1. Introduction

To meet the temperature goals of the Paris Agreement, greenhouse gas (GHG) emission levels need to drop significantly over the next decade. However, global GHG emissions have continued to increase, with some brief exceptions (e.g. at the start of the COVID-19 pandemic). Although countries continue to improve their climate change policies, current efforts remain insufficient to reach the long-term goals of the Paris Agreement (UNFCCC, 2022[1]) Rapid and deep emission reductions across all sectors and systems, including energy, transport, industry and food, will be required to limit global warming to 1.5°C. Both demand- and supply-side shifts will be needed. Such rapid and broad transformative changes are likely to have distributional impacts and just transition considerations need to be kept in mind when designing pathways to net zero GHG emissions.

Carbon pricing, covering both carbon taxes and emissions trading schemes (ETS), could play an important role in policy packages towards net zero GHG emissions. Carbon pricing provides an effective and costefficient approach to reducing GHG emissions with the potential to incentivise changes on both the supplyand demand-side. The use and coverage of carbon pricing has continued to expand over the past three decades, and carbon prices have reached record highs in recent years. Despite these developments, overall carbon price levels and coverage are not aligned with what is needed to reach the temperature goals of the Paris Agreement. There is thus potential to further strengthen the role of carbon pricing in pathways to net zero.

The aim of this paper is to improve understanding of the potential role and contribution of carbon pricing in transforming emission pathways towards net zero GHG emissions. This paper reviews the impacts of carbon pricing to date at an overall level and in the electricity sector in three selected jurisdictions – the EU, New Zealand, and California. Furthermore, the paper provides an in-depth analysis of the current and the potential application of emissions pricing in food systems, as well as identifying data gaps and questions that can help guide future research

This paper is structured as follows. Section 2. outlines why rapid and deep emissions reductions are needed and how to ensure that a transition to a low-carbon society can be also a just transition. Section 3. explores carbon pricing’s contribution to transforming emissions pathways to date by investigating effects of carbon pricing overall Section 4. outlines potential ways of improving carbon pricing’s effectiveness in transforming emission pathways to reach net zero, by exploring demand-side policies, policy sequencing and international co-operation and collaboration. Section 5. takes a deep dive in food systems and explores the current use and potential role of emissions pricing in food systems.