Does putting a price on carbon, long advocated by many economists, result in reduce emissions of carbon dioxide? A new paper accepted for publication by the prestigious journal Environmental Research Letters casts doubt on that economic assumption.
The peer-review paper by Jessica F. Green, an associate professor of political science at the University of Toronto, asks the question, “The theory is elegant, but has carbon pricing worked in practice?” Her conclusion after reviewing multiple evaluations of carbon pricing policies around the world since 1990: “Overall, the evidence indicates that carbon pricing has a limited impact on emissions.”
Her study finds, “Despite a voluminous literature on the topic, there are surprisingly few works that conduct an ex-post analysis, examining how carbon pricing has actually performed.” While the issue of carbon pricing has dominated much of the academic discussion about how to combat global warming, “only 37 studies assess the actual effects of the policy on emissions reductions, and the vast majority of these are focused on Europe.” The majority “suggest that the aggregate reductions from carbon pricing on emissions are limited – generally between 0% and 2% per year. However, there is considerable variation across sectors.”
The analysis finds that “carbon taxes perform better than emissions trading schemes.” The European Union’s emissions trade scheme, the oldest, limited average annual reductions in carbon dioxide, ranging from none to 1.5% per year. By contrast, the UN Intergovernmental Panel on Climate Change (and the Paris Accord) suggests that emissions must fall by 45% below 2010 levels to achieve a limit of 1.5 degrees C. Many analyses of worldwide emissions consider the that goal unreachable.
Countering Green’s analysis, an earlier paper published last June in Environmental and Resource Economics, with lead author Rohan Best, an economist at Mcquarie University in Australia, argues that carbon pricing has been a success. The claim in that article is that carbon pricing regimes have lowered the growth of CO2 emissions compared to political regimes that do not have a pricing arrangement.
The Best paper says, “We find evidence that the average annual growth rate of CO2 emissions from fuel combustion has been around 2 percentage points lower in countries that have had a carbon price compared to countries without.” The data suggests “that the emissions trajectories of countries with and without carbon prices tend to diverge over time.”
The two papers are not inherently contradictory. Green argues that carbon pricing has not reduced CO2 emissions. Best says carbon pricing has slowed the growth of CO2 emissions.
The two papers together suggest that carbon pricing may be useful in slowing the growth of emissions, but not sufficient to reverse the trend and reduce emissions. So additional and stronger mechanisms may be necessary to reverse the course of global warming.
–Kennedy Maize
kenmaize@gmail.com