World Bank Tokyo Online Morning Seminar #145 “Carbon Tax Design Architecture for Developing Countries”

A carbon tax is one of the main pricing instruments for climate change mitigation. Many industrialized countries have implemented it. Developing countries are also showing strong interest in it. However, policymakers are facing several questions regarding the economic and distributional impacts of a carbon tax. The questions include: (i) what type of tax design architecture best suits them, particularly how best to utilize the carbon tax revenues; (b) how does it impact the poor? Can a carbon tax be pro-poor? (c) Does a carbon tax produce fiscal co-benefits? (d) Does a carbon tax help reduce economic informality? (e) Does a carbon tax promote renewable energy (e.g., hydro, solar, wind) without causing additional economic costs? To answer some of these questions, the seminar presents results from three studies on carbon tax for developing economies. Two studies are for low-income countries in Sub-Saharan Africa (Cote d’Ivoire and Ethiopia) and one study is for a middle-income country (China). The findings will be complemented with the speaker’s forthcoming review study in the Journal of Economic Literature on carbon taxes.