Most Energy Emissions Not Subject to Carbon Pricing: OECD

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By Rick Mitchell

Sept. 26 — The world's biggest greenhouse gas-producing countries are not using carbon prices to reduce climate-warming emissions, the Organization for Economic Cooperation and Development said Sept. 26.

The Paris-based OECD released updated data Sept. 26 showing that some 60 percent of carbon dioxide emissions from energy use in 41 countries surveyed—accounting for 80 percent of global carbon dioxide emissions from energy use—are not subject to any effective carbon rates (ECR) on energy.

The International Energy Agency said energy consumption generates about two-thirds of carbon dioxide emissions responsible for global warming. The new OECD report posits a 30 euro ($33.80) a ton low-end estimate for the social cost, or damage, of a ton of carbon dioxide emissions.

It calculates an 80.1 percent “carbon pricing gap”—the extent to which emissions are priced at below 30 euros a ton from market-based policy instruments.

“If you really believe that carbon pricing is a core element of climate policy, this is not a very happy picture,” said Kurt Van Dender, environmental tax policy expert from the OECD's Center for Tax Policy & Administration, who presented the data.

Highest Rates in Road Transport

The report—which defines ECR as the sum of carbon taxes, specific taxes on energy use and tradable emission permit prices, expressed in euros per ton of carbon dioxide emissions—provides a more complete sector- and country-level picture of “headline” data first released at the Paris climate summit in December 2015, the organization said.

On a sectoral basis, some 46 percent of road transport emissions are priced at 30 euros a ton or more. That is far more than for the non-road sectors, for which 70 percent of emissions are not priced at all, Van Dender said.

In fact, only 2 percent of industrial emissions, 3 percent of electricity sector emissions, and 4 percent of residential and commercial sector emissions are priced, the report found.

“The point here is not to say that the rates are very high in transport, but that the other sectors have very low rates,” Van Dender said.

For industry and electricity, the majority of the effective carbon rates come from specific taxes, mainly excise taxes, then a smaller amount from emissions trading systems, and a very small amount from carbon taxes, according to the report. For the residential and commercial sectors, “by far” the dominant component of ECRs is specific, mostly excise, taxes, with fractional amounts from the other two sources.

For the road transport sector, specific taxes dominate even more.

“That shows that you can make a lot of progress by using existing administrative systems for taxing energy” to increase ECRs, even though those systems might have been initially created to raise revenues rather than for climate objectives, he said.

‘No Big Shock to Competitiveness.'

The report finds that countries that price a higher share of emissions above 30 euros a ton tend to have a lower carbon-intensity of gross domestic product. It found a wide variation in ECRs across the 41 countries, with the 10 countries with the highest ECRs—all European—representing just 5 percent of the studied countries' total carbon emissions.

On the other hand, the 10 countries with the lowest rates, including Chile, Mexico, the U.S., Brazil and India, accounted for 77 percent of total emissions.

Increasing average carbon rates and their coverage to that of the median country in each sector could reduce the carbon pricing gap to 53.1 percent. Even such a “modest collective action would be significant progress towards the low-carbon transition,” Van Dender said.

And despite fears by companies that carbon rate increases will hurt their competitiveness, there is no material evidence for that, because rates are so low, he said. By starting to increase carbon rates now, guided by a price path increasing over time, it would be possible to transition to a low-carbon economy gradually, “rather than have a big shock later when suddenly it becomes urgent to act,” he said.

To contact the reporter on this story: Rick Mitchell in Paris at correspondents@bna.com

To contact the editor responsible for this story: Greg Henderson at ghenderson@bna.com

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