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A net-zero target compels a backward induction approach to climate policy

Nature Climate Change (2023)Cite this article

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Abstract

Jurisdictions worldwide increasingly affirm their contributions to the Paris Agreement by pledging net-zero targets. We argue that delivering on net-zero targets compels a backward induction approach to climate policy, which stipulates that maximizing credibility should be the objective of policy pathways design. This implies choosing policies that strike a suitable balance between building commitment and attaining cost efficiency. Our argument rests on the premise that private investments play a key role for net zero, and that getting expectations right—through credible commitment to a policy pathway—is more relevant than getting the prices right to align the investments with net zero. We sketch the main elements for a regulatory strategy to put this approach into action.

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Fig. 1: Open-ended incremental and backward induction approaches.
Fig. 2: Illustrative dynamically consistent policy pathway to net zero.

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Acknowledgements

We gratefully acknowledge financial support from the Federal Ministry of Education and Research of Germany in the Ariadne project (03SFK5S0) and Resources for the Future Comprehensive Climate Policies Program. We are indebted to L. Goulder, G. Nemet, G. Perino and L. Stern as well as participants to the RFF Seminar Series for helpful comments on earlier versions of this paper. The views expressed in this paper are those of the authors and do not necessarily represent the views of the International Monetary Fund or its executive board or management.

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  1. Resources for the Future, Washington, DC, USA

    Geoffroy Dolphin & Dallas Burtraw

  2. European Department, International Monetary Fund, Washington, DC, USA

    Geoffroy Dolphin

  3. Potsdam Institute for Climate Impact Research (PIK), Potsdam, Germany

    Michael Pahle & Mirjam Kosch

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Correspondence to Geoffroy Dolphin.

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Dolphin, G., Pahle, M., Burtraw, D. et al. A net-zero target compels a backward induction approach to climate policy. Nat. Clim. Chang. (2023). https://doi.org/10.1038/s41558-023-01798-y

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