While carbon pricing has long been viewed by policymakers as a primary policy tool to unlock a low-carbon economy and advance climate action, obstacles hindering low-carbon investments are increasingly being tackled, which also means non-pricing measures are moving up policy agendas.
It is increasingly understood that unlocking the low-carbon economy requires comprehensive changes in markets, behaviors, and expectations. Recent policy packages combine a variety of instruments to achieve this, including carbon pricing, government subsidies, public investment, and regulations.
- Cross-country comparisons of policy packages for a low-carbon economy are useful to identify best practice. Carbon pricing is well tracked globally, yet there is a lack of information on non-pricing actions. The multiplicity of policy instruments and their complex design makes monitoring challenging, but progress is being made in international organizations.
- Models that combine macroeconomic, fiscal, energy, and climate dimensions are useful to project the impact of packages of various climate actions. They have been used to explore the impact of the Inflation Reduction Act (IRA) in the United States and to inform long-term electricity market decisions in France. However, these models have struggled to predict turning points, such as the surge in investment in renewables.
- An emerging literature is taking advantage of available micro data to evaluate the effects of non-pricing policies. Using empirical evidence from banking information, tax statements, administrative records, and novel experiments, researchers are evaluating whether government initiatives are effective for unlocking a low-carbon economy.
Next steps for the Coalition of Finance Ministers for Climate Action (CFMCA) could include establishing a workstream to support efforts to monitor policy packages and learn from the experience across jurisdictions with implementing packages of multiple provisions. The CFMCA could also establish a workstream to support the development of evaluations that use micro data, including by creating a repository of relevant research.
Keywords
carbon pricingempirical methodsmodelsnon-pricing policypolicy mix
