Supporting Energy Pricing Reform and Carbon Pricing Policies Through Crediting

Policy crediting—i.e., the crediting of the emission reductions resulting from the implementation of a policy action or components of it—is a new concept, and so far there are no real case examples.

Some work has been done on regulatory policies (such as energy-efficiency standards, including under the Clean Development Mechanism [CDM] and with an aim to reforming the CDM beyond a project-level scope) both from the methodological side and through blueprinting of operational models. Similar approaches were developed for policies such as feed-in tariffs for renewable energy.

The potential crediting of implicit or explicit carbon pricing policies is uncharted territory. Anecdotally, the CDM played a major role in building capacity, awareness and interest in many countries to implement domestic carbon pricing schemes to provide their economies with a price signal.

Crediting of carbon pricing policies might be a way to support countries further and on a higher scale in these efforts. It might also be possible to achieve much larger emission reductions and international carbon flows in crediting such policies than what CDM and Joint implementation (JI) have achieved.

This study examines the role that policy crediting might play in increasing the mitigation impact of energy pricing reform and carbon pricing policies (pricing reform). This can either be through:

• A policy being implemented that would not have been without crediting; or
•  An existing policy or one that has been decided upon is made more stringent (i.e., that its mitigation impact is increased).

The study developed four detailed case studies analyzing pricing reform undertaken in developing countries:

1. Morocco – energy subsidy reform
2. Indonesia – energy subsidy reform
3. Mexico – carbon tax
4. Beijing (China) – pilot emission trading scheme (ETS)

Based on the case studies, three options for policy crediting are recommended for further consideration and in-depth assessment on a case-by-case basis:

• Support emission reductions at the policy margin.
• Support emission reductions within the policy instrument.
• Overcome barriers to effective policy implementation and operation.

The above-mentioned options are generic in nature, reflecting that crediting related to pricing reform has not been undertaken in practice, in the developing world or elsewhere. All crediting approaches assessed would therefore benefit from further work, to develop monitoring, reporting and verification (MRV) for each pricing reform policy, to evaluate potential options with countries, and to better understand policy design and political economy challenges.