How to Reduce Emissions and Maintain Prosperity

Estimated reading time: 6 minutes

“Our analysis clearly highlights that we can meet our 2°C target while maintaining good lifestyles and a prosperous economy – but to be successful the world needs to act now and transform the technologies, knowledge base and fuels we use and make smarter use of our land,” said Jeremy.

“Declarations ahead of COP 21 in Paris are an important first step along the wider review path. We hope that the clarity of the task ahead will enable negotiators at COP 21 to ensure a firm process is put in place to increase the ambition of country pledges beyond 2020.”

Market force

Many economists believe that emissions trading schemes (ETS) are of central important in achieving global reductions in carbon emissions whilst maintaining economic growth.

Dr Mirabelle Muûls is a lecturer at the Grantham Institute and an Assistant Professor in Economics at the Business School, whose work is focused on the European ETS.

First implemented in 2005, it aims to reduce total greenhouse gas emissions from EU member states. It operates by setting a cap on total emissions and allowing participants to buy and sell emissions permits or ‘carbon credits’. Covering 12,000 industrial and power plants in 31 countries, it was the first large scale emissions trading scheme of its kind when it launched.

As with any economic policy, especially one so new and radical, it can have unintended consequences and loopholes that can be exploited. For example, faced with environmental regulations and associated costs, companies can be tempted to relocate emissions-generating activities and jobs to a different country without equivalent emissions policies, rather than stopping them.

“We call this ‘carbon leakage’,” says Mirabelle, who along with international collaborators is helping to design more effective schemes and recently won the Erik Kempe award, a top environmental economics prize, for her work.

To try and prevent carbon leakage companies can be compensated for indirect carbon costs by being given free permits. However, allocating just the right amount of compensation is a delicate balancing act – too little and firms relocate, shifting carbon emissions and jobs outside the EU; too much and the scheme not only wastes money but rewards polluters for the harm they do to the environment.

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