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Reducing Electricity Tariff Subsidies to Combat Climate Change: New Mechanisms Under the UNFCCC
Assignment: Conceptualize and assess how a sectoral approach to reductions in electricity tariff subsidies in developing countries can be designed to fit under future UNFCCC market mechanisms.

Differ assessed the potential for emission reductions to be achieved towards 2020 if a developing country reduced or removed its subsidies of electricity tariffs, and outlined how the abatement in the electricity generation sector as well as in commercial and residential consumer segments could fit under the NAMA framework. The project also looked into how new market mechanisms under the UNFCCC should be designed to incentivize such policy measures. Unlike most studies of designs of sectoral carbon mechanisms, this study assessed the practical issues related to implementation of such a sectoral approach through addressing a concrete country case. For this purpose, the study comprised the development of a predictive model for future electricity consumption for four different consumer segments in the country. Further, to assess the actual potential in terms of emission reductions and amount of funds saved for the host country from reduced subsidies of electricity tariffs, the study analysed different paths for development in electricity tariffs towards 2030. The modelling is based on real and observable input parameters, including empirical electricity elasticity and the own-price elasticity of electricity derived from detailed data on historical electricity tariffs and consumption patterns in the country. Different response patterns in the country in terms of e.g. elasticities, GDP growth, and technology development and deployment were also explored.

Client: Confidential 
Project start: 2012, duration: 2 months
Involved resources: Kristian Tangen, Camilla Fulland, Tom Erichsen

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