Carbon Pricing and the Transition to Climate Neutrality

Abstract

Carbon pricing, in the form of emissions trading schemes or carbon taxes, is often seen as the leading first-best climate mitigation policy. Because it is a market-based instrument, it would lead to economically efficient decarbonization of our economies. Many economists and policy analysts call for a rapid convergence towards a global uniform carbon price. However, the implementation of relatively high carbon prices has shown to be very complicated in most countries and sectors due to different socio-political constraints. Still, even in countries that have managed to implement high carbon pricing, it remains unclear if such an instrument can trigger the necessary changes for a transition to a carbon-neutral economy. That raises the question of the real role of carbon pricing in a mitigation policy mix when integrating political economy constraints. Which actual effects is (or can) carbon price trigger in different carbon-intensive sectors (industry, transport, etc.) and in different phases of zero-carbon transitions? And, are there effective strategies to integrate carbon pricing with other policy instruments, creating synergies in a broader policy mix?

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