Electricity generation and uses are critical to the decarbonisation of energy systems. In some countries, power generators compete on wholesale electricity markets that optimise the near-term power supply. This chapter describes how such design may limit the market’s ability to guide future low-carbon investments, including in presence of a price on CO2. New arrangements are needed to lock-in investment in capital-intensive low-carbon technologies, while reflecting their specific costs and benefits for electricity system. The incentives in regulated electricity systems are also not always aligned with the decarbonisation of power generation. Beyond generation, there are examples of regulatory barriers that could be addressed to facilitate climate-friendly innovations, such as demandside response and electricity storage. The chapter also touches on the impacts of climate change on energy systems.

Current transport systems rely largely on fossil fuels and impose very high environmental costs (climate change, noise, air pollution), particularly in urban settings. Policy intervention is needed to provide more energy efficient and less carbon-intensive mobility. These measures should focus on shifting away from the use of individual cars to mass transport modes, reducing the need for travel through land-use planning, as well as improving fuel and vehicle efficiency.

Sustainable land-management practices – reduced deforestation, restoring degraded land, low-carbon agricultural practices and increased carbon sequestration in soils and forests – can contribute to significant greenhouse gas emission reductions while responding to growing food demand. They could also improve the resilience of our economies to a changing climate by protecting ecosystems. Achieving this will require an integrated approach that breaks down the silos between climate change, agriculture, food security, forestry and environment policies. This chapter explores misalignments arising from the existence of environmentally harmful agricultural subsidies, the lack of valuation of ecosystem services and forest protection, and the incentives leading to food waste across the agriculture value chain.