PARIS (Reuters) - Ninety percent of carbon dioxide emissions by major advanced economies is not priced at a level that truly reflects the actual cost to the climate, the Organization for Economic Cooperation and Development (OECD) said in a report on Monday.
A price on carbon is considered an effective tool in curbing greenhouse gases by making polluters pay for emissions blamed for causing global warming. But worldwide, carbon prices are very low, or even zero.
“New evidence presented...shows that 90 percent of carbon emissions are not priced at a level reflecting even a conservative estimate of their climate cost,” the Paris-based OECD said in its first comprehensive analysis of the extent to which countries use carbon prices to tackle emissions.
The OECD said 30 euros per tonne of emissions represented a conservative minimum estimate of the damage that results from emitting one tonne of carbon dioxide.
The OECD’s analysis measured effective carbon rates - the price of carbon emissions calculated from taxes and emissions trading systems - in 41 OECD and G20 countries, which together account for 80 percent of all energy use and carbon emissions.
Effective carbon rates are particularly low in sectors outside road transport, with 70 percent of emissions not priced at all and only 4 percent of emissions subject to an effective carbon rate above 30 euros ($33.66), the report said.
Carbon prices under the European Emissions Trading System, which charges more than 11,000 companies for each tonne of carbon dioxide they emit, have fallen to about 4 euros a tonne from about 30 euros in 2008 because of surplus permits.
“Only 10 percent of emissions are priced at or above 30 euros per tonne of CO2, and most of these emissions are from road transport energy use,” the OECD said.
“Very low rates of carbon prices are found outside road transport, where 85 percent of total emissions originate.”
It said 60 percent of emissions in the energy sector in the 41 countries are not priced, either under emissions trading systems, carbon taxes, or specific taxes.
“Higher carbon prices in these sectors will be an essential ingredient to an effective policy response,” it said.
In the landmark agreement reached by nearly 200 countries in Paris in December 2015, world leaders recognized the important role of providing incentives to cut emissions using various tools including carbon pricing.
The OECD said an effective price on carbon is essential if the Paris Agreement target of curbing emission, limiting global warming and decarbonising the global economy by the second half of the century is to be reached.
“Pricing carbon can lead to substitution towards less carbon-intensive forms of energy and to lower demand for energy overall.”
“Carbon pricing can be strengthened through both taxes and emissions trading... even modest action taken by all countries can translate into strong progress,” it said.
Editing by Susan Thomas