Editing IPCC:AR6/WGIII/Chapter-1 (section)

=== 1.8.2 Illustrations of Multi-dimensional Assessment: Lock-in, Policies and ‘Just Transition’ ===

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The rest of this section illustrates briefly how such multi-dimensional assessment, utilising the associated analytic frameworks, can shed light on a few key issues which arise across many chapters of this assessment.

'''Carbon Lock-in.''' The continued rise of global emissions reflects in part the strongly ''path-dependent'' nature of socio-economic systems, which implies a historic tendency to ‘carbon lock-in’ ( [[#Unruh--2000|Unruh 2000]] ). An interdisciplinary review ( [[#Seto--2016|Seto et al. 2016]] ) identifies a dozen main components organised into four types, across the relevant dimensions of assessment as summarised in Table 1.3.

'''Table 1.3 | Carbon lock-in – types and key characteristics.''' Source: adapted from [[#Seto--2016|Seto et al. (2016)]] .

{| class="wikitable"
|-
! '''Lock-in type'''

! '''Key characteristics'''

|-
| Economic

| – Large investments with long lead times and sunk costs, made on the basis of anticipated use of resources, capital, and equipment to pay back the investment and generate profits.

– Initial choices account for private but not social costs and benefits.

|-
| Socio-cultural, equity and behaviour

| – Lock-in through social structure (e.g., norms and social processes).

– Lock-in through individual decision-making (e.g., psychological processes).

– Single, calculated choices become a long string of non-calculated and self-reinforcing habits.

– Interrupting habits is difficult but possible (e.g., family size, thermostat setting) to change.

– Individuals and communities become dependent on the fossil fuel economy, meaning that change may have adverse distributional impacts.

|-
| Technology and infrastructure

| – Learning-by-doing and scale effects, including the cumulative nature of innovation, reinforces established technologies.

– Interaction of technologies and networks (physical, organisational, financial) on which they depend.

– Random, unintentional events including network and learning-effect final outcomes (e.g., lock-in to the QWERTY keyboard).

|-
| Institutional and political

| – Powerful economic, social, and political actors seek to reinforce the status quo that favours their interests.

– Laws and Institutions, including regulatory structures, are designed to stabilise and lock-in a desired trajectory, and also to provide long-term predictability (socio-technical regimes in transition theories).

– Beneficial and intended outcomes for some actors.

– Not random chance but intentional choice (e.g., support for renewable electricity in Germany) can develop political consistencies that reinforce a direction of travel.

|}

Along with the long lifetime of various physical assets detailed in AR5, AR6 underlines the exceptional degree of path-dependence in urban systems (Chapter 8) and associated buildings (Chapter 9) and transport (Chapter 10) sectors, but it is a feature across almost all the major emitting sectors. The (typically expected) operating lifetimes of existing carbon-emitting assets would involve anticipated emissions (often but inaccurately called ‘committed’ emissions in the literature), substantially exceeding the remaining carbon budgets associated with 1.5°C pathways (Chapter 2.7). Ongoing GHG-intensive investments, including those from basic industrialisation in poorer countries, are adding to this.

The fact that investors anticipate a level of fossil fuel use that is not compatible with severe climate constraints creates a clear risk of ‘ ''stranded assets’'' facing these investors (Box 6.2), and others who depend on them, which itself raises issues of equity. A multi-dimensional/multi-framework assessment helps to explain why such investments have continued, even in rich countries, and the consequent risks, and the complexity of shifting such investments in all countries. It may also inform approaches that could exploit path-dependence in clean energy systems, if there is sufficient investment in building up the low-GHG industries, infrastructures and networks required.

'''Carbon pricing.''' Appraisal of policy instruments also requires such multi-dimensional assessment ''.'' Stern’s (2007) reference to climate change as ‘the greatest market failure in history’ highlights that damages inflicted by climate change are not properly costed in most economic decision-making. Economic perspectives emphasise the value of removing fossil fuel subsidies, and pricing emissions to ‘internalise’ in economic decision-making the ‘external’ damages imposed by GHG emissions, and/or to meet agreed goals. Aggregate economic frameworks generally indicate carbon pricing (on principles which extend to other gases) as the most cost-effective way to reduce emissions, notwithstanding various market failures which complicate this logic. [[#footnote-000|9]] The High-Level Commission on carbon pricing ( [[#Stern--2017|Stern and Stiglitz 2017]] ) estimated an appropriate range as USD40–80 tCO 2 in 2020, rising steadily thereafter. In practice the extent and level of carbon pricing implemented to date is far lower than this or than most economic analyses now recommend ( [[IPCC:Wg3:Chapter:Chapter-3#3.6.1|Section 3.6.1]] ), and nowhere is carbon pricing the only instrument deployed.

A socio-cultural and equity perspective emphasises that the faith in and role of markets varies widely between countries – many energy systems do not in fact operate on a basis of competitive markets – and that because market-based carbon pricing involves large revenue transfers, it must also contend with major distributional effects and political viability ( [[#Prinn--2017|Prinn et al. 2017]] ; [[#Klenert--2018|Klenert et al. 2018]] ), both domestic (Chapter 13) and international (Chapter 14). A major review ( [[#Maestre-Andrés--2019|Maestre-Andrés et al. 2019]] ) finds persistent distributional concerns (rich incumbents have also been vocal in using arguments about impacts on the poor ( [[#Rennkamp--2019|Rennkamp 2019]] )), but suggests these may be addressed by combining redistribution of revenues with support for low-carbon innovation. Measures could include redistributing the tax revenue to favour of low-income groups or differentiated carbon taxes ( [[#Metcalf--2009|Metcalf 2009]] ; [[#Klenert--2016|Klenert and Mattauch 2016]] ; [[#Stiglitz--2019|Stiglitz 2019]] ), including ‘dual track’ approaches ( [[#van%20den%20Bergh--2020|van den Bergh et al. 2020]] ). To an extent though, all these depend on levels of trust, and institutional capacity.

Technological and transitions perspectives in turn find carbon-pricing incentives may only stimulate incremental improvements, but other instruments may be much more effective for driving deeper innovation and transitions (Chapters 14, 15 and 16), whilst psychological and behavioural studies emphasise many factors beyond only pricing (Sections 5.4.1 and 5.4.2). In practice, a wide range of policy instruments are used (Chapter 13).

Finally, in economic theory, negotiations on a common carbon price (or other common policies) may have large benefits (less subject to ‘free riding’) compared to a focus on negotiating national targets ( [[#Cramton--2017a|Cramton et al. 2017a]] ). The fact that this has never even been seriously considered (outside some efforts in the EU) may reflect the exceptional sovereignty sensitivities around taxation and cultural differences around the role of markets. However, carbon-pricing concepts can be important outside of the traditional market (‘tax or trading’) applications. A ’social cost of carbon’ can be used to evaluate government and regulatory decisions, to compensate for inadequate carbon prices in actual markets, and by companies to reflect the external damage of their emissions and strategic risks of future carbon controls ( [[#Zhou--2020|Zhou and Wen 2020]] ). An agreed ‘social value of mitigation activities’ could form a basic index for underwriting risks in low-carbon investments internationally ( [[#Hourcade--2021a|Hourcade et al. 2021a]] ).

Thus, practical assessment of carbon pricing inherently needs multi-dimensional analysis. The realities of political economy and lobbying have to date severely limited the implementation of carbon pricing ( [[#Mildenberger--2020|Mildenberger 2020]] ), leading some social scientists to ask ‘ ''Can'' we price carbon?’ ( [[#Rabe--2018|Rabe 2018]] ). Slowly growing adoption ( [[#World%20Bank--2019|World Bank 2019]] ) suggests ‘yes’, but only through complex evolution of efforts: a study of 66 implemented carbon-pricing policies show important effects of regional clustering, international processes, and seizing political windows of opportunity ( [[#Skovgaard--2019|Skovgaard et al. 2019]] ).

'''Just Transitions.''' Finally, whilst ‘transition’ frameworks may explain potential dynamics that could transform systems, a multi-dimensional/multi-framework assessment underlines the motivation for Just Transitions (Sections 1.6.2.3 and 4.5). This can be defined as a transition from a high-carbon to a low-carbon economy which is considered sufficiently equitable for the affected individuals, workers, communities, sectors, regions and countries ( [[#Jasanoff--2018|Jasanoff 2018]] ; [[#Newell--2013|Newell and Mulvaney 2013]] ). As noted, sufficient equity is not only an ethical issue but an enabler of deeper ambition for accelerated mitigation ( [[#Klinsky--2018|Klinsky and Winkler 2018]] ; [[#Urpelainen--2018|Urpelainen and Van de Graaf 2018]] ; [[#Hoegh-Guldberg--2019|Hoegh-Guldberg et al. 2019]] ). Perception of fairness influences the effectiveness of cooperative action ( [[#Winkler--2018|Winkler et al. 2018]] ), and this can apply to affected individuals, workers, communities, sectors, regions and countries ( [[#Newell--2013|Newell and Mulvaney 2013]] ; [[#Jasanoff--2018|Jasanoff 2018]] ).

A Just Transitions framing can also enable coalitions which integrate low-carbon transformations with concerns for climate adaptation ( [[#Patterson--2018|Patterson et al. 2018]] ). All this explains the emergence of ‘Just Transition Commissions’ in several of the more ambitious developed countries and complex social packages for coal phase-out in Europe ( [[#Sovacool--2019|Sovacool et al. 2019]] ; [[#Green--2020|Green and Gambhir 2020]] ) ( [[IPCC:Wg3:Chapter:Chapter-4#4.5|Section 4.5]] ), as well as reference to the concept in the PA and its emphasis in the Talanoa Dialogue and Silesia Declaration ( [[#1.2.2|Section 1.2.2]] ).

Whilst the broad concepts of Just Transitions have roots going back decades, its specific realisation in relation to climate change is of course complex: [[IPCC:Wg3:Chapter:Chapter-4#4.5|Section 4.5]] identifies at least eight distinct elements proposed in the literature, even before considering the international dimensions.

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