Editing IPCC:AR6/WGIII/Chapter-13 (section)

== 13.6 Policy Instruments and Evaluation ==

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Institutions and governance processes described in previous section result in specific policies, that governments then implement and that shape actions of many stakeholders. This section assesses the empirical experience with the range of policy instruments available to governments with which to shape mitigation outcomes. [[#13.7|Section 13.7]] that follows deals with how these instruments are combined into packages, and [[#13.9|Section 13.9]] addresses economy-wide measures and issues.

Many different policy instruments for GHG reduction are in use. They fall into a few major categories that share key characteristics. This section provides one possible taxonomy of these major types of policy instruments, presents a set of criteria for policy evaluation, and synthesises the literature on the most common mitigation policies. The emphasis is on recent empirical evidence on the performance of different policy instruments and lessons that can be drawn from these experiences. This builds on and enhances the AR5 Chapter 15, which provided a more theoretical treatment of policy instruments for mitigation.

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=== 13.6.1 Taxonomy and Overview of Mitigation Policies ===

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==== 13.6.1.1 Taxonomy of Mitigation Policies ====

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A large number of policies and policy instruments can affect GHG emissions and/or sequestration, whether their primary purpose is climate change mitigation or not. Consequently, consistent with the approach in this chapter, this section adopts a broad interpretation to what is considered mitigation policy. Also, the section recognises the multiplicity of policies that overlap and interact.

Environmental policy instruments, including for climate change mitigation, have long been grouped into three main categories – (i) economic instruments, (ii) regulatory instruments, and (iii) other instruments – although the specific terms differ across disciplines and additional categories are common ( [[#Kneese--1975|Kneese and Schultze 1975]] ; [[#Jaffe--1995|Jaffe and Stavins 1995]] ; [[#Nordhaus--2013|Nordhaus 2013]] ; [[#Wurzel--2013|Wurzel et al. 2013]] ). Examples of common policies in each category are shown in Table 13.1, but this is not a comprehensive list. Principles of and empirical experience with the various instruments are synthesised in Sections 13.6.3 to 13.6.5, international interactions are covered in [[#13.6.6|Section 13.6.6]] .

'''Table 13.1 | Classification of mitig''' '''ation policies.'''

{| class="wikitable"
|-
! '''Category'''

! '''Examples of common types of mitigation policy instruments'''

|-
| Economic instruments

| Carbon taxes, GHG emissions trading, fossil fuel taxes, tax credits, grants, renewable energy subsidies, fossil fuel subsidy reductions, offsets, R&amp;D subsidies, loan guarantees

|-
| Regulatory instruments

| Energy efficiency standards, renewable portfolio standards, vehicle emission standards, ban on SF 6 uses, biofuel content mandates, emission performance standards, methane regulations, land-use controls

|-
| Other instruments

| Information programmes, voluntary agreements, infrastructure, government technology procurement policies, corporate carbon reporting

|}

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==== 13.6.1.2 Coverage of Mitigation Policies ====

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An increasing share of global emissions sources is subject to mitigation policies, though coverage is still incomplete ( [[#Eskander--2020|Eskander and Fankhauser 2020]] ; [[#Nascimento--2021|Nascimento et al. 2021]] ).

While consistent information on global prevalence of policies is not available, in G20 countries the use of various policy instruments has increased steadily over the past two decades ( [[#Nascimento--2021|Nascimento et al. 2021]] ). The share of countries that had mitigation policy instruments in place rose across all sectoral categories, albeit to different extents in different sectors and for different policy instruments (Figure 13.4). Among G20 countries the electricity and heat generation has the greatest number of policies in place, and the agriculture and forestry sector the fewest ( [[#Nascimento--2021|Nascimento et al. 2021]] ).

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[[File:0c0b71193b43d78339edc252f3e82090 IPCC_AR6_WGIII_Figure_13_4.png]]

'''Figure 13.4 | Share of countries that adopted different policy instruments in different sectors, 2000–2020 (three year moving average).''' Source: reproduced with permission from [[#Nascimento--2021|Nascimento et al. (2021)]] '''.'''

The mix of policies has shifted towards more regulatory instruments and carbon pricing relative to information policies and voluntary action ( [[#Schmidt--2018|Schmidt and Fleig 2018]] ; [[#Eskander--2020|Eskander and Fankhauser 2020]] ).

The IEA database, which tracks renewable energy and energy efficiency policies at the national and sub-national levels for about 160 countries, indicates an average of about 225 new renewable energy and energy efficiency policies annually from 2010 through 2019 with a peak in the number of new renewable energy policies in 2011 ( [[#IEA--2021|IEA 2021]] ).

While an increasing share of CO 2 emissions from fossil fuel combustion is subject to mitigation policies, there remain many countries and sectors where no dedicated mitigation policies apply to fuel combustion. Fossil fuel use is subject to energy taxes in the majority but not all jurisdictions, and in some instances, it is subsidised.

The main gaps in current mitigation policy coverage are non-CO 2 emissions and CO 2 emissions associated with production of industrial materials and chemical feedstocks, which are connected to broader questions of shifting to cleaner production systems ( [[#Bataille--2018a|Bataille et al. 2018a]] ; [[#Davis--2018|Davis et al. 2018]] ). Sequestration policies focus mainly on forestry and carbon capture and storage (CCS) with limited support for other carbon dioxide removal and use options ( [[#Geden--2019|Geden et al. 2019]] ; [[#Vonhedemann--2020|Vonhedemann et al. 2020]] ).

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==== 13.6.1.3 Stringency and Overall Effectiveness of Mitigation Policies ====

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The stringency of mitigation policies varies greatly by country, sector and policy (Box 13.9). Stringency can be increased through sequential changes to policies ( [[#Pahle--2018|Pahle et al. 2018]] ).

Estimates of the effective carbon price (as an estimate of overall stringency across policy instruments) differ greatly between countries and sectors ( [[#World%20Bank--2021a|World Bank 2021a]] ). Countries with higher overall effective carbon prices tend to have lower carbon intensity of energy supply and lower emissions intensity of the economy, as shown in an analysis of 42 G20 and OECD countries ( [[#OECD--2018|OECD 2018]] ). The carbon price that prevails under a carbon tax or ETS is not directly a measure of policy stringency across an economy, as the carbon prices typically only cover a share of total emissions, and rebates or free allowance allocations can limit effectiveness ( [[#OECD--2018|OECD 2018]] ). At low emissions prices, mitigation incentives are small; as of April 2021, seventeen jurisdictions with a carbon pricing policy had a tax rate or allowance price less than USD5 per tCO 2 ( [[#World%20Bank--2021a|World Bank 2021a]] ).

Other policies, such as fossil fuel subsidies, may provide incentives to increase emissions thus limiting the effectiveness of the mitigation policy ( [[#13.6.3.6|Section 13.6.3.6]] ). Those effects may be complex and difficult to identify. In most countries trade policy provides an implicit subsidy to CO 2 emissions ( [[#Shapiro--2020|Shapiro 2020]] ). The analysis of emissions from energy use in buildings in [[IPCC:Wg3:Chapter:Chapter-9|Chapter 9]] illustrates the factors that support and counteract mitigation policies.

Furthermore, emissions pricing policies encourage reduction of emissions whose marginal abatement cost is lower than the tax/allowance price, so they have limited impact on emissions with higher abatement costs such as industrial process emissions ( [[#Bataille--2018a|Bataille et al. 2018a]] ; [[#Davis--2018|Davis et al. 2018]] ). EU ETS emission reductions have been achieved mainly through implementation of low cost measures such as energy efficiency and fuel switching rather than more costly industrial process emissions.

Estimating the overall effectiveness of mitigation policies is difficult because of the need to identify which observed changes in emissions and their drivers are attributable to policy effort and which to other factors. Cross-Chapter Box 10 in [[IPCC:Wg3:Chapter:Chapter-14|Chapter 14]] brings together several lines of evidence to indicate that mitigation policies have had a discernible impact on mitigation for specific countries, sectors and technologies and led to avoided global emissions to date by several billion tonnes CO 2 -eq annually ( ''medium evidence'' , ''medi'' ''um agreement'' ).

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=== Box 13.9 | Comparing the Stringency of Mitigation Policies ===

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Comparing the stringency of policies over time or across jurisdictions is very challenging and there is no single widely accepted metric or methodology ( [[#Compston--2016|Compston and Bailey 2016]] ; [[#Burck--2019|Burck et al. 2019]] ; [[#Tosun--2020|Tosun and Schnepf 2020]] ; [[#Fekete--2021|Fekete et al. 2021]] ). Policies are also assessed for their estimated effect on emissions, however, this requires estimation of a counterfactual baseline and isolation of other effects (Cross-Chapter Box 10 in Chapter 14). Economic instruments can be compared on the basis of their price or cost per tCO 2 -eq. Even that is fraught with complexity in the context of different definitions and estimations for fossil fuel taxes and subsidies. For non-price policies an implicit or equivalent carbon price can be estimated. Factors such as the tax treatment of compliance costs can increase complexity. Accounting for the combined effect of overlapping policies presents additional challenges and such estimates are subject to numerous limitations.

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=== 13.6.2 Evaluation Criteria ===

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Policy evaluation is a ‘careful, retrospective assessment of merit, worth and value of the administration, output and outcomes of government interventions’ ( [[#Vedung--2005|Vedung 2005]] ). The inherent complexity of climate mitigation policies calls for the application of multiple criteria, and reflexiveness of analysis with regard to governments’ and societies’ objectives for policies ( [[#Huitema--2011|Huitema et al. 2011]] ).

Evaluation of climate mitigation policy tends to focus on the environmental effectiveness and economic efficiency or cost-effectiveness of GHG mitigation policies, with distributional equity sometimes as an additional criterion. In policy design and implementation there is rising interest in co-benefits and side-effects of climate policies, as well as institutional requirements for implementation and the potential of policies to have transformative effect on systems. Table 13.2 elaborates.

Not all criteria are applicable to all instruments or in all circumstances and the relative importance of different criteria depend on the objectives in the specific the context. a given policy instrument may score highly on only some assessment criteria. In practice, the empirical evidence seldom exists for assessment of a policy instrument across all criteria.

'''Table 13.2 | Criteria for evaluation and assessment of policy instrument''' '''s and packages.'''

{| class="wikitable"
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! '''Criterion'''

! '''Description'''

|-
| '''Environmental''' '''effectiveness'''

| Reducing GHG emissions is the primary goal of mitigation policies and therefore a fundamental criterion in evaluation. Environmental effectiveness has temporal and spatial dimensions.

|-
| '''Economic effectiveness'''

| Climate change mitigation policies usually carry economic costs, and/or bring economic benefits other than through avoided future climate change. Economic effectiveness requires minimising costs and maximising benefits.

|-
| '''Distributional effects'''

| The costs and benefits of policies are usually distributed unequally among different groups within a society ( [[#Zachmann--2018|Zachmann et al. 2018]] ), for example between industry, consumers, taxpayers; poor and rich households; different industries; different regions and countries. Policy design affects distributional effects, and equity can be taken into account in policy design in order to achieve political support for climate policies ( [[#Baranzini--2017|Baranzini et al. 2017]] ).

|-
| '''Co-benefits, negative side-effects'''

| Climate change mitigation policies can have effects on other objectives, either positive co-benefits ( [[#Mayrhofer--2016|Mayrhofer and Gupta 2016]] ; [[#Karlsson--2020|Karlsson et al. 2020]] ) or negative side-effects. Conversely, impacts on emissions can arise as side-effects of other policies. There can be various interactions between climate change mitigation and the Sustainable Development Goals ( [[#Liu--2019|Liu et al. 2019]] ).

|-
| '''Institutional requirements'''

| Effective implementation of policies requires that specific institutional prerequisites are met. These include effective monitoring of activities or emissions and enforcement, and institutional structures for the design, oversight and revision and updating of policies. Requirements differ between policy instruments. a separate consideration is the overall feasibility of a policy within a jurisdiction, including political feasibility ( [[#Jewell--2020|Jewell and Cherp 2020]] ).

|-
| '''Transformative potential'''

| Transformational change is a process that involves profound change resulting in fundamentally different structures ( [[#Nalau--2015|Nalau and Handmer 2015]] ), or a substantial shift in a system’s underlying structure ( [[#Hermwille--2015|Hermwille et al. 2015]] ). Climate change mitigation policies can be seen has having transformative potential if they can fundamentally change emissions trajectories, or facilitate technologies, practices or products with far lower emissions.

|}

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=== 13.6.3 Economic Instruments ===

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Economic instruments, including carbon taxes, emissions trading systems (ETS), purchases of emission reduction credits, subsidies for energy efficiency, renewables and research and development and fossil fuel subsidy removal, provide a financial incentive to reduce emissions. Pricing instruments, especially ETS and carbon taxes, have become more prevalent in recent years ( [[#13.6.1|Section 13.6.1]] ). They have proven effective in promoting implementation of the low-cost emissions reductions, and practical experience has driven progress in market mechanism design ( ''robust evidence'' , ''hi'' ''gh agreement'' ).

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==== 13.6.3.1 Carbon Taxes ====

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A carbon tax is a charge on carbon dioxide or other greenhouse gases imposed on specified emitters or products. In practice features such as exemptions and multiple rates can lead to debate as to whether a specific tax is a carbon tax ( [[#Haites--2018|Haites 2018]] ). While other taxes can also reduce emissions by increasing the price of GHG emitting products, the result may be inefficient unless the tax rate is proportional to the emissions intensity. a tax on value of fossil fuels, for example, could raise the price on natural gas more than the price of coal, and hence increase emissions if the resulting substitution towards coal were to outweigh reductions in energy use.

As of April 2021, 27 carbon taxes had been implemented by national governments, mostly in Europe ( [[#World%20Bank--2021a|World Bank 2021a]] ). Most of the taxes apply to fossil fuels used for transportation and heating and cover between 3% and 79% of the jurisdiction’s emissions. Several countries also tax F-gases. Tax rates vary widely from less than USD1 to over USD137 per tCO 2 -eq. a few jurisdictions lowered existing fuel taxes when they implemented the carbon tax, thus reducing the effective tax rate ( [[#OECD--2021a|OECD 2021a]] ). How the tax revenue is used varies widely by jurisdiction.

Carbon taxes tend to garner the least public support among possible mitigation policy options ( [[#Rhodes--2017|Rhodes et al. 2017]] ; [[#Rabe--2018|Rabe 2018]] ; [[#Maestre-Andrés--2019|Maestre-Andrés et al. 2019]] ; [[#Criqui--2019|Criqui et al. 2019]] ) although some regulations also meet with opposition ( [[#Attari--2009|Attari et al. 2009]] ). Policymakers sometimes use the revenue to build support for the tax, allocating some to address regressivity, to address competitiveness claims by industry, to reduce the economic cost by lowering existing taxes, and to fund environmental projects ( [[#Gavard--2018|Gavard et al. 2018]] ; [[#Klenert--2018|Klenert et al. 2018]] ; [[#Levi--2020|Levi et al. 2020]] ).

Carbon tax rates can be adjusted for inflation, increases in income, the effects of technological change, changing policy ambition, or the addition or subtraction of other policies. In practice, numerous jurisdictions have not increased their tax rates annually and some scheduled tax increases have not been implemented ( [[#Haites--2018|Haites et al. 2018]] ). Predictability of future tax rates helps improve economic performance ( [[#Bosetti--2011|Bosetti and Victor 2011]] ; [[#Brunner--2012|Brunner et al. 2012]] ). Uncertainty about the future existence of a carbon price can hinder investment ( [[#Jotzo--2012|Jotzo et al. 2012]] ) and uncertainty about future price levels can increase the resource costs of carbon pricing ( [[#Aldy--2020|Aldy and Armitage 2020]] ).

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==== 13.6.3.2 Emission Trading Systems ====

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The most common ETS design – cap-and-trade – sets a limit on aggregate GHG emissions by specified sources, distributes tradable allowances approximately equal to the limit, and requires regulated emitters to submit allowances equal to their verified emissions. The price of allowances is determined by the market, except in cases where government determined price floors or ceilings apply.

ETSs for GHGs were in place in 38 countries as of April 2021 ( [[#World%20Bank--2021a|World Bank 2021a]] ). The EU ETS, which covers 30 countries, was recently displaced by China’s national ETS as the largest. ETSs tend to cover emissions by large industrial and electricity generating facilities. [[#footnote-003|2]] Allowance prices as of April 1, 2021 ranged from just over USD1 to USD50, and coverage between 9% and 80% of the jurisdiction’s emissions.

Multiple regional pilot ETSs with different designs have been implemented in China since 2013 to provide input to the design of a national system that is to become the world’s largest ETS ( [[#Jotzo--2018|Jotzo et al. 2018]] ; [[#Qian--2018|Qian et al. 2018]] ; [[#Stoerk--2019|Stoerk et al. 2019]] ). Assessments have identified potential improvements to emissions reporting procedures ( [[#Zhang--2019|Zhang et al. 2019]] ) and the pilot ETS designs ( [[#Deng--2018|Deng et al. 2018]] ). China’s national ETS covering over 2200 heat and power plants with annual emissions of about 4 GtCO 2 took effect in 2021 ( [[#World%20Bank--2021a|World Bank 2021a]] ).

All of the ETSs for which data are available have accumulated surplus allowances which reduces their effectiveness ( [[#Haites--2018|Haites 2018]] ). Surplus allowances indicate that the caps set earlier were not stringent relative to emissions trends. Most of those ETSs have implemented measures to reduce the surplus including removal/cancellation of allowances and more rapid reduction of the cap. Several ETSs have adopted mechanisms to remove excess allowances from the market when supply is abundant and release additional allowances into the market when the supply is limited, such as the EU ‘market stability reserve’ ( [[#Hepburn--2016|Hepburn et al. 2016]] ; [[#Bruninx--2020|Bruninx et al. 2020]] ). Initial indications are that this mechanism is at least partially successful in stabilising prices in response to short term disruptions such as the COVID-19 economic shock ( [[#Gerlagh--2020|Gerlagh et al. 2020]] ; [[#Bocklet--2019|Bocklet et al. 2019]] ).

Some ETS also include provisions to limit the range of market prices, making them ‘hybrids’ ( [[#Pizer--2002|Pizer 2002]] ). a price floor assures a minimum level of policy effect if demand for allowances is low relative to the ETS emissions cap. It is usually implemented through a minimum price at auction, as for example in California’s ETS ( [[#Borenstein--2019|Borenstein et al. 2019]] ). a price ceiling allows the government to issue unlimited additional allowances at a pre-determined price to limit the maximum cost of mitigation. Price ceilings have not been activated to date.

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==== 13.6.3.3 Evaluation of Carbon Pricing Experience ====

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A carbon tax or GHG ETS increases the prices of emissions intensive goods thus creating incentives to reduce emissions ( [[#Stavins--2019|Stavins 2019]] ) for a comparison of a tax and ETS). The principal advantage of a pricing policy is that it promotes implementation of low-cost reductions; for a carbon tax, reductions whose cost per tCO 2 -eq reduced is lower than the tax and for an ETS the lowest cost (per tCO 2 -eq) reductions sufficient to meet the cap. Both a tax and an ETS can be designed to limit adverse economic impacts on regulated sources and emissions leakage.

The corresponding limitations of pricing policies are that they have limited impact on adoption of mitigation measures when decisions are not sensitive to prices and do not encourage adoption of higher cost mitigation measures. Their effectiveness in influencing long-term investments depends on the expectation that the policy will continue and expectations related to future tax rates or allowance prices ( [[#Brunner--2012|Brunner et al. 2012]] ). Other policies can be used in combination with carbon pricing to address these limitations.

The number of pricing policies has increased steadily and covered 21.5% of global GHG emissions in 2020 ( [[#World%20Bank--2021a|World Bank 2021a]] ). Effective coverage is lower because virtually all jurisdictions with a pricing policy have other policies that affect some of the same emissions. For example, a few jurisdictions reduced existing fuel taxes when they introduced their carbon tax thus reducing the effective tax rate, and many jurisdictions have two or more pricing policies

There is abundant evidence that carbon pricing policies reduce emissions. Statistical studies of emissions trends in jurisdictions with and without carbon pricing find a significant impact after controlling for other policies and structural factors ( [[#Best--2020|Best et al. 2020]] ; [[#Rafaty--2020|Rafaty et al. 2020]] ). Numerous assessments of specific policies, especially the EU ETS and the British Columbia carbon tax, conclude that most have reduced emissions ( ''robust evidence'' , ''high agreement'' ) ( [[#Narassimhan--2018|Narassimhan et al. 2018]] ; [[#Haites--2018|Haites et al. 2018]] ; [[#Aydin--2018|Aydin and Esen 2018]] ; [[#Pretis--2019|Pretis 2019]] ; [[#Andersson--2019|Andersson 2019]] ; [[#FSR%20Climate--2019|FSR Climate 2019]] ; [[#Metcalf--2020|Metcalf and Stock 2020]] ; [[#Rafaty--2020|Rafaty et al. 2020]] ; [[#Bayer--2020|Bayer and Aklin 2020]] ; [[#Diaz--2020|Diaz et al. 2020]] ; [[#Green--2021|Green 2021]] ; [[#Arimura--2021|Arimura and Abe 2021]] ).

Estimating the emission reductions due to a specific policy is difficult due to the effects of overlapping policies and exogenous factors such as fossil fuel price changes and economic conditions. Studies that attempt to attribute a share of the reductions achieved to the EU ETS place its contribution at 3–25% ( [[#FSR%20Climate--2019|FSR Climate 2019]] ; [[#Bayer--2020|Bayer and Aklin 2020]] ; [[#Chèze--2020|Chèze et al. 2020]] ). The relationship between a carbon tax and the resulting emission reductions is complex and is influenced by changes in fossil fuel prices, changes in fossil fuel taxes, and other mitigation policies ( [[#Aydin--2018|Aydin and Esen 2018]] ). But the effectiveness of a carbon tax generally is higher in countries where it constitutes a large part of the fossil fuel price ( [[#Andersson--2019|Andersson 2019]] ).

Few of the world’s carbon prices are at a level consistent with various estimates of the carbon price needed to meet the Paris Agreement goals. In modelling of mitigation pathways that limit warming to 2°C (&gt;50%)( [[IPCC:Wg3:Chapter:Chapter-3#3.6.1|Section 3.6.1]] ) marginal abatement costs of carbon in 2030 are about 60 to 120 USD2015 per tCO 2 , and about 170 to 290 USD2015 per tCO 2 in pathways that limit warming to 1.5°C (&gt;50%) with no or limited overshoot ( [[IPCC:Wg3:Chapter:Chapter-3#3.6|Section 3.6]] ). One synthesis study estimates necessary prices at USD40–80 per tCO 2 by 2020 ( [[#High-Level%20Commission%20on%20Carbon%20Prices--2017|High-Level Commission on Carbon Prices 2017]] ). Only a small minority of carbon pricing schemes in 2021 had prices above USD40 per tCO 2 , and all of these were in European jurisdictions ( [[#World%20Bank--2021a|World Bank 2021a]] ). Most carbon pricing systems apply only to some share of the total emissions in a jurisdiction, so the headline carbon price is higher than the average carbon price that applies across an economy ( [[#World%20Bank--2021a|World Bank 2021a]] ).

Where ETS or carbon taxes exist, they apply to different proportions of the jurisdiction’s greenhouse gas emissions. The share of emissions covered by ETSs in 2020 varied widely, ranged from 9% (Canada) to 80% (California) while the share of emissions covered by carbon taxes ranged from 3% (Latvia and Spain) to 80% (South Africa) ( [[#World%20Bank--2021a|World Bank 2021a]] ).Where carbon pricing policies are effective in reducing GHG emissions, they usually also generate co-benefits including better air quality. For example, a Chinese study of air quality benefits from lower fossil fuel use under carbon pricing suggests that prospective health co-benefits would partially or fully offset the cost of the carbon policy ( [[#Li--2018|Li et al. 2018]] ). Depending upon the jurisdiction (for example, if there are fossil fuel subsidies) carbon pricing could also reduce the economic distortions of fossil fuel subsidies, improve energy security through greater reliance on local energy sources and reduce exposure to fossil fuel market volatility. Substantial carbon prices would be in the domestic self-interest of many countries if co-benefits were fully factored in ( [[#Parry--2015|Parry et al. 2015]] ).

Economic theory suggests that carbon pricing policies are on the whole more cost effective than regulations or subsidies at reducing emissions ( [[#Gugler--2021|Gugler et al. 2021]] ). Any mitigation policy imposes costs on the regulated entities. In some cases entities may be able to recover some or all of the costs through higher prices ( [[#Neuhoff--2019|Neuhoff and Ritz 2019]] ; [[#Cludius--2020|Cludius et al. 2020]] ). International competition from less stringently regulated firms limits the ability of emissions-intensive, trade-exposed (EITE) firms to raise their prices. Thus, a unilateral mitigation policy creates a risk of adverse economic impacts, including loss of sales, employment, profits, for such firms and associated emissions leakage ( [[#13.6.6.1|Section 13.6.6.1]] ).

Pricing policies can be designed to minimise these risks; free allowances can be issued to EITE participants in an ETS and taxes can provide exemptions or rebates. An extensive ''ex post'' literature finds no statistically significant adverse impacts on competitiveness or leakage (13.6.6.1).

An ''ex post'' analysis of European carbon taxes finds no robust evidence of a negative effect on employment or GDP growth ( [[#Metcalf--2020|Metcalf and Stock 2020]] ). The British Columbia carbon tax led to a small net increase in employment ( [[#Yamazaki--2017|Yamazaki 2017]] ) with no significant negative impacts on GDP possibly due to full recycling of the tax revenue ( [[#Bernard--2021|Bernard and Kichian 2021]] ). Few carbon taxes apply to EITE sources ( [[#Timilsina--2018|Timilsina 2018]] ), so competitiveness impacts usually are not a particular concern.

Government revenue generated by carbon pricing policies globally was approximately 53 billion USD in 2020 split almost evenly between carbon taxes and ETS allowance sales (World Bank 2021). Revenue raised though carbon pricing is generally considered a relatively efficient form of taxation and a large share of revenue enters general government budgets ( [[#Postic--2020|Postic and Fetet 2020]] ). Some of the revenue is returned to emitters or earmarked for environmental purposes. Allowance allocation and revenue spending measures have been used to create public support for many carbon pricing policies including at every major reform stage of the EU ETS ( [[#Klenert--2018|Klenert et al. 2018]] ; [[#Dorsch--2020|Dorsch et al. 2020]] ) (Box 5.11).

The most commonly studied distributional impact is the direct impact of a carbon tax on household income. Typically it is regressive; the tax induced increase in energy expenditures represents a larger share of household income for lower income households ( [[#Grainger--2010|Grainger and Kolstad 2010]] ; [[#Timilsina--2018|Timilsina 2018]] ; [[#Dorband--2019|Dorband et al. 2019]] ; [[#Ohlendorf--2021|Ohlendorf et al. 2021]] ). Governments can rebate part or all of the revenue to low-income households, or implement other changes to taxation and transfer systems to achieve desired distributional outcomes ( [[#Jacobs--2019|Jacobs and van der Ploeg 2019]] ; [[#Saelim--2019|Saelim 2019]] ; [[#Sallee--2019|Sallee 2019]] ) (Box 5.11). The full impact of the tax – after any distribution of tax revenue to households and typically adverse effects on investors – generally is less regressive or progressive ( [[#Williams%20III--2015|Williams III et al. 2015]] ; [[#Goulder--2019|Goulder et al. 2019]] ). Where the tax revenue is treated as general revenue the government relies on existing income redistribution policies (such as income taxes) and social safety net programmes to address the distributional impacts.

Carbon taxes on fossil fuels have effects similar to the removal of fossil fuel subsidies ( [[#Ohlendorf--2021|Ohlendorf et al. 2021]] ) ( [[#13.6.3.6|Section 13.6.3.6]] ). Even if a carbon tax is progressive it increases prices for fuels, electricity, transport, food and other goods and services that adversely affect the most economically vulnerable. Redistribution of tax revenue is critical to address the adverse impacts on low-income groups ( [[#Dorband--2019|Dorband et al. 2019]] ) (Box 5.11). In countries with a limited capacity to collect taxes and distribute revenues to low-income households, such as some developing countries, carbon taxes may have greater distributional consequences.

Distributional effects have generally not been a significant issue for ETSs. Equity for industrial participants typically is addressed through free allocation of allowances. Impacts on household incomes, with the exception of electricity prices, are too small or indirect to be a concern. Some systems are designed to limit electricity price increases ( [[#Petek--2020|Petek 2020]] ) or use some revenue for bill assistance to low-income households ( [[#RGGI--2019|RGGI 2019]] ).

Carbon pricing, especially an ETS that covers industrial sources, stimulates technological change by participants and others ( [[#Calel--2016|Calel and Dechezleprêtre 2016]] ; [[#FSR%20Climate--2019|FSR Climate 2019]] ; [[#van%20den%20Bergh--2021|van den Bergh and Savin 2021]] ) ( [[#13.6.6.3|Section 13.6.6.3]] and Chapter 16). The purpose of pricing policies is to encourage implementation of the lowest cost mitigation measures. Pricing policies therefore are more likely to stimulate quick, low cost innovation such as fuel switching and energy efficiency, rather than long term, costly technology development such as renewable energy or industrial process technologies ( [[#Calel--2020|Calel 2020]] ; [[#Lilliestam--2021|Lilliestam et al. 2021]] ). To encourage long-term technology development carbon pricing policies need to be complemented by other mitigation and research and development (R&amp;D) policies.

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==== 13.6.3.4 Offset Credits ====

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Offset credits are voluntary GHG emission reductions for which tradable credits are issued by a supervisory body ( [[#Michaelowa--2019b|Michaelowa et al. 2019b]] ). a buyer can use purchased credits to offset an equal quantity of its emissions. In a voluntary market governments, firms and individuals purchase credits to offset emissions generated by their actions, such as air travel. a compliance market al.ows specified offset credits to be used for compliance with mitigation policies, especially ETSs, carbon taxes and low-carbon fuel standards. ( [[#Newell--2013|Newell et al. 2013]] ; [[#Bento--2016|Bento et al. 2016]] ; [[#Michaelowa--2019a|Michaelowa et al. 2019a]] ).

When used for compliance, governments typically specify a maximum quantity of offset credits that can be used, as well as the types of emission reduction actions, the project start dates and the geographic regions eligible credits. Initially, the EU ETS, Swiss ETS and New Zealand ETS accepted credits issued under the Kyoto Protocol (Chapter 14), but they terminated or severely constrained the quantity of international credits allowed for compliance use after 2014 ( [[#Shishlov--2016|Shishlov et al. 2016]] ) ( [[#13.6.6|Section 13.6.6]] ).

A key question for any offset credit is whether the emission reductions are ‘additional’: reductions that only happen because of the offset credit payment ( [[#Greiner--2003|Greiner and Michaelowa 2003]] ; [[#Millard-Ball--2010|Millard-Ball and Ortolano 2010]] ; [[#van%20Benthem--2013|van Benthem and Kerr 2013]] ; [[#Burke--2016|Burke 2016]] ; [[#Bento--2016|Bento et al. 2016]] ). To assess additionality and to determine the quantity of credits to be issued, regulators develop methodologies to estimate baseline (business-as-usual) emissions in the absence of offset payments ( [[#Newell--2013|Newell et al. 2013]] ; [[#Bento--2016|Bento et al. 2016]] ). Credits are issued for the difference between the baseline and actual emissions with adjustments for possible emissions increases outside the project boundary ( [[#Rosendahl--2011|Rosendahl and Strand 2011]] ). Some research suggests that procedural and measurement advances can significantly reduce the risk of severe non-additionality ( [[#Mason--2013|Mason and Plantinga 2013]] ; [[#Bento--2016|Bento et al. 2016]] ; [[#Michaelowa--2019a|Michaelowa et al. 2019a]] ).

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<span id="subsidies-for-mitigation"></span>
==== 13.6.3.5 Subsidies for Mitigation ====

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Subsidies for mitigation encourage individuals and firms to invest in assets that reduce emissions, changes in processes or innovation. Subsidies have been used to improve energy efficiency, encourage the uptake of renewable energy and other sector-specific emissions saving options (Chapters 6 to 11), and to promote innovation. Targeted subsidies can achieve specific mitigation goals yet have intrinsically narrower coverage than more broad-based pricing instruments. Subsidies are often used not only to achieve emissions reductions but to address market imperfections or to achieve distributional or strategic objectives. Subsidies are often used alongside or in combination with other policy instruments, and are provided at widely differing cost per unit of emissions reduced.

Governments routinely provide direct funding for basic research, subsidies for R&amp;D to private companies, and co-funding of research and deployment with industry ( [[#Dzonzi-Undi--2016|Dzonzi-Undi and Li 2016]] ). Research subsidies have been found to be positively correlated with green product innovation in a study in Germany, Switzerland and Austria ( [[#Stucki--2018|Stucki et al. 2018]] ). Government subsidies for R&amp;D have been found to greatly increase the green innovation performance of energy intensive firms in China ( [[#Bai--2019|Bai et al. 2019]] ). For more detail see Chapter 16.

Subsidies of different forms are often provided for emissions savings investments to businesses and for the retrofit of buildings for energy efficiency. Emissions reductions from energy efficiencies can often be achieved at low cost, but evidence for some schemes suggests lower effectiveness in emissions reductions than expected ''ex ante'' ( [[#Fowlie--2018|Fowlie et al. 2018]] ; [[#Valentová--2019|Valentová et al. 2019]] ). Tax credits can be used to encourage firms to produce or invest in low-carbon emission energy and low-emission equipment. Investment subsidies have been found to be more effective in reducing costs and uncertainties in solar energy technologies than production subsidies ( [[#Flowers--2016|Flowers et al. 2016]] ).

Subsidies have been provided extensively and in many countries for the deployment of household rooftop solar systems, and increasingly also for commercial scale renewable energy projects, typically using ‘feed-in tariffs’ that provide a payment for electricity generated above the market price ( [[#Pyrgou--2016|Pyrgou et al. 2016]] ). Such schemes have proven effective in deploying renewable energy, but lock-in subsidies for long periods of time. In some cases they provide subsidies at higher levels than would be required to motivate deployment ( [[#del%20Río--2014|del Río and Linares 2014]] ). High levels of net subsidies have been shown to diminish incentives for optimal siting of renewable energy installations ( [[#Penasco--2019|Penasco et al. 2019]] ).

A variant of subsidies for deployment of renewable energy are auctioned feed-in tariffs or auctioned contracts-for-difference, where commercial providers bid in a competitive process. Auctions typically lead to lower price premiums ( [[#Eberhard--2016|Eberhard and Kåberger 2016]] ; [[#Roberts--2020|Roberts 2020]] ) but efficient outcomes depend on auction design and market structure ( [[#Grashof--2020|Grashof et al. 2020]] ), although an emergent literature also questions whether spread of auctions is due to performance or the dynamics of the policy formulation process ( [[#Fitch-Roy--2019b|Fitch-Roy et al. 2019b]] ; [[#Grashof--2020|Grashof et al. 2020]] ; [[#Grashof--2021|Grashof 2021]] ). The prequalification requirements or the assessment criteria in the auctions sometimes also include local co-benefits such as local economic diversification ( [[#Buckman--2019|Buckman et al. 2019]] ; [[#White--2021|White et al. 2021]] ).

Support for rollout clean technologies at high prices can be economically beneficial in the long run if costs are reduced greatly as a function of deployment ( [[#Newbery--2018|Newbery 2018]] ). Deployment support, much of it in the form of feed-in tariffs in Germany, enabled the scaling up of the global solar photovoltaic industry and attendant large reductions in production costs that by 2020 made solar power cost competitive with fossil fuels ( [[#Buchholz--2019|Buchholz et al. 2019]] ). There is also evidence for increased innovation activity as a result of solar feed-in tariffs ( [[#Böhringer--2017b|Böhringer et al. 2017b]] ).

Many governments have also provided subsidies for the purchase of electric vehicles, including with strong effect in China ( [[#Ma--2017|Ma et al. 2017]] ), Norway ( [[#Baldursson--2021|Baldursson et al. 2021]] ) and other countries, and sometimes at relatively high rates ( [[#Kong--2019|Kong and Hardman 2019]] ).

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<span id="removal-of-fossil-fuel-subsidies"></span>
==== 13.6.3.6 Removal of Fossil Fuel Subsidies ====

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Many governments subsidise fossil fuel consumption and/or production through a variety of mechanisms ( [[#Burniaux--2014|Burniaux and Chateau 2014]] ) (Figure 13.5). Different approaches exist to defining the scope and estimating the magnitude of fossil fuel subsidies ( [[#Koplow--2018|Koplow 2018]] ), and all involve estimates, so the magnitudes are uncertain. Rationalising inefficient fossil fuel subsidies is one of the indicators to measure progress toward Sustainable Development Goal 12: Ensure sustainable consumption and production patterns ( [[#UNEP--2019a|UNEP 2019a]] ).

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[[File:b540349da7c55aeec9960c53491f10e0 IPCC_AR6_WGIII_Figure_13_5.png]]

'''Figure 13.5 | Total fossil fuel subsidies, 2010–2019, in USD billion (USD2021 for IMF, USD2019 for others).''' Source: data from [[#OECD--2020|OECD (2020)]] (43 countries, mainly production subsidies), [[#IEA--2020|IEA (2020)]] (40 countries, mainly consumption subsidies), IMF ( [[#Parry--2021|Parry et al. 2021]] ''';''' explicit subsidies for all countries).

Consumption subsidies represent approximately 70% of the total. Most of the subsidies go to petroleum, which accounts for roughly 50% of the consumption subsidies and 75% of the production subsidies ( [[#IEA--2020|IEA 2020]] ; [[#OECD--2020|OECD 2020]] ). Much of the variation in the consumption subsidies is due to fluctuations in the world price of oil which is used as the reference price.

Reducing fossil fuel subsidies would lower CO 2 emissions, increase government revenues ( [[#Jakob--2015|Jakob et al. 2015]] ; [[#Dennis--2016|Dennis 2016]] ; [[#Gass--2017|Gass and Echeverria 2017]] ; [[#Rentschler--2017|Rentschler and Bazilian 2017]] ; [[#Monasterolo--2019|Monasterolo and Raberto 2019]] ), improve macroeconomic performance ( [[#Monasterolo--2019|Monasterolo and Raberto 2019]] ), and yield other environmental and sustainable development benefits ( ''robust evidence'' , ''medium agreement'' ) ( [[#Jakob--2015|Jakob et al. 2015]] ; [[#Rentschler--2017|Rentschler and Bazilian 2017]] ; [[#Solarin--2020|Solarin 2020]] ). The benefits of gasoline subsidies in developing countries accrue mainly to higher income groups, so subsidy reduction usually will reduce inequality ( [[#Coady--2015|Coady et al. 2015]] ; [[#Dennis--2016|Dennis 2016]] ; [[#Monasterolo--2019|Monasterolo and Raberto 2019]] ; [[#Labeaga--2021|Labeaga et al. 2021]] ). Some subsidies, like tiered electricity rates, benefit low-income groups. Reductions of broad subsidies lead to price increases for fuels, electricity, transport, food and other goods and services that adversely affect the most economically vulnerable ( [[#Coady--2015|Coady et al. 2015]] ; [[#Zeng--2016|Zeng and Chen 2016]] ; [[#Rentschler--2017|Rentschler and Bazilian 2017]] ). Distributing some of the revenue saved can mitigate the adverse economic impacts on low-income groups ( [[#Dennis--2016|Dennis 2016]] ; [[#Zeng--2016|Zeng and Chen 2016]] ; [[#Labeaga--2021|Labeaga et al. 2021]] ; [[#Schaffitzel--2020|Schaffitzel et al. 2020]] ).

The emissions reduction that could be achieved from fossil fuel subsidy removal depends on the specific context such as magnitude and nature of subsidies, energy prices and demand elasticities, and how the fiscal savings from reduced subsidies are used. Modelling studies of global fossil fuel subsidy removal result in projected emission reductions of between 1% and 10% by 2030 ( [[#Delpiazzo--2015|Delpiazzo et al. 2015]] ; [[#IEA--2015|IEA 2015]] ; [[#Jewell--2018|Jewell et al. 2018]] ; [[#IISD--2019|IISD 2019]] ) and between 6.4% and 8.2% by 2050 ( [[#Schwanitz--2014|Schwanitz et al. 2014]] ; [[#Burniaux--2014|Burniaux and Chateau 2014]] ).

An extensive literature documents the difficulties of phasing out fossil fuel subsidies ( [[#Schmidt--2017|Schmidt et al. 2017]] ; [[#Gass--2017|Gass and Echeverria 2017]] ; [[#Skovgaard--2018|Skovgaard and van Asselt 2018]] ; [[#Kyle--2018|Kyle 2018]] ; [[#Perry--2020|Perry 2020]] ; [[#Gençsü--2020|Gençsü et al. 2020]] ). Fossil fuel industries lobby to maintain producer subsidies and consumers protest if they are adversely affected by subsidy reductions ( [[#Fouquet--2016|Fouquet 2016]] ; [[#Coxhead--2018|Coxhead and Grainger 2018]] ). Yemen (2005 and 2014), Cameroon (2008), Bolivia (2010), Nigeria (2012), Ecuador (2019) all abandoned subsidy reform attempts following public protests ( [[#Rentschler--2017|Rentschler and Bazilian 2017]] ; [[#Mahdavi--2020|Mahdavi et al. 2020]] ). Indonesia is an example where fossil fuel subsidy removal was successful, helped by social assistance programmes and a communication effort about the benefits of reform ( [[#Chelminski--2018|Chelminski 2018]] ; [[#Burke--2018|Burke and Kurniawati 2018]] ). To-date instances of fossil fuel subsidy reform or removal have been driven largely by national fiscal and economic considerations ( [[#Skovgaard--2019|Skovgaard and van Asselt 2019]] ).

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<span id="regulatory-instruments"></span>
=== 13.6.4 Regulatory Instruments ===

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Regulatory instruments are applied by governments to cause the adoption of desired processes, technologies, products (including energy products) or outcomes (including emission levels). Failure to comply incurs financial penalties and/or legal sanctions. Regulatory instruments range from performance standards, which prescribe compliance outcomes – and in some cases allow flexibility to achieve compliance, including the trading of credits – to more prescriptive technology-specific standards, also known as command-and-control regulation. Regulatory instruments play an important role to achieve specific mitigation outcomes in sectoral applications ( ''robust evidence'' , ''high agreement'' ). Mitigation by regulation often enjoys greater political support but tends to be more economically costly than mitigation by pricing instruments ( ''robust evidence'' , ''med'' ''ium agreement'' ).

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<span id="performance-standards-including-tradable-credits"></span>
==== 13.6.4.1 Performance Standards ''',''' Including Tradable Credits ====

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Performance standards grant regulated entities freedom to choose the technologies and methods to reach a general objective, such as a minimum market share of zero-emission vehicles or of renewable electricity, or a maximum emissions intensity of electricity generated. Tradable performance standards allow regulated entities to trade compliance achievement credits; under-performers can buy surplus credits from over-performers thereby reducing the aggregate cost of compliance ( [[#Fischer--2008|Fischer 2008]] ).

Tradable performance standards have been applied to numerous sectors including electricity generation, personal vehicles, building energy efficiency, appliances, and large industry. An important application is Renewable Portfolio Standards (RPS) for electricity supply, which require that a minimum percentage of electricity is generated from specified renewable sources sometimes including nuclear and fossil fuels with CCS when referred to as a clean electricity standard ( [[#Young--2018|Young and Bistline 2018]] ) (Chapter 6). This creates a price incentive to invest in renewable generation capacity. Such incentives can equivalently be created through feed-in tariffs, a form of subsidy ( [[#13.6.3|Section 13.6.3]] ) and some jurisdictions have had both instruments ( [[#Matsumoto--2017|Matsumoto et al. 2017]] ). RPS can differ in features and stringency, and are in operation in many countries and sub-national jurisdictions, including a majority of US states ( [[#Carley--2018|Carley et al. 2018]] ).

Vehicle emissions standards are a common form of performance standard with flexibility (Chapter 9). a corporate fuel efficiency standard specifies an average energy use and/or GHG emissions per kilometre travelled for vehicles sold by a manufacturer. Another version of this policy, the zero-emission vehicle (ZEV) standard, requires vehicle sellers to achieve minimum requirements for sales of zero-emission vehicles ( [[#Bhardwaj--2020|Bhardwaj et al. 2020]] ). Both instruments allow manufacturers to use tradable credits to achieve compliance.

Low-carbon fuel standards (LCFS), which set an average life-cycle carbon intensity for energy that declines over time, are another example. LCFS are in place in many different jurisdictions (Chapter 9) and have been applied to petroleum products, natural gas, hydrogen and electricity ( [[#Yeh--2016|Yeh et al. 2016]] ). An LCFS allows regulated entities to trade credits creating the potential for high carbon intensity fuel suppliers to cross-subsidise low-carbon intensity transport energy providers including low-carbon biofuels, hydrogen and electricity ( [[#Axsen--2020|Axsen et al. 2020]] ).

Trading and other flexibility mechanisms improve the economic efficiency of standards by harmonising the marginal abatement costs among companies or installations subject to the standard. Nevertheless tradable performance standards are less economically efficient in achieving emissions reductions than carbon pricing, sometimes by a significant amount ( [[#Giraudet--2008|Giraudet and Quirion 2008]] ; [[#Chen--2014|Chen et al. 2014]] ; [[#Holland--2015|Holland et al. 2015]] ; [[#Fox--2017|Fox et al. 2017]] ; [[#Zhang--2018|Zhang et al. 2018]] ).

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<span id="technology-standards"></span>
==== 13.6.4.2 Technology Standards ====

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Technology standards take a more prescriptive approach by requiring a specific technology, process or product. They typically take one of three forms: requirements for specific pollution abatement technologies; requirements for specific production methods; or requirements for specific goods such as energy efficient appliances. They can also take the form of phase-out mandates, as applied for example to planned bans of internal combustion engines for road transport ( [[#Bhagavathy--2020|Bhagavathy and McCulloch 2020]] ), coal use; for example, Germany’s decisions to phase out coal ( [[#Oei--2020|Oei et al. 2020]] ), and some industry processes and products, for example, hydrofluorocarbons (HFCs) and use of sulphur hexafluoride (SF 6 ) in some products (see Box 13.10 on non-CO 2 gases). Technology standards are also referred to as command-and-control standards, prescriptive standards, or design standards.

Technology standards are a common climate policy particularly at the sector level (Chapters 6–11). Technology standards tend to score lower in terms of economic efficiency than carbon pricing and performance standards ( [[#Besanko--1987|Besanko 1987]] ). But they may be the best instrument for situations where decisions are not very responsive to price signals such as consumer choices related to energy efficiency and recycling and decisions relating to urban land use and infrastructure choices.

By mandating specific compliance pathways, technology standards risk locking-in a high-cost pathway when lower cost options are available or may emerge through market incentives and innovation ( [[#Raff--2020|Raff and Walter 2020]] ). Furthermore, standards may require high-cost GHG reductions in one sector while missing low-cost options in another sector. Technology standards can also stifle innovation by blocking alternative technologies from entering the market ( [[#Sachs--2012|Sachs 2012]] ). Benefits of technology standards include their potential to achieve emission reductions in a relatively short time frame and that their effectiveness can be estimated with some confidence ( [[#Montgomery--2019|Montgomery et al. 2019]] ).

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<span id="performance-of-regulatory-instruments"></span>
==== 13.6.4.3 Performance of Regulatory Instruments ====

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Regulatory policy instruments tend to be more economically costly than pricing instruments, as explained above. However, regulatory policies may be preferred for other reasons.

In some cases, regulatory policy can elicit greater political support than pricing policy ( [[#Tobler--2012|Tobler et al. 2012]] ; [[#Lam--2015|Lam 2015]] ; [[#Drews--2016|Drews and van den Bergh 2016]] ). For example, USA citizens have expressed more support for flexible regulation like the RPS than for carbon taxes ( [[#Rabe--2018|Rabe 2018]] ). And a survey in British Columbia a few years after the simultaneous implementation of a carbon tax and two regulations – the LCFS and a clean electricity standard – found much less strong opposition to the regulations, even after being informed that they were costlier to consumers ( [[#Rhodes--2017|Rhodes et al. 2017]] ). The degree of public support for regulations depends, however, on the type of regulation, as outright technology prohibitions can be unpopular ( [[#Attari--2009|Attari et al. 2009]] ; [[#Cherry--2012|Cherry et al. 2012]] ).

In comparison to economic instruments, regulatory policies tend to cause greater cost of living increases in percentage terms for lower income consumers – called policy regressivity ( [[#Levinson--2019|Levinson 2019]] ; [[#Davis--2019|Davis and Knittel 2019]] ). And unlike carbon taxes, regulations do not generate revenues that can be used to compensate lower income groups.

A renewable energy procurement obligation in South Africa successfully required local hiring with perceived positive results ( [[#Walwyn--2015|Walwyn and Brent 2015]] ; [[#Pahle--2016|Pahle et al. 2016]] ), a clean energy regulation in Korea was perceived to provide greater employment opportunities ( [[#Lee--2017|Lee 2017]] ), and a UK obligation on energy companies to provide energy retrofits to low-income households improved energy affordability according to participants ( [[#Elsharkawy--2018|Elsharkawy and Rutherford 2018]] ).

From an energy system transformation perspective, technology standards, including phase-out mandates, have particular promise to achieve profound change in specific sectors and technologies ( [[#Tvinnereim--2018|Tvinnereim and Mehling 2018]] ). As such policies change the technologies available in the market, then economic instruments can also have a greater effect ( [[#Pahle--2018|Pahle et al. 2018]] ).

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<span id="box-13-.10-policies-to-limit-emissions-o-f-non-co-2-gases"></span>
=== Box 13.10 | Policies to Limit Emissions of Non-CO2 Gases ===

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Non-CO 2 gases weighted by their 100-year GWPs represent approximately 25% of global GHG emissions, of which methane (CH 4 ) accounts for 18%, nitrous oxide (N 2 O) 4%, and fluorinated gases (HFCs, PFCs, SF 6 and NF 3 ) 2% (Minx et al. 2021). Only a small share of these emissions are subject to mitigation policies.

'''Methane (CH''' 4 ''').''' Anthropogenic sources include agriculture, mainly livestock and rice paddies, fossil fuel extraction and processing, fuel combustion, some industrial processes, landfills, and wastewater treatment ( [[#EPA--2019|EPA 2019]] ). Atmospheric measurements indicate that methane emissions from fossil fuel production are larger than shown in emissions inventories ( [[#Schwietzke--2016|Schwietzke et al. 2016]] ). Only a small fraction of global CH 4 emissions is regulated. Mitigation policies focus on landfills, coal mines, and oil and gas operations.

Regulations and incentives to capture and utilise methane from coal seams came into effect in China in 2010 ( [[#Tan--2018|Tan 2018]] ; [[#Tao--2019|Tao et al. 2019]] ). Inventory data suggest that emissions peaked and began a slow decline after 2010 ( [[#Gao--2020|Gao et al. 2020]] ) though satellite data indicate that China’s methane emissions, largely attributable to coal mining, continued to rise in line with pre-2010 trends ( [[#Miller--2019|Miller et al. 2019]] ). Methane emissions from sources including agriculture, waste and industry are included in some offset credit schemes, including the CDM and at national level in Australia’s Emissions Reductions Fund ( [[#Australian%20Climate%20Change%20Authority--2017|Australian Climate Change Authority 2017]] ) and the Chinese Certified Emission Reduction (CCER) scheme ( [[#Lo--2017|Lo and Cong 2017]] ).

'''Nitrous oxide (N''' 2 '''O).''' N 2 O emissions are produced by agricultural soil management, livestock waste management, fossil fuel combustion, and adipic acid and nitric acid production ( [[#EPA--2019|EPA 2019]] ). Most N 2 O emissions are not regulated and global emissions have been increasing. N 2 O emissions by adipic and nitric acid plants in the EU are covered by the ETS ( [[#Winiwarter--2018|Winiwarter et al. 2018]] ). N 2 O emissions are included in some offset schemes. China, the United States, Singapore, Egypt, and Russia produce 86% of industrial N 2 O emissions offering the potential for targeted mitigation action ( [[#EPA--2019|EPA 2019]] ).

'''Hydrofluorocarbons (HFCs).''' Most HFCs are used as substitutes for ozone depleting substances. The Kigali Amendment (KA) to the Montreal Protocol will reduce HFC use by 85% by 2047 ( [[#UN%20Environment--2018|UN Environment 2018]] ). To help meet their KA commitments developed country parties have been implementing regulations to limit imports, production and exports of HFCs and to limit specific uses of HFCs.

The EU, for example, issues tradable quota for imports, production and exports of HFCs. Prices of HFCs have increased as expected ( [[#Kleinschmidt--2020|Kleinschmidt 2020]] ) which has led to smuggling of HFCs into the EU (European Commission 2019b). HFC use has been slightly (1–6%) below the limit each year from 2015 through 2018 ( [[#EEA--2019|EEA 2019]] ). China and India released national cooling action plans in 2019, laying out detailed, cross-sectoral plans to provide sustainable, climate friendly, safe and affordable cooling ( [[#Dean--2020|Dean et al. 2020]] ).

'''Perfluorocarbons (PFCs), sulphur hexafluoride (SF''' 6 ''') and nitrogen trifluoride (NF''' 3 ''').''' With the exception of SF 6 , these gases are emitted by industrial activities located in the European Economic Area (EEA) and a limited number (fewer than 30) of other countries. Regulations in Europe, Japan and the USA focus on leak reduction as well as collection and reuse of SF 6 from electrical equipment. Other uses of SF 6 are banned in Europe ( [[#European%20Union--2014|European Union 2014]] ).

PFCs are generated during the aluminium smelting process if the alumina level in the electrolytic bath falls below critical levels ( [[#EPA--2019|EPA 2019]] ). In Europe these emissions are covered by the EU ETS. The industry is eliminating the emissions through improved process control and a shift to different production processes.

The semiconductor industry uses HFCs, PFCs, SF 6 and NF 3 for etching and deposition chamber cleaning ( [[#EPA--2019|EPA 2019]] ) and has a voluntary target of reducing GHG emissions 30% from 2010 by 2020 ( [[#World%20Semiconductor%20Council--2017|World Semiconductor Council 2017]] ). Europe regulates production, import, export, destruction and feedstock use of PFCs and SF 6 , but not NF 3 ( [[#EEA--2019|EEA 2019]] ). In addition, fluorinated gases are taxed in Denmark, Norway, Slovenia and Spain.

In some jurisdictions, the analysis of regulatory instruments is subject to an assessment on the basis of a shadow cost of carbon, which can influence the choice and design of regulations that affect GHG emissions (Box 13.11).

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<span id="box-13.11-shadow-cost-of-carbon-in-regu-latory-analysis"></span>

=== Box 13.11 | Shadow Cost of Carbon in Regulatory Analysis ===

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In some jurisdictions, public administrations are required to apply a shadow cost of carbon to regulatory analysis.

Traditionally, for example in widespread application in the United States, the shadow cost of carbon is calibrated to an estimate of the social cost of carbon as an approximation of expected future cumulative economic damage from a unit of greenhouse gas emissions ( [[#Metcalf--2017|Metcalf and Stock 2017]] ). Social cost of carbon is usually estimated using integrated assessment models and is subject to fundamental uncertainties ( [[#Pezzey--2019|Pezzey 2019]] ). An alternative approach, used for example in regulatory analysis in the United Kingdom since 2009, is to define a carbon price that is thought to be consistent with a particular targeted emissions outcome. This approach also requires a number of assumptions, including about future marginal costs of mitigation ( [[#Aldy--2021|Aldy et al. 2021]] ).

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<span id="other-policy-instruments"></span>

=== 13.6.5 Other Policy Instruments ===

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A range of other mitigation policy instruments are in use, often playing a complementary role to pricing and standards.

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<span id="transition-support-policies"></span>
==== 13.6.5.1 Transition Support Policies ====

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Effective climate change mitigation can cause economic and social disruption where there is transformative change, such as changes in energy systems away from fossil fuels ( [[#13.9|Section 13.9]] ). Transitional assistance policies can be aimed to ameliorate effects on consumers, workers, communities, corporations or countries ( [[#Green--2020|Green and Gambhir 2020]] ) in order to create broad coalitions of supporters or to limit opposition ( [[#Vogt-Schilb--2017|Vogt-Schilb and Hallegatte 2017]] ).

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<span id="information-programmes"></span>
==== 13.6.5.2 Information Programmes ====

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Information programmes, including energy efficiency labels, energy audits, certification, carbon labelling and information disclosure, are in wide use in particular for energy consumption. They can reduce GHG emissions by promoting voluntary technology choices and behavioural changes by firms and households.

Energy efficiency labelling is in widespread use, including for buildings, and for end users products including cars and appliances. Carbon labelling is used for example for food ( [[#Camilleri--2019|Camilleri et al. 2019]] ) and tourism ( [[#Gössling--2016|Gössling and Buckley 2016]] ). Information measures also include specific information systems such as smart electricity meters (Zangheri et al. 2019). Chapters 5 and 9 provide detail.

Information programmes can correct for a range of market failures related to imperfect information and consumer perceptions ( [[#Allcott--2016|Allcott 2016]] ). Alongside mandatory standards (13.6.4), information programmes can nudge firms and consumers to focus on often overlooked operating cost reductions ( [[#Carroll--2022|Carroll et al. 2022]] ). For example, consumers who are shown energy efficiency labels on average buy more energy efficient appliances than those who are not ( [[#Stadelmann--2018|Stadelmann and Schubert 2018]] ). Information policies can also support the changing of social norms about consumption choices, which have been shown to raise public support for pricing and regulatory policy instruments ( [[#Gössling--2020|Gössling et al. 2020]] ).

Energy audits provide tailored information about potential energy savings and benchmarking of best practices through a network of peers. Typical examples include the United States Better Buildings Challenge that has provided energy audits to support USA commercial and industrial building owners, energy savings have been estimated at 18% to 30% ( [[#Asensio--2017|Asensio and Delmas 2017]] ); and Germany’s energy audit scheme for SMEs achieving reductions in energy consumption of 5–70% ( [[#Kluczek--2017|Kluczek and Olszewski 2017]] ).

Consumption-oriented policy instruments seek to reduce GHG emissions by changing consumer behaviour directly, via retailers or via the supply chain. Aspects that hold promise are technology lists, supply chain procurement by leading retailers or business associations, a carbon-intensive materials charge and selected infrastructure improvements ( [[#Grubb--2020|Grubb et al. 2020]] ).

The information provided to consumers in labelling programmes is often not detailed enough to yield best possible results ( [[#Davis--2016|Davis and Metcalf 2016]] ). Providing information about running costs tends to be more effective than providing data on energy use ( [[#Damigos--2020|Damigos et al. 2020]] ). Sound implementation of labelling programmes requires appropriate calculation methodology and tools, training and public awareness ( [[#Liang%20Wong--2017|Liang Wong and Krüger 2017]] ). In systems where manufacturers self-report performance of their products, there tends to be misreporting and skewed energy efficiency labelling ( [[#Goeschl--2019|Goeschl 2019]] ).

A new form of information programmes are financial accounting standards as frameworks to encourage or require companies to disclose how the transition risks from shifting to a low-carbon economy and physical climate change impacts may affect their business or asset values (Chapter 15). The most prominent such standard was issued in 2017 by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures. It has found rapid uptake among regulators and investors ( [[#O’Dwyer--2020|O’Dwyer and Unerman 2020]] ).

Traditionally, corporate reporting has treated climate risks in a highly varied and often minimal way ( [[#Foerster--2017|Foerster et al. 2017]] ). Disclosure of climate-related risks creates incentives for companies to improve their carbon and climate change exposure, and ultimately regulatory standards for climate risk ( [[#Eccles--2018|Eccles and Krzus 2018]] ). Disclosure can also reinforce calls for divestment in fossil fuel assets predominantly promoted by civil society organisations ( [[#Ayling--2017|Ayling and Gunningham 2017]] ), raising moral principles and arguments about the financial risks inherent in fossil fuel investments ( [[#Green--2018|Green 2018]] ; [[#Blondeel--2019|Blondeel et al. 2019]] ).

<div id="13.6.5.3" class="h3-container"></div>

<span id="public-procurement-and-investment"></span>
==== 13.6.5.3 Public Procurement and Investment ====

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National, sub-national and local governments determine many aspects of infrastructure planning, fund investment in areas such as energy, transport and the built environment, and purchase goods and services, including for government administration and military provisioning.

Public procurement rules usually mandate cost effectiveness but only in some cases allow or mandate climate change consideration in public purchasing, for example in EU public purchasing guidelines ( [[#Martinez%20Romera--2017|Martinez Romera and Caranta 2017]] ). Green procurement for buildings has been undertaken in Malaysia ( [[#Bohari--2017|Bohari et al. 2017]] ). a paper cites Taiwan (province of China) green public procurement law, which has contributed to reduced emissions intensity ( [[#Tsai--2017|Tsai 2017]] ). In practice, awareness and knowledge of ‘green’ public procurement techniques and procedures is decisive for climate-friendly procurement ( [[#Testa--2016|Testa et al. 2016]] ). Experiences in low-carbon infrastructure procurement point to procedures being tailored to concerns about competition, transaction costs and innovation ( [[#Kadefors--2020|Kadefors et al. 2020]] ).

Infrastructure investment decisions lock-in high or low emissions trajectories over long periods. Low-emissions infrastructure can enable or increase productivity of private low-carbon investments ( [[#Jaumotte--2021|Jaumotte et al. 2021]] ) and is typically only a little more expensive over its lifetime, but faces additional barriers including higher upfront costs, lack of pricing of externalities, or lack of information or aversion to novel products ( [[#Granoff--2016|Granoff et al. 2016]] ). In low-income developing countries, where infrastructure has historically lagged developed countries, some of these hurdles can be exacerbated by overall more difficult conditions for public investment ( [[#Gurara--2018|Gurara et al. 2018]] ).

Governments can also promote low-emissions investments through public-private partnerships and government owned ‘green banks’ that provide loans on commercial or concessional basis for environmentally friendly private sector investments ( [[#David--2019|David and Venkatachalam 2019]] ; [[#Ziolo--2019|Ziolo et al. 2019]] ). Public funding or financial guarantees such as contracts-for-difference can alleviate financial risk in the early stages of technology deployment, creating pathways to commercial viability ( [[#Bataille--2020|Bataille 2020]] ).

Government provision can also play an important role in economic stimulus programs, including as implemented in response to the pandemic of 2020–2021. Such programmes can support low-emissions infrastructure and equipment, and industrial or business development ( [[#Elkerbout--2020|Elkerbout et al. 2020]] ; [[#Hainsch--2020|Hainsch et al. 2020]] ; [[#Barbier--2020|Barbier 2020]] ; [[#Hepburn--2020|Hepburn et al. 2020]] ).

<div id="13.6.5.4" class="h3-container"></div>

<span id="voluntary-agreements"></span>
==== 13.6.5.4 Voluntary Agreements ====

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Voluntary Agreements result from negotiations between governments and industrial sectors that commit to achieve agreed goals ( [[#Mundaca--2016|Mundaca and Markandya 2016]] ). When used as part of a broader policy framework, they can enhance the cost effectiveness of individual firms in attaining emission reductions while pricing or regulations drive participation in the agreement ( [[#Dawson--2008|Dawson and Segerson 2008]] ).

Public voluntary programmes, where a government regulator develops programs to which industries and firms may choose to participate on a voluntary basis, have been implemented in numerous countries. For example, the United States Environmental Protection Agency introduced numerous voluntary programmes with industry to offer technical support in promoting energy efficiency and emissions reductions, among other initiatives ( [[#EPA--2017|EPA 2017]] ). a European example is the EU Ecolabel Award programme (European Commission 2020b). Agreements for industrial energy efficiency in Europe ( [[#Cornelis--2019|Cornelis 2019]] ) and Japan ( [[#Wakabayashi--2016|Wakabayashi and Arimura 2016]] ) have been particularly effective in addressing information barriers and for smaller companies. The International Civil Aviation Organization’s CORSIA scheme ( [[#Prussi--2021|Prussi et al. 2021]] ) is an example of an international industry-based public voluntary programme.

Voluntary agreements are often implemented in conjunction with economic or regulatory instruments, and sometimes are used to gain insights ahead of implementation of regulatory standards, as in the case of energy efficiency PVPs in South Korea ( [[#Seok--2021|Seok et al. 2021]] ). In some cases, industries use voluntary agreements as partial fulfilment of a regulation ( [[#Rezessy--2011|Rezessy and Bertoldi 2011]] ; [[#Langpap--2015|Langpap 2015]] ). For example, the Netherlands have permitted participating industries to be exempt from certain energy taxes and emissions regulations ( [[#Veum--2018|Veum 2018]] ).

<div id="Box 13.12 | Technology and Research and Dev" class="h2-container"></div>

<span id="box-13.12-technology-and-research-and-dev-elopment-policy"></span>
=== Box 13.12 | Technology and Research and Development Policy ===

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Private businesses tend to under-invest in research and development because of market failures ( [[#Geroski--1995|Geroski 1995]] ), hence there is a case for governments to support research and technology development. a range of different policy instruments are used, including government funding, preferential tax treatment, intellectual property rules, and policies to support the deployment and diffusion of new technologies. [[IPCC:Wg3:Chapter:Chapter-16|Chapter 16]] treats innovation policy in-depth.

<div id="Box 13.13 | Possible Sou" class="h2-container"></div>

<span id="box-13.13-possible-sou-rces-of-leakage"></span>

=== Box 13.13 | Possible Sources of Leakage ===

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'''Competitiveness:''' Mitigation policy raises the costs and product prices of regulated sources which causes production to shift to unregulated sources, increasing their emissions.

'''Fossil fuel channel:''' Regulated sources reduce their fossil fuel use, which lowers fossil fuel prices and increases consumption and associated emissions by unregulated sources.

'''Land-use channel:''' Mitigation policies that change land use lead to land use and emissions changes in other jurisdictions ( [[#Bastos%20Lima--2019|Bastos Lima et al. 2019]] ).

'''Terms of trade effect:''' Price increases for the products of regulated sources shift consumption to other goods, which raises emissions due to the higher output of those goods.

'''Technology channel:''' Mitigation policy induces low-carbon innovation, which reduces emissions by sources that adopt the innovations that may include unregulated sources ( [[#Gerlagh--2007|Gerlagh and Kuik 2007]] ).

'''Abatement resource effect:''' Regulated sources increase use of clean inputs, which reduces inputs available to unregulated sources and so limits their output and emissions ( [[#Baylis--2014|Baylis et al. 2014]] ).

'''Scale channel:''' Changes to the output of regulated and unregulated sources affect their emissions intensities so emissions changes are not proportional to output changes ( [[#Antweiler--2001|Antweiler et al. 2001]] ).

'''Intertemporal channel:''' Capital stocks of all sources are fixed initially but change over time affecting the costs, prices, output and emissions of regulated and unregulated products.

{| class="wikitable"
|-
!
! colspan="2"| '''Framing of outcome'''

|-
!
! '''Enhancing mitigation'''

! '''Addressing multiple objectives of mitigation and development'''

|-
| rowspan="2"| '''Approach to policymaking'''

| '''Shifting incentives'''

| ‘Direct mitigation focus’ ''( [[#13.6|Section 13.6]] ; 2.8)''

''Objective:'' reduce GHG emissions now

''Literature:'' how to design and implement policy instruments, with attention to distributional and other concerns

''Examples:'' carbon tax, cap and trade, border carbon adjustment, disclosure policies

| ‘Co-benefits’ ''(Sections 17.3; 5.6.2; 12.4.4)''

''Objective:'' synergies between mitigation and development

''Literature:'' scope for and policies to realise synergies and avoid trade-offs across climate and development objectives

''Examples:'' appliance standards, fuel taxes, community forest management, sustainable dietary guidelines, green building codes, packages for air pollution, packages for public transport

|-
| '''Enabling transition'''

| ‘Socio-technical transitions’ ''(Sections 1.7.3; 5.5; 10.8; 6.7; Cross-Chapter Box 12 in Chapter 16)''

''Objective:'' accelerate low-carbon shifts in socio-technical systems

''Literature:'' understand socio-technical transition processes, integrated policies for different stages of a technology ‘S-curve’ and explore structural, social and political elements of transitions

''Examples:'' packages for renewable energy transition and coal phase-out; diffusion of electric vehicles, process and fuel switching in key industries

| ‘System transitions to shift development pathways’ ''(Sections 11.6.6; 7.4.5; 13.9; 17.3.3; Cross-Chapter Box 5 in Chapter 4; Cross-Chapter Box 9 in Chapter 13)''

''Objective:'' accelerate system transitions and shift development pathways to expand mitigation options and meet other development goals

''Literature:'' examines how structural development patterns and broad cross-sector and economy-wide measures drive ability to mitigate while achieving development goals through integrated policies and aligning enabling conditions

''Examples:'' packages for sustainable urbanisation, land-energy-water nexus approaches, green industrial policy, regional just transition plans

|}

'''| Mapping the landscape of climate policy.'''

<div id="13.6.6" class="h2-container"></div>

<span id="international-interactions-of-national-mitigation-policies"></span>

=== 13.6.6 International Interactions of National Mitigation Policies ===

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One country’s mitigation policy can impact other countries in various ways including changes in their GHG emissions (leakage), creation of markets for emission reduction credits, technology development and diffusion (spillovers), and reduction in the value of their fossil fuel resources.

<div id="13.6.6.1" class="h3-container"></div>

<span id="leakage-effects"></span>
==== 13.6.6.1 Leakage Effects ====

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Compliance with a mitigation policy can affect the emissions of foreign sources via several channels over different time scales ( [[#Zhang--2017|Zhang and Zhang 2017]] ) (Box 13.13 ). The effects may interact and yield a net increase or decrease in emissions. The leakage channel that is of most concern to policymakers is adverse international competitiveness impacts from domestic climate policies.

In principle, implementation of a mitigation policy in one country creates an incentive to shift production of tradable goods whose costs are increased by the policy to other countries with less costly emissions limitation policies ( [[IPCC:Wg3:Chapter:Chapter-12#12.6.3|Section 12.6.3]] ). Such ‘leakage’ could to some extent negate emissions reductions in the first country, depending on the relative emissions intensity of production in both countries.

''Ex ante'' modelling studies typically estimate significant leakage for unilateral policies to reduce emissions due to production of emissions intensive products such as steel, aluminium, and cement ( [[#Carbone--2017|Carbone and Rivers 2017]] ). However, the results are highly dependent on assumptions and typically do not reflect policy designs specifically aimed at minimising or preventing leakage ( [[#Fowlie--2018|Fowlie and Reguant 2018]] ).

Numerous ''ex post'' analyses, mainly for the EU ETS, find no evidence of any or significant adverse competitiveness impacts and conclude that there was consequently no or insignificant leakage ( ''medium evidence'' , ''medium agreement'' ) ( [[#Branger--2016|Branger et al. 2016]] ; [[#Haites--2018|Haites et al. 2018]] ; [[#Koch--2019|Koch and Basse Mama 2019]] ; [[#FSR%20Climate--2019|FSR Climate 2019]] ; [[#aus%20dem%20Moore--2019|aus dem Moore et al. 2019]] ; [[#Venmans--2020|Venmans et al. 2020]] ; [[#Kuusi--2020|Kuusi et al. 2020]] ; [[#Verde--2020|Verde 2020]] ; [[#Borghesi--2020|Borghesi et al. 2020]] ). This is attributed to large allocations of free allowances to emissions-intensive, trade-exposed sources, relatively low allowance prices, the ability of firms in some sectors to pass costs on to consumers, energy’s relatively low share of production costs, and small but statistically significant effects on innovation ( [[#Joltreau--2019|Joltreau and Sommerfeld 2019]] ). Few carbon taxes apply to emissions-intensive, trade-exposed sources ( [[#Timilsina--2018|Timilsina 2018]] ), so competitiveness impacts usually are not a particular concern.

Policies intended to address leakage include a border carbon adjustment ( [[#Ward--2019|Ward et al. 2019]] ; [[#Ismer--2020|Ismer et al. 2020]] ). a border carbon adjustment (BCA) imposes costs – a tax or allowance purchase obligation – on imports of carbon-intensive goods equivalent to those borne by domestic products possibly mirrored by rebates for exports ( [[#Böhringer--2012|Böhringer et al. 2012]] ; [[#Fischer--2012|Fischer and Fox 2012]] ; [[#Zhang--2012|Zhang 2012]] ; [[#Böhringer--2017c|Böhringer et al. 2017c]] ) (Chapter 14). A BCA faces the practical challenge of determining the carbon content of imports ( [[#Böhringer--2017a|Böhringer et al. 2017a]] ) and the design needs to be consistent with WTO rules and other international agreements ( [[#Cosbey--2019|Cosbey et al. 2019]] ; [[#Mehling--2019|Mehling et al. 2019]] ). Model estimates indicate that a BCA reduces but does not eliminate leakage ( [[#Branger--2014|Branger and Quirion 2014]] ). No BCA has yet been implemented for international trade although such a measure is currently under consideration by some governments.

<div id="13.6.6.2" class="h3-container"></div>

<span id="market-for-emission-reduction-credits"></span>
==== 13.6.6.2 Market for Emission Reduction Credits ====

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A mitigation policy may allow the use of credits issued for emission reductions in other countries for compliance purposes (see also [[#13.6.3.4|Section 13.6.3.4]] on offset credits and [[IPCC:Wg3:Chapter:Chapter-14|Chapter 14]] on international credit mechanisms). Creation of international markets for emission reduction credits tends to benefit other countries through financial flows in return for emissions credit sales ( ''medium evidence'' , ''hi'' ''gh agreement'' ).

The EU, New Zealand and Switzerland allowed participants in their emissions trading systems to use credits issued under the Kyoto Protocol mechanisms, including the Clean Development Mechanism (CDM), for compliance. From 2008 through 2014, participants used 3.76 million imported credits for compliance of which 80% were CDM credits ( [[#Haites--2016|Haites 2016]] ). [[#footnote-002|3]] Use of imported credits has fallen to very low levels since 2014 ( [[#World%20Bank--2014|World Bank 2014]] ; [[#Shishlov--2016|Shishlov et al. 2016]] ). [[#footnote-001|4]]

The Clean Development Mechanism (CDM) is the world’s largest offset programme (Chapter 14). From 2001 to 2019 over 7500 projects with projected emission reductions in excess of 8000 MtCO 2 -eq were implemented in 114 developing countries using some 140 different emissions reduction methodologies ( [[#UNFCCC--2012|UNFCCC 2012]] ; [[#UNEP%20DTU%20Partnership--2020|UNEP DTU Partnership 2020]] ). Credits reflecting over 2000 MtCO 2 -eq of emission reductions by 3260 projects have been issued. To address additionality and other concerns the CDM Executive Board frequently updated its approved project methodologies.

<div id="13.6.6.3" class="h3-container"></div>

<span id="technology-spillovers"></span>
==== 13.6.6.3 Technology Spillovers ====

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Mitigation policies stimulate low-carbon R&amp;D by entities subject to those policies and by other domestic and foreign entities ( [[#FSR%20Climate--2019|FSR Climate 2019]] ). Policies to support technology development and diffusion tend to have positive spillover effects between countries ( ''medium evidence'' , ''high agreement'' ) ( [[IPCC:Wg3:Chapter:Chapter-16#16.3|Section 16.3]] ) ''.''

Innovation activity in response to a mitigation policy varies by policy type ( [[#Jaffe--2002|Jaffe et al. 2002]] ) and stringency ( [[#Johnstone--2012|Johnstone et al. 2012]] ). In addition, many governments have policies to stimulate R&amp;D, further increasing low-carbon R&amp;D activity by domestic researchers. Emitters in other countries may adopt some of the new low-carbon technologies thus reducing emissions elsewhere. Technology development and diffusion is reviewed in Chapter 16.

<div id="13.6.6.4" class="h3-container"></div>

<span id="value-of-fossil-fuel-resources"></span>
==== 13.6.6.4 Value of Fossil Fuel Resources ====

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Fossil fuel resources are a significant source of exports, employment and government revenues for many countries. The value of these resources depends on demand for the fuel and competing supplies in the relevant international markets. Discoveries and new production technologies reduce the value of established resources. Mitigation policies that reduce the use of fossil fuels also reduce the value of these resources. A single policy in one country is unlikely to have a noticeable effect on the international price, but similar policies in multiple countries could adversely affect the value of the resources. For fossil fuel exporting countries, mitigation policies consistent with the Paris Agreement goals could result in greater costs from changes in fossil fuel prices due to lower international demand than domestic policy costs ( ''medium evidence'' , ''high agreement'' ) ( [[#Liu--2020|Liu et al. 2020]] ).

The impact on the value of established resources will be mitigated, to some extent, by the reduced incentive to explore for and develop new fossil fuel supplies. Nevertheless, efforts to lower global emissions will mean substantially less demand for fossil fuels, with the majority of current coal reserves and large shares of known gas and oil reserves needing to remain unused, with great diversity in impacts between different countries ( [[#McGlade--2015|McGlade and Ekins 2015]] ) (Chapters 3, 6, 15).

Estimates of the potential future loss in value differ greatly. There is uncertainty about remaining future fossil fuel use under different mitigation scenarios, as well as future fossil fuel prices depending on extraction costs, market structures and policies. Estimates of total cumulative fossil fuel revenue lost range between 5–67 trillion USD ( [[#Bauer--2015|Bauer et al. 2015]] ) with an estimate of the net present value of lost profit of around 10 trillion USD ( [[#Bauer--2016|Bauer et al. 2016]] ). Policies that constrain supply of fossil fuels in the context of mitigation objectives could limit financial losses to fossil fuel producers (Chapter 14).

<div id="13.7" class="h1-container"></div>

<span id="integrated-policy-packages-for-mitigation-and-multiple-objectives"></span>