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Supply-side climate policy: the road less taken

SEI Working Paper No. 2015-13

Author(s): Lazarus, M. ; Erickson, P. ; Tempest, K.
Year: 2015

This paper explains the concept of supply-side climate policy, examines why these options have not been widely used to date, and provides a framework for assessing their effectiveness.

Reducing fossil fuel combustion is a top priority for climate policy. For decades, policy-makers and international agreements have sought to achieve this goal through energy efficiency, low-carbon technology, carbon pricing, and other measures designed to reduce demand for fossil fuels. Focusing on the point of combustion makes intuitive sense, but efforts have yet to put fossil fuel use on a trajectory consistent with keeping global warming below 2°C.

Recognizing this shortcoming, policy-makers, researchers and activists have begun to look at the potential for policies and actions aimed at limiting fossil fuel supply. However, options for supply-side climate policies and how they might complement or replace more traditional demand side policies remain poorly understood.

This paper explores reasons why supply-side policies have not been pursued and why they deserve more attention. It provides a typology of supply-side policies and frameworks for assessing their effectiveness, efficiency, and feasibility. It finds that supply-side policies, such as removal of producer subsidies, compensation of resource owners for leaving fuels "unburned", or outright restrictions on resource development, could bring important benefits.

Such policies could allow for greater emission reductions at the same (or lower) cost than demand-side policies alone. They could also help to reduce carbon lock-in effects, making it easier for lower-carbon alternatives to compete with fossil fuels. Many questions related to feasibility and effectiveness remain. Further research and policy development can help address these questions and explore how a new supply-side policy "toolkit" might complement demand-side approaches.

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