Unidad de excelencia María de Maeztu CEX2019-000940-MThis Letter has a Reply and related content. Please see: Reply to van den Bergh and Botzen: A clash of paradigms over the role of carbon pricing (https://doi.org/10.1073/pnas.2014350117) - Opinion: Why carbon pricing is not sufficient to mitigate climate change-and how "sustainability transition policy" can help (https://doi.org/10.1073/pnas.2004093117)

Botzen, W. J. Wouter

van den Bergh, Jeroen C.J.M

English

This Letter has a Reply and related content. Please see: Reply to van den Bergh and Botzen: A clash of paradigms over the role of carbon pricing - September 22, 2020 [and] Opinion: Why carbon pricing is not sufficient to mitigate climate change—and how “sustainability transition policy” can help - April 08, 2020

van den Bergh, Jeroen

Botzen, Wouter

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Low-carbon transition is improbable without carbon pricing

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VU Research PortalLow-carbon transition is improbable without carbon pricingvan den Bergh, Jeroen; Botzen, Wouterpublished inProceedings of the National Academy of Sciences of the United States of America2020DOI (link to publisher)10.1073/pnas.2010380117document versionPublisher's PDF, also known as Version of recorddocument licenseArticle 25fa Dutch Copyright ActLink to publication in VU Research Portalcitation for published version (APA)van den Bergh, J., & Botzen, W. (2020). Low-carbon transition is improbable without carbon pricing.Proceedings of the National Academy of Sciences of the United States of America, 117(38), 23219-23220.https://doi.org/10.1073/pnas.2010380117General rightsCopyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright ownersand it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights.            • Users may download and print one copy of any publication from the public portal for the purpose of private study or research.            • You may not further distribute the material or use it for any profit-making activity or commercial gain            • You may freely distribute the URL identifying the publication in the public portal ?Take down policyIf you believe that this document breaches copyright please contact us providing details, and we will remove access to the work immediatelyand investigate your claim.E-mail address:vuresearchportal.ub@vu.nlDownload date: 22. May. 2021LETTERLow-carbon transition is improbable withoutcarbon pricingJeroen van den Bergha,b,c,d,1 and Wouter Botzend,eRosenbloom et al. (1) downplay the role of carbon pric-ing in climate policy. We counter their criticisms.The authors claim that framing climate change as amarket failure fails to appreciate it is a “system prob-lem.” This overlooks that market failures, such as neg-ative/positive externalities and public goods/bads,represent a clear systemic perspective on problemsand policies (2). Carbon pricing (CP) is, moreover, aprime example of systemic policy: It simultaneouslyshifts choices of consumers, producers, investors,and innovators in all sectors—essential to a low-carbon transformation (3). We agree that additionalinstruments supporting innovation and escape fromcarbon lock-in are needed. Historical absence of CPcontributed, though, to current lock-in.The authors suggest that CP means efficiency is anoverriding policy priority. However, efficiency requireseffectiveness. CP is highly effective as no decision inthe economy escapes its influence, resulting in closureof all behavioral and economic holes through whichemissions leak. It therefore better limits energy/carbonrebound than other instruments (4). For example, CPdiscourages spending savings from energy conserva-tion on high-carbon goods, as these will be more ex-pensive. This said, it seems Rosenbloom et al. (1) donot value efficiency much. Inefficient policies contrib-ute, however, to less emissions reduction for a givencost, lower incomes, and unemployment—which willhamper stable political support.The authors neglect that CP is critical to innovation.However, CP contributes to steering innovations to-ward low-carbon products and production, becauseprivate investors are influenced by price expectationsas these codetermine profit opportunities (5). Further-more, unlike other instruments, CP stimulates among“clean” technologies the cleaner ones, like solar pho-tovoltaic (PV) panels with low-carbon lifecycles (6).The authors prefer a context-sensitive over a uni-versal approach. However, sector-specific approachestend to be ad hoc, costly, and susceptible to lobbying,while causing intersectoral carbon leakage. Moreover,climate policy is bound to remain weak if it is fragmentedbetween jurisdictions. Policy harmonization is needed toweaken freeriding and international-competitivenessconcerns that hamper stringent policies. A CO2 pricefacilitates comparison and harmonization of nationalpolicies (7).Regarding political realities, the authors suggestCP faces much resistance. However, this holds for allserious climate policies. No evidence is providedthat other effective instruments receive more polit-ical support. On the contrary, CP is quite popular:Almost 60 jurisdictions have implemented it in someform (8).While CP has been criticized as inequitable, this isnot the case if it is complemented by appropriaterevenue recycling (9). In fact, no other instrument gen-erates revenues for compensation. To compare, adop-tion subsidies for rooftop solar PV or electric vehicleseven use up money and are inequitable by going towell-off households.It is not true that CP is only supported by neoclassicaleconomics. Many types of empirical and theoreticalstudies underpin its effectiveness, including agent-based models describing boundedly rational and so-cially sensitive behaviors (10).The literature on low-carbon transitions offerscreative policy ideas. It is time that CP is integratedwith these into a more complete theory of transitionpolicy.AcknowledgmentsWe thank Stefan Drews and Ivan Savin for feedback. J.v.d.B.received support through European Research Council Grant741087 in EU-Horizon2020.aInstitute of Environmental Science and Technology, Autonomous University of Barcelona, 08192 Bellaterra, Spain; bICREA, 08010 Barcelona, Spain;cSchool of Business and Economics, Vrije Universiteit Amsterdam, 1081HV Amsterdam, The Netherlands; dInstitute for Environmental Studies,Vrije Universiteit Amsterdam, 1081HV Amsterdam, The Netherlands; and eUtrecht University School of Economics, Utrecht University,3512JE Utrecht, The NetherlandsAuthor contributions: J.v.d.B. and W.B. wrote the paper.The authors declare no competing interest.Published under the PNAS license.1To whom correspondence may be addressed. Email: jeroen.bergh@uab.es.First published September 22, 2020.www.pnas.org/cgi/doi/10.1073/pnas.2010380117 PNAS | September 22, 2020 | vol. 117 | no. 38 | 23219–23220LETTERDownloaded at #02354284 on November 10, 2020 1 D. Rosenbloom, J. Markard, F. W. Geels, L. Fuenfschilling, Opinion: Why carbon pricing is not sufficient to mitigate climate change—and how “sustainabilitytransition policy” can help. Proc. Natl. Acad. Sci. U.S.A. 117, 8664–8668 (2020).2 J. Aldy, A. Krupnick, R. Newell, I. Parry, W. Pizer, Designing climate mitigation policy. J. Econ. Lit. 48, 903–934 (2010).3 P. Cramton, D. J. C. MacKay, A. Ockenfels, S. Stoft, Global Carbon Pricing: The Path to Climate Cooperation (MIT Press, Cambridge, MA, 2017).4 A. Baranzini et al., Carbon pricing in climate policy: Seven reasons, complementary instruments, and political-economy considerations. Wiley Interdiscip. Rev.Clim. Change 8, e462 (2017).5 R. Calel, A. Dechezleprêtre, Environmental policy and directed technological change: Evidence from the European carbon market. Rev. Econ. Stat. 98, 173–191(2016).6 F. Liu, J. van den Bergh, Differences in CO2 emissions of solar PV production among technologies and regions: Application to China, EU and USA. Energy Policy138, 111234 (2020).7 J. C. J. M. van den Bergh et al., A dual-track transition to global carbon pricing. Climate Policy, 10.1080/14693062.2020.1797618 (2020).8 E. Haites, Carbon taxes and greenhouse gas emissions trading systems: What have we learned? Clim. Policy 18, 955–966 (2018).9 D. Klenert et al., Making carbon pricing work for citizens. Nat. Clim. Chang. 8, 669–677 (2018).10 J. Castro et al., A review of agent-based modelling of climate-energy policy. Wiley Interdiscip. Rev. Clim. Change 11, e647 (2020).23220 | www.pnas.org/cgi/doi/10.1073/pnas.2010380117 van den Bergh and BotzenDownloaded at #02354284 on November 10, 2020 

van den Bergh, Jeroen C. J. M.

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This is the accepted version of the article:Bergh, Jeroen C. J. M. van den; Botzen, W. J. Wouter. «Low-carbon transitionis improbable without carbon pricing». Proceedings of the National Academyof Sciences of the U.S.A, Vol. 117, issue 38, p. 23219-23220 (Sep. 2020). DOI10.1073/pnas.2010380117This version is available at https://ddd.uab.cat/record/235176under the terms of the license   1   Low-carbon transition improbable without carbon pricing  Jeroen van den Bergh Institute of Environmental Science and Technology, Autonomous University of Barcelona, 08192 Bellaterra, Spain;  ICREA, Barcelona, Spain; & VU University Amsterdam, 1081HV, The Netherlands Contact: ICTA, Edifici Z, UAB Campus, 08192 Bellaterra, Spain, +34 93 586 8773, jeroen.bergh@uab.es  Wouter Botzen Institute for Environmental Studies, VU University Amsterdam, 1081HV Amsterdam, The Netherlands & Utrecht University School of Economics, Utrecht University, 3512JE, The Netherlands    Acknowledgement: JvdB received support through ERC Grant 741087 in EU-Horizon2020.      2  Abstract: Rosenbloom et al. (2020) downplay the role of carbon pricing in climate policy. We counter their criticisms.  Rosenbloom et al. (2020)1 claim that framing climate change as a market failure fails to appreciate it is a “system problem”. This overlooks that market failures, such as negative/positive externalities and public goods/bads, represent a clear systemic perspective on problems and policies.2 Carbon pricing (CP) is moreover a prime example of systemic policy: it shifts simultaneously choices of consumers, producers, investors and innovators in all sectors – essential to a low-carbon transformation.3 We agree that additional instruments supporting innovation and escape from carbon lock-in are needed. Historical absence of CP contributed, though, to current lock-in. The authors suggest that CP means efficiency is an overriding policy priority. But efficiency requires effectiveness. CP is highly effective as no decision in the economy escapes its influence, resulting in closure of all behavioral and economic holes through which emissions leak. It therefore better limits energy/carbon rebound than other instruments.4 For example, CP discourages spending savings of energy conservation on high-carbon goods, as these will be more expensive. This said, it seems Rosenbloom et al. do not value efficiency much. Inefficient policies contribute, however, to less emissions reduction for a given cost, lower incomes and unemployment – which will hamper stable political support. The authors neglect that CP is critical to innovation. But CP contributes to steering innovations towards low-carbon products and production, because private investors are influenced by price expectations as these co-determine profit opportunities.5 Furthermore, unlike other instruments, CP stimulates among ‘clean’ technologies the cleaner ones, like solar PV panels with low-carbon lifecycles.6 The authors prefer a context-sensitive over a universal approach. But sector-specific approaches tend to be ad hoc, costly and susceptible to lobbying, while causing inter-sectoral carbon leakage. Moreover, climate policy is bound to remain weak if fragmented between jurisdictions. Policy harmonization is needed to weaken freeriding and international-competitiveness concerns that hamper stringent policies. A CO2 price facilitates comparison and harmonization of national policies.7 Regarding political realities, the authors suggest CP faces much resistance. However, this holds for all serious climate policies. No evidence is provided that other effective instruments receive more political support. On the contrary, CP is quite popular: almost 60 jurisdictions have implemented it in some form.8 While CP has been criticized as inequitable, this is not the case if complemented by appropriate revenue recycling.9 In fact, no other instrument generates revenues for compensation. To compare, adoption subsidies for rooftop solar PV or electric vehicles even use up money, and are inequitable by going to well-off households. It is not true that CP is only supported by neoclassical economics. Many types of empirical and theoretical studies underpin its effectiveness, including agent-based models describing boundedly-rational and socially-sensitive behaviors.10 The literature on low-carbon transitions offers creative policy ideas. It is time that CP is integrated with these into a more complete theory of transition policy.    3    1 Rosenbloom, D., J. Markard, F.W. Geels, and L. Fuenfschilling (2020). Opinion: Why carbon pricing is not sufficient to mitigate climate change—and how “sustainability transition policy” can help. PNAS, 8 April 2020, https://www.pnas.org/content/early/2020/04/07/2004093117 2 Aldy J., A. Krupnick, R. Newell, I. Parry, W. Pizer (2010). Designing climate mitigation policy. Journal of Economic Literature 48(4): 903-934. 3 Cramton, P., D.J.C. MacKay, A. Ockenfels and S. Stoft, 2017. Global Carbon Pricing: The Path to Climate Cooperation. The MIT Press, Cambridge, Mass. 4 Baranzini, A, J. van den Bergh, S. Carattini, R. Howard, E. Padilla and J. Roca, 2017. Carbon pricing in climate policy: Seven reasons, complementary instruments, and political-economy considerations. WIREs Climate Change 8(4), e462. 5 Calel, R. and A. Dechezleprêtre (2016). Environmental policy and directed technological change: Evidence from the European carbon market. Review of Economics and Statistics 98: 173-191. 6 Liu, F., and J. van den Bergh (2020). Differences in CO2 emissions of solar PV production among technologies and regions: Application to China, EU and USA. Energy Policy 138, 111234. 7 Weitzman M.L. (2014). Can negotiating a uniform carbon price help to internalize the global warming externality? Journal of the Association of Environmental and Resource Economists 1:29-49. 8 Haites, E., 2018. Carbon taxes and greenhouse gas emissions trading systems: what have we learned? Climate Policy 18(8): 955-966. 9 Klenert, D., Mattauch, L., Combet, E., Edenhofer, O., Hepburn, C., Rafaty, R., Stern, N., 2018. Making carbon pricing work for citizens. Nature Climate Change 8: 669–677. 10 Castro, J., S. Drews, F. Exadaktylos, J. Foramitti, F. Klein, T. Konc, I. Savin, J. van den Bergh (2020). A review of agent-based modelling of climate-energy policy. WIREs Climate Change, e647. 

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Low-carbon transition is improbable without carbon pricing

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