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At UN General Assembly, OECD Urges Global Carbon Tax Action

28 September 2018


Three years on from the commitments made at the 2015 United Nations Climate Change Conference (COP21) in Paris, the overwhelming majority of governments have not taken the necessary action to contain growing risks to the climate, says the OECD. It said, with emissions on the rise again, OECD governments need to get serious about shifting their economies to a low-carbon model and stop investing in carbon-intensive infrastructure.

A preview of an OECD-UN Environment-World Bank Group report, Financing Climate Futures: Rethinking Infrastructure, to be presented on September 25 to the UN General Assembly in New York, documents that only nine countries out of the 180 signatories to the 2015 Paris Agreement on Climate Change have submitted to the UNFCCC their long-term low-carbon strategies for 2050.

Meanwhile, governments continue to spend half a trillion dollars a year subsidizing oil, coal, or gas, and most have not broken their budgetary dependence on revenues from fossil fuels, the OECD said. Governments are also failing to make enough use of public spending as a lever to decarbonize economies by investing in low-emissions infrastructure and innovation, it added.

"After all the promises made in Paris and despite having all the tools we need at hand to move forward, this inertia risks us losing the war on climate change," said OECD Secretary-General Angel Gurria. "Governments need to implement their pledges in full and then scale up action if we are to keep the global temperature rise below 2 degrees. We would like to see OECD countries taking the lead and setting an example for others."

To achieve the Paris temperature goal, global CO2 emissions need to peak as soon as possible and then rapidly decline to net zero or lower in the second half of the century. While there has been some progress on green financing – for example, the green bond market has ballooned by 1000% in the five years to 2017 and transparency around climate risk is improving – much more needs to be done. Financing Climate Futures says governments must adopt a more transformative agenda on financing for a low-carbon future.

The report outlines practical steps countries can take to tackle climate change. It follows on from a report released last week, Effective Carbon Rates 2018: Pricing Carbon Emissions through Taxes and Emissions Trading, that said governments need to substantially increase the tax burden on companies' polluting activities to achieve global climate change goals.

In the report, the OECD said governments need to raise tax and carbon prices much faster than currently, despite improvements. It says that today's carbon prices – while slowly rising – are still too low to have a significant impact on curbing climate change.

The OECD said much faster action is needed to incentivize companies to innovate and compete to bring about a low-carbon economy and to stimulate households to adopt low-carbon lifestyles. Based on current trends, fiscal policy would be effective in tackling climate change only in 2095.

Of the countries covered in the report, Switzerland has policies most closely aligned with climate change objectives, while some emerging economies fare the worst. The report praises France, India, Korea, Mexico, and the United Kingdom for moving in the right direction with recent policy decisions, but it noted that just 12 countries have policies that will be effective in achieving even half of climate change mitigation goals.

New carbon pricing initiatives in some countries, such as China's emissions trading scheme and renewed efforts in Canada and France to price carbon, could significantly reduce these gaps, the OECD said.

The report rates emission trading as an effective way to price emissions, providing permit prices are stable and at realistically high levels. Taxes have the advantage of simple administration, especially if grafted onto existing tax regimes. Revenue-neutral reforms can enable other taxes to be cut or carbon pricing can facilitate domestic revenue mobilization, the report concludes.

TAGS: environment | tax | investment | India | fiscal policy | energy | law | budget | China | Mexico | United Kingdom | Canada | France | Switzerland | construction | trade | Seychelles | Tax

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