working papers

WP 2024-94 Supporting carbon pricing when interest rates are higher

Supporting carbon pricing when interest rates are higher

F. Funke, L. Mattauch, T. Douen, A. Fabre, J.E. Stiglitz

Résumé

To accept carbon pricing, citizens desire viable alternatives to fossil-fuel based options. As inflation and higher interest rates have exacerbated access barriers for capital-intensive green substitutes, the political success of carbon pricing will be measured by how well policy design enables consumers to switch.

The global resolve to meet the goals of the Paris Agreement on Climate Change has never been stronger: more and more governments commit to net-zero targets and the public agrees that climate change should be met with decisive action. However, this strengthened resolve is not adequately translated into stringent policy, as many policymakers are afraid of public opposition to concrete measures. This is particularly so for carbon pricing, which is if not sufficient, seen as at least a necessary component of cost-effective decarbonization. Much of this opposition seems to center around the question of how the burden of climate policies ought to be shared. How can it be ensured that climate policies – and carbon pricing specifically – leave no one behind?

Citation: Funke F., Mattauch L., Douen T., Fabre A., Stiglitz J-E. (2024) Supporting carbon pricing when interest rates are higher, CIRED Working Papers, WP 2024-94

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