The effectiveness of climate change policy as an investment driver in the power sector*
This chapter explores a particular aspect of the relationship between climate policy and the electricity sector: namely, the management of risks associated with policy uncertainty. Uncertainty is a significant feature of the climate change debate, arising at all steps in the chain between greenhouse gas emissions and the impacts of climate change on humans and the environment. Efforts to evaluate in advance the effectiveness of policy measures relating to climate change are complicated by factors such as uncertainties in technology costs and uncertainties in the responses of the parties affected by the policy measures. Policy-makers have been quick to take on board the message that investors and companies require long-term visibility of climate change policy in order to underpin their long-term investments. Responding to climate change is not simply a matter of 'government dictating and companies acting', but requires companies to play their role in supporting effective and efficient policy in this area.