How to design carbon pricing schemes

Carbon pricing, in the form of carbon taxes and emissions trading systems, is increasingly a centrepiece of countries’ emissions reductions strategies, but policymakers face a bewildering array of options and considerations. Getting the design basics right is critical, and entails ensuring pricing is robust in level and coverage, practical in administration, and addresses fiscal, distributional, and political economy objectives. This column discusses key design issues and to what extent they can be addressed under carbon taxes and emissions trading systems.