Review Reports

Round 1

Reviewer 1 Report

Comments and Suggestions for Authors

Thank you for providing me with this opportunity to read your manuscript, I see it as a clear, compact primer that tries to reconcile common intuitions about the economy with the way economists actually think about climate policy, and in particular carbon pricing.

Comment 1: I like that you are explicit about speaking to a non-specialist audience and that you steadily build from basic competitive markets and externalities to climate change, IAMs, and the social cost of carbon. As a narrative, your story from arsonist or firefighter to no magic button, but prices matter is coherent and engaging. At the same time, because this is framed as a review paper and appears in a research journal rather than a popular outlet, I find myself looking for a bit more transparency about your underlying research design in the broad sense: how you chose what to include, what you bracket, and what evidence you rely on and more explicit acknowledgement of where the argument rests on contentious assumptions rather than settled results.

Comment 2: In terms of overall structure, your paper does not follow a classical introduction–methods–results–discussion–conclusion style, and I don’t think it needs to; the sections instead trace a conceptual path: what the economy is, how markets work under perfect competition, what market failure means, why climate change is a particularly severe set of failures, and why carbon pricing and SCC emerge as central tools. That said, the current introduction (sections 1 and 2) mixes three elements, your motivation i.e, the economy is standing in the way, your audience, i.e., non-specialist, and your substantive thesis, i.e., economists actually advocate massive state intervention through carbon pricing without clearly stating the scope and methodological stance of the article. I’d encourage you to add one or two sentences near the end of section 1 making explicit that this is a narrative, selective review of mainstream economic reasoning on carbon pricing, not a systematic review of the empirical literature on climate policy. Otherwise, the review paper type you have selected for this journal and the journal context risk giving readers the impression that your piece exhaustively reflects the state of the research, when in fact you are quite deliberately constructing a particular pedagogical pathway through it.

Comment 3: When I look at the core of your research design, it’s essentially a chain of stylized models and historical examples: perfect competition and the invisible hand, externalities and the tragedy of the commons, a two-player prisoner’s dilemma to capture international climate negotiations, a magic button thought experiment to motivate carbon pricing, and finally IAM-based estimates of the social cost of carbon. This is a perfectly reasonable conceptual strategy for a freshman-level guide, but I would like you to be more explicit about the limits of each step. For example, the perfect competition world in section 3 is described quite cleanly, and you do point out that it is an ideal world and a caricature; still, you quickly move from there to the strong claim that laissez-faire is recommendable when conditions are sufficiently close to this ideal. Could you give at least one concrete criterion or example of what you consider sufficiently close, and perhaps contrast that with borderline cases where the judgement is ambiguous? As it stands, a non-specialist reader might infer that almost any market with many small firms is fine to leave alone, while many environmental markets actually involve imperfect competition, information problems, and path dependence that blur the line between efficiency and failure.

Comment 4: Since the normative benchmark throughout is economic efficiency and you explicitly leave aside questions of equity, even if they are also fundamental, I’d encourage you to signal more clearly, and earlier, that this is a deliberate choice rather than an inherent feature of the problem. Otherwise, readers may not realize that many critiques of carbon pricing come precisely from alternative welfare criteria e.g., sufficiency, rights-based views, ecological limits, rather than simple misunderstandings of externalities. Would it be possible to insert a short paragraph, perhaps at the transition from section 3 to 4, noting that the economic lens you adopt is one among several, and that you will not attempt to survey or adjudicate all normative positions?

Comment 5: The prisoner’s dilemma example in your section 4 is an effective way to dramatize free-riding in climate negotiations, but here too the research design is extremely minimal: a two-country, symmetric payoff matrix. You later mention that the real world is more heterogeneous and that the Montreal Protocol differs fundamentally from CO₂, but you don’t quite close the loop analytically. I found myself wondering: what specific features of the climate problem break the symmetry of payoffs or change the game structure, and how do those features feed back into the desirability or design of carbon pricing regimes? For instance, if some countries suffer damages earlier or more severely, or if some have much lower abatement costs, does the simple PD metaphor still hold, or would a different game e.g., coordination or chicken be more appropriate? A short clarification would help readers understand that the PD is illustrative, not a literal model of international climate politics.

Comment 6: When you turn to carbon taxes and ETS in section 5, you shift your narrative from conceptual to quasi-policy-analytic, but the article remains almost entirely verbal. You assert that both instruments, on paper, generate similar incentives and that carbon pricing has probably contributed to curb down European greenhouse gas emissions in recent years, yet you don’t really show the reader what the underlying empirical evidence looks like. Given that this journal’s readership includes practitioners and students who may not be familiar with this literature, could you either (i) briefly summarize one or two key empirical findings, for example, an estimate of emission reductions or price elasticities from the EU ETS or a well-studied carbon tax, or (ii) explicitly state that you are not providing a review of the empirical effects of carbon pricing and direct readers to existing meta-studies? As written, the word probably signals some uncertainty, but the reader has no sense of how strong or weak the evidence base actually is.

Comment 7: On the equity and political-economy side, you correctly flag distributional concerns about carbon taxes and the influence of organized interests. However, in terms of methodological rigor, this part reads more as an appeal to authority e.g., citing Olson, invoking lobbies, than as an analytic argument. You say, for instance, that important sectors are often exempted and that this undermines efficiency. Could you be more specific and perhaps provide at least one systematic example e.g., how transport or housing have been treated in a particular national scheme, and what the measured consequences were? Also, when you mention border carbon adjustments and potential collisions with an open, rule-based trading system, I would find it helpful if you said a bit more about what criteria you see as necessary for such adjustments to be both environmentally effective and WTO-compatible, drawing directly from the sources you cite. Right now, the narrative flags the tension but does not analyze it.

Comment 8: Sections 6 and 7, which bring in IAMs and the SCC, are central to your claim that putting a price on carbon is not merely a political slogan but a principled way to summarize the social damages of emissions. You do a nice job of conveying, in just a few paragraphs, the basic architecture of IAMs and the idea that SCC estimates form a distribution rather than a single number. However, because you lean quite heavily on SCC as a social accounting yardstick, the methodological underpinnings could use a little more unpacking. For instance, you mention that future costs are reduced using discounting and cite Gollier, but you do not explain what kind of discounting is used or acknowledge that the choice of discount rate is itself deeply normative and contested, especially for long-horizon climate damages. Would you consider adding one or two sentences that make this explicit, perhaps contrasting the implications of a lower versus higher discount rate in terms of the SCC? Similarly, when you refer to criticisms and improvements in IAM methodology, you cite key authors but don’t say what the main fault lines are, e.g., treatment of catastrophic risk, fat tails, damage functions, inequality. Without overburdening a freshman guide, you might at least indicate that IAMs are not merely neutral measurement tools but embed a host of assumptions about risk, preferences, and technological change.

Comment 9: Your discussion of the Trump administrations’ attempts to downplay or suppress SCC estimates is timely and vivid, but from a research design perspective it comes across as somewhat anecdotal compared to the rest of the article. You refer to twisting the rules to generate very low SCC values and not monetizing climate impacts at all, and you state that most experts will concur that greater uncertainty calls for more stringent climate regulation, not less. I agree with the broad thrust, but could you be clearer about which rules you have in mind e.g., restricting the geographic scope of damages, manipulating discount rates and perhaps give one concrete numerical illustration, such as how changing a discount rate or geographic scope dramatically shifts the central SCC estimate? That would help elevate this section from a narrative about politicization to a mini-case study in how methodological choices drive policy metrics.

Comment 10: Coming to section 7, the looking ahead discussion offers a welcome note of cautious optimism and situates carbon pricing within a broader, long-term institutional perspective, drawing on Ostrom and Nordhaus. Conceptually, this is an important move, because it reminds readers that carbon pricing is embedded in polycentric governance and club-like arrangements rather than a monolithic global treaty. However, the logical link between your earlier analytical sections and your concluding optimism could be sharpened. You argue that because the share of emissions covered by carbon pricing has risen and prices have increased, SCC estimates will likely rise, raising the stakes for urgent climate action. This is plausible, but there is an implicit assumption here that higher SCC estimates will feed into more ambitious policies via some rational update process. Given your own earlier emphasis on lobbies, political constraints, and the stop-and-go nature of US politics, could you acknowledge that the mapping from SCC to actual policy remains contingent and contested? Otherwise, readers might overestimate the degree to which “getting the price right” mechanically delivers stronger policy.

Comment 11: Regarding the completeness and placement of the discussion and conclusion, the current last section effectively serves as both, synthesizing your core argument i.e, prices as powerful indicators, carbon pricing as part of the solution, and reflecting on the likely path of climate policy. I do think you might consider making the conclusion slightly more explicit by briefly restating, in your own words, what the reader should take away about (i) why economists keep backing carbon pricing despite its limitations, and (ii) how non-specialists should interpret that support e.g., as a preference for a particular mix of instruments, not a silver bullet or a denial of the need for complementary measures. Right now, the final sentence is programmatic but a bit abrupt, and it doesn’t fully loop back to the early arsonist or firefighter framing.

Comment 12: On the question of methods and results in the strict sense, I think it’s fair to say that the manuscript does not present new empirical data, estimation, or formal modeling; instead, it synthesizes existing economic reasoning and selected empirical findings into a narrative. For this journal, that’s acceptable if the article is clearly labeled as a conceptual review or perspective, but it does mean that methodological rigor has to be demonstrated through the transparency of your conceptual choices and the balance of your literature use, not through statistical or experimental techniques. To that end, I’d encourage you to be more explicit about how you chose the particular references and examples you highlight. For instance, you focus on mainstream, largely neoclassical economic contributions and largely supportive assessments of carbon pricing, while heterodox or more critical strands of ecological economics e.g., those skeptical of IAMs or arguing for hard caps, sufficiency, or degrowth are mentioned only indirectly, if at all. Are you comfortable with that asymmetry for a Freshman’s Guide? If so, could you briefly say so and justify why a general audience is best served by this particular slice of the debate, perhaps with a sentence acknowledging that substantial disagreements exist but are beyond the scope of the article?

Comment 13: Finally, at a more micro level, there are a few places where the reasoning feels compressed in ways that could confuse non-specialists for example, the phrase tragedy of the commons appears quickly after the externality example without fully spelling out how the incentives differ from the pure externality case, and the jump from SCC as a modeling output to SCC as a universal social yardstick might benefit from one more sentence about how policymakers actually use these numbers in cost–benefit analysis and regulatory impact assessments. None of this requires a wholesale restructuring of the paper, but a bit more elaboration would make the conceptual methodology more transparent and robust.

I think you have a strong, well-written conceptual guide that succeeds in demystifying why economists are drawn to carbon pricing and in situating that preference within a broader story about markets, externalities, and social costs. With some additional clarification of scope, more explicit signalling of the assumptions underlying your models and SCC discussion, and a slightly fuller engagement with empirical evidence and alternative perspectives, your MS would, in my view, be much stronger both as a contribution to this journal and as a durable starter for newcomers to the economics of climate change.

 

Author Response

Dear Reviewer,

many thanks for your time and detailed evaluation. We have gathered our answers to your suggestions in the attached file.

Best regards.

 

Author Response File: Author Response.pdf

Reviewer 2 Report

Comments and Suggestions for Authors

This manuscript provides a clearly written and pedagogically sound introduction to the economic rationale for carbon pricing. It effectively explains core concepts like market failures and the social cost of carbon for a general audience. The logical structure and the "thought experiment" in Section 5 are particularly strong in conveying the theoretical argument.

The manuscript's primary weakness is its highly abstract nature. While the theoretical framework is well-constructed, the almost complete lack of concrete examples or empirical evidence limits its effectiveness for a non-specialist readership. To bridge the gap between theory and practical understanding, the inclusion of real-world illustrations is necessary.

Specifically, I recommend the authors incorporate:

1. Concrete Examples of Carbon Pricing Systems: Mentioning specific systems such as the European Union Emissions Trading System (EU ETS) or British Columbia's carbon tax would ground the discussion. A brief note on their design and observed outcomes would make the concepts of ETS and carbon taxes more tangible.

2. Quantitative Context: Providing actual price levels would strengthen the argument. For instance, comparing the current price range in the EU ETS (~€80-100/tCO2) with the central SCC estimate of $185/tCO2 cited in the text would concretely illustrate the gap between theory and current policy.

3. Support for Empirical Claims: The assertion that carbon pricing "has probably contributed to curb down European greenhouse gas emissions" should be supported by a reference to a specific evaluation study or report, lending empirical weight to this statement.

The manuscript is intellectually solid and addresses a timely topic. However, to fully achieve its educational goal for a general audience, it must better connect its theoretical arguments to practical implementations and evidence.

I therefore recommend major revision to address this significant shortcoming before the article is considered for publication.

Author Response

Dear Reviewer,

many thanks for your time and detailed evaluation. We have gathered our answers to your suggestions in the attached file.

Best regards.

 

Author Response File: Author Response.pdf

Reviewer 3 Report

Comments and Suggestions for Authors

1. Objective of the Study

The manuscript aims to provide a concise, accessible and economics-based introduction to carbon pricing, written for a non-specialist audience. It seeks to explain:

• how economists conceptualize markets and market failures;

• why climate change represents a textbook case of multiple market failures;

• why carbon pricing (through taxes or emissions trading systems) is theoretically efficient;

• and why its real-world implementation is politically and institutionally challenging.

The paper’s ambition is educational: to demystify economic reasoning, correct common misconceptions, and highlight why pricing carbon remains a central tool in the climate policy toolbox.

2. Strengths of the Paper

2.1 Clarity and Accessibility

• The manuscript succeeds in delivering complex economic concepts (market failures, incentives, SCC, game theory) using simple language and intuitive analogies—notably the “magic button” thought experiment and the prisoner's dilemma example.

• The text effectively bridges academic theory and real-world policy, making the content suitable for early-career students or general readers.

2.2 Strong Conceptual Narrative

• The paper provides a well-structured educational journey: from basic economic principles → to market failures → to climate change → to carbon pricing instruments.

• Integration of historical case studies (e.g., Montreal Protocol) enriches the argument and contextualizes the difficulty of global cooperation.

2.3 Balanced Discussion of Theory and Practice

• The manuscript does not idealize carbon pricing; instead, it acknowledges:

  • equity concerns,

  • influence of lobbying,

  • heterogeneity across sectors and countries,

  • geopolitical challenges.

• The discussion on SCC (Social Cost of Carbon) is particularly strong, up-to-date, and grounded in recent literature.

2.4 Appropriately Comprehensive References

• Citations include classic economic references, recent IAM literature, policy documents, and international reports, strengthening the credibility of the overview.

3. Areas for Improvement 

3.1 Title and Framing

Issue:

The title “Why Economists Keep Backing Carbon Pricing? A Freshman’s Guide” is appealing but grammatically incorrect (“Why do economists…”).

Proposed solution:

• Correct grammar: “Why Economists Keep Backing Carbon Pricing: A Freshman’s Guide”

• Consider a more descriptive subtitle:

  • “An Accessible Introduction to Economic Reasoning on Climate Policy.”

This improves precision and academic tone while keeping it reader-friendly.

3.2 Abstract Could Be More Informative

Issue:

The abstract is extremely short and does not provide:

• context,

• key arguments,

• main takeaways.

Proposed solution:

Expand to 150–200 words, summarizing:

• the motivation: misconceptions about economists’ role in climate policy;

• tools used: market failure lens, game theory, SCC framework;

• main message: carbon pricing is efficient in theory but politically constrained;

• contribution: a simple roadmap for non-experts.

This will make the abstract consistent with journal expectations.

3.3 Improve Logical Flow in Section 2

Issue:

Section 2 mixes three interpretations of “the economy” (business, ideology, materialism) in a way that may confuse non-expert readers.

Proposed solution:

Reorder and signpost more clearly:

1. “Economy as business activity”

2. “Economy as economic science”

3. “Economy as individual behavioral motivations”

Use explicit transitions (e.g., “A second interpretation…”, “A third and more philosophical interpretation…”).

3.4 Clarify the Role of Economic Models

Issue:

The narrative defends modeling assumptions but could better acknowledge their limitations (simplification, bounded rationality, data constraints).

Proposed solution:

Add a short paragraph recognizing:

• the distinction between models as simplifications vs. descriptions of reality,

• the growing relevance of behavioral economics,

• uncertainty in climate-economy interactions.

This improves transparency and trust with non-expert readers.

3.5 Enhance the Explanation of Carbon Taxes vs ETS

Issue:

The text explains both instruments conceptually but does not provide practical examples.

Proposed solution:

Add real-world illustrations:

• Carbon taxes: British Columbia, Sweden, or Chile.

• ETS: EU ETS, California Cap-and-Trade, China’s national ETS.

This grounds the theory in recognizable policy cases and strengthens the paper’s educational value.

3.6 Expand the Equity Discussion

Issue:

Distributional concerns are mentioned but not illustrated.

Proposed solution:

Briefly describe:

• why low-income households may bear disproportionate burdens,

• how revenue recycling can mitigate regressivity (dividends, energy vouchers).

This enhances policy relevance.

3.7 Deepen the Analysis of Political Economy Constraints

Issue:

Lobbying and exemptions are noted, but the section could be more nuanced.

Proposed solution:

Add three or four sentences on:

• political cycles and short-term incentives,

• carbon-intensive sectoral pressure (aviation, heavy industry, freight),

• international competitiveness issues.

This reflects the complexity faced by policymakers.

3.8 Section 7: More Concrete Examples Would Improve Impact

Issue:

The “why not give up?” message is strong but abstract.

Proposed solution:

Insert real data on:

• growth of global carbon markets,

• recent carbon tax adoptions,

• decreasing cost of renewables interacting with carbon pricing.

Concrete examples reinforce optimism and realism.

3.9 Improve Overall Pedagogical Structure with Graphical Aids

Issue:

Text is dense; non-experts benefit from visuals.

Proposed solution:

Consider including:

• a simple diagram of market failures,

• a flowchart showing how carbon pricing aligns incentives,

• a table comparing tax vs ETS.

These could significantly enhance readability.

3.10 Language and Editorial Suggestions

Issues:

Minor stylistic issues include:

• long paragraphs,

• occasional informal expressions (“And yet.”),

• inconsistent use of italics or quotation marks.

Proposed solutions:

• Break paragraphs for readability.

• Maintain formal tone unless emphasis is intentional.

• Standardize quotations and punctuation.

• Review verb tenses for coherence (particularly in Sections 5 and 7).

Although minor, these improvements enhance professional polish.

Author Response

Dear Reviewer,

many thanks for your time and detailed evaluation. We have gathered our answers to your suggestions in the attached file.

Best regards.

 

Author Response File: Author Response.pdf

Round 2

Reviewer 1 Report

Comments and Suggestions for Authors

Dear authors,

Thank you for considering my suggestions valuable. The manuscript is ready for acceptance. But I would suggest designating it as a perspective article rather than a traditional research or review article so that the readers are not confused about what to expect in this paper.

This is a good understanding developed on the economics of carbon policy. Wishing you all the very best.

Author Response

Dear Reviewer,

Many thanks for approving the changes we made to the paper following your guidance.

We would gladly agree to change the type of the paper from “review” to “perspectives”. However, according to the editor, there is no such possibility in the Sustainability journal. Nevertheless, we believe that the risk of confusion for the reader is minimal given that we have now clarified the nature of the paper in the new title, in the abstract and in the introduction.

Thanks a lot again for your highly valuable comments.

Best regards,

the authors

Reviewer 2 Report

Comments and Suggestions for Authors

The author has addressed the issue I raised and recommends publication.

Author Response

Dear Reviewer,

many thanks for your approval and also many thanks again for your very helpful suggestions.

with our best regards,

the authors