Laying Green Groundwork: How Climate Policy Sequencing Can Work for the United States

Executive Summary

US climate policy has long oscillated between carbon pricing and green industrial policy. Initially favored by policymakers, carbon taxes failed politically in 2009. Industrial policies, such as the Inflation Reduction Act (IRA) of 2022, gained prominence recently. Historic policy challenges stem from underestimating decarbonization complexity, ignoring the realities of trial-and-error learning from policy experiments, and failing to account for the growth model fundamentals of the United States. Research shows both carbon taxes and industrial policies are effective, especially when sequenced; i.e., decarbonization is most successful when industrial policies (carrots) precede carbon taxes (sticks). The US growth model is heavily consumption-driven with carbon-intensive consumption complicating immediate carbon pricing. Thus, sequencing policies to align with growth drivers can reduce social, economic, and political backlash. In that context, investments targeting clean consumption create the ideal conditions for potential future carbon pricing.