Effective Carbon Rates

Effective Carbon Rates

Pricing CO2 through Taxes and Emissions Trading Systems You do not have access to this content

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26 Sep 2016
9789264260115 (PDF) ;9789264260092(print)

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To tackle climate change, CO2 emissions need to be cut. Pricing carbon is one of the most effective and lowest-cost ways of inducing such cuts. This report presents the first full analysis of the use of carbon pricing on energy in 41 OECD and G20 economies, covering 80% of global energy use and of CO2 emissions. The analysis takes a comprehensive view of carbon prices, including specific taxes on energy use, carbon taxes and tradable emission permit prices. It shows the entire distribution of effective carbon rates by country and the composition of effective carbon rates by six economic sectors within each country. Carbon prices are seen to be often very low, but some countries price significant shares of their carbon emissions. The ‘carbon pricing gap’, a synthetic indicator showing the extent to which effective carbon rates fall short of pricing emissions at EUR 30 per tonne, the low-end estimate of the cost of carbon used in this study, sheds light on potential ways of strengthening carbon pricing.

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  • Foreword and acknowledgements

    Climate change is one of the defining challenges of our age. Without drastic cuts in greenhouse gas emissions, the world faces devastating impacts. If policy responses are slow, these impacts are likely to be more costly than any economic crisis the world has experienced so far. Delaying the low carbon transition will exacerbate the costs, since taking action only when it is truly unavoidable will render carbon-intensive capital obsolete.

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  • Executive summary

    Tackling climate change requires deep cuts in greenhouse gas emissions, including CO2 emissions. Carbon pricing is an effective and low cost means of inducing carbon abatement. While not in itself sufficient to deliver the degree of abatement required for limiting the risks of climate change, carbon pricing is an essential part of the solution. However, new evidence presented in this report shows that 90% of carbon emissions are not priced at a level reflecting even a conservative estimate of their climate cost.

  • Reader's guide

    This report is divided into two main parts: Part I sets the scene and provides a crosscountry analysis of effective carbon rates, Part II presents detailed information on the effective carbon rates for the 41 countries included in this report. Annexes A and B have additional detail on the methodology and data.

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  • Expand / Collapse Hide / Show all Abstracts Effective carbon rates in OECD and selected partner economies

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    • Effective carbon rates: An introduction and main results

      This chapter provides the context and motivation for the analysis of effective carbon rates, which are the total price that applies to CO2 emissions from energy use as a result of market-based instruments (carbon taxes, specific taxes on energy use and price signals from emissions trading systems). The chapter also gives a short overview of the main results for 41 countries which together account for 80% of global carbon emissions from energy use.

    • Carbon pricing: Reducing emissions in a cost-effective manner

      This chapter discusses why carbon prices are an effective and low-cost policy tool to reduce emissions. It starts by discussing the environmental effectiveness of carbon prices. This is followed by a brief consideration of why carbon prices allow countries to reach their emissions targets in the cheapest possible way, while at the same time implementing the polluter pays principle and boosting economic benefits. The chapter also discusses climate cost of carbon emissions, and considers carbon pricing in a broader economic context.

    • Effective carbon rates: Concept and scope

      This chapter explains the concept of effective carbon rates, and provides an overview of the methodology and data sources used for their estimation. The treatment of emissions from the combustion of biomass, tax expenditures, fossil fuel support and value added taxes is discussed.

    • Effective carbon rates: Results of the analysis

      This chapter presents the results of the analysis of effective carbon rates. It first discusses the patterns of carbon emissions in the 41 countries included in the analysis. This is followed by an overview of the level of effective carbon rates in the road and non-road sectors, a presentation of the effective carbon rates by country and the composition of effective carbon rates by price instrument, as well as an analysis of effective carbon rates in the five non-road sectors (offroad, industry, agriculture and fisheries, residential and commercial, and electricity). The chapter also discusses the treatment of biomass in the calculations of effective carbon rates. This chapter introduces the “carbon pricing gap”, which measures the extent to which emissions are priced at less than EUR 30 per tonne of CO2, and uses this indicator to consider a counterfactual scenario of carbon pricing. The chapter closes by correlating effective carbon rates with countries’ broader macroeconomic characteristics.

    • Effective carbon rates: Summary and conclusions

      This chapter summarises the results of the analysis of effective carbon rates and draws some conclusions on the distribution of carbon prices across the economy and by sector, and on the composition of effective carbon rates.

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  • Expand / Collapse Hide / Show all Abstracts Annexes

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    • Estimating effective carbon rates

      This Annex describes the methodology used to estimate the effective carbon rates (ECRs) presented in this report. Section A.1 provides details on the concept of ECRs and their three components: carbon taxes, specific taxes on energy use and tradable emission permit prices. Section A.2 gives an overview of the data and methodology used to estimate permit prices and coverage of emissions trading systems. Section A.3 discusses how the estimates of permit prices and ETS coverage are combined with information on carbon taxes and other specific taxes on energy use to produce estimates of ECRs.

    • Description of emissions trading systems and results

      Section B.1 describes the sixteen emissions trading systems for which coverage and permit prices were estimated: The Québec Cap-and-Trade System in Canada, the seven Chinese pilot systems (Beijing, Chongqing, Guangdong, Hubei, Shanghai, Shenzhen, Tianjin), the European Union Emissions Trading System, the systems in Saitama and Tokyo (Japan), Korea, New Zealand, Switzerland, and the California Cap-and-Trade Program as well as the Regional Greenhouse Gas Initiative in the United States. Section B.2 shows results on average effective ETS prices and ETS coverage by sector. Section B.3 lists the ETS-specific adjustment and assumptions that were made in the calculations.

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