Climate Policy after Copenhagen

At the UN Climate Negotiations in Copenhagen, 117 heads of state concluded that low-carbon development is necessary in order to combat climate change. However, they could not agree on emission targets. At least one of the reasons why they could not agree is that low-carbon development is challenging because it requires the implementation of a portfolio of policies and programs. This book examines one the policies at the heart of attempts to create a low-carbon future: the European Emission Trading Scheme. It explores problems surrounding the implementation of such schemes, including the role of vested interests, the impact of subtle design details, and opportunities to attract long-term investments. It also shows how international climate cooperation can be designed to support the domestic implementation of policies for low-carbon development. This timely analysis of carbon pricing contains important lessons for all those concerned with the development of post-Copenhagen climate policy.

Karsten Neuhoff is Director of the Berlin office of Climate Policy Initiative, a global research organisation whose mission is to assess, diagnose and support the efforts of nations to achieve low-carbon "growth. He is also Research Director for Climate Policy Impact and Industry Response at the German institute tor Economic Research (Diw Berlin). He was previously an economist at the University of Cambridge leading climate policy and energy research projects, and worked with Climate Strategies on projects related to the European Union emissions-trading scheme.

List of figures	p. ix
List of tables	p. xii
List of boxes	p. xiii
Acknowledgements	p. xiv
List of abbreviations	p. xv
Introduction	p. 1
The role of a climate policy mix	p. 19
Putting a price on carbon	p. 20
The role of technology policy	p. 29
The role for targeted measures and regulation	p. 41
Managing distributional implications	p. 45
Conclusion	p. 52
Implementing a carbon price: the example of cap and trade	p. 56
The S02 trading programme in the USA	p. 58
The European Union emissions-trading scheme	p. 61
Setting the cap: too many cooks spoil the broth	p. 65
Distributing allowances: compensate or distort	p. 72
Sectoral coverage of a carbon-pricing scheme	p. 86
Conclusion	p. 93
Shifting investment to low-carbon choices	p. 97
The nature of uncertainty	p. 98
Response to uncertainty with taxes and cap-and-trade schemes	p. 100
Investment under uncertainty: contrasting different perspectives	p. 105
Addressing requirements of strategic investors	p. 109
Addressing requirements of project investors	p. 115
Addressing the needs of financial investors	p. 125
Conclusion	p. 129
Co-operation among developed countries: a role for carbon markets?	p. 132
Using international co-operation to enhance domestic commitment	p. 133
Transparent monitoring and reporting	p. 140
Carbon-market-based international co-operation among developed countries	p. 143
The economics of carbon-market-based co-operation mechanisms	p. 148
The political economy of carbon-market-based instruments	p. 151
A global carbon tax	p. 155
Conclusion	p. 158
A world of different carbon prices	p. 162
Screening for high carbon costs	p. 164
Do international cost differences matter? Dimensions of trade	p. 173
Corporate strategy: the longer-term view	p. 178
The industry value chain: leakage versus substitution effect	p. 181
Policy options to address leakage	p. 185
Conclusion	p. 198
International support for low-carbon growth in developing countries	p. 203
Framework for international co-operation	p. 206
Financial needs for low-carbon development	p. 210
The role of carbon markets to provide support for developing countries	p. 220
Conclusion	p. 234
Conclusion	p. 237
References	p. 248
Index	p. 264
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Climate Policy after Copenhagen

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