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Credible commitment in carbon policy

  • In this article the problem of credible commitment in carbon policy is discussed. Investors favour long-term predictability of the policy, but without any external enforcement mechanisms a commitment made by a government can be withdrawn, leading to scepticism and lack of credibility. This results in increased market risks and investment hold-up. Regulatory uncertainty stems from (i) strategic interactions between government and firms, (ii) potential learning about climate damage and abatement cost and (iii) political volatility. Although commitment to future policy encourages private investment, it also imposes costs in the form of reduced flexibility to accommodate new information or preferences. The article reviews devices that may help policy makers raise the level of commitment while also leaving some room for flexible adjustments. In particular, legislation of a long-term governance framework, delegation to an independent carbon agency and securitization of investors' stakes in emission markets offer palliative approaches.

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Metadaten
Document Type:Article
Language:English
Author(s):Christian FlachslandORCiD, S. Brunner, M. Marschinski
Parent Title (English):Climate Policy
ISSN:1752-7457
Publisher:Taylor & Francis
Place of Publisher:Abingdon
Publication year:2012
First Page:255
Last Page:271
DOI:https://doi.org/10.1080/14693062.2011.582327
Release Date:2015/10/29
Tag:Carbon pricing; Climate policy frameworks; Incentive mechanisms; Regulatory uncertainty
Volume:12
Issue:2
Hertie School Research:Centre for Sustainability
Licence of document (German):Metadaten / metadata
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