Policy-makers need a climate toolbox, not a silver bullet – World Economic Forum

  • There is no one-size-fits-all policy approach to tackling climate change.
  • Instead, policy-makers can and must tailor their approaches using a menu of alternatives.
  • Here’s a guide to what works – and why.

Since the Paris Climate Agreement was signed in 2015, 64 jurisdictions have implemented or are planning to implement carbon-pricing mechanisms. By putting a meaningful price on carbon, governments “can unlock trillions of dollars in climate finance from companies and investors in the private sector”, which can then be used to finance the low-carbon, clean-energy transition.

However, carbon pricing must operate along with other alternatives, which are less polarizing and have broader appeal. Any carbon tax would not by itself work as a climate silver bullet – that is, it could not be set so high so as to radically decrease the consumption of carbon-based fuels – and accordingly, carbon pricing initiatives need to be supplemented with other policies. Experts suggest that “as climate change intensifies, it becomes increasingly important to pursue all elements of an integrated climate response“.

The menu of alternatives adopted by California, for instance, in formulating an effective climate strategy is a good illustration. In addition to a cap-and-trade framework, California also has regulatory frameworks for a low-carbon fuel standard, energy efficiency and conservation, an aggressive renewable portfolio standard (which aims to have 60% of the state’s energy needs met with renewable energy by 2030), a refrigerant tracking and reporting programme, landfill methane control and clean vehicles.

The California Air Resources Board (CARB), by their estimate, envisaged that these supplementary policies could be responsible for tackling 71% of the state’s carbon emissions. On the other hand, a report published by the California State Legislature has acknowledged that the cap-and-trade framework is merely a backstop arrangement and that the “cap is likely not having much, if any, effect on overall emissions in the first several years of the program”. While the state envisaged the cap-and-trade framework would account for the removal of 30% of carbon emissions, a climate policy think tank has estimated that, in 2015 and 2016, California’s cap-and-trade scheme was responsible for “only 4% to 15% of the state’s reductions”.

Alternative fuels and energy storage

The transportation sector contributes significantly towards the problem. In 2018, this sector accounted for 28% of the US’ CO2 emissions, the most of any sector. Globally, the transportation sector contributes to 14% of total greenhouse gas (GHG) emissions. Therefore, a huge investment in alternative fuels is needed.

Hydrogen is the wildcard of clean energy. It has multifaceted uses; it be used as carbon-free fuel for transportation fuel, a medium for long-term storage, industrial applications, and electricity generation. In terms of energy storage, it offers a solution to the biggest question of recent times – how to generate electricity when the wind is not blowing and the sun is not shining. It has been suggested that by 2050, hydrogen may be a trillion-dollar market that meets 14% of total US energy demand, but this sector will require substantial investment over the next decade to become competitive. Hydrogen will also complement lithium-ion batteries; whereas the latter will be used for short-term needs, hydrogen can be put aside for next week, or even next season. Hydrogen is also being considered by the aviation industry to fuel the next generation of jets. Airbus is betting on hydrogen to enable the development of zero-emission jets by 2028.

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How might hydrogen fit within our energy systems?

Image: Herbert Smith Freehills

Another alternative is the second generation of biofuels or advanced biofuels, which include fuels derived from algae, seaweed, plant or animal residues, and food waste. Companies such as ExxonMobil are aiming to produce 10,000 barrels a day of algae-based biofuels by 2025. Algae-based biofuel is considered to have more potential as a fuel source in the longer run; it “can be processed to produce both ethanol and bio-diesel” and requires considerably less water than for ethanol production. It also requires considerably less land use, making it a more attractive option than soybean and corn for ethanol production.

Henry Ford in 1925 called ethanol “the fuel of the future.” Blending ethanol with gasoline substantially reduces the carbon content of the fuel. According to the US EPA, “the life-cycle emissions reductions in comparison to gasoline are about 20% for corn-based ethanol and 60% for sugarcane-based ethanol”. Cars manufactured post-2001 can easily accept a blend of 15% ethanol “without causing exceedances of air pollution standards.” Brazil, for example, accounts for 25% of the world’s ethanol production – and instead of corn, it produces ethanol from sugarcane. Ethanol sourced from sugarcane is the “cheapest source of ethanol” in the world. Brazil has experimented with “fuel flex” cars, which can be operated on any mixture of ethanol and gasoline, up to 100% ethanol.

Keeping up standards

An slate of aggressive clean energy standards or renewable portfolio standards (RPS) can stimulate the transition towards cleaner sources of electricity. This has already happened in various US states, where it is estimated to have contributed towards creating one-third of the US’ non-hydro renewable electricity capacity. However, experts argue that only an aggressive RPS, which mandates retailers to procure more than 50% of their electricity from renewable sources, would have an effective outcome in reducing CO2 emissions. California was able to meet its 2020 carbon goals, primarily due to its RPS mandate, which required that 60% of all retail electricity should come from renewable sources, resulting in lower emissions from its electricity sector.

Besides RPS mandates that require utilities to source a certain percentage of electricity from renewables, local governments too can take an active role in ensuring that their city is powered by clean energy by using their own RPS. The City of Austin is a great example of this – all city-owned facilities are powered with 100% renewable energy, and the city has committed to get 65% of its energy from renewable sources by 2025. By 2035, it aims to achieve 100%.

Increase in transmission and distribution network

Another supplementary policy is for regions to invest in increasing transmission and distribution networks, along with greater interconnectivity amongst grids. Texas’ ‘competitive renewable energy zones‘ (CREZ) projects have added around 3,600 miles of transmission lines in the State. Instead of pursuing a polarizing policy, such as imposing carbon taxes, Texas funded the project – to the tune of around $7 billion – by adding a uniform surcharge to the electricity bills of all users.

Conclusion

The aforementioned supplementary policies are by no means exhaustive. There are other successful policies, such as public investment in clean-tech R&D as well as feed-in tariffs. Germany’s feed-in tarriff is single-handedly credited with creating a substantial demand for solar panels and drastically reducing their costs, making them competitive within a short period. This article endeavours to identify such bright spots, or off-the-shelf options, which have demonstrated in various parts of the world to have successfully curb carbon emissions and need to be considered by governments to operate along with any carbon price.

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