Carbon pricing is firmly entrenched as the go-to climate policy for economists, yet many with training in other sciences and social sciences remain skeptical. As one critic puts it, “Of the policy tools in the carbon toolbox, carbon pricing is the tiny flathead screwdriver used to fix glasses.”
In my view, the skeptics have the wrong analogy. Instead of a tiny screwdriver, I like to think of carbon pricing as the drip irrigation of climate policy. Israeli farmers have shown how drip irrigation, used together with a suite of other policies, such as reusing treated sewage, finding and fixing leaks early, and engineering crops for harsh conditions, can make the desert bloom. Similarly, carbon pricing, although working quietly and largely out of sight, can serve as an integral part of a whole set of measures, such as performance standards, regulatory reform, and green industrial policy, which together can achieve the goal of deep decarbonization.
So why all the skepticism? Here are what I see as the main points at issue between the proponents of carbon pricing and their critics.