Session 6 presentation from the 4th Strategic Dialogue of the Carbon Market, 15-16 May 2019

1. SESSION 6: COMPETITIVENESS
AND CARBON PRICING
Carbon pricing and competitiveness: are they at odds?
Jane Ellis
Senior Manager – Climate
Climate, Biodiversity and Water Division
4th Strategic Dialogue
Carbon Market Platform
Paris, 15-16 May 2019

2. • Extent of carbon pricing in OECD/G20
• Effect of C pricing on different aspects of
competitiveness
• Empirical evidence
• Summary
2
Presentation outline

3. • Extent of C pricing has
increased
• Overall C price varies
over time and between
systems, with
significant recent
increases in large ETS
• C price levied on
industry is low or zero
for most industry in
OECD/G20
3
Low proportion of industrial CO2
emissions priced
Source: OECD, 2018 – Effective Carbon Rates

4. • What: ability to maintain market share,
profitability
• Different aspects
- Between different materials/
sectors
- Within a specific sector, nationally
or internationally
• How to evaluate: proxies, e.g. impact on net
imports, turnover, employment, investments,
profits, innovation …
• Concern that C price will negatively affect
international competitiveness 4
What is competitiveness and how to
measure it?
Components for car
gears: aluminium,
iron, plastic etc.

5. 5
Potential impacts of competitiveness -
theory
= production costs
Country B
Total
costs
Country A
= other costs
(e.g. transport)
= C price
Trade
• Differences in costs
caused by
environmental
regulation can vary
widely

6. 6
Competitiveness effects – practice: effects
mainly not significant on net imports
Country B
Total
costs
Country A
Theoretical increase
Actual increase
Impact on net imports
= negative effects
= insignificant effects
= positive effects

7. • Possible effects:
– Cost pass-through, modifying outputs etc.
– Ability of different sectors/firms to adapt to
2nd-order effects varies widely
– EU ETS uses specific criteria to calculate free
allocation
– Technological outcomes/innovation
• Complex to assess because of interactions
7
Other competitiveness effects - theory

8. 8
Second- and third- order
competitiveness effects - practice
= negative
= insignificant
= positive
= mixed
effects

9. • … in part because C prices levied to date on
industry have been low
• Free allocation of allowances (or C tax
exemptions) likely to continue to be needed
in some sectors
• Establishing C pricing schemes and
smoothing out price variability will help to
provide a clear policy signal
• C pricing has a positive effect on innovation;
effects on long-run competitiveness are
inconclusive
9
Conclusions – limited effects to date of
carbon pricing on competitiveness

10. THANK YOU!
10
Contact: JANE.ELLIS@OECD.ORG
DANIEL.NACHTIGALL@OECD.ORG
OECD work on carbon pricing
http://www.oecd.org/tax/tax-policy/tax-and-
environment.htm
http://www.oecd.org/site/tadffss/
https://www.oecd.org/env/tools-evaluation/FASTER-
carbon-pricing.pdf