CO2 emissions - Parliamentary Days 2014


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The threat of climate change requires decisive action across virtually all parts of our economies and societies. Although the world is not currently on track to meet its goal of maintaining the global temperature increase below 2°C, a range of policies have been implemented, with mixed success. Economic theory indicates that a price on CO2 emissions from fossil fuels and other sources is needed if countries are to minimise the overall cost of reducing their emissions. At present, fossil fuels are priced and taxed at levels that differ vastly across fuels, uses, and countries, indicating areas of possible improvements. Likewise, some policy instruments carry a much higher cost of CO2 reduction than others, often a sign of economic inefficiency. The Environment Directorate will present latest results in this area as well as possible new work on the experience with carbon pricing legislation. By Simon Upton, Director, and Nils Axel Braathen, Principal Administrator, Environment Directorate, OECD

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CO2 emissions - Parliamentary Days 2014

  1. 1. PUTTING A PRICE ON CO2 EMISSIONS Simon Upton, Director, Environment Directorate Nils Axel Braathen, Principal Administrator, Environment Directorate 5 February 2014
  2. 2. Revenues from environmentally related taxes In per cent of GDP, Selected countries, 2012 5 4 Other Motor vehicles % of GDP 3 Energy 2 1 0 -1 2 -2 * 2011 figures ** 2010 figure
  3. 3. Taxing Energy Use OECD published the book Taxing Energy Use: A Graphical Analysis in 2013. First systematic comparison of the taxation of all energy use across & within OECD countries. Considers taxes on fuels as effective taxes on energy & on carbon emissions, highlighting the price signals sent by taxes to different fuels & fuel uses. Provides a graphical & statistical profile of the structure of energy use & taxation in each of the OECD countries. Uses the underlying data to develop cross-OECD comparisons of effective tax rates on different users and sources of energy. 3
  4. 4. Taxation of energy in the OECD area: A carbon content basis Source: OECD (2013), Taxing Energy Use: A Graphical Analysis. 4
  5. 5. Energy tax rates, EUR per tonne CO2 Effective tax rate (EUR per tonne CO2) 500 450 SWE 400 350 300 DEU FRA 250 JPN 200 150 AUS 100 50 USA 0 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 Source: OECD (2013),Taxing Energy Use: A Graphical Analysis 0.9 1 5
  6. 6. Support to fossil fuels in OECD countries by year By type of fuel USD billion (current) 90 By measure USD billion (current) 90 80 80 70 70 60 60 50 40 50 Petroleum, 71% (2011) 40 30 30 20 10 Consumer support, 80% (2011) 20 Coal, 12% (2011) 10 Natural gas, 18 % (2011) 0 2005 2006 2007 2008 2009 2010 2011 Producer support, 16% (2011) General services support 0 2005 2006 2007 2008 2009 2010 Note: Based on arithmetic sum of the individual support measures identified for all 34 OECD member countries. It includes the value of tax relief measured under each jurisdiction’s benchmark treatment. The estimates do not account for interactions that may occur if multiple measures were considered simultaneously. Source: OECD (2013), Inventory of Estimated Budgetary Support and Tax Expenditures for Fossil Fuels 2013, OECD Publishing. 2011 6
  8. 8. Background and introduction OECD recently published the book Effective Carbon Prices. The book looks at the amount of GHG abatement different policy instruments contribute to; the costs to society of achieving this abatement; and, hence, the costs to society per tonne of CO2eq abated. Covers electricity generation, road transport, pulp & paper, cement, as well as households’ domestic energy use in 15 Countries. Keep in mind: A high effective carbon price can stem from an ambitious policy – or from an inefficient policy. 8
  9. 9. Electricity generation The highest costs per tonne of CO2 abated are associated with various capital subsidies (for renewables, energy-efficient appliances, etc.) and feed-in tariff system – both in terms of the averages calculated and the maximum values observed. The lowest costs per tonne were found for trading systems. The costs were particularly low when the trading systems addressed the environmental externality as directly as possible – like with a trading system for GHG emission allowances (rather than indirectly, such as e.g. “tradable renewables certificates”). This confirms “textbook suggestions” that trading systems (and broad-based carbon taxes) are the most economically efficient policy tools to mitigate climate change. 9
  10. 10. 2010 EUR per tonne of CO2 abated Average effective carbon prices in the electricity sector, by instrument category, EUR2010 per tonne CO2 900 800 700 Min Max Simple average 600 500 400 300 200 100 0 10
  11. 11. Effective carbon prices in the different sectors covered, by country, EUR2010 per tonne CO2 250 2010 EUR per tonne CO2 abated 200 Electricity generation Road transport Pulp & paper Cement Households 150 100 50 0 11
  12. 12. To sum up … There are clear differences in effective carbon prices: within a given sector, across the countries covered; across the different sectors, within each country; across the different instrument types, across all the countries covered. The study demonstrates clearly that taxes and emission trading systems are much more cost-effective than other policy instruments that countries apply. Many of the other instruments countries apply to limit GHG emissions (feed-in tariffs and other subsidies to renewables, various subsidies for low-emission product alternatives, etc.) are very costly per tonne of CO2eq abated. It will be very difficult to reach more ambitious, and urgently needed, abatement objectives if countries continue to focus their efforts on such inefficient instruments. 12
  13. 13. Further information 13