The Role of Carbon Pricing in Energy-Transitions Policy and Research

Abstract

The relevance of carbon pricing is examined for transition policy and argue that it should be a key element of a broader transition policy as it triggers multiple processes that critically matter to a low-carbon transition. Since carbon pricing has been criticized by various researchers in transition studies, we evaluate their concerns and arguments. Attention is further drawn to the international dimension of a transition to a low-carbon economy, given that climate policy is a global public good and thus amenable to free-riding by countries. In addition, the need is clarified for a policy instrument that avoids counterproductive systemic effects, such as carbon leakage and energy rebound. It is explained that carbon pricing performs relatively well in both respects. In addition, the role of carbon pricing as part of a wider policy package is examined, accounting for positive and negative synergies between instruments. Finally, a proposal is made for transition studies to pay closer attention to carbon pricing and provide various recommendations for research.