A glimpse into policy-making instruments for a carbon-neutral development
One of the several hurdles on the path towards a carbon-neutral future is the market failures slowing down procurement and implementation of low-emission technologies.
These can range from information asymmetries, split investments, and the defiant costs of negative environmental externalities. Markets are said to fail if they are not perfectly competitive, however just as perfect competition is unrealistic, believing markets to be perfectible by intervention requires highly questionable assumptions about governments. Identifying and accounting for market failures requires policymakers to be rational, consistent, fully informed, and not self-interested, but only focused on improving urban life.
A starting point for policymaking is to set the correct policy instruments, as it grants a higher success for the policy to achieve a predefined set of goals once it is enacted. One type of instrument commonly used to overcome information asymmetries is voluntary and information base instruments. These are designed to inform and encourage consumers to reduce their emissions through gamification or rewards.
The Energy Hero DSM project in the London Borough of Greenwich is a great example of an implementation of this sort. In the project, households were incentivised through points-based rewards to change their energy consumption patterns and behaviour, to reduce pressure on the grid during peak times. The project demonstrated the possibility to achieve a collective total of 757 kWh of energy savings through behavioural demand-side response. After such implementation, authorities were able to easily construct fire-proof policies for DSM in residential buildings.
Similarly, price-based economic instruments such as subsidies are widely utilised for promoting carbon saving. Subsidies use public funding to provide direct payment, tax reductions, price support, and others to accelerate the procurement of low carbon technologies by reducing costs. In Stockholm, a project funded through the CIVITA Eccentric project encouraged citizens as well as owners of parking facilities to install EV charging devices in multi-family houses.
The project guided its participants to apply for Stockholm’s subsidy scheme “Klimatklivet”, which counts with approximately SEK 1.9 billion for investment support and the expansion of charging infrastructure for electric cars. It is estimated that if 2% of the cars owned by residents of multi-family homes in Stockholm would be replaced by electric cars, annual emissions would be reduced by approximately 5,400 tonnes of CO2 and 17 tonnes of NOx gases.
Quantity instruments, contrastingly, define the number of emissions or energy to be saved and therefore, they establish a market to generate economic incentives to achieve this reduction. One excellent quantity instrument is Peer-to-Peer (P2P) energy trading.
P2P energy trading creates an online marketplace where prosumers (who produce their electricity) can trade green electricity at an agreed-upon price with consumers. Multiple benefits arise from this solution, but mainly it aims to increase the use of local renewable energy and decrease transmission losses and energy costs while stabilizing the grid.
These examples are just a handful of policy instruments that can be applied to foster the successful implementation and scaling of energy and carbon-saving technologies.
Instruments are essential for ensuring the correct framework elaboration process for policymaking. They allow for authorities to materialise the three main steps for creating policy, namely, its vision, strategy, and action. A well-defined framework will always facilitate the policy performance evaluation and its adjustment over time.
Want to read more about carbon-neutral solutions? Find them on the BABLE platform!
Make sure to also take a look at our other energy-related Medium articles, and always feel free to reach out to us for any inquiry.
