Global | Carbon prices are too low, but how high should they be?

Carbon pricing – either through a tax or an emissions trading scheme – will play an integral role in efforts to reduce carbon emissions. By capturing the cost of greenhouse gas emissions, a carbon price incentivises consumers to move to low-carbon products and firms to innovate away from them.

What you will learn:

• One fundamental problem is that the economic impact of a carbon price rests on the rate of the shift to low-carbon technologies.
• This isn’t a number readily at hand to economists, nor is it typically ground out by large, multi-sectoral models that explicitly allow for substitution between sectors or goods.
• The alternative is to equate the carbon price to the social cost of carbon – the damage caused by GHG emissions.