Governments need to raise carbon prices much faster if they are to meet their commitments on cutting emissions and slowing the pace of climate change under the Paris Agreement, according to a new OECD report released on Tuesday.
Effective Carbon Rates 2018: Pricing Carbon Emissions through Taxes and Emissions Trading report found that 'today's carbon prices – while slowly rising – are still too low to have a significant impact on curbing climate change,' the organization said in a report brief.
According to the report, which presents new data on taxes and tradable permits for carbon emissions in 42 OECD and G20 countries accounting for around 80 percent of global emissions, only 12 countries had pricing gaps below 50 percent in 2015.
The report measures carbon prices using the Effective Carbon Rate, which is the sum of three components: specific taxes on fossil fuels, carbon taxes and prices of tradable emission permits.
All three instruments increase the price of high-carbon relative to low- and zero-carbon fuels, encouraging energy users to go for low- or zero-carbon options, the brief said.
According to the report, the carbon-pricing gap – which compares actual carbon prices and real climate costs, estimated at €30 per tonne of carbon – was 76.5 percent in 2018.
'This compares favorably with the 83 percent carbon gap reported in 2012 and the 79.5 percent gap in 2015, but it is still insufficient,' the brief said.
According to the organization, at the current pace of decline, carbon prices will only meet real costs in 2095.
'Much faster action is needed to incentivize companies to innovate and compete to bring about a low-carbon economy and to stimulate households to adopt low-carbon lifestyles,' it added.
The report found that the vast majority of emissions in industry, residential and commercial sector are entirely unpriced.
'The carbon pricing gap is lowest for road transport (21 percent against the €30 benchmark) and highest for industry (91 percent),” it said, adding the gap was over 80 percent in the electricity, residential and commercial sectors.
According to the OECD, new carbon pricing initiatives in some countries, such as China's emissions trading scheme, and renewed efforts in Canada and France to price carbon could significantly reduce these gaps, noting that the carbon-intensity of GDP is usually lower in countries with lower carbon pricing gaps.
'The gulf between today's carbon prices and the actual cost of emissions to our planet is unacceptable,' OECD Secretary-General Jose Angel Gurria said.
'Pricing carbon correctly is a concrete and cost-effective way to slow climate change. We are wasting an opportunity to steer our economies along a low-carbon growth path and losing precious time with every day that passes,' he added.
By Hale Turkes
Anadolu Agency
energy@aa.com.tr