In their pursuit of reducing greenhouse gas (GHG) emissions, nations have expanded their utilization of carbon pricing methods, such as taxes or emissions trading systems.
According to a recent report from the Organisation for Economic Co-operation and Development (OECD) titled ‘Pricing Greenhouse Gas Emissions: Turning Climate Targets into Climate Action‘, this expansion in coverage was observed across various countries and sectors in 2021. The report reveals that over 40% of GHG emissions fell under the umbrella of carbon pricing mechanisms in 2021, a notable increase from the 32% recorded in 2018. This shift was accompanied by higher average carbon prices in 47/71 countries examined. Specifically, average explicit carbon prices, stemming from carbon taxes and emissions trading, more than doubled during this period, reaching EUR 4 per tonne of CO2 equivalent.
In countries with already high carbon prices, there were significant increases, highlighting varying reliance on carbon pricing as a climate solution. Governments adapt emission-cutting strategies to their unique situations. Carbon pricing encourages cleaner energy use and generates revenue, but nations also employ additional tools like regulations, tax incentives, and clean tech subsidies for net-zero goals.
The reported carbon prices include emissions trading, carbon taxes, fuel excise taxes, and fossil fuel subsidies. These represent only a partial view of government climate policies. The Inclusive Forum on Carbon Mitigation Approaches aims to develop tools for broader policy measurement.
Some nations cut energy taxes in response to supply issues, impacting effective carbon rates. ‘Pricing Greenhouse Gas Emissions’ evaluates 71 countries, revealing:
- In 47 countries, net Effective Carbon Rates rose, driven by new systems or strengthening existing ones.
- In 2021, 25% of emissions in these countries were subject to ETS, carbon tax, or both.
- Fuel excise taxes, a form of carbon pricing in road transport, remained at 24%.
- Fossil fuel subsidies, countering carbon pricing, affected 22% of emissions.
- 39 countries had explicit carbon pricing mechanisms, like ETS or carbon tax.
- Carbon prices rose for all fuels; road transport fuels had significantly higher rates, e.g., diesel and gasoline at EUR 72 and EUR 88 per tCO2e vs. coal at EUR 6 per tCO2e.