IMF Working Papers

Policy Sequencing Towards Carbon Pricing - Empirical Evidence From G20 Economies and Other Major Emitters

Author/Editor:

Manuel Linsenmeier ; Adil Mohommad ; Gregor Schwerhoff

Publication Date:

April 1, 2022

Electronic Access:

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Summary:

Carbon pricing is considered the most efficient policy to reduce greenhouse gas emissions but it has also been conjectured that other policies need to be implemented first to remove certain economic and political barriers to stringent climate policy. Here, we examine empirical evidence on the the sequence of policy adoption and climate policy portfolios of G20 economies and other major emitters that eventually implemented a national carbon price. We find that all countries adopted carbon pricing late in their instrument sequence after the adoption of (almost) all other instrument types. Furthermore, we find that countries that adopted carbon pricing in a given year had significantly larger climate policy portfolios than those that did not. In the last part of the paper, we examine heterogeneity among countries that eventually adopted a carbon price. We find large variation in the size of policy portfolios of adopters of carbon pricing, with more recent adopters appearing to have introduced carbon pricing with smaller portfolios. Furthermore, countries that adopted carbon pricing with larger policy portfolios tended to implement a higher carbon price. Overall, our results thus suggest that policy sequencing played an important role in climate policy, specifically the adoption of carbon pricing, over the last 20 years.

Series:

Working Paper No. 2022/066

Subject:

Environment Taxes

Frequency:

regular