In climate policy debates, it’s a matter of faith among some in the environmental and economics communities that “price is king.” No less an authority than Alan Blinder has referred to carbon prices as a “miracle cure,” key to inducing massive investment and, thus, radical innovation in the private sector.
But will it? No. As we argue in a new report, most analysts who see the carbon price as a be-all, end-all climate and energy solution are dramatically overstating the ability of market signals to draw forth major innovations. You can’t fully solve the climate problem without a clean energy portfolio approach that includes radical new technologies, yet you don’t get radical new technologies from a simple price on carbon (especially one that would be constrained by the political system).