Carbon Pricing for Low-Carbon Investment

The report evaluates the EU ETS's impact on corporate investment behavior, finding that while it successfully reduced investment in carbon-intensive assets, its ability to trigger a shift toward low-carbon strategies is hindered by insufficient stringency and the use of free allowances. It highlights that the current cap reduction trajectory is insufficient to meet the EU's 80-95% emission reduction goal by 2050 and argues that the Clean Development Mechanism (CDM) creates uncertainty and reduces effective emission targets. The authors recommend tightening the ETS cap, phasing out offsets, reforming IFRS accounting practices to reflect the true value of allowances, and combining carbon pricing with technology-specific support schemes to create a more enabling environment for low-carbon projects.

• The EU ETS successfully reduced investment in carbon-intensive assets, with only 16 percent of allowances reserved in 2006/2007 for new or expanded carbon-intensive installations being requested by 2009.
• Many companies do not find the EU ETS stringent enough to shift to low-carbon strategies; 40% of companies reported that phase II stringency allowed for 'business as usual', though this expectation dropped to 10% for phase III.
• The practice of providing free allowances in the manufacturing sector discourages innovation, as companies that must pay for allowances after 2012 are more engaged in climate-change related product innovation than those receiving free allocations.
• The current EU ETS cap reduction schedule is insufficient to meet the EU's long-term commitment of 80-95% emission reductions by 2050, as it is projected to result in reductions of only 51% by that date.
• The Clean Development Mechanism (CDM) complicates investment decisions by creating price uncertainty and reducing the effective target for EU emission reductions; the report suggests phasing out offsets to provide a clearer investment framework.
• Current International Financial Reporting Standards (IFRS) misinform strategic management and investors because they do not adequately capture the value of free allowance allocations, creating distortions between sectors and countries.
• Carbon pricing alone is often insufficient to drive low-carbon investment; power generators cite fuel access and public perception as critical, while technology companies prioritize feed-in tariffs for R&D and sales.

APA

Neuhoff, K. (2011). Carbon Pricing for Low-Carbon Investment. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2011/12/Carbon-Pricing-Exec-Summary.pdf

Chicago

Neuhoff, Karsten. Carbon Pricing for Low-Carbon Investment. Climate Policy Initiative, 2011. https://www.climatepolicyinitiative.org/wp-content/uploads/2011/12/Carbon-Pricing-Exec-Summary.pdf.

Wikipedia

{{cite report |last1=Neuhoff |first1=Karsten |title=Carbon Pricing for Low-Carbon Investment |publisher=Climate Policy Initiative |date=January 2011 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2011/12/Carbon-Pricing-Exec-Summary.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{neuhoff2011carbon, author = {Neuhoff, Karsten}, title = {{Carbon Pricing for Low-Carbon Investment}}, institution = {Climate Policy Initiative}, year = {2011}, month = jan, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2011/12/Carbon-Pricing-Exec-Summary.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }