What Policies Do Countries Adopt to Cut Greenhouse Gas Emissions?

For many years, governments have deployed an array of policies to tackle climate change, ranging from direct legislation on vehicle efficiency standards to carbon taxes, emissions cap-and-trade systems for energy and heavy industry and low emissions zones for cities.

High-profile international climate agreements like the Kyoto Protocol and the Paris Agreement set the overall climate goals, while national policies are the tools that must actually deliver them.

Here we take a high-level overview of the various types of climate policies already in place around the world.

Climate legislation

Even as far back as 2018, all 197 countries that signed or ratified the Paris Agreement have at least one national law or policy designed to address climate change, according to the Grantham Research Institute on Climate Change and the Environment, part of the London School of Economics: National laws and climate policies. 

The UK, for example, become the first country in the world to agree a climate law with a long-term emissions reduction target (the Climate Change Act 2008), which commits the current and all future governments to abide by a series of progressively tightening carbon budgets and report to parliament on progress made: A legal duty to act – Climate Change Committee (theccc.org.uk)

This puts pressure on governments to continually find new ways to reduce greenhouse gas (GHG) emissions, keeping lawmakers, all branches of government and industry focused on measures that will help to avert the worst impacts of climate change.

Tax incentives

At a more specific level, countries can make changes to their domestic tax regulations to incentivise GHG emissions reductions. Norway, for example, has gradually introduced a series of measures since the 1990s to encourage drivers to switch from fossil fuel vehicles to cleaner engines. The Norwegian parliament set a goal that all vehicles sold by 2025 should be zero-emissions, meaning electric or hydrogen-powered cars: Norwegian EV policy – Norsk elbilforening

This builds upon earlier regulations which placed a purchase tax on cars that was calculated by a combination of their weight, CO₂ emissions and NOx emissions – a harmful air pollutant. In addition, electric vehicles (EVs) were made exempt from both value-added tax (VAT) and a purchase tax on new cars in Norway.

Critics of this approach have pointed out that the loss of tax revenue from petrol and diesel fuel sales could create a growing hole in national budgets, forcing governments to seek new sources of tax to replace the lost revenue. Nevertheless, many governments take the view that the benefits of reduced GHG emissions and local air pollutants outweigh the cost of reduced income flowing into government coffers, for example in lower healthcare costs.

Carbon taxes

Another climate policy option for governments is carbon tax. Carbon taxes place a cost on the direct emissions of carbon dioxide or other GHGs according to a ‘polluter pays’ principle. South Africa, for example, legislated for a carbon tax that came into effect in 2019: Carbon Tax | South African Revenue Service (sars.gov.za)

The first phase of the tax imposed a rate of R120 (US$6.63) per tonne of CO₂ equivalent GHG emissions. The tax applies to any companies in affected sectors with an installed capacity above a certain threshold. For power generators, this was set at 10 MW of installed thermal capacity. The tax rate increased annually by the rate of inflation plus 2% until 2022, and annually by the equivalent of the rate of inflation thereafter. The tax, and especially its in-built escalating cost, sends a clear signal to businesses in South Africa that investing in low-emissions options can help reduce costs.

Over 30 countries or regions have applied a carbon tax as of 2023, according to the World Bank, with the price ranging from less than $10 per tonne of CO₂ equivalent to over $160/tonne CO₂e.

Carbon markets

Another important tool in the arsenal of climate policies is carbon markets. These can include legally binding emissions cap-and-trade systems, voluntary carbon markets which involve project-based credits, and hybrid systems that include elements of both. Cap-and-trade systems have been deployed in regions as diverse as the European Union, California (linked with Quebec), several east coast states in the US (the Regional Greenhouse Gas Initiative), China, Japan, New Zealand and South Korea, with many more countries in various stages of planning or implementing them.

One of the advantages of cap-and-trade systems is that they guarantee that emissions actually fall, by placing a hard cap on total emissions, represented by a fixed supply of carbon allowances which reduces every year. Find out more about cap-and-trade systems here: How Do Compliance Carbon Markets Work?

Another advantage is that by allowing companies to trade allowances, the emissions reductions tend to take place where the cost is lowest, reducing the overall cost of achieving the target. In this way, carbon markets, when done properly, can achieve environmental and economic targets, while providing flexibility for the companies they regulate in terms of how to respond to the price signal.

Cap-and-trade systems have shown significant success at reducing emissions to date. CO₂ emissions under the EU Emissions Trading System, for example, were down 47% in 2023 compared to its starting year of 2005, according to its regulator the European Commission: Record reduction of 2023 ETS emissions due largely to boost in renewable energy – European Commission

The upshot of carbon markets thus far has been a shift in energy economics that encourages a switch from coal to natural gas for power generation, for example, and especially for older, less efficient coal plants. The carbon price has also focused minds on finding lower-emissions solutions across the industrial supply chain, from renewable energy to lower-carbon refining, metals, chemicals, cement, glass and the transportation sector.

Incentives for renewables

Further climate policies include incentives for renewable energy. These can include favourable tax treatment, exemptions from certain fees or other costs, or priority dispatch when electricity generators submit bids to generate power to the national grid operator, for example. Other related policies include markets for Guarantees of Origin (GOOs), which are tradeable certificates that electricity-consuming companies buy to demonstrate that their power came from zero-carbon sources.

In addition, some countries operate Contracts for Difference (CfDs) in electricity markets. CfDs encourage companies to invest in renewable energy. They do this by providing certainty over the price that electricity producers will achieve for their electricity, protecting them from volatile wholesale power prices.

Low emissions zones

A further climate policy, this time deployed at the city level, is low emissions zones. These generally target emissions that are harmful to human health at the local level, such as nitrogen oxides (NOx). However, by incentivising cleaner vehicles, low emissions zones can also play a role in helping to reduce GHG emissions too.

Countries and regions with low emissions zones include Belgium, China, Denmark, Finland, France, Germany, Hong Kong, Italy, Japan, Netherlands, Norway, Portugal, Spain, Sweden and the United Kingdom. Some of these systems impose a daily charge on vehicles with older, less efficient engines, when they enter the specified low emissions zone, while exempting newer, more efficient models. This encourages many owners of older vehicles to upgrade to cleaner ones, reducing the output of air pollutants and GHG emissions gradually over time. Since this can be expensive for many households, some governments have chosen to create scrappage schemes whereby they provide financial support for consumers when buying a new vehicle.

World off track

While the growth of national climate policies has helped to highlight various options for dealing with climate change, their combined effect is not yet seen as sufficient to deal with the threat. The United Nations has warned that the commitments made by governments to date fall short of what is required. The national climate plans of the 193 countries that adopted the Paris Agreement would lead to an increase of almost 11% in global GHG emissions by 2030, compared with 2010 levels, the UN said. This shows that countries will need to step up their efforts to cut GHG emissions to avoid dangerous human interference in the climate system.

For more detail on national climate policies, please see this article: National Climate Policies: Reducing Emissions that Cap-and-Trade Systems Have Not Reached – Carbonwise