Source: Carbon Pricing Leadership Coalition

Efficient carbon-price trajectories begin with a strong price signal in the present and a credible commitment to maintain prices high enough in the future to deliver the required changes. Relatively high prices today may be more effective in driving the needed changes and may not require large future increases, but they may also impose higher, short-term adjustment costs. In the medium to long term, explicit price trajectories may need to be adjusted based on the experience with technology development and the responsiveness to policy. The policy dynamics should be designed to both induce learning and elicit a response to new knowledge and lessons learned. Price adjustment processes should be transparent to reduce the degree of policy uncertainty.

A combination of policies is likely to be more dynamically efficient and attractive than a single policy. These policies could include investing in public transportation infrastructure and urban planning; laying the groundwork for renewable-based power generation; introducing or raising efficiency standards, adapting city design, and land and forest management; investing in relevant R&D initiatives; and developing financial devices to reduce the risk-weighted capital costs of low-carbon technologies and projects. Adopting other cost-effective policies can mean that a given emission reduction may be induced with lower carbon prices than if those policies were absent.