Pricing Carbon
Effective carbon rates and beyond
Simon Upton
Director for Environment, OECD
National Debate on Carbon Pricing
25 January 2017, Brussels
Carbon pricing is a key component of
climate policy
Climate policy to become more ambitious if global
temperature increases are to be limited to well below 2°C
Carbon pricing is a key policy for the low-carbon transition
– It effectively reduces emissions at least cost
– It helps to steer investment and innovation in low-carbon technology
– It can provide co-benefits (encourage broader tax reform, foster long-term
competitiveness)
– Particularly if embedded in a set of well-aligned policies
Æ What use is currently being made of carbon pricing?
3
Looking at “Effective carbon rates”
Effective carbon rates (ECRs) are the total price of CO2 emissions
from energy use as a result of market-based policy instruments
Estimated for six economic sectors in 41 OECD and G20 countries,
representing 80% of global carbon emissions from energy use
Effective Carbon Rate
(EUR per tonne of CO2)
Emission permit price
Carbon tax
Specific taxes on energy use
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Effective Carbon Rates
Aggregate results for 41 countries (incl. Belgium)
60% of zero ECRs, 10% at EUR 30 or more
(aggregate results for 41 OECD & G20, and for EU-21)
ECR in EUR per tonne CO2
240
210
90%
180
150
120
EU-21
90
41
OECD
& G20
60
90%
30
0
0%
20%
40%
60%
80%
100%
% of CO2 emissions from energy use
Conservative estimate of social cost of carbon: EUR 30 per tonne
Source: OECD (2016), Effective Carbon Rates: Pricing CO2 through Taxes and Emissions Trading Systems.
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Looking at sectors: higher rates in road transport
(aggregate results for EU-21)
Proportion of CO2 emissions priced at different levels
2%
0%
1%
10%
15%
27%
31%
46%
6%
98%
68%
36%
58%
3%
Road
Industry
Electricity
Residential &
Commercial
Note that EUR 30 per tCO2 is equivalent to:
• EUR 7 cents per litre of gasoline
• EUR 8 cents per litre of diesel
Source: OECD (2016), Effective Carbon Rates: Pricing CO2 through Taxes and Emissions Trading Systems.
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Proportion of Belgium’s emissions from
energy use subject to different levels of
effective carbon rates (2012)
ECR Level
(in EUR/ t CO2)
350
300
250
200
150
100
50
0
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
% of CO2 emissions
Source: OECD (2016), Effective Carbon Rates: Pricing CO2 through Taxes and Emissions Trading Systems.
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Average effective carbon rates in Belgium by
sector and component (2012)
Road
160
Offroad
180
ETS
140
Industry
Taxes
Ag. & fish.
ECR
(in EUR/t CO2)
Res. & comm.
Electricity
120
100
80
60
40
20
0
0
20 000
40 000
60 000
80 000
100 000
Total emissions from energy in thousands of tonnes of CO2
Source: OECD (2016), Effective Carbon Rates: Pricing CO2 through Taxes and Emissions Trading Systems.
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Breakdown by total final consumption in
Belgium
% TFC (2014)
% TFC (2014) 40
30
25
20
15
10
5
0
30
20
10
0
Other (31%)
Industry
(27%)
Transport Non‐energy
(22%)
use (21%)
Other industry (17%)
Paper, pulp and printing (7%)
Iron and steel (12%)
Food and tobacco (13%)
Non‐metallic minerals (13%)
Chemical and petrochemical (38%)
Industry
(27%)
% TFC (2014) 35
30
25
20
15
10
5
0
% TFC (Total other sectors, 2014)
Other (5%)
Commercial and public services (35%)
Residential (60%)
Other (31%)
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Source: IEA (2016), Energy Policies for IEA Countries: Belgium Overview.
Breakdown by CO2 emissions in Belgium
As % of total CO2 emissions in 2013:
• Power generation: 20% (down by 30% since 1990)
• Manufacturing, industries and construction: 15% (down by 51% since 1990)
Outside the EU ETS? Emissions increased!
• Transport: 27% (up by 20% since 1990)
• Residential: 17% (up by 8% since 1990)
• Commercial: 7% (up by 24% since 1990)
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Source: IEA (2016), Energy Policies for IEA Countries: Belgium Overview.
Effective carbon rates by country, excluding road
transport – strong inter-country variation
% of sector
emissions with ECR
EUR>30
100%
EUR 5-30
EUR 0-5 per tonne of CO2
80%
60%
40%
20%
0%
LUX
CAN
JPN
FRA
BEL
ISR
DEU
NLD
Source: OECD (2016), Effective Carbon Rates: Pricing CO2 through Taxes and Emissions Trading Systems.
Countries with higher ECRs tend to have a
lower carbon-intensity of GDP
Proportion of CO2 emissions priced above EUR 30 per tonne of CO2
relative to the carbon intensity of GDP
Share of emissions priced above EUR 30 per tonne of CO2
1,0
0,8
LUX
NLD
0,6
DEU
0,4
Belgium
0,2
JPN
CHN
ZAF
0,0
0
200
400
600
800
1.000
Carbon intensity of GDP in tonne of CO2 per million USD
Source: OECD (2016), Effective Carbon Rates: Pricing CO2 through Taxes and Emissions Trading Systems.
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Barriers to use of
carbon pricing
The political economy of carbon pricing
How would the carbon tax affect different segments of
society?
– Can negative distributive effects be mitigated through tax recycling?
– Redistributing a portion of carbon tax revenues can offset income
effects on poorer citizens
Competitiveness impacts: an EU emissions trading
system issue only?
– Domestic actions in non-ETS sectors (infrastructure, transport,
buildings) can pull industrial innovation towards low-carbon
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Policy misalignments harm the effectiveness of
low-carbon policy instruments (1)
COMPETITION
FISCAL
ECONOMIC
CLIMATE
SOCIAL
INVESTMENT DEVELOPMENT
COOPERATION
TRADE
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Policy misalignments harm the effectiveness of
low-carbon policy instruments (2): Illustrations
The personal tax code treatment of company cars and
commuting expenses largely encourages higher CO2
emissions
– Tax expenditures amounting to an estimated EUR 27 billion (OECD+
countries)
– 20% of total car fleet. More consuming cars, driven more than average
Wholesale electricity markets pricing favour low-capitalcost generation technologies
– Marginal cost pricing designed to optimise electricity systems in the near
term
– High-capital cost low-carbon solutions require certainty over electricity
market revenues to lower capital cost
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Thank you
[email protected]
www.oecd.org/environment