In the rapidly evolving arena of climate policy, governments worldwide have increasingly embraced strategies designed to accelerate the adoption of green technologies. Among these strategies, one of the most ubiquitous approaches involves the deployment of large-scale subsidies, often framed as “carrots,” which incentivize clean energy innovations and sustainable sector transitions. However, these incentive-heavy policies are frequently accompanied by the anticipation that they will be followed by more stringent regulatory measures, or “sticks,” intended to enforce deeper emissions cuts and reshape the energy landscape more comprehensively. Despite the widespread adoption of this two-phased policy sequencing, there remains a significant gap in understanding how the order and timing of these interventions influence not only climate outcomes but also their economic ramifications over the long term.
A groundbreaking study published in Nature Climate Change ventures into uncharted territory by rigorously exploring the consequences of policy sequencing in the context of U.S. energy decarbonization. Utilizing a sophisticated multisector model that captures the intricacies of energy system transformation across various industries, this research provides critical insights into the dynamics of implementing carrot-first versus stick-first strategies. The findings reveal a nuanced picture: initiating policy with subsidies to promote green technology deployment does not negate the eventual necessity for robust regulatory measures aimed at phasing out fossil fuels at scale. In fact, the anticipated sticks tend to be of a similar magnitude and scope to those required in scenarios where punitive policies lead from the outset.
The methodology underpinning this analysis lies in the construction and simulation of a multisectoral framework that models the U.S. energy economy during its decarbonization trajectory. This approach accounts for interactions between diverse energy-consuming sectors, capital stock turnover rates, technology cost reductions, and responses to regulatory signals. Through a comparative lens, the research simulates multiple policy pathways, isolating the effects of initiating decarbonization with either subsidies or regulatory constraints, in addition to hybrid strategies. The model’s granularity permits a close examination of how policy signals catalyze innovations, investment decisions, and structural shifts within the fossil fuel industry.
One of the study’s most vital disclosures is the limited effectiveness of carrots when used in isolation. Subsidies indeed stimulate the uptake of renewables, energy efficiency technologies, and low-carbon infrastructure. Still, they fall short of driving the systemic shrinkage of entrenched fossil-based incumbents without the introduction of forceful regulatory sticks. This divergence emerges partly because subsidies primarily lower the cost or enhance the viability of clean technologies but do not impose direct costs or risks on fossil fuel extraction or consumption. Consequently, fossil fuel industries may persist under generous subsidy regimes despite growing renewable capacity.
Furthermore, the policy sequencing examined highlights an inherent trade-off. While carrot-first strategies may appear politically and socially palatable — as they avoid early confrontations with fossil fuel stakeholders — the ultimate climate mitigation outcomes depend heavily on the eventual deployment of stringent sticks. The modeling reveals that transitioning smoothly from carrots to sticks still necessitates costly and decisive regulatory interventions. Therefore, policymakers cannot circumvent the socio-economic challenges associated with enforcing limits on fossil fuels; they merely defer them.
The research also casts light on the implications of timing and coordination of policy tools. Early deployment of sticks generates unmistakable signals to investors and firms to divest from fossil fuel ventures and ramp up clean energy innovation at a systemic level. This early clarity facilitates more orderly capital reallocation and infrastructure transformation. By contrast, delay in applying sticks incurs lock-in effects in fossil infrastructure and creates path dependencies that complicate future decarbonization efforts. These path dependencies result in greater emissions and higher retrofit or retirement costs in the transition’s latter stages.
The policy sequencing framework presented offers a powerful lens through which to evaluate the growing international interest in industrial policy. Industrial policy, which broadly encompasses coordinated government interventions designed to nurture strategic sectors, mirrors the carrot–stick paradigm discussed here. Many countries have begun deploying subsidies, grants, and public investments to stimulate clean tech sectors with the hope that accompanying carbon pricing, regulation, or mandates will follow. This study’s findings suggest caution: without assured, subsequent sticks, industrial policy subsidies alone may contribute incrementally to emissions reductions but will not deliver transformational decarbonization.
Moreover, the research underscores the importance of transparency and credible commitment in climate policymaking. Socio-political resistance from fossil fuel stakeholders and vulnerable communities remains a key barrier to adopting aggressive sticks. Carrots can initially alleviate resistance by building constituencies for clean energy and creating green jobs. Nonetheless, the delayed introduction of sticks increases political and investor uncertainties, potentially undermining the coherence of long-term decarbonization trajectories.
An insight that further refines the debate pertains to economic costs. The authors demonstrate that carrots do not substantially reduce the overall cost of decarbonization when sticks are still indispensable. The dual deployment of subsidies and stringent policies must be carefully optimized; over-reliance on carrots without complementary sticks leads to suboptimal resource allocation and can exacerbate transition costs down the line. In particular, cost savings expected from early green technology diffusion may be offset by expenditures related to fossil fuel asset stranding and last-minute regulatory shocks.
The study’s scenario analyses indicate that integrated policy packages combining carrots with early, clear sticks produce the most robust socioeconomic and environmental outcomes. In these integrated cases, governments can better manage transition risks, foster innovation ecosystems, and mitigate adverse distributional impacts through carefully designed compensations. This layered approach balances encouragement with enforcement, signaling an evolving paradigm for energy system governance under climate urgency.
Given the complexity of the U.S. energy system and its socio-political environment, this multisector modeling effort significantly informs stakeholders about realistic policy benchmarks and achievable decarbonization pathways. It reinforces that climate policy design must transcend simplistic dichotomies and embrace sequential yet synergistic interventions. As the climate crisis intensifies, the nuanced understanding of carrots and sticks as complementary, rather than substitute, mechanisms will be pivotal to galvanizing effective climate action.
In sum, the research contributes a vital empirical foundation to ongoing global debates around industrial policy, green subsidies, carbon pricing, and regulatory design. Its compelling evidence challenges overly optimistic expectations that carrots alone can chart a low-carbon future. Instead, it affirms the necessity of blend strategies that integrate incentive mechanisms with decisive regulatory action as the cornerstone of credible, cost-effective, and equitable decarbonization.
These insights arrive at a critical juncture as policymakers grapple with balancing ambition, fairness, and practical constraints. Steering the energy transition toward net-zero emissions demands not only bold targets but also sophisticated, phased implementation strategies that reconcile investment incentives with enforcement and social acceptability. This work demonstrates that sequencing matters—not simply whether carrots or sticks—but how and when these tools are deployed determines the ultimate trajectory of climate mitigation success.
Looking ahead, further extensions of this modeling framework could explore the roles of emerging technologies, cross-border policy coordination, and financial market dynamics, thereby enriching the policy toolbox. For now, the study offers a definitive cornerstone for aligning policy design with the realities of energy-system transformation, delivering timely guidance to leaders committed to reconciling growth, sustainability, and climate resilience.
Subject of Research: The study focuses on modeling the impacts of sequencing climate policies—specifically the use of subsidies (“carrots”) followed by regulatory measures (“sticks”)—on energy system decarbonization in the United States.
Article Title: Modelling the impacts of policy sequencing on energy decarbonization
Article References:
Luo, H., Peng, W., Fawcett, A. et al. Modelling the impacts of policy sequencing on energy decarbonization. Nat. Clim. Chang. (2025). https://doi.org/10.1038/s41558-025-02497-6
Image Credits: AI Generated
