Abstract
Carbon pricing is widely recognized as an effective policy instrument for climate change mitigation. Carbon pricing have been imposed in 39 developed countries and eight middle-income countries. Eight more middle-income countries are considering its implementation. As experiences from industrialized countries may not be relevant to developing countries, this literature review fills a knowledge gap by collating the impacts of carbon pricing in developing economies to facilitate cross-learning. Some developing countries still have distortionary subsidies in place, while others are going through environmental fiscal reforms to nudge their societies and economies towards greenhouse gases emission reduction. Various studies demonstrated that safeguards introduced with carbon pricing could help firms to transition while maintaining the motivation to innovate to stay competitive. At the household level, given different energy consumption patterns, carbon pricing in developing economies is not necessarily regressive, especially for rural population. Aggregate impacts to employment rate and gross domestic product change over time as the economy restructures towards decarbonization. A well-designed carbon pricing policy package with revenue recycling mechanisms tailored to the socioeconomic circumstances of the country could achieve multiple dividends of economic growth, increased employment, improved equality, national debt reduction or accomplishment of other sustainable development goals.
Highlights
Climate change is an issue of cross-temporal trans-boundary externality
Significant gaps uncovered in the first phase were “environmental fiscal reform”, “results-based carbon financing (RBCF)” and countries with insufficient literature coverage such as Montenegro, Côte d’Ivoire and Senegal
Impacts on gross domestic product (GDP), employment and Greenhouse gases (GHG) emissions With revenue recycled to households, −0.35% to −0.63% GDP
Summary
Climate change is an issue of cross-temporal trans-boundary externality. Greenhouse gases (GHG) emitted into the atmosphere decades ago are still lingering, building up in concentration and causing global warming now. Emissions from anybody in the world could affect everyone else on the planet in different ways; industrial processes in the developed countries in the North contribute to shifting of the climate system that results in more frequent droughts and floods in Least Developed Countries, sparking debates on climate justice. Many scholars agree that putting a price on GHG emissions – commonly known as “carbon pricing” as carbon dioxide (CO2) is the most prevalent GHG emission – is the economically most efficient way to mitigate climate change (Aldy, 2015; Edenhofer et al, 2015; Metcalf and Weisbach, 2009; Schmalensee and Stavins, 2017). In the strict sense, is a Pigovian tax (Pigou, 1920) based on the global warming potential of emissions that would result in different rates on different types of fossil fuels and processes. The traditional explicit carbon pricing mechanisms are: carbon tax, emissions trading system
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