IEA Releases Study on Effects of Price Caps and Floors in Climate Mitigation Scenarios
15 December 2008: The International Energy Agency (IEA) has released a study entitled “Price Caps and Price Floors in Climate Policy-A Quantitative Assessment,” which assesses the long-term economic and environmental effects of introducing price caps and price floors in a hypothetical climate change mitigation architecture that aims to reduce global energy-related carbon dioxide emissions by 50% by 2050.
Based on abatement costs in Intergovernmental Panel on Climate Change
(IPCC) and IEA reports, this quantitative analysis confirms that
introducing price caps could significantly reduce economic uncertainty.
This uncertainty stems primarily from: unpredictable economic growth
and energy prices; unabated emission trends; and uncertainty in the
development of abatement technologies. With price caps, the expected
costs could be reduced by about 50% and uncertainty of economic costs
could be one order of magnitude lower. Reducing economic uncertainties
may spur the adoption of more ambitious policies by helping to
alleviate policy makers' concerns of economic risks. Meanwhile, price
floors would reduce the level of emissions beyond the objective if the
abatement costs ended up lower than forecasted. [The Study]