Adoption, implementation and design of carbon pricing policy instruments

Carbon pricing has now been implemented as a key policy instrument for climate change mitigation in many countries globally. However, existing systems differ significantly in design with regard to stringency, coverage and the use of the revenues collected through the system. In this literature study, we synthesise existing knowledge of how key factors affect the adoption, implementation, and design of carbon pricing systems. We find that the characteristics of actual political systems, the degree and nature of business influence and public opposition, as well as international influences, have impacted implementation. Obstacles to implementation have been overcome by adapting the design of the systems to meet different societal interests. Preferential treatment and tax exemptions are thus common, which makes the incentives for emission mitigation less coherent across sectors. The results are of practical relevance for policy makers when designing and implementing carbon policies and indicate that carbon pricing needs to be part of a policy package in order to secure both rapid mitigation and a long-term decarbonisation. Further research is needed on the nature of obstacles to carbon pricing policies in various contexts and on how to combine carbon pricing with other types of policies.