4 May 2007 – Press Note
Did you know that…
The potentially large risks of severe climate change impacts and the associated human and economic costs justify urgent policy action to reduce it. The Intergovernmental Panel on Climate Change (IPCC) today releases the Summary for Policy Makers of its Working Group III report on the Mitigation of Climate Change. The OECD welcomes this important study, which highlights that there is significant room to cost-effectively reduce emissions of greenhouse gases. OECD experts have actively contributed to the development of the IPCC assessment and the OECD is working to support countries to advance policies that will realise this potential in a way that is least-cost.
A key message of the IPCC report is that significant greenhouse gas reductions can be achieved at low cost and deliver a range of climate and non-climate co-benefits. Essentially, a global carbon price is needed to reduce GHG emissions in a cost-effective manner. This is supported by OECD analysis, particularly when market-based instruments are used. For example, OECD work has found that by using more economically-efficient environmental policy instruments – such as taxes and tradable pollution quotas – the same environmental targets could be reached at 25% less cost. A major barrier to the effective application of market-based instruments is a fear that they will negatively impact on industrial competitiveness. As a result, a number of countries provide exemptions to environmental market instruments for the most energy-intensive industries. This reduces the effectiveness of the policies and increases the costs of meeting climate change targets. OECD analysis has found that a number of other flanking measures, such as recycling tax revenues back to affected industries in a way that is de-linked to the polluting activity, can help address competitiveness impacts while still providing an incentive to reduce greenhouse gas (GHG) emissions.
An international carbon price could be generated through applying a carbon tax worldwide (preferably across all countries, sectors, and gases) or by linking up and extending existing policies such as national carbon taxes or emission trading schemes across the world. The EU and a number of countries, regions, and sub-national regions (e.g. selected states in the US) already have, or are planning to introduce, regional or national emissions trading schemes. Many of these are actively considering links with one another, which would help reduce the global costs of achieving a given reduction in GHGs. OECD work has assessed the potential to link such systems, and advises its governments on how to work toward broadening and deepening the carbon market to stimulate global scale innovation and technology change.
Growing demand for goods and energy in the developing world create challenges, but also opportunities, in GHG mitigation to achieve development paths that are both good for economic growth and for the environment, including climate protection. Developing countries can participate in the carbon market via the Clean Development Mechanism (CDM). OECD analysis of the rapidly growing CDM market also indicates that significant cost-effective emission mitigation possibilities exist across many different sectors in more than 50 developing countries (see table below). OECD, together with its sister organisation the IEA, also provides analysis of other policy measures or instruments that can help to reduce GHG emissions co-operatively between countries, for example through Joint Implementation (JI), sectoral agreements, technology co-operation, and incentives to halt deforestation.
Through its peer review processes, the OECD provides a forum for countries to share experiences and examine the effectiveness and efficiency of each country’s policies. Both the OECD Economic Surveys and the Environmental Performance Reviews have examined the policies in OECD member countries to address climate change, and provided country-specific recommendations on how they might be improved. A number of non-member countries are also reviewed through these processes. At the request of the Chinese government, the OECD will release in Summer 2007 a review of the environmental performance of China. This provides an important opportunity for China and OECD countries to discuss frankly together the policies and measures that can be used to address environmental challenges, including climate change.
A new OECD Environmental Outlook to 2030, to be released in early 2008, will assess alternative policies and strategies to reduce GHG emissions in the context of wider environmental objectives, and how these will impact on economies and society.
The OECD provides a knowledge-based forum for governments to assess and enhance understanding about the economic, environmental and technological aspects of climate change mitigation, and how to achieve cost-effective GHG emission reductions. It is at the forefront of advancing information about the economics of climate change and policy solutions, including building a better understanding of future emission trends, carbon taxes and the carbon market.
Relevant OECD reports & publications:
Background information for journalists
Size, type and status of different emission trading systems (NB: log scale)
Note: NSW/ACT = trading system in New South Wales, Australia; CCX = Chicago Climate Exchange.
Source: Ellis and Tirpak (OECD) 2006.