Carbon pricing has been considered a foundation of climate policy by economists for decades, yet pilot projects and emissions trading systems over that time have done little to close the political debate. Today, with a growing number of emissions trading systems and carbon taxes in leading economies, a new German-language book by scientists at the Potsdam Institute for Climate Impact Research (PIK), considered one of Europe’s leading climate research institutions, examines the debate and debunks common myths.
China’s renewables boom signals a structural shift
Written by Ottmar Edenhofer, Cecilia Kilimann and Christopher Leisinger, CO₂ hat seinen Preis – Warum eine wirksame Klimapolitik die CO₂-Bepreisung braucht (“CO₂ has its price – why effective climate policy requires carbon pricing”) tackles the debate head-on and argues that carbon pricing is most effective when combined with a regulatory framework. As the authors demonstrate, meaningful structural change cannot be achieved through pricing alone.
EU system set to widen further
As of 2026, 28 percent of global CO₂ emissions are covered by carbon pricing. This is set to rise in the EU, where a second emissions trading system for buildings and transport will come into operation in 2028.
EU commits to 56 GWh of new battery production capacity
The debate is still dominated by issues of fairness. A higher carbon price without compensation will hit poorer households hardest. However, carbon pricing also raises funds that can be used to support households through rebates, reduced electricity bills or other measures.
Five common myths – and the arguments against them
The book is organised around five common myths that continue to shape policy discussions:
Myth 1. Carbon pricing lacks a steering function.
The authors show that price signals do have a steering function, especially when used in conjunction with standards and subsidies. Instead of crowding out regulation, carbon pricing can complement it by gradually removing high-emitting assets from the market.
Myth 2. Carbon pricing is politically unfeasible.
With about 28 percent of global emissions already covered and new schemes being introduced, the facts contradict this claim. Design flexibility, whether tax-based, trading-based or hybrid, has enabled carbon pricing to be introduced across a broad range of political systems.
Myth 3: Carbon pricing is socially unjust.
There are certainly risks of distributional injustice, especially for poorer households. However, carbon pricing also provides a source of revenue that can be used to compensate households through per capita rebates, reduced electricity prices or other forms of compensation, which are beyond the reach of conventional regulation.
Myth 4: Carbon pricing becomes redundant in a climate-neutral economy.
Even in a net-zero economy, there are still hard-to-abate sectors that continue to produce residual emissions. At the same time, carbon removal technologies are being developed at scale. In this context, carbon pricing can provide a mechanism to steer residual emissions and removals, maturing into a central component of industrial decarbonisation finance.
Myth 5: Carbon pricing is only effective if applied globally.
As this book from PIK as well as other recent publications illustrate, the argument for carbon pricing is increasingly evidence-based. Rather than a tool in its own right, it is proposed as part of a portfolio of policies that influence investment effects.
Sector growth outpaces job creation in global renewables
As we enter the second quarter of this century, in the face of increasing climate shock and independent of politics, the increasing number of evidence-based challenges to the status quo raises questions about the notion that carbon pricing is a secondary issue to investment policy. (TF)
