A more urgent approach to climate issues is stirring again among US politicians and opinion formers. A recent FT article highlights apparent conflicts of approach, and the need to reconcile them. In part any conflict might be seen as just another illustration of the deep ideological divide between believers in the ability of unfettered markets to resolve all problems, and proponents of a much greater role for state intervention. The reality is that effective policy on mitigation of climate change will always demand a combination of coordinated actions at government level with the powerful incentives that economic instruments can provide. There is no single silver bullet. Markets won't work on their own, and we also need both effective action on infrastructure and focused regulation.
Source: Union of Concerned Scientists
1. The starting point of $40 per tonne is too low on its own to incentivise much or most of the investments and behavioural. Moreover, signalling a profile of carbon prices rising over time runs in the opposite direction to the environmental value of emissions reduction, which ought to prioritise current emissions.
2. Inter alia a rising profile leads to the well-known Green Paradox, where fossil producers have an incentive to advance their production of the most polluting fuels.
Trends in engine efficiency contrasted with trends in vehicle fuel economy, responding to relaxation of US Corporate Average Fuel Economy (CAFE) standards in late 1980s. Source; Lutsey and Sperling.