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Carbon Taxes Too Low To Tackle Climate Change, Says OECD

by Ulrika Lomas, Tax-News.com, Brussels

26 September 2016


The OECD has called on governments to significantly hike taxes on greenhouse gas emissions, noting that current carbon prices are falling short on levels needed to achieve climate change reduction goals.

The OECD has released a new report, "Effective Carbon Rates: Pricing CO2 through taxes and emissions trading systems," which presents new data on effective carbon rates on CO2 emissions for energy use across six economic sectors in 41 countries – 34 OECD member states and Argentina, Brazil, China, India, Indonesia, Russia, and South Africa. These economies accounted for 80 percent of carbon emissions in 2012.

The report finds that there is a major gap between current carbon pricing policies and what is needed to ensure that carbon is priced even at the lower-end estimate of real climate costs: EUR30 per tonne of CO2.

The report analyzes the effective carbon rate (ECR) on these sectors and economies, being the sum of specific taxes on energy use, carbon taxes, and prices of tradable emissions permits, where these apply. Taxes are included on the basis of their economic effects rather than their stated policy intent, meaning that excise taxes are part of the ECR.

Across all sectors and countries, the average effective carbon rate (ECR) amounts to just EUR 14.4 per tonne of CO2, of which 93.1 percent are excise taxes, 1.3 percent are carbon taxes, and 5.6 percent are emissions trading systems.

The OECD report found that, across all sectors, ECRs are zero for 60 percent of emissions from energy use. The rates are above EUR30 per tonne of CO2 for just 10 percent of emissions.

The ECR for carbon emissions from energy use outside of road transport is zero for 70 percent of emissions and is above EUR30 per tonne of CO2 for just four percent of emissions. Rates are higher in road transport, where 46 percent of CO2-emissions in the 41 countries face a rate of more than EUR30 per tonne of CO2-emissions.

Rates vary strongly across countries. The 10 countries with the highest effective carbon rates represent five percent of the 41 countries' carbon emissions, whereas the 10 countries with the lowest rates, which include several large countries, account for 77 percent of emissions.

"This new data shows that even moderate collective action to increase carbon prices can make a significant impact in putting countries on a pathway to a low carbon transition," said OECD Secretary-General Angel Gurría. "Pricing carbon, through taxes or emissions trading systems, is one of the most effective tools for reducing CO2 emissions and tackling climate change. Prices can and do trigger reductions of energy use, improvements in energy efficiency, and a shift towards cleaner forms of energy. The challenge is in getting the prices right," Gurría said.

TAGS: Russia | South Africa | tax | India | energy | China | carbon tax | Brazil | Indonesia | Argentina | Other | Africa | Tax

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