Community Research and Development Information Service - CORDIS

FP5

NEMESIS/ETC Report Summary

Project ID: ENG2-CT-2001-00538
Funded under: FP5-EESD
Country: Netherlands

Policy analysis

This work package (WP 8) is strictly related to the WP 6 and to WP 7. WP 8 researches the policy instruments studied under WP 7. Among the instruments analysed were taxes and/or tradable permits (all teams), subsidies and niche markets (VU-IVM and ECN), technology transfers (FEEM), and technology standards (UNI-HH). The purpose of WP 8 was to draw further policy lessons, given the findings from WP 7. Of course, central also to the activities under WP 8 was the analysis of how to render the energy system, and the world economy at large, more sustainable: also in WP 8 therefore the scenarios developed all had as central theme the long-term means to achieve sustainable development. In addition to these goals, common with WP 7 and WP 6, WP 8 specifically focused on providing recommendations to policy makers. These recommendations are reported in the papers produced by the four participants to WP 8. Indeed, as agreed, in WP 8 three scientific papers were produced, each one using a specific model fit to derive policy lessons, based on the role of policy instruments as analysed previously.

The first paper, by Valentina Bosetti, Marzio Galeotti and Alessandro Lanza (FEEM), states that choosing long-term goals is the key issue in the climate policy agenda. Targets should be easily measurable and feasible, but also effective in damage control. Once goals are set globally, given the uncertainty affecting long-term strategies and region-specific preferences for different policy instruments, policies will be better represented by a diversified portfolio to be revised over time, rather than once and forever decisions. It therefore becomes crucial to understand to what extent different strategies (or policy portfolios) are consistent with long-term targets, that is, when they imply emission paths that do not irreversibly diverge from globally set goals. Comparative analysis is performed using a newly developed version of the FEEM-RICE model, a regional economy-climate model of optimal economic growth.

The second paper, by Katrin Rehdanz and Richard Tol, observes that economic analysis of emission permit markets, and particularly of the initial permit allocation, has concentrated largely on static approaches. This paper analyses the dynamic aspects of allocating greenhouse gas emission rights for different approaches using multi-player/two-period models. It is shown that different future allocation approaches create different strategic incentives at present, and that the permit market may partially or completely offset these incentives. It is also demonstrated under what circumstances dynamic allocation rules create incentives to (lobby for) accelerating or decelerating emission reduction paths. Allowing for intertemporal transfer of abatement activities (banking and borrowing), the net present costs can be reduced. However, whether banking or borrowing is beneficial for a company depends not only on their own abatement costs and that of other companies trading permits on the market, but also on the allocation mechanism implemented.

The third paper, by Bob van der Zwaan and Reyer Gerlagh, analyses the policy relevance of the dominant uncertainties in our current scientific understanding of the terrestrial climate system, and provides further evidence for the need to radically transform - this century - our global infrastructure of energy supply, given the global average temperature increase as a result of anthropogenic carbon dioxide emissions. Because of the sizeable uncertainties that dominate so many of the scientific results in the field of climatic change studies, and the relevance of these uncertainties for effective and efficient global warming policy-making, the subject of uncertainty analysis has recently been receiving increased attention. This article explores the relation between climate sensitivity uncertainties and the necessity to transform world energy supply. The effect is investigated on required CO2 emission reduction efforts, both in terms of how much and when, of our uncertain knowledge today of the climate sensitivity to a doubling in the atmospheric CO2 concentration. Also the roles of carbon-free energy and energy savings, and their evolutions over time, are researched, as well as their dependence on some of our characteristic modelling features. A top-down model is used in which there are two competing energy sources, fossil and non-fossil. Technological change is represented endogenously through learning curves, and modest but non-zero demand exists for the relatively expensive carbon-free energy resource.

Insights gained in this work package have been used in many papers, workshops, conferences and meetings with policy makers, but the follow up has not been coordinated within this project. The researchers will be happy to share the produced knowledge with those interested concerning the implications for climate policy of endogenous technological change.

Reported by

Institute for Environmental Studies, Vrije Universiteit
De Boelelaan 1087
1081 HV Amsterdam
Netherlands
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