Carbon pricing has weaknesses with regard to five central dimensions: 1) problem framing and solution orientation, 2) policy priorities, 3) innovation approach, 4) contextual considerations, and 5) politics. In order to address the urgency of climate change and to achieve deep decarbonization, climate policy responses need to move beyond market failure reasoning and focus on fundamental changes in existing sociotechnical systems such as energy, mobility, food, and industrial production. The core principles of STP can help tackle this challenge.
Carbon Pricing Critique
Realizing deep decarbonization at the pace necessary to mitigate the worst impacts of climate change has emerged as a pressing challenge for policymakers (1). As a result, the debate about appropriate policy responses has intensified. Many experts and societal actors see carbon pricing as the primary way forward (2⇓–4). Some even use it to argue against other policies, such as fuel efficiency standards. Viewed as the most efficient approach to cut greenhouse gas (GHG) emissions, carbon pricing incentivizes actors to seek the lowest-cost abatement options for their specific circumstances. Consequently, many economists argue that carbon pricing should be the cornerstone of a climate policy response.
We question this reasoning. Carbon pricing faces five major issues that limit its use for accelerating deep decarbonization. First, carbon pricing frames climate change as a market failure rather than as a fundamental system problem. Second, it places particular weight on efficiency as opposed to effectiveness. Third, it tends to stimulate the optimization of existing systems rather than transformation. Fourth, it suggests a universal instead of context-sensitive policy approach. Fifth, it fails to reflect political realities.
Given these limitations, we propose an alternative approach that targets fundamental transformations of existing sociotechnical systems, such as energy, mobility, or food (i.e., “sustainability transitions”) (5). STP entails a mix of contextually and politically sensitive policies that simultaneously drive low-carbon innovation and the decline of fossil fuels.
In summary, the dominant logic of contemporary climate policy, in which carbon pricing is the central policy response, is deeply flawed. Given the aforementioned shortcomings, carbon pricing should not be the primary policy strategy to combat climate change. Instead, carbon pricing should be used as part of a policy mix that promotes innovation and decline, accounts for political dynamics, varies between sectors and over time, and aims at profound system change.