Climate and carbon: Aligning prices and policies


Effective Carbon Rates - Pricing CO2 through Taxes and Emissions Trading Systems

To tackle climate change, CO2 emissions need to be cut. Pricing carbon is one of the most effective and lowest-cost ways of inducing such cuts. This report presents the first full analysis of the use of carbon pricing on energy in 41 OECD and G20 economies, covering 80% of global energy use and of CO2 emissions.

The analysis takes a comprehensive view of carbon prices, including specific taxes on energy use, carbon taxes and tradable emission permit prices. It shows the entire distribution of effective carbon rates by country and the composition of effective carbon rates by six economic sectors within each country.

Carbon prices are seen to be often very low, but some countries price significant shares of their carbon emissions. The ‘carbon pricing gap’, a synthetic indicator showing the extent to which effective carbon rates fall short of pricing emissions at EUR 30 per tonne, the low-end estimate of the cost of carbon used in this study, sheds light on potential ways of strengthening carbon pricing.


This report brings together lessons learned from OECD analysis on carbon pricing and climate policies. A key component of this approach is putting an explicit price on every tonne of CO2 emitted. Explicit pricing instruments, however, may not cover all sources of emissions and will often need to be complemented by other policies that effectively put an implicit price on emissions.

Carbon pricing mechanisms must be mutually supportive, cost-effective, and sustainable in order to inspire confidence to invest in technologies and infrastructure that shift production and consumption decisions towards low-carbon choices.

In addition, tax exemptions and fossil-fuel subsidies that undermine the transition towards zero carbon solutions must be reformed.

Finally, the report highlights the issues of competitiveness, distributional impacts and communication as key elements in implementing climate policy reform.

Cities and climate change

‌‌‌Cities and Climate change‌This Policy Perspectives explores how enabling policy frameworks at the national level can support critical urban action to combat climate change.

On the eve of the UN Climate summit and as we approach COP21 in paris next year, it is urgent that we get onto a path towards zero net emissions from fossil fuels in the second half of the century so that we can meet the 2-degree goal. Solid partnerships between cities and national governments are an essential first step to tackling this challenge, given the key role cities play in both mitigating and adapting to climate change.”
by Angel Gurría, OECD Secretary-General.

Video - Lecture by OECD Secretary-General,
LSE London  (Full event, 1h55) 


key messages

The international community has agreed to limit the average global temperature increase to no more than 2ºC above pre-industrial levels. To achieve this objective, countries worldwide must take on the responsibility to gradually phase out their emissions of CO2 in the second half of this century. Key issues to consider include:

  • Put an explicit price on carbon.
  • Identify other cost-effective policy instruments that put an implicit price on carbon.
  • Review the broader fiscal policy to ensure that it is coherent with stated climate goals.
  • Ensure that any regressive impacts of carbon pricing measures are alleviated through complementary measures and that a clear communication strategy is developed to explain them.
  • Agree on climate pricing and policy measures today but plan for the long-term to achieve stated climate targets.

related publications

Cover Taxing Energy Use 2015 Inventory of Estimated Budgetary Support and Tax Expenditures for Fossil Fuels 2013
Effective Carbon Prices

Taxing Energy Use 2015
OECD and Selected Partner Economies

OECD Companion to the Inventory
of Support Measures for Fossil Fuels 2015


OECD Environment Policy Papers

The report "Climate and carbon: Aligning prices and policies" is the first paper of this series, Designed for a wide readership, the OECD Environment Policy Papers distil many of today’s environment-related policy issues based on a wide range of OECD work. In the form of country case studies or thematic reviews across countries, the Papers highlight practical implementation experience. They are available in either English or French, with a summary in the other language when possible.

International medial coverage

Video - OECD: We must eliminate fossil fuel emissions,
The Telegraph



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