A review of carbon-pricing studies for developing countries

Abstract

We review studies that assess hypothetical and actual carbon-pricing schemes in developing countries, focused on policy effectiveness in terms of emissions reduction. The article opens with gathering general reasons for employing this instrument and inspecting if these reasons apply to developing countries. In addition, we consider the implications of unique features of such countries for the design of carbon pricing, notably the choice between carbon taxation and market. Next, results from carbon-pricing studies undertaken for specific low- and middle-income countries are summarized, with an extended appendix providing detailed information per country, organized by main world regions. We find that, since the instrument has seen little application so far, most assessment studies take the form of ex-ante assessment, except for China. The review ends with an assessment of the role of international context and coordination, focusing on carbon markets and climate finance.