The Intergovernmental Panel on Climate Change (IPCC) recently published its special report on the impacts of global warming of 1.5˚C above pre-industrial levels. The report summarizes the research on the potential repercussions of increasing greenhouse gases, and is not policy-prescriptive by nature. However, this report did compile the emissions pathways necessary to keep global warming below 2˚C (and 1.5˚C) and estimates of the carbon prices necessary to get those emissions levels. The numbers gave some sticker shock. For the 1.5˚C target, the IPCC quotes prices  in the range of $135 to $5,500 per ton of CO2 in 2030. While no one practically expects a carbon tax to start at such high levels (most proposals today start in the range of $25 to $50 per ton), the size of those carbon prices has been used to argue that achieving climate goals with carbon pricing is implausible. However, these numbers should be taken with a grain of salt.

The IPCC authors go into great detail about the uncertainty in the models used to come up with these prices. To get these prices, you have to build a model that makes numerous assumptions about the economic, technological, and policy developments of the next 30 years, which is nearly impossible to do accurately. Essentially, the model arrives at the carbon price by working backwards, estimating what emissions should be between the present and a target date, and assigns a price to drive the necessary emissions reductions. These models use technology cost curves that reflect the relative prices of low-carbon production today, and cannot account for the innovation that would occur with a modest price on carbon. Additionally, these models cannot capture the breakthroughs in carbon dioxide removal or battery technology that would make emissions reductions much more affordable.

What these models have shown us is that in the short-run, moderate carbon prices lead to non-trivial emissions reductions over the next 10 to 15 years–especially in the power sector. For example, the Goulder-Halfstead E3 model found that a carbon price of $24 starting in 2020 and rising 2 percent annually would reduce CO2 emissions from fossil fuel combustion sources by 29 percent from 2005 levels by 2030, with emissions from the power sector falling 55 percent from 2005 levels. Such reductions are consistent with the U.S. target under the Paris agreement and would be a meaningful contribution by the U.S. to mitigate climate change. 1

It would be foolish to allow sticker shock to keep us from pursuing emissions reductions now and setting up a market seeking low-carbon innovations. Rather, pursuing modest carbon prices today can achieve significant emissions reductions, and set us on a smooth course toward decarbonization. The alternative, unfortunately, is continued delay–which can only make climate action much more expensive because the emissions reductions curves necessary to halt warming get steeper every year we wait.

  1. see example here