Industry  |  Publications  |  12.07.2011

The Economics of Climate Change Mitigation: Policies and Options for Global Action Beyond 2012

This OECD publication summaries their recent analyses, particularly on technological innovations and policies to address carbon leakage, and argues that postponing decisions, and using the current economic circumstances as an excuse, would be a short-sighted policy.

The publication states that achieving the necessary emission reductions will require a broad range of policy instruments in all countries. The pricing of GHG emissions, directly via carbon taxes or - more probably − through cap-and-trade systems, is an essential element of any comprehensive strategy. Such pricing leads to cost-effective emissions abatement and creates incentives to innovate and deploy new technologies. Cost-effectiveness is essential for creating the necessary consensus for effective climate change policies.

In this document, the OECD expands its analysis in two important domains: first, it focuses on the role of technological innovation in bringing down the costs of climate change mitigation over time. It argues that a concerted research and development effort can indeed be expected to yield important benefits, but not by itself. The pricing of GHG emissions is critical for ensuring that new technologies, once developed, are rapidly deployed where they are most needed.

The second new element is an analysis of carbon leakage: that is, the concern that GHG-intensive industries located in countries that take action will lose competitiveness vis-à-vis competitors in countries that do not. The OECD assessment is that while such effects are of concern, they diminish quite rapidly as the set of countries participating in climate change mitigation efforts grows. Excluding energy-intensive industries from GHG emission abatement rules is not economically efficient because it substantially increases abatement costs for the economy as a whole. In the absence of wide country participation in mitigation action, sector-specific arrangements for some of these industries may be an
appropriate instrument for reducing carbon-leakage concerns. But it is clearly second best.

The publication argues that efforts to reduce GHG emission must form part of the response to the global financial and economic crisis. Indeed, the current economic crisis can be used to make progress in a new direction, to speed up our efforts to create a new “low-carbon growth” era.

The OECD argues that an ambitious and comprehensive strategy to curb greenhouse gas (GHG) emissions is economically rational, and that it is possible to find opportunity in the current economic turbulence.

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