Climate change and carbon pricing: overcoming three dimensions of failure

Pricing carbon to address climate change sparks divisions like few other policy options. From street riots to academic debate, it has stirred both passionate and principled disagreement, leaving scarce room for compromise between advocates and critics. Among scholars, what used to be nearly unanimous support for carbon pricing has ceded way to a more bifurcated landscape. We review the growing literature on carbon pricing shortfalls, and suggest a conceptual framework to differentiate three dimensions of failure, based on different manifestations of human behaviour: Homo Economicus, Homo Irrationalis, and Homo Politicus. We also apply this framework to identify and classify principles to overcome the three dimensions of failure. Our Perspective offers an agent-based view on the constraints that prevent deployment and efficient operation of carbon pricing in practice, and identifies pathways for improved policy design and implementation.