The 21st Century climate challenge

3Avoiding dangerous climate change: strategies for mitigationEffective public policiescan help create win–winoutcomes for global climatesecurity, national energysecurity and living standards2015 is a realistic goal. For sectors—such aspower generation— facing limited competition,rules could be revised to allow for one-half ofpermits to be auctioned by 2012.There are two CDM-related dangers thatthe European Union also has to address. Thefirst is the danger of overuse. Opportunitiesfor generating emission trading credits overseasshould not totally displace mitigation in theEuropean Union. If companies are able to meettheir EU ETS obligations primarily by ‘buyingin’ mitigation in developing countries whileputting in place carbon-intensive investmentsat home, that is evidence for insufficientlyambitious targets. One detailed study of nationalallocation plans for nine countries estimatesthat between 88 and 100 percent of emissionsreductions under the second phase of the EU3.3 The critical role of regulation andgovernment actionETS could take place outside of the EuropeanUnion. 56 Against this backdrop, it is importantthat emission credits play a supplementary role,as envisaged under the Kyoto Protocol.The second danger concerns the authenticityof CDM emission reductions. Rules governingthe arrangement require that emission reductionsare ‘additional’—that is, they would nothave happened in the absence of CDM investments.In practice, this is difficult to verify. Thereis evidence that some CDM credits have beenacquired for investments that would have takenplace anyway. 57 Far more stringent independentmonitoring is required to ensure that carbontrading does not act to dilute real mitigation.The need for such stringent monitoring raisesquestions about the further expansion of theCDM based on the current model.Putting a price on carbon either throughtaxation or cap-and-trade schemes is a necessarycondition for avoiding dangerous climatechange. But carbon pricing alone will not besufficient to drive investments and changebehaviour at the scale or speed required. Thereare other barriers to a breakthrough in climatechange mitigation—barriers that can only beremoved through government action. Publicpolicies on regulation, energy subsidies andinformation have a central role to play.There are no blueprints for identifying inadvance the appropriate policies to create anenabling environment for low-carbon transition.However, the problems to be addressed are wellknown.Changing the energy mix in favour oflow-carbon energy requires large up-frontinvestments and a long-term planning horizon.Markets alone will not deliver. Governmentregulatory mechanisms backed by subsidies andincentives have a key role in guiding investmentdecisions. Energy efficiency standards forbuildings, electrical appliances and vehiclescan dramatically curtail emissions at lowcost. Meanwhile, policy support for researchand development can create conditions for atechnological breakthrough.Effective public policies can help createwin–win outcomes for global climate security,national energy security and living standards.Improvements in end-use efficiency illustratethe potential. Scenarios developed by theInternational Energy Agency (IEA) pointto the potential for efficiency savings to cutemissions by 16 percent in OECD countries by2030. Every US$1 invested in securing thesereductions through more efficient electricalappliances could save US$2.2 in investment inpower plants. Similarly, every US$1 invested inmore efficient fuel standards for vehicles couldsave US$2.4 in oil imports. 58While estimates of the cost–benefitratios for efficiency gains vary, as these figuresdemonstrate, there are large gains on offer. Thosegains can be measured in terms of consumersavings, reduced dependence on oil importsand reduced costs for industry. They can also bemeasured in terms of cut-price climate change132 HUMAN DEVELOPMENT REPORT 2007/2008