Are prices enough? The economics of material demand reduction

Abstract

Recent policy proposals to achieve carbon targets have emphasized material demand reduction strategies aimed at achieving material efficiency. We provide a bridge between the way economists and engineers think about efficiency. We use the tools of economics to think about policies directed at material efficiency and to evaluate the role and rationale for such policies. The analysis highlights when prices (or taxes) can be used to induce changes in material use and when taxes may not work. We argue that the role of taxes is limited by concerns about their distributional consequences, by international trade and the lack of international agreement on carbon prices, and by investment failures. This article is part of the themed issue ‘Material demand reduction’.