Putting a price on carbon should reduce emissions, because it makes dirty production processes more expensive than clean ones, right?
That’s the economic theory. Stated baldly, it’s obvious, but there is perhaps a tiny chance that what happens in practice might be something else.
In a newly-published paper, we set out the results of the largest-ever study of what happens to emissions from fuel combustion when they attract a charge.
We analysed data for 142 countries over more than two decades, 43 of which had a carbon price of some form by the end of the study period.
The results show that countries with carbon prices on average have annual carbon dioxide emissions growth rates that are about two percentage points lower than countries without a carbon price, after taking many other factors into account.
By way of context, the average annual emissions growth rate for the 142 countries was about 2% per year.
This size of effect adds up to very large differences over time. It is often enough to make the difference between a country having a rising or a declining emissions trajectory.