Carbon Pricing Policies Research Articles

Carbon Pricing and Complementary Policies—Consistency of the Policy Mix for Decarbonizing Buildings in Germany

While it is widely acknowledged that carbon pricing plays an important role in driving the transition towards a low-carbon energy system, its interaction with complementary instruments is discussed controversially. The analysis of combining carbon pricing with complementary policies has been mostly focused on the electricity sector, while the role of carbon pricing in the buildings sector has received only minor interest. In view of the newly introduced carbon pricing scheme for the buildings and transport sector in Germany, we analyze the interactions between the carbon pricing scheme with the existing policy instruments and assess the consistency of the policy mix for decarbonizing the buildings sector. Our analysis finds that the introduction of carbon pricing has a reinforcing effect on the instrument mix and adds to the consistency of the policy mix. The results highlight the importance of complementary policies in order to achieve deep decarbonization in the buildings sector. We conclude that carbon pricing, preferably implemented as a tax with a predictable and increasing price level, needs to be supplemented with a powerful mix of complementary measures.

Energy policy implications of carbon pricing scenarios for the Brazilian NDC implementation

This study assesses the expansion of the Brazilian energy system across three GHG emissions pathways simulating the achievement of the Brazilian Nationally Determined Contribution. In the Reference scenario, the NDC is achieved through command-and-control policies. We then compare this pathway to an Emissions Pricing Scenario (EPS), which simulates a carbon pricing scheme. The Sensitive Fuels Exemption Scenario (SFE) is similar to the latter, but gasoline, diesel and liquefied petroleum gas are exempted from pricing, strengthening political buy-in to the mechanism.An integrated modelling approach combines bottom-up models representing energy demand and supply and a macroeconomic framework to ensure consistency across them. The adoption of carbon pricing schemes enables the use of a large potential of offsets (from the restoration of native vegetation) at a limited cost. This allows meeting NDC targets with bounded use of expensive mitigation actions comprised in command-and-control tools in the reference scenario. This study shows that a carbon pricing policy can increase the effectiveness of meeting climate commitments in Brazil, reducing GDP losses against business-as-usual trends. However, the mechanism's scope and sectoral coverage are key to ensure that decarbonisation is pursued in all economic sectors and in line with climate targets beyond the NDC horizon.

Greenhouse gas emissions in British Columbia: Production versus consumption accounting from 2010 to 2015

As a result of carbon-pricing policies, a number of jurisdictions across the world claim to be decoupling their greenhouse gas (GHG) emissions from their gross domestic product (GDP). In British Columbia (BC), Canada, in what appears to be decoupling from 2007 to 2018, GHGs with respect to GDP declined by 16% ( BC Government 2020 ). This finding, however, is the result of a production-based method of accounting—the predominant global approach for allocating emissions—and not a consumption-based method. In this study, we compare these two accounting methods with respect to British Columbian decoupling. We calculate consumption-based emissions through a multi-regional input-output analysis from 2010 to 2015. In our results for 2015, we find total consumption emissions of 82.5Mt of CO 2 e; when compared to the total production emissions of 73.7Mt of CO 2 e, we find BC to be a net consumer of emissions by 8.8Mt of CO 2 e for 2015. Although BC has had this net consumer status since at least 2004 ( Dobson and Fellows, 2017 ), this orientation is in decline primarily due to the decarbonizing trends of China and the USA. In short, for BC from 2010–2015, on a per capita basis, both production and consumption accounts of emissions declined (even as GDP rose), but per capita consumption accounts declined more than production accounts and mostly due to emissions reductions from trade partners. Finally, this study may be of interest to policymakers and scientists, and like other scholars, we recommend that consumption-based inventories accompany production-based accounts when designing and assessing global GHG mitigation policy.

Economic and social effectiveness of carbon pricing schemes to meet Brazilian NDC targets

ABSTRACT Curbing GHG emissions while preserving economic growth is one of the main challenges that developing countries are facing to meet the Paris Agreement commitments. Brazil's NDC target aims to reduce economy-wide absolute levels of GHG emissions by 37% in 2025 and 43% in 2030, compared to 2005 emissions. In this paper, we compare command-and-control and carbon pricing policies to induce the Brazilian economy to meet its NDC targets. We focus on analysing synergies and trade-offs in macroeconomic and social development, captured by economic growth and income distribution while reducing GHG emissions. By integrating a series of sectoral models and a computable general equilibrium (CGE) model, we develop and run different policy scenarios that simulate a set of carbon pricing schemes in Brazil. Our analysis shows that NDC implementation in Brazil under carbon pricing policies allows the country to meet its targets and improve economic and social indicators compared to a command-and-control policy. With about the same GHG emissions up to 2030, important macroeconomic and social co-benefits can be achieved under a carbon pricing policy in Brazil, allowing for reduced welfare losses against business-as-usual trends. Key policy insights: Carbon pricing policies are more cost-effective to meet NDC targets in Brazil up to 2030, resulting in higher GDP and household income, in comparison to other individual policy instruments, including command-and-control and subsidies to investments. A carbon price of about 10 USD/tCO2e, combined importantly with deforestation rates under control, would allow Brazil to meet its NDC targets. Recycling carbon pricing revenues can help soften the burden on the labour market and protect low-income households from welfare losses.

National Climate Policies and Corporate Internal Carbon Pricing

While national governments pledged to reduce their greenhouse gas emissions under the Paris Agreement, delivering on these aims will require significant changes in the activities of major sources of emissions such as companies. To drive such changes, companies will need to consider carbon emissions as a cost of production and many companies have begun doing so through internal carbon pricing. By employing data from the Carbon Disclosure Project, we evaluate how national carbon pricing policies influence firm-level internal carbon pricing and corporate emission targets. We find that firm-level internal carbon prices are significantly higher in countries explicitly pricing carbon through tax and/or cap-and-trade programs. These findings shed light on how companies are factoring climate change in their decision-making and on the drivers that can contribute to the generalization of climate pricing in the economy.

Carbon pricing and supporting policy tools for deep decarbonization; case of electricity generation of Sri Lanka

This study internalizes carbon pricing and other regulatory policy tools for decarbonizing the electricity generation mix of Sri Lanka. Carbon Pricing is shifted to the supply side as a decision-making tool. We consider $10/tCO2, $20/tCO2, $30/tCO2, $44/tCO2, $130/tCO2, and $297/tCO2 as potential carbon prices. Other regulatory policy tools, such as mandatory renewable energy (RE) development, fuel switching, fossil fuel phasing out, fossil fuel development moratoriums, and mandatory RE utilization, are included as possible supporting tools. Three capacity-development scenarios and three optimization models with three objective functions are designed and implemented in the General Algebraic Modeling System (GAMS). Six policy options are presented for the Sri Lankan context considering cost, emission, and diversification. Results suggest a carbon price that falls between $10/tCO2-$44/tCO2 as suitable for Sri Lanka. The study contributes to the ongoing debate on the effectiveness of carbon pricing by empirically testing the effectiveness of carbon prices in the electricity generation planning of a developing country. The findings support the emerging consensus of adopting other regulatory policy tools along with carbon prices to achieve deep decarbonization. The study also assesses the role LNG could play in a developing country’s electricity generation mix. We recommend transitioning from coal to LNG as an intermediate decarbonization policy option until the RE capacities are developed to make the near-zero emission mix a reality.

Distributional impacts of carbon pricing policies under the Paris Agreement: Inter and intra-regional perspectives

In this paper, we analyze the poverty and distributional impacts of different carbon pricing mechanisms consistent with reaching the Paris Agreement targets. We link a global recursive dynamic computable general equilibrium model ENVISAGE with the GIDD microsimulation model and explore three levels of mitigation effort and five carbon pricing options (trade coalitions). Results suggest that while there is a higher incidence of poverty in all scenarios, mainly driven by lower economic growth, Nationally Determined Contribution (NDC) policies result in a progressive income distribution at the global level. Such progressivity is caused not only by lower relative prices of food versus non-food commodities, but also by a general decline in the skill wage premia.Achievement of the NDC targets without regional cooperation results in 0.45% increase in the number of people living in extreme poverty (below PPP$1.90/day) by 2030, while a more ambitious 2 °C-consistent target increases this number to 1.25%. Global cooperation significantly eases the burden on poor, reducing the poverty headcount by almost three times in the case of 2 °C-consistent target and bringing it to the baseline scenario level in the case of NDC target. The global Gini coefficient falls between 0.01 and 0.04 percentage points, while reduction in the Theil index is between 0.01 and 0.11 percentage points. Results also indicate that the reductions in inequality come mainly from a reduction in income from top earners, as the results are much more sensitive to the NDC policies closer to the top of the income distribution.

A machine learning model to investigate factors contributing to the energy transition of utility and independent power producer sectors internationally

SummaryThere is evidence of independent power producers dominating the electricity sector's uptake of renewable energy, with utilities lagging behind. Here, we build a machine-learning-based model with multiple dependent variables to simultaneously explore environmental policy and market structure contributions to investment patterns in different technologies by utility and independent producer sectors across 33 countries over 20 years. With the analysis enabling the capture of non-linear relationships, our findings suggest substantial resistance of gas capacity to even strict carbon pricing policies, while coal appears more responsive. There is also an indication of policy pricing in effects. The positive link of renewables subsidies and fossil fuel disincentives to renewables expansion, particularly wind, is more prominent for independent power producers than utilities. Regarding market structures, different characteristics tend to matter for renewables growth compared to fossil fuel reductions. The results also suggest considerable differences in policy and market factor contributions to technology choices of Organisation for Economic Co-operation and Development vis-à-vis emerging economies.

Carbon pricing research in Brazil: advances and challenges / Pesquisa de preços de carbono no Brasil: avanços e desafios

Carbon pricing policies are currently considered to be implemented in Brazil, so understanding the present state of carbon pricing research focusing on the national perspective can support energy and environmental policy discussions and guide future research directions. Using the bibliometric method, we analysed 160 publications aiming at assessing the carbon pricing literature in Brazil by 2020. We found out a low and recent production of articles on carbon pricing in Brazil, concentrated from 2015 onwards. Climate Policy is the leading journal and the Federal University of Rio de Janeiro (UFRJ) leads the ranking of the top three authors. Most publications are related to land use change and deforestation, and few publications connect Brazil to carbon pricing policies instruments, like emission trading schemes (ETS) and carbon taxes. However, there is an increase in the number of articles relating Brazil to the energy and environmental policies considering the policy and governance approaches.

A classification framework for carbon tax revenue use

ABSTRACT Carbon pricing could assist in the dual pursuit of mitigating global climate change and contributing to government coffers. The way in which a government allocates carbon tax revenues is a key factor in the public’s acceptance of carbon pricing policy and ultimately in its enduring success. To that end, this article presents an innovative, simple classification framework of carbon tax revenue usage which has four modalities to cater for various policy design features. These are: a constrained approach as opposed to an unconstrained one; a revenue-neutral recycling approach as opposed to a revenue-raising one; an approach according to public preference; and a thematic approach. Thereafter, various attributes are examined to assist policymakers in selecting an appropriate modality. The classification framework will be useful for policymakers as a quick point of reference before embarking on more complex and in-depth policy deliberations. Key policy insights Carbon pricing is the most cost-effective regulatory approach for reducing greenhouse gas emissions and is recognized as a significant contributor to government revenue. Carbon tax revenue use can be classified into four overarching modalities to cater for various policy design attributes. There is no dominating revenue use option from an economic or political viewpoint, owing to trade-offs across various fiscal policy objectives. Carbon taxes are elements of broader tax reform and therefore revenue use options should be aligned with a jurisdiction’s broader fiscal policy charter.

IMPACTS OF CARBON PRICING ON DEVELOPING ECONOMIES

Carbon pricing is widely recognized as an effective policy instrument for climate change mitigation. Carbon pricing have been imposed in 39 developed countries and eight middle-income countries. Eight more middle-income countries are considering its implementation. As experiences from industrialized countries may not be relevant to developing countries, this literature review fills a knowledge gap by collating the impacts of carbon pricing in developing economies to facilitate cross-learning. Some developing countries still have distortionary subsidies in place, while others are going through environmental fiscal reforms to nudge their societies and economies towards greenhouse gases emission reduction. Various studies demonstrated that safeguards introduced with carbon pricing could help firms to transition while maintaining the motivation to innovate to stay competitive. At the household level, given different energy consumption patterns, carbon pricing in developing economies is not necessarily regressive, especially for rural population. Aggregate impacts to employment rate and gross domestic product change over time as the economy restructures towards decarbonization. A well-designed carbon pricing policy package with revenue recycling mechanisms tailored to the socioeconomic circumstances of the country could achieve multiple dividends of economic growth, increased employment, improved equality, national debt reduction or accomplishment of other sustainable development goals.

Close the carbon loophole

Close the carbon loophole

Carbon Price Forecasting Based on Improved CEEMDAN and Extreme Learning Machine Optimized by Sparrow Search Algorithm

Effective carbon pricing policies have become an effective tool for many countries to encourage emission reduction. An accurate carbon price prediction model is helpful for the implementation of energy conservation and emission reduction policies and the decision-making of governments and investors. However, it is difficult for a single prediction model to achieve high prediction accuracy because of the high complexity of the carbon price series. Many studies have proved the nonlinear characteristics of carbon trading prices, but there are very few studies on the chaotic nature of carbon price series. As a consequence, this paper proposes an innovative hybrid model for carbon price prediction. A decomposition-reconstruction-prediction-integration scheme is designed to predict carbon prices. Firstly, several intrinsic mode functions (IMFs) and one residue were obtained from the raw data decomposed by ICEEMDAN. Next, the decomposed subsection is reconstructed into a new sequence according to the calculation results by the Lempel-Ziv complexity algorithm. Then, considering the chaotic characteristics of sequence, the input variables of the models are determined through the phase space reconstruction (PSR) algorithm combined with the partial autocorrelation function (PACF). Finally, the Sparrow search algorithm (SSA) is introduced to optimize the extreme learning machine (ELM) model, which is applied in the carbon price prediction for the purpose of verifying the validity of the proposed combination model, which is applied to the pilots of Hubei, Beijing, and Guangdong. The empirical results show that the combination model outperformed the 13 other models in predicting accuracy, speed, and stability. The decomposition-reconstruction-prediction-integration strategy is a method for predicting the carbon price efficiently.

Cap and Trade Versus Carbon Tax: An Analysis Based on a CGE Model

Cost-effectiveness comparisons between two typical pricing policies, i.e., cap and trade and carbon tax, are rare in the literature and are tackled in this study. We define various carbon shadow prices at different administrative levels. By using a computable general equilibrium model, the cost-effectiveness of various policies is compared in terms of the estimation of carbon shadow prices. The results show that an energy cap-and-trade policy yields a close GDP-based carbon shadow price but a lower GSPV-based (gross-social-production-value-based) carbon shadow price than a proportional energy reduction policy does. Compared to a cap-and-trade policy, a carbon tax policy yields a much lower GDP-based carbon shadow price but a higher GSPV-based price. Improving the stringency of either a cap-and-trade policy or a carbon tax policy has limit impact on the industrial structure of the whole economy despite the impact on both the GDP and the GSPV are different between these two policies. The comparison of the two carbon pricing policies mainly implies that a carbon tax is more cost-effective than cap-and-trade for a carbon- and trade-intensive economy, but cap-and-trade has lower sector-level impacts than carbon tax especially when the cap restriction is loose.

Do renewable portfolio standards increase renewable energy capacity? Evidence from the United States

This research evaluates the impacts of the Renewable Portfolio Standard (RPS) on renewable electricity capacity using annual data spanning 47 states between 1990 and 2014 in the United States. RPS is a state-level policy that requires electricity suppliers to include a certain fraction of renewable electricity in their total electricity sales over a specified time period. Following nuanced identification strategies, generalized difference-in-difference method is used to transform observational data into a quasiexperimental setting to mitigate against potentially inconsistent estimator or selection bias concerns vis-à-vis the adoption of RPS across states. Generalized least squares with panel corrected standard errors and spatial econometric methods are selected as estimation techniques. The results show that RPS adoption drives more than one third increase in overall renewable electricity capacity. RPS impacts on total electricity capacity remain significantly positive with consistent estimates across modeling scenarios. However, the results reveal that impacts of heterogeneous RPS attributes differ across competing sources of renewable electricity. The impacts are positively significant for solar and wind capacity with the largest impact on wind capacity, while they are insignificant or significantly negative for biomass and geothermal capacity. The significantly positive contribution of renewable energy certificates provision and manifestation of spatial spillover effects indicate the regional marketing possibilities of renewable energy. The results imply that scaling up RPS proliferation across the states and specifying RPS targets by renewable energy sources at least up to the point when renewable energy sector achieves efficiency gains (economies of scales and allocative efficiency) or better alternatives to the RPS become available (e.g., least-cost carbon pricing policy), can play critical roles to exert transformative advances in renewable electricity sector.

The policy regime and shift of emissions trading scheme by Australian Labor Party and Emissions Reduction Fund by the coalition in Australia year 2013-2018

Emissions reduction policies for pollutant companies in Australia has become one issue that divides society and parliament. This study discusses the causes of the shifting of the Emissions Trading Scheme (ETS), a carbon pricing policy by the Australian Labor Party to the Emissions Reduction Fund (ERF) by the Coalition. This study used the political exchange concept by Bruno Dente which describes a mutually beneficial relationship between the Coalition (consisting of the Liberal Party and National Party) with business groups. In addition, Carter A. Wilson’s theory of policy regimes and policy regime change was used to see the presence of interest groups and stages in policy shifts. This study used a qualitative approach by collecting data from literature studies and the Australian institution’s website, Hansard. Based on the findings, political exchange between the Coalition and business groups encourages the creation of conditions where stressors / enablers, legitimacy crisis, and power shifts occur. The Coalition as opposition then weakens the ETS policy regime by the reigning Australian Labor Party (ALP). After the Coalition won the election, there was an ETS policy shift by ALP to become an ERF which passed through the House of Representatives and Senate, and was approved by Governor General in 2014.

Exploring the role of forest biomass in abating fossil CO2 emissions in the iron and steel industry – The case of Sweden

This paper considers the utilisation of forest biomass in iron and steel making by putting focus on the supply of available raw biomass assortment, biomass conversion technologies, and distribution of biomass-based products towards reduced fossil CO2 emissions in the iron and steel industry. Biomass-based products are produced by converting biomass assortments from forestry operations and forest industries via slow pyrolysis and gasification technologies. Using a spatially explicit cost optimisation model, biomass supply is optimised to suit the corresponding demand for energy and material substitution, and the extent to which biomass can be a tool in CO2 abatement is explored. The study findings show that maximum use of biomass-based products result in a 43% reduction in CO2 emissions across the existing steel producing technologies. Results also show that increasing the rate of biomass utilisation via substitution targets is more effective than the use of a carbon pricing policy, since the maximum CO2 reduction is unmet even with very high CO2 prices. In the scenario analysis, it is found that low fossil fuel prices constitute a barrier to adopting biomass as an alternative to fossil energy use. Compared to the business-as-usual case, a maximum of 27% increase in energy-related costs was calculated for the industry.

Mitigation Policies for the Paris Agreement: An Assessment for G20 Countries

AbstractThis paper provides a quantitative assessment of carbon pricing and other mitigation policies for G20 countries in 2030. Emissions prices implicit in countries’ Paris Agreement pledges vary...

How should China prioritize the deregulation of electricity prices in the context of carbon pricing? A computable general equilibrium analysis

Abstract China formally launched a national carbon trading market in the power sector in 2017. However, electricity prices in China are still subject to government regulation, which reduces the cost-effectiveness of the carbon pricing policy. This study uses a computable general equilibrium model to explore how China's electricity prices can be deregulated in two stages in the context of implementing carbon pricing in the electricity sector. The results show that under different government policy objectives, the choice of electricity price deregulation is different. If the government intends to significantly reduce marginal abatement costs and promote carbon emission reductions, the electricity price deregulation of non-key electricity consumption sectors should be prioritized in the first stage and that of the national protected sectors in the second stage. Conversely, if the government intends to reduce GDP losses, households' disposable income, and welfare losses effectively, the liberalization of the electricity prices of key electricity consumption sectors should be prioritized in the first stage and that of the household sector in the second stage. Taking 50% of the reduction targets in the electricity sector as an example, if the key electricity consumption sectors and households are prioritized, GDP losses are reduced by 3.6% and 13%, respectively. The results of this study provide new information for China to implement electricity market reform in the context of carbon pricing.

Prix du carbone, stratégies d'entreprises et transformation énergétique

Le secteur de l'énergie hydrocarbure constitue la principale source d'émissions de gaz à effet de serre dans l'économie. Les entreprises privées de ce secteur ont par ailleurs eu un rôle déterminant dans la fabrique des politiques climatiques, en promouvant notamment dans leurs pratiques et leurs discours le pricing du carbone. Dans un contexte actuellement tendu, il est important de considérer les limites et les possibilités de sa décarbonation, par le pricing du carbone ou par d'autres politiques climatiques. Classification JEL : L71, Q53, Q54, Q56, Q58.