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Supply-Side crediting for accelerated decarbonization: A political economy perspective

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  • Mehling, M. A.

Abstract

Climate policy ambition lags behind committed decarbonization targets, due in large measure to the unfavorable political economy of climate policies that require a reduction in emissions or increase their cost, such as phase-out mandates or carbon pricing. This paper describes a policy innovation, supply-side crediting, that can improve the political economy of climate action, catalyze innovation, and contribute to the objective of a just transition. By creating a revenue stream for the decommissioning of fossil fuel reserves, supply-side crediting alters the incentive structure and generates political buy-in from key stakeholders in the energy economy. Revenue from supply-side crediting can scale up climate finance and accelerate the commercialization of necessary low-carbon solutions, such as carbon dioxide removal technologies. Through various impact channels, supply-side crediting can help overcome resistance against climate policy ambition and address socioeconomic impacts of the energy transition. Over time, supply-side crediting can thus unlock a virtuous sequence that enables increased viability of demand-side carbon constraints such as carbon pricing.

Suggested Citation

  • Mehling, M. A., 2023. "Supply-Side crediting for accelerated decarbonization: A political economy perspective," Cambridge Working Papers in Economics 2346, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:2346
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    More about this item

    Keywords

    Supply-side approaches; fossil fuels; offset credits; political economy;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • P18 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Energy; Environment
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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