Towards a sustainable climate and energy policy mix: insights from theory and the case of Japan

Abstract

The 2011 Fukushima nuclear disaster and rapid global warming emphasize the necessity of reorganizing our energy system; but how do we get there? Energy and climate policy are obviously interlinked, e.g. via carbon dioxide (CO 2) emissions from fossil fuel burning in electricity generation. Policy targets are interdependent, sometimes even contradicting: The environmental soundness of current energy use has been seriously challenged by nuclear contamination and by greenhouse gas (GHG) emission reduction barriers from low coal prices, power grid insufficiencies, and oligopolistic market structures. Energy security has been threatened by military conflicts and volatile resource prices, while carbon pricing has made energy use more expensive. In order to achieve the variety of climate and energy policy targets, a multitude of instruments has been implemented: market-based programs such as carbon cap-and-trade or energy taxes, commandand-control policies such as energy efficiency standards, support schemes such as feed-in tariffs. Obviously these policies directly affect each other: Climate policy cap-and-trade makes electricity generation from fossil fuels more expensive and increases electricity prices. Energy policy feed-in tariffs change the relative prices in power production and make carbon free technologies more attractive. Also, the low-cost provision of electricity has been heavily debated in the face of trade-offs between policy induced power price increases and the call for a fair distribution of energy transformation burdens. 2 Discussion Paper presented at the 15 th Global Conference on Environmental Taxation (GCET 15),