Carbon policy in developing countries: Giving priority to non-price instruments

Abstract

Carbon pricing might not be appropriate as the main element of the carbon policy package in emerging and developing countries (DCs), because the political economy constraints are greater than in developed countries. Non-price instruments and policies such as efficiency standards, market-oriented regulation, subsidies for clean technologies and public programs involving low carbon infrastructure should be preferentially developed to deal with market and regulatory failures, which are more widespread than in developed countries. These approaches are most effective in orientating technology and infrastructure, the principal means to achieving the mitigation imperative in DCs. Moreover, even if, in theory, policy packages using non-price instruments are less socially efficient than those focused on carbon pricing, they allow governments to circumvent political economy constraints, because their costs to consumers and citizens are not generalized and tend to be much less visible, while their redistributive effects are, if appropriately designed, generally not too regressive. In the end, developing a carbon policy that emphasizes non-price instruments and measures will pave the way to leverage carbon pricing as the main pillar of their future carbon policy in long term.