The OECD recently conducted on carbon pricing on CO2-emissions for energy use across 6 economic sectors in 41 countries – 34 OECD member countries and 7 partner economies: Argentina, Brazil, China, India, Indonesia, Russia and South Africa, which account for 80% of global energy use and of CO2 emissions.
What is carbon pricing?
In 2015, a landmark agreement was signed in Paris at the UNFCCC COP21. 195 countries agreed to decarbonize the legal economy and keep global warming below 2°C compared to preindustrial era. One of the tools to implement such objective is carbon pricing.
The principle of carbon pricing is to “understand the external costs of carbon emissions and tie them to their sources through a price carbon”. Then, the responsible can decide “to reduce emissions, discontinue their polluting activity or continue polluting and pay for it.” (World Bank)
Several mechanisms exist:
First, Emission Trading Systems. Second, carbon taxes. The first one “caps the total level of greenhouse gas emissions and allows those industries with low emissions to sell their extra allowances to larger emitters” (World Bank=´) A carbon tax directly sets a price on carbon by defining a tax rate on greenhouse gas emissions or – more commonly – on the carbon content of fossil fuels
Main findings: still some efforts to do
The OECD estimated the “damage from climate change resulting from a ton of CO2e can very conservatively be estimated at EUR 30”. It is referred to as the Effective Carbon Rate (ECR), which is the sum of carbon taxes, specific taxes on energy use and tradable emission permit prices.
- Across the 41 countries, 60% of carbon emissions from energy use are unpriced
- When they are priced, the price is low, only 10% of emissions are priced at an effective carbon rate equal or exceeding EUR 30 per ton of CO2.
- Across all sectors and countries, the average effective carbon rate (ECR) is estimated at EUR 14.4 per ton of CO2, including 93.1% of excise taxes, 1.3% of carbon taxes, and 5.6% of emissions trading systems.
- Across all countries effective carbon prices are low in sectors outside road transport
The report goes beyond and launches a new indicator called the carbon pricing gap: if all emissions wre prices at least EUR 30, this indicator would be zero. On the other hand, if all emissions were unpriced, it would be 100%.
- The carbon pricing gap is currently 80.1%. It means that the coverage of carbon pricing can still be increased.
- if all countries matched the efforts being achieved by the upper half of countries surveyed, the carbon pricing gap drops from 80.1% to 53.1%.
As a company, what can you do to help decarbonization?
- Participate in ETS
- Set a target aligned on the scientific scenario (science-based targets)
- Reduce GHG emissions
- Compensate GHG emissions
For more information:
- full study: http://www.keepeek.com/Digital-Asset-Management/oecd/taxation/effective-carbon-rates_9789264260115-en#page17
- OECD article: http://www.oecd.org/tax/carbon-pricing-efforts-are-falling-short-but-even-modest-collective-action-can-deliver-significant-progress.htm