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A net-zero target compels a backward induction approach to climate policy

Author

Listed:
  • Geoffroy Dolphin

    (Resources for the Future
    International Monetary Fund)

  • Michael Pahle

    (Potsdam Institute for Climate Impact Research (PIK))

  • Dallas Burtraw

    (Resources for the Future)

  • Mirjam Kosch

    (Potsdam Institute for Climate Impact Research (PIK))

Abstract

Jurisdictions worldwide increasingly affirm their contributions to the Paris Agreement by pledging net-zero targets. We argue that delivering on net-zero targets compels a backward induction approach to climate policy, which stipulates that maximizing credibility should be the objective of policy pathways design. This implies choosing policies that strike a suitable balance between building commitment and attaining cost efficiency. Our argument rests on the premise that private investments play a key role for net zero, and that getting expectations right—through credible commitment to a policy pathway—is more relevant than getting the prices right to align the investments with net zero. We sketch the main elements for a regulatory strategy to put this approach into action.

Suggested Citation

  • Geoffroy Dolphin & Michael Pahle & Dallas Burtraw & Mirjam Kosch, 2023. "A net-zero target compels a backward induction approach to climate policy," Nature Climate Change, Nature, vol. 13(10), pages 1033-1041, October.
    • Handle: RePEc:nat:natcli:v:13:y:2023:i:10:d:10.1038_s41558-023-01798-y
    DOI: 10.1038/s41558-023-01798-y
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    Cited by:

    1. Sitarz, Joanna & Pahle, Michael & Osorio, Sebastian & Luderer, Gunnar & Pietzcker, Robert, 2023. "EU carbon prices signal high policy credibility and farsighted actors," EconStor Preprints 280455, ZBW - Leibniz Information Centre for Economics.
    2. Joanna Sitarz & Michael Pahle & Sebastian Osorio & Gunnar Luderer & Robert Pietzcker, 2024. "EU carbon prices signal high policy credibility and farsighted actors," Nature Energy, Nature, vol. 9(6), pages 691-702, June.

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