For decades, climate policies have been driven by the idea of pricing carbon emissions to change behavior. Despite this large spread orthodoxy, raising prices for fossil fuel or heating as a main tool has increasingly proven to be highly ineffective and hard to implement against massive social resistance, culminating in a crisis for Europe’s “lighthouse” emissions trading system (ETS). Do climate policies need a new approach?

A conventional answer to this dilemma has been to design schemes that compensate people for rising costs. However, newer approaches propose a more fundamental rethinking of climate policies, with carbon pricing as only one instrument, which is implemented at a more advanced stage of the transition. According to this modern approach, it is crucial to first heavily invest in low-carbon alternatives and their infrastructure (such as charging for e-vehicles) and to set strong positive incentives (such as subsidies for renewables) so that households and businesses get real choices before facing higher carbon prices.

This session will discuss whether this fundamentally new approach is key to safeguarding the principle of carbon pricing, by creating affordable renewables and making climate action much more attractive. We will discuss how sequencing strong positive incentives before carbon pricing is also central to resolving the current crisis in Europe’s former ETS. We will also discuss how this can be put into practice, including by allowing EU Member States to frontload future emissions trading revenues so they can implement positive incentives for low-carbon alternatives and invest in green infrastructure and markets first.