A Reform Strategy to Transform Energy From Piecemeal to Systemwide Change

Steven Fries ()
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Steven Fries: Peterson Institute for International Economics

No WP22-13, Working Paper Series from Peterson Institute for International Economics

Abstract: The IPCC Sixth Assessment Report on Climate Change Mitigation highlights the vast gap between climate change mitigation actions and climate stabilization goals. But its broad policy prescriptions are likely to leave policymakers pondering what specific actions to take. Informed by accumulating evidence on transforming aspects of energy systems like power generation from solar and wind resources and battery electric cars, this paper develops a more pointed energy reform strategy than that of the IPCC to deliver the necessary systemwide changes. It makes the case for two unorthodox policies. One is for governments to provide, in addition to R&D supports, market-creating supports for early deployment of low-carbon technologies in initial markets. The second is to sequence emissions pricing after innovation and market-creating supports and differentiate this pricing across key energy sectors rather than impose one economywide price. Compared with a single price, targeting higher emissions pricing on sectors that are costlier to decarbonize still promotes cost-effective emission cuts but limits adverse distributional impacts. The paper also considers nonprice barriers to change and ways to coordinate domestic reforms across countries.

Keywords: low-carbon technologies; innovation policy; market-creating policies; cost-effective emissions pricing; distributional fairness; efficiency regulation; institutional reforms; international coordination. (search for similar items in EconPapers)
JEL-codes: O25 O38 Q48 Q58 (search for similar items in EconPapers)
Date: 2022-08
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
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