The effect of carbon pricing on technological change for full energy decarbonization: A review of empirical ex‐post evidence

Abstract

In order to achieve the temperature goals of the Paris Agreement, the world must reach net‐zero carbon emissions around mid‐century, which calls for an entirely new energy system. Carbon pricing, in the shape of taxes or emissions trading schemes, is often seen as the main, or only, necessary climate policy instrument, based on theoretical expectations that this would promote innovation and diffusion of the new technologies necessary for full decarbonization. Here, we review the empirical knowledge available in academic ex‐post analyses of the effectiveness of existing, comparatively high‐price carbon pricing schemes in the European Union, New Zealand, British Columbia, and the Nordic countries. Some articles find short‐term operational effects, especially fuel switching in existing assets, but no article finds mentionable effects on technological change. Critically, all articles examining the effects on zero‐carbon investment found that existing carbon pricing scheme have had no effect at all. We conclude that the effectiveness of carbon pricing in stimulating innovation and zero‐carbon investment remains a theoretical argument. So far, there is no empirical evidence of its effectiveness in promoting the technological change necessary for full decarbonization. This article is categorized under: Climate Economics > Economics of Mitigation

Greening monetary policy

“…Heinkel et al (2001) show that when more than 20% of green investors are added to the investor base, the cost of capital for green companies declines so much that polluting companies start to reform and adopt clean technologies. By contrast, Lilliestam et al (2021) provide evidence that carbon pricing has little effect on the adoption of low-carbon technologies.…”

Perception of Climate Change Effects over Time and the Contribution of Different Areas of Knowledge to Its Understanding and Mitigation

“…To counteract this reality, on the one hand, there was the introduction of fees and taxes as an incentive for the reduction of carbon emissions. On the other hand, incentives that encourage the introduction of a price floor to drive low-carbon investments have also been [127][128][129][130]. All this research has pointed out that carbon prices in existing assets and pricing pollution and carbon in a climate change problem context, may help promote decarbonization.…”

Innovative Carbon Mitigation Techniques to Achieve Environmental Sustainability Agenda: Evidence from a Panel of 21 Selected R&D Economies

“…Globalization helps to increase value-added innovation capabilities through the knowledge-sharing process, which helps cut GHG emissions in OECD countries. Lilliestam et al [40] argued that carbon pricing is the subject of theoretical argument and its feasibility is limited on the practical side, which means there remains a need to prioritize environmental policies through stringent ecological regulations to mitigate carbon emissions worldwide.…”