Carbon Pricing as a Policy Instrument to Decarbonize Economies: How to Assess Cap-and-trade vs. Carbon Tax
DESCRIPTION: With scientific contribution and funding by the Enel Foundation, the Earth Institute’s Research Program on Sustainability Policy and Management conducted a comparative study on the suitability of different carbon pricing mechanisms as policy instruments to mitigate climate change in different economic and institutional contexts. First, the research team analyzed the jurisdictional characteristics of 37 countries where carbon pricing mechanisms – both carbon taxes and cap-and-trade schemes – have been implemented or proposed as a means to support decarbonization. Next, we reviewed the historical experience of 11 national and 2 sub-national jurisdictions, which either implemented carbon pricing or attempted to do so in vain. Finally, we performed an in-depth review of two case study countries (Chile and Colombia) which are in the process of implementing carbon pricing policies, to identify the key drivers of adoption as well as any barriers that may impact successful policy implementation or effectiveness.
OUTCOMES: A comprehensive study and a template for the analysis of the characteristics of different jurisdictions to help determine the optimal choice of instrument: tax vs. tradable permit.