Energy Policy, Markets & Incentives
One of the most difficult and complex areas in addressing climate change is determining the appropriate roles for government, business, and consumers in developing solutions and in sharing the costs and tradeoffs that these solutions will necessitate. Addressing climate change in a meaningful way is a complex, long–term proposition, requiring implementation of multiple solutions. It is clear that there will need to be innovative approaches to policy, technology, economics, and consumer behavior in order to effectively and equitably reach the carbon stabilization goals cited by scientists.
Policy: Domestic and Global
Because GHGs do not recognize sovereign borders, integrated global and coordinated national approaches are necessary to achieve GHG stabilization. Politicians, companies, governments, academics, and others are working to develop strategies that:
- Balance environmental concerns against the need to support global economic growth;
- Promote technological innovation;
- Support equitable sharing among the top emitting nations and that ensure individual countries are not put at competitive disadvantage.
National level policy frameworks are also part of the solution since GHGs are a function of many activities, from manufacturing and agriculture, to how we power our homes and how much we drive. To sustain and promote economic progress and growth, broad and equitable treatment of all sectors of the economy is necessary to ensure no sector, company or region of the world is disproportionately burdened.
Some policies at both the global and domestic levels have been implemented while others are still being discussed and developed; there are many perspectives on the best approaches to formulating an effective policy response to climate change. While many early corporate climate change initiatives focused on making internal changes, companies are increasingly playing a role in shaping external systems as part of their efforts to act responsibly and as a means to steward long-term shareholder value.
Incentives and Markets
There are many perspectives on how a future "global" climate regime might make the most effective use of market forces, including encouraging a robust and efficient international carbon market. Under a carbon market approach to policy, the government caps emissions at a certain level, and businesses are granted tradable allowances that permit them to emit a set amount (known as a "cap-and-trade" approach). Companies that have extra allowances can sell these to other businesses that would otherwise have to pay more to comply. Despite ongoing debates over the merits of such a system as well as implementation issues associated with allowances, global carbon markets tripled in size in 2007.
Some economists propose that a tax on carbon, which establishes greater certainty on the price of emissions, is a more efficient approach than a cap-and-trade system, which focuses first on the emissions levels to be cut. Those who support the carbon tax believe that the value placed directly on carbon via a tax provides a clearer basis for making investment and planning decisions and avoids the regulatory complexity of a cap-and-trade system which requires emissions allowances to be determined by sector and facility.