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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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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.

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