Under what conditions and why is carbon pricing effective? A realist synthesis of ex-post evidence

Abstract

To get on track for the rapid emissions reductions required to meet the Paris Agreement temperature goal, we need to understand what climate policies work, under what conditions, and why. In this review, we study how carbon pricing policies lead to emissions reductions and which context factors make each of these mechanisms more or less effective. We systematically review the evidence from 80 ex-post carbon pricing evaluations, covering 21 policy schemes across the globe. Using a realist synthesis methodology we collect 177 hypotheses on how and under what conditions this policy works, clustering hypotheses into nine mechanisms that explain why emission reductions were achieved. We extract 293 evidence statements from the primary studies to evaluate the relevance of each of the mechanisms across different sector and country contexts. We find that in the short term there is evidence that emissions reductions are achieved by a mix of fuel switching, efficiency improvements, downscaling of some emission-intensive activities, and leakage. The prevalence of these mechanisms varies by sector and country. For other emission reduction mechanisms identified in this study, such as low-carbon technology scaling, investments, and research and development activities, there is less robust evidence, suggesting that these need to be further evaluated through longer-term policy evaluations. To gain a rigorous understanding of what climate policies work, under what conditions, and why, we need to make best use of the emerging evidence base using evidence synthesis methods that address policy-relevant research questions.