This is the accepted version of the article:
Bergh, Jeroen C. J. M. van den; Botzen, W. J. Wouter. «Low-carbon transition
is improbable without carbon pricing». Proceedings of the National Academy
of Sciences of the U.S.A, Vol. 117, issue 38, p. 23219-23220 (Sep. 2020). DOI
10.1073/pnas.2010380117


This version is available at https://ddd.uab.cat/record/235176

under the terms of the            license
Low-carbon transition improbable without carbon pricing


Jeroen van den Bergh
Institute of Environmental Science and Technology, Autonomous University of Barcelona, 08192 Bellaterra, Spain; ICREA,
Barcelona, Spain; & VU University Amsterdam, 1081HV, The Netherlands
Contact: ICTA, Edifici Z, UAB Campus, 08192 Bellaterra, Spain, +34 93 586 8773, jeroen.bergh@uab.es



Wouter Botzen
Institute for Environmental Studies, VU University Amsterdam, 1081HV Amsterdam, The Netherlands & Utrecht University
School of Economics, Utrecht University, 3512JE, The Netherlands




Acknowledgement: JvdB received support through ERC Grant 741087 in EU-Horizon2020.




                                                          1
Abstract: Rosenbloom et al. (2020) downplay the role of carbon pricing in climate policy. We counter
their criticisms.



Rosenbloom et al. (2020)1 claim that framing climate change as a market failure fails to appreciate it is
a “system problem”. This overlooks that market failures, such as negative/positive externalities and
public goods/bads, represent a clear systemic perspective on problems and policies.2 Carbon pricing
(CP) is moreover a prime example of systemic policy: it shifts simultaneously choices of consumers,
producers, investors and innovators in all sectors – essential to a low-carbon transformation.3 We agree
that additional instruments supporting innovation and escape from carbon lock-in are needed. Historical
absence of CP contributed, though, to current lock-in.

The authors suggest that CP means efficiency is an overriding policy priority. But efficiency requires
effectiveness. CP is highly effective as no decision in the economy escapes its influence, resulting in
closure of all behavioral and economic holes through which emissions leak. It therefore better limits
energy/carbon rebound than other instruments.4 For example, CP discourages spending savings of
energy conservation on high-carbon goods, as these will be more expensive. This said, it seems
Rosenbloom et al. do not value efficiency much. Inefficient policies contribute, however, to less
emissions reduction for a given cost, lower incomes and unemployment – which will hamper stable
political support.

The authors neglect that CP is critical to innovation. But CP contributes to steering innovations towards
low-carbon products and production, because private investors are influenced by price expectations as
these co-determine profit opportunities.5 Furthermore, unlike other instruments, CP stimulates among
‘clean’ technologies the cleaner ones, like solar PV panels with low-carbon lifecycles.6

The authors prefer a context-sensitive over a universal approach. But sector-specific approaches tend to
be ad hoc, costly and susceptible to lobbying, while causing inter-sectoral carbon leakage. Moreover,
climate policy is bound to remain weak if fragmented between jurisdictions. Policy harmonization is
needed to weaken freeriding and international-competitiveness concerns that hamper stringent policies.
A CO2 price facilitates comparison and harmonization of national policies.7

Regarding political realities, the authors suggest CP faces much resistance. However, this holds for all
serious climate policies. No evidence is provided that other effective instruments receive more political
support. On the contrary, CP is quite popular: almost 60 jurisdictions have implemented it in some
form.8

While CP has been criticized as inequitable, this is not the case if complemented by appropriate revenue
recycling.9 In fact, no other instrument generates revenues for compensation. To compare, adoption
subsidies for rooftop solar PV or electric vehicles even use up money, and are inequitable by going to
well-off households.

It is not true that CP is only supported by neoclassical economics. Many types of empirical and
theoretical studies underpin its effectiveness, including agent-based models describing boundedly-
rational and socially-sensitive behaviors.10

The literature on low-carbon transitions offers creative policy ideas. It is time that CP is integrated with
these into a more complete theory of transition policy.
                                                    2
1
 Rosenbloom, D., J. Markard, F.W. Geels, and L. Fuenfschilling (2020). Opinion: Why carbon pricing is not
sufficient to mitigate climate change—and how “sustainability transition policy” can help. PNAS, 8 April 2020,
https://www.pnas.org/content/early/2020/04/07/2004093117
2
 Aldy J., A. Krupnick, R. Newell, I. Parry, W. Pizer (2010). Designing climate mitigation policy. Journal of
Economic Literature 48(4): 903-934.
3
 Cramton, P., D.J.C. MacKay, A. Ockenfels and S. Stoft, 2017. Global Carbon Pricing: The Path to Climate
Cooperation. The MIT Press, Cambridge, Mass.
4
 Baranzini, A, J. van den Bergh, S. Carattini, R. Howard, E. Padilla and J. Roca, 2017. Carbon pricing in climate
policy: Seven reasons, complementary instruments, and political-economy considerations. WIREs Climate Change
8(4), e462.
5
  Calel, R. and A. Dechezleprêtre (2016). Environmental policy and directed technological change: Evidence
from the European carbon market. Review of Economics and Statistics 98: 173-191.
6
 Liu, F., and J. van den Bergh (2020). Differences in CO2 emissions of solar PV production among technologies
and regions: Application to China, EU and USA. Energy Policy 138, 111234.
7
 Weitzman M.L. (2014). Can negotiating a uniform carbon price help to internalize the global warming
externality? Journal of the Association of Environmental and Resource Economists 1:29-49.
8
 Haites, E., 2018. Carbon taxes and greenhouse gas emissions trading systems: what have we learned? Climate
Policy 18(8): 955-966.
9
 Klenert, D., Mattauch, L., Combet, E., Edenhofer, O., Hepburn, C., Rafaty, R., Stern, N., 2018. Making carbon
pricing work for citizens. Nature Climate Change 8: 669–677.
10
  Castro, J., S. Drews, F. Exadaktylos, J. Foramitti, F. Klein, T. Konc, I. Savin, J. van den Bergh (2020). A
review of agent-based modelling of climate-energy policy. WIREs Climate Change, e647.




                                                        3