This research assesses carbon pricing as a pivotal strategy for climate action within a broader policy mix aimed at net-zero emissions by 2050 and achieving Sustainable Development Goals. It underlines the necessity of a coordinated approach—reducing, removing, and repairing carbon emissions—supported by strong governance for a functional financial and regulatory framework. The analysis extends to carbon markets under the Paris Agreement and the effectiveness of existing mechanisms in reducing emissions.
The study reveals that while carbon pricing, through taxes or trading schemes, incentivizes a shift away from fossil fuels and supports emission reduction innovations, disparities in policy design and execution challenge its global efficacy. To amplify carbon pricing's role in climate action, the research advocates for expanding its coverage and price, alongside tackling methane emissions and ensuring equitable revenue distribution. It emphasizes the need for increased support for developing countries, policy transparency, and exploring alternative pricing models. Concluding that carbon pricing alone isn't enough, a holistic array of fiscal, regulatory, and policy measures is deemed essential for aligning with Paris Agreement goals and accelerating decarbonization efforts.
1. Carbon pricing as a key complement to climate policies
Although current carbon pricing mechanisms cover a significant proportion of global emissions, they often fail to match the social cost of carbon, necessitating a reassessment of pricing strategies. Higher carbon prices and extended sectoral and geographical coverage could accelerate the reduction of greenhouse gases, highlighting carbon pricing's potential as a critical complement to broader climate policies.
2. Political and economic challenges in establishing carbon prices
Political resistance and economic concerns hinder the establishment of effective carbon prices that could potentially lead global energy transitions in line with the Paris Agreement. Balancing competitiveness, household income, and technological advancements within a robust regulatory framework is central to overcoming these obstacles and setting a stable carbon pricing landscape.
3. Innovative approaches and future pathways for carbon pricing
Emerging carbon pricing approaches, such as upstream levies on fossil fuel extraction, offer the possibility of more consistent and widespread pricing mechanisms. Coupled with international cooperation, such innovations could pave the way for more comprehensive and effective pricing strategies that support the ultimate goal of a just transition to a net zero carbon economy.
