A major outcome of the Paris climate agreement is the aspirational goal of greenhouse gas (GHG) neutrality. How and through which policy pathways can this be realized? Economists stipulate dynamically cost-effective pathways with rising carbon prices over time. Yet pricing expands slowly in the face of various barriers, while some success is found in different policy trends. We outline a theory of change to overcome barriers to carbon pricing with path dependency and sequencing at its core. The mechanism involves second-best policies that compromise on cost-effectiveness at earlier stages to pave the way for more stringent and cost-effective policies later. We observe California and Germany to identify how policy barriers have been addressed in a sequential manner. We hypothesize that long-term success hinges on building coalitions, reducing costs, avoiding bad policy lock-ins, and other dynamic factors. We hope this framework stimulates a new research agenda of practical value.
- The Paris climate accord embraced an iterative process of nationally determined commitments (pledge and review) as the global framework for reducing emissions over time.
- Frameworks to think about the evolution of policies are scarce, and none explicitly considers increasing stringency as a guiding principle.
- We postulate the existence of barriers to greater stringency in climate policy and argue that policy sequencing can be a way to overcoming these barriers over time.
- To make the model analytically useful, barriers are characterized along with related sequencing options, drawing on illustrative examples from Germany and California.