What’s the right price for carbon?

The document warns that a 'low for long' fossil fuel price environment, driven by shale oil and shifting global demand, threatens the adoption and innovation of renewable energy. It advocates for the implementation of carbon pricing—specifically through the elimination of subsidies and the introduction of carbon taxes or emissions trading schemes—as the most cost-effective way for nations to achieve their Intended Nationally Determined Contributions (INDCs) under the COP21 framework. The authors emphasize that carbon prices should reflect both domestic and global damages to maximize global welfare and align market returns with the social return of clean-energy innovation.

• Fossil fuel prices, particularly oil, are expected to remain low for an extended period due to the rise of shale oil production, which has added approximately 4.2 million barrels per day to the market and created a global supply glut.
• Other factors contributing to the downward pressure on oil prices include changes in OPEC's strategic behavior, increased exports from Iran, reduced global demand from emerging markets, and a decline in petroleum consumption in the US.
• Low fossil fuel prices risk stalling the energy transition by reducing the incentives for the research, innovation, and adoption of cleaner energy technologies.
• Carbon pricing is identified as the most economical method for countries to implement their Intended Nationally Determined Contributions (INDCs), as it ensures the least costly emissions reductions occur first.
• To maximize global welfare, carbon pricing should account for both domestic damages and damages caused to other countries, rather than focusing solely on domestic impacts.
• Direct government subsidies for R&D are considered an insufficient substitute for carbon pricing because they do not remove the market incentives to over-use fossil fuels.
• The authors suggest that an international carbon-price floor would be an effective starting point for future international agreements on carbon pricing.

APA

Arezki, R., & Obstfeld, M. (2015). What’s the right price for carbon? World Economic Forum. https://www.weforum.org/stories/climate-action/whats-the-right-price-for-carbon/

Chicago

Arezki, Rabah, and Maurice Obstfeld. What’s the right price for carbon? World Economic Forum, 2015. https://www.weforum.org/stories/climate-action/whats-the-right-price-for-carbon/.

Wikipedia

{{cite report |last1=Arezki |first1=Rabah |last2=Obstfeld |first2=Maurice |title=What’s the right price for carbon? |publisher=World Economic Forum |date=11 December 2015 |url=https://www.weforum.org/stories/climate-action/whats-the-right-price-for-carbon/ |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{arezki2015whats, author = {Arezki, Rabah and Obstfeld, Maurice}, title = {{What’s the right price for carbon?}}, institution = {World Economic Forum}, year = {2015}, month = dec, url = {https://www.weforum.org/stories/climate-action/whats-the-right-price-for-carbon/}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }