CHAPTER 3
3.2 POLICY BASKETS FOR A SENSITIVITY ANALYSIS
To ensure a just and inclusive energy transition, IRENA’s climate policy baskets include a range of tools; cross-sector carbon pricing, subsidies, investments in public infrastructure and spending on social initiatives. The baskets also contain policies that deploy, integrate and enable energy transition technologies. This section first provides an overview of the different policy baskets considered, before discussing major elements including carbon pricing, progressive fiscal policies and international cooperation. The main purpose is to address distributional issues given the results obtained in the 2021 WETO edition, where the focus was on global-level benefits but did not examine regional and national differences.
3.2.1 Two policy baskets The 2021 edition of WETO (IRENA, 2021a) focused on the differential socio-economic outcomes wrought by the two main scenarios – the Planned Energy Scenario (PES) and the 1.5°C Scenario – regarding GDP, jobs and welfare. IRENA’s macro-econometric model has a diverse portfolio of measures on transition and social challenges. Figure 3.3 sketches the approach taken, and the text below explains. The policy basket stipulated in the 2021 edition of WETO embraced relatively high carbon prices, aligned with the 1.5°C climate goal, and limited flows of international co-operation (USD 290 billion/ year, or three times current pledges) through 2050. The global results improved GDP, jobs and welfare. But regional or national socio-economic disparities emerged between developed and developing countries and these were in part linked to fossil fuel dependence. Indeed, a few countries – mainly developing countries or fossil fuel dependent ones – saw dips in GDP when comparing the two scenarios: 1.5°C Scenario and PES. Regressive effects could also be observed in the distribution of benefits and costs from the transition within countries, i.e. among different population groups and stakeholders. In this year’s edition, a sensitivity analysis based on two policy baskets examines how socioeconomic outcomes proceed from the 1.5°C Scenario, depending on variations in policy measures. Policy basket A (PB-A) entails a high carbon tax and low international co-operation (i.e. limited flows, although higher than current pledges). Policy basket B (PB-B) imposes a lower carbon tax (but higher than real-world levels) combined with stronger international co-operation.
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