Carbon Pricing for Low-Carbon Investment

This executive summary describes a multi-institute analytical project conducted between February and December 2010 to evaluate whether the EU Emissions Trading Scheme (EU ETS) facilitates a shift toward low-carbon investments. The project assessed the EU ETS's effectiveness in capturing the attention of decision-makers, providing clarity for strategic planning, and creating an enabling environment for project realization.

• The EU ETS successfully reduced investment in carbon-intensive assets; by 2009, only 16 percent of the allowances reserved in 2006/2007 for new or expanded carbon-intensive installations had been requested.
• Many companies do not believe the EU ETS is stringent enough to trigger a shift to low-carbon strategies. In 2009, approximately 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 may hinder innovation. Evidence shows that companies falling just short of free allowance thresholds—and thus required to pay for allowances after 2012—are more engaged in climate-change related product innovation.
• The current EU ETS cap reduction schedule, which declines by 1.74% per year from 2013 to 2050, is insufficient to meet the EU's 80-95% emission reduction commitment, as it is projected to result in reductions of only 51% by 2050.
• The Clean Development Mechanism (CDM) creates uncertainty for investors because Certificates of Emission Reductions (CERs) trade at a 25% discount to ETS allowances. Furthermore, the use of CERs could allow EU ETS installations to exceed the current cap by an average of 5.4% between 2008 and 2012.
• Current International Financial Reporting Standards (IFRS) fail to adequately capture the impact of the EU ETS, specifically by treating free allowance allocations differently than purchased ones despite equal economic value, which hides future risk exposures.
• The EU ETS alone is often insufficient to drive low-carbon investment. Power generators prioritize access to fuel and public perception regarding permitting, while power technology companies view technology-specific policies, such as feed-in tariffs, as the most critical factors for R&D and sales.
• Corporate investors typically require energy efficiency investments to have a payback period of less than four years.

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} }