Economists assess options for effective Climate Policy instruments

12:00, April 8, 2021

Researchers have proposed four climate policy scenarios and studied their strengths and weaknesses

An international research team with a researcher from the Ural Federal University assessed data from theoretical modeling, empirical and experimental studies on how interactions between different instruments affect the overall reduction of carbon dioxide emissions into the atmosphere. Such interactions take the form of negative, zero, or positive synergistic effects. The tools considered include technical standards, a carbon tax, subsidies for the purchase of environmental goods, measures to support innovation, and the provision of information and examples of behavior.

Based on the results obtained, they compiled four climate policy scenarios and studied their strengths and weaknesses. In assessing climate policy, they took into account factors such as efficiency in terms of reducing CO2 emissions into the atmosphere and in terms of the associated costs, as well as the potential for international policy harmonization. The authors concluded that the combination of a market for carbon certificates, subsidies for low-carb products, and the provision of examples of behavior best meets these criteria. The results of the study, supported by a grant from the Russian Science Foundation, are published in the journal Climate Policy.

According to UrFU Professor Ivan Savin, there are several reasons why caution should be exercised when combining tools into a set of policy measures.

«As we show in detail in the article, climate policy instruments can duplicate each other and create negative synergies. This may even cause them to perform worse together than a separate tool. Taking into account that each policy instrument requires additional costs for the regulatory body in terms of costs and human resources, including transaction costs, monitoring and control costs, and sometimes serious budget expenditures (for example, in the case of subsidies), it is advisable for governments to limit the number of tools used simultaneously. Moreover, when countries try to harmonize the instruments they use (as in the case of the EU or the CIS), combinations of instruments cause additional difficulties compared to individual instruments», explains Ivan Savin.

The most productive options, according to researchers, combine supporting innovation, providing information with either a carbon tax and subsidies for low-carbon goods, or a market for carbon certificates. At the same time, the latter option has great potential for international policy harmonization, as there are already successful examples of a single market for CO2 certificates in the EU and North America.

«Some countries do not dare to introduce tough and effective climate policy measures, for fear of reducing the competitiveness of their own economies. Therefore, it is important that these measures are harmonized among as many countries as possible. The need for global policy harmonization can be seen as an argument for limiting the number of instruments through a transparent and simple mix of measures that will be easier to compare and integrate between countries. If, on the contrary, countries have a very complex set of instruments, it is difficult to compare and contrast them, which, in turn, will not allow the introduction of more stringent and effective regulatory measures in the future. Moreover, the complex combinations of political tools that are widespread all over the world can be used by politicians as an excuse to say: "we are already doing a lot," even when the overall effectiveness of the combination of tools leaves much to be desired», — explains Ivan Savin.

Therefore, it is logical to assess the feasibility of introducing new regulatory instruments based on their potential synergy with existing measures.