Policies for Competitive Energy Markets: When to Tax Emissions and When to Subsidize Carbon Capture
As part of the ongoing collaboration between the UN Sustainable Development Solutions Network’s Kuwait network (SDSN Kuwait) and the Center for Sustainable Development (CSD) at Gulf University for Science and Technology (GUST), Dr. Wassim Daher (GUST) and Prof. Mahelet G. Fikru (Missouri University of Science and Technology) produced Policy Brief #018, “Policies for Competitive Energy Markets: When to Tax Emissions and When to Subsidize Carbon Capture.”
The new brief addresses a central challenge in the global transition toward sustainability: how to reduce greenhouse gas emissions while maintaining competitive energy markets and supporting economic growth. Using a rigorous analytical framework, the authors examine two key climate policy instruments — carbon taxes and carbon capture subsidies — and identify the conditions under which each can most effectively improve environmental and economic outcomes. The findings are particularly relevant to the achievement of Sustainable Development Goal (SDG) 13 (Climate Action) and SDG 7 (Affordable and Clean Energy).
Supporting Climate Action
Governments worldwide are adopting policies to reduce carbon emissions, yet there is ongoing debate about which policy tools can deliver the greatest impact.
This brief shows that the effectiveness of climate policies depends on the characteristics of the industries they target. It finds that carbon taxes are generally more effective in highly carbon-intensive sectors, where emissions reductions can generate substantial environmental benefits. In contrast, carbon capture subsidies may be more suitable in sectors with lower carbon intensity or where technological adoption can significantly improve environmental performance.
These findings provide policymakers with evidence-based guidance for designing climate strategies that maximize emissions reductions while minimizing unnecessary economic costs, directly supporting progress toward SDG 13.
Advancing Affordable and Clean Energy
Achieving a low-carbon future requires balancing environmental goals with a reliable and affordable energy supply. The brief demonstrates that well-designed climate policies can encourage cleaner production without undermining market competitiveness.
Rather than relying on a single policy instrument, the authors recommend tailoring interventions to sector-specific conditions. Such an approach can improve policy efficiency, support innovation, and help ensure that the energy transition remains both economically viable and environmentally sustainable — key objectives of SDG 7.
Implications for Kuwait’s Sustainability Agenda
These policy recommendations are especially relevant for Kuwait as it advances its sustainability agenda while also maintaining its role as a major energy producer.
Carbon capture technologies are increasingly being considered across the region, while carbon pricing mechanisms continue to gain attention globally. By identifying when carbon taxes and carbon capture subsidies are most effective, the brief offers practical insights for policymakers seeking to balance economic competitiveness with environmental responsibility.
Through this collaboration, SDSN Kuwait remains committed to promoting policy-oriented research that supports informed decision-making and advances the SDGs. This policy brief demonstrates how academic research can contribute to practical solutions to the challenges of climate action and sustainable energy transitions in Kuwait and beyond.
To read this policy brief and to explore other research supported by SDSN Kuwait, visit: https://www.gust.edu.kw/sdsn-policy-briefs