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Global benefits of the international diffusion of carbon pricing policies

Nature Climate Change volume 13, pages 679–684 (2023)Cite this article

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Abstract

Carbon pricing policies are essential for mitigating climate change, but the global benefits of leadership and the international diffusion of these policies are not well understood. Here we provide robust and statistically significant evidence showing that the adoption of carbon pricing in one country can explain the subsequent adoption of carbon pricing in other countries. For a neighbouring country, diffusion increases the probability of policy adoption on average by several percentage points. Translating these empirical estimates with Monte Carlo simulations into global reductions in emissions through policy diffusion suggests that for many countries, decreases in emissions as a result of diffusion could be larger than domestic emission reductions. These results support the adoption of stringent climate policies, especially in countries in which climate change mitigation might be considered as not very important because of relatively low levels of domestic emissions.

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Fig. 1: Adoption of carbon pricing policies over time and around the world.
Fig. 2: Direct and indirect emission reductions from carbon pricing policies on the basis of Monte Carlo simulations of future policy adoption.
Fig. 3: Future global coverage of carbon pricing policies from Monte Carlo simulations of future policy adoption.

Data availability

All data are publicly available and were obtained from the following sources: Carbon Pricing Dashboard of the World Bank (https://carbonpricingdashboard.worldbank.org/); World Carbon Pricing Database (https://github.com/g-dolphin/WorldCarbonPricingDatabase); World Development Indicators of the World Bank (WDI) (https://databank.worldbank.org/source/world-development-indicators); World Governance Indicators (WGI) (https://info.worldbank.org/governance/wgi/); GHG emissions from ref. 53 and https://doi.org/10.5281/zenodo.5566761; reserves of fossil fuels from the Energy Intelligence Agency (EIA) (https://www.eia.gov/); Global Debt Database (GDD) (https://www.imf.org/external/datamapper/datasets/GDD); Government Finance Statistics (GFS) (https://data.imf.org/?sk=a0867067-d23c-4ebc-ad23-d3b015045405); Expenditure by Function of Government (COFOG) (https://data.imf.org/?sk=5804c5e1-0502-4672-bdcd-671bcdc565a9); Democracy Index (Polity5) (https://www.systemicpeace.org/polityproject.html); and public belief in climate change from Gallup (https://news.gallup.com/poll/117772/awareness-opinions-global-warming-vary-worldwide.aspx).

Code availability

A replication package is available at https://github.com/mlinzze/climate-policy-diffusion.

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Acknowledgements

We are grateful to the following for comments and suggestions (IMF, unless otherwise noted): S. S. Aiyar, M. Aufhammer (UC Berkeley), M. Bangalore (LSE), H. Berger, S. Black, W. Chen, S. Fankhauser (Oxford University), F. Jaumotte, T. Kliatskova (World Bank), V. Kluyev and V. Thakoor; and participants of internal seminars at IMF and LSE, the summer conference of the Association of Environmental and Resource Economists and the annual conference of the European Association of Environmental and Resource Economists. M.L. acknowledges financial support from the UK Economic and Social Research Council (ESRC) with grant number 2300776. For the purpose of open access, the authors have applied a Creative Commons Attribution (CC BY) licence to any Author Accepted Manuscript version arising. All remaining errors are our own. The views expressed in this paper are those of the authors and do not necessarily represent the views of the IMF or its executive board or management.

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Authors and Affiliations

  1. Climate School, Columbia University, New York, NY, USA

    Manuel Linsenmeier

  2. Department of Geography and Environment, London School of Economics and Political Science, London, UK

    Manuel Linsenmeier

  3. Research Department, International Monetary Fund, Washington, DC, USA

    Adil Mohommad & Gregor Schwerhoff

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  1. Manuel Linsenmeier
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  2. Adil Mohommad
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  3. Gregor Schwerhoff
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Contributions

M.L., A.M. and G.S. designed the research. M.L. collected the data and conducted the analysis. M.L., A.M. and G.S. wrote and revised the manuscript.

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Correspondence to Manuel Linsenmeier.

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Nature Climate Change thanks Sam Fankhauser, Pravesh Raghoo, Jakob Skovgaard and Yves Steinebach for their contribution to the peer review of this work.

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Supplementary Tables S1–S11, Supplementary Figures S1–S11

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Linsenmeier, M., Mohommad, A. & Schwerhoff, G. Global benefits of the international diffusion of carbon pricing policies. Nat. Clim. Chang. 13, 679–684 (2023). https://doi.org/10.1038/s41558-023-01710-8

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