212
6.6 Conclusion......Page 215
Notes......Page 218
Seven International support for low-carbon growth in developing countries......Page 220
7.1 Framework for international co-operation......Page 223
7.2 Financial needs for low-carbon development......Page 227
Contribution to investment and operation versus facilitating access to finance......Page 230
Up-front support grants......Page 231
Support during operation......Page 234
Facilitating access to finance......Page 235
7.3 The role of carbon markets to provide support for developing countries......Page 237
Rents......Page 239
Domestic climate policy disincentives in developing countries......Page 241
Reduced incentives for low-carbon transformation in developed countries......Page 242
Uncertainty......Page 243
Installation-based sectoral trading relative to benchmark performance......Page 245
Sectoral trading by linking to a sector cap-and-trade scheme......Page 247
Sectoral trading or crediting at government level......Page 249
7.4 Conclusion......Page 251
Notes......Page 253
Eight Conclusion......Page 254
Portfolio of climate policy instruments......Page 255
Effective implementation of domestic policy instruments......Page 256
How can international co-operation enhance domestic action?......Page 258
How can international support enhance action in developing countries?......Page 261
So does it add up to an adequate response to climate change?......Page 263
References......Page 265
Index......Page 281