Publication: Supporting Carbon Tax Implementation in Developing Countries through Results-Based Payments for Emissions Reductions
Date
2020-10
ISSN
Published
2020-10
Author(s)
Abstract
This paper discusses compensation
mechanisms to strengthen incentives for lower-income
countries to adopt carbon taxes through donor-funded support
programs. The paper considers two cases: the provision of
climate finance when the host country uses the additional
mitigation to meet its own greenhouse gas mitigation target
(the "incremental cost price"); and a transaction
in an international carbon market with the mitigation credit
created by host country mitigation transferred outside the
country (the “opportunity cost price”). Both offset the host
country's deadweight loss from imposing a carbon tax,
which is lower when the host country enjoys large
co-benefits from mitigation. Formulas are derived for the
incremental cost price and the opportunity cost price. The
opportunity cost price is always larger than the incremental
cost price, as the host country under the opportunity cost
price must use additional, more expensive mitigation
policies to reach its mitigation target. The paper discusses
additional costs and barriers that deter hosts from adopting
carbon taxes. These arguments can help to explain why few
low-income countries have so far adopted carbon taxes, and
why the necessary compensation for tax adoption may exceed
theoretical assessments.
Citation
“Strand, Jon. 2020. Supporting Carbon Tax Implementation in Developing Countries through Results-Based Payments for Emissions Reductions. Policy Research Working Paper;No. 9443. © World Bank, Washington, DC. http://openknowledge.worldbank.org/handle/10986/34651 License: CC BY 3.0 IGO.”
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