What are the main debates going on about carbon prices for policy purposes?

This document aims to present a synthesis of some of the main debates about carbon prices for policy purposes. The Paris Climate Change Agreement has the target of a temperature rise of 1.5o C and 2o C during this century, which requires the construction of a carbon-neutral economy between 2050 and 2070. A carbon price in all deep decarbonization scenarios is consistent with the Paris Agreement. However, intense debates remain about the final consequences of a carbon price on Greenhouse gas emissions and the collateral effects on economic dynamism and income distribution. The literature revision indicates that: 1. The carbon price for a Just Climate transition to a carbon net zero economy could be high. 2. The carbon price would contribute to reducing greenhouse gas emissions but is not necessarily consistent with a carbon net-zero economy. 3. The carbon price can potentially negatively affect economic dynamism and income distribution. However, these effects can be compensated with fiscal recycling policies. Henceforth, it is possible to incorporate a carbon price under a Just Climate Transition under a more comprehensive approach considering recycling policies.

 

Collaborating institutions:  Red Sur - UNAM 

Author: Luis Miguel Galindo, UNAM, México

Support: IDRC, Canadá.