Carbon pricing and the 1.5°C target: near-term decarbonisation and the importance of an instrument mix

Carbon pricing is routinely presented as the most efficient way to reduce greenhouse gas emissions, and therefore as an indispensable pillar of ambitious climate policy. For incremental emission reductions on the margin, this static perspective may be correct, expressing the ability of carbon pricing to identify and spur abatement options with the lowest cost. At the same time, meeting the 1.5°C target requires achievement of zero net emissions in the relatively near term, implying a need for full decarbonisation rather than marginal abatement. To date, there is only limited empirical evidence suggesting that carbon pricing has produced deep emission cuts. Emission reductions triggered by carbon taxes and emissions trading systems are typically modest or relate to a baseline rather than absolute levels, even in cases where price levels are relatively high. Consequently, we posit that deep decarbonisation in line with the 1.5°C target can only be ensured by drawing on a portfolio approach, in which carbon pricing operates alongside other instruments including regulation and legal mandates.