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Energy markets, capital inertia and economic instrument impacts

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  • IAN BAILEY
  • CHRISTOPHER DITTY

Abstract

Despite the importance of emissions trading and energy taxes to the EU and national climate strategies, limited research exists on their impact on emissions from the perspective of industry sectors targeted by economic instruments. This article contributes to redressing this deficit by critically analysing whether economic instruments applied within the UK provide sufficiently strong price incentives to overcome barriers to investment in energy-intensive sectors created by the capital and finance costs of replacing 'legacy' infrastructure and fluctuating base energy prices. Results from a survey of 189 companies from the cement, aluminium and chemicals sectors and 23 interviews with sector associations and businesses from these and other energy-intensive industries indicate that economic instruments have raised awareness of energy efficiency but have had a minimal impact on investment decisions. EU-wide economic instruments such as the EU emissions trading scheme have yet to be fully tested but may encounter similar difficulties. On this basis, we argue that economic instruments may need to be complemented by more interventionist programmes focusing on large-scale investment in energy modernization and we also discuss how economic instruments can contribute to this agenda.

Suggested Citation

  • Ian Bailey & Christopher Ditty, 2009. "Energy markets, capital inertia and economic instrument impacts," Climate Policy, Taylor & Francis Journals, vol. 9(1), pages 22-39, January.
    • Handle: RePEc:taf:tcpoxx:v:9:y:2009:i:1:p:22-39
    DOI: 10.3763/cpol.2008.0454
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    1. Cramton, Peter & Kerr, Suzi, 2002. "Tradeable carbon permit auctions: How and why to auction not grandfather," Energy Policy, Elsevier, vol. 30(4), pages 333-345, March.
    2. Stern,Nicholas, 2007. "The Economics of Climate Change," Cambridge Books, Cambridge University Press, number 9780521700801, January.
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    Cited by:

    1. Calvin Jones, 2010. "Less and Less Favoured? Britain's Regions in the Energy Crunch," Environment and Planning A, , vol. 42(12), pages 3006-3022, December.
    2. Lambie, Neil Ross, 2010. "Understanding the effect of an emissions trading scheme on electricity generator investment and retirement behaviour: the proposed Carbon Pollution Reduction Scheme," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 54(2), pages 1-15.
    3. Richard A. Bradley, 2012. "Energy and Climate Change Policy: Perspectives from the International Energy Agency," Chapters, in: Chin Hee Hahn & Sang-Hyop Lee & Kyoung-Soo Yoon (ed.), Responding to Climate Change, chapter 4, Edward Elgar Publishing.
    4. Anna Misztal & Magdalena Kowalska & Anita Fajczak-Kowalska, 2022. "The Impact of Economic Factors on the Sustainable Development of Energy Enterprises: The Case of Bulgaria, Czechia, Estonia and Poland," Energies, MDPI, vol. 15(18), pages 1-19, September.
    5. Mikael Linden, Matti Makela, and Jussi Uusivuori, 2013. "Fuel Input Substitution under Tradable Carbon Permits System: Evidence from Finnish Energy Plants 2005-2008," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    6. Joakim Haraldsson & Maria T. Johansson, 2019. "Barriers to and Drivers for Improved Energy Efficiency in the Swedish Aluminium Industry and Aluminium Casting Foundries," Sustainability, MDPI, vol. 11(7), pages 1-27, April.

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