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What explains carbon-pricing variation between countries?

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  • Best, Rohan
  • Zhang, Qiu Yue

Abstract

Economists generally view carbon pricing as an efficient policy to address externalities from energy use, but political feasibility can be a persistent issue. This paper aims to comprehensively consider underlying factors contributing to carbon-pricing magnitude including environmental, social, political, and economic variables. We use the between estimator and focus on exogenous variables to explain continuous carbon-pricing variables for a global sample of countries. We find that larger coal reserves per capita have a negative effect on the log of the product of carbon-price levels and coverage. Control of corruption is a key governance variable that is positively associated with carbon-pricing outcomes. Another important political dimension is the degree of political globalisation. For economic resources, there is evidence that larger stocks of domestic credit help to enable carbon pricing. There is some evidence that climate change awareness is positively associated with carbon pricing, but the proportion perceiving climate change as a serious threat is negatively associated with carbon pricing. Our global results complement case study approaches that consider carbon-pricing design for local contexts.

Suggested Citation

  • Best, Rohan & Zhang, Qiu Yue, 2020. "What explains carbon-pricing variation between countries?," Energy Policy, Elsevier, vol. 143(C).
    • Handle: RePEc:eee:enepol:v:143:y:2020:i:c:s0301421520302858
    DOI: 10.1016/j.enpol.2020.111541
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    4. Jiqiang Wang & Yinpeng Liu & Ying Fan & Jianfeng Guo, 2020. "The Impact of Industry on European Union Emissions Trading Market—From Network Perspective," Energies, MDPI, vol. 13(21), pages 1-16, October.
    5. Bekkers, Eddy & Cariola, Gianmarco, 2022. "Comparing different approaches to tackle the challenges of global carbon pricing," WTO Staff Working Papers ERSD-2022-10, World Trade Organization (WTO), Economic Research and Statistics Division.
    6. Robert C. Schmidt & Moritz Drupp & Frikk Nesje & Hendrik Hoegen, 2022. "Testing the free-rider hypothesis in climate policy," Papers 2211.06209, arXiv.org.
    7. Thirupathi Rao & Siti Indati Mustapa, 2020. "A Review of Climate Economic Models in Malaysia," Sustainability, MDPI, vol. 13(1), pages 1-20, December.

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