EXECUTIVE SUMMARY
The United Kingdom has an elaborate array of policy me asures to tackle its emissions of greenhouse gases. Apart from more conventional measures relating to energy efficiency standards, policies include a number of market-based instruments. Economic theory suggests that the adoption of such instruments should (a) minimise compliance costs relative to conventional regulation, and (b) provide a stimulus to the development of new technology to reduce emissions, a stimulus hat is absent with normal means of regulation. Notable among the market-based approaches is a combined energy tax – the ‘climate change levy’ – and a set of negotiated agreements with industry whereby the levy is reduced in return for an agreed package of measures to reduce emissions. The current report addresses a ‘political economy’ issue, namely why this combination of measures does not approximate the kind of market based approach that would be recommended if we lived in a textbook world in which policy was designed efficiently. Political economy looks at the factors that influence the design of policy measures, factors which will include the relative influence of different pressure groups, political sensitivities of governments to concerns such as the effect of policy on the poor, and the existence of a past history of policy measures which cannot easily be swept aside to make way for the new policy measure. Moreover, the presence of regulatory agencies which may not have a strong incentive to adopt market-based approaches can further inhibit the optimal design of policy measures.
See full Summary, in pdf format: http://www.oecd.org/unitedkingdom/34512257.pdf
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