6.1.1 Introduction and Key Questions
The main purpose of this chapter is to discuss the various policies and measures
in relation to the different criteria that can be used to assess them, on the
basis of the most recent literature. There is obviously a relatively heavy focus
on the Kyoto instruments, because they focus on climate policy, have been agreed
since the IPCC Second Assessment Report (SAR; IPCC, 1996, Section 11.5), and
the extent of their envisaged international application is unprecedented. Wherever
feasible, political economic, legal, and institutional elements are discussed
insofar as they are relevant to the implementation of policies and measures.
To make both theoretical and practical points the chapter offers occasional
examples of policy instrument application, but the effort in this regard is
limited by the existing literature, which is weighted towards the experience
of industrialized countries.4
The chapter does not systematically discuss policies and measures typically
used to encourage sector-specific technologies; such policies and measures are
described in Chapters 3, 4, and
5. The emphasis is on the general description and assessment
of policies and measures.
6.1.2 Types of Policies, Measures, and Instruments
A country can choose from a large set of policies, measures, and instruments
to limit domestic greenhouse gas (GHG) emissions or enhance sequestration by
sinks. These include (in arbitrary order): (1) taxes on emissions, carbon, and/or
energy, (2) tradable permits5
, (3) subsidies6
, (4) depositrefund systems, (5) voluntary agreements (VAs), (6) non-tradable
permits, (7) technology and performance standards, (8) product bans, and (9)
direct government spending and investment. Definitions of these instruments
are provided in Box 6.1. The first four are often called
market-based instruments, although some VAs also fall into this category.
|Box 6.1. Definitions of Selected National Greenhouse Gas
Abatement Policy Instruments
- An emissions tax is a levy imposed by a government on each unit of
emissions by a source subject to the tax. Since virtually all of the
carbon in fossil fuels ultimately is emitted as CO2, a levy
on the carbon content of fossil fuelsa carbon taxis equivalent
to an emissions tax for emissions caused by fossil fuel combustion.
An energy taxa levy on the energy content of fuelsreduces
the demand for energy and so reduces CO2 emissions through
fossil fuel use.
- A tradable permit (cap-and-trade) system establishes a limit on aggregate
emissions by specified sources, requires each source to hold permits
equal to its actual emissions, and allows permits to be traded among
sources. This is different from a credit system, in which credits are
created when a source reduces its emissions below a baseline equal to
an estimate of what they would have been in the absence of the emissions
reduction action. A source subject to an emissions-limitation commitment
can use credits to meet its obligation.
- A subsidy is a direct payment from the government to an entity, or
a tax reduction to that entity, for implementing a practice the government
wishes to encourage. GHG emissions can be reduced by lowering existing
subsidies that in effect raise emissions, such as subsidies to fossil
fuel use, or by providing subsidies for practices that reduce emissions
or enhance sinks (e.g., for insulation of buildings or planting trees).
- A depositrefund system combines a deposit or fee (tax) on a
commodity with a refund or rebate (subsidy) for implementation of a
- A VA is an agreement between a government authority and one or more
private parties, as well as a unilateral commitment that is recognized
by the public authority, to achieve environmental objectives or to improve
environmental performance beyond compliance.
- A non-tradable permit system establishes a limit on the GHG emissions
of each regulated source. Each source must keep its actual emissions
below its own limit; trading among sources is not permitted.
- A technology or performance standard establishes minimum requirements
for products or processes to reduce GHG emissions associated with the
manufacture or use of the products or processes.
- A product ban prohibits the use of a specified product in a particular
application, such as hydrofluorocarbons (HFCs) in refrigeration systems,
that gives rise to GHG emissions.
- Direct government spending and investment involves government expenditures
on research and development (R&D) measures to lower GHG emissions
or enhance GHG sinks.
A group of countries that want to limit their collective GHG emissions could
agree to implement one, or a mix, of instruments. These are (in arbitrary order):
- tradable quotas;
- Joint Implementation (JI);
- the Clean Development Mechanism (CDM);
- harmonized taxes on emissions, carbon, and/or energy;
- an international tax on emissions, carbon, and/or energy;
- non-tradable quotas;
- international technology and product standards;
- international VAs; and
- direct international transfers of financial resources and technology.
Box 6.2 defines some of the instruments most prominently
discussed in the literature. The first five are often called market-based instruments,
although VAs can fall into this category also.
|Box 6.2. Definitions of Selected International Greenhouse
Gas Abatement Policy Instruments
- A tradable quota system establishes national emissions limits for
each participating country and requires each country to hold quota equal
to its actual emissions. Governments, and possibly legal entities, of
participating countries are allowed to trade quotas. Emissions trading
under Article 17 of the Kyoto Protocol is a tradable quota system based
on the assigned amounts (AAs) calculated from the emissions reduction
and limitation commitments listed in Annex B of the Protocol.
- JI allows the government of, or entities from, a country with a GHG
emissions limit to contribute to the implementation of a project to
reduce emissions, or enhance sinks, in another country with a national
commitment and to receive emission reduction units (ERUs) equal to part,
or all, of the emissions reduction achieved. The ERUs can be used by
the investor country or another Annex I party to help meet its national
emissions limitation commitment. Article 6 of the Kyoto Protocol establishes
JI among Parties with emissions reduction and limitation commitments
listed in Annex B of the Protocol.
- The CDM allows the government of, or entities from, a country with
a GHG emissions limit to contribute to the implementation of a project
to reduce emissions, or possibly enhance sinks, in a country with no
national commitment and to receive CERs equal to part, or all, of the
emissions reductions achieved. Article 12 of the Kyoto Protocol establishes
the CDM to contribute to sustainable development of the host country
and to help Annex I Parties meet their emissions reduction and limitation
- A harmonized tax on emissions, carbon, and/or energy commits participating
countries to impose a tax at a common rate on the same sources.7
Each country can retain the tax revenue it collects.
- An international tax on emissions, carbon, and/or energy is a tax
imposed on specified sources in participating countries by an international
agency. The revenue is distributed or used as specified by participant
countries or the international agency.
- Non-tradable quotas impose a limit on the national GHG emissions of
each participating country to be attained exclusively through domestic
- International product and/or technology standards establish minimum
requirements for the affected products and/or technologies in countries
in which they are adopted. The standards reduce GHG emissions associated
with the manufacture or use of the products and/or application of the
- An international VA is an agreement between two or more governments
and one or more entities to limit GHG emissions or to implement measures
that will have this effect.
- Direct international transfers of financial resources and technology
involve transfers of financial resources from a national government
to the government or legal entity in another country, directly or via
an international agency, with the objective of stimulating GHG emissions
reduction or sink enhancement actions in the recipient country.