Schiefer, T., Steckel, J.

On the way to pricing carbon around the globe: Distributional implications and justice considerations in the context of developing countries and emerging economies

in MCC briefing paper, 15.10.2024

Arbeitspapiere , Climate and Development

This briefing paper explores the role of carbon pricing as a tool for climate mitigation in low- and middle-income countries (LMICs), emphasizing its potential to support sustainable development if done right. Despite their historically low emissions, LMICs have become significant contributors to global emissions, necessitating policies to guide them toward low-carbon pathways. Carbon pricing can drive emissions reductions and mobilize domestic resources, funding public investments and reducing reliance on external aid. However, successful implementation requires tailoring policies to specific national contexts, considering institutional capacity, economic structures, and distributional impacts.

The paper highlights key concerns, including the risk of exacerbating poverty, trade-offs with other development goals, and political resistance. It underscores the importance of compensatory measures, such as targeted subsidies and cash transfers, to protect vulnerable populations. Additionally, integrating carbon pricing with broader development objectives, such as clean energy access, is critical to its effectiveness. To support equitable and sustainable outcomes, the paper advocates for capacity-building initiatives, international climate finance, and inclusive policy design, leveraging tools like the Carbon Pricing Incidence Calculator to ensure transparent and informed decision-making.