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When prices don’t steer – mimicking ambitious carbon pricing with energy performance standards

Sonnenschein, Jonas LU ; Richter, Jessika Luth LU ; Dalhammar, Carl LU and Van Buskirk, Robert (2017) In eceee 2017 Summer Study Proceedings p.419-428
Abstract
Pricing carbon is often considered to be the cornerstone of any climate policy and, at least in economic theory, it is the only policy intervention required to reach an optimal level of mitigation. In practice, various market and behavioural failures, as well as political barriers, necessitate a policy mix that also encompasses policies to induce energy efficiency and stimulate the up-take of renewable energy sources. Minimum energy performance standards (MEPS) are one group of instruments to drive energy efficiency. However, MEPS are viewed very differently by different actors; some see them as complementary to carbon pricing, while others view them as market distortion. Recent studies indicate that MEPS for appliances and vehicles are... (More)
Pricing carbon is often considered to be the cornerstone of any climate policy and, at least in economic theory, it is the only policy intervention required to reach an optimal level of mitigation. In practice, various market and behavioural failures, as well as political barriers, necessitate a policy mix that also encompasses policies to induce energy efficiency and stimulate the up-take of renewable energy sources. Minimum energy performance standards (MEPS) are one group of instruments to drive energy efficiency. However, MEPS are viewed very differently by different actors; some see them as complementary to carbon pricing, while others view them as market distortion. Recent studies indicate that MEPS for appliances and vehicles are currently the best performing climate policy instruments. There is a need for more research about how MEPS and carbon pricing policies interact and how they can best be combined for an effective climate policy mix. In this paper, we examine the advantages and potential of using MEPS to drive more ambitious climate policy. We first model the market price of appliances in a UK market and how life cycle costs (LCC) shift when the social cost of carbon (SCC) is factored in. We then examine how the inclusion of the SCC affects the point at which least life cycle costs (LLCC) for an appliance class are reached. We consider carbon prices ranging from the current carbon market price to high-end estimates of SCC, and then estimate the corresponding MEPS in each scenario. Finally, we discuss the implications for mixed policy design when climate change externalities are addressed primarily through MEPS, as well as the merits of such a policy approach. (Less)
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Chapter in Book/Report/Conference proceeding
publication status
published
subject
keywords
minimum energy performance standards (MEPS), climate policy, policy-mix, life cycle cost (LCC), carbon tax, social cost of carbon
in
eceee 2017 Summer Study Proceedings
pages
419 - 428
publisher
European Council for an Energy Efficient Economy (ECEEE)
ISSN
1653-7025
2001-7960
ISBN
9789198387803
9789198387810
language
English
LU publication?
yes
id
97e7b996-6c57-4b86-ac4e-a152e68e9c63
alternative location
https://www.eceee.org/library/conference_proceedings/eceee_Summer_Studies/2017/2-policy-governance-design-implementation-and-evaluation-challenges/when-prices-don8217t-steer-8211-mimicking-ambitious-carbon-pricing-with-energy-performance-standards/2017/2-243-17_Sonnenschein.pdf/
date added to LUP
2017-09-27 21:13:59
date last changed
2017-10-02 12:07:18
@inproceedings{97e7b996-6c57-4b86-ac4e-a152e68e9c63,
  abstract     = {Pricing carbon is often considered to be the cornerstone of any climate policy and, at least in economic theory, it is the only policy intervention required to reach an optimal level of mitigation. In practice, various market and behavioural failures, as well as political barriers, necessitate a policy mix that also encompasses policies to induce energy efficiency and stimulate the up-take of renewable energy sources. Minimum energy performance standards (MEPS) are one group of instruments to drive energy efficiency. However, MEPS are viewed very differently by different actors; some see them as complementary to carbon pricing, while others view them as market distortion. Recent studies indicate that MEPS for appliances and vehicles are currently the best performing climate policy instruments. There is a need for more research about how MEPS and carbon pricing policies interact and how they can best be combined for an effective climate policy mix. In this paper, we examine the advantages and potential of using MEPS to drive more ambitious climate policy. We first model the market price of appliances in a UK market and how life cycle costs (LCC) shift when the social cost of carbon (SCC) is factored in. We then examine how the inclusion of the SCC affects the point at which least life cycle costs (LLCC) for an appliance class are reached. We consider carbon prices ranging from the current carbon market price to high-end estimates of SCC, and then estimate the corresponding MEPS in each scenario. Finally, we discuss the implications for mixed policy design when climate change externalities are addressed primarily through MEPS, as well as the merits of such a policy approach.},
  author       = {Sonnenschein, Jonas and Richter, Jessika Luth and Dalhammar, Carl and Van Buskirk, Robert},
  booktitle    = {eceee 2017 Summer Study Proceedings},
  isbn         = {9789198387803},
  issn         = {1653-7025},
  keyword      = {minimum energy performance standards (MEPS),climate policy,policy-mix,life cycle cost (LCC),carbon tax,social cost of carbon},
  language     = {eng},
  pages        = {419--428},
  publisher    = {European Council for an Energy Efficient Economy (ECEEE)},
  title        = {When prices don’t steer – mimicking ambitious carbon pricing with energy performance standards},
  year         = {2017},
}