Carbon Pricing to Mitigate Climate Change

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Carbon Pricing to Mitigate Climate Change

The OECD published the report, “Effective Carbon Rates, 2018” that shows how the 42 OECD and G20 countries price carbon emissions from energy use. This group of countries accounts for 80 per cent of global carbon emissions. It suggests that significant emission reductions from these countries can prevent climate change. Failing to do so may lead the world into a path of costly adaptation measures (Effective Carbon Rates, 2018).

The report mentions that carbon pricing is an efficient tool to reduce carbon emissions because emitters pay for their emissions. And correct carbon pricing can increase the prices of carbon-based energy which hopefully will encourage polluters to start investing and shifting to low-carbon technologies.

The reality is that there is a significant gap between the present carbon price and the benchmark value for carbon prices, the report explains.

The report used two benchmark values for carbon pricing:

  • EUR 30t/CO2, which is a low-end estimate of the carbon cost, and
  • EUR60/CO2, which is a middle estimate against the carbon cost.  

Understandably, the pricing gap is more significant for the EUR60/CO2 benchmark than the EUR 30t/CO2. Nevertheless, even for the low-end estimate of EUR30/CO2, there is still a considerable carbon pricing gap.

The lowest pricing gap is in road transport (21% for EUR 30t/CO2 and 58% for EUR 60t/CO2), and the highest pricing gap is from the industries (91% for EUR 30t/CO2 and 95% for EUR 60t/CO2, followed by residential and commercial sector (87% for EUR 30t/CO2 and 93% for EUR 60t/CO2) (Effective Carbon rates, 2018).

According to the report, countries who have low carbon pricing gaps are set for decarbonisation and a low-carbon economy. Countries with high carbon pricing are those whose climate mitigation plans may be limited or not cost-effective.

Countries who rely more on policies to reduce emissions are likely to increase their abatement costs or cost required to achieve reductions in pollution, and will likely miss out on opportunities for a low-carbon economy and later will face higher transition risks.

The report also shows the price mechanisms in all 42 OECD countries and which ones lead in steering its economy to a low-carbon one.

To read the full report, click on the link below:

Source Citation:

Effective Carbon Rates, 2018. OECD. Retrieved from https://www.oecd.org/tax/tax-policy/effective-carbon-rates-2018-brochure.pdf

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