- There are currently 43 countries which have adopted some kind of carbon pricing policy – either
adopted a carbon tax or entered a cap–and–trade, while the remaining countries have not. This has created significant diversity in the world with regard to climate change mitigation. There is thus a need to examine how carbon pricing policies diffuse cross–nationally in order to carve the path
forward for climate change mitigation and compel other countries to adopt a carbon pricing policy.
Present studies have focused mostly on the internal political and socio–economic factors that compel policymakers to adopt a policy, but in this study, a “unified” model is built combining both internal and external factors (how one countries adoption of a carbon pricing policy affects another) to examine how carbon pricing policy diffused over years and what these factors in the “unified” model influence the adoption of these policies. An Event History Analysis was used by using data for 127 countries running from 1990–2019. The findings show that the carbon pricing policies diffuse through learning from neighboring countries and through the process of imitation. With a split sample analysis to account for policy heterogeneity, it was seen that both the carbon tax and the cap–and–trade system diffuse through the learning mechanism, however for the cap–and–trade, the policy can also diffuse through coercion and normative pressure if countries are part of EU. It was also found from the regressions that adoption of the carbon pricing policy by a country is motivated by a democratic political regime and to a small degree from the level of coal production in the country. There is an inverse relationship between probability of carbon pricing policy adoption and renewable energy share. Also, it was found that signatories of the Kyoto Protocol do not increase the likelihood of adopting a carbon pricing policy.