Opening Remarks by Angel Gurría
Paris, France - 22 June 2020
(As prepared for delivery)
Dear Dr. Pangestu, Mr. Zhang, Minister Jobet, Distinguished Guests, Ladies and Gentlemen:
It is a pleasure to join you at this high-level meeting of the Carbon Pricing Leadership Coalition. We come together at a historic moment, when our economies and societies are tackling the unprecedented challenges of the COVID-19 crisis.
The OECD has been working hard to help countries navigate the pandemic and to sow the policy seeds needed to “build back better”. This is a key objective of our COVID-19 Policy Hub, which contains over 100 policy briefs, as well as a country policy tracker and extensive data. It is also a central theme of the Ministerial Roundtables and government briefings we are organising throughout the year in the lead-up to our 2020 Ministerial Council Meeting (MCM) in October.
Since the onset of the COVID-19 pandemic, the OECD’s message has been clear and consistent: climate change action must be at the heart of our recovery efforts. Not only for the sake of the planet, but for the sake of each and every one of us. It makes sense economically, it makes sense for jobs, and it will help strengthen the resilience of our economies and societies.
Carbon pricing, including fuel and carbon taxes, emissions trading and fossil fuel subsidy reforms are key tools for tackling climate change, complemented by investments in green energy and innovation. But they cannot operate on their own; for these tools to work, we have to bring people on board. This means focusing on sustainable solutions that take people’s well-being into account, and ensuring that carbon pricing does not exacerbate inequalities.
This brings us to one simple but essential question: how are we doing today with carbon pricing? The answer is clear: poorly. Let me provide some concrete examples.
Our data tells us that across 44 OECD and G20 countries, 70% of CO2 emissions from energy use are not subject to any tax. This includes both carbon taxes and excise taxes on fuels.
Additionally, only 10% of emissions in those 44 countries face a price of at least EUR 30 per tonne of CO2 – the estimated minimum social cost of carbon. While this is a start, it is simply not enough to reach the Paris Agreement targets. We need to more than double this price.
We know that, when implemented correctly, carbon pricing can work. For example, we recently looked at the impact of the European Union carbon market and of the French carbon tax. They both show that carbon pricing induces large reductions in carbon emissions, and does not negatively impact the employment of affected businesses.
This is why I am saddened to see lapses in efforts to phase out fossil fuel support, which appears set to continue in 2020. Recent OECD analysis shows that total support for the production and use of fossil fuels rose by 10% in 2019, ending a five-year downward trend in 44 OECD and G20 countries. Worse, there has been a 38% rise in support for the production of fossil fuels itself. This is deplorable, and it is certainly not going to help us get our economies back on track. We need to seize the opportunity presented by very low oil prices and phase out this support once and for all.
The lack of public support for carbon taxes has been the biggest obstacle to their introduction and increase. This is why we need to carefully explain the rationale for carbon pricing, and focus on building broad public support.
For instance, revenues can be earmarked to protect the most vulnerable households. The effectiveness of carbon pricing can also be enhanced by providing viable alternatives to carbon-intensive options, such as public or active transport. Our work shows that concerns about loss of competitiveness should not be overstated and can be addressed through the right policy design.
On 10 June, we released the latest OECD Economic Outlook. It shows that the effects of a single wave of the pandemic – our single hit scenario – are massive. Even without a second wave of infections, global economic activity will fall by 6% in 2020 and unemployment in OECD countries will climb to 9.2% from 5.4% in 2019. Behind these numbers, there is hardship for many households, particularly for the most vulnerable, and important economic risks for firms across all sectors.
What does this have to do with carbon pricing? Actually, a lot. Governments will need to continue to provide support to households and businesses during the recovery. This has already been costly, and it is only the beginning. Demand for public spending, on health care for example, may increase further. Citizens may also expect more equitable policies. Tax policy, therefore, will need to be revised. And we know that carbon pricing can play a very constructive role in such reform.
Ladies and Gentlemen:
Climate action and COVID-19 recovery efforts must go hand in hand. We cannot hope to ‘build back better’ if we do not ensure that our efforts are rooted on sustainability and the protection of our planet. Carbon pricing is an important element of our toolkit to build economic and social resilience and push for an effective, green recovery. Rest assured that the OECD is fully committed to working with you to promote effective carbon pricing, together. Thank you.