Balancing Act: Political Economy and the Pursuit of Ambitious Carbon Pricing in Developing Countries

This report provides practical insights into the political economy challenges and opportunities for advancing carbon pricing, drawing on the experiences of select countries, including those in the World Bank’s Partnership for Market Implementation (PMI). Such countries often face different socioeconomic, political, and institutional environments than high-income economies. The review combines findings from academic literature in economics and political science, interviews with stakeholders, and an original survey of carbon pricing experts and policymakers in developing countries, to extract meaningful insights into how policymakers navigate political economy challenges to promote carbon pricing in developing countries. The report does not deal with the adoption of the broader set of climate policies that may also support mitigation. The premise of this report is that carbon pricing can be an effective and cost-effective instrument, one that has increasingly attracted government interest as a key part of the climate policy toolkit. The target audience for this report is national and subnational policymakers and other interested stakeholders seeking practical insights on realworld approaches that have worked or failed when advancing carbon pricing. The report does not prescribe best practices or cover every possible circumstance. Instead, by examining current practices at each stage of carbon pricing development, it aims to inform and assist in efforts to implement carbon pricing.