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Effective Carbon Rates

Pricing CO2 through Taxes and Emissions Trading Systems

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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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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.

English

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