Carbon pricing would disproportionately burden the low-income

A carbon-pricing scheme should replace subsidy programs, with these subsidies gradually phased out as the green market matures[1].

Carbon pricing, which penalizes fossil fuel consumption by corporations, must be implemented with caution. Companies cannot rapidly transform their production processes, and sudden restrictions could lead to higher costs for consumers, potentially harming economic demand and employment. Low-income households, already burdened by persistently low wages[2], would be disproportionately impacted, as energy costs constitute a significant portion of their budgets[3].

Given these economic challenges, any carbon pricing strategy that unfairly burdens low-income households risks triggering a political backlash. Governments are particularly concerned about the potential rise of radical opposition from workers who have felt excluded from economic growth for decades.

Carbon pricing experiments, primarily targeting large corporations in the EU[1] and select US states[2], have yielded controversial results.

To date, carbon pricing initiatives have imposed relatively modest penalties. Most corporations opt to pay these fees and pass the costs onto consumers, rather than investing in costly green technologies. If companies were to invest in reducing their reliance on fossil fuels, it would likely raise production costs, risking a loss of market share to competitors who choose to pay the lighter penalties. In either scenario, the financial burden ultimately falls on end users, including low-income households.

Given that current carbon pricing experiments have yet to demonstrate effective change without merely shifting costs to consumers, governments are hesitant to fully enforce this approach. This reluctance has led to a more passive stance in accelerating the green transition, with governments opting to wait for the prices of green products to decrease instead.

The significant price surges following the COVID-19 recovery and the Ukraine crisis have not driven substantial change.

Since 2021, the sharp increases in oil and natural gas prices have effectively acted as a significant carbon pricing mechanism, resembling the kind of carbon tax that was long considered essential for advancing the green transition. However, this price hike was not the result of bold government policy but rather the rapid post-COVID economic recovery and sanctions on Russia due to the Ukraine war.

Despite this de facto carbon tax, there has been no significant progress toward a net-zero economy. Instead, European governments have even provided financial relief to support ongoing fossil fuel consumption.