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Aligning Policies for a Low-carbon Economy

image of Aligning Policies for a Low-carbon Economy

This report produced in co-operation with the International Energy Agency (IEA), the International Transport Forum (ITF) and the Nuclear Energy Agency (NEA) identifies the misalignments between climate change objectives and policy and regulatory frameworks across a range of policy domains (investment, taxation, innovation and skills, trade, and adaptation) and activities at the heart of climate policy (electricity, urban mobility and rural land use).

Outside of countries’ core climate policies, many of the regulatory features of today’s economies have been built around the availability of fossil fuels and without any regard for the greenhouse gas emissions stemming from human activities. This report makes a diagnosis of these contradictions and points to means of solving them to support a more effective transition of all countries to a low-carbon economy.

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Reframing investment signals and incentives in electricity

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.

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