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Robust incentives and the design of a climate change governance regime

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  • Nemet, Gregory F.

Abstract

In building a governance regime to address climate change, should we prioritize the development of global institutions or national ones? This paper focuses on two neglected characteristics to inform the governance problem: the incentives for investment in low-carbon energy technology and the influence of historical policy volatility. Examining a case study of an important low-carbon energy technology, wind power, this study finds: (1) policy volatility has been substantial, (2) policy changes were uncorrelated across jurisdictions, suggesting that (3) investors could have substantially reduced their exposure to the risk of policy volatility by operating globally. While it also has downsides, a poorly coordinated international policy regime has the advantage of reducing the risk associated with a global policy failure. Beyond this case study, the importance of this positive effect depends on: the probability of policy failures in each country, the correlations among them, and the probability of a global policy failure.

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  • Nemet, Gregory F., 2010. "Robust incentives and the design of a climate change governance regime," Energy Policy, Elsevier, vol. 38(11), pages 7216-7225, November.
    • Handle: RePEc:eee:enepol:v:38:y:2010:i:11:p:7216-7225
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    3. Baccini, Leonardo & Urpelainen, Johannes, 2012. "Legislative fractionalization and partisan shifts to the left increase the volatility of public energy R&D expenditures," LSE Research Online Documents on Economics 45571, London School of Economics and Political Science, LSE Library.
    4. Nemet, Gregory F., 2012. "Inter-technology knowledge spillovers for energy technologies," Energy Economics, Elsevier, vol. 34(5), pages 1259-1270.
    5. Romano, Teresa & Fumagalli, Elena, 2018. "Greening the power generation sector: Understanding the role of uncertainty," Renewable and Sustainable Energy Reviews, Elsevier, vol. 91(C), pages 272-286.
    6. Gregory F. Nemet & Peter Braden & Ed Cubero & Bickey Rimal, 2014. "Four decades of multiyear targets in energy policy: aspirations or credible commitments?," Wiley Interdisciplinary Reviews: Energy and Environment, Wiley Blackwell, vol. 3(5), pages 522-533, September.
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    8. Enrica Cian & Valentina Bosetti & Massimo Tavoni, 2012. "Technology innovation and diffusion in “less than ideal” climate policies: An assessment with the WITCH model," Climatic Change, Springer, vol. 114(1), pages 121-143, September.
    9. Luís M A Bettencourt & Jessika E Trancik & Jasleen Kaur, 2013. "Determinants of the Pace of Global Innovation in Energy Technologies," PLOS ONE, Public Library of Science, vol. 8(10), pages 1-6, October.
    10. Verónica Gutman, 2017. "Economics and Climate Change: An economic analysis of mitigation decisions in Latin America," Economía, Instituto de Investigaciones Económicas y Sociales (IIES). Facultad de Ciencias Económicas y Sociales. Universidad de Los Andes. Mérida, Venezuela, vol. 42(44), pages 11-36, july-dece.
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    12. Dongmei Guo & Yi Hu & Bingjie Zhang, 2014. "Carbon Market Regulation Mechanism Research Based on Carbon Accumulation Model with Jump Diffusion," Discrete Dynamics in Nature and Society, Hindawi, vol. 2014, pages 1-7, May.

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