According to the 2015 Paris Agreement, this year all countries are asked for more ambitious commitments to reduce greenhouse gas emissions. Over 100 countries have already promised to do so. But commitments are one thing, living up to them is something else, and requires domestic policy development. To live up to the challenge, Hal Harvey and colleagues have written an excellent guidebook; “Designing Climate Solutions: A Policy Guide for Low-Carbon Energy”. A book that matches my years of experience as a consultant to policy makers very well.
Policy making is an art. Development of energy and climate policy requires selecting the right tools. More importantly, it requires the effective use of such tools. A former consultancy colleague used to say: “it doesn’t matter which policy instrument you use, but how you use it”. The book by Harvey and colleagues provides both guidance on the choice and on the use of policy instruments.
The book starts with mapping the emission reduction world, showing which sectors have most emissions and where most reductions can be achieved up to 2050. All major sectors are subsequently discussed. It is often stated that effective policies require a mix of policy instruments. This is true, but also too simplistic: policy instruments cannot be randomly selected, not any mix will do. This book correctly distinguishes between major policies that do most of the job, and supporting policies that improve effectiveness or mitigate possible negative consequences of the major policy.
For example, in the case of renewable energy policies, the recommended major policies are feed-in tariffs and renewable portfolio standards (also indicated as renewable energy obligations). However, the design is important, and the book elaborates on the following policy design recommendations:
- Create long-term certainty to provide businesses with a clear planning horizon
- Use a price-finding mechanism (to avoid high costs for the government and citizens)
- Eliminate unnecessary soft costs (e.g. for permitting)
- Reward production, not investment in clean energy technologies
- Build in continuous improvement
The complementary policies in this case are about grid flexibility, well-functioning competitive power markets, orderly retirement of fossil-based power plants, and de-risking of renewable energy projects.
No book is perfect, and, in the case of renewable energy, it is a pity that not more attention is given to renewable auctions as a major policy instrument. Auctions have recently emerged as an important tool for stimulating renewable energy projects and at the same time controlling costs.
In addition, the book clearly has a US flavour, sometimes even reflected in the naming of policy instruments, like the renewable portfolio standards mentioned before. But let’s not forget, the US has 52 states that have each implemented their own variants of policies, so this is probably the world’s largest energy policy living lab! This also brings to the fore jewels, like the feebate. To my knowledge the feebate is a US invention. The word is a contraction of the words fee and rebate, and that says exactly what it is: it is a combination of a tax and a subsidy. For example, buyers of inefficient cars are charged a fee, and buyers of efficient cars receive a rebate. The policy can be designed in such a way that it is income-neutral for the government. A charming policy instrument, worthy to be applied more widely.
Quite some attention – rightly so – is given to research and development policies. Support for Research and Development is presented as one of the cornerstones of the policy triangle, the two others being Economic Signals and Performance Standards. These three policy types are considered to reinforce each other. In many countries, research and development policies tend to be a non-binding provision of funding to research institutes and innovative companies. Harvey and co-authors provide, among others, the following design recommendations:
- Create Long-Term Commitments for Research Success
- Use Peer Review to Help Set Research Priorities
- Use Stage-Gating to Shut Down Underperforming Projects
- Concentrate R&D by Type or Subject to Build Critical Mass
The final concept I want to quote from this book, is the marginal policy cost curve. We are all familiar with the marginal-abatement-cost-curve, in which emission mitigation options are ranked according to increasing costs per tonne of greenhouse gas emission avoided. In this book the policy-cost-curve is proposed. The curve looks very similar, but it is a ranking of policies instead of technologies. The organisation behind the book also provides online tools to construct such curves for other countries, the Energy Policy Simulator.
Conclusion: this book should be on the desk of all policy makers, both when developing policies in new areas and when critically assessing their existing policies. It would also be a great textbook, complementing more theoretical texts on policy making.
Hal Harvey, with Robbie Orvis, Jeffrey Rissman, Michael O’Boyle, Chris Busch and Sonia Agarwal: Designing Climate Solutions: A Policy Guide for Low-Carbon Energy, Island Press, Washington/Covelo/London, 2018. Also available as e-book. A translation in Chinese is forthcoming.