The document discusses international coordination on carbon pricing and its economic and environmental benefits. It summarizes findings from 46 studies on the benefits of different forms of international cooperation on carbon pricing. International coordination can significantly reduce mitigation costs through measures like linking carbon markets, extending carbon coverage to other sectors and gases, and coordinating fossil fuel subsidy reform. However, benefits are distributed asymmetrically across countries. International cooperation also yields environmental benefits like reduced emissions and less carbon leakage between countries with different carbon prices.

1. ECONOMIC AND ENVIRONMENTAL
BENEFITS FROM INTERNATIONAL
CO-ORDINATION ON CARBON
PRICING
Daniel Nachtigall (Daniel.NACHTIGALL@oecd.org)
Jane Ellis (Jane.ELLIS@oecd.org)
Climate Water and Biodiversity Division
Environment Directorate, OECD
Carbon Market Platform
Strategic Dialogue
04/05 November 2020

2. 2
Outline
Context and Background
Main results
Questions for discussion

3. • Carbon pricing key element of climate strategy, but price
levels are often very low
• International co-ordination on carbon pricing can enhance
mitigation ambition and bring mutual benefits
• Better understanding of benefits needed to make better
informed decisions
• Review of 46 studies published in the last 10+ years on
1. Quantification of economic and environmental benefits of
different forms of international co-operation
2. Distribution of benefits across countries
3
Context

4. International co-
ordination
Economic benefits
Distributed
asymmetrically
Environmental
benefits
4
Key takeaways
Reduces emissions
Reduces carbon leakage
Raises ambition
Saves mitigation costs

5. 5
Economic models and caveats
Source: Based on Carbonbrief (2018)
Key caveats
• Results differ
substantially
across models
• Climate damage
not (sufficiently)
addressed
• Political, practical,
legal challenges to
co-ordination

6. 6
Outline
Context and Background
Main results
Questions for discussion

7. 7
International harmonisation of carbon pricing
Shadow carbon price to reach current NDCs by region for different models

8. 8
Benefits from (sub)-global carbon markets
Economic benefits
• Substantial reduction of mitigation costs
• Heterogeneity across countries
• Lower for sub-global co-operation
Environmental benefits
• Reinvesting saved mitigation costs
could enhance ambition
• Co-operation would eliminate/reduce
carbon leakage
Caveat:
• Static versus dynamic efficiency
Reduction
Increase
Welfare effects of (sub)-global carbon markets

9. 9
Extending coverage of carbon pricing
Coverage of other
GHGs
• Would reduce
mitigation costs
by 25-42%
• Would improve
welfare of all
countries
• Would reduce
carbon leakage
Sectoral coverage
• Would reduce
mitigation costs
by 2-60%
• Would reduce
(inter-sectoral)
carbon leakage
Caveats
• Pre-existing
energy taxes
(e.g. road)
• Risk of
convergence to
price level of
sector with
highest barrier

10. 10
Multilateral fossil fuel subsidy reform (FFSR)
• Global FFSR would reduce
CO2 emissions, but would
lead to carbon leakage
• Global FFSR would
increase global welfare, but
effect varies between
countries
• Global FFSR would have
different implications than
unilateral FFSR
• Sub-global FFSR would
have smaller effects
Effects of global phase out of FFS

11. Mechanisms for
leakage
• Carbon price
differential between
regions
• 1. Industry channel
• 2. Energy price
channel
Factors
• Size of the coalition
• Coverage of GHGs
• Stringency of
mitigation target
• Model choice and
assumptions
Policies
• Increase international
co-operation
• Expand coverage
(sectors, GHG)
• Harmonise pricing
within coalition
• Increase flexibility
(e.g. offset trading)
• Anti-leakage
instruments (free
allowances, BCA)
11
International co-ordination on mitigating carbon leakage

12. 12
Outline
Context and Background
Main results
Questions for discussion

13. • Besides a complete linking of emissions trading schemes,
what are the different options for partial co-ordination or
harmonisation between different carbon pricing schemes?
• How can jurisdictions maximise the overall benefits from co-
operation on carbon pricing, while minimising or addressing
any adverse impacts on some domestic actors?
• What are the main considerations that a jurisdiction should
consider when seeking out partnerships for carbon pricing co-
operation?
13
Questions for discussion

14. Thank you
14
Daniel.Nachtigall@oecd.org
Jane.Ellis@oecd.org