Climate Change 2007 Update

9. How can governments create incentives for mitigation?

• 9.1 What are the implications of different policy instruments?
• 9.2 How is climate change mitigation linked to sustainable development?

9.1 What are the implications of different policy instruments?

A wide variety of policy tools can be applied by governments to create incentives for mitigation action taking into account national circumstances and interactions between policies. Experience from various countries and sectors shows there are advantages and drawbacks for any given policy instrument. It is important to consider environmental effectiveness of policies and instruments, their cost effectiveness, institutional feasibility and how costs and benefits are distributed.

Examples of policies and instruments:

• Integrating climate policies into broader development policies makes implementation easier.
• Regulations and standards generally provide some certainty about emission levels, but they may not encourage innovation and the development of new technologies.
• Taxes and charges can set a “carbon price” (a cost for each unit of greenhouse gas emissions) and be an effective mitigation incentive, but cannot guarantee a particular level of emissions.
• Tradable emission permits establish a “carbon price”. The volume of allowed emissions determines their environmental effectiveness, while the way permits are allocated determines who bears the costs. Fluctuation in the “carbon price” makes it difficult to estimate the total cost of complying with emission permits.
• Subsidies and tax credits can provide financial incentives for the development and diffusion of new technologies. Though sometimes costly, they are often critical to overcome barriers.
• Voluntary agreements between industry and governments are politically attractive, raise awareness, and have played a role in the evolution of many national policies. Only a few of them have led to measurable emission reductions.
• Awareness campaigns may positively affect environmental quality by promoting informed choices and possibly contributing to behavioural change. However, their impact on emissions has not been measured yet.
• Research, Development and Demonstration (RD&D) can stimulate technological advances, reduce costs, and enable progress toward stabilization.

Economic instruments, government funding or regulation that lead to a “carbon price” (a cost for each unit of greenhouse gas emissions) could create incentives for producers and consumers to significantly invest in products, technologies and processes reduce greenhouse gas emissions.

Government support through financial contributions, tax credits, standard setting and market creation is important for effective technology development, innovation and deployment. Effective transfer of technology to developing countries requires appropriate financial, institutional, policy, legal and regulatory frameworks.

Table SPM-7: Selected sectoral policies, measures and instruments that have shown to be environmentally effective in the respective sector in at least a number of national cases.

The impact of the Kyoto protocol’s first commitment period 2008-2012 on global carbon emissions is expected to be limited. However, notable achievements of the United Nations Framework Convention on Climate Change (UNFCCC) and its Kyoto protocol are the establishment of a global response to the climate problem, stimulation of an array of national policies, the creation of an international carbon market and the establishment of new institutional mechanisms that may provide the foundation for future mitigation efforts. More...

9.2 How is climate change mitigation linked to sustainable development?

Switching to more sustainable development paths can make a major contribution to climate change mitigation, but implementation may require overcoming multiple barriers. Climate change and other sustainable development policies often benefit each other, though not always. There is a growing understanding of the possibilities to choose and implement mitigation options in several sectors to create synergies and avoid conflicts with other aspects of sustainable development.

For instance, climate change policies related to energy efficiency and renewable energy are often economically beneficial, improve energy security, and reduce local air pollution. Reducing both loss of natural habitat and deforestation can have significant benefits for biodiversity, soil and water conservation, and can be implemented in a socially and economically sustainable manner.

No matter how stringent the mitigation measures, some impacts of climate change are unavoidable and adaptation will be necessary. Sustainable development can increase the capacity for both adaptation and mitigation, and reduce vulnerability to the impacts of climate change.

Gaps in knowledge remain regarding some aspects of mitigation of climate change, especially in developing countries. Additional research addressing those gaps would further reduce uncertainties and thus facilitate decision-making related to mitigation of climate change. More...