Lessons Learned from Carbon Pricing in Developing Countries

Abstract

This helpdesk report evaluates the lessons learned from implementing carbon taxes and other climate change mitigation strategies related to taxation and public finances (e.g. feebates) in developing countries. New carbon pricing initiatives are emerging mostly at the subnational level and in developed countries. Carbon pricing still meets considerable public and political resistance and is vulnerable to public and political shifts. There are different ways of designing carbon pricing mechanisms and recycling revenue. One reason why carbon taxes have proven difficult to implement is that they can aggravate poverty by (directly or indirectly) increasing prices of basic goods and services such as food, energy and travel. For the implementation of carbon pricing mechanisms, certain important factors should be taken into consideration. It is difficult to assess how progressive ongoing carbon taxes are because most of these in developing/emerging economies have been in operation for less than ten years. It is not clear from the country examples included in this review what is driving the adoption of carbon pricing across these developing countries; influences may include compliance with international protocols, a desire to pursue environmental goals, and the impetus to raise revenues. This report was prepared for the UK Government’s Foreign, Commonwealth and Development Office (FCDO) and its partners in support of pro-poor programmes