Carbon pricing in climate policy: seven reasons, complementary instruments, and political economy considerations

By A. Baranzini, Jeroen C. J. M. van den Bergh, S. Carattini, Richard B. Howarth, Emilio Padilla, Jordi Roca. 2017

433 citations recorded by the source corpus.

Carbon pricing is a recurrent theme in debates on climate policy. Discarded at the 2009 COP in Copenhagen, it remained part of deliberations for a climate agreement in subsequent years. As there is still much misunderstanding about the many reasons to implement a global carbon price, ideological resistance against it prospers. Here, we present the main arguments for carbon pricing, to stimulate a fair and well‐informed discussion about it. These include considerations that have received little attention so far. We stress that a main reason to use carbon pricing is environmental effectiveness at a relatively low cost, which in turn contributes to enhance social and political acceptability of climate policy. This includes the property that corrected prices stimulate rapid environmental innovations. These arguments are underappreciated in the public debate, where pricing is frequently downplayed and the erroneous view that innovation policies are sufficient is widespread. Carbon pricing and technology policies are, though, largely complementary and thus are both needed for effective climate policy. We also comment on the complementarity of other instruments to carbon pricing. We further discuss distributional consequences of carbon pricing and present suggestions on how to address these. Other political economy issues that receive attention are lobbying, co‐benefits, international policy coordination, motivational crowding in/out, and long‐term commitment. The overview ends with reflections on implementing a global carbon price, whether through a carbon tax or emissions trading. The discussion goes beyond traditional arguments from environmental economics by including relevant insights from energy research and innovation studies as well. WIREs Clim Change 2017, 8:e462. doi: 10.1002/wcc.462

Subfields: Economics and Econometrics, Renewable Energy, Sustainability and the Environment

View Paper: https://www.semanticscholar.org/paper/4dba126f8b948fa3fd623242e8d59ddc66f96233

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Citations in the corpus

Poverty and distributional effects of carbon pricing in low- and middle-income countries – A global comparative analysis (2019, background): “Such concerns of inclusive development can decisively hamper the political feasibility of respective reforms and provoke public resistance (Baranzini et al., 2017; Drews & van den Bergh, 2016; Gevrek & Uyduranoglu, 2015; Klenert et al., 2018; Lockwood, 2015).”
Carbon pricing and deep decarbonisation (2018, background): “A recent article, for instance, argues that “among all instruments carbon pricing deserves the most serious attention from researchers, politicians, and citizens” (Baranzini et al., 2017).”
Perceived fairness and public acceptability of carbon pricing: a review of the literature (2019, background): “The main reason is that carbon pricing increases relative prices of high-versus low-carbon goods and services, resulting in an effective as well as efficient way of reducing CO 2 emissions (Aldy et al., 2010; Nordhaus, 2010; Baranzini et al., 2017).”
Research on carbon market price mechanism and influencing factors: a literature review (2018, methodology): “Baranzini et al. (2017) summarized the effects of carbon price, including emissions reduction, promotion of low-carbon development, decrease in abatement costs, promotion of technology innovation, reduction in energy rebound, mitigation of carbon leakage and guidance of consumers’ low-carbon…”
Carbon Pricing: Effectiveness and Equity (2018, background): “4 For further discussion, see Baranzini et al. (2017). 5 On the role of public-sector investment in innovation, see Mazzucato (2013). 6 For discussion, see Boyce and Pastor (2013).”