Opinion
Why climate policies have been unable to reduce the world’s carbon emissions
Summary
- There is evidence of policy interventions achieving very little when implemented in isolation as opposed to their rollout as part of a cohesive package. Given the low success of carbon pricing in developing countries, we should first strengthen regulation and then go for market mechanisms.
Two decades of climate policy have delivered shockingly little impact—a negligible reduction in global emissions. A new study paints a bleaker picture: only 4% of policies—63 out of 1,500—made any substantial difference.
From 2000 to 2020, in 41 countries including big emitters like China, the US and India, total carbon dioxide (CO2) reduction was a dismal 0.6 to 1.8 gigatonnes, while total emissions were a staggering 778 gigatonnes. This translates to a drop of 0.08-0.23%. Thus, it’s crucial to understand what works and what doesn’t.
This study, by Stechemesser et al (2024) published in Science (bit.ly/3ZxEfgh), has used an extensive data-set of 1,500 policies enacted across 41 countries between 1998 and 2022.
It employs a machine learning–augmented difference-in-differences (DID) methodology to identify 69 significant structural breaks in CO2 missions and offers a granular understanding of how different policy instruments—individually and in combination—affect emission reduction.
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A key finding is the superior effectiveness of policy mixes over individual interventions. Specifically, the combination of carbon pricing mechanisms (such as carbon taxes and emission trading schemes) with regulatory instruments (like renewable portfolio standards, building codes and technology bans) consistently yielded larger reductions.
These findings align with earlier ones by Goulder and Parry in 2008 (bit.ly/3Zrx2yt), which emphasized that synergy between carbon pricing and regulatory frameworks is crucial to address market failures such as information asymmetry and the ‘rebound effect,’ which can undermine the efficacy of carbon pricing if implemented in isolation.
Price-based policies such as carbon taxes and emission trading schemes (ETS) were particularly effective in developed economies as stand-alone measures. In industry, for instance, stand-alone carbon pricing policies led to emission reductions of up to 43% in some developed countries.
This is consistent with the work of Andersson (2019) who demonstrated that Sweden’s carbon tax significantly reduced industrial emissions without hurting competitiveness.
Similarly, introducing a carbon price floor in the UK in 2013 combined with the EU’s ETS resulted in a marked reduction of more than 25% in power-sector emissions by 2016.
However, the study highlights significant disparities in the effectiveness of policies between developed and developing economies.
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In the former, carbon pricing was the dominant policy driver of emission reductions, achieving an average reduction of 20%. But in the latter, regulatory measures such as subsidies and energy efficiency mandates were more effective.
This is consistent with a paper by Fankhauser and Stern (2019), who argue that the limited success of carbon pricing in developing countries is due to structural challenges, such as energy-market distortions, subsidies for fossil fuels and a lack of regulatory capacity.
Regulatory interventions here are often more feasible in the short-term as they help build the infrastructure and governance capacity needed for market-based solutions.
Stand-alone policies, particularly regulatory measures and subsidies, performed poorly in isolation, delivering emission reductions of 13-15% on average.
This contrasts with the higher efficacy seen when these policies were integrated with broader policy mixes. For example, fossil fuel subsidy reforms and ban-and-phase-out policies in the building and transport sectors saw 30-32% reduction.
The study also identifies challenges related to data availability and regional imbalances, particularly in the developing economies of Africa and Asia where a scarcity of emission data impedes the assessment of policy efficacy.
Additionally, policy overlaps and insufficient stringency have diluted interventions, particularly where carbon pricing and fossil fuel subsidy reforms are implemented concurrently without adequate coordination, leading to conflicting signals for investors and consumers.
Stechemesser et al’s 2024 quantification of the global emissions gap provides key policy insights. Even with the largest policy successes identified in this analysis, scaling up these measures across all 41 countries in the sample would only reduce the global emissions gap by 26% if they have average effects or by 41% at peak efficacy.
The study has implications for India too. As a developing economy with one of the fastest-growing energy markets, India faces unique challenges in balancing economic growth with its climate commitments. India has relied on subsidies and efficiency mandates to promote renewable energy adoption.
However, the relatively modest success of carbon pricing in developing countries suggests that India should focus on strengthening its regulatory framework in the near-term while gradually preparing to implement market-based mechanisms.
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India’s ambitious renewable energy targets, including achieving 500GW of non-fossil fuel capacity by 2030, will require a combination of subsidies, regulatory mandates and public investments.
Robust data collection and clear policy signals will also be key to avoid policy overlaps and conflicting market signals that hinder progress. Strengthening institutional capacity and ensuring stringent enforcement of climate policies will be crucial too.
