Carbon pricing's disappointing effect on the pace of technological change

January 18, 2021

In order to achieve the goals of the Paris Agreement, the world must reach net-zero carbon emissions by 2050. Carbon pricing is viewed by many governments and experts as the most important climate policy instrument. However, a new study shows that carbon pricing has been less effective as a driver of technological change than was previously anticipated.

While the introduction of carbon pricing systems has led to emissions reductions in some countries, they have not significantly stimulated technological change. Bringing about the necessary transformation will require sector-specific promotion of climate-friendly technologies, for example changes in electricity market design and a better charging network for electric cars. These changes require significant investment. Carbon pricing has a disappointing track record in this respect, as shown in a new study by scientists Johan Lilliestam (IASS/University of Potsdam), Anthony Patt (ETH Zurich) and Germán Bersalli (IASS Potsdam). They examined empirical studies on the effects of carbon pricing systems in the European Union, New Zealand, the Canadian province of British Columbia, and the Nordic countries.

"The significant reductions in emissions that we are seeing are being driven not by urgently needed investment in zero-carbon technologies but by operational shifts towards less carbon-intensive applications. But the effect of switching from gasoline to diesel or from coal to gas-fired power generation is practically irrelevant when it comes to achieving climate neutrality", says lead author Johan Lilliestam. Achieving net zero emissions will require more sweeping, systemic changes

Higher carbon prices fail to boost investment in zero emissions technologies

Most of the research examined in this study identify an overallocation of emission certificates, leading to low carbon prices, as a key factor in the failure of carbon pricing to drive change. But according to Lilliestam, Patt and Bersalli, this explanation does not tell the whole story. In the Nordic countries, for example, where carbon prices are relatively high, carbon pricing schemes have had little noticeable effect on the pace of technological change.

Instead, the authors suggest, it is other other policy measures - in particular programmes to promote renewable energy generation - that have driven the energy transition in this region. These targeted measures offered investors stronger investment incentives than the carbon pricing systems introduced concurrently, and the growth of renewables triggered by these measures in turn resulted in significant reductions in the cost of wind and solar power. In addition, fluctuations in the price of fossil fuels often exceed the cost of carbon surcharges. Such fluctuations, for example in the price of petrol, undermine the steering effects of carbon pricing schemes

Carbon pricing has its place in the policy toolbox

Despite this disappointing track record, the authors identify two use cases for carbon pricing. "On the one hand, carbon pricing can be used to generate revenue for urgently needed support measures and public investment. On the other hand, in certain sectors, such as coal-fired power generation, it could be used to diminish the competitive advantage of carbon intensive technologies as emerging technologies reach market maturity," explains Lilliestam. While carbon pricing is not suitable as a central policy solution, the authors conclude, it could contribute to efforts to achieve climate goals as one part of a broad package of measures.

Institute for Advanced Sustainability Studies e.V. (IASS)

Related Carbon Emissions Articles from Brightsurf:

Dietary changes could produce big offsets to carbon emissions
Eating less meat and dairy products in favor of plant-based proteins like those found in grains, legumes and nuts could make a huge difference in how much carbon dioxide reaches the atmosphere.

Carbon-loving materials designed to reduce industrial emissions
Researchers at the Department of Energy's Oak Ridge National Laboratory and the University of Tennessee, Knoxville, are advancing gas membrane materials to expand practical technology options for reducing industrial carbon emissions.

Ocean uptake of CO2 could drop as carbon emissions are cut
The ocean is so sensitive to declining greenhouse gas emissions that it immediately responds by taking up less carbon dioxide, says a new study.

Tracking fossil fuel emissions with carbon-14
Researchers from NOAA and the University of Colorado have devised a breakthrough method for estimating national emissions of carbon dioxide from fossil fuels using ambient air samples and a well-known isotope of carbon that scientists have relied on for decades to date archaeological sites.

COVID-19 crisis causes 17% drop in global carbon emissions
The COVID-19 global lockdown has had an 'extreme' effect on daily carbon emissions, but it is unlikely to last -- according to a new analysis by an international team of scientists.

Don't look to mature forests to soak up carbon dioxide emissions
Research published today in Nature suggests mature forests are limited in their ability to absorb 'extra' carbon as atmospheric carbon dioxide concentrations increase.

Global supply chains as a way to curb carbon emissions
The coronavirus outbreak raised everyone's awareness of the significance of global supply chains to modern economies.

Scrubbing carbon dioxide from smokestacks for cleaner industrial emissions
An international collaboration co-led by an Oregon State University chemistry researcher has uncovered a better way to scrub carbon dioxide from smokestack emissions, which could be a key to mitigating global climate change.

Global carbon emissions increase but rate has slowed
Global carbon emissions are set to grow more slowly in 2019, with a decline in coal burning offset by strong growth in natural gas and oil use worldwide -- according to new research.

Co-combustion of wood and oil-shale reduces carbon emissions
Utilization of fossil fuels, which represents an increasing environmental risk, can be made more environmentally friendly by adding wood -- as concluded based on the preliminary results of the year-long study carried out by thermal engineers of Tallinn University of Technology.

Read More: Carbon Emissions News and Carbon Emissions Current Events is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to