Climate Policy in Crisis. The Issues

Dr John Rhys, Oxford Institute for Energy Studies

This paper/presentation draws extensively on the presentations and discussions in the 2013 and 2014 series of BIEE “Parker seminars” on energy policy and climate change issues. The flavour is likely to reflect the summary circulated prior to the February 2014 seminar, and available, with an accompanying presentation, on the BIEE site.  This will be modified to reflect developments and discussions in the first half of 2014. It will however concentrate on selected questions: the basics of the economic case for action on emissions, and some of the policy conflicts, including the particular issue of national competitiveness.

The paper will argue that, even though the mainstream science on climate matters (not discussed in any depth in the paper) may now be widely accepted among decision makers, there are features of it whose implications have been seriously understated. In particular, a proper understanding of options theory points to a much higher priority being attached to early emissions reduction.   The economic arguments around action on emissions have also been badly presented, the limitations of cost benefit analysis have become increasingly apparent, and what is required is a much more rigorous focus on risk, uncertainty and concepts of decision theory, with particular reference to irreversibility.

The tensions in policy towards containing emissions fall into two categories.  One is the tension between market based approaches and regulation or central direction. Some prime examples relate to the conflicts arising within and between EU-wide and national policies. These deserve a careful analysis of some of the logical inconsistencies and unintended consequences of a badly designed mix of policies.

The second set of tensions arises in the conflict with several other policy objectives, including internal market and competition policy, which is substantial and likely to grow. To some extent these mirror conflicts that are already apparent in particular sectors, particularly the power sector, where ambitions for a single market are coming into conflict with national control over issues such as security.

Another example, highlighted in much of the European debate, is over international competitiveness, especially in the absence of a framework of comprehensive global agreement. The paper will argue that much of this concern is seriously overstated, and is in conflict with the available evidence.