Net zero supply chains decide who pays

Estimated reading time: 6 minutes · Last updated: 28 September 2026

Reaching net zero by 2050 redistributes the cost of climate policy not by smokestacks alone but along supply chains. Using an extension of the DICE framework, Jondeau, Poirier and Vermandel (2026) model a Paris Agreement pathway in which emissions fall 8.37% a year from 2022 to a residual 3 GtCO2 by 2050 and the carbon price rises to about $1,300 per tonne of CO2 by 2050. Their core finding: a sector’s exposure to carbon pricing is best predicted by its downstream emission centrality (DEC), which weights direct emissions against the carbon embedded in purchased inputs. Policy that shields only the most carbon‑intensive smokestacks will miss many highly exposed industries.

How the model maps a Paris Agreement pathway

Jondeau, Poirier and Vermandel (2026) extend the DICE framework (Nordhaus, W, 1992) by adding sectoral detail so they can assess impacts at both economy-wide and industry-specific scales of a globally coordinated carbon tax that achieves the Paris Agreement goal of net zero by 2050. The authors run a counterfactual ‘laissez‑faire’ path against a Paris pathway in which emissions fall 8.37% a year from 2022 to a residual 3 GtCO2 in 2050. To secure that trajectory the model requires a carbon price that rises to about $1,300 per tonne of CO2 by 2050; the tax operates mainly by incentivising investment in abatement technologies and allows for technological improvement over time.

The macro pattern produced is front‑loaded cost and long‑term benefit: the Paris path reduces GDP relative to the baseline up to 2050, shaving as much as 8% off GDP by 2050, but by 2100 the cumulative recession is smaller than under laissez‑faire. The numerical examples and the comparison with recent estimates of the social cost of carbon (Bilal and Känzig, 2026) are central to the paper’s claim that the transition demands very high carbon prices to keep warming below 2°C.

Why supply chains, not smokestacks, determine exposure

The intuitive ‘smokestack principle’ ties exposure to direct emissions: the dirtier you are, the more you pay. Jondeau et al. show that this intuition breaks down once input‑output linkages are accounted for. Firms that buy a lot from carbon‑intensive suppliers inherit a portion of those suppliers’ carbon costs through higher input prices; those costs then cascade down the chain.

Jondeau, Poirier and Vermandel distill the mechanism into a single metric, downstream emission centrality (DEC), which combines a sector’s direct emission intensity with the carbon embodied in its purchased inputs. Empirically, the network component of DEC makes up the bulk of exposure for most industries; across sectors, DEC accounts for more than 99% of the variation in price responses, while direct intensity alone explains 88%. The authors flag Primary Metals and some utilities as being undervalued by a direct‑emissions view: their own emissions are only moderate, but they purchase extensively from carbon‑intensive suppliers and thus face much larger effective price increases.

Policy implications: who should receive support as carbon pricing tightens

The distributional lesson is clear: shielding only the largest direct emitters will misallocate support. Jondeau et al. contrast the EU’s present approach — free allowances for sectors judged at risk of carbon leakage — with a DEC‑based targeting rule. The EU’s phase‑out of those allowances between 2026 and 2034, the authors note, raises the question of whether the remaining protections will be directed at the sectors that ultimately bear the biggest burdens once supply‑chain effects are considered.

Two practical trade‑offs drive the policy debate. First, the Paris pathway’s high carbon price, rising to about $1,300/tCO2 by 2050, produces sizable short‑run losses — up to an 8% GDP reduction by 2050 — that can trigger political backlash if costs concentrate regionally or by industry (see Konradt and Mangiante, 2025). Second, without border measures or coordinated taxes, firms may respond by sourcing inputs from dirtier, untaxed suppliers abroad, a form of carbon leakage documented by Coster, Di Giovanni and Méjean (2025). Targeting assistance to industries with high DEC — rather than to the highest direct emitters only — is the paper’s proposed route toward a fairer and more efficient transition.

The case for and against DEC-guided policy

The bottom line

The transition to net zero by 2050 will redistribute costs through input‑output links, not just through direct smokestack emissions. Jondeau et al. (2026) show that reaching net zero in their Paris pathway requires a carbon tax climbing to roughly $1,300/tCO2 by 2050 and annual emissions cuts of 8.37% from 2022 to a residual 3 GtCO2. Downstream emission centrality captures the transmission of carbon costs along supply chains and explains sectoral price responses far better than direct intensity alone. Policymakers seeking fair and efficient compensation should therefore target the highly networked exposures DEC reveals, guard against carbon leakage, and take the EU phase‑out schedule (2026–2034) into account when designing transition support.

What to watch

• Watch for the completion of the EU phase-out of free allowances in 2034 and how compensation schemes are adjusted then.
• Watch the carbon price trajectory toward 2050, when the modelled tax reaches about $1,300 per tonne of CO2.