Political Economy Determinants of Carbon Pricing

Abstract

Carbon pricing is widely considered a key policy instrument for achieving substantial climate change mitigation. However, implementation remains patchy and price levels vary significantly across countries and regions. In this article, we analyze the structural social, political, and economic conditions under which carbon prices have been implemented so far. We estimate a Tobit regression model to investigate variations in explicit carbon prices over 262 national and subnational jurisdictions. Our results highlight well-governed institutions and public attitudes as the most important conditions for carbon pricing and characterize fossil fuel consumption as a barrier to the implementation of carbon prices. The results suggest that governance and public attitude need to be integrated into political economy analysis. Policy makers should take regulatory capacities and public attitudes seriously when designing carbon pricing policies.