Economic policy and climate change: carbon pricing in Latin America and the Caribbean

Carbon pricing is one of the public policy options for discouraging production activities and consumption patterns that generate greenhouse gas (GHG) emissions. This study provides an overview of carbon pricing in Latin America and the Caribbean, along with other associated economic policies. It reviews the situation regarding explicit carbon pricing via carbon taxes and emissions trading systems and the use of implicit pricing through the inclusion of the social price of carbon in public investment project evaluation procedures. It draws attention to the fact that very little use is being made of these pricing instruments in the region and that, even where they are in use, their coverage of GHG emissions is quite limited. What is more, the use of fossil fuel subsidies (negative carbon prices) is widespread: budget allocations for such subsidies in 2013–2022 were almost 10 times greater than the allocations for climate financing. The study also looks at two different scenarios for the reform of fossil fuel subsidization policies and what their economic, social and environmental effects would be.