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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.

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Opinion

Relaunching transatlantic cooperation with a carbon border adjustment mechanism

The best way for the EU and the US to jointly introduce carbon border adjustment would be to form a ‘climate club’.

By: Simone Tagliapietra and Guntram B. Wolff Topic: Energy & Climate, Global Economics & Governance Date: June 11, 2021
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Podcast

Podcast

[LIVE] A transatlantic climate alliance

When Joe Biden visits Europe for the first time as US president, he should begin forging a transatlantic green deal.

By: The Sound of Economics Topic: Energy & Climate, Global Economics & Governance Date: June 11, 2021
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Opinion

Climate change and lifestyle choices

Do we need drastic changes in our lifestyles so that we can meet our climate ambitions by 2050?

By: Maria Demertzis Topic: Energy & Climate Date: June 9, 2021
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Opinion

A transatlantic climate alliance

When Joe Biden visits Europe for the first time as US president, he should begin forging a transatlantic green deal.

By: Ana Palacio and Simone Tagliapietra Topic: Energy & Climate, Global Economics & Governance Date: June 4, 2021
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Blog Post

Banks in a net-zero Europe

A net-zero emissions target is a powerful incentive for the low-carbon transition, but for bank supervisors, climate-related risks, not climate outcomes, should remain the focus.

By: Alexander Lehmann Topic: Energy & Climate, Finance & Financial Regulation Date: June 1, 2021
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Blog Post

For the climate, Asia-Pacific must phase out fossil-fuel subsidies

An exit from coal in the Asia-Pacific region is a global decarbonisation priority.

By: Alicia García-Herrero and Simone Tagliapietra Topic: Energy & Climate, Global Economics & Governance Date: May 31, 2021
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Past Event

Past Event

Paris Reinforce: From Numbers to Insights: How to think about economic-climate modelling

Join us for the presentation of ‘From Numbers to Insights: How to think about economic-climate modelling’.

Speakers: Haris Doukas, Ajay Gambhir, Glen Peters, Georg Zachmann and Ewelina Daniel Topic: Energy & Climate Date: May 26, 2021
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Past Event

Past Event

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

Can the three biggest economies agree a carbon tax on imports to catalyse climate action globally?

Speakers: Simone Tagliapietra, Sheldon Whitehouse and Guntram B. Wolff Topic: Global Economics & Governance Date: May 3, 2021
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Policy Contribution

Accounting for climate policies in Europe’s sovereign debt market

Sovereign debt will be vital in stimulating sustainable investment, but information is lacking on how green public spending actually is.

By: Marta Domínguez-Jiménez and Alexander Lehmann Topic: Energy & Climate, Finance & Financial Regulation Date: May 3, 2021
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Past Event

Past Event

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: Mikaela Gavas, Roberta Lusardi, Carla Montesi, Njuguna Ndung'u and Simone Tagliapietra Topic: Energy & Climate, Global Economics & Governance Date: April 29, 2021
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Past Event

Past Event

The Polish view on extending the EU-ETS: Red lines, room to manoeuvre, game changers

What are the red lines, what room is there to manoeuvre, and which elements of the new carbon pricing architecture can be real game changers?

Speakers: Wanda Buk, Maciej Bukowski, Adam Guibourgé-Czetwertyński, Michael Pahle, Aleksander Śniegocki, Urszula Stefanowicz and Georg Zachmann Topic: Energy & Climate Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: April 21, 2021
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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
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