Abstract
Carbon taxes are the preferred structural strategy by economists to reduce carbon emissions. However, the additional costs imposed on emitters and consumers make carbon taxes politically unpopular (particularly in emerging markets) due to the persistence of other unaddressed development challenges affecting institutions, businesses and individuals. Instead of communicating environmental benefits, we argue that developing countries garnering support for carbon taxes could benefit from conveying the idea that carbon taxes contribute to solving development challenges (finance mitigation investments, increase companies’ competitiveness and reduce inequality). Nevertheless, carbon taxes can only deliver development co-benefits beyond emissions reduction if their design is optimal (according to the World Bank’s FASTER principles) and if stakeholders behave rationally, as modelled. Such assumptions are improbable to hold because the proper functioning of carbon taxes is hindered by frictions between the FASTER principles and different behavioural failures (politically vested interests, self-interested actions and boundedly rational behaviours) attributed to policymakers, companies and consumers. Ultimately, policy implementation experiences could be far from the theoretically optimal carbon tax design because they will be disrupted by agents’ behavioural failures. It is yet unclear whether carbon taxes can achieve emissions reduction and development co-benefits simultaneously. Instead of relying solely on carbon taxes, emerging markets could complement their policy mix with non-price instruments (e.g. green procurement and standards) to better navigate behavioural failures.
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Marcos, A., Hartmann, P., Barrutia, J.M., Apaolaza, V. (2022). Carbon Taxes Beyond Emissions’ Reduction: Co-benefits and Behavioural Failures in Emerging Markets. In: Nguyen, N., Nguyen, H.V., D'Souza, C., Strong, C. (eds) Environmental Sustainability in Emerging Markets. Approaches to Global Sustainability, Markets, and Governance. Springer, Singapore. https://doi.org/10.1007/978-981-19-2408-8_11
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