Adopting Carbon Pricing Tools at the Local Level: A City Case Study in Portugal

Abstract

Debates on carbon costs and carbon pricing to accelerate the reduction of greenhouse gas (GHG) emissions are emerging as cities develop local policies and programs to achieve carbon neutrality. This paper focuses on how cities formulate economic instruments and adopt carbon pricing experiments to support their climate objectives. Extensive literature is available on science-policymaking interface Integrated Assessment Models (IAM) and on the two mainstream approaches of carbon cost formulation—Social Cost of Carbon (SCC) and Marginal Abatement Cost (MAC). Although, the literature on how governments develop climate policy instruments, particularly towards a local carbon cost, is recent. We start by reviewing these essential concepts and tools for carbon cost formulation. We then critically review a set of local carbon pricing experiments, totaling fourteen international cities, and confirm a great demand for scientifically robust, verifiable, and transferable carbon cost methodologies at the local level. We thus propose an approach to assess the short-term technology cost of CO2 emission reduction in the mobility sector in Matosinhos municipality, Portugal. Our approach shows that a carbon cost methodology at the local level with robust, verifiable, and transferable results is possible. We advocate for a methodological advance to estimate versatile CO2 prices suitable for local conditions.