Carbon tax as the most appropriate carbon pricing mechanism for developing countries and strategies to design an effective policy

Abstract

The global consensus on the threat of climate change risk leads to an agreement to mitigate higher greenhouse gas emissions and limit global mean temperature rise to below 2 ℃ and, ideally, below 1.5 ℃ by 2050. In achieving the mean temperature target, international organisations like the World Bank, Organisation of Economic Co-operation Development and United Nations strongly suggest that policymakers implement a carbon pricing policy. A carbon tax is a market-based policy that has gained attention from many policymakers to reduce carbon emissions and increase the government's revenue. Designing a feasible carbon tax framework is crucial to ensure effectiveness and public acceptability. However, policy design in developing countries may be more complicated than in developed countries due to insufficient income and resources, social inequity, and poverty. This paper discusses the features of a carbon tax and the dimensions of designing an effective carbon tax policy for developing nations. A simplified framework for carbon tax implementation in developing countries is provided. The framework should be a foundation for developing countries to implement and develop a feasible and acceptable carbon tax policy.