Climate Policies and Nationally Determined Contributions: Reconciling the Needed Ambition with the Political Economy

Abstract

Countries have pledged to stabilize global warming at a 1.5 to 2°C increase. Either target requires reaching net zero emissions before the end of the century, which implies a major transformation of the economic system. This paper reviews the literature on how policymakers can design climate policies and their Nationally Determined Contributions (NDCs) to reach zero-net emissions before the end of the century in a socially and politically-acceptable manner. To get the ambition right, policymakers can use sectoral roadmaps with targets and indicators that track progress towards zero emissions (e.g. regarding renewable power or reforestation). Indeed, monitoring economy-wide emissions reductions alone would not ensure that short-term action contributes meaningfully to the long-term decarbonization goal. To get the political economy right, climate policies can be designed so that they contribute to nonclimate objectives and create coalitions of supporters. For instance, revenues from carbon taxes can fund social assistance and infrastructure investment, while reducing tax evasion and informality. To minimize social and economic disruptions and avoid stranded assets, policymakers can start with a low carbon price level and use complementary policies. Designed at the sector level, complementary policies such as performance standards or feebates for cars, building norms, or moratoriums on new coal power plants can be negotiated in partnership with local stakeholders and trigger a transition to zero carbon without creating disruptive stranded assets.

Why the social cost of carbon will always be disputed

“…The target most closely related to human welfare is maximum global warming, as in UN (, ); but many models focus on targets closer to climate policies, notably CO 2 ‐equivalent concentration (Clarke et al, ), zero net emissions (Fay et al, ; Matthews, Zickfeld, Knutti, & Allen, ; UN, ), and cumulative emissions (Matthews et al, ). Also, some pathway models compute cost‐effective (least‐abatement‐cost) pathways, by assuming either globally uniform marginal abatement costs or more realistic, nonidealized scenarios; while other models focus more on technical and political feasibility than cost minimization (hence the inclusion of “low‐cost” above); see for example, discussions in Clarke et al (, p. 421) and Vogt‐Schilb and Hallegatte ().…”

“…For example, Baranzini et al () argued strongly for uniform global carbon pricing, and noted that pricing proposals can highlight departures from cost‐effectiveness caused by political lobbying; and complementary policies can undermine cost‐effectiveness when applied under a carbon‐trading cap (Lofgren, Burtraw, Wrake, & Malinovskaya, ). Other authors stress how market and government failures mean that for both economic efficiency and political acceptability, complementary policies are essential, and carbon prices should vary across countries and sectors (CPLC, , Vogt‐Schilb & Hallegatte, ), especially for long‐lived infrastructure (Vogt‐Schilb, Meunier, & Hallegatte, ).…”

“…So the fourth section instead recommends using marginal abatement costs calculated by “pathway models”—different IAMs, with no damage functions, which estimate least‐ or low‐cost technology pathways to achieve socially agreed, physical climate targets like 2°C maximum warming or zero net emissions by 2100—as prices to inform carbon abatement policies. These policies may be “carbon pricing” as such, like carbon taxes or trading, the case for which has been recently reviewed by Carbon Pricing Leadership Coalition (CPLC) () and Baranzini et al (), and carefully chosen, non‐pricing policies such as regulations and public investments, which are also important (Baranzini et al, ; CPLC, ; Grubb, Hourcade, & Neuhoff, ; Vogt‐Schilb & Hallegatte, ). But pathway models are no panacea, because they still face many of the same uncertainties as SCC models, for example, about long‐term abatement costs and (if maximum warming is the target) climate sensitivity.…”

The Other Side of the Boom: Energy Prices and Subsidies in Latin America and the Caribbean during the Super-Cycle

“…In the case of large oil and gas producers in LAC and globally, subsidies were often adopted as a mechanism for distributing natural-resource wealth to the population . More generally, however, from a political economy point of view, one reason subsidies exist is that they are a visible mechanism for governments to provide benefits to poor and middle-class voters and sometimes to industrial interests in exchange for political support (Victor, 2009;Vogt-Schilb and Hallagatte, 2017) . During our sample period, the rise in energy subsidies in Latin America and the Caribbean followed an unprecedented spike in oil prices that had far-reaching effects on energy prices that proved politically difficult to fully pass through to final consumers .…”

Shifting to clean energy—An editorial essay

“…With increasing shares of variable renewable electricity in the power system, new challenges are encountered due to the increasing mismatch between supply and demand. As noted by several articles published in Wiley Interdisciplinary Reviews Energy and Environment in 2017, this will require not only paying more attention to energy system integration issues, and developing new approaches and technologies for overcoming current barriers such as greater system flexibility (Flynn et al, ; Milligan et al, ), affordable energy storage (Lee, Kim, Yeom, & Kim, ), strategies to promote intersectoral coupling (Lah, ) and so on, but also putting new economic models and policies (Byrne, Taminiau, Kim, Lee, & Seo, ; Lah, ; Vogt‐Schilb & Hallegatte, ) into place, which will widen market development for rapid decarbonization.…”