This document summarizes a presentation on the relationship between carbon pricing and competitiveness. It finds that: 1) The extent of carbon pricing has increased in OECD/G20 countries, though the overall carbon price varies between systems and the price levied on most industry is low or zero. 2) Empirical evidence shows that carbon pricing has had limited negative effects on competitiveness aspects like net imports, as measured by proxies like trade flows and employment. 3) Carbon pricing can have both positive and negative second- and third-order effects on competitiveness, but effects are mixed and complex to assess due to interactions between different sectors and firms. To date, impacts on competitiveness have been limited because carbon

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