Download publication

Policy Contribution

A whole-economy carbon price for Europe and how to get there

Putting carbon pricing at the centre of the EU climate policy architecture would provide major benefits. Obtaining these benefits requires a uniform, credible and durable carbon price – the economic first-best solution, however, several preconditions required to attain this solution are not yet met. This paper proposes a sequenced approach to ensure convergence of the policy mix on the first-best in the long run.

By: , , and Date: March 9, 2021 Topic: Energy & Climate

The European Union’s plan for climate neutrality by 2050 reopens the question of the role carbon pricing can and should play. Carbon pricing should not – and ultimately cannot – only be an enforcement tool or backstop that ensures targets are met, while the heavy-lifting of decarbonisation comes from directed technological change policies. Instead, a technologyneutral carbon price must become the main element, providing signals for decarbonised operations, investment and innovation in all sectors. This would guarantee cost-effective emission cuts, provide a clear path to net-zero and is a requirement for international cooperation and a global carbon pricing regime. Carbon pricing must therefore be at the core of EU climate policy.

However, introducing a uniform, credible and durable carbon price across all sectors right away is politically and institutionally challenging. Moreover, policies to address other market failures will continue to affect significantly the impact of carbon pricing. The role of carbon pricing should therefore be strengthened gradually, taking these considerations into account.

Current climate policies should thus be further developed within a three-part framework. First, a separate emissions trading scheme should be introduced for the transport and heating sector to prepare the sectors for integration into the EU emissions trading system, and to manage distributional implications. A carbon price balancer would manage price differences between the two systems in the short term. Second, a carbon price stabiliser (a price floor and price ceiling) should be implemented for both systems to manage price expectations and ensure price convergence between the two systems in the long run. Third, complementary policies (carbon price amplifiers) should be strengthened or put in place to trigger investment and innovation, helping policymakers to commit credibly to enforcing the cap and addressing other market failures. This approach would ensure convergence on a uniform, credible and durable carbon price for the whole economy.

Read article More on this topic
 

Blog Post

China has a grand carbon neutrality target but where is the plan?

China’s new long-term targets, to reach peak emissions before 2030 and achieve carbon neutrality by 2060, are yet to be matched with a consistent short-term action plan.

By: Alicia García-Herrero and Simone Tagliapietra Topic: Energy & Climate Date: April 14, 2021
Read article More on this topic More by this author
 

Opinion

It’s time for a green social contract

The green transformation will have far-reaching socio-economic implications. Action is needed to ensure domestic and international social equity and fairness.

By: Simone Tagliapietra Topic: Energy & Climate Date: April 12, 2021
Read about event
 

Upcoming Event

Apr
29
14:00

The External Dimension of the EU's Green Deal: What Role for EU Development Cooperation?

The EU Green Deal's political scope extends far beyond climate neutrality and the European Union. What geopolitical and human repercussions does it have for its partners?

Speakers: Francisco André, Mikaela Gavas, Njuguna Ndung'u and Simone Tagliapietra Topic: Energy & Climate, Global Economics & Governance
Read article More on this topic More by this author
 

Blog Post

How to extend carbon pricing beyond the comfort zone

Rapid emission cuts need a carbon price for the whole economy. This must be introduced in careful stages. 

By: Georg Zachmann Topic: Energy & Climate Date: April 1, 2021
Read article Download PDF More on this topic
 

Policy Contribution

Navigating through hydrogen

Policymakers must address the need to displace carbon-intensive hydrogen with low-carbon hydrogen, and incentivise the uptake of hydrogen as a means to decarbonise sectors with hard-to-reduce emissions.

By: Ben McWilliams and Georg Zachmann Topic: Energy & Climate Date: April 1, 2021
Read article More on this topic
 

External Publication

Form a climate club: United States, European Union and China

If the three biggest economies agree a carbon tax on imports, it will catalyse climate action globally.

By: Guntram B. Wolff and Simone Tagliapietra Topic: Energy & Climate Date: March 23, 2021
Read article More on this topic More by this author
 

Opinion

Central banks don’t have to pick winners and losers to fight climate change

Disclosures and financial regulation don’t get enough respect as tools to reduce emissions.

By: Rebecca Christie Topic: Finance & Financial Regulation Date: March 11, 2021
Read about event More on this topic
 

Past Event

Past Event

A new carbon pricing paradigm for the path to net zero

Which role carbon pricing could and should play in the future policy mix?

Speakers: Ottmar Edenhofer, Peter Liese, Sam Van den Plas, Beatriz Yordi Aguirre and Georg Zachmann Topic: Energy & Climate Date: March 9, 2021
Read article
 

Opinion

The EU can’t separate climate policy from foreign policy

How to make the European Green Deal succeed.

By: Mark Leonard, Jean Pisani-Ferry, Jeremy Shapiro, Simone Tagliapietra and Guntram B. Wolff Topic: Energy & Climate, Global Economics & Governance Date: March 5, 2021
Read article More on this topic
 

Opinion

欧洲如何实现碳中和?一种建议

“欧洲绿色协议”目前缺少的一个工具是碳底价,它可以为ETS和非ETS部门设定最低碳定价。经过多年的讨论,现在可能已经到了引入这一制度的时候了。

By: Maria Demertzis and Simone Tagliapietra Topic: Energy & Climate Date: March 5, 2021
Read article More on this topic
 

Blog Post

Carbon price floors: an addition to the European Green Deal arsenal

As the European Union sets out a more ambitious climate policy, carbon price floors provide an opportunity to place greater emphasis on altering expectations, so that market agents anticipate today higher future pay-offs from low-carbon investment.

By: Maria Demertzis and Simone Tagliapietra Topic: Energy & Climate Date: March 3, 2021
Read about event More on this topic
 

Past Event

Past Event

The economics of biodiversity

Join us in conversation with Sir Partha Dasgupta and Frans Timmermans to mark the publication of The Economics of Biodiversity: The Dasgupta Review

Speakers: Sir Partha Dasgupta, Maria Demertzis, Frans Timmermans and Guntram B. Wolff Topic: Energy & Climate Date: March 3, 2021
Load more posts