It may seem that after the Yellow Vests in France and the popular vote defeat of the carbon tax in the state of Washington, 2018 caused carbon pricing policies serious trouble. Yet, in our paper we find that with 66 carbon pricing policies (taxes and emissions trading systems) adopted by polities in all regions and by countries rich and poor, democratic and authoritarian and all across the political spectrum, carbon pricing is now a global mainstream policy instrument. While defeats in France and Washington have been loud, the quiet success of carbon pricing adoption invites us to instead focus on which polities (countries, federal units, the EU) adopt carbon pricing and why.
Using cluster analysis, we find that the polities adopting carbon pricing can be divided into five clusters: early adopters, North-American states and provinces, Chinese pilot provinces, second-wave developed polities, and second-wave developing polities. While European countries starting with Finland (1990), were the first to adopt carbon pricing, today countries such as Colombia (2017) and South Africa (2019) have also done so. All of the clusters except for the Chinese one (which was driven by the same central decision to adopt carbon pricing) include both carbon taxes and emissions trading. This shows that the adoption of carbon taxes and emissions trading are driven by similar factors, vindicating our treatment of the two types of carbon pricing as one kind of instrument.
In our research, we find that each cluster was characterised by distinct constellations of economic, political, carbon-intensity and policy diffusion (from the international level) variables influencing the adoption of carbon pricing. There is no common set of variables that drive the adoption of carbon pricing across all cases. Consequently, there is not “one-size-fits-all” approach for promoting carbon pricing: one needs to adopt the strategy to the cluster that the polity belongs to. It is also important to avoid pushing carbon pricing when the situation is not suitable.
Yet, we discovered factors useful for promoting carbon pricing. First, economic and fiscal crises provide windows of opportunity for promoting carbon pricing. Second, international factors such as UNFCCC commitments and financial and technical assistance can support the adoption of carbon pricing. Third, polities learn about carbon pricing from other polities from the same region, making the adoption more likely. Finally, carbon intensive economies tend to prefer emissions trading over carbon taxes.
These findings are relevant in the context of COP25 in Chile. One possibility is to use the COP as an opportunity for strengthening the international promotion of carbon pricing. Another is to use the increased attention to climate change within Latin America caused by the COP to promote it within the region. Several Latin American countries already have carbon pricing policies, and the COP could be used share experiences. In spite of the apparent backlashes of 2018, this could provide an opportunity to consolidate the state of carbon pricing as a mainstream policy instrument even further.
Read the full paper.
Jakob Skovgaard is an associate professor at Lund University.
Sofía Sacks Ferrari is Research Assistant with the Peace Operations and Conflict Management Programme at the Stockholm International Peace Research Institute.
Åsa Knaggård is senior lecturer at the School of Political Sciences, Lund University.