Does carbon pricing reduce emissions? A review of ex-post analyses

• Published in: Environmental research letters 2021-04, Vol.16 (4), p.43004
• Main Author: Green, Jessica F
• Format: Article
• Language: English
• Subjects: cap and trade; Carbon; carbon markets; carbon pricing; carbon tax; Climate change; Climate policy; Emissions; Emissions control; Emissions trading; Environmental policy; Intergovernmental Panel on Climate Change; Paris Agreement; Pricing
• ISSN: 1748-9326; 1748-9326
• DOI: 10.1088/1748-9326/abdae9

Carbon pricing has been hailed as an essential component of any sensible climate policy. Internalize the externalities, the logic goes, and polluters will change their behavior. The theory is elegant, but has carbon pricing worked in practice? 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. This paper provides a meta-review of ex-post quantitative evaluations of carbon pricing policies around the world since 1990. Four findings stand out. First, though carbon pricing has dominated many political discussions of climate change, only 37 studies assess the actual effects of the policy on emissions reductions, and the vast majority of these are focused on Europe. Second, the majority of studies 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. Third, in general, carbon taxes perform better than emissions trading schemes (ETSs). Finally, studies of the EU-ETS, the oldest ETS, indicate limited average annual reductions—ranging from 0% to 1.5% per annum. For comparison, the IPCC states that emissions must fall by 45% below 2010 levels by 2030 in order to limit warming to 1.5 °C—the goal set by the Paris Agreement (Intergovernmental Panel on Climate Change 2018). Overall, the evidence indicates that carbon pricing has a limited impact on emissions.