4.7 Article

Robust incentives and the design of a climate change governance regime

Journal

ENERGY POLICY
Volume 38, Issue 11, Pages 7216-7225

Publisher

ELSEVIER SCI LTD
DOI: 10.1016/j.enpol.2010.07.052

Keywords

Climate policy; Wind power; Incentives

Funding

  1. La Follette School of Public Affairs at the University of Wisconsin
  2. Center for World Affairs
  3. Global Economy (WAGE) at the University of Wisconsin-Madison

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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. (C) 2010 Elsevier Ltd. All rights reserved.

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