Effective Energy Regulation and Incentives Can Help Fight Climate Change
Policymakers need to take bold action on several fronts related to energy to make progress in the fight against climate change.
Energy consumption and production are responsible for almost three-quarters of the world’s greenhouse gas emissions, according to a recent estimate by the International Energy Agency. This places energy markets at the forefront of global efforts to address the impact of climate change and other negative environmental impacts of power use.
Clearly, the world needs bold action on several fronts related to energy if we hope to make progress in combating climate change. Tax incentives to consumers for conservation and installed energy efficiency are necessary, as are tax holidays for clean power producers. But to shift to zero- or low-carbon energy use and supply, markets need firm, deeply rooted change. We can only achieve it by making relevant public policy and administrative regulations more innovative and effective.
Smart regulations can incentivize power plant owners and operators, along with other sector stakeholders, to curb their emissions and become more energy efficient. They can also provide incentives for innovative low-carbon technologies, private sector participation, and customer demand for clean and renewable energy sources. To truly transform the energy market, we need more expertise and forward-thinking from public policy decision-makers.
Government agencies require economic, finance, and market expertise to guide and encourage energy markets to create clean options. And when governments lack such capacity, support from international financial institutions and development agencies is vital.
Public service administrators, legislators and regulators must apply real-time lessons to facilitate timely intervention, tweak programs, and mitigate energy sector market failures. A good example can be found in Singapore’s Energy Market Authority.
To address climate change, public policy and regulation must carry weight to foster climate-friendly changes in the supply and demand behavior of energy sector stakeholders.
In 2008, the Energy Market Authority enacted regulations to spur Singapore’s adoption of solar energy. The policy was updated in 2014 to allow more space and opportunity for solar development. The authority’s same-time assessment and application of lessons-learned allowed installed solar capacity in Singapore to grow from 0.4 megawatts (MWs) in 2008 to 125.7 MWs in 2016. By the first quarter of 2021, Singapore’s installed solar capacity had grown to 443.6 MWs due to effective regulations.
The Energy Market Authority enabled Singaporean power producers to curb greenhouse gas emissions and become more energy efficient. As an active, autonomous regulator, it provided incentives for innovative low-carbon technologies, private sector participation, and customer demand for clean and renewable energy sources that would not have been possible without its regulation and oversight.
As Singapore braces for post-COP26 emission reductions, the Energy Market Authority will be key in implementing national climate change mitigation policies and strategies that aim to significantly reduce greenhouse gas emissions in electricity distribution, transmission, and generation by 2030.
Developing countries in Asia and the Pacific need to invest $11.7 trillion to meet the region’s energy demand by 2035, according to estimates by ADB. These countries will need to invest $1.7 trillion in infrastructure annually until 2030 to maintain growth momentum, reduce poverty, and respond to climate change. Private sector financing is essential to fill this gap.
Yet lack of certainty, transparency, and accountability in markets means that, for many private investors, the risk of innovative climate change-fighting technologies and competitive market schemes is too high. The best way to reduce it—and positively transform energy markets—is to make administrative regulations more effective.
To address climate change, public-policy and regulation must foster climate-friendly changes in the supply and demand behavior of energy sector stakeholders. Effective regulation is part of the fundamental change that we need. Without it, encouraging zero- and low-carbon energy markets to mitigate the impacts of climate change will sadly be only a pipe dream.