Nearly 35 years ago, the Intergovernmental Panel on Climate Change (IPCC) released its first assessment report, highlighting the alarming rise in atmospheric carbon dioxide (CO₂) and other greenhouse gases due to human activities. Since then, global efforts have been underway to curb emissions through a variety of policies. But which strategies have truly worked?
A recent landmark study by researchers from Germany’s Potsdam Institute for Climate Impact Research offers valuable insights. By analysing 1,500 climate policies implemented across 41 countries over the past two decades, the study reveals that only a small fraction of these policies have been effective in significantly reducing emissions.
The study utilised the “differences in differences” approach, a method often used in policy analysis to compare outcomes between two groups over time. This technique was famously applied in a 1994 study by economists David Card and Alan Kruger, who examined the effects of minimum wage changes in the US.
Applying this method to climate policies, the Potsdam team examined four key sectors: buildings, electricity, industry, and transport. They found that successful emission reductions often resulted from a combination of policies rather than a single “silver bullet” solution. For instance, a mix of fuel efficiency mandates and subsidies for electric vehicle infrastructure proved effective in developed economies.
The research also highlighted the varying effectiveness of policies depending on the sector and the economic context. In profit-driven sectors like electricity and industry, pricing mechanisms such as carbon taxes were particularly effective. However, in sectors like buildings and transport, a blend of regulations and incentives worked best. Notably, in developing countries, pricing interventions alone were less impactful in reducing emissions in the electricity sector, though this may change as carbon markets evolve, particularly in China.
For Australia, these findings offer important lessons. The brief success of the Gillard government’s carbon pricing scheme, which was quickly reversed by subsequent administrations, underscores the challenges of implementing price-based mechanisms in the current political climate. Despite the federal Coalition's opposition to carbon pricing and the Albanese government’s reluctance to revisit such policies, the research suggests that a combination of regulations and subsidies could still drive significant emissions reductions.
As Australia strives to reach its net-zero targets by 2050, the emphasis must shift towards more feasible policy combinations. While carbon pricing remains an ideal solution in theory, the political reality demands a more flexible approach, leveraging the full range of available policy tools to reduce emissions effectively.
Article information source: Researchers analysed 1,500 climate policies to find what works. These are the lessons for Australia
