If the price of carbon rises to 120 euros per tonne of CO₂ by 2030, this will allow states additional revenue and reduce greenhouse gas emissions.
Raising effective carbon prices would generate additional government revenue and lower greenhouse gas emissions, according to an OECD report released Thursday. By 2030 it is necessary to raise the carbon price to 120 euros per tonne of CO2.
Last year, the average price of a ton of CO2 was four euros, which has already doubled in three years, according to the Organization for Economic Co-operation and Development (OECD) in its report “Pricing Greenhouse Gases, Moving from Climate. Targets for Climate Action”. By raising the carbon price to 120 euros per ton of CO2, countries could raise the equivalent of 2.2% of GDP on average.
In Switzerland, Costa Rica, Denmark and Uganda, the revenue raised is less than 0.3% of GDP. Conversely, in other countries such as South Africa, India or Kyrgyzstan they may exceed 5% of GDP.
By 2021, countries will increasingly use carbon pricing through taxes or emissions trading systems. Carbon prices increased between 2018 and 2021 in 47 of the 71 countries studied in the paper. These 71 countries are collectively responsible for 80% of global greenhouse gas emissions and energy consumption.
More than 40% of greenhouse gas emissions are subject to a carbon price, up from 32% in 2018. The report notes that energy taxes and subsidies are important tools for accelerating the transition. They have the effect of changing the price of electricity and the price of emitting greenhouse gases.
The Problem of Fossil Subsidies
Net carbon prices vary across sectors. Higher ones generally result from relatively higher taxes on road fuels. But outside the transport and construction sectors, they remain largely weak. Many projects still escape any price.
Additionally, nearly 60% of greenhouse gas emissions would be subject to a zero or negative carbon price once fossil fuel subsidies are deducted. This is the case, for example, in the agriculture and fisheries sectors.
The report also points out that short-term measures taken by governments to deal with recent energy price increases have led to significant declines in net carbon prices. Some states have significantly reduced many energy taxes, often to 50 euros per ton of CO2 or even more.
For the sake of social cohesion, shielding the most vulnerable from the impact of high energy prices is understandable in the short and medium term, especially if we want to encourage collective support for carbon pricing. But other measures could have been taken, such as income support or the widespread availability of low-carbon solutions.
There is still a long way to go
There is still a long way to go, the report concludes. At the moment, while the price of carbon is positive, it is rarely high enough to drive a real energy transition.
A gradual increase in carbon pricing while gradually increasing fossil fuel subsidies will help meet climate goals and reduce air and water pollution. Public finances will also improve.
This will reduce dependence on fossil fuels in the long term and therefore exposure to future energy price shocks. Measures to support the deployment of low- or carbon-emitting technologies and infrastructure will also be necessary in parallel.