Alex Bowen and Sam Fankhauser
Chapter 7 reviews the policy measures required to reduce greenhouse gas emissions. They constitute the core content of climate change legislation. The starting point of the chapter is an understanding of the market, policy and behavioural failures that prevent private decision makers from adopting low-carbon solutions on their own accord. The chapter advocates carbon pricing as an effective way of incentivizing emission reductions, although command-and-control interventions are equally possible and have often been successful. Additional problems that need to be addressed include failures in capital markets, externalities related to low-carbon innovation, network issues and barriers preventing the uptake of energy efficiency measures. There are also policy distortions, not least the subsidization of fossil fuels and the underpricing of energy. The chapter further recommends interventions to mitigate the wider socioeconomic impacts of carbon policies, in particular their effect on competitiveness and fuel poverty. These measures do not directly reduce emissions, but they make climate change policy fairer, less disruptive and more acceptable to the public.