A reflective framework for climate protection

As known, Switzerland ratified the international Paris Agreement in October 2017, which requires national targets for the reduction of greenhouse gas emissions by 2030. Accordingly, Switzerland implemented these goals through a complete revision of the existing CO₂ law in 2021. A referendum was held against this revision and the Sovereign (Swiss people) subsequently rejected this revision. To be able to comply with the Paris agreements, the revision would have strengthened and extended the existing CO₂ law with its goals and effective instruments, which were already being used efficiently by various sectors at the time.

To be able to guarantee the legal basis for the reduction of greenhouse gases and its legal instruments in Switzerland, the Parliament then extended the existing CO₂ law and its regulation until the end of 2024 by means of an urgent parliamentary initiative. No referendum was held against it. This shows that the existing CO₂ law with its measures and instruments is accepted as a set of rules for climate protection. However, a slightly adjusted extension until the end of 2024 is not enough to comply with the international Paris Agreement, so that strengthening goals and instruments must be introduced in good time.

To transfer the adoption of international agreements in climate protection into national law, a detailed template was drawn up for Parliament, which is intended to show the path of climate protection up to 2050. For example, it pursues halving greenhouse gas emissions by 2030 for the period after 2024.

The framework conditions for this template were defined in a climate and innovation law. This law, which will now be put to a referendum on June 18th 2023, sets out the climate policy framework and funding mechanisms. On this basis, further goals and instruments can be regulated more clearly and implemented more effectively by Parliament in other laws, such as the CO₂ Act and the Energy Act. Of course, a referendum can be held again against such changes to the law. The Sovereign has the last word.

For independent minds, questioning a defined framework for climate protection through politically motivated distortions makes little sense, since the damage caused by global climate change also affects Switzerland. A rejection of the Climate and Innovation Act would mean a further disappointment to Switzerland's credibility in the light of international efforts for more climate protection.

In the area of environmental protection and the protection of natural resources, it is necessary to create a good legal framework that will enable the economy to transform. Incentive systems are better than bans and administratively bloated regulations. In environmental economics, market-based instruments (MBI) are considered a useful instrument for introducing incentive systems into the economy, for example to reward climate protection efforts as part of the economic system. MBIs are considered a cost-effective way to protect and improve the environment.

Basically, an MBI uses the basis of the polluter pays principle to price defined environmental pollution and the wear and tear of natural resources (internalization of the costs of environmental pollution). For this purpose, for example, defined quantities of allowances can be given and/or auctioned to economic actors, which as tradable allowances - in defined and regulated markets using appropriate pricing mechanisms - can also indirectly generate prices for environmental goods and services to improve environmental performance (e.g. in climate protection). Furthermore, MBIs can achieve targeted support for environmentally friendly technologies through the price of tradable allowances or their markets, to the extent that innovative technologies can generate new allowances under clearly defined conditions, which can then be sold on the market.

However, for MBIs to work, governments must provide legal frameworks, including targets or limits related to the availability of natural resources, environmental goods and services. Within these framework conditions, market participants trade rights/allowances to be able to cover additional needs. Market prices develop accordingly depending on availability and demand, and - depending on the market situation - incentives are created to invest in environmental protection and the protection of natural resources.

For this purpose, Switzerland developed an incentive system many years ago that set a payment of a tax (CO₂ levy) against the possibility of being exempt from it (incentive). These ‘exemption’ instruments for economic actors defined in the CO₂ Act include, on the one hand, contractually defined environmental protection goals with the federal government (target agreement to reduce certain amounts of CO₂-emissions) or, on the other hand, the participation in the CO₂-emissions trading system (ETS). The latter instrument leads to a pricing of CO₂-emissions achieved through the market with a predetermined and limited amount of CO₂-emission allowances. Accordingly, these instruments incentivize efforts to reduce CO₂-emissions by reducing internal CO₂ costs.

This incentive system is a good example of how externalized costs of activities and processes that lead to climate change can be at least partially integrated into the economic system. With the help of market-based instruments, pollution receives a price based on the polluter pays principle and, conversely, services to improve environmental protection, environmental goods and the development of natural resources receive a return that can be redeemed on the market.