Effective Carbon Rates 2025

1. Context, Concepts and Scope

1.1. Policy context

Countries deploy taxes on energy use, carbon taxes and emissions trading systems in view of a range of policy objectives including climate change mitigation, public revenue raising, energy affordability and cost of living, energy security and competitiveness. This report takes stock of 79 countries’ use of these policy instruments in 2023, with discussions on recent developments in the carbon pricing space in 2024 and 2025. It also provides a focus on emissions trading systems, with a deep dive on certain design features of this instrument.

The simultaneous pursuit of several policy objectives and the complexity of each of them leads countries to use a combination of policy instruments in view of the weights they attach to the separate objectives. In the climate change mitigation context, the typology of the Inclusive Forum on Carbon Mitigation Approaches Climate Policy Database (IFCMA – CPD) (OECD, 2024[1]) distinguishes five types of policy instruments based on the operating mechanism: economic (e.g. carbon pricing or green subsidies), regulatory (e.g. technology or performance standards); government investment and consumption; information; and voluntary approaches.

Where carbon pricing is part of a climate change mitigation policy package, it can help encourage cost-effective abatement and raise public revenue. By decentralising abatement decisions, carbon pricing helps overcomes the asymmetry of information between the government and polluters and encourages emission cuts where the costs are lower. Moreover, carbon pricing creates ongoing mitigation incentives, and it can help avoid rebound effects. It also raises revenue. However, carbon pricing alone cannot address all the externalities and market failures on the path to net zero emissions and it can raise affordability and competitiveness concerns.

In early 2025, carbon pricing instruments (carbon taxes and emissions trading systems – ETSs) are in place in 52 countries. ETSs cover emissions in 43 countries and carbon taxes in 32 countries, with both instruments thus co-existing in 23 countries.1 There may be many carbon pricing instruments within a country (e.g. 10 subnational carbon taxes in Mexico, 8 province or city-level ETSs in China) or a single supranational ETS can cover many countries at a time (the European Union Emissions Trading System – EU ETS – covers 30 countries).2

1.2. What are Effective Carbon Rates?

The Effective Carbon Rates metric summarises the price signals from ETSs, carbon taxes and fuel excise taxes, and is expressed in EUR/tCO₂e. Irrespective of the policy objectives for their introduction, all three instruments apply to a base that is either GHG emissions – in the case of carbon taxes and ETSs – or is directly proportional to them (e.g., litres of diesel or tonnes of coal), in the case of fuel excise taxes. Here, the term “carbon tax” covers the broad range of all taxes that apply to greenhouse gases, including taxes on fluorinated gases (F-gases), for instance.

ECRs describe the price levels on GHG emissions but also the coverage of GHG emissions – by instrument and in combination. For each country covered, ECRs are established at a sector, fuel level, by type of instrument. The GHG emissions accounted for are CO₂ emissions from energy use from six sectors that together span all energy use (agriculture and fisheries, buildings, electricity, industry, off-road transport, road transport), as well as other GHG emissions (i.e., emissions from methane (CH₄), nitrous oxide (N₂O), fluorinated gases (F-gases3) and CO₂ emissions from industrial processes,4 excluding Land use change and forestry (LUCF5)). Annex A presents further detail on the sectors, fuels and underlying databases and also provides some additional information on the modelling assumptions used to build the Effective Carbon Rates.

The three components of Effective Carbon Rates (depicted in Figure 1.1) are as follows:

• Carbon taxes have a statutory rate which is set as a price per tonne of CO₂ or CO₂e. Their administrative implementation can make use of a price per unit of volume or weight of fuel if the tax is fuel-based (this is the case of most carbon taxes – examples include France, Norway, Sweden).

• Fuel excise tax rates are typically set per unit of volume or weight (e.g., litre, kilogram, cubic metre) or per unit of energy (e.g., gigajoule). These rates can be translated into a price per tonne of CO₂, based on the carbon content of each of these fuels. Even though fuel excise taxes are introduced for a variety of policy objectives, that may or may not include a reduction in carbon emissions, they are included in the ECR, since they apply to a base that is directly proportional to CO₂ emissions. 

• The carbon price resulting from an ETS is taken to be the price of tradable emission permits issued under the ETS. This price represents the opportunity cost of emitting an extra unit of CO₂ or other GHG. ECRs thus do not account for the impact of (most forms of) free allowances on the ETS-related carbon price signal,6 and are hence sometimes also referred to as effective marginal carbon rates (EMCRs).

The OECD Carbon Pricing and Energy Taxation series (OECD, n.d.[2]) includes additional metrics beyond the ECR, each with different use cases. The Effective Average Carbon Rate (EACR) accounts for free allowances received in ETSs, which affect the average carbon price faced by covered entities (Flues and van Dender, 2017[3]; Flues and van Dender, 2020[4]). They inform on the strength of incentives to invest in new technologies as opposed to the strength of marginal incentives to reduce emissions (OECD, 2021[5]; OECD, 2023[6]). Effective Carbon Tax Rates (ECTR) restrict the focus to price signals arising from carbon taxes and fuel excise taxes, i.e. they focus on taxes and leave out ETSs. Effective Explicit Carbon Rates focus on carbon pricing instruments – ETSs and carbon taxes, i.e. instruments whose intended role is to price GHG emissions – and do not consider energy taxation. Net Effective Carbon Rates estimate ECRs net of pre-tax fossil fuel support (Garsous et al., 2023[7]). They document the extent to which direct budgetary transfers that decrease pre-tax energy prices reduce the price signal provided by ETSs, fuel excise, and carbon taxes (OECD, 2022[8]; OECD, 2024[9]).7 These metrics are depicted in Figure 1.1.

Figure 1.1. Effective Carbon Rates and related metrics

Note: All indicators are expressed in EUR per tCO₂e. Fuel excise taxes rates are typically set per unit of volume or weight (e.g. as a price per kilogram for solid fuels, per litre for liquid fuels, per cubic metre for gaseous fuels). These can be converted into a price per energy unit (e.g. GJ) using calorific factors from the IEA World Energy Statistics and Balances (IEA, 2025[10]) and then into a price per tonne of CO₂ using IPCC emissions conversion factors (Intergovernmental Panel on Climate Change’s Guidelines for National Greenhouse Gas Inventories (IPCC, 2006[11]), volume 2). More precisely, such calculations make use of the fact that CO₂ emissions are constant per unit of fuel. See OECD (2019[12]), Chapters 1 and 3, for further details and some examples. The EACR measure could also be augmented to reflect other compliance options used in carbon pricing systems; e.g. carbon credits (see Box 4.2 for a more in-depth discussion). Fossil fuel subsidies accounted for in the Net ECR indicator are budgetary transfers that decrease pre-tax prices for domestic fossil fuel use following the methodology outlined in Garsous et al. (2023[7]).

Source: Authors.

1.3. Scope of the report

The report discusses Effective Carbon Rates and Effective Average Carbon Rates, and their components, with a focus on emissions trading systems. The report presents ECR and EACR data for 2023, relying (i) on fuel excise and carbon tax rates and coverage as of 1 April 2023 gathered and modelled for the OECD Pricing Greenhouse Gas Emissions 2024 report (OECD, 2024[9]) and (ii) on ETS coverage and prices for 2023 gathered and modelled for this report.8 Annex B presents the description of the data used and of the modelling assumptions for the ETSs covered in this report. The taxes covered and their modelling are documented in background notes which are available on the Pricing Greenhouse Gas Emissions 2024 support materials page (OECD, 2024[13]).

This edition covers 79 countries which together account for about 82% of global GHG emissions.9 The 79 countries are made up of all 45 OECD and G20 individual countries other than Saudi Arabia and 34 other countries. Thirteen of these 34 countries are in Africa (Burkina Faso, Côte d’Ivoire, Egypt, Ethiopia, Ghana, Kenya, Madagascar, Mauritius, Morocco, Nigeria, Rwanda, Uganda, Zimbabwe), eight in Latin America and the Caribbean (Dominican Republic, Ecuador, Guatemala, Jamaica, Panama, Paraguay, Peru, Uruguay), seven are in Asia (Bangladesh, Kazakhstan, Kyrgyzstan, Malaysia, Philippines, Singapore, Sri Lanka) and six in Europe (Bulgaria, Croatia, Cyprus, Malta, Romania, Ukraine). The term “total emissions” is used to refer to GHG emissions from the 79 countries considered in this report.

This report is organised as follows. Chapter 2 presents ECRs for 2023, including a focus on carbon pricing through ETSs. It documents free allowances and EACRs in 2023. Chapter 3 provides an update on recent developments and trends in carbon pricing initiatives and design, including estimates of the impact of developments in ETSs on ECRs in 2024 and 2025. Chapter 4 takes a deep dive into key design features of ETSs, including whether they involve the existence of a pre-determined cap and the different compliance options they offer beyond trading (free allowances, purchased permits, banked or borrowed permits, carbon credits).

References

[14] Climate Watch (2025), Historical GHG Emissions, https://www.climatewatchdata.org/ghg-emissions (accessed on  2025).

[4] Flues, F. and K. van Dender (2020), “Carbon pricing design: Effectiveness, efficiency and feasibility: An investment perspective”, OECD Taxation Working Papers, No. 48, OECD Publishing, Paris, https://doi.org/10.1787/91ad6a1e-en.

[3] Flues, F. and K. van Dender (2017), “Permit allocation rules and investment incentives in emissions trading systems”, OECD Taxation Working Papers, No. 33, OECD Publishing, Paris, https://doi.org/10.1787/c3acf05e-en.

[7] Garsous, G. et al. (2023), “Net effective carbon rates”, OECD Taxation Working Papers, No. 61, OECD Publishing, Paris, https://doi.org/10.1787/279e049e-en.

[10] IEA (2025), “World Energy Balances”, IEA, Paris , Licence: Terms of Use for Non-CC Material, https://www.iea.org/data-and-statistics/data-product/world-energy-balances (accessed on 22 June 2025).

[11] IPCC (2006), 2006 IPCC Guidelines for National Greenhouse Gas Inventories, https://www.ipcc-nggip.iges.or.jp/public/2006gl/.

[13] OECD (2024), Pricing Greenhouse Gas Emissions 2024 - Support Materials, https://www.oecd.org/en/publications/pricing-greenhouse-gas-emissions-2024_b44c74e6-en/support-materials.html (accessed on 2021 May 2025).

[9] OECD (2024), Pricing Greenhouse Gas Emissions 2024: Gearing Up to Bring Emissions Down, OECD Series on Carbon Pricing and Energy Taxation, OECD Publishing, Paris, https://doi.org/10.1787/b44c74e6-en.

[1] OECD (2024), “The IFCMA’s Climate Policy Database: Policy instruments typology and data structure”, Inclusive Forum on Carbon Mitigation Approaches Papers, No. 5, OECD Publishing, Paris, https://doi.org/10.1787/68529f35-en.

[6] OECD (2023), Effective Carbon Rates 2023: Pricing Greenhouse Gas Emissions through Taxes and Emissions Trading, OECD Series on Carbon Pricing and Energy Taxation, OECD Publishing, Paris, https://doi.org/10.1787/b84d5b36-en.

[8] OECD (2022), Pricing Greenhouse Gas Emissions: Turning Climate Targets into Climate Action, OECD Series on Carbon Pricing and Energy Taxation, OECD Publishing, Paris, https://doi.org/10.1787/e9778969-en.

[5] OECD (2021), Effective Carbon Rates 2021: Pricing Carbon Emissions through Taxes and Emissions Trading, OECD Series on Carbon Pricing and Energy Taxation, OECD Publishing, Paris, https://doi.org/10.1787/0e8e24f5-en.

[12] OECD (2019), Taxing Energy Use 2019: Using Taxes for Climate Action, OECD Publishing, Paris, https://doi.org/10.1787/058ca239-en.

[2] OECD (n.d.), OECD Series on Carbon Pricing and Energy Taxation, https://www.oecd.org/en/publications/oecd-series-on-carbon-pricing-and-energy-taxation_05b80588-en.html (accessed on  May 2025).

Notes

← 1.  Source: https://carbonpricingdashboard.worldbank.org/compliance/instrument-detail, as accessed in May 2025 and own desk research.

← 2.  These figures refer to all countries and not only those covered in this report.

← 3.  HFCs, PFCs, and SF₆.

← 4.  Industrial process emissions are the greenhouse gas emissions released during industrial processes unrelated to energy.

← 5.  Following OECD (2022[8]), this report uses the abbreviation LUCF (as opposed to the term LULUCF, i.e. land use, land-use change, and forestry), to emphasise that the underlying GHG emissions data is sourced from the CAIT dataset (Climate Watch, 2025[14]), which does not rely on countries’ official inventories reported to the UNFCCC.

← 6.  In the cases where free allowances may not be traded or are distributed ex-post to be equal to verified emissions, it is considered this affects the base of emissions priced. They are thus implicitly accounted for in the ECR (see Annex B for more detail).

← 7.  While ECRs are calculated net of relevant exemptions, rate reductions and refunds and hence account for tax expenditures resulting from relevant policy instruments (fuel excise taxes, carbon taxes, and emissions permit prices), they do not account for government measures that decrease pre-tax prices of fossil fuels – as opposed to Net ECRs.

← 8.  Both for taxes and ETSs, modelling is required to assign coverage (i.e. to map the instruments) to their emission base at the country level by sector and fuel.

← 9.  Excluding emissions from LUCF.