Environmentalists and economists alike are obsessed with putting a price on greenhouse gas emissions, and with good reason: climate pollution is a classic “externality,” a cost paid not by polluters but by society at large. Pricing carbon internalizes that cost. The policy is “market-based” because it is agnostic toward particular practices, products, or technologies; the market’s “invisible hand” is set loose to find the cheapest emission reductions without undue micromanaging by the dread “government bureaucrats.”
Which is great, as far as it goes. But raising the price of carbon will lead to the cheapest, fastest emission reductions only if all else is equal, and in the real world, all else is not equal. Unpriced externalities are but one of many, many market failures around energy. Trying to correct them all with a carbon price is like trying to build a house using only a hammer. Not everything is a nail! Ultimately the effort will require lots and lots of what wonky greens have taken to calling, somewhat misleadingly, “complementary policies.” (Kind of like how the other members of a soccer team are “complementary” to the goalie.)
It’s difficult to summarize All the Other Stuff, but such policies include efficiency standards, low carbon fuel standards, reform of electricity grid interconnect rules, minimum renewable energy or efficiency mandates, infrastructure investments (think grid and public transit), and … on and on.
These policies are every bit as important — more important, in aggregate — as pricing carbon. They can help reduce the overall cost of a price-based policy. They can help address emissions sources that are not covered by a carbon pricing scheme (think agriculture). They can correct or compensate for other market failures. (For more on this, see a Powerpoint presentation from Holmes Hummel: “The Essential Role of Complementary Policies in Climate Policy Design.”)
In other words, the work of tackling climate change need not wait for a price on carbon, and it will not end when a price is in place. That is but one step in a long road.