Policy instruments

Action in the energy sector on the scale required to mitigate the effects of climate change through reduction in the emissions of greenhouse gases will require significant policy initiatives by governments in cooperation with industry. Some of these initiatives are the following:61

putting in place appropriate institutional and structural frameworks; energy pricing strategies (carbon or energy taxes and reduced energy subsidies); reducing or removing other subsidies (e.g. agricultural and transport subsidies) that tend to increase greenhouse gas emissions;

tradeable emissions permits (see Chapter 10, page 299);62 voluntary programmes and negotiated agreements with industry; utility demand-side management programmes;

regulatory programmes, including minimum energy efficiency standards (e.g. for appliances and fuel economy);

stimulating R&D to make new technologies available;

market pull and demonstration programmes that stimulate the development and application of advanced technologies;

renewable energy incentives during market build-up;

incentives such as provisions for accelerated depreciation or reduced costs for consumers; information dissemination for consumers especially directed towards necessary behavioural changes; education and training programmes; technological transfer to developing countries; provision for capacity building in developing countries; options that also support other economic and environmental goals.

sources are already competitive in cost, for instance in providing local sources of energy where the cost of transporting electricity or other fuel would be significant; some examples of this (such as Fair Isle in Scotland - see box above) have been given. However, when there is direct competition with fossil fuel energy from oil and gas, many renewable energies at the present compete only marginally. In due course, as easily recoverable oil and gas reserves begin to run out, those fuels will become more expensive enabling renewable sources to compete more easily. However, that is still some time away and for renewables to begin now to displace fossil fuels to the extent required, appropriate financial incentives must be introduced to bring about the change. Further to provide for carbon capture and storage from fossil-fuel power stations and for some energy-efficient measures, additional finance will also be necessary.


Disembodied technology


Public sector


Incentives, standards, regulation, subsidies, taxes


Incentives, standards, regulation, subsidies, taxes


Disembodied technology


| Market/Demand pull










| Product/Technology push


(plant, equipment, etc.)

l_Funding_1 Investments, knowledge and market spillovers

Embodied technology

(plant, equipment, etc.)

l_Funding_1 Investments, knowledge and market spillovers

^ Private sector ^

Figure 11.22 The process of technology development and its main driving forces.

As we saw in Chapter 9, the basis of such incentives would be the principle that the polluter should pay by the allocation of an environmental cost to carbon dioxide emissions. There are three main ways in which this can be done. Firstly, through a direct subsidy being provided by governments to carbon-free energy. Secondly, through the imposition of a carbon tax. Suppose, for instance, that through taxes or levies an additional cost of between $US25 and 50 per tonne of carbon dioxide (figures mentioned in the context of environmental costs towards the end of Chapter 9) were to be associated with carbon dioxide emissions, between 1 and 4 cents per kWh would be added to the price of electricity from fossil fuel sources- which could bring some renewables (for instance, biomass and wind energy) into competition with them.58 It is interesting to note that in many countries substantial subsidies are attached to energy - worldwide they amount on average to the equivalent of more than $10 per tonne of carbon dioxide. A start with incentives would therefore be made if subsidies were removed from energy generated from fossil fuel sources (see box below).

A third way of introducing an environmental cost to fossil fuel energy is through tradeable permits in carbon dioxide emissions, as are being introduced under arrangements for the management of the Kyoto Protocol (Chapter 10, page 299). These control the total amount of carbon dioxide that a country or region may emit while providing the means for industries to trade permits for their allowable emissions within the overall total.

These fiscal measures are relatively easy to apply in the electricity sector. Electricity, however, only accounts for about one-third of the world's primary energy use. They also need to be applied to solid, liquid or gaseous fuels that

Table 11.2 Key mitigation technologies and practices by sector


Key mitigation technologies and practices currently commercially available

Key mitigation technologies and practices projected to be commercialised before 2030

Energy supply

Improved supply and distribution efficiency; fuel switching from coal to gas; nuclear power; renewable heat and power (hydropower, solar, wind, geothermal and bioenergy); combined heat and power; early applications of carbon capture and storage (CCS, e.g. storage of removed carbon dioxide from natural gas).

CCS for gas- biomass-and coal-fired electricity generating facilities; advanced nuclear power; advanced renewable energy, including tidal and wave energy, concentrating solar and solar PV.


More fuel-efficient vehicles; hybrid vehicles; cleaner diesel vehicles; biofuels; modal shifts from road transport to rail and public transport systems; non-motorised transport (cycling, walking); land-use and transport planning.

Second-generation biofuels; higher-efficiency aircraft; advanced electric and hybrid vehicles with more powerful and reliable batteries.


Efficient lighting and daylighting; more efficient electrical applicances and heating and cooling devices; improved cooking stoves, improved insulation; passive and active solar design for heating and cooling; alternative refrigeration fluids, recovery and recycle of fluorinated gases.

Integrated design of commercial building including technologies such as intelligent meters that provide feedback and control; solar PV integrated in buildings.


More efficient end-use electrical equipment; heat and power recovery; material recycling and substitution; control of non-carbon dioxide gas emissions; and a wide array of process-specific technologies.

Improved crop and grazing land management to increase soil carbon storage; restoration of cultivated peaty soils and degraded lands; improved rice cultivation techniques and livestock and manure management to reduce methane emissions; improved nitrogen fertiliser application techniques to reduce nitrous oxide emissions; dedicated energy crops to replace fossil fuel use; improved energy efficiency.

Advanced energy efficiency, CCS for cement, ammonia and iron manufacture; insert electrodes for aluminium manufacture,


Improvements of crop yields.

Table 11.2 (Cont.)


Afforestation; reforestation; forest management; reduced deforestation; harvested wood product management; use of forestry products for bioenergy to replace fossil fuel use.

Tree species improvement to increase biomass productivity and carbon sequestration, Improved remote sensing technologies for analysis of vegetation/ soil carbon sequestration potential and mapping land use change.

Waste management

Landfill methane recovery; waste incineration with energy recovery; composting of organic waste; controlled waste water treatment; recycling and waste minimisation.

Biocovers and biofilters to optimise methane oxidation.

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