Carbon pricing is considered to be a key building block of an effective climate policy mixDespite the fact that more than 50 national jurisdictions have introduced carbon pricing by 2024, Together, they account for roughly a quarter of global greenhouse gas emissions, with up to three quarters of emissions remaining unregulated by explicit pricing. It is therefore crucial for policymakers to understand how best to design carbon pricing to achieve environmental effectiveness combined with economic efficiency and equity.

New large-scale global study Drawing on a survey of over 400 academic experts on carbon pricing, it identified views on key controversial aspects of policy design: instrument choice, border carbon adjustment (BCA), and revenue use.

Choice of instrument: Carbon tax vs. Cap-and-Trade

The question of whether to introduce carbon pricing in the form of carbon tax or through cap-and-trade system, has occupied scientists for decades.

The aggregate results of the survey show that almost twice as many experts favor a carbon tax before a cap-and-trade scheme in the case of unilateral carbon pricing.

However, this clear consensus varies by region and the economic level of the country. For example, carbon tax is most strongly preferred in North AmericaOn the other hand, experts from Oceania prefer a cap-and-trade system in 50% of cases. Asian experts are almost equally divided.

Further analysis showed that Clear and significant support for carbon taxes over cap-and-trade only exists in countries with high GDP per capitaIn poorer countries, a cap-and-trade system is preferred as often as a tax, which may be related to the potential benefits of selling emissions permits on the global market.

Border Carbon Adjustment (BCA)

Experts show strong consensus on addressing concerns about the competitiveness of domestic industries under unilateral carbon pricing (carbon leakage). Three quarters of all experts strongly recommend the introduction of a BCA mechanism (where possible). This recommendation is consistent across all continents. This broad consensus suggests that the benefits of BCA clearly outweigh the associated bureaucratic costs and legal challenges.

Revenue Usage: Nuances in Recommendations

Guidance on the use of carbon pricing revenues is much more different and nuanced.

When experts could recommend multiple options, the strongest support was for "green R&D" (59 %), followed by "transfers for particularly affected households" (56 %).

An interesting contrast occurred with the possibility "equal lump-sum transfers for households", which was chosen by only 25% of respondents. This option, which was heavily promoted, for example, in the American "Economists' Statement on Carbon Dividends", therefore has much lower global support compared to academic and political discussions.

When experts were asked to indicate one "most recommended option", they came in first place "transfers for particularly affected households" (24 %).

Heterogeneity depending on discipline and GDP

Differences in recommendations are also systematic depending on the characteristics of the experts.

• Economists They more often recommend lump-sum transfers and reductions in distortive taxes, which is consistent with efficiency considerations.
• Non-economists on the contrary, they more often recommend using revenues through government spending, such as subsidies for renewable energy sources or spending on environmental public goods, which can help increase public support for climate policies.
• Support for “equal lump-sum transfers to households” tends to increase with GDP per capita in the expert’s country, while support for “renewable energy subsidies” and “green R&D” decreases.

These findings suggest that expert recommendations are significantly more nuanced and heterogeneous on a global scale than previously recognized based on limited evidence, often focused only on general economists from North America. Understanding this heterogeneity can help tailor policy design to local contexts, thereby increasing the likelihood of successful implementation of carbon pricing. JRi