Climate Policy Curves Highlight Key Mitigation Choices

Understanding the linkage between policy instruments and desired outcomes is important for appropriately setting public policies. Economists have developed straightforward tools, such as policy multipliers, to summarize economic policy transmission. However, similarly simple characterizations of climate policy have been elusive given the associated socio-economic and physical climate uncertainties and complexities. To better understand the efficacy of various climate policy instruments, we propose the concept of Climate Policy Curves (CPCs), which quantify the relationship between the effective price of carbon dioxide (CO2), and the future increase in global average temperature. CPCs can also illuminate this complex relationship by changing shape and slope within the carbon price – temperature space. While we will illustrate CPCs for a specific climate- economy model, our main contribution is the general introduction of CPCs as novel tool to guide high-level climate policy discussions that may be informed by a range of climate-economy models.

CPCs incorporate two important relationships: the link from climate policy ambition to emissions and the link from emissions to climate outcomes and global temperatures. The first link involves technology and economics – how much emissions abatement will result from a rise in the effective price of CO2 (Andersson, 2019; Bayer & Aklin, 2020; Pretis, 2022). This effective carbon price, which we here summarize in terms of carbon price equivalents, can be understood as a summary measure of a range of possible energy and climate policies – including carbon and fuel taxes, emissions trading programmes, green subsidies, energy-efficiency regulations, renewable-energy mandates, or behavioural interventions. These diverse policy levers, in turn, can all be broadly summarized in terms of a direct price on each ton of CO2 emitted (Gillingham & Stock, 2018; OECD, 2023; Parry et al., 2021). We illustrate how the CPC is affected when other policy approaches are implemented as a substitute for, or as a complement to, a uniform carbon price. The second link involves climate and earth system science – and depends on how sensitive the earth’s climate is to CO2 emissions. We use the global average surface temperature as a summary measure to encompass a whole host of other environmental shifts, including rising sea levels, shifts in weather extremes, and other related climate hazards. We obtain CPCs by quantifying these two links using an integrated assessment model (IAM). Such models imply a relationship between carbon prices and global temperature outcomes, but previous work has typically focused on individual carbon price paths required to meet a specific temperature goal or maximize social welfare (Dietz & Venmans, 2019; Hänsel et al., 2020). Viewed through the CPC lens, these estimates typically provide only a single point on the curve. But a complete accounting of climate-economy interactions and alternative climate policy choices requires mapping the entire CPC, which describes the climate consequences of a wide range of possible carbon policies. Figure A1 in the Supplementary Information summarizes the conceptual idea of a CPC. Thinking about climate policy in terms of the relationship between effective CO2 prices and global temperatures is helpful as it focuses on the key policy question: What climate outcomes will result from a given climate policy setting? In this way, CPCs can describe how much more ambitious climate policies need to be to reduce future global warming by, say, 0.1°C. Moreover, CPCs can quantify the climate-economic trade-off between current and future action that policymakers face. For example, the same 2°C limit for global temperature increase can be achieved with a high initial carbon price that grows slowly over time or a low initial price that grows rapidly. The latter path postpones significant action – and mitigation burden – to the future (Gollier, 2021). Thinking about climate policy in terms of CPCs is helpful precisely because they can capture the essential features of an otherwise complex policy response mechanism. Furthermore, comparing CPCs from different climate-economy models – including different generations or iterations of the same model – can serve as a useful diagnostic tool for assessing IAMs.

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https://www.researchgate.net/publication/384348863_Climate_policy_curves_highlight_key_mitigation_choices