What works to reduce emissions: lessons for European climate policies towards 2040

Five years after the European Union (EU) announced its pledge to reach carbon neutrality by 2050, the EU has adopted most of the climate policies that are supposed to put it on track to achieve the intermediary objectives of 2030. The upcoming European Commission will have to continue reinforcing this policy framework while setting up goals and policies for 2040.

As highlighted by the ESABCC, whose goal is to review and advise on climate policies, ex-post assessment of policies is fundamental to improving them. Out of the 69 indicators listed in the report to assess the progress, only ten are “on track” or “almost on track” (list provided as a footnote).^[1] Hence, efforts must be stepped up while the European Green Deal measures, which are included and associated with the EU carbon neutrality commitment, are being enacted. Expectations are high, and one can be hopeful: in 2023, a record 15% reduction took place in the sectors covered by the EU ETS, primarily thanks to the sharp increase of renewables in the power sectors that year. With this development, ETS emissions are now around 47% below 2005 levels and well on track to achieve the 2030 target of 62% GHG emission reduction.

In that regard, a recent article (Stechemesser et al., 2024) in Science systematically evaluated over 1,500 climate policies across 41 countries, identifying those that led to significant emission reductions over the past two decades. Some of its findings may also inform the preparation of policies towards 2040.

The article finds that policies effective at abating emissions are diverse but often share common traits, such as regulatory solid frameworks, carbon pricing and targeted subsidies. It finds that combining different types of policies (e.g., pricing mechanisms, regulations, and subsidies) often yields better results than standalone policies. Of course, it reminds no single policy approach works universally; policies’ (and policy mixes’) effectiveness varies across sectors, economic contexts, and countries.

For electricity in developed economies, pricing mechanisms such as carbon taxes and emission trading schemes appear highly effective. All effective policy mixes in the power sector include some pricing elements, suggesting pricing is crucial for achieving substantial emission reductions. However, those are not necessarily standalone policies. For instance, the UK’s carbon price floor introduced in 2013 significantly reduced emissions. Still, its introduction was accompanied by other command-and-control measures, such as renewable portfolio standards, coal phase-out, and other market-based instruments, including feed-in tariffs and auctions.

The trend towards pricing goes even further in the industry sector. Pricing mechanisms are particularly effective individually in developed economies but show strong synergies with other policy instruments in developing countries.

The transport sector, for instance, shows strong potential for complementarities between different policy instruments. Successful emission reduction interventions often involve a mix of subsidies, regulations, and pricing. In developed economies, pricing mechanisms are effective individually. However, subsidies combined with pricing are the most complementary.

Similarly, effective policies in the building sector often rely on a mix of instruments. The study found that bans, building codes, energy efficiency mandates, and subsidies are more effective when combined with pricing mechanisms. Moreover, the average effect size of emission reductions is larger when policies are part of a mix rather than stand-alone approaches.

Conclusion

Overall, the new article’s findings appear to align with Europe’s current approach, which puts pricing at the centre of decarbonisation policies, with a different approach for each sector. It reveals that though most studies tend to attribute a strong mitigation effect to carbon pricing, the literature may overlook the influence of complementary policies in decarbonising economies (e.g., car emission standards and RES support schemes).

If the EU ETS, and the EU ETS 2 by extension, are to have a solid role to play, they would be most effective when targeting rational economic actors, such as companies in the industry and power sectors. In contrast, complementary policies have a more decisive role in sectors directly impacting households, such as transport and buildings. A priority of the next European Commission will be developing complementary policies that reflect the EU’s priorities towards competitiveness and industrial revitalisation of Europe without compromising the commitment towards climate neutrality and the support of citizens.

^[1] E2a: Percentage of fossil fuels in the total electricity generation mix; E2b: Percentage of renewables (excl. bio) in the total electricity generation mix; E6: Energy-related methane emissions; T2b: Transport demand for freight; T4a: Road vehicle CO2 intensity (passenger cars, new sales); T6a: Share of fossil fuels in transport energy use; B6: Heat pumps (total stock); A5c: Pig meat consumption; A7: use of agricultural products as bioenergy feedstocks; L7: Net GHG emissions in non-forest land use

Read more:

• European Scientific Advisory Board on Climate Change, “Towards EU Climate Neutrality: Towards EU climate neutrality: Progress, policy gaps and opportunities.” Progress Assessment Report., 2024.
• Stechemesser, A., Koch, N., Mark, E., et al., “Climate Policies That Achieved Major Emission Reductions: Global Evidence from Two Decades.” Science 385, 884–892 (2024). https://www.science.org/doi/10.1126/science.adl6547
  • Findings and more can be explored interactively on the Climate Policy Explorer website http://climate-policy-explorer.pik-potsdam.de/