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

==== 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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