Carbon pricing schemes have been largely ineffective, study finds

Carbon pricing has been a less effective driver in helping to tackle climate change and drive technological innovation than governments might have hoped, researchers have found.

The study by scientists from the University of Potsdam and ETH Zurich suggested that sector-specific promotion of climate-friendly technologies is needed to bring about significant change. For example, changes in electricity market design and a better charging network for electric cars.

They looked at studies on the effects of carbon pricing systems in the EU, 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,” said lead author Johan Lilliestam.

“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.”

The team identified “an overallocation of emission certificates” leading to low carbon prices as a key factor in the failure of carbon pricing to drive change.

Even in the Nordic countries, where carbon prices are relatively high, carbon pricing schemes have had little noticeable effect on the pace of technological change.

Other policy measures, in particular programmes to promote renewable energy generation, have driven the energy transition in the region much more effectively. These targeted measures offered investors stronger investment incentives than the carbon pricing systems.

The growth of renewables triggered by these measures also resulted in significant reductions in the cost of wind and solar power. Fluctuations in the price of fossil fuels were also found to often exceed the cost of carbon surcharges.

“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,” Lilliestam said.

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