Carbon Pricing fails because it frames climate change as a market failure rather than as a fundamental system problem

The underlying rationale for carbon pricing is appealing in its simplicity: GHG emissions are viewed as a negative externality because the social costs flowing from climate change impacts are not reflected in the market price of carbon-intensive goods and services (). Climate change is framed as the consequence of a market failure that can be corrected by placing a price on carbon so that actors also pay for the social cost of their carbon-intensive activities and reduce their demand for such goods and services. Framing the climate challenge as a market failure, however, fails to seriously appreciate its scope and depth. Indeed, the climate challenge has been referred to as a “grand challenge” () or “super wicked problem” () that has thus far resisted traditional policy approaches. We argue that climate change can be more appropriately understood as a system problem. Core societal functions, such as heating or mobility, are met through large and deeply entrenched sociotechnical systems made up of interconnected technologies, infrastructures, regulations, business models, and lifestyles (). Over many decades, these systems have become increasingly locked into the combustion of fossil fuels and the associated release of GHG emissions. Consider, for instance, how the design of cities has developed alongside the diffusion of the gasoline-powered personal automobile; how norms about comfort and attire have become entwined with energy-intensive indoor temperature regulation; and how important political and economic interests have become entrenched with fossil fuel-based resource development or electricity provision. Addressing the climate challenge, therefore, involves fundamental changes to existing systems, referred to as “sustainability transitions” (). These transitions entail profound and interdependent adjustments in sociotechnical systems that cannot be reduced to a single driver, such as shifts in relative market prices. In mobility, for example, a low-carbon transition might encompass interacting developments around new vehicle technologies (e.g., autonomous electric cars), infrastructures (e.g., vehicle charging stations and high-speed rail), business models (e.g., mobility as a service and intermodal transport), and regulation (e.g., emission performance standards) but also changes in city planning (e.g., reduced urban sprawl) and lifestyles (e.g., telework and local vacations). The market failure framing fails to appreciate the broad scope of the climate challenge and the sweep of system elements that must undergo change. And so, the resulting solution orientation is far from sufficient.