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

=== 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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==== 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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==== 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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==== 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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