Carbon Pricing Efficacy: Cross-Country Evidence

Abstract

To date there has been an absence of crosscountry empirical studies on the efficacy of carbon pricing. In this paper we present estimates of the contribution of carbon pricing to reducing national carbon dioxide (CO2) emissions from fuel combustion, using several econometric modelling approaches that control for other key policies and for structural factors that are relevant for emissions. We use data for 142 countries over a period of two decades, 43 of which had a carbon price in place at the national level or below by the end of the study period. We find evidence that the average annual growth rate of CO2 emissions from fuel combustion has been around two percentage points lower in countries that have had a carbon price compared to countries without. An additional euro per tonne of CO2 in carbon price is associated with a reduction in the subsequent annual emissions growth rate of approximately 0.3 percentage points, all else equal. While it is impossible to fully control for all relevant influences on emissions growth, our estimates suggest that the emissions trajectories of countries with and without carbon prices tend to diverge over time.

Carbon Taxes and CO2 Emissions: Sweden as a Case Study

“…This substitution is important to capture when evaluating the effect of environmental taxation in the transportation sector, as a failure to do so will bias the results. 5 An additional benefit of looking at transport emissions directly is that we capture all fuel demand adjustments made on the extensive margin in response to a carbon tax, such as an increased use of public transport. Buses used for public transport typically use diesel as engine fuel.…”

“…However, our analysis is restricted to the impact of the carbon tax on gasoline sales." 5 Davis and Kilian (2011, 1210) simulates carbon emission reductions from an increase of the gasoline tax in the United States, and admits, also in a footnote, that their results assume away any substitution: "This estimate presumes that substitution away from gasoline does not raise greenhouse gas emissions. To the extent that consumers substitute from gasoline to other carbon-producing goods, the aggregate reductions will be overestimated by our approach."…”

A dual-track transition to global carbon pricing

“…The guiding principle behind the multiphase structure is that, if one cannot reach a political goal immediately, a gradual, step-wise procedure should be tried out (Kern & Rogge, 2018;Koreh et al, 2019). The focus on carbon pricing is motivated by the fact that it is already applied in many countries (Haites, 2018), is an effective but not overly invasive instrument for emissions reduction (Best et al, 2020), can be easily compared and harmonized among countries/jurisdictions, can be gradually strengthened over time, potentially improves negotiation outcomes by moderating freeriding and fear of competitiveness losses, and automatically generates revenues, which can be used for multiple purposes, including compensation of low-income households and countries (see Table A1 in the Appendix for a more complete list of strengths and additional references).…”

Carbon taxes, poverty and compensation options

“…FitzGerald and McCoy, 1992;FitzGerald et al, 2002;Bergin et al, 2004;di Cosmo and Hyland, 2013;Conefrey et al, 2013;de Bruin and Yakut, 2018;). 2 Even though few broad-based carbon taxes have been in place for long, there is now also substantial evidence from ex-post evaluations that they are highly effective at reducing emissions, particularly from transport (see, for example, Andersson, 2019;Runst and Thonipara, 2020;Metcalf and Stock, 2020;Best et al, 2020).…”