# **6.2 Implications for Non-Pigouvian Policies**

Our results can also contribute to the discussion of strategies for achieving steep reductions in CO2 emissions. Most climate economists have argued for Pigouvian carbon pricing via emissions taxation or permit trading (Stiglitz and Stern 2021; Jacobs and van der Ploeg 2019; King et al. 2019; Klenert et al. 2018). Many policy analysts who support Pigouvian pricing also argue for a nonPigouvian supplement: coordinated public investment in low-carbon land development, energy and transport that will accelerate the transition to low-carbon economies, particularly in lower-income countries that are not yet locked into high-carbon growth paths (van der Ploeg and Venables 2020). Economic growth is accompanied by urban development, which should avoid carbon-intensive land development, infrastructure and energy systems that are difficult to retrofit once they are locked in (Seto et al. 2014). The empirical literature suggests that lower-carbon residential, energy and transport development can have self-reinforcing effects on residents’ preferences for low-carbon energy services (Carattini et al. 2018; Allcott and Rogers 2014) and transport modes (Weinberger and Goetzke 2010; Grinblatt et al. 2008; Bamberg et al. 2003).

While the non-Pigouvian argument is certainly plausible, the global resource implications of adopting it are huge and rigorous empirical support would be highly desirable. An attempt at rigorous testing would be premature for the current exercise, but an analysis of the residuals from our econometric model can provide suggestive evidence. Empirical leverage is provided by the diverse urban development paths followed by cities within and across countries. This is particularly true for investments in subway systems, undertaken by some cities but not by many others (Pasquale et al. 2016; Costa and Fernandes 2012; Jones 2008; Post 2007; Cudahy 1990). Subway installation has been motivated by the belief that it will shorten commuting times, reduce traffic congestion and vehicular emissions, and promote higher-density residential development near subway stations. Reduced vehicle emissions and energy efficiencies associated with higher-density development are frequently cited as carbon-saving advantages of mass transit systems.

From this perspective, subway cities should have had lower-carbon development paths, other things equal. We explore this proposition with our regression residuals, drawing on a recent global survey of subway systems by Turner and Gonzalez-Navarro (2018). Subways provide an excellent test of the non-Pigouvian supplement to carbon pricing for several reasons: They exemplify massive directed infrastructure investment; they are numerous but far from universal in most world regions; and their histories vary from over a century to less than a decade. If directed public investments can make a significant contribution to low-carbon development, the effect should register in a large sample that includes cities that have installed subway systems and cities that have not.

Our econometric results in Table 2 are very similar for all three urban radii, so we present the median case (40 km). We have residuals for 1,236 cities with populations greater than 500,000. The Turner/Gonzalez-Navarro survey identifies 132 of these as cities with subway systems. We divide the residuals into deciles, with the largest negative outliers in Decile 1. These are the cities whose measured CO2 concentrations are far lower than their predicted concentrations. In counterpoint, the cities in Decile 10 have measured concentrations far higher than their predictions. We count the number of cities with subways in each decile and present the results in Table 5. Figure 13 graphs the results with a regression line for easier interpretation. The results provide striking evidence of a negative relationship, with a decline of about 2 subway cities per decile. There are 23 subway cities