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Effectiveness of Carbon Pricing and Compensation Instruments: An Umbrella Review of the Empirical Evidence

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  • Ricardo Alonzo Fern'andez Salguero

Abstract

The growing urgency of the climate crisis has driven the implementation of diverse policy instruments to mitigate greenhouse gas (GHG) emissions. Among them, carbon pricing mechanisms such as carbon taxes and emissions trading systems (ETS), together with voluntary carbon markets (VCM) and compensation programs such as REDD+, are central components of global decarbonization strategies. However, academic and political debate persists regarding their true effectiveness, equity, and integrity. This paper presents an umbrella review of the empirical evidence, synthesizing key findings from systematic reviews and meta-analyses to provide a consolidated picture of the state of knowledge. A rigorous methodology based on PRISMA guidelines is used for study selection, and the methodological quality of included reviews is assessed with AMSTAR-2, while the risk of bias in frequently cited primary studies is examined through ROBINS-I. Results indicate that carbon taxes and ETS have demonstrated moderate effectiveness in reducing emissions, with statistically significant but heterogeneous elasticities across geographies and sectors. Nonetheless, persistent design problems -- such as insufficient price levels and allowance overallocation -- limit their impact. By contrast, compensation markets, especially VCM and REDD+ projects, face systemic critiques regarding integrity, primarily related to additionality, permanence, leakage, and double counting, leading to generalized overestimation of their real climate impact. We conclude that while no instrument is a panacea, compliance-based carbon pricing mechanisms are necessary, though insufficient, tools that require stricter design and higher prices. Voluntary offset mechanisms, in their current state, do not represent a reliable climate solution and may undermine the integrity of climate targets unless they undergo fundamental reform.

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  • Ricardo Alonzo Fern'andez Salguero, 2025. "Effectiveness of Carbon Pricing and Compensation Instruments: An Umbrella Review of the Empirical Evidence," Papers 2512.06887, arXiv.org.
    • Handle: RePEc:arx:papers:2512.06887
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