Editing IPCC:AR6/WGIII/Chapter-6 (section)

=== 6.7.5 Policy and Governance ===

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Policy and governance frameworks are essential for shaping near- and medium-term low-emissions energy system transitions ( ''high confidence'' ). While policy interventions are necessary to achieve low-carbon energy system transitions, appropriate governance frameworks are crucial to ensure policy implementation ( ''high confidence'' ). The policy environment in energy transition pathways relate to climate policy goals, the characteristics of the policy regimes and measures to reach the policy goals including implementation limits and obstacles, and the timing of the climate instrument ( [[#Kriegler--2014b|Kriegler et al. 2014b]] ).

The literature discusses a broad set of policy approaches. Environmental economics focuses mainly on market-based approaches as the least-cost policy to achieve emission reductions ( [[#Kube--2018|Kube et al. 2018]] ). Many countries, however, have implemented policy mixes with a diverse set of complementary policies to achieve energy and climate policy targets. One example is the German Energiewende, which includes substantial support for renewables, an action plan for energy efficiency, and phase-out processes for nuclear- and coal-based power generation next to carbon pricing ( [[#Löschel--2019|Löschel et al. 2019]] ). The halving of CO 2 emissions in UK power generation reflects multiple policies, particularly within the UK’s Climate Change Act 2008 ( [[#Grubb--2018|Grubb and Newbery 2018]] ). More generally, the implementation of the NDCs under the Paris Agreement are all characterised by diverse climate policy mixes.

These policy mixes (or policy packages) are shaped by different factors, including policy goals and objectives (including political, social and technological influences), multiple market, governance or behavioural failures or previous policy choices of earlier policy eras ( [[#Rogge--2017|Rogge 2017]] ). When pursuing multiple policy goals or targeting some type of imperfection,well designed policy mixes can, in principle, reduce mitigation costs ( [[#Corradini--2018|Corradini et al. 2018]] ) or address distributional concerns, especially vulnerable populations. For example, the interaction between carbon pricing and the support for clean energy technologies in the EU clean low-carbon strategy for 2050 can reduce mitigation costs and allow for the early adoption of more stringent climate targets ( [[#Vandyck--2016|Vandyck et al. 2016]] ). Policy efforts to promote adoption of low-carbon technologies are more successful if they focus not only on economic incentives but include behavioural interventions that target relevant cognitive and motivational factors ( [[#Mundaca--2019|Mundaca et al. 2019]] ; [[#Khanna--2021|Khanna et al. 2021]] ) ( [[#6.7.6|Section 6.7.6]] ). Overlapping nudges might not necessarily lead to lower effectiveness ( [[#Brandon--2019|Brandon et al. 2019]] ).

Well-designed policy mixes can support the pursuit of multiple policy goals, target effectively different types of imperfections and framework conditions and take into account the technological, economical, and societal situation ( ''high confidence'' ). Accounting for the different development stages of new technologies will enhance low-emissions transitions (Graaf and Sovacool 2020). For prototype technologies and technologies in the demonstration phase, research subsidies and demonstration projects are most important. For technologies experiencing early adoption, infrastructure development and strengthening of markets are increasingly important, while retiring or repurposing of existing assets is important for mature technologies ( [[#IEA--2020h|IEA 2020h]] ) Effective policy mixes will address different market frictions and deal with various uncertainties, for example, those pertaining to technological, climate, and socio-economic developments ( [[#Aldy--2020|Aldy 2020]] ), but also with respect to outcomes of individual policies (e.g., [[#Borenstein--2019|Borenstein et al. 2019]] ). Therefore, policy mixes may balance the trade-off between stability and the flexibility to change individual policies ( [[#Gawel--2019|Gawel and Lehmann 2019]] ) and the policy mix over time ( [[#Rayner--2017|Rayner et al. 2017]] ). Some policy instruments may become feasible over time, for example, as technological advancements reduce the transaction costs of comprehensive market-based approaches ( [[#Andoni--2019|Andoni et al. 2019]] ; [[#Di%20Silvestre--2020|Di Silvestre et al. 2020]] ), or as weakened barriers to stringency enable policy sequencing ( [[#Pahle--2018|Pahle et al. 2018]] ). Energy system policy mixes often include sector-specific regulation. Compared to economy-wide approaches, sectoral policies may be able to directly target specific sectors or mitigation options. However, uncoordinated implementation or limited coordination across sectors may lead to efficiency losses (e.g. [[#Rosendahl--2017|Rosendahl et al. 2017]] ). These losses also depend on other policies, such as pre-existing taxes ( [[#Goulder--2016|Goulder et al. 2016]] ; Marten et al. 2018) or research and development policies ( [[#Acemoglu--2016|Acemoglu et al. 2016]] ). Moreover, unilateral policies – those taken by individual countries in the absence of coordination with other countries – could raise carbon leakage risks, while balancing potential issues of (industrial) competitiveness ( [[#Martin--2014|Martin et al. 2014]] ; [[#Rosendahl--2017|Rosendahl et al. 2017]] ). Energy leakage may become more important during low-carbon energy systems. Numerous studies have identified pathways for carbon leakage in electricity markets with incomplete emission markets ( [[#Caron--2015|Caron et al. 2015]] ; [[#Murray--2015|Murray and Maniloff 2015]] ; [[#Thurber--2015|Thurber et al. 2015]] ; [[#Duan--2017|Duan et al. 2017]] ; [[#Fell--2017|Fell and Maniloff 2017]] ; [[#Qian--2018|Qian et al. 2018]] ). Well-designed policy mixes will need to target the whole lifecycle or value chains, for example, through policies on limiting fossil fuel extraction ( [[#Asheim--2019|Asheim et al. 2019]] ), or they will need to include measures to limit carbon leakage (e.g. [[#Cosbey--2019|Cosbey et al. 2019]] ).

Interactions between policy measures including their scope, stringency, and timing, influence the costs of reducing emissions ( [[#Corradini--2018|Corradini et al. 2018]] ). In particular, some policy instruments may lead to lock-in effects ( [[#6.7.3|Section 6.7.3]] ), compete with other regulations (Graaf and Sovacool 2020), or trigger negative policy interactions ( [[#Perino--2015|Perino 2015]] ; [[#Jarke-Neuert--2020|Jarke-Neuert and Perino 2020]] ). Existing policy mixes often reflect different political economy constraints, and sometimes not well coordinated goals. The resulting policy mixes are often economically inefficient. However, comprehensive evaluation of policy mixes requires a broader set of criteria that reflect different considerations, such as broader goals (e.g., SDGs) and the feasibility of policies ( ''high confidence'' ).

Policy mixes might rather emerge piece-by-piece over time out of individual policy interventions rather than be designed as a whole from the outset ( [[#Howlett--2014|Howlett 2014]] ; [[#Rogge--2017|Rogge 2017]] ) and may reflect differences across jurisdictions and sectors ( [[#Howlett--2014|Howlett 2014]] ). For example, taking into account country-specific objectives, failures, and limitations, carbon prices may be only one part of a broader policy mix, and thereby may not be uniform across countries ( [[#Bataille--2020|Bataille 2020]] ). This lack of consistency makes it more difficult to assess economic outcomes since costs of complementary policies are often less visible and are often targeted at high-cost mitigation options ( [[#Borenstein--2019|Borenstein et al. 2019]] ).

Effective assessment of policy mixes requires comprehensive, validated international data, methodologies, and indicators. Existing policy mixes are difficult to evaluate because they target multiple objectives, and the evaluation must consider various criteria ( [[IPCC:Wg3:Chapter:Chapter-13|Chapter 13]] and [[#6.7.7|Section 6.7.7]] ), such as environmental and economic effectiveness, distributional effects, transformative potential, institutional requirements, and feasibility. Economic outcomes depend on policy goals and implementation. Existing studies on policy mixes suggest the benefits of a comprehensive approach ( [[#Rosenow--2017|Rosenow et al. 2017]] ), while also highlighting that an ‘excessive’ number of instruments may reduce overall effectiveness ( [[#Costantini--2017|Costantini et al. 2017]] ). Combining environmental regulation and innovation policies may be of particular importance to tackle both emissions and innovation market failures ( [[#Fabrizi--2018|Fabrizi et al. 2018]] ). The consistency and credibility of policy mixes is positively associated with green innovation ( [[#Rogge--2018|Rogge and Schleich 2018]] ).

Potential future policies are difficult to evaluate due to methodological challenges ( ''high confidence'' ). Recent model-based analyses of future policy mixes based on ‘current policy scenarios’ try to implement existing policies besides explicit or implicit carbon prices (den [[#Elzen--2016|Elzen et al. 2016]] ; [[#Rogelj--2016|Rogelj et al. 2016]] ; [[#van%20Soest--2017|van Soest et al. 2017]] ; [[#Roelfsema--2020|Roelfsema et al. 2020]] ). Many assessments of future low-carbon energy transitions are still based on cost-optimal evaluation frameworks and include only limited analysis of interactions between policy measures. Hence they are often not describing real-world energy transitions properly, but rather differences in implied carbon prices, constraints in technology deployment, and timing of policies ( [[#Trutnevyte--2016|Trutnevyte 2016]] ).

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