For decades, as the reality of climate change has set in, policymakers have pushed for an elegant solution: carbon pricing, a system that forces polluters to pay when they emit carbon dioxide and other greenhouse gases. Among the places that have imposed or scheduled it are Canada, China, South Korea, the EU, and about a dozen U.S. states. Much as a town charges people for every pound of trash tossed into its dump, these jurisdictions are charging polluters for every ton of carbon coughed into the global atmosphere, thus encouraging the dirty to go clean.

In theory, a price on carbon makes sense. It incentivizes a shift to low-carbon technologies and lets the market decide which ones will generate the biggest environmental bang for the buck. Because the system harnesses the market to help the planet, it has garnered endorsements across the political spectrum. Its adherents include Greenpeace and ExxonMobil, leftist Democrats and conservative Republicans, rich nations and poor nations, Silicon Valley and the Rust Belt. Essentially every major multilateral institution endorses carbon pricing: the International Monetary Fund, the UN, and the World Bank, to name a few. Christine Lagarde, the managing director of the IMF, spoke for many in 2017 when she recommended a simple approach to dealing with carbon dioxide: “Price it right, tax it smart, do it now.” 

In practice, however, there’s a problem with the idea of slashing carbon emissions by putting a price on them: it isn’t doing much about climate change. More governments than ever are imposing prices on carbon, even as U.S. President Donald Trump backpedals on efforts to combat global warming, yet more carbon than ever is wafting up into the air. Last year, the world’s energy-related greenhouse gas output, which had been flat for three years, rose to an all-time high. Absent effective new policies, the International Energy Agency has projected, energy-related greenhouse gas emissions will continue rising through at least 2040.

If governments proved willing to impose carbon prices that were sufficiently high and affected a broad enough swath of the economy,  those prices could make a real environmental difference. But political concerns have kept governments from doing so, resulting in carbon prices that are too low and too narrowly applied to meaningfully curb emissions. The existing carbon-pricing schemes tend to squeeze only certain sectors of the economy, leaving others essentially free to pollute. And even in those sectors in which carbon pricing might have a significant effect, policymakers have lacked the spine to impose a high enough price. The result is that a policy prescription widely billed as a panacea is acting as a narcotic. It’s giving politicians and the public the warm feeling that they’re fighting climate change even as the problem continues to grow. 

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